Re Western Australia v Bond Corporation Holdings Ltd; Wardley Australia Limited; Lawrence Robert Connell and Wardley Australia Securities Limited [1991] FCA 33; (1991) 13 Atpr 41-095 (15 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: STATE OF WESTERN AUSTRALIA
And: BOND CORPORATION HOLDINGS LTD; WARDLEY AUSTRALIA LIMITED; LAWRENCE ROBERT
CONNELL and WARDLEY AUSTRALIA SECURITIES LIMITED
Nos. WA G116 and 118 of 1990
FED No. 31
Trade Practices - Torts
[1991] FCA 33; (1991) 13 ATPR 41-095

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - motions to dismiss application or strike out statement of claim - loss and damage - causation - general principles - common law analogies - applicant taking action to protect own interests - mitigation of loss - misleading or deceptive conduct inducing execution of indemnity - dispute on whether indemnity discharged - compromise of dispute - payment made in settlement - whether payment loss or damage by reason of conduct - guarantee/indemnity - whether discharged when debtor repays creditor by undue preference - accrual of cause of action - time limitation - general principles - accessorial liability - silence - various pleadings points.

Torts - deceit - whether by silence - joint tortfeasors - compromise - alleged discharge by operation of law - sufficiency of pleadings generally.

Trade Practices Act 1974 ss.52, 51A, 82

Federal Court Rules O.13 r.2

O'Donovan and Phillips, The Modern Contract of Guarantee

Trindade and Cane, The Law of Torts in Australia

McGregor on Damages, 14th Edition

Smolonogov v. O'Brien (1982) 44 ALR 347

Neilson v. Hempston Holdings Pty Ltd (1986) 65 ALR 302

Mudginberri Station Pty Ltd v. AMIEU (1986) ATPR 40-708

Yorkshire Dale Steam Ship Co. Ltd v. Minister of War Transport (1942) AC 691

The National Insurance Co. of New Zealand Limited v. Espagne [1961] HCA 15; (1961) 105 CLR 569

Elna Australia International Pty Ltd v. International Computers (Australia) Pty Ltd (No. 2) [1987] FCA 230; (1987) 16 FCR 410

Munchies Management Pty Ltd v. Belperio (1988) 84 ALR 700

Pavich v. Bobra Nominees Pty Ltd (1988) ATPR (Digest) 46-041

Commercial Bank of Australia Ltd v. Carruthers (1964-65) NSWR 1197

In re Multi-Tech Services (1982) 30 SASR 218

Walker v. Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496

National Acceptance Corporation Pty Ltd v. Benson (1988) 12 NSWLR 213

Wilson v. United Counties Bank Ltd (1920) AC 102

Canadian Pacific Railway v. Kelvin Shipping Co. (1927) 138 LT 369 (H.L.)

Pilkington v. Wood (1953) 1 Ch 770

Weldon v. Neal (1887) 19 QBD 394

Bradshaw v. Hair Transplant Pty Ltd (1986) 70 ALR 503

Zoneff v. Elcom Credit Union Ltd (1990) 94 ALR 445

Arcadi v. Colonigal Mutual Life Assurance Society Ltd (1984) ATPR 40-473

Cooke v. Gill (1873) LR 8 CP 107

James v. ANZ Banking Group Ltd (1986) 64 ALR 347

Ikin v. Same and Lamborghini Tractors Pty Ltd (1985) ATPR 40-595

Keen Mar Corporation Pty Ltd v. Labrador Park Shopping Centre Pty Ltd (1988) ATPR 40-853

Calmao v. Stradbroke Waters Co-owners Co-operative Society Ltd [1989] FCA 407; (1989) 89 ALR 507

Darley Main Colliery Co. v. Mitchell (1886) 11 App Cas 127

Jobbins v. Capel Court Corporation Ltd (1989) 91 ALR 314

Cartledge v. E. Jopling and Sons Ltd (1963) AC 758

Wheeler Grace and Pierucci Pty Ltd v. Wright (1989) ATPR 40-940

Hamilton v. Whitehead [1988] HCA 65; (1988) 166 CLR 121

Peek v. Gurney (1873) LR 6 HL 377

Arkwright v. Newbold (1881) 17 Ch D 301

Bristow v. Moffat Virtue (Qld) Pty Ltd (1962) Qd R 377

Curtis v. Chemical and Dyeing Co. (1951) 1 KB 805

Link v. Schaible (1961) 27 DLR (2d) 461

Horsfall v. Thomas (1862) 1 H.C. 90

Brownlie v. Campbell (1880) 5 App Cas 925

Briess v. Woolley (1954) AC 333

Jones v. Dumbrell (1981) VR 199

With v. O'Flanagan (1936) Ch 575

HEARING

PERTH
15:2:1991

Counsel for the Applicant: Mr E.M. Heenan QC and Mr R. Cock

Solicitor for the Applicant: State Crown Solicitor

Counsel for the First Respondent: Mr C.D. Steytler and Mr A. Siopis

Solicitors for the Respondent: Parker and Parker

Counsel for the Second and Mr C.J.L. Pullin QC and
Fourth Respondents: Ms A. Kennedy (on 24/1/91)

and Mr J. Chaney (on 29/1/91)

Solicitors for the Second and Northmore Hale Davy and Leake

Fourth Respondents:

Counsel for the Third Respondent: Mr M.J. Stevenson

Solicitors for the Respondent: Jackson McDonald

ORDER

Paragraphs 16(c), 19, 24, 29(1)(c) so far as it refers to paragraphs 25, 26 and 27, and paragraphs 35(b) and (d), and 49 of the amended statement of claim be struck out.

The applicant have leave to amend its amended statement of claim by deletion from each of the sub-paragraphs 12(a)(i) and 12(b)(i) of the words "on the basis inter alia of Rothwells' 1987 audited accounts".

The applicant have leave to file and serve a further re-amended statement of claim on or before 1 March 1991.

The parties be at liberty to apply by short written submission on the question of costs, such submissions to be filed on or before 22 February 1991.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

On 26 October 1987 the Premier and Treasurer of Western Australia, Brian Thomas Burke, executed a deed by which the State agreed to indemnify the National Australia Bank Ltd ("NAB") against any net loss arising from the NAB granting financial accommodation of up to $150 million to the merchant bank, Rothwells Limited, which is now in liquidation. The State alleges that on the day after the deed was signed, Rothwells drew down $150 million under the NAB facility, a debt which it repaid on 17 October 1988. On 3 November 1988 provisional liquidators were appointed to Rothwells. They contended that the repayment was a voidable preference. A dispute ensued between the State, the NAB and the liquidators in which the State claimed that the indemnity had been discharged by the repayment. According to the State, that dispute was "reasonably settled" on a basis which led to it paying $33 million to Rothwells on 30 May 1989 and receiving $10.5 million from NAB on 8 December 1989. Rothwells was wound up by an order of the Supreme Court of Queensland made on 22 September 1989. The State says that it was induced to provide the indemnity by various statements made to its representatives, including a Minister of the Crown, at meetings held on the weekend of 24 and 25 October 1987. Those representations, it says, constituted misleading or deceptive conduct in contravention of s.52 of the Trade Practices Act 1974. In these proceedings it claims damages under s.82 of the Act against Bond Corporation Holdings Ltd ("BCH"), Wardley Australia Ltd ("Wardley"), Lawrence Robert Connell ("Connell") and Wardley Australia Securities Ltd ("Wardley Securities"). It also claims relief under s.87 of the Act and damages for fraud against Connell.
The Proceedings So Far

2. This action was commenced as No. WAG 116 of 1990 on 24 October 1990 against BCH, Wardley and Connell. A separate application was instituted against Wardley Securities in No. 118 of 1990. Orders consolidating the two actions were made on 19 November 1990 and a consolidated statement of claim filed on the same day. Programming orders were made and the directions hearing adjourned to 11 March 1991. In the meantime, on 14 December, BCH filed a motion returnable on 17 December seeking to strike out two paragraphs of the statement of claim. That motion was heard on 17 December. The decision on that motion was reserved to 20 December and an order made that Connell file and serve a foreshadowed motion to strike out all or part of the statement of claim and a brief outline of his submissions by 19 December 1990. On 19 December, two strike out motions were filed, one by Wardley and Wardley Securities and the other by Connell. On 20 December orders were made striking out the paragraphs attacked by the BCH motion of 14 December. The State was given leave to file and serve an amended statement of claim by 14 January. The motions filed by Wardley and Wardley Securities and Connell, were adjourned to 24 January and directions given for outlines of objections, if any, to the amended statement of claim to be filed and served by 22 January.

