New South Wales Supreme Court CITATION : Timms v Commonwealth Bank of Australia; Commonwealth Bank of Australia v Timms [2004] NSWSC 76 revised - 26/02/2004 HEARING DATE(S) : 17/06/03; 18/06/03; 19/06/03; 20/06/03; 23/06/04; 24/06/03; 25/06/03; 26/06/03; 27/06/03; 26/09/03; 30/09/03; 01/10/03 JUDGMENT DATE : 24 February 2004 JURISDICTION: Equity Division JUDGMENT OF : Barrett J DECISION : Plaintiffs' claims of misleading or deceptive conduct, breach of fiduciary duty and negligence against bank dismissed. Plaintiffs' claims of breach of retainer and negligence against accountants dismissed. Bank entitled to judgments for debt and order for possession of mortgaged premises. CATCHWORDS : TRADE AND COMMERCE - misleading or deceptive conduct in trade - whether bank made untrue representation as to state of business being purchased by customer applying for acquisition finance - whether bank's failure to correct customer's statement as to state of business known to the bank to be incorrect actionable - whether bank's failure to inform customer of customer's accountant's failure to give favourable report on financial position of business actionable - EQUITY - fiduciary duty - whether bank owed fiduciary duty to customer in connection with customer's purchase of business financed by bank - TORTS - negligence - duty of care owed by bank to customer - PROFESSIONS AND TRADES - accountants - nature and incidents of retainer of accountant advising on purchase of business - whether breach of contract or negligence - ELECTION - circumstances in which person with inconsistent rights, having resorted to one, may not resort to the other - whether creditor properly regarded as having concurrent rights to sue for full debt and to sue for such smaller amount as creditor chooses Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516 Briginshaw v Briginshaw (1938) 60 CLR 336 Commonwealth v Verwayen (1990) 170 CLR 394 Commonwealth Bank of Australia v Finding [2001] 1 QdR 168 Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 G E Crane Pty Ltd v Federal Commissioner of Taxation (1971) 126 CLR 177 Gold v Essex County Council [1942] 2 KB 293 Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 CASES CITED : Kratzmann v Federal Commissioner of Taxation (1970) 44 ALJR 293 In re London and General Bank (No 2) [1895] 2 Ch 673 Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2003] NSWCA 213 Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58 New South Wales v Lepore (2003) 77 ALJR 558 Point v Federal Commissioner of Taxation (1970) 119 CLR 453 Rehsa Shipping Co SA v Edmunds [1985] 1 WLR 948 Sanders v Snell [2003] FCAFC 150 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284 United Australia Ltd v Barclays Bank Ltd [1941] AC 1 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Watson v Foxman (1995) 49 NSWLR 315 2644/94 Anastasia Timms - First Plaintiff Brian Timms - Second Plaintiff TW Holdings Pty Limited - Third Plaintiff BDA International Pty Limited - Fourth Plaintiff Commonwealth Bank of Australia - First Defendant Leslie Ludovic Rosenfeld and Alfred Kant t/as Rosenfeld Kant & Co - Third Defendants 3054/97 PARTIES : Commonwealth Bank of Australia - Plaintiff Anastasia Timms - First Defendant Brian Timms - Second Defendant TW Holdings Pty Limited - Third Defendant BDA International Pty Limited - Fourth Defendant 2644/94 Anastasia Timms - First Plaintiff Brian Timms - Second Plaintiff TW Holdings Pty Limited - Third Plaintiff BDA International Pty Limited - Fourth Plaintiff FILE NUMBER(S) : SC 2644/94; 3054/97 2644/94 Mr A J Sullivan QC/Mr M Clarke - First to Fourth Plaintiffs Mr R G Forster SC/Mr N Manousaridis - First Defendant COUNSEL : Mr R E Dubler - Third Defendant 3054/97 Mr R G Forster SC/Mr N Manousaridis - Plaintiff Mr A J Sullivan QC/Mr M Clarke - First to Fourth Defendants 2644/94 Browne & Co - First to Fourth Plaintiffs L E Taylor - First Defendant SOLICITORS : Phillips Fox - Third Defendants 3054/97 L E Taylor - Plaintiff Browne & Co - First to Fourth Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J TUESDAY, 24 FEBRUARY 2004 2644/94 – ANASTASIA TIMMS & ORS v COMMONWEALTH BANK OF AUSTRALIA & ORS 3054/97 – COMMONWEALTH BANK OF AUSTRALIA v ANASTASIA TIMMS & ORS JUDGMENT The proceedings 1 In proceedings 2644 of 1994, Mr Timms, Mrs Timms and two companies controlled by them (which I shall call "TW Holdings" and "BDA") sue a bank (Commonwealth Bank of Australia, referred to simply as "the bank") and a firm of accountants (Rosenfeld Kahn & Co) upon several causes of action related to advice allegedly given and statements allegedly made to Mr Timms and Mrs Timms about a business that was ultimately purchased by the Timms interests. 2 The causes of action, as eventually pleaded, are set out in the third amended statement of claim which, by leave, was filed in court on 20 June 2003, the fourth day of the hearing before me. The second amended statement of claim was filed almost three months earlier, on 28 March 2003, by leave granted by the court by consent of the parties on 4 November 2002. 3 The statement of claim in its original form was filed on 8 June 1994. An amended statement of claim was filed on 14 February 2001. A trial of the claims pleaded in the amended statement of claim filed on 14 February 2001 took place before a judge of this Division over eight days in March and April 2001. On 6 July 2001, the claims against the bank and the accountants were dismissed. The Timms interests appealed to the Court of Appeal. On 23 September 2002, the appeal was allowed, the judgment and orders at first instance were set aside and the matter was remitted to this Division for re-trial. 4 I mention this background for two main reasons. The first is to emphasise that, although the matter was remitted for re-trial, the plaintiffs have, by leave, amended their statement of claim on two occasions since the Court of Appeal made orders and published its reasons. The claims as eventually framed and litigated before me were not identical with those considered by the Court of Appeal, although it must be said at once that the general thrust did not change. Secondly, while all the affidavits read and oral evidence adduced upon the original hearing at first instance were relied upon again before me, certain parts of affidavits previously read were not read upon the re-trial and objections were taken and dealt with afresh, in addition to which further affidavits sworn since the determination of the appeal and further tendered documents were also relied upon by the parties and there was extensive cross-examination of witnesses. The evidence I received thus differed from the evidence received in the earlier trial. 5 Although both the matters to which I have referred may be regarded as not unexpected by-products of full remitter for retrial in circumstances where, as the judgments in the Court of Appeal show, it was not intended that any part of the original decision should stand (cf Sanders v Snell [2003] FCAFC 150), it is as well that they be recorded at the outset; also that the course taken was taken with the concurrence of the parties. My task is to determine the proceedings as now constituted by reference to the evidence placed before me. I must find all facts afresh. 6 There are cross-claims in proceedings 2644 of 1994. Two remain extant. By the second cross-claim, the accountants claim contribution from the other defendants. By the third cross-claim, the bank makes a like claim against the accountants. It should also be mentioned that both the bank and the accountants allege contributory negligence on the part of the Timms interests. 7 Associated and heard together with proceedings 2644 of 1994 were proceedings 3054 of 1997 by which the bank claims judgment for debt and interest against Mr and Mrs Timms, like judgment against TW Holdings, like judgment against BDA and orders against Mrs Timms for possession of a property mortgaged by her to the bank as security for the total indebtedness of the Timms interests. By way of cross-claim in those proceedings, the four Timms parties assert claims against the bank and the accountants corresponding with those in proceedings 2644 of 1994. The reasons for judgment published on 6 July 2001 stated that the bank was entitled to judgment for its debt plus interest against all debtor parties; also an order for possession against Mrs Timms as mortgagor. All these aspects are comprehended by the Court of Appeal's order for re-trial. 8 In the proceedings before me, a new aspect was added to the controversy concerning the bank's debt and mortgage claims. The Timms interests say that, if they are indebted to the bank at all, the debts are not of the magnitude claimed by the bank because of what I refer to for the moment as the "shadow ledger issue". That issue, although not made the subject of any formal amendment of the pleadings, was articulated in writing in a way that the bank and the Timms parties agreed provided sufficient definition. The "shadow ledger issue" will be elaborated and explained in due course, quite separately from my consideration of the other claims. Background facts 9 A number of factual disputes arise for determination in these proceedings. It is nevertheless possible to give a sufficient account of undisputed matters in which the Timms participated (particularly those arising from contemporary documents) to explain the background against which the various claims have arisen. 10 In mid-1991, Mr Timms and Mrs Timms were making efforts to find a business that they might acquire or establish. Mr Timms was a self-employed consultant in the information technology industry. Mrs Timms had devoted herself to the home. With their three sons growing up, Mr Timms and Mrs Timms were seeking a business to which Mr Timms might devote some of his time and in which Mrs Timms could be engaged on a full time basis. 11 Mr Timms and Mrs Timms engaged Mr Rosenfeld of Rosenfeld Kant & Co, a firm of chartered accountants, to provide certain advice in relation to certain proposed business ventures. Before October 1991, Mr Rosenfeld, at their request, looked at aspects of several different businesses with a view to possible purchase. For various reasons, Mr Timms and Mrs Timms decided not to proceed with these proposals. The first contact Mr Timms and Mrs Timms had with Mr Rosenfeld was in August 1990. 12 On 8 October 1991, Mr Timms and Mrs Timms consulted Mr Rosenfeld about the possible purchase of a business that involved manufacture and retailing of high quality leather furniture. The meeting followed a telephone call made by Mr Timms to Mr Rosenfeld a few days earlier. The manufacturing operation was conducted by Artrona Pty Limited in factory premises at Brookvale. The retailing activities were conducted by 2001 Interiors Pty Limited at Crows Nest and the Gold Coast. For convenience, the two operations are referred to together as "the Artrona business". The two companies were owned by Mr Richard Wheeler and Mrs Virginia Wheeler. I shall return to the early October and subsequent meetings with Mr Rosenfeld. It is sufficient, at this point, to note that Mr Rosenfeld provided certain professional services to the Timms interests and, in relation to one matter (to be mentioned in due course), had contact with their bank. 13 Mr Timms and Mrs Timms were introduced to the Artrona business by a business broker, Stephen Golosky. At an early stage, they were introduced to Mr Wheeler and Mrs Wheeler. The four met on several occasions. Mr Timms and Mrs Timms came to the view that, if they bought the Artrona business, it would be advantageous to have Mr Wheeler and Mrs Wheeler retain a working role within it. Mr Wheeler was seen by them as a good designer whose skills in that area would be useful. His abilities as a manager were not highly regarded by the Timms. The arrangements eventually settled upon entailed purchase of the Atrona business by a company 90% owned by the Timms and 10% owned by the Wheelers, with provision for the Wheelers to increase their shareholdings to a maximum of 50% over time on certain conditions. This company was TW Holdings ("TW" standing for "Timms Wheeler"). 14 On 16 December 1991, TW Holdings entered into a contract for the purchase from 2001 Interiors Pty Limited and Artrona Pty Limited of the assets and goodwill of the businesses respectively carried on by the vendor companies. The purchase price was stated to be $297,000. The contract does not appear to apportion this between the two vendors. The purchase included stock in trade at its value at the date of completion, such value to be determined by agreement between the parties and in default at a price determined by an expert, subject to an upper limit of $360,000. Provision was also made for assignment of leases of business premises (subject to lessors' consent) and employment by the purchaser of persons employed by the vendors in the businesses. Certain other provisions commonly found in agreements of this kind were also included and it is unnecessary to say more about the terms and conditions of sale. Separate contracts entered into at the same time made provision for Mr Wheeler and Mrs Wheeler to work in the business. 15 Before this contract was entered into, Mr Timms and Mrs Timms had had discussions not only with Mr Rosenfeld but also with two officers of the bank based at its Five Dock branch, Mr Hart and Mr Walker. It will be necessary, in due course, to examine accounts of those discussions in some detail. For the moment, it is sufficient to record, so far as the bank is concerned, that, at an unidentified point in early October 1991, Mr Timms and Mrs Timms saw Mr Hart at the Five Dock branch and outlined to him the possibility of their purchasing the Artrona business and the need for financing. One of the things said by the Timms to Mr Hart at that meeting was that the principals of the vendor companies, Mr Wheeler and Mrs Wheeler (as well as those companies themselves), banked at the bank's Barrack Street branch. Some time later (apparently on 18 October 1991), Mr Hart telephoned the Barrack Street branch and spoke to Ms Saar, an officer employed at that branch. Following that conversation, Ms Saar sent to Mr Hart on 18 October 1991 a memorandum which was accompanied by two documents and read as follows: "Re Artrona P/Ltd Group of Companies We refer to telephone discussions of today & enclose copy of Report provided by Deloitte Ross Tohmatsu. We have also included photocopy of relevant pages of Report which was completed by our office 24/5/91 which may be of assistance. As discussed the forementioned are provided on a strictly confidential basis." 16 The first of the documents enclosed with the memorandum of 18 October 1991 from the Barrack Street branch was a report of Deloitte Ross Tohmatsu dated 21 November 1990 addressed to the Barrack Street branch. The second document was what appeared to be pages 5 to 12 of an internal bank document, although without any signature or other identifying characteristic but nevertheless said in the memorandum itself to have been completed by the Barrack Street branch on 24 May 1991. The content of these documents should be briefly described. 17 The Deloitte Ross Tohmatsu report of 21 November 1990 began by stating that Deloittes had, at the direction of the Artrona group, carried out "a brief investigation into its current financial position and viability"; also that the directors had authorised Deloittes to report their findings to the bank. The report began by looking at the assets and liabilities position, the conclusion being that if trading ceased and realisation on a "distressed sale" basis occurred, there would be $87,695 available to reduce the bank's debt of $210,073 after allowing for priority creditors of $236,512. The shortfall was estimated at more than one million dollars. Certain particular aspects were highlighted, including arrears of both income tax and sales tax which had become the subject of a reduction program attracting penalties. As to cash flow, the sustainable level of sales was identified as the "critical factor". It was noted that the group was entering its strongest sales period in the annual cycle. The conclusions expressed by Deloittes were as follows: "1. It is essential for the group to meet current liabilities in respect of group tax and sales tax, and that the planned reduction programme of the amounts in arrears be strictly adhered to. 2. The secured lender be provided with a monthly summary of a comparison between the actual monthly cash flow and the projected monthly cash flow. All variances should be appropriately explained. We note prior to our visit that the group had already prepared a comparison for the October monthly cash flow. 3. The secured lender be notified if and when any notices in accordance with Section 364 of the Companies (New South Wales) Code are received by companies within the group and the action taken to settle such demands. 4. We recommend a stocktake be conducted and supervised independently at 30 November 1990. Following completion of the stocktake a trading statement for the five months ending 30 November 1990 should then be prepared to independently ascertain the level of profitability of the business." 18 The extract from the internal bank memorandum of 24 May 1991 began, as I have said, at page 5. There was reference on that page to the history of the loan facilities extended to the Artrona group with reference certain "excesses" having been allowed. There was then reference to cash flow (budgeted and actual) for April 1991 and a statement that "the Group have failed to perform to budgetary expectations". Drawings by the Wheelers were identified as a problem, but even "if these items are added back, the position is 'line ball'". Further analysis followed. The extract contains the following passage: "As stated and proved by the figures provided above, we would assert that the Artrona Group business is basically sound. The reason that it has suffered is due to a combination of a downturn in sales coupled with the unbearably high level of owner drawings. Indeed, the owner's drawings have been given priority ahead of the payment of essential creditors, thus creating the arrears positions as outlined above." Three options were then discussed – liquidation, receivership and "three month option", essentially an opportunity for the Wheelers to bring the account back within limits with the position being closely monitored. 19 On 4 November 1991, Mr Hart received further material from the Barrack Street branch by facsimile sent by Ms Saar. This was balance sheets of both companies at 30 June 1988, 1989 and 1990 and profit and loss accounts for the years to those dates. The facsimile began: "We have received authority from our clients to provide the following information on a confidential basis …" 20 On 7 or 8 November 1991, Mr Hart received from Mr Wheeler a facsimile containing balance sheets for Artrona. 21 Mr and Mrs Timms had a second meeting with Mr Hart at the Five Dock branch on an unidentified date early in November 1991. One of the things that occurred at that meeting was that Mr Timms gave to Mr Hart a statement represented as being "projected consolidated cash flow for period 1/11/91-31/10/92" for "Artrona Group of companies". Mr Timms explained in evidence how he had compiled that document in conjunction with Mr Wheeler. They worked together at Mr Timms' home to prepare it. He also gave evidence about the notes and a narrative document of one and a half pages headed "Artrona" that accompanied the cash flow statement. This document is referred to as "the synopsis". 22 On 11 November 1991, the Five Dock branch forwarded to the bank's Western Metropolitan Zone Region A (which I shall call "Western Zone") an application for financing for Mr and Mrs Timms and BDA International in the form of a five year bill facility in the sum of $950,000 and a $20,000 overdraft facility for the purpose of assisting completion of the acquisition of 90% of the shares of the Artrona Group for $900,000 and related legal and stamp duty costs, plus working capital requirements for the operation of the group. 23 On 18 November 1991, there was prepared within the Western Zone a document containing what is probably best described as a short critique of the application of 11 November 1991 received from the Five Dock branch. Endorsed on that are handwritten comments which, having regard to the signature at the foot of those comments and the identified signature on a letter of 3 December 1991 to be mentioned presently, are comments of Mr Havron, deputy regional manager of the relevant region of the Western Zone. 24 On 26 November 1991, there was received at the Five Dock branch a memorandum from Mr Havron referring to a conversation he had had with Mr Walker, manager of that branch, confirming that "we hold some reservations with the proposal as submitted". The memorandum continued: "It is obvious that the Group requires an immediate injection of capital from an equity partner, not borrowed capital to replace liabilities which have, to date, been interest free." The memorandum also said that the Western Zone would "prefer to allow the business to pass" but, without commitment, would be prepared to consider it further on certain conditions which were then stated. One of the conditions was: "Presentation of audited financial statements or investigation of proposal by CDB I/A at applicants cost". ("CDB I/A" means "Commonwealth Development Bank investigating accountant".) 25 On the same day, 26 November 1991, Mr Walker wrote a letter to Mr and Mrs Timms informing them of the Western Zone's decision and repeating, virtually verbatim, what was said in Mr Havron's memorandum received that day. This letter was handed to Mr and Mrs Timms when they attended the branch at Five Dock on 26 November 1991. There is a record of that meeting (which was attended by Mr Walker and Mr Hart of the bank and Mr and Mrs Timms) in a diary note of Mr Hart of the same date. Accounts of what happened at the meeting differ significantly. Events at the meeting are of central importance to the Timms' case and will be examined in detail in due course. At this point, however, it is convenient to set out Mr Hart's diary note in full: "DIARY NOTE – 26 NOVEMBER 1991 TIMMS B AND A BDA INTERNATIONAL PTY LIMITED RE: PURCHASE EQUITY ARTRONA GROUP Mr and Mrs Timms called today by appointment and were interviewed by Manager in the presence of the writer. They were provided with a letter which advised the CBA's preference to allow the writing of the business to pass, mainly in view of the reservations in relation to the introduction of borrowed capital to the venture together with the funding of the buy-back in arrangement of existing Directors over a 5 year period which is to provide principal reduction in facilities sought by applicants. They were advised also that the Bank would, however, be prepared to reconsider the proposal, without commitment, further in view of: · P & I servicing of total facility sought demonstrated over a 7 year term. · Presentation of audited financial statements or investigation of proposal by CBD I/A at applicants' cost. · Payment of non-refundable up front fee. · Full projection of income from applicants from outside consultancy over next 12 months. · Evidence of contract/buy back agreement. All points were discussed in detail by Mr. Walker and it is the intention of applicants to pursue the matter further. They advised that their accountants had received in the past week financial statements for the past 3 years which have been submitted to ATO and copies of these would be provided. Mr Timms would project consultancy income so that P & I can be further investigated. Additionally, the contract/buy back in agreement together with a service agreement for the existing Directors are in draft form and held by applicants' solicitors. Copies will be delivered this coming week. To reiterate, Mr. Walker clearly discussed the Bank's current lending criteria and all points raised. Mr. And Mrs. Timms advised that they would return when the additional information was to hand. (sgd) M G HART Assistant Manager, Loans" 26 On 28 November 1991, Mr Timms wrote a letter to Mr Walker expressing dissatisfaction with the bank's attitude to the loan application and, after discussing various aspects, requesting a meeting with the area management responsible for the decision so that he might "speedily resolve this matter for once and for all". The letter should be quoted in full: "I refer to your letter dated 26 November and our discussions in your office on the same date regarding our application for an advance to assist with the purchase of the businesses "Artrona" and "2001 Interiors". In order to cover the first point in your letter, an understanding of some of our personal goals is required. We have always planned our personal affairs, in a macro sense, over both a 5 and 10 year time horizon. Our current plan calls for, among other things, the disposal of our existing residence in about five years time when our youngest son leaves high school and the need for such a large house is diminished. On current values and taking no account of any capital appreciation over the next five years whatsoever, we could reasonably expect to realise around $3 million from the sale, less repayment of the mortgage and an allowance for agent's fees and marketing costs, leaving a net balance of around $2.6 million. We plan to use $1 million of the available balance to purchase an apartment, leaving an overall balance of around $1.5 million which is more than enough to meet the repayment of the principal of the loan irrespective of whether the Wheelers proceed with their agreed equity re-purchase or not. On top of this, it is quite clear from the projected cash-flow which was provided with our application that sufficient excess funds are generated by the business to cover capital repayments should this be necessary. The second point in your letter covers the issue of the provision of even more financial data than has already been provided by us or is readily available to the Bank. We are advised by the vendor that in 1990 the Bank commissioned a firm of chartered accountants to undertake a report on the viability of the business and that in 1989 an internal audit was performed by an Investigating Accountant from the Development Bank. We fail to see what more useful information we can add to the Bank's already not inconsiderable amount of financial data on the affairs of the companies in question. In the light of our good standing as a long-term customer of the Bank we do not feel that the Bank can reasonably justify the imposition of a non-refundable up-front fee in order to consider the request further. We expect a minimum consulting revenue of around $100,000 (117 days @ $850 per day) for the calendar year 1992. For your information we have enclosed copies of the draft service and share purchase agreements. We feel that the Bank has, once again, procrastinated unduly on this matter. It is timely to remind you of the value of us as customers of the Bank and to also point out the considerable value which a business the size of Artrona represents today and will represent in future as it expands both nationally and internationally. In view of our long relationship with the Bank and, hopefully, our good standing, we have not sought, at this stage, to obtain the funds elsewhere. However, our patience is at an end, and we must have a resolution on this matter within one week. We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions. We therefore request a meeting with the area management responsible for the decision so that we may speedily resolve this matter for once and for all. I look forward to your prompt reply." 27 On 3 December 1991, a memorandum was sent by the Five Dock branch to the Western Zone reporting the meeting with Mr and Mrs Timms and receipt of Mr Timms' letter of 28 November 1991. A copy of that letter was attached to the memorandum which went on to discuss and analyse various aspects of the matter, concluding with the comment that Mr and Mrs Timms had requested a meeting with appropriate regional personnel. 28 There was apparently a telephone conversation between Mr Havron (Western Zone) and Mr Hart (Five Dock branch) on 3 December 1991. It is referred to in the first paragraph of a memorandum of 3 December sent by Mr Havron to Mr Hart and, in view of the fact that it also refers to Mr Hart's memorandum of the same date, it may be inferred that the telephone conversation also took place on 3 December 1991. The memorandum from Mr Havron said: "As discussed, and against the background of additional information provided to us, we have approved accommodation of $970,000 generally on basis submitted and subject to …" There followed certain conditions. These did not include any equivalent of the foreshadowed condition to the effect that the bank receive audited financial statements or "investigation of proposal by CDB I/A". 29 By letter dated 10 December 1991 sent under the signature of Mr Walker, the Five Dock branch informed Mr and Mrs Timms that the bank had approved a finance package consisting of an overdraft facility of $20,000 to assist with working capital and a bill discount facility of $950,000 to assist purchase of 90% equity in the Artrona Group. Several conditions of approval were stated, including: "Certification by Accountants Rosenfeld Kant & Company that financial statements provided for the Artrona Group for the years ended 30 June 1989, 30 June 1990 and 30 June 1991 provide a true and accurate account of the Group's performance. Copies of the financial statements will be provided direct to Accountants." 30 This condition was not referred to in any memorandum or instruction received by the Five Dock branch from the Western Zone. It did, however, reflect in substance a representation made by Mr Hart to the Western Zone in his memorandum of 3 December 1991: "Accountant's [sic] acting for Timms' have stated that in their opinion (after their investigation) the statements of affairs represent a true and fair view of the Group's performance." It may be inferred that this statement by Mr Hart to the Western Zone caused the zone to omit from the 3 December 1991 memorandum the foreshadowed condition (referred to in Mr Havron's earlier memorandum) requiring presentation of audited financial statements or investigation by the Commonwealth Development Bank. 31 When the memorandum of 3 December 1991 was written by Mr Hart and sent to the Western Zone, the Timms' accountant had not made to the bank any statement of the kind attributed to him by Mr Hart. Imposition by the bank's letter to the Timms dated 10 December 1991 of a condition of approval in terms virtually identical with those of the representation previously made by Mr Hart to Western Zone therefore represented a means whereby Mr Hart sought to ensure that the position represented to Western Zone on 3 December 1991 would come to accord with the facts – or, in other words, to preserve the bank's ability to ensure that the funds were not made available unless and until the bank had received from the Timms' accountant the assurance that had been falsely represented by him in the branch's memorandum of 3 December 1991 to be already in hand. 32 The bank's letter of 10 December 1991 was given to Mr Timms and Mrs Timms at the Five Dock branch on or about 12 December 1991 by Mr Hart. On the same day Mr Hart telephoned Mr Rosenfeld to alert him to the need for certification of the kind described in the letter. On 12 December 1991, Mr Hart sent Mr Rosenfeld a fax as follows: "We advise that the Commonwealth Bank has approved total facilities of $970,020 to the abovenamed to assist complete the purchase in the Artrona Group. A condition of approval is the seeking of clarification from yourself that the Financial Data provided with the application represents a true & accurate account based on your own investigations of the Group's performance over the period 30/6/89 to 30/6/91. To assist we fax copies of Financial Statements provided in support of the Application. Should you have an inquiries please contact Michael Hart on 712 1933." 33 On 16 December 1991, Mr Rosenfeld sent a fax addressed to the Manager of the Five Dock branch and marked for Mr Hart's attention in the following terms: " re Brian and Anastasia Timms We refer to your facsimile of 12 December, 1991 regarding funds being borrowed by the abovenamed in order to complete the purchase of the Artrona Group. We would like to confirm that the initial financial information for Artrona Group covering period 30 June, 1989 to 30 June, 1991, upon which we advised our clients, is the same as the information attached to your facsimile. Please note that we have not carried out an audit of these accounts." 34 Completion under the purchase contract dated 16 December 1991 took place on 12 March 1992. BDA International (owned by Mr Timms and Mrs Timms) borrowed $950,000 from the bank and on-lent some $760,000 to TW Holdings (owned 90% by Timms interests and 10% by the Wheelers) to enable it to complete the purchase. After completion, Mr Timms and Mrs Timms became the principal managers of the business. Within a short time, they developed concerns about its performance. They say that the first three weeks of operation under their ownership resulted in a cash deficit of more than $55,000. The Wheelers did not devote to the business the time and effort expected of them. Suppliers did not wish to deal with Mr Wheeler and would not extend credit to the business. In May 1992, the Timms approached the bank for further funding for working capital. In June, further funding of $650,000 was offered and accepted. The business continued to experience difficulties. Operations ceased in January 1994. TW Holdings subsequently passed into voluntary administration. The claims of the Timms interests against the bank 35 By the third amended statement of claim, the Timms interests maintain several claims against the bank. 36 The first claim – the "good business claim" – relates to representations the Timms parties say were made by Mr Hart or Mr Walker or both at one or both of the two meetings Mr Timms and Mrs Timms attended at the Five Dock branch in November 1991, the first on an unidentified day early in the month and the second on 26 November. The Timms interests say that, in response to a request for advice made to the bank by Mr Timms and Mrs Timms, the bank made representations as set out in the third amended statement of claim. These were, in general terms, representations that the business was "good" or "profitable" or "viable" or some combination of those descriptions; moreover that the bank had assumed the role of an adviser to the Timms and accordingly owed them fiduciary duties. It is claimed that the making of the alleged representations by the bank entailed breach of fiduciary duty, negligent misstatement and conduct proscribed by s.52 of the Trade Practices Act 1974 (Cth), interpreted in the light of s.51A. 37 The second claim – the "non-disclosure claim" – arises from the bank's silence in response to the statement in Mr Timms' letter of 28 November 1991: "We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions." The allegation against the bank under this heading is that, at the relevant time, it knew that the business was not sound and, by failing to disabuse the Timms of their belief that the bank considered the business to be extremely sound, the bank engaged in conduct proscribed by s.52 of the Trade Practices Act . 