Timms v Commonwealth Bank of Australia

The sender concluded "please phone if we may be of further assistance" . 23 On 7 or 8 November 1991, Mr Hart received from Mr Wheeler a 16 page facsimile containing balance sheets for the business. The profit figures shown in these documents were the same as the profit figures in the management accounts (although the 1991 figure may have been different). 24 Mr Hart also had in his possession a document called the 'Artrona document' which contained an overview of the business and which had been prepared and forwarded to Mr Hart by the appellants. Mr Timms acknowledged that the sales figures in the Artrona document were the same as in the management accounts. He denied, however, that he had either the management accounts or the statutory accounts in his possession. He said that he obtained the sales figures in the Artrona document either from Mr Walker or from Mr Rosenfeld, but that the profit figure, which was different from that in the management accounts, was derived from the Golosky document. 25 On about 7 November, the appellants had a meeting with Mr Hart, at which, according to the appellants, the following conversation occurred: "[Mr Hart]: 'The reports from Barrack Street say that it's a very good and profitable business. It is well established. You are getting a good buy. The bank is satisfied that it's a good business and you won't have any trouble getting the money for it'. [Mr Timms] said: 'What's your opinion as to the viability of the business?' Mr Hart replied: 'The business is viable and profitable'. [Mr Timms] asked: 'What does Barrack Street branch say about the profitability of the business? Do you know if they are experiencing any financial or other difficulties?'. Mr Hart replied: 'The business appears to be profitable. They are not having any current difficulties'. [Mrs Timms] said: 'Are you quite sure, because this is very important to us because our house is on the line. I don't want to jeopardise our home'. Mr Hart repeated: 'Don't worry, it is a very good and profitable business. In any case, you won't lose your home because the bank takes a dim view of selling family homes'. Mrs Timms said: 'If there's any doubt please tell us because I don't want to lose our home. It's what we have worked for all our lives. If there is the slightest doubt we won't proceed'. Mr Hart ended the conversation by saying: 'The bank would not advise you to buy the business if we didn't know it to be a good business'." 26 The Bank's procedures at that time required that loans submitted to a branch had to be approved at the "Zone level". Five Dock was part of the Western Zone for this purpose. 27 Shortly after this meeting, on 11 November, Mr Hart prepared a loan application and submitted it to Western Zone. 28 On 13 November 1991 the Central Zone of the Bank forwarded to Western Zone a copy of a further report dated 20 September 1991 prepared by Deloittes in respect of the affairs of Artrona Pty Limited (the second Deloitte's report). That report was considered by the Bank in assessing the loan application. The Bank officer responsible for assessing the application reported that given the material in both Deloitte's reports: "It is obvious that the Group is in dire straits with their only avenue being sale/partial sale of the business." 29 The appellants' loan application was rejected. The Five Dock Branch was notified of the refusal on 26 November by memo dated 22 November. A letter in relevantly similar terms was also addressed to the appellants. It stated: "As discussed, we hold some reservations with the proposal as submitted. It is obvious that the Group requires an immediate injection of capital from an equity partner, not borrowed capital, to replace liabilities which have, to date, been interest free. … the Bank would prefer to allow the business to pass. However, without commitment, the Bank would be prepared to consider the request further provided …"

There were then set out five conditions including "presentation of audited financial accounts or investigation of the proposal by [Commonwealth Development Bank] Investigating Accountant at applicants' cost" . 30 The appellants had a meeting with Mr Walker and Mr Hart at the Five Dock Branch on 26 November. The meeting was called for the purpose of explaining to the appellants the reasons for the rejection of the loan application. I will deal with the discussions had on that occasion later in these reasons. The meeting concluded on the basis that the appellants would send a letter to the Bank seeking to satisfy the conditions referred to in the Bank's letter of 26 November rejecting their loan application. The appellants did so by letter dated 28 November. That letter did not directly respond to the requirements of the Zone's letter of 26 November. Rather, it stated: "The second point in your letter covers the issue of the provision of even more financial data than has already been provided by us or is readily available to the Bank. We are advised by the vendor that in 1990 the Bank commissioned a firm of chartered accountants to undertake a report on the viability of the business and that in 1989 an internal audit was performed by an Investigating Accountant from the Development Bank. We fail to see what more useful information we can add to the Bank's already not inconsiderable amount of financial data on the affairs of the companies in question. … We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions . We therefore request a meeting with the area management responsible for the decision so that we may speedily resolve this matter once and for all." (emphasis added) 31 Mr Hart prepared a further loan application and submitted it to Western Zone, although there was no meeting with the area manager as requested in the letter. 32 On 10 December 1991 the Bank approved finance facilities in a total amount of $950,000 on certain conditions, including that Rosenfelds certify that the financial accounts for the companies: "… provide[d] a true and accurate account of the Group's performance." 33 On 16 December 1991, contracts were exchanged for the purchase of the business for $297,000 plus stock at valuation. The purchase settled on 6 March 1992. 34 The business did not prosper and ceased to trade on 28 January 1994. 35 The appellant commenced proceedings against the Bank and Rosenfelds in 1994. The proceedings were heard in March and April 2001 and determined in July 2001. As at the date of judgment, the Bank claimed it was owed in excess of $5 million for which the principal security was the appellants' home. 36 The trial judge entered verdicts for the Bank and Rosenfelds against which this appeal is brought. Even if the appeal is unsuccessful, the appellants dispute the computation of the amount claimed by the Bank.

Claim Against the Bank 37 The claim against the Bank, which was brought under s 52 of the Trade Practices Act 1974 (Cth) (TPA) and in misrepresentation, was, at trial, put on three different bases. 38 First, the appellants submitted that in meetings with the Bank in November 1991, officers from the Bank represented that the business was "good", "viable" and "profitable". It was alleged that the representation was misleading and deceptive in contravention of s 52 of the TPA and also amounted to a negligent misrepresentation. During the course of the appeal this claim was referred to as the 'good business claim'. 39 Secondly, it was alleged that, in response to the letter of 28 November 1991, written by the appellants to the Bank after the Bank's refusal of their loan application, the Bank failed to advise the appellants that it did not consider that the business was sound, or alternatively, that they should not make any assumption as to the Bank's view as to the viability of the business. This claim was referred to as the 'November letter claim' and was based upon misleading and deceptive conduct by silence. 40 Thirdly, the appellants alleged that the Bank was negligent in failing to obtain a proper certification from the accountants as required by the Bank's loan approval letter of 10 December 1991. Alternatively, it was alleged that in failing to advise the appellants that a proper certification had not been obtained, it engaged in conduct that was misleading and deceptive. This claim was referred to as the 'certification claim'. 41 In entering a verdict for the Bank, his Honour dealt only with the good business claim. His determination of this claim in favour of the Bank depended essentially upon his rejection of the appellants' evidence. 42 The appellants allege that his Honour erred in three essential respects in so finding. First, it was submitted that in respect of the good business claim, there was independent evidence to support the appellants' claims, so that the matter should not have been determined solely or principally on the credibility of the appellants. The reference to 'independent evidence' is a reference to other evidence which the appellants say corroborates their evidence, such as the oral evidence of Mr Walker to which I shall refer shortly and to which the trial judge made no reference. Secondly, it was submitted that one of his Honour's important credibility findings was based on a fundamental factual error, and that there were other errors, which, although not of major significance if taken singly, taken cumulatively further undermined his Honour's credibility findings. Thirdly, the three bases upon which the appellants had formulated their claims were independent, but his Honour failed to deal with the November letter claim and the certification claim. It was submitted that on the last of these bases alone the appeal should be upheld.