3. The amended statement of claim was filed on 14 January. On 21 January, BCH filed a motion to strike it out in its entirety as disclosing no reasonable cause of action and alternatively for orders that paras. 12(a)(i), 29(a) and (c), 33(b)(i) and 49 be struck out as disclosing no reasonable cause of action or for their tendency to cause prejudice, embarrassment or delay in the proceedings.

4. On 23 January, Connell filed a further motion seeking a dismissal of the application generally, alternatively as against himself, and alternatively the striking out of the amended statement of claim as against himself. BCH's motion, that of Wardley and Wardley Securities and Connell's two motions came on for argument on 24 and 29 January and judgment was reserved until today. Before turning to those motions, it is necessary to set out the substance of the amended statement of claim as it presently stands. Although that appears in a narrative form below, it does not involve any finding of fact. It is a summary of the pleading which is, at this stage, no more than allegation.
The Amended Statement of Claim - The Allegations

5. The State sues BCH, Wardley, Connell and Wardley Securities on account of statements made at two meetings held on 24 and 25 October 1987. Representing the State at the first meeting were David Parker, a Minister of the Crown, John Horgan, Chairman of the Western Australian Development Corporation, and Anthony Lloyd, a senior government advisor. Representing BCH were its Chairman, Alan Bond, and one of his executives, Peter Beckwith. Also present was James Yonge, an officer of Wardley and Wardley Securities and Lawrence Connell, Chairman of Rothwells. The meeting was held at Rothwells' Perth office.

6. Bond told the representatives of the State that Rothwells had severe liquidity problems and was in urgent need of liquidity to repay all short term depositors by 26 October. Wardleys had proposed that Rothwells undertake a capital raising of $150 million, which was underway, but a credit line facility of a further $150 million was required. The National Australia Bank, he said, was willing to provide the facility but only on the strength of some form of government guarantee or indemnity. He then, it is said, made the following representations, which are set out in para.12(a) of the amended statement of claim:

(i) That on the basis, inter alia, of
Rothwells' 1987 audited accounts,
Rothwells was a very sound financial
institution which had substantial net
assets ("the Bond Saturday Soundness
Representation").
(ii) That there were not any substantial
amounts of loans by Rothwells to Connell
or to companies or partnerships in which
Connell had financial interests ("the Bond
Saturday Loan Representation").
(iii) That Bond Corporation would contribute
about $20 million to the capital raising,
thereby implying that Bond Corporation's
net contribution to the plan to solve the
existing and anticipated liquidity
problems of Rothwells would be about $20
million ("the Bond Saturday Fee
Representation").

Yonge also represented (according to para.12(b)):

(i) That on the basis, inter alia, of
Rothwells' 1987 audited accounts Rothwells
had very substantial net assets and that
the problems at Rothwells were not
problems of capital deficiency but simply
ones of liquidity ("the Wardley Saturday
Soundness Representation"); and
(ii) That there were not any substantial
amounts of loans by Rothwells to Connell
or to companies or partnerships in which
Connell had financial interests ("the
Wardley Loan Representation").

Connell said nothing and at no stage suggested that these representations or Rothwells' 1987 audited accounts were incorrect (para.13). This is called in the statement of claim, "Rothwells Saturday Silence". Connell also represented at this meeting that there were no substantial loans by Rothwells to Connell or companies or partnerships in which he had financial interests (Rothwells Loan Representation - para.14).

7. On the afternoon of the following day, 25 October 1987, a meeting of the Government Budget Sub-Committee was held to decide whether the State should provide the requested guarantee or indemnity to NAB. Among those attending this meeting were Parker and Lloyd (para.15). Also present were Beckwith, Connell and Yonge who, it is said, made certain representations to the members of the committee. Beckwith allegedly represented that:

(i) Rothwells was a sound financial
institution which had substantial net
assets (Bond Sunday Soundness
Representation) (para.16(a)).
(ii) The guarantee or indemnity which the State
was requested to provide would not be
called on (Bond Sunday Indemnity
Representation) (para.16(b)).

And in an allegation that appeared for the first time in the amended statement of claim it was said that Yonge represented that:

(iii) Rothwells was a sound financial
institution which had substantial net
assets (Wardley Sunday Soundness
Representation) (para.16(c)).

Connell made a strong plea for State Government support to solve Rothwells' existing and anticipated liquidity problems and did not inform the members of the Committee that the Bond or Yonge representations made on the previous day were incorrect nor that Rothwells' 1987 audited accounts were incorrect (Rothwells Sunday silence - para.17). By this non-disclosure he is said to have represented to the State (para.18):

(i) Rothwells was a sound financial
institution which had substantial net
assets (Rothwells Soundness
Representation).
(ii) There were not any substantial amounts of
loans to Connell or to companies or
partnerships in which he had financial
interests (Rothwells Further Loan
Representation).
(iii) BCH's net contribution to solving the
existing and anticipated liquidity
problems of Rothwells would be about $20
million (Rothwells Fee Representation).

These representations by Connell are referred to collectively as the Rothwells Representations and it is said, in para.19, were made "by reason that":

(i) Connell adopted the Bond and Wardley
Saturday Representations (para.19(a)).
(ii) Connell adopted the contents of Rothwells'
1987 audited accounts (para.19(b)).
(iii) The State reasonably assumed from his
conduct and the circumstances of the two
meetings that the Bond and Wardley
Saturday Representations "were made on
behalf of or with the concurrence of
Rothwells and of Connell" (para.19(c)).
(iv) The State reasonably assumed from
Connell's conduct and from the
circumstances of the two meetings that
Rothwells and Connell accepted the truth
of the contents of Rothwells' 1987 audited
accounts (para.19(d)).
(v) Rothwells and Connell were at all material
times under a duty to inform the State
that the Bond and Wardley Saturday
Representations and Rothwells' 1987
audited accounts were not true
(para.19(e)).

It is then said that induced by and relying upon the pleaded representations and silences, the State by its Premier and Treasurer, Brian Thomas Burke, executed an indemnity in favour of NAB against any net financial loss from the provision of credit to Rothwells to a maximum amount of $150 million (para.20).

8. Seven paragraphs (21 - 27) followed, setting out facts said to falsify the pleaded representations. Although the 1987 accounts portrayed Rothwells as at 30 June as a sound financial institution with substantial net assets (para.22), at all material times it was "not a sound financial institution and did not have substantial net assets" (para.21). There were substantial amounts of loans to Connell and companies and partnerships in which he had financial interests (para.23). As to the Bond Saturday representations relating to BCH's intended contribution of "about $20 million" it is said that:

"24. At the time the Bond Saturday fee Representation
was made, it was the intention of each of Bond and
Connell that Rothwells would pay to Bond Corporation a
substantial fee for Bond Corporation's role in
arranging the capital raising and the Indemnity."

Their intentions were the same at the Sunday meeting (para.25). Payment of a fee of $16 million to BCH by Rothwells for its role in arranging the capital raising and indemnity is alleged in para.26. BCH having contributed $17.5 million to the capital raising, its net contribution to the plan to solve the existing and anticipated liquidity problems of Rothwells was $1.5 million (para.27).

9. The various representations and Connell's silence were conduct in trade or commerce (paras.28, 30, 32 and 34). And BCH, Wardley and/or Wardley Securities and Rothwells are all, by the conduct of their respective officers, said to have engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s.52(1) of the Trade Practices Act 1974 (paras. 29, 31, 33 and 35). The grounds upon which the various elements of the conduct were misleading or deceptive are set out. The Bond Saturday Soundness and Loan Representations were not true (paras. 29(a) and (b)). Neither was the Bond Sunday Soundness Representation (para.33(a)). The Bond Saturday Fee Representation was misleading or deceptive as to BCH's "intended net contribution to the plan to solve the existing and anticipated liquidity problems of Rothwells" (para.29(c)). Section 51A of the Trade Practices Act is also relied upon (para.29(c))(ii)). And Beckwith's statement at the Sunday meeting that the indemnity would not be called on, the Bond Sunday Indemnity Representation, was misleading or deceptive as to Rothwells' financial soundness (para.33(b)) because at all material times Rothwells was not a sound financial institution and did not have substantial net assets (para.21). It is also deemed to be misleading because the NAB did later require that the State indemnify it in respect of the provisional liquidators' demand (para.45). In this connection s.51A of the Trade Practices Act is called in aid.

