Adam v Perpetual Trustees Australia Ltd & Ors
[2006] SADC 62
•15 June 2006
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
ADAM v PERPETUAL TRUSTEES AUSTRALIA LTD & ORS
Judgment of His Honour Judge Beazley
15 June 2006
TORTS
FINANCIAL ADVISERS - PROFESSIONAL NEGLIGENCE - Nature of retainer in determining the scope of the duty of care - Specific advice generally not sought as to the wisdom of making loans to family members - Duty to warn where the viability of the plaintiff's investment portfolio at risk - Effect of changing circumstances in determining the scope of the duty of care - The adviser in control of the plaintiff's investments -Vulnerable client relying upon the advice of the financial adviser- Omission to advise elderly client as to risks inherent in granting unsecured loans to family members - Subsequent total financial loss - Whether financial adviser should have advised client of the risk that all capital would be lost - Whether implied representation that investments were secure - Whether financial adviser liable in contract and/or tort - Whether breach of fiduciary duty - Measure of damages - Whether breaches of contractual duties causative of the losses or result in nominal damages only - Held the defendants breached their duty of care to the plaintiff in respect of certain unsecured loans. The breach of duty was causative of the loss of two advances in the respective sums of $100,000 and $150,000.
CONCURRENT ACTIONS IN CONTRACT AND TORT
Duties and liabilities of financial adviser to client - Duties and liabilities arising out of fiduciary character of relationship - Breach of contract - Measure of damages.
DAMAGES - GENERAL PRINCIPLES - DIFFICULTY OF ASSESSING DAMAGES
Mitigation of damages - Whether costs incurred by plaintiff's agent in assisting preparation of the plaintiff's litigation recoverable.
EVIDENCE
The admissibility and relevance of expert evidence as to the scope of the defendants retainer - Jones v Dunkel inferences which arise from the failure of the defendants to call witnesses.
Trade Practices Act 1974 (Cwth) s 52; Fair Trading Act 1987 (SA) s 56; Limitation of Actions Act s 48(3), referred to.
Astley v Austrust Ltd (1999) 197 CLR 1; Hall v Foong (1995) SASR 281 at 304; Craig v Troy (1997) 16 WAR 96; Newman v Financial Wisdom Limited [2004] VSC 216 at [165]; Austrust Pty Ltd v Astley (1993) 60 SASR 354; Ali v Hartley Poynton Limited (2002) VSC 113; Kenny v Good Pty Ltd v Mgica (1999) 199 CLR 413 at 427; Baker v Sheridan (2005) Aust Torts Rep 81-788 at [388]; Chappel v Hart (1998) 195 CLR 232 at 239; Deloitte Touche Tohmatsu v Cridlands [2003] FCA 1413; Bank of New Zealand v New Zealand Guardian Trust Co Ltd (1999) 1 NZLR 664 at 681; Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484; Tonkin Thomson & Assoc v Mayr (1998) 72 SASR 346; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; Jones v Dunkel (1959) 101 CLR 298; RPS v The Queen (2000) 1999 CLR 620; Spence v Demasi (1988) 48 SASR 538 at 547; Manly Council v Byrne (2004) NSWCA 123; Bowstead and Reynolds on Agency (16th ed) para 6.031 (4); Sansom v Westpac Banking Corporation (1996) Aust Tort Rep 81-383 at 63, 323; Pegrum v Fatharly (1996) 14 WAR 92; Donaldson v Haldane (1840) 7 C & F 762; Page v FPI Limited (2001 Aust Torts Reports 81-625 at 67; Midland Bank v Hett, Stubbs and Kemp [1979] 1 Ch 384; Rogers v Whitaker (1992) 175 CLR 479; O'Brien v Gillespie (1996) 41 NSWLR 549; Asic v Vines (2003) NSWSC 1095 at [32]; Permanent Trustee Australia Pty Ltd v Boulton (1934) 33 NSWLR 735; NMFM v Citibank (2002) 107 FCR 270; Smith v Moloney [2005] SASC 305; Maguire v Makaronis (1997) 188 CLR 449; Target Holdings v Redferns [1967] AC 421; Hilton v Barker Booth [2005] 1 WLR 567; Wardley Australia v Western Australia (1992) 175 CLR 514; Hawkins v Clayton (1988) 164 CLR 539; Edwards v Olsen [2000] SASC 438 at [942]; Syrett v Vorbach (2001) 213 LSJS 185; Dickin v BHP Billiton [2004] VSC 215; Edmunds v Pickering (1999) 75 SASR 407 at 590; Short v Kalloway (1839) 11 A & E 28 at 31; British Racing Car Drivers Club v Hextall Erskine (1996) 3 AllER 667; Cachia v Hanes (1994) 179 CLR 403; Rowan v Cornwall (No 6) (2002) SASC 234 at 15-17; Dalgety Australia Operations Limited v FF Seeley Nominees Pty Ltd (2) (1988) 49 SASR 75 at 92; Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd (unreported decision of O'Loughin J - BC 980050), considered.
ADAM v PERPETUAL TRUSTEES AUSTRALIA LTD & ORS
[2006] SADC 62Introduction
Jean Margaret Adam (“the plaintiff”) is aged 96 years, suffering from deteriorating health and is a now a resident of a Residential Care Facility.
Perpetual Trustees Australia Ltd (“PTA”); Perpetual Trustee Company Ltd (“PTC”) and Perpetual Trustees SA Ltd (“PTSA”) (collectively referred to as “the defendants”) carry on business as, inter alia, trustees, attorneys, and investment and financial advisers.
The plaintiff’s claim
The plaintiff’s case, in brief, is that since she was aged 10 in 1919, one or other of the defendants had managed her financial affairs. She had resided in the State of New South Wales initially with her father and mother, the former dying in 1934, and the latter in 1961; and thereafter alone until the month of October 1989. By 18 October 1989 the plaintiff’s investment portfolio, managed until then by either “PTA” or “PTC”, had a market value of $438,210.81, and provided her with an income paid quarterly into her Westpac Bank Account.[1]
[1] Exhibit P2 Volume 1 page 2.
By the month of February 2003 in consequence, firstly, of improvident “advances” being made to family members, the majority of which were made to a nephew exercising undue influence over the plaintiff; and, secondly, being denuded of the proceeds of her Westpac Bank Account by that nephew, the plaintiff had lost all of her investments; was indebted to the Westpac Bank in the sum of $7,923.34, and was obliged to borrow monies to pay for her ongoing accommodation and living expenses.
The “Advances” had been made over the period 12 May 1981 to 14 February 2003. The defendants very properly agreed not to distinguish between their respective conduct in the event that one or others were liable to the plaintiff. I will therefore refer to them simply as the defendants. All, but one, of the “Advances” were made after the plaintiff moved from New South Wales to reside initially with her brother James Robert Adam (“Rob”) at 104 Watson Avenue Toorak Gardens in South Australia, and subsequent to Rob’s death in October 1996, with that nephew James Alexander Adam (“Jim”) at 75 Watson Avenue Toorak Gardens. It is common ground that the defendants acted as the plaintiff’s Attorney pursuant to a General and Enduring Power of Attorney; managed the plaintiff’s assets and finances; gave investment advice to the plaintiff and monitored the plaintiff’s investment portfolio.[2]
[2] Pleadings: S.O.C. [7]; D. [7].
The plaintiff alleges that the defendants breached the terms of their retainer as financial advisors, which retainer included an implied term that the defendants would exercise all reasonable care, skill and diligence as might be expected of a reasonably competent financial advisor. The plaintiff asserts that the scope of the implied duty to carry out the retainer, obliged the defendants to fully inform the plaintiff as to the wisdom of, and the risks associated with any of her financial transactions on a direct basis; and further to ensure that the plaintiff was not unduly influenced by family members or others into making improvident advances; to monitor the plaintiff’s personal bank accounts and to ensure that the plaintiff’s investments were secured.
She also alleges that such advice as she was given by the defendants, including that contained in investment reports prepared by them, was misleading and deceptive, contrary to the Trade Practices Act 1974 (Cwth) s 52; and the Fair Trading Act 1987 (SA) s 56.
The plaintiff asserts that in light of the poor financial position of the nephew “Jim”; the consequential risk of the loans not being repaid, and the risk of undue influence being exercised by Jim over the plaintiff, the defendants breached their duty by failing to ensure adequate security for any advances; and by failing to advise the plaintiff to seek independent legal advice prior to approving each of the advances. In addition the plaintiff asserts, inter alia, that the defendants breached their duty of care by failing to exercise their powers pursuant to their Enduring Power of Attorney to take control of the plaintiff’s finances.
The plaintiff’s claim against the defendants is for equitable compensation for breach of trust; and other breaches of fiduciary duty; and/or damages for breach of contract; and/or negligence and/or; misleading and deceptive conduct in the management of her investment portfolio. She seeks an extension of time pursuant to the Limitation of Actions Act 1936 in so far as is necessary in respect of any claims which accrued prior to the month 2 July 1988.
The plaintiff claims for losses allegedly suffered, including the loss of capital, the loss of income, and the costs of proceedings brought by the plaintiff against the recipient of her funds in an attempt to mitigate her loss.
The defence
While the defendants admit that there was a retainer, they dispute its terms. The defendants say that they complied with their duty to exercise reasonable care and skill in the performance of their retainer. They deny they were obliged to investigate whether Jim or any family member was exercising undue influence over the plaintiff, and further deny that they were obliged to monitor the plaintiff’s Westpac bank account. They submit that the claim for breach of fiduciary duty did not take the plaintiff’s claim further than the claims for breach of retainer. See Bank of New Zealand v New Zealand Guardian Trust Co Ltd (1999) 1 NZLR 664 at 681; Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 and Tonkin Thompson & Assoc v Mayr (1998) 72 SASR 346. In brief the defendants’ case is that they were the plaintiff’s agent for her investments. She was entitled to gift some or all of her funds to her family. If satisfied as to her legal capacity, the defendants were obliged to act in accordance with her instructions. The defendants also plead that insofar as it is found that they breached any duty of care to the plaintiff, such breach was not causative of any loss. The defendants had pleaded contributory negligence by the plaintiff. It was properly conceded by the defendants’ counsel Mr Coppola during submissions, that contributory negligence was not available in respect of any contractual claim arising out of events which occurred prior to 16 August 2001[3]; nor any claim for misleading and deceptive conduct[4]. They pleaded the statutory bar pursuant to the Limitations of Actions Act 1936, in respect of those claims, which accrued prior to the month of July 1998.
[3] Astley v Austrust Ltd (1999) 197 CLR 1; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001.
[4] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109.
They denied that any oral advice; or any advices contained in financial reports provided to the plaintiff; or alternatively any representation by silence was misleading and deceptive. They assert that at all times they acted, as they were obliged to do, upon the clear instructions of the plaintiff.
