Austrust Ltd v Astley
[1996] SASC 5681
•1 July 1996
COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA DOYLE CJ, OLSSON AND DUGGAN JJ
CWDS
Negligence - essentials of action for negligence - duty of care - solicitor - asked to advise generally - scope of instructions - solicitor did not advise client in relation to exposure to personal liability as a trustee - solicitor owed client a duty to give advice which it needed regardless of whether it was specifically requested - there was a continuous relationship in which the solicitor was looked to for advice on what matters the client needed to consider - the solicitor's instructions were in general terms - the solicitor did not act, or regard himself as acting, only on specific tasks and in response to specific instructions - need for client to protect itself not so obvious that solicitor entitled to pay no attention to it - involvement in purchase and security transactions also required solicitor to advise client on need to protect itself - cross-appeal against finding of negligence dismissed.
Negligence - contributory negligence - failure of solicitor to advise trustee of danger of personal liability - trial judge found contributory negligence on the part of the trustee in entering into business transactions without proper care - duty owed to beneficiaries of trust distinguished from duty to take care of one's own interests - trustee's conduct did not constitute a failure to take proper care of its own interests, or those of a defendant - breach of duty owed to a third person cannot give rise to contributory negligence - further, risk of exposure to personal liability was the very matter against which the solicitor should have guarded - no rule of law preventing a claim of contributory negligence by a professional adviser against a client - no contributory negligence - appeal allowed. Daniels v Anderson (1995) 37 NSWLR 438, applied. Pennington v Norris (1956) 96 CLR 10; Jackson v Goldsmith (1950) 81 CLR 446; Ramsay v Pigram (1968) 118 CLR 271, considered.
Damages - measure and remoteness of damages in actions for tort - remoteness and causation - costs incurred in litigation with third party - trial judge allowed costs up to date where appellant considered not to have been justified in continuing to litigate - trial judge entitled to so find. Monies gained from sale of assets used to pay litigation costs - trial judge abated appellant's claim by this sum - trial judge was only correct to abate the amount to the extent that the money was used to pay litigation costs unreasonably incurred - appeal allowed in part on this point - further submissions necessary. Damages for loss of use of money - "Hungerfords v Walker" interest allowed on payments which appellant was required to make as a result of the breach until 1 March 1990 - after that date, payments made by associated companies in group - judge correct in allowing damages for loss of use of money only until 1 March 1990 - appeal dismissed on this point.
HRNG ADELAIDE, 8-10 May 1996 (hearing), 1 July 1996 (decision) #DATE 1:7:1996 #ADD 19:2:1997
Counsel for appellant: Mr F Mcalary QC with Mr G Colyer
Solicitors for appellant: Phillips Fox
Counsel for respondent: Mr D Quick QC with Mr B Beasley
Solicitors for respondent: Daenke O'Donovan
ORDER
Orders at para 231
JUDGE1 DOYLE CJ AND OLSSON J Introduction
1. In this matter the Full Court is called upon to consider both an appeal and a cross-appeal in relation to a judgment entered by Mullighan J against the respondents in favour of the appellant.
2. The appellant sued the respondents, legal practitioners practising in partnership, for damages for breach of contract and negligence. The appellant based its claim upon a claimed failure by the respondents to provide proper and appropriate legal advice to the appellant.
3. The case resulted from the appellant, as trustee of a trading trust, having to discharge the obligations it incurred as trustee, when the trust became insolvent.
4. The appellant said that the respondent failed to warn it, when it was considering accepting an appointment as trustee of the trading trust, that it would be personally liable in respect of obligations incurred as trustee, and that the respondent was in breach of the duty it owed as a solicitor. The respondent said that its retainer was limited to the giving of advice on limited aspects of the matter, not including that about which the appellant complained, and that it owed no duty to advise about personal liability. The respondent also said that the appellant knew or should have known that it was personally liable. The respondent said further that the appellant was guilty of contributory negligence, because it accepted an appointment and incurred obligations without giving proper consideration to the financial affairs of the trust. Had it done so, it would have seen that the trust was unable to meet the obligations which the appellant incurred. There were also issues as to the damages which were claimed.
5. In order to understand the issues arising on these appeals, and to consider them in their proper context, it is necessary to appreciate the facts in relation to which they arise.
6. It is appropriate to commence, as did the trial judge, with a consideration of the parties and main witnesses.
7. The appellant was incorporated in 1910. Its original name was Elders Trustee and Executor Company Limited and it was associated with the well known pastoral group stemming from Elder Smith and Company Limited. The appellant's name was changed to 'Austrust Limited' late in 1990.
8. Following a corporate merger or takeover in the 1980's the appellant, under its original name, became part of the Elders IXL Group. As the trial judge pointed out, this gave rise to changes in the structure of its management and, to some extent, the work which it was prepared to undertake.
9. Under its new management the appellant was, among other things, looking to broaden and expand the nature and extent of its work.
10. Traditionally, in its role as a corporate trustee, the appellant had accepted appointments as trustee of deceased estates, settlements, protected estates, moneys to which infants and other persons under disability were entitled and the like. All of these were 'conventional' trusts, in relation to which assets were held, invested and managed pursuant to non trading trusts - although, no doubt, in the administration of some trusts, the management of pastoral properties and businesses was necessarily involved from time to time. The scope of the appellant's activities (including a property management role) is more extensively referred to in the copy brochure reproduced in the appeal books at pp2149-2159.
11. The trial judge found that in mid-1983, by reason of what were then new management policies, the appellant was anxious to become involved in work as trustee of commercial trading trusts, a field into which it had, prior to that time, not ventured.
12. The Chairman of the Board of the appellant was a Mr Peter Wells ("Wells"), who was an experienced chartered accountant in private practice.
13. At the relevant times the witness Wood ("Wood") was general manager of the appellant. Prior to October 1983, when he came to the appellant, he had been general manager for the southern division of Beneficial Finance Corporation. His experience, immediately prior to the events relevant to these proceedings, had been in the commercial finance sphere; and not in areas germane to what had been the core activities of the appellant. Wood succeeded the witness Oakeshott, who retired as general manager in September 1983. The latter had had prior long service as a senior trust officer. During his tour of duty the company had some developing experience as trustee of debenture trusts and the routine administration associated with borrowings on securities of that type. However, he testified that, during the time that he had been general manager of the appellant, he had never been aware of the company borrowing moneys in its capacity as a trustee.
14. A person called Brian Lamshed ("Lamshed") was initially employed by the appellant as a staff legal officer. He was a qualified legal practitioner. Although he was a key participant in events relevant to these proceedings he was not called as a witness. No doubt that was due to the fact that he had been named as a defendant in separate proceedings initiated by the appellant against him. For that reason the trial judge was not disposed to draw any adverse inference from a failure to present him as a witness.
15. It is not clear when Lamshed was first employed, but Oakeshott thought that it would probably have been prior to 1980. The evidence of the latter as to Lamshed's role as legal officer is recorded in the transcript in these terms:
"HIS HONOUR Q. What is your understanding of Mr Lamshed's duties
as a legal officer in your company during the time that you were
the manager.
