Reported Decision : 54 IPR 515 New South Wales Court of Appeal CITATION : ADC v WHITE [2001] NSWCA 9 FILE NUMBER(S) : CA 40511/99; 40101/96 consolidated HEARING DATE(S) : 5-8 June 2000 inclusive JUDGMENT DATE : 9 February 2001 AUSTRALIAN DEVELOPMENT CORPORATION PTY LTD v WHITE CONSTRUCTIONS LIMITED & ANOR PARTIES : AUSTRALIAN DEVELOPMENT CORPORATION PTY LTD v WHITE CONSTRUCTIONS (ACT) PTY LTD (in liq) & ANOR JUDGMENT OF : Handley JA at 1; Sheller JA at 122; Stein JA at 123 LOWER COURT JURISDICTION : Supreme Court - Common Law Division LOWER COURT CommD 55041/91 FILE NUMBER(S) : LOWER COURT Giles CJCommD JUDICIAL OFFICER : D F Jackson QC/S A Kerr (Appellant ADC) COUNSEL : B W Rayment QC/S Goldstein/G R Kennett (Respondent 1 - White Const Ltd) A Archibald QC/M A Ashurst (Respondent 1 White Const ACT in liq) B W Rayment QC/S Goldstein/G R Kennett (Respondent 2 Exxon Coal - formerly White Indus) Colin Biggers & Paisley (Appellant) SOLICITORS : Mallesons Stephen Jaques (Respondents 1 and 2 White Const 40101/96 and Exxon 40511/99) Deacon Graham & James (Respondent 1 White Const ACT in liq 40511/99) CATCHWORDS : INDUCEMENT OF BREACH OF CONTRACT - proof of intention to induce breach - NEGLIGENT MISREPRESENTATION - effect of non disclosure - TRADE PRACTICES - misleading and deceptive conduct - causation - VICARIOUS LIABILITY - employees appointed directors of other company LEGISLATION CITED : Trade Practices Act 1974 (Cth) Crowley v Glissan (1905) 2 CLR 402 Bunning v Cross (1978) 141 CLR 54 Siu Win Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 Andrews v Nominal Defendant (1968) 70 SR (NSW) 419 Hexyl Pty Ltd v Construction Engineering (Australia) Pty Ltd (21/6/84 unrep) Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541 Petersen v Moloney (1951) 84 CLR 91 March v Stramere (E & MH) Pty Ltd (1991) 171 CLR 506 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Banque Keyser Ullmann SA v Westgate Insurance Co Ltd [1991] 2 AC 249 Said v Butt [1920] 3 KB 497 O'Brien v Dawson (1941) 41 SR (NSW) 295 CASES CITED: Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 Dairy Containers Ltd v Auditor-General [1995] 2 NZLR 30 New Zealand Guardian Trust Co Ltd v Brooks [1995] 1 WLR 96 PC Zuijs v Wirth Bros Pty Limited (1955) 93 CLR 561 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 Century Insurance Company Limited v Northern Ireland Road Transport Board [1942] AC 509 Mersey Docks & Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1 Camden Nominees Ltd v Forcey [1940] Ch 352 Quinn v Leathem [1901] AC 495 Lumley v Gye (1863) 2 E & B 216 D C Thomson & Co Ltd v Deakin [1952] Ch 646 All State Life Insurance Company v ANZ Banking Group (1995) 58 FCR 26 Fightvision Pty Limited v Onisforou (1999) 47 NSWLR 473 Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106 Short v City Bank of Sydney (1912) 15 CLR 148 Akerheilm v De Mare [1959] AC 789 Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 DECISION : Appeals dismissed with costs. Cross-appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40511/99 40101/96 CommD 55041/91 HANDLEY JA SHELLER JA STEIN JA 9 February 2001 AUSTRALIAN DEVELOPMENT CORPORATION PTY LTD v WHITE CONSTRUCTIONS LIMITED & ANOR AUSTRALIAN DEVELOPMENT CORPORATION PTY LTD v WHITE CONSTRUCTIONS (ACT) PTY LIMITED (In Liq) & ANOR INDUCEMENT OF BREACH OF CONTRACT - proof of intention to induce breach NEGLIGENT MISREPRESENTATION - effect of non disclosure TRADE PRACTICES - misleading and deceptive conduct - causation VICARIOUS LIABILITY - employees appointed directors of other company The appellant (ADC) concluded a contract with ACT to build an office block and residential tower in Canberra. ACT was a subsidiary of WCL which was a subsidiary of WIL. Construction work by the first respondent fell seriously behind schedule and the appellant terminated the contract. The appellant sued the first respondent and its parent companies in the Commercial Division. The claims relevant to the appeal were that the second respondent (WIL) had contravened s 52 of the Trade Practices Act and had made negligent misrepresentations and that the third respondent (WCL) had induced breaches of contract by ACT. Giles J accepted a referee's findings that representations about the viability of the cost of the construction work were made by an employee of WIL, were relied upon by ADC, and were untrue. He rejected a referee's findings that WIL had contravened s 52 by not disclosing its intention to transfer its construction work to WCL, and that WIL was guilty of negligent misrepresentations by failing to disclose the restructuring proposal. He also found that WCL had not induced breaches of contract by ACT. Giles J ordered that the remaining issues be sent to a second referee. The second referee's reports concluded that the contravention of s 52 had not caused ADC any loss. The reports were adopted by Einstein J who entered judgment for WIL on the appellant's claim for damages for the contravention of s 52. HELD, dismissing the appeals and cross-appeal: (1) Einstein J correctly found that ADC had failed to establish that its losses were caused by WIL's contravention of s 52. (2) Giles J correctly found that WIL's failure to disclose its restructuring plans did not contravene s 52, nor did it breach any duty of care. (3) Giles J correctly found that WCL, the parent of ACT, did not induce breaches of contract by ACT. Two of the three individuals whose acts were material were employees of ACT and their acts were the acts of ACT. The third person was an employee of the parent company, WCL. His acts were acts of WCL although ACT was given the benefit of his work but he was not temporarily transferred to ACT's employment. (4) The appellant failed to show that the third person acted with the intention of bringing about the breach of contract which was an essential element in the tort of inducing breach of contract. Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 applied. (5) Semble an employer who appoints its employees as directors of another company is not, without more, vicariously liable for their torts committed in that capacity. Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 followed. ORDERS (1) Appeals dismissed with costs. (2) Cross-appeal dismissed with costs. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40511/99 40101/96 CommD 55041/91 HANDLEY JA SHELLER JA STEIN JA 9 February 2001 AUSTRALIAN DEVELOPMENT CORPORATION PTY LTD v WHITE CONSTRUCTIONS LIMITED & ANOR AUSTRALIAN DEVELOPMENT CORPORATION PTY LTD v WHITE CONSTRUCTIONS (ACT) PTY LIMITED (In Liq) & ANOR JUDGMENT 1 HANDLEY JA: These appeals arise out of a building contract dated 25 February 1987 between the appellant, Australian Development Corporation Pty Ltd (ADC) and the respondent, White Constructions (ACT) Pty Ltd (ACT). The contract provided for the construction of a 3 storey office block and 20 storey residential tower known as the Quadrant project on Crown leasehold land in Canberra for a fixed price of $19,355,000 with 28 February 1989 as the date for practical completion. 2 ACT was a wholly-owned subsidiary of White Constructions Ltd (WCL) which was then a wholly-owned subsidiary of White Industries Ltd (WIL), a listed company. Work by ACT under the contract fell seriously behind schedule and on 29 February 1988, following labour unrest which had commenced on 17 February, ACT dismissed the crane crew at the site and stood down other employees. The site was then closed by industrial action for the next 6 months. On 11 August 1988 the contract was terminated by ADC. 3 ADC sued ACT, WIL and WCL by summons in the Commercial Division filed on 8 August 1991. It is only necessary to refer to the claims that remain in issue on the appeals. ACT and WIL were sued for breach of contract, WIL on the basis that it was the undisclosed principal of ACT. WIL was also sued for breach of s 52 of the Trade Practices Act (the Act) and for negligent misrepresentations during pre-contract negotiations. WCL was sued for inducing breaches of contract by ACT. 4 On 10 July 1992 questions were referred by Cole J to the Hon David Yeldham QC for inquiry and report. The referee submitted his report on 14 April 1993. He answered questions 1, 4A, 4(b) and 6 favourably to ADC. The referee found in answer to question 1 that ACT had entered into the contract as agent for WIL as its undisclosed principal. On 14 October 1993 Giles J declined to adopt the report on question 1 because the contract showed that ACT was the principal and this excluded any other principal. 5 Question 4A related to oral representations alleged to have been made by Mr Amann, an estimator employed by WIL, to Mr Fischer, the Chief Executive of ADC, during the negotiations which led to the contract. The representations related to the viability of the price at which ACT had offered to construct the building using structural steel for the columns and beams in the residential tower. The referee found that these representations had been made and that ADC relied on them in entering into the contract (the steel contract). Giles J adopted this part of the report. 6 The referee found in his answer to question 4(b) that WIL had contravened s 52 by failing to disclose to ADC that it intended to cease construction work on its own account and transfer its existing work to WCL with a view to the flotation of the latter as a public company. In answer to question 6 the referee found that WIL had also been guilty of negligent misrepresentation in failing to disclose those matters. Giles J declined to adopt the referee's answers to questions 4(b) and 6. 