38 The third claim – the "certification claim" – entails an allegation against the bank that it failed to obtain from Mr Rosenfeld the certification (or "clarification") described in the bank's letter of 10 December 1991, that is, a certification in the terms referred to at paragraph [32] above. The bank's failure to obtain any such certification or "clarification" from Mr Rosenfeld (the content of his fax to the bank dated 16 December 1991 being in no sense of the relevant description) is said by the Timms interests to entail both breach of a duty of care in negligence owed to them by the bank and conduct on the bank's part prohibited by s.52 of the Trade Practices Act. 39 The Timms interests further say, as part of each of the three complaints, that, if the bank had not made the alleged representations involved in the "good business claim" or had not remained silent in response to the part of Mr Timms' letter at the centre of the "non-disclosure claim" or had informed the Timms interests that Mr Rosenfeld was not in a position to certify the accounts (or that the certification had not been received by the bank), they would not have purchased the business and consequently would not have taken up the financing facilities made available by the bank upon completion of the purchase on 12 March 1992. The claims of the Timms interests against the accountants 40 The Timms interests sue the accountants upon causes of action based in contract and negligence. They allege a retainer to advise comprehensively on the proposed purchase of the business, with the accountants aware that the purchasing entity required return, in due course, of the purchase price, servicing of borrowings made to effect the purchase and a reasonable return on funds outlaid in the purchase and conduct of the business. 41 It is alleged against the accountants that they made certain positive representations about the business that were inaccurate and failed to take certain steps that they should have taken that would have caused them to appreciate that the representations were inaccurate. As a result, the Timms interests say, the accountants breached a duty of care owed by them and the terms of their contract of retainer. The approach taken to the claims against the bank 42 Central to the issues in contention is the state of the bank's knowledge about the condition of the Artrona business in the period leading up to 16 December 1991 when the Timms interests entered into the purchase contract. That matter will be addressed first since each of the "good business claim" and the "non-disclosure claim" become academic unless the bank is shown to have held a particular opinion as to the state of the business. 43 The next matter for investigation concerns steps taken by Mr and Mrs Timms to assess the business. This is relevant not only to questions of reliance (should those questions ultimately arise for decision) but also because of the light it will throw on the meaning and significance of other elements of the evidence. 44 Against the background provided by findings in relation to these two matters, it will then be appropriate to consider, and make findings in relation to, events at the meeting of 26 November 1991, that being the occasion on which the words at the root of the plaintiffs' principal contentions in relation to the "good business claim" were allegedly spoken. A corresponding examination of events at the early November 1991 meeting will then be undertaken for the same reason. 45 The next step will be to examine the evidence and make findings relevant to the "non-disclosure claim" and the "certification claim". 46 With findings complete in relation to all the matters just mentioned, it will be possible to address the claims based on a fiduciary duty allegedly owed by the bank. The bank's knowledge of the business 47 The plaintiffs introduced into evidence a number of documents from files kept by the bank at its Barrack Street branch, being the branch at which the accounts of the Wheeler interests (including Artrona and 2001 Interiors) were maintained. It will be recalled that one of the documents that came into the possession of officers at the Five Dock branch in response to their request to Barrack Street for information was a report by Deloitte Ross Tohmatsu dated 21 November 1990 in respect of the Artrona and 2001 Interior businesses. On 5 July 1991, Mr Carmont, manager of the Barrack Street branch, received from Deloitte Ross Tohmatsu a copy of a statutory demand that had been served by that firm on Artrona in respect of $7,410 unpaid professional fees. The fees related to the preparation of that report. The copy of the statutory demand was sent to Mr Carmont under cover of a letter dated 5 July 1991 saying that despite several promises made by Mr Wheeler to Deloitte Ross Tohmatsu, payment had not been forthcoming and the firm therefore had no option but to send the demand. 48 On 22 July 1991, Mr Carmont sent a memorandum to the bank's Central Metropolitan Zone (which I shall call "Central Zone") referring to the Artrona connection, the nature of the business, the background of Mr and Mrs Wheeler and the circumstances in which the bank had acquired the connection from the National Australia Bank in November 1987. At the request of the Central Zone, the memorandum provided additional information to enable the zone to consider the branch's proposal of 31 May 1991 "for continuance and tolerance of position until end August 1991". The memorandum went on to provide information, including the position in relation to arrangements with the Australian Taxation Office relating to arrears of company tax, sales tax and group tax, the position in relation to arrears on lease commitments to the bank's finance company, CBFC, the position in relation to indebtedness to an unrelated building society and details of outstanding creditors as at 31 May 1991. The creditor details highlight creditors described as "pressing", being those in respect of which payments were required within thirty days. The memorandum also detailed the order position and the possibility of the sale of Mrs Wheeler's car and certain real estate on the Gold Coast with a view to debt reduction. Towards the end of the memorandum appeared the following paragraph: "Clearly it is evident that both company and Wheeler are heavily committed and technically insolvent. A further aspect is the fact that Wheeler has advised that the months June through to August traditionally provide increased sales with the company accounts through to January proving the most expensive due to holidays and closure of factory provides little comfort for CBA over the longer term." 49 The recommendation at the end of Mr Carmont's memorandum was: "As outlined in our memorandum dated 24 May 1991 i.e. should position not improve by end of August 91 its [sic] our recommendation that an Administrator or Receiver Manager be appointed." 50 On 13 August 1991, Ms Saar, management assistant at the Barrack Street branch, prepared a diary note which began by reciting the general background set out in Mr Carmont's memorandum of 22 July 1991 and went on to refer to events at a meeting that took place on 8 August 1991 and was attended by Mr Wheeler, Mrs Wheeler, Mr Carmont, Ms Saar, Mr Kapeleris (described as "assistant manager loans"), plus Mr Dean of Central Zone. According to the diary note, the meeting received information from Mr Wheeler about cash flow of the business and he was asked to prepare a cash flow budget for the financial year to 30 June 1992. The position with respect to creditors was discussed, as were the bank's concerns about the Wheelers' private debt levels and the short term operations of the business. The file note contains the following passage: "The only major trade creditor, 'E Astley And Sons', continues to support business by allowing them favourable payment arrangements ie that when Artrona make a reduction by way of Bank Cheque, they are then allowed to redraw this amount to obtain leather for current production. Whilst Richard is confident that suppliers will continue arrangements, it is obvious that should their support be withdrawn it is unlikely business could continue to operate. Customer believes that he is handling other creditors well, although by his own admission they are met on a cyclic basis – when one creditor becomes pressing, payment to them is made in preference to others." 51 Ms Saar's diary note of 13 August 1991 concludes: "After the meeting, discussions then took place between Manager and Phil Dean, CMZ, regarding client's request to allow some overdrawings until end of August. Whilst it was obvious that the Bank was reluctant to again allow debt to increase, even if only short term, it was acknowledged that this would allow customers to improve weekly Cash Flow by ensuring materials for week's production are available earlier. Accordingly, it was agreed to acceded to customer's request on the understanding that position would be reviewed from week to week and Richard was not to automatically assume that we would allow accounts to overdraw. This decision as relayed to client by telephone on 8/8/91. In conclusion, until Cash Flow Budget, for current financial year, is received and assessed, no further decisions can be made as to what course of action the bank should take. In the meantime, we would appear to have little option than to continue to closely monitor account. However, would consider it appropriate that we now request in writing that Cash Flow Budget be provided by 19/8/91 and confirm the above arrangement." 52 Endorsed on this diary note of 13 August 1991 in handwriting are comments which appear to have been placed there by Mr Carmont. Insofar as presently relevant, they are as follows: "The situation or arrangement with major creditor E. Astley & Son concerns me as their continued support is essential to ensure on going operations. Change of management/ownership or Bank pressure could easily change Astley's attitude which would 'sound the death nell [sic]' for Artrona. Little we can do however but to assume that Astley's indulgence will continue to be forthcoming." 53 On 5 September 1991, Mr Cranston, deputy regional manager, Central Zone, sent a memorandum to the Barrack Street branch headed "Artrona Pty Limited and related accounts". This apparently followed a telephone conversation between Mr Cranston and Mr Carmont. The memorandum begins: "As you would be well aware we have been uncomfortable with this connection for some time with the decision to allow the company time to trade out of its difficulties being made following an investigation by Ian Struthers from Deloitte Ross Tohmatsu in November 1990." 54 After referring to the bank's disappointment that other creditors appeared to be receiving priority to the bank, Mr Cranston said that the bank should not be allowing overdrawings on the working account as advised in a memorandum from Mr Carmont. Mr Cranston then said: "Under no circumstances are further cheques to be paid that would increase CBA's exposure further and every effort is to be made to bring the account into order as proposed. The cash flow that was previously provided by Mr Wheeler is inaccurate as it indicated that the company should be currently cash flow positive which is obviously not the case. This would throw doubts on Mr Wheeler's management ability." 55 Mr Cranston went on to say that Central Zone had been contacted by CBFC collections and informed that unless a payment of $4,000 was made in respect of outstanding lease commitments by the end of the then current week, CBFC would be considering recovery action. In apparently rhetorical vein, Mr Cranston added: "I wonder how many other pressing creditors are considering action?" 56 The memorandum concluded: "As the position has now become critical and whilst not disagreeing that CBA needs to take some positive action, would you please contact Mr Wheeler and obtain the following information as a matter of urgency: · Up to date position in respect of Sales/Payroll/Group Tax. Has any formal agreement been reached with the ATO? Copies of relative correspondence would be of assistance; · Up to date list of creditors/debtors including ageing thereof. Details of any pressing creditors would also be of assistance. Perhaps an updated cash flow which shows the true position could also be sought; and · The current amount of stock that is held in the Brookvale factory and Crows Nest and Gold Coast retail outlets. Upon receipt of the above information we will further consider our position which may involve the appointment of an inspector under the provisions of CBA's R/E/M." 57 On 18 September 1991, Mr Carmont made a diary note following a conversation he stated to have taken place between him and Mr Cranston concerning payment of a wages cheque of approximately $11,000 on that day. Mr Carmont referred to a conversation he had had with Mr Wheeler in which Mr Carmont had informed Mr Wheeler that the provision of further funds for raw material purchases was "completely out of the question", as the bank's exposure was "far too high". Mr Carmont reports Mr Wheeler as having replied that if he could not purchase raw materials he would not be able to finish essential work in progress and production would have to cease. The diary note continues: "The situation has now reached an intolerable position and I cannot see the company having sufficient cash flow to pay wages and acquire sufficient raw materials to continue production. The only alternative available to the bank is to appoint an agent as a matter of urgency." 58 On the same day, 18 September 1991, Mr Carmont signed and issued a number of related documents. They were demands upon Artrona, 2001 Interiors, Mr Wheeler and Mrs Wheeler for the payment of $186,228.24 and notices to Artrona and 2001 Interiors purporting to convert floating charges over assets into fixed charges. These latter documents also stated that the mortgagor was not at liberty to sell or dispose of or encumber any of its assets without the prior consent of the bank. The notices to Mr Wheeler and Mrs Wheeler expressly referred to the bank's second mortgage over their home at Bayview. 59 On 20 September 1991, Deloitte Ross Tohmatsu sent a letter to the Barrack Street branch in which it reported the result of a further investigation of the affairs of Artrona undertaken at the request of the bank. The report discussed the Artrona group's financial position in some detail. After referring to assets and liabilities, it stated that there existed an estimated shortfall in shareholders' funds of $1,032,194. The following conclusions were stated: "Given the level of current orders in place and the levels of WIP and the average gross margin being achieved on sales, if the bank wished to be substantially paid out then the following should be undertaken. (i) as the appointment of an Agent for the Mortgagee in Possession is now doubtful as a means of avoiding the payment of group tax, the appointment of a Receiver and Manager over only the stocks and WIP would result in group tax not being paid and through the completion of orders in hand an amount of $138,000 is estimated to be realised after the payment of employee entitlements resulting in an estimated deficiency to the bank of $65,000 subject to the costs of the administration. The Receiver and Manager would complete current orders on hand and realise finished goods. The appointment of a Receiver and Manager would achieve an estoppel re catch up payment for group tax, sales tax, payroll tax, etc which would maximise the cash available to the bank by 30 November 1991. As an alternative the following could be considered: (i) the Directors be given 21 days to organise the pay out of the Commonwealth Bank's facility. The Directors have indicated that they have approached equity partners with the prospect of a partial sale taking place. If this pay out did not take place or satisfactory arrangements entered into then the Bank should appoint a Receiver Manager over the stocks and WIP. In this 21 day period Deloitte Ross Tohmatsu should review all cheque payments to ensure funds are not diverted i.e. make payments which would be to the Bank's detriment." 60 A diary note prepared by Ms Saar on 24 September 1991 refers to a meeting held the previous day at the Wheelers' request and attended by Mr Wheeler, Mrs Wheeler, Mr Carmont, Ms Saar and Mr Chaston (the bank's regional manager for Region E of Central Zone). After discussion of the then current position, Mr Chaston is reported as having said: "… after the investigation of the business recently completed by Deloittes, that the bank feels that there are only three options now available:- 1. Refinancing of the debt by outside party. 2. Injection of capital. 3. Appointment of receiver. On the information available, at this time Option 3 would seem the only realistic alternative." 61 The file note says that Mr Wheeler then advised that upon receipt of the letters of demand the Wheelers had "commenced proceedings to sell the business" and were "to hold discussions with a 'serious' prospective purchaser on 24/9/91". There is then a record of what Mr Wheeler is reported to have said about price and the state of negotiations. Mr Wheeler is also reported as saying that, should the forthcoming discussions not be conclusive, he was confident that he could obtain a 50% equity partner who would inject between $400,000 and $500,000 into the business. The file note continues: "Mr Chaston advised that time was of the essence and whilst the Bank would be prepared to allow a stay of proceedings until after the meeting, we would have to be convinced at that time that a successful sale can be achieved within an acceptable time frame to prevent us from appointing Receiver Manager." 62 The file note also contains the following paragraph: "Meeting concluded on the understanding that Mr Wheeler was to contact Mr Carmont immediately after discussions with prospective purchaser and the Bank will make a further decision at that time." 63 On 24 September 1991, Mr Chaston, the regional manager, prepared a memorandum which it appears was sent to the Barrack Street branch. He referred to the meeting on 23 September 1991 that was the subject of Ms Saar's file note just mentioned. Among the statements in Mr Chaston's memorandum are the following: "CBA's position was clearly put to the directors and it was emphasised that time for the company was running out quickly." "We have agreed to stay our hand for a few days only because the directors are going to meet a prospective purchaser of the business at 10.30 am 24 September 1991. According to director, Richard Wheeler, the prospective purchaser is 'cashed up' and the discussion will revolve around a purchase price of $1.25m. Wheeler is however, prepared to negotiate to $800,000!!" "If this deal evaporates, Wheeler claims to have someone else interested in a 50% acquisition for $400,000/$300,000." 64 Towards the end of the memorandum Mr Chaston recorded: "There is no doubt that issue of Demand has had a salutary effect on the directors who seem to be making every possible endeavour to sort out the mess they are in. I have reservations that they can bring off a sale in an acceptable timeframe. We will wait and see what happens over the next five days, say, but I believe we may be delaying the inevitable." 65 On 25 September 1991, Mr Carmont made a diary note of a telephone call received by him on that morning from Mr Wheeler to report the outcome of discussions held the previous afternoon and evening (24 September 1991) concerning possible sale of the business. In that diary note, the "prospective purchaser" is named as "Brian W Timms and his wife, who is principal shareholder in B.D.A. International Pty Limited a family company, which banks CBA Five Dock". The diary note continues: "Enquiries with manager (Greg Walker) and AML (Mike Hart) CBA Five Dock reveals that the connection is well and favourably known at the branch. Brian Timms is a computer consultant who has been engaged by our EDP Department over the past 6 years, and is well known to senior executives of the Bank. Five Dock branch executive is aware that Timms is looking to buy a business apparently for his wife. Only 3 weeks ago the branch was approached for a loan of $500,000 to set up a new agency for the importation of sports gear. In the absence of historical trading data the application was declined but referred to CDB for their consideration. Whilst Timms has not broached with the Bank the prospect of buying Artrona, he does have the necessary credibility to be given a serious hearing and would have sufficient freehold security to support borrowings of $1.25M. Naturally the branch would need to establish repayment capacity. We feel therefore that Wheeler is serious about selling the business and certainly has a credible prospective purchaser. Letter from Wheelers' solicitor Anthony Sunman & Co, is attached setting out basically what has been reported in this memorandum. He has been informed that agreement on the sale must be reached as a matter of urgency for the Bank not to proceed. To facilitate orderly and meaningful negotiations it is recommended that a stay of proceeding be granted to say 5 pm Monday 30 September. In the meantime account is being monitored daily and only essential cheques relating to production and distribution are being paid." 66 On 1 October 1991, Mr Carmont sent to Central Metropolitan Zone, Region E, a memorandum which began by setting out some matters of history relating to the Wheeler/Artrona connection and continued: "Further to our telephone conversation of 30/9/91 Kapeleris/Cheston. We attach copy of letter received from Mr Wheeler in respect to the proposed sale of his business (copy of letter faxed to your office 30/9/91). Mr Wheeler called by appointment to discuss content of letter referred to above with Manager, and according to Wheeler negotiations are progressing in a positive light, however under a different scenario than original advised. During discussions 24/9/91, Wheeler advised that proceedings had commenced to sell the business at a negotiable price of $1.25M (Wheeler was prepared to accept 800k). However, you will note from contents of letter received that a 50% equity sale is now being considered by B.D.A. International Pty Ltd for reasons outlined in the attached letter. According to Wheeler at this point in time a price has not been mentioned or set but he expects a minimum of 400k which will be utilised to repay CBA debt and condition some creditors. Wheeler was advised that time was of the essence and we would need solid evidence that sale can be achieved within an acceptable time frame. In this regard Wheeler mentioned that a further meeting is to be held this week with principals of B.D.A International to discuss formalities and sale price and expects to be in a position within 10 days to provide CBA with solid evidence of sale. It was once again pointed out to Wheeler that the position was critical and whilst hesitant Manager agreed to stay our hand for a maximum of 10 days. However, the latitude allowed on this occasion will not be permitted to continue and the Bank's recovery action will be reinstated to full effect. Matter is under constant daily follow-up and you will be kept informed of developments as they occur." 67 These documents in the possession of the bank at its Barrack Street branch show quite clearly that, by 18 September 1991, the bank had developed such a concern about the ability of Artrona and 2001 Interiors to trade out of plainly recognised and extreme financial difficulties that it considered it necessary or, at least, desirable, to make formal demand under facilities and securities and to convert floating charges into fixed charges preventing dealings with property by the corporate customers without the bank's consent. The policy of close monitoring referred to in the memorandum of 24 May 1991 part of which had been sent to the Five Dock branch had not produced improvement. On 20 September 1991, the bank was advised by Deloitte Touche Tohmatsu that a receiver and manager should be appointed in respect of the assets and undertakings of the companies, or that 21 days should be allowed to "organise the pay out of the Commonwealth Bank's security". By 24 September 2001, the regional manager, Mr Chaston, was of the view that, in light of the then recent investigation by Deloitte Touche Tohmatsu, there were only three options, viz, refinancing of the debt by an outside party, injection of capital and appointment of a receiver. 68 The bank's decision to "stay our hand for a few days", referred to in Mr Chaston's memorandum of 24 September 1991, was wholly attributable to the fact that Mr Wheeler was about to meet a "cashed up" prospective purchaser. The following day, Mr Carmont became aware that the prospective purchasers were Mr Timms and Mrs Timms. He made it his business to obtain from both Mr Walker and Mr Hart information about their financial substance. He did this on the day he was informed by Mr Wheeler of the identities of the prospective purchasers and at a time when, according to what Mr Walker and Mr Hart told him, Mr Timms and Mrs Timms had "not broached with the Bank the prospect of buying Artrona". Mr Carmont's diary note of 25 September 1991 shows that his purpose in obtaining information from the Five Dock branch was to enable him to come to a conclusion that potential purchasers identified by Mr Wheeler were likely to have the financial resources to make the purchase. Having reached a positive conclusion, Mr Carmont put to one side the plan to appoint a receiver and was content for Mr Wheeler to be allowed to pursue the sale possibility, provided that this was done quickly and with the tight financial controls placed by the bank on the Artrona business continuing. 69 This evidence leaves no doubt that, as at November-December 1991, the bank had actual knowledge that the businesses carried on by Artrona Pty Limited and 2001 Interiors Pty Limited were in a parlous financial state, in that revenues generated by those businesses were insufficient to cover outgoings even for basic essentials such as salaries and raw materials. The serious financial plight was not related solely to the companies that carried on those businesses. The companies were apparently under-capitalised. The Wheelers had, it appears, starved them of capital because of their need for funds to meet personal financial needs. But the situation was not one where businesses capable of holding their own financially were housed within companies from which excessive extractions were made. The objective information in the bank's possession as at November-December 1991 cannot be said to have borne out the statement in the 24 May 1991 memorandum extract that "the Artrona business is basically sound". The businesses themselves, viewed apart from the companies that owned and operated them, were not in any state of financial equilibrium that would have justified a view that they were "sound" or "profitable" or "viable". Based on the evidence of what was in the possession of the Barrack Street branch, there is no basis on which anyone with knowledge of that material could have held the view that the businesses were "sound", "profitable" or "viable". 70 I therefore find that the bank, as an organisation, did not, in November-December 1991, hold the opinion that the combined business of Artrona and 2001 Interiors was "sound" or "profitable" or "viable". The information in the possession of officers at Barrack Street and the Central Zone was entirely inconsistent with the holding by the bank of any positive opinion on those matters. 71 The state of the knowledge or opinion of the bank officers at Five Dock (being the only officers with whom Mr and Mrs Timms had relevant contact) is, of course, another matter. At all material times, the information about the business in the possession of Mr Walker and Mr Hart was confined to the Deloitte Ross Tohmatsu report of 21 November 1990 and the extract from the internal memorandum of 24 May 1991 (both forwarded by Ms Saar on 18 October 1991), the profit and loss accounts forwarded by Ms Saar on 4 November 1991 (these were the "management accounts", as distinct from the "statutory accounts", referred to below), the cash flow and "synopsis" created and provided by Mr Timms and whatever information had been provided orally. The documents provided by Ms Saar on 18 October 1991 would have alerted Mr Walker and Mr Hart to the difficulties the bank was having with the Artrona connection. But the Deloitte report was by then almost a year old and the memorandum extract was almost six months old. So far as those somewhat out of date sources were concerned, the "bottom line" to which Mr Walker and Mr Hart would have been expected to have regard is the statement in the internal memorandum extract that "the Artrona business is basically sound". The events of August-October 1991 reflected by the Barrack Street documents and central to the conclusion that, at Barrack Street and Central Zone levels, it must have known as at November-December 1991 that the business, as a business, was not "sound" or "profitable" or "viable" were not known to the officers at Five Dock. The information they received from Barrack Street did not deal with anything later than 24 May 1991. There was therefore no reason why they should not have subscribed to the "basically sound" opinion expressed in the extract from the internal memorandum of 24 May 1991. Steps taken by the Timms to assess the business 72 The Artrona business was the fifth identified by Mr and Mrs Timms for potential purchase in a period of about two years. The other four were, in chronological order of consideration, a business of importing knitwear and leather goods from South America, a protective floor covering business, a jewellery business known as "Danusha" and a business of importing and selling "Baleno" clothing. 73 The bank submits that evidence concerning these earlier possibilities shows that Mr Timms considered himself able to understand balance sheets and profit and loss accounts and of making his own judgments as to the viability of businesses. I accept that Mr Timms professed himself to have a certain degree of ability in that direction. But the fact remains that, in relation to the Danusha and Baleno possibilities, as well as the Artrona purchase itself, he saw fit to seek advice (both for himself and for Mrs Timms as co-purchaser) from Mr Rosenfeld. It is clear that Mr Timms did not consider himself to possess sufficient accounting expertise to make unaided the financial investigation he considered necessary in connection with the purchase of a business, particularly an existing business with a track record. It was for that reason that he engaged Mr Rosenfeld. Indeed, in a fax to Mr Golosky, the business broker, dated 27 September 1991, Mr Timms said that, before any commitment could be made, "we will need to have our accountant provide us with advice as to the financial viability of the business". 74 There is then the matter of Mr and Mrs Timms' enthusiasm to buy the Artrona business. There is no doubt that, as a result of their discussions with the Wheelers and their general assessment of the situation they became very keen on the idea of owning the Artrona business. By 1 November 1991, Mr Timms said, in a document sent to his solicitor, Mr Atkinson: "As it is our intention to buy the businesses operated by the above companies, not the companies themselves, we plan to form a new company (Company X) which will acquire the said businesses (but not their liabilities)." 75 An intention to buy had been formed by that point; but, of course, intentions can always be revised. It is also pertinent to quote Mr Atkinson's evidence (in his affidavit of 20 January 2000) of what he recalled Mr Timms saying in a telephone conversation on the same day: "Anastasia and I have decided to purchase a furniture business." "If you know how to manage one business you know how to manage any business. This is a million dollar business. It involves the manufacture and sale of the best, most prestigious leather furniture there is. It is top of the range." "We have got to know the principals of the vendor companies, Mr and Mrs Wheeler, over this time. We have become good friends with the Wheelers." "There are two problems with the business. First, although Mr Wheeler is a brilliant designer he is not a manager so the business has developed financial problems. Second, Mr Wheeler has attempted to expand the business by developing an export market but his attempts have been a failure because he has lacked sufficient capital. I am sure the business will grow and be successful if we retain Wheeler's services to work on design and to assist in developing the export market. I want Wheeler to be contracted to the company and to stay. I want him to be tied to the company." 76 It may be accepted that Mr and Mrs Timms were enthusiastic about the idea of becoming the owners of the Artrona business. But their enthusiasm cannot be regarded as so pervasive and all-consuming that it would have caused them not to act with reasonable prudence. 77 Mr and Mrs Timms made investigations of their own about the Artrona business. In the first place, they received and obviously read certain documents sent to them by Mr Golosky, being a one page description of the business, a second one page document (containing the name of the vendor, type of business, details of leases, takings, gross profit, adjusted net profit, directors' drawings and the purchase price), a draft consolidated profit and loss account of the Artrona companies for the year to 30 June 1991, a summary of the performance of the Gold Coast shop for the last three years and a graph of cash banked. In addition, Mr and Mrs Timms met on several occasions with the Wheelers to discuss matters relating to the business. A statement of the position Mr and Mrs Timms had reached by 27 September 1991 is set out in a fax sent by Mr Timms to Mr Golosky on that date: "As indicated to you the other day we are interested in looking further into the possibility of purchasing all or a portion of the abovementioned business Before we are able to make a firm commitment we will need to have our accountant provide us with advice as to the financial viability of the business. He, in turn will need access to appropriate finance records etc. Before we invite our accountant to examine the books, we think it appropriate to reach an understanding and informal agreement with the vendor as to the nature of our proposed participation in the business. Subsequent to our meeting with the vendors, Virginia and Richard Wheeler, there are some relevant observations which we wish to make. Firstly, it is clear that Richard's participation is key to the future growth of the company. Secondly, the company has great potential for growth in both the domestic and export market and therefore has the potential to move from being a small business to a medium scale corporation. Growth of this nature has inherent risk and the risk factor is exacerbated if most (if not all) of the decision making and responsibility is shouldered by one individual. If we wanted to adopt a 'steady as she goes' approach we would probably offer to buy 100% of the company and lock Richard into a management contract for 2 – 3 years. However, that is not our vision for the company, and we do not believe that it is the Wheeler's vision either. We see a five year period of tremendous growth as Artrona expands nationally and internationally. For this future to be realised, we see the need for a dynamic management team to provide the required leadership and develop the necessary business strategies. We believe that with the talent available from members of the Wheeler and Timms families and the synergy which appears to exist between the parties we have the people to make this happen. We would rather own 50% of a company with an annual revenue of say, $20m than 100% of a company with a revenue of $3m. What we are suggesting, therefore, is that we purchase 50% of the company and actively participate in the management of the affairs of the company. The advantages and disadvantages of partnerships are, I am sure, well known and understood by all of us. Mechanisms can be put into place which protect the interests of one party in the event of the other party wishing to sell its interest. The advantages of being able to take a holiday with the family without having to worry about the business are obvious. The details can be thrashed out at a later date. The main decision which the Wheeler family has to make now is whether they are interested in a proposal of this nature. We do not think that the business can reach its true potential unless we have an arrangement of this type. We are very excited at the prospect of being able to work together with the Wheelers and we hope that we can reach a satisfactory agreement." 