10. Rothwells' Saturday and Sunday silences, the Rothwells Loan Representation and the Rothwells Representations were all in contravention of s.52. The Rothwells soundness representation was not true (para.35(a)). And because Rothwells was at all material times not in a sound financial condition and did not have substantial net assets, its failure, through Connell, to advise the State that the Bond and Wardley Saturday Soundness Representations and Rothwells' 1987 audited accounts were not true, was misleading or deceptive, or likely to mislead or deceive. This was because of various things which, it is said, the State "reasonably assumed" (para.35(b)) namely that:

(i) Connell adopted the Bond Saturday
Soundness Representation and the Wardley
Saturday Soundness Representation.
(ii) The contents of Rothwells' 1987 audited
accounts were true.
(iii) Connell adopted the contents of the
Rothwells' 1987 audited accounts.
(iv) From Connell's conduct and the
circumstances of the Saturday and Sunday
meetings that the Bond and Wardley
Saturday Soundness Representations were
made "on behalf of or with the concurrence
of Rothwells".
(v) From the same conduct and circumstances
"that Rothwells accepted the truth of the
contents of Rothwells' 1987 audited
accounts". (paras. 35(b)(i) to (v)).

And in support of this characterisation of Rothwells' failure to advise the State in relation to the Bond and Wardley Representations and the Rothwells' 1987 audited accounts it is further pleaded that:

(vi) Rothwells was at all material times under
a duty to inform the State that the Bond
Saturday Soundness Representation and
Wardley Saturday Soundness Representation
and Rothwells' 1987 audited accounts were
not true. (para. 35(b)(vii)).

The conduct was also said to be misleading or deceptive on the basis that Rothwells' Loan Representations were not true because there were substantial loans to Connell and companies and partnerships in which he had a financial interest (para.35(c)).

11. In relation to the Bond and Wardley Loan Representations, Rothwells' failure to advise the State that they were not true is said to be misleading or deceptive, or likely to mislead or deceive, in that (para.35(d)):

(i) The State reasonably assumed that Connell
adopted the Bond Saturday Loan
Representation and the Wardley Loan
Representation (para.35(d)(i)).
(ii) The State reasonably assumed from
Connell's conduct that the Bond Saturday
Loan Representation and the Wardley Loan
Representation were made on behalf of or
with the concurrence of
Rothwells;(para.35(d)(ii)) and
(iii) Rothwells was at all material times under
a duty to inform the State that the Bond
Saturday Loan Representation and the
Wardley Loan Representation were not true
(para.35(d)(iii)).

The Rothwells fee representation is said to be misleading or deceptive as to BCH's intended net contribution to the plan, as is Rothwells' failure to advise the State that the Bond Saturday Fee Representation was misleading or deceptive (paras. 35(e)(i) and (f)(i)). Section 51A is also invoked in relation to both (paras. 35(e)(ii) and (f)(ii)).

12. Connell is said to have been a person "involved" in the Rothwells contravention of s.52 on the basis that he aided, abetted, counselled or procured or was knowingly concerned in or party to it (para.36). And in support of the fraud claim, it is said in para.37 that he knew or did not care whether it was true or false that:

(i) Rothwells was not a sound financial
institution and did not have substantial
net assets.
(ii) Its audited accounts portrayed the
contrary.
(iii) There were substantial loans by Rothwells
to Connell and companies and partnerships
in which he had financial interests; and
(iv) BCH's net contribution to the plan to
solve the existing and anticipated
liquidity problems of Rothwells would be
substantially less than $20 million.
(para.37).

His alleged intention in making the representations and keeping his silence, was to induce the State to give the indemnity (paras. 38 and 39).

13. From about 27 October 1987 Rothwells drew down $150 million on the NAB facility in relation to which the indemnity was given by the State (para.40). It repaid that amount on or about 17 October 1988 (para. 41). At about that time it was insolvent (para.42) and on 3 November 1988 a petition for its winding up was presented in the Supreme Court of Queensland. Messrs. Tuckey and Ferrier were appointed provisional liquidators (para.43). The following 4 paragraphs of the statement of claim then set up the way in which the State says it suffered loss as a result of the conduct of the respondents:

"44. The Provisional Liquidators contended that
Rothwells' payment of $150 million constituted a
voidable preference and demanded payment to them of
that sum by the NAB. The NAB and the State denied
that Rothwells' payment constituted a voidable preference.
45. The NAB requested that pursuant to the Indemnity
the State indemnify it in respect of the Provisional
Liquidators' demand.
46. A dispute arose between the State and the NAB in
relation to the Indemnity in that while the State
contended that the payment by Rothwells of $150
million discharged the Indemnity, NAB contended that
the Indemnity was in full force and effect.
47. The dispute between the State and the NAB and the
claim by the Provisional Liquidators against NAB were
reasonably settled between them such that:
(a) on 30 May 1989 the State paid $33 million
to Rothwells; and
(b) on 8 December 1989 NAB paid $10.5 million
to the State."

Rothwells was wound up on 22 September 1989. Paragraph 49 goes on to allege that its insolvency and winding up were caused or contributed to by:

(a) The fact that at all material times, both
prior to and subsequent to the execution
of the Indemnity, Rothwells was not a
sound financial institution and did not
have substantial net assets.
(b) The fact that at all material times, both
prior to and subsequent to the execution
of the Indemnity, the nature of the
substantial amounts of loans by Rothwells
to Connell and to companies and
partnerships in which Connell had
financial interests was such as to
contribute to the fact that Rothwells was
not a sound financial institution and did
not have substantial net assets.
(c) The fact that Bond Corporation's net
contribution to the plan to solve the
existing and anticipated liquidity
problems of Rothwells was only $1.5
million.

Paragraph 50 alleges that by reason of the contravention of the Trade Practices Act by BCH, Wardley and Rothwells, and by Connell's involvement and fraudulent conduct, the State has suffered loss and damage. This is particularised as the sum of $22.5 million.

14. In the course of argument on the motion, the State proposed further amendments to its amended statement of claim. These were as follows:

"1. That from each of sub-paragraphs 12(a)(i)
and 12(b)(i) the words 'on the basis inter
alia of Rothwells' 1987 audited accounts'
be deleted.
2. That a new paragraph 12A be inserted as follows:
'12A(a) In the course of making the Bond
Saturday Soundness Representation, Bond
referred to the 1987 Rothwells' audited
accounts as evidence of the truth of the
Bond Saturday Soundness Representation;
(b) In the course of making the
Wardley Saturday Soundness Representation,
Yonge referred to the 1987 Rothwells'
audited accounts as evidence of the truth
of the Wardley Saturday Soundness
Representation.'"

It was agreed that the question of the amendment should be dealt with at the same time as the determination of the strike out motions.
The Indemnity and Settlement Documents

15. The third respondent's attack upon the statement of claim depended in part on the indemnity executed by the Premier and two of the deeds underpinning the settlement of the dispute with the NAB and the provisional liquidators. These documents were admitted in evidence without objection.