A. It was to assist officers of the company on matters, legal
matters, on which they were not clear: Wills, taxation, anything
else that came up in the company that had some legal implications.
In no way did he give formal advice to the management. It was
merely an initial interpretation as to whether we were hitting our
heads against a brick wall, or whether it was something we should
really get some qualified advice."
16. The trial judge obviously accepted that evidence. He found -
"... The plaintiff employed Mr Lamshed who is a solicitor. He
held various positions but worked closely with senior management
and also in the administration of trusts. His duties included
advising staff on legal matters relating to wills, income taxation
and, according to Mr. Oakeshott, the former general manager,
'anything else that came up in the company that had some legal
implications', but he did not give formal legal advice to
management."
17. There was no material before the trial judge which indicated the breadth of professional experience of Lamshed. There was certainly no evidence that he had any particular expertise or knowledge in the fields of commercial or corporate law, or in relation to trading trusts.
18. The defendant Astley ("Astley") was a highly experienced legal practitioner having expertise in the commercial and corporate law areas. In 1983 he was the senior partner of Messrs Finlaysons, a large firm of solicitors practising in Adelaide. He was also a director of various public companies. His firm had been the corporate solicitors for the appellant for many years and he, personally, had attended to a good deal of legal work for it. He was well known to the senior staff of the appellant and quite familiar with its structure and the type of work traditionally undertaken by it. He said that he knew that the appellant was - "... a specialised trustee company which acted as trustee of various wills and ... estates and also trustee for inter vivos trusts"
19. He was of opinion that the senior staff of the company were well trained and mentioned that his own firm had participated in "in house" training programmes for them. From time to time he received instructions direct from the trust officers. He was acquainted with Lamshed and knew him to be employed by the appellant as a professionally qualified legal officer.
20. The next person to be noted for present purposes is one Hunt ("Hunt"), who was a legal practitioner on the staff of Messrs MacGillivray and Co, a firm of solicitors practising in Brisbane. Hunt acted for a person named O'Dea, who was, in essence, the promoter of the undertaking which was to become the subject of a trading trust, to which reference will be made in due course.
21. Finally, it is necessary to identify the witness James ("James"). This witness was a chartered accountant who was a senior consultancy partner with a major national accountancy firm. He specialised in bankruptcy and insolvency administrations.The facts relevant to the issue of negligence and breach of contract and the trial judge's findings on those facts
22. The events begin with the receipt by Finlaysons of a letter in the following terms:
"ELDERS TRUSTEE
ELDERS TRUSTEE AND EXECUTOR COMPANY LIMITED (INCORPORATED IN SOUTH
AUSTRALIA)
27-39 CURRIE STREET, ADELAIDE, SOUTH AUSTRALIA
POSTAL ADDRESS: G.P.O. BOX 546, ADELAIDE, SOUTH AUSTRALIA
TELEPHONE: 218 4911
WHEN CALLING OR TELEPHONING PLEASE ASK FOR Mr. Lamshed
Ph. 218 4990 AND QUOTE REFERENCE No 31st August, 1983
Messrs. Finlaysons,
DX 152, ADELAIDE,South Australia, 5000.
Attention: Mr. Gerlach
Dear Sirs,
Re: G G I Rural Income Trust
We have been approached by the principals of Golden Grove
Industries Ltd. to act as the Trustee for the unit holders of the
above Trust. A draft copy of the proposed Deed of Trust has been
forwarded to us for our perusal. We would be obliged if you could
examine the Deed and let us have your comments on it in due
course. We understand that discussions have been held with the
Corporate Affairs Commission in Brisbane, but that the Deed has
not been submitted to the Commission yet.The aim of the Trust,
briefly is to set up an intensive piggery on land at Young in New
South Wales. The land is presently owned by Golden Grove, and, in
fact, is part of a larger holding upon which Golden Grove have
already established (using private funds) a piggery of a similar
but smaller nature to the proposed for the Trust. It is proposed
that the Trust should also become involved in the slaughter and
processing of pigs later.If you require any further information
please let us know.
Yours faithfully,
23. Lamshed)
Legal Officer."
24. Within Finlaysons, that letter was assigned to Astley for his attention.
25. As the trial judge pointed out, this letter disclosed the product of various prior negotiations which had been conducted between O'Dea and the appellant. Astley had not been privy to those negotiations and, prior to receipt of the letter of 31 August 1983, knew nothing of them. The trial judge summarised the situation thus -
- O'Dea was the principal of a Brisbane based company known as
Queensland Financial Planning Pty Ltd ("QFP"), which carried on
business as a financial and investment adviser. QFP was
associated with a separate entity known as QFP Properties Pty Ltd
("QFP Properties").
- On 30 July 1982 O'Dea established a unit trust known as the GGI
Pig Trust, of which QFP Properties was trustee and another
company, Golden Grove Industries Pty Ltd ("Golden Grove"), was
manager. This provided the administrative structure for the
conduct of a piggery conducted at Young (in New South Wales) on
land owned by O'Dea and his family, but acquired by QFP Properties
on 30 August 1982.
- O'Dea proposed a substantial increase in the size of the piggery
operation. To that end, on 9 June 1983, he obtained an option to
purchase a property of some 1028 hectares (referred to during the
trial by a shortened name "Booka") near Tenterfield in northern
New South Wales. Much of that property was utilised to grow soya
beans, but it was proposed to set up a further piggery on it and
some additional land.
- The GGI Pig Trust was a private trust. It was ultimately
proposed to create a new public trust to subsume the private
trust. The funds required to extend the operations of the GGI Pig
Trust would be raised by public subscription. O'Dea approached
the appellant, in about March or April 1983, to act as trustee of
the proposed public trust. On 13 May 1983 Oakeshott wrote to him
saying that the appellant was prepared to act as trustee of the
proposed public trust.
26. Mullighan J made the following express finding in relation to the situation, as it then stood -
"It appears that the responsibility for handling this proposal
must have been entrusted to Mr. Lamshed at this time. The
proposal represented a new type of venture for the plaintiff as it
had never before been involved as trustee of a trust of this
nature, i.e. a trust which conducted a business and traded in
livestock. Mr. Oakeshott regarded that sort of business as risky
..."
27. The draft deed which is referred to in the letter written by Lamshed to Finlaysons on 31 August 1983 was that which related to the proposed new public trust.
28. It will be seen that the instructions given in the letter were somewhat vaguely expressed and Astley sought no further clarification of them. In the course of his evidence Astley said that he could not recollect whether what was said in the letter from Lamshed was amplified by the latter verbally. When asked what the letter meant to him, he responded -
"A. It meant, to me, to go through the deed, as I did, and then,
having been through the deed, discuss any comments or otherwise
that I had with Mr Lamshed, which I also did.
Q. From whose point of view.
A. From Elders Trustee's point of view."
29. On 9 September 1983 Hunt telephoned Astley (whose name must, presumably, have been given to him by the appellant) and enquired where matters stood. According to his costs entries Astley told him that the documentation had only been received on the preceding Monday and that he would look at it as soon as possible.