78 Mrs Timms said in her affidavit of 5 July 1999 that she agreed with and adopted the contents of this fax. In cross-examination during the hearing before me, Mrs Timms said that Mr Timms showed her the letter of 27 September 1991 before sending it. She also said in that cross-examination that she had not, in September 1991, considered expanding the business, thus contradicting what she had said in her 1999 affidavit. She sought to blame her previous solicitor for poor drafting to the affidavit. I find that unconvincing. I am satisfied that the letter of 27 September 1991 reflects an accurate portrayal of the attitudes of both Mr Timms and Mrs Timms as they existed at that time. The document also confirms that Mr Timms and Mrs Timms had undertaken investigations and given thought to the state of the business and its potential for growth. 79 Mr Timms prepared two documents to give to the bank in connection with the loan application. They are the "projected cash flow for period 1/11/91 – 31/10/92" and the accompanying "synopsis" to which brief reference has already been made. Mr Timms' evidence was that he prepared the cash flow in consultation with Mr Wheeler. It set out, for each month from November 1991 to October 1992, items of income in one aggregate line marked "Total inflow" and items of expenditure under some 23 subheadings under the heading "Cash outflows". There was a separate page with some short explanatory notes. The "synopsis" document was prepared by Mr Timms. It should be quoted in full: "The Artrona group of companies which were founded by the vendors, Richard and Virginia Wheeler, have been successfully involved in the manufacture and retailing of top quality leather lounge furniture in Australia for over twenty years. In recent years, Artrona has exported its products to many countries including Hong Kong, Japan, Singapore and Taiwan. Artrona operates a manufacturing facility in Brookvale and retail showrooms in Crows Nest and on the Gold Coast. Apart from past export activities, Artrona operates as a vertical manufacturer/retailer and does not engage in wholesaleing. Artrona has a history of steady revenue growth in spite of the current and previous recessions in Australia and enjoys an excellent reputation with its bankers, CBA Barrack Street. In the last five years revenue has grown 42%, from $2,289,301 in 1987 to $3,254,829 in 1991. A 5% revenue decline in 1989 (from $2,709,698 to $2,573,919) was due to executive management attention being focussed on export business to the detriment of domestic issues. Should export business be pursued in future, the aforementioned situation will not be repeated due to the addition to the existing management team (Richard and Virginia Wheeler) of two extra working directors (ie. Anastasia and Brian Timms). The business is offered for sale for $1,250,000 as follows: $160,000 – Fixtures and fittings & machinery $700,000 - Stock $ 40,000 – Sundry assets (leases, air cond plant etc.) $350,000 – Goodwill. Nevertheless, we have negotiated a deal which effectively values the business at $1,000,000 and locks in the Wheelers as part owners and working directors! The basics of the deal are as follows: · We purchase 90% of the business for $900,000. · The Wheelers agree to re-purchase 20% of the shares within 12 months and to re-purchase a further 20% within the next 4 years bringing their total holding to 50% within 5 years. · The Wheelers will work with the Timms' in the management of the business. Apart from showroom stock, no finished stock is held pending sale. Furniture is not manufactured until an order has been received. A majority of orders are accompanied by a 50% deposit, thereby creating an excellent on-going source of working capital. Net profit for 1991 was $437,993 after allowance of $80,000 for Director's fees. The Wheelers have agreed to work for an annual management fee of $80,000 plus a share of profits in line with their shareholding. Expense savings of around $100,000 pa can be readily achieved by, firstly relocating the factory and reducing the rent (this has recently been done) and, secondly by reducing the management overhead in the factory by utilising the additional executive management manpower. The conclusion, therefore, is that a net profit before tax of over $500,000 (based on 1991 turnover with no allowance for revenue growth) is very realistic and achievable. The potential for the business is unlimited and it is planned to achieve revenue growth by a number of means. Firstly, we plan to set aside some profits to fund the establishment of additional retail stores in Australia. It is envisaged that, over time, we will be operating a retail store in all large capital cities. Secondly, we plan to introduce into the stores a range of accessories (coffee tables, rugs etc.) which naturally complement the furniture. Thirdly, we plan to move overseas by the establishment of direct retail outlets either on a wholly-owned or joint venture basis." 80 Mr Timms was asked in cross-examination in both trials where he had obtained the various figures in the synopsis about past financial performance. At the first trial, his answer, as the question was put to him about each figure in succession, was that he did not know or did not recall how he had obtained it. After a series of questions was answered in that way and it was clear that the figures in the synopsis corresponded with those in the "management accounts" (see paragraph [85] below), Mr Timms was asked whether he could explain why they were the same. He said that he could: "I got the figures either from my accountant Mr Rosenfeld or from the vendor Mr Wheeler." 81 Subsequently, the following question was asked and the answer given: "Q. Do you actually remember receiving that information from anybody? A. I remember getting it from somebody but, as have been saying, I don't remember exactly who." 82 By the time of the hearing before me, Mr Timms professed to have recaptured a quite detailed recollection of how he obtained the figures he put into the synopsis: "Q. Do you accept that those figures are sourced in the various management accounts relating to the business? A. I accept that they are the same as the figures in the management accounts. Q. Can you tell the court please where the figure $3,254,829 referred to on page 468 at the letter K came from? A. Yes, I can. Q. You remember where it came from? A. Yes, I have turned to my mind to it since. Q. Do you agree that when the matter was first being heard, you couldn't remember where the figures came from? A. I think I said, when it was first heard, that it was Mr Wheeler and/or Mr Rosenfeld and I wasn't certain who. Q. You are now certain who it was or where it came from? A. Yes, I am. Q. Where did that figure come from? A. Mr Wheeler. Q. Mr Wheeler? A. Correct. Q. What made you remember now, when in fact you couldn't remember when the matter was first being heard in this Court? A. Because since the first matter and since you brought it up, I had occasion to turn my mind to when I got those numbers or who I got those numbers from and I recall that I developed both the cashflow with Mr Wheeler and at the same time I was preparing the synopsis and I was struggling to make a synopsis more than a page, because most of the information about the business had already been provided in the Golosky document. So what I seized on was from the Golosky document the fact that there had been an increase in the revenue over the years and I thought the logical thing for me to do is to expand on that a bit. So then I asked Mr Wheeler what the turnover figures were over the last five years. I included those in the document and I noted that in one particular year there was a revenue decline. I asked him on the spot what the reason for that was and I included that in my synopsis. Q. This is something you have remembered since the last hearing? A. Yes, correct. Q. Can you tell me, when you spoke to Mr Wheeler about that, did you simply ask him what the turnover was in the various years? A. Yes, because that was what I was focussing on, the growth and revenue. Q. And did you simply say to him, Mr Wheeler or Richard, whatever you called him: What was the turnover for 1987? A. No. I said, "Can you give me the turnover figures for the last five years?" Q. And he did, did he? A. Yes, he did. Q. Did he dictate them to you or tell you orally and you jotted them down? A. I jotted them down because he had to ring me and tell me, because he didn't have the figures with him on the day. He was working with me to produce the cashflow. He was at my house. I asked him the question then and he obviously didn't have the numbers with him. Q. And he subsequently telephoned you with the numbers, did he? A. Yes, that's correct." 83 The extent of the purported recall in this extract is quite remarkable when compared with the recall reported in cross examination at the first trial. Mr Timms said in 2003 that he recalled not only that it was Mr Wheeler, rather than Mr Rosenfeld, who had given him the figures but also details of the actual process he previously said he could not recall. He said he asked Mr Wheeler for the figures when the two of them were at Mr Timms' home preparing the cash flow document. Mr Timms asked Mr Wheeler "on the spot" for information he apparently needed for his synopsis document which, by implication, he was preparing at the same time. Mr Wheeler did not have the relevant figures with him at the time. Mr Wheeler subsequently telephoned Mr Timms and gave him the figures over the phone and Mr Timms jotted them down. 84 The detailed nature of this recollection supposedly recaptured almost twelve years after the event is, as I have said, remarkable. It stands in stark contrast to the evidence given at the first trial on the same subject. The significant discrepancy between the two accounts shows, in my opinion, that the version of relevant events given in 2003 was a product of reconstruction. I quote, in that connection, an observation of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 which I consider to be particularly apposite: "[H]uman memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience. Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is 'not ... attained or established independently of the nature and consequence of the fact or facts to be proved' including the 'seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding': Helton v Allen (1940) 63 CLR 691 at 712." 85 I have referred briefly already to the "management accounts". It should be explained, at this point, that there existed, at material times, two separate sets of accounts of the two companies for certain years, one referred to as "management accounts" and the other as "statutory accounts" or "tax accounts". The former painted a more favourable picture of financial performance than the latter. It seems to be common ground that, in early October 1991, Mr Rosenfeld received from Mr Wheeler the management accounts for the years ended 30 June 1989, 30 June 1990 and 30 June 1991. Those accounts were delivered by Mr Wheeler direct to Mr Rosenfeld at the request of, and by arrangement with, Mr Timms. The management accounts showed the following profits and losses: Year ended Artrona 2001 Interiors Consolidated 30 June 1987 ($ 11,063) $ 95,979 $ 84,916 30 June 1988 ($ 84,253) $ 38,786 ($45,467) 30 June 1989 ($257,889) $372,317 $114,428 30 June 1990 ($ 74,785) $274,769 $199,984 30 June 1991 $ 79,408 $303,914 $383,322 86 Mr Timms and Mrs Timms met with Mr Rosenfeld at his office on 8 October 1991. Accounts of what happened differ but are consistent to the extent that there was a decision that steps should be taken to obtain the tax accounts of the companies. On 4 November 1991, Mr Wheeler delivered to Mr Rosenfeld's office what Mr Rosenfeld called "the Purported 1991 Statutory Accounts". These contained figures for the years ended 30 June 1990 and 30 June 1991. They showed that Artrona made a net operating loss of $115,742 for 1990 and a net operating profit of $720 for 1991, and that 2001 Interiors made net operating profits of $19,861 and $174,083 during 1990 and 1991 respectively. The corresponding figures set out in the management accounts were a loss of $74,785 for 1990 and a profit of $79,408 for 1991 for Artrona and net operating profits of $274,769 for 1990 and $303,194 for 1991 for 2001 Interiors. 87 An issue concerning the accounts received by Mr Rosenfeld from Mr Wheeler requiring examination involves the extent to which Mr Timms became aware of their content. Mr Timms' evidence about the source of the figures he put into the synopsis (which corresponded with those in the management accounts) has already been mentioned: he said he obtained the figures indirectly, in the sense that he did not see the management accounts themselves. It is relevant to note, however, that there was in this area also a change in Mr Timms' evidence. In his affidavit of 5 July 1999, Mr Timms made two references to having had possession of the management accounts. The first reference was to the effect that the management accounts were among the documents Mr Timms received from Mr Golosky and delivered to Mr Rosenfeld. The second was in a passage referring to failure of the businesses, subsequent to the purchase, to perform according to Mr Timms' expectations based on the sales figures given to him in specified documents, including "the financial statements of the vendors for the year ended 30 June 1991". In his affidavit of 8 March 2001, Mr Timms said that he was mistaken when he deposed on 5 July 1999 that he had delivered the specified documents to Mr Rosenfeld. He did not, however, attempt to correct the second aspect until he was cross-examined in the first trial: "Q. Well, would you agree that a fair reading of your affidavit would suggest that you did have the financial statements certainly as at around March 1992? A. Yes, I would. Q. You did check this affidavit before you swore it, didn't you? A. Yes I did. Q. … I want to suggest to you that you did in fact have the financial statements of the vendors for the year ended June 1919 [sic; should be 1991] certainly as at March 1992? A. No, I definitely did not Q. How do you explain the contents of paragraph 103 subparagraph 2? A. Well, I am clearly mistaken. HIS HONOUR: Q. In what are you mistaken? A. In saying that is based on figures given to me in the financial statements for the vendors for the year 30 June 1991." 88 The change in Mr Timms' evidence – and, in particular, its two-stage nature – tells against the reliability of the position he ultimately adopted. The impression that Mr Timms did have the management accounts is reinforced by the existence of a copy of the management accounts on which there appear in his hand amounts derived from the statutory accounts. Mr Timms said in evidence that he annotated the management accounts in this way in late 1993 or 1994 after he had come by a copy following the collapse of the Artrona business. But he could offer no explanation, beyond being "just curious", as to why he would have spent time in such an exercise at that time. He conceded that there was, at that point, no benefit in doing so and no reason to do so. This, added to Mr Rosenfeld's evidence that he had suggested to Mr Timms that he undertake a reconciliation of the statutory accounts and the management accounts (something that Mr Timms denies) leads me to conclude that both series of accounts – statutory and management – were in Mr Timms' possession at the time when he and Mrs Timms were considering the purchase of the Artrona business. 89 The final point to mention in relation to pre-purchase investigations by Mr Timms and Mrs Timms is that they retained Mr Rosenfeld to advise them. There are differences between the Timms parties and Mr Rosenfeld as to the scope and content of the retainer. These will be examined in due course. So far as the claims against the bank are concerned, the significant point is that Mr Rosenfeld was retained in an advisory capacity and that Mr Timms and Mrs Timms made this known to the bank. Indeed, Mr Rosenfeld was eventually cast by the bank itself in a central role in the events relevant to the "certification claim". The 26 November 1991 meeting – evidence and findings 90 The central element of the plaintiffs' "good business claim", to the extent that it is based on representations allegedly made at the meeting of 26 November 1991, is pleaded as follows in the third amended statement of claim: "23A. On 26 November 1991 the plaintiffs requested advice from the First Defendant as follows:- (a) Why the First Defendant was refusing the loan? (b) Whether the First Defendant was of the opinion that the business was a bad business. Particulars The advice was requested by the First Plaintiff and the Second Plaintiff (on behalf of themselves and on behalf of the Third and Fourth Plaintiffs) at the Five Dock Branch of the First Defendant on 26 November 1991 in conversations with Mr Michael Hart, Loans Officer, and Mr Gregory Walker, Manager of that Branch ('the Second Meeting'). 23B. In response to the request referred to in the preceding paragraph the First Defendant:- (a) Represented to the Plaintiffs that:- (i) The business was viable; (ii) The business was profitable; (iii) The business was good. ('The Subsequent Representations') (b) Advised the Plaintiffs that the business was a good business ('the Subsequent Advice') Particulars The Subsequent Representations were made and the Subsequent Advice was given orally to the First Plaintiff and to the Second Plaintiff (on behalf of themselves and on behalf of the Third and Fourth Plaintiffs) by Mr Gregory Walker and/or Mr Michael Hart at the Five Dock Branch of the First Defendants at the Second Meeting." 91 The meeting of 26 November 1991 was arranged by Mr Hart. It was the third meeting that Mr Timms and Mrs Timms had had at the Five Dock branch in relation to the Artrona acquisition proposal. Mr Timms and Mrs Timms went to the Five Dock branch on 26 November 1991 at Mr Hart's request and met with Mr Hart and Mr Walker. At the start of the meeting, they were given the letter stating that the loan had been refused. It is necessary to set out the various versions of what then happened. 92 According to Mr Timms in his affidavit of 5 July 1999, the ensuing conversation took place: "BT: So what does this mean? AT: Are you refusing the loan because it is a bad business? MH: No, the Bank just wants a few extra things covered. I'm sure we can get you an approval. AT: If you are telling us that it is a bad business, then we won't buy it and we don't want the money. MH: We know it's a good business All we have to do is write to the Zone and I'm confident that we can get the loan approved. GW: This is crazy, we know that it is a good business. Michael put in an excellent application. We'll just write to them and the loan should be okay. BT: I'm not happy about having to pay another fee. MH: Don't worry, I'm sure that we can sort something out. GW: We just need a bit of extra information to get this loan approved. I don't think it will be a problem. BT: But what do you want me to do? MH: All we need is a letter from you just to cover the points in our letter and we will resubmit the application. BT: OK, I'll get it to you in the next few days." 93 The version in Mr Timms' affidavit of 15 May 2003 is: "I cannot now recall the exact sequence and words used at the meeting but I can recall: (1) me saying, in respect of the letter, words to the effect of 'What does this mean, are you refusing the loan?' and to which Mr Hart responded 'We are not refusing the loan, its just we need some additional information'. (2) Mr Walker saying 'Michael put in an excellent application'. (3) Both Mr Walker and Mr Hart saying at separate times words to the effect of 'It's no big deal. We just need some extra information and we'll get the loan approved'. (4) Mr Walker saying 'You're getting a good deal' in reference to our purchase of the business. (5) Mr Hart saying 'You're getting a good deal' in reference to our purchase of the business. (6) Anastasia saying words to the effect of 'If what you're saying is that the business is not good, we won't buy it' and to which either Mr Walker or Mr Hart, although I cannot presently recall who, saying words to the effect of 'No, no, it's a good business'. (7) Either Mr Walker or Mr Hart, although I cannot presently recall who, saying words to the effect of 'It's a profitable business'. (8) Either Mr Walker or Mr Hart, although I cannot presently recall who, saying on two occasions during the meeting 'It's a good business'." 94 Mrs Timms' Account in her affidavit of 5 July 1999 is: "Brian and I read the letter and thereafter the following conversation took place: BT: So what is this all about? AT: Are you refusing the loan because it is a bad business? MH: No, the bank just wants a few extra things. Once that's done, I'm sure we can get the loan approved. AT: If you are sitting here telling us that it is a bad business and that's why the loan has been refused, then we stop here and we won't buy the business. We don't want the money. MH: We know it's a good business. The bank just need a few extra things. Once those are ticked off, we will write to the Zone and I'm confident that we can get the loan approved. GW: This is crazy, we know that it's a good business. Michael put in an excellent application. We just need a bit of extra information to get this loan approved. We don't think it will be a problem. We'll just write to them and the loan should be okay. BT: What do you want me to do? MH: All we need is a letter from you just to cover the points in our letter and we will resubmit the application. BT: Okay, I'll get it to you in the next few days." 95 The account in Mrs Timms' affidavit of 15 May 2003 is: "After Brian read the letter referred to in paragraph 64 of my earlier affidavit he looked upset and, to the best of my present recollection, I then said to him: AT: What's the matter, what's the problem? BT: They have refused the loan. Brian then handed me the letter and I read it. I cannot now remember if I was the next person to speak, but I then said words to the following effect: AT: If you are refusing the loan because it's a bad business, we stop right here, we don't want the loan. GW: This is really silly because we know that it is a good business. I cannot now be certain, but I believe Mr Walker than said words to the effect of GW: We know it is viable and profitable. BT: What does this mean then? I cannot now recall whom of Mr Walker or Mr Hart responded, but one of them stated MH or GW: The Zone needs additional information. MH: I can't understand why they knocked it back, we know it is a good business. BT: What is the additional information needed? Both GW/MH then referred to the dot points in the letter and one of them, although I cannot presently recall who, said: GW or MH: That's what they need, just go through the dot points in the letter. AT: Well, if you are sure it is not because this is a bad business? I cannot presently recall who of Mr Walker or Mr Hart responded but, to the best of my recollection, the response of one of them was MH or GW: It is not a bad business, it is viable and profitable. GW: I am disappointed. Michael put in such an effort in making the application. GW or MH: Once the dot points are covered, we are sure the loan will be approved. We know that it is a good business." 96 Mrs Timms referred to the matter in cross-examination at the first trial as follows: "Q. You say Mr Hart had told you that he would tell you everything about the business that he could find out? A. Yes. Q. You also say that this meeting of 26 November, Mr. Hart had told you and so did Mr. Walker that this was a good business? A. On 26 November. Q. On 26 November? A. They told us the bank declined the loan. Q. Did they tell you on 26 November that it was a good business? A. Yes, they said they knew it to be a good business. Q. Well then Mr. Hart and Mr. Walker having said that to you and Mr. Hart having earlier said to you that he would tell you everything about the business, and Mr. Hart having also told you that the business was profitable, viable and a good business, you must have been very upset with the bank when you found that the business wasn't performing as well as you had expected? A. I was very upset, yes." 97 The evidence given by Mrs Timms in cross-examination before me was different again. She said that her 1999 affidavit was deficient in not attributing to Mr Walker the "viable" and "profitable" representations as well as the "good" representation in the context of the 26 November 2001 meeting: "Q. Is this your evidence? Please tell me if I have got it wrong, but is this your evidence, that where in your affidavit of 5 July 1999, in paragraph 64 on page 16, against the L, where Mr Walker is said to have said the words, 'This is crazy; we know it's a good business; Michael put in an excellent application', you now recall that what Mr Walker said was, 'This is crazy; we know that it's a good, viable and profitable business; Michael put in an excellent application'? A. Yes." 98 Mr Walker referred to the meeting of 26 November 1991 in affidavits of 29 October 1999, 28 February 2001 and 19 June 2003. The substance of what Mr Walker said in the first two affidavits, prepared for the purposes of the first trial, is accurately summarised in the following passage in the bank's written submissions (omitting footnotes): "In his affidavits sworn on 28 October 1999 and 28 February 2001, Mr Walker also denies the conversation as alleged by B and A Timms. He accepts, however, that: (a) A Timms may have said ' so what does this mean' and 'what is wrong? Why have they refused the application? ' (b) Mr Hart or Mr Walker may have said: ' There are a few extra things that need to be covered. There is further information that is required in order that we can investigate the proposal more thoroughly'. (c) B Timms may have said that he was not happy about having to pay another fee and that Mr Hart may have responded by saying: ' Don't worry, I am sure we can sort something out.' (d) B Timms may well have said words to the effect ' What do you want me to do' and that either Mr Hart or Mr Walker said words to the effect: " All we need is a letter from you to cover the points in our letter and we will resubmit the application '. (e) Mr Timms said words to the effect: ' Okay, I'll get it to you in the next few days' . Mr Walker also recalled that during the meeting, B Timms said words to the effect: 'From our discussions with the Wheelers, we are aware that the servicing of their personal borrowings have been made from Artrona's resources and created a strain on the company's performance.' B Timms denies saying this." 99 Oral evidence given by Mr Walker at the first trial included the following: "Q. You thought the acquisition by the Timms of the Artrona business was a good deal, correct? A. We thought that the business was viable. Q. And you said so? A. Yes. Q. And you no doubt thought it was profitable, as you have already told me? A. Yes. Q. And no doubt you said so to the Timms as well? A. Yes. Q. And you though the Artrona companies had a good business, correct? A. Yes. Q. And again no doubt you said so to the Timms, yes? A. On the information that had been provided to us, yes." 100 In his affidavit of 12 June 2003, Mr Walker deposed that he did not recall Mr Timms or Mrs Timms asking him or Mr Hart for advice on whether they should buy the business, nor did he have a recollection of having made the statements about the state of the business deposed to by Mr Timms and Mrs Timms in their affidavits of 15 May 2003. As to the oral evidence he gave in the first trial, Mr Walker said: "I recall giving evidence in this Court in March 2001 concerning the meeting referred to by Mrs Timms. I am aware that in the course of giving that evidence, I had said words to the effect that I had told Mr. & Mrs. Timms on that occasion that the business they were proposing to buy was viable, profitable and that it was a good business. I have in fact no actual recollection of saying those things to Mr. & Mrs. Timms at that meeting; rather they are matters I might have said, because it was my opinion, based on the information contained in the submission, that the business was in fact viable, profitable and that it was a good business." 101 Mr Walker was closely cross-examined on his 12 June 2003 affidavit. In the end, he conceded that "I might have said" was a poor choice of words and that it was "likely" – or "more likely than not" – that he said that the business was good, profitable and viable. 102 The fourth person present at the meeting was Mr Hart. In his affidavit sworn on 27 October 1999, Mr Hart denied that conversations described by Mr Timms and Mrs Timms in their affidavits of 5 July 1999 took place. In his affidavit of 12 June 2003, Mr Hart denied the revised versions of the conversations deposed to by Mr Timms and Mrs Timms. In particular, he said he had no recollection of either Mr Walker or himself saying words to the effect that the business was a good business or that it was viable or profitable and positively denied that either he or Mr Walker responded to Mrs Timms, "It is not a bad business, it is viable and profitable"; and "It is a good business". He also denies like parts of Mr Timms' affidavit evidence. Mr Hart made a file note of the meeting (see paragraph [25] above). There is no reference in it to any such thing having been said by him or by Mr Walker. 103 On the question whether representations using one or more of the words "good", "profitable" and "viable" were made by one or both of the bank officers on 26 November 1991, the evidence may be summarised as follows: 1. Mr Timms, in his 1999 affidavit, attributed a "good business' representation to Mr Hart and a subsequent "good business" representation to Mr Walker; but he did not attribute a "profitable" or "viable" representation to either of them. Then, in his 2003 affidavit, Mr Timms attributed both a "good business" and a "profitable business" representation to Mr Walker or Mr Hart without being able to say which of them had made it. 2. Mrs Timms, in her 1999 affidavit, attributed a "good business" representation to each of Mr Hart and Mr Walker in that order. In her 2003 affidavit, she attributed to Mr Walker a "good business" representation and deposed that either Mr Walker or Mr Hart (she could not remember which) said, "It is not a bad business, it is viable and profitable". In cross-examination before me, she attributed the composite "good, viable and profitable" representation to Mr Walker to the exclusion of Mr Hart. 3. Mr Walker said in cross-examination at the first trial that he made representations at the meeting to the effect that the business was "good" and "profitable" and "viable". He said on that occasion that he believed the business to be good, profitable and viable. Mr Walker's 2003 affidavit sought to qualify what he had previously said by saying that he had no actual recollection of making the representations, but "might have" made them – a position which, under cross-examination, became that it was "likely" or "more likely than not" that he had made them. He maintained throughout that such representations were consistent with the view he actually held of the business, based on the information he had. So far as information available within the bank through the Barrack Street branch was concerned, Mr Walker had only the small portion that had been given by Ms Saar to Mr Hart. 4. Mr Hart denied the making of any "good", "viable" or "profitable" representation by himself and Mr Walker. 104 The bank emphasised, in submissions, that the allegations of "good", "viable" and "profitable" representations were fully pleaded only by amendment made in the course of the trial before me. The suggestion is that the case was re-shaped, as was the evidence of Mr Timms and Mrs Timms, as a deliberate reaction to Mr Walker's evidence at the first trial; also that if Mr Timms and Mrs Timms had actually held, independently of what Mr Walker said at the first trial, the recollections they put into their 2003 affidavits, they would have included them in that form in their 1999 affidavits. The submission is that Mr Timms and Mrs Timms engaged in "brazen opportunistic fabrication". 105 Against this, it is to be noted that the original statement of claim did contain allegations of a representation that the business was viable and profitable: indeed, the words "good", "viable" and "profitable" were all pleaded, although attributed to Mr Hart, rather than Mr Walker, and in the context of the early November 1991 meeting, not the meeting of 26 November 1991. 