Date: Mon, 21 Nov 2005 09:08:10 +1100

From: Neil Foster

Subject: TCF v Tambree

Dear Colleagues;

In response to Prof Wright's question and Robert's comment on the facts of this case, it seems to me on re-reading that it is fairly clear that if accurate audit reports had been provided in 1997 and 1998, then while Ms Fry may have wanted to continue trading she would not have been able to do so. That is, once the true financial situation had been revealed TCF would have required extra measures such as the bank guarantees or increases of capital mentioned by Robert. If we can judge by the fairly quick action they took once the real problem was revealed by a "field audit" in Feb 1999, if Ms Fry had not provided the extra securities for operation they would have acted fairly quickly to revoke her licence, and then the Department of Fair Trading would have done what they actually did in April 1999 (only 2 months after the actual revocation) and closed the premises down. As Gleeson CJ summarises the findings in para [22] of his judgement, "the proper discharge of his auditing duties would have led to a chain of regulatory events that would have prevented the loss in fact suffered by the appellant." (See also Sheller JA in [2004] NSWCA 24 at para [153].) (This is not affected by the fact that technically, once Ms Fry was no longer a "participant" in the TCF scheme, any payment by the Trustees was discretionary under clause 15.2 of the Deed setting up their Trust. It would obviously be in the interests of the travel industry generally to refund amounts paid by clients who had reasonable grounds for thinking that their travel agent was licensed when in fact she was not. Indeed, as Gleeson CJ notes, that is why cl 15.2 existed.)

Regards
Neil F

Neil Foster
Lecturer & LLB Program Convenor
School of Law
Faculty of Business & Law
University of Newcastle
Callaghan NSW 2308
AUSTRALIA
ph 02 4921 7430
fax 02 4921 6931

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