16. The indemnity was typed on paper bearing the letterhead of the Office of the Premier. It was in the following terms:

"National Australia Bank Limited
50 St. George's Terrace
PERTH WA 6000
ROTHWELLS LIMITED
In consideration of the National Australia Bank
Limited ("the Bank") granting financial accommodation
to a maximum aggregate amount of ONE HUNDRED AND FIFTY
MILLION DOLLARS ($150,000,000.00) to ROTHWELLS LIMITED
(hereinafter called "the Company"), I, BRIAN THOMAS
BURKE of 197 St. George's Terrace, Perth Premier and
Treasurer of the State of Western Australia, ("the
State") for and on behalf of the State HEREBY
UNDERTAKE to hold you indemnified against any net loss
which may arise in the event that the Company does not
satisfy in full its liability under the terms of the
Bills Acceptance/Discounted/Endorsed No. 1 facility
("the Facility") to be granted by the Bank to the
Company in accordance with a letter of offer
substantially in the form attached. The indemnity so
given does not extend to liabilities in respect of
Bills drawn under the Facility after 26 October 1989.
In calculating the net loss where the Bank has granted
any other facility to the Company, any payment
received by the Bank:
(a) from the Company at a time when default
has occurred and is continuing under the
Facility or any such other facility; or
(b) from a liquidator of the Company
in respect of the Facility and any such other
facilities shall be applied as between the Facility
and those facilities in proportion to the amounts
outstanding under them, except that:
(c) the proceeds of the rights issue by the
Company referred to in the letter of offer
may be applied wholly in or towards
discharge of liabilities under the Bills
Acceptance/Discounted/ Endorsed No. 2
facility referred to in the letter of
offer; and
(d) the proceeds of any security held by the
Bank may be applied in or towards
discharge of any of the monies secured by
that security.
It is a condition of this indemnity that before the
Bank may make any claim hereunder, it must proceed to
the fullest extent of its rights against the Company
(but not any director or officer of the Company) to
obtain payment out of the assets of the Company. The
amount of any deficiency remaining after the Bank has
received a final distribution in a liquidation of the
Company may then be the subject of a claim under this
indemnity.
This indemnity shall be a continuing security and
shall not be affected by the Bank:
(a) granting the Company any time or other
indulgence;
(b) recovering any judgment against the
Company in respect of its liabilities
under the Facility; or
(c) granting any other facility to the
Company, or receiving any payment under
the terms of any such facility.
I FURTHER UNDERTAKE for and on behalf of the State to
pay on demand such sum pursuant to this indemnity as
shall be demanded by the Bank to a maximum aggregate
amount of $150,000,000.00 if and when demanded by the
Bank in writing."

The two deeds reflecting the pleaded settlement were both dated 3 May 1989. One was between NAB and the State of Western Australia. The other was between Rothwells, its provisional liquidators and the State. The deed between NAB and the State contained a number of recitals, including paras. G., H. and I. The payment referred to in para. G was that made by Rothwells to the Bank in October 1988. These three recitals read as follows:

"G. The Provisional Liquidators have contended that
the payment or part thereof, constituted a voidable
preference within the meaning of s.451(1) of the
Companies (Queensland) Code in conjunction with s.122
of the Bankruptcy Act 1966. The Bank denies this
contention and is supported by the State.
H. A dispute has arisen between the State and the
Bank in relation to the Indemnity. The State has
contended that the payment discharged the obligations
of the State under the Indemnity and that the State
has no liability to indemnify the Bank against any
loss suffered by the Bank as a consequence of the
total or partial disgorgement of the payment or any
part thereof by the Bank to any liquidator of
Rothwells ("the Liquidator").
I. The Bank denies that the indemnity has been
discharged by the payment or otherwise, contends that
the indemnity is in full force and effect and contends
that the State remains obliged by the indemnity to
indemnify the Bank in respect of whatever net loss the
Bank incurs in respect of the facility."

Recital J. set out that the State and the Bank had agreed in accordance with the deed that followed to settle their dispute in relation to the indemnity. By the substantive terms of the deed, the State indemnified the Bank in respect of any liability arising from any court order to repay the $150 million or part thereof or interest on it to any liquidator of Rothwells. The indemnity extended to legal and other costs incurred by the Bank after 21 April 1989 in relation to the payment and any civil claim against the Bank or its officers in respect of it. The State covenanted to use all reasonable endeavours to procure and furnish to the Bank a duly executed release from the liquidator upon which the Bank would pay the State a sum called "the Bank's contribution", calculated in accordance with cls. 4, 5 and 6 of the deed. If the State were to pay an agreed net amount to obtain the liquidator's release and that amount were not less than $33 million, then the Bank's contribution to the State was to be $10.5 million. If the amount paid by the State were less than $33 million, then the Bank's contribution would be reduced pro rata. Mutual releases were provided for by cls. 11 and 12, the Bank release of State obligations to be given upon the furnishing by the State of the liquidators' release to the Bank.

17. The second settlement document was entered into between the State, Rothwells and the provisional liquidators. After referring to Rothwells' insolvency, the appointment of provisional liquidators and the elements of a proposed scheme of arrangement, it recited the payment of $150 million by Rothwells (para.G), the provisional liquidators' contention that it would be void as against a liquidator (para.H) and at para. J. said:

"For the purpose of facilitating the Scheme and
conditionally upon its approval and without any
admissions on the part of any of the Company, the
Provisional Liquidators or the State, the State has
agreed, as the creditor's indemnifier, to pay to the
Provisional Liquidators the sum of $33,000,000.00
(which amount together with any interest accrued under
clause 3 of this deed is called the "Fund") on the
terms and conditions herein contained."

18. In the first of the substantive clauses that followed, the State agreed to pay $33 million to the provisional liquidators after the conclusion of meetings of creditors approved by the Court for the purpose of considering the proposed scheme of arrangement and before Court approval of the scheme (cl.1). The payment would not be required if relevant meetings of creditors of the Company did not agree to the scheme by the majority required under the Companies (Queensland) Code. The State also agreed to support the scheme and procure the support of the NAB. The deed was expressed then to be conditional upon various events:

(a) The Supreme Court of Queensland approving
the scheme of arrangement and authorising
and approving the execution of the deed by
the provisional liquidators and Rothwells
(cl.6.1(a)).
(b) Rothwells being ordered to be wound up and
a liquidator appointed (cl.6.1(b)).
(c) The Supreme Court of Queensland approving
the compromise contained in the deed as
though it were made between a liquidator
of the company and a creditor in respect
of the various claims to which reference
was made in the deed between a liquidator
or the company and the creditor. It was a
further condition that the liquidator
covenant that the payment of
$33,000,000.00 by the State would be
accepted in full satisfaction and
discharge of all claims and demands that
the liquidator might make in respect of
the alleged preference payment. The
liquidator was to release NAB from all
such claims as well (cl.6.1(c)(i)).
(d) The liquidator covenanting or
acknowledging by a deed in favour of the
State that he would make the payment
contemplated by cl.5 (6.1(c)(ii)).

Clause 5 provided that upon the deed becoming unconditional, the liquidator was to distribute $10,490,000 by way of interim dividend to the State Government Insurance Commission and the Rural and Industries Bank pro rata, according to the value of their admitted proofs of debt (cl.5).
Causation and the Pleaded Facts

19. At the forefront of argument advanced for each of the respondents was the submission that the pleaded facts did not disclose a causal relationship between the conduct complained of and the loss suffered. The necessity to show such a relationship in a claim for damages under the Trade Practices Act arises from the words of s.82 which provides:

"82(1) A person who suffers loss or damage by conduct
of another person that was done in contravention of a
provision of Part IV or V may recover the amount of
the loss or damage by action against that other person
or against any person involved in the contravention.
(2) An action under sub-section (1) may be
commenced at any time within three years after the
date on which the cause of action accrued.
(3) Sub-section (1) does not apply in relation to
conduct done in contravention of section 52A."

The cause of action defined by this section requires conduct in contravention of the Act and loss or damage suffered by such conduct. "By" in this context means "by reason of" or "as a result of" - Smolonogov v. O'Brien (1982) 44 ALR 347 at 362; Neilsen v. Hempston Holdings Pty Ltd (1986) 65 ALR 302 at 308; Mudginberri Station Pty Ltd v. AMIEU (1986) ATPR 40-708 at 47,717. It is therefore the loss caused by the contravention that is recoverable. In analogous common law settings the cause of actionable loss is determined, not upon a strictly logical or metaphysical enquiry, but according to legal policy that reflects ordinary usages. "Causation is to be understood as the man in the street and not either the scientist or the metaphysician would understand it" - Yorkshire Dale Steam Ship Co. Ltd v. Minister of War Transport (1942) AC 691 at 706. It is the common notion of cause as understood in ordinary speech that suffices - The National Insurance Co. of New Zealand Limited v. Espagne [1961] HCA 15; (1961) 105 CLR 569. That approach has allowed courts to select events which will be treated as causative of the relevant outcome and in so doing to have regard to considerations of policy and the purposes of the relevant law - Elna Australia International Pty Ltd v. International Computers (Australia) Pty Ltd (No. 2) [1987] FCA 230; (1987) 16 FCR 410 at 418. Its application to s.82 was approved by the Full Court in Munchies Management Pty Ltd v. Belperio (1988) 84 ALR 700 at 712-713. And in that application, familiar criteria regulating the recoverability of loss such as remoteness, mitigation and contributory negligence may find their place, but as elements of the causation principle embodied in s.82 rather than as distinct rules of law - Pavich v. Bobra Nominees Pty Ltd (1988) ATPR (Digest) 46-041. It is often also the case that the court is not concerned with physical causality of the kind which explains the behaviour of billiard balls and colliding vehicles or ships. Rather it is dealing with cause and effect in a universe of human reactions, here expressed in commercial and governmental decision-making, in which choices can be and are made of the appropriate response to a given occurrence. Physical causality is then at best an imprecise metaphor. In that universe nevertheless, ordinary usage of the concept of cause and effect operates in its own right and not as mere metaphor.

