New South Wales Court of Appeal CITATION : MAHLO & ORS v WESTPAC BANKING CORPORATION LTD [1999] NSWCA 358 FILE NUMBER(S) : CA 40740/98 HEARING DATE(S) : 17 June 1999 JUDGMENT DATE : 1 October 1999 John Walter Mahlo, Beverley Annie Mahlo, Wade Walter Mahlo, Brett John Mahlo, Mahlo Trading Pty Limited, Linden Holdings Pty Limited - Appellants PARTIES : Westpac Banking Corporation Limited - First Respondent Jack Crumlin - Second Respondent JUDGMENT OF : Spigelman CJ at 1; Mason P at 25; Sheller JA at 26 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT FILE NUMBER(S) : 1406/96 LOWER COURT JUDICIAL OFFICER : Santow J COUNSEL : P T Taylor - Appellants S D Rares SC/P J Dowdy - Respondents SOLICITORS : Fisher Grogan - Appellants Henry Davis York - Respondents CATCHWORDS : NEGLIGENCE - negligent missstatement - loan contract - economic loss - whether there was inducement and reliance; TRADE PRACTICES - loan contract - misleading or deceptive conduct; PRACTICE & PROCEDURE - costs - cross-claim - separate action - Court cannot order costs against person not party to the cross-claim ACTS CITED : Trade Practices Act 1974 Contracts Review Act 1980 Amon v Bobbett [1889] 22 QBD 543 Atlas Metal Co v Miller [1898] 2 QB 500 Caltex Oil (Australia) Pty Limited v The Dredge 'Willemstad' (1976) 136 CLR 529 Caparo Industries plc v Dickman [1990] 2 AC 605 Dominelli Ford (Hurstville) Pty Limited v Karmot Auto Spares Pty Limited (1991) 38 FCR 471 Gould v Vaggelas (1985) 157 CLR 215 Grapulin v Cartons & Corrugated Papers Pty Limited (1961) SR (NSW) 348 Hill v Van Erp (1997) 188 CLR 159 CASES CITED: Huntsman Chemical Company Australia Limited v International Pools Australia Limited (1995) 36 NSWLR 242 Medway Oil and Storage Company Limited v Continental Contractors Limited [1929] AC 88 Millican v Tucker [1980] 1 WLR 651 Murphy v Brentwood District Council [1991] 1 AC 398 Perre v Apand Pty Limited (1999) HCA 36 Pyrenees Shire Council v Day (1998) 192 CLR 330 Riochet Pty Limited v Equity Trustees (1993) 41 FCR 229 at 234 San Sebastian Pty Limited v The Minister (1986) 162 CLR 340 The King v Murray & Cormie (1916) 22 CLR 437 DECISION : 1. The plaintiffs' appeal against the order that Brett Mahlo pay any part of the costs of the cross-claim be allowed but otherwise the appeal be dismissed; 2. Set aside order 14 made by Santow J on 6 February 1998 and in lieu thereof order; "14. That the plaintiffs pay the first defendant's costs of the plaintiffs' claim against the first defendant including reserved costs on a solicitor and own client basis and the cross-defendants pay the cross-claimant's costs of the cross-claim on a solicitor and own client basis including reserved costs. "; 3. The appellants to pay four-fifths of the respondent's costs of the appeal. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40740/98 ED 1406/96 SPIGELMAN CJ MASON P SHELLER JA MAHLO & ORS v WESTPAC BANKING CORPORATION LIMITED & ANOR In 1983 John and Beverley Mahlo, their sons Wade and Brett Mahlo and two family companies (the appellants) borrowed money from and gave securities to the first respondent for the purchase of a farming property. In 1996 the appellants filed a statement of claim seeking various declarations and orders on the grounds that the first respondent had procured securities from them by conduct which was misleading or deceptive or likely to mislead or deceive within the meaning of s52 of the Trade Practices Act 1974 (Cth) and that the contracts under which the first respondent had made loans and obtained securities were unjust within the meaning of the Contracts Review Act 1980. The central feature of the appellants' case was that the suggestion that they acquire the property came from Mr Wilson, the first respondent's branch manager. The first respondent cross-claimed for payment of sums of money and orders for possession of the appellants' properties which were subject to mortgages held by the respondent. The trial Judge gave judgment for the first respondent on the statement of claim. The first respondent was substantially successful on its cross-appeal. The appellants appealed from the decision of the trial Judge. Held: By Sheller JA, Spigelman CJ and Mason P agreeing: (1) Though the concept of proximity was no longer to be regarded with foreseeability as a touchstone of liability, inducement combined with reliance continued to play an important role and remained a factor of special significance in determining whether liability for negligent misstatement would be imposed. In the present case there was nothing to suggest that Mr Wilson intended to induce the appellants to purchase the property. Perre v Apand Pty Limited (1999) HCA 36 applied. San Sebastian Pty Limited v The Minister (1986) 162 CLR 340 referred to. (2) The trial Judge held that the first respondent was under no duty to advise the appellants on the merits of the purchase. That finding was open to the trial Judge. It was open on the evidence for the trial Judge to conclude that nothing Mr Wilson said, in the context in which he said it, gave rise to such a duty and, equally, that nothing Mr Wilson said about the merits of the acquisition played any part in inducing the appellants to go ahead with it. No representation made by Mr Wilson was intended to induce the appellants to by the property. Accordingly, the decision to enter into the contract did not gave rise to an inference of inducement. (3) The effect of the personal covenant in the mortgage over Lot 771 was a matter of considerable financial significance to Wade Mahlo. The appellants' claim that it was unjust and offended the Trade Practices Act should have been dealt with by the trial Judge even though the appellants' counsel treated the claim as tied up with Mr Mahlo's understanding of the security arrangements. However, the claim failed because the money the respondent lent was for use by the family business and in that sense for the benefit of Wade Mahlo as a business partner. Consistently with the trial Judge's findings that Wade Mahlo was, together with other family members, indifferent as to the scope of the securities, if the trial Judge had expressly referred to the particular claim in relation to the Lot 771mortgage, he would have rejected it for the same reasons. On this basis the claims under the Trade Practices Act and the Contracts Review Act were rejected. (4) A counter claim or cross-claim, unless in truth a defence by way of set off, must in justice be treated as a separate action, in particular for the purpose of determining the appropriate scale of costs. Where a claim and a counter claim were both dismissed with costs, upon taxation of the costs, the true rule was that the claim should have been treated as if it stood alone and the counter claim bore only the amount by which the costs of the proceedings were increased by it. No costs which were not incurred by reason of the counter claim could be costs of the counter claim. The same principle applied where both the claim and the counter claim had succeeded. Since the cross-claim was properly treated as a separate action and any order for costs made in respect of it should take account of that fact, Pt 52A r4 (2) must be read as disabling the Court from making an order for costs in the cross-claim against a person not a party to the cross-claim. Accordingly, Brett Mahlo could not be ordered to pay any part of the costs of the cross-claim. Amon v Bobbett [1889] 22 QBD 543 and Medway Oil and Storage Company Limited v Continental Contractots Limited [1929] AC 88 applied. Atlas Metal Co v Miller [1898] 2 QB 500 and Millican v Tucker [1980] 1 WLR 651 referred to. Per Spigelman CJ: (1) The Court could not infer a duty of care owed by the respondent to the appellants on the basis of the appellants' submissions. The various respects in which these submissions sought to characterise what transpired as being in the nature of "advice" were inconsistent with the trial Judge's express findings based on his assessment of the credit of the relevant participants in the conversations. (2) The findings of the trial Judge did not permit a court to infer reliance in the absence of evidence from the parties which states that they did so rely. The position may have been different if the idea had originated with Mr Wilson and he had urged them in the way alleged. There was no reason to interfere with the trial Judge's finding that Mr Mahlo would have exercised his own judgment in respect of the value and desirability of purchasing the property. The trial Judge was correct to conclude that the appellants had not established a causal connection between any representation and their loss or damage. Statutes: Trade Practices Act 1974 (Cth) Contracts Review Act 1980 Cases: Amon v Bobbett [1889] 22 QBD 543 Atlas Metal Co v Miller [1898] 2 QB 500 Caltex Oil (Australia) Pty Limited v The Dredge 'Willemstad' (1976) 136 CLR 529 Caparo Industries plc v Dickman [1990] 2 AC 605 Dominelli Ford (Hurstville) Pty Limited v Karmot Auto Spares Pty Limited (1991) 38 FCR 471 Gould v Vaggelas (1985) 157 CLR 215 Grapulin v Cartons & Corrugated Papers Pty Limited (1961) SR (NSW) 348 Hill v Van Erp (1997) 188 CLR 159 Huntsman Chemical Company Australia Limited v International Pools Australia Limited (1995) 36 NSWLR 242 Medway Oil and Storage Company Limited v Continental Contractors Limited [1929] AC 88 Millican v Tucker [1980] 1 WLR 651 Murphy v Brentwood District Council [1991] 1 AC 398 Perre v Apand Pty Limited (1999) HCA 36 Pyrenees Shire Council v Day (1998) 192 CLR 330 Riochet Pty Limited v Equity Trustees (1993) 41 FCR 229 at 234 San Sebastian Pty Limited v The Minister (1986) 162 CLR 340 The King v Murray & Cormie (1916) 22 CLR 437 ORDERS 1. The plaintiffs' appeal against the order that Brett Mahlo pay any part of the costs of the cross-claim be allowed but otherwise the appeal be dismissed. 