Cash Resources Australia Pty Ltd v Brett [1996] QSC 32

IN THE SUPREME COURT OF QUEENSLAND No. 2044 of 1991 Brisbane Before the Honourable Mr. Justice Lee [Cash Resources Aust Pty Ltd v Brett] BETWEEN: CASH RESOURCES AUSTRALIA PTY. LTD (A.C.N.004792330) Plaintiff AND: PETER BRETT Defendant REASONS FOR JUDGMENT - W.C. LEE J. Judgment Delivered 08/03/1996 CATCHWORDS: EVIDENCE - whether evidence, prima facie unchallenged, must be accepted - whether inferences may be drawn where evidence of witness rejected. Le Mura v The Victoria Insurance Company Ltd. [1971] Qd.R. 198, Allied Pastoral Holdings Pty. Ltd. v Commissioner of Taxation (1983) 1 N.S.W.L.R. 1, Paric v John Holland Constructions Pty. Ltd. [1984] 2 N.S.W.L.R. 505, Steinberg v F.C.T. (1975) 134 C.L.R. 640, Bella-Lewis v Thompson (App No. 220 of 1994, 27 February 1996) considered. NEGLIGENCE - BREACH OF RETAINER - duty of care of valuer of real property to a factoring company in a falling market - whether the duty of care extends indefinitely even when only fraudulent non-existent debts factored. Banque Bruxelles S.A. v Eaglestar Insurance Co. Ltd [1995] 2 W.L.R. 607 considered. RELIANCE - whether the plaintiff relied on valuation and to what extent - debts factored exceeded security based upon valuation - later debts fraudulent -whether plaintiff entitled to continue to rely on valuation. CAUSATION - whether same test applies to both tort and contract - whether valuation was merely precondition to plaintiff's loss - whether valuation a cause of plaintiff's loss. March v. E. & M.H. Stramere Pty. Ltd. (1991) 171 C.L.R. 506 considered. REMOTENESS - whether losses were in the reasonable contemplation of the parties or the kind of loss foreseeable by a reasonable man - whether -- 1 of 111 -- 2 losses due to plaintiff's negligence in factoring fictitious debts outside scope of plaintiff's business - whether such losses foreseeable. CONTRIBUTORY NEGLIGENCE - whether plaintiff contributed to its own losses - whether distinction between contract and tort. COUNSEL: K. Fleming QC with him P. McQuade for the Plaintiff 1st day - S. Doyle for the Defendant 2nd day - R. Wensley QC with him S. Doyle for the Defendant 3rd & 4th days - R. Wensley QC for the Defendant Thereafter - Defendant in person SOLICITORS: Flower & Hart for the Plaintiff 1st - 4th days Clayton Utz for the Defendant Thereafter - Defendant in person HEARING DATES: 4, 5, 6 and 7 October 1994 16, 27 and 28 February 1995 8 and 9 May 1995 -- 2 of 111 -- IN THE SUPREME COURT OF QUEENSLAND No. 2044 of 1991 Brisbane Before the Honourable Mr. Justice Lee [Cash Resources Aust Pty Ltd v Brett] BETWEEN: CASH RESOURCES AUSTRALIA PTY. LTD (A.C.N.004792330) Plaintiff AND: PETER BRETT Defendant REASONS FOR JUDGMENT - W.C. LEE J. Judgment delivered 08/03/1996 INTRODUCTION The plaintiff, Cash Resources Australia Pty Ltd ("CRA") is a factoring company. Its Head Office is in Melbourne. It has branches in various States, including Queensland. It claims damages against the defendant for alleged negligence and/or breach of retainer following a valuation by the defendant dated 5 September 1990 in the sum of $975,000.00, of real property (a house and land) owned by a company Olympus Nominees Pty Ltd ("Olympus") and situated on a river frontage block at Nerang on the Gold Coast. CRA thereafter took a third mortgage over that property behind the National Australia Bank and the National Australia Savings Bank as security which CRA alleges was to ensure the performance by Olympus of its obligations to CRA pursuant to an Invoice Financing Facility agreement to a limit of $200,000.00 entered into between them on 28 September 1990 and guaranteed by the directors of Olympus, Mr. J.E. Sullivan and Mrs. D.I. Sullivan (Exhibit 3). The facility had previously been formally approved by CRA on 31 August 1990, subject to some eight conditions including a "Fire Sale" valuation by the defendant. Australia generally was in a state of recession after 1988-1989 for some years. The evidence shows that property values were in serious decline from 1989 and throughout 1990 and even more so after the date of the above valuation. It was well known to CRA, and no doubt generally, that the building industry was in a state of depression and that the economy in general was undergoing difficulties over that period after 1989 causing fluctuations in property values. Indeed, this is the general effect of the allegations in para. 3(e) of the Further and Better Particulars of the plaintiff's Statement of -- 3 of 111 -- 2 Claim. CRA alleges that the property was grossly overvalued, that it relied on the valuation in entering into the facility, and has suffered damages as a result of default by Olympus which was wound up by order of the Court on 1 July 1991 on its own application filed on 11 June 1991 (Exhibit 80). A provisional liquidator was appointed on 12 June 1991 (No. 442 of 1991). CRA alleges that but for the defendant's valuation, it would not have entered into the facility with Olympus at all so that the defendant is liable for all losses CRA suffered, however caused, many months later after several months of successful dealings with Olympus, and even if those losses were due to CRA's own negligence (which CRA has denied) and were substantially the result of fraud committed on it by Olympus in its desperate attempt to survive in the last month or so before its collapse and more than nine months after the defendant's valuation. The defendant has denied negligence and that any conduct on his part brought about any losses suffered by CRA. He alleges that any losses suffered by CRA were entirely caused or substantially contributed to by the negligence and failure to mitigate by CRA which in effect means by its Board and in particular its former Managing Director Mr. Roberts in Melbourne as well as by the Finance Manager for Queensland Mr. Walder, who also was in control of the entire Queensland operations. Extensive particulars, 36 in all, have been alleged in the Defence. There is no counterclaim by the defendant against the directors and others personally for contribution pursuant to the provisions relating to joint tortfeasors, for any negligence which, if the defendant's allegations are made out, might have been attributed to them in causing CRA to act as it did, thereby suffering losses: cf. AWA Ltd v Daniels t/a Deloitte Haskins and Sells and ors (1992) 10 A.C.L.C. 933. The case is quite complex and involved considerable detail. There were some 97 documentary exhibits, some of a complex and incomplete nature which caused much confusion throughout the hearing. Some exhibits were duplicated in whole or in part due to similar ledgers and other documents held in Head Office in Melbourne as well as in the relevant branch in Brisbane. Some contained obvious errors admitted during the hearing and some were presented in such a way and in such an order (due in part to the order of witnesses) that collation into a logical sequence and their interrelation both inter se and in respect of oral evidence was made very difficult and in some cases almost impossible. Some were inadequately explained. It is unfortunate that in cases of this type, a bundle of documents in chronological order could not have been agreed upon before the trial. There were numerous issues in the case, but ultimately they come down to the following, some -- 4 of 111 -- 3 of which on the evidence overlap others:- (i) whether the defendant was negligent or in breach of his retainer on 5 September 1990; (ii) whether CRA relied on the defendant's valuation in entering into the facility on 28 September 1990 (Exhibit 3); (iii) whether CRA continued to rely on the defendant's valuation when and after it extended the facility to $250,000.00 on 28 February 1991 (Exhibit 1) without reference to the defendant, and without a further valuation, following its receipt of the very unfavourable report dated 26 February 1991 by its auditors, Messrs. Coopers & Lybrand (Exhibit 9), concerning Olympus' financial prospects and the insecure nature of CRA's exposure to Olympus at that time; (iv) whether losses suffered by CRA, all of which occurred after 28 February 1991, were caused by any negligence or breach of retainer by the defendant on 5 September 1990; (v) whether losses or any of them suffered by CRA were foreseeable or too remote; (vi) the quantum of the plaintiff's losses; (vii) whether the plaintiff was contributorily negligent either in entering into the facility in the first place or in granting the increase on 28 February 1991 and its conduct thereafter; and (viii) whether the plaintiff mitigated its loss. The onus is on the plaintiff to establish all elements of its cause of action including the extent of its losses, whereas the onus is on the defendant to establish contributory negligence and/or failure to mitigate by CRA. Notwithstanding submissions by Counsel for CRA that the defendant (after he became unrepresented and gave evidence himself), did not lead significant evidence on all of these issues, it is clear that the defendant's onus may be discharged either by evidence adduced by him or by evidence adduced throughout the plaintiff's case (i.e. oral or documentary), or both. The case took an unusual course. The case for the defendant was conducted from the outset by -- 5 of 111 -- 4 solicitors acting for the defendant's professional indemnity insurers who were funding the defence. It was initially set down for only two days to commence on 4 October 1994. It could never have finished in two days, even without amendments by the defendant to his defence. For various reasons apparent from the transcript, the estimates extended considerably. Junior Counsel appeared for the defendant for the first two days only. In the afternoon of the first day he indicated that he was unable to continue past the second day's hearing. As a result, Senior Counsel was engaged to represent the defendant. He appeared with junior Counsel for the defendant on the second day, and alone on the third and fourth days, i.e. 6 and 7 October 1994 when the case was adjourned to a date to be fixed in 1995 when it was expected to take a further 7-10 days. In the end, because of later developments the hearing occupied eight days in all, in broken stages. Shortly prior to the resumed hearing on 27 February 1995, Senior Counsel acting on behalf of the defendant to that time sought leave on behalf of the solicitors for the professional indemnity insurers to withdraw from the case. It appears that on 9 October 1991, the defendant had entered into a scheme of arrangement with his creditors pursuant to Part X of the Bankruptcy Act. See Exhibit 90. Counsel for CRA admitted the defendant's statement that CRA and its solicitors were aware of this fact before the writ was issued on 29 November 1991 (338). It was said that this arrangement was the reason why the defendant's professional indemnity insurers withdrew their funding of the defence based on the allegation that the defendant had failed to disclose this arrangement to his insurers at the appropriate time so that, it was said, no liability existed under the policy. See Exhibit 90 and cls.7 of the Professional Indemnity policy. Very late in the proceedings, CRA sought and was given leave nunc pro tunc to proceed with the action. It was said that leave to proceed was either overlooked initially or was not previously considered necessary. It was not suggested that the Court should be concerned with these particular questions in the present proceedings. Both parties desired that the substantive action be resolved. The withdrawal of the defendant's solicitors was not opposed by the defendant's trustee (Exhibit 74) or by the defendant himself. He indicated that he could not afford to obtain legal assistance but said that he was aware of his rights and wished the case to proceed. Thereafter he conducted his own case with obvious disadvantages. There were very lengthy written submissions handed to the Court subsequently by both the plaintiff and the defendant plus an additional four schedules and accompanying explanation by the plaintiff at my request, with copies to the defendant for his comments which were made. The accompanying explanation is marked Exhibit 93, and the four schedules are marked Exhibit -- 6 of 111 -- 5 94, Exhibit 95, Exhibit 96 and Exhibit 97 respectively. There were three separate written submissions by the defendant. All written submissions will be placed with the papers. A further two days hearing subsequently occurred during which extensive oral submissions were made. They were transcribed. All of the lengthy submissions, oral and documentary, have been carefully considered. The fact that there were no qualified lawyers acting on behalf of the defendant for the balance of the case has made the task, particularly of the defendant and of the Court, unduly difficult. Notwithstanding that the defendant was a business man, he did not understand the rules of evidence and procedure and did not appear to be in possession of relevant documents, transcripts etc throughout the case, despite constant warnings to him that he should be in possession of all material as the case progressed. He apparently ultimately obtained material from his former solicitors late during addresses although he did not appear to have a transcript and all exhibits. In spite of every indulgence extended to the defendant by both the plaintiff and the Court, there was an obvious limit beyond which the Court could not assist him in the conduct of his case. Unlike inquisitorial systems, the Court's role in an adversarial system is to decide on the evidence presented, and not to investigate. Not only because of limited assistance given to the Court by the defendant, but also because of the complicated way in which the case was presented and the exhaustive evidence led by the plaintiff to explain its conduct, as well as the many allegations pleaded, the whole of the interacting evidence, as well as the submissions both oral and documentary, therefore required a closer and more detailed examination than might otherwise have been the case. Extensive cross-examination had been completed of Mr. Roberts and various other witnesses before Counsel for the defendant withdrew, but no cross-examination of any substance occurred of Mr. Walder, the Finance Manager for Queensland of CRA, who had the overall management of the Queensland operations and who had detailed dealings with Mr. Sullivan, the Managing Director of Olympus which conducted its business in Queensland. Mr. Walder played a key role in securing this business for CRA and in its implementation, extension and supervision right up to Olympus' liquidation. Mr. Roberts and other directors and/or secretary at CRA's Head Office in Melbourne, were the persons responsible for approving the facility on behalf of CRA. Nevertheless Mr. Roberts and no doubt the other directors relied substantially on Mr. Walder's investigations and recommendations both initially and throughout the existence of the relationship with Olympus as well as on the due local implementation by Mr. Walder of all conditions of the approval imposed by the Board and on his due -- 7 of 111 -- 6 close supervision of Olympus' performance. There were only two questions asked of Mr. Walder by the defendant but which were not without significance, although there is considerable material, both oral and documentary, (substantially that led by CRA itself), which when carefully considered, allows Mr. Walder's evidence, as well as that of other witnesses, to be adequately assessed without infringement of the rule in Browne v Dunn (1894) 6 R. 67. Whilst it is correct, as Counsel for the plaintiff submitted, that where evidence is probable and sworn to and is not contradicted, it may be more confidently accepted by a tribunal and should usually be accepted: Le Mura v The Victoria Insurance Company Ltd. [1971] Qd.R. 198 at 206, there is no absolute rule which requires a Court to automatically accept what on its face may appear to be unchallenged evidence: Allied Pastoral Holdings Pty. Ltd. v Commissioner of Taxation (1983) 1 N.S.W.L.R. 1 at 18; Paric v John Holland Constructions Pty. Ltd. [1984] 2 N.S.W.L.R. 505 at 507. This is particularly so where there are bases which appear from documentary evidence and evidence of the witness himself as well as that of other witnesses which throw doubts, qualifications or explanations on the alleged unchallenged testimony. In such circumstances, the bald principle stated in Le Mura is not applicable. See also Steinberg v F.C.T. (1975) 134 C.L.R. 640 at 694 per Gibbs J., applied by Davies J.A. in Bella-Lewis v Thompson (App. No. 220 of 1994, 27th February 1996, p.7) dealing with the drawing of inferences where a witnesses' testimony is disbelieved. The plaintiff must prove its case. OVERVIEW CRA carries on the business of factoring of debts which involves the buying at a discount of debts owed to other companies or individuals carrying on a business. In its pristine form, factoring has been regarded (particularly overseas) as a sign of financial maturity or sophistication whereby the working capital of an organisation is maximised in a legitimate way in an otherwise financially sound business. Such businesses may include those considering expansion or which are entering a stage of rapid growth in a period of economic upswing, often involving a time delay between the accumulation of trade debts and trade assets such as stock on the one hand and income (and profits) from sales on the other. On the other hand, as this case starkly demonstrates, factoring may operate during a downswing in economic activity. Businesses seeking to use this type of facility may include those with a good background performance but which, for various reasons, are facing a period of financial stringency and are in urgent need of working capital to enable them to survive, continue trading, and to meet their ordinary business obligations as they fall due. Hopefully such businesses will be able to be restored to self-sufficiency if their performance and economic conditions improve, although not all do so. Also businesses which are otherwise commercially insolvent and with indifferent or poor prospects, may seek -- 8 of 111 -- 7 this type of facility as a last resort. Whatever their background and prospects, these businesses all require a more immediate cash flow than otherwise might be achieved by the payment to them by their customers of their debts in the ordinary course which could vary from seven to 30 days or even longer depending upon the particular contracts between the business whose debts are factored and its customers. Factoring differs somewhat from conventional money lending by which a lender, such as a bank or other finance house, lends monies to another on some type of security, usually consisting of bricks and mortar. Factoring of debts involves the purchase by CRA of assets of the other business subject to certain terms and conditions. Those assets are the debts purchased. Ordinary lending institutions do not purchase assets in this way. Usually, but not always, there is additional security taken by the factoring company which purchases those debts, to provide protection or a backup, in whole or in part, in the event of its customer's default. This requirement appears to be more common in cases where the customer is suffering a liquidity crisis. CRA contended that it was a company which always required security. A factoring company which takes security therefore has the advantage over conventional lending institutions in that it not only acquires assets (i.e. the debts of its customer), but also has a backup security. For all practical purposes, factoring may be broadly described as a method of financing whereby debtors of a business are used to finance that business. Effectively credit sales of a business are converted into cash sales even though not for their full face value. However it is characterised, this case illustrates that it is a method of providing ready finance to a business in urgent need of working capital or an immediate cash flow, to enable it to carry on its business effectively and hopefully to overcome its liquidity problems, although not all do so as in this case. Mr. Walder said that the usual requirement for this facility was to enable the company to meet its obligations as they fell due in the normal course of business. Mr. Roberts said that such organisations have usually been declined finance or additional finance by their banks or lending institutions, hence their last resort if possible to a factoring facility. Other advantages may accrue to a successful business which sells its debts in this way if it is prudent in its operations and is otherwise able to meet its obligations as they fall due. For example, it may provide the opportunity to take advantage of favourable prices for further stock purchased for other projects by reason of its then capacity to make early payment, thereby attracting discounts. The evidence which overall shows a hand to mouth operation, does not specifically show whether Olympus was ever able to take any such advantage. -- 9 of 111 -- 8 Debts purchased may be of two types. The first type was described as notified debts which operate by way of legal assignment of debts to CRA for valuable consideration. The factoring company then becomes the legal owner of the debts and takes over the onerous task of collection of the debts directly from the debtors involved. They effectively become CRA's debtors. The second type consists of non-notified debts whereby the other business, which sold the debts to CRA, collects the payments from its debtors in the usual way but banks the proceeds not to its own account but to the credit of CRA's bank account by the use of CRA's stationery provided to it. It is a confidential arrangement between CRA and its customer whose debtors have no knowledge of CRA's involvement. This minimises the risk that debtors of such a business and others will gain knowledge of the financial arrangements and condition of the business whose debts are being purchased. Such knowledge might well result in detriment to that business. It was said that this involved an equitable assignment of the debts so that CRA became the equitable owner of the debts. See Exhibit 3, cls.3, 4.4. This is the type of business arrangement entered into between CRA and Olympus pursuant to the above Invoice Financing Facility. It may be here noted in context that immediately after the final collapse of Olympus on 12 June 1991, CRA promptly gave notice to all debtors whose debts to Olympus CRA had purchased (factored) but which remained unpaid, that the debts were thereupon owing directly to CRA, thus, it was said, resulting in a legal assignment of those debts to CRA at that stage (273, 324, 407). This appears to have been authorised by cls.18, 4.4 of Exhibit 3 and is a right which CRA, as lawful attorney of Olympus, could have exercised at any stage of the relationship if it so wished, and without notice to Olympus or any advance warning to the debtors. Some of those assigned debts were paid directly to CRA without demur and apparently promptly, and some after issue of legal process. As will appear from evidence raised during CRA's case, the bulk of unpaid "debts" were non-existent debts factored by CRA late in the relationship and probably in May 1991 due to the fraud of Olympus when Olympus was in extremis and were also probably the subject of notification, having regard to Mr. Walder's evidence (324) and submissions (407). CRA purchased debts of Olympus at 80% of the face value of copy invoices Olympus charged to its customers and which it sent to CRA for factoring. CRA paid those sums to Olympus, less a further 3% as its initial fee: see Exhibit 3 cls.6. By virtue of the confidential arrangement with Olympus, CRA was constrained somewhat as to the effectiveness of its methods of checking with Olympus debtors, the -- 10 of 111 -- 9 validity of debts tendered by Olympus to CRA before they were factored. It appears that CRA utilised the name of a firm of chartered accountants and auditors (Venn Milner & Co.) in whose name CRA's office staff made somewhat surreptitious enquiries purportedly in the name of Olympus, from some only of the debtors of Olympus, said to be a sample of 20% of the value of batches of invoices tendered for factoring. Apparently those debtors were told that the enquiry was merely an audit on behalf of Olympus. Mr. Walder used this system (240, 248, 249), but Mr. Roberts, whilst saying that CRA used the name of its chartered accountants (114), was decidedly uncomfortable with any system by which an enquiry was made of Olympus debtors but in the name of Olympus, suggesting that in some respects it was "not quite honest" (114-5). This may be a pointer to the question of whether such method of checking was sufficient or effective or prone to difficulties confronted by Mr. Walder's staff in eliciting reliable information. See below. Olympus in turn was obliged, as CRA's agent and without charge, to collect payment of the full debt from its debtors according to its ordinary terms of trading with the debtor, but then to bank the total proceeds to CRA's bank account. See Exhibit 3, clauses 5, 8. Upon regular reconciliation by Olympus to CRA, CRA refunded the 20% margin to Olympus. Reconciliation usually occurred monthly: clauses 5, 6. CRA's fee of 3% of the face value of the invoice already deducted as its initial fee was then adjusted upwards or downwards according to the collection performance of Olympus. i.e. the earlier Olympus collected and banked the debt to CRA's bank account, the less was CRA's fees. It could go down to 2% on speedy collection, or it could increase considerably if collection was delayed; see the table in cls.5 of Exhibit 3. This fee was the source of revenue earned by CRA in its factoring business. The documents and the accounting systems in both the Brisbane office and Head Office in Melbourne were quite complicated and required close analysis. CRA had other rights. See cls.7 of Exhibit 3 which allowed CRA to apply the 20% retention and initial fee to satisfy any unpaid balance of any debt purchased more than 120 days prior to the commencement of the current month, or at CRA's discretion, in satisfaction of the whole or any part of any sum owing by Olympus to CRA, or to recompense any loss or damage or expense CRA suffered or incurred. Clauses 6 and 9 also allowed CRA a right of set off. Clause 10 also significantly gave CRA extensive rights of recourse to Olympus of any debt it sold to CRA, which Olympus was obliged to repurchase in certain circumstances. Mr. Roberts said that this right was exercisable if a debt was unpaid at 120 days (118). After exercise of this right, CRA could commence recovery action against Olympus if the debt was not repurchased. There is no evidence that CRA ever exercised any of these -- 11 of 111 -- 10 extensive powers, no doubt because, according to CRA, the debts it purchased which resulted in its losses were those purchased very late in its relationship with Olympus before Olympus collapsed. The facility agreement by cls.2 provided clear definitions of "debt" and "due date of debt". Clause 4 also imposed stringent warranties on Olympus and the guarantors, the Sullivans, (inter alia) that debts (or invoices) offered for factoring, were owing in full and payable in full to Olympus not later than the second day of the month following the date of the invoice, that the debtors involved had not sought to repudiate the debts, and that the debtors had no right of set off or counterclaim. In addition Mr. Sullivan of Olympus in para. 50 of the application for the facility (Exhibit 8), represented that invoices were not raised until the project manager of various jobs approved of Olympus' progress claims against its customers, because according to CRA, such approvals removed any dispute as to their enforcibility. Mr. Roberts said that this was important (72-73), even though, after agreeing in cross- examination that a simple and effective method of vouching the validity of debts offered by Olympus for factoring would have been to check with the project manager involved, he said in reexamination (126) that not all building contracts had a project manager. Nevertheless, Olympus was engaged in the building industry for which the great bulk of its work was directed. Mr. Walder in his facsimile to Mr. Roberts of 28 February 1991 (Exhibit 21), said that "bulk of work is coming from the medium size builders in the shopping centre/factory type work". Mr. Roberts said (127) that Olympus was "contracting with various people, Government departments, major builders and the like and we believed that he was continuing along that basis". It would be surprising if such jobs did not have a project manager or equivalent, having regard also to para. 50 of Exhibit 8, to Mr. Roberts' evidence overall, as well as to the evidence of Mr. White as to the necessity for completing "projects" after Olympus collapsed. It is nevertheless accepted that notwithstanding para. 50 of Exhibit 8, some small part of the business activities by Olympus was probably with ordinary trade debtors where no project manager was involved. The foregoing provides an indication that anyone with general knowledge of factoring of debts and of CRA's business, and in particular with the terms of Exhibit 3, were justified in expecting that the debts (invoices) offered by Olympus to CRA for purchase and which were in fact purchased by CRA, were properly checked and in fact legally enforceable debts, and not fictitious or fraudulent "debts" tendered by Olympus in breach of its contract with CRA and which got past CRA's alleged checking system. It is a contradiction in terms to call such transactions "debts". They were not debts at all and -- 12 of 111 -- 11 were outside the scope of CRA's business. It is immediately apparent that this arrangement was a very risky one for CRA. This accords with the overall evidence. It involved in the first place considerable care before entering into the arrangement, particularly as Olympus was suffering from a severe liquidity problem, and was "out of the ordinary" as Mr. Roberts said. When commenting on Coopers & Lybrand's report of 26 February 1991 (Exhibit 9), Mr. Walder said that Olympus was insolvent at the outset (i.e. at "take up"). See his comments written on Exhibit 9. Mr. Roberts also said that Olympus was insolvent at the beginning (123). He also said that 50% of the companies "that we look at" were in fact insolvent (118). It appears that CRA has factored debts for companies in receivership where CRA had guarantees from the receivers as to any debts factored. Nevertheless, in the face of those admissions as to insolvency of Olympus, and the evidence generally, including in particular the report of Coopers & Lybrand (Exhibit 9), Counsel for CRA attempted during the evidence (314-7) and addresses (pp.39/56 of the written submissions and pp.472-4) of the transcript), to discredit CRA's auditors' report (i.e. Coopers & Lybrand) that Olympus was insolvent at the outset (or at least on 30 June 1990), by asserting that had the value of the real property been correctly shown in Olympus' balance sheet at 30 June 1990 as $1.1 million (478), rather than $516,620.00, the company was not then in fact insolvent. If that submission succeeded, it would also tend to show that both Mr. Roberts and Mr. Walder were incorrect in their statement that they knew that Olympus was insolvent "at take up" when in fact Olympus would then have been a viable company with which CRA could confidently do business. No doubt this submission was designed to answer the defendant's allegations that CRA was negligent in entering into the facility in the first place with an organisation in such a state. (At transcript p.472 line 35, the word "wrong" should be inserted to read "...Coopers & Lybrand were wrong saying...". At 474 line 25 the word "solvent" should be "insolvent", and the words "said it" should be deleted from line 24.) After commencement of the relationship, its success depended on Olympus selling only valid and enforceable debts as the facility agreement expressly required (and not fraudulent, fictitious or wrongly inflated "debts") to CRA at their proper value, and also on a proper collection and banking procedure by Olympus on CRA's behalf. Notwithstanding the express facility requirement that all debts factored were fully due and -- 13 of 111 -- 12 payable by the debtors of Olympus, Mr. Roberts said that from about the time CRA granted the increase in the facility on 28 February 1991 (Exhibit 1), there was a high risk that a company which was insolvent and desperate to survive would be tempted into selling to CRA, non-existent debts or debts overstated or debts not yet due, such that CRA should exercise extreme care in checking such debts before they were purchased. Indeed, Mr. Walder was also aware of the risk of fraud, at least before Coopers & Lybrand were engaged on 4 February 1991 to conduct an audit for CRA (Exhibit 31)(245, 308), prior to the granting of the extension on 28 February 1991. See also at 245 where he referred to the dangers for CRA in an "ordinary facility", and at 54/112 where Mr. Roberts also referred to the dangers. This arrangement once entered into also required very close monitoring by CRA of all aspects of its dealings with Olympus and the taking of timely remedial action such as immediate discontinuation of further purchases of Olympus' debts as it could do at any time as Mr. Roberts said (70) in order to prevent further losses, exercising some or all of its extensive powers under the agreement, e.g. cls.18 of Exhibit 3, and "getting out" should such course become necessary, as both Mr. Roberts and Mr. Walder asserted would be done speedily if the need arose. Indeed, Mr. Roberts expressly stated that CRA could buy a debt "only once today", stop any further purchase, make its fee and move on (70). CRA was thus exposed to the risk that "debts" fraudulently offered for sale to CRA by Olympus were non-existent or were otherwise valid debts but wrongly increased in amounts. CRA has alleged that this occurred in the latter part of its dealings with Olympus after about March 1991, and probably in May 1991. Notwithstanding that CRA raised the question of fraudulent invoices during its case, it has not provided details or proved what part of its claim constituted such "debts" as compared with unpaid bona fide debts, despite enquiries by me in this regard. I agree with the defendant's submission that this could easily have been done by CRA who apparently discovered these "debts" only during its investigations into Olympus' affairs after it collapsed (240, 324, 498). Not one had been discovered to be fraudulent before it was purchased by CRA and before the collapse of Olympus at the end of its relationship with CRA. There is no evidence that CRA had rejected any invoices tendered to it by Olympus for factoring. Messrs. Flower & Hart, solicitors acting for CRA said in a letter to CRA of 1 June 1992 (Exhibit 61) that "many of the debts factored were fraudulent debts" which was said to be the reason why CRA could not claim its losses under the assigned Trade Indemnity Insurance Policy which covered only -- 14 of 111 -- 13 losses which flowed from CRA's purchase of bona fide debts owed to Olympus. Junior Counsel in his written submissions at p.50 said that the "main" reason for CRA's losses were from this cause. Nevertheless the effect of CRA's stand was that it was entitled to any losses it suffered, many months later, from whatever cause, even if the bulk if not all of those losses occurred as a result of the fraud of the "borrower", and even from the negligence of CRA in not checking and ascertaining their validity before purchase, rather than only losses which might flow from the "ordinary" business failure of Olympus which otherwise honestly (or at least non-fraudulently) complied with its agreement with CRA. It was said that this flowed because CRA would not have entered into the facility if the defendant's valuation had come in at a substantially lower figure representing a true "Fire Sale" value so that all losses it suffered, of whatever nature and whenever they occurred, plus interest and other charges thereon, were "caused" by the defendant's negligence or breach of retainer and were not too remote. Mr. Roberts said that the only unpaid invoices were those factored by CRA in March, April and May 1991 (86). All others had been repaid. Mr. Walder said that when Olympus went into liquidation, there were a lot of "uncollectable debts" and that "most of them were in 30 days", i.e. May invoices. He also said that unrecoverable, non-existent and fraudulent debts occurred in May and June 1991 and that CRA had no difficulty whatsoever with respect to any debts factored to the end of April 1991 (324), indicating that all invoices factored to the end of April 1991 were probably duly repaid. His evidence that some debts were purchased in June must be incorrect. See Exhibits 26, 27 but in particular Exhibit 28 which shows that the last invoices purchased occurred on 30 May 1991 ($18,630.00). Mr. Roberts agreed with this (86). This also accords with the document Schedule 1 handed to the Court by solicitors for the plaintiff subsequent to the hearing (Exhibit 94). It is headed "List Of Debtors And Face Value Of Debts Purchased On A Monthly Basis Which Remain Outstanding At The End Of Each Month". Schedule 2, "Outstanding Debtors As At 31 May 1991"(Exhibit 95), is to similar effect. So also is Schedule 3 ("Schedule Debts Owing At 31 May 1991 Per Aged Debtor's List And When Due") (Exhibit 96). Indeed, the explanation by solicitors for CRA in Exhibit 93 concerning Schedule 2 (Exhibit 95), shows that no debts were purchased between 1 June 1991 and 11 June 1991 when Olympus finally collapsed. CRA was also exposed to the risk that Olympus, which collected the proceeds from its debtors, failed to pay the proceeds to the credit of CRA's bank account. It was suggested that this may also have occurred although again CRA has not attempted to prove details or the extent of its claim which was due to this possible cause. It