20. Subject to specific objections yet to be addressed, the case pleaded by the State alleges contravention of s.52 and fraud, inducing the execution of the indemnity and, on that basis, the assumption of a legal liability. And it is part of the case that there was a dispute about whether the liability had been discharged, which dispute was settled with a net payout of $22.5 million on the part of the State. The complaint is made by the respondents that this does not forge any or any sufficient causal link between conduct and loss for the purposes of s.82. Their submissions reduce to the following propositions:

1. There is no plea that the sum of $150 million paid by
Rothwells to the NAB was in fact a voidable preference.
2. There is no plea either that the State's liability under
the indemnity was not discharged upon that payment or
that the liability would have been revived upon recovery
of the money from NAB by the liquidators.
3. There is no plea that the State had to pay anything to
NAB.
4. Alternatively, there is no plea that the State was at
risk of having to pay anything to NAB.

The State says the allegation that it was at risk of exposure under the deed after Rothwells' repayment to the NAB is implicit in the words "reasonably settled". It submits that there is no need to plead that the payment was a voidable preference. It is enough that the provisional liquidators asserted that this was so and that a genuine dispute arose as to whether there was an obligation on NAB to disgorge the $150 million and a consequent liability on the State to NAB under the indemnity. Counsel for Connell referred to Commercial Bank of Australia Ltd v. Carruthers (1964-65) NSWR 1197 for the proposition that avoidance of the payment of a guaranteed debt as an undue preference under s.95 of the Bankruptcy Act 1924 would not revive the debt so as to reinstate the guarantor's liability. On that basis it was suggested that the State's indemnity was discharged once and forever when Rothwells paid the money back to NAB. The surety in Carruthers had guaranteed the payment by the debtor of "all advances, loans or credits and all debts or sums of money now owing or payable or unpaid or hereafter to become owing or payable or to be unpaid". At 1204 Manning J. said:

"Even though the creditor is given the right to prove,
it is difficult to see any justification for the view
that any sum became owing or payable or unpaid by the
principal debtor following upon the avoidance of the
payment in question under s.95. There cannot be said
to be any revival of the debt, and it is the existence
of a debt which can be said to be owing or payable or
unpaid by the principal debtor at the relevant time
which is the condition of the guarantor's liability."

The judgment has not been followed in any reported decision, possibly because its effect has been generally recognised by the inclusion of protective clauses in guarantee documents - In re Multi-Tech Services (1982) 30 SASR 218 at 219; Walker v. Commonwealth Trading Bank of Australia (1985) 3 NSWLR 496 at 498. It was held not to apply to the different statutory setting of s.368(1) of the Companies (NSW) Code, avoiding dispositions of corporate property after commencement of a winding up by the court - National Acceptance Corporation Pty Ltd v. Benson (1988) 12 NSWLR 213 at 217. Its correctness has been doubted in The Modern Contract of Guarantee, O'Donovan and Phillips, p 201-202. In my opinion the decision cannot be taken to be unarguably correct as a statement of the law. And in any event the language of the indemnity executed by the State was quite different from the guarantee there under consideration. The latter guaranteed "debts owing or payable or unpaid". The indemnity applied to "any net loss which may arise in the event that the Company does not satisfy in full its liability" and was conditioned on a requirement that the Bank "proceed to the fullest extent of its rights against the Company". It went on to provide:

"The amount of any deficiency remaining after the Bank
has received a final distribution in a liquidation of
the Company may then be the subject of a claim under
this Indemnity."

There are, on the face of it, substantial grounds for argument that the State's liability under the indemnity was not discharged by repayment of the debt if that repayment were an undue preference. And on the pleaded facts relating to the timing of the repayment, Rothwells' insolvency and subsequent liquidation, there are grounds for arguing that the repayment was at risk of avoidance and recovery back by the liquidators.

21. It was submitted that the State cannot claim its net settlement payout as a loss without establishing that it was liable to repay the full $150 million. Accepting that the amended statement of claim does not assert that liability, it does support the characterisation of the respondents' conduct as a sine qua non of the loss. On the pleadings, but for its entry into the indemnity which would not have occurred but for the conduct of the respondents, the State would not have been in dispute with the NAB and settling with it and the provisional liquidators. The alleged conduct of the respondents was what has been called a "factual cause" of the loss - The Law of Torts in Australia, Trindade and Cane, p 360. The critical question is whether it also amounted to what the learned authors of that text would call an attributive cause. Implicit in the respondents' argument is the proposition that on the pleaded facts it is not shown that the State was better off by settling than by contesting the NAB claim. But in the general framework of cause-effect relationships that describe commercial or governmental decision-making, it does not follow that this omission is fatal. By way of analogy, reference can be made to the observation of Lord Atkinson in Wilson v. United Counties Bank Ltd (1920) AC 102 at 125 where he said:

"If one man inflicts an injury upon another, the resort
by the sufferer to reasonable expedients for the bona
fide purpose of counteracting, curing or lessening the
evil effects of the injury done him, does not
necessarily absolve the wrongdoer even though the
sufferer's efforts should in the result, undesignedly
aggravate the result of injury."

And even if a plaintiff's judgment of the best way of mitigating an injury or wrong done to him be mistaken and cause loss, that may be a natural consequence for which the wrongdoer is responsible just as much as any physical occurrence - Canadian Pacific Railway v. Kelvin Shipping Co. (1927) 138 LT 369 (HL). And see generally as to the acts of plaintiffs safeguarding their own interests - McGregor on Damages 14th Edition, para.136. There is no reason why these considerations cannot be applied to the identification or selection of recoverable loss under s.82 of the Trade Practices Act.

22. The rules governing the duty to mitigate damage may also find an echo in the way in which the causes of loss are identified in s.82 cases. An apposite example, although not logically congruent with the present situation, is Pilkington v. Wood (1953) 1 Ch 770 where the vendor of freehold property purported to convey it as beneficial owner when in truth he held it on trust and had committed a breach of trust in purchasing it. The purchaser's solicitor was admittedly negligent in his handling of the transaction. The assessment of damages in an action by the purchaser against his solicitor was contested on the basis that the purchaser should have mitigated the loss by suing the vendor on the implied covenant for title. In rejecting that contention Harman J. said at 777 that:

"The so called duty to mitigate does not go so far as
to oblige the injured party even under an indemnity
(as to costs offered by the defendant) to embark on a
complicated and difficult piece of litigation against
a third party."

In my opinion, it cannot be said that the failure to plead that it was under a liability to NAB for $150 million is fatal to the State's claim. Whether the circumstances of the decision to settle are such as to enable the judgment to be made that the payment was caused by the conduct of the respondents will depend upon the facts of the case, which can only be ascertained when all the evidence is in. The concept of a "reasonable" settlement is sufficient to lay the foundation for an argument that that settlement was a consequence of the conduct complained of. It may be that the respondents will be entitled in due course to particulars of the facts relied upon by the State to support the plea that the settlement was reasonable. But the primary attack on the amended statement of claim for failure to demonstrate a link between the impugned conduct and the claimed loss cannot succeed.

