Wall v Timbertown Community Enterprises Ltd

The appellant not only denies having been shown the letter, says he never heard of it until late 1996, and says he never saw it until November 1998, but also says that his lawyers, by their negligence, prevented him from giving evidence contradicting that part of Mr Harris' affidavit and failed to ensure that Mr Harris was cross-examined on the point. The lawyers representing the appellant in the appeal are not the lawyers who represented him at the trial. 4 The trial judge continued: As a result of the representations made to the Council by the transmission to it of the letters and other documents to which I have referred, the council accepted that there had been compliance with its requirements, and issued the lease. The company reopened Timbertown. For a few months, the company appears to have had a honeymoon period with the public, during which it made a profit. Overall, it got through the first year with a profit of $12,000. Thereafter (actually, as soon as the second half of the year), it ran at a loss. So far as payment for the shares is concerned, that is the shares that had been issued without payment, I think the proper conclusion on the evidence is that there was never any intention on the part of the purported subscribers that they would actually expend money of their own, either in a lump sum or by way of instalments in repayment of some loan or to meet some deferred payment arrangement. On the contrary, the intention was that payment for the shares would be achieved by some kind of paper exercise. I think that the directors, and in particular Mr Wall and Mr Harris, were well aware that this was the situation, and indeed the intention with which the arrangements were entered into was mutual. It is likely that Mr Wall believed Mr Harris, or some other person with financial expertise, would be able to find a way by which the shares could be acquired as fully paid shares without any significant money actually changing hands. To that extent, I accept his evidence that he expected 'paperwork' to be done. However, I do not think he had made any analysis of the problem that confronted him, and I do not think he had any clear idea of what was required to be done. But there is one large qualification upon these conclusions. It is not possible to accept that Mr Wall did not appreciate the council was being seriously misinformed. He knew it would not have issued the lease had it known the true position, and he knew that this position was being misrepresented by what both he himself and Mr Harris were saying. I find the conduct of Mr Harris as a chartered accountant, inexplicable; but I am also satisfied that Mr Wall cannot be absolved of involvement in it." 5 The trial judge then found that the appellant was in breach of s 232(4) of the Corporations Law, and was obliged by reason of s 1317HD to pay the respondent $80,000 as its loss by reason of his misconduct. He also declined to excuse the appellant under s 1318(1). The appellant has grounds of appeal relating to the causation of loss and to s 1318(1), but it is convenient to postpone setting out the detail of the reasoning on those subjects.

Grounds of appeal: general 6 The appellant first contends that the trial judge erred in finding that the appellant saw the 24 July 1995 letter before it was sent, and seeks to rely on fresh evidence in that regard; secondly, he contends that the finding should not have been made because it was outside the pleadings; thirdly, he contends that the appellant's conduct was not the cause of the respondent's loss; and, fourthly, he contends that the trial judge ought to have excused him under s 1318(1) because he had not seen the 24 July 1995 letter before it was sent. 7 It is convenient to take these grounds in a different order.

Was the trial judge's finding within the pleadings? 8 The appellant submits that the trial judge found that he had "involvement" in the misrepresentation made by Mr Harris in his letter of 24 July 1995. The misrepresentation was that Mr Harris had $793,780 in his trust account, representing properly subscribed funds, whereas in fact many of the supposedly paid up shares had been issued without full payment. 9 The appellant submits: "Further, the suggestion that the appellant was ' involved in ' the misrepresentation by Mr Harris to the Council was never part of the liquidator's case. In this connection, it should be noted that the claims of contravention of s 232 of the Corporations Law were compendiously put as involving either dishonesty or alternatively a lack of care and diligence. Because the primary claim of the liquidator was one of dishonesty, it was mandatory that the matters relied upon should have [been] pleaded and particularised. The respondent's claim is found in paragraph 38 of the statement of claim … ." 10 In oral argument the appellant also contended that the finding of involvement complained about rests on an error by the trial judge in relation to whether an earlier letter of 13 June 1995 had been seen by him before Mr Harris sent it to the council. That contention loomed large orally in relation to the next point to be considered in relation to whether there was a miscarriage of justice. 