7 Thus some of the issues relevant to the claim against WIL for contravention of s 52 had been established, but ADC had failed to establish that WIL had any other legal responsibility in connection with the ACT contract. On 19 October 1995 Giles J confirmed his decision to adopt the referee's answer to question 4A and dismissed WIL's notice of motion of 12 October 1995 which had sought the setting aside of this part of his earlier decision. 8 There was a further hearing on limited issues before Giles J with judgment being delivered on 30 January 1996. The Judge found that ADC had validly terminated the contract and ACT was liable for breach but that WCL had not induced any of the breaches. He also found that the representations made by Mr Amann were untrue. 9 He assessed the reasonable cost of the work required by the steel contract as being in the order of $23,650,000 and thus the contract price did not cover the cost of the work. The representations had been made after Mr Fischer had asked whether the proposed contract was viable. The Judge said that a proprietor would not wish to contract with a builder who had underpriced the works, because that would be likely to lead to disputes, skimped performance and failure to complete. 10 The Judge found that the representation was untrue "in that on a proper assessment the work required by the contract could not be done for the price and in context the making of the representation was misleading or deceptive conduct". He also found that if ADC's entry into the contract occasioned loss or damage it was occasioned "by" the conduct of WIL for the purposes of s 82(1) of the Act. 11 Giles J could not determine when ADC first suffered loss as a result of WIL's contravention of s 52. ADC might have suffered loss when it entered into the contract or at some later stage. He was not able to find that ADC's loss remained prospective until the contract was terminated on 11 August 1988. WIL had pleaded the three year limitation defence under s 82(2) and ADC's claim would be statute barred if it suffered loss prior to 8 August 1988. If ADC's loss remained prospective until the contract was terminated, its proceedings commenced on 9 August 1991 would be within time. 12 After a further interlocutory hearing, Giles J held on 29 April 1997 that the remaining issues should be sent to a referee. On 16 May 1997 he ordered that they be referred to Mr J A Morrisey (the second referee) for inquiry and report. The report was submitted on 1 June 1998. 13 The referee found that but for the contravention of s 52 ADC would have entered into a similar contract with ACT for the construction of the residential tower in concrete (the concrete contract) at about the same price. This meant that it had suffered no loss as a result of being induced by the contravention to enter into the steel contract. He assessed ADC's damages against ACT at $33,593,268 although ACT was in liquidation and had taken little part in the proceedings. 14 Cross motions by WIL and ADC to confirm or reject this report came before Einstein J. The Judge upheld one of ADC's challenges to the report, rejected the others, and adopted the referee's assessment of the damages for breach of contract. 15 ADC argued before the referee that if it had not been induced by the misleading and deceptive conduct of WIL to enter into the steel contract, it would have entered into the concrete contract with another builder for a price of $23,000,000 or more, and would not have suffered any of its losses. Its submission was that if Mr Fischer had not accepted WIL's assurances about the viability of its steel proposal, he would have lost confidence in WIL and looked elsewhere for a builder. 16 Mr Huntstead, Mr Amann's immediate superior, said that if ACT had been asked in February 1987 to revert from a steel to a reinforced concrete structure for the residential tower he would "certainly" have retendered the entire project from scratch. He would not have been content merely to adjust the proffered price of $18,485,000 for the steel contract or the price of $16,003,634 for the concrete contract that WIL had offered in May 1986. 17 WIL's submission, which the referee accepted, was that if Mr Fischer had rejected the use of steel, the project would have been repriced for concrete and a contract at much the same price would have been entered into with ACT. The evidence of Mr Amann supported this conclusion. ADC submitted that if the project had been recosted from scratch, the errors in the offer of $18,485,000 submitted to ADC on 28 January 1987 would have been discovered and allowed for. The evidence of Mr Huntstead was said to support this view, but was not referred to by the referee. 18 Einstein J concluded: "… that the appropriate direction is that the referee ought to be obliged to give his reasons relating to Mr Huntstead's evidence material to his critical finding and that this matter is appropriate for reference back to the referee … there is substance in Mr Gyles' submission that the referee's reasoning and failure to expressly specifically treat with Mr Huntstead's evidence, requires to be referred back to the referee. To my mind this is a situation in which the referee's views on Mr Huntstead as a witness and the referee's acceptance or rejection in whole or in part of Mr Huntstead's evidence ought to have been the subject of explicit reasons in the referee's report". 19 Formal orders for the reference back were made on 5 March 1999. The referee submitted his further report on 30 March. The relevant paragraphs provided: "5 It appears in the judgment of Einstein J of 8 February 1999 that: '127 ADC submitted before me in relation to Mr Huntstead inter alia as follows: "He was WIL's Manager, Central Engineering, Mr Amann's immediate superior and responsible for recommending to the Directors the offer to be submitted to ADC including the hypothetical offer under consideration …".' That is not how I interpreted the evidence. Both witnesses were giving evidence in respect to the preparation of the tender in about January 1987 to ADC. It did not include the hypothetical exercise under consideration. I cannot recall any evidence to the effect that it did … Nor can I recall any submissions to me to that effect. 6 There was some confusion and misunderstanding during cross-examination of Mr Huntstead in relation to the change back from steel to concrete. It seemed to me that Mr Huntstead was distinguishing between what he would do in the hypothetical exercise and what he would do if a tender was required to be submitted to ADC for a concrete structure. In the latter case he would follow his normal practice and go back to square one or from scratch and then submit the proposed tender through the usual channels to the Board. In the former case he did what he did as detailed in his statement. That is how I interpreted his evidence and that then led to the remarks I made which are quoted in paragraph 183 of the judgment of Einstein J. 7 I carefully considered all of the evidence given by these two witnesses when compiling my report. I came to the conclusion that events had overtaken Mr Huntstead's evidence. It was my view that Mr Huntstead's evidence had become a non-issue". 20 On 10 June Einstein J adopted both reports and directed judgment for WIL. 21 The proceedings before this Court include an appeal by ADC of 8 March 1996 from the judgment of Giles J of 9 February 1996 following his reasons of 30 January when he held that WCL had not induced breaches of contract by ACT. There is also a further appeal by ADC (8 July 1999, amended 23 September) from so much of the decision of Giles J of 14 October 1993 as rejected the findings of the first referee that ACT contracted as agent for WIL, and that WIL had contravened s 52 and been guilty of negligent misrepresentation by failing to disclose that it intended to cease construction work and transfer existing work to WCL. 22 The same appeal also challenged Einstein J's decision adopting the reports of the second referee dealing with the s 52 claim against WIL and directing judgment for WIL. 23 There was also a cross-appeal by WIL from so much of the judgment of Giles J of 14 October 1993 as adopted the referee's answer to question 4A, from so much of his judgment of 19 October 1995 as held that the representation made by Mr Amann was not a statement of opinion, and from so much of his judgment of 30 January 1996 as found that the relevant conduct of WIL was misleading or deceptive. 24 The appeals and cross-appeal are competent and within time because an appeal from the final judgment enables the appellate court to correct any interlocutory order which has affected the final result. See Crowley v Glissan (1905) 2 CLR 402, Bunning v Cross (1978) 141 CLR 54, 82. WIL as undisclosed principal 25 The grounds of appeal directed to the decision of Giles J of 14 October 1993 that the contract prevented WIL being ACT 's undisclosed principal were only taken formally by Mr Jackson QC for ADC. The grounds appeared to have some support from the decision in Siu Win Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199, 207-210 but confronted decisions of this Court in Andrews v Nominal Defendant (1968) 70 SR (NSW) 419 and Hexyl Pty Ltd v Construction Engineering (Australia) Pty Ltd (21/6/84 unrep) and the decision of the High Court in Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd (1985) 155 CLR 541, 546. 