Timms & v Commonwealth Bank of Australia & Ors [2005] NSWCA 137 (13 May 2005)
CITATION: 
Timms 
& Ors v
Commonwealth Bank of Australia & Ors [2005] NSWCA 137
FILE NUMBER(S):
40325/04
HEARING DATE(S): 20-21 April 2005
JUDGMENT DATE: 13/05/2005
PARTIES:
Timms & Ors -
Appellants
Commonwealth Bank of Australia & Ors - Respondents
JUDGMENT OF: Spigelman CJ Tobias JA Stein AJA
LOWER COURT JURISDICTION: Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S): ED 2644/94; 3054/97
LOWER COURT JUDICIAL OFFICER: Barrett J
COUNSEL:
Mr A Sullivan QC with Mr M Clarke - Appellants
Mr R Forster SC with Mr N Manousaridis - First Respondent
Mr Dubler SC - Second Respondent
SOLICITORS:
The Law Office of Simon Rofe - Appellants
J K O'Sullivan - First Respondent
Phillips Fox - Second Respondent
CATCHWORDS:
Misleading and deceptive conduct
breach of fiduciary duty
purchase of a business
financial advice
loan application
bank customer
accounts
burden of proof
credibility-based finding
Abalos principles
failure to respond as conduct in breach of s 52 Trade Practices Act
certification of accounts
failure to inform purchaser that accounts had not been certified
arms length relationship
scope of accountant's retainer
due diligence. (ND)
LEGISLATION CITED:
DECISION:
Appeal dismissed with costs.
JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL
CA 40325/04
ED 2644/94
3054/97
SPIGELMAN CJ
TOBIAS JA
STEIN AJA
13 May 2005
TIMMS & ORS v COMMONWEALTH BANK OF AUSTRALIA &
ORS
Judgment
1 SPIGELMAN CJ: I agree with Stein AJA.
2 TOBIAS AJ: I agree with Stein AJA
3 STEIN AJA:
The proceedings
4 This is a second appeal from a second trial. The Court
of Appeal found that the first trial before Young CJ in Eq had miscarried
and
ordered a retrial. This took place before Barrett J who dismissed the
appellants’ claims against the first respondent
Commonwealth Bank of
Australia (the bank) and also against the second respondents, Leslie Ludovic
Rosenfeld and Alfred Kant (the
accountants) and found in favour of the bank with
respect to its claim against the appellants, Anastasia and Brian
Timms .
5 His Honour noted that between the first appeal and the retrial some things had changed. For example, the appellants amended their statement of claim and swore further affidavits. Further affidavits were also sworn by two bank officers, Mr Hart and Mr Walker. All the affidavits and oral evidence adduced at the first trial were relied on before Barrett J.
The issues litigated
6 The case concerns the purchase in December 1991 by the
Timms and their companies (the third and fourth appellants) of a retailing
business known as ‘Artrona’ and ‘2001 Interiors’
(Artrona). The purchase was financed by the bank and the
accountants provided
some advice to the appellants in connection with the purchase.
7 As against the bank the appellants alleged misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act 1974, negligent misstatement and breach of fiduciary duty. As against the accountants the appellants alleged negligence in giving professional advice and negligence in breach of an implied term of the contract of retainer.
8 The claims against the bank were essentially threefold. First, the appellants alleged that the bank made representations to them that the business they were proposing to purchase was ‘good’, ‘profitable’ and ‘viable’ and these were false and misleading, negligent or in breach of the bank’s fiduciary duty to the appellants. This was called the ‘good business claim’.
9 Second, that the bank engaged in misleading conduct or was negligent in not responding in appropriate terms to the letter of the 28 November 1991 from the appellants to the bank (the November letter claim).
10 Lastly, that the bank incurred liability to the appellants by not informing them that the accounts of the business had not been certified by the appellants’ accountant as true and accurate (the certification claim).
11 As against the accountants the appellants claim that, having regard to their retainer, they were guilty of breach of contract and of breach of their common law duty of care. The appellants alleged a very broad retainer while the accountants claimed that the retainer was a limited one.
Summary of background facts
12 In mid 1991 the appellants were endeavouring to find a business they might acquire. They engaged an accountant Mr Rosenfeld to provide certain advice in relation to certain proposed business ventures. In particular, three businesses were looked at but none of them were proceeded with, the accountant having advised the appellants that they were not worth pursuing.
13 In September 1991 the
appellants commenced discussions with a Mr Michael Wheeler who operated
‘Artrona’ and ‘2001
Interiors’. The business involved
the manufacture and retailing of high quality leather furniture. Mr Timms
ascertained that
the business banked with the respondent bank at its Barrack
Street branch. The appellants also banked with the respondent at its
Five Dock
branch. In early October 1991 they saw a bank officer, Mr Hart and indicated
their interest in the possibility of purchasing
the Artrona business and the
need for financing. They told Mr Hart that the business banked at their Barrack
Street branch. On
18 October 1991 Mr Hart telephoned that branch and spoke to a
Ms Saar. As a result, Mr Hart was sent a memorandum together with
two documents
by Ms Saar. The documents were a 1990 report by Deloitte Ross Tohmatsu for the
bank in respect of the business of
Artrona and a seven page extract from an
internal bank memorandum dated 24 May 1991.
14 The Deloitte report was concerned with several aspects of the business which his Honour set out in paragraph [17] of the judgment. The more recent bank memorandum was critical of the business and noted that certain ‘excesses’ had been allowed to occur. Drawings by the Wheelers (the owners) were identified as a problem but even when those items were added back, the position was a ‘lineball’. Nonetheless, the business was ‘basically sound’. It had suffered because of a combination of a downturn in sales coupled with the unbearably high level of owner drawings, which had been given priority over payment of essential creditors.
15 On 4 November 1991 Mr Hart received Artrona balance sheets for 1988, 1989 and 1990 and profit and loss accounts for those years. The communication of all of the documents from the Barrack Street branch was on “a confidential basis”.
16 In
early November 1991 the appellants met with Mr Hart at the Five Dock branch. Mr
Timms gave Mr Hart a statement of “projected
consolidated cash flow for
period 1/11/91-31/10/92” for Artrona. Mr Timms had compiled the document
himself with input from
Mr Wheeler. This document was referred to as ‘the
synopsis’.
17 As a result of the meeting Mr Hart prepared a loan
application for the Timms to buy the business. It sought a five year bill
facility for $950,000 to acquire 90% of Artrona. Mr Hart forwarded this to the
Western Metropolitan Zone Region (Western Zone) on
11 November 1991. The loan
was refused by that Zone on 26 November 1991. On that date the Five Dock branch
received a memorandum
from the Western Zone that although it would prefer the
business to pass, since it held reservations, it was prepared to reconsider
on
certain conditions. One condition was the presentation of audited financial
statements or investigation of the proposal by the
bank’s investigating
accountant.
