CBRE (V) Pty Ltd v City Pacific Ltd (in liq)

1. [1]

   BELL CJ: I have had the benefit of reading the reasons for judgment of Leeming JA and agree with them and the orders his Honour proposes.

2. [2]

   LEEMING JA: The main issue in this appeal is simply stated. Assume that by reason of a valuation which is negligently prepared and misleading or deceptive, a listed public company enters into an option to acquire land, and nominates its wholly owned subsidiary as the purchaser. The listed company makes payments totalling $11.1m towards the purchase price, but the sale does not proceed. Eight years later the listed company and its subsidiary (both now in liquidation) sue the valuers. Are their claims in negligence and under statute out of time? The primary judge held that the claim of the subsidiary, as purchaser, was statute-barred, with time running from the time the payments were made, and there is no challenge to that. The primary judge also held that the listed company’s claim was not statute-barred, because the transaction gave rise to an implicit loan between it and its subsidiary, and that cause of action only accrued when repayment became impossible, some years after it was made, and within six years of commencing proceedings.

3. [3]

   The valuer challenges that conclusion by ground 3 of this appeal. It was at the forefront of the argument, and I have concluded that the appeal should be allowed on this ground. There are also challenges to the existence of a duty of care, whether the valuations were misleading or deceptive, causation (both at common law and under statute) and contributory negligence. I shall address those grounds, which do not affect the outcome, in a more abbreviated fashion. I mention this because much of the factual background relevant to those grounds is not relevant to ground 3, and for that reason has been deferred. The abbreviated overview of the factual and procedural background below is sufficient to address ground 3.

Overview

1. [4]

   The second appellant Mr Christopher Nicodimou was a valuer employed by the first appellant CBRE (V) Pty Ltd. They appeal from a judgment in the amount of $6.9m entered against them following a relatively short trial in the Common Law Division. The trial was short because the claim brought by the respondents, City Pacific Ltd and Martha Cove Marina Pty Ltd, based upon what they claimed were CBRE’s negligently prepared and misleading and deceptive valuations, was almost entirely documentary. That carries with it the consequence that this Court is in no worse position than the primary judge in drawing inferences from the documents tendered.

2. [5]

   City Pacific was a listed company which acted as the responsible entity of various registered managed investment schemes, including the City Pacific Mortgage Trust. It also made investments in its own right. Martha Cove Marina was City Pacific’s wholly owned subsidiary. According to an ASIC search, it was incorporated in July 2006, had issued capital of $100 and at relevant times had two directors, Mr Philip Sullivan (the managing director of City Pacific) and Mr James Finucan, City Pacific’s Secretary and General Counsel.

3. [6]

   City Pacific caused three payments to be made relating to the purchase of land which was part of a large proposed development based around a marina, known as “Martha Cove” on the Mornington Peninsula in Victoria. The land was known variously as “Lot S17” or “Precinct 2H” and principally comprised a large number (in the order of 230) of leasehold marina berths. The primary judge referred to this throughout as “the Marina”, as did the contemporaneous documents. I shall follow the same course, although bearing in mind that this lot was but a small part of a marina development which was described in the valuations as:

4. [7]

   The three payments which founded the claims of City Pacific and Martha Cove Marina against the appellants were:

   1. (1)

      $2.1m on 29 June 2007;

   2. (2)

      $2m on 10 October 2007, and

   3. (3)

      $7m on 28 November 2007.

5. [8]

   Each payment was made by City Pacific officers transferring funds from accounts held in the name of City Pacific.

6. [9]

   Mr Nicodimou in fact prepared at least five valuations of the same land over the timeframe addressed by this litigation. There is ample scope for confusion, because two, including the valuation which is central to the appeal, were dated 30 January 2007 and bore exactly the same cumbersome title (“Valuation Report prepared for MCD Australia on behalf of Indigo (Martha Cove Harbour Precinct Land Owner) Pty Ltd of Martha Cove Marina & Commercial Centre”), although in fact they were provided on about 16 March 2007 and 26 June 2007 and valued the same land on different bases and in different amounts. There are many similarities between many pages of each valuation in addition to their titles, and it may readily be inferred that Mr Nicodimou (who did not give evidence) used an earlier valuation as the starting point for each subsequent document.

7. [10]

   The precise sequence of valuations is relevant to the first and second grounds of appeal, but may largely be passed over for present purposes. It is sufficient to note that in June 2006 – a year before the critical transaction – Marina Cove Pty Ltd (a subsidiary of City Pacific, distinct from the second respondent Martha Cove Marina, which was deregistered on 25 March 2019) sold the Marina (together with other land) to Indigo (Martha Cove Marina Land Owner) Pty Ltd. The contract identified the price for the Marina was $21,203,000 excluding GST and including a “Berth Infrastructure Payment” of $9,270,000 excluding GST for the other properties. The sale was funded by the vendor. City Pacific in its capacity as responsible entity of the City Pacific Mortgage Trust provided a facility of $27.84m, secured by a registered first mortgage on the land (strictly, the lender and mortgagee was The Public Trustee of Queensland, the custodian of the City Pacific Mortgage Trust). City Pacific’s subsidiary Marina Cove, the actual vendor, provided a facility of $6.88m described as a “mezzanine facility”, secured by a second ranking mortgage. It will be seen that the transaction was effected at the end of the financial year and was seemingly entirely or almost entirely funded by vendor finance.