26 Mr Rayment QC, who appeared for WIL, foreshadowed an argument that ADC had elected to treat ACT as the other party to the contract, and having taken final judgment against ACT could no longer seek judgment against WIL. Compare Petersen v Moloney (1951) 84 CLR 91. Many of the matters relied upon by Mr Rayment had arisen since the judgments below and the Court admitted an affidavit of Mr Lewis which purported to prove those matters. This Court is not required to rule on any of those questions. Deceptive and misleading conduct - causation in fact 27 The second referee's finding confirmed by Einstein J was that if there had been no contravention of s 52 ADC would have entered into the concrete contract with ACT for about the same price as the steel contract. 28 Section 82(1) confers a right to recover damages occasioned "by" a contravention of s 52. It provides: "A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part … V [which includes section 52] may recover the amount of the loss or damage by action against that other person …". 29 This imports the commonsense notions of causation considered in March v Stramere (E & M H) Pty Ltd (1991) 171 CLR 506. See Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525 (Wardley). As the majority explained in Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 510 (Marks): "That enquiry is one that seeks to identify a causal connection between the loss or damage that has been … suffered and the contravening conduct. But once that causal connection is established there is nothing in s 82 … which suggests … that the amount that may be recovered … should be limited by drawing some analogy with the law of contract [or] tort …". 30 ADC's claim was summarised in its written submissions to this Court as follows: "73. A party who has been induced by a misrepresentation to enter into a contract should be entitled to recover as damages, the amount actually expended as a result of doing so, less the true or fair value of what has been received … In the present case, the latter is the equivalent of a fair and reasonable contract price for the works. 74. Giles J found that if ADC's entry into the contract occasioned loss or damage, that loss or damage was caused by the contravention of s 52 … Entry into the contract which was non-viable, had the effect of committing ADC to expenditure far in excess of the reasonable building cost. Accordingly, the true measure of damage should be the difference in value between what ADC has expended and the reasonable value of the works. 75. That can be calculated as follows: Actual expenditure by ADC $46,997,881 Additional financing costs (by reason of the delayed completion) $11,600,000 Cost to ADC $58,597,881 less: Betterment (PC items) $7,057,737 (Variations) $2,025,350 Adjustment by Mr Morrissey $300,526 Reasonable cost to construct $23,650,000 add: Allowance in ACT contract for PC items $3,914,000 Loss to ADC $29,478,268 Alternatively: Finding against ACT for breach $33,593,268 less difference between the reasonable $4,115,000 cost to construct and the contract price Loss to ADC $29,478,268" 31 Thus ADC claimed that the whole of its expenditure on the Quadrant project after the steel contract was entered into was damage occasioned "by" the contravention of s 52 and that it was entitled to recover that expenditure after allowing for the value it had received. However Einstein J upheld the second referee's finding that this expenditure had not been caused by the contravention. The referee summarised his conclusions as follows: "If there had been no breach of section 52 … it seems to me that, on the balance of probabilities, ADC would have entered into a similar contract with ACT for the construction of the residential tower in concrete for about the same price and that, in the circumstances, ADC suffered no loss as a consequence of WIL's breach of section 52". 32 Mr Jackson QC challenged the factual and legal bases for this finding. It will be convenient to deal first with the factual challenge, but this can only be understood against the background of events since 1983. 33 A 99 year lease over Block 5 Section 8 Canberra City, which became known as the Quadrant project, was purchased by Permanent Trustee Nominees (Canberra) Ltd at auction on 26 July 1983 under arrangements with ADC and a third party. The lessee was required to erect major office and residential buildings on the site and the lease provided that building work would be commenced within 12 months and completed within 36 months. The arrangements with the trustee company and the third party did not proceed and ADC acquired the lease for $2 million in October 1985. 34 The building had to be completed by July 1986 but in June that year construction had not even commenced and the Department of Territories was threatening to forfeit the lease. ADC made lengthy written representations to the Minister on 16 June, 15 July and 4 August 1986 to pre-empt moves to terminate the lease. However on 21 November the Department gave ADC notice of the Commonwealth's intention to determine the lease for failure to comply with the development conditions. On 24 November Mr Ward, a Director of ADC, again wrote to the Department seeking further time to comply with the conditions. The letter stated: "We have a builder ready and keen to commence construction". 35 Shortly afterwards Mr Amann sent a memo to Mr Ward stating that WIL could start in about two weeks. At the beginning of December the Department agreed in principle that an extension would be granted if ADC provided a bank guarantee that construction would commence by 31 March 1987. 36 On 4 December ADC wrote to the Department stating that on information supplied by WIL it was in a position to commence work prior to 1 April 1987 subject to obtaining the necessary approvals. 37 On 24 December the lease in the name of Permanent Trustee Nominees (Canberra) Ltd was determined and a new lease was granted to ADC Ltd for a term of 96 years. Building work was to commence on or before 31 March 1987 or damages of $1 million would be payable. Completion of the building was to take place on or before 1 March 1989 or within such further time as may be approved in writing. On acceptance of the lease a bank guarantee had to be provided for the $1 million damages. 38 The building was originally designed for the use of reinforced concrete in the slabs and columns of the residential tower. On 28 June 1985 ADC received the original tenders. The WIL tender was $17,900,000 subject to rise and fall and other conditions. It was by far the cheapest. The other six tenders were between $3 million and $4.8 million more. ADC entered into negotiations with WIL to identify cost savings. On 14 August 1985 WIL submitted to ADC a schedule of cost savings totalling $1,150,878 based on revised floor plans. 39 By June 1985 ADC had incurred costs on the Quadrant project in the vicinity of $2 million. On 9 January 1986 Mr Ward, in a memorandum to Mr Fischer, referred to "the danger of losing the site and moneys we have already paid". On 13 May 1986 WIL submitted a "firm price" offer of $16,003,634 for the project, subject to various conditions, one of which involved a reduction of the car park area at a saving of $933,500. 40 ADC was again in contact with WIL during November/December 1986 and negotiations began in earnest on 5 January 1987. WIL indicated that its price was $18.1 million but the use of structural steel for the residential tower was already under consideration. This followed a conversation between Mr Amann and Mr Fischer in late November or early December (Red 2/454-5). On 28 January WIL advised ADC of its revised final offer of $18,485,000 based on the use of structural steel. 41 The contemporary documents indicate the urgency with which ADC approached the negotiations. Notes of the meeting of 5 January taken by Mr Hook of WIL state "a substantial start must be made by 31/3/87 otherwise ADC lose the site" (Red 2/439). This must have been said by Mr Ward, the only representative of ADC present. The same concerns were repeated in the letter ADC wrote to WIL on 21 January which stated "it is important that the contract provides that the project will be commenced by 31 March 1987, when practical work must be commenced - initial sheds and staff on site. This is a condition imposed under the lease" (Red 2/443). Letters ADC wrote to Rex Hotels on 5 February, 6 February, 10 February and 12 February all made the same point (Red 2/445, 446, 447 and 448). 42 The second referee accepted WIL's written submissions on this question which included the following: "It is quite clear that the historical reasons for the dealings with the White Group had nothing to do with the building of the residential tower in steel. The White Group was well regarded by ADC and had proved expertise in building in the Canberra area and elsewhere. Most importantly of all, it was the lowest tenderer in the 1985 tendering process. The price at which it was prepared to build was a price which ADC was prepared, albeit reluctantly, to accept. Its price was indeed the only one which ADC was prepared to contemplate accepting. The other prices were right out of the question. This made the White Group the logical choice for the contract". 