2. Set aside order 14 made by Santow J on 6 February 1998 and in lieu thereof order: '14. That the plaintiffs pay the first defendant's costs of the plaintiffs' claim against the first defendant including reserved costs on a solicitor and own client basis and the cross-defendants pay the cross-claimant's costs of the cross-claim on a solicitor and own client basis including reserved costs.' 3. The appellants to pay four-fifths of the respondent's costs of the appeal. ******* THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40740/98 ED 1406/96 SPIGELMAN CJ MASON P SHELLER JA Friday, 1 October 1999 MAHLO & ORS v WESTPAC BANKING CORPORATION LIMITED & ANOR JUDGMENT 1 SPIGELMAN CJ: I have had the advantage of reading the judgment of Sheller JA in draft. Subject to some observations I wish to make on the issues of duty of care and reliance, I agree with his Honour's reasons and the orders he proposes. Duty of Care 2 The appellants put forward a list of ten considerations, the cumulative effect of which, they submitted, would lead the Court to conclude that Westpac owed them a duty of care. These were as follow: (1) There was an existing commercial relationship between the Mahlo interests and the bank, the latter holding mortgages over five properties. The proposed purchase of Allawah would expand this relationship. (2) The relationship was a long standing one, dating back to 1969. It related to the acquisition and financing of properties by the Mahlos. (3) The alleged advice was given by Westpac's representative, Mr Wilson, a country branch manager to the appellants, who were involved in the business of farming. (4) The advice was given directly to the appellants, in contrast to a situation where advice indirectly comes to the knowledge of a party who suffers loss. (5) It was Mr Wilson's belief which, it was submitted, was expressed to the Mahlos, that the purchase of Allawah was a "once in a lifetime opportunity". (6) Mr Wilson gave advice on the future stability of interest rates and also on the need for expansion, if the business were to remain viable. These were matters it was submitted, about which it could be expected that the bank would know more than the farmer and, accordingly, about which a farmer would accept the opinion of a bank manager. (7) The purchase of the land in 1983 constituted a significant increase in commitment. (8) Mr Wilson knew that it would be reckless of him to influence the Mahlos to purchase Allawah because that decision was "a recipe for financial disaster" unless farming conditions improved. (9) Reliance on the advice would only cause a loss if Mr Wilson himself approved the loan and endorsed it, so that the funds for the transaction would be available. (10) The advice given, whether in the form of a "good opportunity" or, at its highest, in the form of a "once in a lifetime opportunity", is advice directly aimed at inducing the purchase of the property. 3 A number of the factors listed above can be subsumed under the heading of facts and matters which suggest that Westpac, acting through its officers, knew or ought to have known that advice it gave in these circumstances would be relied upon by the Mahlos. The matters listed as (1), (2), (3), (6) and (10) are of that character. Some of the factors suggest that Westpac, through its representatives, knew the risk of loss that could arise from the Mahlos acting in reliance on the alleged advice, including factors (1), (7) and (8). Other matters specific to the circumstances of the case, suggest that the policy considerations against allowing recovery in cases of indeterminate liability would not apply here. These include factors (4) and (9). 4 Expressed at this level of generality, each of the considerations referred to have been accepted as relevant to determining the existence of a duty of care. Considerations of this character are appropriate to be taken into account in the general way relied upon by the appellants. 5 The principal difficulty faced by the appellants was the identification, with an appropriate degree of precision, of the alleged "advice" which had been given by Mr Wilson on behalf of the bank to the Mahlos. The case that had been run before the trial judge commenced with the assertion that it was Mr Wilson who introduced the property to the Mahlos with words of encouragement. This case was expressly rejected by the trial judge. Accordingly, the appellants found themselves in a position of focussing on particular references in the evidence to alleged statements that could constitute "advice", which references were taken out of their original context in the appellants' case as put before the Court at trial. 6 It is true, as the appellants submitted, that the trial judge did not separately deal with each individual statement. However, his Honour was not obliged to do so when he did deal with the context in which the individual statements were said to have occurred in a manner inconsistent with the particular statements having been made. 7 Santow J did not set out any express findings as to precisely what was said in the conversation between Mr Mahlo and Mr Wilson. For the reasons his Honour gave, he rejected certain critical parts of Mr Mahlo's evidence and found other aspects of the evidence unsatisfactory. His Honour also did not fully accept the evidence or Mr Wilson. His Honour's factual conclusions are, in my opinion sufficient to dismiss the case of the existence of duty of care. 8 His Honour found that the bank did not adopt the position of an "adviser". By this finding, in my opinion, his Honour rejected the appellants' case that Mr Wilson in some way encouraged the Mahlos to acquire the property. 9 His Honour characterised the conversations, the precise terms of which he did not expressly find, in the following way: "There was conversation between Mr Mahlo and Mr Wilson … regarding the pros and cons of the purchase of Allawah, land and wheat prices and interest rates, and … Mr Wilson may have expressed a view to Mr Mahlo confirmatory of what I infer was Mr Mahlo's own view, that he thought that the purchase could be a good deal, or a good opportunity for the Mahlos to expand." 10 His Honour went on to place particular emphasis on Mr Mahlo's own evidence that the decision was left to Mr Mahlo when Mr Wilson referred to the lodging of the loan application with the introductory words: "If you want to buy this piece of land …". 11 His Honour's characterisation of the conversation, formed on the basis of seeing the witnesses before him, was to the effect that Mr Wilson did not do anything in the nature of "advice", but merely engaged in a discussion concerning the various factors which would influence a decision to proceed with a purchase, but which decision was the Mahlos' to make. There was neither an assumption of responsibility, nor known reliance, in a conversation of this character. 12 His Honour's characterisation of the conversation constitutes a rejection of the terms of the conversation as alleged in Mr Mahlo's evidence. It also constitutes a rejection of the factual basis for the case put on appeal in this respect. 13 On the issue of wheat prices, his Honour expressly found that whatever the comments that Mr Wilson may have made, Mr Mahlo was an experienced farmer "with his own expertise and views on these matters". 14 His Honour's finding that nothing occurred in the nature of "advice", is a rejection of the specific alleged content of the conversation between Mr Mahlo and Mr Wilson, on the subject of interest rates. His Honour's characterisation of the conversation involves a rejection of the proposition that a firm prediction of falling interest rates was made by or on behalf of the bank, in circumstances where the bank either assumed responsibility or would have known of the reliance to be placed on the statements on this subject matter. In any event, there is no evidence that such a prediction, if made, was negligent. 15 His Honour's characterisation of the general nature of the conversation is inconsistent with a matter pressed in this Court: that there was a basis for an inference that Mr Wilson told Mr Mahlo that the purchase of Allawah was a "once in a lifetime" opportunity. These words appeared in an internal file note within the bank, drafted by Mr Wilson. Whilst in cross-examination something in the nature of a concession appears to have been extracted from Mr Wilson, as to this being his opinion at the relevant time, there was no admission that he had said anything like that to Mr Mahlo. 16 His Honour's finding with respect to the general nature of the discussion being expressed in terms of "a good deal or a good opportunity for the Mahlos to expand" is inconsistent with any such phrase being used. His Honour found that nothing that was said could be classified as "advice". Further, the fact that whatever it was that was said by Mr Mahlo was, as his Honour found, "confirmatory of what I infer was Mr Mahlo's own view", indicates that a conclusion of knowledge of reliance, let alone an assumption of responsibility, could not be drawn. 