Mr Walker's Admission 43 The appellants claimed that the Bank, through its officers Mr Walker and Mr Hart, had represented to them that the business was "good", "profitable" and "viable", and that the representation was false and misleading and that they had relied upon the representation in making their decision to enter into the contract. The appellants submitted that in order to make any reasonable assessment about the business as at October/November 1991, it would be necessary to ascertain the then current financial position of the business. The appellants' case, as argued on the appeal, was that at their meeting with Mr Walker and Mr Hart on 26 November 1991, Mr Walker informed the appellants that he thought that the business was good, viable and profitable, and did so without qualification. It was submitted that the making of such an unqualified statement was careless, given the information the Bank had about the state of the business 6 months earlier. 44 Mr Hart denied that he had ever made any such representation or that Mr Walker had said any such thing in his presence. He also denied other aspects of the appellants' evidence. He said, however, that he was aware that the business was experiencing cash flow problems which he believed were due to excessive personal drawings by the Wheelers. 45 Mr Walker in his affidavit evidence also denied making any alleged representations. His Honour's reference to Mr Walker's evidence was that he (para 62): "… also denied he had ever given any advice to the [appellants] which might suggest that he held the opinion that Artrona was a good or viable business."

There was no other statement or finding by his Honour to diminish or alter this stated effect of Mr Walker's evidence. It will be necessary to return to Mr Walker's evidence as it is pivotal to the challenge the appellants make to his Honour's findings against them. 46 His Honour noted (at para 64) that the basal problem in the instant case was to resolve the conflict of facts. He concluded at para 107: "I cannot accept Mr or Mrs Timms as giving an accurate account of what was said to the Bank back in 1991." 47 This finding was based essentially on his Honour's observation of the appellants under cross-examination (the demeanour finding) as well as his concern with the manner in which their affidavit evidence had been prepared. 48 His Honour also held that the appellants had not relied on any representation made by the Bank in their decision to purchase the business so that the claim would fail even if they had satisfied the Court that such representation had been made. 49 Senior counsel for the appellants submitted that his Honour's determination of the appellants' case was based upon a fundamental misconception of the evidence which then infected his assessment of the appellants' evidence in at least three ways. 50 First, he disbelieved the appellants and thus impliedly found that no representation had been made, notwithstanding that Mr Walker had conceded in cross-examination that, in the meeting of 26 November, he had told the appellants that the business was good. 51 Secondly, his Honour had wrongly assessed the appellants' evidence on the basis that their claim that Mr Walker and Mr Hart had made the representations was a matter of recent invention. It was submitted this finding was erroneous as well as being in conflict with Mr Walker's concession that he had stated that the business was good. 52 Thirdly, had his Honour appreciated the full effect of Mr Walker's evidence he would not, and on one view could not, have reached the same favourable view of Mr Hart's evidence as he did. 53 It followed that on any of the above three scenarios, the appellants case was misjudged. 54 As I have said, Mr Walker's evidence is pivotal to these three challenges. I have already referred to the essential nature of his evidence in chief, namely that he denied making the representations alleged. However, in his cross-examination, Mr Walker said that he considered that the rejection of the loan application by the Zone was "a disappointing result" and both he and Mr Hart were of the view that they should seek to re-submit the application, but that extra information was required before they could do so. He said that the reason they were looking to re-submit was because he considered that "it was a good deal … both for the Bank and for the [appellants]". He said that he thought that the business was viable and profitable and that the Artrona companies had a good business. Most significantly, and I will deal with the evidence shortly, he told the appellants it was a good business in this meeting. 55 Mr Walker also conceded that an examination of the material provided by Barrack Street, which included the notation that if personal debts were added back in, the position was "line ball", that would not have indicated that the companies were, as at the date of the report, "extremely sound". Mr Walker initially stated that he would still consider the companies "viable", but when the question was repeated to him he agreed that it was "questionable" as to whether the companies were "extremely sound". Likewise, he agreed that it was questionable whether the business was extremely sound. This line of questioning was pressed and it was again put to him that that material would not have indicated that the business was "necessarily a good business". Mr Walker responded: "On the information available I thought this was a viable business and capable of repaying a debt." 56 However, under further cross-examination he again indicated that the statement by the Barrack Street Branch that the business was "line ball" would not have indicated that the business was "a good business". 57 The following cross-examination then ensued: "Q … You will have read [in the internal report] that the outlook for continued sales at the level identified in the report was central to the survival of the group. Do you see that? A Yes. * Q Before you told the Timms on 26 November it was a good business they were buying what steps did you take, if any, to ascertain whether sales had continued at an average level of $297,000? A I can't recall. Q None is the correct answer, isn't it? A I can't remember. Q So far as your recollection enables you to say the answer is none, isn't that correct? A Yes." 58 Likewise, Mr Walker agreed that at no time prior to 26 November did he take any steps or cause any steps to be taken to ascertain whether rationalisation or cost cutting measures, as recommended in the first Deloitte's report, had been implemented by Wheeler or had taken effect. 59 Mr Walker agreed that from the material in the first Deloitte's report, the fact that there had only been a small decrease in group tax liability was another matter in respect of which questions would be raised as to the profitability, viability and soundness of the companies. He was then asked: "Q And on a recommendation of a firm like Deloittes, undertaking an investigation for a bank would be likely to have the view that the business conducted by these companies was not a good business, do you agree? A Yes." 60 Mr Walker was also cross-examined about the material in the second Deloitte's report. Although he had not seen it, he agreed that if he had read that report it would have caused him apprehension about the soundness of the company, as its cash flow predictions had still not been met. Likewise, the contents of the second report would have caused him to be concerned as to the viability and profitability of the business. Mr Walker conceded that would be the case and that "you would make further enquiries". 61 In re-examination, senior counsel for the Bank referred Mr Walker to the question marked with an asterix in para 56 and asked: "Q … I am going to ask you, do you actually recall saying something to that effect to the Timms? … A In general terms, yes." 62 His Honour had found that no representation had been made. This finding is wrong if Mr Walker's concession is accepted. His Honour did not have to accept Mr Walker's evidence, but, because its effect was to prove an essential ingredient of the appellants' claim, he would have had to have given reasons why he did not accept it. It must be said that it is difficult to see any reason why the admission would not be accepted. Certainly none was suggested by senior counsel for the Bank. However, his Honour made no mention of this evidence and it is most likely that he overlooked it. That oversight however, amounted to a critical error in his Honour's judgment. 63 It also appears from Mr Walker's evidence, and is evident in any event from an examination of the two Deloitte's reports and the May 1991 internal memorandum, that a statement that the business was good was questionable as an accurate statement of its viability and profitability. It is not necessary for this Court to determine whether that is so. It is sufficient to note that there was material upon which it could be found that a representation to the effect made by Mr Walker was misleading or deceptive or amounted to a misrepresentation.

Recent Invention 64 The second basis upon which his Honour's credibility finding is challenged is that this Honour erroneously held that the alleged representations were a matter of recent invention by the appellants. 65 His Honour found at para 109: "[T]here is no occurrence of the phrase 'viable and profitable' before the [appellants] see the Bank's discovered documents. At T177.7 the phrase comes up in the Bank's documents and thereafter it is picked up." 66 His Honour concluded at para 110: "The material generally suggests to me that the most likely scenario is that the Timms' relied on their own enquiries and after the venture failed, they reconstructed events to lay the blame at the Bank's feet." 67 His Honour's finding at para 109 is clearly an error. The original Statement of Claim alleged that the representation included a representation that the business was viable and profitable. Senior counsel for the Bank sought to respond to this clear error by pointing out in that the representation alleged in the original Statement of Claim was confined to statements made by Mr Hart in the early November meeting. That is correct. Indeed, the allegations in the Amended Statement of Claim were also confined to misrepresentations made by Mr Hart in that meeting. However, it appears from the manner in which his Honour dealt with the case that the appellants' case was not so confined at the hearing or by his Honour. In any event, the fact that the pleading relates to a representation made by Mr Hart in early November does not detract from the fact that his Honour's finding is wrong. The appellants pleaded at the inception of their case that there was a representation that the business was "good", "viable" and "profitable". It is also significant that the bank did not cross-examine the appellants on the basis that their allegations were matters of recent invention. Further, if accepted, Mr Walker's concession in cross examination that he had said in the meeting of 26 November words to the effect that the business was good also puts paid to any suggestion of recent invention. 68 The way in which this issue seems to have arisen at trial was because of the similarity between the appellants' affidavits - suggesting complicity as well as, in his Honour's view, recent invention. The appellants sought to meet this by calling their solicitor, Mr Boscovitz to give evidence as to the preparation of the affidavits. Mr Boscovitz's evidence was that he had interviewed the appellants separately. He said however, that if Mrs Timms had given a version of events which was substantially the same as Mr Timms, he "simply left the wording from Mr Timms' draft unchanged". He said he "[o]therwise … modified the draft as [he] proceeded". 69 His Honour observed, at para 72, that the process used by the solicitor was not designed to enable the court to see the best recollection of the Timms as to what had occurred. He continued at para 73: "However, the solicitor's continued insistence during cross-examination that the departures from the actual words used by Mrs Timms had been minimal meant that if accepted, the close similarity to the two accounts of conversations had not been adequately explained."