106 Mr Timms was cross-examined about how he came to give in his 2003 affidavit a version of the 26 November 1991 meeting differing from that in his 1999 affidavit. He said that he had provided the later affidavit because his new solicitor told him it was needed. The following extract from the relevant part of the cross-examination reflects the substance of his evidence: "Q. Mr Timms, can you now tell his Honour what it is that triggered your recollection or your renewed recollection of what was said at the meeting of 26 November? A. I think you have already asked me that question and I think my answer was that I was asked by my solicitor to recall what occurred at that meeting, as I remembered, as of this point in time. Q. Why didn't you say to him: I have already put everything I can remember in paragraph 73 of my earlier affidavit? A. Because Mr Rofe is my solicitor and he is handling my case and if he asks me to do something, then I do it. Q. The fact is, is it not, that you have produced this affidavit in order to fit your evidence into, or to align it with, the evidence given at the first trial by certain bank witnesses. Isn't that correct? A. I wouldn't know whether that was correct or incorrect. But all I can tell you is to repeat what I said before and that is that I was asked to recall the conversation that occurred on 26 November on 15 May, at the request of my solicitor, and I did so. Q. Well, your evidence then is this, is it, there was nothing that you can specifically remember that triggered a different recollection as at 15 May 2003 from the recollection you had in July 1999? A. That's correct, yes." 107 Mrs Timms was also asked how she came to realize that her 1999 affidavit was deficient in the way it dealt with these alleged representations: "Q. Mrs Timms, you did swear another affidavit, didn't you, in May 2003? A. May 2003? Q. Yes, last month? A. I think so, yes. Q. Before I go on to that, what made you remember that Mr Walker said the words 'viable and profitable' before the word 'business' at the place you indicated? A. I cast my mind back and I remembered him saying those words. Q. What made you cast your mind back? A. I have cast my mind back to many conversations regarding this business, a myriad of times, in these last 11 years that I have been living with this. Q. Did your recollection, as a result of casting your mind back, have anything to do with the evidence given by a certain bank witness before Justice Young? A. Mr Forster, both-- Q. I think you can probably answer that yes or no, Mrs Timms, please, if you can? A. Yes. Q. Is it because you have become aware that Mr Walker gave evidence on the last occasion, where he said something to the effect that the business was a good business or a viable business or a profitable business? A. No. Q. Are you aware that such evidence was given on the last occasion? A. Yes, I am. Q. Did that awareness, on your part, have anything to do with your recollection that something to that effect was said? A. No. Q. Purely a coincidence, is it, that your recollection about the use of the words 'viable and profitable', happens to coincide with the evidence given by bank witnesses? A. No. I read my affidavit carefully and cast my mind back and realised that those two words were omitted from that paragraph and that's why those two words were inserted. Q. You say the reason why those two words did not appear in there previously was because your previous solicitor had omitted them, despite your instructions, and that you simply did not pick it up? A. It's quite possible, yes. I mean, I know that both bank officers told us that the business was good, viable and profitable. Q. You say you know now, do you? A. No, I have always known it. Not now, I have always known it. Q. You say that at that meeting on 26 November Mr Walker used the phrase, 'It's a good, viable and profitable business'. Is that the phrase he used? A. Yes. Q. You are quite clear on that? A. Yes. Q. In that order, 'It's a good, viable and profitable business'. Is that what he said? A. As far as I recall. He might have said, 'It's a good, profitable and viable business', or 'It's a profitable, viable and good business', but he certainly - the order of the words may not be the same, but he certainly used those three words. Q. In the same sentence, describing the business? A. Yes." 108 After being taken to her 2003 affidavit, Mrs Timms was cross-examined as follows: "Q. The two accounts that you give of what occurred on 26 November, as contained in paragraph 64 of your first affidavit, and as compared to what is contained in your affidavit of 15 May 2003, are different, aren't they? A. Well, I think in essence they are the same. I mean-- Q. You would not agree that they are different? A. They are phrased differently, but the essence of the message that's in there, to my way of thinking is the same. It's similar. I mean, representations were made to us by one or the other. Whether Mr Walker said it is a good, profitable or viable business in one sentence or whether he said it in two sentences, you know, I can't see what possible difference that could make. Q. Mrs Timms, you told his Honour a little while ago that you were quite clear in your recollection that Mr Walker said, 'This is crazy; we know that it's a good, viable and profitable business' or 'good, profitable and viable business' or some other combination of those three adjectives all in the one sentence. You did say that, didn't you? A. Yes, I did, I did indeed, but whether, I mean, we are talking about setting out something here which can be put in one sentence or can be put in two sentences. I mean, aren't we talking about semantics? Isn't this a bit pedantic? That's what the man said. That's what I said he said. Whether he said it in one sentence or whether he said it in two sentences, does that make a big difference, your Honour? Q. Mr Timms, you do not recall Mr Walker saying anything to the effect that the business was good or viable or profitable, do you? A. Yes, Mr Forster, I do recall Mr Walker saying that the business was good; I do recall Mr Walker saying that the business was viable and I do recall Mr Walker saying the business was profitable. Q. And it is the case, isn't it, that the affidavit that you swore on 15 May 2003 was only an attempt by you to take advantage of evidence you heard one of the bank officers give; that is right, isn't it? A. No, it is not right at all." And later: "Q. Could I ask you please to go to paragraph 8 your affidavit of 15 May? Do you see that you have said in that affidavit these words, 'I then said: Well, if you are sure—' A. Sorry, which paragraph are you reading? Q. Paragraph 8: 'I then said, well, if you are sure this is not because this is a bad business; I cannot presently recall who of Mr Walker or Mr Hart responded, but to the best of my recollection the response of one of them was, "It's not a bad business. It's viable and profitable."' Do you see that? A. Yes. Q. Were you wishing to convey, when swearing that paragraph of your affidavit of 15 May 2003, that either Mr Walker or Mr Hart, you cannot recall which, said words to the effect of: 'It is not a bad business. It's viable and profitable'. Do you see that? A. Yes. Q. Do you tell his Honour that you recall now that it wasn't Mr Hart who said that? A. Well, I can't recall, I have said this before, I can't recall whether it was Mr Hart or Mr Walker who said what at what meetings, but they both made these representations to us. Either one or the other told us that it was a good, viable and profitable business, that the bank knew it to be a good, viable and profitable business. Q. And you keep saying that, don't you, over and over again? A. Yes, I do, because that's what they told us. Q. I want to suggest to you that neither of those two gentlemen said that to you; do you agree? A. I strongly disagree." 109 In the light of the evidence given by the four witnesses as to what transpired at the meeting of 26 November 1991, I decline to make a finding that either Mr Timms or Mrs Timms heard either Mr Walker or Mr Hart make any of the "good business", "viable business" and "profitable business" representations at that meeting. It is inherently improbable that the more comprehensive version of what happened, as recorded in the 2003 affidavits of Mr Timms and Mrs Timms (and, in Mrs Timms' case, as varied in 2003 cross-examination), was the product of some new and independent recollection that arose in some spontaneous fashion between 2001 and 2003. Logic would say that, without some form of prompting or new stimulus, actual recollections of what happened in November 1991 would become less clear between 1999 (or 2001) and 2003, rather than that they would become sharper and more detailed. The passage of time in circumstances where people continue to dwell on matters of conflict that are important to them also has the capacity to make them think that they can remember things in a form they would prefer, rather than as they actually happened. The observation of McLelland CJ in Eq in Watson v Foxman (above) which I have already quoted is also apposite here. 110 The apparent parting of the mists that allowed both Mr Timms and Mrs Timms to regain spontaneously in 2003 a memory of all three representations being made on 26 November 1991 (and, in Mrs Timms' case, an eventual recollection that it was Mr Walker, not Mr Hart, who made them) can only have been prompted by what Mr Walker said at the first trial. Before that it was, according to Mr Timms and Mrs Timms, Mr Hart alone who made relevant statements and those statements were confined to the "good business" matter. Mr Hart, of course, has denied throughout saying anything to that effect. Mr Walker, on the other hand, gave evidence at the first trial that, as to the matters in question, was advantageous to Mr Timms and Mrs Timms. I am satisfied that, in giving the supplementary evidence in their 2003 affidavits and cross-examination and amending their statement of claim to attribute the "good business", "viable business" and "profitable business" representations to the 26 November 1991 meeting, each of Mr Timms and Mrs Timms was, consciously or unconsciously, reconstructing a recollection of what had actually happened almost twelve years earlier; and that it was Mr Walker's evidence in 2001 that was the catalyst in that process of reconstruction. 111 Mr Hart's evidence has been consistent throughout the various stages of the proceedings. So far as the 26 November 1991 meeting is concerned, he has never moved from the position that neither he nor Mr Walker said that the business was "good", "viable" or "profitable". 112 There is then the question of what to make of Mr Walker's evidence. The passage of cross-examination in the first trial quoted at paragraph [99] above elicited from Mr Walker's statements that, on the information he had, he considered the business to be profitable and viable and to be a good business and that, as to each, he had "said so" to Mr Timms and Mrs Timms. In his subsequent affidavits, Mr Walker sought to qualify his earlier testimony, first by saying that he "might" have made the relevant statements at the 26 November 1991 meeting and eventually by agreeing that it was "likely" that he had made them – indeed, "more likely than not". This is because the making of the statements would have been consistent with the views he held. 113 In assessing Mr Walker's evidence, it is necessary to bear in mind the materials that he had seen before 26 November 1991. He identified these in cross-examination before me as the financial report dated 21 November 1990 prepared by Deloitte Ross Tohmatsu and received by Mr Hart from Ms Saar, the part of an internal bank memorandum dated 24 May 1991 likewise received by Mr Hart, the accounts received by Mr Hart from Mr Saar under cover of the fax dated 4 November 1991, the accounts received by Mr Hart from Mr Wheeler on 7 or 8 November 1991, the cash flow document prepared by Mr Timms in conjunction with Mr Wheeler, the notes accompanying the cash flow and the "synopsis" document prepared by Mr Timms and headed "Artrona". 114 It was on the basis of all of this that Mr Walker, according to his evidence, formed in his own mind the opinion that the business was good, profitable and viable. Such an opinion was not inconsistent with that material. I am satisfied that Mr Walker held the opinion. 115 The extract from Mr Walker's cross-examination at the first trial set out at paragraph [99] above needs to be considered in the context of that cross-examination as a whole, as it related to the 26 November 1991 meeting. In paragraphs 5 to 8 of his affidavit of 28 February 2001, Mr Walker dealt with the accounts of that meeting given by Mr Timms and Mrs Timms in their affidavits of July 1999. He said: "My recollection is that either Brian or Anastasia Timms did say something to the effect of: 'So what does this mean?' Further, Mrs. Timms may well have said something to the effect of 'What is wrong? Why have they refused the application?' My recollection is that either Michael Hart or I said to them words to the following effect: 'There are a few extra things that need to be covered. There is further information that is required in order that we can investigate the proposal more thoroughly'. To the best of my recollection Mr. Timms may well have said words to the effect of 'I am not happy about having to pay another fee' and Michael Hart may well have responded in terms of: 'Don't worry, I am sure that we can sort something out'. I also agree that Mr. Timms may well have said words to the effect of 'What do you want me to do' and that Michael Hart or I replied in words to the effect of: 'All we need is a letter from you to cover the points in our letter and we will re-submit the application'. To the best of my recollection Mr. Timms did say something to the effect of 'Okay, I'll get it to you in the next few days'. Otherwise I deny the conversation so alleged." 116 The passage from Mr Walker's cross-examination at paragraph [99] above came at the end of a section in which he was questioned about that part of his affidavit. I set out the section in full: "Q. And you would accept from me, will you not, that nowhere in your affidavit do you attribute to Mr Timms any of the matters identified as conversation in paragraph 5, do you see that? A. Yes. Q. And in fact it is true to say, isn't it, that where you attribute the conversation in the second sentence at paragraph 5 to Mrs Timms, even then you assert simply that Mrs Timms may well have said something to the effect of the passages quoted, do you see that? A. Yes. Q. Accept from me that you are intending by that to convey that you really didn't have a recollection of what was said at that meeting at all, isn't that correct? A. No, that's not correct. Q. When you say 'Mrs Timms may well have said something to the effect', you mean by that, don't you, that she might have said or she might not have said it? A. No, Mrs Timms was emotive at the time and she said – and I'm sure she said something to that effect. Q. There is nothing emotive, is there, attached to the words 'What is wrong? Why have they refused the application?' A. It depends in what tone it is delivered. Q. You have used the expression 'Mrs Timms may well have said something to that effect'? A. Correct. Q. You just told his Honour that you are quite sure she said something to that effect, that's right, isn't it? A. Yes. Q. You wave your hand, but you understand the difference, don't you, between saying you are quite sure something was said by somebody and saying they may well have said it; you understand that distinction, don't you? A. Yes. Q. In that affidavit by the language you have used, you were recording the fact that Mrs Timms may have said something like that but she may not have, that's right, isn't it? A. I said a minute ago that I believe that that is what was said. Q. I don't think that is what you said, but we will press on. Now tell me, who do you think it was that said it, Mr Timms or Mrs Timms? A. Mrs Timms. Q. Not Mr Timms? A. Mr Timms could have also said it at around about the same time but -- Q. You mean by that that you don't recall whether he did or whether he didn't, that's correct, isn't it? A. Yes, I can't precisely say. Q. Mr Timms may well have said 'Have you knocked it back because the business is no good', something to that effect, is that right? A. No, I don't think so. Q. May have well said that? A. He may have, but I -- Q. Mrs Timms may have said 'Have you knocked it back because it's a bad business', correct? A. I don't recall. Q. Not recalling it, do you accept that it may well have been said? A. In the emotive state that she was in, yes, could have said that. Q. If Mrs Timms in an emotive state said 'Did the bank knock it back because it was a bad business', no doubt you would have given her an answer? A. Yes. Q. And if it wasn't the reason the bank knocked it back you would have told her so no doubt, is that right? A. That's right. Q. No doubt if she said 'Did the bank knock it back because it was a bad business', you believing as you have told us you did at the time it was a good business, you may well have said, 'Not at all, it was a good business, it is a good business'? A. No, I wouldn't have said that at all. Q. You don't remember whether you did or didn't, is that right? A. That's right. Q. Nor do you remember whether Mr Hart did or didn't, is that right? A. True. Q. May we take it that you were yourself a little disappointed that the zone had not approved the application you made for the Timms' loan on 11 November? A. Yes. Q. Mr Hart told you so was he? A. Yeah, it was a disappointing result. Q. No doubt both you and Mr Hart expressed to each other the view that you would seek to resubmit the application? A. Yes. Q. And you told the Timms that? A. Yes, they were informed we needed extra information before we could resubmit. Q. I understand that, but you made clear to them that you were proposing to resubmit it notwithstanding the bank's rejection of the first application, correct? A. Well, we were looking to resubmit, yes. Q. Because you thought it was a good deal, is that right, both for the bank and for the Timms? A. Yes. Q. And you told the Timms so, isn't that right? HIS HONOUR: I am a bit concerned about the 'it'. 'It was a good deal'. EINFELD: Q. You thought the acquisition by the Timms of the Artrona business was a good deal, correct? A. We thought that the business was viable. Q. And you said so? A. Yes. Q. And you no doubt thought it was profitable, as you have already told me? A. Yes. Q. And no doubt you said so to the Timms as well? A. Yes. Q. And you thought the Artrona companies had a good business, correct? A. Yes. Q. And again no doubt you said so to the Timms, yes? A. On the information that had been provided to us, yes." 117 In cross-examination before me, Mr Walker was pressed on his understanding of what he was required to do when answering questions in the previous cross-examination. It is necessary to set out a fairly long extract, omitting submissions and rulings on the several objections, as well as questions disallowed or withdrawn: "Q. Let me ask you to look please at volume 2 of the black book at page 267. This question was asked at letter G: 'Q. I just want to focus on the recollection that you say you had of the meeting of 26 November, independently of the documents that are in front of you. Do you understand? A. Yes.' Do you see that question? A. Where was that? Q. It is at 267, letter G? A. Right. Q. Then the next question was, 'Q. Was there anything particular about the meeting that enabled you to recollect what occurred there: I mean particularly in the history of your hundreds or thousands of such meetings over the years? A. Yes, the Timms were anxious, they were upset that the loan had been declined and there were was extra work that had to be done before it could be resubmitted. They were anxious to get a decision.' Do you see that? A. Yes. Q. What you were conveying to the court was, because of the factors you mentioned there, you had an actual recollection of what occurred at the meeting as opposed to having had it refreshed from various documents, weren't you? A. Yes. Q. And that was the truth when you said it, wasn't it? A. Yes. Q. So when you gave the evidence, I suggest to you, the evidence you gave at 290, it appears on the same day as the evidence which appears at 267, you were purporting to tell the court that you had an actual recollection of what occurred there and that your recollection was in respect of the relevant matters as set out in at page 290; isn't that right? A. No. At this point of time I can't say. I thought that the questions were more along the lines of what might have been said, not what was specifically said. Q. *Is that an answer you wish to give or you wish to pause to reconsider that answer you have just given, Mr Walker? A. As I sit here today, that's what I am saying. Q. Can his Honour take it, when you gave your evidence on your oath on the last occasion before Justice Young, about conversations which occurred, you gave your evidence on the premise of saying what might have been said as opposed to what you actually recall being said?** … QUESTIONS AND ANSWERS MARKED * TO ** READ Q. Let me ask you these questions. When you gave the answers which the transcript recorder has just read back to you, when you said the questions you were being asked were about what might have been said, were you referring to questions being asked of you generally in your cross-examination about conversations, or were you referring specifically to the matters I have taken you to at page 290 of the black book? A. There were times during that day, as I recall, that I was questioned as to what I actually remembered as opposed to what might have happened and it could well have been that I was somewhat confused. I don't know if - I don't know the answer to your question. Q. Mr Walker, just to clarify that, are you saying, when you don't know the answer to my question, you don't know whether, when you gave the answer, that you thought the questions being asked of you were not of actual recollection but were rather of what might have been said or you can't answer whether you thought that in the context of all questions that were put to you about various conversations or whether, on the other hand, you only thought it about the questions that I took you to at page 290? A. Could you repeat that question? Q. I asked you a question a few moments ago which you said you didn't think you could answer. Do you recall that? A. I recall, yes. Q. The question was that when you gave evidence that you thought you were being asked questions about what might have been said, you didn't know whether that answer was confined merely to the matters I put to you at page 290 or alternatively was intended in respect of any questions asked of you about any conversations; isn't that right? A. I am a bit confused. Q. I will try a different way again. Are you saying that when, on the previous occasion before Justice Young, anyone asked you any questions about particular conversations, when you gave your answers you tried to give your answers as to what might have been said rather than what was actually said? A. There were sentences where I was asked to specifically state what I could actually remember. But in relation to these questions, here on page 290, I didn't think that was the case. Q. Are you saying that when you gave the answers on page 290, you didn't think you were being asked for your actual recollection. HIS HONOUR: Q. Of what was actually said? A. Specifying, yes, what was said verbatim. SULLIVAN: Q. You didn't think you were being asked your actual recollection of the substance of what was being said; is that what you say? A. Yes, I suppose so. Q. *But just before you gave that answer, your attention had been specifically drawn, hadn't it, to the distinction between actual recollection and what people might have said, hadn't it? A. When you say immediately before-- Q. Well, I suggest to you within probably 5 minutes of that happening. Can you recall that?** OBJECTION (FORSTER). … LAST QUESTIONS AND ANSWERS MARKED * TO ** READ A. I can see it there, that those issues had been drawn to my attention. Q. Within a very short period of time of the questions being asked, hadn't they? A. I don't know how long it would have taken. Q. Could you have a look please at black volume 2, at the bottom of page 288. I will ask you to look at letter R and you will see that the questioner asked you this: 'Q. You have used the expression, "Mrs Timms may well have something to that effect"? A. Correct. Q. You just told his Honour that you are quite sure she said something to that effect, that's right, isn't it? A. Yes. Q. You wave your hand, but you understand the difference, don't you, between saying you are quite sure something was said by somebody and saying they may well have said it; you understand that distinction, don't you? A. Yes.' A. I see that. Q. That occurs about a page and a half of transcript before the passage I took you to at 290, doesn't it? A. Yes. Q. And you would agree with me, therefore, it took place a very short time before you gave that evidence? A. Yes. Q. When Mr Einfeld asked you the questions at page 290, he didn't put any equivocation on the question such as someone may well have said something, did he? A. No. … Q. You see what I put to you Mr Walker is this. That at page 290 P, following the exchange which I have just taken you to at page 288, Mr Einfeld put this direct question to you, 'And you said so?' as a follow up to your answer, 'We thought that the business was viable' and you said 'yes?' A. Yes. To-- Q. That was a direct question put to you as to your recollection of what was said, wasn't it? A. Yes, but maybe I should have sought some clarification because I was asked what my thoughts were and then I was asked did I say so? And I probably took it at the time is it likely that I would have said so? That's the way I interpreted it. Q. Mr Walker, had you given evidence in court cases before, in the period of time you were a bank officer? A. No. Q. Before you gave your evidence on the previous occasion before Justice Young, did you have conferences with lawyers representing the bank? … SULLIVAN: Q. Did you have conferences with lawyers representing the bank before you gave your evidence? A. In relation to this matter. Q. No, generally. Before you gave your evidence did you have conferences with representatives of the bank, lawyers representing the bank? A. I met with them to prepare an affidavit. … SULLIVAN: Q. Prior to giving your evidence on the last occasion, did anyone tell you that when you were being asked about a conversation that occurred, to which you were a party, you should endeavour to give your actual recollection of that conversation? A. I was simply informed to tell the truth in answer to the questions, any questions, and that was what was trying to do. Q. *Are you saying before you gave evidence you did not know, when you were asked about a conversation, that you were required, to the best of your ability, unless the question asked you about what might have been happened, to give your actual recollection of what occurred? A. Again please? LAST QUESTION MARKED * READ A. I'm sorry? Can you repeat that again. QUESTION MARKED * READ AGAIN A. I am trying to remember what was said previously. I think the answer is no. Could I have that question again please? QUESTION MARKED * RE-READ A. Just the very beginning of the question again? FIRST THREE LINES OF QUESTION MARKED * READ A. The answer is yes. Q. You did know that, didn't you? A. Yes. HIS HONOUR: Q. You did know or you did not know? A. If the question was - let's read the question. QUESTION MARKED * RE-READ A. Yes, I did not know. SULLIVAN: Q. You did not know that. In other words, do we take it that in every question that you gave in answer before his Honour Justice Young, about conversations, the court can have no confidence as to whether or not you were giving your actual recollection or, alternatively, a reconstruction of what might have been said? Is that what you are saying? A. I don't know if that's an interpretation that could be put on the answer. Q. Can you think of any other interpretation which might be placed upon your answer, Mr Walker? A. Probably not. Q. In other words, the court can have no confidence, can it, in any of the evidence you swore on your oath last time about conversations, as to whether they reflect your actual recollection; that's the case, isn't it? A. I think you could have confidence that my recollection of events and some of the conversations I can recall some things being said quite specifically, but in relation to that section on page 290, no. Q. I will ask you my question again in case you didn't understand it. In the light of your answer that you did not know, when you gave your evidence, that you had to give your actual recollection of what occurred unless someone asked you what might have happened, it follows, doesn't it, that the court can have no confidence that when you gave evidence of what was said in conversations, that it reflects your actual recollection; isn't that the case? A. I suppose so. Q. And likewise, when you swore your affidavits about various conversations, it follows too, doesn't it, that the court can have no confidence that when you swore that you had a recollection of various things, you did in fact have a recollection? A. I don't think that's correct. Q. You don't think that's correct? A. No. Q. Do you say that when someone asked you for your recollection you honestly, on all occasions, gave your recollection as opposed to a reconstruction? A. Yes. … SULLIVAN: Q. Can you look please at page 267 of black volume 2? A. Yes. Q. You see at letter H or letter G the cross-examiner asked you to specifically focus on your recollection of the conversation of the meeting of 26 November; didn't he? A. Yes. Q. And as you have agreed with me already, in the next answer, you were at pains to point out that you had an actual recollection of that meeting because of the factors you mention there, weren't you? A. Yes. Q. *And at various stages and following, the cross examiner reminded you that he was asking you about your recollection of what occurred at that meeting, not any reconstruction. … LAST QUESTION MARKED * READ SULLIVAN: Q. Isn't that right. Can you remember that? A. Without reading this, no, I can't remember. Q. Let's just go through it quickly. Could I ask you, first of all, to look at page 267 at letter T. The cross-examiner reminds you what he is asking you about and he wants your recollection, doesn't he? A. Yes. Q. Then if you would like to go to 268, remember this question at 268 D, 'When you say could have been, you understand I am asking you about your actual recollection, not to speculate about what might have been. Do you understand the difference? A. Yes.' Q. So, in other words, the cross examiner in this whole cross-examination is bringing to your attention that he doesn't want to you to speculate on what might have been. He wants you to give an actual recollection, doesn't he? A. Yes. Q. And that continued, didn't it, if you look at 268 G and then letter L and then at letter T on that page and then indeed can I take you please to the top of page 269, letters A and B. What I put is you were conscious of the fact that you were being asked about recollection and you were pointing out the difficulty of recollection; weren't you? A. Yes. Q. And that was all the way through, I suggest to you, and up to and including where the cross examiner again reminded you about that distinction at page 288. Do you agree or disagree with that? A. Yes. Q. Indeed, you see, to try to be fair to you, the cross examiner at 288 L, when you were asked about the conversation on 26 November, said this: 'Q. Accept from me that you are intending by that to convey that you really didn't have a recollection of what was said at that meeting at all, isn't that correct? A. No, that's not correct.' Do you see that? A. Yes. Q. So, in other words, you are disagreeing with the questioner and saying: What I am saying about what happened at this meeting I have got an actual recollection of, aren't you? A. Yes. Q. Then the cross examiner specifically reminds you at the bottom of page about the distinction between a recollection, doesn't he, and what someone might have said? A. Yes. … Q. Can I ask you please to look at page 282 of this document, black book 2? A. Yes. Q. At letter Q, do you see Mr Einfeld asked you this question: 'As I asked you about this meeting', that is the meeting of 26 November, 'Q. Mr Walker, can you bear in mind what his Honour said to you earlier about different possible states of recollection. I asked you whether you recollected what first happened. You said the formal greeting hello, but then you have accepted that you don't actually have a recollection of that; that is something you would have expected to happen; is that right? A. Yes. Q. Can you please bear, however, that distinction in mind. I am asking you, firstly, for your recollection and then if I want to ask you for something you think might have happened, I will ask you about that separately. Do you follow?' And you answer, which appears to be an acceptance of that? A. Yes, I see that. Q. Then I took you to questions at page 288, where Mr Einfeld again reminded you of that distinction. Then I took you to questions at 290 and all the questions and answers at 290 between N and U. Looking at those answers, what put to you is that in respect of the answers between 290 O and U it is just not true, is it, in the context I have taken you to, for you to say that when those questions were asked and those answers were given, you believed that the questioner was asking you not for your actual recollection but for that might have happened, is it? A. If I could answer the question by saying again that I was asked what my thoughts were and I was then asked another question which I took to mean, is it likely that you expressed that opinion at the time and I have said yes and I don't recall whether I said that, but I might well have said it. Q. So you deny the proposition inherent in my question. You say it is true, do you? A. That what is true? Q. That it is true, notwithstanding the context to which I have taken you to, that you believed that you were not being asked for your actual recollection of what was said? A. That's right. Q. When those questions were put? A. Yes. Q. And you say that now on your oath, do you? A. Yes. Q. What you say now, on your oath, is that you took those questions to mean, according to your last or second last answer, what was likely to have been said at that meeting; you used the word "likely", didn't you? A. Yes. Q. And so you gave your answer on the basis of what was likely to happen? A. Yes, because that was consistent with the thoughts that I had. Q. When I asked you a question already in this cross-examination, whether it was inherently probable that you said that you told the Timms of those matters, you didn't agree with that proposition, did you? You said it might be the case it was said, didn't you? A. I can't remember. But I am saying that it is possible, more than likely, that I did say that. Q. More than likely. In other words, more than fifty-fifty that you did say that? A. Well, they were my thoughts, yes. Q. Please answer my question. When you say more than likely, you mean more likely than not; you mean there is a more than 50 per cent chance you said that? A. I suppose so. Q. I beg your pardon? A. I suppose so." 118 Mr Walker showed himself, in cross-examination before me, to be confused about the obligations of a witness and to have difficulty in distinguishing between recollection of what actually happened and reconstruction or surmise as to what happened, or may have happened or was likely to have happened, so far as what was said in conversation was concerned. It is dangerous for judges to place too much weight on a witness's demeanour. I am bound to say, however, that Mr Walker appeared to me to be hesitant and uncertain. He listened to questions closely but often seemed somewhat bewildered once he had had heard them. The fact that one question had to be read back to him no less than five times before he could give a clear answer is indicative of what I perceived to be a difficulty in comprehending and then in knowing what to say in response. I do not say these things by way of criticism. Some people are better than others at the abstract process of comprehending questions about past events, delving into their memories and discovering actual recollections free from the overlays of qualification and modification that are inevitably placed upon memory by subsequent events and then giving confident and coherent expression to the discovered recollections. Mr Walker's abilities in this respect seemed to me to be markedly poor. 119 The apparently unequivocal statements made by Mr Walker at the first trial, as appearing at paragraph [99] above, must be viewed in the light of three things: first, the impression I formed of his abilities as just related; second, the fact that, in his cross-examination at the first trial, he gave a number of earlier answers inconsistent with the apparently unequivocal statements; and third, the subsequent explanations, in his 2003 affidavit and in cross-examination before me, which raise very substantial doubts about whether Mr Walker really knew what he was required to do when giving evidence at the first trial. I am therefore not satisfied that the apparently unequivocal statements made by Mr Walker at the first trial, as recorded at paragraph [99] above, can safely form the basis of a finding that he actually said at the 26 November 1991 meeting what he there professed himself to have said. 120 With all of the evidence of what occurred at the 26 November 1991 meeting – whether given on affidavit in 1999, 2001 or 2003, in the witness box in 2001 or 2003 or by way of affidavits verifying pleadings in 1994 and 2003 – there is the pervasive and troubling problem of the effects of time on memory to which I have already referred in relation to the evidence of Mr Timms and Mrs Timms. There is only one contemporary document, being Mr Hart's diary note. It does not contain anything which would serve to substantiate the version of relevant events put forward by Mr and Mrs Timms. In those circumstances, I must be guided by principles summarised by Heydon JA in Moukhayber v Camden Timber & Hardware Co Pty Ltd [2002] NSWCA 58 as follows: "While the requirement in civil cases that the trier of fact be satisfied on the balance of probabilities has been called an undemanding standard, it has some reality. Traditionally there are two approaches to its application. One is to demonstrate that the odds of the fact existing or the event happening which the plaintiff is seeking to establish are at least fifty one to forty nine ( Davies v Taylor [1974] AC 207 at 219). In view of the inherent unlikelihood of a Mitre 10 salesman saying what the plaintiff alleged, that criterion could not be satisfied, but, as the trial judge said, the conversation could have happened, despite its improbability. This requires the trier of fact to turn to the other approach. On that approach, the trier of fact must 'feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. [At] common law it is enough that the affirmative of an allegation be made out to the reasonable satisfaction of the Tribunal.' ( Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2 per Dixon J; see also Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 227 per Mahoney JA). The trial judge did not find that the conversation occurred and did not find that it did not occur. Rather he took a third course, which was an available one. In Rehsa Shipping Co SA v Edmunds [1985] 1 WLR 948 at 955-6; [1985] 2 All ER 71 Lord Brandon of Oakbrook said: 'the judge is not bound always to make a finding one way or the other with regard to the facts averred by the parties. He has open to him the third alternative of saying that the party on whom the burden of proof lies in relation to any averment made by him has failed to discharge that burden. No judge likes to decide cases on burden of proof if he can legitimately avoid having to do so. There are cases, however, in which, owing to the unsatisfactory state of the evidence or otherwise, deciding on the burden of proof is the only just course for him to take.' In a case of the antiquity of the present one, the trial being over four years after the events in issue, it is quite understandable that the trial judge would find it impossible to come to a conclusion one way or the other." 