Recovery action against Jim
On 17 June 2003, in consequence of a demand by Westpac, Jim repaid the sum of $20,000 to the credit of the plaintiff’s bank account with Westpac. He had previously credited the plaintiff’s account with the sum of $2,000.
In action number 1419 of 2003, in this Court, the plaintiff claimed, against Jim, the sum of $215,625 together with interest in respect of one of the Loan Agreements entered into on or about 28 July 1999. The plaintiff obtained a judgment against Jim on 27 October 2003 in the sum of $212,781.05. On 1 June 2004, Jim became bankrupt with Mr Anthony Matthews appointed as Trustee of his bankrupt estate. On 24 March 2005 the plaintiff received a dividend from the bankrupt estate of Jim in the sum of $30,409.87. I am satisfied from the evidence of Mr Matthews that no further dividend will be paid from the bankrupt estate.[5] The plaintiff incurred legal fees in excess of $40,000 in its attempt to recover the loan monies from Jim.[6]
[5] Exhibit P2 Volume 12 page 2050.
[6] Exhibit P2 Volume 8 page 1209, 1260.
The defendants relevant employees
The South Australian regional office of the defendants, at all relevant times, employed only five employees, however some staff turnover between 1999 and 2003, was to coincide with the loss of the plaintiff’s investments. The relevant employees of the defendants were:
John Eddy, the Senior Private Client Manager of the defendants from at least 1989 until he resigned to take up other employment in early 2000, was responsible for the day-to-day management of the plaintiff’s investment portfolio. However he was not licensed to provide investment advice.[7]
[7] T 385; 403 c.f. Ex P2 Vol 4, P553.
Darryl Ayris, the Senior Financial Consultant, was employed to provide strategic financial advice to clients such as the plaintiff from October 1998.
Stephen Hansberry replaced John Eddy as Senior Client Manager responsible for the day-to-day management of the plaintiff’s investment portfolio in or about May 2000.
Stephen John Davis was appointed South Australian Regional Manager of the defendants in March 1999. He moved to Adelaide in May 1999 and managed the defendants’ office until 11 January 2001.
Derek Robert Mondy replaced Stephen Davis as Regional Manager and remained until October 2001.
Overview of the evidence
The complexity of the trial was compounded by the absence of witnesses as to the events, which occurred between 1989 and 1999. One of the recipients of advances from the plaintiff had died in 1996; the other was not called as a witness. Nor were the three former employees of the defendants having the day-to-day conduct of the plaintiff’s financial affairs.
Plaintiff as a witness
Over the long period of the trial the plaintiff’s health noticeably deteriorated. She disclosed signs of confusion, and was struggling to comprehend simple issues involving the proceedings. It is not in dispute that she now suffers from a medical condition that renders her incapable of adequately instructing her solicitors. Accordingly on 5 August 2005, during the course of the proceedings, I appointed Hazel Jean Roberts as next friend of the plaintiff.
Even before the marked deterioration, which gave rise to the appointment of a next friend, the plaintiff suffered from extremely poor hearing, poor sight and memory loss. In order to assist the plaintiff in giving evidence the parties agreed to the tender of a detailed written statement, verified by affidavit, together with some brief oral evidence, as constituting her evidence-in-chief. The plaintiff’s affidavit recounted her history and her relationship with the defendants over some 85 years. Special arrangements were made for the plaintiff’s cross-examination to occur on alternate mornings, because of her frail health. The plaintiff’s impairment made it extremely difficult for the defendants’ counsel to meaningfully cross-examine her. Some of her oral evidence was inconsistent with her affidavit. On some issues she had, understandably, little recollection. She denied having received certain documents from the defendants, which documents had been located in her suitcase, and discovered by her solicitors. She denied having executed various “Loan Agreements”. She denied ever having been warned by employees of the defendants about risks associated with additional loans being made to Jim.
Mr Coppola, counsel for the defendants, submitted that the evidence of the plaintiff with respect to the relevant financial transactions, was of very limited value given her poor recollection and the inconsistencies disclosed in the cross-examination. I did not understand Mr Abbott, counsel for the plaintiff, to take issue with that submission. On other matters including her relationship with the defendants; her reliance upon their advice; and the difficulty she had in comprehending written reports from the defendants, the plaintiff’s evidence was reliable.
Much of the evidence relied upon by the plaintiff is contained in some 24 volumes of documents, largely obtained on discovery from the defendants, and non parties, as well as documents recovered from a suitcase located under the plaintiff’s bed. Although the documents constitute quite a comprehensive record of the relevant documents in the defendant’s files, it is clear that there are various documents missing, including correspondence from the defendants to solicitors with respect to the preparation of various documents. In addition some of the documents, sourced from the defendants, refer to conversations between the plaintiff and her nephew “Jim”; between the plaintiff and employees of the defendants; principally Mr John Eddy; and between Jim and Mr Eddy; in respect of which no detailed record is included. The absence of a complete record is particularly significant in respect of certain events in or about the months of March 1991; July 1997; May 1999 and August 2001, and gives rise to some speculation as to the extent of any advice proffered to the plaintiff in respect of those events. The tendered documents do however provide important contemporaneous evidence of the events in this case.
The other witnesses
I have referred to the manner in which the plaintiff gave her evidence. The plaintiff also called Juliana Lauer who had been employed as a cleaner by Rob Adam in 1973. She gave evidence about her observations of the plaintiff between 1989 and February 2003; and of two occasions upon which Jim had requested money from the plaintiff. The plaintiff’s medical practitioner Dr Elizabeth Ramsey gave evidence about the plaintiff’s physical and mental capacity between 1989 and February 2003.
The plaintiff’s niece, Hazel Jean Roberts gave evidence about investigations undertaken by her following her discovery of the plaintiff’s impecuniosity in February 2003, and of matters material to the question whether an extension of time should be given to the plaintiff for her claims in relation to loans made prior to July 1998.
Mr Anthony Matthews, the Trustee in Bankruptcy of the plaintiff’s nephew Jim gave evidence generally about Jim’s bankruptcy.
Wesley Andrew McMaster, an adjunct Professor of Financial Planning at RMIT University was called to give expert opinion evidence, as to what advice a reasonable and prudent financial advisor would be expected to give generally to clients, and in particular to “unsophisticated clients” such as the plaintiff. The defendants were critical of certain aspects of the evidence given by Mr McMaster.
The plaintiff also tendered a report from a consulting accountant, Mr Timothy Clifton, detailing alternate calculations for the quantum of the plaintiff’s claims, which calculations assume that the defendants are liable to the plaintiff for all of the loans.
The defendants called as witnesses, Stephen John Davis whom, as I have indicated, was the South Australian Regional Manager for the Perpetual Group of Companies during significant events in 1999. I was favourably impressed by Mr Davis as a witness. Derek Robert Mondy who had succeeded him as the South Australian Regional Manager for the Perpetual Group of Companies was also called. Mr Mondy was less impressive in that he tended to reconstruct events somewhat while giving evidence. He attempted to quarantine the obligations of the defendants to those assets “directly” managed by the defendants, and to disavow any responsibility for loans made by the plaintiff to Jim. His explanation as to apparent omissions by the defendants with respect to an improvident loan of $150,000 to Jim in August 2001 was a prime example of such a reconstruction.
The plaintiff was critical of the defendants’ failure to call as witnesses, their former employees, John Eddy, Darryl Ayris and Stephen Hansberry.
The plaintiff’s nephew, Jim, was not called as a witness. Although Mr Coppola referred during submissions to the plaintiff “choosing not to call” Jim, no criticism was made with respect to his failure to give evidence.
Save for the reservations I have expressed with respect to some of Mr Mondy’s evidence, I find that all of the witnesses did their best, in my opinion, to assist the Court to accurately recall and relate the events relevant to the issues in this case. I have already referred to the plaintiff’s frailty and loss of memory. In many instances some of the other witnesses were unable to recall specific events due to the passage of time. Where there were instances of reconstruction or uncertainty caused by the passage of time, I have been able to resolve those difficulties by reference to the voluminous documentary material without reaching any conclusions adverse to the credit of any witness.
Failure to call witnesses
The plaintiff submits that I should draw an inference adverse to the defendants having regard to their failure to call as witnesses John Eddy, Stephen Hansberry and Darryl Ayris, all of whom, at varying but significant times when loans were made, had direct contact with the plaintiff. The witnesses called by the defendants made assumptions that certain advices had been given to the plaintiff from time to time by one or other of those employees.
There was a reasonable expectation that the defendants would call all three of their former employees to give evidence about the circumstances in which the various loans were requested by Jim and any advice or warnings, which they gave the plaintiff. They would also have been expected to give evidence of their observations as to the plaintiff’s apparent understanding of financial transactions, and, any vulnerability to influence by Jim. In particular Mr Eddy and Mr Hansberry would have been expected to give evidence about why it was that no recovery action was taken against Jim in respect of the latter’s default in the payment of interest. Mr Eddy would have been expected to give evidence about the forgiveness of loans owed by the plaintiff’s brother Rob in July 1997.
The general rule, expressed in Jones v Dunkel[8], is that the unexplained failure by a party to call witnesses or to tender documents may – not must – in appropriate circumstances, where it is natural for the particular party to call such evidence, lead to an inference that the uncalled evidence would not have assisted that party’s case.[9]
[8] (1959) 101 CLR 298.
[9] RPS v The Queen (2000) 199 CLR 620; Spence v Demasi (1988) 48 SASR 538 at 547; Manly Council v Byrne (2004) NSWCA 123.
One would have expected the defendants, rather than the plaintiff to call them. No explanation was given by the defendants for the failure to call Mr Ayris and Mr Hansberry. As to Mr Eddy, there was evidence indicating that he had moved to Indonesia in the month of January 2005. That evidence suggested that Mr Eddy had maintained contact with some of the defendants’ employees. There was no suggestion that he was otherwise unavailable to give evidence.
I am entitled to more readily draw any inference fairly to be drawn from other evidence on any particular issue in respect of which the defendants could have proved the contrary, had they chosen to call these witnesses. It is not however permissible for me to infer that the evidence of these witnesses would have been damaging to the defendants. Nor can the failure to call the witnesses, enable factual inferences to be drawn where there is no evidentiary basis for them.
Damages
Both parties submitted that final submissions as to the assessment of any damages should be heard after the publication of reasons as to liability. I deal subsequently with those submissions in these reasons, however I am of the view that it is a proper course to adopt in this case.
Issues
While the facts were generally not in dispute, the action involves some complex issues of law. These include:
·The precise relationship between the plaintiff and the defendants.
·The effect of the plaintiff’s deteriorating health in determining the scope of any duty of care owed by the defendants to the plaintiff.
·Whether, notwithstanding that the plaintiff may have retained her legal capacity, the defendants were under a duty to protect her financial assets from her own improvident decisions.
·The relevance of whether the defendants were aware from time to time of the plaintiff’s capacity to understand advice, and of any undue influence exerted upon the plaintiff.
