Tepko Pty Limited & Ors v Water Board S36/2000 [2000] HCATrans 693 (21 November 2000)

'

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S36 of 2000

B e t w e e n -

TEPKO PTY LIMITED, NEAL EARTHMOVING PTY LIMITED and JOHN HENRY NEAL

Appellants

and

WATER BOARD

Respondent

GLEESON CJ

GAUDRON J

McHUGH J

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 21 NOVEMBER 2000, AT 12.11 PM

Copyright in the High Court of Australia

MR G.K. DOWNES, QC: If the Court pleases, in this matter I appear with my learned friend, MR S.J. MOTBEY, for the appellants. (instructed by S.A. Teen)

MR P.R. GARLING, SC: If the Court pleases, I appear with my learned friend, MR S.T. WHITE and MS K.M. GUILFOYLE, for the respondent. (instructed by Phillips Fox)

GLEESON CJ: Yes, Mr Downes.

MR DOWNES: Your Honours, this appeal raises questions as to the circumstances which attract a duty of care in the giving of information and advice, and a second question relating to misfeasance in public office. There are issues in the appeal as to the characterisation of the facts and, to a limited extent, as to the facts themselves and as to the relevant legal principles which are applicable. I am pleased to be able to say, however, that the factual issues are relatively confined, although, regrettably, some of them reasonably complex.

Some factual issues, it would be appropriate, in our submission, to address before looking at the legal issues. Those factual issues are as follows: one, were the parties in a relevant relationship, the one with the other, or was there a request for advice, or was the appellant, Neal, a third party or a stranger to the matter?

In our written submissions we have seized upon the word "request" and the word "stranger" and referred to "request cases" and "stranger cases". I think, with respect, after a closer examination of the decisions of this Court, a more apt description may be the description that I just used, "relationship cases" or "third party cases". Indeed, some members of the Court have used those descriptions.

The second factual issue is whether here there was advice given by the Board to Neal, or was the Board simply advising its Minister in circumstances in which the advice to the Minister became known to Neal?

GUMMOW J: Well, is that not then a question of the operation of section 7 of the Metropolitan Water, Sewerage, and Drainage Board Act 1924 ? Do we not have to look at that? It says:

The board shall, in the exercise and discharge of its powers, authorities, duties and functions, be subject to the direction and control of the Minister.

Is that not what was happening here?

MR DOWNES: Yes, in effect, yes, your Honour. I am glad to note from your Honour that section 7 is "the control of the Minister" section.

GUMMOW J: We need to know how the Act worked, do we not?

MR DOWNES: The section is there, yes. I just was not immediately aware of its numeration.

GUMMOW J: But not just section 7.

GAUDRON J: At some stage one will need to know what the functions of the Board are, or were, at the relevant time.

MR DOWNES: Yes.

GUMMOW J: These are not just two commercial actors. This is a public body.

MR DOWNES: No, but if one looks at Shaddock's Case, the Court held in Shaddock's Case, for example, that the Council was not acting in Shaddock's Case in any statutory function. It was simply providing convenient information to conveyancers and solicitors and we would see the role of the Board in the present case as analogous to that, so that in the way we put the case to date we have not put it on the basis that the Board was carrying out a statutory function in doing what it was doing.

GUMMOW J: Well, it had to be doing something.

GAUDRON J: If it was not performing a statutory function, I do not see how one gets to - if it was just doing a favour to these people - - -

MR DOWNES: It was not.

GAUDRON J: If it was not performing a function, then how does one ever get to misfeasance in public office?

MR DOWNES: It would be performing a statutory function when, in due course, the appellant entered into contractual relations with the Water Board relating to the connection of the subdivision to the Water Board's system.

HAYNE J: What follows from that?

MR DOWNES: That is what gives the Water Board the power, if I can put it that way, over the appellant. What it was doing in advance of that was giving an indication of what would be the contract price, if I can put it that way, for such a contract for the connection of the subdivision to the Board's system.

HAYNE J: Well, I am by no means certain that that is an entire description of it, but let us take it to the stage that your submission seems to take it. Let it be assumed that the Board had been putting an invitation to treat, perhaps even an offer to contract, to the appellant, "We will put on the water to this area for X million dollars". Do you say that there is a duty of care engaged in that case?

MR DOWNES: That is not, with respect, precisely what it said. It said, "The immediate cost to connect to the system will be". It was not a statement of what the Board would be prepared to do it for but a statement of what the cost of the connection would be.

The Court of Appeal, or in any event, Mr Justice Fitzgerald and perhaps the Court of Appeal because the majority did not address the facts in any detail and contented themselves, at least on one aspect, to agreeing with the reasoning as well as the conclusion of Mr Justice Fitzgerald, so it may be that it goes further, but the proposition is that the actual advice from the Board was not, "It's not a matter for you to even trouble yourself as to how much it's going to cost to connect. This is what we'll charge you for it". What the Board said is, "This is the immediate cost to connect and this will only serve your particular subdivision". Now, in giving that advice, we respectfully submit, yes, there was a duty of care.

HAYNE J: So it is advising the recipient of what?

MR DOWNES: What is the immediate cost of the connection of its subdivision to the Board's system, which work, in due course, would be carried out by the Board to the Board's specification at the appellants' cost.

HAYNE J: Under a contract made with the appellants. Is that right?

MR DOWNES: In respect of which the appellants had no bargaining power, if I can put it that way, and that may be relevant in terms of issues of vulnerability, because it is not open to the appellant to say, "Well, we'll go and get somebody else to do it for a lesser cost".

GUMMOW J: Is not Shaddock all about the exercise of their powers in relation to 342AS certificates where they had a practice of putting a bit more on?

MR DOWNES: There is a specific finding there in, I think, the judgment of Justice Gibbs that the particular advice was not given under 342AS. It was given as a matter of assistance to - I will see if I can find the passage - conveyancers.

GUMMOW J: Yes, I realise that. They used to put more on the certificate than they were obliged to.

MR DOWNES: Yes.

GUMMOW J: Yes.

MR DOWNES: But, I mean, in answer to your Honour as to the parallel between that case and this, we would respectfully submit that this - - -

GUMMOW J: All I am putting to you, Mr Downes, is the starting point of the case was an application for 342AS certificate in which more material was sought and more was given.

MR DOWNES: Yes.

GUMMOW J: But it all started by looking at 342AS and the powers and duties, actually, to respond to an application of 342AS certificate with the practice of going beyond what was statutorily encumbered upon them.

MR DOWNES: Yes, that is true.

CALLINAN J: Page 229, about point 3, I think - point 2, his Honour is referring to it.

GUMMOW J: There is nothing in Shaddock that suggests you ignore the statute.

MR DOWNES: I am sorry, I missed that, your Honour.

GUMMOW J: There is nothing in Shaddock that suggested that in dealing with these questions of duty of care, you ignore the statute and just treat them as free operators.

MR DOWNES: I am not suggesting that the statute should be ignored here at all, your Honour, but just simply that the provision of a cost estimate of the kind that was provided here is not something that is expressly dealt with by the statute.

KIRBY J: Under the statute, did the Board have a monopoly on the performance of the water connection you were seeking?

MR DOWNES: Yes, your Honour.

McHUGH J: But your case has to be that the Board was exercising a power incidental to a function but the power itself is not derived from the statute and so the relevant line of cases are those limitation cases where, if there had been a statutory limitation or a requirement to give notice to the Board, it would not be doing something under the Act, or in carrying out the act. It does not need the statutory power to provide - - -

MR DOWNES: No. If I had suggested that we were accepting or submitting that what the Board was doing was not carrying out functions under the Act, then I withdraw that suggestion. It was.

GUMMOW J: Well, what are the functions under the Act?

MR DOWNES: But it was a function associated with - can I take your Honours to section 47, which is in the appeal book, if your Honours have it there, at page 553?

CALLINAN J: Do you think it might be possible for us to be provided with a complete copy of the Act as soon as possible?

MR DOWNES: Yes, your Honour.

CALLINAN J: Thank you.

MR DOWNES: I am not sure here in Canberra how quickly we can procure copies of the Act but hopefully during the luncheon adjournment.

CALLINAN J: Thank you.

KIRBY J: We have some parts of the Act, apparently, of the old Metropolitan Water, Sewerage, and Drainage Act. I do not know whether they are all relevant - - -

MR DOWNES: Section 47 is the relevant section for present purposes and, as I indicated to your Honours, that is reproduced at page 553 of the appeal book.

CALLINAN J: When I say "the Act", I mean the Act as it was.

MR DOWNES: Yes, well, we will do that as quickly as we can.

CALLINAN J: Mr Garling might even be able to do it. He acts for the Board.

MR DOWNES: Well, he may. So the Board statutory duties are created, in part, at any event, by section 47:

(1) Water available from works provided by or vested in the board shall be primarily used and equitably distributed for domestic purposes, sewerage flushing, and the maintenance of a suitable pressure for fire extinguishing.

(2) The board may distribute the balance available in accordance with the importance, in the opinion of the board, of the purposes for which the water is to be applied.

GAUDRON J: Now, 47(1), they are to be provided where? Is there some other provision of the Act that tells us where? I presume they are not to be provided at Gulargambone.

KIRBY J: It must be a definition of "metropolitan".

CALLINAN J: Section 49 says the Board will not "be compellable to supply water to any person whomsoever".

MR DOWNES: Yes. The Board's power is a power to say, "You cannot tap into the existing infrastructure". It is, in consequence, empowered to impose conditions on persons who wish to tap into the infrastructure and in the present case, it maintained that it was necessary to upgrade the infrastructure and the work that was the subject of the cost estimate of $2.5 million was work necessarily to upgrade - or, amplify is, I think, the word that the board uses - the existing infrastructure so that there would, in a sense, be an excess capacity - this is the Board's communicated reasoning - so that there would be an excess capacity in the system to enable water to be supplied to the appellants without, so to speak, an erosion of existing capacity. Although the position that the Board adopted, wrongly, as we would submit, is that the system in the area we are concerned with was already at capacity.

GLEESON CJ: Mr Downes, it obviously has nothing to do with this case because there has been no reference to it in the judgments below, but there is some general provision in the Board's Act, is there not, that stops people suing it for certain things?

MR DOWNES: Well, there may be, your Honour.

GLEESON CJ: It is the sort of thing that stops people suing it for nuisance when they go in and they - - -

MR DOWNES: I am not conscious of it and it has not been raised against us so far, if there is.

GLEESON CJ: No, I understand that. I was just curious to have a look at it. I have come across it in another context.

KIRBY J: You hint darkly that the Board - and, indeed, I think it is part of your case in your second limb -had some ulterior motive here and that, hence, they upped the ante and made a claim for 2.1 million or 2.5 million when it, in fact, ultimately only cost 800,000.

MR DOWNES: Yes, that is so, your Honour.

KIRBY J: Now, was that ever elaborated by evidence as to did they have environmental or other objections to the development that you were planning?

MR DOWNES: I think that the most - no, I think they certainly, if one looks at the letter that was ultimately written in November, wanted there to be a development proposal put forward for the whole of the area, rather than a one-off proposal relating just to the land owned by Mr Neal. That is very firmly put forward in the letter of 11 November and that would be a reason.

They were also somewhat irritated by Mr Neal's persistence in the face of their having said, as early as 1982, that they would not provide the information and there is reference that we have referred to in the material to a note in which one Water Board officer described the situation as one of gross political pressure which was the factor which caused them to prepare the estimate which they ultimately prepared.

I think those are the kinds of matters that we would rely upon to support the proposition that this was deliberate conduct and they deliberately produced an inflated cost estimate based on material they knew at the time to be wrong.

CALLINAN J: Mr Downes, was not one reason that they really wanted all the developers or potential developers to form a consortium - - -

MR DOWNES: And put in one proposal, yes, your Honour.

CALLINAN J: - - - rather than deal with one comparatively small or isolated case?

MR DOWNES: Yes, that is the factor that expressly appears from the memorandum and letter of 11 November.

CALLINAN J: Is that an illegitimate reason?