121 I am particularly conscious of the need, expressed in Briginshaw v Briginshaw (1938) 60 CLR 336, for the trier of fact to "feel an actual persuasion of its occurrence or existence before it can be found", and that a finding of fact cannot be made "independently of any belief in its reality". 122 In this case, the evidence of the persons who were present at the 26 November 1991 meeting does not produce in my mind an "actual persuasion" that any of the "good business", "profitable business" and "viable business" representations was made by Mr Walker or Mr Hart. I therefore adopt in relation to that part of the plaintiffs' case the "third alternative" referred to by Lord Brandon of Oakbrook in Rehsa Shipping Co SA v Edmunds [1985] 1 WLR 948 of saying that the plaintiffs on whom the burden of proof lies in relation to that claim have failed to discharge that burden. The early November 1991 meeting – evidence and findings 123 The claims advanced in relation to this meeting are introduced as follows in the third amended statement of claim: " 21. In about the middle of November 1991, the Plaintiffs requested advice from the First Defendant as follows: (a) the First Defendant's opinion as to the viability of the Business; (b) the First Defendant's knowledge regarding the profitability of the business; and (c) whether or not the First Defendant was aware if the Business was experiencing any financial or other difficulties. PARTICULARS The advice was requested by the First Plaintiff and the Second Plaintiff (on behalf of themselves and the Third and Fourth Plaintiffs) at the Five Dock Branch of the First Defendant on or about early November 1991 in conversation with Michael Hart, loans officer at that Branch. 22. In response to that request the First Defendant: (a) represented to the Plaintiffs that: (i) The Business was viable and profitable; (ii) The Business had some financial problems in the past, but those problems had been resolved; and (iii) to the First Defendant's knowledge the Business was a very good business and that the Business was 'well established'; (hereinafter called 'the Representations'); and (b) advised the Plaintiffs that the Business was 'a very good buy'; (hereinafter called 'the Advice')." 124 Events at the early November 1991 meeting need to be considered in the light of events preceding it. These may be summarised briefly. Some time between 8 and 18 October 1991 Mr Timms and Mrs Timms met with Mr Hart at the Five Dock branch. This followed a telephone call a few days earlier in which Mr Timms told Mr Hart of interest in purchasing the Artrona business and a need to explore the possibility of finance to do so. There is conflicting evidence as to what happened at the October meeting, although it is clear that the possibility that Mr Timms and Mrs Timms would borrow money to buy the Artrona business was pursued and that there was discussion of what the bank would need in order to consider a loan proposal. It is also clear that Mr Timms and Mrs Timms informed Mr Hart of the Artrona business's connection with the Barrack Street branch and that Mr Hart said that he would seek information from that branch. The divergence in the evidence concerns the purpose for which Mr Hart was to seek information from Barrack Street. 125 According to Mr Hart, he was to seek the information so that he would be able to include any matters of relevance received from Barrack Street, along with information supplied by Mr Timms and Mrs Timms and the Wheelers, in the submission he had to prepare for the Western Zone in connection with the loan application by Mr Timms and Mrs Timms. According to Mr Timms in his 1999 affidavit, he told Mr Hart about the Barrack Street connection and said, "You should be able to check how viable the business is", to which Mr Hart replied, "That's good, I'll check into the business". Mr Hart's recollection, as stated in cross-examination at the first trial, corresponded with Mr Timms' evidence. 126 Mrs Timms' evidence in her 1999 affidavit went much further. According to her, there was a conversation as follows: "AT: This business has a strong track record with your bank. You have the perfect opportunity to look into it. MH: Yes, I'll get in touch with Barrack Street and get them to give me all the information they have about the business. AT: Because they bank with you, you should be able to give us the bank's opinion whether the business is profitable and worth pursuing. MH: Whatever I find out, I'll let you know. AT: We are relying on you to find out about the viability of the business and to advise us. If you come back to us and tell us that there is some doubt about it, we won't proceed. MH: Leave it with me Anastasia. I'll get the records from Barrack Street and do a thorough check and then I'll tell you about it." 127 Mr Hart denied that a conversation as related by Mrs Timms took place. 128 On Mrs Timms' evidence, the purpose of Mr Hart's inquiries of Barrack Street was to assist the Timms, not the bank (or, perhaps, in addition to the bank). This, if true, would represent a startling departure from the expected course of events. When a customer approaches a bank for a loan to assist a purchase by the customer, the bank's interest in the subject matter of the purchase is generally confined to aspects relevant to the security position the bank is asked to take. In an ordinary conveyancing transaction, a bank lender's interest in whether the property being purchased by the customer and offered as security is adversely affected by easements or restrictive covenants and whether the structures are sound arises not because the bank wishes to advise the customer on those matters but because the bank needs to be aware, for its own selfish purposes, of matters that may adversely affect it. So too where the customer is seeking assistance to purchase a business: the bank's interest in the viability of the business is prompted by its need to see a likelihood of positive cash flow that will assist with the servicing of the loan. Apart from that, it is, at a purely objective level, quite immaterial to the bank whether the customer is likely to make profits or losses from operating the business. 129 Given this general commercial expectation and the evidence of both the Timms and Mr Hart as to what happened at the October 1991 meeting, I consider it inherently unlikely that the conversation was as Mrs Timms represented it. I find that the conversation was as reported by Mr Timms, as generally agreed by Mr Hart, and that nothing that happened at that meeting could have given rise to any soundly-based expectation on the part of Mr Timms and Mrs Timms that the inquiries Mr Hart was to make of the Barrack Street branch were to be made with a view to the bank's communicating to Mr Timms and Mrs Timms the results of the inquiries or advising them what the inquiries revealed as to the state or prospects of the business. Rather, Mr and Mrs Timms told Mr Hart about the Barrack Street connection and were keen for him to follow it up because they thought that his inquiries would indeed show the business to be sound and therefore enhance the chances of the bank's making a favourable decision on the loan application. 130 Against that background, I turn to the evidence of what happened at the meeting in early November 1991. 131 Mr Timms' evidence about that meeting, as given in his affidavit of 5 July 1999, is as follows: "AT: What did Barrack Street say about the business? MH: It's a very good business. It is well established. You are getting a good buy. BT: What's your opinion as to the viability of the business? MH: The business is viable and profitable. They are not having any current difficulties. AT: Are you quite sure, because this is very important to us because our house is on the line. I don't want to jeopardise our home. MH: Don't worry, it is a very good and profitable business. In any case you won't lose your home because the bank takes a very dim view of selling family homes." 132 Mrs Timms deposed, in her affidavit of the same date, that there was a conversation as follows: "AT: What did Barrack Street say about the business? What did you find out? MH: The reports from Barrack Street say that it's a very good and profitable business. It is well established. You are getting a very good buy. The bank is satisfied that it's a good business and you won't have any trouble getting the money for it. BT: What's your opinion as to the viability of the business? MH: The business is viable and profitable. BT: What does Barrack Street say about the profitability of the business? Do you know if they are experiencing any financial or other difficulties? MH: The business appears to be profitable. They are not having any current difficulties. AT: Are you quite sure, because this is very important to us because I don't want to lose our home. It's what we have worked for all our lives. If there is the slightest doubt we won't proceed. MH: The bank would not advise you to buy the business if we didn't know it to be a good business." 133 Mr Hart denies that these conversations took place. 134 Since, for reasons I have already stated, I do not accept that Mr and Mrs Timms had, as a result of the October meeting, any well-based expectation that Mr Hart would share with them the results of his inquiries of Barrack Street, there is an immediate difficulty in accepting that the next meeting in early November proceeded almost immediately to a report by Mr Hart of what Barrack Street had said about the business. He may well have confirmed that he had been in touch with Barrack Street and had received some information. Indeed, in the context created by the October meeting, it is very likely that he did so. But, of course, the memorandum Mr Hart had received from Ms Saar of the Barrack Street branch enclosing the Deloitte Ross Tohmatsu report and part of the bank's internal memorandum had said, in quite explicit terms, that these were "provided on a strictly confidential basis"; and Ms Saar's facsimile of 4 November 1991 forwarding further material explicitly said that the Wheelers had given authority for that material to be given to Five Dock "on a confidential basis". These two clear messages would have reinforced the propensity possessed by every bank officer (there being no reason to think that Mr Hart was any exception) to regard as confidential to any customer information held by the bank about that customer's affairs. It is not suggested that the Wheelers or the Artrona companies, as customers, had given permission for the bank to give to Mr and Mrs Timms information held by the bank about the financial affairs of those customers. In the absence of any such permission and in light of the specific message in the Barrack Street branch's memorandum and fax, it is inherently unlikely that Mr Hart would have given to Mr and Mrs Timms information about the financial affairs or financial health of the Artrona business. And this is so despite what is described in submissions advanced on behalf of Mr and Mrs Timms that they were, from Mr Hart's perspective, "personal and longstanding clients who had supported his career within the bank and respected his opinion"; also that there had "developed a relationship of trust and confidence". Any close and constructive relationship that may in fact exist between particular customers and a particular bank officer (and may in fact have existed between the Timms and Mr Hart) cannot be relied upon to show a probability that the bank officer ignored a specific injunction from within the bank to keep certain information confidential or the general rule of customer confidentiality. 135 Another difficulty in accepting the accounts given by Mr Timms and Mrs Timms is that those accounts have Mr Hart saying that Barrack Street made particular value judgments about the business. In Mr Timms' account, the conversation starts with Mrs Timms asking "What did Barrack Street say about the business?" To that, Mr Hart supposedly replied, "It's a good business", conveying the message that Barrack Street had said it was a good business. Mrs Timms' evidence is that the conversation started: "AT: What did Barrack Street say about the business? What did you find out? MH: The reports from Barrack Street say that it's a very good and profitable business …." 136 In fact, of course, Barrack Street did not convey any such evaluation to Mr Hart. He received from Ms Saar the Deloitte report, the extract from the internal memorandum and the company accounts. In none of these did Barrack Street express any opinion about the soundness of the business. Nor did Ms Saar's accompanying memorandum of facsimile in either case express such an opinion. It is therefore inherently unlikely that Mr Hart, having received absolutely no expression of opinion or evaluation from Barrack Street, would have presumed to state Barrack Street's view about the state of the business. 137 The bank also points out in submissions that the evidence of Mr Timms and Mrs Timms in this connection exhibits the same problem as has been noted in relation to the evidence concerning the 26 November 1991 meeting, namely, an apparent shifting of recollections over time in a way calculated to destroy reliability. In the course of cross-examination before me, Mr Timms was taken to the original statement of claim as verified and filed in 1994. After Mr Timms had confirmed having checked that statement of claim and having sworn the verifying affidavit, the cross-examination continued: "Q. And you swore that affidavit in 1994, about two and a half years after the events of which we now speak - I'm sorry, yes, two and a half years after the events now the subject of these proceedings? A. Yes, after 91, correct. Q. Could I ask you, please, to go to, firstly, page 3, Claim Against the First Defendant and then ask you to move across to page 4, paragraph 21. You see it says, 'In about the middle of November 1991, prior to the execution by the first plaintiff of the various mortgages, the first plaintiff and the second plaintiff requested advice from the first defendant as follows'. Then do you see B and C, 'Whether or not the first defendant was aware if the business was experiencing any financial or other difficulties'. Then in paragraph 22, it is said that, 'The first defendant represented to the first plaintiff' certain things. If you look at paragraph 22(A2), it says that 'The bank represented to the first plaintiff, namely, Mrs Timms, that the business had some financial problems in the past, but those problems had been resolved'; do you see that? A. Yes, I do. Q. Now, that was an allegation in the Statement of Claim and you agree with me that that was an allegation that something to that effect was represented to the first plaintiff at this very meeting in the early part of November; do you agree with that? A. Yes. Q. There is no doubt, is there, that paragraph 22 refers to the meeting in the early part of November 1991? A. Well, 21 refers to a meeting in the middle of November. Q. Yes? A. I don't know what we draw from that. Q. All right? A. Because we had two meetings with the bank. Q. Let's just understand this, Mr Timms. You had a meeting in early October or mid October; did you not? A. Early October, yes. Q. Early October? A. That's right. Q. You had a meeting some time prior to 11 November? A. Early November, yes. Q. And you had a meeting on 26 November? A. Correct. Q. One in December? A. Yes. Q. Four meetings of which you have given evidence. Are you aware of any other meeting with Mr Hart or Mr Walker? A. No, I am not. Q. We have four meetings. In paragraph 21 it is said in about the middle of November, prior to the execution of the various documents, certain advice was sought from the first defendant; they relate to opinion as to viability, opinion as to profitability and whether the bank was aware of - whether the business was experiencing financial or other difficulties; do you see that? A. Yes, I do. Q. Now, keeping that open, go back to paragraph 58 of your affidavit, you see, don't you, that, according to your evidence, at the letter L to M, you ask Mr Hart his opinion as to the viability of the business; do you see that? A. Yes, I do. Q. That is, according to your evidence, where you asked Mr Hart about the viability of the business; is that correct? A. Yes. Q. That would correspond to paragraph 21A in the Statement of Claim; wouldn't it? A. I suppose so, yes. Q. And in paragraph 21B it is alleged that the plaintiffs requested advice from the bank about the bank's knowledge regarding profitability and do you see that at the letter N of paragraph 58 of your affidavit, you attribute to yourself the question, "What does Barrack Street branch say about the profitability of the business?". Do you see that? A. Yes, I do. Q. And paragraph 21C, you allege that at the meeting, advice was sought as to whether or not the first defendant was aware if the business was experiencing any financial or other difficulties; do you see that? A. Yes. Q. Likewise, in paragraph 58 at the letter O to P you attribute to yourself the question, 'Do you know if they are experiencing any financial or other difficulties?'. Do you see that? A. Yes, I do. Q. Now, would you agree with me that, notwithstanding the fact that paragraph 21 commences with the words, 'In about the middle of November 1991', paragraph 21 of the Statement of Claim is dealt with in paragraph 58 of your affidavit? A. I think that is a fair statement, yes. Q. So that, the evidence you give in paragraph 58 relates to the allegations in paragraph 21 of the Statement of Claim; do you agree with that? A. Yes. Q. Then going on to paragraph 22 in the Statement of Claim, it is alleged that, in response to the question, the first defendant made certain representations. It is alleged that the bank represented that the business was viable and profitable and you do attribute to Mr Hart words to that effect at the letter N in paragraph 58? A. Yes. Q. And if I can go to 3, 'To the first defendant's knowledge, the bank, the business was a very good business and it was well established'; do you see that and that is, in fact, what is attributed to Mr Hart at the letter K in paragraph 58? A. Yes. Q. It is also alleged that the bank represented to the first plaintiff that the business had some financial problems in the past, but those problems had been resolved; do you see that? A. Yes, I do. Q. There is nothing to that effect in your affidavit; is there? A. No, there is not. Q. And you have said that nothing to that effect was said? A. Correct. Q. And you agreed with me, did you not, that if something to that effect had been said, that would have rung some warning bells in your mind? A. Yes. Q. Now, can you please explain to his Honour how it comes about that an allegation to that effect occurs in paragraph 22 of the Statement of Claim, verified by you as true when, in fact, you now say no such thing was said? A. Well, all I can say is that when I came to give my affidavit in 99, that issue of financial problems in the past has simply slipped my mind; that is why it is not in my affidavit." 138 Mrs Timms was taken to the same parts of the 1994 statement of claim in the course of examination. The following exchange took place: "Q. Do you agree with me that as you read paragraphs 21 and 22, the allegation is that the various matters said to have been said by Mr Hart, as set out in paragraph 22(a) were said at that meeting in early November 1991? A. Yes. Q. Do you see in paragraph 22(a)(ii) that, according to this statement of claim, the bank is said to have represented to you that (ii) 'The business had some financial problems in the past but those problems had been resolved'; do you see that? A. Yes. Q. This was a document which was prepared on your instructions and on the instructions of Mr Timms, correct? A. Yes. Q. And you verified that the allegations of fact in it are true? A. Yes. Q. I will ask you again. At that meeting in early November 1991, did Mr Hart say to you words to the effect that the business had some financial problems in the past, but those problems had been resolved? A. No, he did not. Q. Can you explain to his Honour, in that case, how it is that contained in paragraph 22 of the statement of claim, at subparagraph (a)(ii), there is an allegation that that is something which Mr Hart said or words to that effect? A. I don't know. Q. Is it because he said those words? A. No, he didn't say those words. Q. So you have no other explanation as to how that particular allegation came into the statement of claim? A. I don't know how that got there, no." 139 As with recollections of the meeting of 26 November 1991, there is here clear evidence that the expressed recollections of both Mr Timms and Mrs Timms shifted materially between the verification and filing of the original statement of claim in 1994 and the swearing of their affidavits in May 1999 and that neither can offer any explanation for the shift. In contradistinction to their evidence about the 26 November 1991 meeting, Mr and Mrs Timms did not seek, in their 2003 affidavit, to supplement what they had said previously about the early November meeting. 140 There was another aspect of Mr Timms' cross-examination before me about the early November 1991 meeting that reinforced the perception of unreliability surrounding the Timms' account of that meeting. The allegation in the original statement of clam that the Timms had sought from the bank advice as to whether the business was suffering any financial or other difficulties (as well as the evidence of Mrs Timms that Mr Timms specifically asked that question at the meeting in early November 1991) is quite at odds with evidence given by Mr Timms in cross-examination before me. Mr Timms was asked about a telephone conversation he had with his solicitor, Mr Atkinson, on or about 1 November 1991, that is, before the early November meeting with Mr Hart. The following appears in the transcript: "FORSTER: Q. And you told Mr Atkinson, didn't you, that there were two problems with the business, the first being that although Mr Wheeler was a brilliant designer he was not a Manager, did you tell Mr Atkinson that? A. Yes, I did. Q. You told him, did you, that as a consequence the business had developed financial problems? A. Yes. Q. And, secondly, you told Mr Atkinson that Mr Wheeler had attempted to expand the business by developing an export market but his attempts had been a failure because he lacked sufficient capital, correct, you told Mr Atkinson that? A. I - yes, I told him something along those lines. Q. Well, the very fact that you told Mr Atkinson that the business had developed financial problems indicates, does it not, Mr Timms, that you had some inkling that the business had had financial problems in the past? A. I think I've already said that that's the case. Q. Well, you'd agree with that? A. Yes, I would." 141 It is clear that Mr Timms had formed opinions of his own as to the state of the business – opinions no doubt shared by Mrs Timms. The steps they took to undertake investigations have already been identified. They had long discussions with the Wheelers. Mr Timms had both the management accounts and the statutory accounts and was aware of the differences between them. They were receiving advice from Mr Rosenfeld. There is no basis on which to find that there existed any rational expectation that the bank from which they sought to borrow and which was making inquiries of its own about the business should seek to correct or comment on statements by them of their belief as to the bank's view of the state of the business. What Mr Timms and Mrs Timms said they thought to be the bank's view of the state of the business called for no response by the bank. 142 My conclusion on this aspect of the case is that the allegations in paragraphs 21 and 22 of the third amended statement of claim (set out at paragraph [123] above) are not made out. It follows that the plaintiffs have not established, in relation to the "good business claim", the breaches of the Trade Practices Act they allege. The non-disclosure claim – evidence and findings 143 The basic facts relevant to the "non-disclosure claim" are not in dispute. Mr Timms wrote the letter to the bank (Mr Walker) set out at paragraph [26] above. That letter contained the following passage: "We believe that we have offered more than ample security and that the business is extremely sound. We also believe that the Bank agrees with both these assertions." 144 It is not suggested that the bank replied to this in any way. The conduct on the bank's part said by the plaintiffs to be misleading or deceptive is inaction – the failure of the bank to say anything in response to the quoted part of the letter. 145 The capacity of silence to constitute conduct that is misleading or deceptive within s.52 of the Trade Practices Act is well established by case law. The most often quoted statement of the relevant principles is probably that of the Full Federal Court in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. The matter was summarised thus by Handley JA (with whom Hodgson JA and Gzell J agreed) in Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd [2003] NSWCA 213: "A finding of misleading or deceptive conduct is open where that conduct, by word or deed, conveyed a misrepresentation ( Wardley Australia Ltd v Western Australia (1992) 175 CLR 514). In this case the misrepresentation is said to have been conveyed by silence, but that is an inadequate and incomplete description. The relevant principles were felicitously summarised by Black CJ in Demagogue Pty Limited 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'. The misleading and deceptive conduct relied upon was that of Mr Cook during the critical conversation. As Black CJ said, silence that is capable of being misleading or deceptive never stands alone. In the absence of some positive duty to speak, silence can only be misleading or deceptive against a background of other facts known to both parties which make what is actually said so incomplete that it conveys a misrepresentation." 146 Referring to the particular case before him, Handley JA said: "The Court can now consider whether Mr Cook's conduct was misleading or deceptive. It is said to have this character because of what was not said in the context of what was said." 147 Looking, in the present case, at "what was not said in the context of what was said", we must begin with "what was said". What was said came from Mr Timms' letter. Referring to the business, the letter said that Mr Timms and Mrs Timms believed, first, that the business was extremely sound and, second, that the bank agreed that the business was extremely sound. Those statements were made in the immediate context of like statements concerning the adequacy of the security Mr and Mrs Timms were offering. They said that they believed that they had offered ample security and that they believed that the bank agreed that they had offered ample security. The wider context, being that conveyed by the 28 November 1991 letter as a whole, was one in which Mr Timms, writing for himself and Mrs Timms, complained about the bank's decision, notified by its letter of 26 November 1991, not to lend the money needed for the purchase of the business and asked the bank to reconsider. The letter made, in essence, seven points: first, that the Timms' home (which the bank held as security) was of such value as to provide the bank with a sufficient security cushion; second, that the cash flow document Mr Timms had prepared and furnished to the bank showed that the loan could be serviced from the business; third, that it was pointless for the bank to seek more financial information about the business from the Timms than the information already provided and that already available to the bank; fourth, that the Timms' standing as long-term customers meant that they should not have to pay a further fee; fifth, that Mr Timms expected consulting income of about $100,000 in 1992; and, sixth, that the Timms were valuable customers who considered themselves to deserve better treatment. Finally, there is the statement of the Timms' belief in the paragraph already quoted. 148 The letter supplied information sought by the bank but was principally a complaint by the Timms that the bank had rejected the loan application and an exhortation to the bank to change its mind. The tone was firm and assured, verging on the aggressive. Clear demands were made by someone who knew what he wanted and did not intend to be fobbed off by excuses. Mr Timms was "laying down the law" to the bank. The matters in the letter were advanced by way of argument as to why the bank had been wrong to reject the loan application in the first place and why, as a matter of logic, it should reconsider and reverse that decision. The message was driven home by a statement of willingness on the Timms' part to take the business elsewhere if the bank did not do as they demanded. 149 Within the confines of the particular relationship of banker and customer, this letter was part of the negotiation for the loan. It made it clear that the Timms had formed their own views about the soundness of the business, being views that, on my findings on the "good business claim", were arrived at without any input from the bank. They knew that the bank, as potential lender, had made its own assessment of the business. For it to have done so would have been a normal part of the investigations it undertook for the purpose of assessing the loan application – investigations, it is to be emphasised, made by the bank in pursuance of its own selfish objective of avoiding situations where money lent might be lost. 150 The bank eventually did change its mind. By the letter dated 10 December 1991, it approved the loan on certain conditions. In doing so, it said nothing about any of the arguments advanced in Mr Timms' letter of 28 November 1991 as to why it should change its original decision. Indeed, Mr Timms testified that he did not expect a reply. This was made clear in the following part of his cross-examination: "Q. Would you agree with me that by writing this letter you wished to put pressure on the bank to lend you the money you wanted? A. Yes, to the extent a borrower can put pressure on the Commonwealth Bank. Q. That was the purpose in writing this letter, wasn't it? A. No, the purpose in writing the letter was to respond to the request of Mr Hart or Mr Walker that I write a letter to cover off the issues raised in the letter from the zone. Q. Because you wanted the money lent? A. Yes, we did. Q. Did you expect a reply to that letter? A. No. Q. It was your expectation, wasn't it, that once you provided the information the bank would reconsider the situation and hopefully make a decision to lend the moneys that you sought to borrow, correct? A. Yes, that's correct. Q. That in fact was what happened? A. Yes. Q. In your affidavit sworn on 13 February 2001, which commences at page 75 of volume 1, you say at no stage did any officer of the bank tell you that the bank did not believe the business to be extremely sound, do you see that? A. Yes, I do. Q. You didn't really expect a reply to this letter, did you, of 28 November? A. I thought I said I did not expect a reply. Q. Indeed, once the decision had been made by the bank to lend the money, as far as you were concerned the letter of 28 November had accomplished the task which you intended it to accomplish namely, to supply the information to the bank to enable them to make the loan, correct? A. I would not agree the letter would accomplish that task, but that was certainly what I was asked to do. Q. Certainly, you were not in any way influenced by the fact that nobody from the bank wrote back and said we don't consider the business to be extremely sound, would you? A. I thought the approval of the loan was a pretty good reply." 