might be thought to have been a simple exercise to establish whether or not -- 15 of 111 -- 14 there were losses from this cause. CRA simply asserts its entitlement to the "balance of its ledger" of $200,710.76 at 11 June 1991 (most of which included "fraudulent" debts), without proof of its contents (254), plus other expenses, costs and interest hereinafter referred to (see para. 6 of the Further and Better Particulars and Exhibit 75), showing a total of $348,731.97 as at 4 October 1994 (Exhibit 75), plus interest to judgment. It is not known what precise portion of that sum and interest and other expenses in relation to such sums, were the result of fraud by Olympus. It is tempting to infer from the above exhibits, particularly Exhibit 94, as well as Mr. Walder's evidence, that the debts purchased in May and outstanding at 31 May 1991 totalling $152,502.80 were all fraudulent "debts", although a close examination of these documents and other evidence renders such an inference unsafe. As indicated, the onus is on CRA to prove the extent of its losses caused by any negligence or breach of retainer on the part of the defendant and that such losses, in the case of tort, were reasonably foreseeable and not too remote, and in the case of breach of retainer, were within the reasonable contemplation of the parties at the outset. See below. CRA also faced the ordinary business risk that some of Olympus' genuine debts which had been purchased, became bad debts, thus, as indicated, giving CRA the right of recourse to Olympus which was required to "repurchase" those debts or, if Olympus was unable to do so by reason of its liquidity problems, giving CRA recourse to the Trade Indemnity Policy (Exhibit 15). Mr. Roberts was acutely aware of the strict conditions of such a policy (see p.43 and Exhibit 60), which he insisted should be and was assigned to CRA (and to be strictly monitored by CRA to ensure that Olympus complied with its strict terms), as a condition of entering into the facility in the first place (Exhibit 16 Condition 4). If Olympus had been honest in its dealings with CRA (i.e. non-fraudulent), and had complied with its agreement with CRA and with the terms of the Trade Indemnity Policy (Exhibit 15), even if its business otherwise failed, CRA would probably have suffered no loss. However, because of the fraud by Olympus, this was said to have given the insurer the right to avoid the policy (Exhibit 61), although there was no evidence of any attempt by CRA to test the attitude of the insurer at least with respect to valid debts if any which had not been repaid at winding up. This is a ground of complaint by the defendant - Defence para. 8(d). However viewed, all of the losses suffered by CRA were not incurred until after purchase of debts, real or fraudulent, after February 1991. All debts purchased to that time had been duly repaid. The debts which caused losses, according to Mr. Roberts, were some of the debts purchased in or after March, April and May 1991 and, on Mr. Walder's evidence, substantially in May 1991. Also on Mr. Walder's evidence, it is clear that much if not all of CRA's losses arose because of fraudulent invoices -- 16 of 111 -- 15 tendered by Olympus to CRA which CRA purchased in May 1991. It was said on behalf of CRA that before it entered into such a facility, it always required security and other conditions according to the type of business activity engaged in by its customer, in this case Olympus. Evidence was given in this regard by Mr. Roberts, as well as by Mr. Walder. For those customers engaged in other than the building or related industries, the stated invariable practice by CRA was to require real property security to the extent of 50% of the limit of the proposed financing facility. In the case of Olympus, which traded under the name "Jaeden Aluminium Fabricators", engaged as it was in the manufacture and sale of aluminium products such as windows, doors etc. to builders engaged in projects in the building industry, CRA alleged that its invariable policy was to require real property security to a minimum of 100% of the limit of the proposed facility to cover its maximum exposure at any time. This was said to be due to the fact that there were more difficulties in the building industry regarding payment of debts by debtors (usually builders, subcontractors etc) to their suppliers (in this case Olympus). The building industry was generally regarded as being more volatile and risky, the calibre of debtors to suppliers in that industry were not always of the highest order, and there were other problems including those associated with retentions and progress payments on building projects. Mr. Roberts insisted that debts factored must always exclude retentions (Exhibit 16, Condition 3), and there is no reason to conclude that retentions were ever factored. Retentions were those parts of progress claims by Olympus on its customers, which the customers were entitled under their contract with Olympus, to hold back to ensure performance by Olympus of maintenance if any, and to give some protection to them if Olympus failed to continue with further work under its contracts with those customers, involving them in some possible expense of recalling tenders to complete their work on the projects involved. Recourse to any security appears to have been a last resort because in the first instance, the agreement allowed CRA to have recourse to Olympus to repurchase overdue unpaid debts if Olympus' finance allowed it to do so. Another course was either action against Olympus and/or notification direct to the customers of Olympus whose debts had been factored and unpaid, with action directly against them if the assigned debt remained unpaid. Another right was recourse to the Trade Indemnity Policy which, it was said, depended for its effect upon Olympus having complied with the stringent conditions of such a policy (and not committing fraud). Any recourse to the real property or other security would only then follow if absolutely necessary. -- 17 of 111 -- 16 As indicated, a factoring facility, particularly with a company in the position of Olympus, required very strict and honest (non-fraudulent) performance by Olympus of its obligations to CRA as well as closer than usual supervision by CRA. In accordance with CRA's stated policy, which set the standard of care it was required to take, and may be taken to be the standard of care of a reasonable factoring company, it also required care by CRA to ensure that all of the conditions of any approval for the granting of such a facility were duly complied with, and that the value of any security it obtained remained current throughout the relationship and remained sufficient to cover its exposure at any time during that relationship. This appears to accord with the express terms of cls.16.2.1 of Exhibit 3 "...such mortgage to secure all monies owing from time to time by the vendor (Olympus) to CRA", and was particularly important because of the widely known downturn in the economy as well as in the building industry in particular with its obvious depressing effect on values of real property security. Clause 16.2.3 also envisaged security over personal property "...to secure all monies owing from time to time by the vendor to CRA". Of importance also was the precarious financial position of Olympus from the outset and ever since until its final collapse. In order to give effect to an arrangement with Olympus, agreement was required to be reached with the National Australia Bank which had already held a first mortgage over the subject property (Exhibits 11 and 30). This was to secure an overdraft facility to Olympus not exceeding $700,000.00. Also the National Australia Savings Bank had already held a second mortgage over that same property to secure a loan which appears to have fluctuated over and under $50,000.00 during 1990 (Exhibits 11, 17, 30, 78, 86 and 87). The National Australia Bank also held a first mortgage debenture over all of the assets and undertaking of Olympus dated 13 April 1987 (Exhibit 29), which included all debts owing to Olympus. CRA was able to enter into the Invoice Finance Facility with Olympus to buy debts owing to Olympus only if the bank first conceded a priority to CRA to allow CRA to purchase debts already charged to the bank, up to the proposed facility limit of $200,000.00. The bank concession to CRA and CRA's ability to purchase debts to the value of that concession were to go hand in hand. CRA could not purchase debts without this priority. Nor could it legitimately purchase debts in excess of such a priority. CRA's second mortgage debenture over the assets of Olympus, entered into on 29 September 1990 (Exhibit 4), was subject to the bank's first charge. Also, because of CRA's stated policy of requiring real property security, CRA also required the bank to limit the priority the bank retained in respect of the two securities over the house property so that CRA could take advantage of the realisable value of the property over and above the bank's priority limit, i.e. by entering into a third mortgage -- 18 of 111 -- 17 which it was hoped would give it an "equity" over and above the bank's agreed limit. The bank on 18 October 1990 conceded priority to CRA initially to the extent of $200,000.00 to enable CRA to purchase debts of Olympus to that amount (Exhibits 29 and 50) which was increased to $300,000.00 on 11 February 1991 (Exhibit 51), and reverted to $250,000.00 on 1 May 1991 (Exhibits 52, 53, 54). CRA in fact increased its exposure to Olympus in factoring Olympus debts well above the $200,000.00 limit and indeed above the extended facility limit of $250,000.00 granted on 28 February 1991. See e.g. the allegations in para. 8(m) of the Defence, which are based on documents in evidence, showing limits of up to $293,300.56, subject to some evidence as to carry over bankings. Those variations were not in any way referred to the defendant, nor was any subsequent valuation of the real property obtained until the defendant was asked by CRA to do a review which he did on 12 June 1991 after the collapse of Olympus (Exhibit 10). That valuation showed a figure of approximately $900,000.00 if marketed in an orderly fashion but a figure of $750,000.00 "should the property be marketed as Mortgagee in possession in today's climate...". Also the bank conceded priority to CRA over and above a limit of $750,000.00 plus bank charges, interest etc. without limit (Exhibit 30), thus enabling CRA to enter into the third mortgage arrangement with Olympus (Exhibits 5 and 11), providing the value of the property exceeded the amount of the bank's priority. The allegation in para. 6(b) of the Statement of Claim that CRA took a second mortgage behind the National Australia Bank's first mortgage is incorrect and caused much confusion at the trial. It was clearly a third mortgage. The details of all of these arrangements with the bank were made locally by Mr. Walder alone and not by Mr. Roberts or any other director in Melbourne. Mr. Roberts said that he did not deal with the bank with respect to anything (61-2) although he was concerned that the bank might put pressure on Olympus to reduce its overdraft facility because the bank had released $200,000.00 of its book debts to CRA (62), and thus had reduced its own security. A fortiori if the bank relaxed $250,000.00 or $300,000.00 as it did. The defendant had no knowledge of these arrangements. It is immediately apparent that the value of any such security over real property of Olympus was prone to fluctuations depending upon bank charges, interest etc. as well as the continuing inherent value of the real property itself. It is therefore necessary to examine in detail, steps taken by CRA before it entered into the -- 19 of 111 -- 18 Invoice Finance Facility with Olympus and before its agreement to extend the facility to $250,000.00 on 28 February 1991, as well as its conduct and dealings with Olympus over the period of the facility. References to the evidence which often bears upon more than one issue, will be mentioned in context as necessary, unfortunately involving some repetition, with findings as may be appropriate. Care has been taken not to view the conduct of CRA with the benefit of hindsight after the collapse of Olympus which, in retrospect, appeared to have been inevitable from the start. Its conduct must be viewed in the circumstances prevailing at times material to the issues raised in this case. Likewise, the valuation by the defendant should be viewed in the light of circumstances existing at 5 September 1990. Due allowance has also been made for the lapse of time between the events and the trial, and its effect on memories of witnesses. STEPS TAKEN AND CRA'S CONDUCT It appears that some time during August 1990, Mr. Walder was approached by Messrs. Hall Chadwick, Public Accountants, to see if CRA might be prepared to entertain an application for a finance facility with Olympus which was said to be suffering from a severe liquidity problem and shortage of an adequate cash flow but otherwise said to be a basically sound business. Messrs. Hall Chadwick had previously acted for Olympus and CRA. It appears that Mr. Walder relied upon Messrs. Hall Chadwick in the (unaudited) financial statements provided and explanations offered, as well as upon Mr. Sullivan's representations, and did not make separate enquiries into the financial affairs of Olympus of the style conducted by its own auditors, Coopers & Lybrand in February 1991 (Exhibit 9), which Counsel for CRA said was then part of CRA's "normal procedural aspects" (480) in auditing its clients. Of course, at that stage, Olympus was not a client. Messrs. Hall Chadwick no doubt relied to some extent on information from Mr. Sullivan in the unaudited accounts prepared (Exhibit 87) and explanations offered. Unfortunately no relevant officer from Hall Chadwick was called to give evidence. The evidence overall shows that Mr. Sullivan was very personable, persuasive and indeed optimistic. The only independent checks made were in accordance with two of the conditions referred to in Exhibit 16. One was a credit check through a trade organisation (Exhibits 44-45), and the bank (Exhibit 46). These matters constituted one of the many allegations of contributory negligence - para. 8(h) of the Defence. Exhibit 44 shows that on 29 June 1990, a default notice for non-payment of a debt of $1,024.00 -- 20 of 111 -- 19 was issued against Olympus and on 26 October 1989, a District Court plaint had been issued against Olympus by Allan and Wendy Huish claiming the sum of $14,893.00. It was alleged that CRA did not check out these matters or satisfied itself that Olympus had a consistent pattern of paying its debts (para. 8(o),(q) of the Defence). The bank note (Exhibit 46), guardedly stated: "Business is suffering effects of slow-down and failure, in a building sector and equity has tight prospects of ongoing trading. Are reasonably sound with a full management plan in place still fairly dependent on improvement in the industry but has good work in hand at the present time." Mr. Roberts said that Olympus had a prior factoring facility with Custom Credit (112). Its duration or details and Olympus' condition during its currency were not canvassed in evidence but, on Mr. Roberts' overall evidence, it indicates that Olympus had been suffering from liquidity problems for some time prior to CRA's involvement. Apparently no attempt had been made by Olympus to otherwise raise extra finance on the security of its assets, particularly the house property already twice mortgaged to the bank. If it did, such attempts were unsuccessful, hence its approach to CRA. Indeed, at 30 June 1990, Exhibit 17 shows that the overdraft alone was $848,160.96 (up from $176,701.00 as at 30 June 1989) and that the debt to the savings bank was $48,050.18, totalling $896,211.14. There was no debt to the Savings Bank at 30 June 1989 (Exhibit 17). The additional loan was raised during year ended 30 June 1990. Mr. Hollis (solicitor recently employed by the bank and who gave evidence) said that this debt was incurred in 1989, and therefore after 30 June 1989. With Olympus' overdraft fluctuating and at times very much over the limit of $700,000.00 which Mr. Hollis said was arranged in March 1990, (no doubt with personal guarantees by Mr. & Mrs. Sullivan - Exhibits 84, 85), it is unlikely that Olympus could have raised any extra finance based on "equity" if any remaining in the heavily mortgaged house property because of its otherwise negative asset position which Mr. Walder correctly described as a "deficit". The evidence of Mr. Roberts otherwise shows that the inability of a business to obtain finance or extra finance from its bank or regular lender is the usual reason why a business in the position of Olympus seeks a facility of this type. On 28 August 1990, (a date which emerges from all of the evidence notwithstanding Mr. Walder's understandable difficulty after the time lapse in recalling when the first meeting occurred), Mr. Walder for the first time met Mr. Sullivan who was the Managing Director of Olympus at the office of Olympus at Slacks Creek, Brisbane. Present also was Mr. Terry Van der Veld of Messrs. Hall Chadwick who was not called to give evidence. -- 21 of 111 -- 20 Mr. Walder's role was not only to manage the Queensland enterprise but also to secure business on behalf of CRA. It was in his interests as well as that of CRA to secure this business if possible. Notwithstanding that the final decision to enter into a finance facility rested with CRA's Head Office in Melbourne (involving approval by Mr. Roberts and two other directors or one other director and secretary), I formed the clear impression from all of the evidence, both oral and documentary, that Mr. Walder was anxious to secure and maintain this business relationship and assist Olympus as far as he could. It may also be confidently inferred from all of the evidence that Mr. Walder and Mr. Roberts were favourably impressed with Mr. Sullivan's optimism and explanations. They were inclined to accept uncritically his forecasts of improvement from time to time. By way of example only see pp.92, 103-4 and Mr. Walder's acceptance of Mr. Sullivan's statements that the boat "Glass Cutter" was unencumbered as well as Mr. Walder's statements in Exhibit 21 of 28 February 1991 and in Exhibit 22 of 21 March 1991. As will appear, Mr. Sullivan misled Mr. Walder and Mr. Roberts in certain respects. Mr. Roberts left all of the local investigations and negotiations entirely in the hands of Mr. Walder who made recommendations. Mr. Roberts said Mr. Walder was a very experienced man (115). After grant of the approval by the Board on 31 August 1990, Mr. Roberts left all of its implementation and compliance with CRA's stated eight conditions to Mr. Walder to put into effect locally (84). However it appears from Mr. Roberts' evidence (113 and elsewhere), that he also was anxious to help Olympus out as far as he could and expressed the view that had the facility been withdrawn after the unfavourable report of Coopers & Lybrand of 26 February 1991 (Exhibit 9) to CRA, Olympus would have been forced to close its doors. He said that CRA was not in the business of putting companies out of business. He agreed that he wanted to see Olympus continue to trade and that he wanted to "help them out". He "hoped they'd get out of their problems". He said that CRA took a risk at that time. These factors formed the basis of a considerable attack by the defendant who alleged that CRA brought about its own losses all of which occurred very late in its relationship with Olympus, even if his valuation was negligently performed. The first formal step was the completion by Mr. Walder and Mr. Sullivan of a Finance Application to CRA on a CRA printed form (Exhibit 8). The evidence shows that this important document was completed by Mr. Sullivan with Mr. Walder in the presence of Mr. Van der Veld (of Hall Chadwick) at the first meeting. Mr. Roberts has accepted that this was so (47). Senior Counsel in his opening (25) said it was made at the first meeting which he said occurred on 29 August 1990. Exhibit 8 is signed by Mr. Sullivan. A date of 29 August 1990 appears thereon, although the date 28 August 1990 -- 22 of 111 -- 21 appears in the first page thereof whereby a copy was sent to Messrs. Flower & Hart solicitors for CRA. I find that this was in fact prepared on 28 August 1990, although the precise date is not important. Exhibit 8 is a lengthy document which contained or attached a good deal of financial information which CRA considered essential before it agreed to consider entry into any finance facility with Olympus. CRA expected that the document would be accurately completed. Mr. Walder answered "yes" to the question "Do you in fact go right through the application form and verify the statements that are made as you are able to?"(220). As indicated, Mr. Roberts said that Mr. Sullivan completed the form with Mr. Walder (47) who was a "very experienced man" (115). Both Mr. Roberts and Mr. Walder were questioned at different stages throughout their evidence about various contents of that document and other documents and information said to be provided and accompanied with it. Mr. Walder was questioned in relation to it during several stages of his evidence-in-chief (e.g. transcript 219-20, 297- 299, 303-304, 308-9 particularly in the context of his responses to Coopers and Lybrand's report of 26 February 1991 (Exhibit 9) and his notes in relation to it), and 313-4. In para. 18 of Exhibit 8, Mr. Sullivan disclosed that Olympus had a current overdraft of $750,000.00 with the National Australia Bank, Underwood. He did not mention any Savings Bank loan. Under the question "other loans", he said "nil", which is repeated on p.3 cls.18(2). He there referred only to the overdraft as a "come and go", which is apt to describe a fluctuating bank overdraft of the type well-known in business and banking circles. Mr. Walder obtained an asset and liability statement from Mr. Sullivan which, he said, was sent to Mr. Roberts in Melbourne along with Exhibits 8, 16 and financial statements. It was not placed in evidence. Mr. Walder said he accepted Mr. Sullivan's statement that CRA's exposure to the bank at 28 August 1990 was $750,000.00 (221). There is no evidence that he independently checked this with the bank at the time. Exhibit 46 does not deal with it. By para. 19, it was disclosed that the bank held a First Mortgage Security. This was over the house property owned by Olympus (Exhibits 11 and 17) which was the subject of the later valuation by the defendant on which CRA said it relied. That property is a large residential property of 1665 square metres situated on land the equivalent of two blocks in size at 18 Fitzwilliam Street, Carrara on the Gold Coast, with an absolute frontage to the Nerang River. It is a double storey residence containing on the ground floor an entry, two bedrooms, study, bathroom, toilet, laundry and dining areas, a kitchen, television room, family room, lounge bar and breakfast room. On the first floor is the parent's retreat area, master bedroom, ensuite with walk-in robe. Detached from the main building was a fully self- -- 23 of 111 -- 22 contained double guest quarters with bedroom and ensuite, a fully tiled in-ground concrete pool and heated spa, a full size tennis court with lights, a large timber jetty on concrete piers and a brick/corrugated galvanised steel double garage/workshop having two electric doors. The site also had the advantage over other properties in the area as it extended out into the river thus giving commanding views of the river itself (146). As already indicated, the bank also held a Savings Bank Mortgage over the same property which ranked second to the first mortgage and prior to CRA's subsequent mortgage. See Exhibits 11, 17, 78, 86 and 87. This property was an asset of Olympus yet Exhibit 8 did not disclose that second mortgage or any debt owing to the Savings bank in respect of it. The two separate debts to the bank readily appear from a cursory examination of Exhibit 17, part of which accompanied the application (Exhibit 8). Mr. Walder said (224 and elsewhere on more occasions than one) that the combined debt, as far as he could recall, was $750,000.00, i.e. $700,000.00 for the Trading Bank overdraft and $50,000.00 for the Savings Bank loan. As indicated, he accepted Mr. Sullivan's statement that this was Olympus' exposure to the bank at 28 August 1990 (221). The actual amount at that date cannot be precisely ascertained from Exhibits 78 and 86. Exhibit 78 shows that on 17 August 1990, the overdraft alone was $756,718.94 and Exhibit 86 shows that on 31 August 1990 the Savings Bank loan stood at $50,286.16, totalling over $800,000.00, depending upon movement in the overdraft balance in the meantime, although it appears that at the subsequent date of the facility (Exhibit 3), 28 September 1990, the total debt happened to be then below $750,000.00. (See Exhibits 86, 87 which were produced by Mr. Hollis after giving evidence following questioning by me.) The evidence does not show that Mr. Walder adequately checked those figures with the bank at that time. Despite attempts by me during the case to have clarified the precise amounts owing to the bank at various material times, as Senior Counsel in his opening for the plaintiff appears to recognise was necessary (19), and indeed as Mr. Roberts considered appropriate by his reference to the fact that CRA took steps to ensure that the interest or the payment component relative to the loan to the bank was fairly adhered to (80) to ensure that the value of CRA's security was not eroded (45), the precise amounts owing to the bank under both loans at various material times throughout the relationship with Olympus were not clearly established by evidence from the bank or by documentary evidence. The evidence shows that at best, Mr. Walder made only quarterly enquiries of the bank. See Exhibit 55, lodged after Olympus collapsed. Mr. Hollis, who had worked for the bank for six weeks only before the trial, -- 24 of 111 -- 23 assisted the Court as far as he could in procuring copies of various bank statements which nevertheless contained certain gaps. As indicated, after giving evidence, he produced the statements Exhibits 86-87. The balance owing at the date of winding up of Olympus (12 June 1991) is of little assistance in establishing what occurred during the relationship, particularly as that final balance may well have been reduced by the injection of funds from CRA by reason of the large number of fictitious "debts" sold by Olympus to CRA for which CRA paid large sums of money to Olympus in May of 1991. For present purposes it is clear that the total debts to the bank as well as their character and make up were not correctly stated at the date of the application in respect of which Mr. Walder agreed that he went right through the application form and verified the statements made (220) and notwithstanding that the financial accounts Exhibit 17 showed two debts to the bank. If he did so, and particularly as Mr. Van der Veld was present and presumably knew something of Olympus' affairs, it is strange that the application form Exhibit 8 was not amended or corrected or explained by an accompanying memorandum, at least before it was transmitted by facsimile to Mr. Roberts in Melbourne along with all other documents including the Client Document Resume, the financial accounts Exhibit 17 and otherwise (41), for consideration at Board level before approval was granted on 31 August 1990 (Exhibit 16). The same figure of $750,000.00 was also inserted by Mr. Walder in the Client Document Resume Exhibit 16 which he prepared on 28 August 1990 and repeated in this way in his memorandum to Mr. Roberts of 7 September 1990 (Exhibit 18). On its face, Exhibit 16 refers only to a mortgage to the National Australia Bank ("NAB") and not to the National Australia Savings Bank, a different entity. This is the way Mr. Roberts (and therefore the Board) viewed these documents when the facility was approved on 31 August 1990, because as late as February 1991, he said that he did not know of the second mortgage to the National Australia Savings Bank (106) when questioned about the Coopers & Lybrand report of 26 February 1991 (Exhibit 9) which showed a bank overdraft alone of $737,000.00 when Olympus' bank overdraft limit was supposedly only $700,000.00. Mr. Roberts said he only learned of the second mortgage subsequently when he sighted the title at a time not stated. Also he said (45) that when he approved the facility in conjunction with fellow directors, he believed he had $350,000.00 worth of real estate by way of second mortgage, not third mortgage. This indicates that Mr. Roberts by his statement that "I glance through them" (the financial statements) before approving the facility on 31 August 1990 (65), either did not notice the two separate debts shown as owing to the bank, or if he did, he did not appreciate their significance. -- 25 of 111 -- 24 The facsimile dated 3 September 1990 from Mr. Walder to Mr. Sullivan (Exhibit 47) shows that originally, it referred to "Mortgage (2nd) to be registered over Vol 5888 Fol 19". It was changed to "Mortgage (3rd) to be registered...". This was inserted before the facsimile was sent to Mr. Sullivan indicating CRA's approval subject to conditions. This is made clear by Mr. Sullivan's acknowledgment in reply Exhibit 48. Mr. Walder knew by no later than 3 September 1990, that there were two prior mortgages in favour of the bank and before Flower & Hart pointed this out in their letter to CRA dated 5 September 1990 (Exhibit 23). Yet Mr. Roberts in approving the facility was apparently never made aware of or told at any stage of the existence of the second mortgage in favour of the National Australia Savings Bank. On his overall evidence, this is something that he would have been unlikely to forget or overlook had he been made aware of it. Mr. Roberts at one stage said that the precise debt owing to the bank was irrelevant (65-9), no doubt because of the priority given by the bank to CRA over its own limit (Exhibit 30), although he later qualified this statement. This statement is at odds with his concession that the bank's interest, costs and charges if CRA had to exercise its power of sale could eat into CRA's equity (80) and erode its security (45). The reference to "their equity" should be "your equity". It is also at odds with his expressed concern in evidence-in-chief (61) about any priority agreement with the bank particularly where Olympus exceeded its overdraft limit as revealed in Coopers & Lybrand's report of 26 February 1991 (Exhibit 9)(62) although he also qualified this somewhat during reexamination (120-1). The overdraft alone was then $737,000.00, $37,000.00 over the limit. Nevertheless examples such as this were in his view a reason that the bank might insist on Olympus reducing its overdraft because the bank had given up priority of debts to the extent of $200,000.00 initially, (subject to later variations), thus putting pressure on Olympus' capacity to carry on business. As indicated, Mr. Roberts also said (80) that CRA took steps to ensure that the interest on the payment component relative to the loan was fairly adhered to. Obviously this was a matter of concern to CRA and should have been regularly taken into account. The evidence shows that the enquiries at the bank did not occur more frequently than quarterly, and particularly during the period after 28 February 1991 when Mr. Roberts emphasised that Mr. Walder was to watch the account closely and during which period Mr. Walder said that he watched the account "like a hawk" (Exhibit 21). It was therefore incorrect to assert that the precise amounts of the debts owing to the bank from -- 26 of 111 -- 25 time to time were entirely irrelevant, as this also depended upon bank charges and interest over and above the combined sums of $750,000.00, as well as upon its effect on the capacity of CRA to carry on business at various stages, which may have provided an indication to CRA that action on its part required consideration. CRA's security could well have been eroded. It has already been noticed that the bank overdraft at 30 June 1989 was only $176,701.00, but at 30 June 1990, it had increased dramatically to $848,160.96 plus the National Australia Savings Bank debt of $48,050.18 (totalling $896,211.14). As indicated, there was no savings bank loan outstanding as at 30 June 1989 (Exhibit 17). Mr. Walder correctly recognised in evidence that a reduction in overdraft was an improvement. Conversely, it would have been obvious to a prudent and hard headed business man and experienced Finance Manager, regularly engaged in assessing numerous financial returns when considering applications for the grant of a facility, and not necessarily a qualified accountant, that a dramatic increase in overdraft facility and a turn around from a net profit from trading of $101.786.00 for the year ended 30 June 1989 to a loss situation of $119,308.56 (in truth $376,260.00) as at 30 June 1990, points to an opposite inference, particularly in a business engaged in an industry in a state of recession and undergoing very tight liquidity and business failure (Exhibit 46). Paragraph 25 of Exhibit 8 refers to an unpaid group tax by Olympus in the sum of $55,000.00, to which much attention was directed in the evidence of Mr. Roberts and Mr. Walder. It again was the subject of attack by the defendant. This sum does not appear to accord with the letter Exhibit 67 from the Stamp Duties Office to Hall Chadwick dated 12 September 1990 referring to payroll tax outstanding of $34,389.30, or the letter from the Australian Taxation Office to Olympus of 14 September 1990 showing group tax outstanding of $79,203.49 and prescribed payments tax of $17,944.48. These figures total $131,537.27 unpaid taxes and were obviously incurred prior to the date of the two letters and prior to the date of the application, Exhibit 8 on 28 August 1990. This is clear as reference is made to May and June 1990 arrears of group tax and/or prescribed payments tax of $20,261.25 as well as a demand for additional payments of $4,000.00 per month. The payroll tax outstanding of $34,389.30 appears to have been adjusted downwards to $27,225.30 by the Stamp Duties Office's letter of 7 November 1990 to Hall Chadwick (giving a total of $124,373.27). It shows unpaid payroll tax back as far as June 1988 with penalties, which were waived if strict conditions were complied with. Even so, payroll tax returns for May and June 1990 had not been lodged at 12 September 1990 or 7 November 1990 in respect of which demands were made and would involve an additional liability of Olympus at 30 June 1990. -- 27 of 111 -- 26 Indeed, the first Balance Sheet in Exhibit 17 does not appear to record any such liabilities unless inappropriately included in the description "Trade Creditors". The position is unclear in the second Balance Sheet in Exhibit 17. In any event, it is clear that Mr. Sullivan grossly understated his outstanding taxation liabilities in the application form Exhibit 8 in para. 25 thereof. This is forcibly confirmed by Mr. Roberts' evidence (78) as follows:- "You had not received audited accounts? The accounts you received you knew were not audited?-- Correct. You knew that group tax was not paid?-- Yes. Did you know that other tax was not paid?-- They didn't divulge that. There was no indication that it hadn't been paid. The answer is you didn't know at the time?