11 The Statement of Claim, so far as it relates to the 24 July 1995 letter, alleged in paragraph 38: "In causing the Company to pass the said resolution on 24 July 1995 (as referred to in paragraph 9 above) without having first received the amount of the subscription payable by such of the persons who had applied for shares as particularised under paragraph 11 above, totalling $675,000, and in causing the Company on 25 July 1995 to enter into a lease with Hastings Council of a tourist property known as 'Timbertown' without having obtained a minimum subscription of $700,000, and thereafter to carry on business, and in failing on and after 24 July 1995 to seek to recover or recover the unpaid subscription totalling $675,000 and in also failing to convene a meeting of members of the Company to consider a resolution to wind up the Company, each of Harris, Wall and Saunders breached their duties as directors of the Company as alleged in paragraph 37 above. PARTICULARS (a) Each of Harris, Wall and Saunders did not act bona fide in that: … (6) on 24 July 1995, by letter from Harris to the Council, Harris represented that he was the accountant for the Company and confirmed that he held the sum of $793,780 representing properly subscribed funds for the purchase by various parties of shares in the Company in accordance with the Replacement Prospectus. This representation was, to the knowledge of Harris, false in that as at 24 July 1995, Harris held the sum of $94,052 in his trust account in respect of subscriptions for shares in the Company pursuant to the replacement prospectus. … (8) on 25 July 1995, the directors of the Company including each of Harris, Wall and Saunders caused the Company to enter into a lease with the Council which contained certain special conditions, including a special condition that the Company had a paid up capital of $700,000. At the time of causing the Company to enter into the lease, each of Harris, Wall and Saunders was aware that the Company did not have a paid up capital of $700,000 in that, on 25 July 1995 the Company had funds or monies in its bank account for subscribed capital of less [than] $260,000, and accordingly was in breach of the terms of the lease and liable to immediate termination, or forfeiture of the lease. (b) Each of Wall, Harris and Saunders did not act in the interests of the Company, nor did they exercise the degree of care and diligence that a reasonable person in a like position in the corporation would exercise in the corporation's circumstances, in that: (1) they engaged in the conduct or caused the Company to enter into the transactions referred to in paragraph 38 above. (2) they caused the Company on or about 24 July 1995 to allot 675,000 shares in the Company to persons who had not tendered or paid the relevant subscription monies payable to the Company and/or were unable to pay such subscription moneys. (3) they engaged in the conduct referred to in the particulars under subparagraph (a) above. …" 12 So far as the Statement of Claim relates to the 13 June 1995 letter, subparagraph (a)(4) of the particulars to paragraph 38 is relevant and reads as follows: "by letter dated 13 June 1995 from Wall to the Council, Wall represented that as at that date the Company had received subscriptions of $700,000, and in addition had available to it $400,000 through work programs associated with retraining, employment and other sources. This representation was, to the knowledge of Wall, false in that as at 13 June 1995 the Company had received subscriptions of less than $100,000." 13 The appellant submitted that "there was never any pleading or particular which suggested an ingredient of the case against the appellant to have been that he was in effect privy to and hence 'involved' in the sending by Mr Harris of that letter [of 24 July 1995] to the Council, containing patently false and dishonest information." Though there was no express oral submission to this effect in relation to the 13 June 1995 letter, no doubt the same position would hold from the appellant's point of view. 14 The respondent's answer to this submission is: "Insofar as the appellant seeks to suggest that he was taken by surprise at the trial, such submission ought to be rejected for the following reasons: (a) the appellant had adequate notice of and more than ample time to consider the contents of the Harris affidavit sworn 9 November 1999, and respond thereto; (b) the 24 July 1995 conversation and the Harris letter, were expressly referred to in the respondent's opening before the trial judge, both orally and in writing (see transcript T2, line 53; and p 7 of the respondent's 'List of Relevant Persons & Chronology', which was handed up to the trial judge and to counsel for the appellant at the commencement of the trial); (c) no complaint was made prior to the trial that the respondent's affidavit evidence was outside the terms of the particulars of breach of duty alleged against the appellant. Any such complaint at trial would have been futile in view of the length of time the appellant had notice of the Harris affidavit, and the absence of prior complaint." 