And at 74: "[t]he account given by the solicitor as to how the affidavits were taken also conflicts with the accounts given by [the appellants]." 70 Whilst senior counsel for the appellants' did not seek to defend the solicitor's method of preparing the affidavits, which, it must be said was indefensible, he submitted that no such conflict as found by his Honour can be found in the evidence. An examination of the evidence to which senior counsel for the appellant referred the Court clearly supports this submission and it was not countered by the respondents. It follows that the appellants have established that this was another credit based finding by his Honour which was not well based. 71 His Honour also considered that Mr Boskovitz' file notes threw some doubt upon the appellants' version of events. He noted that in particular there was no note of Mrs Timms having given instructions in her initial instructions to Mr Boskovitz of the alleged representations. The notes to which his Honour referred had been produced by Mr Boskovitz pursuant to a Notice to Produce served during the course of the trial. Senior counsel for the appellant submitted that it was not clear whether the Notice required the production of notes of his initial instructions as opposed to his notes relating to the preparation of the witness statements in 1999. Because of that uncertainty, it could not be suggested that he had no note of the alleged representation having been referred to in his initial consultations with the appellants. Nor was he cross examined to the effect that there had been no such complaint made at the initial consultations. The Court was not taken to a copy of the Notice to Produce or the solicitor's notes so that it is not possible to further comment on the submission. However, for the reasons given in the preceding paragraph, the appellants have already satisfied me that his Honour erred in his finding of recent invention.

Mr Hart's Evidence 72 The appellants also challenge his Honour's acceptance of Mr Hart's evidence that he did not represent to the appellants that the business was good, profitable and viable. 73 Mr Hart conceded in cross-examination that he had obtained information from Barrack Street because he was attempting to collate information to be able to put forward a proposal in conjunction with information coming from other sources. In cross-examination, Mr Hart said that on the information that had been provided to the Bank "it did appear that the business was viable in that it generated sufficient income for serviceability for what was required to purchase the business"; "that there were profits that were being generated which were factored into the serviceability equation"; that he had recommended that the loan be approved; and that he had formed the view that the business was trading profitably. 74 The appellants submitted that the effect of those answers was that they had established in cross-examination that Mr Hart's state of mind was consistent with the representation the appellants alleged he made. 75 The argument was then further developed. Senior counsel for the appellant acknowledged that Mr Hart continued to deny in cross-examination that he had made any statement to the effect of the alleged misrepresentations to the appellants. However, when challenged in cross-examination that he had agreed with the Timms that it was a good business, he did not give a direct denial. Rather, his answer was "no, I don't agree with in those words, no". Likewise, when he was challenged that he told them that he thought the business was profitable, he said "I don't recall using that terminology to them". It was said that Mr Hart's precise words were important, because he had been careful in his evidence to draw a distinction between matters he denied and matters he did not remember. It followed, on this submission, that the overall effect of Mr Hart's evidence was that he did not deny making the representations alleged. His Honour overlooked this. 76 Further, at para 61 his Honour records that Mr Hart denied that Mr Walker had ever said in his evidence "we know it is a good business". That is not strictly accurate. In his affidavit Mr Hart did deny that such a conversation had taken place. However, in cross-examination he said that he could not recollect that there had been a conversation to that effect. This has added significance in that Mr Hart was called after Mr Walker had given his evidence and the Bank did not seek to lead any evidence from Mr Hart as to whether he recalled Mr Walker saying anything to that effect. 77 Senior counsel for the appellants submitted that had his Honour not made the errors in respect of Mr Walker's evidence and his finding of recent invention and had he not wrongly assessed, in the manner explained in para 69 above, the conflict between the solicitor Mr Boscovitz and the appellants as to the preparation of the affidavits, he may have assessed the appellants' case differently and may have reached a different conclusion in respect of Mr Hart's evidence. 78 Senior counsel for the Bank pointed out, however, that the starting point in this case was the findings of fact made by the trial judge which, unless set aside upon proper application of the principles relating to the reversal of a trial judge's findings of fact, those findings stood and were fatal to the appeal.

Other Credit Findings 79 The appellants attack other credit findings made by his Honour. It is not necessary to deal with all of them. However, before mentioning the more obvious ones relied upon by the appellants, it is convenient to refer to his Honour's overall credit finding which is to be found in para 107: "In the end it really comes down to a question of acceptance or rejection of evidence. I have set out extensively in these reasons references to various parts of the evidence. I cannot accept Mr or Mrs Timms as giving an accurate account of what was said to the Bank back in 1991. They took no notes, Mr Timms at least made errors in his affidavits which appear to have been corrected after he got discovery of the Bank's documents, the method of taking the affidavits of Mr and Mrs Timms has caused considerable problems, but these problems would have been caused in any event because Mr and Mrs Timms continue to assert that they just did not put their heads together at all, yet they have produced identical words of conversations which took place eight years earlier. 80 This finding was based significantly upon demeanour. See, for example, para 65 where he held "Mr Timms was not an impressive witness"; and para 76 where his Honour observed that Mr Timms was "thoroughly cross-examined for almost three days … [h]e did not fare particularly well under cross-examination"; "under the cross-examination of Mr Forster SC, Mr Timms did not concede that he must have had figures dealing with the accounts of the companies in his possession in the last quarter of 1991". He subsequently found this evidence to be incredible. 81 An example of an adverse credit finding referred to by senior counsel for the appellants is at para 77, where his Honour observed: "However, in answers to questions Mr Timms said over and over again a statement similar to [the following]: 'Q You were certainly very keen by that time (26 November 1991) to buy the business, were you not? A Yes, because we had our advisor recommend the business and we had the bank also tell us it was a good, viable business. Q You keep coming back to this, don't you? A There were two things that were important to us.'" 82 Senior counsel for the appellants submitted that a review of the transcript did not warrant his Honour's observation. Rather, it was submitted that the cross-examiner kept reverting to the question and Mr Timms' answers were only responsive to that cross-examination. This appears to be correct and was not controverted by the respondents in their submissions. 83 Another example is at para 79, where his Honour said: "As to the letter of 28 November, Mr Timms agreed that the letter was to put some pressure on the Bank and that he hadn't really considered seeking funds elsewhere ." (emphasis added) 84 His Honour then quoted the following passage of cross-examination: "Q I want to suggest to you, Mr Timms, that so far as your intentions were concerned nothing was going to stand between you and this business and certainly not the Commonwealth Bank …?