-- No." Against the heading "Other Taxes" in para. 25, nothing was shown. Outstanding group tax alone was $79,203.49 in addition to the above outstanding payroll tax and prescribed payments tax. It will be recalled that Mr. Walder agreed that he went right through the application form Exhibit 8 to verify its contents. Yet he did not amend, or cause Mr. Sullivan to amend para. 25 of Exhibit 8 to correctly record total taxation liability. This is all the more surprising, given that Mr. Van der Veld of Hall Chadwick was present and with Olympus had, prior to receipt of Exhibit 67, made application to the Australian Taxation Office to pay outstanding taxation liabilities by instalments (304) suggesting that he as well as Mr. Walder either accepted Mr. Sullivan's statement without question or did not check the figure of $55,000.00 in Exhibit 8. Mr. Walder's evidence at 304 concerning the notation "see file note" against that item in para. 25 of Exhibit 8 (dated 28 August 1990) indicates that this was a reference only to an arrangement to be made with the Taxation Authorities as to time to pay. The arrangement was not known by Mr. Walder or Mr. Roberts or in place on 28 August 1990 as Exhibit 67 demonstrates. Mr. Roberts in effect confirmed this (69) although it is clear that he did not personally make arrangements with the Taxation Authorities as his evidence at 69, if correctly transcribed, appears to indicate. He left all taxation arrangements with Mr. Walder to follow up locally (81, 106). Mr. Walder said that he received two documents forming part of Exhibit 67 from Hall Chadwick -- 28 of 111 -- 27 in relation to the question of outstanding taxes (304). The first is dated 12 September 1990 referring to payroll tax outstanding at $34,389.30 and the second was the letter dated 14 September 1990 from the Australian Taxation Office showing group tax outstanding at $79,203.49 and prescribed payments tax of $17,944.48. These were not in fact received by Mr. Walder prior to the facility being formally entered into on 28 September 1990 (Exhibit 3). It is clear from his evidence at 305-6 that those letters were not received by him from Hall Chadwick until he received Hall Chadwick's letter dated 3 October 1990 (Exhibit 69), i.e. after the facility was entered into on 28 September 1990. Indeed, Exhibit 69 has a stamp "R/S 22 Oct 1990". Exhibit 69 is an apparent response to Mr. Walder's letter to Hall Chadwick of 28 September 1990 (Exhibit 68), the date the facility Exhibit 3 was entered into, in which he said "We also await your confirmation of verbal advices that an agreement has been reached with the Taxation Department. Please forward a copy of this agreement." As indicated, Mr. Walder said at 304 that Hall Chadwick and Olympus had made application to the Australian Tax Office for time to pay arrears by way of instalments. He said that it was clearly stated that a firm arrangement had to be in place prior to proceeding with the facility and that he would receive a written confirmation of the arrangement. Mr. Roberts for his part said that he did not see the letters regarding tax arrangements (81). All of the evidence persuades me that the most that Mr. Walder knew at 28 September 1990 was advice that a verbal arrangement had been entered into, and not as to its details or as to the actual outstanding taxes, the subject of the arrangement. This was not known until he received Exhibit 69. When commenting on Coopers & Lybrand's report of 26 February 1991 (Exhibit 9), Mr. Walder wrote on p.2 alongside outstanding group tax liabilities at that time of $90,204.61, that "this was the case when take up was arranged - Hall Chadwick monitor monthly". At p.3 was also a reference to payroll tax of $17,225.00 still outstanding and $27,781.00 owing for prescribed payments tax. Those three sums then totalled $135,210.61 unpaid taxes. Mr. Walder at 312-3 confirmed that he was aware of the outstanding taxes "at take up". Mr. Roberts also said (121) that was the case when "take up" was arranged. Mr. Walder's handwritten note on p.2 of Exhibit 9 and his oral evidence confirming this at 312-3 cannot be correct first of all in the sense that those figures were not the sums in fact owing at "take up", i.e. when the facility was entered into on 28 September 1990 because of the contents of Exhibit 67. The sums then outstanding totalled $131,537.27, later reduced by the letter of 7 November 1990 to a total of $124,373.27 if conditions were complied with. The second reason is that from Mr. Walder's evidence at 304 and following, he received two of the documents comprising part of Exhibit 67 after 3 October 1990 -- 29 of 111 -- 28 and possibly as late as 22 October 1990 when it is clear that he would have been aware of the precise amounts owing at "take up". On all of the evidence the inference is clearly open, that he and Mr. Van der Veld merely accepted without checking the figure of $55,000.00 stated by Mr. Sullivan as the total of unpaid taxes at that time, i.e. 28 August 1990 and it is the inference I draw. Mr. Walder did not know of the correct taxes outstanding until he received the letter of 3 October 1990. Neither can Mr. Roberts' statement (121) be correct that the outstanding tax referred to in Coopers & Lybrand's report of 26 February 1991 was the tax outstanding at take up, i.e. in September 1990. He said (81, 106) that he had never seen the letters regarding tax arrangements which he left to Mr. Walder. His evidence at 78 supports this conclusion. He knew only of the $55,000.00 disclosed in Exhibit 8. He did not personally make any arrangements with the Taxation Authorities. However viewed, Exhibit 8 was incorrectly stated and neither Mr. Roberts nor Mr. Walder had correct information as to outstanding taxes at the date the approval was granted on 31 August 1990 or indeed when the facility was entered into on 28 September 1990. However, what was of utmost importance was the knowledge possessed by Mr. Roberts (and the Board) on 31 August 1990 (Exhibit 8) and when the facility was entered into on 28 September 1990, rather than Mr. Walder's knowledge. Mr. Roberts for his part said that the group tax arrears in any business is fraught with danger "as the tax man is more likely to wind up the company than anybody else" (61). The arrangements made with the Stamp Duties Office and the Australian Taxation Office as referred to in Exhibits 67 and 69, imposed stringent conditions as to repayment. It has already been noted that the total outstanding taxes by 12 February 1991 had grown to $135,210.61 (Exhibit 9). Also at winding up, Exhibit 81, tendered by CRA, shows that the group tax debt had increased to $114,130.00, prescribed payments tax to $36,742.00 and payroll tax to $18,734.00, totalling $169,606.00 unpaid taxes, in addition to penalties of $52,232.00, totalling in all $221,838.00. These "priority creditors" required close monitoring as Coopers & Lybrand urged in Exhibit 9 on 26 February 1991 and as Mr. Roberts himself particularly requested of Mr. Walder. Of some importance is the answer to Question 16 of Exhibit 8 which on its face enclosed financial accounts for the years 1989 and 1990. Mr. Walder, when shown Exhibit 17 which contained two sets of accounts for the year ended 30 June 1990, said that Mr. Van der Veld at the time of the first meeting on 28 August 1990, gave him all of that documentation (299), to which Question 16 of Exhibit -- 30 of 111 -- 29 8 refers, during the process when Exhibit 8 was completed by him (Mr. Walder) and Mr. Sullivan with Mr. Van der Veld present. Mr. Roberts agreed on several occasions that both sets of accounts were in the bundle which initially came to him in Melbourne at or about the time consideration was given to the approval of the facility, i.e. late August 1990. Indeed at p.58, Mr. Roberts, in answer to a leading question concerning the contents of Exhibit 20, a facsimile from Mr. Walder to him of 29 January 1991 referring to the loss of $376,246.00 for the year ended 30 June 1990, agreed with the proposition that this was "part of the history going back to when you first approved the facility". He also agreed that he had that information (i.e. in Exhibit 20) in front of him when he made the decision (58). As will appear, Mr. Roberts was quite incorrect in these answers insofar as they suggest that he had knowledge of the loss of $376,246.00 and of certain other contents of Exhibit 20 (particularly of the total bad debts of $253,430.00), when he first approved the facility on 31 August 1990. Senior Counsel for CRA at 98, in answer to a question by me as to the confusion with regard to two sets of accounts in Exhibit 17, said that CRA was asserting that both sets of accounts were provided to CRA at the time the decision was made to grant the facility (i.e. 31 August 1990, Exhibit 16). This was obviously the instructions given by CRA to its legal advisers. Exhibit 17 comprises two sets of accounts by Olympus, both for the year ended 30 June 1990, along with cash flow forecasts (two pages) to which Question 27 of Exhibit 8 appears to refer. The certificate on the second set of accounts in Exhibit 17 prepared by Messrs. Hall Chadwick and Co is dated 16 December 1990, being the set of accounts in which the precise loss of $376,246.00 to 30 June 1990 first appeared. Mr. Roberts (41, 47, 102) when asked about both sets of financial accounts comprised in Exhibit 17, had said that they accompanied the original application. However, after extensive cross-examination with respect to this aspect of the case and exchanges between myself and Counsel as to the date of the second set of accounts, he finally said at p.110:- "As I recall, the first set of accounts marked 17 were the only ones contained in the file sent to Melbourne". See also at 111. On the other hand, Mr. Walder continued to assert that both sets were received at the one time. He agreed with the suggestion that both documents were attached to the original application form. He positively asserted and reaffirmed at 303 that Exhibit 17 was presented in total as they now appeared in the exhibit. He was there questioned precisely on the point. The decision to grant the facility was made on 31 August 1990 (Exhibit 16). This stance was subsequently departed from during argument and addresses, and in particular during the evidence-in-chief of Mr. Walder at 303 with -- 31 of 111 -- 30 the assistance of CRA's Counsel. Mr. Walder then attempted to explain his stand by saying (304) that he would have been handed draft figures at the date of the application (28 August 1990) "and the later figures would be the final figures provided by the accountant for taxation purposes". If this is so, then obviously the first set of figures in Exhibit 17 were unaudited, which Mr. Roberts admitted (78). The defendant alleged that CRA was negligent in relying only on unaudited figures at the time the approval was granted. The first set in Exhibit 17 was either deficient or incorrect in substantial respects, as the second set amply demonstrates, and this gives support to the defendant's allegation that a more exhaustive and independent check of Olympus' affairs was necessary and prudent before the facility was approved or entered into in the first place. Not only does the second part of Exhibit 17 bear the date 16 December 1990, but also, the facsimile by Mr. Walder to Mr. Roberts dated 29 January 1991 (Exhibit 20), enclosed "copy of financials to 30/6/90 and also to 31/10/90". This demonstrates that this was the first time that the second set of accounts in Exhibit 17 was sent to Mr. Roberts by Mr. Walder and also that Mr. Walder himself did not get that set until some time well after 16 December 1990. In Exhibit 20 on 29 January 1991, Mr. Walder referred to the loss of $376,246.00 to 30 June 1990, the bad debts of $253,430.00, and legal costs associated with collection in the sum of $30,363.00. These are figures which are contained only in the second part of Exhibit 17. Quite clearly, and I so find, the second set of accounts in Exhibit 17 showing a loss of $376,246.00 (and bad debts written off $253,430.00) were not available to Mr. Roberts during the decision making process at about the time the decision was made during late August 1990 as Mr. Roberts initially implied (58). They were not in fact received by Mr. Walder until well after 16 December 1990 and by Mr. Roberts until about 29 January 1991. Mr. Roberts had no knowledge of the real loss when he approved the facility on 31 August 1990 (Exhibit 16) or when the facility was entered into on 28 September 1990 (Exhibit 3). The foregoing is reinforced by Mr. Roberts' evidence (47) in relation to the reference in para. 34 of Exhibit 8 to only two potentially bad debts - Provincial $112,679.00 and Summit $36,446.00, totalling $149,125.00. It is obvious from Exhibit 17, the first set of accounts (which were the only accounts available at the time the decision was made on 31 August 1990), that these sums had not been written off in those accounts as at 30 June 1990. See the profit and loss statement which shows "nil" when compared with a bad debts write off of $31,884.00 for the year ended 30 June 1989. In the second set of accounts prepared 16 December 1990, a total of $253,430.00 had been -- 32 of 111 -- 31 written off, i.e. the above two sums totalling $149,125.00 plus over $100,000.00 extra. Therefore the recorded loss of Olympus in the first set of accounts (in Exhibit 17) of $119,305.86 being the only accounts available to Mr. Walder and Mr. Roberts at 28 and 31 August 1990, did not take into account those two debts which were said to be bad debts at the time, or any other bad debt. Yet Mr. Roberts in his evidence-in-chief (47) when shown the first financial accounts in Exhibit 17 for Olympus for the year ended 30 June 1990 (as is also clear from his cross-examination at 65-67), which shows a loss of only $119,305.86, was asked about profit for the previous year (1989) and the loss for the year ended 30 June 1990, said:- "Previous year they showed a profit, and I questioned Mr. Walder, who in turn questioned the client as the cause of the loss, and if I might refer you to p. 5 of the financial application, you will see where the client was questioned at the time of completing with Mr. Walder the application, and the reason for the loss at that particular time was due to two substantial disputes, one for $112,679.00 and the other for $36,446.00. One was in a legal state, one was a dispute. We gave the client at that stage the benefit of the doubt because of the security we were holding." He confirmed this in cross-examination (65-66), and made no mention of bad debts over and above the above two. He is there saying that on his information, he believed that the two debts referred to were the cause of the loss of $119,305.86 shown in the accounts when those amounts had simply not been written off in the first set of accounts in Exhibit 17. At 66, under cross-examination, particularly in respect of the first set of accounts contained in Exhibit 17, Mr. Roberts then said that there was a memorandum from Mr. Walder accompanying the documents. He said that he received a memorandum concerning those trading losses from Mr. Walder in which he said that the two debts identified in the finance application were "partly responsible for the poor trading figures". Again, he did not mention any other debts or items in any such memorandum which would at that stage have accounted for the much later disclosed real net loss of $376,246.00. As indicated, Mr. Roberts' statement cannot be correct and indicates that if there was a memorandum from Mr. Walder, it referred only to those two identified bad debts and not to any other sums which would make up the real net loss of $376,246.00, all of which Mr. Walder claimed to have had knowledge at the time of his first interview with Mr. Sullivan and Messrs. Hall Chadwick on 28 August 1990. The two debts above referred to were not written off in the first set of accounts (Exhibit 17). There was in fact no write off for bad debts in that document. They finally found their way into the second set prepared on 16 December 1990. So Mr. Roberts was either misinformed or under a real misunderstanding as to the true position. Not only did he consider that the loss of $119,305.86 was the -- 33 of 111 -- 32 loss at that time but that this had been due to the above two bad debts which he believed in effect had been written off when in fact they were not. Unfortunately, there is no memorandum in evidence from Mr. Walder to Mr. Roberts accompanying the original set of accounts and other documents to explain the losses incurred by Olympus for the year ended 30 June 1990 to which Mr. Roberts referred, notwithstanding that voluminous and detailed documents were tendered. Mr. Walder, who gave evidence much later than Mr. Roberts who had been extensively cross-examined on this aspect, did not say he sent a memorandum with the application and other documents to Mr. Roberts explaining the true bad debts position, but he did say that when he sent the documents to Mr. Roberts, he made a file note and recommendation, neither of which were placed in evidence. Strangely, no note appeared against para. 34 of Exhibit 8 which referred to the above two bad debts totalling $149,125.00, as compared to the references "see file note" against para. 49 or against para. 25(d) of Exhibit 8, showing a group tax debt of only $55,000.00, that file note referring only to an arrangement to be made with the Taxation Authorities (Exhibit 67)(69, 304). The first documented evidence from Mr. Walder to Mr. Roberts (apart from the application, Client Document Resume and accompanying financial accounts etc.), appears to be the facsimile of 7 September 1990 (Exhibit 18) which enclosed the defendant's valuation of 5 September 1990 and which made no reference to the foregoing. There is no evidence of any conversations between Mr. Roberts and Mr. Walder at about that time in which these matters might otherwise have been discussed. Furthermore, Mr. Walder, when questioned about the reference in Coopers & Lybrand's report of 26 February 1991 (Exhibit 9) that the company (Olympus) had written off over $250,000.00 in bad debts for the 1989-1990 financial year, said that he was aware of all of the bad debts at the very first meeting, i.e. on 28 August 1990 (313), either from Mr. Van der Veld or Mr. Sullivan. This meant the total sum of $253,430.00 which was subsequently written off and as appeared in the second set of accounts in Exhibit 17 prepared 16 December 1990. This assertion was made in the context of explaining his reaction to the report of Coopers & Lybrand of 26 February 1991 (Exhibit 9) in which reference was made to bad debts in excess of $250,000.00. This report was received just before the facility to Olympus was increased from $200,000.00 to $250,000.00 on 28 February 1991. This was well after the second set of accounts to 30 June 1990 had been prepared, showing an increased loss of $376,246.00 for the year ended 30 June 1990. -- 34 of 111 -- 33 It is difficult to see why, if Mr. Walder knew of bad debts of the order of over $250,000.00 back on 28 August 1990, he or Mr. Van der Veld did not cause Mr. Sullivan to amend the two doubtful debts referred to in para. 34 of Exhibit 8 totalling $149,125.00 to the total in excess of $250,000.00, particularly when he agreed that he went right through the application form to verify the statements made. It is also difficult to see why he did not inform Mr. Roberts of the correct loss suffered by Olympus for the year ended 30 June 1990, if he on 28 August 1990, then knew of those bad debts totalling $149,125.00 plus additional losses or bad debts which contributed to the final real loss of $376,246.00 and not to the $119,305.86 loss as appeared in the first unaudited accounts. Nevertheless, having regard to all of the evidence, I find that a memorandum or note of some kind was probably sent by Mr. Walder to Mr. Roberts which made reference only to the above two bad debts totalling $149,125.00 as Mr. Roberts said in evidence, which wrongly informed Mr. Roberts that those two bad debts were responsible for the loss of $119,305.86, when they had not in fact then been written off at that stage in the first set of accounts in Exhibit 17. Mr. Roberts did not know the extent of the loss until the facsimile (Exhibit 20) was received on 29 January 1990 after the second set of accounts in Exhibit 17 had been prepared and dated 16 December 1990. Mr. Roberts' evidence also throws doubts on Mr. Walder's assertion that he was aware of bad debts of $243,430.00 at "take up" (i.e. 28 August 1990 or 28 September 1990). There was at least a serious breakdown in communication between Mr. Walder and Mr. Roberts who, at the date the Board made the decision to approve the facility on 31 August 1990, was not in possession of correct information. He acted on the basis that the two bad debts were already reflected in the loss of $119,305.86 when they were not. He did not know the extent of the bad debts or the real loss of Olympus of which Mr. Walder said he was aware at the outset. Nor, as found above, was Mr. Roberts (or Mr. Walder) aware of the correct debts owing to Taxation Authorities at take up or when the facility was formally approved on 31 August 1990. The only knowledge was of the alleged outstanding group tax of only $55,000.00. Nor was Mr. Roberts aware of the existence of a second mortgage over the house property in favour of the National Australia Savings Bank. This gives rise to the question of whether CRA would have given Olympus "the benefit of the doubt because of the security we were holding" (47), if Mr. Roberts had known of the real position of Olympus at that time and the extent of the two mortgages ahead of CRA's mortgage. -- 35 of 111 -- 34 The conclusion is inevitable that whatever was Mr. Walder's actual knowledge, he misled Mr. Roberts in informing him that the loss of $119,305.86 had already taken into account the two bad debts totalling $149,125.00. It also means that Mr. Walder misled Mr. Roberts if he (Mr. Walder) was in fact aware of all of the additional debts and losses in hand to be written off at the outset or alternatively, he (Mr. Walder) did not in fact know of all of the additional losses said to be in hand at the outset, having had in front of him only the first set of figures in Exhibit 17. I conclude that the latter explanation was the most likely and that Mr. Walder's evidence, in the face of Coopers & Lybrand's report, took on the appearance of either a rationalisation after the event, or an attempt to say that the real financial position of Olympus at 28 August 1990 or 28 September 1990 which he contended was in fact known to him, was irrelevant. Either way, CRA and its Board were not in possession of correct information when the approval was given on 31 August 1990 or when the facility was entered into on 28 September 1990. Reference has already been made to the obvious comparison between the net profit of $101,786.00 achieved by Olympus for the year ended 30 June 1989 compared with the net loss of $119,305.86 in the first set of accounts in Exhibit 17 and $376,246.00 in the final set of accounts for the year ended 30 June 1990, as well as to the dramatic increase in the bank overdraft to $848,160.96 (plus the additional savings bank debt of $48,050.18) at 30 June 1990, when compared with only the overdraft of $176,701.00 at 30 June 1989 when there was no National Australia Savings Bank debt. The figures also show a significant decline in gross profit from trading compared with the cost of goods sold for 1989 to 1990 from 40% to 29.9% and a decline in gross profit against sales from 21.48% to 16.32%. The final balance sheet at 30 June 1990 in Exhibit 17 showed negative net assets (a deficit) of $210,658.00 of which CRA should have been aware if Mr. Walder had in fact known of the real position at 28 August 1990 and had informed Mr. Roberts of the true loss position. Even the first balance sheet in Exhibit 17 showed net assets of only $110,007.02 which was clearly not sufficient to cover any indebtedness sought by Olympus of CRA, particularly if Olympus was called upon to repurchase unpaid debts. The net asset figure of $110,007.02 also presupposes that the current "asset" of $54,654.87 said to be owing to Olympus by J & D Sullivan Holdings was a valid debt due and payable. There is no evidence as to whether this was ever questioned. The final balance sheet in Exhibit 17 does not specify a loan to J & D Sullivan but rather a loan from them to Olympus of $102,205.00, which is probably the corrected equivalent of the sum of $112,454.26 shown as "Beneficiaries' Loans" to Olympus in the first balance sheet in Exhibit 17. Yet at 28 February 1991, Exhibit 22 shows a debt of $108,463.58 owing to -- 36 of 111 -- 35 Olympus by J & D Sullivan Holdings, as well as a loan from J & D Sullivan of $102,204.66. These were not explained in evidence. It is possible that they cancel each other out. There is no evidence of Mr. Roberts and Mr. Walder that they regarded the first set of financial accounts in Exhibit 17 to be incorrect in the sense that the true value of the house property was 1.1 million dollars (as submitted by Counsel for CRA) rather than $516,620.00 (i.e. $510,821.69 plus $5,798.13 for the land) shown in the balance sheet in Exhibit 17, or in the sense that the balance sheet did not show "good will" (if it was possible to argue that any such asset existed at that time, having regard to the loss suffered by Olympus and its financial position). The effect of the evidence by Mr. Roberts and Mr. Walder was that the financial state of Olympus was known to them at "take up", but was not relevant, as they had valuable real property security. It is not accepted that the financial state of Olympus was not relevant overall. This appears to be a statement in retrospect. CRA required extensive financial information at the outset which appears not to have been adequately assessed by CRA, i.e. by Mr. Walder or by Mr. Roberts. Both Mr. Roberts and Mr. Walder said that the financial viability of Olympus was very important in the "total" situation or "in globo". Indeed, this was the very purpose of a report by Coopers & Lybrand on 26 February 1991 (Exhibit 9), when the facility was increased. Mr. Walder knew from the bank, Exhibit 46, that Olympus was suffering from the effects of a slowdown and failure and had tight prospects of ongoing trading. He said he knew Olympus was insolvent at take up (Exhibit 9). So did Mr. Roberts (123), unless these statements were rationalisation after the event. The financial stability of Olympus was of major relevance to its ability to repurchase outstanding debts from CRA if called upon to do so under the terms of the facility agreement. As indicated, Mr. Walder accepted the unaudited accounts advanced by Messrs. Hall Chadwick and explanations offered by Mr. Sullivan as to the plans he had in place to improve Olympus' performance. He made no independent enquiries or analyses into the affairs of Olympus which the first set of financial accounts in Exhibit 17 and the bank report Exhibit 46 clearly called for. In answer to a question as to whether he went through the 1989-1990 financial accounts carefully, Mr. Roberts said "I glance through them" (65), which gives support to the allegation for the defendant that Mr. Roberts for CRA did not independently check sufficiently or at all the financial statements of Olympus but in turn relied only on Mr. Walder's recommendation (see Defence paras. 8(a)(vi), 8(h)). The inference therefore is that notwithstanding what Mr. Roberts and Mr. Walder said in evidence, neither of them really knew -- 37 of 111 -- 36 or investigated properly, the real position of Olympus before the facility was approved or entered into. The next formality was the preparation by Mr. Walder of a Client Document Resume (Exhibit 16) which was of the utmost importance. Mr. Roberts said that he and two other directors approved of the application on 31 August 1990, as appears on the face of the document. He said that the application arrived three days before 31 August 1990, which shows that Mr. Walder probably prepared it on 28 August 1990 and then faxed it off immediately to Mr. Roberts in Melbourne, who said he received it, together with the original application Exhibit 8 and various financial and other documents (41, 47). Exhibit 16 was prepared before there was any approach to the defendant for a valuation. Paragraph 1 of Exhibit 16 refers to a mortgage over the above house property. It shows a valuation of 1.1 million dollars with mortgage to NAB of $750,000.00 and an "equity" of $350,000.00. Mr. Walder said that he inserted these figures based upon what Mr. Sullivan told him and as stated in Mr. Sullivan's Asset and Liability Statement. Exhibit 16 (as well as Exhibit 8) does not refer to the existence of a National Australia Savings Bank mortgage which at 31 August 1990 showed a debt of $50,268.16 (Exhibit 86). Exhibit 78 shows that on 17 August 1990, the Trading Bank overdraft to the NAB was recorded at $756,718.94. The cash flow charts which also formed part of Exhibit 17 show that on 17 August 1990 the actual overdraft (not the Savings Bank loan) was $748,028.00, whereas the budget forecast as at 31 August 1990 was $761.586.00. With adjustments referred to at p.1 of 2 of that document, a closing balance forecast on 31 August 1990 was $748,623.00 for the overdraft alone. All of this is very confusing. The probable conclusion is that the figure of $750,000.00 contained in para. 1 of Exhibit 16 related only to the NAB overdraft and not the Savings Bank loan, notwithstanding Mr. Walder's evidence to the contrary. This is consistent with the allegation in para. 6(b) of the Statement of Claim as well as the entries on the application form Exhibit 8 referred to above. It is also consistent with the fact that Mr. Roberts did not know of the second mortgage to the National Australia Savings Bank until some time after February 1991. According to Mr. Walder, the information as to the valuation of 1.1 million dollars and the exposure of the bank of $750,000.00 was provided to him by Mr. Sullivan, who in turn apparently got the valuation from the bank. Mr. Roberts said that this figure was obtained from Mr. Sullivan's assets/liability statement (74) and agreed that it could have been prepared by Herron Todd White -- 38 of 111 -- 37 Valuers. There is other evidence of valuations available to the bank at the time. Mr. Walder said that he was informed by the Bank Manager at about this time that the bank had a sworn valuation of 1.1 million dollars. No objection was taken to any of this hearsay evidence. There is evidence that the defendant, after the approval on 31 August 1990 and after his valuation of 5 September 1990, also agreed on the telephone in a brief conversation with Mr. Walder that this valuation of 1.1 million dollars would be the appropriate market value with time to sell. Such a valuation is consistent with the submissions of Counsel for CRA (pp.39, 56 of the written submissions as well as oral submissions 478), that had the market value of 1.1 million dollars appeared in the balance sheet as at 30 June 1990 against the real property asset, in lieu of the recorded figure of $516,619.82, the net asset position would have increased by $583,380.18 so that the net equity of Olympus would become a surplus of $372,722.18. It was suggested that this indicated that Coopers & Lybrand were not in possession of all information when they stated that Olympus was insolvent. (However, see below and Exhibit 31). Also in Exhibit 47, Mr. Walder in a facsimile notifying Mr. Sullivan that the facility had been approved, stated that this was subject to a condition that the property be valued by the defendant at "not less than one million dollars" which Mr. Walder said was "conservative" (225). All of this evidence would be sufficient to support a finding that the market value of the real property at the date of the approval with time to sell was in the order of 1.1 million dollars. There were other valuations also, to which little if any weight should be given but they should be mentioned. Exhibit 79 indicates a value assessed of $950,000.00 as at 30 January 1990 and a value assessed of $800,000.00 on 12 June 1991. That exhibit also shows a valuation prepared by Cooper Johnson real estate agents dated 23 November 1989 addressed to Custom Credit Corporation showing a valuation of $1,350,000.00. That letter concluded with a note that "this appraisal is based on current conservative values". It is not known precisely the purpose for which those valuations were carried out or the qualifications or experience of those who purported to make them. Mr. Hollis understandably did not know all of the details and it appeared that he did not have the banks' entire files with him. Exhibit 81 is a document prepared by the Australian Securities Commission dated 2 September 1991, and tendered into evidence by CRA. It was signed by Mr. J E Sullivan on 9 August 1991. The relevant property is indicated as having a valuation of one million dollars with an estimated realisable value of $850,000.00. The source of that valuation was apparently Mr. Sullivan who signed the Statement Verifying Report form 507A (Exhibit 81), and has no relevance to the issue in this case -- 39 of 111 -- 38 namely the valuation as at 5 September 1990. A valuation by Mr. Rodney Brett (the valuer called on behalf of the plaintiff) made 24 December 1991, i.e. long after the event and after Olympus was wound up, and after two abortive mortgagee sales, provided for a "market" valuation at 5 September 1990 of only $874,000.00 (144, 147, 150). It is much less than the market valuation of 1.1 million dollars apparently obtained from the bank and accepted by Mr. Walder and Mr. Roberts in August 1990 and by the defendant in September 1990 during his brief conversation on the telephone with Mr. Walder. Mr. Roberts said (45) that when he approved the limit of the facility of $200,000.00 (on 31 August 1990), in conjunction with his fellow directors, he believed "I had $350,000.00 worth of real estate by way of second mortgage, securing $200,000.00 facility" (45). Whilst he added that the matter was still subject to a valuation by the defendant, the valuation of 1.1 million dollars, the NAB debt of $750,000.00 and the stated "equity" of $350,000.00 were not the defendant's figures and had nothing to do with him when they were inserted by Mr. Walder in the Client Document Resume Exhibit 16 on 28 August 1990. The defendant's valuation was dated 5 September 1990, received by CRA some two days later, when the conversation occurred on 7 September 1990 between Mr. Walder and the defendant (see Exhibit 18) at which Mr. Walder said that the bank's valuation of 1.1 million dollars was discussed but it was "not an issue" (243). Having regard to all of the evidence, I find that Mr. Roberts relied upon the stated valuation of 1.1 million dollars in Exhibit 16, a total debt of $750,000.00 to the bank and in particular the stated "equity" of Olympus of $350,000.00 specified in Exhibit 16, when he gave CRA's approval to the facility on 31 August 1990, subject to Mr. Walder's compliance with all of the conditions which he was to put into effect locally. The defendant's valuation would have resulted in an "equity" of only $225,000.00, not $350,000.00 relied upon by Mr. Roberts. The question of whether CRA relied on the defendant's valuation before the facility was entered into later on 28 September 1990 (Exhibit 3) will be considered later. Under the heading in Exhibit 16 "Factoring Facility", Mr. Walder had caused to be entered a facility limit of $200,000.00. This is apparently the sum sought by Mr. Sullivan and was inserted before the defendant's valuation of 5 September 1990. Two special conditions were inserted by Mr. Walder in Exhibit 16. One was that there be a registered mortgage and another was that there be a "Satisfactory -- 40 of 111 -- 39 bank opinion and CRAA (Credit Reference Association of Australia)". Mr. Walder said he obtained both opinions. This is confirmed by Exhibits 44, 45 and 46 even though the bank's opinion (Exhibit 46 set out above) was very guarded. Mr. Walder also inserted other conditions: Condition 3 - Retentions to be excluded; Condition 4 - Copy Trade Indemnity approval to be provided, to which Mr. Roberts added "and assigned and monitored by CRA"; Condition 5 - Fire Sale Valuation by Peter Brett. Special Conditions 6, 7 and 8 were inserted by Mr. Roberts in Melbourne. Clause 6 required that any debtor above or likely to exceed $10,000.00 was to be checked to the satisfaction of CRA prior to purchase. There is no evidence that this was always separately done, only that 20% in value of each batch of invoices submitted by Olympus to CRA for purchase were checked at random by the guarded method above described. Mr. Walder said that he was to monitor such debts in relation to the Trade Indemnity Policy but in fact said that he never did so (231-2). Following that answer it was put to him that "was it the case there were no debts over $10,000.00?". He correctly answered "Yes there were debts over $10,000.00" which are obvious from the documents generally. There is a facsimile Exhibit 58 dated 17 September 1990 from Mr. Walder to Financial Services Pty Ltd seeking copy of approval documents for each of five debtors which Mr. Walder said were debts over $10,000.00 at that time. This is the only evidence of an enquiry as to debts of $10,000.00 notwithstanding that there were debts over this sum. Condition 7 specified that "security" was to represent a minimum of 100%. The form does not say "real property security" and is equally apposite to refer to the total security sought by CRA at that time, including a registered Bill of Sale over a boat said to be worth at least $50,000.00 (Condition 8). See Exhibit 3. Clause 16.2.3 refers to a mortgage over real or personal property "...to secure all moneys owing from time to time by the Vendor to CRA". Mr. Roberts in various parts of his evidence referred to the "securities" (plural) which CRA held and to CRA's "security package" (125). However Mr. Roberts and Mr. Walder asserted that CRA required 100% real property security at all times. Given that Condition 7 of Exhibit 16 was inserted before Condition 8 concerning the boat, this is probably correct. Condition 8 required a Bill of Sale over the boat and in context meant a registered Bill of Sale. Mr. Walder said (224) that Mr. Sullivan listed the boat in his Personal Assets and Liabilities Statement as an unencumbered asset. It was obviously not an asset of Olympus. No reference to it appears in the accounts Exhibit 17. Mr. Walder obviously accepted this statement at face value. He said that CRA looked for as much security as could be obtained, as cls.16 of the facility agreement Exhibit 3 -- 41 of 111 -- 40 appears to contemplate. There is no evidence that Mr. Walder checked whether the boat was unencumbered or whether he conducted a search of any relevant register of securities over chattels. Mr. Walder, at Mr. Sullivan's instigation, did not perfect that security at the time. See also the facsimile Exhibit 47 when Mr. Walder on 3 September 1990 advised Mr. Sullivan of the approval subject to the condition "Bill of Sale over motor cruiser to be registered". Mr. Walder said that Mr. Sullivan declined to allow this to occur and that he had difficulty with Mr. Sullivan over it. Mr. Sullivan in his reply by facsimile Exhibit 48, struck out that condition. Notwithstanding Mr. Walder's evidence (227) that he did not accept the deletion of the boat by Mr. Sullivan and his statement that the deal was not accepted on the basis of the boat being deleted, he obviously deferred to Mr. Sullivan. See also Exhibit 23 dated 5 September 1990 where Messrs. Flower & Hart in a letter to Mr. Walder, noted the instructions not to prepare a separate document in relation to the cruiser. The amendment there referred to cls.15 of the guarantee attached to Exhibit 3 which simply enabled CRA to take a Bill of Sale over any personal property in the future if necessary. Clause 15 of the guarantee is a mirror of cls.16 of the facility agreement itself. Mr. Walder said that the Bill of Sale was put into effect in January or February 1991 (229), i.e. before the increased facility was approved on 28 February 1991. It was not in fact effected until 22 June 1991 when a formal Bill of Sale (Exhibit 6) was executed by Messrs. Flower & Hart as attorney for Mr. Sullivan pursuant to cls.2.3 of a Deed of 4 September 1990 (Exhibit 7). See also Exhibit 24 dated 12 September 1990. The Bill of Sale was entered into after the provisional liquidator was appointed over Olympus on 12 June 1991. There was no evidence as to whether it was registered although the