The Judicial Committee of the Privy Council Decisions

Gilrose Finance Limited Appellant

v.

Ellis Gould Respondent

FROM

JUDGMENT OF THE LORDS OF THE

JUDICIAL COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 23rd March 2000

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Lord Nicholls of Birkenhead

[Delivered by Lord Clyde]

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1. The appellant is a finance company carrying on business in New Zealand which in January 1995 invested A$500,000 in a Magic Johnson basketball tour of Australia due to take place in March 1995. The investment was decided upon and instructed by a Mr. Rosen, a director of the company. On 11th January 1995 Mr. Rosen had received a telephone call from a Mr. Hoare, who represented Music Corporation Ltd., and a Mr. Richards. Mr. Rosen was told that a new investor for the tour was urgently needed as an Australian investor had failed to meet his commitment, and that a short-term investment of A$500,000 with a projected return of 80% was being looked for. Mr. Rosen requested further information and later that day received from Mr. Richards a number of documents about the proposed tour. Mr. Rosen telephoned to his firm of solicitors in New Zealand which is the present respondent. He spoke to a partner of the firm, Mr. Radley, and then sent a fax asking him to check the credentials of the persons concerned in the venture as well as the investor-promoter agreement which he attached. Mr. Rosen understood the principal individuals concerned to be Mr. Richards, who was a majority shareholder and a director of Music Corporation Ltd. and another company, Mr. Woodley, who was the accountant and consultant for the venture, and Stanbury Fishelman & Levy, a Los Angeles law firm.

 

2. Mr. Radley contacted Mr. Richards. He learnt from Mr. Richards that his solicitor was a Mr. Flaws of Bell Gully Buddle Weir ("Bell Gully"). He had a short discussion with Mr. Flaws and thereafter advised Mr. Rosen that Mr. Flaws had advised him that Mr. Richards was reputable and trustworthy and had undertaken similar major ventures which had all been successful. Mr. Radley made superficial inquiries about Stanbury Fishelman & Levy but did not check out Mr. Woodley. Mr. Rosen also asked his accountants Cooper & Lybrand and his stockbroker, Ord Minette, for assistance and received a response from the former that a credit check on Mr. Richards had disclosed one mark against Mr. Richards. Mr. Rosen regarded a single mark as of no significance. Having received Mr. Radley’s advice both by telephone and by fax Mr. Rosen then proceeded to instruct the investment. The tour subsequently proceeded but turned out to be a financial disaster for the appellant. The whole of the investment was lost. Music Corporation went into receivership. Mr. Richards was convicted of several charges of fraud, including a charge relating to the appellant’s investment. He was found to have two earlier convictions for dishonesty.

 

3. The appellant then sought to recover its loss by way of claims for damages from the respondent and from Bell Gully. The judge in the High Court held that Bell Gully had no liability to the appellant, nor indeed to the respondent. He held that Mr. Radley was in breach of his duty to Mr. Rosen in not passing on to Mr. Rosen various qualifications which Mr. Flaws had made to the advice which he had given to him, such as that he was not the only person who acted for Mr. Richards, that he only had limited contact with him and limited knowledge of his activities, and that his understanding on the success of previous tours was based upon what Mr. Richards had told him. But he also found that the appellant’s loss had also been partly caused by the appellant’s own negligence and he assessed its share of the fault in the 75% to 80% range. He found the appellant entitled to judgment against the respondents for the sum of $125,000, with interest from 25th October 1995. The Court of Appeal refused to interfere with that award. The appellant has argued before their Lordships’ Board that the finding of contributory negligence should be reversed or at least the apportionment substantially varied, and that the award should have been made in Australian currency and not New Zealand dollars.