A No, that is not the case." 85 It is difficult to see how this cross-examination supported his Honour's finding in paragraph 79, especially in the bolded portion. Nor did his Honour refer to Mr Timms' evidence in cross-examination that he and his wife had not really considered seeking funds elsewhere, and that he did not know what they would have done if the Commonwealth Bank had not approved the application. It is difficult to know whether his Honour overlooked that evidence or did not accept it. 86 Later, at para 115, when dealing with the claim against Rosenfelds, his Honour found: "[The appellants'] version of what was said to Mr Rosenfeld is clearly inaccurate. As I had mentioned earlier, it is incredible for Mr Timms to say that he never had either management or statutory accounts and cross-examination showed clearly that the figures that he was using must have come from one or other of those accounts." 87 This finding is problematical in that it makes no reference to the fact that some of the figures in the Artrona document came from the Golosky documents. Leaving that aside, the finding is a purely credit based finding. His Honour did not have to accept Mr Timms' explanation that he had obtained some of the information directly from either Mr Wheeler or Mr Rosenfeld. But his adverse finding has to be assessed in the light of his wholesale, and it would appear, in some cases at least, unwarranted rejection of Mr Timms' evidence. 88 There were other credit based findings of his Honour which the appellants submitted could be proved to be incorrect or not well based or not logical. For example, at para 81 his Honour said: "On a matter going more to damages than anything else, Mr Timms was asked how it was that he was going to devote himself to the Artrona business and yet still be able to earn $100,000 a year by being a consultant in the computer industry. Again, no satisfactory answer was ever given." 89 This finding was made as the last finding in a series of references by his Honour to Mr Timms' evidence. It involves a high degree of scepticism in respect of that evidence. The appellants submit that the findings in the earlier paragraphs are questionable, erroneous or do not involve any adverse credit issue. For example, as already discussed, the finding in paragraph 76 (and the associated paragraph 115) is at least partially wrong or omits material which bears upon the accuracy of the finding. The adverse finding in paragraph 77 is not maintainable. His Honour made no adverse findings in paragraphs 78 and 79 and in paragraph 80 his Honour accepted certain aspects of Mr Timms' evidence as credible. Then, in making the finding in para 81, his Honour did not deal in any detail with the evidence touching upon Mr Timms' intentions in relation to working in the business. As a result, his Honour seems to fail to take into account the fact that Mr Timms was going to work in the business two to three days a week, the Wheelers were going to remain working in the business full time and Mrs Timms was also going to work full time. It was expected that this would enable Mr Timms to maintain his consultancy practice in the computer industry, at least in the initial stages of the appellants' involvement in the business. It is difficult to see how this could not be categorised as a satisfactory explanation. As his Honour did not refer to these matters it is not clear whether he overlooked them or not. However, the appellants' point to his Honour's conclusion in paragraph 81 as another example of his failure to give their evidence due or appropriate consideration. 90 As I have already stated, his Honour's determination of the appellants' case was based solely on his credit findings. An appellate court faces considerable restraint in interfering with the credit findings of a trial judge: see Abalos v Australian Postal Commission (1990) 171 CLR 167 at 178-179; Devries v Australian National Railways Commission (1993) 177 CLR 472; State Rail Authority of New South Wales v Earthline Constructions Pty Limited (in liq) (1999) 160 ALR 588 (to which I will refer generally as the Abalos principle). 91 In Devries, Brennan, Gaudron and McHugh JJ said at 479: "More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against - even strongly against - that finding of fact ( Brunskill (1985) 59 ALJR 842; 62 ALR 53; Jones v Hyde (1989) 63 ALJR 349; 85 ALR 23; Abalos v Australian Postal Commission (1990) 171 CLR 167). If the trial judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge 'has failed to use or has palpably misused his advantage' ( SS Hontestroom v SS Sagaporack [1927] AC 37 at 47) or has acted on evidence which was 'inconsistent with the facts incontrovertibly established by the evidence' or which was 'glaringly improbable' ( Brunskill (1985) 59 ALJR at 844; 62 ALR at 57)." 92 Deane and Dawson JJ pointed out at 480, however, that the appellate court's duty to itself weigh the evidence, draw inferences and reach conclusions was not displaced merely by a demeanour finding and could not be explained away by "any short exhaustive formula". More relevantly for present purposes, they had earlier observed at 479-480: "An appellate court which is entrusted with jurisdiction to entertain an appeal by way of rehearing from the decision of a trial judge on questions of fact must set aside a challenged finding of fact made by the trial judge which is shown to be wrong. When such a finding is wholly or partly based on the trial judge's assessment of the trustworthiness of witnesses who have given oral testimony, allowance must be made for the advantage which the trial judge has enjoyed in seeing and hearing the witnesses give their evidence. The 'value and importance' of that advantage 'will vary according to the class of case, and, … [the circumstances of] the individual case' (Watt (or Thomas) v Thomas [1947] AC 484 at 488 per Lord Thankerton). If the challenged finding is affected by identified error of principle or demonstrated mistake or misapprehension about relevant facts, the advantage may, depending on the circumstances, be of little significance or even irrelevant."

See also Rosenberg v Percival (2001) 205 CLR 434, especially at 448. 93 In my opinion, the appellants have demonstrated appellable error in the sense required by the Abalos principle. His Honour overlooked, ignored or misapprehended the evidence of Mr Walker. In particular, he made a finding, or at least recorded, that Mr Walker denied he had made the alleged misrepresentation but overlooked his admission in cross-examination, reaffirmed in re-examination, that he had made some such representation. He made a finding of recent invention post discovery of documents, notwithstanding that the allegation of misrepresentation had been made in the Statement of Claim. As will appear later in these reasons, he arguably made contradictory credit findings as between Mr Hart and Mr Rosenfeld in relation to the certification claim. He accepted as a denial the evidence of Mr Hart that he had not made certain representations, when his evidence, properly understood was that he did not remember making such statements. Finally, his Honour failed to assess Mr Hart's evidence against his admission that he believed that the business was good, viable and profitable. 94 There were other examples of adverse credit findings made by his Honour which were not justified, or which were inaccurate. Senior counsel for the appellant accepted that many of the points he made as to his Honour's findings were small and/or not decisive in themselves. He relied upon them, however, both as to their cumulative effect and also as illustrative of the fact that his Honour had failed to correctly assess the overall basis of the appellants' claim. 95 In my opinion, notwithstanding that his Honour's credit findings were, essentially, demeanour based the various matters which I have discussed point overwhelmingly to the conclusion that this is a case where his Honour has "failed to use … his advantage" as a trial judge. Accordingly, his credit findings cannot stand.