23. A supplementary submission was made for Wardley and Wardley Securities that para.47, alleging that the State paid Rothwells $33 million, was embarrassing. If the provisional liquidators' contention could be made out that there was a voidable preference, then NAB would have been liable to pay the liquidators. There is, it was submitted, no explanation in the amended statement of claim for the payment by the State of $33 million, nor for NAB's payment of $10.5 million. In my opinion, however, it is sufficient that the payments were in settlement of the dispute. A dispute may be compromised on any consideration that the parties agree. It is not necessary that they assume obligations or confer rights which mirror those in contention.
Other Submissions by BCH

24. BCH attacks paras.12(a) and 21 of the amended statement of claim. Paragraph 12(a) alleges that Bond represented "on the basis inter alia of Rothwells 1987 Audited Accounts" that Rothwells was a very sound financial institution which had substantial net assets. It is rightly said that the plea in para.21 relied upon to falsify the representation does not do so, as it simply says that at all material times Rothwells was not a sound financial institution and did not have substantial net assets. The complaint is met however by the proposed amendment to para.12(a), which would delete the words "on the basis inter alia of Rothwells 1987 Audited Accounts", leaving the pleaded representation as an unqualified statement that Rothwells was a very sound financial institution which had substantial net assets.

25. BCH also complains of the plea relating to the Bond Saturday Fee Representation set up in 12(a)(iii), that BCH "would contribute about $20,000,000.00 to the capital raising" thereby implying a net contribution of about that amount. That is said to have been falsified by, among other things, the true intentions of Bond and Connell at the Sunday meeting, the fact of the later fee payment of $16 million, and the fact that the net contribution did not exceed $1.5 million. But these facts could not falsify a predictive or promissory statement made the previous day. Absent s.51A, the point is well made and the reference to paras. 25, 26 and 27 in para.29(c)(i) should be struck out.

26. The further submission is advanced that the alleged fee to be paid to BCH was substantial against a reputed contribution of about $20 million. The words "about" and "substantial", it was said, do not give any indication of the quantum of the fee and whether it was sufficient to negative the representation as to the $20 million. It was the submission of the State that the term "substantial" had to be read as meaning substantial on the scale of the represented $20 million net contribution. In my opinion, however, it is a term of elastic content which may extend from that which is of major significance down to the merely "non-trivial". It does not convey any sense of the contemplated proportion between fee and contribution relied upon to falsify the representation. In my opinion para.24 should be struck out, but there should be leave to amend it. On the assumption that a suitable amendment will be formulated, I do not make any consequential order on the reference to para.24 in para.29(c)(i).
Time Limitation and the Wardley Amendment

27. According to para. 16(c) of the amended statement of claim, the Wardley Sunday Soundness Representation was made on 25 October 1987. It was introduced into the pleading in this action on 14 January 1991, more than three years after the execution of the Deed of Indemnity on 26 October 1987. It is said in paras. 30 and 31 to have been conduct by Wardley and/or Wardley Securities in contravention of s.52 of the Trade Practices Act, and at para.20(d) to have been one of the representations which induced the Premier to sign the indemnity in favour of NAB. Wardley and Wardley Securities submit that the introduction of the Wardley Sunday Soundness Representation into the amended statement of claim raises a new cause of action barred by virtue of the three year time limit imposed by s.82(2) of the Trade Practices Act 1974. The cause of action, it is said, was complete when the State executed the indemnity.

28. Weldon v. Neal (1887) 19 QBD 394 is authority for the proposition that a plaintiff may not amend pleadings to set up a fresh cause of action which has become time barred since the commencement of the proceedings. As formulated in that case, it was an application of the more general principle that "amendments are not admissible when they would prejudice the rights of the opposite party as existing at the date of the amendments" (at 395). And the exception was contemplated that "under very peculiar circumstances the Court might perhaps have power to allow such an amendment...". The rule in Weldon v. Neal was applied by Toohey J., in the context of a claim under s.82, in Bradshaw v. Hair Transplant Pty Ltd (1986) 70 ALR 503. This was followed by Hill J. in Zoneff v. Elcom Credit Union Ltd (1990) 94 ALR 445. And on appeal, reported as Zoneff v. Elcom Credit Union Ltd (1990) ATPR 41-508, his Honour's decision was upheld by the Full Court, which observed at 51,747:

"The rule in Weldon v. Neal (supra) has been construed
somewhat strictly (see for example O'Grady v. Botany
Wools (Australia) (1964) 64 SR(NSW) 359). But even if
it were possible to relax it or to hold that the Rules
of the Federal Court avoid its operation, as was held
of the Rules of the Supreme Court of New South Wales
in McGee v. Yeomans (1977) 1 NSWLR 273 at p 280,
substituting "a general discretion to allow an
amendment notwithstanding that it raises a barred
cause of action, whenever justice so requires", this
Court should not exercise such a discretion in favour
of the appellant."

Order 13 r.2 of the Federal Court Rules provides:

"2(1) The Court may, at any stage of any proceeding,
on application by any party or of its own motion,
order that any document in the proceeding be amended,
or that any party have leave to amend any document in
the proceeding, in either case in such manner as the
Court thinks fit."

On the cases already referred to, O.13 r.2 does not displace the rule in Weldon v. Neal, nor is there any obvious basis upon which it might be relaxed in relation to actions brought under s.82 of the Trade Practices Act. Indeed the formulation of a rule of court that would authorise amendments introducing new causes of action under s.82 out of time, would raise a question as to the power of the Court by rule to extend the time limit prescribed by a law of the Commonwealth.

29. The issue in this case is not one of amendment, but whether the amendment introduced under a general leave should be allowed to stand to the extent that it introduces a new cause of action out of time. The central question agitated in submissions on the Wardley Sunday Soundness Representation was whether, if it did introduce a new cause of action, that cause of action was out of time. That depended in turn upon the question - when did the cause of action accrue? Counsel for Wardley and Wardley Securities submitted that on the pleadings it must have accrued at the time that the Premier executed the indemnity. As to that, the State says it is well established that upon a contract to indemnify, the statute of limitations runs from the time when the applicant actually suffers loss and not from the time when the event happens which causes the loss. Similar concepts are said to apply in relation to the accrual of a cause of action in a claim for contract or indemnity under legislation relating to tortfeasors in Western Australia. The indemnity agreement of 26 October 1987 conditioned the Bank's entitlement on satisfaction of the requirement that "it must proceed to the fullest extent of its rights against (Rothwells) to obtain payment out of the assets of the Company". And the amount of any deficiency after distribution in a liquidation would then be the subject of a claim under the indemnity. The State's liability, it was argued, was entirely contingent up until the time of payment. Until then, no accrued liability existed or could arise unless certain events occurred.

30. The principles governing the determination when a cause of action has accrued under s.82 of the Trade Practices Act have been the subject of consideration in a number of cases. They start from the proposition set out by Toohey J. in Arcadi v. Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473 that a cause of action means "every fact which it would be necessary for the plaintiff to prove, if traversed in order to support his right to the judgment of the Court" - citing principally Cooke v. Gill (1873) LR 8 CP 107 at 116. Applying that formulation to s.82, a cause of action accrues when loss or damage is suffered in consequence of a contravention of Part IV or V of the Act and although his Honour remarked that there may be several distinct losses flowing from conduct in contravention of the Act and that the cause of action is not complete until the losses have occurred, he qualified that observation in James v. ANZ Banking Group Ltd (1986) 64 ALR 347 at 392 saying his statement "was not meant to suggest that a cause of action is kept alive so long as any loss or damage is being suffered. Once an applicant has suffered loss or damage relevant to his claim time begins to run". The question when such loss or damage has been suffered is not always easy to answer. In Ikin v. Same and Lamborghini Tractors Pty Ltd (1985) ATPR 40-595, Spender J. said it is not sufficient merely to show that a potentiality for damage has arisen, actual loss or damage must be suffered. A cautious approach to analogies drawn from the common law cases involving general limitation statutes was indicated by Gummow J. in Elna Australia Pty Ltd v. International Computers (Aust) Pty Ltd [1987] FCA 230; (1987) 16 FCR 410. However the judgment of Pincus J. in Keen Mar Corporation Pty Ltd v. Labrador Park Shopping Centre Pty Ltd (1988) ATPR 40-853 disclosed a greater readiness to give to the words of s.82(2) a similar meaning to that worked out under earlier limitation statutes. While agreeing that there may be several distinct losses and claims from, for example, breaches of s.52 of the Trade Practices Act, his Honour said at 49,195:

"But it is my view that in the ordinary case, where an
applicant claiming relief on the basis of misleading
conduct inducing him to enter into obligations under a
contract points to a series of losses of various kinds
flowing from the transaction, there are not as many
causes of action as distinct losses. I think the
cause of action accrues by the time the applicant has
entered into the relevant transaction; where the
applicant has taken a lease, that will be not later
than the execution of the lease."