151 It is thus clear that Mr Timms had no expectation that the bank would come back to him and seek to confirm, deny, dispute or debate, item by item, the matters stated in the letter of 28 November 1991. For example, if the bank had thought that Mr Timms' estimate of $100,000 for consulting revenue in 1992 was unduly optimistic but that a possible deficiency there was more than compensated for by net equity in the family home significantly more than $2.6 million, Mr Timms would not have expected the bank to inform him of those separate elements of the overall credit assessment that caused the bank eventually to make the positive decision notified by the letter of 10 December 1991. Mr Timms put forward a package of points – some to provide information, others by way of rational argument or submission and yet others of a more emotive kind based on past loyalty and threat to go to another lender – that he though best calculated to change the bank's mind. In doing so, he did not intend to embark upon a debate or to seek information from the bank about its views on the several matters covered in the letter. He intended merely to put before the bank a package of persuasion such as would make the bank change its mind, as it eventually did. 152 In these circumstances it is not possible to characterise the context in which the bank did not respond to Mr Timms' assertion of belief that the business was extremely sound and that the bank considered it extremely sound as a context giving rise to a reasonable expectation of specific response by the bank to that assertion – any more than the context gave rise to a reasonable expectation that the bank would respond on the several elements implied in the expressed view that there was equity of $2.6 million in the family home. Any reasonable person in the position of Mr Timms, having delivered the letter, would have expected that it would produce either a confirmation or a withdrawal of the existing rejection or, at the most, a request by the bank for further information of some kind, had it decided to review the original decision. The overall expectation might have been broad enough to encompass an expectation of further explanation in the case of confirmation of rejection. But it would not have included an expectation that, in case of the approval the letter so firmly sought, there would be any statement of reason, much less any response, point by point, to the matters raised in the 28 November 1991 letter. Ultimate approval would mean that the letter had been successful. It would therefore be of no further utility and would have no further part to play. 153 It is necessary to refer also to the evidence of Mr Hart, the immediate recipient of the letter of 28 November 1991. In cross-examination at the first trial, Mr Hart agreed that the impression which would have caused Mr Timms to include in that letter a statement of belief about the bank's view of the soundness of the business could only have come from Mr Walker and himself. They were the only bank officers with whom Mr Timms and Mrs Timms dealt. It was then put to Mr Hart that if the impression stated by Mr Timms in the letter had been incorrect, he (Mr Hart) would have corrected it, to which Mr Hart replied, "I don't believe that I was bound to correct something out of a letter that had been provided to us". The cross-examination continued: "Q As a responsible banker you wouldn't be wanting one of your customers to misrepresent something you had said to them, would you? A No, that's the case. Q Especially in a letter that you then proceeded to forward to your Zone administration, that is correct, isn't it? A Yes, that is correct. Q If it incorrectly stated the bank's agreement, can I suggest two things would have happened. One, you would have said so to the administration when you annexed the letter, you agree? A Yes. Q And secondly, you would have told the customer straight away that he'd got it wrong. That is also correct isn't it? A Yes, that may have been the case, yes. Q And neither of those things happened, did it? A I didn't qualify that letter, no, that comment, no." 154 It will be seen here that Mr Hart accepted, in effect, a duty to tell his employer if he thought something in the customer's letter to be wrong or misleading but did not accept any such duty towards the customer. His answer, "Yes, that may have been the case, yes" admits of possibility only and did not, as I see it, override the clear earlier statement (which seems to me unambiguously to refer to any perceived obligation towards the bank's customer) that he did not consider himself "bound to correct something out of a letter that had been provided to us". Added to this is the fact that, as I have already said at paragraph [71], I am satisfied that, at branch level, there was a belief that the business was sound, even though there was no representation to that effect by the branch officers to Mr and Mrs Timms. The full and up to date information about the parlous financial situation in which the business was placed was held at Zone level only. 155 My conclusion in relation to what is, effectively, the allegation against the bank of misrepresentation by silence upon which the "non-disclosure" claim is based is accordingly that the absence of specific response by the bank to the relevant part of Mr Timms' letter did not constitute conduct within s.52 of the Trade Practices Act, even though the bank did not believe that the business was extremely sound. The certification claim – evidence and findings 156 The need for "certification" by Rosenfeld Kant & Co at the heart of the "certification claim" arose from Mr Walker's letter of 10 December 1991 to Mr and Mrs Timms conveying loan approval. One of the conditions of the loan approval was that such certification be received by the bank. Mr Walker's letter also said that the bank would itself provide copies of the financial statements to Rosenfeld Kant & Co. From the inception, therefore, the obtaining of the certification the bank required was a matter that was to be dealt with by the bank direct with the accountants. There is no dispute that Mr Hart telephoned Mr Rosenfeld on 12 December 1991 to alert him to the need for the certification. There is, however, dispute as to what was said in that conversation. I shall return to that. The terms of the bank's faxed request to Mr Rosenfeld (which was accompanied by copies of financial statements) are set out at paragraph [32] above. The terms of Mr Rosenfeld's reply to the Five Dock branch dated 16 December 1991 are set out at paragraph [33]. It is obvious that Mr Rosenfeld's fax did not respond to the bank's request: it simply did not provide "clarification … that the Financial Data provided with the application represents a true accurate account based on your own investigations of this Group's performance over the period 30/6/89 to 30/6/91". All Mr Rosenfeld did was to confirm that the "initial financial information" for the years in question upon which he had advised his clients was the same as that sent by the bank with its request. It is not suggested that there was anything other than this fax of Mr Rosenfeld that might or could have represented satisfaction of the condition attached to the finance approval. 157 As with the "non-disclosure claim", the case the plaintiffs advance is that the bank engaged in misleading or deceptive conduct by failing to inform Mr and Mrs Timms, before the loan was made to finance the purchase, that the certification which, in accordance with one of the loan approval conditions, the bank was to receive before the loan was made available had not been given. 158 The first step, in addressing the certification claim, is to examine the evidence and make a finding on the important question of what was said in the telephone conversation of 12 December 1991 between Mr Hart and Mr Rosenfeld. Mr Hart, when cross-examined before me by counsel for Mr Rosenfeld, said that his full recollection of the conversation is that it was a courtesy call made by him to tell Mr Rosenfeld that a fax was about to be sent to him concerning approval of the facilities, with a brief description of what was required, generally in the terms which were later included in the fax. Mr Hart said that he could recall nothing beyond that and, in particular, that he could not recall Mr Rosenfeld saying words to the effect that he had not carried out an audit and, while he wanted to help his clients, he could not verify that the accounts represented a true and accurate account of the group's performance; and that all Mr Rosenfeld could do was to confirm that the accounts he had looked at were the same as the ones Mr Hart had. Mr Rosenfeld's evidence is that he did say such words to Mr Hart, making it clear that he had not done the work that would enable him to give an opinion on the matter in which the bank was interested. Mr Rosenfeld also testified that Mr Hart replied, "Okay – send me a letter confirming that". 159 Mr Hart gave evidence about Mr Rosenfeld's fax of 16 December 1991 supposedly responding to the bank's request to Mr Rosenfeld. Mr Hart testified that he did not remember the fax from Mr Rosenfeld being received. He agreed that it did not satisfy the bank's condition and that, if he had seen and read it on 16 December 1991, he would readily have recognised this. He also agreed that he was the bank officer responsible for seeing that the loan approval conditions were satisfied and that for any responsible and prudent bank officer to regard Mr Rosenfeld's fax as satisfying the condition would have been a mistake. 160 The matters I have just mentioned need to be considered in the light of the way the certification condition came to be included in the loan approval. As discussed at paragraph [31] above, it was included by Mr Hart as a means of causing the false representation made by him to the Western Zone in his memorandum of 3 December 1991 to gain a form of retrospective validity. The representation was that the Timms' accountants had expressed, after their investigation, an opinion that "the statements of affairs represent a true and fair view of the Group's performance". Mr Rosenfeld had expressed no such opinion. Mr Hart knew this. He then set out to obtain, by means of the condition, such an expression of opinion. 161 I am satisfied that Mr Hart, having embarked on this course in an attempt to mitigate the effects of his deliberate misrepresentation to his superiors in the bank, came to realise at an early point in his contacts with Mr Rosenfeld that the attempt was doomed to fail because Mr Rosenfeld was not in a position to express the required opinion. It is more likely than not that Mr Rosenfeld said this to Mr Hart, as Mr Rosenfeld testified, when Mr Hart telephoned Mr Rosenfeld on 12 December 1991. The fax sent by Mr Rosenfeld in response to Mr Hart's of 12 December 1991 was sent on 16 December 1991. Despite Mr Hart's evidence that he did not remember seeing it then or subsequently (at least until 1993), I am satisfied that he must have seen it. 162 Having received Mr Rosenfeld's fax, Mr Hart must have known it did not satisfy the relevant loan condition. Even the most cursory reading would have shown that immediately. He also knew that he would not receive from Mr Rosenfeld anything that did satisfy the condition. But Mr Hart had painted himself into a corner. If he had made an issue of the absence of certification, he might well have brought to light the fact that he had made a deliberate misstatement to the Western Zone. The line of least resistance was for Mr Hart to treat Mr Rosenfeld's fax as if it satisfied the condition, even though it clearly did not – or simply to ignore the certification condition to which the loan approval was subject. And that is the course that, on the balance of probabilities, I find that Mr Hart took. I do not accept that, in the particular circumstances where he was trying to deal with his own deliberate misrepresentation, Mr Hart would, as he said in cross-examination, have felt duty bound to inform his superiors that the certification had not been received. Indeed, from where he stood, considerations of self-preservation meant that the less his superiors knew about the matter the better. 163 The next factual issue in relation to the certification claim concerns what passed between Mr Rosenfeld and Mr Timms after Mr Rosenfeld was informed by Mr Hart by telephone on 12 December 1991 that the loan approval was conditional on Mr Rosenfeld's providing certification. In approaching that matter, it is important to remember that Mr Hart sent the faxed request to Mr Rosenfeld, preceded by the preliminary telephone call, on the day on which Mr Timms and Mrs Timms attended upon Mr Hart to receive the letter of 10 December 1991. It is likely that the telephone call and fax to Mr Rosenfeld occurred either towards the conclusion of the meeting at which Mr Hart gave Mr Timms and Mrs Timms the letter or immediately after that meeting. Mr Hart would not have bothered to take steps towards satisfaction of the conditions in the letter until he had received from the bank's customers some clear confirmation that they wished to proceed with the loan on the basis set out in the letter. It is therefore also likely that Mr Rosenfeld received no advance notice from his own clients that the bank required certification by him, since Mr Hart's contact with Mr Rosenfeld occurred either during or very soon after the meeting at the Five Dock branch at which they were present. In those circumstances, Mr Rosenfeld's statement to Mr Hart of inability to provide the required certification may be accepted as having been made before the matter of certification became the subject of any conversation between Mr Timms and Mr Rosenfeld. The evidence of Mr Timms is that there was never any such discussion between himself and Mr Rosenfeld and that Mr Rosenfeld never told him that the certification could not be given. Mr Rosenfeld's evidence, on the other hand, is that, between 12 and 16 December 1991, he had a telephone conversation with Mr Timms as follows: "Myself: 'Michael Hart has asked me to verify the Business' accounts. I can't do that because I haven't carried out any due diligence. I've told him all I can do is confirm that the accounts I've looked at are the same as the ones he has.' Mr Timms: 'Fine'." 164 On this, I prefer the evidence of Mr Rosenfeld. It is virtually inconceivable that any accountant, having received a request of the kind conveyed by Mr Hart's fax of 12 December 1991 highly material to clients' prospects of obtaining finance, would have said nothing to the clients about it. I find that the conversation deposed to by Mr Rosenfeld took place. The timing of it is a matter of greater difficulty. In cross examination before me, Mr Rosenfeld was unable to be sure whether he spoke with Mr Timms before or after the reply was faxed to Mr Hart, although he was sure that the conversation took place on the day of transmission. It is likely, therefore, that, when contracts were exchanged on 16 December 1991 for the purchase of the Artrona business, Mr Timms was aware that Mr Rosenfeld had sent to the bank the letter he in fact faxed earlier on that day, being a letter that referred to the bank's request of 12 December 1991 but did not provide the certification it sought. And, on my findings, it must be regarded as certain that Mr Timms was so aware by the end of that day. 165 The conclusion that Mr Rosenfeld communicated with Mr Timms in this way is strengthened by Mr Timms' evidence about what did pass between him and Mr Rosenfeld in the period 12 to 16 December 1991. Mr Timms said that he had a number of conversations with Mr Rosenfeld in that period. He also said that one of the matters covered was whether Mr Rosenfeld had received "certified tax figures" from the Wheelers' accountants, that being something on which Mr Rosenfeld was waiting. Mr Rosenfeld's evidence is consistent with that of Mr Timms to the extent that he deposes to a telephone conversation with Mr Timms on 16 December 1991 on the question whether certain tax information had been received from Mr Murrell, although the substance of what was said differs substantially as between the two witnesses. If Mr Rosenfeld had provided (or been in a position to provide) the certification of accounts required by the bank, receipt of "certified tax figures" from the Wheelers' accountants would not have been a matter of importance to Mr Timms. Whatever comfort or assurance the awaited "certified tax figures" might have provided would have been unnecessary because of Mr Rosenfeld's ability to say that the accounts sent to him by Mr Hart on 12 December 1991 presented a true and accurate account of the state of the Artrona business. Mr Timms' continued quest for assurances as to tax figures from the Wheelers' accountants indicates, consistently with Mr Rosenfeld's account, that he was aware that Mr Rosenfeld had not carried out the work envisaged by the bank's request for certification. 166 There is, in any event, a question whether, in the context, there existed or should have existed any expectation that the bank would inform Mr Timms and Mrs Timms if Mr Rosenfeld did not supply the certification called for by the loan approval condition. This, of course, is crucial to the capacity of silence by the bank on that matter to amount to conduct that is misleading or deceptive for the purposes of s.52 of the Trade Practices Act. 167 As a general matter, it must be accepted that lenders impose conditions of this kind unilaterally, for their own protection and in their own interests. In doing so, they are not directly concerned with the protection of their borrowers. While the position the condition is intended to secure may be of such a nature that satisfaction of the condition will serve the interests of the customer, that is no more than a coincidental by-product. There is nothing to suggest that this case was any exception. On the face of the bank's letter of 10 December 1991, the certification requirement was one imposed unilaterally by the bank. Of its nature, the condition was one calculated to secure for the bank a measure of comfort about the financial state of the business its customers wished to buy with the aid of the loan the bank was asked to provide, being a loan the servicing of which would depend on the future fortunes of the business. There was no prior discussion between the bank and its customers on the subject of certification. They were dealing at arm's length. The bank simply said, in effect, "We reserve the right to refuse the loan unless you provide this certification." The statement did not differ, in its purpose and intent, from the statement earlier in the bank's letter of 10 December 1991 that the funds would not be advanced until security documentation had been completed. 168 The circumstances of arm's length dealing and opposing interests were accordingly such that the inclusion of the condition as to certification in the letter of 10 December 1991 cannot be regarded as having given rise to any plausible or well based expectation that the bank would take active steps to alert Mr Timms and Mrs Timms as to any non-satisfaction of the condition. It follows that the bank's failure to inform them that, as at the point at which the loan was advanced, Mr Rosenfeld had not provided the certification was not something capable of amounting to contravention of s.52 of the Trade Practices Act in the way referred to in Demagogue Pty Ltd v Ramensky and Metalcorp Recyclers Pty Ltd v Metal Manufactures Ltd (above). The fiduciary duty claims against the bank 169 The position reached in relation to the Trade Practices Act claims is sufficient to deal also with the claims against the bank based on alleged breach of fiduciary duty. Cases in which a bank lending to a customer comes to occupy a fiduciary position in which it must prefer the customer's interests to its own are rare. Fiduciary responsibility arises only where the bank's role is seen to extend beyond that of finance provider into the area of advice, as in Commonwealth Bank of Australia v Smith (1991) 102 ALR 453. The fact that a bank has information about a customer's proposed purchase and the subject matter of that purchase suggesting that transaction over-values the subject matter or that the subject matter may be unprofitable is, of itself, insufficient to give rise to such responsibility. This is made clear by the decision of the Queensland Court of appeal in Commonwealth Bank of Australia v Finding [2001] 1 QdR 168. 170 Relevant principles in this area are conveniently and, in my respectful opinion, accurately summarised in the judgment if Kiefel J in Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516 (18 December 2003). Her Honour said, at [316] to [320]: "The existence of a relationship, as earlier discussed, may be relevant to the question whether a person has a reasonable expectation that they will be told of something and whether, in the absence of that advice, the conduct of the other party may be misleading. The Commission's case for contravention of s 52 would appear to assume something more arising from the relationship between the bank and the Gleesons than was really the case. In Golby v Commonwealth Bank of Australia (1996) 72 FCR 134 at 136 Hill J said: ' Although, as Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96 suggested, the categories of fiduciary relationship are not closed, the relationship of banker and customer is not one of the accepted fiduciary relationships . It is not a critical feature of a banker/customer relationship that the banker undertakes or agrees to act for or on behalf of or in the interests of its customer in the exercise of some power or discretion affecting the interests of the customer in a legal or practical sense. When a customer defaults in the repayment of a mortgage, a banker is entitled to exercise the powers in the mortgage for the banker's own interest, at least so long as the banker acts in good faith in exercising the power of sale. Absent therefore some special feature, such as the giving of advice in Smith , there is no reason to erect a fiduciary relationship between banker and customer when that relationship is essentially one founded in contract.' The statement was cited with approval by the Queensland Court of Appeal (Davies JA, Pincus JA and Derrington J) in Commonwealth Bank of Australia v Finding [2001] 1 Qd R 168 at 172. In that case, as here, the bank held a valuation which suggested that their customers had paid too much for the property. Further its officers held some concerns about the profitability of the business conducted on it, a hotel. The Court held that the bank was under no duty to provide the valuation (at 172-173) and that there was nothing in the conduct or statements of the bank which was misleading or deceptive by non-disclosure of the valuation (174-175). Relevantly the customer could not be said to have expected disclosure (at 175). There are situations in which a bank might itself create such an expectation. In Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 a Full Court of this Court (Davies, Sheppard and Gummow JJ) held that a bank both breached a fiduciary relationship with its customer and engaged in misleading and deceptive conduct. In that case, however, a manager of the bank had advised the respondents about the suitability of a business without having a reasonable basis for the statement. He had also advised them that the owner of the hotel in question was a customer of the bank. In these circumstances the respondents were entitled to think that the statements were made by a person who had a close knowledge of the hotel and was in a position to say whether the price was reasonable (at 475). There is nothing in the relationship of the bank and the Gleesons or in the bank's conduct which is similar to the circumstances pertaining in Smith . It is closer to those in Finding . The Gleesons did not give evidence of the creation of a relationship over the course of time which involved their reliance upon the bank for advice, to the bank's knowledge. The only relationship which appears to have existed between them is a business relationship in which the bank was a lender. It had not been and was not now their advisor. No advice had been sought by the Gleesons. The Gleesons would have expected the bank to obtain its own valuations so that it might assess the value of the security offered. They could not have had an expectation that the valuation would be provided to them or that the bank would volunteer advice about the wisdom of the purchase they had undertaken. This is so even without the conditions. The conditions which the bank ensured Mrs Gleeson had read, put it beyond doubt. " 171 The central test for the existence of fiduciary duty emerging from the joint judgment of Davies, Sheppard and Gummow JJ in Commonwealth Bank of Australia v Smith is whether the bank has, by its actions, engendered in the customer an expectation inconsistent with the bank's acting in its own interests to protect its position as lender. Such an expectation may arise where "the customer may fairly take it that to a significant extent his interest is consistent with that of the bank in financing the customer for a prudent business venture" [emphasis added]. 172 That was not the case here, even on the view of matters emerging from the evidence of Mr Timms and Mrs Timms. Their relationship with the bank was of the description appearing in the last paragraph of the above extract from the decision of Kiefel J in Oceana Commercial. Previous transactions between the Timms and the bank had been exclusively of a traditional banker-customer kind. There was nothing in the history of the relationship to suggest that Mr and Mrs Timms relied on the bank for advice. On their own evidence, all their approaches to the bank during a relationship spanning some 20 years related to ordinary banking business, including lending for housing and home extensions as well as financing transactions for investment properties. On the facts as I have found them, Mr and Mrs Timms did not seek, and the bank did not volunteer, advice about the wisdom of the Artrona transaction. That was also the position in relation to the earlier business ventures that had been considered. In fact, Mr Timms deposed that the decision in February 1990 to seek assistance on such matters from an accountant (which decision led to the establishment of the relationship with Mr Rosenfeld) was made after an unsatisfactory meeting with the manager of the bank's Maroubra Junction branch. It is true that, when eventually dealing with Mr Hart (who had previously been at Maroubra Junction) in relation to the Artrona proposal, Mr Timms and Mrs Timms told Mr Hart that the Wheelers and their company were customers of the bank's Barrack Street branch and that he might obtain relevant information from that source. But, as I view matters, the inquiries Mr Hart made of Barrack Street (and which Mr Timms and Mrs Timms intended him to make) were encouraged by Mr and Mrs Timms because they thought that this would enhance the plaintiffs' prospects of success in their application for finance. There is no reason why Mr Timms and Mrs Timms would not have expected the bank to make its own investigations and keep the results confidential to itself. 173 To the extent that the claims based on s.52 of the Trade Practices Act are accompanied and supplemented by claims based on the existence and breach of a form of fiduciary duty owed by the bank to the plaintiffs, the latter claims must fail. The negligence claims against the bank 174 To the extent that the plaintiffs' claims against the bank are also framed in negligence, the findings already expressed mean that that basis for upholding the claims must also be rejected. The arm's length character of the relationship between the bank and the Timms parties and the fact that each had its own interest, independently of the other, in making some form of inquiry into and assessment of the Artrona business means that there cannot be taken to have existed between them, in relation to that activity, the form of proximity or neighbourhood that lies at the heart of modern conceptions of duty of care. 175 In New South Wales v Lepore (2003) 77 ALJR 558, a case concerning non-delegable duty of care, Gleeson CJ quoted with approval a passage from the judgment of Lord Greene MR in Gold v Essex County Council [1942] 2 KB 293 at 301-2. The passage reads in part as follows: "Apart from any express term governing the relationship of the parties, the extent of the obligation which one person assumes towards another is to be inferred from the circumstances of the case. This is true whether the relationship be contractual (as in the case of a nursing home conducted for profit) or non-contractual (as in the case of a hospital which gives free treatment). In the former case there is, of course, a remedy in contract, while in the latter the only remedy is in tort, but in each case the first task is to discover the extent of the obligation assumed by the person whom it is sought to make liable." 176 In the circumstances of the present case, the extent of any duty of care in negligence cannot exceed the extent of the responsibilities already considered by reference to the provisions of the Trade Practices Act and the fiduciary duty question. Just as no liability under either of those headings has been found to have been incurred by the bank, so too it must be found that there is no liability in negligence. The claim against the accountants 177 The case Mr and Mrs Timms seek to make against Mr Rosenfeld is that, having regard to the terms of his retainer, he was guilty of breach of contract and breach of a duty of care in negligence. The first step is therefore to determine the scope and content of the retainer, it being common ground that Mr Rosenfeld undertook some responsibility to advise in respect of the acquisition of the Artrona business. 178 Mr Rosenfeld had given advice to Mr and Mrs Timms on three other business propositions before being retained in relation to the Artrona proposal. In each of those cases, his input had played a part in a decision by the Timms not to proceed. In each instance, that decision was forthcoming after a relatively small amount of consideration, the negative aspects activating the decision being discernible at an early stage. Artrona, on Mr Rosenfeld's evidence, was different in this respect. A brief investigation was not going to be enough. He made Mr and Mrs Timms aware of that. After seeing the management accounts, Mr Rosenfeld formed a provisional view that the proposal might be worthwhile and was worth investigating. He saw a form of due diligence investigation as prudent. 179 The contract between Mr Rosenfeld as a supplier of professional services and Mr Timms and Mrs Timms as his clients was never reduced to writing. Its terms must be gathered from their conversations and the small amount of documentary evidence throwing light on the matter. There is conflicting evidence about the conversations, most of which occurred at three meetings at Mr Rosenfeld's office at which he, Mr Timms and Mrs Timms were present. 180 It is contended by the plaintiffs that Mr Rosenfeld had and professed expertise that enabled him to advise clients about whether or not to acquire particular businesses and had brought that expertise to bear when Mr and Mrs Timms sought advice about the protective coating, Danusha and Baleno proposals. Mr Rosenfeld accepts this. The plaintiffs also contend that Mr Rosenfeld was retained, in relation to the Artrona business, to conduct "a comprehensive and detailed financial investigation of the business" and to certify "the accuracy of the financial history of the business … as represented by or on behalf of the vendor companies" (these being words used in the third amended statement of claim) or, as it was put in the evidence of Mr and Mrs Timms, "to thoroughly investigate" the business, to "leave no stone unturned" and to "check absolutely everything" including such things as bank statements and cash books. Mr Rosenfeld denies this. He readily admits that he was retained to advise but he says that his role was to advise on particular matters as and when raised and that his main function was to provide guidance and advice to Mr Timms as to the steps that Mr Timms himself might take by way of investigating and assessing the business. 181 The evidence of Mr Timms and Mrs Timms is that Mr Timms phoned Mr Rosenfeld some time in the last few days of September 1991 and said that he and Mrs Timms had found a business "that we think looks alright" and that they wanted Mr Rosenfeld to look at some information Mr Golosky had given them "to tell me what you think of the business". Mr Rosenfeld denies that Mr Timms asked that Mr Rosenfeld look at the information from Mr Golosky and "tell me what you think of the business". Mr Rosenfeld's evidence is that Mr Timms said merely that he wished Mr Rosenfeld to "look at some financial information relating to" the two companies and that Mr Timms and Mrs Timms were interested in buying the business, at the same time asking whether he could arrange for Mr Wheeler to deliver financial statements to Mr Rosenfeld, to which Mr Rosenfeld agreed. According to Mr Rosenfeld's evidence, Mr Wheeler delivered financial statements (being the management accounts) to Mr Rosenfeld on 3 October 1991 and they had a brief discussion in the course of which Mr Rosenfeld noted that they indicated "significant trading losses", to which Mr Wheeler replied that the losses were due to "an export venture that the company was involved in that went sour". 182 Mr Timms and Mrs Timms met with Mr Rosenfeld at his office on 8 October 1991. This was their first meeting in relation to Artrona. Accounts of what was said at the meeting differ substantially. According to the evidence of Mr Timms, Mr Rosenfeld said he had "a good feeling about the business", to which Mr Timms replied that he wanted Mr Rosenfeld to "do a thorough investigation of the business and tell us whether we should buy it"; also "we want you to make sure that what the vendor is telling us about the business is true". It is common ground that there was discussion about two possible methods of valuing businesses. Mr Timms says that Mr Rosenfeld said that he would obtain the tax figures or audited accounts, reconciliations and bank statements for 1991. Mr Timms also testified that he said to Mr Rosenfeld, "Do whatever you have to do to thoroughly investigate and analyse the business". Mrs Timms' evidence is that she said, "We want you to absolutely thoroughly investigate the business – leave no stone unturned"; also, "Do whatever you have to do to thoroughly investigate and analyse the business". 183 Mr Rosenfeld denies these versions of events. His evidence is that, at the start of the meeting, Mr Timms said, "I want to do all the investigations. I just want you to point out to me the issues". Mr Rosenfeld also referred to statements by Mr Timms of a desire to save on costs. On Mr Rosenfeld's account, he, Mr Timms and Mrs Timms then went through a list of items Mr Rosenfeld had prepared in advance of the meeting, discussed the various items and agreed what would be done in relation to each. Mr Rosenfeld testified – and I am satisfied that it is the case – that, at the meeting, he made annotations on the previously prepared list to record what had been decided on the various points. The list was arranged in two columns. The points to be discussed were recorded in black ink in the left hand column. The agreed action items emerging from the meeting were recorded on the right in red. Mr Rosenfeld testified that the use of the two colours in this way was consistent with his general practice. The list, with annotations, is in evidence. It is as follows: "TIMMS – ARTRONA/2001 – 8.10.91 1. Accounts are prepared by Wheeler. BT to get Should get statutory accounts from his Wheeler to accountants – also copies of income tax organise returns. 