Travel Compensation Fund v Robert Tambree T/as R Tambree and Associates

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: Gleeson CJ,Gummow,Hayne JJ,Kirby J,Callinan J.
• Judgment Date: 16 November 2005
• Neutral Citation: 2005-1116 HCA A,[2005] HCA 69
• Docket Number: S54/2005
• Date: 16 November 2005

[2005] HCA 69

HIGH COURT OF AUSTRALIA

Gleeson CJ, Gummow, Kirby, Hayne AND Callinan JJ

S54/2005

Travel Compensation Fund

Appellant

and

Robert Tambree T/as R Tambree and Associates & Ors

Respondents

Representation:

J E Marshall SC with N F Francey and M J O'Meara for the appellant (instructed by McCabe Terrill)

P B Walsh for the first respondent (instructed by Burston Cole & Co)

R E Dubler SC with H Sonmez for the second respondent (instructed by Phillips Fox)

No appearance for the third to fifth respondents

Fair Trading Act 1987 (NSW), ss 42, 68.

Travel Agents Act 1986 (NSW).

Travel Compensation Fund v Robert Tambree T/as R Tambree & Associates

Trade Practices — Fair Trading Act — Misleading or deceptive conduct — Person who suffers loss or damage by conduct of another in contravention of Act.

Damages — Causation — Whether illegal conduct severed the chain of causation — Travel Compensation Fund established as part of national scheme for regulation of travel agents — Fund compensated members of the public who suffered loss by reason of an act or omission of a travel agent — Travel Shop International (‘TSI’) was a participant in the Fund — Financial statements of TSI prepared by first respondent and audited by second respondent in support of TSI's continued participation in the Fund — Appellant acted in reliance on information about the financial position of TSI — Respondents knew of such reliance — Respondents negligent and engaged in misleading or deceptive conduct in preparing and auditing the financial statements of TSI — Unlawful trading by TSI a cause of the damage suffered by the appellant.

Damages — Causation — Statutory context relevant to determining approach to causation — Application of common law approach to causation in the context of the Fair Trading Act — Whether policy considerations and value judgments relevant.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside the orders of the Court of Appeal of the Supreme Court of New South Wales made on 26 February 2004 and in their place order that the appeal to that Court be dismissed with costs.

1 Gleeson CJ. This appeal concerns an issue of causation that arose in assessing damages against an accountant and an auditor who were held to have been negligent, and to have engaged in misleading or deceptive conduct in contravention of s 42 of the Fair Trading Act 1987 (NSW) (‘the Fair Trading Act’). The appellant took proceedings in the Supreme Court of New South Wales and succeeded in its claim for damages, both at first instance before Austin J 1, and in the Court of Appeal 2. However, the Court of Appeal substantially reduced the damages awarded.

2 In order to explain how the issue as to damages arises it is necessary to state, in broad terms, the statutory and factual basis of the first and second respondents' liability to the appellant.

The travel compensation scheme

3 Uniform State legislation has established a national scheme for the regulation of travel agents. The relevant New South Wales legislation is the Travel Agents Act 1986 (NSW) (‘the Travel Agents Act’). One aspect of the regulatory scheme involves a compensation fund designed to safeguard people who suffer loss by reason of an act or omission of a travel agent. One form of such loss involves paying in advance for travel services and, through default on the part of the agent, not receiving the services. The scheme was examined by Lehane J in Travel Compensation Fund v Travel Guide Pty Ltd (in liq)3.

4 The Travel Compensation Fund (‘the Fund’) is administered by a group of trustees, originally the responsible Ministers in a number of States, who were appointed pursuant to a Deed of Trust (‘the Deed’) dated 12 December 1986. By virtue of s 52 of the Travel Agents Act the trustees may sue and be sued in the name of the Fund. The existence of the Fund is recognised by the Travel Agents Act and the regulations made under that Act. Travel agents may apply to become ‘participants’ in the scheme established by the Deed. A participant is, by definition, a travel agent licensed under a State Act who meets certain prescribed eligibility requirements. Participation is on an annual basis. A Management Committee determines whether applicants should be admitted as participants, and conducts annual financial reviews to determine whether participation should be renewed. The eligibility criteria are based on financial security, determined by reference to audited financial statements. Failure to meet the criteria could result in a requirement to obtain a bank guarantee, or to invest more capital in the

business, or it could result in denial or loss of participation. The Travel Agents Act requires all travel agents to be licensed (s 6). It is a condition of all licences that the licensee be a participant in the compensation scheme (s 11(2)).