8. [11]

   The land sold in June 2006 was held by Indigo (Martha Cove Marina Land Owner) Pty Ltd, a company incorporated on 22 June 2006 for the purpose (it may be inferred) of doing what its name implied. The primary judge used the abbreviation “ILO” as shall I. ILO’s directors were Messrs Mitchell Nielsen and Lawrence Truce and both men signed the contract for sale. Although the precise details appear not to be disclosed by the evidence, it seems that the company was related to Indigo Pacific Capital Ltd, a listed company described in City Pacific’s Annual Report thus:

9. [12]

   The primary judge stated at [31] that the parties adopted the expression “Indigo group” as a shorthand expression to describe three companies with a “loose commercial affiliation”, namely, ILO, Indigo Pacific Capital Ltd and Indigo (Martha Cove Harbour Precinct Land Owner) Pty Ltd, which was also brought into existence on 22 June 2006, and played a part in the June 2006 transaction, but was deregistered in 2014.

10. [13]

    The primary judge recorded at [132] that “[b]y early 2007, ILO was looking to sell or refinance the Marina”. CBRE provided two further valuations to that end. Both were dated 30 January 2007. Both were addressed to ILO, not to City Pacific. One, which was provided on 16 March 2007, valued the Marina on a “Gross Realisation – As if Complete” basis at $27.7m. It was based on there being a number of berths of lengths ranging between 9m and 30m. A few months later, on 26 June 2007, a further valuation described by the primary judge as the “Amended Indigo Valuation” valued the same land at $27.3m. This valuation used a slightly different configuration of 233 berths, ranging from 9m to 20m (for example, there were 63 10m berths, as opposed to 61 10m berths in the March valuation) but otherwise used the same rates. The tables and paragraphs are reproduced in the judgment at first instance at [145] and [193]-[194], and need not be further summarised here. I note for completeness that both the 2007 valuations were exclusive of GST. The treatment of GST in 2007 in a case such as this may not necessarily have been straightforward, but the Court was told that it could be put to one side, and I have done so.

11. [14]

    On 29 June 2007, City Pacific and ILO entered into a “Key Terms Agreement” for the sale of the Marina at a price of $30m. The document was signed by Mr Truce on behalf of ILO and the signatories for City Pacific were to be Messrs Sullivan and Finucan (who were also the directors of Martha Cove Marina), although the copy in evidence only seems to bear Mr Finucan’s signature.

12. [15]

    The transaction was implemented by a put and call option, the fee for which was the $2.1m constituting the first payment. The option deed was dated 29 June 2007, but that date did not reflect the date on which it was executed, which the judge found at [245] to be “about 23 July 2007”. The period in which the option was to be exercised was agreed to be 100 days, backdated to 29 June 2007, and therefore expiring in the second week of October. If the option were exercised, it was agreed that the $2.1m option fee would comprise the deposit. The option permitted City Pacific to nominate a nominee, in which case the nominee stood in the shoes of City Pacific in terms of the rights created by the deed (and, in particular, the nominee became liable to pay the balance of the purchase price).

13. [16]

    In the first week of October 2007, with the option expiry date fast approaching, the parties appear to have negotiated an amendment, whereby a further $2m was paid. At around the same time, City Pacific nominated Martha Cove Marina, and the option was exercised on about 8 October 2007. In the executed contract for sale brought into existence by the exercise of the option, the deposit was stated to be $4.1m. Although a few weeks later further part payment was made, the property was never transferred.

14. [17]

    None of the moneys advanced was recovered (nothing will ultimately turn for present purposes on the different status for the purpose of recovery of the payments which constituted the deposit and the payment which constituted part of the purchase price). Liquidators were appointed to City Pacific and Martha Cove Marina on 28 August and 26 October 2009 respectively. Receivers and managers were appointed to ILO on 28 September 2009. Just before 6 years after the liquidators were appointed to City Pacific, on 27 August 2015, the plaintiffs commenced proceedings in the professional negligence list of the Common Law Division of this court seeking damages representing each of the first, second and third payments.

15. [18]

    Parts of the claim were dismissed and there is no cross-appeal. I shall not attempt to describe all of the causes of action pleaded. The respondents sued in negligence and under statute for misleading and deceptive conduct. The primary judge found that the appellants owed a duty of care to City Pacific which was breached by the Amended Indigo Valuation, which caused City Pacific to make each of the payments. The primary judge also found that the valuation was misleading and deceptive and that causation under statute was satisfied. His Honour concluded that City Pacific had been contributorily negligent in relation to the third payment, but not the first or second, and reduced the damages in relation to that payment by 60%. The $6.9m judgment comprised the first two payments ($4.1m) plus 40% x $7m = $2.8m.

16. [19]

    Most significantly for present purposes, the claim brought by Martha Cove Marina was found to be statute-barred, but that brought by City Pacific was not. In this Court, attention was primarily directed to the Amended Indigo Valuation, and it was accepted in this Court (although this was in issue at trial) that it was both negligent and misleading and deceptive.

17. [20]

    The appellants relied on four grounds of appeal. The first maintained that they did not owe a duty of care to City Pacific, because the third valuation was addressed to the vendor, not the purchaser, and the disclaimers it contained negated the claims of misleading and deceptive conduct. The second ground was that the primary judge erred in finding that City Pacific relied on the valuation, or that the contravention of the statute caused City Pacific to make any of the payments, once again, because the valuation was issued to the vendor at its request and because of the disclaimers. Ground 3 contended that the primary judge had erred in failing to find that City Pacific’s claim was statute barred. The different outcome for the two claims arose because the primary judge found that the provision of funds by City Pacific had been made at the implicit request of Martha Cove Marina, thereby creating an indebtedness by Martha Cove Marina (City Pacific’s wholly owned subsidiary) to the parent company, and its claim to recover that debt was not statute-barred. The appellants said that the case as pleaded and run did not permit City Pacific to contend that it had suffered loss from an irrecoverable loan to Martha Cove Marina, and that City Pacific had failed to establish that it had paid money at the implied request of Martha Cove Marina. Finally, by ground 4, the appellants maintained that the 60% reduction for contributory negligence should have applied to the first and second payments as well as the third.