MR DOWNES: Well, it is a legitimate reason for them to say that they do not want the development to proceed, but it is not a legitimate reason to produce a false cost estimate and falsely maintain that it is correct.

CALLINAN J: That will teach you to go against City Hall, as it were.

HAYNE J: The notion of false cost estimate assumes, does it, that the estimate given has some significance as, for example, would be the case if the Water Board were to be bound to contract with a developer to supply water and charge no more than the cost of the works? But, absent that kind of provision, I just wonder whether the notion of false cost estimate may not carry with it some baggage that needs unpacking.

MR DOWNES: We would respectfully submit no, your Honour. What the Water Board did was to inform my client what would be the immediate cost of connection in terms of necessary work. It might have said, "We are going to charge you a premium of three times the cost for the purpose of seeking to persuade you to go away", or "for the purpose of seeking to collect much needed funds for the Water Board". But it did not say either of those things. It informed my client what the cost was going to be. My client was looking at a development proposal for the land and knowing what the immediate cost to connect would be was a piece of important information.

What in fact, on the material that is so far available in the way this case has proceeded, occurred, is that a receiver was appointed by a secured creditor and, in due course, the property was sold at a reduced value. But my client might have been a man of unlimited means, who happened to have ten development proposals in the pipeline and who said,"Look, this one is no longer viable now that I have been told that the actual cost to connect is $2.5 million. I will sell the property and obviously I will have to sell it at a much lower value, because the development potential it has is reduced by reference to this $2.5 million cost to connect."

Now that is the way in which we state the case, or seek to state the case, which does not enable an answer, if we are successful in putting the submission, which, in effect, says, "Well, this was all under the Board's control. At some stage in the future the actual cost would be worked out. In the meantime" - and this was the approach, I think, of both the trial judge and the majority in the Court of Appeal, in one sense - "it is open to the Board to say something that is not true, because it will all be fixed up in the end and, in effect, here vulnerability or the power of the Board, is being used in its favour". In any event, the Board can ask anything it likes and, we would respectfully submit, that these are factors which, rather than pointing away from a duty of care, point directly towards a duty of care.

GUMMOW J: But could the Board have charged, if it had gone ahead, more? Is there any prohibition upon them on charging more? In other words, is there any statutory requirement for cost recovery and no more? Unless we know that, I cannot see how we can get off the ground.

MR DOWNES: Well, we would respectfully submit that that is not an answer to the question of whether a duty of care arises at the time a piece of advice is given. That is tantamount to saying that no duty of care arises with respect to giving incorrect information, because events in the future may lead to a different consequence occurring in terms of the relationships between the parties.

HAYNE J: Or it identifies the inherent ambiguity in that word "cost"; cost is a wonderful word, Mr Downes, that means many things to many people in many circumstances.

GAUDRON J: And there is the other difficulty - you keep saying "advice". Were they being given advice or were they being given a quote or an estimate? It seems to me, we have to go back to the Act to find out what they really were doing in talking about "immediate cost to connect". I do not know what "immediate cost to connect" means.

HAYNE J: Cost to your client, cost to the Board. Cost to your client as a ready, willing and very anxious developer, cost as between Spencer v The Commonwealth-type parties?

CALLINAN J: No, does it not mean, "immediate cost", actual cost to the Board because the reference is then to what it would cost if there were a consortium of developers in the area? I must say, at first sight, I do not have any problem at all in reading it as simply what it would cost the Board to do. It is not concerned with price; it is concerned with cost to the Board, I would have thought.

HAYNE J: Does that include the Board's overhead, some contribution to its management, fully amortised cost? What sort of cost?

MR DOWNES: What its significance is, if I might put it this way, your Honour, for present purposes, is this: that one thing is clear, it is going to cost $2.5 million and not a penny less, when that contract is entered into in due course. It might cost more, because, as your Honour says, the Board might say, "Well, this excluded overheads; we are going to include overheads now", or "We are going to include a profit margin", or something or rather, but the proposition is, "Did they have a duty of care in communicating what they did communicate?" Plainly, if they did they were in breach of it and plainly they were in a position in which they could have anticipated, and ought to have anticipated, that a person in the position of Mr Neal would take this sum and say, "This is the cost which the Board says `connection requires'" and to proceed with the further development of his development accordingly.

The whole purpose of giving an initial cost estimate is to enable, presumably, even if it is given reluctantly, the person who receives the cost estimate to then take further steps towards the carrying out of the development. One option is that the development will go ahead. One option is that the development will go ahead, and that is, with respect to the majority in the Court of Appeal, the option which they proceeded with as if it were, so to speak, the only possibility. But the other option, and, of course, on the findings of Mr Justice Fitzgerald, this is precisely what the Board wanted, the other option is that the development would not go ahead. The object of the Board, according to Mr Justice Fitzgerald, was to persuade Mr Neal to go away.

GLEESON CJ: Mr Downes, I may have misunderstood something I saw when I was looking at these papers, but is it the case that by the time this matter came to trial, water had been connected to the subdivision?

MR DOWNES: I think that is true, yes.

GLEESON CJ: Was there a figure as to what it had cost to connect water to the subdivision?

MR DOWNES: There was evidence that it was a minimum of $630,000. There was other evidence which supported this proposition of not more than $800,000.

GLEESON CJ: So that is what the ultimate developer had to pay?

MR DOWNES: The evidence was that it was when Mr Neal discovered this fact - your Honours will appreciate this litigation was commenced some time after the event - that these proceedings were commenced.

GLEESON CJ: Just get Mr Motbey to give us a note after lunch as to where we find that evidence.

McHUGH J: It is at 734, is it not?

MR DOWNES: At 734.

GLEESON CJ: Thank you.

KIRBY J: If he had been told $800,000 relevant to the issue of causation, was there some evidence that the bank would not have pulled the plug?

MR DOWNES: The relevant bank officer, Mr Gleeson, said that - I will give your Honours a reference to that, too - but, in effect, said that the matter would have been treated wholly differently.

KIRBY J: You opened by saying that the facts were complex but the differences were within a confined class. Have you identified all of the points of difference?

MR DOWNES: No, I got to three, I think. Two is: was the advice given by the Board to Neal, or was it simply given by the Board to the Minister and coming into the hands of Neal; three: was Neal in a position of vulnerability; four: was the Board aware of the financial position of Neal; five: was Neal ever aware that the cost the Board maintained would be less than 2.5 million? That does not require looking at a number of documents because the trial judge held, and in a sense Mr Justice Fitzgerald affirmed, that because an adviser to Mr Neal, in effect said, in a letter that never got into evidence in the proceedings, "Look, we'll be able to drive down the Board", the conclusion to be drawn from that was that Neal knew that it would not be 2.5 million.

Now, in the case in Mr Justice Fitzgerald, he held that that did not affect either duty or breach but that is a matter which, as I apprehend it, is to be raised and is one which we wish to cavil with factually, one, because the relevant letter was never in evidence - - -

KIRBY J: But the question is not what he knew. The question is what he could show the bank.

MR DOWNES: That may be another matter, yes, your Honour. Can I say as to at least four and five, we say that they are not relevant to duty of care anyway, that the duty of care is to be determined by looking simply at the relationship between the Board and Mr Neal.

CALLINAN J: I just think, Mr Downes, that this may be an example of the problem that can sometimes exist in a tort case when the issues are split.

MR DOWNES: Yes, your Honour.

CALLINAN J: And there may be a question whether there has been damage or not. Really, I do not see how, in a tort case, it can very conveniently be done, splitting the issues. I said that in Perre v Apand.

MR DOWNES: Your Honour does not have to persuade me of the correctness of the proposition.

CALLINAN J: The trial judge was applying pressure to narrow the issues, was he not?

MR DOWNES: The problem here is the trial judge was retiring a fortnight later or something and the issues were truncated in the first place. What was sought was a declaration of liability under what I, if I can describe it as what, in any event, in New South Wales was the sort of old equity procedure in terms of damages in which you need to satisfy the judge that you have suffered some damage and then he will send it off to a Master in that case to work out what the damages were.

That is the way this case went to trial in the first instance, but then, as it blew out, the judge - and we can give your Honours the transcript references if that is necessary to do so - in effect, said either he would abort the trial there and then after a number of days, after six days, or the parties would have to come to him with yet some further truncation of the issues and, unsurprisingly, the parties adopted, in the interests of saving money one assumes, the second alternative. This has an impact in terms of reliance and my learned friend has put some submissions about that and did, as your Honour may recollect, on the leave application.

We have an answer to that, a suggestion that the reliance that is associated with causation and damages is a different reliance to the reliance that is associated with whether there is a duty of care or not. But to say that problems arose because of the way in which the case proceeded, is to say something with which I will not cavil, but there we are.

KIRBY J: Is there a notice of contention seeking to support the result below on some other basis or not?

MR DOWNES: No, there is no notice - - -

KIRBY J: So we are not going to be concerned with issues of causation or damage.

MR DOWNES: No, nor are your Honours, as I would apprehend it, concerned at all with issues of breach, although it is a little difficult to see how the Court of Appeal was able to find negligence without finding precisely a duty against which to match the negligence. They might have said it was careless, but they did not, they said it was negligent.

KIRBY J: But the respondent explains that by saying that they - - -

MR DOWNES: I do not want to cavil with that explanation, but there is no notice of contention relating to the finding of negligence either so, with that qualification, all this Court is concerned with here is duty of care.

GUMMOW J: Now, I am not sure 734 really answers what the Chief Justice was seeking to get, I think. 734 is a quote by a contract pipe layer later on. We do not know what, in fact, happened, do we, for the eventual connection and what the Board charged?

MR DOWNES: I do not know that the evidence is crystal clear, ultimately, on the issue.

GUMMOW J: But that is as far as it goes, does it?

MR DOWNES: I think it is. Well, I am told there is more evidence and perhaps we will give your Honours a note of it.

GAUDRON J: How do you formulate the duty of care that you say arises in this case? Can you just tell me what it was?

MR DOWNES: The duty of care was to act with care in and about the preparation of the cost estimate to be communicated to Mr Neal.

HAYNE J: That is rather different from the issue as formulated at 1102 to 1103. Do you seek to characterise it differently or do you say it is to the same effect? The issues, as tried, are, as I would understand it, recorded at 1102, 1103. Am I wrong?

MR DOWNES: Yes, your Honour, that is - it is a bit more expensive but, reading it selectively:

Did the defendant owe to the plaintiffs a duty to take reasonable care.....not to overstate.....the immediate cost of a water amplification scheme which would be satisfactory to serve only the development proposed by the plaintiffs?

So my phrase, in and about the preparation of the cost estimate, is expanded by reference - and these are the words of the relevant letter. Would it be convenient to take your Honours to - - -

GLEESON CJ: I am hoping we could come back to that after lunch, Mr Downes.

MR DOWNES: I am sorry, yes.

GLEESON CJ: But what Justice Fitzgerald proposed was a declaration in terms set out at the bottom of 1242 and the top of 1243, which does not quite propose an answer "yes" to question one. Maybe you could let us know after lunch what, if any, material difference there is between the issue as formulated and the declaration which, I presume, is what you are seeking to support.

MR DOWNES: Yes, your Honour.

KIRBY J: I have a dim idea that some strange procedure like this was done by Justice Grove in Puntoriero and the Riverina water body that was the subject of a decision in the Court a few years back. It is all a departure from the procedures I knew.

MR DOWNES: Yes. It is a common law action with some elements of equitable - - -

McHUGH J: It was a jury action and he left questions to the jury.

KIRBY J: He isolated certain questions and just left then alone to the jury, although the plaintiff had summoned the jury and was entitled to the jury's verdict. Things are changing.

GLEESON CJ: We will adjourn now and we will resume at 2.15 pm.

AT 12.49 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

GLEESON CJ: Yes, Mr Downes.