 

4. It is convenient next to note the grounds on which the judge found the appellants to have been negligent. Counsel for the appellant sought to criticise the relevant passage in the judgment in respect that some of the points made were not truly points of negligence. That criticism however fails to appreciate that the judge is in part setting out some of the surrounding circumstances, not in themselves matters of negligence, against which the acts and omissions of the appellant fall to be assessed. Thus as regards the context the judge notes that the appellant was put in a position where it was required to make an urgent decision, Mr. Rosen was motivated to proceed with the investment by the high rate of return, he was on holiday and was put under what would have appeared to most financiers undue pressure to make a decision in circumstances of urgency. He was also told that because of confidentiality arrangements he could not make contact with the other parties to the venture, including the Magic Johnson management. That should have put him on his guard. He had seen no accounts and he had understood from Mr. Richards that there were no accounts from Music Corporation and no accounts yet completed for the previous tours. He had no proof of profits on the earlier tours but only a general statement that they had been financially successful. He knew that the success of the tour depended upon a variety of factors including Mr. Richards’ ability. He knew that it was a high-risk venture, and he had raised with his accountant a question about a possible method of writing off losses from the venture. He was an experienced businessman and the owner and director of a successful finance company. The judge observed that in recommending Mr. Flaws as a referee Mr. Richards would not have recommended a person who would give an adverse reference. That observation was criticised by the appellant on the ground that there was not strictly any invitation to obtain a reference from Mr. Flaws and that a reference to the senior partner of a reputable law firm should not be lightly discounted. The point was not taken up by the Court of Appeal and their Lordships do not regard it as of significance. What is of importance is that Mr. Richards’ honesty and trustworthiness was quite critical to a proper assessment of the wisdom of the investment and when so much of the information on which Mr. Rosen was proceeding came from Mr. Richards it was the more essential to be confident of the reliability of it from independent sources.

 

5. The judge concluded that in the circumstances it was imprudent of Mr. Rosen not to have made other checks before making the investment. The judge pointed out that Mr. Rosen took no steps to check the financial position of Music Corporation. He did not check the expenditure which had already been incurred by Music Corporation. He took no steps to check out Mr. Woodley and he did not ask Mr. Radley whether he had checked Mr. Woodley or any of the other parties. He did not ask for confirmation that the sponsors were in place. He did not ask to see the survey which he had been told existed in respect of the anticipated number of spectators of the matches. He told Mr. Radley that the further checks he had made from Coopers & Lybrand and Ord Minette were favourable, evidently considering that the one bad credit check was acceptable. The judge appears to have been in error in referring to a failure to check on seat sales, since that would have been premature; but that point is of no significance. Although the judge says that he took no steps to check the reason for the Australian investor having pulled out at the last minute, it seems that he did make some attempt to trace him. But his inability to trace him should perhaps have made him all the more cautious. Their Lordships have no difficulty in holding that there was sufficient material to justify the judge in holding that Mr. Rosen was negligent in failing to make further investigation before committing the company to the venture.

 

6. No question arises as to whether the respondent owed a duty of care to the appellant. The dispute is upon whether the fault which caused the loss was solely its fault or whether it was it was partly contributed to by fault on the part of the appellant. But these are essentially matters of fact. In the present case the Board are faced with concurrent findings on them by the trial judge and the Court of Appeal. In such circumstances the well-established practice of the Board is that it is only in exceptional circumstances that it will review the evidence for a third time. The practice was affirmed in Devi v. Roy [1946] AC 508, where, as illustrations of such exceptional circumstances, it was stated that there must be some miscarriage of justice or some violation of a principle of law or procedure.

 

7. Counsel for the appellant sought to argue that there was an issue of law involved in the approach which had been taken in the High Court and the Court of Appeal, in that they had failed to recognise the tension which he claimed existed between the proposition that in order to show that the respondents were liable the appellant had to show that he had reasonably relied upon the advice which he had been given, and the proposition that he had himself acted negligently so as to attract a share of the blame. Their Lordships recognise that there may be circumstances where the claimant would be reasonably expected to rely entirely upon advice from one particular source and where accordingly it could be difficult to argue that he was at fault himself. If the only advice which a prudent person would obtain before taking a particular step was advice from his solicitor on a point of law, then there may be little if any room for contributory negligence. But the present case is not that kind of case. Here the appellant was having to decide whether or not to make a particular investment. That decision required research into a number of things. The assurance by Mr. Flaws, as relayed through Mr. Radley, of the integrity of Mr. Richards was only one element in the factors to which he would be reasonably expected to look before making his decision. Mr. Radley was not giving some critical legal advice such as would be essentially within the province of a solicitor’s professional work and upon which alone the client would reasonably be expected to act, but simply providing his understanding of the reliability of Mr. Richards, gained through the inquiries which he had made. Indeed Mr. Rosen did not in fact limit his inquiries to the request which he made of Mr. Radley. In the circumstances of this case their Lordships see no tension between the finding of fault on the part of Mr. Radley in failing to pass on the qualifications on the information which he had received and the finding of fault on the part of the appellant in the failure to seek additional information.