document shows that stamp duty on the instrument was paid. It is clear that Mr. Roberts was not told of the full picture in relation to this boat, either at the outset before the facility was formally entered into on 28 September 1990 or at any time subsequently and in particular when he approved the increased facility effected on 28 February 1991. In answer to a question at p.79 concerning a letter of 5 September 1990 from Messrs. Flower & Hart to Mr. Walder (Exhibit 23) in which the writer noted Mr. Walder's instructions not to prepare a separate document in relation to the cruiser, Mr. Roberts said that he did not know why there was no separate document in relation to it, and that it was not something that Mr. Walder discussed with him. Yet in the internal memorandum dated 7 September 1990 from Mr. Walder to Mr. Roberts (Exhibit 18), he informed Mr. Roberts that "we hold equity $50-75,000.00 motor cruiser 'Glass Cutter' over which Flower & Hart are arranging security". In this respect it is clear that Mr. Roberts expected that a Bill of Sale giving a -- 42 of 111 -- 41 substantial security to CRA over the boat was in fact in place or would be timeously put in place to accord with his specific Condition 8 in Exhibit 16 before the facility was entered into on 28 September 1990. See also at 56 where he referred to "our second Bill of Sale". Mr. Roberts said that he believed CRA should have had a charge over the boat on "day one" (93). By letter 12 September 1990 (Exhibit 24) from Mr. Walder to Olympus, he said "As you know approval condition relating to Bill of Sale over motor cruiser 'Glass Cutter' cannot be fulfilled and our solicitor Mr. Robert Lockhart of Flower & Hart will contact you direct to seek your written acknowledgment that our security extends to cover this asset which will not be sold and funds disbursed to our detriment. We seek your cooperation in this regard." Also by facsimile from Mr. Walder to Flower & Hart dated 18 September 1990 (Exhibit 56) Mr. Walder asked what Flower & Hart proposed for a written acknowledgment from Mr. Sullivan (Olympus) in regard to the boat "Glass Cutter". None of this information appears to have been sent to Mr. Roberts (79, 80). I have considered whether Mr. Walder in his reference in Exhibit 18 of 7 September 1990 and to the "equity" of $50,000.00 to $75,000.00 held over the boat, was referring to the document already in existence (Exhibit 7) dated 4 September 1990, whereby Mr. Sullivan by deed charged the boat with a payment to CRA of all monies which may become owing from time to time by Olympus to CRA pursuant to the Invoice Finance Agreement and by which he agreed upon request by CRA to execute a mortgage over the boat in favour of CRA but on all of the evidence, I am unable to conclude that this was so. There was in fact no such equity. Also Mr. Walder's letter of 11 September 1990 (Exhibit 19) to Messrs. Flower & Hart to arrange security, goes against such a conclusion. But even if Mr. Walder was referring to Exhibit 7 of 4 September 1990, it is clear that Mr. Roberts was not referring to that document when referring to his belief that a Bill of Sale had been taken in favour of CRA over the boat from the outset. The statement in Exhibit 18 of 7 September 1990 to Mr. Roberts that Flower & Hart "are arranging security" was in actual fact, misleading to Mr. Roberts, even if Mr. Walder believed that security would be arranged and notwithstanding the letter Exhibit 19 of 11 September 1990 to Flower & Hart from Mr. Walder to arrange security. Mr. Roberts said he did not sight that letter (56) which accords with his practice that all details were left to Mr. Walder at the local level. Mr. Roberts believed that the boat was unencumbered. In any event, there was no Bill of Sale (giving CRA a meaningful security) taken over the boat at -- 43 of 111 -- 42 the time or shortly after approval was granted for the facility on 31 August 1990 as cls.8 specifically required by Mr. Roberts in Exhibit 16 as one of the conditions for granting approval of the facility which was not entered into until 28 September 1990. A Bill of Sale was not in fact prepared until 22 June 1991 (Exhibit 6) long after the provisional liquidator had been appointed to Olympus. As with Exhibit 7, it was worthless to CRA. Mr. Walder did not comply with one of the essential conditions required by Mr. Roberts on behalf of CRA and apparently did not tell Mr. Roberts about this situation. Exhibits 47 and 48 indicate that Mr. Roberts and Mr. Walder both understood Condition 8 of Exhibit 16 to require a registered Bill of Sale over the boat which was said to be unencumbered and that CRA would have the sole or at least a meaningful charge over the boat. None of the details concerning the boat in the facsimile Exhibit 48 were conveyed to Mr. Roberts. Also, Mr. Roberts, when speaking of the reason why he later agreed to an increase in the facility from $200,000.00 to $250,000.00 in late February 1991, which Mr. Sullivan requested of Mr. Roberts during Mr. Roberts' visit to Brisbane in early 1991, said he relied upon the value of the written security over the house property plus the security CRA held over the boat of at least $50,000.00. He stated this three times during his evidence (60, 63, 93). Mr. Roberts had left all of these formalities to Mr. Walder. Mr. Roberts, in saying that he believed CRA had security over the boat from day one, meant a meaningful security over a boat said to be unencumbered. This is reinforced by Mr. Roberts' assertion (125), in an attempt to discount Coopers & Lybrand's statement that CRA's position did not seem to be secure in the light of the bank overdraft at 12 February 1991 and priority creditors (Exhibit 9), that Coopers & Lybrand were not aware of the "security package that Cash Resources was holding". The word "package" indicates Mr. Roberts' belief that not only was there a security by way of mortgage over the house property but also other securities to make up the package. His evidence shows that this included a meaningful security over the boat, probably also a meaningful right of recourse to the Trade Indemnity Insurance Policy which provided a form of security due to any non-payment of debts by Olympus, providing Olympus was not fraudulent, and also to the second mortgage debenture. Mr. Roberts said in reexamination at 126-7 that Mr. Sullivan put a great deal of importance on the boat and said "I took it deliberately in an endeavour to keep Mr. Sullivan honest". As it turned out, Mr. Roberts did not "take it" at all, subject to the document dated 4 September 1990, Exhibit 7 to which reference has been made and which proved of no value. From Mr. Roberts' statement, Counsel in submissions (42-43 of written submissions and orally 466) said that Mr. Roberts did not regard the -- 44 of 111 -- 43 security on the boat as important and took it only to keep Mr. Sullivan honest. Mr. Roberts said he met Mr. Sullivan twice (113). He visited Mr. Sullivan's premises in Brisbane in January 1991. It does not appear whether he had met Mr. Sullivan before signing his approval on 31 August 1990 (Exhibit 16). In view of all of the evidence, including the importance Mr. Roberts placed on security over the boat when he approved of the increase in the facility on 28 February 1991, I reject this submission. Not only is it inconsistent with cls.16.2.3 of Exhibit 3, the whole evidence shows that this was an essential condition at the outset. Mr. Roberts said that if any one condition set out in Exhibit 16 was not complied with the deal would not have proceeded further before reference back to the Board for reconsideration (82). This suggestion does nothing for Mr. Roberts' credit, raised in reexamination after extensive cross-examination as to the boat. It also took on the appearance of an attempt to rationalise the fact that CRA never got a meaningful security over the boat, which was in truth one of the essential conditions in Exhibit 16, and gives support to the view that this was to underscore the importance of the real property security alone. The foregoing also leads to some disquiet over Mr. Walder's evidence that the Bill of Sale had already been put into effect in January/February 1991, before there was a final agreement to increase the facility limit from $200,000.00 to $250,000.00. The existence of a meaningful Bill of Sale was heavily relied upon by Mr. Roberts in agreeing to the increase on 28 February 1991, knowing that the real property security was then obviously less than the new limit, quite apart from a likely drop in its value and any possible effect on it due to bank charges and interest. As indicated, it was not entered into until 22 June 1991 (Exhibit 6). Mr. Walder must be taken to have known that Mr. Roberts would rely amongst other things on the existence of a registered Bill of Sale over the boat and of value to CRA, before he agreed to extend the facility, yet Mr. Walder apparently did not inform him that a Bill of Sale, registered or otherwise, was not then in place. CRA simply did not have its essential 100% real property security at that time, a fact which it asserted was always of paramount importance. It is difficult to conclude that the above evidence by Mr. Walder as to the date he said that the Bill of Sale was in fact put into effect, was due to a lapse of memory as to a matter of detail. In a sense, it is an implied admission by Mr. Walder that the existence of a meaningful Bill of Sale was essential to CRA, at least as an important reason why the facility was increased to $250,000.00 on 28 February 1991. CRA did not comply with its own standard of care when it entered into the facility on 28 September 1990 (Exhibit 3) or when it increased the facility on 28 February 1991. -- 45 of 111 -- 44 It appears from the evidence of Mr. C.J. Pratt that Australian Guarantee Corporation ("AGC") had a registered Bill of Sale over the boat when it refinanced a loan to Mr. Sullivan from Standard Charter Finance. AGC repossessed the boat ("Glass Cutter") on 7 August 1991 (351) and sold it by auction on 28 September 1991. The net proceeds were $116,605.40. AGC's debt was $141,524.56, leaving a deficit of $24,919.16. It was a valuable boat. AGC had a valuation dated 27 August 1991 of $134,500.00 by a registered marine valuer against which it lent in all $141,524.56. Obviously it would have been a most valuable security for CRA if it was in truth unencumbered on 28 August 1990 and if CRA had been able to take a registered Bill of Sale over it as Mr. Roberts specially required in Condition 8 of Exhibit 16. It does not precisely appear when AGC took the registered Bill of Sale or when Standard Charter Finance originally granted Mr. Sullivan a loan with respect to the boat (351, 479) but it is a reasonable inference that there was a registered Bill of Sale over it for some considerable time and well before Olympus' application of 28 August 1990. It is probable that the reason why Mr. Sullivan declined to give a Bill of Sale capable of registration over the boat was that it was already encumbered by a registered Bill of Sale and had been for some time. AGC's Bill of Sale which Mr. Pratt had with him during his evidence (349) was not tendered by the plaintiff. The defendant was unrepresented at the time. In any event, there is no evidence by Mr. Walder of any search to check the existence of a Bill of Sale at any relevant time or as to any enquiries made to authenticate Mr. Sullivan's assertion that the boat was unencumbered at the time of the approval of the facility in the first place or indeed at the time approval was given to the extension of the facility from $200,000.00 to $250,000.00 on 28 February 1991. Indeed, the inference is that he did not make relevant searches or enquiries. Whilst it is clear that Mr. Walder knew as early as 3 September 1990 (Exhibit 48) that Mr. Sullivan refused to comply with the condition that a Bill of Sale be granted over the boat, it cannot be found that Mr. Walder knew that the boat was already encumbered at that early stage. No such suggestion was put to him in evidence. It does not appear precisely when Mr. Walder became aware that the boat was already encumbered. It appears that he was initially misled by Mr. Sullivan to whom he readily deferred, by Mr. Sullivan's representation that it was unencumbered at the date of the original application. Counsel submitted (p.42 written submissions) that the boat was primarily secured in favour of AGC. -- 46 of 111 -- 45 Whatever was the true state of Mr. Walder's knowledge concerning the boat before the facility Exhibit 3 was entered into on 28 September 1990, he as representing CRA was clearly negligent in not checking Mr. Sullivan's statement that the boat was unencumbered and in allowing the application to proceed when Condition 8 had not been complied with without informing Mr. Roberts of the true position. All eight conditions in Exhibit 16 were essential and set the standard of care which CRA, as a reasonable factoring company, should have taken before it entered into the facility in the first place and commenced transactions with Olympus. As indicated, Mr. Roberts did not know of the non-compliance with Condition 8 at any relevant time. The whole application should have been referred back to the directors for further consideration, as Mr. Roberts said should be done if all conditions were not met. He said that the deal would simply not have proceeded in that event (82). The referral back never occurred. Instead, Mr. Walder proceeded with the deal notwithstanding non-compliance with all conditions imposed by the Board. Whilst making due allowance for fading memories due to the lapse of time between the relevant transactions and the trial, and the obvious lack of knowledge by Mr. Roberts of certain details of matters which he left entirely to Mr. Walder, the foregoing survey unfortunately results in a finding that the evidence of Mr. Roberts and that of Mr. Walder is not entirely reliable in all respects. Mr. Roberts in reexamination appeared to qualify in an unconvincing way, some of his previous emphatically expressed concerns. To some extent, the evidence of these two witnesses appeared to be defensive of the part each played and took on the appearance of a rationalisation after the event of the collapse of Olympus and the loss suffered by CRA. THE DEFENDANT'S ROLE The next step in the chain was a facsimile dated 29 August 1990 (Exhibit 64) whereby Mr. Walder requested the defendant to do a valuation in terms of standing instructions on No. 18 Fitzwilliam Street, Carrara c/2 vol. 58885 folio 19, the above house property owned by Olympus. These "standing instructions" appear to be contained in Exhibit 63, a letter from Mr. Walder to the defendant dated 20 July 1989 as follows:- "Please note that all valuations are to be done on the basis of value for Mortgage Security purposes and should be noted accordingly." On 5 September 1990, the defendant, whose office was situated on the Gold Coast, inspected the property and prepared a written valuation (Exhibit 2) by which he valued what he described as the "Fire Sale" value subject to vacant possession to be $975,000.00 as at 5 September 1990. It was probably -- 47 of 111 -- 46 received by CRA in the ordinary course of post about two days later. On 7 September 1990 it was dispatched by Mr. Walder by facsimile transmission to Mr. Roberts in Melbourne (Exhibit 18). The letter from the defendant set out the purpose and nature of the valuation as follows:- "To assess 'Fire Sale' Value of the subject property reflecting the value the property could be expected to realise within 30 days if offered for sale under reasonable terms and conditions." There is evidence from the defendant as to a value "for Mortgage Security purposes" in accordance with standing instructions (Exhibits 63, 64) and a "Fire Sale" value as set out in his valuation. It is clear that a valuation for mortgage security purposes is conservative as is a "Fire Sale" valuation. However, the plaintiff, in para. 4(a) of the Statement of Claim, alleged that it was a term of the defendant's retainer that the valuation would assess the value the property could be expected to realise within 30 days if offered for sale under reasonable terms and conditions which is what the defendant's valuation purported to be. This paragraph was admitted by the defendant in para. 1 of the Defence. The defendant made it clear in his evidence, which I accept in preference to that of Mr. Rodney Brett on this aspect, that "offered for sale under reasonable terms and conditions", did not mean a forced mortgagee sale as such, that is, advertised for sale by a mortgagee under its power of sale or a sale which is otherwise known or advanced to the public as a forced sale, because such a sale invariably produces a much lower price. I so conclude, notwithstanding that a fire sale value is otherwise conservative. I also accept the defendant's evidence that the terms of his retainer meant a value the property could be expected to realise within 30 days by a contract entered into within that time on reasonable terms and conditions, with settlement at some future time thereafter. Mr. Rodney Brett did not disagree with this (162). I also do not accept Mr. Rodney Brett's evidence that a properly marketed sale is not necessarily capable of producing the best price and a contract within 30 days. Both valuers appeared to have accepted that it is quite possible that the best price may be quickly obtained from a feature advertisement commonly seen, e.g. in the weekend press. I accept the defendant's evidence that a property, if on the market over a lengthy period, and particularly with "for sale" signs displayed (a fortiori if it displays "mortgagee sale"), may well have a tendency to dampen the price that property might ultimately achieve. Mr. Rodney Brett in substance agreed with this (175). I do not accept the evidence (320) of Mr. Walder that a valuation of $975,000.00 meant the price to be realised free of selling costs, advertising, commission etc. I conclude that the defendant's valuation -- 48 of 111 -- 47 of $975,000.00 was the gross valuation. I also consider that this best accords with the terms of the valuation itself as well as with the approach of both valuers who first arrived at a market value before applying a discount to represent a "Fire Sale" value. CRA's Counsel in submissions appears to have agreed with this (416). "Market value" is usually achievable after marketing a product involving expenditure. Mr. Rodney Brett put commission in the order of $24,000.00 alone plus advertising and promotion costs in the order of $4,000.00-5,000.00, which, if $975,000.00 was the sale price, would also result in the realisation of only about $945,000.00, this not of itself giving CRA 100% "equity", over and above the bank's priority of $750,000.00, quite apart from bank charges and interest. Prior to any reference to the defendant, Mr. Walder had already inserted a proposed facility limit of $200,000.00, probably based on a requirement by Mr. Sullivan for a sum of that order. See Exhibit 16 - Facility Limit - $200,000.00. Nevertheless, Mr. Roberts, who with another two persons in Melbourne was responsible for approving the application, did so on 31 August 1990 (Exhibit 16), subject to the eight conditions abovementioned including a Fire Sale valuation by the defendant, with "security" to represent a minimum of 100% of the finance facility to be provided by CRA to Olympus. By a facsimile 3 September 1990 from Mr. Walder to Mr. Sullivan (Exhibit 47), Mr. Walder informed him that the valuation by the defendant was to be completed at not less than one million dollars which Mr. Walder said was entered in Exhibit 48 as "conservative" (225). If this was CRA's requirement, then it was simply not achieved because the defendant's valuation was $975,000.00. Mr. Walder and the defendant had a very good and close working relationship. The defendant had over the previous four to five years performed fire sale valuations for CRA to the extent of about 50 - 100 each year. They had not infrequent telephone or other oral discussions obviously concerning valuations generally. Mr. Walder said that he discussed "work" with the defendant. They appeared to be on friendly terms. The defendant's "Fire Sale" valuation of $975,000.00 happened coincidentally to come in at just $225,000.00 over the sum of $750,000.00 said to be the total sum owing at that time to the NAB under both the trading account and the Savings Bank loans so as to just comfortably cover the amount of the facility requested by Olympus. It also went close to covering commission and selling costs. If $750,000.00 was the total debt (i.e. the total priority), the valuation, excluding selling costs, provided what was referred to as "fat" of $25,000.00 over the $200,000.00 ("initial") facility already proposed by Mr. Walder in the Client Document Resume Exhibit 16. See also Exhibit 47, the facsimile by Mr. -- 49 of 111 -- 48 Walder to Mr. Sullivan of Olympus dated 3 September 1990 confirming approval of the facility as discussed and the reference to "facility initially limited to $200,000.00 equity balance", indicating that the facility may be varied in the future. Counsel for CRA in submissions (30-31 and orally), when dealing with foreseeable damage, submitted that the defendant was aware that the valuations were to be used as a basis for valuing mortgage security, that the plaintiff required real property security and that the valuation was to be used for the purpose of considering whether or not to enter into an Invoice Finance Facility with Olympus. It was also submitted that the defendant was aware of the plaintiff's requirement of real property security and in particular that the purpose of the valuation was to assess the value on a fire sale basis. Counsel relied upon the fact that the defendant had been valuing properties for the plaintiff for some five years and had performed 50 - 100 valuations per year over that period. It was further submitted that the defendant was aware of the business operated by the plaintiff (written submissions 31), and was aware of the terms of the Invoice Finance Facility (Exhibit 3) and the possibility of damages, costs and expenses likely to be incurred by the plaintiff on default by Olympus, although he later said (460) that CRA did not proceed with the submissions as to the particular knowledge of Exhibit 3. It was also submitted that the defendant was aware or ought to have been aware that the plaintiff would only be taking a third mortgage. There was no acceptable evidence to show that the defendant was required or expected to do a title search and to discover any pre-existing mortgages, or whether, if he had done so, this would have affected his valuation. The admission in para. 1 of the Defence is to the allegations in para. 3 or the Statement of Claim, namely that the defendant was aware that the valuation was for the purpose of enabling the plaintiff to assess the extent of security which Olympus proposed to offer to CRA with respect to the granting by the plaintiff of a facility to it. It does not expressly appear on the evidence that the defendant was told that the security was to represent the minimum of 100 percent of a proposed facility or that the defendant was told that the proposed "initial" facility limit was $200,000.00 which Mr. Sullivan had already proposed to Mr. Walder. Nor does it expressly appear in the evidence that the defendant was aware of the details of how the business of CRA was conducted or what exceptional risks it faced such as the risk of fraud as Mr. Roberts and Mr. Walder foresaw. Nor does it expressly appear whether he knew of the terms of the Invoice Finance Facility as Counsel for CRA initially submitted (31), or the possibility of costs and expenses likely to be incurred by the plaintiff in the event of default by Olympus. He was not -- 50 of 111 -- 49 questioned about any such matters. If the defendant was in fact generally aware of all or some of the terms of the Invoice Finance Facility, he would have been aware that the debts factored by CRA from Olympus should be valid and enforceable debts and not debts which were fictitious or fraudulent (cls.4 of Exhibit 3). Even if he was not particularly aware of the terms of Exhibit 3, he would know that the factoring of debts meant just that - debts which were valid debts, because fictitious invoices were not debts at all. No assets of Olympus were purchased by virtue of payment for such "debts" and the payments made in respect of them had no greater status from CRA's point of view than would simple unsecured loans to Olympus. Such payments were outside the scope of CRA's normal business activities. Nevertheless, Counsel for CRA submitted that the defendant's knowledge of the above matters should be inferred. This included the knowledge that the security was to represent a minimum of 100% and that a company such as Olympus might commit fraud on CRA causing CRA to suffer losses for that reason rather than from losses which might have been incurred due to the business failure of Olympus which otherwise complied with its agreement with CRA (Exhibit 3) in a non-fraudulent way. All of the evidence allows at least the conclusion to be drawn that the defendant knew or ought to have known that if his valuation was negligently performed, and that CRA entered into a facility it would not otherwise have entered into, CRA would be likely to suffer economic loss in the event of a business failure by Olympus. Also, apart from the admissions in the Defence as to the allegations in para. 4(a) of the Statement of Claim, I am prepared to accede to CRA's submissions and infer that by reason of the lengthy and intimate relationship between Mr. Walder and the defendant over many years, the defendant was probably aware that CRA required a minimum of 100% security as well as the general nature of the plaintiff's business including the factoring of debts, and that CRA might suffer losses if his valuation was negligently made, as a result of such facility. However I am not prepared to infer that he knew or should have known that CRA would be likely to purchase fraudulent or non-existent debts from Olympus, thereby incurring losses, or that CRA would be likely to run its business in such a careless way without adequate precautions such that it would be easily hoodwinked into buying non-existing debts, as opposed to ordinary, valid and enforceable debts. However, whether a reasonable person in the defendant's position should have foreseen the risk of various losses above referred to, including losses due to fraud of Olympus or due to the negligence of CRA in not discovering them before purchase, is considered later. Mr. Walder said (243) that he subsequently spoke to the defendant after he received the -- 51 of 111 -- 50 valuation. He could not recall the conversation word for word but said that he mentioned that the owners had put a valuation on the property of $1.1 million. Mr. Walder also said that the bank had (recently) indicated that they had a sworn valuation of 1.1 million dollars also. He probably told the defendant this. He said that he had a conversation with the defendant about it, but that it was not "an issue", only that it was discussed. He also said that he had a conversation with the defendant generally as set out in his facsimile dated 7 September 1990 to Mr. Roberts (Exhibit 18) as follows:- "I spoke to Peter Brett whose Fire Sale figure is realistic and he said a Market Value with time to sell would exceed $1.1.m. so he has given us an 'at worst' position." On its face, all Mr. Walder there said was that the defendant said "a market value with time to sell would exceed 1.1 million dollars". Mr. Walder did not say in that facsimile that the defendant said that his fire sale value was "realistic" or that the defendant said that he had given an "at worst" position. The question to Mr. Walder at 243 line 40-50 suggests, as does the letter, that the statement "so he has given us an 'at worst' position" was Mr. Walder's conclusion also having regard to Mr. Walder's knowledge of the bank's valuation. However, at 387, when the defendant was giving evidence-in-chief in response to questioning by me (he was unrepresented), he agreed that a conversation along the lines set out in Mr. Walder's facsimile of 7 September 1990 (Exhibit 18) did take place. When asked had Mr. Walder made that statement to him (which was not precisely stated), he said:- "yes, your Honour, that was over the phone from memory." Q. "1.1. million with time to sell it, but at worst was 975?- Yes your Honour." Containing as it did, two propositions, it is not entirely clear whether the defendant has acknowledged that he also said to Mr. Walder that the valuation given was "at worst" as junior Counsel for CRA submitted. It should be recalled also that Mr. Walder, in his facsimile of 3 September 1990 to Mr. Sullivan (Exhibit 47) informing him that the facility had been approved, said that it was subject to a "valuation of 18 Fitzwilliam to be confirmed by Peter Brett at not less than one million", which Mr. Walder said was the figure he had inserted to be conservative (225). Notwithstanding some reservations about the matter, I conclude that the defendant did make the above statement and that its effect was conveyed to Mr. Roberts by Mr. Walder by facsimile 7 September 1990 (Exhibit 18). This was prior to the formal entry into the Invoice Finance Facility agreement (Exhibit 3) on 28 September 1990. It is therefore strange that Mr. Roberts, when shown Exhibit 18 of 7 September 1990, said that the defendant's valuation indicated "our equity of $250,000.00", unless he did not consider the exhibit -- 52 of 111 -- 51 very closely or unless he had in mind Mr. Walder's requirement to Mr. Sullivan (Exhibit 47 of 3 September 1990), that the defendant's valuation was to be not less than one million dollars which would have given an "equity" of $250,000.00. CONSEQUENCES OF THE DEFENDANT'S VALUATION Having received the defendant's valuation, both Mr. Roberts and Mr. Walder swore that the value of the security obtained as a result of the defendant's valuation of 5 September 1990 was "vital" or "paramount" or "critical" in their decision to enter into the finance facility (Exhibit 3) on 28 September 1990, and that but for this valuation, CRA would not have entered into the facility with Olympus at all. The effect of their evidence was that CRA had a surplus of $225,000.00 over and above the bank's priority of $750,000.00 to more than fully secure any future default by Olympus to the extent of the limit of the proposed facility of $200,000.00 at any time during CRA's relationship with Olympus. See also cls.16.2.1 of Exhibit 3. Mr. Roberts and Mr. Walder both repeated this stance several times throughout their evidence and these assertions were intended to convey that they believed they held real property security to more than cover any future exposure of CRA to Olympus pursuant to the Invoice Financing Facility. Whilst I accept that a "Fire Sale" valuation by the defendant was, along with seven other conditions in Exhibit 16, an essential requirement, the above assertions may be questioned for various reasons. 1. A sale in the sum of $975,000.00 would not net that sum. With advertising, selling costs and commission totalling close to $30,000.00, the net realisable sum would be about $945,000.00, thus producing a surplus of only $195,000.00 over and above the combined priority to the bank of $750,000.00, assuming that the combined debt, having regard to interest and other charges, did not exceed that sum. 2. In the facsimile from Mr. Walder to Mr. Sullivan of Olympus of 3 September 1990 (Exhibit 47) confirming approval of the facility "initially" limited to $200,000.00 equity balance, an important condition was a requirement that "valuation of 18 Fitzwilliam to be confirmed by Peter Brett at not less than one million dollars". This was never done by the defendant who valued it at $975,000.00 only, so that CRA did not comply with its own requirement. If the property had been so valued, it would have produced a surplus of not less than $250,000.00, apart from selling costs which, as indicated, may have been the reason why Mr. Roberts said (56) that the defendant's valuation indicated an equity of $250,000.00. This happens to be the amount to which Mr. Walder recommended an increase in the -- 53 of 111 -- 52 facility in January 1991 (Exhibit 20). 3. Even though Mr. Roberts and Mr. Walder swore that they relied on the accuracy of the valuation by the defendant, and in effect, its continued efficacy for the duration of the dealings with Olympus, it is impossible not to infer that they, as shrewd business people, regularly engaged in the business of providing financial facilities to various clients in various industries throughout Australia (per Mr. Roberts at 64), (and particularly those suffering from financial difficulties), based always on real property security in accordance with their clearly stated policy, did not know that at the time, property values generally were very depressed and were declining dramatically, as both valuers in the case, i.e. the defendant and Mr. Rodney Brett called for CRA said in evidence. Mr. Rodney Brett referred to the widespread expectation in September 1990 that values would continue to deteriorate. He said, "No one expected it to suddenly turn around and improve" (164). In my opinion, this is not qualified by his statement (174) when he answered in a general way to a leading question that the falling market in 1990 was evident to people like valuers and real estate agents before it became evident to the public. He had earlier said that by the second half of 1990 it was clearly evident that properties were becoming harder to sell and that values and prices would be harder to achieve. He said this was evident to people in the real estate industry, to real estate agents who were trying to sell properties, the valuers who were operating within the industry as well as the purchasers who were becoming aware of this fact. This would equally apply to vendors and mortgagees. Quite apart from the effect of the allegations in para. 3(e) of the Further and Better Particulars of the Statement of Claim, the evidence shows that the market had already commenced to tighten up in the first part of 1990 and by the second half, prices were falling away. In the period leading up to 5 September 1990, the defendant had prepared many such valuations of real property for CRA (40-50 per year over the previous five years) and held many discussions with Mr. Walder. The evidence also shows that it is normal for a valuer to tell people for whom he is doing valuations of the state of the market and particularly when values became tight and were falling. Just as it is reasonable to infer that the defendant was generally aware of the nature of CRA's business and the nature of factoring as urged by Counsel for CRA based upon the many years of intimate dealings between the defendant and Mr. Walder, so also it is reasonable to infer that the defendant, who had many discussions with Mr. Walder concerning "work", discussed with him in a general way, the decline in real property values prior to the subject valuation. This inference is drawn on all of the evidence and not because of the written submission by the defendant of 8 May 1995 to the effect that Mr. Walder was aware of the decline in the -- 54 of 111 -- 53 Gold Coast market as the defendant had spoken to him on other occasions relating to other properties. There is no direct evidence of any such conversation. I come to the above conclusion notwithstanding Mr. Walder's guarded statement in evidence-in-chief (325), when asked whether he had a discussion with Mr. Brett whether or not property values on the Gold Coast were stable, falling or rising, "not particularly with Mr. Brett, no". I do not accept that statement and in any event, the evidence is overwhelming that values were declining and that this was well known to valuers, vendors, purchasers and others and in particular mortgagees. See Steinberg v F.C.T. (supra) at 694. The value of any security CRA held in the subject property over and above the true debt to the bank under both mortgages, was according to Mr. Roberts and Mr. Walder, critical to CRA which could get out as quickly as possible in the event of trouble and so realise its security to cover its losses. Thus the valuation and its continued efficacy was according to them, of critical importance in a falling market. Mr. Rodney Brett said that not only did the values continue to deteriorate rapidly after 5 September 1990, but that the result proved even worse than expectations at that time. Mr. Roberts for his part said that the building industry was in a state of depression and that Australia had problems generally (75-6). CRA's activities were Australia wide (64). The bank report, Exhibit 46, pointed to the fact that the industry was declining. Mr. Roberts agreed that the value of properties were affected by this depression (76) and that property values fluctuated (83). Mr. Roberts also said that he knew there was a down turn in the building industry in early 1991 before approving the increased facility to $250,000.00 (92). Notwithstanding Mr. Roberts' evidence that he did not know what was going on in Queensland as to real property values (83), or that he believed that the Gold Coast was fairly stable or that he had this belief which had been related to him (76), I am quite unable to accept his evidence that he was not aware of the likely situation in Queensland at the time and that property values were declining. He did not say who related information to him as to alleged stability of values on the Gold Coast or at what stage he was told of this. It may have come from Mr. Sullivan who wanted an increase or from Mr. Walder who supported the increase. In my opinion, regardless of Mr. Roberts' actual knowledge, Mr. Walder was well aware of the risk associated with real property security and the state of the real property market generally speaking throughout 1990 and subsequently. He knew that real estate values were declining, including in the area of the Gold Coast. Having regard to the whole of the evidence including that given by Mr. Roberts and Mr. Walder, I find that they both knew or ought to have known of the falling state of the real property market generally and on the Gold Coast, before and after 5 September 1990, and that the valuation by the defendant as at 5 September 1990 could not in any relevant sense be said to be permanent or to endure -- 55 of 111 -- 54 for any lengthy period in a state of general recession in the economy as well as in the building industry in particular with prices fluctuating and falling rapidly. The valuation itself was stated to be "at 5 September 1990", and did not specify any indeterminate time into the future. Mr. Roberts for his part placed no duration on its continued efficacy, despite questions to this effect. He said that at times CRA does check valuations to see if their valuers were on the ball (126). The fact that the values of the real property were declining as at the date of the valuation was an important consideration which CRA ought to have borne in mind because if the value was likely to drop, the prudent course would have been to obtain a further valuation in order to assess whether or not the surplus, if any, over and above both debts owing to the bank, was sufficient to cover their exposure should a "Fire Sale" become necessary. This has particular relevance from about February 1991 after the Coopers & Lybrand report of 26 February 1991 (Exhibit 9) was received urging caution and a reduction of CRA's exposure at a time when Olympus had persuaded Mr. Walder to recommend an increase (not a reduction) of the facility (without reference to the defendant). On the question of valuation, Mr. Roberts, when asked how long the valuation of 5 September 1990 would continue to operate, said:- "It would depend on the circumstances, Your Honour. As a matter of prudence, I suppose, we do periodically revalue securities, particularly if the client comes along and asks for a sizeable increase in his facility. For example, if he had a facility of $100,000.00 and he wanted to go to $200,000.00 and their security was borderline, and we feel, due to economic situations, that the property could have appreciated in value, we might do an updated report yes. Or depreciated in value you said 'appreciated'?