·Whether the scope of any duty owed by the defendants to the plaintiff extended to:
·Preventing the plaintiff making loans to family members against her pecuniary interest.
·Ensuring legal advice independent of her nephew Jim prior to the grant of any loans sourced from funds under the management of the defendants.
·Preventing her nephew Jim from defrauding the plaintiff of funds held by the Westpac Bank and not under the management of the defendants.
·Whether any losses sustained by the plaintiff could be said to have been caused by an act or omission of the defendants; or whether irrespective of any advice given to her, the plaintiff would have continued to make improvident loans to her nephew. In the case of a negligent omission to act or advise this raises difficult hypothetical issues.
ADVANCES - The Subject of the Plaintiff’s Claim
Advance Further Amended Statement of Claim Date Amount ‘Borrower’ 1 30.1 12/5/81 $5,000 Jim Adam 2 29A, B, C and D 17/11/89
18/01/90
15/4/90
20/4/90$6,000
$10,000
$10,000
$10,000Jim Adam 3 30.2 27/03/91 $40,000 Jim Adam 4 30.3 21/01/92 $6,000 Jim Adam 5 30.6 06/04/93 $10,000 Rob Adam 6 30.4 26/07/94 $35,000 Jim Adam 7 30.5 01/08/95 $30,000 Rob Adam 8 30.7 11/10/96 $8,000 Jim Adam 9 30.8 19/02/97 $12,000 Jim Adam 10 30.9 18/08/98 $5,000 Jim Adam 11 30.10 28/07/99 $215,625.00
[$100,000 new loan and amalgamation of previous loans]Jim Adam 12 30.11 25/08/00 $500 Jim Adam 13 30.12 28/09/00 $1,000 Jim Adam 14 30.13 23/10/00 $10,000 Jim Adam 15 30.14 22/12/00 $6,400 Jim Adam 16 30.15 13/08/01
24/09/01
04/10/01
20/10/01
11/12/01$150,000 made up of:
$40,000
$50,000
$20,000
$40,000Jim Adam 17 30.16 14/02/03 $22,000 Jim Adam Categorisation of the Advances
These advances fall into three distinct categories.
(a) Advances 1, 3, 4, 6, 11 and 16
These can be identified as loans to Jim in the strict sense. Each had been negotiated with some input from the defendants. Advance No 11 in the sum of $215,625 was the total of a new loan of $100,000, the consolidation of the loans in advances 1, 3, 4 and 6 and some allowance for unpaid interest on those loans. These advances were all included in the plaintiff’s investment portfolio with the defendants.
(b) Advances 2, 8, 9, 10, 12, 13, 14 and 15
Each of these “advances” was a payment made by the plaintiff direct to Jim from her Westpac bank account in respect of which the defendants had no control. The respective sums were generally not brought to the attention of the defendants, and did not form part of the plaintiff’s investment portfolio with the defendants. In effect, the plaintiff’s bank account constituted her spending money.
(c) Advances 5 and 7
These can be identified as loans, in the strict sense to the plaintiff’s now deceased, brother Rob. These loans, which were subsequently forgiven, also formed part of the plaintiff’s investment portfolio with the defendants.
(d) Advance 17
This “advance” relates to a cheque in the sum of $22,000 drawn on the plaintiff’s Westpac account on 14 February 2003 after the termination of the defendants’ services and finalisation of the plaintiff’s accounts with the defendants.
As is apparent from this brief overview these proceedings generated voluminous documents. The respective submissions of counsel were detailed and lengthy. It would be impracticable for me to summarise all of the evidence. To do so would result in these reasons being even more lengthy than they are. The narrative of the facts in these reasons reflects my findings, and I have had regard to all of the submissions of counsel in reaching my conclusions even though I do not mention all of them.
The facts
The plaintiff was born on 10 December 1909.
From the age of 10 her parents had apparently appointed the defendants to be the guardian of the plaintiff and her two siblings in the event of their early death. Nothing turns upon the apparent appointment, save that it is indicative of the long and close association between the plaintiff and the defendants.
The plaintiff has never married, appears not to have been engaged in remunerative employment much, if at all, throughout her life, and I accept has led a very sheltered life. She left the conduct of her financial affairs to the defendants, until the month of February 2003. Until that time she had simply attended to the payment of day-to-day expenses sourced from the income paid by the defendants into her account with the Westpac bank.
The plaintiff described “just leaving it to them – the Sydney office of the defendants – and they looked after me”. The defendants had similarly previously taken care of the financial affairs of the plaintiff’s mother following the death of the plaintiff’s father.
It is apparent from the plaintiff’s affidavit and the historical records which were tendered, that for 40 years the defendants had managed the plaintiff’s investments on a conservative basis. Generally their role was to invest her funds in low risk investments and to produce a modest income to meet her needs. They would make the investment decisions and inform her accordingly.
ADVANCE 1 - $5,000
The first loan, the subject of the plaintiff’s claim, is one made to Jim on 12 May 1981 in the sum of $5,000 at an interest rate of 8% p.a. No contemporaneous record of the loan was produced at trial, and no evidence was led as to the circumstances in which the loan was made. On 31 January 1981 Jim had taken out a mortgage for $20,000 over 75 Watson Avenue Toorak Gardens. The earliest record produced at trial was a Portfolio Summary prepared by the defendants for the plaintiff, dated 18 October 1989. That document recorded that the loan was unsecured, and not expected to produce any income.[10] It was clearly not a gift. Subsequently on 27 October 1990 the plaintiff had instructed Mr Eddy that the loan had not been repaid, and that the defendants should continue to record the interest outstanding. The defendants charged a fee of 1.5% on this and all subsequent loans.
[10] Exhibit P2 Vol 1 page 5.
As I understood the plaintiff’s claim in respect of this loan, it is not that the defendants ought to have obtained security for the loan initially but, that when subsequent requests for loans were brought to their attention, the defendants ought to have ensured that this first loan was repaid or at least secured prior to further loans having been granted. This debt had grown to $11,000, when this loan was consolidated with other loans in a “Loan Agreement”, evidencing Advance No 11, on 28 July 1999.
I do not accept that there is any basis to criticise the defendants in respect of this loan until its consolidation with other loans on 28 July 1999. It must be remembered in relation to relatively small loans that sometimes the risk of loss is so small that a failure to eliminate that risk does not show an absence of care. Tame v New South Wales (2002) 211 CLR 317 at 353.
The plaintiff moved to South Australia to reside with her brother Rob at 104 Watson Avenue Toorak Gardens in or about the month of July 1989, when aged 79 years.
Another brother John Adam resided in Victoria. The plaintiff’s niece Hazel Roberts resides in Geelong. She would visit the plaintiff on occasions when she resided at 104 Watson Avenue. She did not visit the plaintiff between 1998 and 2000, but visited her once a year from 2000 onwards.
Health and capacity of the plaintiff
Dr Elizabeth Ramsey was the plaintiff’s General Medical Practitioner over the relevant period. In describing her general health as at 1 November 1989, she said that the plaintiff appeared then to be fully independent in the management of her own daily financial matters, and noted that she was mentally alert, still driving her own car at the age of 80 years. She observed, however, a gradual deterioration in the plaintiff’s health from 1998 to early 2000, recording that “mentally she felt a little slower and had difficulty in taking in moderately complex instructions”. She had not renewed her driver’s licence in the year 2000. Dr Ramsey opined that, from about late 1999, the plaintiff would not have been able to understand, without some assistance, the detail of financial reports forwarded by the defendants to her, and in any event would have had difficulty in reading the print in those reports in consequence of the deterioration of her vision. She said in evidence:
“… in that time period up to 2002, I think if she was going to be given complex instructions, they would’ve have to have been broken down into quite simple parts and then built on at each level to make sure she understood each part before going on to the next. I think her ability to take in information in that way would have been quite reasonable for day-to-day functioning and for understanding reasonable simple financial and legal type transaction and so forth. But somebody, I think, would have had to have sat down and go over with it her to make sure she did understand that. I think that her ability to understand it by herself may have been impaired”.
She did acknowledge however that the plaintiff would have been able to understand the concept of a loan, had she read various “Loans Agreements” in 1999.[11]
[11] T 135 - 137.
In reports dated 10 November 2004 and 25 February 2005, the eye surgeon Dr Arthur Karagiannis described the plaintiff’s visual acuities in 1994 as 6/9 corrected in both eyes. By 1999 they had deteriorated to 6/12 on the right and 6/18 on the left, secondary to the presence of cataracts. By September 2002 there had been marked deterioration to a level of 6/24 on the right and less than 6/60 on the left due to bilateral cataracts and age related macular degeneration. He described the left eye as being classed as legally blind and in the right at least 70% reduction in vision as at the year 2002.
Juliana Lauer, a cleaner initially employed by Rob Adam but subsequently paid by the plaintiff, gave evidence of her observations of the plaintiff. This was consistent with that given by Dr Ramsey of a gradual deterioration in the plaintiff to 2002. Similar observations were made by the Eastern Domiciliary Care Service Assessor in 2000.[12]
[12] Ex P2 vol 7, document 418.
Rob had two children namely Jim who resided at 75 Watson Avenue with his family and Jeanette who resided in England.
On 26 October 1989 the plaintiff, accompanied by Rob, instructed Mr Eddy to prepare a Will and an Enduring Power of Attorney.
On 1 November 1989 the plaintiff executed a Will appointing the defendant “PTA” as Trustee. That Will provided for the residue to pass to four nephews and nieces equally, as tenants in common, including Jim and the next friend Hazel Roberts. That Will was revoked by Will executed on 18 March 1996, and the latter by one executed on 10 April 2003. What remained consistent was that the residue was to pass to the same four nephews and nieces equally as tenants in common.
On 3 November 1989 the plaintiff, pursuant to a General and Enduring Power of Attorney, appointed “PTA” as her Attorney.
Mr Davis gave evidence as to the role of the defendants pursuant to such a Power of Attorney. He said:
“Yes.It’s quite, I guess, a common area of Perpetual’s business where, having many elderly clients, often they do wind up losing capacity and so we’re quite accustomed to obtaining necessary medical opinions in relation to that and assuming they have appointed us as their enduring attorney, we’ll then take control of their finances and manage their affairs to protect their assets and estate”
The donee of an Enduring Power of Attorney is obliged, during any period of legal incapacity of the donor, to exercise his powers with reasonable diligence to protect the interests of the donor.[13]
[13] Powers of Attorney and Agency Act 1984, Section 7.
It was not pleaded by the plaintiff that, at any relevant time, she was not of legal capacity, so as to require the defendants to assume control of her assets.