43 By January 1987 the White Group was the only builder in the field and when ADC sought a check price from Leightons, the second lowest tenderer, that company declined to give one. 44 The hypothetical situation that would have arisen if Mr Amann had not made the misrepresentations (para 5 above), or if Mr Fischer had not accepted them, was the subject of much evidence in the second reference. The referee referred extensively to the evidence of Mr Fischer and quoted the following evidence from Mr Amann: "If I had been instructed to calculate the tender price on the assumption that the residential building was to be constructed using reinforced concrete rather than structural steel, but with the building otherwise being the same in all respects … the tender price which I would have calculated would have been lesser (sic) than the tender price submitted to ADC by $66,710". 45 Reference has already been made (paras 14-20) to the challenge by ADC to the second referee's first report on the causation issue, to Mr Huntstead's evidence, the direction for a further report, that report, and Einstein J's decision to adopt both reports. 46 Mr Jackson QC for ADC took the Court in some detail to Mr Huntstead's evidence and submitted that it was unambiguous and did not disclose any confusion. In cross-examination he had been asked to review Mr Amann's calculations on a hypothetical price for a concrete building. Mr Huntstead accepted Mr Amann's calculations but said that any alternative price tendered by WIL would not have been based on those calculations by Mr Amann. He said that WIL would have calculated the price for a concrete building from scratch. 47 Mr Jackson submitted that there was no evidence as to what WIL's price "from scratch" for a cement building would have been, and no basis for asserting that it would have been a non-viable price of $20 million. In particular Mr Jackson submitted that it was not open to the referee to ignore the evidence of Mr Huntstead because of "some confusion and misunderstanding during cross-examination … in relation to the change back from steel to concrete". He said that the referee's second report did not adequately deal with ADC's objections to the first report, and Einstein J should not have adopted both reports. 48 The relevant evidence of Mr Huntstead in cross-examination and re-examination appears at Black 3 between 842 and 856 and was interrupted by considerable legal argument. Mr Huntstead said he had been responsible for what was referred to as the tender to ADC in January 1987 and had been concerned to see that it had been competently prepared and that the figures were soundly assessed (842). At the time he had complete confidence in Mr Amann (846). He said that if WIL had been asked to submit a price for a concrete building at that time "I most likely would have gone back to square one and had the job re-tendered from scratch because what you are doing here is that you're making adjustments upon adjustments and therein lies the potential for arithmetic and logic mistakes" (843). Later at 846 he said: "… as I said earlier, I would have probably, and I'd say now almost certainly, have re-tendered the entire project if it was to be considered only in concrete from square one from scratch in the original documents and re-tendered the whole project based on the concrete option with a concrete duration and - etc". 49 He agreed with Mr Amann's methodology and figures for adjusting the steel price to a concrete price as a 15 minute exercise but said again that such calculations "would not be the basis of a detailed estimate and submission" (847). At the time they were chasing work (847). He said: "The whole scope of works would have been changed to a degree where we would have had to have gone back and re-tendered" (848). 50 The position was clarified, or perhaps changed, in re-examination. At 851 he said: "Q: In other words may we have it clear what did happen when Amann recommended that the steel be used in respect of the actual tender that went in in 1987? Was it the result of going back to scratch in part, in whole or what was the situation? A: In part; it would have been going back to square one in part. Q: In part? A: Yes. A lot of work goes into a tender in terms of a number of different areas and if a tender is varied by a particular amount, such as concrete slabs in this case, you would go back and you would work out what the original concrete was, the original formwork was on the original design, price up a new design based on the new formwork allowance, the edge strips, the stairways, the columns on the new scheme and re-price it from scratch. So whereas the whole tender wouldn't be re-priced from scratch , the whole element of concrete formwork and reinforcing steel would be looked at and an adjustment made on that component of the work. Q: You have been saying this morning that something would have caused you to go back to scratch; is that in whole or in part that you were speaking about this morning, first of all so far as the change? A: Once again, we would have gone back to scratch. We wouldn't have probably looked at things like windows or doors or things like that, but we would have looked at the structural component again of the building. Q: So you mean in part, do you - A: In part. Q: Rather than in whole? A: Yes". (emphasis supplied) 51 When Mr Rayment QC sought to take the re-examination further Mr Liney objected (852) and legal argument ensued which included the following exchange between Mr Rayment and the referee (855-6): "Mr Rayment: Well at least it's been clarified a little bit … I really want to clarify some answers that my learned friend has taken. The referee: I thought, from what I heard of his evidence, that he made it pretty clear on that question. Mr Rayment: But he was assuming the change. The referee: What he would do, what part he would go back to scratch on. Mr Rayment: Oh, yes, he made that clear. The referee: Change in the structure. Mr Rayment: Yes. He made it clear that he would be looking at only the relevant bits. The referee: Yes. That's what one would normally expect. Mr Rayment: Yes. The referee: I uphold the objection. Mr Rayment: Then I have concluded the examination-in-chief ". (sic) 52 The building comprised a 3 storey office block, 20 storey residential tower, and an underground car park. The hypothetical change from steel back to concrete would have affected the basic structural components of the residential tower and not the other parts of the project. 53 It had become clear during Mr Huntstead's re-examination that he was not suggesting that a change back from steel to concrete in January 1987 would have triggered a complete re-costing of the entire project from square one but that WIL would only have looked again at "the relevant bits". 54 Einstein J considered the significance of Mr Huntstead's evidence in his first judgment (Red 1, 263-285). The referee's conclusion that but for the contravention of s 52 ADC would have continued to deal with WIL, and would have entered into a concrete contract at a comparable price, was supported on other grounds. Mr Copping, a quantity surveyor, said that adjusting ADC's 1985 tender price for cost increases and design modifications to January 1987 resulted in a notional concrete price of $20 million (271). The making of a firm offer by WIL at this price would only have required it to continue quoting as it had done between June 1985, when its original tender was submitted, and May 1986. 55 Reference has already been made to the fact that WIL was the only builder still interested in the job, that it was anxious to secure more work, and that ADC was most anxious to enter into a contract with a suitable builder so that construction could commence by 31 March 1987. If ADC failed to achieve a commencement of construction by 31 March 1987, it faced the forfeiture of its lease, the loss of its investment in the site which, as at 24 November 1986, was already $3.1 million (Red 2/431), and the calling up of its bank bond for $1 million. 56 ADC's submission that Mr Huntstead's evidence established that a reversion from steel to concrete in January-February 1987, and the re-costing of the work from scratch would have brought to light the serious under-pricing in the steel quote lacks reality. The errors in WIL's original tender were not discovered in the course of re-costing the job or parts of it on several occasions during 1985 and 1986. Moreover, as Einstein J noted (274), in January-February 1987 Mr Amann, at the request of Mr Huntstead, had gone back and repriced the job from scratch. The people then involved at WIL had been involved in the pricing decisions in 1985 and 1986 (274-5). 57 As Einstein J said in his first decision there was ample other evidence which supported the referee's critical finding (283). 58 The referee's second report is cryptic and not altogether easy to follow. He quoted part of par 127 of the judgment of Einstein J (2/515) where the Judge said that Mr Huntstead was "responsible for recommending to the directors the offer to be submitted to ADC including the hypothetical offer under consideration". The referee said that this was not how he had interpreted the evidence and that both Mr Amann and Mr Huntstead "were giving evidence in respect to the preparation of the tender in about January 1987 to ADC. It did not include the hypothetical exercise under consideration". 