MR DOWNES: Your Honours, the passage I had in mind in this Court's decision in Shaddock's Case was a passage in the judgment of Justice Stephen. This was in answer to his Honour Justice Gummow's question about section 342AS. Shaddock is in 150 CLR at page 225 and the passage is at 242, the first whole paragraph on the page where his Honour said:

In the present case the Council had, as Moffitt P. puts it, set itself up as an information centre. It alone possessed the store of information which was of quite vital concern to those who owned or contemplated acquiring property in its municipal district. This was information which the Council must be taken to have known would, as a matter of course, be sought from it by all those concerned with property dealings in the municipality. As a matter of course it supplied that information, in common with other councils, as a regular and constant activity.

Now, this is the significant sentence:

It was under no statutory duty to furnish such information; whatever may be thought to be the effect of s. 342AS of the Local Government Act 1919 (N.S.W.), it does not extend to the particular information here in question. But it had voluntarily devised a system and method by which it could readily make the information available to inquirers.

Now, that is what I had in mind when I suggested that this case and Shaddock had a degree of similarity in terms of the function that was being exercised by, here the Board, there the Council.

Now, your Honours, could I next take your Honours to the, what I guess are the, two critical documents in the case, namely the Memorandum prepared by the Board on 11 November and the draft letter for the Board's Minister, Crosio, to send to the then Minister for Local Government. In its text it most conveniently found, I think, at page 684 in volume 3 of the appeal book. It can also be found at page 1096 and the letter at 1099, reproduced in the judgment of the trial judge, Mr Justice Allen, but it may be, because of the significance of the documents, appropriate for your Honours to at least sight the originals.

KIRBY J: Who made the amendment in the original at 684? Was that revealed by the evidence?

MR DOWNES: The person, I do not know, but somebody in the Board. I mean, one would assume, the person who signed it, about which there is no evidence. So if I can just take your Honours to the text of the Memorandum:

Mr. J. Neal has for some years been attempting to have rezoned for subdivision purposes a property at Wallacia. In recent representations to the Minister for Planning and Environment, Mr. Neal has sought the Minister's assistance in gaining water supply for the subdivision.

Mr. Carr subsequently wrote to you in general terms and passed on a copy of the representations he had received.

And now, the next two paragraphs I think are important to understand some other material in the case:

The water supply system serving the areas of Wallacia, Mulgoa and Luddenham was designed to service the present land-use zoning. This system is an extension of the Warragamba Township Water Supply System which is limited in capacity. It is the supply at the extremities of this system, viz., Mulgoa and Luddenham which governs the operation of the system and pressures at these locations have already been substandard on occasions.

Any additional demand at Wallacia would prejudice supply to Mulgoa and Luddenham and could not be permitted without major and extensive amplification works possibly involving the construction of a new scheme.

So the Board is saying, as appears again and again in this case, that the system was effectively at capacity.

The Board's funds are fully committed to meeting the Government's Urban Development Programme. The principle has been well established that rural developments should not be given priority over the Urban Development Programme.

Although Mr. Neal's proposal covers a relatively small area, it cannot be considered in isolation for two main reasons -

and this is the first part, I think - I answered a question of your Honour Justice Callinan's before lunch - the first part of a reasoning that goes to this idea of a preference for development as a whole, rather than just Mr Neal's proposal -

(a) Provision by the Board of water supply to areas outside the Government priority areas necessarily creates precedents which lead to development pressures.....

(b) The Board is aware that other property owners and - - -

CALLINAN J: Mr Downes, just before you go on, the clause "which are inconsistent with Government objectives", are the government objectives spelled out anywhere and how are we to find them?

MR DOWNES: I do not think they are. No, your Honour.

KIRBY J: They are not directives within the provisions of the - is it section 7, "direction and control of the Minister"?

MR DOWNES: There is no evidence to suggest they are, no, your Honour.

CALLINAN J: Is there any statement anywhere of government policy, government objectives?

MR DOWNES: Not in evidence, no, your Honours.

CALLINAN J: I suppose I should not ask you, but what does that mean? Is this somebody's idea of what they think the government might like or would not like?

MR DOWNES: That may be the substance of it but I cannot say more than that.

KIRBY J: In fairness, the general manager of the Board, one would think, would be in not infrequent conversation with the Minister about government policy. I mean, I do not know.

MR DOWNES: Yes.

CALLINAN J: It is put a bit higher than that. It is government objectives.

HAYNE J: It may owe much to the origin of this document as an intra-government document to be read against the background, no doubt, of continued and continuous communications between elements of government.

MR DOWNES: Well, except that, your Honour, we squarely take issue with the suggestion that substantively, as a matter of form, it is an intra-government document, but for reasons I will be putting to the Court in a moment and before I conclude even reading the document, this is anything but a simple communication from one arm of government to another.

CALLINAN J: Anyway, government objectives are not matters of secrecy. If an official is going to speak about government objectives, I would expect to find them written down somewhere, either in a statute or in some sort of a policy document, or in a speech by the Minister in Parliament, not just somebody's inference about what he might think - - -

KIRBY J: But he would not have to tell the Minister what the Minister and he were in communication about. It would just be in an internal memorandum and that would be something they would both know. They would not have to repeat that every time.

CALLINAN J: Yes, but somewhere one would expect something to be on the record, as it were, about government objectives.

KIRBY J: Is it relevant that this is the Board and not the Department of State? I mean, this is supposed to be an independent statutory authority, is it not?

MR DOWNES: I do not think it is an independent statutory authority. It is a Board.

KIRBY J: Well, it can be the subject of direction and control, but it would have its own statutory way of doing things, one would think.

MR DOWNES: Yes.

KIRBY J: I do not know. I have not studied the Act.

MR DOWNES: It is not constituted as a statutory corporation, as I understand it. That leads me to make an observation about the availability of the Act. My learned friend and I have more or less agreed on what the relevant form of the Act was. It was the Act as it was in force in April 1985, and the copying of that is almost complete and I expect to be able to give your Honours copies of the full Act as it was at the relevant time within 15 minutes or half an hour.

GUMMOW J: But it was a corporation, was it not?

MR DOWNES: Well, your Honour may have the advantage of me there if your Honour has the Act. This not being an issue that has been so far the subject of debate in any of the hearings, I would have to confess to your Honours I have been concentrating in the last day or so on matters other than a minute examination of the Act. I can assure your Honours, though, that by tomorrow morning, at any event, I will be in a different position so far as the content of the Act is concerned, having regard to the views that your Honours have expressed.

KIRBY J: That means you will still be going tomorrow morning?

MR DOWNES: No, it does not. I do not say more than I just said, your Honour.

KIRBY J: Just showing that I am paying attention, Mr Downes.

MR DOWNES: Yes. Your Honour is correct, 6A constitutes it as a corporation. Now, your Honours, if I can just go back to where I am now at page 685:

The Board is particularly conscious that it is not a planning organisation and would not wish to take a decision on this matter in a way which might lead to longer term difficulties for both the Government and the Board.

Now, pausing there, the majority in the Court of Appeal thought that was significant. We would respectfully submit it is not significant because no one is asking the Board to take any course relating to town planning considerations. What the Board was being asked to do was to give a quotation for the connection of a subdivision to the Board sewer -

Within this framework, the Board is prepared in general to provide water supply to rural residential areas provided the works can be funded by development so as not to affect the Urban Development Programme, present or future.

The minimum viable scheme to serve rural residential development in the Wallacia area would cost in the order of $7 to $10 million. This would provide for around seven similar developments.

The immediate cost -

and now this is the critical passage -

to connect Mr. Neal's proposed development would be in the order of $2.5 million.

So the critical words - it is these words that are the subject of the unanimous finding of the Court of Appeal, that they were negligently given, is "immediate cost to connect Mr Neal's proposed development" -

But the Board would favour a proposal from a consortium of the development in the area so that the system could be amplified to the full dimensions of a viable scheme described above in a single programme.

So one goes to what may be the Board's preference. Then another sentence that is dealt with particularly by Mr Justice Fitzgerald and the reasoning relevantly being agreed in by the majority:

I must also advise that the $2.5 million scheme would be satisfactory only to serve the development proposed by Mr Neal.

Now, another paragraph relevant on another issue that I mentioned to your Honours earlier, namely, the knowledge that the Board had relating to the financial position of Mr Neal, which we say is irrelevant to duty of care anyway, but, nevertheless, this is the relevant passage:

The Board has also received representations on behalf of Mr Neal from Mrs Kath Anderson -

she was a member of the Board -

She has explained that Mr Neal is in financial trouble and needs to sell the Wallacia property to finance development of other property interests including the million dollar renovation of "Camelot Castle".

So the Board were on notice of, one, financial trouble, two, leading to a need to sell the property.

CALLINAN J: Mr Downes, what does the next paragraph mean. They want to "treat the representations", "sympathetically", but they are:

unprepared to depart from the principles that urban planning should be done by the Department of Environment and Planning, not the Board - - -

MR DOWNES: This hangs on the catch-22 - - -

CALLINAN J: But are they saying, "Well, really, planning is a matter for the Department of Environment and Planning, but we would like to help them out because we believe that they would prefer to see this development not go ahead"? It is ambiguous, but what does it mean?

MR DOWNES: I am not sure how one construes the words, but what one can say, because there is a plethora of evidence to support this, the appeal books are peppered with letters from two local councils to the Water Board, not Mr Neal, two local councils, the councils in whose area the subject land was, asking the Board for more or less the same information.

CALLINAN J: But what is the relevance - - -

MR DOWNES: The councils would not rezone the land until it had the information from the Board and the Board would not give the information because it did not give out information, it said, relating to proposals to rezone land. So if ever there was a catch-22 situation, if I can use that colloquialism, it was here.

CALLINAN J: Mr Downes, you will have to help me out, because I am not familiar with the New South Wales planning laws. This land had to be rezoned, is that correct?

MR DOWNES: Yes.

CALLINAN J: And who was the planning authority? Was it the Department or the local council or somebody else?

MR DOWNES: The local council, subject to potential ministerial involvement, yes.

CALLINAN J: So the council would make a recommendation and the Minister would then either adopt it or reject it, is that the way it proceeds?

MR DOWNES: Broadly speaking, yes, your Honour.

GAUDRON J: But cannot the local council rezone itself, subject to - - -

MR DOWNES: Subject to ministerial interference, yes.

CALLINAN J: Yes.

GAUDRON J: Yes, and that ministerial interference is in limited circumstances, is it not? It can only do it by a particular type of planning scheme, I think?

MR DOWNES: My problem is that the whole regime is now different and this is back in 1983/84, and - - -

GAUDRON J: Well, I think that is what this - - -

CALLINAN J: See, Mr Downes, I really want to know, and it may be that Mr Garling will be able to tell me this, but I want to try and give some meaning to that second-last paragraph. It may be, it seems to me, a very important paragraph, because at first sight it is capable of being read, I think, as saying, that we want to look after some objective or we want to further some intention that the Department of Environment and Planning has, which would be in conflict with the rezoning of this land. I am not saying it does mean that, but I think it might be read that way and if it does, it may be that that is not a proper purpose of the Board.

MR DOWNES: Well, the first thing to say is that factually it cannot be that there was such an adverse policy because both the relevant councils were supporting the rezoning and by this time the then Minister, Mr Carr, was making representations to the Board relating to it. So there could hardly have been some local government policy.

CALLINAN J: What possible role, in those circumstances, in relation to this site, could the Department of Environment and Planning have? What would their interest be?

MR DOWNES: Their interest is that that Department ultimately, through the Minister, was the body to which the councils were responsible.

CALLINAN J: Was anybody asked about this paragraph from the Board? Was the author of this called, by the way?

MR DOWNES: No one was called from the Board; not one witness.

CALLINAN J: No. There is some question about the possibility of somebody being called and - - -

MR DOWNES: Yes, my learned friend said on occasions that he was going to call particular people and so forth, but never gave an undertaking. Indeed, it was when on one occasion he was required to give an undertaking, that he withdrew the tender of the letter which, in due course, although never in evidence because it was ultimately simply marked for identification, that both the trial judge and the Court of Appeal placed emphasis on, in terms of this finding, that Mr Neal really knew by 26 November that it was not going to cost quite $2.5 million. But that is another issue, your Honour.