-- Appreciated in value. What if it depreciated in value? What if values were falling?-- We'd been very fortunate, Your Honour, that situation hasn't very often arisen." It is impossible to accept that explanation as a convincing reason why a further valuation was not prudently obtained in the present case, particularly where a substantial increase of 25% was sought by Olympus which would eliminate the original "fat" of $25,000.00 said to flow from the defendant's valuation of 5 September 1990. In order to accord with CRA's stated policy (and standard of care) of requiring 100% real property security at all times, and quite apart from any question of knowledge by Mr. Roberts and Mr. Walder as to whether property values were declining, a further valuation was called for. Also other factors have been referred to above which might reduce or eliminate the original margin, excluding selling costs. -- 56 of 111 -- 55 4. CRA was to take a third mortgage over the house property, but subject to execution of a Letter of Priority to the bank for $750,000.00 plus interest and other charges in respect of the bank's first and second mortgages over the property which covered existing fixed and floating credit lines. Mr. Walder had on more than one occasion asserted that the total debt was $750,000.00. He subsequently agreed that the debt was $750,000.00 "plus a maximum of six months' interest and costs" (see Exhibit 49). However, Mr. Roberts made it clear (80-81) that he was aware that there was no six months' interest and charges limit at all and that there was no specified period. Mr. Roberts' evidence is quite correct in this regard. The formal Letter of Priority (Exhibit 30) was entered into on 3 October 1990 (to which CRA agreed). The relevant clause is as follows: "The Bank shall be entitled to priority in the sum of $750,000-00 ('the Base Priority Amount') plus interest calculated on the Base Priority Amount (or such lesser amount as is owing to the Bank from time to time) at the usual and prevalent rate charged by the Bank from time to time to customers similar to the Mortgagor (whether compounded and capitalised or not) until the date of satisfaction by the Mortgagor of all obligations to Bank plus Bank and other charges and payments made by the Bank to protect its securities all of which may be capitalised on the days adopted by the Bank from time to time for this purpose as due and bear interest accordingly AND the decision of the Bank as to the rate of such interest shall be final." Thus the bank retained priority under both mortgages in the sum of $750,000.00 plus interest and other charges without limit on that sum or such lesser sum as was owing to the bank from time to time. It did not matter on the question of priority if Olympus' debts to the bank exceeded $750,000.00 (apart from interest and other charges on that sum or such lesser sum as was owing from time to time). However, if the bank allowed Olympus' overdraft to overrun and particularly when coupled with upward pressure at several times by Olympus on Mr. Walder to increase CRA's facility as occurred in January 1991 to March 1991 (Exhibits 20, 22), serious questions would arise for consideration as to whether Olympus was constantly being overtaxed and short of funds and whether its continued operation was viable. Mr. Roberts said (45) that CRA's security could be diminished by the first mortgagee's costs and charges. At (80), he said "we do take steps to ensure that the interest or the payment component relative to the loan, in this case, an overdraft is fairly adhered to". As indicated, he also said that if it was not adhered to, it could cause the bank to take action which might in some way affect the value of CRA's security. However, Mr. Roberts left all arrangements with the bank to Mr. Walder. Mr. Walder simply answered "no" to a question from CRA's Counsel as to whether he monitored the situation with the bank from time to time (235). He then went on to say that the procedure normally -- 57 of 111 -- 56 was to send a letter each quarter to the bank asking them to confirm that the facilities were within CRA's priorities. He said he sent a facsimile dated 12 June 1991 to the bank (Exhibit 55) (after the collapse of Olympus), which he said, in answer to a question as to whether that was the way in which he checked up with the bank, was "this is similar to what we do on a quarterly basis, yes." (236) That document asked for the current status of the bank's exposure with particular reference to the bank's priority on the house of $750,000.00 and priority on debtors to CRA's account of $250,000.00. No other documents showing quarterly requests were tendered into evidence. In any event, quarterly check ups of the type referred to by Mr. Walder did not satisfy what Mr. Roberts referred to (p.80) as the steps which should have been taken to ensure that the interest on the payment component relative to the loan was fairly adhered to. This was particularly so after Coopers & Lybrand report of 26 February 1991 (Exhibit 9). As already adverted to, the balance owing at 12 June 1991 (which may well have been reduced by the proceeds from the sale of large numbers of fraudulent "debts" to CRA on May 1991) is of no use in this regard because what was important was the state of affairs from time to time during critical stages of the relationship before Olympus finally collapsed. Mr. Roberts required Mr. Walder to watch the account closely. There was no report from the bank at the time of the increase in facility on 28 February 1991 even to the extent of that which occurred before the original facility was approved in August 1990 (Exhibit 46). Indeed, it might be thought that such a report would have been prudent at that time in view of Mr. Roberts' concern. He left these matters to Mr. Walder. It appears from Exhibits 84 and 85 which were tendered into evidence by the plaintiff, that Mrs D.I. Sullivan gave as a cause of her bankruptcy the fact that there were bad debts due to the commercial building industry collapse in 1989, 1990 and 1991 and because creditors would not accept any involvement in a Part X arrangement. Mr. J.E. Sullivan in Exhibit 85 said that debtors had caused the problem with Olympus Nominees Pty Ltd due to the course of the commercial building industry in 1989 and onwards. He said that the bank would not negotiate and told him of the problems he would face in sole trading further if he was bankrupted by the bank. He said that the directors' guarantees were being enforced by the bank in February and that the bank and other creditors did not wish to become involved in a Part X arrangement which was put forward in 1991. As the certificates as to bankruptcy Exhibit 82 and 83 show that Mr. and Mrs. Sullivan became bankrupt on 24 February 1994, and that the statements of affairs Exhibits 84 and 85 were apparently signed on 3 March 1994 (Exhibit 84), it cannot be positively inferred that the bank was putting pressure on Mr. and Mrs. Sullivan in February of 1991 by -- 58 of 111 -- 57 enforcing or threatening to enforce their guarantees with the bank at that time which were no doubt to secure Olympus' indebtedness to the bank. It cannot be concluded that any enquiry of the bank in or about February 1991 would necessarily have revealed pressure of this kind on the Sullivans at that time. However, this does not overcome the failure by CRA to make regular enquiries, far more than quarterly, of the bank as Mr. Roberts said was necessary for the various reasons that I have stated and as Coopers & Lybrand urged (Exhibit 9). It is clear that should Olympus' overdraft blow out with the bank, this has other possible implications concerning the viability of Olympus, quite apart from the risk that CRA's "equity" might be eroded. See e.g. Coopers & Lybrand report of 26 February 1991 (Exhibit 9) which showed a Trading Bank overdraft alone of $737,430.00 with the facility limit of only $700,000.00. Apparently the extent of this overdraft had not been separately discovered by CRA by any enquiry of the bank at that stage. This extended overdraft indicates that the bank was liberal to Olympus from time to time. Mr. Walder said that he was generally aware that the bank allowed Olympus to overrun its overdraft at times. Mr. Roberts said that the fact that Olympus exceeded its ordinary trading terms at times would have caused concern had CRA, by monitoring of the type Mr. Roberts required was necessary, discovered any such excesses. Exhibit 86 shows the Savings Bank interest rate of 16.75% and Exhibit 87 shows a Trading Bank interest rate of 18.25% if the overdraft was kept within its limits and 21.75% if over the limit. Additional interest and charges must have accrued from time to time. There is no reason why additional interest could not for example have been charged by the bank on the overdraft when Olympus' overdraft exceeded $700,000.00, thus adding to the interest and charges to which the bank was entitled over and above the $750,000.00 priority. Whilst the evidence does not demonstrate any such interest and charges, it provides further a reason why CRA should have regularly monitored Olympus' situation with the bank, as Mr. Roberts required and as Coopers & Lybrand urged. Whilst it may be irrelevant in one sense that Olympus exceeded its overdraft facility at times and that its overall debt to the bank exceeded $750,000.00 because of the priority afforded to CRA, in another sense, as Mr. Roberts clearly recognised, the fact that Olympus exceeded its overdraft at times might have had the effect of eroding CRA's equity in the house property as well as being a pointer to the fact that Olympus was regularly in need of ready cash and was over-stretched, particularly having regard also to the pressure on Mr. Walder by Mr. Sullivan for increased facilities in both January and March -- 59 of 111 -- 58 1991 (Exhibits 20, 21, 22, 25, 51, 52, 54). 5. Mr. Roberts and Mr. Walder asserted that CRA relied upon the valuation as security to cover a facility limit not exceeding $200,000.00 in favour of Olympus. The security was to be 100% of CRA's exposure. The defendant's valuation dated 5 September 1990 (Exhibit 2) was expressed to be the valuation as at 5 September 1990. The emphasis under the date was inserted by the defendant in the valuation. The evidence is clear that CRA, in approving the increase in the facility to $250,000.00 on 28 February 1991 (Exhibit 1), clearly did not have 100% coverage. There was a deficiency of $25,000.00 apart from any bank charges (and selling costs if a sale had become necessary). This calls into question whether CRA, in purported reliance on the defendant's valuation in the first place entering into the facility, would thereafter be able to do what it liked with Olympus over an extended period and blame the defendant for any resulting losses however caused and whenever caused. CRA'S APPROVAL OF EXTENSION TO $250,000.00 ON 28 FEBRUARY 1991 Mr. Roberts said (91) that when he went to Brisbane to see Mr. Sullivan early in 1991, he was pretty well aware of how things were going. On that occasion Mr. Sullivan asked for extra money. There was a meeting attended by himself, Mr. Kaye and Mr. Walder. Mr. Kaye was Chairman of the company. Mr. Sullivan informed Mr. Roberts (92) that he had tendered for an extra large contract, larger than normal which would be spread over a few months and that he needed some assistance in an increased facility. See also Exhibit 21. The increase was not approved immediately. The nature of this tender was not identified and verified in evidence. The evidence does not demonstrate that Olympus succeeded in securing this "extra large tender". Mr. Roberts said that he was heartened by the fact that Mr. Sullivan had tenders out for substantial work. Neither Mr. Walder nor Mr. Roberts asked for an updated valuation of the subject house property, the value of which they constantly asserted was so important to them, quite apart from their knowledge as to the state of real property values. In accordance with CRA's "normal procedural aspects" (480), Mr. Walder asked Messrs. Coopers & Lybrand to do an appraisal of Olympus pursuant to a written request from Mr. Walder of 4 February 1991, Exhibit 31, which enclosed a copy of the Client Resume Document Exhibit 16 with the approval 31 August 1990 endorsed thereon. That copy document showed the original valuation of the real estate at $1.1 million, and an equity of $350,000.00 above referred to as entered by Mr. Walder. Those figures had been subsequently altered to a valuation of $975,000.00 with an equity of $225,000.00 to reflect the defendant's valuation of 5 September 1990. -- 60 of 111 -- 59 The form was endorsed in writing "Mortgage to be registered". Coopers & Lybrand, who were CRA's auditors and were very experienced in investigations of this type, must be taken to have known at the date of that document or at the date the loan was approved on 31 August 1990, that the valuation of the land was shown at $1.1 million and that it had been subsequently reduced to $975.000.00. They must be taken to have known that CRA had taken out a mortgage over the land because of the "equity" referred to and because of the above endorsement, and indeed, a Bill of Sale over the boat and an assignment of the Trade Indemnity Insurance Policy as well as a second security debenture over the assets of Olympus with a release by the bank to enable this to be done. The contents of the Client Document Resume Exhibit 31 speak for themselves. No one was called from Coopers & Lybrand to negate the inference clearly open that as financial experts, with knowledge of CRA's business, they were aware of the foregoing. I draw this inference. Mr. Walder said that the audit by Coopers & Lybrand was based on three criteria (308):- (a) The auditors would look at Olympus' affairs and advise CRA if invoices which were being presented to CRA were valid and enforceable and if the debtors' ledger was satisfactory; (b) They would look closely and see if any of the debtors' payments that had been received by Olympus as CRA's agent had been misappropriated; and (c) They were to give an indication in their opinion as to the future viability of the company. All these criteria were important. This shows that both Mr. Roberts as well as Mr. Walder, who had previously referred to the risk of fraud generally, were very much alive to the possibility of fraud at that stage. The precise sequence of events does not clearly emerge. It is clear that Mr. Roberts and Mr. Walder did not go through the eight steps which Mr. Roberts on behalf of CRA insisted were necessary before the original approval was granted for the facility on 31 August 1990, which set the standard of care usually adopted by CRA as prudent and normal. In particular, Condition 2 (satisfactory bank opinion and CRAA), Condition 5 (Fire Sale valuation by Peter Brett), Condition 7 ("security" to represent a minimum of 100%, assuming this meant real property security), and Condition 8 (Bill of Sale over the boat), were simply not complied with even though Mr. Roberts (wrongly) believed that the -- 61 of 111 -- 60 Bill of Sale over the boat was in place and was a valuable security for CRA. Both Mr. Roberts and Mr. Walder placed considerable reliance on the state of Olympus' debtors ledger and Olympus' performance in collecting factored debts to that stage for CRA. Exhibit 25, which is an amended copy of part of the original Client Document Resume (Exhibit 16), shows the facility limit as altered from $200,000.00 to $250,000.00 "as per memo 29/1/91". That memo appears to be Exhibit 20, a facsimile dated 29 January 1991 from Mr. Walder to Mr. Roberts in which the original limit of $200,000.00 is mentioned with the addition "to be increased to $250,000.00". It is clear that Mr. Walder recommended the increase. It was not granted until 28 February 1991 (Exhibit 1), i.e. after the Coopers & Lybrand's report of 26 February 1991 (Exhibit 9). Mr. Roberts first of all said (60, 103) that he had seen a copy of the Coopers & Lybrand report and acted on it in terms of the approval for the increase. Then after extensive cross-examination concerning the insolvency of Olympus, and the report of Coopers & Lybrand, he subsequently said (111) that he did not have that report at the time he made his decision to approve the increase in the facility, but asserted that "It's all very well in hindsight, but I made my decision at the time on the level of security I had available to me". Mr. Roberts and Mr. Walder took the stand that the report was virtually irrelevant in view of the securities they held or rather which Mr. Roberts believed that CRA held. On the other hand, neither Mr. Walder nor Mr. Roberts disputed any of the contents of the report and did not assert that the opinions expressed therein were incorrect, as indeed they could not (subject to one qualification by Mr. Roberts below), but rather that it did not matter because Mr. Walder said that he knew of the bulk of the matters therein from the outset, i.e. August/September 1990 and that Olympus was insolvent both in August 1990 and at the date of Coopers & Lybrand's report. See his notations on Exhibit 9. Mr. Roberts said the same in reexamination (123). Mr. Roberts for his part said in reexamination that Coopers & Lybrand did not know of the "security package that Cash Resources was holding". Because of Exhibit 31, as indicated above, this is simply not correct. Indeed Mr. Roberts said (136) that he did not see Exhibit 31, so that his statement about lack of knowledge by Coopers & Lybrand of CRA's security package appeared to be an unjustified assumption. Whilst various other steps were taken by Mr. Walder, the fact that the facility was increased by $50,000.00 without reference to the defendant or without obtaining a further valuation, shows that even -- 62 of 111 -- 61 if there was initially a "fat" of $25,000.00 above the original facility of $200,000.00 by virtue of the defendant's valuation of 5 September 1990, that "fat" was eliminated plus an additional $25,000.00 by virtue of the increase in the facility, quite apart from the question of selling costs and commission. Thus, at this point, it was simply not a 100% margin over and above the debt due to the bank even if the debts to the bank did not exceed $750,000.00, including interest and charges. 100% real property security was vital at all times. Mr. Roberts on three occasions in evidence (60, 63, 93), in answer to a question that he had gone outside his own strict guidelines, said he granted the increased facility for two reasons:- "Two reasons: number one I believe we had at least $50,000 security in the motor launch called the "Glass Cutter"; secondly we had had a little experience with the client who at that point of time seemed to be fulfilling his obligations under the agreement." (Emphasis added - no reference there to real property security) He later said (63):- "And did you again have regard to the securities that you had?-- Exactly. (Emphasis added) There was a question over the company's performance, one that you said ought to be watched?-- Yes. In the face of that you'd yet approved the $250,000 or the $50,000 extension?-- Yes, because I believed I had $225,000 in the house, bearing in mind that this was a quick sale value, and on the basis of our valuations I thought there must have been or could have been a bit of fat there, but I further believed we had at least $50,000 in the motor launch". Mr. Roberts used the plural "valuations". The defendant performed one only valuation on 5 September 1990, which suggests that Mr. Roberts may still have had in mind the other valuation evidence available to Mr. Walder in August/September 1990 from Mr. Sullivan and from the bank. And further at 93:- "You knew that one of the effects of giving this approved loan was that the aggregate of your company's exposure would exceed any real property security that you thought you had?-- As I have said early, I based my knowledge on a cash realisation value, knowing that there should have been a bit of fat there and believing that I had some security in the boat. Quite, but you knew at the time - really, it is obvious, isn't it, $250,000 is bigger than $225,000?-- That's right. -- 63 of 111 -- 62 And you knew that at the time?-- But an increase - I might add, we give our managers - I have a discretion of ten percent and it may marginally go up for a few days, a month or two. Quite?-- But not of any significant degree. Quite, but there was a margin there where you knew you didn't have real property security?-- Yes. That's a risk you were taking. It may have been a good risk, but it was risk you were taking?-- Yes I agree. All right. You didn't at that stage have the charge over the boat did you?-- I believe we should have had the charge over the boat on day one, but I can't recall." The ten percent margin here referred to would have explained an increase of only $20,000.00, not $50,000.00 as approved. Also the increase to $250,000.00 lasted continuously from 28 February 1991 right up to the final collapse of Olympus, three and a half months later, far longer than "a few days, a month or two". Indeed, on or about 21 March 1991 (Exhibit 22), the facility limit was apparently further increased to $275,000.00 on Mr. Walder's recommendation. Even then, purchases by CRA of debts of Olympus in fact exceeded even that limit at times, subject to some evidence concerning carry- over bankings. The foregoing makes it clear that Mr. Roberts relied upon a meaningful security over the boat not only from day one, but when the increased facility was granted on 28 February 1991. It was a significant consideration. As already pointed out, the boat was already heavily mortgaged to AGC to secure a debt of $141,524.56. AGC subsequently sold the boat at a substantial loss to itself. By granting the increase in the facility CRA acted outside its own standards of having 100% real property security at all times. In his facsimile to Mr. Roberts on 29 January 1991 (Exhibit 20), when Mr. Walder recommended the increase in the facility to $250,000.00, he also pointed out that Olympus had made arrangements with the bank to increase priority to CRA to $300,000.00 on debtors, which exceeded their original priority of $200,000.00 formally granted by the bank in Exhibit 30 dated 18 October 1990 (Exhibit 21). By acknowledgment dated 7 February 1991 (Exhibit 51), the bank formally increased the priority of trade debts in favour of CRA to $300,000.00, well before CRA approved the increased facility to Olympus to $250,000.00 on 28 February 1991. There does not appear to have been an increase in priority granted by the bank to CRA to enable CRA to purchase debts to the new proposed limit of $250,000.00 at about that time to correspond to CRA's increase in the facility to that figure. The -- 64 of 111 -- 63 increase in priority granted by the bank jumped from $200,000.00 to $300,000.00 in one hit on 7 February 1991. Mr. Walder said in evidence that CRA never agreed to raise the limit to $300,000.00 (233) yet he then said that he asked the bank to go to $300,000.00 (234). He then answered "Yes" to a leading question "That was just to give you more security rather than to allow him to go up to $300,000.00?". How that was likely to follow was not explained, particularly if the bank allowed CRA to buy debts up to $300,000.00. If that had occurred, it would surely have increased CRA's exposure to Olympus and its risk, and would have further eroded the 100% security of real property based upon the defendant's valuation. Mr. Walder in his memorandum to Mr. Roberts of 29 January 1991 (Exhibit 20) said that "client has made arrangements with NAB to increase priority to Cash Resources Australia Pty. Ltd. to $300,000.00 on debtors". In that same memorandum he said that "increased limit is required". A note indicated that the limit of $200,000.00 was to be increased to $250,000.00. By letter of 23 April 1991 (Exhibit 52), Mr. Sullivan referred to the agreement in principle with CRA that CRA would allow the equity to go to $300,000.00 and that the bank would release their existing priority to $300,000.00. He said that this had not happened and had caused embarrassment at the bank. Mr. Sullivan asked CRA to review the situation to give the bank a priority of $250,000.00 to coincide with the previous arrangement. Mr. Walder attempted to explain the embarrassment caused to the bank at 234. He said that the bank was allowing Mr. Sullivan to exceed his overdraft limit and that as a result, with an increased priority to CRA to $300,000.00 the bank was giving away their security. Strangely the bank had already granted CRA priority to $300,000.00 on 7 February 1991 (Exhibit 51) in one jump from the previous limit of $200,000.00. I conclude that Mr. Walder in fact arranged with the bank to increase the priority to CRA to $300,000.00. Mr. Walder played a significant part in endeavouring to increase the priority the bank offered with respect to the purchase of debts from $200,000.00 to $300,000.00, as well as the increase in the facility granted 28 February 1991 by CRA. This indicated Mr. Walder's desire to assist Mr. Sullivan as far as he could. The bank on 1 May 1991 (Exhibit 53) reverted the extent of its conceded priority to CRA to $250,000.00. In the absence of evidence from the bank, or other reliable evidence on the point, the inference is open that the bank had second thoughts about conceding priority to the extent of $300,000.00 and this was probably due to Olympus' overall financial position including its overdraft -- 65 of 111 -- 64 which at times exceeded the arrangements with the bank. COOPERS & LYBRAND'S REPORT - 26 FEBRUARY 1991 (EXHIBIT 9) - CRA'S CONDUCT THEREAFTER Something further must first be said about the serious criticism that Coopers & Lybrand's statement that Olympus was insolvent was incorrect because, so it was said, it was made in the absence of knowledge of the true valuation at 30 June 1990, of the house property, and also because of the implication by Mr. Roberts that Coopers & Lybrand, in making the strong recommendations it did to CRA to reduce its exposure because of its insecure position, did not know of the "security package" held by CRA. As indicated, no one was called from Coopers & Lybrand to give direct substance to these assertions. In the balance sheet in Exhibit 17, the buildings are shown at a value of $510,821.69 with the land listed at $5,798.13 giving a total value of $516,620.00. This appears from Exhibit 17, and some evidence was given by Mr. Walder in this respect (314-317). It was submitted (written submissions, 39, 56, and 472-3, 478) that the true valuation at that time was 1.1 million dollars such that this would have had a dramatic effect on the net position in the balance sheet indicating that the company would not be then regarded as being insolvent and could have borrowed on the equity Olympus held in the property over and above the bank's two mortgages. Also, it was said that this would have shown a net asset position to more than cover CRA's exposure to Olympus. As indicated, this submission is at odds with the evidence of Mr. Roberts and Mr. Walder, who both asserted that they knew that Olympus was insolvent in February 1991 and at "take up" - i.e. 28 September 1990 (Exhibit 3). This submission is otherwise rejected, even if the true market value of the land was 1.1 million dollars as Mr. Roberts, Mr. Walder, and the defendant appeared to have accepted, based upon Mr. Sullivan's statement of affairs as well as the hearsay evidence from the bank that the bank had a sworn valuation in this sum. As indicated, Coopers & Lybrand on 4 February 1991 received a copy of the Client Document Resume Exhibit 16 (Exhibit 31). The inference has already been drawn that Coopers & Lybrand were aware of its contents. It is unrealistic to assert that Coopers & Lybrand did not take into account when they visited the premises of Olympus on 12 February 1991, and in the preparation of their report, the contents of that document and the fact that CRA was to obtain a registered mortgage, subject to the bank's prior -- 66 of 111 -- 65 mortgages. The balance sheet Exhibit 17 also showed two separate debts to the bank, i.e. the overdraft and the smaller savings bank debt. Coopers & Lybrand certainly had those figures available to them (Exhibit 9). As already found, it would have been highly unlikely that as at 30 June 1990, Olympus could have raised any significant funds on the security of that property, in view of the total debts to the bank then standing at $896,211.14, and even with a valuation of 1.1 million dollars. This view is not affected by the subsequent approval of a factoring facility to a $200,000.00 limit by CRA. That facility involved the purchasing of other debts of Olympus, namely its book debts. It must also be remembered that Olympus had been examined by Hall Chadwick which firm made the approach to CRA in August 1990 for the facility which was subsequently granted, which supports the inference that no attempt or no successful attempt had been made to raise finance on the security of the house property, heavily mortgaged as it was at that time. As Mr. Roberts said, a common reason for a business to request a factoring facility is that its bank or lending institution has refused further finance. The evidence is overwhelming that this was the position with Olympus. Coopers & Lybrand as very experienced accountants and liquidators, were expressing a practical commonsense opinion as a matter of commercial reality. In my opinion, this is not affected by their statement in Exhibit 9 to the effect that the company was insolvent "based on the financial statements as presented to my staff for the period ended 30 June 1990". Coopers & Lybrand, who were the auditors acting for CRA, obviously knew their business. They were expressly asked to give an opinion as to the future viability of the company and their report in general referred to numerous matters which must as a matter of commonsense have borne upon the conclusion they reached. I agree entirely with that opinion, having regard to the total situation, and not merely based upon a mechanical examination of balance sheets: Re Newark Pty Ltd (in liq.) [1993] 1 Qd.R. 409, applying Sandell v Porter (1966) 115 C.L.R. 666, 670. There are other strong indications of the serious decline in the affairs of Olympus up to about February 1991. Mention was made in Coopers & Lybrand's report that the overdraft extended beyond the $700,000.00 to $737,430.00. Mr. Sullivan had obtained the approval from the bank to have this extended temporarily. Mr. Walder said that he was aware that the bank allowed Olympus to exceed its overdraft limit, a matter which Mr. Roberts (and Coopers & Lybrand) said should be closely monitored. There was an old debt of $119,083.45 owing to Pilkington Australia extending back to April -- 67 of 111 -- 66 1990 which was still outstanding at the date of Coopers & Lybrand's report. There was a reference also to a current debt to it of $31,462.85 in December 1990. Mr. Sullivan signed a personal guarantee for the old debt in the sum of $119,083.45. This was in addition to his personal guarantees together with those of his wife, to the bank (Exhibits 84 and 85), as well as to those given to CRA (Exhibit 3). The value of the guarantees were never questioned. The $5,000.00 payment pursuant to the "gentlemen's agreement" was apparently not paid until 14 January 1991. Mr. Walder was aware that this debt was overdue and that an instalment had not been paid in accordance with the agreement. It is not without interest to note that in Exhibit 81, Olympus' statement of affairs signed by Mr. Sullivan on 9 August 1991, the debt to Pilkington was then $209,000.00 and there was also a debt of $130,000.00 owing to Alcon Australia Limited. Whilst there is no direct evidence of movements in between these periods, an inference may clearly be drawn that Olympus was having difficulty in meeting its commitments to Pilkington under the agreement. Within the application Exhibit 8 dated 28 August 1990, (the contents of which Mr. Walder agreed he went right through to ensure their accuracy on 28 August 1990), para. 25 showed a group tax debt owing to the Taxation Department of only $55,000.00 and no other taxation in arrears. At the date of Coopers & Lybrand's report or rather as at 12 February 1991 when they visited Olympus, this alone had increased to $90,204.61. Mr. Walder's annotations against this is to the effect that this was the case when taken up, i.e. 28 September 1990. Coopers & Lybrand also referred to additional sums of $17,225.00 owing for payroll tax, and an amount of $27,781.00 owing for prescribed payments tax. These total $135,210.61 at 12 February 1991 and show some increase over the unpaid taxes outstanding at "take up". As already found above, Mr. Walder's annotations in this respect, as well as Mr. Roberts' evidence to similar effect, are incorrect. Mr. Roberts for his part expressed grave concern about the dangers involved when money was owing to the Taxation Department which was more prone to wind the company up. Arrangements entered into at the Taxation Department as to payment of tax owing, do not have the effect of improving the company's solvency and likely continued operation, particularly if the total debts were increasing. Rather it points to the contrary. Mr. Roberts left the arrangements with the Taxation Department in the hands of Mr. Walder (81, 106) who took it up with Messrs. Hall Chadwick (Exhibit 67). As indicated, there is no evidence that Mr. Roberts was ever told of the true outstanding tax position of Olympus prior to the facility being entered into on 28 September 1990 (Exhibit 3) or when he approved the increase form 28 February 1991. Indeed, his evidence shows that he was not correctly informed. -- 68 of 111 -- 67 At winding up, Exhibit 81 (Olympus' Statement of Affairs signed by Mr. Sullivan on 9 August 1991 which was tendered into evidence by the plaintiff) shows that the group tax debt alone had grown to $114,130.00, the prescribed payments tax to $36,742.00 and payroll tax of $18,734.00 totalling $169,606.00. There were also taxation penalties of $52,232.00, giving a grand total of $221,838.00. As indicated, there is no evidence to explain the loans made to the Sullivans by Olympus or to Olympus by the Sullivans set out above. At winding up, Exhibit 81 does not show any debt owing by the Sullivans to Olympus although under the heading "Creditors of the Company", there was said to be a sum of $100,000.00 owing to the Sullivan family. Exhibits 84 and 85, the personal statement of affairs of Mr. & Mrs. Sullivan apparently dated 3 March 1994, showed a debt owing to CRA of $189,000.00. No inference can be drawn with respects to these loans. Mr. Roberts was very concerned that Mr. Walder watched the account very closely particularly with respect to the matters mentioned in detail in Coopers & Lybrand's report. Coopers & Lybrand urged that the company's outstanding group and prescribed payments tax and creditors' balances over 90 days as well as the profitability of the company's contracts be closely monitored to ensure profitability and CRA's protection in the event of default. They said that CRA's position did not appear to be secure in the light of the magnitude of the bank overdraft and priority creditors. The irresistible inference is that CRA did not adequately or at all closely, supervise Olympus' performance in the above areas. Coopers & Lybrand pointed out that the level of productivity decreased in the last 12 months from approximately $350,000.00 to $400,000.00 a month to approximately $100,000.00 to $200,000.00 a month for the next six months. Apparently this was a reference to the six months to the end of December 1990. Against this was Mr. Sullivan's statement to Mr. Walder that he had tendered for extra large contracts larger