18 Mr Walker, who was senior to Mr Hart at the Five Dock
branch, wrote that same day (26 November 1991) to the appellants communicating
the Western Zone’s decision. The letter was handed to the Timms when they
attended the branch for a meeting on 26 November
1991. As his Honour observed,
accounts of what happened at the meeting differ significantly. The
appellants’ case was that
Mr Walker told them that he thought the business
was good, viable and profitable. Whether Mr Walker said these words is central
to the case of the ‘good business claim’.
19 On 28 November
1991 Mr Timms wrote a letter to Mr Walker complaining about the bank’s
attitude to the loan application.
The object of the letter was to get the bank
to change its mind on the loan application. This letter is the subject of the
‘28
November letter claim’.
20 The Five Dock branch sent a memorandum to the Western Zone on 3 December 1991 making a further loan application. There was a telephone conversation on the same day between Mr Hart and Mr Havron from the Zone and this was followed by a memorandum from Mr Havron which indicated that, on the basis of the additional information provided, approval of the accommodation of $970,000 was given subject to certain conditions.
21 By letter dated 10 December 1991 Mr Walker informed the appellants that the bank had approved a finance package to assist the purchase of 90% of Artrona subject to certain conditions. One was the certification by Mr Rosenfeld that the financial statements provided by Artrona for 1989, 1990 and 1991 “provide a true and accurate account of the Group’s performance”. This is the subject of the ‘certification claim’. This requirement came about from Mr Hart’s representations to Western Zone to omit the foreshadowed condition mentioned above from the 3 December 1991 memorandum.
22 In his application of 3 December 1991 Mr
Hart had falsely represented to the Western Zone that the accountants for the
Timms had
already stated that the statement of affairs represented a true and
fair view of the Group’s performance.
23 On 12 December 1991 Mr Hart telephoned Mr Rosenfeld to alert him of the need for certification. He sent him a fax on the same day. On 16 December 1991 Mr Rosenfeld responded but only to the effect that the financial information supplied by Artrona was “the same as the information attached to your facsimile”. He added that they had not audited the accounts.
24 Completion took place on 16
December 1991. Within a short time the business developed cash and supply
problems. In May 1992
the Timms borrowed a further $650,000 from the bank but
the business continued to experience difficulties ceasing to operate in January
1994 and passing into voluntary administration.
The Judgment of Barrett J.
25 After setting out the background facts, some of which
is summarised above, the claims made by the Timms and the issues arising,
his
Honour referred to the bank’s knowledge of the Artrona business. He
traced the knowledge held by the various manifestations
of the bank. He
concluded that as at November/December 1991 the bank had actual knowledge that
the business was in a “parlous
financial state”. There was no basis
for anyone in the bank with knowledge of the evidence in possession of the
Barrack Street
branch and the Central Zone (to which the Barrack Street branch
reported) which could justify a view that the business was sound,
profitable and
viable.
26 However, the knowledge of the officers at the Five Dock branch
(Hart and Walker) was another matter. Their information was confined
to the
1990 Deloitte report, an extract from the bank memorandum of 24 May 1991, the
management accounts (as distinct from the statutory
accounts), and the synopsis
provided by Mr Timms .
His Honour said that:
“The documents provided by Ms Saar on 18 October 1991 would have alerted Mr Walker and Mr Hart to the difficulties the bank was having with the Artrona connection. But the Deloitte report was by then almost a year old and the memorandum extract was almost six months old. So far as those somewhat out of date sources were concerned, the “bottom line” to which Mr Walker and Mr Hart would have been expected to have regard is the statement in the internal memorandum extract that “the Artrona business is basically sound”. The events of August-October 1991 reflected by the Barrack Street documents and central to the conclusion that, at Barrack Street and Central Zone levels, it must have known as at November-December 1991 that the business, as a business, was not “sound” or “profitable” or “viable” were not known to the officers at Five Dock. The information they received from Barrack Street did not deal with anything later than 24 May 1991. There was therefore no reason why they should not have subscribed to the “basically sound” opinion expressed in the extract from the internal memorandum of 24 May 1991.”
The good business claim
27 Barrett J traced the evidence relating to the ‘good business claim’ based on representations allegedly made at the meeting of 26 November 1991. He started by noting the pleading of the claim in the third amended statement of claim. It was that either Mr Walker and/or Mr Hart represented that the business was viable, profitable and good.
28 In Mr Timms ’ affidavit of 5 July
1999 (for the first trial) he said that both Mr Hart and Mr Walker said the
business was
‘good’. No mention was made of the business being
viable or profitable.
29 Mr Timms ’ affidavit of 15 May 2003 (for
the second trial) said that either Mr Walker or Mr Hart said that
“it’s
a good business” and “it’s a profitable
business.”
30 Mrs Timms ’ account of 5 July 1999 was similar
to her husband’s. However, in her affidavit of 15 May 2003 she said
that
Mr Walker said it was a good business as well as saying it was viable and
profitable. Mr Hart also said it was a good business.
In cross-examination in
the retrial she said Mr Walker said the business was good, viable and
profitable.
31 In Mr Walker’s earlier affidavits he denied the
words attributed to him by the Timms . However, at the first trial he gave
the
following evidence in cross-examination:
“Q. You thought the
acquisition by the Timms of the Artrona business was a good deal,
correct?
A. We thought that the business was viable.
Q. And you said so?
A. Yes
Q. And you no doubt thought it was profitable, as you have already told me?
A. Yes
Q, And no doubt you said so to the Timms as
well?
A. Yes
Q. And you thought the Artrona companies had a good business, correct?
A. Yes
Q. And again no doubt you said so to the
Timms , yes?
A. On the information that had been provided to us, yes”
32 In an affidavit sworn after the first trial and on 12 June 2003 Mr Walker stated:
“I have in fact no actual recollection of
saying those things to Mr & Mrs Timms at that meeting; rather they are
matters
I might have said, because it was my opinion, based on the information
contained in the submission, that the business was in fact
viable, profitable
and that it was a good business.”
33 In cross-examination at the re-trial Mr Walker conceded that “might” was a poor choice of words and that it was “more likely than not” that he said that the business was good, profitable and viable.
34 The other person present at
the meeting was Mr Hart. He denied the Timms ’ 1999 version and in his
affidavit of 12 June
2003 he denied the revised versions of the Timms . He
denied that either he or Mr Walker said words to the effect that the business
was good, viable or profitable.