15 In my opinion, if one considers these complaints by themselves, they must fail. 16 First, even though particular (6) does not correspond with the trial judge's finding of "involvement" in Mr Harris' misrepresentation on the part of the appellant, what the trial judge found does to some degree correspond with what is alleged in particular (8). The finding of the appellant's involvement in the misrepresentation by Mr Harris that he held $793,780 representing properly subscribed funds overlaps with the proposition that the appellant caused the respondent to enter a lease with the Council containing a special condition that the respondent had a paid-up capital of $700,000, knowing that it in fact only had $260,000. The issue whether the appellant saw either letter was not irrelevant to the latter allegation, and once the evidence going to it was admitted, it could, arguably, be legitimately used as the basis for the finding which the trial judge made. That observation is made without prejudice to the appellant's contentions to be considered below as to the positive incorrectness of the trial judge's findings in relation to the first letter. 17 Secondly, if the appellant or his legal advisers thought that particular (6), whether read with particular (8) or not, did not amount to an allegation that the appellant knew of Mr Harris' misrepresentation in the 24 July 1995 letter and regarded that matter as outside the pleadings, the correct course would have been to have indicated after the opening of counsel for the respondent, if that referred to the evidence that the appellant saw Mr Harris' letter, or at any other time when counsel for the respondent indicated this, that objection would be taken to any evidence outside the particulars, and also to object to the evidence in question, namely the part of paragraph 11 of Mr Harris' affidavit of 9 November 1999 which said that the letter was shown to the appellant before dispatch to the Council. It is not possible to say, on the materials before this Court, whether counsel for the appellant referred to the evidence in his opening, strictly so called, because the opening is not recorded. But the evidence is referred to in a detailed "List of Relevant Persons and Chronology" handed up during that opening. When counsel for the respondent read Mr Harris' affidavit, no part of paragraph 11 was objected to by counsel for the appellant. This stance did not alter even after counsel for the respondent, in drawing attention to particular parts of the affidavit, said "Paragraph 11 is a conversation about Mr Harris' letter of 24 July to the Council". That observation did not specifically refer to the appellant having seen the letter, but it sufficiently flagged the particular evidence. It may be noted that counsel for the appellant at the trial did not exercise self-denial in objecting to evidence, both from Mr Harris and from other deponents. In short, even if the trial judge's finding was outside the particulars, it was within the parameters of the issues as defined by the parties in conducting the case, and hence was legitimate. 18 Mr Harris' evidence in relation to the letter of 13 June 1995 is in a somewhat different category but it is to be noted that there was no objection to that material either. 19 That conclusion leaves open the proposition that the appellant ought to be allowed now to contend that he had not been shown the letter of 24 July 1995 on the basis that whatever his counsel did at the trial cannot bind him now. That must be considered as part of the next argument.

Should the fresh evidence be received? 20 The appellant seeks to rely on an affidavit sworn by him on 21 December 2001. According to the appellant, it is intended to establish: "(a) as a matter of fact, he did not see the letter sent by Mr Harris to the Council on 24 July 1995 before it was sent; (b) his own affidavit in the proceedings (which did not contradict the assertion in paragraph 11 of Mr Harris' affidavit) was prepared in circumstances attended by incompetence on the part of his then legal advisers; (c) he was not aware of the significance of the failure to contradict that statement and always believed that he would have an opportunity to join issue with the assertion; (d) he had provided written instructions to his solicitors and counsel prior to the hearing before Burchett AJ which made it clear that he did not see the letter until some time after it was sent to the Council; and [(e)] even during the course of the hearing before Burchett AJ, he gave specific instructions to his counsel that he did not see the letter of 24 July 1995; [(f)] yet, his counsel neither cross-examined Mr Harris upon the assertion nor adduced any evidence from the appellant that he had not seen Mr Harris' letter before it was sent."