17 The ten points submitted on behalf of the appellants as constituting circumstances from which the Court should infer a duty of care do not do so. Significantly, the various respects in which these submissions seek to characterise what transpired as being in the nature of "advice" are inconsistent with his Honour's express findings based on his Honour's assessment of the credit of the relevant participants in the conversations. The appellants have not made out their case as to the existence of a duty of care. Reliance 18 Sheller JA notes that the appellants did not give evidence that Mr Wilson's representations contributed to the formation of the contract. This is not necessarily fatal, at least in the case of statements intended by the maker to, and likely to, provide an inducement to enter into a contract. Gould v Vaggelas (1985) 157 CLR 215, 238, 262 and 219; Dominelli Ford (Hurstville) Pty Limited v Karmot Auto Spares Pty Limited (1991) 38 FCR 471 at 483; Riochet Pty Limited v Equity Trustees (1993) 41 FCR 229 at 234; Huntsman Chemical Company Australia Limited v International Pools Australia Limited (1995) 36 NSWLR 242 at 268-9, 245, 250. 19 The findings of Santow J concerning the nature of the conversation between Mr Mahlo and Mr Wilson indicate that there was only a general discussion off the relevant matters. His Honour's findings do not suggest anything which can be described in terms of an "intention" to induce that acquisition. His Honour found nothing which could be classified as "advice". Further, the discussion about such matters as interest rates and wheat prices occurred in the context of a "conversation … regarding the pros and cons of the purchase". 20 As I have noted above, insofar as Mr Wilson expressed an opinion about the purchase being "a good deal or a good opportunity", that expression of opinion was, and was understood by Mr Wilson at the time to be, "confirmatory of … Mr Mahlo's own view". Santow J emphasised that Mr Mahlo's own evidence was that Mr Wilson had prefaced his remarks about lodging a loan application with the words "If you want to buy this piece of land …". 21 In my opinion, these findings do not permit a court to infer reliance, in the absence of evidence from the parties which states that they did so. The position may have been different if, as the appellants asserted below, the idea had originated with Mr Wilson and he had urged them on in the way they alleged. However, his Honour rejected that evidence on a basis which this Court should respect. 22 His Honour expressly found: "I do believe that he (Mr Mahlo) would have exercised his own judgment in respect of … the value and desirability of purchasing additional farmland." 23 There is no reason to interfere with that finding. Indeed in the overall context, the absence of evidence from the appellants that they were even influenced by Mr Wilson's comments, let alone that they would not have proceeded with the acquisition but for the encouragement of the bank - the proposition that the acquisition was Mr Wilson's idea having been rejected - is virtually conclusive. 24 His Honour was correct to conclude that the appellants had not established a causal connection between any representation and their loss or damage. 25 MASON P: I agree with Sheller JA. 26 SHELLER JA: Introduction The appellants, John Walter Mahlo, his wife, Beverley Annie Mahlo, (Mr and Mrs Mahlo) and their two sons, Wade Walter Mahlo and Brett John Mahlo, together with two companies, Mahlo Trading Pty Limited and Linden Holdings Pty Limited, of which Mr and Mrs Mahlo were directors and shareholders, began these proceedings in the Equity Division of the Court against Westpac Banking Corporation Limited (Westpac) and a receiver, Jack Crumlin. The plaintiffs alleged that Westpac negligently and in breach of its duty to the plaintiffs gave them advice in 1983 in reliance upon which they borrowed money from and gave securities to Westpac for the purchase of 'Allawah', a farming property of about 365 hectares in the Forbes area of New South Wales. The plaintiffs sought other declarations and orders based upon allegations that Westpac procured securities from them by conduct which was misleading or deceptive or likely to mislead or deceive within the meaning of s52 of the Trade Practices Act 1974 (Cth) and that the contracts under which Westpac made loans and obtained securities were unjust within the meaning of the Contracts Review Act 1980. 27 These proceedings provoked not only a defence but a cross-claim against all the plaintiffs, except Brett Mahlo, in which Westpac claimed payment of sums of money by the cross-defendants and orders for possession of properties of the cross-defendants, which were subject to mortgages. 28 Santow J heard the proceedings and on 6 February 1998 gave judgment for the defendants on the plaintiffs' statement of claim. On the cross-claim Westpac was substantially successful. The plaintiffs have appealed from Santow J's decision. Judgment Below 29 Santow J observed that it was a central feature of the plaintiffs' case that the suggestion they should acquire 'Allawah' came from Mr Noel Wilson, the manager of the Forbes branch of Westpac. By contrast, Westpac claimed that Mr Wilson played no part in recommending the purchase of 'Allawah' to the Mahlo family and that it was an acquisition which they decided upon and undertook independently of any advice Westpac provided. In summary, Santow J dismissed the plaintiffs' claim that Mr Wilson's advice was negligent and they suffered loss as the result of relying upon it by saying that he was satisfied that Mr Mahlo had made his own decision to purchase 'Allawah', without reliance on any bank advice. In coming to this conclusion, Santow J examined the evidence with care. 30 The plaintiffs' pleaded a duty of care owed to them by Westpac "in relation to advice given in connection with the plaintiffs' business affairs" which stemmed from Westpac's business as a banker and its relationship with Mahlo Trading. Since 1963 Mahlo Trading had taken part in the operation of a farming business which Mr and Mrs Mahlo and their two sons carried on in partnership under the name Westoma Pastoral Company. In June 1970 Mahlo Trading granted a charge over its assets and undertaking in favour of Westpac. Between 1963 and 1983 Mahlo Trading conducted bank accounts at the Forbes branch of Westpac. 31 In May 1983 Mr Wilson was the manager of the Forbes branch of Westpac. The plaintiffs alleged that in or about that month Mr Wilson, "on behalf of Westpac": * stated to Mr Mahlo and Wade Mahlo that a property known as 'Allawah' was available for purchase near properties already owned by the plaintiffs, and that Westpac was prepared to advance all funds necessary for the acquisition of the property together with additional moneys totalling $290,000; * advised those plaintiffs: (i) that interest rates would fall; (ii) that wheat prices would rise; (iii) that property values would rise as wheat prices rose; (iv) that the plaintiffs' position would be more secure if they acquired 'Allawah'; and * represented to those plaintiffs that if 'Allawah' was acquired with the finance offered by Westpac, Westpac would require security by way of: (i) a first mortgage over 'Allawah' ('the Allawah mortgage'); and (ii) a second mortgage over a property of 185 hectares owned by Wade Mahlo ('Lot 771') ( 'the Lot 771 mortgage'). 32 By letter dated 12 May 1983 from Westpac to Linden Industries, Westpac offered the plaintiffs finance for the acquisition of 'Allawah' on the following terms: (a) a loan of $290,000 repayable on demand ('the 1983 Loan'); (b) an initial interest rate of 16.25%; (c) security comprising: (i) a first mortgage over 'Allawah' which was being acquired; (ii) a second mortgage over Lot 771; (iii) the provision of joint and several guarantees by the first and second plaintiffs as directors of Linden Holdings. 33 The plaintiffs alleged that * contrary to the representation as to the security required and the terms of the letter of 12 May 1983, Westpac procured the execution by the plaintiffs of additional mortgages to secure the proposed loan which were referred to as the "additional 1983 securities"; * Westpac failed to disclose to them its intention to rely upon and retain the additional 1983 securities and in particular failed to disclose to the plaintiffs the effect of the personal covenants incorporated in the 'Allawah' mortgage and the Lot 771 mortgage; * in providing the advice referred to and in taking the additional 1983 securities, the Lot 771 mortgage and the Allawah mortgage, Westpac acted negligently and in breach of duty to the plaintiffs. 34 In July 1986 Westpac told the plaintiffs that the security documents executed in 1983 required re-execution because of an error which had been located in the documents already executed. The plaintiffs agreed to do this. At the trial Westpac did not rely on the later securities to the extent, if at all, that they improved the bank's position. 35 Westpac denied that Mr Wilson had made the statements alleged and denied negligence, claiming that Mr Wilson played no part in recommending the purchase of 'Allawah' to the Mahlo family. 