Ground 3 – was City Pacific’s claim statute-barred?

1. [21]

   It may seem technical to commence with whether, assuming City Pacific otherwise had one or more good causes of action, they are statute barred. But it is to be recalled that limitation law reflects an important legal policy mitigating the unfairness that may be generated by delay, recently recognised by this Court in Moubarak by his tutor Coorey v Holt (2019) 100 NSWLR 218; [2019] NSWCA 102 at [72]-[87] and Sydney Seaplanes Pty Ltd v Page [2021] NSWCA 204 at [93] by reference to decisions of the High Court of Australia and the United Kingdom Supreme Court. One decision there cited was that of McHugh J in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 551; [1996] HCA 25:

2. [22]

   When I turn to address the issues of causation, and the competing inferences both sides ask to be drawn from the incomplete documentary record of the events of 15 years ago, the deterioration to which McHugh J referred is palpable. The documents are incomplete, and none of the persons involved gave evidence (and had they done so it may be doubted whether they would have had a clear recollection of events many years earlier – when, before trial, the valuer was examined by the liquidators, his recollection was understandably diminished by the passage of time). I do not for a moment discount the disadvantages faced by liquidators confronted with the challenges of identifying viable causes of action enjoyed by a formerly listed public company which conducted a wide range of business activities, and where there are indications of decision-making occurring in an informal, spontaneous and unstructured style. But even so, this is a case where the delay is considerable.

3. [23]

   It will be recalled that amounts were paid by City Pacific on 29 June 2007 ($2.1m), 10 October 2007 ($2m), and 28 November 2007 ($7m), Martha Cove Marina was nominated as the purchaser on 8 October 2007, and both City Pacific and Martha Cove Marina commenced proceedings for damages quantified by reference to the three payments on 27 August 2015, some eight years later. There was no suggestion of concealed fraud in relation to any of the causes of action which succeeded at trial. Whether they had accrued more than six years before proceedings were commenced is, in the circumstances of this case, a natural starting point.

4. [24]

   The primary judge held, following HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54 at [15] and [28], that Martha Cove Marina suffered loss at the time it became obliged to buy the land, notwithstanding that the purchase was never completed. It is unnecessary to summarise this aspect of his Honour’s reasons, for there was no cross-appeal. It suffices to say that the primary judge found, with respect correctly, that Martha Cove Marina was suing as a purchaser, and its cause of action accrued no later than the time the payments were made.

5. [25]

   The reason that the primary judge reached a different conclusion on whether the claims of City Pacific were statute-barred rested upon his Honour’s finding that City Pacific had lent moneys to Martha Cove Marina, and that in such a case, damage was sustained such that a cause of action would accrue only when recovery of the loan could be said, with some certainty, to be impossible: Hunt & Hunt Lawyers v Mitchel Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [32].

6. [26]

   One aspect of this ground was the appellants’ submission that such a characterisation was not open on the pleadings. It is true that it was not explicitly pleaded. However, an amendment permitted by the primary judge on the third day of the trial was said, at the time argument was heard on it, to extend to precisely this way of putting City Pacific’s case. When the appeal was heard, this aspect of this ground was renounced. That was appropriate. There was no challenge to the decision to permit the amendment, and the argument in support of the amendment very closely mirrored the reasons of the primary judge. Indeed, the dispositive reasons of the primary judge are evidently taken directly from the plaintiff’s written submissions (down to the level of using the same superseded edition of a standard text).

7. [27]

   Substantively, the appellants maintained that even if the point were available on the pleadings, a finding that City Pacific had lent the funds to Martha Cove Marina should be overturned. The primary judge addressed the question of causes of action being statute-barred elaborately, at [531]-[560]. Most of those paragraphs summarised the parties’ submissions. The dispositive reasoning, in relation to the claim advanced by City Pacific, is at [550]-[553]:

8. [28]

   I respectfully am unable to accept this reasoning and conclusion, for essentially five reasons.

9. [29]

   First, the starting and end points of the reasoning in [550] and [553] is that City Pacific and Martha Cove Marina were separate companies. Of course that is so. But it is also clear that Martha Cove Marina was the creature of City Pacific, in the senses that (a) City Pacific could, as sole shareholder, cause it to do any corporate act, (b) its directors were Mr Sullivan and City Pacific’s general counsel and thus it had no separate corporate mind, and (c) (so far as the evidence discloses) it had no employees or office space or bank account but was dependent upon City Pacific. This is the opposite of the case of a transaction between two independent parties such as that in Israel v Foreshore Properties Pty Ltd (1980) 30 ALR 631. Further, to the extent that Martha Cove Marina received a benefit by being given property, the value of its shares all of which were owned by City Pacific increased, and to the extent that Martha Cove Marina might be found to owe a debt to City Pacific, then to that extent the value of its shares was diminished. I am saying nothing more or nothing less than the fact that any transaction between parent and wholly owned subsidiary, whether by way of gift or loan, was of no significance to the net value of City Pacific, one of whose assets was the entirety of the issued share capital of Martha Cove Marina. In those circumstances, the ordinary commercial considerations accompanying the transfer of funds to another or to discharge the liability of another do not exist.

10. [30]

    For those reasons, the proposition that parent and subsidiary were distinct corporate entities does not advance the analysis.