CALLINAN J: Well, we are going to have to read this paragraph and give it whatever meaning is appropriate.

McHUGH J: I must say I did not have the same difficulties as Justice Callinan has, but tell me if my understanding is erroneous. I read it as meaning that the government was giving priority to its urban development program and that program had priority over any rural residential development programs, that the Board's funds were committed to the urban development program in so far as providing water, and that it was saying that it did not have the funds to make any departure and implement a rural development program, and if it was to be done, it had to be done by the developers.

CALLINAN J: I suppose that is consistent with the second paragraph on that page - very much so - but I still have trouble in reading it that way, I must say.

MR DOWNES: This is not an answer to the question of what the words mean, but one can see what the draftsman was - I mean, the word "sympathetically" no doubt is picking up the financial trouble in the previous paragraph, and so that is the introduction to this further explanation.

McHUGH J: Well, you get the impression that ordinarily the Board would pay for these connections in accordance with the urban development program or, later on when it revised its policies in 1986, the rural development program - - -

MR DOWNES: Well, that, as your Honour said, takes one back to the second paragraph, the one at the top of the page that says:

Within this framework, the Board is prepared in general to provide water supply to rural residential areas provided the works can be funded by development -

which I take it means by the developer -

so as not to affect the Urban Development Programme, present or future.

In its terms, that second-last paragraph is not talking about the urban development program in particular, but about urban planning in general. It does not sit well, in one sense, in those circumstances, with the fact that the relevant councils were in favour of this development and the very Minister for Local Government was, at any event, without necessarily taking up fully the cause of Mr Neal, was not relying upon urban development considerations to decline to assist him.

McHUGH J: The last sentence in the paragraph at line 26:

Mrs. Anderson has suggested that Mr. Peter Anderson M.P. may speak to the Premier about this matter -

which seemed to suggested that there were going to be political representations that perhaps the Board should meet the cost of this connection because of the financial troubles of Mr Neal.

MR DOWNES: Well, I am not sure that that - I mean, maybe that would have been a sort of hope for the future, but what Mr Neal was immediately trying to get was an estimate of the cost so that he could then go back to the council and to his financial backers to either progress or not progress further.

CALLINAN J: Would not the usual thing be, in this sort of situation, that if the developer wanted it and it was premature, in a sense, the developer could have it but he might have to pay for works which would, in due course, be a benefit to others in the future? Is that not what often happens in this sort of isolated situation? You cannot do it without, in fact, doing work which others who come along later will get the benefit of, like building a road, for example.

MR DOWNES: Can I just take that in two parts, your Honour? First of all, that is, in effect, what is anticipated by the second paragraph at line 10 on the page and the last paragraph, which I am sure your Honours have read but I have not yet read in Court, where the Board says, "Well, it has to be funded by the developer". The second part is what is that funding and that funding that the Board required, as it exposed in its fourth paragraph, was $2.5 million being the immediate cost to connect, not being something which would carry with it benefits for others but which Neal had to pay. That is how Mr Justice Fitzgerald construed the paragraph and, in particular, how he construed the last sentence of the paragraph, which is the sentence at about line 25:

I must also advise that the $2.5 million scheme would be satisfactory only to serve the development proposed by Mr. Neal.

Now, that is saying it did not have in it enough for others. The facts are, as we will seek to make good before your Honours and have already more or less made good before Mr Justice Fitzgerald in the majority, entirely to the contrary. Now, that is the memorandum. The letter was sent, the finding is, exactly as drafted, and the letter to Mr Carr from Ms Crosio, the Minister for Natural Resources, who was the Minister for the Board, is on the next page, 686, and your Honours will see a great similarity to the memorandum:

I refer to your representation on behalf of John Neal.....concerning the company's proposed rural residential development at Wallacia. You requested advice about the completion of the Sydney Water Board's policy for provision of water to rural residential developments.

Now, I will take your Honours, in due course, to Mr Carr's letter on - the significance of, just pausing here for the moment, is this, that one issue, as I mentioned to your Honours, is whether this is a - what I now propose to call, if I may, in shorthand terms, whether this is a relationship case or a third party case.

GLEESON CJ: But just before you go into that, am I right in thinking that your case is that the negligent advice is that contained in the memorandum, being advice from the general manager to the Minister?

MR DOWNES: Well, it is also repeated verbatim in this letter.

GLEESON CJ: I understand that, but that is a communication from the Minister, from one Minister to another Minister.

MR DOWNES: Yes, that is the advice which was anticipated to be and, in fact, communicated - - -

GLEESON CJ: I understand, but the letter is not a letter from the Board.

MR DOWNES: No, that is true, absolutely, yes, your Honour.

GLEESON CJ: So the conduct of the Board, which constituted actionable negligence, was in sending the memorandum to the Minister knowing and intending that the information in it would go to other people. That is all, if I might use that expression, subject to this later conference you are going to talk about, that is what the Board did.

MR DOWNES: Yes, but I would just say this, your Honour. It is the memorandum and the draft letter that was attached to it because this letter was not composed in the Minister's office based on the - - -

GLEESON CJ: I understand that, but the letter is a communication between two Ministers.

MR DOWNES: Yes, but when it was in the form of a draft letter to Crosio it was in the form of material prepared, pursuant, we would respectfully submit, to a duty of care, for communication to Crosio in anticipation of its being ultimately communicated to Neal.

GLEESON CJ: But does that mean then that the negligently given advice on your case was advice from the Board to the Minister given in circumstances where it was understood that the advice would ultimately find its way to other people?

MR DOWNES: Yes. The second paragraph of the letter:

The Board has advised me that its -

I am sorry. I had stopped. I was going to say something about the first paragraph. The point is this, that as your Honours will see in due course, Mr Carr never asked for this cost estimate. He asked the Board about a policy review it had under way. Mr Neal had asked for a cost estimate as early as 1982 and, as I will show your Honours in due course, had been asking for it, both directly and through others, ever since.

Shortly prior to the preparation of this letter, I think in about October, he made a specific proposal to the Board for an 87-lot development and the Board made the calculations that ultimately led to this 2.5 million figure, referring to the words "proposed development", based on that. There cannot be any doubt about that. Your Honours can see that the figures use this number of lots as 87.

So we use that to aid the argument that this is really not a response interdepartmentally between the Board, the Water Minister and the Planning Minister but, in substance - and the Court of Appeal so held and I will take your Honours to the finding - not a response at all interdepartmentally but a response to the request from Mr Neal for the information. Now going back to the letter at page 686:

The Board has advised me that its revised policy.....will not be completed until early in 1986.

This is what the Minister had been asked by Mr Carr directly.

However, there are well established principles which directly relate to this situation and which serve to establish the way in which the Board must be bound on these matters.

I understand that Mr Neal has approached the Board a number of times -

so this is the Board in its draft to its Minister recognising the number of requests, to use that word again, by Mr Neal -

and been advised that any additional demand at Wallacia would adversely affect the water supply to the residential areas of Mulgoa and Luddenham. Additional demands brought about by development at Wallacia could not be met without extensive and costly amplification works.

So one gets a slightly truncated, but repetition of the "there's no extra capacity" answer.

The Board's funds are fully committed to meeting the Government's Urban Development Programme.

There is that issue as to Board's funds being used again.

The principle has been well established that rural developments would not be given priority -

That is a repetition of what went before as is the next paragraph and the (a) and (b).

The Board is particularly conscious that it is not a planning organisation -

Your Honours will recollect that paragraph.

Within this framework, the Board is prepared in general to provide water supply -

Your Honours will remember that one -

funded by developers -

Interestingly, it does say there, provided it "can be funded by developers". I think in the memorandum it says funded by the development.

The minimum viable scheme -

is the $7 to $10 million scheme and then there is a repetition of the paragraph:

The immediate cost to connect -

and then:

The Board's policy on sewage disposal in rural residential areas would not present a problem -

So nothing turns on that, but the next paragraph is significant and it is the paragraph I had in mind when I gave an answer to your Honour Justice Hayne earlier as to whether this was an interdepartmental communication:

I trust this information will enable you to further consider Mr Neal's proposal. In the event that Mr Neal wishes to discuss the matter further with the Board, he might contact Mr A.G. Wright, Director of Operations and Customer Relations, who can be reached on 269-6001.

It would seem that because there is a reference, AGW, at the top of the memorandum, I said to one of your Honours earlier that there was not evidence as to who wrote the memorandum, but I guess an available inference, having regard to the letters AGW at the top of the memorandum, is that perhaps it was Mr A.G. Wright. If your Honours look at 684, top left-hand, the inference, perhaps, is that these two documents were prepared by Mr Wright, but I do not think anything turns on that and I cannot give your Honours any assurance about it.

But here, in the clearest possible terms, is a piece of evidence which shows that, in truth, the Board was writing to Mr Neal through its expectation as to what was going to happen with its memorandum and draft letter.

GLEESON CJ: Is this in aid of a submission that this a relationship case and not a third party case?

MR DOWNES: Absolutely, yes. I mean, we say this is very simply a relationship case and as a relationship case, the sorts of problems that the Court has addressed in San Sebastian, in Esanda, and in the other cases that have come before it in recent times which are calculated to limit in circumstances of indeterminate liability are not really relevant here.

GAUDRON J: Now, is it fair to describe the relationship, on your submissions, as one between somebody who was seeking information from another as to the price at which it would do something that it was not obliged to do?

MR DOWNES: No, the question of whether it would ever happen or not was something for the future. It was seeking advice as to what it would cost if it were done.

GAUDRON J: Well let me put it this way: seeking information as to the price it would cost for the Board to do something which it had no obligation to do unless directed by the Minister?

MR DOWNES: I think I can accept that, your Honour.

GLEESON CJ: Now, you say this was a relationship case and the information in the memo at page 684 of the draft letter was provided at the request of Mr Neal and in the knowledge that it would be communicated to Mr Neal?

MR DOWNES: Yes.

GLEESON CJ: But the harm resulted, not from the fact that it was communicated to Mr Neal, but from the fact that it was communicated by Mr Neal to his financiers.

MR DOWNES: Yes, but that is - - -

GLEESON CJ: Who then reacted to it in a way that caused harm to Mr Neal.

MR DOWNES: Yes, but - first of all, your Honours, that is not a duty of care issue and however unfortunate it is, it may be that we would submit is not an issue for the case at this stage, but set that aside for the moment and let me, because we know in substance what did happen, answer your Honour's question. That was simply the use that was made of the information.

McHUGH J: But that is the whole basis, is it not, of the negligent representation cases, that information is given in circumstances in which the speaker realises or ought to realise that he or she is being trusted to the best of his or her ability to give information or advice as a basis for action on the part of the recipient.

MR DOWNES: Exactly, and, your Honour, the word "trust", if I could say this in anticipation of something else in what your Honour just said to me, is the relevant reliance that is important for the duty of care here, not anything to do with what Mr Neal was thinking down the track when he handed over the letter to the Bank.

McHUGH J: That was the way it was formulated by Chief Justice Barwick long ago in MLC v Evatt, and departed from by the majority in the Judicial Committee, but my understanding was restored again by this Court in Shaddock or at least by Justice Mason, Stephen and others.

GAUDRON J: When the matter is put that way, one equates notions of estoppel very closely with the duty of care, so I suppose one of the questions, although I know it is not necessarily seen in this area of discourse, must be the reasonableness of relying on that information.

McHUGH J: And indeed, that is part of the formulation. I mean, I only gave a very short summary of it, but it was also part of Chief Justice Barwick's formulation that it was reasonable for you to rely on the information.

MR DOWNES: Yes, absolutely.

HAYNE J: But does that suggest that to determine duty on the present way in which the case is presented may lead to some distortion? I am not sure. Is there a problem presented for determination of the bare question of duty of care presented by the fact that we know that the use in fact made was presentation to the Bank? Does that bear in any way on duty of care?