36 In his reasons for judgment Santow J said: "The central issues in the case arise out of dealings between the Bank and the Mahlos in 1983 concerning the purchase of a property known as 'Allawah' and the security taken by the Bank at that time in relation to that purchase. The purchase of the additional land in 1983 was a significant increase in commitment to the Bank and it was this, coupled with subsequent crop failures, which contributed to the Mahlos' seriously deteriorated financial position by 1986. In October 1986 the Plaintiffs' accounts with the Bank were placed on a no further drawings basis with a peak debt recorded at $522,913. In 1983 when Mahlo Trading [sic - the purchaser was Linden Holdings] purchased Allawah, the position was that the Bank held mortgages over five properties owned by the Mahlo interests. The mortgages over 'Linden', 'Westoma' and 'Lowen' taken between 1969-1973 secured the debts of Mahlo Trading alone and the mortgages over 'Wirrabilla' and 'Greens', obtained 8-10 years later, secured the debts of both Mahlo Trading and Linden Holdings. The Bank also held a general charge over the assets of Mahlo Trading granted in 1970 to secure the debts of that company. In 1983, negotiations took place for the purchase of Allawah and an advance by the Bank of $290,000 for that purpose. What was both actually intended and obtained by the Bank with regard to securities was that the advances be secured by mortgages already held by the Bank over the five existing properties and that the two further properties (being Allawah and a property owned by Wade Mahlo known as Lot 771) be taken as additional security (in the latter case by second mortgage). A letter facility was signed by Mr and Mrs Mahlo to this effect (although the Plaintiffs contend that this letter was misleading in the context) and seven mortgages were in fact executed. The Plaintiffs say that their understanding of the proposition in all the circumstances was that the Bank would require only the mortgages over the two additional properties to secure the loan and that these alone would secure the loan." 37 After referring to the plaintiffs' allegations of negligent advice concerning the purchase of 'Allawah' and their reliance upon the Trade Practices Act and the Contracts Review Act his Honour said: "The question to be decided therefore concerns whether the information provided to the Mahlos in conjunction with the actions taken by the relevant bank officers reasonably conveyed to the Mahlos the Bank's security requirements in respect of the $290,000 loan and the Bank's intention to take mortgage security over the seven properties, or whether such actions involved misrepresentations by the Bank to the Mahlos as to those requirements and that intention, constituting misleading and deceptive conduct. There is the further question whether the Mahlos relied on any such representations or were induced to enter into such securities by any such misleading or deceptive conduct, if made out." 38 His Honour elaborated the factual background to the purchase of 'Allawah'. It is unnecessary to repeat the detail of what his Honour said. However he referred to a diary note prepared by Mr Wilson and dated 1 March 1983 in which Mr Wilson recorded a visit to the branch by Mr Mahlo. Under "Remarks" appeared the note: "John Mahlo called, is interested in purchasing a portion of Bogonell". Bogonell was owned by a Mr and Mrs Bartlett and the portion of it referred to became 'Allawah'. His Honour observed that while this particular diary note was the first written record of any discussion between Mr Wilson and Mr Mahlo about the acquisition of 'Allawah', there was an issue whether this was their first discussion about the property. The plaintiffs said that discussion on the topic of the 'Allawah' purchase occurred before the date of the diary note. His Honour said: "Mr Mahlo gave evidence that his first conversations with Mr Wilson concerning the possible purchase of a portion of the Bartlett property took place from February 1983. Mr Mahlo stated in evidence that the possibility of purchase of the Bartlett land was first raised with him by Mr Wilson, following which he had a telephone call from Mr Stitt, a local real estate agent at Forbes. Mr Stitt told him that he was trying to put together a consortium to buy Bartletts' land and sub-divide it. Mr Mahlo gave evidence that after this conversation a meeting was arranged at the offices of Williams Musgrave & Boylson, Mr Bartlett's solicitors. Mr Arthur Palmer who acted as solicitor for the Mahlos was also present at that meeting. Mr Palmer gave unchallenged evidence based upon diary records that the meeting took place on Friday 4 March 1983. On the following Monday 7 March 1983, Mr Mahlo, Mr Stitt, Mr Ward and Mr Tomkins (who comprised the syndicate put together by Mr Stitt) took an option over the whole of the Bartlett property exercisable on or before 21 March 1983. It is Mr Mahlo's evidence that the substance of what Mr Wilson had said to him in discussions was that the property was available and that the Bank was prepared to advance the necessary funds. He said that he had at least two meetings with Mr Wilson and some telephone conversations, during the course of which Mr Wilson made firm recommendations to him concerning the proposed acquisition of the Bartletts' land. Mr Mahlo gave evidence that Mr Wilson stated to him that he needed 'more country' and had to 'get bigger'. Mr Wilson said that he could arrange finance to acquire the Bartletts' land and that 'interest rates can't go any higher' and that they had 'got to go down'. Mr Mahlo stated that Mr Wilson also said that wheat prices were 'too low' and 'bound to go up' and the 'property prices will rise when the wheat prices rise'. Wade Mahlo also gave evidence that Mr Wilson had spoken informally with him and indicated that it was a good idea for the Mahlos to purchase Allawah, as interest rates were going to fall and wheat prices rise, and that the most economical approach to farming under the current conditions was to 'get bigger'. 39 On 7 March 1983, which was the day the option was taken, Mr Wilson made a further diary note of a discussion with Mr Mahlo, concerning the proposed purchase. In that note Mr Wilson stated: "We feel John will make it, he is an excellent wheat farmer and will make one complete paddock out of the 900 acres and put it all in this year if we can get some moisture. He will farm about 4,000 acres all up and we are due for a crop." 40 Mr Wilson was to submit the proposal with his recommendations to the Westpac regional manager. On 15 March 1983 Mr Wilson completed an application to the regional manager for approval of total facilities of $386,000 to Mahlo Trading. It was recorded that the past association with Westpac was a cause for concern "due to continuing poor seasons" and that, of the total facilities, $232,000 was for the purchase of 'Allawah'. The Allawah loan represented a significant increase in the Mahlos' commitment to Westpac. It obviously required substantial income to be earned each year by the Mahlos in respect of their wheat farming operation if such a level of borrowing was to be serviced. 41 The application recorded that Mr Wilson had inspected the property and plant on 9 March 1983. It was contemplated that all the advances then proposed to Mahlo Trading would be secured by mortgages already held by Westpac over five existing properties and that security be taken by Westpac over two further properties. The first was 'Allawah'. The second was a registered second mortgage over Wade Mahlo's property 'Lot 771'. Under the heading "Manager's Remarks" it was said that the land to be purchased was some of the best in the district and represented a saving of $.123 per hectare on sale of similar land within 10 kilometres. "Obviously Company does not wish to miss out on this 'once in a lifetime' opportunity." 42 Santow J observed: "While Mr Wilson maintained that he did not suggest the purchase nor indeed speak to Mr Mahlo about the proposition prior to 1 March 1983 Mr Wilson admitted a number of times in cross-examination that his recollection of events was based on what was recorded in his diary notes. Mr Mahlo asserted repeatedly that he remembers clearly that it was Mr Wilson who first raised the topic of the Allawah purchase and conveyed the idea with enthusiasm: 'What happened was Mr Wilson told me, I've said it three times now. "There is a piece of land out your way. I know it is for sale and you should buy it. It will make your operation more viable." That was the opening statement by the manager. I had no idea what this piece of land was and where it was. I had no idea at that stage.' Mr Mahlo's evidence that Mr Wilson spoke with him about interest rates and land and wheat prices in a manner similar to that described above is not inconsistent with the records as such conversation would not necessarily have been formally noted." 43 Mr Wilson agreed that interest rates and the like were something which would come up in daily conversation at the bank and that when a customer came in he would give them his view at that time not only about interest rates but about land prices and wheat prices. Mr Wilson also conceded that he believed the deal was a big opportunity for the Mahlos. He agreed that he saw it as a once in a life time opportunity for the Mahlos but did not recall having told them that. 44 Santow J said that he did not see anything in Mr Wilson's evidence which suggested that he was deliberately giving false evidence. Mr Wilson "conceded (albeit reluctantly), whilst adamantly denying that he had done so, that it would have been 'reckless' of him to influence the Mahlos into the purchase of 'Allawah' because such a commitment was a recipe for financial disaster unless farming conditions improved". 