11. [31]

    Secondly, the notion of persons paying for property held in the names of others, or of making payments to discharge obligations of others to acquire property, is familiar in equity as well as at law. Equity approached the position on the prima facie basis that form was subservient to substance, and that there was a presumption that the property thereby acquired was held on resulting trust for the payer. Of course, the presumption may be displaced by evidence of the parties’ intention (as well as, in some cases, by a legal presumption such as the presumption of advancement where a parent pays for property held in the name of a child). The significance of the position in equity is twofold. It would be wrong to approach the issue as turning merely on the possibilities of gift or loan, although those are the only two possibilities addressed by the primary judge. Further, all three possibilities depend upon the intention to be imputed to the person paying the money, and indeed in the case of a resulting trust, the payer is entitled to testify as to the payer’s own intention, although of course the weight which may be given to such evidence may be low: Martin v Martin (1959) 110 CLR 297 at 304; [1959] HCA 62. (Insofar as Martin v Martin appears to endorse the admissibility of evidence of the payer’s actual subjective intention, it may fall to be reconsidered in light of what was said in Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 (similar caution was noted in Cone v Burch [2010] NSWCA 168 at [30]), but this was far removed from any issue in the present case, where no witnesses of primary fact were called.)

12. [32]

    Thirdly, if there is to be an implied loan, what matters is not so much an implicit request, but rather an implicit promise to repay. A moment’s pause enables this to be seen. An implicit or explicit request to make a payment discharging the obligation of another may amount to a gift, or it may be a form of financial accommodation giving rise to an obligation to repay. What matters for the purpose of the legal character of the transfer of money is whether the person whose obligation has been discharged by the payment has impliedly promised to repay the payer. Obviously, much will depend on the nature of the relationship. If the parties are at arm’s length then a promise to repay may be discerned more readily. On the other hand, if the parties are related, the same implied promise may not so readily be discerned.

13. [33]

    The decisions upon which the primary judge expressly relied turn upon an implication of not merely a request for funds, but also an implicit promise to indemnify or reimburse those funds. That may be seen most clearly in the paragraphs from O3 Capital Pty Ltd v WY Properties Pty Ltd (2016) 49 WAR 517; [2016] WASCA 82 to which the primary judge referred. There the joint judgment of Newnes and Murphy JJA and Mitchell J said at [74] that “restitution at law has been seen to be grounded on an implicit promise by the defendant to indemnify or reimburse the plaintiff”. Their Honours added at [76], by reference to Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 that “in a commercial context, it might (generally speaking) readily be inferred that a party laying out money for another person would have an expectation to be repaid, and that the other person, knowing of the payment, might be inferred to have knowledge of that fact”. Further, at [77], by reference to Bank of England v Cutler [1908] 2 KB 208, their Honours said that “both the request and the promise of indemnity implied therefrom may be implied from conduct and circumstances, including the relation of the parties as one of the circumstances”.

14. [34]

    True it is that Israel v Foreshore Properties Pty Ltd, to which the primary judge also referred, supports the proposition that where money is paid without consideration by a party at the request and for the benefit of another, then the person who acts on the request is entitled to an indemnity. Aickin J, writing for the Court, who formulated the “general principle” in those terms made it quite clear that it was the opposite of an absolute rule to be applied in all cases. His Honour had earlier observed that whether a right of indemnity arises when one party makes a payment or incurs an obligation at the request of another party without consideration, depending on all the circumstances, “depends upon the common law, general equitable principles or upon an implied contract”: at 634-35. And immediately following the formulation of principle, Aickin J observed that the appellants sought to challenge its application by reason of a contrary intention being indicated. Israel v Foreshore Properties Pty Ltd is not authority for the proposition that in every case a person who makes payment without consideration at the request and for the benefit of another is entitled to an indemnity. In fact, the fact that the proposition was styled as a “general principle”, its being grounded in a concept of implied contract, and the references to equitable principles and the possibility of identifying a contrary intention all tell against there being any such rule. Yet that is how the decision seems to have been applied in the passage reproduced above in the judgment at first instance.

15. [35]

    The passage from the second edition of what is now K Mason, J Carter and G Tolhurst, Mason & Carter’s Restitution Law in Australia (4th ed LexisNexis, 2021) on which the primary judge relied is considerably expanded in the current edition. All four editions have noted that “[t]he claim could be defeated, for example, by proof of an arrangement whereby B agreed to make a gift to A”. The current edition goes further, and states, emphatically, that that “[n]ot every requested payment generates liability”. It also refers to the following passage from Young AJA’s judgment in Progressive Pod Properties Pty Ltd v A & M Green Investments Pty Ltd [2012] NSWCA 225 at [59]-[60]:

16. [36]

    This aspect of the reasons of the primary judge, and the written submissions of the plaintiffs/respondents on which it is closely based, would have benefited from recourse to the current edition of the work, which correctly made it clear that the principle was highly qualified, especially in a case such as the present of a payment made by a parent company discharging the liability of its wholly owned subsidiary.

17. [37]

    Fourthly, while the primary judge directed attention to what his Honour regarded as an implicit request by Martha Cove Marina to City Pacific for funds to assist its completion of the contract, his Honour did not attend to whether there was an implicit obligation to repay. In the circumstances of this case, it was plain that Martha Cove Marina could never repay the $30m purchase price or any of the payments made by City Pacific towards that purchase price. It was to acquire an asset which would generate very little income.

18. [38]

    Thus a further reason standing in the way of imputing to City Pacific and Martha Cove Marina an implicit promise to repay the funds advanced by City Pacific is that everyone must be taken to have known that there was no capacity to repay those funds.

19. [39]

    Fifthly, I have so far addressed the issue at the level of principle and authority. But ultimately whether or not Martha Cove Marina is to be treated in law as a borrower from City Pacific turns upon evidence, to which I now turn.

20. [40]

    It is to be borne in mind that the plaintiff City Pacific (acting by its liquidators) called no testimonial evidence to establish any implicit relationship of lender/borrower between City Pacific and its wholly owned subsidiary. The case sought to be advanced at trial depended upon implications from the documents. But the documents (which were not examined in this part of the reasons of the primary judge at all) point tellingly against the implication for which City Pacific contends.