Reliance 96 At paras 108 to 110 of the judgment his Honour addressed the question of reliance: "108 The view I have formed from the whole of the evidence is that Mr Timms particularly gave the impression that he knew what he was doing and that he wanted this business and he wanted this bank loan and he proceeded to get it. I do not accept that he was at all affected by anything that the Bank officers said or did. 109 The Bank officers were primarily there to provide a source of income for the Bank and also to provide services for the customer at the customer's cost. It may well have been that in accordance with the culture of the Bank at the time local branch managers and their staff were over-enthusiastic about recommending loans for customers and it may well be that Mr Hart went too far in indicating he would get some details from Barrack Street, but that's as far as it goes. … 110 The material generally suggests to me that the most likely scenario is that the Timms relied on their own enquiries and after the venture failed, they reconstructed events to lay the blame at the Bank's feet. In my view there should be a verdict for the Bank on the Timms' claim." 97 His Honour's finding in respect of reliance was a central plank in the Bank's response to the appeal, as in order to make out each of the three bases upon which the appellants brought their claim they needed to establish reliance on the Bank's representation or conduct. 98 The difficulty with the Bank's argument on this point however, is that His Honour's conclusion at para 110, was based entirely on his adverse credit finding in relation to the appellants. Because his Honour's credit finding has been successfully attacked, his conclusion on reliance is undermined unless it can be supported in some other way. I will deal with that question shortly. 99 The appellants submit that, even leaving aside the credit based nature of the finding, his Honour's reliance finding in these paragraphs does not assist the Bank in any event. They argue that his Honour's finding that there was no reliance followed his Honour's explicit rejection of the claim that there were express representations made. It was submitted, therefore, that his Honour did not address a case of reliance based on an express, unqualified representation of the kind complained of by the appellants and admitted to by Mr Walker in his cross-examination. Rather, he must have been addressing a case of misrepresentation by silence. It followed, according to this submission that his Honour has not dealt with the issue of reliance in relation to the case sought to be advanced by the appellants, that is, one of a positive misrepresentation, as well as the claims based on the November letter and the certification issue. 100 The Bank contests this last submission. It submitted that his Honour's finding in respect of reliance was a general finding that the appellants should not be accepted. Therefore, the finding as to reliance was unqualified in the sense that his Honour found that there was a complete absence of any reliance, regardless of whether the finding related, in terms, to an express representation or a representation by silence. 101 In terms, I consider that his Honour's finding of absence of reliance was sufficient to cover a case of express representation. That, however, is not the end of the matter. I have already expressed the view that because his Honour's finding on reliance was based entirely upon his adverse credit finding in respect of the appellants, the finding is undermined unless it could be supported on some other basis. The only alternative basis advanced by the Bank was that Mr Walker had advised them that they should get independent advice. 102 The appellants did obtain both legal and accounting advice. There is nothing in the evidence to indicate that the legal advice went beyond advice relating to the legal documentation. Accordingly, that point does not assist the Bank. They did, of course, obtain the advice of an accountant - Mr Rosenfeld. They claim that advice was negligent and have sued Rosenfelds in these proceedings. The trial judge also rejected that claim and that too is subject of the present appeal. But assuming for the moment that the appellants relied upon Rosenfeld's advice in entering into the contract, that does not, without more, establish the absence of reliance on the Bank. It is not necessary, in order to prove reliance, for a party to establish that the reliance on the representation is the sole source of inducement to enter the contract: Gould v Vaggelas (1985) 157 CLR 215; Leda Holdings Pty Ltd v Oraka Pty Ltd (1998) ATPR 41-601. In Como Investments Pty Ltd (in liq) v Yenald Nominees Pty Ltd (1997) ATPR 41-550, the Federal Court said: "The law does not consider cause and effect in mathematical or in philosophical terms. The law looks at what influences the actions of the parties. Acknowledging that people are often swayed by several considerations, influencing them to varying extents, the law attributes causality to a single one of those considerations, provided it has some substantial rather than negligible effect."

See also Henville v Walker (2001) 182 ALR 37. In that case, McHugh J at 62 referred to the separate judgments of Wilson and Brennan JJ in Gould v Vaggelas , where each emphasised: "that a representation need not be the sole inducement in sustaining the loss. If 'it plays some part even if only a minor part', in contributing to the course of action taken - in that case the formation of a contract - a causal connection will exist." 103 The Bank submitted that there was a substantial body of objective evidence which supported his Honour's finding that there was in fact no reliance on anything the Bank officers said or did. The Bank relied upon a number of matters in support of this submission. 104 First, it was submitted that the appellants carried out extensive enquiries concerning the Artrona business as a result of which they became aware that it was in financial difficulty. The Bank relied upon a facsimile dated 21 September 1992 from the second appellant to the appellants' solicitor in which he set out in some detail the circumstances in which they acquired the business. The letter stated: "Several meetings with the Wheelers followed and it was put to us by Wheeler that whilst they welcomed the opportunity to remain equal shareholders they were not in a sound enough financial position to sell only half the business. Wheeler stated that a sale of 90% of the business would generate sufficient funds to allow the many creditors to be repaid and this was very important to the future viability of the business as many of the creditors were trade suppliers and could not be easily replaced (particularly the specialist leather suppliers). Wheeler undertook to repay all creditors when the sale was completed. … [F]or the sake of goodwill and because we wanted our new business relationship to start off on the right foot and because we wanted Wheeler to square his affairs so that he could work in the business with a clear head, we agreed to pay around twice what the stock was really worth!" 105 The Bank submitted that given their knowledge of the financial state of the business, it was highly unlikely that the appellants would have sought the opinion of the Bank as to its viability, or, if the Bank had made any representation, that they would have relied upon it. 106 That may not necessarily be the case. It may, for example, be possible that a proposed purchaser, being aware of financial difficulties, would rely upon a statement of a banker, aware of the history and financial position of the business, that it was a good business notwithstanding recent financial difficulties. Whether or not that is so in a particular case is a question of fact to be determined upon a correct understanding of all the evidence. 107 It was further submitted that the appellants failed to disclose to the Bank that they had become aware that the business had two inconsistent sets of accounts - the so called management accounts and the statutory accounts. It was submitted that had the appellants sought the advice of the Bank with a view to relying on it, they would have provided to the Bank such information as they had or at least made enquiries to determine whether the Bank had the same information. It followed, according to this submission, that even if the Bank had made a statement concerning the Artrona business the appellants would not have relied on any statement because they knew that the Bank did not have full information. 108 Mr Timms denied, however, that he had the accounts. I have referred to that earlier. Mr Timms conceded that by 16 December 1991 he had learnt of there being two sets of accounts. However, that was after approval of the second loan application on 10 December. 109 The Bank also relied upon the fact that had the appellants been seeking advice from the Bank with a view to relying on it, they at least would have made enquiries to ascertain the accounts from which the Bank was working. It was also submitted that even if the Bank had made statements about the business, the appellants would not have relied upon them without determining from which accounts the Bank was working. It was further submitted that it was clear from Mr Hart's evidence that he informed the appellants of the profit and loss figures that he included in the loan application, namely figures from the management accounts. 110 Mr Timms' explanation for not having drawn certain matters to the Bank's attention was because he considered that, being the bankers for the business, he assumed they had the perfect knowledge of it. That could have been a reasonable assumption, notwithstanding that Mr Timms accepted in cross-examination that he did not know what material the Bank was looking at. Whether it was, in fact, a reasonable assumption which Mr Timms made at the time is a question of fact depending upon an evaluation of all the relevant evidence. 111 Mr Timms agreed that he had sent the Artrona document to Mr Hart so as to provide him with the information he needed to put in the loan application. He said that the net profit figure of $437,993 for 1991 was provided by Golosky. Senior counsel for the Bank further submitted that the figures in the Artrona document must have come from the management accounts because of their close correlation with them. He submitted that Mr Timms failed to give any adequate or proper explanation as to how that could have been the case other than by virtue of him having those accounts. As previously explained, Mr Timms said that he was provided with the figures either by Mr Rosenfeld or by Mr Wheeler. But in any event, whether or not that explanation was adequate or satisfactory is essentially a credit determination. 112 Another matter which the Bank relied upon as indicating that Mr Timms had knowledge of the actual financial position of the company came out of a meeting which Mr Timms had with Mr Rosenfeld on 25 November in which he told him that for the purposes of valuing the goodwill he only took the 1991 year, which revealed a profit of $174,000 as opposed to earlier advice that if valuing a business on an average profit basis, then the profit was taken over three years less tax. It was suggested to Mr Timms that the reason that Mr Rosenfeld only used one year was because there was no profit in the previous two years as disclosed by the statutory accounts. Mr Timms responded, however, that he did not have the statutory accounts and he questioned Mr Rosenfeld as to why there was only a profit of $174,000. Again, whether that explanation is accepted is a credit based matter. 113 The Bank also relied upon a statement of 1 November 1991, made by the Mr Timms to Mr Atkinson, the solicitor who acted for the appellants on the purchase of the business, that although Mr Wheeler was "a brilliant designer" he was "not a manager so the business has developed financial difficulties". Mr Timms denied that he had made any such statement. Mr Atkinson was not cross-examined on his account of this conversation. That is an important matter in determining whether to accept Mr Timms' denial, as an absence of cross-examination on a particular matter is always an important consideration in determining whether to accept a witness's evidence on that issue. However, his Honour did not deal with this evidence and in any event, the submission goes no further than asserting that the appellants were aware the business was in financial difficulties. That was not in dispute. Such knowledge does not necessarily deny reliance. 114 It was next submitted that the loan submission itself recognised that the business was experiencing financial difficulties. For example, the submission stated that the sale price was to be utilised to reduce to nil all commitments of the vendor companies, including "Group Tax, Payroll Tax" and "Creditors". In the further submission dated 3 December 1991, Mr Hart stated: "Applicants and their Accountants have undertaken an extensive investigation into the companys (sic) past and potential performance and, are also privy, through discussions with existing Directors Mr and Mrs Wheeler, of the servicing of The Wheelers personal borrowings placing strain on available company resources". 115 The evidence revealed that Mr Hart had prepared the submission from various sources, for example, the information sent by the Barrack Street Branch, the management accounts and documents prepared by the appellants themselves. There was nothing in any of these documents that referred to the fact that the sale price was intended to be used to pay group tax and the like. It was submitted that the only available inference, therefore, was that that information had been provided by one or both appellants. That is possible and even likely and demonstrates that the appellants' had knowledge of the affairs of the companies. However, that does not necessarily rule out reliance on the Bank. 116 The appellants also provided financial information to the Bank. In particular, they provided a document entitled "Artrona", another document titled "Artrona Group of Companies Projected Consolidated Cash Flow for the Period 1/11/91-31/10/92" as well as the notes to those accounts the Artrona document gave an overview of the nature of the business, its financial history and the like. The cash flow document projected that for the twelve month period to 31 October 1992, the business would generate a cash inflow in excess of $3.2 million and a cash outflow of about $2.9 million. Again, this material supports the Bank's case of the appellants' own knowledge. It does not necessarily establish that the appellants did not also rely on the Bank's statements. 117 The Bank further submitted that the appellants' case was that the representations that they relied upon were made by Mr Hart not by Mr Walker. Accordingly, any admission by Mr Walker was not relevant to his Honour's determination. Senior counsel for the Bank submitted in any event his Honour's finding in respect of reliance covered any statement made by Mr Walker. 118 Notwithstanding that the pleading was confined to a representation by Mr Hart, it would appear from his Honour's judgment that the case was run on a representation made either by Mr Hart or by Mr Walker. The Bank's submission appears to acknowledge this. 119 It follows that his Honour's finding on reliance cannot stand given the successful attack the appellants have made on his Honour's credit findings. 120 Before concluding on this point, reference should be made to a further submission made on behalf of the appellants. In para 109, his Honour said that "[i]t may well be that Mr Hart went too far in indicating he would get some details from Barrack St, but that's as far as it goes". His Honour had earlier stated at paras 99 and 102 that on one version of the facts the Bank did indicate to the appellants that they would let them know of any problem with the business once they got information in from the Barrack Street branch, and on that scenario, if it failed to do so, the Bank might still be liable. It was submitted that his Honour then left unanswered the question whether the Bank told the appellants it would inform them of the state of the business from the information they obtained from Barrack Street. 121 There is some basis for that submission to the extent it is based on paras 99 and 102. However, in my view, his Honour finally dealt with the issue at para 109 by making the finding to which I have just referred.