MR DOWNES: We say it does not. As we have said in our written submissions, all that it was necessary for the Bank to perceive was that Mr Neal was engaged in a profit-making activity, because of the circumstances of his having asked and asked, pressed, you know, the persistence with which he sought the information, plainly demonstrated to the Board that this was information to be given for an action by Mr Neal in connection with his proposal and, more than that, if you look at MLC v Evatt, if you look at Hedley Byrne v Heller, for that matter, if you look at Shaddock, more than that is not required.

In Shaddock's Case, for example, no one said, "I am acting for X who is about to buy a particular property and the use is the following." Or even if that was said, it is not part of the reasoning of the Court leading to the finding of a duty of care. The Court speaks about the fact that, in this kind of situation, it would be known that, whatever use was going to be made of it, it was a use of a kind which might lead to a loss if the information was negligently given.

GAUDRON J: But this was a case not in which people were going to act on it to buy land. That decision had already been made. The best that could be said was a decision was going to be made whether or not to proceed with its subdivision, which seems to suggest that what you are talking about is a diminution in value of the land, if anything.

MR DOWNES: Yes.

GAUDRON J: Now, it has always seemed to me that it is very difficult to assert a duty of care without knowing the end consequence of it in these economic loss cases. So, one has almost to say, I think, that there was a duty of care to take reasonable steps to prevent a diminution in value. Now, if you turn it that way, you may be looking at something for a much more closer connection than merely asking for advice.

McHUGH J: But I think in this area, these are representation cases that have developed a category of their own and a lot of the commentators treat them, and the rules that you might apply in determining whether there was a duty to prevent economic loss in other areas, such as Perry v Apand and so on, do not apply in this particular area where it is hardened into some fairly firm rules at this stage.

MR DOWNES: In think in Perry at least one of the Judges of the Court isolated, as a specific category in the development of liability in economic loss, a specific category of negligent mis-statement cases. Can I just this in answer to your Honour Justice Gaudron that it is true that the appeal books here are peppered with references to a development. But, I mean, it is stating the obvious to say that Mr Neal was not developing this land so that he could be the owner of 87 lots of land. This was - - -

GAUDRON J: No, he was a developer, which means he was a risk taker. This is not - - -

MR DOWNES: If Shaddock's Case was about gaining information in connection with a purchase - - -

HAYNE J: Information about existing fact, "Do you now have a road widening proposal?" What sets this case apart is it is about future conduct, "What will you do in the future?".

MR DOWNES: Is that not the advice versus information dichotomy that one finds right through the cases, and it is always raised by judges who then say, "Well, there is really not a difference".

McHUGH J: There are a lot of cases in Canada on rezoning, for instance, with negligent representations about rezoning. At least one of them was referred to by the Judicial Committee in MLC v Evatt, if I remember rightly. Is it not easier to understand your argument if you took us, at this stage, to some of the principles which you rely on?

MR DOWNES: Yes.

McHUGH J: I mean, there is always this interaction between fact and law, but I think in this case, for my part, we might be helped if you took us to the principles which - - -

MR DOWNES: Yes. Well, I am certainly happy to do that. I think I would, nevertheless, wish to take your Honours to some further factual matters and I will need to do so when developing the argument relating to misfeasance in public office - - -

GLEESON CJ: Is your misfeasance case that the Water Board set out to kill this project?

MR DOWNES: Yes. It is a kind of - - -

GLEESON CJ: I understand that, but then the negligence case is a step back from that which might involve saying, "Well, that is putting it a bit high. How would they know, for example, that the financiers response to this would be to put Mr Neal into receivership?" But at least, so I presume your negligence argument goes, they carelessly, and the reason for their carelessness may be not unrelated to the highway of your case but they carelessly overstated the $2.5 million figure.

MR DOWNES: Our primary case is the negligence case but I suppose there is at least the possibility that someone might say, "This was not carelessness, this was quite deliberate".

GLEESON CJ: Yes, but just a minute. Deliberate - if you cannot succeed in your negligence case, you cannot get up on misfeasance, can you, and if you get up on negligence, why do you need misfeasance?

MR DOWNES: Absolutely. With your Honour's second proposition, I agree.

GLEESON CJ: But if a person is charged with negligently running down somebody on the highway, he cannot defend himself by saying, "I did it deliberately".

MR DOWNES: I would have to accept that there are authorities to that effect. In principle though, one wonders, if I can put it this way, if the Water Board had a duty to prepare its calculations with care and it went around deliberately preparing them wrongly, why, I ask rhetorically, was it not still in breach of its duty to prepare them with care? The claim is made out even more clearly.

GLEESON CJ: That is my point. At the moment, as I see it, if you succeed in negligence, you do not need your misfeasance case, and if you fail in negligence, you do not have your misfeasance case.

MR DOWNES: But that depends upon the reasoning that I just put to your Honour - - -

McHUGH J: Before I would make that concession, you might perhaps give some thought to contributory negligence.

MR DOWNES: Which has not been raised here.

McHUGH J: Well, no, not here today.

MR DOWNES: No, but, I mean, it might arise in another situation. But what I did wish to say in answer to your Honour the Chief Justice is this, that there is at least a theoretical possibility - in the real world I think I would concede it is an unlikely result - that the Court might say, "This is not negligence, this is deliberate conduct giving rise to misfeasance in public office. You fail in your negligence claim.", and then if I did not have my back-up misfeasance claim, I would fail altogether. Now, it is only, in a sense, against that possibility that this misfeasance case is put. So I can say to your Honours - - -

GUMMOW J: Am I right in thinking that you agree with Justice Gaudron that the Board was not obliged to deal with you unless directed by the Minister?

MR DOWNES: Yes, I think so.

GUMMOW J: It seems to me what the Board had, in a way, was control of essential infrastructure. It was outside - am I right, in thinking it was then outside Part IV of the Trade Practices Act? What, in substance, is going on here is a refusal to deal with you in relation to this essential infrastructure, but they were outside Part IV, were they not, at that stage? They might not be now and really what is going on, in a way, is to push what should be a Part IV case if into the realm of negligence. I am not sure it is.

MR DOWNES: I would not accept that, but, your Honour, if I am right about Shaddock's Case, then Shaddock's Case is a case in which no council had to give this information.

McHUGH J: But is not the beginning and end of your case Shaddock's Case, at page 251, where Justice Mason sets out at 250 what Chief Justice Barwick has stated as the - - -

MR DOWNES: Yes. As the Court of Appeal recognised, but then went on to say that something your Honour had said, and I think Mr Justice Gummow had said in Esanda, in what I would say was an entirely different case and, in any event, it still recognised this exception, I would say, but it was because of that, in a sense, that they pinned the ultimate result, I think, in the Court of Appeal to this idea that there had to be a knowledge as to the specific purpose for which the information was sought.

McHUGH J: Well at page 250 about point 3, Justice Mason summarises what Chief Justice Barwick said in MLC v Evatt and then at page 251 he says that the Court should adopt that statement.

MR DOWNES: Yes.

GAUDRON J: Now, could I ask you, though, this? This case is not nearly so clear to me as it is to you, Mr Downes - - -

MR DOWNES: I am not sure how familiar it is to me yet; I am still trying.

GAUDRON J: If there is a duty of care, there is only a duty of care to prevent a foreseeable risk of harm, is that right? It is not sufficient in this case, but there is no duty of care except to prevent a foreseeable risk of harm.

MR DOWNES: Yes.

GAUDRON J: What was the foreseeable risk of harm in this case? Now, you did suggest to me it was diminution in value, but I do not think that is the right analysis, because - I tell you this before you answer - the land had no great value so long as it had no rezoning. It would have acquired a greater value with the rezoning and the water. Its value would increase, I suppose, or the increase in value would be referable to the cost of the water, but I do not think you can answer me by saying, the foreseeable risk of harm was diminution in value. So I need to know what it was.

MR DOWNES: I would not put it as diminution in value, but potential - - -

GAUDRON J: But you did a little while ago.

MR DOWNES: I am not sure that I did, your Honour; potential loss on resale.

GAUDRON J: Is that not diminution in value? And how can we say that?

CALLINAN J: Well it is diminution in value, is it not, because it is worth, say, X without any potential at all; it is worth X plus Y with a potential for redevelopment or for subdivision at a reasonable and proper cost.

MR DOWNES: Yes.

CALLINAN J: But it is worth X plus Y less Z if its potential for subdivision is at a much, much higher cost, so it has an immediate impact upon its value.

MR DOWNES: Well, I was talking about the realisation perhaps of the loss, as to what might be anticipated, because if all one is talking about is a diminution in value of the land, then perhaps the plaintiff would never sell and, in due course, would not have suffered any loss.

GAUDRON J: Exactly, and perhaps - - -

MR DOWNES: But the risk is that the loss will be crystallised - - -

GAUDRON J: I do not understand loss on re-sale as a risk of harm independent of diminution in value and - - -

MR DOWNES: No, it is a realisation of that loss, if I can put it that way, your Honour.

GAUDRON J: A realisation of what loss?

MR DOWNES: Of the diminution in value.

GAUDRON J: I mean I may make a loss because I decide that I want to make a loss. For example, I may have a valuable painting. I do not want to make an outright gift of it, but I want to make it available to somebody at a price he or she can afford. I may make a loss. Now, should it be the case that, in making that decision, I am acting on somebody's advice that that is all he or she can afford? Unless I make known what my exact position and intentions are, how can there be a duty to prevent a risk of my making a loss?

MR DOWNES: Well, can I answer that by saying the plaintiff in MLC v Evatt and the plaintiff in Shaddock did not make known exactly what he was doing. Here the plaintiff did make known exactly what he was doing, namely he was engaging - - -

GAUDRON J: Speculating.

MR DOWNES: - - - about a subdivision and sale of the land.

GAUDRON J: He had no zoning for the subdivision. At no relevant time did he have subdivision approval.

MR DOWNES: Yes, but that does not matter so far as the value of the land is concerned.

GAUDRON J: It must.

MR DOWNES: No, the value of the land, with respect, your Honour, is constantly changing.

GAUDRON J: Yes.

MR DOWNES: If I can put it, the measure of damages in - - -

CALLINAN J: Just before you do that, you have to put it upon the basis that he is a business man, and his business is in holding land for developing it and developing it

MR DOWNES: Yes, and selling it.

CALLINAN J: And selling it.

MR DOWNES: At any time he might say, "Well, I am not going to continue with the subdivision any longer, I am going to sell it as it is", and that is where one looks at the differences in value.

GAUDRON J: Yes.

MR DOWNES: If I can put it to your Honours this way: what Mr Neal does when he is deciding to sell it is to go to a purchaser and say, "I have got the best deal you have ever seen; I have two councils who are absolutely anxious that I should subdivide this land. I have had a torrid time with the Water Board, but they have now given me an estimate of how much it is going to cost to connect to the water and that is $2.5 million, and this land, in consequence if worth $X million." But what he should have been able to do is to go and say "I have another lower estimate of how much it is going to cost and the third party who is treating with him to buy will pay more for the land with the lower cost of connection.

CALLINAN J: Mr Downes, the Water Board would be dealing every day with developers. The Water Board would well know that this information was of vital importance to developers, not only with a view to subdividing the land and selling it, but also for going to their financiers, perhaps to use it as security for something else. It is stock and trade. The Water Board knew that.

MR DOWNES: But my proposition is, and I think it consistent with what your Honour is putting to me, that the relevant knowledge in terms of working out duty of care that the Board had of what Mr Neal was doing is that he was a developer developing land. No more than that was necessary. In fact, they knew he was a developer who was developing land who was in financial difficulty, which makes it even more likely that he might sell.

McHUGH J: I am not sure that you are not getting into questions of quantification of damage and remoteness.

MR DOWNES: I am sure I am, your Honour.

McHUGH J: You are, I know.

MR DOWNES: As I have said, that is one of my categories that is not relevant to duty of care.

GAUDRON J: But sometimes those questions cannot be isolated and I go back to where I started, having provoked this debate, I am sorry. What was the foreseeable risk of harm?