59 It seems that the referee understood from the quoted passage that Einstein J thought that WIL had costed the job in concrete in January 1987 although it did not make an offer on that basis. The referee did not quote the whole of that paragraph in Einstein J's judgment, and a fair reading shows that the Judge was not under any such misapprehension. However the Judge's statement that Mr Huntstead was "responsible for recommending to the directors the offer to be submitted to ADC including the hypothetical offer under consideration", read literally and in isolation, could suggest that the hypothetical offer was submitted to the Board along with the actual offer. The Judge understood that Mr Huntstead would have been responsible for recommending the hypothetical offer if the negotiations with ADC had so required. Properly understood this section of the referee's second report does not evidence any error which would prevent its adoption. 60 In the balance of this report the referee explained that in his view "Mr Huntstead's evidence had become a non-issue". In context the referee was referring to Mr Huntstead's evidence that in the hypothetical exercise of a formal concrete offer he would have followed his normal practice and gone back to square one or scratch in doing the costing to support such an offer. As Mr Huntstead's cross-examination and re-examination demonstrate, any re-costing for the hypothetical concrete offer would only have involved those parts of the work affected by the change. The whole job would not have been costed again from scratch. 61 In acting in this way Mr Huntstead would only have been following his normal practice which he had followed when re-costing WIL's original tender in 1985 and 1986, and in preparing and checking the costing for the steel offer in January and February 1987. The evidence that the referee was referring to was about Mr Huntstead going back to square one or scratch if he had actually been required to undertake the hypothetical exercise. He had done this more than once since the original tender, and this part of his evidence had therefore, as the referee said, become a non issue. 62 In his judgment of 10 June 1999 adopting both reports, Einstein J said that he understood the referee to be saying in his second report "that it would be erroneous to think that the hypothetical exercise which was the subject of the evidence of Messrs Amann and Huntstead ever formed part of the actual recommendations made to ADC". I agree with this conclusion for the reasons expressed in paragraphs 57-61. 63 Einstein J was also satisfied with the reasons given by the referee for the absence of any reference to the evidence of Mr Huntstead in his first report. The Judge's reasoning on this question is compressed if not cryptic. The relevant passages from the cross-examination and re-examination of Mr Huntstead are set out in paras 47-51 above. My independent evaluation of that evidence in paras 59-60 has satisfied me that this evidence had become a non issue and that the Judge's decision on this point was also correct. It follows that ADC has failed to establish that its losses following entry into the steel contract with ACT were in fact caused or occasioned by WIL's contravention of s 52. Causation in law 64 Mr Jackson QC submitted that the causation enquiry undertaken by the referee and Einstein J was contrary to principle, and that the measure of damages for the proved contravention of s 52 was the difference between the total amount ADC spent on the project after the contract was entered into and the fair value of the building on its completion. 65 The misrepresentation which occasioned this contravention of s 52 was of a limited kind. It related to the viability of the price offered by a builder for a project if steel were used in its construction. It induced the proprietor to enter into a contract at a price less than cost. The misrepresentation did not relate to the quality of the work or the suitability or financial soundness of the builder. 66 In Wardley the majority said at 530: "In the case of a fraudulent or negligent misrepresentation which induces the plaintiff to enter into a contract to purchase property, the plaintiff 's loss, apart from any question of consequential damage, is measured by the difference between the price paid or payable under the contract, and the value of the property at the date of the contract. … It is that amount that, in such a case, represents 'the prejudice or disadvantage' the plaintiff 'has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant', subject to any consequential damage". 67 The principle is the same where the contract was for the construction of a building. It requires a comparison between the price payable under the building contract and the value of the building work to the proprietor. In the present case the primary measure of damage was nil because the price was less than the cost of doing the work. The primary measure does not include any losses due to insolvency where the representation did not concern that question. ADC of course could still recover any consequential losses on proof of the necessary causation. 68 Under the general law consequential losses are recoverable in misrepresentation cases in accordance with principles stated in Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at 12: "In deceit the measure of damages is the difference at the time of purchase between the real value of the goods, and the price paid … but this has been treated as a prima facie measure only, the true measure being reflected in the proposition stated by Dixon J in Toteff v Antonas (1952) 87 CLR 647 at 650 in these terms: 'In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant'. As his Honour then pointed out, it is a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from his reliance on the representation … at least if the loss is foreseeable". 69 The majority, at 13, applied this principle to the loss of an opportunity of securing a benefit: "Because the object of damages in tort is to place the plaintiff in the position in which he would have been but for the commission of the tort, it is necessary to determine what the plaintiff would have done had he not relied on the representation . If that reliance has deprived him of the opportunity of entering into a different contract for the purchase of goods on which he would have made a profit then he may recover that profit on the footing that it is part of the loss which he has suffered in consequence of altering his position under the inducement of the representation. This may well be so if the plaintiff can establish that he could and would have entered into the different contract and that it would have yielded the benefit claimed … The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation". (emphasis supplied) 70 The same principles apply when reliance on the misrepresentation deprived the plaintiff of the opportunity of entering into a different contract which would have avoided losses sustained under the actual contract. The principles were developed in Marks (1998) 196 CLR 494, 512 where the majority said: "… a comparison must be made between the position in which the party that allegedly has suffered loss or damage is and the position in which that party would have been but for the contravening conduct . Even this enquiry may not conclude the question. Analysing the question of causation only by reference to what is, in essence, a 'but for' test has been found wanting in other contexts and it may well be that it is not an exclusive test of causation in this area either". (emphasis supplied) 71 They added at 514: "A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some other way) which would have been of greater benefit or less detriment to it than the course in fact adopted. Thus the party that is misled will have suffered loss if a chose in action which was acquired was worth less than the amount paid for it. There may well be other ways in which it might suffer loss or damage. But no loss of that kind was alleged and, … we focus only on loss said to be suffered by the making of the contract. It is necessary then to determine whether the value of what was acquired is less than what was paid. How is value to be assessed? It is to be assessed objectively. That is, the value of what in fact was acquired is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it. It is only by comparison with the value assessed in this way that there can be an assessment of whether the party that is misled could have obtained some greater benefit or incurred less detriment". 