35 In examining what was said at the meeting Barrett J said:
“In the light of the evidence given by the
four witnesses as to what transpired at the meeting of 26 November 1991, I
decline
to make a finding that either Mr Timms or Mrs Timms heard either Mr
Walker or Mr Hart make any of the “good business”,
“viable
business” and “profitable business” representations at that
meeting. It is inherently improbable
that the more comprehensive version of
what happened, as recorded in the 2003 affidavits of Mr Timms and Mrs Timms
(and, in Mrs Timms ’
case, as varied in 2003 cross-examination), was the
product of some new and independent recollection that arose in some spontaneous
fashion between 2001 and 2003. Logic would say that, without some form of
prompting or new stimulus, actual recollections of what
happened in November
1991 would become less clear between 1999 (or (2001) and 2003, rather than that
they would become sharper and
more detailed. The passage of time in
circumstances where people continue to dwell on matters of conflict that are
important to
them also has the capacity to make them think that they can
remember things in a form they would prefer, rather than as they actually
happened.” [109]
36 His Honour found that Mrs Timms ’ eventual
recollection that it was Mr Walker who made the representations “can only
have been prompted by what Mr Walker said at the first trial”. Before
that she said that it was Mr Hart who made the statements
confined to the good
business matter. Mr Hart’s evidence had been consistent in his
denials.
37 His Honour was satisfied that the appellants were consciously or unconsciously reconstructing a recollection of what had actually “happened almost 12 years earlier; and that it was Mr Walker’s evidence in 2001 that was the catalyst ....”
38 The trial judge turned to the question of what to make of Mr Walker’s evidence. His Honour noted that from the materials Mr Walker had seen before 26 November 1991 he was of the opinion that the business was good, profitable and viable. His Honour extensively set forth the relevant evidence from the first trial and the retrial before him on the issue.
39 His Honour then said:
“Mr Walker showed himself, in cross-examination before me, to be confused about the obligations of a witness and to have difficulty in distinguishing between recollection of what actually happened and reconstruction or surmise as to what happened, or may have happened or was likely to have happened, so far as what was said in conversation was concerned. It is dangerous for judges to place too much weight on a witness’s demeanour. I am bound to say, however, that Mr Walker appeared to me to be hesitant and uncertain. He listened to questions closely but often seemed somewhat bewildered once he had had heard them. The fact that one question had to be read back to him no less than five times before he could give a clear answer is indicative of what I perceived to be a difficulty in comprehending and then in knowing what to say in response. I do not say these things by way of criticism. Some people are better than others at the abstract process of comprehending questions about past events, delving into their memories and discovering actual recollections free from the overlays of qualification and modification that are inevitably placed upon memory by subsequent events and then giving confident and coherent expression to the discovered recollections. Mr Walker’s abilities in this respect seemed to me to be markedly poor.” [118]
40 Barrett J said that the apparently unequivocal statements of Mr Walker at the first trial must be viewed in the light of three things:
1. The impression he formed as to his abilities
2. At the first trial he gave a number of earlier answers inconsistent with the apparently unequivocal statements.
3. The subsequent explanations in his 2003 affidavit and in cross-examination in the retrial.
41 These raised “very substantial doubts about whether Mr Walker really knew what he was required to do when giving evidence at the first trial”. His Honour was not satisfied that the statements at the first trial could safely form the basis of a finding that he actually said those words at the meeting.
42 His Honour referred to what Heydon JA had said in Moukhayber v Camden Timber and Hardware Co Pty Ltd [2002] NSWCA 58 on the need to feel an actual persuasion of the occurrence or existence of an event before it can be found. Heydon JA referred to the speech of Lord Brandon in Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 at 955-6 referring to the third alternative of saying that a party on whom the burden of proof lies has failed to discharge that burden.
43 Barrett J stated:
“I am particularly conscious of the need, expressed in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, for the trier of fact to “feel an actual persuasion of its occurrence or existence before it can be found”, and that a finding of fact cannot be made “independently of any belief in its reality”.
In this case, the evidence of the persons who were present at the 26 November 1991 meeting does not produce in my mind an “actual persuasion” that any of the “good business”, “profitable business” and “viable business” representations was made by Mr Walker or Mr Hart. I therefore adopt in relation to that part of the plaintiff’s case the “third alternative” referred to by Lord Brandon of Oakbrook in Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 of saying that the plaintiffs on whom the burden of proof lies in relation to that claim have failed to discharge that burden.”
The appellants’ argument on the good business claim
44 On behalf of the appellants Mr Sullivan QC submitted that because his Honour did not make a finding that the representations were not made at the 26 November meeting, it is not necessary for the appellant to satisfy the strictures of Abalos v Australian Postal Commission [1990] HCA 47; (1990) 171 CLR 167. That is, that the appellants do not have to show that in making the finding the trial judge “failed to use or has palpably misused his advantage” or acted on evidence which was “inconsistent with facts incontrovertibly established by the evidence” or which was “glaringly improbable.”
45 However, the onus finding of Barrett J was a finding which was well and truly based on credit. It rested wholly on the credibility of the appellants, whom his Honour did not accept on the critical representations, and on the credibility or reliability of Mr Walker’s evidence. In my view Abalos unquestionably applies.
46 The underlying credibility findings, and in particular those concerning Mr Walker, involve observations made by the trial judge that the Court of Appeal cannot recapture from the transcript. For example, hesitancy of the witness, his apparent uncertainty, his confusion or bewilderment. These are all matters which the trial judge alone can observe and assess but which are denied to an appellate court.
47 Mr Sullivan relied on a lengthy portion of the cross-examination of Mr Walker to demonstrate that he in fact had none of the problems attributed to him by his Honour. In particular he answered the questions directly and without hesitation, uncertainty or confusion. This is generally correct, although the passages principally involve the presentation of a document to the witness inviting a self-evident answer. On the other hand, it is clear that when Mr Walker was asked a question which involved his memory alone, his response was mainly “I can’t recall” or similar.
48 Bearing in mind his Honour’s rejection of the
Timms ’ evidence as a reconstruction, and his conclusion as to Mr
Walker’s
evidence at both trials, together with Mr Hart’s denials,
his Honour was entitled to come to the conclusion he did on the onus
of proof.
The appellants have simply been unable to overcome the Abalos hurdle.
There is simply no case that the trial judge palpably misused his advantage,
acted on evidence which was inconsistent with
facts incontrovertibly established
or which was glaringly improbable.