 

8. Once it is recognised that this is not a case where the party suffering the loss would reasonably be expected to rely upon advice from one source alone their Lordships see no ground for not accepting the conclusion which the judge reached on the existence of some fault on the part of the appellant. The primary submission by the appellant that the whole fault should be attributed to the respondent must fail. The question then arises as to the apportionment of fault between the two parties. Counsel for the appellant submitted that the judge had failed to carry out any balancing of the fault of the appellant and the fault of the respondent. But in his judgment the judge gave careful consideration first to the question of fault on the part of the respondent and then to fault on the part of Mr. Rosen. Having noted the respects in which he considered that each were to blame he then looked at the facts objectively and decided that Mr. Rosen "must bear a reasonable proportion of the fault for Gilrose’s loss". Their Lordships are not persuaded that the judge had failed to carry out any balancing exercise or failed to evaluate the relevant considerations.

 

9. Counsel for the appellant argued that the judge had failed to take account of the causative potency of Mr. Radley’s negligence or of the degree of his blameworthiness. In so far as this may be seen as matter of law their Lordships are not persuaded that the judge ignored such factors altogether. He refers both to considerations of causation and to blameworthiness in the course of his judgment and it cannot reasonably be believed that he ignored these matters altogether in assessing the apportionment of fault. The point is essentially one of fact in the evaluation of the weight and significance of the fault of each party and there are no grounds for embarking upon that exercise for a third time.

 

10. It was claimed that the Court of Appeal had erred in law in the principle which they had applied in deciding whether or not as an appeal court they could properly interfere with the judge's assessment of the contribution. The argument was that the Court of Appeal had adopted too high a standard in requiring an error of principle to be identified before interfering with the assessment made by the judge. But that argument involves a misreading of the judgment of the Court of Appeal. When they said that the judge had not erred in principle they were simply dealing with the judge’s conclusion that Mr. Rosen was imprudent not to have made other checks. It is only after that that they refer, in the context of apportionment, to the standard which as an appeal court they should apply. Here they said "… we must emphasise that this is an appeal and we are not entitled to revisit the Judge’s findings unless we are satisfied that they were plainly wrong". That seems to their Lordships to be a perfectly appropriate standard to adopt, bearing in mind that, as the Appeal court observed, the judge having seen and heard the witnesses "had the flavour of the case". It was not for the Court of Appeal to make any fine adjustment to the apportionment of fault even if they felt that the proportions of the judge were open to challenge. Their Lordships can see no ground for holding that the judge was plainly wrong, or that the proportions should, as the appellant in the context of the apportionment suggested, be reversed, with the respondents bearing the greater share.

 

11. The second and final chapter of the appellant’s submissions related to the currency in which the award had been made. The award was evidently in fact paid in New Zealand dollars soon after the decision, and no point was taken about any effect of a fluctuation in the rates of exchange which had led to any unfairness. It appears that the substance of the complaint in this part of the appeal was truly not concerned with the propriety of making the award in the one currency rather than the other, but rather with the calculation of the final figure which might seem to have been on the exiguous side when presented as it was through a conversion into New Zealand currency. The detail of the calculation was not set out in complete detail by the judge. He had held that the appellant should bear between 75% and 80% of the loss which it had suffered and he accepted that the loss was A$500,000. He decided that the award should be in New Zealand dollars and it is understood that at the time the New Zealand dollar was worth about 80% against the Australian dollar. In reaching his final award of $125,000 it looks as if he was adopting an apportionment at the top end of his bracket, namely 80%, instead of something between 75% and 80%. No doubt the judge was, quite properly, working in round figures and in the necessarily inexact science of the apportionment of damages their Lordships are not persuaded that there has been any error here which calls for correction.

 

12. In the whole matter the appellant has failed to establish that there are grounds for departing from the decision of the Court of Appeal. Their Lordships will humbly advise Her Majesty that the appeal should be dismissed. The appellant must pay the costs of the appeal.