2. Wheeler says that past losses to do with Brian to check export venture which went sour 3. Check Wheeler's experience 4. What are deposits on orders 5. Are purchases local or imported BT 6. What is accommodation Surfers - Wheeler's unit 7. Could verify turnover and direct costs BT by going through past bank statements and cash books. (Impossible to advise on the veracity of accounts as they are now) 8. BT should talk to landlords re new leases if goes ahead 9. If goes ahead should buy in new company so as not to be burdened by past liabilities. New sales tax no, group tax no, payroll tax no." 184 There can, to my mind, be no doubt that the entries in the right hand column represent agreed action items. Mr Rosenfeld's evidence about the meeting accords with these annotations. It is significant that, of the first seven (all of which involved pre-purchase checks or inquiries), four are marked in the right hand column to indicate that action is to be taken by Mr Timms. Item 1, noting that "accounts are prepared by Wheeler" (a reference, clearly enough, to the management accounts received by Mr Rosenfeld from Mr Wheeler), contains a suggestion or recommendation that statutory accounts should be obtained from Wheeler's accountants and the copies of income tax returns should be obtained. The noted action item – "BT to get Wheeler to organise" – shows that Mr Timms was to seek the documents through Mr Wheeler, rather than that Mr Rosenfeld was to take any active role in seeking them. 185 At item 2, Mr Rosenfeld had recorded Mr Wheeler's comment to him that losses were the result of an export venture that went sour. The noted action item is "Brian to check", thus indicating that it was Mr Timms, not Mr Rosenfeld, who was to inquire into the matter. Mr Timms was also noted against item 5, the implication again being that he would pursue the answer to the question raised. 186 Of particular significance is item 7 in which Mr Rosenfeld recorded the possibility of verifying turnover and direct costs by going through past bank statements and cash books, adding "Impossible to advise on the veracity of accounts as they are now". This item thus flagged both the impossibility referred to and a particular means of gaining a greater degree of confidence by a procedure involving inspection of particular financial source records relating to the business. That procedure was of an accounting or auditing nature and one in relation to which Mr Rosenfeld was equipped by training and experience to undertake, either personally or through a staff member. Yet the notation in the right hand column is "BT" from which it must be inferred that the action agreed at the meeting in relation to the item involved Mr Timms only. The notation does not say precisely what Mr Timms was to do but the unqualified reference to "BT" stands in contrast to "BT to get Wheeler to organise" against item 1, from which it may be inferred that the action envisaged for Mr Timms was not limited simply to obtaining bank statements and cash books from Mr Wheeler. 187 But even if the agreed action item was so limited, the evidence shows that Mr Timms did not take steps to obtain past bank statements and cash books. It is pertinent to quote a passage from Mr Timms' re-examination at the first trial: "Q. Was there any impediment, that you can think of, to you asking Mr Wheeler for the company's bank statements, had you been minded to do so? A. No. Q. Or the cash books? A. Not that I'm aware of. Q. Had you been asked to do so by Mr Rosenfeld, can you think of any reason at all for not doing so, not fulfilling that request? A. No. Q. It was suggested to you, by Mr Dubler, that Mr Rosenfeld had told you to take steps to inform yourself of the major expense items of the business, recall that? A. Yes. Q. And you said that you had not been given any such instructions or advice from Mr Rosenfeld? A. That's right. Q. And indeed that you had not taken any such steps to inform yourself of those matters by inquiry of Mr Wheeler? A. Correct. Q. Again, any impediment to you doing so had you received such instruction? A. No, I don't believe so. Q. You had plenty of opportunity to obtain such information from Mr Wheeler if you were so instructed? A. Yes." 188 It appears that no steps were ever taken to obtain past bank statements and cash books, whether by Mr Timms or Mr Rosenfeld. In the context of item 7 of Mr Rosenfeld's list and the action item appearing against it (which indicated, at the very least, that Mr Timms was to obtain the bank statements and cash books), this is consistent with Mr Timms having decided that the precaution or due diligence step suggested by Mr Rosenfeld in item 7 should not be pursued. 189 In cross examination before me, Mr Rosenfeld said that the only thing he understood remained to be done by him after the 8 October meeting was to receive the statutory accounts and see whether there was any discrepancy between them and the management accounts. He characterised the result of the meeting as being that he was "sending him [Mr Timms] off to do some investigations", adding that he did not recall whether he was expecting Mr Timms to come back, except perhaps for the purposes of any comparison of the management accounts and the statutory accounts, assuming Mr Timms obtained the latter. Mr Rosenfeld's evidence about his appreciation of the position at that point was as follows: "Q. Can I just ask you in relation to the last comment you make there, 'Impossible to advice the veracity of the accounts as they are now'. Does that suggest, according to your evidence, that you expected Mr Timms to go forth and conduct a due diligence and come back to you with answers? A. No. That refers to the fact that I wanted to see statutory accounts. Q. So anything that Mr Timms did was of no consequence, you would expect him to come back and ask any further questions? A. I wouldn't say it was of no consequence but I was still waiting to receive the statutory accounts. Q. I understand that. What I'm asking you about is you have said you sent Mr Timms out to conduct this full due diligence. What I'm asking is did you expect him to come back and give you results for you to further assist? A. Not at this time. Q. Did it change? A. No. Q. So at this point in time you didn't expect him to come back at all? A. No. Q. So it is quite unlike sending a staff member out to conduct a due diligence and come back to you to give him further direction? A. That's correct." 190 The competing accounts of the 8 October 1991 meeting all refer to a discussion of business valuation methods. Mr Rosenfeld says that he referred to two methods of valuing businesses, being a capitalisation method and a net assets method. He prepared on paper a rough calculation by reference to each method, using the figures in the management accounts he had received from Mr Wheeler. The sheet containing Mr Rosenfeld's calculations is in evidence. Mr Rosenfeld says that he gave a copy to Mr Timms and Mrs Timms at the meeting to illustrate the results of applying the two methods to the figures in the management accountants he had received from Mr Wheeler, commenting that he did not consider the net assets method to be appropriate in the particular case. Mr Rosenfeld also says that he made it clear that his calculations were based on the management accounts the reliability of which he had already put in issue in the first item of the list prepared for and tabled at the 8 October 1991 meeting. Because of that clear caveat – and Mr Rosenfeld's unambiguous indication that the statutory accounts and income tax returns should be obtained – it is simply impossible to accept that Mr Rosenfeld considered himself in any way able to express an opinion on value on 8 October 1991. What he did do, however, was to show Mr Timms how the question of value might be approached once reliable financial performance and balance sheet figures were available. 191 Mr Rosenfeld received the statutory accounts for the years ended June 1990 and June 1991 when Mr Wheeler delivered them to his office on 4 November 1991. Mr Wheeler had obviously delivered the documents at the request of Mr Timms and Mr Rosenfeld no doubt inferred that Mr Timms wished him to play a part in the foreshadowed comparison of management accounts and statutory accounts (at least in relation to the 1989-90 and 1990-91 years). Mr Rosenfeld then set about making the comparison. He made a handwritten note of the result: " TIMMS-ARTRONA/2001 INTERIORS Artrona 2001 Total Profit Mgt Acc (1991) 79,408 303,914 383,322 Profit Statutory Acc (1991) 720 174,038 174,758 Deduction 78,688 129,876 208,564 1. Why are they showing profits in 2001 Interiors when Artrona has losses carried forward? 2. Customer Deposits 1990 $211,740?" 192 Some time between 4 and 11 November 1991, Mr Rosenfeld telephoned Mr Murrell, an accountant with Priestley & Morris, who acted for the Wheelers. I infer that Mr Timms had arranged for Mr Wheeler to authorise Mr Murrell to speak with Mr Rosenfeld. Mr Rosenfeld's account of the conversation is as follows: "Myself: 'Do you have copies of the tax returns for Artrona and 2001 Interiors for 1990 and 1991?' Mr Murrell: 'No they haven't been prepared yet, but I don't foresee any significant adjustments being made for them from the accounts.' Myself: 'Why are the accounts being prepared so late?' Mr Murrell: 'Wheeler hasn't paid my fees. I think he is having some financial difficulties – he spends money faster than he earns it.'" 193 Mr Rosenfeld says that he phoned Mr Timms to tell him of receipt of the statutory accounts and, in general terms, of the discrepancies found. A meeting was arranged. Mr Timms and Mrs Timms went to Mr Rosenfeld's office on 11 November 1991. Again, Mr Rosenfeld had prepared in advance a list of matters to be covered. That list, with outcomes noted in the right hand column, is as follows: "TIMMS - ARTRONA Statutory accounts significantly different from previous ones. BT should meet with Wheeler and get a comprehensive explanation for differences. What we saw to date not reliable. If deal goes ahead should get expert to examine stock not only finished goods but also raw material re see if leather is ok. Wheeler's accountant said that accounts were late in being prepared because Wheeler has not paid fees. He believes that Wheeler has financial difficulties – Tends to spend money faster than he makes it. BT to talk to creditors to see their reaction. OK If Wheeler is going to retain 25% as suggested – BT BT to could end up with a bankrupt minority shareholder. talk to However, Wheeler has been in the business and one Wheeler assumes has expertise. Has the costing system been checked? What BT says accounting staff does Wheeler employ? How he will efficient? look at this Consider injection of capital if goes ahead. BT to work there on a trial basis before purchase to satisfy himself that he is getting what he is paying for. See if interim accounts are available for the current financial year – even though from what we got from Wheeler in the past I doubt that we could rely on these." 194 The first two items in Mr Rosenfeld's list refer, not surprisingly, to the need to obtain an understanding of the differences between the management accounts and the statutory accounts. The second item is significant. It says that Mr Timms should meet with Mr Wheeler to obtain "a comprehensive explanation for differences". The obtaining of an understanding of the differences was very much an accounting task, at least in the first instance; so too was an assessment of the implications of the differences, once understood. If, as Mr Timms and Mrs Timms say, the task set for Mr Rosenfeld at the first meeting entailed his making a thorough investigation and analysis leaving "no stone unturned", Mr Rosenfeld would not have, as it were, consigned to Mr Timms the task of seeking a "comprehensive explanation". Knowing that a significant component of any thorough investigation was to discover whether the true situation as to assets, liabilities and financial performance was as shown by the management accounts or as shown by the statutory accounts or whether some altogether different position pertained, Mr Rosenfeld would have taken on the task himself. Allocation of the task to Mr Timms is consistent with the role Mr Rosenfeld says he was retained to perform, that is, the role of providing guidance and advice to Mr Timms as to the investigations and assessment Mr Timms himself might undertake. 195 Returning to the list prepared by Mr Rosenfeld in advance of the 11 November meeting, it will be seen that two other items in the left hand column prepared in advance are in the same mould as the second: "BT to talk to creditors …"; and "BT to work there …". These too represent suggestions as to actions Mr Timms should take and are therefore consistent with Mr Rosenfeld's version of the retainer rather than that put forward by Mr and Mrs Timms. The same comment applies, although by reference to the entries in the right hand column, to the sixth and seventh items. In each of those two cases, it must be accepted that the decision at the meeting was that Mr Timms would take on the suggested task even though in each instance (and more particularly in the latter) the task was of such a kind that it would have been expected to fall within the province of an accountant retained to perform a comprehensive due diligence on a business under consideration for purchase. Mr Rosenfeld deposed that, after receipt of the statutory accounts, he spoke to Mr Timms by telephone, referred to the inconsistencies and asked whether Mr Timms wanted Mr Rosenfeld to "do a full due diligence of the business", to which Mr Timms replied that he would do it himself and was seeking assistance from Mr Rosenfeld as to what to look for. The list Mr Rosenfeld prepared in advance of the 11 November 1991 meeting, coupled with the action items agreed at the meeting, lends strong credence to Mr Rosenfeld's version. 196 On 25 November 1991, another meeting occurred at Mr Rosenfeld's office. According to the evidence of Mr Timms and Mrs Timms, only they and Mr Rosenfeld were present. Mr Rosenfeld says that Mr Wheeler was also there for a time but left before the Timms so that he (Mr Rosenfeld) and they continued with the discussion without Mr Wheeler. There is, naturally enough, no reference in the Timms evidence to what was said by or to Mr Wheeler at that meeting. For present purposes, the more important aspect is what passed between Mr Rosenfeld and Mr and Mrs Timms. According to the Timms' account (denied by Mr Rosenfeld), they raised with Mr Rosenfeld the point that profit in the statutory accounts was lower than that in the management accounts and he confirmed that that meant that "the value will be less than the original figure". They then attribute to Mr Rosenfeld the following statement: "The profit will be $174,000 plus add-backs. Thus the real profit is $225,000, less 39% tax; this yields $137,000 after tax. If you capitalise this figure over three (3) years you get around $400,000." According to the account in the Timms' affidavits the conversation continued along the following lines: "BT: 'That's good, because the purchase figure we have agreed is $300,000. Les, have you analysed the business sufficiently to make a recommendation?' LR: 'Yes I have. I've looked at it thoroughly and the business checks out. It is a profitable business and I am very happy about it. This business I recommend you buy.' AT: 'Are you quite sure that you checked everything because anybody can produce a set of reports and put figures on it.' LR: 'I checked it all out and it is correct. The business is making the money they say it is making.' AT: 'Have you checked the bank statements?' LR: 'We are way past that.' AT: 'Will this business be able to support two families?' Les: 'Yes.' AT: 'You know we are investing a huge amount of money, so we want to be absolutely sure that the business is okay.' LR: Trust me, everything will be fine. What you are buying is a good business. I have checked it thoroughly. You will make money.'" 197 Mr Rosenfeld's account of the meeting involves his putting to Mr Wheeler the proposition that he was in financial difficulties and asking for an explanation, to which Mr Wheeler replied that the difficulties were not related to the business but to personal property investments and that the business itself was sound. Mr Rosenfeld's account continued: "There was then a general discussion about how stock would be valued and how the cut-off date on settlement would be dealt with should the purchase of the Business proceed. These issues were left on the basis that Mr Timms and Mr Wheeler were to discuss this further between themselves. I recall that Richard Wheeler then left the meeting. There was then a further conversation between myself and the Timms which was in words to the following effect: Myself: 'Richard Wheeler seems desperate to sell. I believe they need to reduce personal liabilities. Considering the Wheelers' apparent financial circumstances, if you are going to buy the business you should drive a hard bargain in negotiating a price. I'm not in a position to advise you in relation to the value of the Business because the accounts I've seen aren't audited and can't be relied upon.'" 198 There is in evidence a note said by Mr Timms to have been made by him at this meeting. At the top is a reference to a service agreement, followed by a line under which appears "Les Rosenfeld" followed by bullet points which I infer record things said at the meeting. These refer to value of goodwill, stock and customer deposits, some of which are mentioned in Mr Rosenfeld's account of the meeting but none of which appears in the Timms' accounts. In cross examination before me, Mr Timms said he had no recollection, independently of his note, of those matters being discussed and that that was the reason why there was no reference to them in his affidavit. Then follows the last section of the note in which appear a number of jottings , including "$174K + addbacks profit less tax", "805 retail markup"and "after sales service! – discounting factor for this". There is also a rough pie-chart consisting of three segments, one marked "16%", another "24% - sounds high" and the third blank. A calculation appears in which "225" is labelled "real profit", "39%" is deducted therefrom and the result is shown as "137K – after tax", below which is "capitalise this over 3 years = 400K" and "gut feeling = 300K". 199 It was obviously by reference to this content that the account of the conversation at the 25 November 1991 meeting given by the Timms was composed. Mr Timms was cross examined about this content, so far as it concerned "gut feeling = 300K", at the first trial: "Q. You have a clear recollection do you, of Mr Rosenfeld telling you 'gut feeling equals 300,000'? A. A very clear recollection of that. Q. That doesn't appear in your affidavit does it Mr Timms? A. I don't think it does, no. Q. You were trying to set out in your affidavit all of the key features of what Mr Rosenfeld was telling you about value weren't you? A. I was trying to recollect to the best of my ability, what had been said at that meeting. Q. And it's the case is it not, that when you swore your affidavit of 5 July 1991 [scil. 1999], and gave instructions to your lawyers about the contents of paragraph 71, you had no recollection of a comment such as gut feeling equals 300,000, isn't that right? A. I may have – I had no recollection at that time, that's possible, yes. Q. Your recollection of Mr Rosenfeld saying anything along the lines of 'gut feeling equals 300,000', you've just made up in the witness box isn't it Mr Timms? A. No I have not. Q. You see, gut feeling of 300,000 was your gut feeling Mr Timms correct? A. Incorrect. Q. That after your meeting with Mr Rosenfeld you looked at the tax accounts and you did your own calculation that can be seen on the second half of page 32, correct? A. Absolutely incorrect. Q. You see, you understood from Mr Rosenfeld's conversations with you on 8 October 1991, that there were at least two methods for valuing a business. One involved going back three years, and another going back more than three years correct, that's what you recall him telling you? A. That's what I wrote in my note, yes. Q. And you don't recall Mr Rosenfeld telling you anything to the effect that now, I think we should only look at one year's profit, you didn't say that did you? A. I don't recall him saying that. Q. But you understood on your evidence, that the figure of 400,000 was only based on one year's profit wasn't it? A. The only thing I understood was that Mr Rosenfeld was now telling me that the value of the business is $400,000. Q. Mr Timms, your evidence is, is it not, that you recall Mr Rosenfeld saying profits $174,000, remember him saying that or not? A. Yes I do remember him saying that. Q. And you understood did you not, that 174,000 was the profit figure in the 1991 tax accounts, correct? A. Yes. Q. Your evidence is, is it not, that you recall Mr Rosenfeld taking the nett figure of that by taking out 39 percent tax after do you remember that? A. Yes I do. Q. So that that gave a figure of 137,000, that's your evidence isn't it? A. Correct. Q. And you recall you say, Mr Rosenfeld telling you that you should capitalise that over three years, that's what you say isn't it? A. Yes. Q. Well you understood did you not, that Mr Rosenfeld was thereby only using one year's profit? A. It didn't occur to me at the time what he was doing." There was similar cross-examination about the other elements of the last section of Mr Timms' note. 200 Mr Timms was cross examined before me about the last section of the note: "Q. You were asked about that matter in the first trial. If I can just direct your attention to the transcript about it. I will read it to you. It is Black Book 1, or Exhibit A1 in these proceedings, page 155 at N. You are asked, 'And it's the case, is it not, when you swore your affidavit of 5 July 1999 and gave instructions to your lawyers about paragraph 71, you had no recollection of a comment such as "gut feeling equals 300,000"', isn't that right? A. I may have. I have no recollection at that time, that's possible, yes. Q. Can we take it that answer was true and correct, Mr Timms? A. Yes, because I had no recollection independent of the note. Q. Mr Timms, aided by the note, when you swore your affidavit, you had no recollection about 'gut feeling equals 300,000' being sent, isn't that right? A. No, it's not. It would have been a simple matter to whack it in the affidavit. I can't explain to you why we didn't. Q. You knew I was going to ask you that, didn't you Mr Timms? A. It seemed logical. Q. You have no explanation, may I take it, why that is not in your affidavit, is that right? A. That's correct. Q. I want to suggest to you, you have no recollection, aided even by the note, of not only 'gut feeling 300,000' being said, but also anything about 400,000. You actually, in July 1999, have no recollection of either '400,000' being said or '300,000' being said, isn't that right? A. Independent of the note? Q. Well let's start with that first, independent of the note. Do you agree with that? A. Not completely, no. Q. Are you prepared to accept what's in your affidavit about 400,000 is substantially going off your note? Do you agree with that? A. Yes, I would. Q. I want to suggest to you even with the aid of your note, when you prepared your affidavit, you have no actual recollection of whether either '400,000' was said or '300,000'? A. With the aid of my note? Q. Even with the aid of your note, Mr Timms? A. I disagree with that. Q. I want to suggest to you you were looking at your notes of things written 7 and a half years of a conversation and are simply putting in '400,000' to assist your case, isn't that right Mr Timms? A. No, it's not right. Q. Let's go back up and look again at the words 'can't use prior years'. Do you see that? A. Yes, I do. Q. That also doesn't appear anywhere in your affidavit when you are dealing with this topic. Do you want to look and check? A. I think that's the case, yes. Q. I want to suggest to you that doesn't appear in your affidavit because you have no recollection of that being said even aided with the note; do you agree with that? A. No. Q. So you say, when you look at the note, it brings to mind that words of that effect were said, is that what you are saying? A. That is exactly what I am saying. Q. Why isn't that in your affidavit? A. I don't know." 201 Mr Timms' contention is that the $400,000 value figure and the "gut feeling" of $300,000 came from Mr Rosenfeld. But the valuation method the jottings disclose was not one to which Mr Rosenfeld had referred when approaches to valuation were discussed at the earlier meeting. Mr Rosenfeld's method involved application of an appropriate multiplier to the average of the last three years' profits. The method reflected in the jottings involved multiplication by three of the profit of one company (2001 Interiors) of a single year, being the most recent year. The figure used – "$174K" – corresponded with the $174,038 for that company alone for the year ended 30 June 1991 in the statutory accounts received by Mr Rosenfeld on 4 November 1991. Those accounts contained further information for 1990 and 1991 as set out briefly in the last three sentences of paragraph [86] above. While Mr Timms, for his own interest and information and to obtain some rough idea of value, might have used, in that selective and incomplete way, a variant on the method previously explained by Mr Rosenfeld, it is most unlikely that a professional accountant such as Mr Rosenfeld would have done so. Mr Rosenfeld's general awareness that maintainable earnings are more important and more reliable than the isolated result of a single year when it comes to forming an opinion about a business's value makes it most unlikely that he would have made and communicated to Mr Timms the value calculation appearing in Mr Timms' jottings. This is particularly so when one remembers Mr Rosenfeld's general scepticism about the various profit figures he was receiving. On the balance of probabilities, therefore, Mr Rosenfeld's account of the 25 November 1991 meeting must be preferred to that of Mr Timms and, in particular, it cannot be accepted that Mr Rosenfeld expressed any opinion as to the value of the business corresponding with either Mr Timms' account of the meeting or the jottings in Mr Timms' contemporaneous note. 202 Mr Rosenfeld says that he followed up Mr Murrell of Priestley & Morris on two occasions in an attempt to obtain tax returns as first requested between 4 and 11 November 1991. Mr Murrell sent Mr Rosenfeld a letter dated 9 December 1991 enclosing trading statements upon which the 1990 tax returns were said to have been based. This did not satisfy Mr Rosenfeld's need to see tax returns. On 16 December 1991, Mr Murrell faxed Mr Rosenfeld trading statements on which, he said, 1991 tax returns would be based subject to a small fringe benefits tax adjustment. Again, the documents received by Mr Rosenfeld did not satisfy his need. 203 The last contact between Mr Timms and Mr Rosenfeld before the purchase contract was made occurred on 16 December 1991. Mr Rosenfeld says they met but Mr Timms refers only to telephone conversations. Mr Timms says that the discussion was confined to whether Mr Rosenfeld had received the "certified tax figures" from Priestley & Morris and reviewed them. According to Mr Timms, there were two conversations. At the time of the first, Mr Rosenfeld had not received the required information from Priestley & Morris but on the second occasion he confirmed that he had and that the tax figures "look fine". This cannot be a correct narration of events. As is shown by the two letters Mr Rosenfeld received from Mr Murrell (the second by fax on 16 December 1991), Mr Rosenfeld never received anything that could, by any stretch of the imagination, have been described as "certified tax figures". He received no more than unaudited trading statements said, in one case, to be statements on which tax returns had been based and, in the other, statements on which tax returns would in due course be based, subject to some adjustment. There is no basis on which it can be said that Mr Rosenfeld invented a story that he had received "certified tax figures". Mr Rosenfeld deposed that he told Mr Timms on 16 December 1991 by telephone that he had not received the tax returns, at the same time describing the unaudited statements that had accompanied Mr Murrell's fax. I accept Mr Rosenfeld's account in preference to Mr Timms'. It accords with the letters Mr Rosenfeld received from Mr Murrell. 204 Mr Rosenfeld's version of the contact on 16 December 1991 is that, before the telephone conversation I have just mentioned, there was a meeting between himself and Mr Timms. According to Mr Rosenfeld, the meeting took place at his office at 8am. Mr Rosenfeld deposed that Mr Timms stated that exchange of contracts was about to occur and asked, "What do I need to look out for?" Mr Rosenfeld then related in his evidence a number of items he flagged to Mr Timms. Again, Mr Rosenfeld prepared a list of points although on this occasion, according to his evidence, it was prepared at the meeting rather than beforehand. The list is in evidence. It is dated "16/12" and headed "Brian Timms – Artrona: Points to look out for on purchase". There follow seven items. It is unnecessary to record them here. It is sufficient to note the heading already quoted and that the listed items are consistent with Mr Rosenfeld having responded to Mr Timms' specific question about points to which attention should be given. Because of the existence of Mr Rosenfeld's contemporaneous note and the way it bears out Mr Rosenfeld's account of the meeting on the morning of 16 December 1991 and events at it, I accept Mr Rosenfeld's evidence on those matters. 205 Mr Timms gave evidence at the first trial about the alleged instruction to Mr Rosenfeld to make a thorough investigation and analysis and to "leave no stone unturned". It was put to him that that amounted, in effect, to writing a blank cheque for Mr Rosenfeld's fees and that no sensible business person would have done that. The relevant part of the cross-examination was as follows: "Q. And it is your evidence that you asked him to perform a thorough investigation of the business and leave no stone unturned, those were your words, without knowing what it would cost him, is that your evidence? A. Yes. Q. Indeed Mr Timms I suggest to you that a person of your experience, that it would be utterly fantastic to engage a chartered accountant to perform a thorough investigation than to leave no stone unturned and yet not ask for any estimate or have any knowledge of his hourly rate, what do you say? A. I say that what I felt I needed was as this was an important milestone in our lives and we felt that as this was an analysis of a business, an existing business, and therefore required somebody with tremendous technical knowledge, and also a lot of experience, that we should not skimp on the amount of money that somebody would charge us to do the investigation which was appropriate in this case. HIS HONOUR: Q. So your answer is no, is it? A. Correct. Q. You say, do you, that you understood that the task you were expecting Mr Rosenfeld to perform was going to be lengthy in detail, is that right? A. I expected it – I didn't know if it was going to be lengthy in detail but I certainly, yes, I expected it to be detailed, yes, quite so. Q. And that you understood that it could well involve many hours work? A. Yes. Q. And that you say, did not phase you at all at the time? A. No. Q. And that as you understood it, you were virtually giving to Mr Rosenfeld a blank cheque to work out for himself how many hours he should charge you? A. In effect, yes. Q. And did you have at the time any conception of what number of hours that might involve? A. No, I didn't. I thought Mr Rosenfeld would not overcharge, he would charge me the appropriate fee for the work. Q. But so it's your evidence is it, that at the time you could have expected Mr Rosenfeld to be performing 10, 20, 50, 100 hours, any idea? A. I didn't know how many hours Mr Rosenfeld would need to perform the work that I asked him to do. Q. It could have been 200 hours? A. As I said, I didn't have any idea as to how many hours it would take Mr Rosenfeld to do the work. Q. You had no idea of an upper limit at all? A. None whatsoever. Q. And you say you were quite prepared to pay any bill that came with that work? A. Yes I was. Q. And at his standard hourly rate, whatever that was? A. Yes, he charged me I presume his standard hourly rate. Q. For example, if his hourly rate was $200 per hour you were happy to pay that? A. If that was his rate, yes. Q. And if he took 200 hours and charged you $40,000, you were happy to pay that? A. Yes, indeed." There is a distinct air of unreality to Mr Timms' evidence here. To my mind, it supports the version of events (and of the retainer) for which Mr Rosenfeld contends. 206 An indication of the degree of confidence Mr Timms had in his own ability to analyse and understand the financial performance of the business is provided by the evidence about the preparation of the cashflow and synopsis documents provided to the bank. Mr Timms did not ask Mr Rosenfeld to prepare these for him. Nor did he ask Mr Rosenfeld to review or check what he had done. He was quite prepared to make representations to the bank about aspects of the business's past performance and as to future cash flows entirely off his own bat and by reference to his own assessment and appreciation of the financial information in his possession. He did not present the material to the bank as the provisional or uncertain work of an amateur. He presented it as an assessment by a businessman quite capable of understanding the relevant financial information and quite prepared to make firm statements to the bank based on it. It is pertinent to quote the following from Mr Timms' cross-examination at the second trial, referring to the cash flow and surplus: "Q. You don't say, do you, that you were intending in any way to mislead the bank by your documents that we have been looking at. Can we take it you were not intending to mislead the bank by the documents you gave to the bank? A. Yes. HIS HONOUR: Q. We may take it? A. Yes, we may take it. DUBLER: Q. It follows, does it not, that what we see in these documents represented your honest assessment of the matters in your mind at the time? A. I don't think I subjected these matters to any assessment, but I accepted that what Mr Wheeler had told me was true and I included that information in this synopsis. Q. The point I am making, Mr Timms, is that you were adopting all of those things that Mr Wheeler told you you say as being things you also thought at the time, correct? A. I accepted what Mr Rosenfeld said - sorry, I accepted what Mr Wheeler said about those things and so I guess it could be said that I believed that was the case. Q. And you realise this document was about a serious commercial matter that the bank was going to act on, correct? A. Yes, I do. Q. You don't say, do you, that you would put forward such a document without satisfying yourself that it was true? A. No, what I say is that I would put forward a document which I believed to be true, but at no stage did I say to the bank or anybody else that I had subjected these things to any kind of analysis. Q. Nor did you say to the bank at any time, did you, Mr Timms, that the documents merely represent what I was told by Mr Wheeler, take it on board for what it's worth. You never indicated anything like that, did you? A. No, I didn't." 207 In the trial before me, Mr Rosenfeld was cross examined about the cash flow and synopsis prepared by Mr Timms. He confirmed having seen them after they had been prepared and that he played no part in their preparation. He said that he asked Mr Timms about the assumptions on which the cash flow had been prepared and that, having received it, he did nothing with it, being of the view that it was not important to the task at hand as there were not available accounts in which any confidence could be placed. His attitude to the synopsis was the same. 208 Based on the evidence reviewed at paragraphs [182] to [207] – plus, I must emphasise, Mr Rosenfeld's failure, already noted, to provide the certification sought by the bank and the explicit statement in his faxed letter of 16 December 1991 to Mr Hart that he had not conducted an audit – I find that the terms upon which Mr Rosenfeld was retained to provide professional advice in relation to the proposed acquisition of the Artrona business by the Timms interests were the terms asserted by Mr Rosenfeld, not the terms asserted by Mr Timms and Mrs Timms. The retainer was, in the first instance, a retainer to advise in a general way on issues warranting investigation in order to enable Mr Timms to be aware of, and to pursue in his own way, relevant lines of inquiry. A subsidiary element was an obligation to advise on such specific matters as Mr Timms might identify as requiring advice and to take such specific steps in relation to particular matters as Mr Timms might request. One such matter clearly identified at an early stage was comparison of the management accounts with the statutory accounts as a means whereby Mr and Mrs Timms might, with Mr Rosenfeld's assistance, come to a better understanding of the viability of the business. 