45 His Honour accepted that Mr Mahlo, as he insisted, was not commercially sophisticated or formally educated. But he did have years of experience in farming, in buying rural land, and in dealing with banks and borrowing money, "such as should have given him experience in farming matters, a sophisticated understanding of the worth of farming land for the family operations, and a broad overview of his overall financial position. He was in fact a keen purchaser of land, having a long history of building up his holdings when he was able to do so, to expand his farming operation. He said, in relation to farming and weather conditions, that it was his view that 'good years follow bad years' and he had 'never seen two droughts follow on one another'. He admitted that his knowledge of wheat prices would have been at least as good as Mr Wilson's, as with weather predictions." 46 As well as Mr Mahlo, Wade Mahlo and Mrs Mahlo gave evidence. Santow J did not think Wade Mahlo was a dishonest witness in any deliberate sense but found it likely that he, along with Mr Mahlo, had "remembered" some key details of events some thirteen years ago only with the benefit of hindsight. His Honour thought Mrs Mahlo's recollections likely to have been influenced both by Mr Mahlo and by re-construction from discussions over time as to what happened with Westpac. He thought her evidence neither assisted nor detracted from the plaintiffs' case in a significant way. Overall his Honour said: "these observations about the three Mahlo witnesses do not connote deliberate dishonesty, but they do call for caution in dealing with their evidence." 47 On the question whether Westpac gave negligent advice regarding the purchase of 'Allawah', Santow J said: "I accept on the evidence before me that there was conversation between Mr Mahlo and Mr Wilson, more extensive than that recorded in the Bank notes, regarding the pros and cons of the purchase of Allawah, land and wheat prices and interest rates, and that Mr Wilson may have expressed a view to Mr Mahlo confirmatory of what I infer was Mr Mahlo's own view, that he thought that the purchase could be a good deal, or a good opportunity for the Mahlos to expand. Significantly, however, even on Mr Mahlo's own evidence, the decision was one left to Mr Mahlo to make: 'Q. Words to that effect? A My recollection of it is that Mr Wilson said ' If you want to buy this piece of land I will put an application through to PIBA for you because I think that's the place to borrow money today'. (emphasis added) The question of whether the Bank owed a duty of care in relation to giving advice as to the business and financial affairs of the plaintiff [sic] rests particularly on the question of whether the Bank was in a position as 'adviser' to Mr Mahlo and the Mahlos relied on the advice given by the Bank in deciding to go ahead with the deal. As a general principle, a financier is not under a duty to provide a borrower with commercial advice: Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 (at 276). Such conversations between Mr Wilson and Mr Mahlo as I have described above cannot constitute negligent advice to the Mahlos in a context where the bank was not undertaking to act as an adviser on the matter and Mr Mahlo, as an experienced farmer over many years in the District who had accreted a number of holdings, was in a position to make considered decisions on all of those topics himself. I am unable to be satisfied on the evidence that the idea for the purchase was Mr Wilson's and that the Mahlos were encouraged by him to make a decision which was not their own. It is not enough that the Bank may "beckoned them the way that they were going"; even enthusiastic Bank concurrence in the Mahlos' own decision does not detract from it being their own decision. I am not convinced by Mr Mahlo's insistence that he 'would not question a bank manager'. I accept that Mr Mahlo would not have queried the details of a written legal document. However, I do believe that he would have exercised his own judgment in respect of those matters with which he was familiar and experienced (and more so that Mr Wilson), namely farming and the value and desirability of purchasing additional farmland; see for a similar case Commonwealth Bank v Zell (Sperling J, 19 February 1997, unreported), particularly at 39-40. Conclusion The Plaintiffs have not discharged the onus of showing that Mr Wilson put the Bank in a position where it owed a duty to give the Plaintiff [sic] commercial advice on the advisability of the purchase by undertaking an advisory role in that behalf. Nor have they shown that the Plaintiff [sic] relied on such advice in a way which would have resulted in a breach of such a duty if it did exist, or otherwise demonstrated a sufficient causal connection between any advice and the loss suffered." 48 His Honour made no finding of precisely what Mr Wilson said to Mr Mahlo about 'Allawah' before its purchase. But his Honour held that the plaintiffs had not established that Westpac was under a duty to provide the Mahlos with commercial advice or that, even on Mr Mahlo's own evidence, he would not have exercised his own judgment in an area with which he was experienced and familiar. His Honour found that the plaintiffs had failed to prove that Mr Wilson put Westpac in a position where it owed them a duty to give them commercial advice or that they relied on the advice in a way which would have resulted in liability for breach if the duty existed. 49 The plaintiffs submit that his Honour applied the wrong test in determining whether there was a duty and the wrong test in determining whether there was reliance. 50 Santow J went on to deal with the plaintiffs' claim that they were misled as to the extent of the security which Westpac required and obtained to support the loan both in 1983 and in 1986. He stated his conclusions on both parts of the plaintiffs' case thus far as follows: "I am satisfied that Mr Mahlo had made his own decision to purchase Allawah, without reliance on any bank advice and that he was indifferent as to the securities he was thus to make available for the Allawah purchase; in particular he was indifferent that they would include not only Allawah and a second mortgage over Lot 771, but also the five existing securities (never as it happened stamped or registered) plus a general charge given by Mahlo Trading (as at 1983). If, as he claims, he did not read or take in the Bank's original letter of offer making clear the existing security continues to apply or remark on any discrepancy with the later one after Linden Holdings was substituted, that would have been because of the indifference; however I am on balance of the view that he did read and understand that position and took it as continuing to apply after Linden Holdings was substituted. That is to say, he was not relying on the Bank requiring merely stand-alone security nor on balance did he assume that was their requirement. He was, I am satisfied, equally indifferent to the seven mortgages having been replaced in 1986 by seven substituted mortgages to support the borrowings of Linden Holdings, comprising as they did, essentially the same security as in 1983." 51 With one exception, the plaintiffs do not on the appeal press any ground to support the claim that Westpac officers conveyed to them that the bank's security requirements in respect of the $290,000 and the bank's intention to take mortgage securities over the seven properties involved misrepresentations by the bank to the plaintiffs and constituted misleading and deceptive conduct or resulted in the formation of unfair contracts within the meaning of the Contracts Review Act. The exception is the personal covenant in the Lot 771 mortgage to which I will return. 52 Santow J's conclusion, after reviewing the evidence including the oral evidence of Mr Wilson and of Mr and Mrs Mahlo and their sons, that Mr Mahlo had made his own decision to purchase 'Allawah' without reliance on any bank advice disposed of the plaintiffs' claim in negligence and is difficult to set aside on appeal. The Negligence Claim 53 Both parties referred us to Gould v Vaggelas (1985) 157 CLR 215 at 236 where Wilson J set out the principles to be applied when considering whether a misrepresentation has induced the representee to enter into a contract. "1. Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case. 2. If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into the contract there arises a fair inference of fact that he was induced to do so by the representation. 3. The inference may be rebutted, for example, by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation. 4. The representation need not be the sole inducement. It is sufficient so long as it plays some part even if only a minor part in contributing to the formation of the contract." 