Mr Eddy was informed by the Perpetual Group of Companies Sydney office on 13 November 1989, that the fees to be charged to the plaintiff ought be 0.5% for funds invested with the Perpetual Group, and 1.25% for those invested in Non-Perpetual Group Funds. (my emphasis)
The Defendants Letter of Appointment
Mr Eddy prepared a “Letter of Appointment” executed by the plaintiff on 13 December 1989. The terms of that letter addressed to “PTA” were:
“I hereby authorise and direct PERPETUAL TRUSTEES AUSTRALIA LIMITED (Perpetual) to act in accordance with the Enduring Power of Attorney signed by me on 3rd November 1989 appointing Perpetual as my Attorney.
I specifically request Perpetual attend to the following matters on my behalf:
(1)Open and maintain a “Supercare Agency Account” in the name of JEAN MARGARET ADAM
(2)Record all of my shareholdings, fixed interest investments, interest bearing deposits, options and other securities as assets in my Supercare Agency
(3)Collect all dividends, interest payments and other income from my investments
(4)Refer to me for instructions before any changes are made to the assets of my Supercare Agency (including the sale of shares, new issue applications, the sale of rights, exercising of options and re-investment of deposits)
(5)In the event that I am unable (for any reason) to provide you with instructions regarding changes to my investments please accept instructions from my brother MR JAMES ROBERT ADAM of 104 Watson Avenue Toorak Gardens
(6)Arrange for the preparation and lodgement of my Income Tax Return each year
(7)Retain my share certificates and other securities in safe custody at your office
(8)Accumulate income in my Agency Account and make regular quarterly remittances of accumulated income to my bank account on 15 January, April, July and October each year.
(9)Provide me with regular statements of my agency transactions.
(10)Maintain accurate records of my investments including information required for Capital Gains Tax purposes.
(11)Charge an annual administration fee as follows: -
(1) 0.5% per annum of the capital value of ‘Perpetual Group Products’ held as assets in my agency account.
(2) 1.5% per annum of the capital value of ‘Non-Perpetual Group Products’ held as assets in my agency account. (My emphasis)
The fee is to be calculated and charged quarterly in March, June, September and December.
(12)Attend to any matters as I may from time to time instruct you, in writing, to attend to on my behalf.
Yours sincerely,
JEAN MARGARET ADAM”
Rob Adam
As can be seen clause 5 enabled the defendants to accept instructions from Rob if, for any reason, the plaintiff was unable to give instructions There is no doubt that the plaintiff had complete confidence in her brother Rob. The defendants’ documents tend to suggest that while he was alive, Rob would assist the plaintiff in any discussions with the defendants. When Mr Eddy attended at 104 Watson Avenue, Rob generally discussed investment issues on her behalf.
In my opinion it is clear that the defendants were contractually obliged to collect all interest payments from both Perpetual Group Products and Non-Perpetual Group Products. The latter included loans granted to family members, including Advance 1. That obligation however did not extend, in my opinion, to any financial transactions entered into by the plaintiff from her Westpac bank account. From the correspondence in Exhibit P2, I infer that the defendants treated the expression “my investments” as including what I have referred to as loans in the strict sense to family members, and charged 1.5% fee in respect of them.
From approximately 1999, Mr Davis formed the view that “my investments” only applied to Perpetual Group Funds, and that the plaintiff thereafter should directly collect interest payments from family loans. The defendants continued to charge the plaintiff this higher rate of fee until 31 August 2001.
· Quantum of Defendants Fees
One of the subsidiary issues involves the quantum of the defendants’ fees, for “Non Perpetual Group Products”. At various times the defendants’ internal documents referred to a reduced percentage fee being charged with respect to the non-performing loans made to family members. In his evidence Mr Davis said that no fee ought to have been charged in respect of those family loans, as the defendants did not accept that they were required to give advice with respect to them. In final submissions the defendants’ counsel Mr Coppola “conceded liability” to the plaintiff for any fees that the plaintiff had been charged with respect to the loans to family members. Although the pleadings did not include a claim by the plaintiff for the recovery of those fees, the quantum of those fees will need to be agreed or be the subject of further evidence.[14]
[14] T 519-520.
The plaintiff opened an account numbered 57-9459 at the Norwood Branch of the Westpac Bank.
ADVANCE 2 - $27,000
Between 17 November 1989 and 20 April 1990 the plaintiff paid to Jim four payments totalling $27,600 from her Westpac bank account. These four payments of $1,600, $6,000, $10,000 and $10,000 are described in the Statement of Claim as “other advances” in paragraphs 29A to 29D respectively. No evidence was adduced as to the background or purpose of these payments. In particular there is nothing to suggest that they were advances in the strict sense of being repayable. In her affidavit, the plaintiff said that as she had been told that she had received a good price for the sale of her house in Sydney, she had gifted, (presumably from her Westpac account), the sum of $10,000 each to the four residuary beneficiaries including Jim and Hazel. The payments in Advance 2 were not recorded as loans by the plaintiff to Jim, in contrast to the first loan of $5,000. I find it probable that the defendants were unaware of these payments. In 1990 they had no reason, let alone any obligation to monitor the plaintiff’s Westpac account. It had been nearly 20 years since the plaintiff had provided a loan to Jim. While the defendants had paid two cheques, each for $10,000 into plaintiff’s Westpac account in the month of April 1990, the payment of those sums as authorised by an apparently mentally alert client, having recently moved to Adelaide, and with assets in excess of $450,000, could hardly be said to have put the defendants on notice of some undue influence, other than with the benefit of hindsight.
In Hall v Foong[15]; Debelle J said:
“It is important that the Court does not permit hindsight to insinuate itself into its reasoning. Hindsight is no doubt useful in other contexts, but, as a general rule, it must be avoided when determining liability. As Megarry J observed in Duchess of Argyll v Beuselinck (1972) 2 LLOYDS LR 172 at 185: In this world there are few things that could not have been better done if done with hindsight. The advantages of hindsight include the benefit of having a sufficient indication of which of the many factors present are important and which are unimportant. But hindsight is no touchstone of negligence. The standard of care to be expected of a professional man must be based on events as they occur, in prospect and not in retrospect”.
[15] (1995) 65 SASR 281 at 304.
On 27 September 1990 the plaintiff instructed Mr Eddy to pay regular quarterly payments of $5,000 to her Westpac-Norwood bank account as and from 1 October 1990, such sum being sufficient to meet her needs.[16] To all intents and purposes this was her spending money to do with as she pleased, including making regular donations to charities.
[16] Exhibit P2 Volume 2 page 387.
Various documents prepared by the defendants, including quarterly agency statements detailing the plaintiff’s “Investment Portfolio”, were sent to the plaintiff. I accept the plaintiff’s evidence that she would glance at those documents when they arrived, but not carefully read or understand them. Quite apart from her failing eyesight, the plaintiff relied entirely upon the defendants to make investment decisions on her behalf. The “Portfolio Investment Review” documents, which featured prominently at the trial, were quite lengthy documents. I doubt whether many lay people, let alone an elderly person with little commercial experience, would have understood all of the material in those documents. She would not, in my view, have been contributorily negligent, if that defence had been available to the defendants, because of her failure to properly read those documents. She was entitled to expect that Mr Eddy would have contacted her personally to inform her of any matters of concern. See Craig v Troy (1997) 16 WAR 96.
ADVANCE 3 - $40,000
On 19 March 1991, a bank cheque in the sum of $40,000 was forwarded by Mr Eddy to a solicitors trust account in respect of the settlement of the purchase by Jim and his wife Deborah of a property situated at Oakwood Road at Oakbank. The tendered documents do not include any correspondence or notes indicating how the defendants were instructed to make the payment; or what advice, if any, had been given to the plaintiff. It is clear that Mr Eddy instructed a firm of solicitors to draw a “Loan Agreement”. I infer that he did not deem it necessary that the plaintiff obtain legal advice as to the risks associated with the loan, nor as to the question of security. The “Loan Agreement” dated 27 March 1991 named only Jim as the borrower and not Jim and Deborah jointly. The loan of $40,000 carried interest at 10%. In her affidavit the plaintiff recalls that Mr Eddy attended at 104 Watson Avenue from time-to-time. She recalls him, “wanting me to sign a loan for Jim. I suppose it was when Jim was buying the farm”. She subsequently thought the loan was for $10,000. She wanted to help them because it was in their best interest to acquire the farm. No security was provided for the loan. There was no evidence that any advice was given to the plaintiff. I infer from the absence of file notes that the plaintiff was not advised as to the risks of such a loan or the desirability of security being taken. I have no doubt that the defendants did not investigate the capacity of Jim to repay the loan. In their defence the defendants admit that they did not advise the plaintiff to decline this advance nor the subsequent advances numbered 4 and 5. They plead that they had no reason to advise the plaintiff not to make the loans.
As the medical evidence disclosed the plaintiff was, at this time, mentally alert. Even though the first advance remained outstanding, there had been no default by Jim. Although one should not speculate, it may be that the interest fixed by the loan agreement of 10% was a factor. A statement of assets prepared apparently by Mr Eddy for the period 20 November 1989 to 30 June 1992 disclosed that the average per cent market yield for the plaintiff’s investments was 7.01%. Indeed the average fixed interest on fixed interest loans was 8.06%.
At this time the defendants had no reason to suspect that Jim was exercising any undue influence over the plaintiff. However the plaintiff ought to have been advised to seek some security for a loan of this magnitude. See Bowstead and Reynolds on Agency (16th ed) para 6.031 (4).
From 19 February 1991 to 21 January 1992 Jim paid the monthly instalments of $333.33 due under the “Loan Agreement”. I will deal subsequently with the question as to whether the defendants were obliged to advise the plaintiff with respect to the issue of security.
ADVANCE 4 - $6,000
On or about 8 January 1992, the plaintiff advanced to Jim the further sum of $6,000; again at 10% per annum. This advance was the subject of a loan agreement dated 21 January 1992. There were no documents produced to explain this transaction. The plaintiff could not recall this loan being made. She did however sign the “Loan Agreement”. On 5 May 1992, Mr Eddy wrote to her explaining that “Jim Adam’s monthly repayments have now increased to $383.33 following the additional advance of $6,000 made earlier this year”. The defendants admit not advising the plaintiff to decline the loan, and plead that they had no reason to give such advice. At that time Jim was up-to-date with his payments on Advance No 3.
Again at this time there was nothing to suggest, other than with the benefit of hindsight that the plaintiff was being unduly influenced.
Although Advance 4 was for a relatively small sum as compared with the size of the plaintiff’s portfolio, it was granted subsequent to Advance 3 and the plaintiff ought to have been advised to seek security for this loan. I also deal with the issue of liability for this advance subsequently.
Between February 1992 and September 1992 Jim paid the monthly instalments on both advances 3 and 4 on the due date. He fell into arrears for a period of four months after December 1992.
On 23 March 1993 Mr Eddy wrote to Jim Adam confirming the terms of Advances 1, 3 and 4. A copy of the letter was forwarded to the plaintiff. In it Mr Eddy informed Jim that he was four payments in arrears totalling $1,533.32, and sought a response as to payment.