49 When Mr Walker’s evidence is read as a whole, one can readily understand what led his Honour to his conclusions about the credibility of his evidence relating to the representations. His Honour was entitled to find as he did on the onus, having found that he could not rely on Mr Walker’s evidence regarding the representations together with his rejection of the appellants’ evidence on the issue. His careful examination of the evidence and his reasoning disclose no error. The finding on onus was, in all of the circumstances, one which was open to his Honour to make. It follows that the appellants’ good business claim must fail.
The 28 November letter claim
50 Two days after the 26 November 1991 meeting Mr Timms wrote a
letter to the bank which included the following:
“We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions.”
51 Mr Walker sent this letter onto the Western Zone with the resubmission of the loan application. The bank did not reply to the letter. The conduct of the bank which is suggested to be misleading or deceptive is its inaction or silence, i.e. the failure to say anything in response to the above portion of the letter.
52 The letter of 28 November 1991 should be set out in full. It provided:
“I refer to your letter dated 26 November and our discussions in your office on the same date regarding our application for an advance to assist with the purchase of the businesses “Artrona” and “2001 Interiors”.
In order to cover the first point in your letter, an understanding of some of our personal goals is required. We have always planned our personal affairs, in a macro sense, over both a 5 and 10 year time horizon. Our current plan calls for, among other things, the disposal of our existing residence in about five years time when our youngest son leaves high school and the need for such a large house is diminished. On current values and taking no account of any capital appreciation over the next five years whatsoever, we could reasonably expect to realise around $3 million from the sale, less repayment of the mortgage and an allowance for agent’s fees and marketing costs, leaving a net balance of around 2.6 million.
We plan to use $1 million of the available balance to purchase an apartment, leaving an overall balance of around $1.5 million which is more than enough to meet the repayment of the principal of the loan irrespective of whether the Wheelers proceed with their agreed equity re-purchase or not. On top of this, it is quite clear from the projected cash-flow which was provided with our application that sufficient excess funds are generated by the business to cover capital repayments should this be necessary.
The second point in your letter covers the issue of the provision of even more financial data than has already been provided by us or is readily available to the Bank. We are advised by the vendor that in 1990 the Bank commissioned a firm of chartered accountants to undertake a report on the viability of the business and that in 1989 an internal audit was performed by an Investigating Accountant from the Development Bank. We fail to see what more useful information we can add to the Bank’s already not inconsiderable amount of financial data on the affairs of the companies in question.
In the light of our good standing as a long-term customer of the Bank we do not feel that the Bank can reasonably justify the imposition of a non-refundable up-front fee in order to consider the request further.
We expect a minimum consulting revenue of around $100,000 (117 days @ $850 per day) for the calendar year 1992.
For your information we have enclosed copies of the draft service and share purchase agreements.
We feel that the Bank has, once again, procrastinated unduly on this matter. It is timely to remind you of the value of us as customers of the Bank and to also point out the considerable value which a business the size of Artrona represents today and will represent in future as it expands both nationally and internationally. In view of our long relationship with the Bank and, hopefully, our good standing, we have not sought, at this stage, to obtain the funds elsewhere. However, our patience is at an end, and we must have a resolution on this matter within one week.
We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions. We therefore request a meeting with the area management responsible for the decision so that we may speedily resolve this matter for once and for all.
I look forward to your prompt reply.”
53 His Honour looked particularly at the context of the letter and its purpose, which was to get the bank to change its mind on the loan application and grant the loan.
54 Of this his Honour said:
“Looking, in the present case, at “what was not said in
the context of what was said”, we must begin with “what
was
said”. What was said came from Mr Timms ’ letter. Referring to the
business, the letter said that Mr Timms and Mrs
Timms believed, first, that the
business was extremely sound and, second, that the bank agreed that the business
was extremely sound.
Those statements were made in the immediate context of
like statements concerning the adequacy of the security Mr and Mrs Timms
were
offering. They said that they believed that they had offered ample security and
that they believed that the bank agreed that
they had offered ample security.
The wider context, being that conveyed by the 28 November 1991 letter as a
whole, was one in which
Mr Timms , writing for himself and Mrs Timms , complained
about the bank’s decision, notified by its letter of 26 November 1991,
not
to lend the money needed for the purchase of the business and asked the bank to
reconsider. The letter made, in essence, seven
points: first, that the
Timms ’ home (which the bank held as security) was of such value as to
provide the bank with a sufficient
security cushion; second, that the cash flow
document Mr Timms had prepared and furnished to the bank showed that the loan
could
be serviced from the business, third, that it was pointless for the bank
to seek more financial information about the business from
the Timms than the
information already provided and that already available to the bank; fourth,
that the Timms ’ standing as
long-term customers meant that they should not
have to pay a further fee; fifth, that Mr Timms expected consulting income of
about
$100,000 in 1992; and, sixth, that the Timms were valuable customers who
considered themselves to deserve better treatment. Finally,
there is the
statement of the Timms ’ belief in the paragraph already quoted.”
[147]
55 Barrett J noted at [148] that while the letter supplied
information sought by the bank, it was mainly a complaint about the rejection
of
the loan and an exhortation to change its mind. His Honour observed that
“The tone was firm and assured, verging on the
aggressive .... Mr Timms
was ‘laying down the law’ to the bank”. The letter was part
of the negotiation for the
loan. The judge added:
“It made it
clear that the Timms had formed their own views about the soundness of the
business, being views that, on my findings
on the “good business
claim”, were arrived at without any input from the bank. They knew that
the bank, as potential
lender, had made its own assessment of the business. For
it to have done so would have been a normal part of the investigations
it
undertook for the purpose of assessing the loan application –
investigations, it is to be emphasised, made by the bank in
pursuance of its own
selfish objective of avoiding situations where money lent might be lost.”
[149]
56 The bank changed its mind and approved the loan on conditions.
In doing so it said nothing about the arguments in Mr Timms ’
letter apart
from the fact that it required the accountants to certify that Artrona’s
financial statements for 1989, 1990 and
1991 “provide a true and accurate
account of the Group’s performance”. That caveat by the bank cannot
be overlooked.
Nevertheless, Mr Timms said that he did not expect a reply to
the letter. He had no expectation that the bank would “confirm,
deny,
dispute, or debate, item by item, the matters in the
letter.”
57 Barrett J said that Mr Timms “intended merely to
put before the bank a package of persuasion such as would make the bank
change
its mind....”
58 His Honour concluded that:
“In these
circumstances it is not possible to characterise the context in which the bank
did not respond to Mr Timms ’
assertion of belief that the business was
extremely sound and that the bank considered it extremely sound as a context
giving rise
to a reasonable expectation of specific response by the bank to that
assertion.” [152]
59 The trial judge referred to Mr Hart’s evidence that he (Mr Hart) did not believe that he was bound to correct something arising out of the letter. At the Five Dock branch level there was in fact a belief that the business was sound although no representation to that effect had been made by Mr Hart or Mr Walker to the appellants.