21. [41]

    There is some difficulty with some of the documents tendered out of the discovery provided by the companies in liquidation. No testimonial evidence was called identifying some of them, in particular what became known (somewhat grandiosely) as the “Short Due Diligence Report” of 28 June 2007. Nonetheless, inferences may be drawn from the form of the documents themselves, in accordance with s 183 of the Evidence Act 1995 (NSW). The tender included what appear to be print-outs of general ledger entries, grouped by “account”, and monthly documents which appear to be balance sheets for the purposes of management.

22. [42]

    A balance sheet as at 30 November 2007 for City Pacific was tendered. It has the appearance of forming part of accounts used by management. Under the heading “Investments”, on the asset side of the balance sheet, there are listed a series of properties including “Martha Cove Marina Pty Ltd” which is valued at $11,100,100.00. Another item of assets on the balance sheet is described as “Loans – intercompany”. Four intercompany loans are specified, one of which is “Loan – Martha Cove Marina Pty L”, which is valued at $10,000. That is to say, the same page of the same document identifies a debtor-creditor relationship between City Pacific and its wholly owned subsidiary Martha Cove Marina, as well as valuing that company as an asset at a price which plainly reflected the $11.1m actually transferred. The inference is irresistible that the $11.1m which City Pacific had paid to the vendor was treated in its own balance sheet as an “investment”, and not an intercompany loan. Mr Giles candidly acknowledged that this document was squarely against the legal characterisation of what occurred for which he contended (T 89.41).

23. [43]

    Substantially the same treatment was contained in subsequent (internal) balance sheets in evidence, notably those dated 31 December 2007 and 29 February 2008 – the latter had substantially the same value attributed to the investment in Martha Cove Marina Pty Ltd, while the intercompany loan had reduced to $502.31). There is a slight variation in the accounting treatment of the payments amounting to $11.1m, insofar as both these later balance sheets value the investment in Martha Cove Marina Pty Ltd at $11,100,000 – which is to say, $100 less than the same entry in the November balance sheet. The distinction may reflect some ambivalence about the treatment of the $100 issued capital of the subsidiary. But this to my mind serves only to strengthen the conclusion that the $11.1m was not an inter-company debt. Despite the fact that someone within City Pacific at the time evidently turned his or her attention to the value of Martha Cove Marina Pty Ltd, and altered it slightly, the $11.1m continued to be treated as a property investment, and not a receivable.

24. [44]

    The same emerges from the audited accounts of City Pacific for the year ended 30 June 2008. What follows is a little complex, but is also uncontroversial.

25. [45]

    The income statements in the audited accounts had recognised “impairment losses” for the financial year ended 30 June 2008 in the amount of $161,469,325. The note accompanying that large loss separately identified the constituent losses on both a consolidated and company basis. The accounts were consolidated and so the $161,469,325 represented the sum of the various impairment losses measured on a consolidated basis. However, on a company basis, the two largest impairment losses were “receivables” (at $95,896,271) and “investments” (at $81,760,563). Notes 14 and 17 explained the impairment losses treated as “receivables” and “investments” respectively. Note 14 dealt with trade and other receivables, and there is no mention in that note of anything related to Martha Cove Marina. Note 17 dealt with investments and a lengthy note (ii) identified the result of a review of “the carrying value of its assets in order to identify whether any assets may be impaired”. The largest category was investments in controlled entities and the notes explained how the company’s investments in Martha Cove Marina and four other related companies each contributed to an impairment loss. The note recorded the following:

26. [46]

    The short point is that, once again, the audited accounts for City Pacific distinguished between assets described as “non-current investments” (described in note 17) and a variety of inter-company loans (described in note 14). The asset reflecting the $11.1m transferred in part payment of the purchase price of the Marina was treated as a “non-current investment” and the auditors addressed it specifically, forming the view that it was appropriate to recognise an impairment to its value.

27. [47]

    Thus the audited accounts of City Pacific treated the Martha Cove Marina investment as a non-current investment, and not a receivable, and did so in a way that made it plain that the auditors had squarely directed their attention to the treatment of that asset.

28. [48]

    That understanding of the effect of the accounts was raised during the hearing:

29. [49]

    Senior counsel for the respondents accepted the accuracy of that conclusion as an expression of the view which the external auditors thought correct, but denied that it was the correct legal characterisation of what occurred. He was right to contend that the auditors’ treatment of the $11.1m asset could not be determinative of its legal characterisation. But it is powerful evidence, reflecting as it does a professionally trained, external opinion which would have been prepared in consultation with City Pacific management at the time.

30. [50]

    A director certified that those financial statements gave a true and fair view of the company’s and the group’s financial position as at 30 June 2008. So too the independent auditor (KPMG) expressed its opinion that the financial report gave a true and fair view of the company’s and group’s position as at 30 June 2008.

31. [51]

    If the finding made by the primary judge of an implicit loan made is correct, then the management accounts and the audited accounts of the listed company were not true and fair in that respect. This court did not hear submissions on the materiality of a loan of $11.1m to a subsidiary in a listed company which reported on both a consolidated and a company basis, but even if the amount is not material, the contemporary understanding of the appropriate treatment of the $11.1m by internal and external accountants powerfully tells against the inference drawn by the primary judge.

32. [52]

    The audited accounts for the financial year ending 30 June 2007 are apt to have been relevant to the characterisation of the first payment (which was made on 29 June 2007). However, they appear not to have been in evidence (judging from the index to the blue appeal books, and the absence of a response made at T83.47 to a request for them if they had been in evidence).