The case went on appeal, but Morling and Wilcox J.J. found it unnecessary to consider the limitation issue. Spender J. held, as Pincus J. had, that the cause of action accrued upon entry into the transaction, in this case upon execution of shopping centre leases. He founded that conclusion on the proposition that when the leases were executed the lessees had at the time suffered a quantifiable loss, because the price paid for the leasehold interest was higher than the value of that interest on the true facts. In Calmao v. Stradbroke Waters Co-Owners Co-operative Society Ltd [1989] FCA 407; (1989) 89 ALR 507, Pincus J. adhered to the views expressed in Keen Mar adding at 510 that "the tendency has been to construe statutes of limitation as not contemplating that a new cause of action will arise every time there is a fresh loss for the same basic wrong". He relied upon the general principle, rather than the exception to it stated by Lord Halsbury in Darley Main Colliery Co. v. Mitchell (1886) 11 App Cas 127 that:

"No-one will think of disputing the proposition that
for one cause of action you must recover all damages
incident to it by law once and forever."

In Jobbins v. Capel Court Corporation Ltd (1989) 91 ALR 314, the Full Court approved the approach taken by Pincus J. in Keen Mar and Calmao. Section 82(2), it was said, echoes familiar concepts of the law in relation to the limitation of actions. There is therefore every reason to understand the language in the sense in which it has come to be understood in statutes of limitations generally. In particular where the incurring of damage is an essential element of a cause of action, the suffering of some damage (the other elements of the cause of action having already occurred) will, in general, start time running even though the damage continues to grow. The case concerned an agreement to invest $60,000 in production of a film on the strength of representations of a guaranteed return. The agreement was entered into on 24 March 1986 and the payment made on 9 April 1986. The Court held that "the applicant suffered damage immediately upon his entry into the agreement and the making of the payment thereunder, both of which occurred outside the three year period". It is not clear from that statement whether the cause of action was taken to accrue upon entry into the agreement alone, or whether the fact of payment was required to complete it. It was not necessary for the Court to determine that point and it appears that it did not. Hill J., in Zoneff v. Elcom Credit Union Ltd (1990) 94 ALR 445, declined to hold that a cause of action accrued at the time that the applicant entered into a contract of insurance which did not provide represented cover. While there might have been some negligible loss of opportunity to enter into an alternative contract providing the requisite protection, there was no evidence that the contract entered into was worth less than what was paid for it. Reference was made to Lord Reid's dictum in Cartledge v. E. Jopling and Sons Ltd (1963) AC 758 that "(a) cause of action accrues a s soon as a wrongful act has caused personal injury beyond what can be regarded as negligible, even when that injury is unknown to and cannot be discovered by the sufferer". The Full Court dismissed an appeal and cross-appeal from his Honour's decision. It rejected an argument that the action was time barred. No loss was suffered when the policy was entered into. The first and only time that the applicant had suffered loss was when he became distressed upon discovering the extent to which he had been misled.

31. In my opinion, on the pleaded facts, the State suffered loss the moment it executed the Indemnity. If the facts are established, it assumed a risk of loss that was very much greater than it had been led to believe was the case on the representations made to it. It may be accepted on the pleaded facts that the State was prepared to expose itself to some risk in consideration of the provision of credit to Rothwells by NAB. In my opinion, however, the assumption of a significantly greater than represented risk is a compensible loss in the context of s.82. To so conclude is to say that risk of loss is itself a category of loss. But to say that is not to say anything novel. The area of assessment of damages for personal injuries offers illustrations of that logic. The risk that an injury may in later life cause the onset of a degenerative disease is one example. It is no less logical than the proposition that the loss of a chance of benefit is the loss of a benefit. In a commercial context, the risk must not be negligible or fanciful. It is perhaps most concretely exemplified by the assumption of an immediate legal obligation as in this case. In my opinion, para.16(c) of the amended statement of claim does introduce a new cause of action, which is out of time, and should therefore be struck out.
Paragraph 49 of the Amended Statement of Claim

32. Paragraph 49 of the amended statement of claim has been set out earlier in these reasons. It enumerates three causes of Rothwells' insolvency and winding up. The first was its financial unsoundness and lack of assets. The second was the substantial amount of loans to entities related to Connell. The third was the fact that BCH's net contribution to the "rescue" plan was only $1.5 million. Wardley, Wardley Securities and Connell all complain of this paragraph substantially on the basis that it raises a false issue. In defence of this plea, the State says that a claim against it under the indemnity was arguably open only in the event of a liquidation and disgorgement of Rothwells' payment to NAB as a preference. Hence, it is said, proof of the liquidation and its cause may be seen as an essential part of the proof of the chain of causation of damage whether under s.82 of the Trade Practices Act or at law. Proof of the insolvency and subsequent winding up of Rothwells is already pleaded in paras. 42 and 48 respectively. And what is alleged to have been the true state of Rothwells' affairs is pleaded in paras. 21 to 27. In my opinion, the pleading of the cause of Rothwells' insolvency and winding up does not appear to serve any purpose in supporting any cause of action and does, as suggested, raise a false issue. The plea is therefore embarrassing and para. 49 of the amended statement of claim should be struck out.
Other Connell Objections

33. Additional complaints about the amended statement of claim as a whole and with respect to particular paragraphs were advanced by counsel for Connell. It was said that the compromise agreement made between the State, NAB, Rothwells and the provisional liquidators on 3 May 1989 involved a release of Rothwells as a result of which "prima facie any claim in deceit against Connell has been discharged (at least until more is pleaded to show that in law it may still be on foot)". This submission was put on the basis that on the pleaded facts Rothwells and Connell were joint tortfeasors in deceit. But the agreement of 3 May 1989 between the State, Rothwells and the provisional liquidators, contains no release of Rothwells either in respect of fraudulent conduct or at all. And Rothwells was not privy to the agreement entered into on the same day between NAB and the State which involved mutual releases only as between them. In any event, what was compromised by those agreements was not a claim that Rothwells had misled or defrauded the State. Two related disputes were settled. The first was between NAB and Rothwells' provisional liquidators about a possible preferential payment. The second was between NAB and the State, relating to the State's liability under the indemnity. There is, in my opinion, no substance in the submission that either Rothwells or Connell was discharged from liability for deceit by virtue of the compromise agreements.

34. The next contention was that, Rothwells not being a party to the proceedings, Connell cannot be sued as an accessory to its alleged contravention of the Trade Practices Act. Section 82 of the Act provides that loss or damage suffered by a contravention of a provision of Pt. IV or V of the Act may be recovered against the contravenor "or against any person involved in the contravention". The range of persons covered by that term is set out in the familiar language of accessorial liability in s.75B. The fact of the contravention by Rothwells is pleaded in para.35. That must be proven as part of the case against Connell under the Act. And it may be that there is a proper basis for joining Rothwells as a respondent. But its joinder as a party does not condition the statutory liability which it is sought to apply to Connell as a result of his alleged involvement in the contravention. Nor is there now any basis for saying that he cannot be liable as an accessory because the conduct of the principal was his own - Wheeler Grace and Pierucci Pty Ltd v. Wright (1989) ATPR 40-940 and Hamilton v. Whitehead [1988] HCA 65; (1988) 166 CLR 121.

35. Paragraphs 18 and 19, relating to representations allegedly made by Connell directly or through silence or "adoption", were attacked as "extraordinarily embarrassing or prejudicial". As previously outlined, the general scheme of the pleading is that certain statements were made by Bond, Yonge and Beckwith at the Saturday and Sunday meetings about the soundness of Rothwells, its asset position, the existence of substantial loans to entities related to Connell and the proposed contribution by BCH to the rescue plan. Like representations are attributed to Connell by virtue of his alleged failure to inform representatives of the State at either meeting that the statements were not correct. The complaint is made on his part that the representations conveyed by these statements in the mouths of their originators are not expressly pleaded. The Bond statement about Rothwells' financial soundness and asset position, it is said, could be opinion or fact. The somewhat expanded version of that representation by Yonge is said to be prima facie mixed fact and opinion. The Bond Sunday Soundness Representation is said to be "overwhelmingly ... a statement about future events". And because of the way they are pleaded in the mouths of their various speakers, it is impossible to say how the representations should be treated when attributable to Connell. Logically similar complaints are made about the attribution of the other representations. All of the allegations relating to the representations made on 24 and 25 October 1987, it is said, could contain latently an allegation that the speakers were representing that they knew facts which justified or were the basis for the opinions or predictions which were expressed.