72 There is therefore no doubt that the factual enquiry undertaken by the second referee was relevant. ADC has failed to establish that the decision of Einstein J to adopt both reports of the second referee and enter judgment for WIL on this s 52 claim was vitiated by any legal or factual error. There is therefore no need to consider other objections to the measure of damages claimed by ADC. WIL's failure to disclose restructuring plan 73 Between 1985 and early 1987 the negotiations with ADC for the Quadrant project were conducted by or on behalf of WIL. The contract was entered into with ACT. In July 1986 ACT was a wholly-owned subsidiary of WCL, which was a wholly-owned sub-subsidiary of WIL. WIL was listed on the Stock Exchange. The G B White family owned 33% of its shares through various companies, and the public owned the rest. 74 In November 1986 WIL was privatised and ceased to be listed on the Stock Exchange. The G B White family owned 67% of the equity in the company, the remaining 33% being held by other directors and a merchant bank. In October 1987 WCL became a listed company in which the G B White family and associated interests held 58.54% of the shares, and the public the rest. ACT remained a wholly-owned subsidiary of WCL. 75 The first draft of the contract was submitted to ADC on 21 January 1987 and referred on its cover sheet and in the description of the parties to "White Constructions ( ) Pty Ltd". The first letter written on the letterhead of ACT was dated 23 January. Thereafter correspondence passed between ADC, and, on some occasions ACT, and on others WIL. The first referee said that it was obvious that the letterheads of both companies were being used indiscriminately. On 28 January Mr Huntstead wrote to ADC on the letterhead of White Constructions (NSW) Pty Ltd. 76 The second draft with ACT on the cover sheet, but "White Constructions ( ) Pty Ltd" in the description of the parties was forwarded to ADC on 27 January. ADC received the third draft on or about 20 February and this, on the cover page, and in the space provided for the names of the parties, had ADC as developer and ACT as builder. The contract in its final form was executed by ADC and ACT on 25 February. 77 WCL acquired, on a going concern basis, and with effect from 1 December 1986, the business and assets of WIL's construction division and after that date WIL undertook no further construction work. WCL's subsidiaries, such as ACT, operated in each State and Territory. WCL assumed responsibility for the provision of centrally-based services to its subsidiaries, such as tendering and estimating, in place of WIL. The object was to transfer WIL's construction business to WCL which was either to be sold or floated on the Stock Exchange. The re-organisation was described in a memorandum from Mr Wells, a Director of WIL, to senior executives in the White Industries group on 23 January 1987. 78 The original tender by WIL in 1985 represented that the construction activities of the White group were undertaken by WIL through its Divisions. The reorganisation, which commenced in December 1986, was not disclosed to ADC. However it was made abundantly clear during January and February 1987 that the intended builder was to be ACT and not WIL and this change was accepted by ADC without challenge or question. As the first referee said: "… having regard to the urgency of the situation which existed in February 1987 both Fischer and Ward, men of considerable commercial experience … who might be described as hard-headed businessmen, knowing that WIL was not and ACT was the contracting party, took a commercial risk and entered into the contract without seeking or obtaining any guarantees of performance by WIL [or WCL] [They] were prepared to take such a commercial risk … because they believed … that any member of the White Group including ACT could construct the project at an acceptable price and meet the plaintiffs' budget". 79 The issue on this part of ADC's case was whether WIL had engaged in misleading or deceptive conduct by failing to disclose the plan for the reorganisation of the group and the transfer of all construction work to WCL. 80 WIL itself was privatised in November 1986 and this must have become public knowledge. The other steps taken to implement the plan prior to 25 February 1987 have been referred to. Thereafter the reorganisation was progressively implemented and WCL took over responsibility from WIL for construction labour costs and on costs and this process was completed by 1 July 1987. WCL was floated on the Stock Exchange in October that year. These steps did not involve any changes to the shareholding in ACT which until June 1988 remained a wholly-owned subsidiary of WCL. 81 ADC's claim in par 13A of the summons was that WIL should have disclosed to ADC that it intended to cease construction work, and transfer existing construction work to, and undertake further construction work through, WCL with a view to a public flotation or the outright sale of WIL's shares in that company. The first referee made the following findings: "… because the building contract was one which was obviously for a long term … and because [WIL] was the principal with whom the plaintiff contracted, it was incumbent upon WIL to disclose to the plaintiff that it intended to cease construction work and transfer those activities to WCL [for the purposes pleaded in para 13A]. Failure to make that important disclosure was, in the circumstances of this case, misleading and deceptive conduct". 82 He went on to say that if he was wrong in finding that WIL was ACT's undisclosed principal, then "the matters set out in paragraph 13A of the summons would be irrelevant so far as the plaintiff was concerned". In his judgment of 14 October 1993 Giles J, who held that WIL was not the undisclosed principal of ACT, endorsed the referee's view that, in that situation, the undisclosed facts were immaterial. Cessation of construction work by WIL did not mean that it ceased to have a commercial interest in ACT's contracts, and WIL did not represent to ADC that an internal reorganisation would not take place. 83 ADC's claim that WIL was guilty of misleading and deceptive conduct in failing to disclose its internal reorganisation required proof of conduct by WIL constituted by a misrepresentation. See Wardley at 525. Silence is not a misrepresentation but as Black CJ said in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, 32: "Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive … To speak of 'mere silence' or a duty of disclosure can divert attention from that primary question. Although 'mere silence' is a convenient way of describing some fact situations, there is in truth no such thing as 'mere silence' because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed". 84 The representations by WIL about its involvement in the Quadrant project made in 1985 and 1986 were not misleading or deceptive when made. Following the commencement of serious negotiations in January 1987, ADC was made aware that ACT would be the other contracting party. ACT remained a wholly-owned subsidiary of WCL and a wholly owned sub-subsidiary of WIL until June 1988. Although in January 1987 WIL had plans to float or sell off WCL, they were only plans at that stage. There was no certainty that they would be implemented or when this might occur, and there was no certainty about the form of the outcome. No change in the shareholdings in WCL occurred until shortly before it was floated in October 1987. Even then ACT remained part of the WIL group, and WIL retained a commercial interest in its contracts and their performance. 85 The float of WCL in October 1987 left WIL with 58.54% of the shares with the public holding the rest. ACT remained the wholly-owned subsidiary of WCL. There was no evidence, and no finding, that the difference between WIL owning, directly or indirectly, 100% of the shares in WCL, and 58.54% of those shares was material in the present context, and this is not self-evident. 86 WIL made no representation about the structure of the group or its continuance during the negotiations with ADC in January and February 1987. That being so the non-disclosure of its plans was not a misrepresentation. The change in the intending contractor from WIL to ACT was fully disclosed and in those circumstances the transfer in December 1986 of existing construction work from WIL to WCL was not material. The restructuring plans were not material either because they did not involve severance of the commercial association between WIL and ACT. Accordingly ADC's claim that non-disclosure of WIL's planned restructuring of the group was a contravention of s 52 was rightly dismissed. 87 ADC also relied upon the same conduct as a breach of a duty of care owed by WIL. This claim must also fail and for the same reasons. There was no evidence of any assumption of responsibility by WIL to ADC and the parties were engaged in arm's length negotiations. The silence of the WIL representatives did not amount to an assertion, and ADC did not rely on their silence. See generally Banque Keyser Ullmann SA v Westgate Insurance Co Ltd [1991] 2 AC 249 at 274-5. Inducement of breach of contract by WCL 88 Paragraph 12 of the further amended summons pleaded a claim that WCL had induced ACT to breach the contract by causing industrial action by ACT employees and failing to take reasonable steps to resolve the dispute. Giles J found that ACT had committed a breach of Article 2.2 of the contract. He said: "In my view ACT acted precipitously, knowing that its conduct would provoke the major confrontation which it did provoke, in dismissing the crane crew and standing down the other workers rather than enquiring into the position on Monday 29 February 1988 and if necessary causing the matter to be relisted before the Commission. As Mr Gartrell said at one point 'the process just wasn't given enough time to work'. It did so in order to have a showdown with the unions and in particular to rid itself of the crane crew notwithstanding the industrial confrontation that would create. Its conduct was contrary to proper industrial practice, was unreasonable in the context of the contract, and in this respect it failed to prosecute the project diligently and was in breach of Article 2.2". 