On 29 March 1993 Rob Adam telephoned, purportedly on behalf of the plaintiff, stating “accrue interest for time being – to review again in 3 months, i.e. end of June 1993”.
On the same day Mr Eddy, instructed solicitors to prepare a variation to the Loan Agreements for advances 3 and 4 so as to reduce interest from 10% to 7% per annum. No evidence was adduced as to whether this request was or was not authorised by the plaintiff. Again while one must not speculate, it is plain that the interest rate of 10% was above that attainable in the market place. In a Portfolio Review prepared for the plaintiff on 21 October 1993, the defendants stated that income from all investments was insufficient to meet the plaintiff’s quarterly expenditure of $20,000 and the defendants’ fees. The average returns of 3.7% for cash, 3% from shares and 5% from fixed interest, was well below the interest fixed on these loans.
On 2 April 1993 Jim wrote to Mr Eddy disclosing that he was short of income due to a downturn in business.
ADVANCE 5 to Rob $10,000
By the same letter to the solicitors, Mr Eddy instructed that a “Loan Agreement” for the sum of $10,000 at 7% p.a. and naming Rob as the borrower, be prepared. It was executed on 6 April 1993.
I am satisfied that Jim was to be the beneficiary of this loan, in consequence of a deposit for that sum contemporaneously paid into the bank account of Jim and Deborah Adam.[17] Although the plaintiff submits that the defendants ought to have enquired about the purpose of the loan, this was on its face a loan to the plaintiff’s brother. She resided at his house. He was the registered proprietor of the property at 104 Watson Avenue Toorak Gardens subject only to a collateral mortgage in respect of part of Jim’s borrowings of $77,000. There is a dearth of evidence about the background and purpose of this loan. For her part the plaintiff, in her affidavit, recalled having lent the total sum of $40,000 to Rob. She understood that the purpose was to assist in his grandchildren’s education. She also had understood (in error as it transpires) that Rob had repaid this loan. It is more probable than not that Rob arranged the loan of $10,000 to assist Jim; and arranged for the loan to be in his name because Jim had fallen into arrears in respect of advances 3 and 4. There was no evidence that the defendants advised the plaintiff to take security. I will deal subsequently with the question whether the defendants were obliged to advise the plaintiff to secure any advances at that time. The fact remains that the failure to secure this loan was not causative of any loss. The funds were available to repay the loans from Rob’s estate and would have been repaid but for the plaintiff’s forgiveness of them in 1997. In any event, and howsoever she was advised, the plaintiff would not have required her brother to provide security for this loan.
[17] Exhibit P2 vol 6 page 734.
The monthly instalments of $58 were paid erratically until 6 September 1996, sometimes in arrears; at other times in advance.
By 29 June 1994 Jim had brought the payments on advances numbered 3 and 4 up-to-date after having been up to 10 months in arrears.
ADVANCE 6 - $35,000
On 27 July 1994 a “Loan Agreement” to cover a further advance of $35,000 at 7% per annum, to Jim Adam, was prepared by solicitors at the request of Mr Eddy. That document was forwarded to the plaintiff on 28 July 1994. No other documents were adduced in evidence as to the background to that loan or whether the plaintiff was given any advice by the defendants. The defendants forwarded a cheque to Jim in the sum of $1,994.90 and caused a bank cheque to be paid on 29 July 1994 in the name of “MP McKean” in the sum of $33,000. The latter sum was in fact used by Jim for the purchase of a “Rolls Royce” motor vehicle. The plaintiff deposed in her affidavit to some knowledge of the acquisition of the vehicle however was adamant that she did not agree to lend money for its purchase. If Jim had been asked by Mr Eddy about the purpose of the loan, there is no record in the tendered documents. There is no doubt that at that time, Jim was in financial difficulties. I infer that there was no investigation by the defendants as to Jim’s finances nor his capacity to repay the loans. No interest on this loan was paid for 10 months. By the month of April 1998 Jim was 35 months in arrears on this loan.
The copy agreement tendered in evidence was signed by Jim, and witnessed by Mr Eddy. It was not signed by the plaintiff. The plaintiff submits that I should infer that the plaintiff did not give instructions for this loan, and indeed was unaware of it. The loan was referred to explicitly in Portfolio Reviews forwarded to the plaintiff, and in correspondence from Mr Eddy. I cannot but find that the plaintiff did authorise the loan. Whether she was properly advised about its risks is another matter.
I infer from the manner in which the loan document was executed, and the absence of any file notes of Mr Eddy that the defendants did not give any advice to the plaintiff about the risks associated with a further unsecured loan. She was not advised to seek security despite the fact that the combined loans to Jim totalled approximately $90,000. To the plaintiff, at least, Jim would have appeared to be a man of substance, purchasing expensive cars and travelling overseas.
The increased size of the unsecured loans to Jim, ought to have alerted the plaintiff to investigate the relationship between Jim and the plaintiff. I do not however accept that it ought to have been obvious to the defendants, other than with the benefit of hindsight that Jim was exercising undue influence over her at this time. These were not gifts, but loans at commercial rates. The plaintiff still appeared mentally alert. Interest payments were to be paid to the defendants, and Jim knew that the defendants would be expected to monitor those payments and, contact him if he was in default.
I deal subsequently with the issue of liability in respect of this loan.
On 10 May 1995 Mr Eddy wrote to Jim Adam noting that it had been quite some time since an interest payment had been made in respect of the loans advanced by the plaintiff. He thought it “appropriate to confirm the current position according our records.
“$46,000 @ 7% repayable on demand (monthly repayment $268.33).
An amount of $3,219.96 was paid on 29 June 1994 which resulted in the next repayment of $268.33 falling due on 21/6/94.
A further amount of $3,219.96 would meet all payments to 21/6/95.
$35,000 @ 7% repayable on demand (monthly repayment $204.16)
The first repayment of $204.16 became due on 29 August and is still outstanding.
Ten payments totalling $2041.60 would clear the arrears and meet all payments to 29/6/95.
$9,000 @ 8% repayable on demand (interest accumulated)
The third loan does not require any payment as the interest is being accumulated. (The balance outstanding will increase to $9400 at 1.6.95).
I hope these figures will agree with your records, but if you have any queries please do not hesitate to contact me”.
ADVANCE 7 to Rob - $30,000
On 1 August 1995 the plaintiff lent a further sum of $30,000 to Rob Adam. The loan was recorded in a “Loan Agreement” prepared on the instructions of Mr Eddy. Mr Eddy wrote to Rob Adam on 1 August 1995 enclosing a copy of the “Loan Agreement” to be signed by both the plaintiff and himself, noting that Jim could witness the signatures. The plaintiff asserts that the beneficiary of this advance was Jim. I find that the sum of $30,000 was deposited into Jim and Deborah’s account on 4 August 1995. The letter specifically said, “as discussed the cheque will be $30,000 in favour of “J Adam”.
I infer that the arrangement was made between Mr Eddy and Rob to enable Jim to bank the cheque, despite the letter “J” being common to the plaintiff, Rob and Jim. It again seems probable that Rob had agreed to take the loan of $30,000 in his name to assist Jim, it being unlikely that the defendants would approve another significant loan in light of the delays in meeting the monthly instalments on Advance No 6. The fact remains that the plaintiff was aware of this loan to Rob, and had approved it. Rob had executed the “Loan Agreement” and was liable for the loan. While neither this loan, nor advance No 5 were secured by mortgage, there was at all times sufficient equity in the property at 104 Watson Avenue to repay these loans. I infer that the defendants did not advise the plaintiff to take security for this loan, from the manner in which the loan was arranged, and the absence of any file notes. Again I deal subsequently with whether this failure to advise constituted a breach of their retainer.
In my opinion the loans to Rob fall into a different category to those made directly to Jim. Jim was one of four nephews and nieces, and it seems clear from the various Wills and other documents that the plaintiff wished to treat them equally. She would have treated these loans formally. By contrast, the loans to Rob would have been treated less formally by the plaintiff. If anyone had advised her that she ought obtain security for the loans to Rob, the plaintiff would not have acted on that advice. The omission to secure this advance by mortgage was not causative of any loss. The funds were available for repayment of the loans at the winding up of Rob’s estate, and would have been repaid but for their forgiveness by the plaintiff.
The monthly instalments of $200 on this loan were paid generally in arrears.
ADVANCE 8 - $8,000
On 11 October 1996 the plaintiff paid to Jim a total sum of $8,000 from her Westpac bank account. The plaintiff had written to the defendants authorising the transfer of $7,000 from her “trust fund” to her account at the Westpac bank. Mr Eddy had noted a request by Jim Adam that those funds be “tele-transferred” so that the funds could be cleared immediately. There seems to be little doubt that the defendants would have been aware that Jim expected to receive at least some of these monies.
The plaintiff alleges that the defendants ought to have advised the plaintiff not to make the payment or alternatively to secure the payment. In my opinion this falls in the same category of those in “Advance 2”. It is not strictly an advance at all. There is no evidence to suggest that it was intended to be repaid. All other advances had been documented as such. The defendants had no control over the plaintiff’s bank account. They did not have access to her bank statements. There was then no warrant for the defendants to exercise their powers under the Enduring Power of Attorney.
In my opinion the defendants were not obliged by the terms of their retainer or at all, at that time to advise the plaintiff with respect to payments from her Westpac account.
Rob’s death and the plaintiff’s vulnerability to Jim’s undue influence
On 24 October 1996 the plaintiff’s brother Rob died. The plaintiff remained in Rob’s house at 104 Watson Avenue Toorak Gardens until the month of May 1998 when that house was sold, and she moved into 75 Watson Avenue Toorak Gardens, with Jim’s family.
This was a major event in the plaintiff’s life. Mr Eddy was aware that the plaintiff was assisted by Rob in understanding documents forwarded by the defendants. Indeed on occasions letters from Mr Eddy, enclosing documents, suggested that the plaintiff should discuss them with Rob. Upon his death the plaintiff was on her own in every sense. It must have been obvious to Mr Eddy that the plaintiff was in a vulnerable position and that special care was needed to ensure that she understood the effect of and the risks associated with any financial transactions thereafter.
The plaintiff’s evidence that she went downhill after the sale of 104 Watson Avenue was consistent with the medical evidence, and I accept it.
ADVANCE 9 - $12,000
On 19 February 1997 while the plaintiff remained at 104 Watson Avenue, $12,000 was debited from her Westpac bank account. I am satisfied that this sum was deposited into Jim and Deborah’s account.
While the defendant had transferred the sum of $5,000 to the plaintiff on 17 February 1997, there is no evidence that the defendants were aware or ought to have been aware of a payment being made to Jim, from the plaintiff’s Westpac account. Indeed there is little or no evidence about the circumstances in which this payment was made. I do not know whether it was intended to be repaid. It cannot be said that the defendants closed their eyes to a “fraud” perpetrated by Jim. There was no warrant for the defendants to take control of the plaintiff’s bank account at that time. c.f. Sansom v Westpac Banking Corporation (1996) Aust Torts Rep 81-383 at 63, 323 per Sheller J.A.