21 The appellant submitted that while normally a party is bound by the way that party's counsel conducts a trial, an oversight by counsel can constitute a miscarriage of justice. 22 The respondent submitted: "The court's jurisdiction to order a new trial on the ground of 'miscarriage of justice' is conferred by Part 51 r 23 SCR. This jurisdiction is exercised most cautiously. As a general rule, a party is bound by the way the trial is conducted by counsel, regardless of whether that was in accordance with the wishes of the client, and it is not a ground for intervention by an appeal court that decisions made by counsel were made without, or contrary to, instructions, or involved errors of judgment or even negligence (see R v Birks (1990) 19 NSWLR 677 at 684F-685G). In criminal cases it is necessary to show that 'flagrantly incompetent' conduct of counsel, involved, or caused, a miscarriage of justice (see R v Birks (1990) 19 NSWLR 677 at 685E). Whilst the jurisdiction to order a new trial on the ground of miscarriage of justice undoubtedly exists in civil cases, such cases must be considered to be exceptional having regard to the principle of finality of litigation, and the further principle which binds parties to the way in which their cases are conducted by their legal representatives. … Insofar as the appellant seeks to rely upon his affidavit sworn 21 December 2001 as 'fresh evidence', it clearly does not satisfy the requirements of 'special grounds' under s 75A(8) of the Supreme Court Act 1970. The material now sought to be relied upon clearly was available at trail, but not sought to be deployed, and it is not reasonably clear that the opposite outcome would have resulted. The appellant was represented at trial by the same counsel and solicitor who had represented him in criminal proceedings in the District Court of NSW in relation to charges on a similar subject matter to the present proceedings. Mr Harris was a Crown witness in those proceedings, and had been cross-examined by Mr Jamieson on behalf of the appellant. Mr Jamieson was an experienced counsel of over 23 years standing. Mr Gildea was a similarly experienced solicitor. It may be readily inferred from the manner in which counsel conducted the appellant's defence at trial generally, that Mr Jamieson made a considered tactical decision not to contest significant parts of the evidence of Mr Harris, including the 24 July 1995 conversation. Such tactical decision by the appellant's counsel is readily explicable, having regard to the fact that he had had the benefit of previously cross-examining Mr Harris in the criminal proceedings. It is also consistent with the uncontested evidence of an earlier conversation between Mr Harris and the appellant on about 13 June 1995, which was to similar effect to the 24 July 1995 conversation. Curiously, no attack is made by the appellant in respect of the trial judge's finding concerning that earlier conversation, namely that the appellant was aware of the contents of the letter from Mr Harris to the Council dated 13 June 1995, which grossly misrepresented the amount held in this trust account at that time (see RB, 35D). If contrary to the above submission, the Court concludes that there was a 'miscarriage of justice', then the Court ought refuse to exercise its discretion to order a new trial for the following reasons. First, the 24 July 1995 conversation is but one of a number of pieces of evidence relied upon by the trial judge in finding that the appellant misrepresented to Hastings Council the position in relation to the amount of share subscriptions received by the respondent. The trial judge's findings in relation to the misleading conduct of the appellant included: (a) that the appellant had quite misleadingly stated to the Council's Working Party on 6 June 1995 that: ' The company had secured $640,000 in shareholder funds ' (RB, 33P-W); (b) that the appellant, amongst other, had signed the letter sent by the company, dated 6 June 1995 informing the Council that: ' Capital subscriptions to the prospectus as at today are $635,722 ' (RB, 34C); (c) that the appellant made no correction of the statement he had been told Mr Harris was 'required to make' to the Council, concerning the amount of subscriptions in his trust account, but also wrote on 13 June 1995 to the Council, stating: ' We advise that as of this morning our Subscribed Capital is approximately $700,000. In addition to these funds we have approximately $400,000 available through works programmes associated with retraining and employment and other sources. ' (RB, 34P-T) (d) the awareness of the appellant of the contents of the letter from Mr Harris to the Council on 13 June 1995, which grossly misrepresented the amount held at that time in his trust account for the company (RB, 34D-E). Moreover, the appellant conceded in cross-examination that he knew on 25 July 1995, that the subscription monies received by Mr Harris were not more than approximately $300,000 (T69, lines 15-20). Secondly, the appellant's knowledge of the 24 July 1995 letter, was not of itself material to, or necessary for, the trial judge's findings (RB, 38H-L) that the appellant breached his duties as a director in the following respects: (a) in relation to the allotment of shares to persons who failed to tender payments totalling $675,000; (b) in failing to convene a meeting of members of the company to consider whether it should be wound up when the capital condition could not be satisfied to obtain the lease without misrepresentation; (c) in causing the company to enter into a lease without having obtained the minimum $700,000 paid up capital. Thirdly, whether or not the appellant was shown the letter of 24 July 1995 prior to Mr Harris sending it to the Council, the appellant knew at the time of the purported allotment of shares on 24 July 1995 and when the respondent entered into the lease with the Council on 25 July 1995, that the subscription monies received by Mr Harris were not more than approximately $300,000 (T69, lines 15-20). To cause the respondent to purportedly allot fully paid shares and enter into the lease with the Council in breach of the capital condition of the lease, was a breach of the duty to exercise reasonable care and diligence as found by the trial judge (RB, 38W-39D)." 