60 His Honour found that the absence of a specific response to the relevant part of the letter did not constitute conduct within s 52 of the Trade Practices Act.
61 On the appeal the appellants made an attempt to suggest that since the bank at Zone level knew that the business of Artrona was a “disaster”, it cried out for the bank to reply to the letter and say so. The bank held the relevant knowledge at the Barrack Street branch and in the Central Zone.
62 On behalf of the bank, Mr Forster SC resisted this
attempt, which he submitted was never part of the trial. He noted that the
complaint of the appellants in their written submissions was that the judge
erred in finding that Mr Timms had no well based expectation
that the bank would
respond to him to deny or debate his assertion of belief in the letter that the
bank considered the business
extremely sound.
63 Counsel noted the
narrowness of paragraph 12 of the notice of appeal and the narrowness of the
claim as pleaded and conducted
at the trial. The only issue on appeal was
whether the judge erred in finding that Mr Timms had no rational expectation
that the
bank would correct the belief which the Timms ’ allegedly held
about the bank believing that the business was extremely sound.
64 In my opinion, the case should be confined to the way it was pleaded, conducted and determined by the trial judge. There was a hint in the appellants’ case on appeal that the letter claim was sought to be widened if the bank in any of its manifestations disagreed with the contents of the letter. If that issue had been pleaded or argued below, it could have been the subject of evidence. Nor was it argued that the narrow issue which was pleaded and argued led to the obligation to respond to the letter, if the Barrack Street branch (or the Central Zone to which it reported) held contrary views to the letter. The appellants should be confined to their notice of appeal and not be permitted to widen the inquiry from that which was presented to the trial judge for decision. As Mr Forster submitted, the context of the 28 November letter was always what Mr Hart and Mr Walker knew at the Five Dock branch.
65 In my opinion the
trial judge was perfectly entitled to deal with the letter claim as he did. His
reasoning discloses no error.
In particular, his Honour found that Mr Timms had
in fact no expectation that he would receive a response to the letter. That was
based on Mr Timms ’ own evidence and is not challenged on
appeal.
The certification claim
66 One of the conditions of the loan approval was the need for ‘certification’ by the accountant Mr Rosenfeld. Mr Hart telephoned Mr Rosenfeld on 12 December 1991 to alert him to the need for the certification. Mr Rosenfeld’s reply to the bank on 16 December plainly did not provide “clarification ... that the financial data provided with the application represents a full and accurate account based on your investigations ...” All that Mr Rosenfeld did was to confirm that the initial financial information upon which he advised his clients was the same as that sent to him by the bank with its request for the certification.
67 Again the appellants advanced a claim of misleading or deceptive conduct for failing to inform them that the certification had not been given before the loan was made.
68 His Honour made a number of relevant findings on this issue. First, there was dispute between Mr Hart and Mr Rosenfeld as to what was said in the telephone call of 12 December 1991. His Honour believed Mr Rosenfeld’s account as to what was said over that of Mr Hart. That is, that Rosenfeld told Hart that he had not carried out an audit and could not verify that the accounts represented a true and accurate account of the business performance. All he could do was to confirm that the accounts he looked at were the same as the ones Mr Hart had.
69 His Honour continued:
“Having received Mr Rosenfeld’s fax, Mr Hart must have known it did not satisfy the relevant loan condition. Even the most cursory reading would have shown that immediately. He also knew that he would not receive from Mr Rosenfeld anything that did satisfy the condition. But Mr Hart had painted himself into a corner. If he had made an issue of the absence of certification, he might well have brought to light the fact that he had made a deliberate misstatement to the Western Zone. The line of least resistance was for Mr Hart to treat Mr Rosenfeld’s fax as if it satisfied the condition, even though it clearly did not – or simply to ignore the certification condition to which the loan approval was subject. And that is the course that, on the balance of probabilities, I find that Mr Hart took. I do not accept that, in the particular circumstances where he was trying to deal with his own deliberate misrepresentation, Mr Hart would, as he said in cross-examination, have felt duty bound to inform his superiors that the certification had not been received. Indeed, from where he stood, considerations of self-preservation meant that the less his superiors knew about the matter the better.” [162]
70 Barrett J then turned to what transpired between Mr Timms and Mr
Rosenfeld. Again, there was a clash of evidence. Mr Rosenfeld
said that he
told Mr Timms that Hart had asked him to verify the business accounts but he
couldn’t because he hadn’t
carried out any due diligence. All he
could do was confirm that the accounts he looked at were the same as the bank
had. Mr Timms ’
evidence was that Mr Rosenfeld never told him that the
certification could not be given. His Honour preferred Mr Rosenfeld’s
evidence. He said:
“It is virtually inconceivable that any
accountant, having received a request of the kind conveyed by Mr Hart’s
fax of
12 December 1991 highly material to clients’ prospects of obtaining
finance, would have said nothing to the clients about it.
I find that the
conversation deposed to by Mr Rosenfeld took place. The timing of it is a
matter of greater difficulty. In cross
examination before me, Mr Rosenfeld was
unable to be sure whether he spoke with Mr Timms before or after the reply was
faxed to Mr
Hart, although he was sure that the conversation took place on the
day of transmission. It is likely, therefore, that, when contracts
were
exchanged on 16 December 1991 for the purchase of the Artrona business, Mr Timms
was aware that Mr Rosenfeld had sent to the
bank the letter he in fact faxed
earlier on that day, being a letter that referred to the bank’s request of
12 December 1991
but did not provide the certification it sought. And, on my
findings, it must be regarded as certain that Mr Timms was so aware
by the end
of that day.” [164]
71 His Honour noted that lenders impose conditions of this kind unilaterally for their own protection. This particular condition was “calculated to secure for the bank a measure of comfort about the financial state of the business.”
72 Barrett J said:
“The circumstances of arm’s length dealing and opposing
interests were accordingly such that the inclusion of the condition
as to
certification in the letter of 10 December 1991 cannot be regarded as having
given rise to any plausible or well based expectation
that the bank would take
active steps to alert Mr Timms and Mrs Timms as to any non-satisfaction of the
condition. It follows that
the bank’s failure to inform them that, as at
the point at which the loan was advanced, Mr Rosenfeld had not provided the
certification
was not something capable of amounting to contravention of s.52 of
the Trade Practices Act ...” [168]
73 This finding is challenged by the appellants. Putting the finding to one side for the moment, it must be emphasised that his Honour found that the appellants were made aware by Mr Rosenfeld that the certification condition could not be satisfied, a finding not challenged on the appeal. It follows that the appellants did not in fact have an appreciation that the bank would inform them that the certification condition could not be satisfied because they already knew.