30. It is relevant to record that Astley's costs entries in relation to the period immediately thereafter read in these terms -
"1983 Sep 23 Attending Lamshead [sic] of Elders telephone
discussing shortly with him. Further engaged on perusal of draft
Deed. 1 3/4 hours.
27 Further engaged in checking draft deed and in particular
checking it against the Companies Act. 1.5 hours
Attending Hunt on phone and requesting further information
concerning some of the clauses which he would put on telex.
28 Attending Lamshed telephone arranging for discussion with him
tomorrow. Also perusing telex from John Hunt with further details
of their clauses and their cross reference to Companies Code.
29 Attending Lamshed when he called going through draft deed with
him. Subsequent letter advising we approved of same and that it
conformed with the Act.
Attending Mr Hunt telephone discussing with him some of our
amendments. Agreeing them with him and also asking him to let us
have a draft of the prospectus as soon as available. Letter to
him confirming."
31. Mullighan J found that Astley's primary focus on the trust deed was in relation to compliance with the relevant Companies Code and regulations. It apparently did not enter his mind to discuss with either Lamshed or any officer of the appellant, the potential legal implications related to acting as trustee of a trading trust, notwithstanding that, based on his past experience of acting for the appellant, the relevant transaction was, for it, a venture into a new type of business. He was not made aware at that stage that it was likely that the appellant would be requested, as trustee, to borrow money for the purposes of the new unit trust.
32. The draft trust deed did, in the body of it, contain a provision to the effect that the trustee was empowered to borrow money, with or without security, within prescribed limits "PROVIDED THAT the Trustee shall not be required to accept any personal liability for such borrowing". There is no suggestion that Astley discussed with Lamshed or any other officer of the appellant the meaning and legal significance of that proviso. Nor is there any suggestion that he advised that it had no potential operation, in itself, in relation to (or as against) any potential lender of money. This is an important consideration because, to the inexperienced reader, such a clause may have misled the reader into believing that, so far as third party lenders were concerned, no personal liability would arise.
33. Following his discussion with Lamshed on 29 September 1983 Astley wrote him a letter as follows -
"29th September, 1983
Mr. B.A. Lamshed, Legal Officer,
Elders Trustee &; Executor Co. Ltd.,
27 Currie Street, ADELAIDE. S.A. 5000
Dear Sir,
G. G. I. Rural Income Trust
We refer to the writer's discussion with Mr. Lamshed on 29th
September concerning the draft Trust Deed forwarded by Messrs.
MacGillivray &; Co. solicitors of Brisbane.
We confirm that we have read the draft and checked it against the
provisions of the Companies Code and it conforms with those
provisions. We have spoken to Mr. Hunt of Brisbane regarding
drafting amendments which we discussed with you and he will
incorporate them.
We have asked Mr. Hunt to let us see a draft of the proposed
prospectus as soon as possible. However he is not sure when that
will be available as he has not yet received instructions from his
client as to the contents of that document. As soon as we hear
any further we will let you know."
34. Mr Quick QC, for the respondents, argued that Astley's activities during September 1983 were in the course of a limited set of instructions, completed either by his letter of 29 September 1983 or when he later perused the associated draft prospectus. He went so far as to suggest that, in relation to the mortgage security documents, to which reference will shortly be made, "Mr Astley acts more or less as a post office, sending them on very politely and promptly without too much by way of advice at all".
35. All that need be said concerning that argument is that it conflicts with the evidence placed before the trial judge.
36. In the first place, Astley's letter of 29 September 1983 clearly contemplates an ongoing need to consider the contents of a prospectus in due course. Moreover, his file memoranda and cost entries disclose that he acted and charged for work done on the basis of a single, ongoing retainer from the appellant, not limited to initial advice concerning the draft trust deed. So much will clearly emerge in due course.
37. On the last mentioned date Astley also wrote to Hunt in these terms -
"29th September, 1983
Messrs. MacGillivray &; Co., Solicitors,
180 Queen Street, BRISBANE, QLD. 4000
Attention: Mr. J.B. Hunt
Dear Sirs,
G.G.I. Rural Income Trust
We refer to our several telephone conversations concerning the
draft Trust Deed and in particular to our discussion on 29th
September. We confirm that we have discussed the draft with our
client company and subject to the several aspects which we have
discussed it is in order.
We look forward to receiving a draft of the prospectus from you as
soon as it is available."
38. Nothing further seems to have transpired until, on 26 October 1983, Hunt telephoned Astley to discuss certain audit requirements concerning the proposed trust. At that time he intimated that he hoped to send a copy of the prospectus soon. By this time Oakeshott had retired as general manager of the appellant and Wood had succeeded him.
39. Under cover of a letter dated 30 November 1983 Lamshed sent Astley a copy of the draft prospectus, which he must have received from Hunt. In that letter he said "We would appreciate your comments on the prospectus in due course". On 8 December 1983 Hunt told Astley that the matter was not said to be urgent.
40. There is something of a gap in Astley's cost entries related to this period. However, his file indicated that, on 13 December 1983, he received a letter from Hunt enclosing copies of the amended draft trust deed, a draft prospectus and what was described as a statutory compliance checklist. The letter indicated that there had been some direct discussions between O'Dea and the appellant. It sought comments on the drafts. This was followed by a letter from Hunt to Astley, dated 15 February 1984, seeking comments concerning a matter raised by the Corporate Affairs Commission.
41. Astley's evidence was to the effect that (for some reason which is not apparent) he did nothing about this correspondence until, on 5 April 1984, he telephoned Hunt enquiring about the situation. He was told that some difficulty was being experienced in obtaining subscriptions, that consideration was being given to converting the private GGI Pig Trust into a public trust, and that nothing further needed to be done for the moment.
42. Lamshed's status within the appellant changed as of 1 March 1984. He ceased being a salaried employee of the company and commenced private legal practice.
43. However, he conducted his practice under an unusual arrangement with the appellant. He operated from accommodation provided by the appellant, for which he paid a rental. He was assisted by a staff member allocated to him by the company, but who remained an employee of the company.
44. Lamshed thereafter attended to conveyancing and probate work for the appellant, but not to its general corporate work. Wood testified that, as at the time of the change, he made an oral arrangement with Lamshed that - " ... as there was no person on the staff to carry the conduct of ... [the GGI unit trust] ... file, he was prepared to carry it out in a personal capacity until the point when there was somebody to manage that department." The file was eventually taken over from Lamshed, by an employee of the appellant called Bacon, in either October or early November 1984, on the return of the latter from long service leave.
45. In the course of his submissions Mr Quick QC argued that the inference arising on the evidence was that, as from 1 March 1984, any exchanges between Lamshed and Astley took place on the basis that the former was then acting as an independent solicitor for the appellant and dealing with the latter on that basis. The argument was that Lamshed's role was to provide any general advice required by the appellant, and that Astley's role was a subsidiary one.
46. In our opinion such a contention must be rejected.
47. In his evidence in chief Wood testified that, from 1 March 1984 until Bacon eventually took over the file, Lamshed was not paid anything by the appellant for whatever he might have done for the Company on the matter.