23 Section 75A of the Supreme Court Act 1970 relevantly provides: "(7) The Court may receive further evidence. (8) Notwithstanding subsection (7), where the appeal is from a judgment after a trial or hearing on the merits, the Court shall not receive further evidence except on special grounds." 24 The normal practice of this Court has been to find "special grounds" only where three requirements are satisfied. It must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial. The evidence must be such that there must be a high degree of probability that there would be a different verdict. The evidence must be credible. These principles also permit the operation, in addition, of "special circumstances" as a justification for introducing fresh evidence. 25 Initially it is convenient to proceed by testing the application against the traditional three requirements. 26 If one takes the affidavit at face value, while the evidence could have been obtained with reasonable diligence by the appellant's lawyers for use at the trial, arguably the appellant was misled by them, and arguably he, as distinct from they, did use reasonable diligence. So it is possible that the first condition could be satisfied. But there are serious difficulties with the second in particular. 27 The trial judge's finding about the appellant of which the appellant complains was not a specific finding limited to the question of being handed the 24 July 1995 letter. It was embodied within global conclusions that "the Council was being seriously misinformed" and that the appellant knew that the true "position has been misrepresented by what both he himself and Mr Harris were saying". There were many earlier findings made by the trial judge capable of supporting these global conclusions independently of any knowledge which the appellant had of the 24 July 1995 letter. For example, on 6 June 1995 the appellant is recorded in minutes as having told the representatives of the Council that the respondent had secured $650,000 in shareholders funds; on 6 June 1995 he signed a letter saying that capital subscriptions to the prospectus were $635,722; and on 13 June 1995 he signed a letter to the Council saying subscribed capital was approximately $700,000. Yet on 13 June 1995 Mr Harris told the appellant that he was required to write to the Council telling them he had $691,700 in his trust account when in fact he had less than $200,000. 28 In cross-examination the appellant admitted a belief at the time that there was only $220,000 in the trust account (Black 33B). The appellant did not protest and insist that a letter of the type which Mr Harris told him he was required to write not be sent or from sending his own letter of 13 June 1995, or correct his oral statement of 6 June 1995, or correct his letter of 6 June 1995. The appellant admitted that he knew that on 25 July 1995 subscription monies received by Mr Harris did not exceed approximately $300,000. He knew, or ought to have known, of the terms of the Council lease. It required that the respondent have at least $700,000 paid up capital. He signed it, and Council correspondence to the respondent, its chairman and directors, had more than once drawn attention to that requirement. The respondent did not have at least $700,000 paid capital, yet the lease was executed, and that was another respect in which the Council was misinformed. 29 In short, the finding of "involvement" complained of can stand even if the appellant had never seen the 24 July 1995 letter. What has just been said relates to the written arguments advanced by the appellant which deal exclusively with the 24 July 1995 letter. In oral argument to this Court the appellant also submitted that the trial judge erroneously found that the appellant did not deny awareness of the contents of the 13 June 1995 letter. The appellant pointed out that at Black 32M on being asked that he was aware on 13 June 1995 that Mr Harris sent a letter to the Council on that day updating the position, the appellant said he knew that now but at the stage he wrote his letter of 13 June he did not know that Mr Harris was going to send the letter. The appellant contended that the trial judge had overlooked that denial which amounted to a denial of an assertion made by Mr Harris in paragraph 7 of his affidavit of having shown the letter of 13 June to the appellant at or about the time of sending. 30 The appellant then argued that the finding by the trial judge expressed in the following words "It is not possible to accept that Mr Wall did not appreciate the Council was being seriously misinformed" rested on a belief that the appellant knew that the letters of 13 June and 24 July were to be sent. The appellant submitted that the error of counsel in not eliciting what is said to be the true position about the 24 July letter and the error of the trial judge in failing to evaluate the appellant's denial of Mr Harris' evidence and accept it were vital to the finding that, in effect, the appellant appreciated that Mr Harris was misinforming the Council. Hence, the relevant findings were flawed and hence there should be a new trial because of the miscarriage of justice thereby created. 