74 In any
event, the appellants have failed to establish that the finding at [168] was not
one which was open to his Honour on the
evidence before him. The Timms simply
had no well based expectation of being informed by the bank about the
non-satisfaction of
the condition.
75 Since the claims of the appellants against the bank have failed on these issues, it is unnecessary to examine other matters raised, such as the question of reliance.
The case against the accountants.
76 The appellants’ case against the accountants is
that Mr Rosenfeld, having regard to the terms of his retainer, was guilty
of
breach of contract and of his duty of care in negligence. Since the retainer
was not in writing it was necessary to identify
it. Two different versions were
advanced by the parties. On the one hand the appellants said that the
accountants were retained
to conduct “a comprehensive and detailed
financial investigation of the business“ and to certify “the
accuracy
of the financial history of the business as represented by ... the
vendor ...” (Third amended statement of claim). In oral
evidence the
Timms described it “to thoroughly investigate”, “to leave no
stone unturned” and to “check
absolutely everything” including
bank statements and cash books. On the other hand, Mr Rosenfeld said his role
was to advise
on particular matters as raised and to provide guidance to Mr
Timms as to the steps he might himself take in investigating and assessing
Artrona.
77 The first meeting about the possible purchase of Artrona was on 8 October 1991. Prior to that the parties had had a conversation about the prospect and Mr Wheeler had dropped off with Mr Rosenfeld some financial statements, being the management accounts.
78 Mr Timms said he wanted Mr
Rosenfeld to do a thorough investigation of the business and “tell us
whether we should buy it”.
He also claimed to have said, “Do
whatever you have to do to thoroughly investigate and analyse the
business.” Mrs
Timms ’ evidence was “we want you to absolutely
thoroughly investigate the business – leave no stone unturned”.
Mr
Rosenfeld denied these versions. He said that Mr Timms said that he wanted to
do all the investigations and wanted Mr Rosenfeld
to point out the issues. He
wanted to save on costs.
79 For the meeting of 8 October 1991 Mr
Rosenfeld had made a list beforehand to record what had been decided. The list
is set out
in paragraph [183] of the judgment. As was his normal practice it
had two columns. In the right hand column Mr Rosenfeld noted
agreed action in
red ink. Item 1 noted that Mr Timms was to get the statutory accounts from Mr
Wheeler. The second item came from
a comment that Mr Wheeler had made to Mr
Rosenfeld when he delivered the management accounts. The noted action is for Mr
Timms “to
check”. The note against item 5 again indicated the Mr
Timms would follow-up. Item 7 was important. It involved going through
bank
statements and cash books to verify turnover and costs. Mr Rosenfeld had noted
that it was impossible to advise on the veracity
of the accounts “as they
now are”. The notation to item 7 is also a “BT” (Mr Timms ) to
action. His Honour
noted that Mr Timms did not take any steps to obtain the
bank statements and cash books.
80 His Honour recorded that the only
thing to be done by Mr Rosenfeld after the meeting was to receive the statutory
accounts and
compare them with the management accounts. He characterised the
result of the meeting as sending Mr Timms off to do some
investigations.
81 There was also discussion at the meeting of business valuation methods. However, since the calculations were based on the management accounts, the reliability of which Mr Rosenfeld had put in issue under item 1, his Honour found that it was impossible to accept that Mr Rosenfeld considered himself able to express an opinion on value.
82 Mr Rosenfeld received the
statutory accounts for 1990 and 1991 from Mr Wheeler on 4 November 1991, no
doubt delivered at the request
of Mr Timms . He set about making a comparison
and his handwritten note appears in paragraph [191] of the judgment. There were
significant
differences. It also appears that someone in his office made a
comparison, which Mr Rosenfeld looked at and made a note upon.
83 Between 4 and 11 November 1991 Mr Rosenfeld telephoned Mr Wheeler’s accountant to arrange to get copies of the tax returns for 1990 and 1991. He was told that they had not been prepared because Mr Wheeler hadn’t paid his fees.
84 Mr Rosenfeld telephoned Mr Timms to tell him of the
discrepancies in the accounts and arrange a meeting, which took place on 11
November 1991. Mr Rosenfeld again prepared a list before the meeting. Items 1
and 2 concerned the discrepancies between the statutory
accounts and the
management accounts. Item 2 states “BT [Mr Timms ] should meet with
Wheeler and get a comprehensive explanation
for differences. What we saw to
date not reliable”. His Honour noted that the allocation of the task to
Mr Timms was consistent
with the role Mr Rosenfeld says he was retained to
perform, i.e. of providing guidance and advice to Mr Timms as to the
investigations
he might himself undertake. This was consistent with other items
in the list assigned to “BT”, such as “BT to
talk to creditors
to see their reaction.”
85 This list is to be found in paragraph [193] of the judgment. After analysing the list his Honour said:
“Mr Rosenfeld deposed that, after receipt of the statutory
accounts, he spoke to Mr Timms by telephone, referred to the inconsistencies
and
asked whether Mr Timms wanted Mr Rosenfeld to “do a full due diligence of
the business”, to which Mr Timms replied
that he would do it himself and
was seeking assistance from Mr Rosenfeld as to what to look for. The list Mr
Rosenfeld prepared
in advance of the 11 November 1991 meeting, coupled with the
action items agreed at the meeting, lends strong credence to Mr
Rosenfeld’s
version.” [195]
86 A further meeting occurred on 25 November 1991 wherein the appellants say that Mr Rosenfeld said:
“The profit will be $174,000 plus add-backs. Thus the real profit is $225,000, less 39% tax; this yields $137,000 after tax. If you capitalise this figure over three (3) years you get around $400,000.” [196]
87 In the conversation Mr Timms said that the following exchange
took place:
“BT: ‘That’s good, because the purchase figure we have agreed is $300,000. Les, have you analysed the business sufficiently to make a recommendation?’
LR: ‘Yes I have. I’ve looked at it thoroughly and the business checks out. It is a profitable business and I am very happy about it. This business I recommend you buy’
AT: ‘are you quite sure that you checked everything because anybody can produce a set of reports and put figures on it.’
LR: ‘I checked it all out and it is correct. The business is making the money they say it is making.’
AT: ‘Have you checked the bank statements?’
LR: ‘We are way past that.’
AT” Will this business be able to support two families?’
Les: ‘Yes’
AT: ‘You know we are investing a huge amount of money, so we want to be absolutely sure that the business is okay.’