The November Letter Claim 122 The "November letter" was sent by the appellants to the Bank on 28 November 1991 as set out in para 28 of these reasons. The appellants relied on the letter to found a cause of action against the Bank that having regard to the knowledge it had about the business it was negligent or engaged in misleading conduct when having received it, they did not disabuse the Timms of their erroneous belief as to the Bank's belief. 123 The letter was read by both Mr Walker and Mr Hart. Mr Walker said in cross-examination that he did not disagree either with the appellant's assertion in the letter that the business was "extremely sound" or with the assertion that the Bank held that belief. Mr Hart, however, conceded that he did not totally agree with the view expressed in the letter that the business was extremely sound, and considered that such a statement needed qualification. He agreed, however, that he did not recall communicating that qualification to Mr Timms. He also agreed that he did not seek to dissuade Mr Timms from the views expressed in the letter about the business. 124 Mr Hart agreed in cross-examination that he was the contact point at the branch for this particular loan application. The cross-examination then proceeded as follows: "Q So you no doubt understood the second last sentence of the letter as indicating that when Mr Timms said he believed the bank agreed with those assertions, he meant you agreed with those assertions, is that right? A It could be open to conjecture if I'm the bank. I'm the bank's representative with regard to this. Q No doubt when you read that sentence you took it as being an indication that you agreed with both those assertions, correct? If not you, you and Mr Walker? A That might have been the case. Q And he could have only gained those impressions, right or wrong, from discussions he'd had with you and/or Mr Walker in the preceding period, isn't that correct? A Yes, that could be the case."

The last question was repeated and Mr Hart gave an unqualified "yes" to it. 125 It was then put to Mr Hart that if such an impression was incorrect then undoubtedly he would have corrected it. He responded, "I don't believe that I was bound to correct something out of a letter that had been provided to us". The cross-examination continued: "Q As a responsible banker you wouldn't be wanting one of your customers to misrepresent something you had said to them, would you? A No, that's the case. Q Especially in a letter that you then proceeded to forward to your Zone administration, that is correct, isn't it? A Yes, that is correct. Q If it incorrectly stated the bank's agreement, can I suggest two things would have happened. One, you would have said so to the administration when you annexed the letter, you agree? A Yes. Q And secondly, you would have told the customer straight away that he'd got it wrong. That is also correct isn't it? A Yes, that may have been the case, yes. Q And neither of those things happened, did it? A I didn't qualify that letter, no, that comment, no."

126 His Honour recognised that the letter was an important one. He said so at para 27 of his judgment. However, the only reference his Honour thereafter made to the letter was at para 79, where he said: "Mr Timms agreed that the letter was to put some pressure on the Bank and that he hadn't really considered seeking funds elsewhere." 127 The appellants submitted that having regard to the knowledge that Mr Walker and Mr Hart had from the Barrack Street branch in relation to the business, and even if they did not have the second Deloitte's report, the appellants' statement of their belief that the Bank considered that the business was good required some response, even if it was to the effect that they should make no assumption that the Bank held any view as to how good the business was. Alternatively, if the real concern was the confidentiality of another client's information, as asserted by Mr Hart, they should have qualified their statements made, at least on 26 November, that the business was a good business. 128 The appellants also submitted that the letter of 28 November corroborated their case. The letter was written against the background of the meeting of 26 November when the appellants asked the Bank why their application had been refused. There was no dispute between the parties that on that occasion the Bank told the appellants that there was no problem with security. It was also common ground, at least between Mr Walker and the appellants, (although contrary to the trial judge's finding) that Mr Walker said it was a good business. That statement, it was submitted, was reflected in the letter. It should also be noted that given Mr Hart's cross-examination referred to in para 74 above, it could be said that Mr Hart agreed that either he or Mr Walker had said at some stage that the business was "good" or even perhaps "extremely sound". 129 However, the more fundamental complaint is that trial judge ignored the appellants' case based on the letter, which, in substance, was that the Bank, having received the letter should have disabused them, either of the notion that this was an extremely good business or alternatively that the Bank held such a view. 130 Although a major focus of this part of the case was the conduct of Mr Hart and Mr Walker, the appellants also relied upon the fact that when, on 3 December 1991, Western Zone received the resubmitted loan application together with the letter of 28 November, it had the second Deloitte's report in its possession. His Honour also failed to deal with this aspect of the appellants' claim. 131 The Bank made the following responses to the November letter claim. 132 First, for the reasons discussed above, it was said that the appellants had not established reliance. It was also argued that his Honour's finding of absence of reliance was sufficient to dispose of the claim. 133 Secondly, whilst conceding that misleading or deceptive conduct may be constituted by silence (Demagogue v Ramensky (1992) 39 FCR 31 at 32) that will normally only be the case where there is a legal duty to disclose (which was not the case here) or where a person had a reasonable expectation that disclosure would be made: Warren v Elders Rural Finance (1993) 41 FCR 399 at 404-5. It was submitted that the appellants had no such expectation. The letter of 28 November was written, on Mr Timms' own evidence, for the purposes of applying pressure to the Bank in respect of their loan application. 134 The respondent also placed some emphasis on the wording of the letter - which was that the business was "extremely sound" - not that it was profitable and good. 135 I have already dealt with the question of reliance and expressed my opinion that that issue has not been properly dealt with by the trial judge. Accordingly, the finding that there was no reliance on the Bank is not an answer to this part of the claim. Further, the asserted reliance in respect of this claim is of a different nature and involves different facts. 136 In relation to the second matter, Mr Hart accepted that if there was an error of the type involved here, he would have informed the customer. That is evidence upon which a finding could be made that there was a reasonable expectation that if the Bank did not hold the view that the business was extremely sound it would have so advised the appellants. It did not do so. The relevance of the wording of the letter is then a matter to be determined having regard to all the circumstances. 137 The position is therefore that the trial judge did not deal with this aspect of the appellants' case and he ought to have done so. The Bank's failure to respond to the letter so as to disabuse the appellants of their understanding, had to be considered in the context that two days earlier Mr Walker had represented it was a good business. For the reasons already given, there was a case to be made that the Bank's failure to respond to the letter amounted to a misrepresentation by silence. It is not sufficient, in considering whether the appeal should be allowed on this point, for the Bank to rely upon his Honour's adverse credit findings in relation to reliance. His Honour's overall assessment of the appellants' case was made in the face of the errors to which I have already referred. Accordingly, it is not a foregone conclusion that reliance could not be established. Whether it is or not will depend upon the ultimate credit findings made by a trial judge having regard to all the facts properly found.