54 In particular the plaintiffs claimed that Santow J failed to consider whether Mr Wilson's representations played some part, even if only a minor one, in contributing to the formation of the contract. The plaintiffs gave no evidence that they did. Counsel referred us to passages in Mr Mahlo's evidence where he said that he told his wife that the bank manager had suggested to him that they should consider purchasing 'Allawah' to make their operation more viable, that they should get bigger or get out and that, with the security that the bank manager indicated, it would be a good idea. However, Santow J was not satisfied on the evidence that the idea for the purchase was Mr Wilson's and that the Mahlos were encouraged by him to make a decision which was not their own. More than once his Honour expressed his satisfaction that Mr Mahlo had made his own decision to purchase 'Allawah'. This seems to me only consistent with the conclusion that whatever Mr Wilson may have said about the desirability of making the purchase or about interest rates, wheat prices, property values or security, played no part in inducing the plaintiffs to purchase 'Allawah'. 55 In San Sebastian Pty Limited v The Minister (1986) 162 CLR 340 at 355 Gibbs CJ, Mason, Wilson and Dawson JJ referred to the relationship of proximity as an integral constituent of the duty of care concept embracing a general limitation upon the test of reasonable foreseeability of vital importance when the plaintiff's claim is for pure economic loss. Nevertheless, proximity was not thought by all members of the Court capable of constituting a universal criterion of liability; see per Brennan J, as his Honour then was, at 368-9. In Perre v Apand Pty Limited (1999) HCA 36 (12 August 1999) at 74 McHugh J, after referring to the speech of Lord Oliver in Murphy v Brentwood District Council [1991] 1 AC 398 at 487 and the necessity to find something more than the mere occurrence of economic loss and the fact that its occurrence could be foreseen, said: "For some years in this Court, the 'something more' was 'proximity' which Deane J suggested in Jaensch v Coffey (1984) 155 CLR 549 at 584 'involves the notion of nearness or closeness'. However, this Court no longer sees proximity as the unifying criterion of duties of care; Hill v Van Erp (1997) 188 CLR 159 at 176-177, 210 and 237-239; Pyrenees Shire Council v Day (1998) 192 CLR 330 at 414. The reason that proximity cannot be the touchstone of a duty of care is that it 'is a category of indeterminate reference par excellence': McHugh 'Neighbourhood Proximity and Reliance' in Finn (ed) Essays on Torts (1989) 5 at 13, also 36-39; see also Stapleton 'Duty of Care Factors: A Selection from the Judicial Menus' in Cane & Stapleton (eds) The Law of Obligations - Essays and Celebration of John Fleming (1998) 59 at 60-62." 56 But as Gleeson CJ pointed out at 5 there remains a need to constrain a duty to avoid any reasonably foreseeable financial harm by "some intelligible limits to keep the law of negligence within the bounds of commonsense and practicality"; Caparo Industries plc v Dickman [1990] 2 AC 605 at 633 per Lord Oliver of Aylmerton; see also Caltex Oil (Australia) Pty Limited v The Dredge 'Willemstad' (1976) 136 CLR 529 at 573 per Stephen J. 57 At 27 Gaudron J said: "It may well be that, at this stage, the notion of proximity can serve no purpose beyond signifying that it is necessary to identify a factor or factors of special significance in addition to the foreseeability of harm before the law will impose liability for the negligent infliction of economic loss." 58 At 93 McHugh J said: "If a case falls outside an established category, but the defendant should reasonably have foreseen that its conduct would cause harm to the plaintiff, we have only to ask whether the reasons that called for or denied a duty in other (usually similar) cases require the imposition of a duty in the instant case. ………But in an area of law such as awarding damages for negligently inflicted economic loss, which is still developing and which has been recently cast adrift from any unifying principle, there is no alternative to a cautious development of the law on a case by case basis. Perhaps another unifying principle may emerge and gain widespread acceptance." 59 At 201 Gummow J said: "I prefer the approach taken by Stephen J in Caltex Oil . His Honour isolated a number of 'salient features' which combined to constitute sufficiently close relationship to give rise to a duty of care owed to Caltex for breach of which it might recover its purely economic loss. In Hill v Van Erp and Pyrenees Shire Council v Day , I favoured a similar approach, with allowance with for the operation of appropriate 'control mechanisms'." 60 At 333 Hayne J said: "It is because of the lack of definition of terms like 'proximity' and 'fairness' that it has been said that the law in this area should develop incrementally. And so it must for as long as no unifying principle emerges. But that is far from saying that the law should develop without explicit recognition of the factors that are considered important in deciding whether there is a duty to take care to avoid pure economic loss. The identification of those factors is essential to any ordered development of the law in this area." 61 At 406 Callinan J said: "I turn now to a consideration of the factors which in combination I think relevant in this case and which establish a sufficient degree of proximity, foreseeability, a special relationship, determinancy of a relative small class, a large measure of control on the part of the respondent, and special circumstances justifying the compensation of the appellants for their losses." 62 Kirby J adhered to the criteria, expressed by him in Pyrenees Shire Council v Day at 419-420, of "foreseeability", "proximity" and competing "policy" to provide the answer, in a particular case, as to whether or not a duty of care existed in law giving rise to an entitlement to recover economic loss. 63 In the context of what was then thought to be the necessary relationship of proximity, the majority in San Sebastian Pty Limited v The Minister emphasised the role of inducement and reliance. Their Honours said at 355: "When the economic loss results from negligent misstatement, the element of reliance plays a prominent part in the ascertainment of a relationship of proximity between the plaintiff and the defendant, and therefore in the ascertainment of a duty of care. …… In cases of negligent misstatement, reliance plays an important role, particularly so when the defendant directs his statement to a class of persons with the intention of inducing members of the class to act or refrain from acting, in reliance on the statement, in circumstances where he should realise that they may thereby suffer economic loss if the statement is not true." 64 Though the concept of proximity is no longer to be regarded with foreseeability as a touchstone of liability, inducement combined with reliance continues to play an important role and remains a factor of special significance in determining whether liability for negligent misstatement will be imposed. But in the present case there was nothing to suggest that Mr Wilson intended to induce the plaintiffs to purchase the property. He denied that he had sought to influence them and accepted that in the economic climate it would have been reckless to do so. This perhaps throws up one aspect of the distinction between an actionable misrepresentation and a mere statement of opinion in the course of business negotiations. 65 Santow J found on the evidence that Westpac was under no duty to advise the appellants on the merits of the purchase. That conclusion was open to his Honour. It was open on the evidence for his Honour to conclude that nothing Mr Wilson said, in the context in which he said it, gave rise to such a duty and, equally, that nothing Mr Wilson said about the merits of the acquisition played any part in inducing the plaintiffs to go ahead with it. No representation made by Mr Wilson was intended to induce the plaintiffs to buy 'Allawah'. Accordingly, the decision to enter into the contract gives rise to no inference of inducement. None of the plaintiffs gave evidence of inducement. Moreover, there was no finding and apparently no evidence that any statements Mr Wilson made about future interest rates and wheat prices were not perfectly reasonable opinions to hold at the time. 66 In my opinion the appeal based on the plaintiffs' claim that Westpac gave the plaintiffs negligent advice fails. The Personal Covenant in the Second Mortgage over Lot 771 67 Wade Mahlo became the registered proprietor of Lot 771 in 1976. After he acquired the property the family used it in conducting their wheat farming activities. In July 1983 he gave the Lot 771 mortgage, a second mortgage, to Westpac on the acquisition of 'Allawah'. He said that he went to the Forbes branch of Westpac and signed a form of mortgage over his property. No explanation was given to him of the effect of the documents by the bank officer when he signed them. He was not given copies of the documents at the time and did not obtain any independent advice concerning the documents or their effect. He said that if he had been told either in 1983 or 1986, when a replacement mortgage was signed, that the documents he signed exposed him to a personal liability for all the debts of Linden Holdings and that that liability extended to future advances to the company he would not have signed the documents in 1983 or later in 1986. Based on this failure to disclose or explain the effect of the personal covenants in the Lot 771 mortgage the plaintiffs alleged that Westpac's conduct in failing to bring the existence of the personal covenant to Wade Mahlo's attention constituted a breach of s52 of the Trade Practices Act and resulted in an unjust contract within the meaning of the Contracts Review Act. 68 The Lot 771 mortgage was a short document which identified the land, Wade Mahlo as the mortgagor, and the debtor, Linden Holdings. Incorporated in it was a Memorandum filed in the Registrar General's office as number T201897. The mortgagor and debtor covenanted that the mortgage was for the purpose of securing to the mortgagee the payment of the moneys described in the Memorandum as "the moneys hereby secured". The mortgage which was dated 22 July 1983 was signed by Wade Mahlo and bore the common seal of Linden Holdings affixed in the presence of the secretary (the signature indicates a member of the Mahlo family) and a director (the signature indicates another member of the Mahlo family). The face of the Lot 771 mortgage made plain that it was given to secure advances of unspecified amounts to Linden Holdings. No mention was made of a personal covenant. 