LR: Trust me, everything will be fine. What you are buying is a good business. I have checked it thoroughly. You will make money.’” [196]
88 Mr Rosenfeld denied this account. Rather, his evidence was as follows:
“Richard Wheeler seems desperate to sell. I believe they need to reduce personal liabilities. Considering the Wheelers’ apparent financial circumstances, if you are going to buy the business you should drive a hard bargain in negotiating a price. I’m not in a position to advise you in relation to the value of the Business because the accounts I’ve seen aren’t audited and can’t be relied upon” [197]
89 Barrett J decided what occurred at the meeting of 25
November 1991 by preferring Mr Rosenfeld’s version over Mr Timms .
He
said:
“Mr Timms ’ contention is that the $400,000 value figure
and the “gut feeling” of $300,000 came from Mr Rosenfeld.
But the
valuation method the jottings disclose was not one to which Mr Rosenfeld had
referred when approaches to valuation were
discussed at the earlier meeting. Mr
Rosenfeld’s method involved application of an appropriate multiplier to
the average of the last three years’ profits. The method reflected
in the jottings involved multiplication by three of the profit of one
company
(2001 Interiors) of a single year, being the most recent year. The figure used
– “$174K” – corresponded
with the $174,038 for that
company alone for the year ended 30 June 1991 in the statutory accounts received
by Mr Rosenfeld on 4
November 1991. Those accounts contained further
information for 1990 and 1991 as set out briefly in the last three sentences of
paragraph [86] above. While Mr Timms , for his own interest and information and
to obtain some rough idea of value, might have used,
in that selective and
incomplete way, a variant on the method previously explained by Mr Rosenfeld, it
is most unlikely that a professional
accountant such as Mr Rosenfeld, would have
done so. Mr Rosenfeld’s general awareness that maintainable earnings are
more
important and more reliable than the isolated result of a single year when
it comes to forming an opinion about a business’s
value makes it most
unlikely that he would have made and communicated to Mr Timms the value
calculation appearing in Mr Timms ’
jottings. This is particularly so when
one remembers Mr Rosenfeld’s general scepticism about the various profit
figures he
was receiving. On the balance of probabilities, therefore, Mr
Rosenfeld’s account of the 25 November 1991 meeting must be
preferred to
that of Mr Timms and, in particular, it cannot be accepted that Mr Rosenfeld
expressed any opinion as to the value of
the business corresponding with either
Mr Timms ’ account of the meeting or the jottings in Mr Timms ’
contemporaneous
note.” [201]
90 Mr Rosenfeld chased up Wheeler’s accountant in an attempt to obtain the tax returns without success. He did get trading statements for 1990 and 1991, but these documents did not satisfy his need.
91 The last contact was on 16 December 1996.
Mr Timms claimed that Mr Rosenfeld confirmed that he had received material from
Wheeler’s
accountant and that the tax figures “look fine”.
His Honour said that this could not be correct. Mr Rosenfeld said
that he had
told Mr Timms that he had not received the tax returns but rather some unaudited
statements. Again, Barrett J accepted
Mr Rosenfeld’s account in
preference to Mr Timms , noting that it accorded with the letters Rosenfeld had
received from Wheeler’s
accountant.
92 Mr Rosenfeld again made a
list of points for the meeting. They basically were in response to a request
from Mr Timms as to what
to look out for upon the exchange of contracts. Again,
his Honour accepted Mr Rosenfeld’s evidence as to those
matters.
93 The trial judge then set forth extracts from Mr Timms ’
evidence at the first trial about the alleged instruction to Mr Rosenfeld
“to leave no stone unturned”. It was put to him that it amounted
to, in effect, writing a blank cheque for Mr Rosenfeld’s
fees, something
that no sensible business person would have done. Barrett J said that Mr
Timm ’s evidence at this time contained
“a distinct air of unreality.
To my mind, it supports the version of events (and of the retainer) for which Mr
Rosenfeld contends”.
94 His Honour referred to the degree of
confidence Mr Timms had in his own ability to analyse and understand the
financial performance
of the business as evidenced by his preparation of the
cash flow and synopsis documents he had given to the bank. He did not seek
Mr
Rosenfeld’s help in preparing them; nor did he ask Mr Rosenfeld to review
or check what he had done.
95 His Honour said that Mr
Timms :
“... was quite prepared to make representations to the bank about aspects of the business’s past performance and as to future cash flows entirely off his own bat and by reference to his own assessment and appreciation of the financial information in his possession. He did not present the material to the bank as the provisional or uncertain work of an amateur. He presented it as an assessment by a businessman quite capable of understanding the relevant financial information and quite prepared to make first statements to the bank based on it.” [206]
96 The trial judge made a finding on the retainer in the following extract from his judgment:
“Based
on the evidence reviewed at paragraphs [182] to [207] – plus, I must
emphasise, Mr Rosenfeld’s failure,
already noted, to provide the
certification sought by the bank and the explicit statement in his faxed letter
of 16 December 1991
to Mr Hart that he had not conducted an audit – I find
that the terms upon which Mr Rosenfeld was retained to provide professional
advice in relation to the proposed acquisition of the Artrona business by the
Timms interests were the terms asserted by Mr Rosenfeld,
not the terms asserted
by Mr Timms and Mrs Timms . The retainer was, in the first instance, a retainer
to advise in a general way
on issues warranting investigation in order to enable
Mr Timms to be aware of, and to pursue in his own way, relevant lines of
inquiry.
A subsidiary element was an obligation to advise on such specific
matters as Mr Timms might identify as requiring advice and to
take such specific
steps in relation to particular matters as Mr Timms might request. One such
matter clearly identified at an early
stage was comparison of the management
accounts with the statutory accounts as a means whereby Mr and Mrs Timms might,
with Mr Rosenfeld’s
assistance, come to a better understanding of the
viability of the business.” [208]
97 Three sets of documents
deemed important by Mr Rosenfeld were never received – the bank
statements, cash books and tax returns.
Mr Rosenfeld, said his Honour, made it
clear to Mr Timms that all three should be obtained and inspected. Mr Timms
took on the
responsibility for obtaining the bank statements and cash books but
never did so. Mr Rosenfeld tried unsuccessfully to obtain the
tax returns and
told Mr Timms of his lack of success. The absence of these important documents
told against the conclusion that
Mr Rosenfeld undertook to conduct any
comprehensive due diligence. His Honour found that there never was a retainer
in the terms
pleaded in the third amended statement of claim. This included
para (a) “the viability of the business as a going
concern”.