33. [53]

    One other class of contemporaneous documents was capable of bearing upon the legal character of the transfers of the payments. The Court was taken to what appear to be extracts from general ledger entries corresponding to the three payments. There are entries corresponding to the second and third payments as “Deposit on purchase of Indigo Marina – Martha Cove Marina Pty Ltd” and “Funds Redeemed from CPMT to cover MCM Settlement”. The latter accords with a finding made by the primary judge in addressing a different issue that City Pacific redeemed part of its own investment in the City Pacific Mortgage Trust and used the proceeds to make the $7m third payment (see at [608]-[609]). (The issue was whether the payments were made by City Pacific of its own funds, or of funds held by it as responsible entity, in order to answer a defence propounded at trial under s 601FS of the Corporations Act that the claim had vested in the new responsible entity. The trial judge resolved this favourably to City Pacific which conclusion is outside the scope of this appeal.)

34. [54]

    The same ledger extract also disclosed an entry dated 1 October 2007 in the amount of $2,100,000 styled “Transfer Deposit on behalf of Indigo Pacific Capital for purchase”. Plainly that is an entry made three months after the first payment, and may have had something to do with the nomination of Martha Cove Marina as purchaser, but it is unclear.

35. [55]

    But the short point is that none of the entries supports a conclusion that there was a loan owed by Martha Cove Marina to City Pacific.

36. [56]

    Finally, I turn to something of even less probative value, for it is tolerably clear that documents preceding the nomination of Martha Cove Marina as the purchaser under the call option would be unlikely to shed much light on whether there was a loan by City Pacific to Martha Cove Marina. Nonetheless, I mention for completeness that the Court was also taken to an email from Mr Purss, City Pacific’s Chief Financial Officer, to another City Pacific email address on the afternoon of Friday 29 June 2007 in the following terms:

37. [57]

    This appears to be an instruction about how to record the transaction in the general ledger. The meaning of “AR” is unclear. In answer to the Chief Justice it was suggested during the hearing that it might have some significance in the organisation’s accounting records. Another possibility is that it stands for “accounts receivable”. It is also consistent with City Pacific entertaining the possibility of establishing a trust separate from the City Pacific Mortgage Trust with the Marina as a trust asset. The entry falls far short of unambiguously supporting an inference that there was to be a loan, when Martha Cove Marina was nominated as the purchaser, in respect of the first payment being the option fee.

38. [58]

    The primary judge did not consider any of these documents insofar as they bore upon the implicit request to be lent funds, with a concomitant implicit promise to repay them. That may be for the good reason that neither side took his Honour to them. So far as I can see, this reflected the particular course taken at trial.

39. [59]

    On the third day of the trial, the plaintiffs/respondents abandoned a claim to add words “(on behalf of, and by way of loan to, Martha Cove Marina)” to various places in the pleading where the payments were identified. The primary judge permitted an amendment adding the words “on behalf of Martha Cove Marina”, and as noted above, the submissions at the time extended to those words giving rise to an implicit loan as was upheld. But in their submissions at trial, the defendants/appellants submitted:

40. [60]

    The defendants/appellants addressed the possibility that a loan was within the scope of the pleadings and made an elaborate argument that the amendment did not take effect until it was made and so the claim was still time-barred. Part of the submission was reproduced in the primary judgment at [547]. It was impliedly rejected by the primary judge, and was outside the scope of the appeal. But the submissions at trial did not otherwise direct the primary judge to the documents bearing upon the way the payments were treated in City Pacific’s accounts. The course taken at trial may explain why the primary judge did not address the documents which evinced an intention inconsistent with the payments being loans to Martha Cove Marina.

41. [61]

    It was common ground that this Court was in no worse position than the primary judge in making findings and drawing inferences from the documents in a trial where no witness was called to shed light on what occurred and for what purpose. For the reasons outlined above, the preferable conclusion is that there was no implicit loan between City Pacific and its subsidiary Martha Cove Marina when each payment was made. That accords with the reality of the position. The claim was that monies were paid consequent upon defective valuations, and that had the valuations not been defective, there would have been no transaction. The payments were made by City Pacific in order to acquire land in the name of its subsidiary. The subsidiary acquired an interest in the land. The subsidiary cannot sue 8 years after the event, because its cause of action arose when the payments were made. Nor does the holding company which actually made the payments enjoy a different, substantially longer limitation period by the device of treating what occurred as a loan to its subsidiary.

42. [62]

    The appeal should be allowed on this ground, the judgment set aside and in lieu thereof there should be judgment in favour of the defendants/appellants.

Remaining grounds

1. [63]

   Grounds 1(a) and (c) challenged the finding that the appellants engaged in conduct which was misleading or deceptive by providing the Amended Indigo Valuation. The primary judge found that the valuation was not based on reasonable grounds, was not a reliable opinion of the value of the Marina, and was not the product of due care and skill, and for each of those reasons was misleading and deceptive. It is unnecessary to descend to the details, because the submissions on appeal do not challenge any of those findings. Instead the appellants seek to sideline them, by reason of the facts that the valuation was addressed to ILO, not City Pacific, because it was not provided to City Pacific nor was its use by City Pacific authorised, and because of the following disclaimers contained in it.

2. [64]

   I do not consider these grounds to be made out. As the respondents observed, it is not to the point to characterise the valuations as a series of representations made to the client. The question posed by statute is whether there was conduct in trade or commerce that contravened the statutory norm, and it involves error to approach its operation by reference to causes of action such as negligent misrepresentation at law or innocent misrepresentation in equity. As Lockhart and Gummow JJ said in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 504 and as McHugh J said in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [103], “it is necessary to keep steadily in mind when dealing with [the Act and, in particular, s 52] that ‘representation’ is not co-extensive with ‘conduct’”. The joint judgment in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [102] confirmed that s 52 was not confined to ‘representations’, whether they be representations as to matters of present or future fact or law.

3. [65]

   In short, I am unpersuaded that the fact that the named recipient of the Amended Indigo Valuation was ILO could immunise the conduct in supplying the document from being characterised as misleading or deceptive. The submission distracts from the question presented by statute. If that were not so, it would be very easy for the provisions of the Trade Practices Act and now the Australian Consumer Law to be evaded, and not lightly would the legislation be construed to produce that result.