48. Later, in cross-examination, he had this to say -
"Q. ... Was there a system whereby correspondence addressed to Mr
Lamshed at Elders was brought to your attention.
A. No.
Q. In relation to this trust, was it a matter for his discretion
about whether it came to your attention or not.
A. It was a matter for his discretion.
Q. Even those that were addressed in the sense of physically to
the premises of Elders, if his name was on it, whoever opened the
mail would give it to him.
A. Yes.
Q. And it was up to him to decide what to do about it.
A. Yes.
Q. The arrangement with Mr Lamshed, which you orally arranged, was
that he would continue to handle the business on behalf of Elders
arising out of Mr O'Dea's proposal for Elders to become the
trustee, wasn't it.
A. Yes.
Q. In fact, he did that between March and September 1984.
A. Yes.
Q. In fact, he did that and you, during that period, were relying
upon him to use care, skill and judgment in the work that he did.
A. As if he were an employee of the company.
Q. What I suggest to you is that the arrangement with Mr Lamshed
was that you had retained him to act for Elders from time to time
and as necessary in his judgment to engage other solicitors.
That's right, isn't it.
A. I'd find the word 'retained' to be a little strong. He, in
this particular matter, acted as if he were an employee. In this
particular matter, the solicitor had already been engaged and he
continued to conduct the operation as it was before he ceased
being an employee.
Q. It was part of his process to decide when and to what extent to
involve other solicitors, wasn't it.
A. In consultation with me."
49. He went on to make these statements -
"Q. Putting aside the question of fee or reward in terms of doing
the work, he was retained by Elders to act for Elders from time to
time in conjunction with other solicitors in relation to Mr
O'Dea's proposal, wasn't he.
A. Not in my understanding.
...
Q. Do you positively assert now that the arrangement with Mr
Lamshed excluded him having a responsibility to do legal work in
relation to this proposal.
A. In my recollection of the arrangement, yes.
...
A. I would disavow there was a brief to advise on legal matters in
this instance.
Q. Is it the position, that you assert that Mr Lamshed was subject
to the ordinary duty of a solicitor owed to Elders as his client
to use reasonable care, skill and judgment in doing the work he
did in relation to Mr O'Dea's proposal.
...
A. I find it difficult to give a precise answer to that. But I
would say, that I expected him to behave as if he was an employee
of the company. Those were the terms on which the arrangement was
made. I would have expected his legal knowledge to be of use, but
not to be relied upon. His duty, as a solicitor, was not in
question, in my mind, in this particular arrangement.
Q. If your solicitors were to assert that Mr Lamshed, in doing
what he did in relation to this proposal, was subject to the duty
of a solicitor, to use reasonable care, skill and judgment in
relation to Elders as a client, do you disavow that.
...
A. I believe I do."
50. Mullighan J did not specifically refer to this evidence in the course of his reasons for decision, but the tenor of them suggests that he accepted it.
51. Moreover, it is not without significance that, in the correspondence which was subsequently sent by Astley to the appellant in relation to the GGI unit trust matter, he almost invariably addressed letters to - "Mr B A Lamshed Legal Officer, Elder's Trustee and Executor Co Ltd, 27 Currie Street, Adelaide, SA 5000" (or to the appellant, for attention of "Mr B A Lamshed"), this being the same mode of address as had been employed by him prior to 1 March 1984. This indicates Astley's view of Lamshed's role at the time.
52. Both Astley and Wood agreed that, on the afternoon of 11 April 1984 (at the direction of the Board of the appellant) the latter called on the former, informed him of the change of status of Lamshed, and reassured him "that Finlaysons remained our principal solicitors".
53. In our opinion that, also, is a significant matter.
54. The next relevant development was the receipt by Astley, on 24 July 1984, of a letter from Hunt transmitting the final version of the trust deed and some associated documentation. In the course of that letter Hunt said -
"We understand that our respective clients have agreed that your
client will forthwith accept appointment as Trustee, and that the
Trust Deed, in its finally accepted form, will forthwith be
adopted as the Trust Deed of the existing 'private' trust, so that
your client as trustee may, on 31st instant, complete the purchase
of a large grazing and soya bean property at Tenterfield, New
South Wales."
55. Hunt went on to request Astley's "urgent comments as to the acceptability of the" documents forwarded by him.
56. This was followed by a further letter from Hunt on the following day which said -
"24th July, 1984
Messrs. Finlaysons, Barristers and Solicitors,
211 Victoria Square, ADELAIDE. S. A.
Dear Sirs,
RE: G.G.I. RURAL INCOME AND GROWTH TRUST
We refer to our letter of yesterday's date and now enclose
herewith form of New South Wales transfer in respect of the
property "Bookookoorara" Tenterfield which, as indicated in our
earlier letter we understand that your client has agreed to
purchase as trustee of the abovenamed trust.
We understand that our client has furnished all relevant
documentation relating to the purchase to your client, but in case
this is not so, we are enclosing herewith a copy of the relevant
contract of purchase.
We should be pleased if you would arrange for your client to
execute under seal, urgently, the transfer and if you would then
return same to us.
We have not inserted an attestation clause and trust that you will
do so. The clause should be somewhere in the area which we have
marked with a pencilled cross.
In addition to the attesting signatories a witness should witness
the attestation and should, in addition to his or her signature,
insert his or her full name, address and occupation, as provided.
You will no doubt appreciate that the vendor must execute the
transfer prior to settlement which we are informed is to take
place on 31st instant, and we should therefore greatly appreciate
the return of the transfer at the earliest possible date.
Should you require any further information please do not hesitate
to telephone or telex the writer.
Yours faithfully,
MacGILLIVRAY &; CO."
57. The contract of purchase disclosed that the consideration to be paid to the vendor (which was the trustee of the "Ted Reeves Family Trust") was $1m, of which $490,000 was to be secured by a second mortgage over Booka, a bill of sale over all plant, machinery and chattels at Booka and a second mortgage over the piggery property at Young. Each of these was to be granted by the appellant.
58. Astley's file notes reveal that, on 25 July 1984, he went through the Trust Deed documentation in detail and also examined the documentation related to the sale of Booka. He telephoned Hunt and ascertained that $1m was to be paid for the Booka land and $200,000 for the plant and equipment at that property. Hunt then expressed the view that it was unlikely that settlement would actually occur on 31 July, as originally contemplated.
59. On this occasion Astley passed on the instrument of transfer of Booka to Lamshed for execution by the appellant, in anticipation of settlement. It was found by the trial judge that Astley understood that Lamshed would be attending to the actual conveyance of Booka.
60. It is instructive to consider Astley's cost entries made at that time. On 25 July he noted -
"July 25 Perusing letter from John Hunt with further draft trust
deed, checking same, subsequently attending Lamshed, going thru
the amendments with him, satisfying ourselves on same, (it
appeared he knew very little about proposal for company to become
trustee of the private trust which would then be converted to
public trust), arranging for him to come again tomorrow with
Brenton Wood, attending Hunt telephone re several matters, see
notes on file."