98 As to the representations allegedly made by Mr Rosenfeld on 11 and 25 November 1991, denied by Mr Rosenfeld, his Honour said:
“Mr Rosenfeld’s account of the conversations are, as to
the 11 November meeting, consistent with his handwritten document
and, as to the
25 November 1991 meeting, consistent with the cautious approach he had earlier
taken and his role as no more than
an adviser on specific issues arising in the
course of investigation on which Mr Timms sought
guidance.”[213]
99 His Honour added:
“According to my
findings as to the scope of the retainer, there was simply no occasion for Mr
Rosenfeld to give the far-reaching
advice the plaintiffs say he gave. As to the
content of the relevant conversations, I prefer the evidence of Mr Rosenfeld
over the
evidence of Mr Timms and Mrs Timms – simply because it is
consistent with the limited scope of the retainer as borne out by
the
contemporary documents, being the lists of points prepared by Mr Rosenfeld for
the meetings of 8 October 1991 and 11 November
1991 (with annotations of action
items agreed at the respective meetings), the list of points made by Mr
Rosenfeld at the meeting
of 16 December 1991 and Mr Rosenfeld’s fax of
that date to Mr Hart. Mr Rosenfeld did take steps to compare the management
accounts and the statutory accounts with a view to Mr and Mrs Timms obtaining a
better view of the viability of the business. In
that sense and to that extent,
he no doubt accepted the task of advising on viability. But three things
combined to mean that process
did not provide any useful result and did not
produce any result that an accountant would have seen (or represented) as truly
indicative
of viability: first, the statutory accounts received gave results
for only two years; second, the statutory accounts were not audited;
and, third,
Mr Rosenfeld never received copies of the tax returns. In those circumstances,
he could not himself have given any assurances
of viability on the basis of the
comparison he made and, given Mr Rosenfeld’s explanations to them of the
relevance of those
matters, the Timms could not have understood him to be doing
so.” [214]
100 The appellants accept that the principles in Abalos apply to the case against the accountants given the judge’s credit findings. However, they submit that his Honour failed to take account of a number of “concessions” made by Mr Rosenfeld in cross-examination. In doing so they do not argue with the due diligence finding by his Honour but say that the retainer was to advise them on the viability of the business.
101 The submission is to be found in paragraph 11.3 of the written submissions of the appellants. It is as follows:
“Having regard to the concessions made by Rosenfeld that:
(a) he had been asked
on three previous occasions to advise the Timms about the viability of three
other businesses and whether or
not they should proceed to purchase them
(T606-T607);
(b) he was asked to investigate, however briefly, those three businesses so that he could form a view on their viability (T606-T607;
(c) he was asked to do the same in respect of the Artrona business (T606-T607);
(d) he continued to investigate the Artrona business from October to 16 December 1991 (T606-T607);
(e) he did conduct an investigation (T605);
(f) he had charged for 22-23 hours of work in investigating the business (T618)
(g) the investigations he undertook were more extensive than those in relation to the other three businesses (T623);
(h) he gave evidence that “at the time [early October 1991 we had that conversation, with the accounts which I had, it looked like the business might be worthwhile and it was worth investigating” (T609);
(i) he asked for a cashflow because it was part of his investigation into the business (T600-T601; T652);
(j) he proceeded to
explain to Mr Timms how he should negotiate, that is, drive a hard bargain
(T667);
(k) he had advised the Timms in the past against all three
businesses (T597);
(m) he had not given any warnings about proceeding with the purchase of the Artrona business (T667);
(n) if he had had an
adverse view he would have warned Mr Timms (T668);
(o) his perception was
that Mr Timms was enthusiastic (T667);
(p) if he had not had confidence
in the accounts he would have felt duty bound to temper the enthusiasm of the
Timms about purchasing
that business (T668);
(q) he applied formulae to figures in the management accounts to arrive at values for the business (T654-T662)-
the learned Trial Judge erred in failing to draw the inference that Rosenfeld was retained to advise and did advise on the viability of the business, even though he did not carry out a due diligence (Reasons for Judgment, paragraph [214].”
102 However, when one examines the judgment as a whole as it concerns the accountants and the evidence of Mr Rosenfeld relied on by the appellants, the inference is simply not available that Rosenfeld was retained to advise on the viability of the business except on the basis that the investigation might permit him to do so, but this was not possible. So much is inherent in his Honour’s reasons for judgment.
103 None of the items in the appellants’ written submissions are inconsistent with his Honour’s judgment or detract from his Honour’s finding as to the nature and content of the retainer. At all times the appellants urged a broad rather than limited retainer upon his Honour. On behalf of the accountants Mr Dubler submitted that there never was an alternative case on a limited retainer on viability only. In my opinion this is the case. Counsel for the accountants submitted that there were in fact four distinct phases to the retainer.
104 First, consistent with the earlier business prospects, the accountant was to look at the business accounts to determine whether the business was worth investigating further. Mr Rosenfeld looked at the management accounts and concluded that it might be worth investigating, see paragraph [178] of the judgment.
105 The second phase
was what should be done by way of investigation. His Honour’s finding was
that the appellants did not
want Mr Rosenfeld to do the investigation; rather
Mr Timms would do it and Mr Rosenfeld would advise and point to areas for
inquiry:
see the task sheet for the 8 October 1991 meeting at paragraph [180]
of the judgment.
106 The third phase was the comparison between the
statutory accounts and management accounts. Here Mr Rosenfeld was to check on
discrepancies and did so, reporting to the appellants. There were discussions
about the differences (the last phase) and also about
the value of the business.
Mr Rosenfeld was accepted on these aspects of the evidence in preference to Mr
Timms . In particular,
Mr Rosenfeld was accepted when he said he couldn’t
give an opinion on value or viability, see paragraph [214] of his Honour’s
judgment.
107 Bearing in mind the strictures of Abalos and that it cannot be said that any of the credit findings on the extent of the retainer can be successfully challenged as “glaringly improbable”, it cannot be concluded that his Honour was in error in failing to draw the inference that Mr Rosenfeld’s retainer was limited to advising on viability. Indeed, the case does not appear to have been conducted on the basis of such a limited retainer. His Honour was right to dismiss the claim against the accountants.
The “shadow ledger issue”
108 The bank claims both principal and unpaid interest.
The appellants contended that interest was not claimable after early 1998.
This
was on the basis that the bank elected not to continue charging interest and
communicated that election to the Timms . His
Honour rejected the argument
giving extensive reasons. The appellants appealed against this finding but
their written submission
did no more than reproduce the grounds of appeal.
Senior counsel for the appellants said, quite candidly, that there was nothing
useful he could put to the court to advance those grounds.
109 In my opinion, his Honour was clearly correct for the reasons he gave, see particularly paragraphs [234] and [238]
110 In my opinion the appeal should be dismissed with costs.
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LAST UPDATED: 13/05/2005