The Certification Claim 138 On 10 December 1991 the Bank advised that it had approved a finance package. The loan was subject to the Bank's usual terms and conditions generally for loans of that type. Particular terms and conditions were then specified. The Bank also specified that approval was subject to, inter alia: "[c]ertification by Accountants Rosenfeld Kant & Company that financial statements provided for the Artrona Group for the years ended 30 June 1989, 30 June 1990 and 30 June 1991 provide a true and accurate account of the Group's performance. Copies of the financial statements will be provided direct to Accountants." 139 The appellants had a meeting with Mr Hart on 12 December 1991 in which they were provided with a copy of the Zone's letter of 10 December, the terms of which were discussed. Either during or shortly after that meeting Mr Hart prepared a facsimile to Rosenfelds in purported furtherance of the Zone's requirement that they receive the accountant's certification. The facsimile was in the following terms: "We advise that the Commonwealth Bank has approved total facilities of $970,000 to the above named to assist complete their purchase in the Artrona Group. A condition of approval is the seeking of certification from yourselves that the financial data provided with the application represents a true and accurate account based on your own investigations of the Group's performance over the period 30.6.89 to 30.6.91. To assist we fax copies of financial statements provided in support of the application. … ." 140 Rosenfelds responded by letter dated 16 December 1991, marked to the attention of Mr Hart: "We refer to your facsimile of 12 December, 1991 regarding funds being borrowed by the abovenamed in order to complete the purchase of the Artrona Group. We would like to confirm that the initial financial information for the Artrona Group covering period 30 June, 1989 to 30 June, 1991, upon which we advised our clients, is the same as the information attached to your facsimile. Please note that we have not carried out an audit of these accounts." 141 The effect of this so-called certification, it was submitted, was that it amounted to saying that "your accounts are the same as mine". Rosenfeld agreed in his cross-examination that he was not satisfied that the accounts with which he was provided displayed a true and accurate representation of the Group's performance and that that was why he did not provide the certification requested by the Bank. He agreed that the information he gave Mr Hart was essentially meaningless. 142 Mr Hart said that he telephoned Mr Rosenfeld and foreshadowed the request he was making in the facsimile transmission. He said, however, that it did not occur to him until 1993 that the document provided by Rosenfelds did not fulfil the requirements specified by Western Zone in its letter of 10 December. He accepted, however, that the effect of the letter was that they had not conducted an audit on the accounts and could not warrant the accuracy of the accounts. There was no cross-examination of Mr Hart on this aspect of his evidence. In particular, counsel for Mr Rosenfeld did not seek to challenge that evidence, nor did senior counsel for the appellants. Mr Hart's evidence on this point, therefore, went unchallenged. 143 It was submitted on behalf of the appellants that that was significant because, according to Mr Rosenfeld, he had a conversation on or about 12 December 1991 with Mr Hart in which Mr Hart advised him he needed a letter verifying that the accounts represented a true and accurate account of the Group's performance based on his investigations. Mr Rosenfeld said he replied "I haven't carried out an audit. I want to help my clients, but I can't certify the accuracy of the accounts. All I can say is that the accounts you've sent me are the accounts I've looked at". He alleges that Mr Hart responded "okay - send me a letter confirming that". Rosenfeld was not cross-examined about the conversation he alleged he had with Mr Hart. 144 The trial judge was left, therefore, with, effectively, two conflicting accounts which were not subject to cross-examination. The appellants submitted that Mr Rosenfeld's version of that telephone conversation is implausible, because it involves the proposition that Mr Hart was willing to ignore the requirement of the Zone and lend $1m without the certification required as a condition of the loan. 145 The appellants place particular reliance upon this because Mr Rosenfeld claimed that he had a similar conversation with Mr Timms and told him that that was all he was going to provide. He further alleged that in that conversation he made reference to having spoken to Mr Hart. 146 However, not only is there an issue as to whether there was any such conversation with Mr Hart, Mr Rosenfeld conceded in cross-examination that he could not remember whether the conversation he said he had with Mr Timms took place before or after he had sent the letter to Mr Hart. Significantly, he made no note of any such conversation. Rosenfeld also agreed in cross-examination that the use of the word "initial" in the letter to Mr Hart was quite deliberate and was used to distinguish between all the accounts he had seen and the management accounts. He agreed that he had made that distinction so as to protect his own position. This is important because, in his asserted conversation with Mr Timms he had not used the word "initial", a word which was of crucial importance to him in his communication with Mr Hart. 147 His Honour referred to the conversations with Mr Hart and Mr Timms at para 53 of his judgment, although he did not make any express finding as to whether the conversations alleged in fact took place. Presumably, it is to be inferred from his Honour's acceptance of Mr Rosenfeld's evidence over that of Mr Timms, that he did accept that the conversations had taken place in the terms alleged by Mr Rosenfeld. If this is correct, then, in accepting Mr Rosenfeld's evidence, his Honour failed to consider Mr Hart's evidence, which was at least inferentially contradictory. This is surprising for a number of reasons, not the least of which is that he appears to have accepted Mr Hart as a credible witness. It may be of course, that his Honour, having referred to Mr Rosenfeld's evidence, overlooked the matter or did not further deal with it because it was not relevant to the determination he considered he was making. That determination, of course, was one which failed to deal with the certification claim. But whatever the reason be for his Honour's failure, the result is that he failed to determine whether the conversation between Mr Timms and Mr Rosenfeld had in fact taken place. 148 His Honour's failure to deal with this evidence is not only illustrative of his failure to deal with the certification claim. It is also important to the question whether his credibility findings can remain unchallenged. Had his Honour dealt with the conflicting evidence of Mr Hart and Mr Rosenfeld on this issue, he would have been required to make an assessment of whose evidence was the more reliable. That may have affected his overall assessment of the evidence of one or both. Had his Honour determined that he could not accept Mr RosenfeId's evidence on this point, that may have affected his overall assessment of Mr Timms' credibility. 149 The Bank also submitted that the fact that the Bank granted the loan cannot be interpreted as conveying the representation that the certification had been provided. Further, it was submitted that the condition as to certification was inserted for the benefit of the Bank, and accordingly it could waive the requirement, which, it was submitted, it did by granting the loan. That case was not argued below and should not, therefore, be a basis for this Court rejecting the certification claim. The important point is that his Honour erred in failing to deal with the certification claim. It was a significant part of the appellants' case against the Bank and some of the evidentiary aspects of it, had they been dealt with, could have affected his Honour's ultimate credibility findings.