than normal which would be spread over a few months, thus justifying his request for an increased facility. In his facsimile to Mr. Roberts of 28 February 1991 (Exhibit 21), Mr. Walder accepted Mr. Sullivan's advice that Mr. Sullivan had $500,000.00 worth of orders in hand and tenders out for in excess of one million dollars. He said that he checked Mr. Sullivan's Tender and Quote book and apparently accepted that at face value. Tenders of course are not orders. Olympus also lost $100,000.00 after their accountant, who had those trust funds, fled the country. Coopers & Lybrand, who visited Olympus on 12 February 1991 said in their report of 26 -- 69 of 111 -- 68 February 1991 that Olympus was insolvent. Mr. Walder's hearsay evidence that he discussed the matter with Mr. Levi the officer of Coopers & Lybrand who indicated to him that the situation of Olympus was much the same as it was in August or September 1990, was tendered only to show Mr. Walder's state of mind. Mr. Levi was not called to give evidence. Mr. Walder and Mr. Roberts said in substance that Coopers & Lybrand's report was only relevant in a general way but did not concern them because of the securities which they were holding, i.e. security on the real property, the boat which Mr. Roberts believed was secured by a registered Bill of Sale, and the second mortgage debenture. The term probably also included the assigned Trade Indemnity Policy which Mr. Walder asserted as late as 21 March 1991 was still affording "protection" (Exhibit 22). The converse of this proposition is that Coopers & Lybrand were saying that Olympus was insolvent not only in February 1991 but also back in September 1990, an inference clearly open because of their view of all of the accounts as at 30 June 1990 (Exhibit 17), and because of all of the circumstances which they obviously took into account. At the very least, if this hearsay evidence was correct, it showed that Olympus was not improving its position. It was obviously living from hand to mouth. The objective evidence as a whole is overwhelming that Olympus' overall "in globo" position had deteriorated by February 1991, notwithstanding the contents of Exhibit 22. Coopers & Lybrand (who had acted for CRA on other occasions and must be taken to have understood their business), stated that CRA's position did not appear to be secure in the light of the magnitude of the bank overdraft and priority creditors (such as the Taxation Department). Mr. Roberts in reexamination (125) attempted to explain this away by saying that Coopers & Lybrand would not have been aware of the "security package" that CRA was holding, i.e. over the house property and supposedly over the boat and probably the assigned Trade Indemnity Insurance Policy and the second mortgage debenture. As indicated, the reference to "security package" leads to the inference that Mr. Roberts (and the Board) believed that CRA held a meaningful security package not only over the land but also over the boat. Coopers & Lybrand were aware of the supposed security package, having regard to Exhibit 31 enclosing a copy of the Client Document Resume, as well as their visit to the premises of Olympus on 12 February 1991 and their knowledge of CRA's activities and policies. It might otherwise be expected that they would make careful enquiries expected of an experienced auditor and company liquidator. Coopers & Lybrand concluded with a statement:- "Extreme caution should be exercised in dealing with this client, and we recommend a reduction in your exposure." -- 70 of 111 -- 69 By his letter 28 February 1991 to Olympus (Exhibit 70), Mr. Walder noted the expressed concern in the auditor's report that arrangements made to the Taxation Department were not being maintained. He said, "Our position as a debenture holder cannot be allowed to deteriorate by non- payment of priority creditors". Mr. Walder was obviously concerned about this. Even so, the outstanding taxation debts were increasing up to the time of liquidation of Olympus. Mr. Walder requested Olympus to forward to CRA with its monthly reconciliation a photocopy of the previous month's remittance and receipt of group and P.P.S. tax payments. Also from 1 March 1991, Mr. Walder said that CRA required an up to date Profit and Loss Statement with a request that Hall Chadwick be notified of that requirement. Hall Chadwick were to prepare these on behalf of Olympus. Mr. Roberts said to Mr. Walder by notation on the facsimile Exhibit 21 dated 28 February 1991 "not good, WW to watch". This was particularly in the context of suspected fraud by Olympus which Mr. Roberts and Mr. Walder then clearly foresaw as highly likely. He said he expected Mr. Walder to monitor on a fairly regular basis and keep a close eye on the matters raised in Coopers & Lybrand's report of 26 February 1991 (62). As indicated above, he agreed that a simple verification could have been made by contacting the project manager on jobs which involved debts which CRA were asked to purchase (para. 50 of Exhibit 8). Mr. Roberts said in reexamination that not all projects had a project manager, but as indicated above, the bulk of the jobs would have had a project manager (Exhibits 21, 8). During cross-examination he expressed concern that the overdraft was $737,000.00 in February 1991 and was "a little bit alarmed" and that he was concerned about the taxation and other debts. Yet in reexamination, he said that he was "not necessarily" concerned about the $737,000.00 overdraft and that he did not necessarily have a concern about Coopers & Lybrand's comment that "you do not appear to be secure in the light of the bank overdraft and priority creditors". His stand was not entirely consistent and in a general way reflects on the overall reliability of his evidence. It is clear from the foregoing that both Mr. Roberts and Mr. Walder knew that Olympus was in a serious financial position by no later than February 1991. Even though Mr. Roberts said that he was "a little alarmed" at that time, he said that had the facility been withdrawn at about that time Olympus would have been forced to close its doors, that CRA was not in the business of putting companies out of business, that he hoped that they would get out of their problems and he wanted to help them out. He took a risk (113). CRA's approach in evidence to Coopers & Lybrand's report of 26 February 1991 (Exhibit 9) was -- 71 of 111 -- 70 torn between on the one hand, an acceptance of its accuracy with the assertion that it was irrelevant and that its contents were known generally "at take up", and on the other hand, that it was incorrect in the respects above referred to. These approaches are obviously inconsistent. After receipt of the Coopers & Lybrand report, Mr. Roberts instructed Mr. Walder to watch the account closely and Mr. Walder in Exhibit 21, a facsimile to Mr. Roberts of 28 February 1991 said "I am watching this account like a hawk...". Mr. Roberts said that this necessity to closely watch the account was also in the context that as the client becomes financially desperate he is more likely to commit offences by submitting fraudulent invoices and misappropriating cash receipts. In evidence, Mr. Walder said:- "The position with Jaeden Aluminium was one of extreme care and caution being exercised by myself and it needed a constant eye, like a hawk on it. I needed to know what sales were coming, what invoices we were going to be presented with, what debtors' cheques were being expected, and where the company was going in total." There was no evidence that more than 20% of each batch of invoices was checked before purchase thereafter. The above statement was made by Mr. Walder in the context of a reference to a letter from Hall Chadwick of 4 April 1991 (Exhibit 73). That statement indicates the sort of things that Mr. Walder considered necessary. However, the requirements expressed in Mr. Walder's letter of 28 February 1991 (Exhibit 70) appears not to have been complied with. Apart from the draft figures submitted by Hall Chadwick to 28 February 1991 (Exhibit 22) (received some time thereafter) and referred to in Mr. Walder's facsimile to Mr. Roberts dated 21 March 1991 (Exhibit 22), there appears to have been no regular financial statements (profit and loss accounts - 311) available from Olympus or via Hall Chadwick which Mr. Walder said in the facsimile to Mr. Roberts of 28 February 1991 (Exhibit 22) were to be provided monthly. Mr. Walder's evidence (311) that he maintained a vigilant look at his monthly draft profit and loss statements "as I receive them", cannot be accepted at face value. He said it was not his responsibility to keep Hall Chadwick active in monitoring Olympus' account (322). He said he asked for and got information from time to time (306, 322). He did not say what that information consisted of, but no monthly profit and loss statements or other reports other than Exhibit 22 were tendered in evidence. Mr. Walder even said that he could not recall if CRA got regular financial updates (321). He then referred to a sales analysis supplied by Olympus (Exhibit 71) showing an estimated sales programme and a list of debtors (Exhibit 72) "payment schedule" (321, 322) totalling $130,365.00. When directed -- 72 of 111 -- 71 to the letter from Hall Chadwick of 4 April 1991 (Exhibit 73), he said that "I sought their advice as to how the company was performing on a regular basis" and he answered Yes to the question "Did you actively seek advice?". The next question was "And this was material provided to you by them after a meeting?", to which he answered Yes. That was a reference only to the letter Exhibit 73 from Hall Chadwick dated 4 April 1991. A clear inference is drawn that there were no regular monthly profit and loss statements from Hall Chadwick showing the regular financial performance of CRA after 28 February 1991 (Exhibit 22, the unaudited accounts to that time). The letter of 4 April 1991 (Exhibit 73) referred to the "crisis" and to what appeared to be a last ditch attempt by Mr. Sullivan to stave off the inevitable collapse of Olympus. Mr. Walder by facsimile dated 21 March 1991 (Exhibit 22) enclosed a copy of "financials to 28/2/91" to Mr. Roberts. These were received well after the increase in facility was granted on 28 February 1991. These interim unaudited accounts superficially indicated some improvement in net profit compared to the previous year's results although the document attached to Exhibit 22 compares the period "this year to 28 February 1991", with the whole of the year ended 30 June 1990 and is not a realistic comparison. (Compare Exhibit 17, first column). Mr. Roberts said he did not necessarily believe these unaudited accounts (94). It is impossible to draw the conclusion that overall, Olympus was on the mend. Even if there was a modest net profit, this does not indicate the solvency and viability of Olympus. This emerges only from a consideration of the whole of the circumstances as well as a reliable balance sheet. The overall trend was downwards since a small profit was made on 30 June 1989 to a severe loss to 30 June 1990 from which Olympus never recovered. Instead, Olympus merely got in deeper with the bank and with CRA and in the end resorted to fraud in an attempt to survive which Mr. Roberts and Mr. Walder had in February 1991 foreseen as a real risk. Notwithstanding the foregoing, Mr. Walder in the facsimile of 21 March 1991 to Mr. Roberts (Exhibit 22), referred to an improvement in position of Olympus compared with the last year's results based upon unaudited figures but at the same time he said that Olympus was experiencing tight liquidity and had requested CRA to consider a temporary extension for seven to fourteen days pending receipt of $90,000.00 expected by the end of the month to enable retention fund to issue to them. He in fact recommended a temporary increase to $275,000.00 which was at that stage within the $300,000.00 priority conceded to CRA by the bank (Exhibit 51). -- 73 of 111 -- 72 Why this was necessary if Olympus' result showed a turnaround, was not convincingly explained. The reference to the retention fund was not adequately explained. Presumably retentions have never been or should never have been the subject of factoring by CRA if Condition 3 of Exhibit 16 had always been strictly complied with as Mr. Roberts insisted in the beginning. If this condition was complied with, the reference to the issue of retention fund to Olympus means that Olympus had billed its customers for the retention funds, which were not factored to CRA, and that Olympus was requiring CRA to purchase further or other debts for cash until Olympus was able to collect its own debts owed from its customers for the retention of debts which Mr. Roberts said had always caused disputes. On the other hand, if the request meant that Olympus was requesting the extension in order to enable CRA to purchase the debts owing to Olympus by its customers based upon retention funds, then this would have been in breach of Exhibit 16 Condition 3. Either way, this is a further example of a hand to mouth operation. Mr. Walder said in Exhibit 22 (dated 21 March 1991) that the details of the collections indicated that the position would revert to the limit of $250,000.00 by the first week in April, when the crisis, referred to in Hall Chadwick's letter of 4 April 1991 (Exhibit 73), was apparent. In that letter Mr. Walder also notably referred to the fact that "we have added trade indemnity protection with this client", indicating his belief that this protection still existed. This would no doubt have given Mr. Roberts comfort in believing that Mr. Walder had strictly monitored Olympus' performance to ensure it complied with the requirements of that policy. The recommendation in Exhibit 22 for a further increase to $275,000.00, occurred well after Coopers & Lybrand's report of 26 February 1991 (Exhibit 9) in which they recommended a reduction in exposure. The debtors' ledger of CRA (Exhibit 28) confirms that on or about 27 March 1991 the limit went to $274,424.20 apparently rising to a peak of $286,920.20 on 28 March 1991. It appeared to drop back to $252,930.20 soon thereafter but on 8 April 1991 it went up to $275,986.40 after which it came down below the limit of $250,000.00. On 3 May 1991 it went up to $293,300.56. The documents show that the limit often went well above the original $200,000 limit originally granted in respect of which CRA has alleged it relied on the defendant's valuation showing a surplus of $225,000.00. Limits fluctuated from time to time as Exhibit 28 and other documents demonstrate, which were said to be due in part to carryover banking. The whole of the evidence in relation to carryover bankings does not adequately explain all of the overruns above the various limits, notwithstanding the limited cross-examination of -- 74 of 111 -- 73 Mr. Roberts on this aspect by Counsel then acting for the defendant. Even if this was the full explanation, at the very least these figures showed a very tight operation by an organisation in extreme financial difficulty. Messrs. Hall Chadwick in a letter to CRA 4 April 1991 (Exhibit 73), referred to a meeting held in their office between Mr. Sullivan, Mr. Van der Veld and Mr. Walder. The letter referred to "the current cash shortage" as being due to two debtors slipping out to 60 and 90 days totalling $28,800.00, and the fact that the December figures were down due to a short number of working days. How this lines up with the alleged small improvement in the draft figures to February 1991 (Exhibit 22), does not emerge, and at least demonstrates that an apparent slight improvement in net trading profit (Exhibit 22) if correct, is not necessarily consistent with an improvement in the solvency of Olympus and its ability to carry on. The writer, Mr. Adcock, then referred to "the current cash flow crisis" and how it was hoped this could be reversed by 15 April 1991 with the receipt of approximately $137,730.00 from debtors set out. Mr. Adcock indicated that Mr. Sullivan had approached several financial companies with the aim of refinancing the operations and including an extra $50,000.00 working capital. The current cash flow was being prepared on 2 April 1991 "to ensure that the current cashflow crisis can be avoided in future". Still, Mr. Walder did not recommend that CRA should "get out". The writing was very clearly on the wall, even if it was not so starkly evident on 28 February 1991 or 21 March 1991. It is now history that such a crisis was never rectified. The inevitable finally occurred. It was said that Mr. Walder should have taken steps to "get out" after Coopers & Lybrand's report of 26 February 1991 rather than increase the facility, or at the very least, he should have got out by late March or early April 1991 and before any of the many fraudulent invoices were submitted during May when Olympus was undoubtedly desperate in its attempts to survive, a matter which Mr. Roberts had feared in February 1991 was quite likely to happen. Had CRA "got out" by no later than April 1991, it would have avoided the purchase of the large number of fraudulent invoices in May 1991 which constituted the main part of its loss, and even if it suffered losses if it got out at or prior to that time, it probably could have called on the Trade Indemnity Policy because no fraud was involved to that stage. The fraudulent "debts" were not discovered until after the collapse of Olympus (240, 324), which again indicates a less than satisfactory checking system put in place by CRA to protect its own interests, in spite of the fact that warning bells had sounded and were persisting in February 1991 and ever since. The watching "like a hawk" was obviously not sufficient. -- 75 of 111 -- 74 CRA simply continued to factor debts, real or fraudulent, submitted by Olympus to an increased amount well over $200,000.00 and $250,000.00, only 20% of which were said to have been checked as to their authenticity, by the surreptitious method above referred to, until it was too late. Merely checking 20% of invoices submitted by reference to value was obviously not sufficient to check the high likelihood that fraudulent invoices were being submitted, particularly in view of the expressly stated knowledge by Mr. Roberts and Mr. Walder of the high degree of risk of this in fact occurring. In addition, all invoices over $10,000.00 were to be thoroughly checked before they were purchased. Even the 20% checking system, had it been faithfully carried out, was not sufficient and throws doubt on the question of whether of not any of the many invoices purchased during May (most if not all of which were fraudulent), were checked at all before purchase. It was the defendant's case that CRA's actions after 28 February 1991 did not indicate that CRA was acting reasonably in continuing to deal with Olympus after that date. What can be said from the above survey is that after the facility was put in place initially, the relationship between CRA and Olympus appears to have gone along fairly satisfactorily from CRA's point of view for the balance of 1990. All debts factored by CRA for the balance of that calendar year were paid in due course so that nothing done by the defendant can be said to have caused the plaintiff to suffer any loss with respect to those factored debts. Also it clearly appears from all of the evidence that all invoices factored to the end of February were fully paid and indeed, many factored after that date were duly repaid. The debtors' ledger to that point was well maintained and there was no evidence of fraud to that time. Mr. Walder said that there was no trouble with debts factored to the end of April 1991. All invoices factored in respect of which CRA suffered any loss were those purchased after the increase in facility to Olympus to $250,000.00 granted 28 February 1991. As indicated, the main reason for the loss was the fraud committed by Olympus particularly in May 1991. The plaintiff's claim therefore relates to amounts unpaid on invoices factored during the very late stage of its relationship with Olympus and additions to those sums by way of interest and other costs and charges to be referred to below (Exhibit 75). THE ISSUES (i) WAS THE DEFENDANT NEGLIGENT OR IN BREACH OF HIS RETAINER? No distinction was sought to be drawn by Counsel for the plaintiff between the allegations of negligence on the one hand and breach of retainer on the other. For all practical purposes, they were treated as synonymous for the purposes of this case. -- 76 of 111 -- 75 There is no dispute because of the relationship of proximity existing between the parties (and the admissions of the plaintiffs allegations in para. 3/4 of the Statement of Claim) that a relevant duty of care existed at 5 September 1990, even though its precise extent and duration may be open to some doubt. The duty is the same whether the party to whom the valuation is given is a lender in the traditional sense who lends to a borrower on security, or is a factoring company which buys the assets (book debts) of another within certain specified limits, and also with some back-up security. In the absence of special conditions, and whether the duty is contractual or tortious, the defendant's duty to CRA was the same: to take reasonable care to give a reliable and informed opinion of the "Fire Sale" value of the land in question at the date of the valuation: Banque Bruxelles S.A. v Eaglestar Insurance Co. Ltd. [1995] 2 W.L.R. 607 per Sir Thomas Bingham M.R. at 618. His Lordship continued:- "In the ordinary way V (the valuer) does not warrant that the land would fetch on the open market the value he puts on it, any more than a medical practitioner warrants that he will cure a patient of illness. In each case the duty is to exercise a reasonable standard of professional care in the circumstances, no more and no less. It is not, as was argued in United Bank of Kuwait Plc. v Prudential Property Services Ltd., a duty limited to safeguarding L (the lender) against loss amounting to the difference between the overvaluation figure and the true value of the property. The complaint made and upheld against the valuers in these cases is accordingly not that they were wrong. A professional opinion may be wrong without being negligent. The complaint in each case is that the valuer expressed an opinion that the land was worth more than any careful and competent valuer would have advised. V knows that L seeks and obtains his valuation in order to guide him in deciding whether he will lend on the security of the land in question and, if so, how much he will lend. Both of them appreciate that if V overvalues the land L may lend more than he would have been willing to lend if the land had been correctly valued. The valuation is given so that L knows the current value of the land offered as security. The risk both have in mind is the risk that L will either lend when otherwise he would not or that he will lend more than he would be willing to lend on a correct valuation of the land offered as security for the loan. In the absence of special instructions it is no part of V's duty to advise L on future movements in property prices, whether nationally or locally. The belief among buyers and sellers that prices are likely to move upwards or downwards may have an affect on current prices, and to that extent such belief may be reflected by V in his valuation. But his concern is with current value only. He is not asked to predict what will happen in future. His valuation is not sought to protect L against the future decline in property prices. In no sense is he a guarantor of L's investment decision. -- 77 of 111 -- 76 In Hayes v James & Charles Dodd [1990] 2 All.E.R. 815, 818-819, Staughton L.J. distinguished two methods of assessing loss. One he called the 'no-transaction method', the other the 'successful-transaction' method. The first method applies in cases where, if the professional adviser had not advised negligently, there would have been no transaction whether because the buyer would not have bought or the lender would not have lent or because the seller would not have sold or the borrower have borrowed. The second method applies in cases where, if the professional adviser had not advised negligently, there would have been a transaction but on different terms: there would still have been a sale or a loan but at a lower price or of a smaller sum." The plaintiff's case was advanced on the basis that but for the valuation, it would not have entered into the transaction at all and falls within the description of the "no transaction method". In particular, it was alleged that had the valuation come in at below $950,000.00, CRA would have declined to offer the facility to Olympus. There is no evidence of whether, had the valuation come in at somewhat less than $950,000.00, CRA might still have entered into a facility agreement with Olympus but at a sum less than the $200,000.00 sought by Mr. Sullivan. The defendant was asked to provide a valuation as at 5 September 1990 which is the date of his valuation Exhibit 2. The concluding paragraph is as follows:- "VALUATION: We consider 'fire sale' value of the subject property (fee simple in possession), subject to Vacant Possession to be $975,000.00 (nine hundred and seventy- five thousand dollars), as at the 5th September 1990." The defendant emphasised that his valuation was as at that particular date. Whilst the defendant was obliged to take into account as he said he did, the falling state of the market at that time which he reflected in that valuation, it is still a valuation at that date. He did not predict the future. Nor was he asked to predict how long the valuation was likely to remain current. As already indicated, both Mr. Rodney Brett and the defendant referred to the far greater drop in values after 5 September 1990 than were reasonably contemplated even at that date. It was urged on behalf of the plaintiff that the defendant's valuation was so much higher than the valuation performed by Mr. Rodney Brett on 24 December 1991 that this was itself evidence of negligence. Obviously this submission depends upon the view formed as to the merits of each valuation. A valuation may be arrived at in several ways. What is important is the final figure. It is of interest to note that if the true market value (with time to sell) at 5 September 1990 was 1.1 million dollars, of which there was some evidence, being the value on which Mr. Walder and Mr. Roberts relied -- 78 of 111 -- 77 and as Counsel for the plaintiff contended as a basis for criticism of Coopers & Lybrand's conclusion that Olympus was insolvent as at 30 June 1990 (Exhibit 9), and if it be accepted that the 10% overall discount was appropriate to arrive at a fire sale value, this would have produced a net figure of $968,000.00, which is still in excess of the minimum of $950,000.00, which Mr. Roberts said was necessary before the plaintiff would have entered into the contract with Olympus if selling costs and commission are ignored. In such a case, it would have been difficult to conclude that the defendant was negligent. However, this was not the approach adopted by the defendant. Both valuers said that they adopted what was called the summation method which is one proper method, i.e. by adopting a value of the land and separately adding thereto a value of all of the improvements, having first taken into account all of the potentialities and all of the disadvantages of both land and improvements, as well as the downward movement in prices at the date of the valuation. A document Exhibit 88 was admitted by the defendant to be the approach he adopted to his valuation. The method of valuation of Mr. Rodney Brett contained in Exhibit 14 was elucidated during his oral evidence. Both valuations may be compared as follows. Rodney Brett The defendant Improvements $489,000.00 $476,980.00 Land $325,000.00 $495,000.00 Market value $814,000.00 $971,980.00 less 33_% rounded off to Fire sale value $550,000.00 $975,000.00 Exhibit 88 shows that the defendant valued the land as two separate blocks at $275,000.00 each totalling $550,000.00 from which he deducted a 10% figure of $55,000.00 giving the above land value at $495,000.00. He did not deduct 10% from the value of the improvements. Had he done so, a further figure of $47,698.00 would have been deducted, thus giving his "Fire Sale" value of the order of $927,302.00 or perhaps rounded off to $930,000.00. On Mr. Roberts' evidence, CRA would not have entered into the facility had that been the valuation. It was said that the defendant varied his evidence at different stages and was unreliable. Having observed him in the witness box and notwithstanding that there may have been one or two superficial inconsistencies, I do not accept that this was generally the case or that it provides a basis for rejecting his -- 79 of 111 -- 78 evidence in favour of that of Mr. Rodney Brett. The defendant appeared to be very cooperative and readily responded to any questions put to him. He even volunteered certain matters against his interests before he was asked. Whilst he appeared to agree with propositions put to him at various stages, I formed the clear opinion that his real views were not always as superficially conceded, having regard to all of his evidence. One obvious example concerned the appropriate discount from market value. He said that an appropriate discount on the whole property was in the order of 10-12% although he was later prepared to concede that it could be as high as 15% but no more. His real opinion, which he stated at the outset was that a discount in the order of 10% or very little more was appropriate. Also, whilst disagreeing with the approach with Mr. Rodney Brett in certain material particulars, the defendant nevertheless gave the impression that he was anxious to avoid as far as possible a serious conflict with his colleague. One example of this relates to his estimate of $150,000.00 as the maximum cost of a notional subdivision of the subject land into two subdivided lots, including holding charges. That figure seems very excessive and when closely analysed, appeared to be the defendant's way of bringing his land value of $495,000.00 back somewhere nearer to the valuation adopted by Mr. Rodney Brett, given that their valuations of improvements were very similar. Notwithstanding the foregoing, I found that the defendant's approach to the valuation, i.e. his reference to comparable sales and all other relevant factors pertaining to the property including improvements thereon, was competently carried out. I consider that he was honest and reliable in his evidence overall. There is no acceptable evidence that he in particular or valuers in general were required to search the title deed of the subject property for the purpose of ascertaining whether there were any other mortgages on the property in order to ascertain whether or not that would affect the value he put on it. This having been said however, the defendant freely conceded that he made two fundamental errors in his approach to the valuation, quite apart from any differences of opinion otherwise existing between himself and Mr. Rodney Brett:- 1. He deducted 10% off what he held to be the market value of the land but did not use the same deduction off the value of improvements which he admitted he should have done, in order to arrive at a true overall "Fire Sale" value. 2. He valued the land, consisting as it does of one large undivided block, as if it comprised two separate subdivided allotments, and discounted the combined total by 10%. -- 80 of 111 -- 79 The latter error obviously did not take into account the fact that a value of an undivided larger allotment, comparable in all other respects with two smaller allotments which together make up an equivalent size, would not be of a value consisting of the combined total of two subdivided allotments. His evidence showed that there would be subdivision costs, holding charges and the like which as indicated, would necessarily affect the valuation. It does not matter what the precise figure would be with respect to those notional costs, but in my opinion, they would be far less than $150,000.00. Much was made of the fact that the defendant relied upon a sale in 1989 of 1.25 million dollars of a much larger block with significant improvements, including tennis court, swimming pool etc. However, I accept his evidence that he relied on that sale only in a general way to support his final conclusion otherwise arrived at. It was a relevant sale, in spite of the submissions on behalf of CRA that since 1989, property values had declined. I do not consider that some of the criticisms levelled at the defendant's use of that sale were justified. Nor do I consider that the defendant's valuation of 5 September 1990 can be criticised by comparing his second valuation on 12 June 1991 (Exhibit 10) with the subsequent two abortive mortgagee auctions as submitted. The defendant conceded that his valuation of both the land and the assets should have been less by the further amount of 10% of the value of improvements of $47,698.00. Without having the precise figures before him in the witness box, he said (385) that this would have given a fire sale value of approximately $880,000.00. As indicated, the figure would have been of the order of $927,322.00. In cross-examination, he said that having regard to Rodney Brett's evidence, the value of the land should have been around the $350,000.00-$400,000.00 (i.e. his valuation of $495,000.00 less a figure of up to $150,000.00 holding charges). His view in the end was that the valuation should range between $750,000.00-$880,000.00. Mr. Rodney Brett formed his valuation of $550,000.00 on 24 December 1991 (Exhibit 14). He had the benefit of two unsuccessful mortgagee auctions conducted by CRA after Olympus collapsed. These occurred on 20 July 1991 and 19 October 1991. There were no bids at the first auction and the second auction resulted in the highest offer of $595,000.00 subsequently increased to $650,000.00. The property was ultimately sold in November 1992 by the bank as mortgagee in possession exercising its power of sale, for $510,000.00. Property values had continued to slump over the intervening period, accelerated in this case by the long period this property had been on the market for sale, the two abortive auctions in 1991, and its presentation as a sale by a mortgagee in possession. -- 81 of 111 -- 80 I have carefully considered the evidence of both valuers and the sales information on which each relied. Mr. Rodney Brett freely conceded that he had never previously been asked to perform a valuation of a property on a 30 day sale (165-166), whereas the defendant had performed many such valuations for CRA (and probably for others), and had never before been called into question. Indeed, Mr. Rodney Brett also said that he did not regularly do finance valuations (150). Mr. Rodney Brett did not take into account that there was a park nearby which was an advantage, nor did he refer to the above sale on which the defendant relied. It is true that Mr. Rodney Brett was not cross-examined in relation to that particular sale by Counsel then appearing for the defendant. This sale arose during the defendant's evidence when he was not represented. As indicated, the defendant relied upon it in a general way and it is in my view of some relevance in arriving at the valuation at 5 September 1990. I do not propose to ignore it. It was contended by Counsel in submissions (21) that the rule in Browne v Dunn rendered the defendant's evidence in this regard inadmissible. I reject this submission. At p.381 of the transcript, it was made clear to Senior Counsel for the plaintiff that he should consider his position. It was up to him to decide whether he wished to have the opportunity of calling evidence in relation to it. In the end it was left on the basis that it would be a matter for submissions. Leave was not sought to recall Mr. Rodney Brett. Both valuers correctly said that the matter of valuation was clearly one of impression and opinion. The defendant was very impressed with the property with its tennis court, pool, totally separate living quarters, the large size of the block, its position with a very good view and other advantages, whereas Mr. Rodney Brett, who placed emphasis on the three bedroomed home and little emphasis on the separate guest quarters, pool and tennis court, was not so impressed. The defendant said that Mr. Rodney Brett had the benefit of hindsight with respect to the two abortive mortgagee auctions. Having considered all of the evidence generally, I formed the impression that this probably did have some impact even unconsciously in the approach of Mr. Rodney Brett, notwithstanding his evidence on this aspect. As indicated earlier, the market value of $814,000.00 arrived at by Mr. Rodney Brett was substantially lower than the market value arrived at by the defendant and substantially lower than a valuation of 1.1 million dollars said to have been the subject of a sworn valuation by the bank and relayed to Mr. Walder and Mr. Roberts via Mr. Sullivan and on which they obviously acted and relied at -- 82 of 111 -- 81 least as at 31 August 1990 (Exhibit 16). As indicated, this was also the approach of Counsel for CRA during addresses when criticising the validity of Coopers & Lybrand's report as to the insolvency of Olympus as at 30 June 1990. In my opinion, the market value was considerably higher than $814,000.00 as at 5 September 1990. The next question involves the considerable disagreement as to the appropriate discount rate. Both valuers agreed that market value already took into account the advantages and disadvantages of the property. Mr. Rodney Brett asserted that a discount of 33_% was necessary to arrive at a fire sale value. Having considered his evidence on the point as well as that of the defendant, and having regard to the relative experience of both valuers in this particular type of valuation, I prefer the evidence of the defendant and conclude that a discount of 33_% was far too high. In the result, I find that the fire sale valuation of $550,000.00 arrived at by Mr. Rodney Brett by his valuation dated 24 December 1991, was