Australian Executor Trustees (SA) Limited v Kerr

Australian Executor Trustees (SA) Limited (the appellant) appealed a decision concerning a breach of trust and negligent advice. The dispute arose from a forestry scheme where beneficiaries, referred to as "covenantholders," invested money and were entitled to a share of timber sale proceeds. The scheme land was encumbered to secure these interests, and these encumbrances constituted trust property. The appellant, acting as trustee, released these encumbrances when the scheme land and standing timber were sold to a third party, an action found to be a breach of trust. The appellant also sought to apportion loss to a law firm (the second to sixty-first respondents) whose advice concerning the release of encumbrances was found to be negligent. The case was heard in the Court of Appeal of New South Wales.

The primary legal issues before the Court of Appeal were whether the appellant's breach of trust in releasing the encumbrances caused the loss suffered by the covenantholders, and whether any award of equitable compensation should be limited or reduced. Specifically, the court considered whether the compensation should be confined to the value of the scheme land and whether certain adjustments and deductions should apply, including a challenge to factual findings regarding a "payout counterfactual." Furthermore, the court had to determine if the defaulting trustee was entitled to apportion the loss to the negligent law firm, and if so, whether South Australian or New South Wales proportionate liability legislation applied, considering whether these provisions were substantive or procedural and the relevance of *lex loci delicti*.

The Court of Appeal reasoned that the appellant's breach of trust in releasing the encumbrances was causative of the loss suffered by the covenantholders. The court upheld the findings regarding the quantum of equitable compensation, including the payout counterfactual, and rejected arguments for limiting or reducing the award. Regarding the apportionment of loss, the court found that the relevant proportionate liability legislation was that of New South Wales, not South Australia, as the advice was given and acted upon in New South Wales. The court concluded that the appellant was not entitled to apportion the loss to the law firm under the applicable legislation.

The Court of Appeal dismissed the appeal against Mr Kerr and the appeal against Sparke Helmore. The cross-appeal by Mr Kerr was also dismissed. The appellant was ordered to pay the costs of both Mr Kerr and Sparke Helmore in the appeal.