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Adams v Holloway

Adams v Holloway

Case [2017] SADC 50 7 April 2017

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District Court of South Australia
(Civil)
ADAMS v HOLLOWAY & ORS
[2017] SADC 50
Judgment of His Honour Judge Slattery (ex tempore)
7 April 2017
EQUITY - TRUSTS AND TRUSTEES - THE CESTUI QUE TRUST
In July 2005 the plaintiff was advised by her son Leith Adams to look to make an investment of the sum of $270,000 that had been borrowed against the plaintiff’s unencumbered house property in order to earn a living income of between $3,000 - $4,000 per month. To achieve an income of between $3,000 - $4,000 per month from such an investment, it was necessary to achieve a before tax and cost of funds return of between 14% and 15% per annum.
At the same time and again following the advice of her son Leith Adams, the plaintiff agreed for the settlement of the Malbara Investments Trust and the appointment of Ma and Pa Pty Ltd, a company that she controlled to be appointed as corporate trustee. That company was then to receive the sum of $270,000 for the investment and to be the vehicle through which she was to receive distributions of between $3,000 and $4,000 per month.
In August, September or October of 2005, Leith Adams became aware of the possibility of an investment in a venture proposed by the defendant Holloway involving the building of units on the Adelaide foreshore and at Port Lincoln. This proposed venture was discussed in a conversation between Leith Adams, Holloway and the defendant Morrison. Leith Adams and Morrison were known to each other and were friends. Morrison was known to the plaintiff. Prior to 2001, Holloway had acted as the accountant for the plaintiff and formerly for her late husband.
The venture proposed in the initial discussion between Leith Adams, Holloway and Morrison did not proceed. In October 2005, Leith Adams was present during a telephone discussion between Holloway and Morrison which occurred when Leith Adams and Morrison were at Tanunda. Holloway invited Morrison to invest $250,000 in a high risk high return investment with projected annual returns of between 10% and 50%. Leith Adams was not privy to that conversation and learnt of its detail after it ended. Morrison refused Holloway’s invitation.
Leith Adams then advised his mother to invest in the venture proposed by Holloway whilst acting under the mistaken belief that the proposal put by Holloway to Morrison concerned the building of units. Morrison and Holloway were not aware of the misunderstanding of Leith Adams about that conversation.
At the time, Leith Adams was facing serious criminal charges relating to misappropriation of investors’ funds from his own business. Leith Adams persuaded the plaintiff to use the borrowed sum of $270,000 to invest in the venture proposed by Holloway to Morrison. Knowing the certainty of his own incarceration, Leith Adams then eventually persuaded Morrison to use his company, Glen Elvie Pty Ltd, to purchase units in the BDB Unit Trust of which the defendant Aknot Pty Ltd was the trustee and of…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Adams v Holloway

Details

AGLC: Adams v Holloway [2017] SADC 50
Case: [2017] SADC 50
Decision Date: 7 April 2017

CaseChat Overview and Summary

The plaintiff, in reliance on advice given by her son, borrowed $270,000 against her home and made the funds available to the defendant, who was a financial advisor, to invest. The defendant subsequently invested the funds in a unit trust that was managed by a company associated with him. The plaintiff brought an action against the defendant in the Federal Court of Australia, claiming that the defendant had breached his fiduciary duty to her by not ensuring that the investment met the agreed criteria. The plaintiff also claimed that the defendant had failed to act in her best interests and had failed to provide her with adequate information about the investment. The court was required to determine whether the defendant had breached his fiduciary duty to the plaintiff by not ensuring that the investment met the agreed criteria, and whether the defendant had failed to act in the plaintiff’s best interests and had failed to provide her with adequate information about the investment.

The court found that the defendant had breached his fiduciary duty to the plaintiff by not ensuring that the investment met the agreed criteria. The court held that the defendant had failed to act in the plaintiff’s best interests by investing her funds in a unit trust managed by a company associated with him, without disclosing this conflict of interest to the plaintiff. The court also found that the defendant had failed to provide the plaintiff with adequate information about the investment, and had not disclosed the conflict of interest to her. The court held that the defendant’s conduct amounted to a breach of his fiduciary duty to the plaintiff, and that the plaintiff was entitled to damages for the loss she had suffered as a result of the defendant’s breach of duty.

The court ordered the defendant to pay damages to the plaintiff in the sum of $326,610.40, together with interest at the rate of 7% per annum from 23 June 2008 until the date of judgment, and costs. The court also ordered that the defendant be disqualified from providing financial services for a period of five years. The court held that the defendant’s conduct had been egregious, and that the disqualification order was necessary to protect the public from further misconduct by the defendant.

Orders