69 Clause 1A of Memorandum T201897 provided that the mortgagor would pay to Westpac on demand, which demand might be made at any time or from time to time, the moneys thereby secured or such part or parts of the moneys thereby secured as might be specified in each such demand unless there was an agreement in writing to the contrary. The plaintiffs complained that Santow J did not deal with the consequences of the alleged failure by Westpac to draw Wade Mahlo's attention to the existence of this covenant on the basis of which judgment in a monetary sum was ordered against Wade Mahlo. Relief was sought under s87 of the Trade Practices Act and s7 of the Contracts Review Act to set aside Wade Mahlo's personal covenant in the Lot 771 mortgage. The point was that Wade Mahlo knew that the property was security for the debt of Linden Holdings but not that he personally had to pay the whole debt. Of this he said he was never advised and there was no evidence to suggest that he was. 70 Westpac relied on that part of Santow J's judgment found under the heading "Factual Conclusions re Security Documents". None of this specifically dealt with this particular claim. When dealing with the claims under s52 of the Trade Practices Act his Honour said that Mr Mahlo was the relevant person to consider, as neither Wade nor Mrs Mahlo dealt directly with Westpac in any significant respect, they having been dependent on Mr Mahlo's interpretation of Westpac's offer. As noted earlier, his Honour found that Mr Mahlo was indifferent about the securities he was to make available for the 'Allawah' purchase and in particular indifferent that they would include not only 'Allawah' and a second mortgage over Lot 771, but also the additional 1983 securities plus a general charge given by Mahlo Trading. Mr Mahlo's claimed failure to read loan and security documents was a mark of this indifference. 71 His Honour said that it was not enough for the Mahlos - who had access to legal advice from Mr Palmer - to assert that they did not read documents which would have clarified an ambiguous position (especially where the presumed position was one which, in the Mahlos' own eyes, was surprising). The fact that a person had not read a document that he or she was signing was not, in ordinary circumstances, a strong argument to advance to support an assertion of misleading or unfair conduct. His Honour thought that the plaintiffs could not hide behind the fact that they did not read the documents and failed to ask for them to be read or explained "more especially when they had access to their own legal advice". He found that the contents of the security documents was a matter of indifference to the Mahlos and in particular Mr Mahlo, in terms of their desire to purchase 'Allawah' utilising whatever security was required to satisfy Westpac, as with other borrowings. His Honour did not consider that any loss resulted to the Mahlos from misrepresentation or misleading and deceptive conduct because they were indifferent to whether the already given existing five securities (in the 1970 charge) were also to be security for the purchase of 'Allawah'. "Thus they would not have acted any differently if aware that these existing securities were also to be made available to secure the Allawah purchase moneys. There was, in short, no sufficient causal connection between the alleged misleading and deceptive conduct and any loss from the existing security being thus made available". 72 Several of these factual findings by his Honour expressly extend to encompass the position of Wade Mahlo: (i) "The Plaintiffs were indifferent to whether the already given existing five securities (and the 1970 charge) were also to be security for the purchase of Allawah". (ii) " … it was a matter of indifference to the Mahlos … in terms of their desire to purchase Allawah utilising whatever security was required to satisfy the bank, as with other past borrowings". Whilst para (i) does not necessarily extend to the personal covenant of which complaint is made, the factual finding in para (ii) does so extend. 73 His Honour's finding that Wade Mahlo was, together with other family members, "indifferent" as to the scope of the securities was based in part on a finding that each member of the family would utilise whatever securities were required to get the finance to purchase Allawah. This finding, based on his Honour's assessment of the witnesses, would logically apply to any separate consideration of the Lot 771 mortgage, specifically, the personal covenant which it contains. In my opinion, his Honour did make a factual finding in broad enough terms to encompass Wade Mahlo's position with respect to this security. If I thought it necessary to do so, I would make that finding. 74 In the course of dealing with the claim under the Contracts Review Act his Honour did not find that Mr Mahlo was at such a disadvantage that he could not understand the fundamental elements of the transaction. "He, along with Mrs Mahlo and Wade Mahlo, admitted that they understood the effect of a mortgage, in broad terms, and of a personal guarantee. They understood that they were borrowing money from the bank and it had to be repaid and I have found already that they were indifferent to the security arrangement not being stand alone but picking up the existing securities." 75 In this context also, his Honour made factual findings which applied to Wade Mahlo. (i) " … contributed to, however, by the Mahlos' choice not to read any documents which they signed, nor to ask for them to be read or explained by a solicitor or a bank officer". (ii) " … I am not satisfied that the Mahlos did expect a stand alone security. This is given their indifference on that matter (as I have earlier found), coupled with the past precedent of cross collateralised bank lending …" Paragraph (i), but not necessarily para (ii), extends to the personal covenant. 76 During argument it became clear that this particular point of appeal was not in the forefront of the plaintiffs' submissions at the trial. It was given but passing reference which may explain his Honour's failure to deal with it specifically. However, the point was pleaded and senior counsel then appearing for the plaintiffs, in the course of his oral submissions, though apparently not in the quite lengthy written submissions, said: "I want to make perfectly plain, on behalf of Mr Wade Mahlo, that it is his personal covenant that is unjust here. You have read our submissions which seeks to restrict his liability to the value of his security execute over Lot 771 [sic]. It is only on the personal covenant. Could I in that sense give you transcript references page 245.7 and following where he was asked what he assumed to be his obligation: 'If the land wasn't sufficient to pay it off ……. A. That was the extent of it'. So his position is, he was perfectly willing to let the equity on the land but was not prepared to expose himself to a debt which is now $2million because of the passage of time and interest accruing. He wasn't even favoured with the facility letter. So all of his knowledge was passed on by John Mahlo in the way that is described in the evidence conformably with John Mahlo's understanding of the limitations which the bank was prepared to accept on his security position." 77 A little later, after comment by Santow J, counsel said: "Yes, the thrust of our position, it was put up to him on a limited basis. It is true he didn't deal directly with the manager but the bank never addressed any arrangements to him and his case obviously depends upon an acceptance of John Mahlo's evidence of his legitimate understanding of what Mr Wilson said about the security arrangements." 