31 Counsel for the respondent submitted that the actual finding of the trial judge on which the substantive order below turned was a finding that there had been a breach of s 232(4) of the Corporations Law because of the appellant's failure to exercise the care and skill appropriate to the director of a company. In particular, the trial judge said: "Mr Wall was in breach of his duties as a director in relation to the allotment of shares to persons who had failed to tender payments totalling $675,000; in failing to convene a meeting of members of the company to consider whether it should be wound up when the capital condition could not be satisfied to obtain the lease without misrepresentation; and in causing the company to enter into a lease without having obtained the minimum $700,000 paid up capital." 32 The appellant's failure to ensure that those who had subscribed for shares paid for them stood entirely separately from any question of dishonesty in relation to the Council. The failure to prevent the company entering a lease with the Council without having obtained the minimum $700,000 paid up capital stood entirely separately from the issue of any knowledge of the dishonest letters of 13 June and 24 July. The failure to convene a meeting of members of the company to consider its winding up in view of the fact that the capital condition of the company was less than that contemplated by the prospectus and the lease, again stood independently of the two dishonest letters. In essence, the respondent submitted that the trial judge decided the case on those three matters and did not decide it in relation to the dishonest letters. 33 A second line of argument deployed by the respondent was that if the field of enquiry concerned the dishonest misleading of the Council, there was much more evidence against Mr Harris and against the appellant than the two dishonest letters. In particular, the respondent pointed out that on 24 July 1995 Mr Harris signed a certificate verifying share register pages which showed over 700,000 shares in the company as having been allotted on 21 July or, in respect of one parcel, on 24 July, and in all cases the "amount paid up per share" was shown as one dollar. On the same day Mr Harris signed a certified copy of a Notice of Allotment of Shares to the Australian Security Commission showing 902,800 as having been "allotted for cash". The respondent pointed out that the appellant knew of Mr Harris' signature of those certificates. He pointed out that the appellant knew that they were requirements of the Council and if he did not know that he ought to have known that yet he admitted to a belief that the respondent had no more than $300,000 in cash at that time. 34 In short, the respondent submitted that whatever the appellant's state of knowledge about the 13 June and 24 July letters they were not essential to the trial judge's conclusions. There were ample other grounds for those conclusions. The respondent also pointed that at paragraph 17 of the reasons for judgment the trial judge put aside any question of whether the appellant had actually been dishonest in the sense that he declined to rest his decision on any such conclusion but rather on the three other matters mentioned earlier. At that point in the reasons for judgement the trial judge had already expressed his conclusion as to the three respects in which there had been a breach of duty and when in paragraph 17 the trial judge said that he found it extremely difficult to reconcile the means employed by the appellant with honesty and when he said that the Council was deceived by blatant falsehood he was not finding positively as an operative part of his reasons for the order he pronounced that there had in fact been dishonesty. 35 Counsel for the appellant advanced further arguments on this subject but they relate more to s 1318(1) and will be dealt with at that point. 36 The error of the trial judge in at least failing to deal with the disparity between Mr Harris' affidavit evidence and the appellant's oral evidence in cross-examination about whether the 13 June 1995 letter had been shown to him was not the subject of any ground of appeal nor is that subject mentioned in the affidavit which the appellant wishes to have the Court take into account. 37 Let it be assumed that the trial judge did err in that respect. That does not alter the force of the reasoning set out earlier. Even if dishonesty is a crucial element in the case the point is not whether the appellant saw the 13 June 1995 letter before it was sent, he had been told it was going to be sent and he did not stop it being sent. Accordingly, the oral arguments advanced by the appellant, in particular, the oral arguments in relation to 13 June letter, do not support a conclusion that there has been a miscarriage of justice. Even if the new evidence were received it does not create a high degree of probability that there would be a different verdict. It relates only to alleged dishonesty, and the actual decision of the trial judge did not rest on any alleged dishonesty, only on negligence. Accordingly, the second requirement for the reception of new evidence on appeal is not met. 38 For similar reasons, there is no point in considering whether any alleged negligence on the part of the appellant's lawyers constitutes "special circumstances" within the meaning of the applicable principles. 39 In my opinion the tender of the new evidence should be rejected. 40 Lest there be any misunderstanding, it is not intended by what has appeared above to suggest, in consequence of anything which the appellant has said, that there was any falling by the lawyers acting for the appellant at the trial below proper professional standards. It is not without significance that the appellant has not put on evidence that he invited the relevant lawyers to comment on the affidavit he filed with this Court.