Claim Against Rosenfelds 150 As against Rosenfelds, the appellants claimed that in entering into the contract to purchase the business, they relied upon Mr Rosenfeld's advice that the business was good and that its financial performance as represented in the accounts was such as to indicate it would remain viable. The trial judge dealt with the claim fairly shortly and with particular emphasis upon the terms of Mr Rosenfeld's retainer. 151 Mr Rosenfeld received a copy of the management accounts for the financial years 1988 to 1991 from Mr Wheeler on about 3 October 1991. On about 4 November he received the statutory accounts for the years 1990 - 1991 from Mr Wheeler. The management accounts portrayed the business as being in a better financial position than did the statutory accounts (for example the consolidated profit for the year ended 30 June 1991 was stated to be approximately $384,000 in the management accounts compared to approximately $175,000 in the statutory accounts). 152 His Honour posed as the "essential first step" in the determination of the appellants' case against Rosenfelds the ascertainment of the nature and extent of Rosenfeld's retainer. The appellants alleged that they had engaged Rosenfeld to advise them as to: "(a) the viability of the Business as a going concern; (b) the accuracy of the financial history of the Business including its past profitability and trading history as represented by or on behalf of the Vendor Companies; (c) the current and future maintainable trading performance of the Business; (d) the results of a comprehensive and detailed financial investigation of the Business with a view to advising on its acquisition; (e) an appraisal of the purchase price of the Business in light of the financial investigation to be carried out by [Rosenfelds]." 153 Rosenfelds denied a retainer in these terms. According to their pleading the retainer was to: "look at some financial information relating to Artrona Pty Limited and 2001 Interiors Pty Limited, and advise [Mr Timms] as to what enquiries he should make of the [Wheelers] about the business …" 154 Mr Rosenfeld's evidence in chief was to the same effect. 155 The appellants met this defence, in part, by their evidence that they did not have either the statutory or management accounts so that they had nothing to work from in making the enquiries from the Wheelers or assessing their answers. 156 His Honour held (at para 114) that Rosenfeld was not retained to do a full due diligence and that his role was limited to examining the documents he was shown by the appellants: "… the evidence shows that Mr Timms considered he had sufficient expertise and was very cost conscious and resorted to Mr Rosenfeld for guidance as to method and for advising the Bank." 157 The appellants challenge, in the first instance, his Honour's finding of the retainer, submitting that Mr Rosenfeld's own evidence pointed to a retainer which went beyond that which he pleaded and that which his Honour found. They rely in particular upon Mr Rosenfeld's evidence in cross-examination about the meeting of 8 October 1991 in which he first received his instructions. That cross-examination was as follows: "Q Do you tell us that it was your understanding, at the end of this meeting, that it was not your instruction from your clients to analyse the accounts for the purpose of giving them advice? A No. That is - no, that is not right. Q So it was for advice but only as to what things they ought to investigate? A Yes. Sorry -- Q Go ahead. A When you say only for those things, I mean, there are a lot of issues here so -- Q Indeed. A So at that time, at that time it was in order to advise them as to what they should be looking at, yes. Q And that changed later, did it? A Yes. Q When? A This process took a matter of a few months, early October to I think mid-December, and various other issues were raised on which advice was given by me, or where advice was sought from me. … Q … Do you say that at the end of the meeting of 8 October the only advice left for you to give was as to the steps that ought to be taken by the Timms to investigate the business? A No, that's not so. Q What else was there then that you understood you were to do following the conclusion of the meeting of 8 October? A I was still to receive the statutory accounts. Q For what purpose? A In order to compare the two. Q For what purpose? A In order to give them advice on the viability of the business ." (emphasis added) 158 Mr Rosenfeld agreed in cross-examination that he examined the statutory accounts which had been delivered to him by Wheeler on 4 November "to analyse them so [he] could give advice as to the viability of the business" and "to compare … with the management accounts". He also agreed that the reconciliation between the management and statutory accounts would normally be included in his practice of advising clients as to the viability of a business. He said, however, that he had told Mr Timms that he should do a reconciliation between the two accounts. 159 This evidence, it was submitted, and I agree, demonstrates that Rosenfelds' retainer went beyond that found by his Honour. There is, in my opinion, a fundamental difference between the retainer found by his Honour at para 114 and Mr Rosenfeld's evidence that he was to advise on the "viability" of the business. 160 The fact that Mr Rosenfeld conceded that that was the purpose of his having the accounts raises questions about other parts of his evidence. Mr Rosenfeld could only have advised on the viability of the business if he had analysed the accounts himself. He said he did not. Likewise, he would need to be satisfied that the underlying documents supported the business. He said Mr Timms was to undertake this task, which, he asserted initially, was a clerical exercise. He later conceded it involved accounting expertise. He also conceded he did not make any enquiry of Mr Timms as to whether he had undertaken the task. There were also notations Mr Rosenfeld had made on the accounts which were at least consistent with his having undertaken the task. 161 However, because his Honour had found the narrower retainer to which I have referred, he did not consider these aspects of Mr Rosenfeld's evidence. 162 His Honour based his determination of the appellants' case against Rosenfelds, including the extent of Mr Rosenfeld's retainer, upon his credit findings. His acceptance of Mr Rosenfeld's evidence was reinforced by his finding that Mr Rosenfeld had "contemporaneously prepared agendas for meetings … at which things to be done were ticked or otherwise endorsed on the righthand margin". His Honour discounted the evidentiary value of Mr Timms' notes where they differed from Rosenfelds. His Honour said: "I do not consider, in the light of the general unreliability of the evidence of the Timms, that Mr Rosenfeld ever said on 25 November 1991 that he had checked it all out, that everything was correct, the business was making the money that the vendors said it was making, because he was just not in a position to do so and the whole of the documentation shows that he was not endeavouring to do so, nor was it within his retainer." 163 The appellants also point out that although his Honour considered that Mr Rosenfeld's notes supported his version, there were only three sets of such notes, namely of the meetings of 8 October 1991, 11 November 1991 and 16 December 1991. Those notes did not deal with the major issues in respect of which his Honour preferred Mr Rosenfeld's evidence over that of Mr Timms, and in particular the evidence of the conversations which were critical to his Honour's rejection of the appellants' case. For example, in the diary note of 8 October 1991, there was no note relating to the terms of the retainer. In the note of 16 December 1991 there no note relating to the certification, or inability to provide the certification, as requested by the Bank. Thus his Honour was dealing with the unassisted recollection of each of Mr Timms and Mr Rosenfeld on these fundamental issues. His finding, at para 116, does not appear to recognise this. 164 The question whether Mr Timms had the statutory or management accounts was a question of fact to be determined by the trial judge. There was no admission to that effect. Senior counsel for the Bank asserted that he must have had them because material the appellants provided to the Bank was consistent with figures from those accounts. That may of course be a sufficient basis to support a finding that Mr Timms had those accounts. But there were other sources from which the material could have been drawn. Unfortunately, by the time that his Honour made his finding at para 116 he was so disaffected with Mr Timms' credit that it is unlikely he would have believed anything he said. However, His Honour's reasons for his adverse credit finding in respect of Mr Timms were not soundly based as I have already explained. 165 Given that his Honour's rejection of the appellants' case against Rosenfelds was based upon a finding as to the extent of the retainer, which did not accord with Mr Rosenfeld's own evidence and upon credit findings which were not properly based, disclosing appellable error, I am of the opinion that his Honour's rejection of the claim against Rosenfelds should also be set aside. 166 There was a faint suggestion made that this Court could redetermine the matter. I do not agree. Although I have concluded that his Honour's credit findings cannot stand, the fact is the credit of witnesses is relevant to a determination of the appellants' claims. For that reason alone, it is not appropriate for this Court to determine the matter itself. 167 Accordingly, I propose the following orders:

(ii) Judgment and orders of Young CJ in Eq set aside;

(iii) Matter to be remitted to the Supreme Court Equity Division for re-trial;

(iv) Costs of the first trial to abide the decision of the judge presiding at the re-trial;

(v) Respondents to pay the appellants' costs. The second respondent is to have a certificate under the Suitors' Fund Act 1951 (NSW) if so entitled. 168 SANTOW JA: I agree with Beazley JA. **********

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