McHUGH J: You see, it may be that in this area one does not talk in terms of foreseeability because of the way this category has developed. I forget Lord Devlin's phrase in Hedley Byrne but he said this head of liability is something like quasi-contract or some similar expression. Here, there is a duty to give accurate information in certain circumstances. It is formulated by Justice Mason. Failure to give that accurate information is the breach of duty and your damage is taking action to your detriment, whatever that might be.

MR DOWNES: Yes, whatever it might be. The duty and reliance concepts arise out of the relationship.

GAUDRON J: But where does the duty to - - -

MR DOWNES: If one looks at MLC v Evatt, looks at Hedley Byrne, looks at Shaddock, you do not find any analysis of, "Now we have to look at what use was going to be made."

McHUGH J: Foreseeability, if it is proper to use the term, comes in in you realising or ought to realise that you are being trusted to give information as a basis for action and that it is reasonable for the recipient to act on that.

CALLINAN J: You can draw some analogy, perhaps, with what Chief Justice Gibbs said in Gould v Vaggelas 157 CLR where the representation, deceitful representation in question, was not made to the purchasers but it came to the notice of the shareholders and the purchaser and at page 223 the Chief Justice said:

In a case such as the present, where the plaintiffs were not purchasers, the measure of damages is the sum which represents the loss which the plaintiffs have suffered because they altered their position in reliance on the fraudulent misrepresentation.

By analogy, you could say here that any alteration to his detriment of his position by Mr Neal on the basis of the negligent misrepresentation, should sound in damages, whatever that might be.

MR DOWNES: The essence of the duty, as one finds it in what I call the relationship cases, is in the trusting to provide information in a serious business situation without need to address the use or the precise use. Can I say this, though, if I may, your Honour Justice Gaudron in a joint judgment with Justice Toohey in Esanda, as quoted by Justice Mason at page 1194 of the appeal book, and it is at page 261 of Esanda, said this:

"the existence of a duty of care does not depend upon knowledge on the part of the speaker of the precise use to which the information will be put"....."[i]t is enough if he knows, or ought to know, that the inquirer is requesting it for a serious purpose -

Now that, if I might say so, is precisely what I have just been trying to put.

GAUDRON J: Well, you cannot, though, divorce the knowledge. I think one of the problems in this case, and I think it is a very serious problem, at least from my perspective, is that the case has been truncated in the way it was.

Now let us say for a serious purpose that is right but the council knows that he already owns the land. He has bought the land independently of anything the council has said or done. He has taken a risk in the purchase of the land. The council knows that he has not presently got zoning. The council knows that he cannot get zoning unless it does something and it is unless it does something which it has no obligation to do unless so directed by the Minister, it seems to be the case.

Your case seems to me to verge on a positive duty to assist this developer in bringing his proposals to fruition. That is almost a duty to increase the value. I find that a very bizarre realm of discourse, and quite different from cases in which you can say people are acting to their detriment, or people have acted to their detriment.

MR DOWNES: I would answer your Honour by simply saying this: the land had one value in a sale with a contract to which was attached the letter of 11 November 1985 with $2.5 million in it, and it had - - -

GAUDRON J: Yes, and what was its value without any such letter? That is the question.

MR DOWNES: No, it is not, with respect, your Honour. The question is: what is its value with that letter with the correct figure in it?

GAUDRON J: I am not too sure.

HAYNE J: That is to say you cannot have the Board say, "We will not do this". There are three stages that the Board could have adopted: (1) we will not do it; (2) we will not do it unless you pay 2.5, or of the order of; or (3) we will not do it unless you pay of the order of 2.5, which is our cost. Your claim for negligence fastens on that last descriptor.

MR DOWNES: Your Honour, we would respectfully submit that whether the Board would ultimately do it or not, whether the Board was ultimately directed to do it or not, is not to the point when one is asking when somebody in the Board in November 1985 is preparing a memorandum for ultimate transmission to Mr Neal. At that point of time, the Board member might say, "Over my dead body", or "Only if directed to do it by the Minister", but by that time, presumably the same Board employee would have thought, "Well, this man seems to be extraordinarily successful in what he can do through ministerial intervention, maybe I will be forced by the Minister". Now, all of that - - -

GLEESON CJ: What if the Board general manager had said something a little different again? What if he had said to himself, "We want to raise some revenue for the Board. The Board ought to try and turn a profit out of this proposal, so let us tell him that we will do it for $2.5 million and let us tell him that that is what it is going to cost us."? That is the sort of thing that actually is not uncommon in business.

MR DOWNES: No. My learned friend has laboured to persuade the courts below that that is the construction of the letter, but he has failed. He has failed because it is simply not what it says. It says the immediate cost to connect is X, and it says this is only a connection which would serve the proposed development.

GLEESON CJ: If somebody came to buy a block of land from Mr Neal, there would be no obligation on Mr Neal to give a careful and accurate account of what it cost him to develop the land, would there?

MR DOWNES: If somebody was treating with him in a business situation and asked him to say what was - requested him to give relevant advice and he negligently gave advice, not just wrongly but negligently, we would respectfully submit that the authorities are very clear that he would be liable.

GLEESON CJ: That might mean we have to look at little harder at what the nature of this relationship was that you say existed between the Board and Mr Neal. It may, on one possible view, be different from the nature of the relationship that existed between the council and the person seeking the section 342AS certificate. Was Mr Neal proposing to do business with the Board?

MR DOWNES: Well, he had no option but to do business with the Board because either the Board would do the work itself or direct him as to who would do it, and in each case he would pay the Board's figure.

GLEESON CJ: If the relationship is between two parties who are going to do business with one another, is there an obligation of care or frankness when making statements about costs?

MR DOWNES: In our written submissions, your Honour, we have said, in one paragraph there, that all of the classic tests are here satisfied, and one of them was the potentiality for a future contractual relationship between the two. But that is just one factor. But the overwhelming - this is what I am going to say in answer to his Honour Justice Hayne a moment ago, that in one sense - everything has to be understood in the light of this - but in one sense the fact that the Board may or may not ultimately have approved a development or not is not to the point. The point is this, the Board very reluctantly, very reluctantly, but nevertheless, ultimately, gave a piece of advice.

GLEESON CJ: Well, most people who are proposing to do business that might lead to a contractual relationship would be reluctant to give information as to their costs. If the Board had ultimately had a contractual relationship with Mr Neal, would there have been anything wrong in the Board seeking to make a profit out of that?

MR DOWNES: Unless that is in breach of its broader statutory obligation under section 47 and similar sections, no. It may be in breach of section 47, I just have not thought much about it.

GLEESON CJ: Does that mean that a person who may contemplate entering into a future contractual relationship for the supply of services is under a duty to exercise care when being forced into a position, perhaps by ministerial pressure, of giving information as to what its costs are?

MR DOWNES: We would submit that a duty of care arises in that circumstance.

GLEESON CJ: Maybe in the questions I am putting to you there is an error in treating the Board and Mr Neal as business people dealing at arm's length with one another. That may be worth thinking about. But subject to that, which is a real possibility, it does seem a little odd that in circumstances where the time may come when the Board and Mr Neal enter into an arm's length contract for the supply of services by the Board to Mr Neal, the Board finds itself in a position where it has to give a careful and accurate estimate of its costs to Mr Neal.

MR DOWNES: If I can put it this way, to go back to something your Honour said just at the beginning of your Honour's response, the fact that there is an inequality of bargaining power, the fact that this is not a situation of two people of equality bargaining, is only, we would respectfully submit, more likely to give rise to a duty of care rather than less likely, because of the Court's recent statements in particular about issues of vulnerability.

GLEESON CJ: What was it that ultimately, in effect, forced the Board to do that which I think you told us it had been refusing to do for years? What was it that finally put the Board in a position where they - - -

MR DOWNES: Someone said, "The jig is up. Two Ministers are now asking us about it. We might as well do it". But they did more, as I said to your Honours earlier, than Mr Carr had asked for, because they had this 87-lot proposal and they said that is the cost.

GLEESON CJ: It may be that I was taking an inappropriately commercial approach to the relationship between the Board and Mr Neal, but people contemplating entering into commercial contracts do not normally feel obliged to put their cards on the table.

MR DOWNES: No, that is true.

KIRBY J: But if you are a servant or agent of a donee of statutory power, one does not generally assume that if you do put your cards on the table that they will be dishonest cards.

MR DOWNES: That is right. They may have been very reluctant to do it, they may have tried very hard not to do it, but in the end what they did was in response to a request, "Give Mr Neal a piece of advice".

GLEESON CJ: Request or a direction? Did they do this because the Minister made them do it?

MR DOWNES: Well, he did not make them do it. The most the Minister said is, "You have got a policy review under way. Please let us know what the policy review is". Now, it may be that they did some reading between the lines, I do not know, but there is certainly no statutory requirement.

CALLINAN J: But, Mr Downes, they were really doing two things, were they not? They were making a communication to the Minister in the expectation that the substance of it would be passed on to your clients. That is part of your case, is it not?

MR DOWNES: Yes.

CALLINAN J: But they were also telling the Minister in the memorandum what the cost would be, and it is hardly likely that they would be giving to the Minister a cost which included in it a very high profit component, I would have thought.

MR DOWNES: When it is couched in terms of the immediate cost to connect.

CALLINAN J: Yes, but whether it is or is not, you would hardly expect them to use the language of cost - - -

MR DOWNES: When they are talking about profit making.

CALLINAN J: - - - rather than price, or some other language, when they are telling the Minister what the difficulty would be for them.

MR DOWNES: Quite.

CALLINAN J: So it seems to me that there is no attempt being made by them to give a figure other than the figure that was the cost, and it did not have included in it and it was not intended to have included in it, a profit component.

MR DOWNES: Yes.

GLEESON CJ: What do you take the expression "immediate cost to connect" to mean? Its meaning is not self-evident to me.

MR DOWNES: The cost to the Board of the - - -

GLEESON CJ: The cost to the Board?

MR DOWNES: Yes. We have a lot of findings that, rather than thinking on my feet, I would like to refer your Honours to. Could I just interrupt myself for a moment. It is appropriate I should do this now. Your Honours raised a number of issues before the luncheon adjournment that I indicated that I would search out and seek to answer. We have produced a little note, if I can hand that up to your Honours. It is just a shorthand way of saving your Honours listening to me orally saying what the answers are.

Can I just take your Honours, first of all, perhaps, to the judgment of Mr Justice Fitzgerald where he says what it all means. It is at page 1230 at paragraph 63, line 19:

The appellants also criticised the Board's statement that an "immediate cost ... in the order of $2.5 million ... would be satisfactory only to serve the development proposed by [the appellants]". Amplification works which would cost "...in the order of $2.5 million ..." would obviously increase the system's capacity beyond what was needed to supply the appellants' land. The development of that land would require only a proportion of the additional volume of water -

perhaps I can pass over some of that, because over the page, his Honour concludes, page 1231 at line 10:

I consider that no more was meant by the statement "...the $2.5 million scheme would be satisfactory only to service the development proposed by [the appellants]" than that the proposed amplification works were no greater than was appropriate to supply the appellants' development.

So, that is what, in Mr Justice Fitzgerald's view, and we would adopt it - or that paragraph gives some content to the phrase "the immediate cost to connect". Immediate cost, that would be cost to the Board or such person as the Board authorised to do it.

GLEESON CJ: So the assumption was - I have no idea whether this is right or wrong - that, we are going back a step: what Mr Neal was interested in, I presume, was how much it was going to cost him. So the assumption was that the Board was going to do it for Mr Neal at cost. Cost to the Board - is that right?

MR DOWNES: Yes.

GLEESON CJ: I am not suggesting it should not be right, but I am not sure.

MR DOWNES: Yes, but if one looks at it the way I looked at it, or presented earlier, I do not think one needs to even necessarily go that far, although we would. But what this told Mr Neal was that the minimum amount he was going to have to pay was $2.5 million. It may be that the Board in due course would say, "We forgot to mention our 10 per cent profit margin and it is going to be $2.5 million plus 10 per cent". But one thing was clear: the Board was not going to say, "It is less than $2.5 million". I do have to recognise this context, that as an order of cost estimate - and this is not just some means of dealing or estimating that kind of comes from nowhere; the Board has an established direction or memorandum as to what an order of cost estimate is; it has a form that is filled out and so forth. One component in the order of cost estimate, because it is a very preliminary figure - and this was a matter which was seized upon by the trial judge to say there was no duty of care - because it is a very preliminary figure, what the order of cost estimate does is says, "Work it out and multiply it by 1.35 for contingencies."