209 The facts show that three documents (or sets of documents) deemed important by Mr Rosenfeld were never received from the Wheelers. These are the bank statements, the cash books and the tax returns. Mr Rosenfeld had made it clear to Mr Timms that all three should be obtained and inspected. Mr Timms, on my findings, accepted responsibility to obtain the bank statements and the cash books but never did so. In relation to the tax returns, Mr Rosenfeld took on the task of chasing up Mr Murrell which he did on several occasions. But the tax returns were never forthcoming. 210 The absence of these documents, identified as important, tells against the conclusion that Mr Rosenfeld undertook to conduct any comprehensive due diligence. In contemporary business parlance, "due diligence" refers to a process of investigation concentrating on identified risk areas and entailing both examination of documents and interrogation of individuals. No comprehensive program can be undertaken and no reliable results can be provided by the investigator unless there has been access to all records of the business identified as material. Here, three classes of documents identified by Mr Rosenfeld as material to informed assessment never became available for examination and analysis. That being so, it cannot be the case that Mr Rosenfeld had accepted any form of responsibility to provide a due diligence assessment of the "no stone unturned" variety. 211 The retainer pleaded in the third amended statement of claim is a retainer to advise and provide professional assistance on: "(a) the viability of the Business as a going concern; (b) the accuracy of the financial history of the Business including its past profitability and trading history as represented by or on behalf of the Vendor Companies; (c) the current and future maintainable trading performance of the Business; (d) the results of a comprehensive and detailed financial investigation of the Business with a view to advising on it's [sic] acquisition; (e) an appraisal of the purchase price of the Business in light of the financial investigation to be carried out by the Third Defendant." I find that there was never any retainer in those far-reaching and comprehensive terms. 212 The plaintiffs also allege in the third amended statement of claim that Mr Rosenfeld gave advice, in response to the plaintiffs' request, that "(a) the Business appeared to be a good investment opportunity and was worth acquiring; (b) the accounts as represented by or on behalf of the Vendor Companies correctly represented the financial performance of the Business; (c) the financial performance of the Business as represented by the accounts of the Vendor Companies was continuing and represented future maintainable profitability; (d) the purchase price of the Business was less than the true value of the Business." 213 The plaintiffs seek to make good these allegations by reference to statements they say were made by Mr Rosenfeld orally at the 11 November 1991 meeting and the subsequent meeting on the 25 November 1991. Mr Rosenfeld flatly denies the versions of the conversations at the two meetings given by Mr Timms and Mrs Timms, including the attribution to him of statements to the effect reflected in the section of the third amended statement of claim just quoted. Mr Rosenfeld's account of the conversations are, as to the 11 November meeting, consistent with his handwritten document and, as to the 25 November 1991 meeting, consistent with the cautious approach he had earlier taken and his role as no more than an adviser on specific issues arising in the course of investigation on which Mr Timms sought guidance. 214 According to my findings as to the scope of the retainer, there was simply no occasion for Mr Rosenfeld to give the far-reaching advice the plaintiffs say he gave. As to the content of the relevant conversations, I prefer the evidence of Mr Rosenfeld over the evidence of Mr Timms and Mrs Timms – simply because it is consistent with the limited scope of the retainer as borne out by the contemporary documents, being the lists of points prepared by Mr Rosenfeld for the meetings of 8 October 1991 and 11 November 1991 (with annotations of action items agreed at the respective meetings), the list of points made by Mr Rosenfeld at the meeting of 16 December 1991 and Mr Rosenfeld's fax of that date to Mr Hart. Mr Rosenfeld did take steps to compare the management accounts and the statutory accounts with a view to Mr and Mrs Timms obtaining a better view of the viability of the business. In that sense and to that extent, he no doubt accepted the task of advising on viability. But three things combined to mean that process did not provide any useful result and did not produce any result that an accountant would have seen (or represented) as truly indicative of viability: first, the statutory accounts received gave results for only two years; second, the statutory accounts were not audited; and, third, Mr Rosenfeld never received copies of the tax returns. In those circumstances, he could not himself have given any assurances of viability on the basis of the comparison he made and, given Mr Rosenfeld's explanations to them of the relevance of those matters, the Timms could not have understood him to be doing so. Conclusions to this point 215 The foregoing analysis means that the plaintiffs have not made out an entitlement to the relief claimed against the bank in the third amended statement of claim in proceedings 2644 of 1994. Nor have they made out an entitlement to the relief there claimed against the accountants. Those claims must accordingly be dismissed and there is no liability in relation to which the claim for contribution in the second and third cross-claims in proceedings 2644 of 1994 can operate. 216 It remains to deal with proceedings 3054 of 1997 by which the bank claims judgment for debt and interest against Mr and Mrs Timms, like judgment against TW Holdings, like judgment against BDA and orders against Mrs Timms for possession of the mortgaged property. In view of the result reached in 2644 of 1994 and the fact that the cross claims in 3054 of 1997 correspond with the claims in 2644 of 1994 which have not been made out, the bank's claims for principal and interest and for possession under the mortgage must succeed and the cross claims must be dismissed. 217 There is, however, a question as to the amount for which judgment should be entered in favour of the bank against the Timms interests. The answer depends on resolution of the "shadow ledger issue" to which I now turn. The "shadow ledger issue" 218 The bank claims an entitlement to both principal and unpaid interest in respect of the several facilities made available to the Timms interests. It is the contention of the Timms interests that the bank is precluded from recovering interest beyond that which had accrued up to a point in early 1998. That contention is based on the proposition that the bank elected not to continue charging interest and communicated that election to the Timms interests. 219 As noted earlier, this "shadow ledger issue" was articulated in writing in a way that the bank and the plaintiffs agreed provided sufficient definition of it for the purposes of the proceedings. The articulation was as follows: "1. The Commonwealth Bank of Australia ('the Bank') pursuant to its contractual arrangements with the defendants had two alternative rights. First, to charge interest on the funds advanced to the defendants ('the advances') at rates determined in accordance with the contractual arrangements or, alternatively, the Bank had the right to choose not to charge interest on those advances. 2. In 1997 the Bank elected to exercise its right not to continue charging interest in respect of the advances (see Affidavit of Anastasia Timms 19 February 2002 paragraph 17). 3. On or about 19 January 1998 the Bank communicated its election not to continue charging interest to the defendants (see Affidavit of Anastasia Timms dated 24 August 2001 especially paragraphs 4 and 5). 4. Thereafter the Bank provided bank statements to the defendants confirming that interest was no longer being charged in respect of the advances. 5. Upon communication of the election to the defendants as set out in paragraph 3 above, the election became irrevocable ( Sargent v ASL Developments Limited (1974) 131 CLR 634 at 646-7, 655-656; Ogle v Comboyuro Investments Pty Limited (1976) 136 CLR 444 at 451; Commonwealth v Verwayen (1990) 170 CLR 394 at 421-422; Immer (No 145) Pty Limited v United Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39). 6. Accordingly, the Bank is precluded from claiming interest in respect of the advances on and from 19 January 1998." 220 The starting point in relation to these contentions must be the evidence of Mrs Timms, particularly the elements of it referred to in items 2 and 3 above – as well as the bank statements referred to in item 4. 221 Mrs Timms' evidence is that, on 25 November 1997, she contacted the bank by telephone seeking certain details with respect to a joint account of Mr Timms and herself (account 2169 1005 0931), three accounts of BDA (accounts 2169 1000 1515, 2169 1005 0085 and 2169 1005 3219) and an account of TW Holdings (account 2169 1001 2126). She was told that statements for those accounts were no longer being forwarded in the usual way and were held by Mr Roy Stone, an officer of the bank. Mrs Timms says that, on or about 19 January 1998, she spoke by telephone to Mr Doug Seymour of the bank who told her that bank statements for the several accounts were not being issued because the bank "had decided not to send these bank statements to us" (these are Mrs Timms' words). Mrs Timms says that Mr Seymour also said that the bank had decided "to stop charging interest on the accounts", at the same time giving "his assurance that interest was no longer being charged to the accounts" and saying that "there is information about our file however the CBA did not want us to know". The foregoing is taken from Mrs Timms' affidavit of 24 August 2001. Her subsequent affidavit of 18 June 2002 contains an account of the conversation Mrs Timms says she had with Mr Seymour. After referring to the fact of the telephone conversation on or about 19 January 1998, Mrs Timms continued: "During the course of that telephone call, we had a conversation to the following effect: DS 'The manager of your file is Steven Walsh.' AT 'Is there a number where I can get in touch with him?' DS 'Why do you want to get in touch with him?' AT 'He is handling my file, I may want to get in touch with him.' DS 'Alright.' AT 'What's the number?' DS 'The number is 9312 4034.' AT 'By the way, give me a number where I can reach you.' DS 'You can reach me on 9312 3012 or 9312 4035.' AT 'While I have got you on the line, can you tell me something about our accounts?' DS 'Some of the interest on some of the debt is held in abeyance.' AT 'What do you mean by that? Do you mean to tell me that the bank has stopped charging us interest on all the accounts?' DS 'The bank is not charging you any interest.' AT 'Why are they not sending us any statements then?' DS 'There is information that the bank does not want you to know.' AT 'Surely I am entitled to information pertaining to a matter that directly affects me and my husband?' DS 'No, the bank will not release that information to you.'" 222 Mrs Timms' affidavit of 24 August 2001 was sworn for the purposes of the first trial. Its basic message, in addition to referring to the conversations already mentioned, was that "full and proper" bank statements had not been received and that Mrs Timms could not reconcile the sums sought to be recovered by the bank in the proceedings; also that she did not admit the sums said by the bank to be owing. 223 Just over two weeks before the hearing of the appeal began on 7 March 2002, Mrs Timms swore her affidavit of 19 February 2002 in which she referred to certificates (exhibited to affidavits of Mr Carroll) as to balances outstanding signed by bank officers ostensibly under provisions of securities of the kinds considered by the High Court in Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643. Mrs Timms went on to say that, since judgment was delivered following the first trial, she had "discovered documents including Bank statements …, generated by the mainframe computer which is used to prepare the financial statements of the Bank released to the market: (a) which the Bank had failed to discover; (b) which contradict to a significant extent the amounts recorded as being owed in (i) the statements or certificates exhibited to Mr Carroll's affidavits …; and (ii) the proposed Bank statements exhibited to Mr Carroll's affidavits which I now know to be 'shadow ledgers' or pretend ledgers from which the certificates were prepared." 224 Mrs Timms further deposed that the statements extracted from the mainframe computer were received in three batches, in August 2001, November 2001 and December 2001. She received them at the Paddington branch at which she made an unannounced call to request them. She had had no prior connection with that branch. She took these steps after being advised to request the statements by persons she described as "banking consultants" she had tracked down after seeing them on a "Four Corners" television program in July 2001. Mrs Timms' affidavit of 19 February 2002 then detailed differences between the statements generated from the mainframe computer and those exhibited to Mr Carroll's affidavits, the effect of those differences being that the debit balance on the former reflected, in relation to each account, a significant reduction at a point in late 1997 or early 1998 (which Mrs Timms attributed to a writing off of interest) and thereafter remained virtually constant, while the debit balance in the latter increased steadily at half yearly intervals as a liability for further interest in respect of each period was recorded. The overall conclusion reached by Mrs Timms – which I do not understand the bank to dispute – is that, for the purposes of the records kept on "the mainframe computer which is used to prepare the financial statements of the Bank released to the market", certain interest was written off in respect of each account and further accruals of interest were not recorded after the particular point in late 1997 or 1998, whereas, in the certificates prepared under securities and relied upon in recovery proceedings, the bank acknowledged neither the write-off nor the cessation of accrual. In other words, the bank purported, as between the customer and itself, to continue to claim as due and owing the full amount of principal and interest, with interest accruing period by period and causing the debit balance on the account to grow; whereas, for the purposes of the accounting records maintained in connection with preparation of "the financial statements of the Bank released to the market", so much of the debt as was regarded as bad or doubtful was not recorded. 225 The accounting process of writing off debts as bad is one directed towards the objective of ensuring that assets in the form of receivables that are, from a realistic perspective, not going to come to fruition should not be brought to account. Relevant principles, as they apply for the purposes of the particular form of accounting required by income tax legislation, were considered by the High Court in Point v Federal Commissioner of Taxation (1970) 119 CLR 453, Kratzmann v Federal Commissioner of Taxation (1970) 44 ALJR 293, Franklin's Selfserve Pty Ltd v Federal Commissioner of Taxation (1970) 125 CLR 52 and G E Crane Pty Ltd v Federal Commissioner of Taxation (1971) 126 CLR 177. The process is a unilateral and internal bookkeeping process undertaken by a creditor for the purpose of assigning a value to its assets (receivables) for the purposes of financial reporting, as distinct from any form of bilateral process involving creditor and debtor and definition of the rights and obligations prevailing between them. 226 The same is true where, instead of writing off a debt as bad, a creditor makes a provision because it considers the debt doubtful in the sense that it is not expected in the long run to realise for the creditor the whole of its principal amount plus contracted interest. That course is dictated, in the preparation of the creditor's financial statements, by the need to ensure that assets are not taken into account at more than their fair value. The relevant concepts are not new. They are reflected in the judgment of Lindley LJ in In re London and General Bank (No 2) [1895] 2 Ch 673 at 687: "The real truth is that the assets of the bank were put down in the balance-sheet at too high a figure … . The value of the principal asset depended on the probability of the Balfour group of companies and some of the other large borrowers repaying their loans. They were financing each other; their indebtedness to the bank had increased largely during the year; the securities held by the bank for these loans were, to say the least, to a great extent of very doubtful value; and yet the total amount due to the bank in respect of these loans is inserted in the balance-sheet as a good asset, without any deduction and without a word of explanation to the shareholders." Although these criticisms were made more than a century ago, the thinking behind them is probably even more uncompromising today. A bank must not reflect as an asset in its financial statements the full amount of principal and interest accrued in respect of a debt owing by a customer where it believes that the full amount will not be recovered. By write-off or provision, it must recognise, for financial reporting purposes, the impact of the loss it anticipates. The records the bank in the present case kept in its central accounting system reflecting write-offs or diminutions in respect of the Timms parties' debts may be accepted as kept in accordance with these principles. But they are entirely irrelevant to the content of the contractual obligations owed by the Timms parties to the bank. 227 Central to the assertions of the Timms parties in this part of the case is the fact that statements on the standard bank statement form reflecting the position recorded on the mainframe were, upon Mrs Timms' request made at the Paddington branch, delivered to her. As I have said, Mrs Timms received three batches of such statements. The first, printed out for her on the spot when she went without prior arrangement and enquired at the counter of the Paddington branch on 22 August 2001, covered various periods, with the earliest commencement date being November 1999. The second batch – obtained by Mrs Timms from the same officer at the Paddington branch on a later visit upon payment of a fee of $484 – went back further, in some cases to commencement dates in 1994 and 1995. The notable feature of all statements in both these batches, from the plaintiffs' viewpoint, is that each shows a constant (or virtually constant) debit balance after a date in 1997 or 1998 on which a substantial one-off reduction labelled "INT FEES WO" (no doubt "interest and fees written off") is recorded, that from that date onwards there are periodic notations "DEBIT RATE IS 0.0000% PA" (indicating zero interest accrual), and that the statements in the second batch are printed on stationery carrying the following message at the foot: "Please verify the correctness of all entries immediately and notify the bank of any errors. Cheques etc although passed to credit are accepted for collection only and will not be made available until cleared. All entries are subject to verification and authorisation. Any items appearing above which are subsequently not paid or are withdrawn will be adjusted by a reversing entry on your next statement." 228 On 12 December 2001, Mrs Timms went again to the Paddington branch and obtained an updated statement for each account (that is, the third batch of statements). These reflected constant (or virtually constant) debt balances and again carried the notation "DEBIT RATE IS 0.0000% PA". They were not printed on the stationery with the message at the foot. 229 Evidence was given for the bank by Mr Seymour, the officer to whom Mrs Timms says she spoke by telephone on or about 19 January 1998. Mr Seymour is now retired. He worked for the bank from 1964 to 1999. He has no recollection of ever having spoken with Mrs Timms, although he was based in the relevant department at the time and he concedes that he may have spoken to her. Mr Seymour, in his affidavit of 19 June 2002, deposed to matters of provisioning for doubtful debts within the bank of the nature already noticed in general terms: "For as long as I can remember, the Bank had the practice that where it appeared a debt exceeded the security held by the Bank and the Bank would not be able to recover the whole of the amount owing, the Bank would make a loss provision representing the difference between the amount of the debt and the estimated value of the security. In addition, it would "reserve" interest, meaning that further interest which was unlikely to be recovered was also treated as a provision for loss and not accumulated on the mainframe ledger. Nevertheless, for as long as I can remember, the relevant department of the Bank maintained a separate record in which it continued to calculate and add interest, on a compound basis, to the debt. In the early days, this was done manually on a periodic basis. In due course, the practice changed so that the debt was recorded on a computer which was updated with interest as required." 230 Mr Seymour also deposed that he would not have said to Mrs Timms, "Some of the interest on some of the debt is held in abeyance"; or "The bank is not charging you any interest"; or "There is information that the bank does not want you to know"; or "No, the bank will not release that information to you". Such statements would not have accorded with his understanding of the bank's practices. Evidence was also given by Mr Carroll and Mr Stevens of the bank about the procedures followed in calculating and recording balance by continuation of accruals of interest after a particular account has been placed on to a non-accrual basis for the purposes of the bank's internal accounting – those accruals taking account of relevant contractual terms and being reflected in what the plaintiffs describe as the "shadow ledgers". 231 The Timms parties concede that each relevant contractual instrument contains a provision of the Dobbs kind, that is, a provision that a written statement made up from the books of the bank and signed by an authorised officer of the amount due or owing at a particular date shall be prima facie evidence that the stated amount was due or owing on that date. The Timms parties further concede that the several statements on which the bank relies comply with the formal requirements of the several clauses. They point, however, to an observation of Young J in Shomat Pty Ltd v Rubinstein (1995) 124 FLR 284 that it is a pre-condition for the proper operation of a Dobbs clause that the statement be prepared by a person properly qualified and with dure care and proper investigation. The Timms parties submit that the statements relied upon by the bank were not prepared with due care and proper investigation, being based on the "shadow ledgers" which differed substantially from the bank records reflected in the statements obtained by Mrs Timms which accorded with information stored on the bank's mainframe computer; also that the "shadow ledgers" are not part of the books and records of the bank upon which statements of the kind permitted by Dobbs clauses should be based and that the mainframe computer records, which should have been taken into account for that purpose, have been ignored. From there, the Timms parties' argument, as stated in the written outline of submissions, runs as follows: "10. The Bank, pursuant to its contractual arrangements with the defendants, had two alternative rights. First, to charge interest on the funds advanced to the defendants ('the advances') at rates determined in accordance with the contractual arrangements, or alternatively, the Bank had the right to choose not to charge interest on those advances. 11. In 1997 the Bank elected to exercise its right not to continue charging interest in respect of the advances (see the Affidavit of Anastasia Timms dated 19 February, 2002 paragraph 17). 12. On or about 19 January, 1998 the Bank communicated its election not to continue charging interest to the defendants (see the Affidavit of Anastasia Timms dated 24 August, 2001, especially paragraphs 4 and 5). 13. Thereafter the Bank provided bank statements to the defendants confirming that interest was no longer being charged in respect of the advances. 14. Upon communication of the election to the defendants as set out in paragraph 12 above, the election became irrevocable ( Sargent v. A.S.L. Developments Limited (1974) 131 C.L.R. 634 at 646-647, 655-656; Ogle v. Comboyuro Investments Pty. Limited (1976) 136 C.L.R. 444 at 451; Commonwealth v. Verwayen (1990) 170 C.L.R. 394 at 421-422; Immer (No. 145) Pty Limited v. Uniting Church in Australia Property Trust (N.S.W.) (1993) 182 C.L.R. 26 at 39). 15. Accordingly, the Bank is precluded from claiming interest in respect of the advances on and from 19 January, 1998." 232 The bank says that the plaintiffs' case in this respect misconceives the role of the Dobbs clauses. The bank does not seek to base its case on the statements pursuant to those clauses or to assert any claim by reference to those statements. It bases its case on the entitlements created by the several contracts, the Dobbs clauses and the statements pursuant to them being merely evidentiary aids. Furthermore, the way in which the "shadow ledger issue" is articulated by the plaintiffs rests, as the bank emphasises, upon the common law doctrine of election which has as its basis the notion that someone in whom a choice of inconsistent legal rights is vested is not permitted to proceed first by enforcing one and then by purporting to enforce the other. A relevant statement of principle appears in the judgment of Mason J in Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 656: "A person confronted with a choice between the exercise of alternative and inconsistent rights is not bound to elect at once. He may keep the question open, so long as he does not affirm the contract or continuance of the estate and so long as the delay does not cause prejudice to the other side. An election takes place when the conduct of the party is such that it would be justifiable only if an election had been made one way or the other ( Tropical Traders Ltd. v. Goonan ). So, words or conduct which do not constitute the exercise of a right conferred by or under a contract and merely involve a recognition of the contract may not amount to an election to affirm the contract." 233 An example of the working of the principle appears in a passage in the judgment of Meagher JA in the Court of Appeal, referred to by Deane, Toohey, Gaudron and McHugh JJ, in Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 39: "On 26 June 1989 [Immer] could have taken one of three courses: it could have rescinded the deed, but it did not do that; it could have done nothing at all, in which case its contractual right of rescission would have survived; or it could have taken the course, inconsistent with the first of those courses, of keeping the deed on foot. It chose the third course." The bank says that no doctrine of election has operated to its detriment in this case: in the first place, it did not "elect"; and, second, any "election" was not communicated. 234 In my opinion, the bank did not, in any relevant sense, "elect" when it delivered to Mrs Timms, upon request made by her at the Paddington branch, the several statements reflecting write-off of interest and fees (with consequent significant reduction in debit balance on each relevant account) and cessation of interest accrual on each account at a date in late 1997 or early 1998. Such delivery did not, in reality, represent the making of a choice between two different rights each so inconsistent and incompatible with the other that the two could not co-exist. The Timms interests describe the alternative and inconsistent rights as a right to full and faithful performance of the contract and a right to some lesser performance. This is, to my mind, an incorrect characterization. So far as "right" is concerned, the bank only ever had, as against each of its customers, one relevant right, being a right to recover whatever was due and owing by the customer under the applicable contract between them. A person to whom $1.00 is due and owing does not have a right to sue for $1.00, a right to sue for 99 cents, a right to sue for 98 cents and so forth. He or she possesses the first of these rights only. The bank might, if it chose, have agreed upon some proper consideration to accept less than the full amount due and owing under its contracts with the Timms parties, at the same time foregoing its claim to the balance, so that, as a matter of contract, the right to the reduced sum came to replace the right to the original sum. But that is not what the bank did. At the most (and I am not really persuaded that this is the true effect of what it did), the bank represented to the particular customers that the amounts due and owing under the relevant contracts were less than they in reality were. Any such representation had no effect so far as the nature and extent of the bank's right went. 235 I must say that, even viewing these matters from the perspective most favourable to the Timms interests, I do not see this as a case in which the doctrine of election operates against the bank in the way suggested. As elucidated in the speech by Lord Atkin in United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 29-31, that doctrine precludes the alternative course of action when some conclusive step securing one outcome is taken in a way that is incompatible with attainment of the alternative outcome. An example is where a breach of contract causes to arise in one party a right to terminate for that breach or to continue performance and sue for damages. In such a case, the point of no return comes when the wronged party chooses one fork in the road by terminating or takes the other fork by tendering further performance consistent with the continuation of the contract, seeking in some way to rely on the contract or suing for damages. Once the particular conclusive step is taken, the alternative road becomes barred. A unilateral statement of intention to sue for a sum smaller than that to which there is a contractual entitlement cannot of itself represent a decisive step of this kind. 236 It is, in any event, important to emphasise that where, as here, each of the supposedly available courses entails a right of action, the bar to which I have referred does not arise until one right of action has been pursued to judgment. It is not the bringing of one action rather than the other that operates as an election. It is the judgment in satisfaction of the right asserted in the first action that bars pursuit of the second right. This is made clear by the House of Lords' decision in United Australia Ltd v Barclays Bank Ltd (above). 237 There will, of course, be occasions on which a creditor's unilateral statement of intention to sue for a smaller sum than that contracted to be paid by the debtor will preclude action by the creditor inconsistent with the statement. This will be so where principles of estoppel operate. The difficulty for the plaintiffs in seeking to make a case of estoppel consistently with Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 and Commonwealth v Verwayen (1990) 170 CLR 394 is that such a claim will not succeed unless the claimant, relying on the unilateral statement made to him, has acted to his detriment. Here, there is no suggestion that the Timms parties acted in any way on the faith of, or by reference to, the information in the statements Mrs Timms obtained from the bank's Paddington branch. It is presumably for that reason that no estoppel claim is advanced and the Timms interests confine themselves to the claim based on election. 238 By furnishing to Mrs Timms the three batches of documents she received at the Paddington branch, the bank did not take any step by way of asserting or enforcing a right that was inconsistent with continuation of the course upon which it had embarked by initiating proceedings 3054 of 1997. In those proceedings, it sued to recover sums due and owing in accordance with its contracts with its customers. It had not previously done anything depriving it of the ability, as against those parties, to pursue that course; nor did it do anything at a later time that had the effect of precluding it from continuing upon that course. Disposition of proceedings 239 In proceedings 2644 of 1994, the claims of the plaintiffs in the third amended statement of claim will be dismissed and there will be judgment for the first defendant and the third defendants. In proceedings 3054 of 1997, there will be judgments and orders against the several defendants as claimed in paragraphs 1 to 5 of the summons filed on 21 May 1997 but with the sums for which money judgments are given being sums reflecting principal, interest and other moneys unpaid up to the date of judgment and with interest at contracted rates after judgment until paid. 240 There is no reason why costs should not follow the event in the usual way. The costs of the first defendant and the third defendants in proceedings 2644 of 1994 will be paid by the plaintiffs in those proceedings. The costs of the plaintiff in proceedings 3054 of 1997 will be paid by the defendants in those proceedings. 241 I direct that short minutes of orders giving effect to the above be filed by delivery to my Associate within 21 days. ********** Last Modified: 02/27/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.