61. Astley's file notes, made at the time, record -
"Brian Lamshed
He seems to know very little - spoke to Brenton Wood &; to discuss
w/- him tomorrow 0930."
62. The file notes for 25 July 1984 also contain these entries -
"John Hunt ( ) 1615
Told him seeing Wood tomorrow.
Vendors solrs now want to settle on 31/7 also talking about an
advance to one of O'Dea's coy. w/- gntee from Elders - sd that
not on.
Reported same to Brian Lamshed."
63. These notes reveal that, in relation to the sale transaction, Astley was not acting as a "mere post office box" as Mr Quick QC argued. The tenor of the notes is that he regarded himself as acting fairly generally in the matter and protecting the interests of the appellant in the matter. The notes are also inconsistent with an argument that Lamshed was playing the principal part and Astley a subsidiary part.
64. On the following day Astley had a conference with Wood and Lamshed. His contemporaneous notes indicate that, at that point, he was told -
- the overall transaction included giving a first mortgage of
$813,000 (including in respect of the plant) and a second mortgage
of $490,000 plus stamp duty.
- the overall concept was satisfactory to the appellant, including
cash flow and getting investors.
- the appellant was, to employ Wood's expression -
"Happy to go into this as trustee even if no public investors come
for. Satisfied as to security.
We have seen all books of A/C up to a couple of months ago. So
happy about assets we are taking over and the books of a/c."
- Wood was recorded as also commenting -
"We were always ready to come in as trustee of existing trust."The
words emphasised are important because they emphasise the proposed
role of the appellant as trustee and imply that it was not, in any
sense, proposing to enter into the transaction as a financier."
65. Once again, it is instructive to record the cost entries made by Astley in relation to the conference. They are expressed as follows -
"Discussions with Wood and Lamshed when Wood satisfied us that
they were aware of what was happening, (they) had seen the books
of account up to 2 months ago, they were satisfied about the
assets that were being taken over from the private trust, auditors
were auditing the a/cs to 30th June and they expected to get
report shortly. See notes on file.
Attending Hunt telephone re same in the presence of Wood and
Lamshed, suggesting that conf. next Thursday may not be essential
and we would leave it open for the moment. He still had not seen
the mortgage documents and would forward them to us as soon as
they became available."
66. The material to which we have referred does not support the submission made by Mr Quick QC that Astley had no significant, ongoing role in relation to the property transactions or any retainer to advise or look after the appellant's interests in relation to them.
67. It is not disputed that Astley did not, at any stage, even after he became aware of the projected mortgage transactions at his conference with Wood and Lamshed, raise with either Wood or Lamshed the issue of the need to exclude any personal liability of the appellant under any relevant securities executed by it. The information imparted by them to him of the proposed mortgage loans should have alerted him to a need to consider such an aspect and to point out the legal implications to them.
68. In this regard Mullighan J found, as he was clearly justified in doing, that Oakeshott, Wells and Wood did not, at any relevant stage, ever appreciate that a trustee is personally liable for debts incurred in that capacity, unless personal liability is, in clear and unambiguous terms, excluded by the relevant loan agreement or security. He also inferred, despite the submission by Mr Quick QC that he was not justified in so doing, that it is probable that, despite his legal qualifications, Lamshed also did not appreciate that point. There was no evidence put before the trial judge to suggest that any other officer of the appellant appreciated it. In our opinion there is no reason to assume that they did.
69. In the lastmentioned regard Mullighan J particularly made reference to the contents of a memorandum written by Lamshed to Wells on 7 August 1984 as being strongly suggestive of such a situation - which he was fairly entitled to do.
70. Astley did not give any specific legal advice to Wood or Lamshed at all on 26 July 1984 and nothing was said at the time, one way or another, as to the nature of his further involvement. On the other hand, that he would continue to be involved on behalf of the appellant in a general way was implicit both from the prior correspondence with Hunt and his dealing with both Wood and Lamshed. If, as he inferred in his evidence, he had received no instructions at all, either express or implied, to do other than peruse and comment on the original draft deed, and if his role was limited to that, then it is inexplicable that Wood and Lamshed would not have made this clear to him, in relation to his continuing involvement. There is also the fact that the appellant eventually paid for the work done by him at all stages without demur.
71. Be that as it may, on 31 July 1984, Astley received a further letter from Hunt. The letter enclosed a series of three deeds related to the unit trust transactions for execution by the appellant. These were perused and checked by Astley, who telephoned Hunt concerning some errors detected in them. It is important to observe that, in his file note of the conversation had by him with Hunt, Astley recorded - "Are we to sign these documents w/out seeing the mtges? He does not have mtge yet." This is a clear indication that Astley then appreciated that execution of the proposed securities was part and parcel of the overall transaction, in the form in which the appellant was being invited to embark on it.
72. By letter dated 2 August 1984, addressed to Lamshed in the form earlier described, Astley forwarded the trust documentation received from Hunt, for execution by the appellant. His letter concludes with this paragraph -
"We assume from our discussion last week that your company is
probably willing to execute these deeds now notwithstanding that
completion of the purchase of the New South Wales property has not
been completed and we still await the forms of mortgage."
73. On 7 August 1984 Astley received a letter from Hunt which forwarded the various security documents for execution by the appellant. Hunt stated that the mortgages were in abbreviated form which referred to standard conditions as lodged in the Lands Titles Office. A copy of those would be forwarded to Astley direct by the solicitors for the mortgagees. They were sent to Astley from Brisbane on 7 August 1984. Those documents did not contain any provisions exempting the appellant, as trustee, from personal liability for the moneys secured.
74. On 9 August 1984 (prior to the receipt by him of the standard conditions later the same day) Astley telephoned Lamshed and informed him of the receipt of the security documents. He told Lamshed that he did not yet have the standard mortgage conditions and that the appellant should await their receipt before executing the documentation. Astley then wrote the following letter to Lamshed -
"9th August, 1984
Mr. B.A. Lamshed, Legal Officer,
Elders Trustee &; Executor Co. Ltd.,
27 Currie Street, ADELAIDE. S.A. 5000.
Dear Sir,
Re: G.G.I. Rural Income Trust
We refer to previous correspondence and enclose a copy of a letter
of 6th August which we have received from Mr. Hunt of Messrs
MacGillivray &; Co., together with a copy of a letter from the
vendor's solicitors dated 30th July, 1984.
We think the letter from Mr. Hunt is self explanatory and sets out
the manner in which the documents are to be executed. We might
add that the set of standard mortgage conditions referred to in
the second paragraph of Mr. Hunt's letter has not yet arrived.
We are unable to check the title references as you have the
Memorandum of Transfer and Contract.
So far as the forms of mortgage, stock mortgage and bill of sale
are concerned, they appear to be in a standard form. Presumably
the amounts are correct but you will have particular knowledge of
this and likewise we assume that the number of pigs in the stock
mortgage and the plant and equipment referred to in the bill of
sale are accurate.
If you have any queries regarding the documents, please let the
writer know."