In my opinion the defendants are not liable for the loss of this advance.
The forgiveness of Rob’s loans
The defendants were both the managers of the plaintiff’s “Portfolio Investments” and the trustees of the estate of Rob. The loans totalling $40,000 were anticipated to be repaid to the plaintiff following the sale of Rob’s house.
On 12 May 1997 the plaintiff telephoned Mr Eddy to instruct him that she wished to forgive half of the $40,000 loan to Rob. The note referred to this having the effect of gifting $10,000 each to the beneficiaries of Rob’s estate. – Jim and her niece Jeanette.
On 17 June 1997 Mr Eddy reported that he was finalising Rob’s estate and that “arrangements are being made for his estate to repay the loans”.
On 8 July 1997 Mr Eddy received a letter from solicitors Jackson and Associates (referring to a letter dated 4 July 1997, not produced at the hearing), which advised a form of acknowledgement as follows:
“I JEAN MARGARET ADAM hereby forgive all debts owing to me by the estate of JAMES ROBERT ADAM deceased including the principal sums and interest payable thereon as evidenced by agreements dated 6 April 1993 and 4 August 1995”.
On 4 August 1997 Mr Eddy wrote to the plaintiff informing her that the “list of investments has been amended and no longer includes the loans of $30,000 and $10,000 “made to her brother”. These loans were thereafter deleted from all investment review documents forwarded to the plaintiff.
These documents create a curious picture and give rise to some speculation. The plaintiff’s evidence really does not assist in determining whether she had in fact given Mr Eddy instructions to forgive these loans.
The reference to forgiving $20,000 and gifting half to Jeanette and Jim may have been consistent with the equal manner in which she intended to treat the four nieces and nephews. It is somewhat speculative, but the plaintiff may have intended the balance of $20,000 to be paid equally to the remaining two, including Hazel Roberts. In the event Jeanette attended at Watson Avenue to finalise to Rob’s affairs. The plaintiff was to move into occupation of 75 Watson Avenue with Jim. It may be that the plaintiff simply decided to forgive the loans so as to benefit Jim and Jeannette.
The state of the evidence is unsatisfactory. Mr Eddy should have been called to give evidence on this issue. There is little doubt that the question of some forgiveness of the loans was discussed by Mr Eddy and the plaintiff.
On the state of the evidence and notwithstanding the principles in Jones v Dunkel, I cannot find other than that the forgiveness of the loans was authorised by the plaintiff. The plaintiff referred to a meeting between Mr Eddy and Jim and his wife Deborah to prepare their Wills. She submits I should find that Jim might well have influenced the decision to forgive this loan in its entirety. The benefit passed equally to Jeanette and Jim. I am not satisfied that Jim did exercise any undue influence over the plaintiff, in respect of the forgiveness of these loans. The letter of 4 August was 9 months before settlement on 104 Watson Avenue. In my opinion whatever advice she had been given the plaintiff would still have forgiven Rob’s debts. There was no warrant at that stage for the defendants to refuse to facilitate the forgiveness of the loans until the plaintiff had obtained independent legal advice.
On 17 June 1997 Mr Eddy recorded in a memorandum that; “please note that Miss Adam does not want us to pressure the nephew to keep repayments up-to-date. The nephew is a residuary beneficiary in Miss Adam’s Will”.
On 16 April 1998 just prior to the settlement on 104 Watson Avenue the defendants forwarded an Investment Review document to the plaintiff. It included a note that “you have indicated that your nephew and niece may sell the property in which you are currently living. Hence there may be an increase in your living expenses if you begin paying rent in another residence”.
On 21 April 1998 Mr Eddy noted that the plaintiff had asked him to provide Jim with written confirmation of the amount of principal and interest outstanding in respect of loans 1, 3, 4 and 6; but that she was not requesting the payment of back interest at that time. Mr Eddy wrote accordingly to Jim on 29 April 1998.
On 12 May 1998 the 104 Watson Avenue house settlement took place. Jim deposited the sum of $185,495 into various Westpac accounts. The plaintiff was not repaid any of the loans nor outstanding interest owed by Jim.
The defendants were in a position of having inconsistent fiduciary duties at that time. The fact remains that the plaintiff had instructed Mr Eddy not to pressure Jim to keep the interest payments up-to-date. c.f. Hilton v Barker Booth & Eastwood [2005] 1 WLR 567.
ADVANCE No 10 - $5,000
On 26 August 1998 the plaintiff withdrew the sum of $5,000 from her Westpac account. I am satisfied that it was then deposited into the Westpac account of Jim and Deborah. There is no evidence suggesting that the defendants were aware of this payment or that they ought to have been aware. The defendants were aware that Jim had received a significant payment from Rob’s estate. The last payment out of the plaintiff’s personal account had occurred 18 months previously. It cannot be said that this was an advance in the strict sense. There was no warrant at this time for the defendants to take control of or monitor the payments from the plaintiff’s personal bank account.
In my opinion the defendants are not liable for the loss of this “advance”.
On 2 October 1998 Mr Eddy informed the plaintiff by letter of the appointment of Darryl Ayris, but noted “Jean, this a legal requirement. I will continue to be your contact at Perpetual”.
On 22 January 1999 the defendants’ in house solicitor in Melbourne Catherine Tsakonas wrote to Mr Eddy querying, inter alia, if there were outstanding loans, and suggesting that he approach the plaintiff to call the balances up. She noted the complication of the plaintiff residing with Jim and that Jim was struggling financially in his business. She recommended the plaintiff be consulted so as to determine her attitude to these loans.
ADVANCE 11 - $100,000 as part of a $215,625 “Loan Agreement”
On 4 May 1999 Mr Eddy and Mr Ayris attended at 75 Watson Avenue with the plaintiff. I infer that Jim attended that meeting, as there is a reference in the memorandum apparently contemporaneously prepared by Mr Eddy to a request by Jim for another $100,000 loan to buy out his business partner. He said that he was unable to borrow from a lending institution. Mr Ayris said that the defendants would be “reluctant to recommend a further loan to Jim”. Jim referred to the need to sell 75 Watson Avenue, raising concerns about the plaintiff’s accommodation. It was left that “Jim and Jean will discuss their options privately over the next few weeks and let Mr Eddy know what is decided”. This, in itself, was extraordinary. The defendants left the plaintiff to the pressures from Jim, without any advice or assistance.
On 10 May 1999 Mr Eddy noted a telephone call from the plaintiff in which she said; “she would like to help Jim if she can”, but wished to continue to receive $5,000 per quarter even if it eats into her capital. Although Mr Eddy may not have appreciated the significance of the plaintiff’s comment, this was obviously a request for advice as to the wisdom of making this loan.
It appears to have been the first time she had ever queried any “investment”. Mr Eddy simply indicated to Mr Ayris that he should proceed on the basis that the loan would be granted. I infer from these memoranda that the plaintiff was given no oral advice about the risks of this loan, and no oral advice as to the question of security. It seems that the defendants’ only recommendation at that time was that – “maybe we could recommend that all loans are consolidated and Jim pays interest on the whole balance on a regular basis”. It must have been obvious to Mr Ayris and Mr Eddy that the plaintiff was in an extremely vulnerable position. Her brother Rob had died; the house at 104 Watson Avenue had been sold, and the plaintiff would have been concerned about losing the accommodation at 75 Watson Avenue. In addition some $95,000 of her funds had already been lent unsecured to this nephew who had defaulted in repayments. Jim had made it clear that no commercial lender would provide the additional funds. Mr Eddy seems to have taken the position that he was engaged simply to carry out any instructions from the plaintiff. It does not seem that Mr Eddy made enquiries of any of the plaintiff’s other relatives or thought to advise the plaintiff to do so. Mr Eddy knew that there were three other nieces and nephews who were the proposed residuary beneficiaries in the Will which the defendants held. As it transpires Mr Eddy subsequently agreed to meet the plaintiff’s brother John at the plaintiff’s request on 11 November 1998.[18]There is no evidence as to whether the plaintiff’s vulnerability was discussed.
[18] Ex P2 vol 4 page 596.
These circumstances clearly dictated the need for independent legal advice. The plaintiff trusted and relied upon Mr Eddy for advice. The need for that advice had heightened since the death of Rob.
In his evidence Mr Davis recalled a meeting with Mr Eddy, Mr Ayris and Rebecca George with respect to Advance 11. He said that “we felt there was potential for her to have been unduly influenced by her nephew”. He was of the view that the plaintiff should not make the loan. He said that he spoke to the defendants’ managing lawyer in the Melbourne office about what rights they had not to make the loan. He had made no note of that conversation. He believed that Mr Eddy had spoken to the plaintiff again. It must have been apparent to Mr Davis, Mr Eddy and Mr Ayris that the plaintiff needed advice in the strongest terms that she should not grant this loan for $100,000 and that she must obtain independent legal advice. What is abundantly clear however is that, notwithstanding these warning signs, the defendants advised none of these things.
On 5 July 1999 an Investment Portfolio Review document of some 21 pages, prepared by Mr Ayris, was forwarded to the plaintiff. This document did set out the risks of lending a further sum of $100,000. The document specifically stated that the portfolio at that time generated approximately $21,000 – enough to meet her expenses of $20,000 per annum. In fact it only generated approximately $15,000 because the projected income of $6,440 from Jim’s loans was not paid. The document did not contain any warning to the effect that the loan should not be made nor that the plaintiff should obtain independent legal advice before approving this loan.
I have already found that the plaintiff did not read or fully understand these types of documents. If there was a risk to her income she would have expected Mr Eddy to tell her. I find that she did not understand that there was any risk to her funds in the event the loan for $100,000 was granted by her.
On 11 May 1999 Ms Tsakonas again wrote to Mr Eddy recommending that, if the plaintiff was serious about the loans, she should get independent legal advice. She also pointed out that the plaintiff must be told about the effect that the loans would have on her account. Although Ms Tsakonas’ comments were directed to the recovery of outstanding loans, it ought to have brought home to Mr Eddy that the plaintiff should be referred for independent legal advice prior to the grant of a loan of such a size that it would significantly affect her portfolio. Certainly Mr Ayris understood this to be the effect of the loan but I repeat he did not in the review document positively advise against it nor did he direct the plaintiff to take independent legal advice.
Mr Eddy did attend upon the plaintiff, and Jim to witness the execution of the loan agreement.
Instead, apart from the warnings by Mr Ayris in the Portfolio Review, I am satisfied that they did nothing other than to implement the loan. Notwithstanding Mr Davis’ assumption that Mr Eddy would have again spoken to the plaintiff, there is no record of that occurring and in the absence of any file note, I infer he did not meet privately with the plaintiff to discuss the seriousness of her position.