far too low. It was in fact very little above the sale price of $510,000.00 eventually achieved by the bank as mortgagee in possession exercising its power of sale in November 1992, over two years after 5 September 1990, during which period there was a further very significant decline in value. Furthermore, his valuation was even $100,000.00 less than the best offer of $650,000.00 offered at the mortgagee auction on 19 October 1991. Whilst the Court may reject both valuations and come to its own conclusion, the Court is not bound to fix its own valuation as at 5 September 1990: Knight v Rosshaven Marine Pty Ltd [1993] 2 Qd.R. 161. Having said that, I am persuaded that the defendant's range of valuations, and in particular those in the range of $800,000.00-$880,000.00 are nearer to the mark, although I do not find it necessary to finally determine that question. It follows that I do not accept Mr. Rodney Brett's valuation. However, the defendant's valuation of $975,000.00 was tainted by his failure to exercise care in the two significant respects which I have identified. I do not find that the other matters raised by CRA as allegations of negligence by the defendant have been established. In the result, the defendant was negligent in the valuation he performed and also in breach of his retainer. -- 83 of 111 -- 82 (ii) RELIANCE BY CRA IN ENTRY INTO THE FACILITY ON 28 SEPTEMBER 1990 (EXHIBIT 3) Both Mr. Roberts and Mr. Walder repeatedly stated that CRA relied on the defendant's valuation of 5 September 1990 in entering into the facility with Olympus on 28 September 1990 (Exhibit 3). They have asserted that CRA would not have entered into the facility at all had the valuation come in at below $950,000.00, which was necessary in order to give them "fat" of at least $200,000.00 to cover the full extent of the proposed facility. According to them this was to ensure 100% real property security throughout the duration of their dealing. Various qualifications have been mentioned above in relation to these assertions. It is clear that Mr. Roberts and his fellow directors relied on all eight conditions contained in Exhibit 16 as essential, including a meaningful Bill of Sale over the boat which was not in fact obtained. He said that if any one condition was not complied with the deal should simply not have gone ahead. Mr. Roberts also relied on the state of information presented to him which, as already indicated, was deficient in several material respects set out above and which need not be now repeated. Notwithstanding Mr. Roberts' evidence that when he granted the approval on 31 August 1990, he believed that CRA had an "equity" of $350,000.00 based on figures which had nothing to do with the defendant, he was in possession of Mr. Walder's memorandum dated 7 September 1990 (Exhibit 18) which referred to the defendant's valuation indicating an "equity" of $225,000.00. In these circumstances, it cannot be said that CRA did not also rely on that valuation at least to some extent in entering into the facility agreement (Exhibit 3) on 28 September 1990, even though he also relied on various other material matters including incorrect information. Reliance in the relevant sense has been established. (iii) DID CRA CONTINUE TO RELY ON THE VALUATION WHEN IT EXTENDED THE FACILITY TO $250,000.00 ON 28 FEBRUARY 1991? Mr. Roberts said three times in evidence that the reasons for approving the increase in the facility was because of the security held in the boat and the real property security. However, it clearly emerges from the evidence of both Mr. Roberts and Mr. Walder that they placed considerable reliance upon what they said was their experience with Olympus to that time. The debtors's ledger had been maintained in excellent condition. There was no suggestion of fraud to that time even though it was always said to be a risk from the outset and particularly from that time forward. CRA obviously earned satisfactory profits to that time. -- 84 of 111 -- 83 Of significance was the fact that the increase in the facility from $200,000.00 to $250,000.00 removed any alleged surplus or "equity" in the land which was then below $200,000.00, contrary to CRA's emphatically stated policy and quite apart from the erosion of any such equity by commission and selling costs if a sale became necessary, and bank charges and interest if that caused the debts to the bank to exceed $750,000.00 priority. Furthermore, the land had diminished in value by that date as Mr. Roberts and Mr. Walder either knew or ought to have known. CRA came to its own independent decision and virtually ignored Coopers & Lybrand's report of 26 February 1991 (Exhibit 9) in its decision to extend the facility rather than to reduce or eliminate exposure as Coopers & Lybrand very strongly urged. Mr. Roberts sought to explain away part of that report by saying that Coopers & Lybrand did not know of the "security package" CRA was holding and which Mr. Roberts (wrongly) believed was in place and effective. This has been rejected above. See also Exhibit 31. CRA quite deliberately went outside its own constantly asserted guidelines of a minimum of 100% real property security and compliance with many of the eight previously stated conditions in Exhibit 16 quite apart from any knowledge they had as to real property values. No independent valuation was obtained; no separate bank opinion was obtained; and Mr. Roberts relied upon his belief that there was a security taken over the boat which, from his evidence at p.60, appeared to be his main reason for approving the increase, along with CRA's experience of Olympus' performance to that time. Apparently both Mr. Roberts and Mr. Walder were impressed with Mr. Sullivan's optimism about his trading and prospects. He was obviously persistent and very persuasive. CRA was prepared to take a risk and wanted to help out Olympus as far as it could, as well as to hopefully earn further profits. On all of the evidence, I have come to the firm conclusion that CRA did not rely at all on the defendant's valuation of 5 September 1990 when it approved the increase to Olympus on 28 February 1991 or from this time forward in its dealings with Olympus. Any reliance on the valuation of 5 September 1990 had long since subsided and disappeared. In addition, the defendant's negligence on 5 September 1990 was far too remote. In any event, any suggested reliance at that time or subsequently was unreasonable in the circumstances. It defies commonsense to assert that the defendant's negligence endured forever on which CRA could rely indefinitely and blame the defendant for all consequences of its own conduct. I am also of the view that it was not reasonably foreseeable as at 5 September 1990 that CRA, on 28 -- 85 of 111 -- 84 February 1991, would extend the $200,000.00 facility by 25% to $250,000.00, in breach of its own guidelines, and without an updated valuation in a falling market and particularly in spite of strong advice by its auditors to reduce, rather than increase its exposure to Olympus. Nor in all of the circumstances was the possibility of CRA acting in a negligent fashion in February 1991, foreseeable as at 5 September 1990 by a reasonable valuer in the position of the defendant and more so given the actual knowledge by the defendant of CRA's business and affairs which CRA asserted should be inferred and which has been inferred above. All of the plaintiff's losses occurred well after 28 February 1991. However, in view of the conclusions reached on causation, remoteness of damage, and contributory negligence, it is not necessary to further consider the consequences of the above findings. (iv) CAUSATION This is an area which causes considerable difficulty for CRA. There is a substantial degree of overlap under various issues. It is said that the applicable principles of law are clear but their application may be more difficult than ever: AWA Ltd v Daniels (supra) per Rogers CJ. at 992. See also March v E. & M.H. Stramere Pty Ltd (1991) 171 C.L.R. 506, and Galoo Ltd (in liq.) v Bright Grahame Murray (a firm) and Anor [1995] 1 All E.R. 16, a case dealing with a claim both in contract and tort as is the present. The English Court of Appeal adopted the approach in March (supra) and Alexander v Cambridge Credit Corp Ltd (1987) 9 N.S.W.L.R. 310 and applied the same test of causation to both claims, following agreement of both parties that the principles as to liability were the same (at p.24). This is the approach of CRA in the present case. It was urged on behalf of CRA that from a commonsense point of view the damages claimed were caused by the defendant's initial breach of contract or breach of duty of care. Whilst conceding that the "but for" test is not a definitive test of causation, it was correctly stated that the cause of a particular occurrence is a question of fact which must be determined by applying commonsense to the particular facts of a case: March (supra) per Mason C.J. at 515, applying the words of Lord Reid in Stapley v Gypsum Mines Ltd [1953] A.C. 663 at 681. As appears in the above authorities, the provisions for contributory negligence have had an impact on the development of the law in this area. See also Bennett v Minister of Community Welfare (1992) 176 C.L.R. 408 per Mason C.J., Deane, Toohey JJ. at 413 per Gaudron J. at 418-9, per McHugh J. at 428. -- 86 of 111 -- 85 Nevertheless, it is accepted that if there is one of two causes, both cooperating and both of equal efficacy in causing loss to the plaintiff, the party responsible for the breach is liable to the plaintiff for that loss: Chitty on Contracts, 23rd ed. at para. 1448, as referred to in Simonius Vischer v Holt and Thompson [1979] 2 N.S.W.L.R. at 322 per Samuels J.A. with whom Moffitt P. and Reynolds J.A. agreed,and as adopted by Rogers CJ. in AWA Ltd v Daniels (supra). The N.S.W. Court of Appeal in Simonius Vischer at 346 said that the defendant's argument must show that the plaintiffs' lack of care was the sole cause of the loss to the exclusion of any causative influence asserted by the defendants' breaches. It is not in all cases that losses suffered by a plaintiff following a defendant's negligence were held to have been caused by the negligence. In Alexander (supra), the N.S.W. Court of Appeal found that the plaintiff failed because the cause of its losses were from trading and not from the negligence of its auditors in failing to note in certain balance sheets and other accounts certain provisions which should have been made; in Galoo Ltd (supra) the English Court of Appeal held that the plaintiff's claim failed because its losses flowed from the use made of loan money and not from the fact that it had merely entered into a loan agreement as a result of the negligence of its auditors; in Stafford v Conti Commodity Services Ltd. [1981] 1 All E.R. 691 Mocatta J. held that an investor, who was given advices by a broker dealing in an unpredictable commodities market, usually made his own investment decisions such that his losses were not caused by the defendant's bad advice. That decision was adopted with approval by Rogers J. in Lloyd v Citicorp Australia Ltd. (1986) 11 N.S.W.L.R. 286 at 288. His Honour dismissed a claim by a plaintiff against a lender whose duty it was to monitor a loan and advise the borrower on foreign currency matters. Whilst it is clear that the Courts are no longer constrained as they previously were to find a single cause for a consequence or to adopt the "effective cause" formula because of the apportionment legislation: per Mason C.J. in March (supra) at 513, nothing has been said in that case or other authorities to the effect that where the defendant's negligence is a pre-condition to a consequence or the occasion of a consequence resulting in injury to the plaintiff, that negligence must automatically be held to be a cause of that injury. Nor do these authorities prevent a finding that the plaintiff's negligence alone was the sole real cause of its losses. Deane J. in March (supra) at 524 said:- "The other further matter is that it should be apparent that nothing in what is written above should be read as indicating a view that a plaintiff is entitled to recover -- 87 of 111 -- 86 compensation under apportionment legislation in circumstances where his or her own negligence was, as a matter of ordinary common sense, the sole real cause of the accident. Even under apportionment legislation, it is an element of the tort of negligence that the injury sustained by the plaintiff be caused by the defendant's breach of duty. In a case where, as a matter of ordinary common sense, the 'sole' cause of the plaintiff's injury was his or her own negligence, that element of the tort will be lacking." His Honour earlier cited with approval the statement by Lord Reid in Stapley (supra) at 681 as follows:- "One must discriminate between those faults which must be discarded as being too remote and those which must not. Sometimes it is proper to discard all but one and to regard that one as the sole cause, but in other cases it is proper to regard two or more as having jointly caused the accident. I doubt whether any test can be applied generally." Counsel for the plaintiff relied on the earlier case of Trade Credits v Baillieu Frank Knight (N.S.W.) Pty Ltd. (1985) Aust. Torts Rep. 80-757 per Clarke J. at 69534-5. His Honour adopted a passage from the English Court of Appeal decision in J.E.B. Fasteners Ltd. v Marks, Bloom & Co. [1983] 1 All E.R. 583 at 588 per Stephenson L.J. His Lordship held that whilst the trial judge was justified in finding that the defendant's negligent misrepresentation did not cause the plaintiffs to act in a way which caused them to suffer loss, he was of the opinion that that finding was inconsistent with the finding that the plaintiffs relied upon the accounts in the sense that the plaintiffs were induced by the misrepresentation contained in the accounts to take over the company. His Honour applied the words of Sir Robert Megarry V.C. in Ross v Caunters [1980] Ch. 297 at 313 as follows:- "In this type of case, reliance forms part of the test of liability, as well as part of the chain of causation..." In the result, the Court of Appeal disapproved the reasons of Wolfe J. but upheld His Honour's decision because of the finding that the accounts had not to any material degree affected the plaintiffs' judgment in deciding to take over the company as a result of which the plaintiffs suffered considerable financial loss. Stephenson L.J. held that the misrepresentation had to play a real and substantial, although not necessarily decisive part in inducing the plaintiffs to act if it was to be a cause of the loss. The facts in Trade Credits are quite different to those now before the Court. That decision is not contrary to the approach which should be taken in this case. As indicated, all of the plaintiff's losses occurred very late in its relationship with Olympus and well after 28 February 1991. In addition, a great deal of its losses occurred as a result of the fraud of Olympus which got past any checking system which CRA should have had in place to prevent such a -- 88 of 111 -- 87 occurrence, and as a result of its own negligence (see below). This fraud by Olympus was said to have deprived CRA of any recourse it had to the Trade Indemnity Insurance Policy. Mr. Walder said that the fraudulent invoices were not discovered until CRA's investigation of Olympus after it was wound-up (240,324). CRA sent notices (of assignment) under cls.18 of Exhibit 3 to all debtors whose debts had been factored and which remained owing to CRA at winding up. As indicated above, it is a reasonable inference that those notices also were sent to "debtors" the subject of Olympus' fraudulent invoices. But whether this was so or not, it does not affect the ultimate result of this case. Mr. Walder said (240), that Mr. Sullivan raised an invoice for a job that had not been started. According to Mr. Walder, Mr. Sullivan had been out, looked at a job, obtained the approval to quote, did a quote and then raised an invoice for the amount of that quote and factored it to CRA who purchased it without discovering the fraud. He said that "in certain instances we found out, because Mr. Sullivan worked out our procedures, he had in fact told the persons that he was quoting that they would probably get a call from a firm of accountants and, if his accountants rang them, just to tell them that it would be okay". Mr. Walder gave only one illustration of a job quoted to Conius Apollo at Jindalee or Toowong which is probably the debt of $20,000.00 shown as owing and unpaid at the end of May 1991, Exhibit 94. Mr. Walder described CRA's method of using Venn Milner & Company, accountants and auditors to make their surreptitious enquiries (248-249). He said "the girls telephone the debtors direct and advise them that they are doing audit checks (for Olympus) on outstanding debts and seek their confirmation, one, that the work is done and completed and, two, that it is a valid and enforceable invoice". At 249 he said "they telephone that debtor under the auspices of Venn Milner & Company and they ask him to confirm one, do they have the invoice, two, has the work been completed and, three, verify that the amount is payable" (emphasis added). Mr. Walder said (248-9) that he had verification forms in the file in Court with him regarding the checking by the staff of Venn Milner & Company of the 20% sample of invoices tendered by Olympus to CRA for factoring. He then said (249) that the forms were not there. This problem was adverted to again (251). He said that there were "three at least" verification forms. They were not produced in Court. If there were only three such forms, over the life of the relationship, it hardly demonstrates a degree of care by CRA before it purchased debts of Olympus (real or fictitious). -- 89 of 111 -- 88 In any event, it is difficult to see how any such checking system, even of 20% of batches of invoices tendered for factoring, during which Mr. Walder said that the above specific questions were asked of the debtors, would have failed to discover fraud in some cases at least. Either Mr. Walder's staff failed to ask the specific questions which he said were asked (and would have been negligent for not doing so), or the debtors, if those questions were asked, were surprisingly prepared to mislead Mr. Walder's staff notwithstanding that the debts did not exist, with an answer along the lines that "it would be okay". Why they would admit that the debts were due and owing when they were not, is impossible to imagine. All of this points to a failure by CRA to have in place an effective checking system or a failure to carry it out properly if it existed at all, as a result of which the bulk of its losses were incurred. This is all the worse because both Mr. Walder and Mr. Roberts knew of the real possibility of fraud from February 1991 onwards and even more so because Mr. Walder must be taken to have known that Olympus was in extremis, certainly by no later than March/April 1991 (see e.g. Exhibit 73 of 4 April 1991). CRA was clearly negligent in purchasing these fraudulent invoices and in not closely monitoring the Trade Indemnity Policy, which was one of the essential conditions for entry in the facility in the first place (Exhibit 16). Mr. Roberts required it to be closely monitored to ensure that Olympus complied with its strict terms. Reference has been made already to Exhibit 22 in this regard. Had this been done, CRA would probably have suffered no loss at all because of its ability to have recourse to that policy. Indeed, had CRA "got out" in February 1991 or in March or April 1991, to which time there had been no fraud committed by Olympus on CRA, CRA could probably have had recourse to the Trade Indemnity Policy (see Exhibit 22 dated 21 March 1991). As indicated, there is no acceptable evidence from the insurance company or otherwise as to the status of CRA's rights if any with respect to valid and enforceable debts factored to at least up to the end of April 1991, which Mr. Walder said in effect were all correct. In the state of the evidence it is not possible to be entirely confident in this one way or another. However, this does not excuse CRA for not closely monitoring Olympus' performance to ensure that no such frauds or breaches were committed under the policy. As already pointed out, the comparison of figures in the Coopers & Lybrand's report of 26 February 1991 shows that Olympus was progressively failing notwithstanding the unaudited figures which later appeared to the end of February 1991 in the form of Exhibit 22. Mr. Roberts and Mr. Walder were well aware of the serious financial plight of Olympus in February 1991 yet ignored the -- 90 of 111 -- 89 recommendations by Coopers & Lybrand in their report of 26 February 1991 (Exhibit 9) to reduce its exposure. Instead CRA increased it. There were at best quarterly checks with the bank by Mr. Walder's staff which was contrary to the express requirements of Mr. Roberts who required the account to be watched very closely from 28 February 1991 (see Exhibit 21). In that facsimile Mr. Walder said that he was watching the account "like a hawk" and that monthly P & Ls were to be provided with group tax and PPS receipts. As indicated above, there were no monthly profit and loss accounts provided. Mr. Roberts' requirement that Mr. Walder closely watch all aspects of Olympus' performance and in particular the various matters raised in Coopers & Lybrand's report, obviously were not carried out or not effectively carried out. To my mind, the losses the plaintiff suffered very late in its relationship with Olympus were caused by the almost intractable desire of CRA at the instance of Mr. Walder and of Mr. Roberts, following optimistic assurances from Mr. Sullivan, to continue factoring invoices tendered by Olympus after 28 February 1991 in spite of the severe warnings against this course in Coopers & Lybrand's report of 26 February 1991 (Exhibit 9) and in spite of an objective view of Olympus' position which could clearly have been undertaken by CRA at that time. It was not justifiable for CRA to dismiss Coopers & Lybrand's report as virtually irrelevant. There was no fresh valuation undertaken, there was no independent trade reference report or bank report, there was no satisfactory monitoring of all debts $10,000.00 or above prior to purchase, the security held did not in fact reach the minimum of 100% and there was no Bill of Sale over the boat. These were all conditions which CRA asserted were essential before entering into the facility in the first place. I reject any suggestion that CRA could not have "got out" in a timely way had it wished to do so. Mr. Roberts, notwithstanding that he was alarmed at Olympus' situation and foresaw considerable danger, wanted them to continue to trade. He wanted to "help them out" and he "hoped they'd get out of their problems" and that he did not wish to put Olympus out of business. Mr. Walder's conduct showed that he was endeavouring at all times to accommodate Olympus by increasing the facility even above $250,000.00. Various other facts have been mentioned earlier in these reasons. Suffice to say that by 28 February 1991, any operative effect of the defendant's negligent valuation of 5 September 1990 had subsided and had been superseded by virtue of CRA's perceived relationship with Olympus, and its -- 91 of 111 -- 90 burning desire to continue trading with them, having regard to their opinion that the debtors' ledger was in very good condition. A close examination of the English Court of Appeal decision in Banque Bruxelles Lambert S.A. (supra) does not reveal any assistance to CRA, even though it was a "no transaction" case. It was held that because the plaintiff in that case would not have entered into the transaction after the negligent valuation, all of the losses which flowed thereafter, including losses due to the drop in value of the real estate security, were recoverable as not being too remote and were sufficiently linked to the breach of the particular duty involved. It was held that that particular loss was caused by the negligence of the defendant. In applying the test by Deane J. in March at 522, the question is whether "an identified negligent act or omission of the defendant was so connected with the plaintiff's loss or injury that, as a matter of ordinary commonsense and experience, it should be regarded as a cause of it". In my opinion, to so conclude is the very antithesis of commonsense on the facts of this case. As Mason C.J. pointed out in March (supra) at 512, "there will be some cases in which a Court concludes that a pre-condition does not play such a part in the consequence that it deserves to be characterised as a cause". This is clearly such a case. In the result, the plaintiff's claim fails on this basis alone under both contract and tort. (v) REMOTENESS OF DAMAGE Should I be wrong in the conclusion on causation, the question of remoteness of damages must be considered. Again there is considerable overlapping. The plaintiff must prove the extent of its loss. In contract the issue of remoteness of damages is whether a particular loss was within the reasonable contemplation of the parties: Galoo Ltd (supra) at 20, Chitty on Contracts, 26th ed., para. 1785. In tort, the plaintiff is entitled to damages for the kind of loss as the reasonable man should have foreseen. If the damages were not reasonably foreseeable, they would probably not have been within the reasonable contemplation of the parties. If the loss of the kind suffered was reasonably foreseeable, it is immaterial in tort that the extent of the damage was not: Banque Bruxelles S.A. v Eaglestar Insurance Co. Ltd. (supra) at 620. Mason C.J. in March (supra) at 510, referred to a passage from Chapman v Hearse (1961) 106 C.L.R. 112 at 122 as follows:- -- 92 of 111 -- 91 "[T]he term 'reasonably foreseeable' is not, in itself, a test of 'causation'; it marks the limits beyond which a wrongdoer will not be held responsible for damage resulting from his wrongful act." The Chief Justice referred to a passage in Mahoney v Kruschich (Demolitions) Pty Ltd (1985) 156 C.L.R. 522 at 528 where the Court said that a line marking the boundary of damage for which a tortfeasor is liable in negligence may be drawn either because a relevant injury is not reasonably foreseeable or because the chain of causation is broken by a novus actus interveniens. It was emphasised that it must be possible to draw such a line clearly before a liability for damage that would not have occurred but for the wrongful act or omission of a tortfeasor and that is reasonably foreseeable by him, is treated as the result of the second tortfeasor's negligence alone. Whether such a line can and should be drawn is very much a matter of fact and degree. Both the defendant and CRA knew that market prices might fluctuate and that if on the strength of the defendant's valuation CRA entered into the transaction which it would not have otherwise entertained, its risk of a loss would be increased if the market moved downwards: Banque Bruxelles S.A. (supra) at 620. As indicated, property values continued to slide downwards from 1990 and right up to the sale by the bank in November 1992. Any loss which CRA might suffer as a result of the drop in property values was, according to that authority, foreseeable and not too remote, although it should be mentioned that Mahoney J.A. in Alexander (supra) appeared to have considered external economic factors and policies of successive governments resulting in a collapse of real property values. In that case, His Honour held that the plaintiff's losses flowed from trading and not from any negligence of the auditors. However, for present purposes, I am prepared to assume that any loss suffered by CRA which may be attributable to the fall in the real property market, was foreseeable and not too remote. As indicated, CRA simply claims all losses which it occurred on the basis that it would not have entered into the facility in the first place had the valuation been competently performed. It has been contended for CRA that the main cause of its losses were the fraudulent or non- existent debts sold to CRA particularly in May 1991. Unfortunately these have not been identified. The balance of the ledger owing at winding up was $200,710.76 (Exhibits 28, 75). This must mean that more than one-half of that sum and possibly much more of it resulted from the fraud of Olympus. It also means that a large proportion of the interest charged on that sum as appears in Exhibit 75 relates to those fraudulent "debts". It cannot safely be inferred that the fraudulent debts comprise the sum of $152,502.80 as appears in Exhibit 94. -- 93 of 111 -- 92 It is difficult to see why CRA made no attempt whatever in spite of requests throughout the trial to isolate and identify such fraudulent debts which, it might be thought, was an easy exercise for it. In my opinion, the defendant has rightly complained about this. It appears that CRA has chosen not to isolate and identify those debts, taking the stand that it was up to the defendant to disentangle any such matters. The Defence in para. 8(bb) raises such an issue. It is difficult to see how a defendant could reasonably discover those details. The question of fraudulent debts was raised as a substantial issue during the plaintiff's case itself and has relevance to the question of whether the plaintiff has proved the extent of its losses. This depends upon whether or not it can be said that losses to CRA due to the fraud of Olympus and which escaped any checking system in place by CRA and which was due to CRA's own negligence, was reasonably foreseeable at 5 September 1990. Counsel for CRA relied on the long history of dealings between Mr. Walder and the defendant in support of the submission that the defendant knew the nature of CRA's business and the terms of the facility agreement (Exhibit 3). This was positively advanced in the written submissions but during oral argument, Counsel for CRA did not press the particular submission that the defendant actually knew of the contents of the facility agreement (Exhibit 3)(460), even though there was some basis for drawing an inference that the defendant was probably aware of some of its terms. Nevertheless, it has been held above that the defendant would have at least been aware generally of the nature of the factoring business and probably that CRA would have in place a checking system to verify all debts offered by Olympus before they were factored by CRA. "Debts" mean just that - legally enforceable debts and not things that were not debts at all. He was also probably aware of the extent of the security required by CRA and of the rights of CRA to repurchase debts which were overdue and which CRA had previously factored. The defendant would also have been aware of the ordinary risks involved which CRA might experience if Olympus, due to the decline in its business activity and its financial position generally, was unable to repurchase those debts. In such an event, assuming that CRA could not have had recourse to the Trade Indemnity Policy, it was foreseeable that CRA would suffer economic loss if it called up the security which proved of no value because of an overvaluation by the defendant. As indicated earlier, I am not prepared to infer that the defendant actually knew of the possibility of fraud by Olympus on CRA or that any such fraud would be likely to get past CRA's checking system or that CRA, which factored debts, would be likely to negligently allow this to occur. Indeed, his actual knowledge would probably be to the contrary, i.e. that CRA factored only valid debts and was careful in -- 94 of 111 -- 93 the conduct of its affairs. However, even though actual knowledge or lack of it by the defendant is not an irrelevant consideration, it is not determinative of the question of whether or not a reasonable man in the position of the defendant would have foreseen at 5 September 1990 the possibility of damage occurring in this way. It is perhaps a stronger pointer to the view that such damages were not within the reasonable contemplation of the parties for the purpose of a claim based on contract. As indicated above, the plaintiff can recover damages in tort for the kind of loss as a reasonable man in the position of the defendant would have foreseen on 5 September 1990. There is no doubt that it was foreseeable that if the defendant was negligent, CRA might suffer what may broadly be decided as economic loss. The question then is whether damages which flow from the fraud of Olympus and the negligence of CRA allowing it to occur, constitute damages of the same kind as that which is reasonably foreseeable. Several authorities (not on all fours with the present), illustrate that not all losses flowing to a plaintiff after a negligent act by the defendant are necessarily losses of the same kind as that to which the plaintiff is entitled in damages. See for example the authorities referred to in the article headed "Forseeability in relation to negligent infliction and nervous shock" by McDonald & Swanton in 1995, vol 69 A.L.J. 945 and following. Furthermore, it is not in every case where fraud of the borrower which causes loss to the lender can be sheeted home to the negligence of the defendant. In Banque Financiere Delacite S.A. v Westgate Insurance Co. Ltd. [1991] 2 A.C. 249, which was applied by Phillips J. in Banque Bruxelles Lambert S.A. v Eaglestar Insurance Co. Ltd. (unreported, 21.12.93), the unforeseeable fraud of the borrower was understandably held not to have been caused by any negligence of the underwriters. The loss suffered by the banks which made the loan, was caused not by the underwriters' conduct but by the unforeseeable fraud of the borrower who was the bank's customer. The action was brought against the underwriters whose agent misled the banks into believing that insurance policies were in force at a stage when they were not, and which resulted in the loans being granted. Even had insurance policies been in force, the fraud exception would have prevented the banks recovering under the policies. The case is not on all fours with the present. The present case is also not on all fours with that dealt with by the Full Court in Thorpe Nominees Pty Ltd v Henderson and Lahey [1988] 2 Qd.R. 216. The Court held that the defence of novus actus interveniens was not open to the appellants who were the respondents' accountants and financial advisers, because of the intervention of the second respondents who were the first respondents' -- 95 of 111 -- 94 solicitors and who had acted for it in the settlement of the loan transaction advised by the appellants. It was held that the solicitors' intervention was not only very likely, but was in fact intended by the parties. It was therefore held that the negligence by the solicitors in the performance of their duties was reasonably foreseeable. There are also other authorities, often cited with respect to other aspects of the tort of negligence, which held that a defendant should foresee the possibility of inadvertence by the plaintiff or even contributory negligence by a plaintiff, which might cause loss to the plaintiff from this cause, particularly where the defendant's negligence has rendered such inadvertence or contributory negligence likely or at least possible: King v Stewart (Court of Appeal New South Wales, 19 December 1994, unreported) per Kirby P., citing Bus v Sydney County Council (1989) 167 C.L.R. 78 at 90; Mclean v Tedman (1984) 155 C.L.R. 306 at 311; March v Stramere. In one sense, the defendant's negligence has made it possible that a fraud might be committed on CRA and that CRA might be negligent in allowing this to occur. On the other hand, given that the defendant prepared a valuation for CRA, and that a reasonable valuer in the position of the defendant was aware of CRA's business and circumstances, it is difficult to see that any negligence of the defendant rendered the purchase of fictitious debts by CRA possible when CRA's business was to factor debts and not to make any other financial facilities available to Olympus, e.g. even unsecured loans. The matter is a difficult one. It seems to me that I should approach the case by asking whether it could be said that on the date of the defendant's negligent valuation on 5 September 1990, the possibility of fraud by the borrower (Olympus), which was not discovered by any checking system CRA had in place and which was a result of CRA's own negligence, was, for the purpose of remoteness of damage, so far fetched and fanciful as not to be within the range of reasonable foresight on 5 September 1990 of a reasonable man in the position of the defendant. In this regard, damages suffered by CRA from this cause was at best the remotest of possibility which would never have occurred to the mind of a reasonable man in the position of the defendant and particularly one with knowledge of CRA's affairs and business. In King v Stewart, Kirby P. referred to Lord Duparq's remarks in London Passenger Transport Board v Upson [1949] A.C. 155 at 176:- "(t)he correct principle was stated by Lord Dunedin when he said: 'If the possibility of the danger emerging is reasonably apparent, then to take no precautions is negligence; but if the possibility of danger emerging is only a mere possibility which would never occur to the mind of a reasonable man, then there is no negligence in not having taken extraordinary precautions'. (Fardon v Harcourt-Rivington [(1932) 146 L.T. 391 at -- 96 of 111 -- 95 392]) regard this statement and that of Lord MacMillan in the same case, which was to the like effect, as applying generally to actions in which the negligence alleged is an omission to take due care for the safety of others. It must follow that (if I may repeat what I said in the recent case of Grant v Sun Shipping Co Ld. [1948] A.C. 549 at 567, in this House), 'a prudent man will guard against the possible negligence of others when experience shows such negligence to be common'." Whilst those principles were primarily used in the context of the existence of a duty of care, I consider that they are of some assistance in resolving