75. It is to be noted that this letter merely states that the security documents appear to be in a standard form, but makes no mention of any issue of personal liability. It was Wood's evidence, apparently accepted by the trial judge, that he took the statement that the documents were in a standard form to constitute advice from Astley that it was in order to execute them.
76. Despite the receipt of the standard conditions on 9 August, Astley appears to have done nothing about them until 13 August. His cost entries for that date reveal that he then considered them and related stamp duties aspects. (Those actions on his part belie the present contention that he had no retainer to consider or advise as to the security documentation.)
77. On the following day he telephoned Lamshed and, according to his file note "Told him mtge conditions looked quite normal Prospectus yet to be approved". Lamshed informed Astley that the security documents had been executed and sent back to Hunt. On 15 August Astley confirmed with Hunt by telephone that the security documents had in fact arrived.
78. Hunt telephoned Astley on 17 August and said that the solicitors for one of the mortgagees had requested certain amendments to the security documentation. The text of the desired amendments was telexed to Astley on 20 August. Astley perused and discussed them with Hunt on the telephone. He then wrote to Lamshed in these terms -
"20th August, 1984
Mr. B.A. Lamshed, Legal Officer,
Elders Trustee &; Executor Co. Ltd.,
27 Currie Street, ADELAIDE. S.A. 5000.
Dear Sir,
Re: G.G.I. Rural Income Trust
We enclose a copy of a telex which we received last Friday from
Messrs Ellison Hewison &; Whitehead, solicitors for Invia Pty.
Ltd., one of the mortgagees.
We have discussed the suggested amendments to the mortgage with
John Hunt, as set out in paragraphs (A), (B) and (C) of that
telex. We do not see any problem with the suggested variations
and we believe Mr. Hunt is now incorporating them in the document.
With regard to the penultimate paragraph of that telex, we have
asked Mr. Hunt whether the assets are sufficient to ensure the
ratio is not breached and he has told us he has been so assured.
On that basis, Mr. Hunt has drafted a form of certificate to be
given under the common seal of your company, as set out in a telex
which we received this morning.
Assuming you are content with this situation, we enclose three
copies of the form of certificate to be given under the common
seal of your company. Could you please execute two of them and
return them to us immediately as Mr. Hunt wishes to settle
tomorrow. The third copy is for your file.
Referring to the last paragraph of the telex of 17th August, Mr.
Hunt has explained to Margaret Campbell that her reading of the
deed is not correct. The quarterly valuation, under Clause 15, is
a book entry exercised by the Manager. An actual valuation takes
place only every three years."
79. Astley received the form of certificate back, duly completed on the same day. On 21 August he telephoned Hunt advising of that situation and faxed a copy to the solicitor for the mortgagee. He sent original executed copies to both that solicitor and Hunt by courier that day.
80. Apart from receiving copies of the finally amended securities after settlement (which occurred on 22 August), nothing further appears to have happened until, on 14 September, Astley received a letter from Hunt concerning a proposed variation of the Trust Deed. Having considered the proposal Astley wrote to Lamshed advising that the variation should be agreed to. He received this back, duly executed, on 24 September and despatched it to Hunt that day.
81. Some further work was done by Astley in relation to the prospectus and transfer of the Young property in late September and October, but the details of this are not of significance. What is, however, of importance is that on 25 September Hunt wrote to Astley forwarding a loan agreement, memorandum of mortgage proposed to be executed by QFP Properties and other ancillary documentation in relation to a loan of $400,000 to be made by Eagle Star Nominees Ltd to the appellant as trustee of the unit trust. This loan related to the Young piggery operation and was required to discharge some existing loans of the Trust and to provide working capital.
82. Mullighan J found, on the evidence, that Astley had not been aware of the proposed loan until Hunt contacted him about it. When Astley spoke to Lamshed the latter asked him "to have a look at them [ie the documents related to the loan]".
83. All of this material was considered by Astley in detail on 2 October and certain aspects were discussed by him on the telephone with both Hunt and Lamshed. On 3 October Astley wrote a lengthy letter to the appellant (for attention of Lamshed) in which he discussed various provisions of the Loan Agreement in considerable detail. Once again, no reference was made to the need to exclude personal liability, although he did suggest various amendments to it. This is consistent with the fact that he, himself, does not seem to have directed his attention to that aspect at any stage.
84. It is of importance to note the express findings of the trial judge concerning the events of early October. In the course of his reasons he said -
"According to Mr. Astley he examined these documents carefully
because he had been asked by Mr. Lamshed to do so.
...
Mr. Astley gave advice, in some detail, in his letter of 3rd
October 1984 about each of the documents. Of particular
significance is advice which he gave about the obligations of the
plaintiff under the proposed loan agreement. He gave detailed
advice about most clauses including that the plaintiff was the
borrower as trustee of the Trust and suggested that there be an
amendment to one of the clauses, cl.16. He also advised that
there should be amendments to the statutory declaration required
to be executed by one of the directors of the plaintiff. Both Mr.
Wells and Mr. Wood saw this letter and the suggested amendments to
the documents were made. The loan agreement was executed by the
plaintiff on 4th October 1984. The loan to the plaintiff was
secured by a mortgage over the Young property by QFP Properties
Pty. Ltd. which was still the owner of that property.
The documentation with respect to the Eagle Star loan included a
bill of sale which was again sent by Mr. Hunt to Mr. Astley on 5th
October 1984 for re-execution and the completion of a statutory
declaration and an affidavit by one of the authorized officers of
the plaintiff. Mr. Astley presented the bill of sale to Mr.
Lamshed and requested him to attend to Mr. Hunt's request and
return the documents to him promptly. Upon receiving them, Mr.
Astley forwarded them to Mr. Hunt."
85. Once again, one finds Astley playing a significant part and advising the appellant generally. Once again, there is no reference in that advice to the issue of the appellant's own liability.
86. On 23 October Hunt sent Astley a memorandum of transfer of the Young property from QFP Properties to the appellant. This was sent by him to Lamshed and duly executed by the company.
87. The foregoing facts fall to be considered against the background of Astley's evidence at trial as to the nature and extent of his retainer.
88. He was insistent that he had not been instructed to do other than direct his attention to the trust deed and related matters; and that the appellant itself was attending to the conveyancing aspects, including the mortgages. He asserted that his reference to various security documents being in standard form was intended to indicate that he had not been through them in detail. He testified that, had he been asked to give advice concerning the security documents, he would have sought instructions to include a clause limiting liability to the trust assets and excluding any personal liability. He said that he did not give that advice -
"Because it was not part of my job to have anything to do with the
mortgages or the transfer or the contract, or the bill of sale or
the stock mortgage."
89. The same situation applied, he testified, to the standard conditions, when they arrived. He further said that he regarded the later, telexed, proposed changes to the mortgages as "quite inconsequential amendments".
90. Astley agreed that he had been asked to look carefully at the Loan Agreement and had done so. He believed that he would have noticed any omission in it of any limitation of personal liability and would have appreciated the need to exclude it.