If Mr Eddy had referred the plaintiff to a solicitor, this alone would have brought home to the plaintiff the seriousness of her position. Her trust in and reliance upon Mr Eddy had increased following the death of Rob.
Any competent solicitor would have investigated the question of any undue influence by Jim. That solicitor would have ensured that the plaintiff was made aware that she was already owed nearly $95,000 by Jim, and that there was a real risk that Jim was unable to repay those loans, let alone an additional loan for $100,000. He would have investigated her capacity to give proper instructions. The plaintiff would have been advised to decline the loan or at the least to require adequate security.[19] I deal subsequently with the question as to whether the plaintiff would have acted upon such advice.
[19] See Pegrum v Fatharly (1996) 14 WAR 92, and Donaldson v Haldane (1840) 7 C & F 762.
The arrangement as envisaged by Mr Eddy was that the additional loan of $100,000 would be consolidated with the previous loans to Jim in a new “Loan Agreement” for $215,625. This presented a fresh opportunity. Again no advice was given to the plaintiff to seek to secure the previous loans which had been unsecured.
On 28 July 1999 a “Loan Agreement” was prepared, having the effect of consolidating all previous loans within in the sum of $215,625, together with the fresh advance of $100,000. Clause 8 of the “Loan Agreement” provided:
“The lender and the borrower hereby acknowledge and agree that all existing loans between the lender and the borrower made prior to the date of this agreement (including all interest accrued) are now deemed to be fully repaid and no longer current”.
On 13 August 1999 Jim acknowledged receipt of the sum of $100,000 and that the first monthly interest payment of $1,257.81 was due and payable on 28 August 1999.
On the same day Mr Eddy wrote to the plaintiff confirming that the advance of $100,000 had been paid to Jim. The letter however included the following:
“As agreed, Jim is to make regular interest payments direct to your bank account on the 28th day of each month. Please let me know if the payment is not made”.
This had the effect of transferring to the plaintiff the responsibility to ensure that the interest payments were made. The defendants continued to charge the 1.5% fee. It must be said however that the defendants did undertake some monitoring of Advance 11.
Jim failed to make any interest payments including the first one due on 28 August, until one only was paid on 30 September 1999.
Mr Eddy wrote to Jim on 7 February 2000 to enquire about the outstanding payments. It was apparent to the defendants from a telephone call from her, that the plaintiff had assumed that payments were being made by Jim. It does not appear that the plaintiff was ever disavowed of that belief, even when the defendants became aware of Jim’s failure to pay.
Mr Eddy resigns
Mr Eddy resigned from the defendants in or about February 2000 to take up other employment and was replaced by Mr Hansberry.
ADVANCE 12 - $500
The plaintiff led evidence that she had drawn a cheque for cash in the sum of $500 from her Westpac account on 25 August 2000. There is no evidence that the funds were received by Jim. There was no obligation upon the defendants to monitor the plaintiff’s bank account. The claim in respect of this alleged advance is entirely without merit.
ADVANCE 13 - $1,000
Again the plaintiff adduced evidence of a cheque for $1,000 being drawn on the plaintiff’s Westpac account on 29 September 2000. Nothing further was established about this payment. There was no warrant for the defendant to take control of the plaintiff’s bank account nor to monitor this account. The claim in respect of this alleged advance is similarly without any merit.
On 17 October 2000 the plaintiff requested the defendants to increase her payments from $5,000 to $6,000 per quarter.
ADVANCE 14 - $10,000
On 18 October 2000 the plaintiff drew a cheque for $10,000. I find that these funds were received by Jim. Even though the defendants were aware that the plaintiff had increased her “drawings” by $1,000 per quarter I do not accept that at this time that the defendants were obliged to monitor the plaintiff’s Westpac accounts. There is no evidence that they were in fact aware of the payment. The defendants are accordingly not liable for this “advance”.
ADVANCE 15 - $6,400
On 22 December 2000 a cheque drawn on the plaintiff’s Westpac account in the sum of $6,400 was in fact paid to “Panoz Motor Sports”. There is no evidence that the defendants were aware of that payment. Had they been able to access the plaintiff’s cheque butt it would have disclosed “Mutual Community”. The defendants were under no obligation to monitor the Westpac account at this time. Apart from the modest increase in “drawings” there was no basis upon which they could or should access those accounts. The only reason for the defendants to access the plaintiff’s bank statement – not cheque butts – was to determine whether Jim was making interest payments to that account.
In my opinion the duty extended to require the defendants to ensure that the plaintiff obtain independent legal advice from the time that they suspected that undue influence was being exercised over the plaintiff thereby putting her assets at risk. I have found that the defendants must have known of this undue influence prior to the grant of Advance No 11.
In my opinion the defendants’ retainer was limited to those investments recorded in the plaintiff’s Investment Portfolio, namely the “Perpetual Investments” for which a lesser fee was charged; and the “formal” loans in respect of which the plaintiff charged a fee of 1.5%. The retainer did not extend to advising with respect to monies paid by the plaintiff out of her personal account with the Westpac bank. Although the defendants had been appointed the plaintiff’s Attorney an Enduring Power of Attorney there was no basis upon which they could have exercised their powers under that Power of Attorney to take control of the plaintiff’s assets including the bank account. In respect of the plaintiff’s bank account the defendants had no control over the same and were in even less a position to control the expenditure out of that account than the Westpac bank itself. In my opinion for the reasons I have expressed in relation to those individual payments from the plaintiff’s personal bank account the defendants are not liable to the plaintiff in respect of Advances numbered 2, 8, 9, 10, 12, 13, 14, 15 or 17.
Breach of duty
(a) As to Advances 3, 4, 5, 6, and 7
These respective advances were not individually significant when compared to the total of the plaintiff’s investments. See NMFM Property v Citibank (2002) 107 FCA 270. In my opinion the defendants breached their duty of care by failing to advise the plaintiff to seek security in respect of Advances 3, 4, 5, 6, and 7 and in failing to investigate both Rob and Jim’s credit worthiness as at the respective dates of the grant of those advances. For the reasons I have expressed in the narrative in relation to each of these five loans, which occurred prior to the death of Rob, the plaintiff did not appear to need advice that she consult an independent legal advisor. The question remains whether the breaches of the retainer in respect of these advances was causative of any loss, or alternatively sound in nominal damages.
(b) As to Advances 11 and 16
I have found that it was patently obvious to the defendants that Jim was exercising undue influence over the plaintiff as and from the time of Advance 11. That advance involved a significant sum representing one third of the viable assets in her investment portfolio. I have referred in the narrative to the extremely vulnerable position in which the plaintiff was placed at the time of that advance. In respect of Advance 11, I have concluded that the plaintiff had sought from Mr Eddy specific advice about the wisdom of this loan. No advice was given, leaving the plaintiff to assume that there was no risk in making that loan. The defendants were under a duty to ensure that the plaintiff received independent legal advice before facilitating Advance 11. They were also obliged to positively advise the plaintiff that the advance should not be granted. In this case it was necessary that the advice be given directly to her so as to reinforce the seriousness of her position and to ensure that she understood her financial position. This was the advice she plainly needed. The defendants breached their duty in failing to investigate Jim’s credit worthiness; failing to advise the plaintiff to take security for the loan; failing to advise the plaintiff in any meaningful way not to grant the loan; and in failing to ensure that the plaintiff obtain independent legal advice before the loan was processed.
Similarly in respect of Advance 16 the defendants failed to ensure that the plaintiff did understand that this loan should not be made. They relied upon such advices as they gave in written form in the case of this elderly and vulnerable plaintiff, and did not contact her even after the size of the proposed loan had suddenly increased to $150,000 without explanation. This sum represented effectively the totality of her investment. It was a simple matter for them to attend upon her in person and reinforce the risks inherent in those loans. They failed to do this and failed even to record the loan in a formal loan agreement. As to Advance 16, I have concluded that the defendants were aware that the plaintiff needed independent legal advice. The defendants breached their duty of care to the plaintiff in respect of this Advance 16 by failing to ensure that she obtained independent legal advice before the loan was processed. The question which remains is whether the respective breaches of contract in respect of Advances 11 and 16 were causative of any loss or alternatively sound in nominal damages.
Causation
Counsel for the defendants submitted that the plaintiff had not demonstrated that she would have acted in any other way even if the defendants had complied with the duties which I have held were owed by them.
It is trite that the defendants cannot be liable for any of the plaintiff’s losses, unless the plaintiff establishes that those losses would not have been suffered by her if the defendants had properly discharged their duty of care. See Kenny v Good Pty Ltd v Mgica (1999) 199 CLR 413 at 427 and Baker v Sheridan (2005) Aust Torts Rep 81-788 at [388].
In Chappel v Hart (1998) 195 CLR 232 at 239 Gaudron J said:
“Where there is a duty to inform it is, of course, necessary for a plaintiff to give evidence as to what would or would not have happened if the information in question had been provided”.
In Hall v Foong (1995) 65 SASR 281 Debelle J said:
“The liability of the defendants for the negligence of the defendant Nield existed both in contract and in tort: Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384; Aluminium Products (Qld) Pty Ltd v Hill [1981] Qd R 33. In order to recover other than nominal damages for the lost opportunity, the plaintiff had to prove not only that the defendant was negligent in failing to advise her of the effect of Mr Cameron’s opinion but also that the defendant’s failure to advise had caused her loss: Sykes v Midland Bank Executor & Trustee Co Ltd [1971] 1 QB 113; Lillicrap v Nadler & Son [1993] 1 WLR 94; [1993] 1 All ER 724; Hanflex Pty Ltd v N S Hope & Associates [1990] 2 Qd R 218. The plaintiff had to prove on the balance of probabilities that, if properly advised, she would have acted differently. If she did not, she was entitled to nominal damages only for the breach of contract: Sykes v Midland Bank Executor & Trustee Co Ltd (1t 127); Lillicrap v Nadler & Son at 99; 729 and Hanflex Pty Ltd v N S Hope & Associates (at 228)”.[27]
[27] at p 301. See also Smith v Moloney [2005] SASC 305; cf Maguire v Makaronis (1997) 188 CLR 449; Target Holdings v Redferns [1967] AC 421 and Hilton v Barker Booth [2005] 1 WLR 567.
Mr Coppola submitted that the plaintiff would have done whatever Jim wanted. While that submission was historically accurate, it was so because no one had ever warned her in any meaningful way about the risks to her investments.
He submitted there was no evidence as to what the plaintiff would have done if properly advised. It is not correct to say that there was no such evidence. It is true that the plaintiff’s affidavit was mainly directed to the question as to whether she was aware of the loans and whether she had been given any advice at all by the defendants. I also accept that in isolation not much weight can be given to the assertion in paragraph 12.14 of her affidavit in which she deposed that – “If I’d known that Jim was in so much trouble before they even bought the farm, I wouldn’t have loaned Jim any money”. However the affidavit as a whole discloses that the plaintiff trusted the defendants completely. She was accustomed for over 40 years to take their advice on any investment. Even though the position changed somewhat when she moved to South Australia and received advice from Rob during his lifetime, I have no doubt that she would have acted upon any advice given by the defendants after Rob had died. It is clear that the plaintiff wanted her capital to pass to the four nephews and nieces equally. She would never have agreed to effectively gift her funds to Jim alone.