Should the appellant be excused under s 1318(1)? 41 The only ground advanced by the appellant for the submission that he should be excused under s 1318(1) is that he lacked involvement in Mr Harris' dishonesty in representing the level of funds in his trust account to the Council by the letter of 24 July 1995. The challenge to the finding of involvement in the sending of the 24 July 1995 letter has failed, because the pleading argument has been rejected and the new evidence has not been received. 42 In oral address the appellant advanced a further reason for the proposition that there should be an order under s 1318(1). The submission commenced by saying that the respondent's oral arguments, as it were, abandoned any dishonesty case and concentrated on an unreasonableness or a carelessness case. It was submitted that the trial judge's approach to s 1318(1) must have had in mind a view that the appellant had been dishonestly involved as an accessory in Mr Harris' dishonesty. Once any such proposition had been shown to be flawed it was apparent that the trial judge had failed to take into account in an operative way whether the carelessness of the appellant should disqualify him from s 1318 relief. 43 In my opinion, there are, even if one excludes any question of involvement in the sending of the 13 June or 24 July 1995 letters, numerous unchallenged findings set out above which were equivalent to findings of at least unreasonableness. Even if one puts those on one side the behaviour of Mr Harris and the appellant in the few days before the 25 July was, as the respondent submitted, quite unreasonable. An investor whom they intended to support the respondent suddenly dropped out, and they scrambled around to obtain various companies of no or little apparent substance to subscribe for the shares. One of these companies, for example, was a company associated with the appellant which, like the others, did not advance the appropriate subscription monies. The appellant evidently hoped that in due course the company would get the funds necessary to operate somehow. The appellant was faced with a conflict between telling the Council of the true financial position which would probably mean that the project could not proceed, and not telling the Council in the hope that, in due course, it would be able to. Failure to tell the Council in those circumstances was not reasonable. The reasonable course was to do what the prospectus had promised and call a meeting of shareholders for their consideration of the problem. 44 Counsel for the appellant argued that the trial judge's failure to make a s 1318(1) order could not be supported by reasoning of that kind because the trial judge had failed to make any findings of unreasonableness along those lines, his vision, in effect, being focused rather on dishonesty. 45 It is true that the trial judge may not have made specific findings along those lines but the findings he did make and the uncontroverted evidence support what the respondent contends. The trial judge was unquestionably correct in holding that the appellant had not acted reasonably. Those findings make the trial judge's refusal to excuse the appellant invulnerable.

Causation 46 The passage in the reasons for judgment of which the appellant complains is: "Mr Gleeson put a claim that the amount of the share capital that was raised by the company (viz $242,647.49) had been substantially lost by the actions of Mr Wall. This is because the proper conclusion is that had he not contravened s 232(4) in relation to the lease, the capital raising, and the broadly associated matters to which I have referred, the company would have been wound up before this money was lost. I that that submission is correct." 47 The appellant submitted: "(a) Mr Harris was the driving force in the negotiations with the Council. He was the one who made dishonest statements to the Council and the appellant held no decisive vote on the board of the Council to force a winding up; (b) the conclusion that the subscription monies were ' lost ' involves an error as to causation. The fact was that the company took the benefit of the lease, enjoyed trading profits for a significant period. After the appellant ceased to participate in the affairs of the company and resigned as a director, it made trading losses which ultimately led to liquidation in 1998; (c) no proof was offered by the liquidator as to the financial consequence which would have eventuated in 1995 if the lease had not proceeded. His Honour was constrained to guess at this outcome when discounting the damages from $100,000 to $80,000 [Red 39M-S]. This underlines the unsatisfactory nature of the exercise in attributing particular loss to the suggested default of the appellant." 48 The respondent submitted: "The appellant submits that he held no decisive vote on the board of the respondent to force a winding up (see para 32(a) appellant's written submissions, 21 February 2002). The point now sought to be raised by the appellant was not raised below before the trial judge. In particular, there was no cross-examination of the other directors of Timbertown (Mr Chegwidden and Mr Harris) to the effect that they would have opposed the calling of a meeting of shareholders to consider a winding up resolution, if the company had not entered into the lease. Nor was any evidence to this effect given by the appellant. The appellant's submission on causation also overlooks the reality of the position he held as Chairman of the Board of Directors of the respondent, and that he was the driving force behind the 'Timbertown' proposal. Further, there is no proper basis to infer that the other directors of Timbertown would have acted improperly and contrary to the