91. In examination-in-chief, counsel for the respondents skirted somewhat gingerly around this topic. However, it was squarely addressed in cross-examination. Astley, in effect, sought to derive comfort from Clause 16 of the Loan Agreement, which, so far as was material, provided as under -
"16. (a) The Borrower discloses that it enters into this Deed and
the Securities as trustee of The G.G.I. Rural Income and Growth
Trust (hereinafter called 'the Trust') being a Trust established
by a certain Deed of Trust dated 6th August 1984 and made between
Golden Grove Industries Limited as Manager of the first part the
Borrower as Trustee of the second part and the several persons
therein mentioned of the third part(hereinafter called 'the Trust
Deed'). All parties declare that their paramount intention is
that the Borrower enters into this Deed as such trustee to the
intent that the Principal Sum should, forthwith upon its being
advanced or provided, become part of the assets of the Trust and
be applied for the benefit of the Trust and, for that purpose and
in consideration of that benefit, that the assets of the Trust
should be charged in favour of the Lender with the due payment and
performance of all liabilities and obligations imposed on the
Borrower by this Deed of Securities."
92. In the course of his cross-examination Astley seems to suggest that this was adequate to limit liability to the trust assets. However, such a contention cannot withstand scrutiny. On the face of it the clause does no more than ensure that, from the lender's point of view, the loan is to be a charge on trust assets, and facilitates recourse to them. Nowhere is there any express or implied exclusion of liability on the borrower's personal covenant.
93. At the end of the day the inference, which appears to have been accepted by the trial judge, is that Astley simply overlooked the problem of liability on the covenant.
94. As to the wider issue of Astley's evidence concerning a lack of instructions when he looked at the earlier security documents, it must be said that this sits uneasily with the events set out above, including the fact that virtually all of his activities were duly recorded in his cost entries, for which appropriate charges were made to the appellant.
95. In the course of his reasons Mullighan J made the following express findings -
"The plaintiff's case is that there was, in effect, one
transaction. From the time the defendants were instructed on 31st
August 1983 until late in 1984, the plaintiff had retained them as
its solicitors in relation to all aspects of the plaintiff's
involvement in the Trust and Mr. Astley had a duty to exercise
care and skill with respect to each matter which arose over that
period and to properly and adequately advise the plaintiff with
respect to each of them. The defendants contest that approach.
They contend that the terms and limits of the retainer must be
considered at each relevant stage over this period and that upon
doing so, it may be seen that Mr. Astley had been instructed to do
very little.
In considering these matters, it is appropriate to have regard to
the experience and expertise of the plaintiff and what action it
took independently of the defendants. These matters are also of
importance in determining the nature and extent of the duty of
care and whether Mr. Astley was in breach of it. If any authority
is required for such a common sense proposition, it may be found
in Ormindale Holdings Ltd. v. Ray &; Ors. (1980) 116 D.L.R.(3d) 346
at p.357 and Carradine Properties Ltd. v. D.J. Freeman &; Co.
96. 1 PN 41. The plaintiff had considerable experience as a
trustee and in administering trusts in accordance with the
instruments creating them. It employed Mr. Lamshed. There was no
evidence to suggest that he was not a competent and experienced
solicitor in the fields in which he worked. The plaintiff had
staff sufficiently competent to undertake conveyancing. Mr. Wood
had considerable expertise in commercial matters and expert advice
as to financial and rural matters was available to the plaintiff
from within the Elders Group.
Also the relationship between the parties in the past is of
significance. The defendants regularly acted for the plaintiff.
Mr. Astley was aware of the usual business of the plaintiff. The
plaintiff had sought and relied upon advice of members of the
defendant's firm, including Mr. Astley, for many years which was
known to him. He expected that the plaintiff would value and take
any advice that he gave.
Having regard to all of these matters, the only sensible
conclusion is that the scope of the duty which Mr. Astley owed to
the plaintiff included the duty to give the advice which it
appeared to need regardless of whether or not it had been
specifically requested: Carradine Properties Ltd. v. D.J. Freeman
&; Co. (supra) per Donaldson L.J. at p.41. The instruction in the
letter of 31st August 1983 to '... examine the Deed and let us
have your comments on it ...' obliged Mr. Astley to advise as to
all matters which a competent and experienced solicitor of his
standing would expect the plaintiff would need to know relative to
its obligations as trustee and the liabilities which it could
incur if it became the trustee. These matters included whether
the plaintiff would be exposed to personal liability for any
excess of liabilities over assets of the Trust should it fail,
that all relevant documentation should, in the plaintiff's
interest, exclude such personal liability and other particular
matters relating to that question. This duty also included duty
to give advice about the documentation relating to the mortgages
with respect to Booka and the Young property and other security
documents in the context of the need to exclude personal liability
and further to advise as to the need to define the relationship
between the plaintiff as trustee and Golden Grove Industries Pty.
Ltd. as manager so as to exclude personal liability of the
plaintiff for debts incurred by the manager.
It is, and was at the time, well known that a trustee is
personally liable for debts which he incurs in that capacity
unless personal liability is expressly excluded in the relevant
transaction, e.g. a loan agreement or a memorandum of mortgage,
and care must be taken to ensure that such exclusion is expressed
in clear and unambiguous terms:
...
In my view, Mr. Astley ... failed to advise the plaintiff of the
need to protect itself from personal liability for the debts of
the Trust. He knew of the proposal to purchase Booka and to
borrow a substantial amount for that purpose before the trust deed
was executed. He had perused the trust deed and given some advice
about it. He had perused the memoranda of mortgage with respect
to Booka and had given some advice, namely that they were in
standard form. He continued to act for the plaintiff over the
total period. Whilst it must be acknowledged that the plaintiff
undertook some tasks independently of the plaintiff and that the
instructions of the plaintiff lacked precision, Mr. Astley was
sufficiently aware of each transaction to be able to appreciate
the need for the plaintiff to be protected against personal
liability. He should have appreciated that the plaintiff needed
to know that it should be protected from such risks and he was in
breach of his duty to the plaintiff in failing to give the
appropriate advice. It was a simple matter to draft appropriate
amendments to the trust deed so as to make it clear to anyone who
intended to deal with the plaintiff and chose to read the deed,
that the liability of the plaintiff extended only to the trust
assets. It was a simple matter to advise the plaintiff to insist
upon appropriate amendments to the mortgage documents and any
other security documents to which it might become a party. It was
also a simple matter to advise the plaintiff of the need to
exclude personal liability with respect to each transaction into
which it entered and to adequately and carefully define its
relationship with the manager so that it did not become personally
liable for any of the trading debts of the Trust incurred by the
manager.
I accept that the plaintiff did rely upon Mr. Astley and if he had
given the advice which he should have given, either the plaintiff
181. The evidence reveals that those surplus monies were used by the appellant in paying costs due to Reeves in relation to the litigation in the Federal Court. That is the amount referred to above as $205,646.57. We are, at present, unable to explain the differences between the two amounts.