As to advances 3, 4, 5, 6 and 7
I find that the defendants breached their duty to advise the plaintiff to take security for each and every one of those loans; and to investigate the credit worthiness of Jim and Rob. There was, for reasons I have indicated, no obligation upon the defendants prior to Advance 11 to require that the plaintiff consult an independent legal advisor.
Hazel Robert’s evidence was that the plaintiff was at all times quiet and compliant. I infer that at least during the lifetime of Rob it is unlikely that the plaintiff would have acted upon the advice of the defendants to require that either Jim or Rob give security for Advances 3, 4, 5, 6 and 7. She would not have regarded them as serious risks nor did the defendants. The plaintiff would simply have done what Rob said, rather than what Jim may have said. The credit position of Jim prior to Advance 11 was quite complex. The plaintiff would have approved these advances while Rob was alive. Accordingly in my opinion, the defendants are only liable to the plaintiff for nominal damages for those breaches of retainer respecting Advances 3, 4, 5, 6 and 7.
As to Advances 11 and 16
By the time of these loans, that the plaintiff was in a difficult position with respect to her accommodation. She would have had to weigh up the approval of each loan against the possibility, if not probability, of the house at 75 Watson Avenue being sold. Despite the fact that the plaintiff was quiet and compliant, I have no doubt that if the defendants had complied with their duty and referred the plaintiff to an independent legal advisor, the plaintiff would have accepted that advice. Even though she trusted Jim, it was because no one had advised her that her assets were at risk. At the time of Advance 11 she had done what she had never done before, namely seek Mr Eddy’s advice as to the wisdom of that loan in the sum of $100,000. She at least, recognised that there may have been a problem. It is inconceivable that she would have ignored any advice from the defendants. In respect of Advance 11, in my opinion the mere fact of having been referred to a solicitor would have brought home to her for the first time that her assets were at risk. Up until that time she had believed that her assets were secure. The plaintiff was only quiet and compliant because she was unaware of her true position. I have referred to the nature of the advice which any independent solicitor would have given her. That advice would have been to decline the loan because of Jim’s credit position, or alternatively to insist upon adequate security. The plaintiff would not have granted Advance 11. I am satisfied that there is a sufficient causal link between the breach of duty by the defendants and the plaintiff’s loss of Advance 11 in the sum of $100,000. I do not accept the submissions of the plaintiff that Jim would have provided security for the full sum of $215,625. At that time, and even before this additional loan, Jim faced monthly repayments on outstanding mortgages and other loans of nearly $4,000. The loss is therefore not a loss of this greater sum. The probability is that the loan of $100,000 would not have been made and the funds would have remained invested in Perpetual Group funds.
Similarly in respect of Advance 16 I have no doubt that the plaintiff would have consulted an independent legal advisor if the same had been directly and forcefully advised by the defendants as it ought to have been. She would have been informed that the grant of $150,000 would mean that all but $50,000 of her assets were at risk. I have no doubt that she would have declined to grant Advance 16. I am also satisfied that there is a sufficient causal link between the breach of duty by the defendants in failing to ensure that the plaintiff obtain independent legal advice about Advance 16 and the plaintiff’s loss of the sum so advanced namely $150,000. The losses of Advances 11 and 16, include the capital loss of the respective sums of $100,000 and $150,000 and the income which would otherwise have been earned on those sums had they been invested by the defendants on the plaintiff’s behalf.
As to Advances 2, 8, 9, 10, 12, 13, 14, 15 and 17
I have already concluded that the defendants are not liable for any of the payments made by the plaintiff to Jim from her Westpac bank account whether they be payments which were made prior to or after the death of Rob.
Extension of time
The plaintiff sought, in so far as was necessary, an order, pursuant to s 48(3) of the Limitation of Actions Act 1936, granting an extension of time within which to bring the causes of action in respect of any claims, which accrued prior to 2 July 1998.
The plaintiff relied principally upon the evidence of Hazel Roberts as to the material facts Mrs Roberts ascertained, and brought to her attention. In respect of some of the claims, the ascertainment material facts by the plaintiff occurred subsequent to the commencement of the proceedings.
In light of my findings that the defendants are only liable for nominal damages with respect to the pre July 1998 advances numbered 3, 4, 5, 6 and 7 and that the defendants are in any event liable for nominal damages for failing to advise the plaintiff to seek security for Advances 1, 3, 4, and 6 when consolidated in Advance 11, it seems futile for me to consider further whether any order for an extension of time is necessary. There was some force in the plaintiff’s submissions that no extension of time was needed, as the loans had remained current and no loss was sustained until 2003. Wardley Australia v Western Australia (1992) 175 CLR 514; Hawkins v Clayton (1998) 164 CLR 539.
I also do not need to determine whether the relevant material fact, for the purpose of the Act, may be one which is ascertained by the plaintiff only after the commencement of the proceedings. See Edwards v Olsen [2000] SASC 438 at [942]; Syrett v Vorbach (2001) 213 LSJS 185; cf Dickin v BHP Billiton [2004] VSC 215.
Assessment of damages
I have found that the defendants are liable to the plaintiff for losses sustained in consequence of Advance 11 in the sum of $100,000 and Advance 16 in the sum of $150,000. As I have indicated both parties sought that final submissions as to damages should await the publication of the reasons with respect to liability. Indeed they submitted that they be referred for an inquiry as to damages. Both counsel indicated that this was one of those cases where an opportunity should be given to the parties to consider the question of the assessment of damages in light of those findings. See Edmunds v Pickering (1999) 75 SASR 407 at 590; Austrust Pty Ltd v Astley (1993) 60 SASR 354 at 391; Newman v Financial Wisdom Limited (2004) VSC 216 and Ali v Hartley Poynton Limited (2002) VSC 113. In my opinion, it is appropriate for the parties to have some time to consider the question of quantum in light of the findings as to liability. It does however seem to me, having heard the submissions on quantum to date, that there is a common approach by the parties to the assessment of damages. I therefore make some general comments in respect of the various heads of damage.
The plaintiff claims the loss of capital; the loss of income; the costs paid by her in respect of the proceedings against Jim; a sum representing the work performed by Hazel Roberts in the preparation of the plaintiff’s case; damages for voluntary assistance provided to the plaintiff, and for interest on loan funds provided to the plaintiff. Taxation issues will also need to be addressed by the parties, in addition to statutory interest and costs.
The loss of income
(a)I have referred to the expert report of the accountant Mr Clifton. In his written submissions Mr Coppola submitted that the plaintiff’s losses should be assessed on the basis that the respective sums of $100,000 and $150,000 would have remained invested with the defendants and have earned similar amounts as the plaintiff’s portfolio was generating prior to the losses. Mr Abbott for the plaintiff adopted the same approach (T 626). He abandoned the alternative approach adopted by Mr Clifton based upon the relevant interest rate prescribed in the respective loan agreements.
The legal fees incurred by the plaintiff in attempting to recover loan monies from Jim
(b)The plaintiff tendered the relevant solicitors accounts in respect of these recovery proceedings. They exceed marginally the sum of $40,000 inclusive of disbursements. The defendants’ counsel had anticipated that the plaintiff would call her legal advisor to give evidence as to the reasonableness of that action. The plaintiff submitted that she was obliged to take the action in mitigation of the damages suffered by her. The voluminous documents tendered in the action referred to the credit worthiness of Jim at various times including various luxury motor vehicles. Mr Anthony Matthews gave some evidence touching upon the value of the estate at various times. A dividend was recovered from the bankrupt estate in the sum of $30,409.87 on 24 March 2005. In Austrust Pty Ltd v Astley (1993) 60 SASR 354 at 386 Mullighan J. explained that the question is whether the plaintiff’s conduct in proceeding with that recovery action was reasonable in all the circumstances.
His Honour referred to the principle in Short v Kalloway (1839) 11 A & E 28 at 31 saying:
“…no person has a right to inflame his own account against another by incurring additional expense in the unrighteous resistance to an action which he cannot defend”
I accept that it was reasonable for the plaintiff to prosecute that claim. As to the quantum of those fees, the usual approach, in the absence of an agreement as to the reasonableness of those solicitor and client costs, is for the appropriate amount to be taxed. See British Racing Car Drivers Club v Hextall Erskine (1996) 3 AllER 667 and Deloitte Touche Tohmatsu v Cridlands [2003] FCA 1413. I do not however express any concluded view on this matter as the defendants have not addressed me in detail, anticipating that the question of damages would be referred to an inquiry.
Costs incurred by Hazel Roberts in preparation of the action
(c)There is no doubt that much assistance was given by Mrs Roberts to the plaintiff’s solicitors in the preparation of and prosecution of this litigation. There is no doubt that if employees of the plaintiff’s solicitors had performed the duties undertaken by Mrs Roberts much if not most of her work would have been properly the subject of an award of costs. It is unclear whether the plaintiff is seeking an award of damages to reflect the work undertaken by Mrs Roberts or that her work should be included in some order for costs in due course. As to the latter, the High Court in Cachia v Hanes (1994) 179 CLR 403 at 414 has now made it clear that no reimbursement should be allowed for the time spent by a party or the parties agents or employees in providing instructions to solicitors. See also Rowan v Cornwall (No 6) (2002) SASC 234 at 15-17; Dalgety Australia Operations Limited v FF Seeley Nominees Pty Ltd (2) (1988) 49 SASR 75 at 92 and Canvas Graphics Pty Ltd v Kodak (Australasia) Pty Ltd (unreported decision of O’Loughlin J – BC 980050).
Voluntary assistance provided to the plaintiff
(d)The plaintiff pleaded in paragraphs 60.5, 60.6, 60.7, 60.8 and 60.10 of her Further Amended Statement of Claim that she had borrowed the sum of $32,700 from Hazel Roberts and John Adam to pay for her accommodation and has accordingly incurred a liability for interest. The pleadings also refer to other borrowings from Hazel Roberts for furnishings, private health cover and telephone accounts, in respect of which there is also a liability for interest. These allegations were admitted by the defendants in their defence. I will need to hear the parties on this head of damage.
In addition the parties will need to address the issue of the defendants “liability” to the plaintiff for the fees charged by the defendants with respect to the loans to family members, and in respect of which liability was conceded by the defendants.
Finally a credit must be allowed for the sum of $30,409.97 recovered by the plaintiff from the bankrupt estate of Jim.
I shall give the parties the opportunity to consider the question of the damages in light of those reasons. I will also hear the parties as to the question of interest and costs when this matter resumes. As I am not in a position to make any final orders I propose to publish my reasons and adjourn the matter sine die.
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