4. [66]

   Nor do I accept the appellants’ submissions based on the disclaimers. I shall put to one side the respondents’ submission based on the fact that City Pacific was in fact ILO’s existing lender, with the benefit of first mortgage security, on the basis of which the respondents contended that its supply to and use by City Pacific wholly accorded with the restrictions in the disclaimer. I doubt the submission is correct. City Pacific was, at the end of June 2007, an outgoing first mortgagee and an incoming purchaser, and it seems strained to construe the disclaimers as extending to a first mortgagee who is to be paid out at settlement and thereby has no interest in the valuation, as opposed to an incoming first mortgagee who may be greatly concerned as to the adequacy of its security.

5. [67]

   However, I agree with the respondents’ submission that the analysis propounded by the appellants departs from the analysis required by statute. Whether conduct is misleading or deceptive is to be determined having regard to all the circumstances. The impugned conduct must be viewed as a whole: Campbell v Backoffice Investments Pty Ltd at [25]. In the present case, the conduct is the delivery of a document containing the various expressions of opinion, the implied representation that due care and skill had been applied, and the disclaimers. Notwithstanding the presence of the disclaimers, the Amended Indigo Valuation amounted to conduct conveying an opinion of value and that the opinion had been obtained by the exercise of due care and skill. That is to say, whether or not the document contained clauses purporting to restrict its use, that does not alter whether it contravened the statutory norm proscribing misleading or deceptive conduct.

6. [68]

   This accords with what was said in comparable circumstances by a Full Court of the Federal Court in ABN Amro Bank NV v Bathurst Regional Council (2014) 224 FCR 1; [2014] FCAFC 65 at [771], reproduced by the primary judge at [334]:

7. [69]

   The disclaimer may be relied upon in connection with the separate question whether there was a causal connection between the contravention of the statutory norm and the loss for which the respondents sued, but that arises under ground 2 and not grounds 1(a) and (c).

8. [70]

   Ground 1(b) challenged the conclusion drawn by the primary judge that there was a duty of care. This Court heard no oral argument in support of the reasons of the primary judge, because senior counsel for the respondents took the commendably efficient course of accepting that if the judgment could not be sustained on the basis of statute, it would fail at common law. As presently advised, I think that concession was correctly made. But irrespective of the correctness of the concession, its consequence is the absence of oral submissions on a point which has no consequence to the outcome of this appeal. Further, it is likely that the analysis would be informed by whether (as the trial judge held but the appellants disputed) Mr Nicodimou knew or ought to have known that the Amended Indigo Valuation would be used by City Pacific, and thus it would be necessary in order to resolve the issue of duty to undertake a detailed review of the evidence which bore upon that issue where neither side adduced testimonial evidence of the circumstances in which the Amended Indigo Valuation was brought into existence and deployed. There was some evidence, not of especially great weight, that Mr Nicodimou had had discussions with officers of City Pacific at the time (extracts of Mr Nicodimou’s answers at a liquidator’s examination are reproduced by the primary judge at [226]-[227]).

9. [71]

   Further, if this Court’s judgment addressed the issue of duty, that part of its reasons, notwithstanding they were obiter dicta, might be deployed in cases where the issue is determinative. For all those reasons, and in accordance with Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49 at [7]-[8] and [101], it is inappropriate to address this issue.

10. [72]

    Ground 2 challenged the findings of causation at common law and under statute. The issues were distinct, but were treated as one in the written submissions. More precisely, the issue in respect of the claim in tort was whether the negligent valuation was a necessary condition of City Pacific causing the three payments to be made, and whether it was appropriate for the scope of the appellants’ liability to extend that far, within the meaning of s 51 of the Wrongs Act 1958 (Vic). (Although the respondents’ pleaded case relied on the Civil Liability Act 2003 (Qld) with the Victorian legislation in the alternative, by the end of the trial the parties had agreed that Victorian law applied, as his Honour noted at [416].) The position in Victoria is slightly different from that in New South Wales, because the considerations in s 51(2) (the equivalent to s 5D(2) of the Civil Liability Act 2002 (NSW)) requiring a court to consider “whether or not and why responsibility for the harm should be imposed on the negligent party” apply in an “appropriate case”, rather than in an “exceptional case”, when “but for” causation cannot be established.

11. [73]

    However, the respondents’ concession mentioned above that if they failed to sustain the judgment based on statute, they could not succeed in negligence, carries with it the fact that it is unnecessary and inappropriate to consider the issue arising under s 51 of the Wrongs Act for substantially the same reasons as applied to ground 1(b).

12. [74]

    The issue under statute is whether City Pacific has been shown to have suffered loss or damage “by” the contravention. (Because the events took place before 1 January 2011, they are governed by s 82 of the Trade Practices Act 1974 (Cth) rather than the differently worded s 236 of the Australian Consumer Law, which uses the language of “because” although probably without much altering the legal meaning.) “By” expresses a notion of causation without defining or elucidating it: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525; [1992] HCA 55. As the respondents rightly observed, neither “reliance” nor “reasonable reliance” is an element of the statutory cause of action, and reliance is not a substitute for the essential question of causation: Campbell v Backoffice Investments Pty Ltd at [143] (by reference to the Fair Trading Act provisions which were in materially the same form). The appellants’ submissions that City Pacific’s reliance was unreasonable are therefore to be understood as a submission that the causal connection has been destroyed, as Gleeson CJ framed it in Henville v Walker (2001) 206 CLR 459; [2001] HCA 52 at [13].

13. [75]

    The appellants’ challenge has a number of aspects.