5 Clause 15 of the Deed provides:

‘15.1 Subject to this Deed, the Trustees shall pay compensation out of the Fund to a beneficiary -

• (a) who is a client; and

• (b) who has suffered or may suffer pecuniary loss arising directly from a failure to account for money or other valuable consideration by a participant -

  where -

• (c) the failure to account arises from an act or omission by the participant or an employee or agent of the participant; and

• (d) the client is not protected against the loss by a policy of insurance.

15.2 The Trustees may in their absolute discretion:

• (a) pay compensation to a beneficiary under clause 15.1 in relation to any consequential pecuniary loss suffered by reason of a failure to account; and

• (b) pay compensation, including compensation in relation to any consequential pecuniary loss suffered by reason of a failure to account, to a person to whom they are not required to pay compensation under clause 15.1.’

6 The word ‘beneficiary’ is defined to include a person who entrusts money to a travel agent. The trustees hold the Fund on trust for the Crown in right of the States and for every person who entrusts money to a travel agent in connection with travel arrangements if the travel agent fails to account for the money. In such a context, failure to account includes, and typically involves, failure to apply money for the purpose for which it was entrusted to the agent 4.

7 The purpose of the discretionary power conferred by cl 15.2, and the manner in which the power is commonly exercised, was the subject of evidence before Austin J, who said:

‘Claims were dealt with by the Management Committee either under clause 15.1, under which [the appellant] must make a claim for pecuniary loss suffered directly from a failure to account by a participant in the Fund if the requirements of that provision are satisfied, or under clause 15.2 where the Trustees are given a discretion, in certain circumstances, to pay compensation to a person whose claim does not fall within clause 15.1. Mr Brattoni [an officer of the Fund] gave evidence explaining how the Trustees exercise their discretion under clause 15.2. He said that cases under clause 15.2 normally involve unlicensed agents. Commonly participation in the Fund is terminated and then the Department of Fair Trading takes steps to terminate the travel agent's licence and close the business. That is what happened in the present case. In considering claims, the Trustees look to the date of termination of participation in the Fund and the date of any payments made after that termination. If the Trustees form the opinion that members of the public with whom the travel agent dealt would be unlikely to know, when they paid their money to the agent, that they were surrendering their money to an unlicensed operator, and there was no unusually long period of time between the termination and the payment of money to the agent, the Trustees would be likely to exercise their discretion in favour of the claimant. Mr Brattoni's evidence is that the Trustees exercised their discretion upon the basis of such considerations in the present case.’

8 The practical significance of cl 15.2 is obvious. Business failures are not always neat and tidy. People often attempt to trade out of financial difficulties. As in the present case, there sometimes can be an interval between financial failure, loss of a licence, and complete closure of a business. Clause 15.2 was designed to protect members of the public who deal with agents in such circumstances.

The compensation payments

9 The payments made by the Fund, which gave rise to these proceedings, followed what Austin J described as the collapse of a business carried on at 366 Church Street, Parramatta under the name of ‘The Travel Shop International’. The business was established by Ms Renee Fry. Ms Fry and her father were also sued in the original proceedings, and much of the judgment of Austin J is devoted to the resolution of factual and legal questions that are no longer directly in issue. The issues were blurred by the fact that, when her business was in the process of collapse, Ms Fry, ‘informally transferred’ it to a company named The Travel Shop International Pty Ltd. That company (‘TSIPL’) had been incorporated in October 1996. Ms Fry was the sole director and shareholder. However, Austin J found it possible to reach reasonably confident conclusions about the financial history of Ms Fry trading as The Travel Shop International, and those conclusions are not in dispute in this appeal.

10 Ms Fry was the principal of the business, but her father was in charge of the accounting side. In 1996 Ms Fry sought, and obtained, admission as a participant in the Fund. She applied successfully for a travel agent's licence. She was issued with Licence No 2TA4438. She did not commence trading until early 1997. She specialised in arranging holidays in Fiji and Bali.

11 The financial statements of the firm for each of the years...