89 The tort of inducement of breach of contract requires proof that the defendant acted with the intention of interfering with the contract. The Judge did not decide that question because he held that WCL was not responsible for the conduct that brought about the breach of contract by ACT. 90 The Judge found that the decision to dismiss the crane crew and stand down the remaining workers was made by Mr Houlahan. Mr Bendeich, who was his subordinate, concurred as did Mr Hitchings, Mr Houlahan's immediate superior. All three were employees of WCL and were not paid by ACT. Mr Bendeich was the acting Project Manager for ACT, which he represented for all purposes within his authority. Mr Houlahan was the Building Manager of ACT (and also of White Constructions (NSW) Pty Limited) and acted as an executive of ACT. 91 Mr Hitchings was appointed General Manager-Southern Region for WCL on 17 March 1987. He said that in this role "I had general overseeing and management responsibility for, amongst other things, contracts entered into in respect of construction work in Canberra including the contract for the Quadrant project which had been entered into by ACT". Mr Houlahan, as Building Manager of ACT, reported to him on matters relating to the Quadrant contract. Mr Houlahan consulted Mr Hitchings who agreed with the proposed decision which was then implemented by Mr Bendeich. 92 Giles J held that all three executives had acted on behalf of ACT in connection with the decision to dismiss the crane crew and stand down the other employees. He did not think that Mr Bendeich made the decision. Mr Houlahan, who he considered had made the decision, did so in his capacity as an executive of ACT. Although both were general employees of WCL, they also held executive positions with ACT, and acted in that capacity. Mr Jackson QC for ADC did not challenge these findings. Giles J held that: "When Mr Hitchings concurred in the decision he was also acting on behalf of ACT because by the chain of command he was responsible for ACT's project at the Quadrant site and the superior of the relative executive of ACT". 93 This finding was challenged. Mr Hitchings was not an employee of ACT and did not hold any executive position with that company. He became involved in his role as General Manager-Construction, Southern Region for WCL. 94 On the Judge's findings the decision of Mr Hitchings was an effective cause of the breach of contract by ACT. Messrs Houlahan and Bendeich were the servants and agents of ACT who acted to cause the breach and as such were not liable for the tort of inducing it. See Said v Butt [1920] 3 KB 497, 503-7; O'Brien v Dawson (1941) 41 SR (NSW) 295; (1942) 66 CLR 18. They were the persons whose acts were the acts of ACT for that purpose. This cannot be said of Mr Hitchings. 95 The alleged liability of Mr Hitchings, and his employer WCL, does not raise the problems considered in Kuwait Asia Bank E.C. v National Mutual Life Nominees Ltd [1991] 1 AC 187 and Dairy Containers Ltd v Auditor-General [1995] 2 NZLR 30. See also New Zealand Guardian Trust Co Ltd v Brooks [1995] 1 WLR 96 PC. In the first of those cases the Privy Council held that the bank which had appointed two of its employees as directors of another company was not vicariously liable for their torts committed in the course of their duties as directors. There was no evidence in that case that the Bank had instructed the directors to commit the torts, or that it had any contractual right to give them binding directions in that capacity. 96 The directors were not subject to the bank's control when exercising their functions as directors. One of the tests, and in most cases the surest test, of the master-servant relationship is the right of control (see Zuijs v Wirth Bros Pty Limited (1955) 93 CLR 561, 571; and Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16, 24, 36-7). In the Kuwait case the absence of any such right, and of any other indicators, alone or in combination, that the relationship of master and servant existed between the Bank and the directors in their role as such led inevitably to the conclusion that the relationship did not exist. The acts and omissions of the directors as such did not occur in the course of their employment as employees of the Bank. 97 These principles have no application here because Mr Hitchings was not an employee of ACT and held no position with it. He was, relative to ACT, an outsider. He was consulted because Mr Houlahan had standing instructions from ACT as his employer that decisions of this importance required the approval of the person in Mr Hitchings' position. Mr Hitchings acted throughout as an executive of WCL and in the course of his employment with that company. 98 Prima facie therefore WCL is liable for the torts of Mr Hitchings committed in the course of his employment. Even if he performed services for ACT when he was consulted by Mr Houlahan, he remained the general employee of WCL. WCL remained liable for his torts committed in the course of his employment unless it had temporarily transferred his employment to ACT. The test of such a transfer is, as Viscount Simon held in Century Insurance Company Limited v Northern Ireland Road Transport Board [1942] AC 509 at 513, "whether the servant was transferred, or only the use and benefit of his work". As Lord Macmillan said in Mersey Docks & Harbour Board v Coggins & Griffith (Liverpool) Ltd [1947] AC 1 at 13: "…it is always open to an employer to show, if he can, that he has for a particular purpose or on a particular occasion temporarily transferred the services of one of his general servants to another party so as to constitute him pro hac vice the servant of that other party with consequent liability for his negligent acts. The burden is on the general employer to establish that such a transference has been effected". 99 On the facts found WCL gave ACT the benefit of Mr Hitchings' work, while he was discussing the proposed action with Mr Houlahan, but did not temporarily transfer him to ACT's employment. 100 It is still necessary to determine whether Mr Hitchings was guilty of this tort. What he did might be characterised as the giving of advice to Mr Houlahan, but that in itself, cannot be an answer to this claim. As Simonds J said in Camden Nominees Ltd v Forcey [1940] Ch 352 at 366: "Advice which is intended to have persuasive effects is not distinguishable from inducement, and there is no reason to suppose that the giving of such advice is justifiable except by those persons in whom the law recognises a moral duty to give it". 101 The remaining issue is that of intention. As Giles J said "for the tort of inducing breach of contract it must be shown that the defendant knew of the existence of the contract and intended to interfere with its performance and although knowledge and intention are intertwined the intention is essential". 102 In Quinn v Leathem [1901] AC 495, 510 Lord Macnaghten said that Lumley v Gye (1853) 2 E & B 216, which established the existence of this tort, was rightly decided: "… on the ground that a violation of a legal right committed knowingly is a cause of action, and that it is a violation of legal right to interfere with contractual relations recognised by law if there be no sufficient justification for the interference". 103 Lord Lindley at 535 agreed and added: "The principle which underlies the decision reaches all wrongful acts done intentionally to damage a particular individual and actually damaging him". 104 The element of intention in this tort was further considered in D C Thomson & Co Ltd v Deakin [1952] Ch 646. Jenkins LJ said at 694: "Direct persuasion or procurement or inducement applied by the third party to the contract breaker, with knowledge of the contract and the intention of bringing about its breach is clearly to be regarded as a wrongful act in itself, and where this is shown a case of actionable interference in its primary form is made out". 105 The need to prove that the defendant had the intention of bringing about a breach of contract was also referred to by Jenkins LJ at 695, 696 and 697, and by Morris LJ at 702. At 681 Evershed MR said that the plaintiff had to establish that the defendant "knows of the contract and acts with the aim and object of procuring its breach to the damage of B, one of the contracting parties". 106 The requirements of knowledge and intention were considered in the Full Federal Court in All State Life Insurance Company v ANZ Banking Group (1995) 58 FCR 26 and in this Court in Fightvision Pty Limited v Onisforou (1999) 47 NSWLR 473, 509-512. In the Full Federal Court Lindgren J, who delivered the principal judgment, reviewed the Australian authorities, and held that the defendant must know that the act he is procuring or inducing will be a breach of contract. See at 32-3, 37, 40-1, 41-2, 44-5. 