KIRBY J: Now, where do we find why they multiplied by two?

MR DOWNES: Well, you do not, only inference.

KIRBY J: No explanation was offered as to why, exceptionally, they departed from their own protocol?

MR DOWNES: Well, no one got into the witness box. What happened is that, ultimately, selective bits and pieces of the Board's witnesses' statements were tendered by Mr Motbey and those bits and pieces contained in it statements by, mostly, a Mr MacLachlan as to what the handwritten notes were and a three word description and when they were created. When one comes to the handwritten document, as your Honour has no doubt noticed, and you can see it rather starkly in the colour version of the document because it is done in different coloured inks, someone writes, "Say 1.4" - well, he actually writes, "Say 1.3 million" and then crosses out the 3, or writes over the 3, "1.4 million".

KIRBY J: Can you show us the protocol that say that normally they will apply 1.3 and - - -

MR DOWNES: Yes, 683 - no, 631, I am sorry.

KIRBY J: This altered document, that is at 631, is it?

MR DOWNES: Page 631. You see, there are three levels of engineering estimates.

KIRBY J: It is left unexplained by the respondent.

MR DOWNES: Yes.

KIRBY J: They did not venture into the box and explain how or why?

MR DOWNES: Notwithstanding statements and toing and froing about whether people were going to be called or not, so - - -

HAYNE J: Page 631 is an extract from some textbook?

MR DOWNES: Yes, true. Can I take your Honours - it may be the best thing to actually go to the colour versions of these three documents I would like your Honours to at about 1173. Now, 1173 is the essence of the document which begins the calculation and I will not try and explain it to your Honours in all its detail and, if I have to, I may need to ask Mr Motbey to come to my aid. But can I tell you that the original document was done by a Mr Ell. There were variations written on it by a Mr MacLachlan, they are the red variations, and a Mr Clayton, they are the black variations. Mr Clayton was the most senior, Mr MacLachlan was next in line and Mr Ell was the junior officer.

Now, if your Honours go to the red on the right-hand side, about a third of the way down the page, starting 1,159,346, your Honours will see the multiplied by 1.35 calculation.

Now, the top two-thirds of the page is concerned with one calculation which ultimately led to a figure of $1 million and I am going to pass over that at the moment because the one I want to address is the one that your Honour Justice Kirby asked me about, namely, the $1.4 million. That calculation is a calculation that begins with the word "Rising Main", two-thirds of the way down the page on the left-hand side, and what Mr Ell is doing is working out the cost of a 375 mil diameter rising main for 2.3 kilometres which will produce a flow of 7 megalitres per day. He does some costing immediately under that and arrives at a figure of $672,359.

That would be something which it was not inappropriate to apply the multiplier of 1.35 to. But you can see here that what Mr Clayton did - we know it is Mr Clayton because Mr Ell, in a statement that is in evidence, said it was - Mr MacLachlan, I am sorry, but that is the only way we know it. No one has said why or anything but he wrote "difficulty say", and your Honours can see it looks as though it was originally 1.3 million and became 1.4 million.

GAUDRON J: Where I see "difficulty", it looks like, in my copy at least, the original. What seems to be altered?

MR DOWNES: The words "difficulty say 1,400,000" are all written on by Mr Clayton after the document was prepared. The evidence supports that.

KIRBY J: Mr Clayton or Mr MacLachlan.

MR DOWNES: Mr Clayton. What Mr Clayton did though was originally write "difficulty say 1,300,000" and then changed that to "difficulty say 1,400,000".

GLEESON CJ: Did you say a little time ago that there would have been no criticism of this if the multiplier of 1.35 had been applied to the 672,359?

MR DOWNES: Yes.

GLEESON CJ: So there is no criticism of any aspect of the process of reasonable calculation used in this document except the choice of the multiplier could be applied to the figure of $672,359.

MR DOWNES: Yes.

GLEESON CJ: And the criticism is that the multiplier was 2 instead of 1.35?

MR DOWNES: Yes. The 1.35 is, in fact, applied down the bottom if your Honours look in the original document. See, your Honours, if your Honours go a bit further down and see "$584,358 x 1.35".

GLEESON CJ: I am not suggesting for a moment that this affects the outcome of the case but I just want to understand what the issue is. That proposition that I just put to you about the multiplier is the source, and the entire source, of what Justice Fitzgerald described as the "overstatement".

MR DOWNES: The doubling to 1.4, or more than doubling to 1.4, is one of the matters which led Justice Fitzgerald to conclude, and I repeat what I said earlier, there is no challenge to this, that the calculation was negligent.

GLEESON CJ: I think that word "overstatement" that I just attributed to Justice Fitzgerald may have been in the original formulation of issues.

MR DOWNES: Yes, I am not - - -

GLEESON CJ: Anyway, it is the term - - -

MR DOWNES: But in any event, my learned junior is telling me I am wrong about the 1.35. At the moment I will deal with that as it becomes necessary but can I just ask your Honours to follow along a little further in this document. So, your Honours see the heading "Rising Main" in the line I read to your Honours, and under that the line which contains the addition "difficulty say 1,400,000". Then the next line says "cost attributable to Neal", and your Honours will see that there is there some black with some blue written over the top and underneath the blue it is apparent, although not readily apparent, that the figure 672,359 originally appeared.

KIRBY J: I cannot see that. Can we take that? Was that agreed?

MR DOWNES: Well, unless my learned friend says no, I would - - -

KIRBY J: I can see the 672,359 above.

MR DOWNES: Yes.

KIRBY J: But there seems to be a tippex or something has whited out.

MR DOWNES: Well, no, the black underneath - I can verify it and will do so. The black writing underneath, which is an equation, was originally 672,359 x 0.87, that is the 87 lots, over 7, equals 83,565, and the reason we can verify the figure is because you can do the equation and I am sure if you put in 672,359, the result of the equation will be 83,565.

GAUDRON J: Well, what do those figures represent, the multiplier and the divisor?

MR DOWNES: The multiplier is applying Neal's 87 lots to the total cost to calculate what, in the draftsman's mind, was the cost attributable to Neal. That is the heading he has put down there.

GAUDRON J: Eighty seven. What does the divisor 7 represent?

MR DOWNES: Seven megalitres per day.

GAUDRON J: I do not understand the mathematics. I hope that does not matter.

MR DOWNES: My learned junior can explain to your Honours very thoroughly the mathematics but, for my purposes, I am not sure when your Honours see the next document that a full appreciation is necessary but, if it is necessary, we will essay it. But what I want to just say for the moment is that there is blue ink written over the top of the figure that I said to your Honours was 672, 359 and that blue ink is the 1.4 million. So the document starts with 672,000, says for "difficulty" let us call that 1.4 million and then that 1.4 million has been written over the top of the 672,000 and the calculation has been done again. This time, the cost attributable to Neal is no longer 83,565 but 174,000.

GLEESON CJ: But how do we get from 1.4 million to 2.5 million?

MR DOWNES: The actual document that I have to take your Honours to next is at 1176 and if your Honours go immediately to that, perhaps conveniently, because this is a critical document, your Honours will see the words - this document, 1176, was prepared for the 25 November meeting - and if you look at the top line there is your 1.4 million - - -

GLEESON CJ: Amplification.

MR DOWNES: And written right next to it are the words "not required". If you go down to about a third of the way down the page in the left-hand side, you will see the words:

However really need only $1.1 M immediately -

which is the total of the other two items going to make up the 2.5 million -

because inlet to -

water treatment works, that is what WTW stands for -

WTW problem has been overcome by opening valve -

So this is the essence of two complaints that we made about these documents at the trial and successfully in the Court of Appeal. Firstly, Mr Clayton took a figure of 672,000 and said, "Let's double it", and got 1.4 million. In any event, the cost attributable to Neal component of all of that was either 83,000 or 174,000. Nevertheless, they added 1.4 million into the cost estimate and at 1176 they said, in any event, it was no longer required because it had all been fixed up.

McHUGH J: Now, Clayton was at the Board meeting that took place on 25 November and he knew that 2.5 million was not required and your client was told that the 2.5 million figure was not negotiable but did you rely in your pleadings on the Board meeting?

MR DOWNES: Our case was associated with the original piece of advice but this is a piece of evidence that supports the proposition. Again, we are in the realm of negligence, I have to say, your Honour, not duty of care, that supports the proposition upheld by - - -

McHUGH J: But this is breach, is it not; this goes to breach?

MR DOWNES: Yes, it goes to breach, but the court below has unanimously held that it was a breach.

GLEESON CJ: And there is no notice of contention.

MR DOWNES: And there is no notice of contention.

GLEESON CJ: Then there must be a limit to the extent to which it is necessary for us to pursue the non-issue of breach.

MR DOWNES: Yes, exactly. It really comes down to, I mean, I think it is useful that your Honours have an understanding of the factual background of the case, and it is also particularly relevant, of course, to misfeasance. This is the basis upon which we said misfeasance.

GLEESON CJ: But do you not have concurrent findings of fact against you on misfeasance?

MR DOWNES: We failed everywhere on misfeasance, yes, your Honour, but they are findings of fact that, by definition, are not based on the credibility of witnesses or anything of that sort, for the reason that there were not any witnesses. All the findings of fact come from this documentary analysis.

McHUGH J: You run your own case, but it would seem to me that to get the letter of 11 November at page 685 into context, you need to look at two background documents, do you not? That is, the request by Mr Murray, your surveyor, which is set out at page 833, and it is a request for general advice, then you get the Board at page 842 saying, "It is not our policy to supply information", and then, unless I was distracted, you did not refer to Mr Carr's request at page 680, did you? Because the Board seems to have gone out of its way to almost put a proposition. It does not really answer what Mr Carr is after.

MR DOWNES: No, but it answers what Mr Neal was asking for, and asked for again, in effect, as late as October 1985, that is less than two months before the relevant document, when he put in an application to the Board for the very purpose of procuring from it its requirements, including cost estimates, relating to an 87 lot subdivision.

McHUGH J: Well, where is that request?

MR DOWNES: That is at page 709 point 50, your Honour, or it is referred to at 709 point 50, which is another Board memorandum.

McHUGH J: In volume 7?

MR DOWNES: At page 709 line 11 there is a reference to a November 1983 request of Neal's and at line 42 or 43 is a reference to the October 1985 current inquiry brown coloured submission dated 12 August 1985 from John Neal Earthmoving for - - -

HAYNE J: I should say to you, Mr Downes, if you intend to rely on page 709 I need a transcription of it. Mine is unreadable.

McHUGH J: So is mine.

MR DOWNES: Yes, well it is close to it, I am sorry, your Honours.

KIRBY J: It does seem a little odd that the High Court of Australia is getting into the - I mean, it may be necessary, but I thought we had come here to deal with an important issue of legal principles. We are quarrying away down here in this detail; it may be necessary, but - - -

MR DOWNES: Yes. Well, we would respectfully submit it is really not, but I do take on board what Justice McHugh has said to me and I have them listed here and perhaps overnight we should give your Honours a transcript of what I have got already typed in front of me. What we have done is collected together the material that shows, in effect, a request; in effect, shows the relationship. As your Honour pointed out it starts with 12 March letter, there is an answer, there is another letter from Mr Murray - well I will not go through them all now - but that is the material upon which we rely to say, and this is, if I can say so to your Honour Justice Kirby, an important aspect of our case, because if my submissions to the Court are right, once this case is characterised as what I would call a relationship case, then it would be very difficult, if I can be so bold as to say this, for my learned friend to show that there is not a duty of care. That is why he says it is not a relationship case.