36. Paragraph 18 of the amended statement of claim pleads that Connell's silence at the meeting on these matters constituted representations, and the content of those representations is set out. The way in which they are treated in the mouths of their originators is, in my opinion, not to the point. Possibly, subject to the provision of further particulars, 18(a) and (b) can be characterised as matters of fact. Paragraph 18(c) embodies a statement of the present intention of BCH falsified by its contrary intention which can be pleaded subject to the proper formulation of para.24 as to the magnitude of the proposed fee. In this context, so far as the deceit plea is concerned, and subject again to the possible need for further particulars, the way in which it is set up in para. 37 is, in my opinion, sufficiently clear to inform Connell of the case against him.

37. Paragraph 13 of the amended statement of claim alleges, inter alia, that Connell at no stage suggested that the Rothwells 1987 audited accounts were not correct. It is submitted that there is thus implied a "latent or inchoate representation" that the accounts were true and fair or could be relied upon. The point is made that nowhere is it said that the accounts were false. All that is pleaded in the particulars to para. 37, is that in February 1987 Connell had engaged Price Waterhouse, a firm of chartered accountants, to review Rothwells' debts. The review revealed a large proportion of bad or doubtful debts and that Rothwells appeared to be insolvent. This fact, it is said, was communicated to Rothwells by Mr Pope, a partner in Price Waterhouse. This is pleaded as a particular of Connell's alleged knowledge that although the audited accounts portrayed Rothwells as a sound financial institution with substantial net assets, this was not the case. However it is also alleged in para.37 that Connell knew simpliciter that Rothwells was not a sound financial institution with substantial net assets. Subject to some observations below about the term "adoption", I am satisfied that his alleged adoption of the accounts referred to in para.19(a) is presented as an element of that representation and that the pleading complained of raises an issue which is, on the face of it, material to the cause of action in deceit.

38. The contention was also advanced that Connell's silence as pleaded, could not constitute deceit. But silence which in context conveys a representation may be fraudulent in at least three cases:

1. Where failure to disclose the whole truth makes a
statement of the residue false - Peek v. Gurney (1873) LR
6 HL 377; Arkwright v. Newbold (1881) 17 Ch D 301 at
318; Bristow v. Moffat Virtue (Qld) Pty Ltd (1962) QdR.
377 at 391; Curtis v. Chemical and Dyeing Co. (1951) 1 KB
805; Link v. Schaible (1961) 27 DLR (2d) 461.
2. Where active concealment of a fact may amount to a false
statement that the fact does not exist - Horsfall v.
Thomas (1862) 1 HC 90; 153 ER 183; Salmond and Heuston;
Law of Torts - 18th Edition p 366 n.10.
3. Where there is a failure to correct a statement believed
to be true when made but later found to be false -
Brownlie v. Campbell (1880) 5 App Cas 925 at 950; Briess
v. Woolley (1954) AC 333; Jones v. Dumbrell (1981) VR
199; With v. O'Flanagan (1936) Ch 575 at 584.

All I would wish to say about this submission, is that I am not prepared to decide on the pleadings that silence which conveys a representation, even when outside these listed categories, is incapable of amounting to deceit. And in any event it is not clear that the silence as pleaded is unarguably outside category 2. That is a matter best judged in the light of the evidence and findings of fact which are eventually made.

39. The pleas as to the Rothwells Saturday and Sunday Silences are said to be embarrassing because they do not make clear whether it is the company or Connell that is referred to, or both. In my opinion however, it is apparent that the relevant silence was that of Connell's and that for certain purposes it is attributed to the company, Rothwells.

40. Objection was taken to para.19 which says that the Rothwells' Representations were made by reason that Connell "adopted" the Bond and Wardley Saturday Representations and the contents of the 1987 audited accounts. In my opinion that plea is too vague unless it is made clear either that Connell's adoption is to be implied from his silence, or that it was explicit by means of some statement that he made. And the plea in sub-paras. (c), (d) and (e) of para.19, that the representations were made because of things that the State "reasonably assumed" is puzzling. If this is meant to refer to Connell's conduct and the circumstances of the meetings as elements of the representations or from which they can be implied, it is sufficient to say so. There is no need, in this context, to import the additional and, I think, false issue of what the State "reasonably assumed". In my opinion, para.19 as it presently stands is vague and embarrassing and should be struck out. On the other hand the deficiencies to which I have referred should be readily curable by amendment. A similar point arises with respect to sub-paras. 35(b) and (d). In aid of the allegations that the Rothwells' Silences and Representations were misleading or deceptive conduct, it is said that the State "reasonably assumed" various things including Connell's adoption of the Bond and Wardley Saturday Soundness Representations and that the content of the Rothwells' 1987 audited accounts were true. But what the State assumed, reasonably or otherwise, is not an element of the impugned conduct and does not go to its characterisation. Again, if it is intended to allege what the conduct conveyed by implied representation or otherwise that can be pleaded. Sub-paragraphs 35(b) and (d) raise what is in this context a false issue and should be struck out.

41. It was also put that the representations as to the soundness of Rothwells attributed to Connell were representations as to the credit trade or dealings of another person and were not actionable against him because not put in writing - s.6 of the Statute of Frauds. This is a matter to be distinctly pleaded by way of defence. And it cannot operate to affect liability under the Trade Practices Act. The question whether it may apply in relation to the deceit claim is arguable and I am not prepared to strike the claim out on that basis.

42. The representations relating to BCH's contribution and Beckwith's statement that the indemnity would not be called on are said to relate to future matters or matters of opinion. They are not representations as to past or present facts. And to be actionable against Connell, it is submitted, they would have to be pleaded expressly upon the basis of misstatements or misrepresentations as to his beliefs or plans with actual fraud in mind. In my opinion, and consistently with the views I have already expressed, the representation and Connell's state of mind are adequately pleaded for the purposes of the cause of action in deceit. Paragraph 37 indicates how these statements are said to have been knowingly false.

43. What is called a point of materiality is raised in relation to the representations concerning loans by Rothwells to entities associated with Connell. It is said there is no plea to suggest that such loans were not recoverable or had any bearing on the insolvency or winding up of the company. And while this is a point of some interest and may give rise to argument, it is not one upon which I would strike out the relevant part of the pleading. Questions of materiality may require further consideration in the context of s.52, but I am not satisfied that a plea that a representation was made and acted upon and that loss resulted is untenable, simply because the cause of the loss was otherwise unconnected to the content of the representation.

44. Many other lesser objections to particular paragraphs were raised on Connell's behalf. I have read the extensive written submissions on those additional matters. Suffice it to say that except to the extent already indicated in these reasons, the balance of the amended statement of claim can stand.
Further Amendment of the Amended Statement of Claim

45. In the course of argument, counsel for the State moved to amend paras. 12(a)(i) and (b)(i) by deleting the words "on the basis inter alia of Rothwells 1987 audited accounts". Those amendments are appropriate, and as I have already indicated, meet an objection to that part of the pleading. In addition, counsel sought to insert a new para.12A in the following terms:

"12A (a) In the course of making the
Bond Saturday Soundness
Representation Bond referred
to the 1987 Rothwells audited
accounts as evidence of the
truth of the Bond Saturday
Soundness Representation.
(b) In the course of making the
Wardley Saturday Soundness
Representation Yonge referred
to the 1987 Rothwells audited
accounts as evidence of the
truth of the Wardley Saturday
Soundness Representation."

These amendments, it is said, allege a context in which Connell maintained his silence in relation to both the Bond and Wardley representations. In the light of any reformulation of para. 19 which sets up the circumstances by reference to which his conduct constituted an adoption of the representations, this should be a sufficient justification. It would be useless to allow the amendment at this stage, but I foreshadow that it will be allowed in the context of the general leave to amend which I propose to order as a consequence of my findings on the various elements of the pleading that have been attacked. Orders will be made accordingly and I will give the parties liberty to make short written submissions within seven days on the question of the costs of the motions.