107 This is not a case where the tortfeasor intended to bring about, and did bring about, the cessation of contractual performance by the party induced, where the absence of breach is irrelevant, and that situation may be put to one side. Compare Torquay Hotel Co Ltd v Cousins [1969] 2 Ch 106. The relevant principles were sufficiently stated in Short v City Bank of Sydney (1912) 15 CLR 148, 160 by Isaacs J: "… to constitute that cause of action, the defendant must have induced or procured the doing of what he knew would be a breach of contract . A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If a defendant did not know of the existence of the contract, he could not induce its breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract". (emphasis supplied) 108 The only breach found was the dismissal by ACT of the crane crew and the standing down of its other employees on the Quadrant site. Giles J held that the contract required ACT to refrain from these acts. ADC therefore had to establish that Mr Hitchings knew that those acts would be a breach of contract. 109 Mr Hitchings knew of the contract and its terms, but Giles J did not make a finding that he acted with the intention of bringing about the breach or that he knew that this would be the result. The acts found to have caused the breach were not in terms forbidden by the contract. 110 The immediate cause of the dismissal and the standing down (para 90) was the industrial dispute which broke out on 17 February 1988. The crane crew, members of the FEDFA, placed a large stormwater pipe directly behind a concrete pump that had just arrived so that concrete trucks could not gain access to it and the pump could not be moved. The crane crew refused to move the pipe and steps taken by Mr Bendeich with the FEDFA site delegates to have the pipe moved were not successful. 111 Early the following day Mr Bendeich was told by a foreman that the TWU had placed a ban on deliveries to the site because its members could not be guaranteed unhindered access. Work continued but the ban increasingly affected progress and there was no productive work on 25 or 26 February. A hearing took place before the Conciliation and Arbitration Commission on Friday 26 February which appeared to resolve the dispute and the TWU, who had not appeared, later undertook to the FEDFA to lift the ban. This did not occur until the afternoon of Monday 29 February. At 12.30 pm that day Mr Bendeich, acting on the instructions of Mr Houlahan, dismissed the crane crew and stood down ACT's other employees. 112 As Giles J said the dismissal and stand downs brought predictable responses from the FEDFA and the BWIU which established a picket line on 1 March. He found that ACT foresaw this but intended "to stand up to the Unions and resolve all matters once and for all". He also noted "that ADC deliberately held back from asserting that ACT's action was induced by a desire to avoid further performance of the contract". 113 The Judge found that ACT acted precipitously, without inquiring into the position on Monday 29 February and if necessary causing the matter to be relisted before the Commission. The dispute dragged on until 11 August when ACT validly terminated the contract. ADC claimed that ACT's refusal to settle the industrial dispute except on terms that the crane crew remain dismissed unless reinstated by the Commission was unreasonable, and motivated by a desire to avoid further performance of the contract. Giles J held that this part of ADC's case failed: "The questionable defences of ACT's stance, the intransigence with which that stance was maintained, and the matters … which I have outlined, give an aura of unreasonableness to ACT's conduct. But it is necessary to go behind the aura. In my view there is force in the reasons for ACT's stance … it is not easy to say that ACT was acting unreasonably in refusing voluntarily to reinstate the crane crew when it was offering to have the validity of the dismissal … determined by the appropriate Tribunal and to abide by that determination - it was the Unions which rejected the proposal of 16 March 1988. If otherwise reasonable ACT's conduct would not become unreasonable because it saw in the maintenance of its stance a possible escape from an unprofitable contract. Having regard to all the circumstances I have come to the view [that] in this respect ACT did not fail to prosecute the project diligently and was not in breach of Article 2.2". 114 The Judge did not find that Mr Hitchings authorised the dismissal and the standing down with the intention of bringing about the breach of contract. He found that ACT acted as it did "in order to have a showdown with the unions and in particular to rid itself of the crane crew" and noted that "ADC deliberately held back from asserting that ACT's action was induced by a desire to avoid further performance of the contract". This also means that ADC did not seek such a finding in relation to Mr Hitchings. There is also no finding and no evidence that Mr Hitchings knew that the action he was authorising would be a breach of ACT's contract. Mr Hitchings was not even cross-examined to suggest that he knew this. It follows that ADC has not established that Mr Hitchings acted with the intention of bringing about what he knew was a breach of contract by ACT. 115 ADC also pleaded that ACT had committed a further breach of its contract by failing, after February 1988, to take all or any reasonable action to settle the industrial dispute at the Quadrant site. The Judge rejected this part of ADC's case for the reasons summarised in para 114. Mr Jackson QC sought a finding of breach in respect of this conduct and a further finding that WCL was guilty of the tort of inducing that breach. 116 The Judge considered this alleged breach at some length (Red appeal book 107-117). ADC criticised the Judge's reasons, principally in its written submissions, and sought findings to the opposite effect. The reasons of Commissioner Baird of the Conciliation and Arbitration Commission of 26 February 1988 (Blue 11/3008-3018) provide convincing support for the Judge's findings. 117 The Commissioner said: "I find, and this applies to almost all of the [unions] … that no sooner is an agreement made or an undertaking given, that it is broken … There is almost no credibility with the undertakings given by the unions … the settlement of dispute clauses … the preponderance of disputes occur as if no agreements existed of any kind" (3009); "the description of anarchy is the only description … we have just had a case where I dealt for twelve months with a case … and the union simply failed to appear … There are bans imposed without regard for any of the settlement of disputes clauses … I must say, if I were an employer I would have no hesitation, if I could not get the work done, and had issued a lawful instruction, to take whatever course was available to me to either enforce the order or shut the job down … It has gone beyond the normal industrial relationships where the officials can talk with employers … in a … rational manner" (3010); "there is an anarchistic situation there which will only be resolved by very firm action by both the union officials … and by the employers. I think it is going to be a costly solution for some people, but I think it is the only way to resolve it … my opinion about a number of the sites is that the employers are no longer in charge. Any compromise has to be made for the commercial interests of the company … and because that has happened, we have now got the situation where any claim is considered appropriate (3011)". These quotations do not convey the full effect of the transcript. 118 The Judge criticised some of the WCL and ACT executives who gave evidence on this issue but found that they had acted in good faith and reasonably. Such findings are akin to findings acquitting a witness of fraud and are entitled to special respect from an appellate Court. Compare Akerheilm v De Mare [1959] AC 789 and Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254. 119 ADC was not able to point to any facts incontrovertibly established which were inconsistent with these findings, and it could not be said that they were glaringly improbable, given the views of Commissioner Baird. The transcript was only received as evidence of what was said and not as evidence of its truth. However it was highly relevant where the bona fides and reasonableness of the employer's conduct were in issue. In my judgment the finding that ACT did not commit a further breach of contract in its handling of the industrial dispute cannot be disturbed. 120 The claim that WCL induced this further breach of contract, assuming the breach had been proved, also fails. There is no basis on which this Court could find that the relevant officers of WCL knew that the approach being followed would involve ACT in a breach of its contract with ADC and was intended to bring about that result. 121 All appeals therefore fail and should be dismissed with costs. WIL's cross-appeal challenged credit based findings that Mr Amann made the representations found to have been misleading and deceptive and that Mr Fischer had relied upon those representations. There is no basis for the Court disturbing these findings either and the cross-appeal should also be dismissed with costs. 122 SHELLER JA: I agree with Handley JA. 123 STEIN JA: I agree with Handley JA. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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