GUMMOW J: I know he does, but I think it probably is a relationship case, but the relationship - and we will deal with this tomorrow - is prospective contractors under section 34A.

MR DOWNES: I would submit the relationship is potential inquirer and responder to the inquiry about a matter. In the same way as MLC v Evatt, there was no analysis of what might happen in the future.

HAYNE J: I am surprised you put your case in that way where you have the inherent ambiguity of cost, whereas if you go to 34A, you find in 34A(3) some basis for concluding that the relevant cost is the cost of construction of the relevant main or mains.

MR DOWNES: Except 34A, your Honour, is something that comes into play only after the subdivision that would not occur.

KIRBY J: But this is the postulate, is it not? This is the postulate that this is necessary for it to occur. It is a bit Kafkaesque or, as you put it, catch-22.

MR DOWNES: Undoubtedly, in answer to your Honour Justice Hayne, I do not want to be thought to be putting a proposition that the fact that these parties were treating potentially in connection with a future contract which would ultimately be governed by the provisions of sections 34A and 34B of the Act, is not a relevant factor. Indeed, as I pointed out earlier, it is one of the matters that we rely upon. But we would say that we have an embarrassment of riches in terms of factors which will give rise to a duty of care in this case. One of the most important of them is simply that the Board and Mr Neal notionally were face to face. If they were not, they were in separate rooms. At least the Board knew that Mr Neal was there and Mr Neal was the only person who was going to act in connection with this piece of advice.

It is when you understand that aspect of this case, you can see why all of the decisions of this Court and the House of Lords and other Commonwealth courts, which are seeking to come to grips with the problem of indeterminate liability, are looking for factors to limit the class of persons who might sue. So concepts of reliance and so forth are tested in terms of saying the person potentially giving the advice should be sitting in his seat saying, "What is the class of persons who might act on my advice?". One thing the courts have said is that it is very simple to get a first reduction or limitation in the class, and it is only people who rely on it. Then the courts said we have to have some further limiting factors but they are all calculated to do away with the risk that there is going to be an indeterminate number of potential plaintiffs.

GLEESON CJ: Mr Downes, you have in your favour the judgment of Justice Fitzgerald, and you rely on that. We understand that and we understand the way you put your case. But, might it not be an idea if you would let us know what your answer is to the way the President saw the case in the Court of Appeal?

MR DOWNES: Yes.

GLEESON CJ: That would then bring us, perhaps, to - - -

MR DOWNES: Yes, can I begin to go to that. I may have a look overnight to see if there is just one or two small facts that I might want to draw your Honours' attention to. But let me go straight to the judgment then of the President, with which Justice Beazley agreed, in volume 5 of the appeal book at page 1185. Your Honours will be familiar with the fact that the judges adopted the finding of what they called "negligence", although I do not seek to construe it in any way other than is suggested. But I do draw attention at line 49 to the fact that the majority agreed with the reasoning as well.

Then, the actual legal reasoning of the President of the Court of Appeal begins at the bottom of 1189, and he sets out a number of propositions. The first is that mere foreseeability is not sufficient and that is an unexceptionable proposal. Proposition (2):

It is not essential that a plaintiff prove that information or advice was sought - - -

GUMMOW J: This is what he said, but where do you say he went wrong?

HAYNE J: It may be a rash assumption, Mr Downes, but I think you can assume that we are literate.

MR DOWNES: Yes, your Honour. Proposition (3), we would respectfully submit that the court wrongly proceeded in its determination of the circumstances that were relevant so far as reliance is concerned. I have already foreshadowed what we seek to say about reliance. The proposition that we seek to make is really that reliance for present purposes has three potential aspects. One is the reliance that is part of causation leading to damages, and that is not relevant to the duty of care in the present case. You cannot test whether a duty of care was owed at the time the Board produced its memorandum by looking at what Mr Neal did when he had the memorandum.

GUMMOW J: Did, at any stage, he seek a certificate from the Environment and Planning people?

MR DOWNES: The answer is, yes, your Honour.

GUMMOW J: Had that been obtained or was that in train? Are there findings about this because the memorandum keeps talking about - - -

MR DOWNES: Well, I thought that the answer was that they would not give the certificate until he had the approval of the Water Board and that is why the councils themselves wrote directly to the Board. My learned friend says - - -

GAUDRON J: But if you look at the legislation, assuming this to be the legislation in force at the time, the Board was not permitted into any agreement for works "unless the Director of Environment and Planning" had issued "a certificate in writing" that in her opinion the land:

should not be subdivided unless the water or sewer main, or both.....are constructed.....either alone or together with other -

works. If this legislation is that which was in force at the relevant time - - -

MR DOWNES: Is your Honour looking at 34A and B?

GAUDRON J: I am looking at 34A(2).

MR DOWNES: Yes. Your Honours, I now have photocopies of the Act, if I could make them available.

GAUDRON J: You see, what seems to be there postulated is that the Director of Environment and Planning might have directed that work be done in connection solely with this land or in connection with all the land that might be rezoned. But maybe that is not the section.

GUMMOW J: That appears to explain the background against which they are speaking in the memorandum that you have taken us to. The Board people seem to be saying - - -

MR DOWNES: Well, in due course, assuming - - -

GUMMOW J: They seem to be saying the first stop is the Director of Environment and Planning, and I can understand why they say that.

MR DOWNES: Yes, but the Director of Environment and Planning - this is the catch-22, the Director of Environment and Planning or, in any event, the local council, were saying, "When the Board has indicated what it would do, we will finally determine the subdivision".

GAUDRON J: Unless the Director of Environment and Planning has some meaning that extends to the council, I would have thought what 34A(2) was postulating a direct involvement of the Director which might require limited works or more extensive works and that unless the Director had somehow involved himself, or I think it was herself at this time, all of this was just idle chat and could only be idle chat because the Board had no right to enter into such an agreement. So that puts a new complexion on the relationship, it seems to me. We are talking about parties who are not free to contract at that stage or who would not be free to contract even in the future.

MR DOWNES: But approaching it this way, your Honour, what the Board was saying in its memorandum and draft letter was, "Against the possibility that, in the future, you satisfy the requirements of sections 34A and B and, ultimately, enter into a contract with us", and so forth, "we now tell you what the cost of connection is going to be", and a duty of care, we would respectfully submit, arose not to be negligent in about the making of that estimate because the Board knew, and must have known, that knowledge of that fact would impact on the value of the land.

GAUDRON J: So we are back to a diminution in value case, are we? But the point I am putting to you is that if one has to identify this relationship, at best it is going to be a relationship between persons who might, but could not enter into contractual relationships unless certain things happen.

MR DOWNES: We would answer that this way, your Honour, that where parties are contemplating entering into contractual relationships, there are always potential inhibitions to ultimate contract, but if one party tells another party on a serious occasion, "This is how much it is going to cost", that being a pertinent factor for that other party to go about badgering ministers and all sorts of people into ultimately procuring this ultimate agreement, then a duty of care arises.

GLEESON CJ: Mr Downes, was there anything to stop Mr Neal, when given this figure of $2.5 million, saying to the Board, "How did you work that out?"?

MR DOWNES: In effect, that is what the 25 November meeting was for. I mean, a memorandum - - -

GLEESON CJ: I only ask that question for this reason. When the Board did its calculations and prepared that figure of $2.5 million, am I right in thinking that for all the Board knew, Mr Neal might have an engineer advising him, he might have had Mr James Antill advising him, about the accuracy of any calculations that the Board might make?

MR DOWNES: But what he did not know and could not know was what the Board system required to enable such amplification was necessary for his lot.

GLEESON CJ: I am not suggesting this is conclusive of any issue in the case, but I am just wondering whether another part of the context, in addition to section 34A, is the fact that at all times there was nothing to stop Mr Neal asking any questions he liked to ask about the process by which the Board had arrived at the figure of $2.5 million. Now, some people that I know, their first response to that figure of $2.5 million would have been, "Tell me how you arrived at that".

McHUGH J: Well, that is, in substance, what was done, was it not, at the meeting because Mr Geraghty - - -

MR DOWNES: That was, in a sense, what he did and if you look at page 1174 you see, so to speak, an agenda for the meeting. What does he get for his $2.5 million?

McHUGH J: But did not Mr Geraghty give evidence that he asked the Board's representative, "Was the price of 2.5 million negotiable?"? And they said, "No, in fact, it's been brought down", and that was the bare minimum and that they had involved a considerable amount of capital works expenditure and that was it.

MR DOWNES: And more than that, if you wanted to have any increase of the number of the lots, it would go up to 3.5 million. That was what he was told, but I do have to anticipate what my learned friend is going to say. What the trial judge said is, "Now, Mr Geraghty, the solicitor who gave this evidence, the not negotiable evidence, was he a trustworthy and honest witness?", but he got it wrong and that was not said. Why did the judge say that was not said? The judge said it was not said because it was inconsistent with this letter that I mentioned earlier, that never got into evidence.

McHUGH J: This is the Rhodes' letter?

MR DOWNES: The Rhodes' letter which said, in a sense - - -

KIRBY J: Can you tell us what it said?

MR DOWNES: - - - "Keep heart. We'll beat them down" and nothing could be less likely to - - -

KIRBY J: But was that proved? I mean, we do not want to be hearing things that did not get into evidence. That is just an MFI, is it not?

MR DOWNES: It did not get into evidence.

KIRBY J: It did?

GAUDRON J: Well, there was cross-examination on the letter.

MR DOWNES: It did not get into evidence, your Honour.

KIRBY J: How can we know its content then, except by a little bit of slippage at the Bar table?

MR DOWNES: I mean, if your Honours do not know its content, then the trial judge's reasoning falls to the ground because he could not know the content either. From pages 72 on until about 94 in - they keep coming back to it. It is all to do with undertakings to call witnesses.

GLEESON CJ: We know with the benefit of hindsight that Mr Neal turned up at this meeting with a lawyer and a lawyer might be a great thing to have alongside you on an appropriate occasion, but for all the Water Board knew he might have been going to turn up with an engineer who was capable of asking some pertinent questions.

MR DOWNES: Yes, but there is a limit on the extent of the pertinent questions that an engineer would ask, your Honour, because - - -

KIRBY J: Did Mr Geraghty keep a contemporaneous note of the conversation?

MR DOWNES: No. There was a letter sent the next day, which is in evidence and which - - -

KIRBY J: Where is that?

MR DOWNES: Page 1047. So this is written to the Board on 25 November after the meeting by Mr Geraghty and if your Honours look at line 38 there is the reference to the 87 lots and your Honours see:

and these are the plans which the Board has considered in arriving at the $2.5m amplification cost.

GLEESON CJ: I mean, it might be in your favour that Mr Neal did not turn up with an engineer. It might demonstrate his reliance.

MR DOWNES: Yes, absolutely.

GLEESON CJ: It may be that the fact that he did not have an engineer there cross-examining the Board's officers as to how they came to the figure of $2.5 million reflected an assumption that it never occurred to him that the Board would do anything other than make a frank estimate of its costs.

MR DOWNES: Mr Rhodes, who was a surveyor, was there, but not an engineer.

GLEESON CJ: Mr Downes, I have to ask you and Mr Garling a question or two now, for the benefit of the people who are in the next case.

MR DOWNES: Yes, your Honour.

GLEESON CJ: How long do you think you will require to complete your argument?

MR DOWNES: I give a different answer to the answer that your Honour was given yesterday. It depends to what extent your Honours cut me down rather than to what extent your Honours ask me questions, but I would have thought I would take an hour and a half to complete the submissions I was going to put to your Honours, but they can be truncated, I guess.

GLEESON CJ: Yes. Well an hour and a half seems a very substantial time. And how long do you think you will be, Mr Garling?

MR GARLING: Your Honour, to answer my friend from today and tomorrow, I thought at least an hour and hopefully less than an hour and a half.

GLEESON CJ: Just give me a moment. We will adjourn now. We will resume this case at 9.30 in the morning.

AT 4.14 PM THE MATTER WAS ADJOURNED

UNTIL WEDNESDAY, 22 NOVEMBER 2000