the present point. In the result, whilst the matter is not free of difficulty, I conclude that damages suffered by CRA from fraud committed by Olympus (and also as a result of its own negligence in not preventing this), was at best the remotest of possibilities which would never have occurred to the mind of a reasonable man in the position of the defendant and particularly with his knowledge of CRA's affairs and business at that time. Also, such damages were of a different kind to those which were reasonably foreseeable. In the result, I conclude that such a possibility was beyond the range of reasonable foresight at 5 September 1990 so that any damages suffered by CRA from this cause, plus any consequential accretions thereto by way of interest or other charges (Exhibit 75) were too remote. I also find that damages from this cause were not within the reasonable contemplation of both CRA and the defendant. Accordingly, CRA has not proved the proper extent of its losses to which it would be entitled. (vi) THE QUANTUM OF CRA'S DAMAGES The damages must be assessed in the event of an appeal and on the basis that the foregoing findings are held to be incorrect. Even this aspect of a case was not a straightforward exercise and involved much detailed evidence. The opening balance said to be owing as at 11 June 1991 appears from Exhibit 28 (the debtors' ledger) in the sum of $200,710.76. No attempt was made by CRA to prove this sum other than to assert that it was merely the balance of the ledger at winding up of Olympus (254). For convenience, this is set out in Exhibit 75 as the opening balance. In assessing these damages, I proceed on the basis that damages flowing to CRA as a result of fraud by Olympus are also recoverable. A suggestion was made throughout the trial (346), that there may be different bases of calculation of damages but this did not appear to have been further advanced. The plaintiff's damages case was primarily fought on the basis of Exhibit 75. Much of it consists of interest charged at the rate of 10% per annum. -- 97 of 111 -- 96 A good deal of the contents of Exhibit 75 also relate to expenses incurred by CRA in what was said to be the completion of outstanding contracts. Much detailed evidence was advanced by the plaintiff to prove this and other expenditure which it seeks to add to the balance of $200,710.76, together with interest and various other expenditure. It was said on behalf of CRA that much of the evidence was due to the non-admission by legal advisers then acting for the defendant of various components making up the total claim of $348,731.97 (in addition to interest since 4 October 1994). More than one edition of Exhibit 75 was handed to the Court. Another edition shows the total figure as $356,561.96. This appears to have been due to an increased sum of $7,829.99 for interest accrued since 4 October 1994 although it is not known to what date that has been calculated. To the extent that the plaintiff is entitled to interest, this would appear to be a matter of mere mathematical calculation. For present purposes, I will proceed by referring to Exhibit 75. It cannot be said that the approach of the defendant in putting the plaintiff to proof of damages was unreasonable. Senior Counsel when acting for the defendant, drew attention to certain misnomers and to the difficulty of understanding various components of Exhibit 75 and other documents on which it was based. Senior Counsel for CRA during the course of the hearing conceded that various component parts referred to in Exhibit 75 were either misdescribed or were not properly included as any valid claim against the defendant, and should be deleted. See for example, pp.293-4, 284, 287, 523-525. Other such items arose during addresses. A great deal of evidence was adduced from Mr. White who was appointed by CRA after the winding up of Olympus. It was said that this was to complete outstanding contracts and to aid in collecting outstanding monies. It is convenient to mention this aspect at this stage although his evidence is more relevant to the question of mitigation of damages and to some extent to contributory negligence. There is a difficulty, as pointed out during Mr. White's evidence, of properly understanding what his evidence was precisely directed to. Senior Counsel for CRA submitted that it was quite complicated (179). Mr. White said that CRA felt it prudent to finish work on "uncompleted projects" in order that CRA might be paid "outstanding monies" thereon. This was not properly explained. The way the case was presented, the term "outstanding monies" is capable of being used in several senses:- (a) monies owing by debtors to Olympus from valid and enforceable debts already billed by -- 98 of 111 -- 97 Olympus to its customers, which had been factored by CRA and were owing directly to CRA after notice given under cls. 18 of Exhibit 3, but which had not been paid by those debtors at winding up. These might include debts due on completed or uncompleted contracts; (b) monies which might fall due under invoices wrongly (fraudulently) raised against Olympus' customers in advance of work done and which were factored by CRA, if and when such work was subsequently carried out to give life to the invalid "debts". Not unexpectedly, any such sums were not paid and may be included in the above expression "outstanding monies". Such "debtors" probably also received notice of assignment of the debts to CRA pursuant to cls.18 of Exhibit 3; and (c) the balance of monies which Olympus could earn in the future if it completed its individual contracts with its builder customers on particular building projects (179, 207, 216-7). This presumably would result in a hoped for profit or surplus above expenditure which CRA might make by doing further work. In this sense, monies earned in the future could answer the description "outstanding monies" on "uncompleted contracts". The latter would involve the performance of further work by Olympus, i.e. their continued manufacture of windows, screens, doors etc. which would in turn involve the creation of further (valid) debts owing to it by its customers (i.e. the builders engaged on projects). This would involve sending out further invoices to the customers of Olympus and would be quite separate from the legally enforceable debts which had already been billed to those customers and previously factored by CRA but not yet repaid by the debtors. It may be understandable (as Mr. White said) that in some cases, where a debtor had already been properly billed for work done by Olympus (whether or not approved by a project manager), and which CRA had factored such that the debt was then owing directly to it (at least after notification under cls.18), a customer of Olympus, depending entirely on the terms of its contract with Olympus, might conceivably (but probably incorrectly) take the view that if Olympus did not continue to do further work in order to complete the remaining part of its contract with that particular customer, (a builder on a building project), involving further debts, it had a possible counterclaim or set off for damages against Olympus such that it could erode the otherwise legally enforceable debts already billed to it (192). However, I have already noted that all "retentions" were to be expressly excluded from factoring -- 99 of 111 -- 98 (Exhibit 16 Condition 3), such retentions being to provide protection to a customer of Olympus with respect to maintenance and also, in the event of Olympus not proceeding to do further work, to give some leeway to the customer to call fresh tenders. Mr. White said (180-181) that Mr. McFarlane "initially" took the view that he was not liable to pay "outstanding monies owing to Olympus", although it may be inferred that this initial stand was not maintained. It is not clear whether this related to a fictitious "debt" which may have already been billed to McFarlane in advance of work done or whether it related to a valid debt already billed at winding up. Olympus (Jaeden) performed some further work, which must have involved either further valid invoices being sent to McFarlane or, if McFarlane's complaint related to fictitious debts, that further work at least would have given life to the validity of the previously raised fictitious invoices. Some other examples were also given (192). On the other hand, other customers of Olympus took a contrary view and did not want Olympus to do further work because it had been wound up and might have been unable to complete. In such cases, there was no suggestion of a debtor not paying all ready billed valid debts and particularly having regard to Mr. Walder's evidence that there was no problem with debts factored to the end of April 1991. Indeed, some were paid directly to CRA without complaint and some after legal process issued. In any event, the obligation or otherwise of a debtor to pay depended entirely upon the terms of a particular contract between Olympus and its customers as Mr. White conceded (215) and of which he was unaware. None of those contracts were placed in evidence. The defendant has alleged that in some respects, CRA incurred excessive and unreasonable expenditure after the winding up of Olympus and in particular with respect to work which involved Fritz's Constructions. Mr. Walder conceded in answer to a question by the defendant in cross- examination that in this respect, CRA went outside its own guidelines. It was contended on behalf of the plaintiff that the matter should be viewed overall and not in isolation. It was said that receipts totalling $175,000.00 were achieved whereas expenditure was approximately $134,500.00, involving a surplus of monies received of $40,500.00 in excess of expenditure. However, I have had reference to Exhibit 13 which was not challenged by the defendant in evidence (as opposed to allegations in the Defence). That document shows total receipts of $197,549.20 against expenditure of $103,408.31 involving a surplus of $94,140.89. In the state of the evidence, it is -- 100 of 111 -- 99 unfortunately not possible to determine precisely whether any of the expenditure related to making good fictitious "debts". In the result, I accede to the submissions for Counsel for the plaintiff and view the matter overall. A greater sum was received than was expended so that the damages suffered were reduced accordingly. Even so, various figures must be deleted from Exhibit 75. The first deletion is the sum of $4,404.95 (see 282-283, 522). No attempt was made by CRA to break up that sum in order to show precisely how much of it related to litigation against the defendant which is clearly not an item of damage, and how much related to legal costs involved in collecting debts or in administering Mr. White's involvement after the winding up of Olympus. There is also a sum of $1,810.00 valuation fee paid to CRA's valuer Mr. Rodney Brett for the purpose of giving evidence (284), the sum of $300.00 paid to Counsel in respect of proceedings involving the defendant (283-4), but not clearly identified as such in the particulars, and the sum of $2,314.89 paid to Messrs. Flower & Hart with respect to legal costs in the current action (284). There are also the sums of $7.85, $15.85, $5.00, $5.00, $8.65 and $8.00 (294), some of which was said to represent courier fees in relation to this action. Mr. Walder was simply unable to say whether various other items, courier charges and the like, related to recovery of debts or related to the conduct of the current action (293-4). The defendant also attacked the sum of $68,380.06 for collections said to have been paid on 22 January 1992. He drew attention to the standard collection fee on 31 January 1993 of $10,989.75. No evidence was given on behalf of the plaintiff to justify or explain the sum of $68,380.06 or its reasonableness. I accordingly accede to the defendant's submission that that sum of $68,380.06 should be reduced to $10.989.75. The defendant, who was unrepresented was unable to demonstrate that any other items claimed in Exhibit 75 were not allowable. In summary, the figure of $348,731.97 must be reduced by the following: Legal costs wrongly charged $4,404.95 Legal costs wrongly charged $2,314.89 Legal costs wrongly charged $300.00 Valuation fees wrongly charged $1,810.00 Courier fees and the like $7.85 -- 101 of 111 -- 100 $15.85 $5.00 $5.00 $8.65 $8.00 $50.35 Reduction of collection fees 22.1.92 $57,390.31 Total Deductions $66,270.50 When the figure of $66,270.50 is deducted from the total of $348,731.97 in Exhibit 75, the result is a figure of $282,461.47. However, this figure must be further reduced by a recalculation of interest charged on items wrongly included from the dates in which they in fact appear in documents which support the sums referred to in Exhibit 75. This is a mechanical exercise which can be readily undertaken by the parties should that become necessary. Also, once the net amount is established, there would need to be an increase in interest to be added to Exhibit 75 which I was told was calculated only up to October 1994. (vii) CONTRIBUTORY NEGLIGENCE Even if the foregoing conclusions as to liability are held to be wrong, this also is an area which causes difficulty for CRA. It has already been held that CRA relied in part upon the defendant's valuation in entering into the facility in the first place. But this does not determine the question of whether or not CRA was contributorily negligent in entering into that facility. Counsel for CRA, in spite of a reference to AWA Ltd v Daniels (supra) per Rogers CJ. at 995, did not submit that contributory negligence was not capable of applying with respect to damages arising from breach of contract. As already indicated, no distinction was drawn by Counsel for CRA between consequences flowing from breach of retainer or negligence. It has already been said that Mr. Roberts (and the Board) did not know of various essential matters at the time the decision was taken to approve the facility on 31 August 1990 or indeed when the facility was entered into on 28 September 1990. Mr. Roberts said that after the approval was indicated on 31 August 1990 (subject to eight essential conditions), he left the mechanics in locally implementing those conditions to Mr. Walder. Mr. Roberts believed that the losses were $119,305.86 with bad debts in the order of only $149.125.00 already written off, when the loss was in fact $376,246.00 with bad debts in excess of $250,000.00. He said that "I glance through them" (the financial returns) (65). CRA -- 102 of 111 -- 101 apparently relied only upon what Hall Chadwick and Mr. Sullivan had told Mr. Walder and upon the budget forecasts comprising part of Exhibit 17 and advice that Olympus had allegedly put in place measures to improve its efficiency. I have borne in mind that Hall Chadwick had also previously acted for CRA and had made the approach on behalf of Olympus to Mr. Walder for consideration for the grant of a facility. Hall Chadwick however were only able to prepare unaudited figures which proved to be very much tentative as already explained above, and no doubt also had to rely to a large extent on Mr. Sullivan for information. Mr. Roberts acted on incomplete and unaudited figures as at 30 June 1990. Exhibit 46 from the bank showed that Olympus was suffering from a slow-down and failure in a building sector and pointed out that "Equity has tight prospects of ongoing trading. ...Still fairly dependent on improvement in the industry but has good work in hand at the present time". No Bill of Sale was taken over the boat which was an essential Condition 8 of Exhibit 16. Mr. Roberts believed this had been put into effect since day one and that it was a meaningful security. It was never in fact put into effect until Olympus collapsed in June 1991. Even then it was worthless. There was no check taken to see whether the boat was unencumbered, as Mr. Sullivan represented in his statement of assets and liabilities. Mr. Roberts was not informed of the true position of the boat. He said that the facility should not have been entered into in the first place because an essential condition had not been completed. He said the deal should not have gone ahead. CRA was clearly negligent in allowing the facility to proceed under those circumstances. It is difficult not to conclude that its negligence in entering into the facility in the first place was responsible for a substantial part of any losses it subsequently suffered. Had it not entered into the contract because of non-fulfilment of an essential condition as to the boat, it would not have suffered losses at all. Also Mr. Roberts did not know the real taxation position. Exhibit 8 showed a group tax outstanding of only $55,000.00. CRA did not obtain an independent report such as that conducted by the auditors Coopers & Lybrand in February 1991 (Exhibit 9). Olympus was in a serious financial position even at the outset as a cursory examination of the trading results for the year ended 30 June 1989 compared with 30 June 1990 clearly reveal. A profit in 1989 resulted in a loss to June 1990. The overdraft of $176,000.00 in 1989 rose to $848,000.00 at 30 June 1990. In addition a further savings bank loan in the order of $50,000.00 was obtained from the bank in the year ended 30 June 1990. Neither did Mr. Roberts know of the second mortgage to the National Australian Savings Bank at the time he approved the facility. -- 103 of 111 -- 102 It was submitted on behalf of CRA that because the bank conceded priority to CRA with respect to purchase of debts due to Olympus up to certain amounts which were varied, as well as conceding priority over the real property security beyond $750,000.00, the bank must have considered that Olympus was a safe risk such that CRA could confidently deal with Olympus. There is a converse inference. Olympus was heavily indebted to the bank which had prior mortgages over the real property as well as a charge over the assets and undertaking of Olympus (subject to CRA's priorities), as well as guarantees from Mr. & Mrs. Sullivan (Exhibits 84 and 85) which were ahead of any of CRA securities and guarantees. The bank was obviously not prepared to formally increase its overdraft facility to Olympus apart from allowing Olympus to overrun it at times. Its interests were protected and it may well have been indifferent to the question of whether Olympus entered into a facility with CRA, whether as a last ditch chance for CRA or otherwise. Unfortunately there is no relevant evidence from the bank on any of these matters. In the state of the evidence, it is not possible to use the bank's concession as to priority in the way contended for by CRA, i.e. that it provided some evidence of prudent conduct by CRA in entering into the facility with Olympus at the outset and in continuing to deal with it thereafter. Something was also made of the fact that CRA had, in addition to its rights under the facility Exhibit 3, obtained personal guarantees from the Sullivans. It does not specifically appear whether Mr. Roberts or Mr. Walder knew of the guarantees to the bank when CRA took the personal guarantees by the Sullivans in Exhibit 3 on 28 September 1990. Mr. Hollis said that the savings bank loan was granted in 1989 (i.e. the 1989-90 financial year). As indicated, there was an overdraft at 30 June 1989 of $176,701.00 which had jumped to $848,160.96 at 30 June 1990. Mr. Hollis said that the facility of $700,000.00 was granted in March 1990. It would be surprising if Mr. Roberts and Mr. Walder did not know of the bank's personal guarantees by the Sullivans which would be relevant to allow them to form some assessment of the value to CRA of the Sullivans' personal guarantees contained in Exhibit 3. They had Mr. Sullivan's assets and liability statement which was not tendered. Mr. Sullivan appears to have been ready to give personal guarantees (see e.g. that given on 1 November 1990 to personally be responsible for the whole of the long outstanding debt of $119,083.45 owing to Pilkington Australia as set out at p.2 of Coopers & Lybrand's report of 26 February 1991 (Exhibit 9)). That of course was long after the entering into of the facility. At best, the taking of personal guarantees was a prudent course, even if they subsequently proved to be of no value. See e.g. Exhibits 84, 85. All of the foregoing gives rise to serious doubts concerning the extent to which CRA truly -- 104 of 111 -- 103 investigated the financial background and affairs of Olympus at or about the time that it entered into the facility. Mr. Walder said that information had been supplied to him by Messrs. Hall Chadwick as well as representations made by Mr. Sullivan. It has already been held that Mr. Walder was not in fact in possession of various items of essential information as at the date of the application on 28 August 1990 as contained in Exhibits 8 and 16 even though this is the effect of his oral evidence as well as the effect of various notations he made in writing on the Coopers & Lybrand's report of 26 February 1991 (Exhibit 9). That was a damning report which as indicated referred to the insolvency of Olympus and made the strongest of recommendations to CRA to reduce its exposure because its position was not secured. From the foregoing survey, I conclude that Mr. Walder did not in fact know or properly investigate the real position with Olympus at the outset and did not exercise proper care in checking the real position with Olympus. Neither did Mr. Roberts who apparently relied on Mr. Walder, who in various material respects referred to above, did not fully and completely inform Mr. Roberts of all correct information, at the time Mr. Roberts granted the approval on 31 August 1990 or subsequently. Their evidence took on a defensive appearance of endeavouring to justify or explain their conduct in causing CRA to enter into the facility in the first place when as a matter of fact, they were not in possession of all relevant information and did not in my opinion make the proper enquiries necessary at that stage. In my opinion CRA's share of responsibility for any losses it suffered should be assessed at 60% due to its own negligence in entering into the facility in the first place for the above reasons. The next question arises as to whether CRA was negligent in extending the facility of 28 February 1991 and its conduct thereafter. Again Mr. Roberts did not know of the second mortgage to the National Australian Savings Bank. He believed there was a meaningful security over the boat since day one. He repeated this three times in his evidence as one of his reasons why, along with real property security, he extended the facility. CRA failed to comply with its own standard of care in not putting into effect several of the essential steps it considered necessary when it entered into the facility in the first place. There was no bank opinion obtained at that time. There was no real look at the financial position of Olympus other than that contained in the report of Coopers & Lybrand which Mr. Roberts and Mr. Walder virtually said was irrelevant. Nor was there a CRAA report obtained. There was no "Fire Sale" valuation by the defendant or by any other valuer at that stage regardless of the knowledge of Mr. Roberts and Mr. Walder as to whether they knew that property markets were falling in value. The -- 105 of 111 -- 104 security did not represent a minimum of 100 percent. Instead, CRA appears to have relied upon what had been a good business relationship to that point of time including the good state of the debtors ledger with no exception noted. Neither Mr. Roberts nor Mr. Walder wished to get out at that stage. The business had been good to that date and was valuable to CRA. Even though Coopers & Lybrand did not discover any defalcations or fraud by Olympus to that time, Mr. Roberts and Mr. Walder both knew that the company was insolvent then, which they asserted was the position at take up. Mr. Roberts in particular was alarmed and foresaw an extreme danger of Olympus committing fraud, which in fact occurred. Also the monitoring by Olympus from that time forward was grossly inadequate in spite of Mr. Walder's evidence of what he or his staff in fact did. None of the fraudulent debts was discovered until after the collapse of Olympus. These constituted the bulk of the invoices making up the initial total of $200,700.76 as at 11 June 1991 (Exhibit 75). This demonstrates that there was little if any effective checking done of any of those invoices before factoring. But even if there was, the 20 percent random checking system based upon the value of each batch was not adequate particularly having regard to Mr. Roberts' requirement to Mr. Walder at the head of Mr. Walder's facsimile of 28 February 1991 (Exhibit 21) that the situation was "not good WW to watch" (112). Mr. Roberts said Mr. Walder was to watch all aspects particularly those mentioned in Coopers & Lybrand's report very closely, including priority creditors and taxation liabilities which appear to have progressively increased. Mr. Walder said that it was not his responsibility to engage Hall Chadwick and he was not sure whether he got monthly profit and loss statements from Olympus as he said would be done to Mr. Roberts in the facsimile Exhibit 21. The only figures provided by Hall Chadwick are the figures to 28 February 1991 received late March 1991 (Exhibit 22). It has already been held that monthly statements were not in fact received. Also there was at best no more than quarterly information sought from the bank as to the bank's position, a factor which Mr. Roberts said should be monitored to see if Olympus was adhering to its terms and conditions with the bank so that CRA's security was not eroded. Also there was no adequate monitoring of the trade indemnity policy to ensure that Olympus strictly complied with its terms. This would have been a valuable recourse to CRA in the event of Olympus' default. In my opinion CRA was negligent in extending the facility as it did on 28 February 1991 for the reasons above mentioned (including those mentioned under the heading on Causation). No losses had -- 106 of 111 -- 105 been incurred by it prior to that time. All the losses occurred long after 28 February 1991. In my opinion, CRA should be held totally to blame for losses which occurred after 28 February 1991 by reason of its negligence in extending the facility as it did at that time. Alternatively, all of the foregoing factors make it clear that CRA should have got out of its arrangement with Olympus in February 1991 or certainly no later than March or April 1991, as Mr. Roberts and Mr. Walder said could be done virtually at the drop of a hat. Mr. Roberts said that he could buy a debt, make his profit and move on (70). For not doing so, CRA was entirely responsible for its own losses from that time forward. No blame whatsoever can be attributed to the defendant who is not responsible for any of CRA's losses. It was said on behalf of CRA that there was no evidence from the defendant, similar to that adduced from Mr. White after the final collapse of Olympus, as to what would have occurred if CRA had withdrawn any further purchases of invoices from Olympus from the end of February 1991. This is contrary to Mr. Roberts' evidence at p.70 to the effect that he could have got out at any time even after purchasing one debt. In addition, CRA had extensive rights under the agreement which have already been referred to. All debts purchased by CRA to the end of February and indeed to the end of April according to Mr. Walder, were valid and enforceable debts, and gave CRA no trouble. This is clear from the definitions in cls.2 of the facility (Exhibit 3) as well as from the express warranties given by Olympus by virtue of cls.4 of that document. Also as Exhibit 8 indicated, Mr. Sullivan represented to CRA that invoices were raised after project managers had approved of CRA's progress claims to its customers. This was done on the majority of debts factored. This was a very important factor and avoided disputes. Also the inference is clearly open that as all debts factored to the end of April were valid and enforceable debts, CRA could probably have recovered its losses pursuant to the Trade Indemnity Policy so that it would have suffered no losses had it got out. Reference has already been made to the evidence of Mr. White about the possibility of some debtors taking the view that debts otherwise due and owing to Olympus should not have to be paid if Olympus did not carry on with further work, thus giving a possible right of set off or counterclaim. It should be recalled that on winding up, CRA gave notices direct to debtors outstanding at that time, at least some of which were paid directly to CRA voluntarily and some after the issue of legal process. There is no reason why as at 28 February 1991 or at some other time in March or at least by 4 April 1991, CRA could not have done the same and notified those debtors direct whereupon a legal -- 107 of 111 -- 106 assignment was effected to CRA as legal owner of the debts. CRA had the right to issue those notices pursuant to cls.18 of Exhibit 3, as lawful attorney of Olympus as assignor. The rights between the assignor (Olympus), the assignee (CRA) and the debtors are set out in Halbury's Laws of England, 1st ed. Vol. 4 para. 823 as follows:- "Where the right of the assignor is subject to a set-off on the part of the debtor, the debtor may, provided the right has accrued before notice of assignment, equally avail himself of this right against the assignee. Similarly in the case of a debt which accrues due before the date of the notice, but is not payable till after that date. He may not set off an independent debt which has accrued since notice of assignment, though due upon a contract made before such notice, but he may set off a debt which has accrued since notice of assignment if it has arisen out of a transaction inseparably connected with the original debt. He may also meet the plaintiff's claim by a counterclaim for unliquidated damages, provided that they arise out of the same contract; but he is not, of course, entitled to recover any damages, but only to set them off against the plaintiff's claim." (emphasis added) The above principle is clearly stated by the Court of Appeal in England in Roxburghe v Cox (1881) 17 Ch.D. 520 per James L.J. at 526; see also Phipps v Lovegrove (1873) 16 L.R.Eq. 80 at 88 in a passage cited with approval by G.N. Williams J. in Re Partnership Pacific Securities Limited [1994] 1 Qd.R. 410 at 422-3. In Watson v Mid-Wales Railway Co. (1867) 2 L.R.C.P. 593 at 597-8, Bovill C.J. with whom Willes J. and Montague Smith J. appeared to have agreed, said:- "The question in the case is, whether the plaintiff would be entitled in equity to a perpetual injunction to restrain the defendants at law from setting up the counterclaim by way of set-off; which again turns on the question of how far such a set-off would be allowed in equity. No case has been cited to us where equity has allowed against the assignee of an equitable chose in action a set-off of a debt arising between the original parties subsequently to the notice of assignment, out of matters not connected with the debt claimed, nor in any way referring to it. The plaintiff (as assignee) has a clear legal right." Had CRA promptly issued notices to all debtors outstanding either at the end of February 1991 or at some subsequent date possibly up to 4 April 1991, it may clearly be inferred from the evidence of Mr. Walder that none of the debtors outstanding had any right of set off or counterclaim against Olympus at the time any such notice could have been given (even to the end of April 1991). There is no question of any debt accruing in favour of any debtors against Olympus which could have accrued before or since any notice of assignment. The only possibility is whether or not any debtor could have had a claim for unliquidated damages as Mr. White suggested was a possibility and which arose out of the same contract, i.e. between Olympus and its customer in relation to ongoing work in the future. -- 108 of 111 -- 107 Mr. White conceded that any such rights would depend entirely upon the contracts between Olympus and its customers (at or prior to receipt of the debtor of a notice of assignment). There is also the question of retentions which were not factored (Exhibit 16 Condition 3) and which composed that percentage of debts otherwise owing by the customer to Olympus to protect the customer against maintenance and to provide a buffer in the event Olympus ceased further work resulting in the possible necessity for the debtor to call fresh tenders and possibly to incur additional expense. Mr. White's general evidence of various contracts which he said were part completed at 28 February 1991, advances CRA's submissions no further in this respect. In concluding against CRA on this submission, I have also borne in mind Mr. Roberts' clear statement that CRA could have got out at any time even after buying a debt once only today, taking its profit and moving on. I have also borne in mind that some debtors at least who received notice of assignment after the collapse of Olympus paid those debts without demur directly to CRA. I have also borne in mind the specific terms of cls.4 of the facility agreement (Exhibit 3) and the express warranties Olympus gave to CRA that any customer who owed a debt to Olympus had not sought or intimated his intention to seek to repudiate the transaction and that the customer had no right of set off or counterclaim against the vendor in respect of the debts, even though those warranties would not of course bind any customer of Olympus. I have also borne in mind that there is no evidence that any of the debts outstanding at winding up were unpaid because of a debtor's refusal to pay based upon any right of set off or counterclaim. The evidence that McFarlane "initially" refused to pay does not support any such inference. I have also borne in mind Mr. Walder's evidence that they had no trouble with all debts factored to the end of April 1991, which on any view suggests that they were all duly recovered. The overall evidence does not support Mr. White's bold assertion that possible rights of set off may have existed. In my opinion, the facts of this case do not support the submission that the defendant should have adduced further evidence to show that CRA would probably have suffered no such losses if it "got out" at an earlier stage before Olympus was finally wound up. The likelihood that CRA would have suffered any such losses is no more than the remotest of possibilities. Furthermore, the submission on behalf of CRA presupposes that if CRA ceased factoring further debts from Olympus at the end of February 1991, Olympus would automatically and immediately have collapsed. Whilst this was a not unlikely consequence, the timing of such a collapse would not have been certain. It may well have been delayed if CRA got out in February 1991, by likely attempts by Mr. -- 109 of 111 -- 108 Sullivan at that time to obtain other types of finance or restructuring as the evidence showed he was still attempting to do on 4 April 1991 (Exhibit 73) after which time it was probably too late. Olympus had a prior factoring agreement with Custom Credit and may in February 1991 have had other avenues of investigation. The situation which existed after Olympus was wound up cannot realistically be compared with what might have occurred had CRA got out at an earlier stage. In the result, I conclude that CRA was negligent in not ceasing to factor further debts in favour of Olympus after 28 February 1991 or at least in March or early April 1991 when it could have issued notices to debtors and "got out" and insisted on payment direct from the debtors. There is also the right then existing to CRA to claim on the Trade Indemnity Insurance Policy, given that the fraud of Olympus had not occurred until May 1991 and which Messrs. Flower & Hart stated rendered the policy void (Exhibit 61). All debts factored at the end of April 1991, according to Mr.Walder, gave CRA no trouble. See his letter to Mr. Roberts of 21 March 1991, Exhibit 22, in which he said that "we have added Trade Indemnity Protection with this client". Accordingly, the losses which CRA suffered late in its relationship with Olympus were caused initially to the extent of 60% by its own negligence in entering into the facility in the first place but more importantly entirely by its own negligence or its own conduct in extending the facility on 28 February 1991 and its continued dealings with Olympus thereafter rather than getting out at an appropriate time. The defendant's negligence on 5 September 1990 did not contribute even remotely to CRA's ultimate loss. (viii) MITIGATION OF DAMAGES It is not necessary to discuss this aspect in any detail. Much of what has been said above is also relevant here. I have concluded that CRA did not unreasonably attempt to mitigate its ultimate loss. The amount recovered of $197,549.20, exceeded the expenditure of $103,401.31 by $94,140.89. -- 110 of 111 -- 109 CONCLUSION The foregoing makes it clear that the plaintiff's claim against the defendant totally fails. CRA in retrospect took a risk in entering into the transaction with Olympus without properly checking out Olympus' standing and prospects and without complying with its own standards and conditions at the outset and on 28 February 1991. Notwithstanding its negligence in entering into the facility agreement in the first place, its relationship was successful at least to the end of February 1991, and on Mr. Walder's evidence, somewhat later. Whilst the defendant was negligent in the valuation he performed on 5 September 1990, his negligence in no way caused or contributed to any losses suffered by CRA very late in its relationship with Olympus. CRA was negligent in extending the facility in the way it did without compliance with its own standard of care and in its conduct thereafter. This negligence was the entire cause of its losses. CRA has not established a case for damages against the defendant. There must be judgment for the defendant against the plaintiff. I will now hear argument as to costs. -- 111 of 111 --