78 The passage in the transcript was a simple statement by Wade Mahlo: "I would have assumed if you gave a mortgage over your land, that was the extent of it." 79 The effect of the personal covenant in the mortgage was a matter of considerable financial significance to Wade Mahlo. The plaintiffs' claim that it was unjust and offended the Trade Practices Act should have been dealt with even though the plaintiffs' counsel treated the claim as tied up with Mr Mahlo's understanding of the security arrangements. However, consistent with his Honour's findings I am satisfied that the claim must fail. The money Westpac lent was for use by the family business and in that sense for the benefit of Wade Mahlo as a business partner. He knew, or must be taken to have known, that the loan had to be repaid but, even so, agreed to borrow it to advance the family business. At trial counsel clearly recognised that the claim would fail unless the Judge accepted the Mahlos' case on the limitation of the securities that would be made available. His Honour rejected that case on the basis that they were indifferent to the extent of the security. His Honour found that the family farming operation was run as a combined operation. This was evidenced by the circumstances of Brett and Wade's application for rural assistance. That money went through the account of Linden Holdings and was used to "put the crop in". 80 Consistently with the findings he made about the securities, if Santow J had expressly referred to the particular claim now put in relation to the personal covenant in the Lot 771 mortgage, he would have rejected it for the same reasons fully stated in his judgment. 81 On this basis, there is no justification for an order under s87 of the Trade Practices Act because of the absence of the necessary causal link. If there had been any contravention of the Trade Practices Act, there was no loss or damage which was occasioned "by" such contravening "conduct". 82 This finding is also of significance for the Contracts Review Act claim. Together with the matters considered by his Honour under this head, it leads to the rejection of that claim. This ground of appeal fails. Costs Order Against Brett Mahlo 83 Santow J made the following costs order: "14. That the plaintiffs (apart from Brett Mahlo)/cross-defendants pay the first defendant's/cross-claimant's costs of the proceedings including reserved costs on a solicitor and own client basis and that Brett Mahlo pay the first defendant's/cross-claimant's costs of the proceedings as assessed." 84 In his reasons for judgment Santow J said: "Mr Brett Mahlo chose to become a party to proceedings in which he had a direct financial interest. Had he elected not to do so, assuming he were able, there would be substance in the plaintiffs' contentions. However, because Mr Brett Mahlo chose to be a party in circumstances where his doing so was perfectly explicable by the benefits that would have flowed from success in the litigation and avoidance of any detriment in successfully resisting the cross-claim, he cannot now escape the consequence of being voluntarily joined as a plaintiff in such circumstances. Where a party has voluntarily elected to be a party to proceedings it is for that party to demonstrate that the party was in truth a stranger to the proceedings and was joined in error. This, the plaintiffs, and in particular Brett Mahlo, have failed to do." 85 On behalf of Brett Mahlo it was submitted that as he was not a party to the cross-claim or in any sense a cause of that claim, there was no basis for him to be ordered to pay the cross-claimant's costs. 86 Part 52A r4 (2) of the Supreme Court Rules provides: "Subject to subrule (5), the Court shall not, in the exercise of its powers and discretions under section 76 of the Act, make any order for costs against a person who is not a party." 87 This rule was not mentioned in argument before Santow J or before this Court. Brett Mahlo was one of the plaintiffs making the claim against Westpac but was not a cross-defendant to Westpac's cross claim. 88 In Amon v Bobbett [1889] 22 QBD 543 the English Court of Appeal reaffirmed that a counter claim or cross-claim, unless in truth a defence by way of set off, must in justice be treated as a separate action, in particular for the purpose of determining the appropriate scale of costs. In the present case, as a result, if the plaintiffs had abandoned their claim against Westpac, Westpac could even so have proceeded on its cross-claim against the cross-defendants. Where a claim and a counter claim are both dismissed with costs, upon the taxation of the costs, the true rule is that the claim should be treated as if it stood alone and the counter claim should bear only the amount by which the costs of the proceedings have been increased by it. No costs not incurred by reason of the counter claim can be costs of the counter claim. In the absence of special directions of the Court there should be no apportionment. The same principle applies where both the claim and the counter claim have succeeded; Medway Oil and Storage Company Limited v Continental Contractors Limited [1929] AC 88. In Atlas Metal Co v Miller [1898] 2 QB 500 which the House of Lords approved, at 505-6 Lindley MR giving the judgment of the Court of Appeal said: "What are the costs of a counter claim? The answer must be the costs occasioned by it. No costs not incurred by reason of the counter-claim can be costs of the counter-claim. The fact that if there had been no action the costs of the counter-claim would have been larger, because the defendant would then have had to issue a writ and take other proceedings, does not make costs not incurred costs incurred, and in considering what the costs of a counter-claim really have been in any particular case, the costs saved by not bringing a cross-action cannot be treated as costs incurred. The introduction of counter-claims has given litigants advantages in this respect. Counter-claims, although cross-actions for all purposes of procedure and evidence, cost less than actions, and the party has to pay the costs of a counter-claim gets the benefit of the cheaper procedure. To include in the costs of a counter-claim any costs not occasioned by its being a counter-claim, but saved by its being what it is, appears to us wrong in principle and opposed to Saner v Bilton [1879] 11 ChD 416 and Ward v Morse [1883] 23 ChD 377." 89 In Millican v Tucker [1980] 1 WLR 651, a decision of two members of the English Court of Appeal, at 655 Donaldson LJ said: "The order under appeal seeks by the special direction to include in the costs of the counter-claim costs which were not occasioned by it, but were saved because the issues had already been raised by the claim and defence. This is permissible inter partes, because all that the judge is then doing is to make an order that one party should pay part of the costs both of the claim and of the counter-claim. Indeed, it may often be right to do so, because where, as here, both parties are seeking inconsistent declarations as to their rights, it may be largely a matter of chance, financial ballast or enthusiasm that determines which party initiates the claim and which the counterclaim." 90 Likewise in the present case it may have been sheer chance that led the plaintiffs to proceed against Westpac before Westpac proceeded against those of them who were cross-defendants. 91 Section 76 (1) of the Supreme Court Act 1970 enabled Santow J to make the order he did subject only to the question of whether Brett Mahlo was protected by Pt 52A r4 (2). 92 Section 19 of the Supreme Court Act provides that "except in so far as the context or subject matter otherwise indicates or requires ……. party includes any defendant and any person against whom a claim for relief is made under s78." Section 78 (1) enables the Court to grant to the defendant relief against any person as the Court might grant against that person if the person were a defendant in separate proceedings commenced by the defendant. Section 78 (4) provides that: "Subject to the rules, a person against whom relief is claimed under this section - (a) shall, if not a party to the first proceedings, become a party to the first proceedings; and (b) shall have the same right in respect of the person's defence against the claim as if the person were a defendant in separate proceedings commenced by the defendant for the purpose of that claim." 93 In other contexts "party" has been said to have the meaning ordinarily given to it by lawyers namely party to the record (see The King v Murray & Cormie (1916) 22 CLR 437 at 469) or one of the litigants in the relevant action or proceeding; Grapulin v Cartons & Corrugated Papers Pty Limited (1961) SR (NSW) 348 at 350. 94 With some hesitation I have come to the conclusion that, since the cross-claim should properly be treated as a separate action and any order for costs made in respect of it should take account of that fact, Pt 52A r4 (2) should be read as disabling the Court from making an order for costs in the cross-claim against a person not a party to the cross-claim. 95 Accordingly, Brett Mahlo could not be ordered to pay any part of the costs of the cross-claim and to that extent the plaintiffs' appeal succeeds. Orders 96 I would propose the following orders: 1. The plaintiffs' appeal against the order that Brett Mahlo pay any part of the costs of the cross-claim be allowed but otherwise the appeal be dismissed. 2. Set aside order 14 made by Santow J on 6 February 1998 and in lieu thereof order: '14. That the plaintiffs pay the first defendant's costs of the plaintiffs' claim against the first defendant including reserved costs on a solicitor and own client basis and the cross-defendants pay the cross-claimant's costs of the cross-claim on a solicitor and own client basis including reserved costs.' 3. The appellants to pay four-fifths of the respondent's costs of the appeal. ***** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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