14. [76]

    First, the primary judge found at [492] and [507] that City Pacific relied both on the June 2006 valuation, which had been prepared for the sale to ILO a year before, and upon the Amended Indigo Valuation prepared at the time the Key Terms Agreement was executed in June 2007. The appellants said that the earlier valuation had become “stale”, that there was no evidence that City Pacific had relied upon it, and that if City Pacific had relied upon it, such reliance was not reasonable when City Pacific had in its possession the more recent Amended Indigo Valuation. I think there is considerable force in this aspect of the challenge. This is not a case where a purchase decision was made on the basis of multiple valuations from different valuers. The same man working for the same employer produced multiple valuations at different times of the same land based on different methodologies. The valuations were brought into existence at the time of contemplated transactions. The actual values expressed were substantially different: $21.203m as opposed to $27.3m a year later; how can both have played a causally significant part in the decision to acquire the Marina?

15. [77]

    It is to my mind an unnatural inference to conclude that City Pacific relied in executing the Key Terms Agreement upon both the valuation provided to it the previous day with updated information concerning berth configuration and income and a valuation it had obtained a year earlier when selling the property to ILO.

16. [78]

    Secondly, the appellants submitted that the transaction itself told against reliance upon the Amended Indigo Valuation. The Amended Indigo Valuation valued the Marina at $27.3m, yet City Pacific committed itself to paying $30m. The primary judge addressed this at [506]:

17. [79]

    The appellants submit that the fact that City Pacific was prepared to pay the price “demanded” by the vendor is strongly suggestive of the fact that there was no causal connection between the decision to acquire the land and the Amended Indigo Valuation.

18. [80]

    The appellants also relied upon something described in the judgment as the “Short Due Diligence Report”. That is a somewhat formal title for two pages of commentary and six pages of tables which were produced in City Pacific’s discovery. It bears the appearance of being part of (or of being intended to be part of) a larger document, or a tab in the papers for a board meeting. The report is highly critical of the price of $30m. It is also highly critical of the Amended Indigo Valuation. It refers to the $27.3m valuation and states:

19. [81]

    It identified a series of risks:

20. [82]

    Shortly thereafter, by email dated 9 July 2007, soon after being sent the Amended Indigo Valuation, City Pacific’s Chief Financial Officer Mr Purss received a critique of the valuation as follows from Garry Sladden, the Group Executive – Operations of City Pacific:

21. [83]

    That email was sent after the Key Terms Agreement was executed and the first payment made, but before the second and third payments.

22. [84]

    On 10 July 2007, Mr Sladden send a further email to Mr Purss as follows:

23. [85]

    Further, in August 2007, a document produced by an external adviser, and admitted over City Pacific’s objection, referred to the transaction in the following terms:

24. [86]

    That report was received prior to the exercise of the option.

25. [87]

    Further, when City Pacific sought loan finance from the Commonwealth Bank in order to finance the acquisition, it appears (from internal City Pacific emails) that the bank “require[d] a new valuation & have a substantial list of additional information, meaning the finance won’t be through in time for settlement”.

26. [88]

    The primary judge addressed these submissions. His Honour relied on the references in the Short Due Diligence Report to the valuation as confirmatory that it contributed to the decision to acquire the Marina (at [508]). His Honour considered that the Short Due Diligence Report “attracts very little weight” to the issue of causation in the absence of any information as to how it was used.

27. [89]

    I respectfully disagree with the conclusion drawn by the primary judge. I acknowledge that the fact that the Amended Indigo Valuation was obtained the day before the Key Terms Agreement was entered into does support the inference that it was connected with the decision. And I am inclined to discount the appellants’ reliance on the passage of more than three months before the second and third payments were made. Once City Pacific entered into the Key Terms Agreement, it was entitled to exercise the call option, but it was also liable to the exercise of a put option, and so it seems to me that the issue of causation resolves what led to the decision on 29 June 2007.

28. [90]

    But while acknowledging the force of those inferences, there is much in the evidence that suggests powerful extraneous considerations. The transaction was evidently driven by end of financial year concerns, rather than a quest for true value. Price had been agreed prior to City Pacific seeing the Amended Indigo Valuation. The price was very substantially higher than that achieved by City Pacific as vendor only a year earlier, and that sale was subject to vendor finance and to a company in which it owned a 26% interest. The acquisition was 10% over the value in the report.

29. [91]

    In short, the Amended Indigo Valuation was far from a leading contributing cause to the decision to enter into the Key Terms Agreement and pay $2.1m. What role if any it played is quite unclear. The onus at all times rested with City Pacific to demonstrate that the Amended Indigo Valuation contributed to its decision to make the first, second and third payments. The case was run on the basis of drawing an inference to discharge the plaintiffs’ onus. On balance, I would not draw the inference drawn by the primary judge. It is no small thing to invite a court to conclude that the causal connection required by statute between misleading and deceptive conduct and the making of payments to acquire the Marina is made out in a case such as this, where the transaction has many hallmarks of being driven by short term, end of financial year considerations, and where it was (accurately) perceived at the time by at least some within City Pacific to be unwise and improvident. If it were necessary to do so, I would conclude this ground to be made out.

30. [92]

    The final ground of appeal challenged the conclusion by the primary judge to award full damages for the first and second payments in circumstances where his Honour applied a 60% reduction for the third payment.

31. [93]

    This ground does not arise because the claim is out of time, and because of my conclusion on causation. If it were to be assessed, this Court could not redetermine contributory negligence without resolving the causal potency of the misleading and deceptive conduct, and that would necessarily be inconsistent with the reasoning on ground 2. It is inappropriate to determine this ground, no differently from the position in Australian Executor Trustees (SA) Ltd v Kerr [2021] NSWCA 5 at [329].

Conclusion and orders

1. [94]

   For those reasons, I favour the following orders:

2. [95]

   BRERETON JA: I agree with Leeming JA.