manner stated in the Prospectus if the company had not entered into the lease, ie. acted other than to put a winding up resolution to shareholders. There was no 'error as to causation' by the trial judge in finding that the respondent would have been wound up before the subscription monies were lost (RB, 39J-M). If the respondent had not entered into the lease, the directors were obliged in accordance with the terms of the Prospectus, to call a general meeting of the company to consider a winding up resolution. It may be readily inferred from the single purpose nature of the proposed business of the respondent, and the significant shortfall in subscription monies, that the shareholders would have voted in favour of a winding up resolution, and received a return of their share capital less any costs in relation to such a return. It is not to the point that the respondent in fact carried on business for a period of time after November 1995, when the true position in relation to the non-payment of subscription monies was disclosed to the new directors of the respondent who were appointed after 24 July 1995. The circumstances confronting the respondent at the time of that decision to trade on, were entirely different to those existing on 24 July 1995, ie. prior to entering into the lease." 49 The respondent's contentions are in my opinion sound. To them may be added the fact that Mr Harris was not the only person who made dishonest statements to the Council. The appellant also did so. The appellant cannot point to any difference in outcome which would flow from the causative effect of Mr Harris' dishonesty and his own putative honesty and reasonableness, for he was not honest or reasonable. It was valid for the trial judge to compare what actually happened with what would have happened if the appellant had behaved honestly and reasonably. Even if Mr Harris had sought to have overborne him, there were remedies open to the appellant, as a director and as chairman, to ensure that the company was wound up promptly. 50 As a matter of fairness to the trial judge, it is necessary to deal with one pejorative phrase employed by the appellant. The appellant submitted that the trial judge "was constrained to guess at" the financial outcome of a 1995 winding up when "discounting the damages from $100,000 to $80,000". What the trial judge did was to take the $242,647.49 which was in the respondent's bank account on 25 July 1995 (Blue 4/1072) and deduct the $100,000 paid by Mr Harris, the first defendant below, in settlement of the proceedings against him, together with the $42,500 paid by Mr Saunders, the third defendant below, in settlement of the proceedings against him. That left $100,147.49. This figure was rounded down to $100,000. That was the figure which the respondent submitted should be awarded in damages. The trial judge then said: "Leaving aside a question of defence raised by Mr Jamieson of counsel for Mr Wall, I accept this reasoning in broad terms. But I think it would be more accurate to say the company's loss is 80 cents in the $1 of the capital raised, since the prospectus, in acknowledging the full amount could not be preserved, takes this proportion as the appropriate estimate (see the passage quoted earlier in these reasons). Accordingly, if the company otherwise succeeds, I consider the sum to be recovered from Mr Wall is $80,000."

That passage was: "It may be noted at once that the figure of $600,000 was later amended to $700,000. A few hours afterwards, on the same day, Mr Harris was present at a meeting of directors of the company, chaired by Mr Wall, at which it was 'advised that subscriptions to date totalled $130,000.00'."

That process of reasoning is not the result of being "constrained to guess". It relies on incontrovertible facts, and on an estimate made in a document signed by the appellant.

3. The order of the trial judge that the second defendant pay the plaintiff the sum of $80,000 is set aside and in lieu thereof the court orders the second defendant to pay the plaintiff $101,821.30 with effect from 12 September 2001.

4. The appellant is to pay the costs of the appeal and of the cross-appeal. 52 STEIN JA: I agree with Heydon JA and with the orders which he proposes. 53 Central to the appellant's case on appeal is the claim that his former lawyers, who conducted the trial before Burchett J, so incompetently conducted themselves in the trial that a miscarriage of justice occurred. This being so, it was submitted should lead to this Court ordering a new trial. 54 The foundation for the submission is contained in an affidavit of the appellant, sworn on 21 December 2001, sought to be admitted as evidence on the appeal. In my opinion, it cannot be concluded that there was a miscarriage of justice, for the reasons given by Heydon JA. But even if there was, the Court, in my view, ought not order a new trial in its discretion, again for the reasons given by Heydon JA and those contained in the respondent's written submissions. 55 In my opinion, the evidence overwhelmingly supports his Honour's conclusions. There is no doubt in my mind that his Honour was entitled to find that the appellant breached his duties as a director in the three respects mentioned in para 16 of the judgment. These were findings which were available to his Honour. This is so whether or not the appellant was shown the letter of 24 July 1995 by Mr Harris before it was sent to the Council, or for that matter Mr Harris' letter of 13 June 1995.

56 GILES JA: I agree with Heydon JA and with the additional remarks from Stein JA. 57 STEIN JA: Accordingly, the orders of the Court will be as indicated by Heydon JA. ***********

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