182. The calculations made by Mr McAlary QC indicate that, of the total costs paid to Reeves in relation to all litigation, $130,309 relates to the period up to 1 February 1987. Of that $70,010 is attributable to the Federal Court action. To the extent that costs were incurred up to 1 February 1987 then, on the findings of Mullighan J, they were reasonably and properly incurred by the appellant in its capacity as trustee and to be regarded as a proper trust liability. To the extent that they arose in respect of the period after that date they were not properly a trust liability and must, prima facie, be borne by the appellant itself.
183. Mr McAlary QC contended that, because the appellant had a variety of liabilities to meet in relation to Reeves, and the net trust funds were inadequate to satisfy them all, then it was entitled to elect whether it would pay specific liabilities out of its own funds or out of trust funds, to the extent that these were available; that the respondents had no right to insist that the liabilities be met in a manner most favourable to them. He sought, in this regard, to draw an analogy with the well settled principles of marshalling. There was, he said, to express it in another fashion, no duty to act to the advantage of the respondents and to its own disadvantage.
184. In terms of general principle he may well be correct. However, in the instant case, the short answer to his submission is that the appellant was not entitled to demand that the respondents bear costs which were unreasonably incurred, any more than such a stance could have been maintained as against the beneficiaries of the Trust.
185. To the extent that the trial judge denied the right of the appellant to pay costs properly incurred in the Reeves litigation up to 1 February 1987 out of the trust monies, rather than from its own pocket, he fell into error. Had these costs been paid out of the appellant's monies then, as Mr McAlary QC submitted, they would have been claimable against the respondents.
186. On a proper dissection of costs, the sum of $70,189 incurred up to 1 February 1987 is not deductible from the Reeves claim. $200,160 less that amount, namely $129,971, appears to be deductible from the Reeves claim on the basis that there were trust funds to the extent of $129,971 available to meet the Reeves claim, but in fact used to meet expenses unreasonably incurred by the appellant and not recoverable from the respondent
187. We have not found it easy to follow what the trial judge did in this respect. We have had, as we have indicated, some difficulty in reconciling the various amounts. Nor were these matters dealt with in detail in the submissions to us - by that we mean the actual calculations that His Honour made. In dealing with this issue he said:
"The plaintiff is obliged to prove all facts upon which its claim
for damages is based. Having considered the evidence and
attempted various calculations, I accept the calculation of the
defendants as being probably accurate."
188. It may be that the judge was not satisfied by the figures put before him, which might not be the same as the calculations made by Mr McAlary QC on appeal. It may be that the discrepancy in amounts to which we have pointed indicates some misunderstanding on our part.
189. We think that it is appropriate to indicate our view on this point, but to give the parties the opportunity to put further submissions on it.
190. The remaining matter in contention between the parties concerns a sum of $437,123 paid to James for his work in the management of the winding up of the Trust. He was appointed in November 1985. He was a chartered accountant, company auditor and liquidator.
191. The amount paid to James was paid in respect of accounts rendered between 22 July 1986 and 31 August 1992. There is no doubt that the winding up of the trust was a complex task. It is also clear that James was involved in the management of the litigation in which the appellant became embroiled.
192. His Honour found that of the money paid to James "... a substantial, but unproven, part... was incurred with respect to the proceedings in the Federal Court". On his findings, some of that would have been recoverable from the respondent (if properly proved and if the amount were not excessive) and some would not be recoverable, that is, the fees incurred after 1 February 1987.
193. His Honour also found that the incurring of the costs of the winding up of the trust was not caused by Astley's breach of duty. He tested the matter by considering what would have happened if the appellant had been trustee but with all relevant personal liability included. He said:
"Had that occurred the Trust would still have failed. Whether or
not the plaintiff was personally liable, the debts of the Trust
had no bearing upon its solvency. Once public subscription did
not occur the winding up of the Trust was inevitable regardless of
Mr. Astley's breach of duty. In my view the costs of the winding
up are not recoverable by way of damages from the defendants."
194. In our opinion His Honour was correct to so conclude.
195. The winding up was the result of the insolvency of the trust. That would have occurred even if the appellant was not liable for trust debts. As trustee (even if not liable for debts) it seems to us that the appellant would have been obliged to attend to the winding up. By clause 4(1)(a) of the trust deed the trustee covenanted to act as trustee until the trust determined or until it had retired pursuant to the trust deed. Clause 46, dealing with retirement by a trustee, does not appear to contemplate a unilateral retirement when there is no person to act as trustee in place of the retiring trustee. Nor do the provisions of the Trustee Act (SA). Mr McAlary QC argued that had it not been personally liable, the appellant could have retired as trustee and had nothing to do with the winding up, and that it carried on only because it was personally liable.
196. We reject that submission. There is no evidence that another trustee could have been found (or, we were referred to none), and in our opinion the appellant, from a practical point of view, was committed to winding up the trust for reasons unrelated to its personal liability
197. It should be added that the appellant appears to have embarked upon the winding up as soon as it learned of the insolvency of the trust and before the issue of its liability arose. That suggests that it would in any event have attended to the winding up.
198. It follows, in our opinion, that to the extent that James' fees were attributable to the winding up, they were not recoverable from the respondent.
199. That means that the appellant was entitled to recover the costs reasonably incurred by it in dealing with the claims against it by Reeves and others, and so such part of James' fees as could be so described.
200. The first difficulty which confronts the appellant is the trial judge's finding that the rates charged by James were excessive, being "in excess of those recommended by the professional body of insolvency practitioners on the scale approved by the Supreme Court of New South Wales". Mr McAlary QC pointed out that the evidence (T484) was to the contrary. But in our opinion a later passage of transcript (T486-487) indicates that His Honour did not accept that evidence. At best, the position was left unclear. We would not disturb this finding of the trial judge.
201. The next difficulty is that James agreed in cross-examination that his accounts covered the winding up and the various pieces of litigation (T565-566), and that from the accounts one could not allocate the charges to different matters (T566-567).
202. It seems to us that the appellant failed to identify for His Honour the charges attributable to the work for which it had a good claim. It appears not to have attempted to provide further clarification.
203. It was in that setting that the judge reached the following conclusion:
"I would have allowed the damages for the reasonable cost of the
responding appropriately to the claims fixed upon the basis of the
costs set out in Mr. Wood's affidavit. It has not been
established to my satisfaction that the engagement of Mr. James
was necessary and reasonable. I have no doubt that it was
convenient to the plaintiff to pass over the winding up to him,
but his costs cannot be recovered from the defendants. No claim
has been made for the work done by Mr. Wood, Mr. Bacon or Mr. Ware
and there is evidence upon which damages could be calculated for
the cost of their work."
204. The reference to "costs set out in Mr Woods' affidavit" is a reference to a lower rate of charging set out in an affidavit filed by the appellant in the winding up proceedings.
205. In short, His Honour was not satisfied that it was reasonable to engage Mr James, and the amount recoverable at a proper rate for work done by him in respect of matters recoverable from the respondent was not proved.
206. In our opinion, the challenge to this part of His Honour's reasoning fails.
207. There is a further complaint relating to the damages awarded in respect of the Reeves claim.
208. As has been stated earlier, the judge awarded against the respondent the amount claimed by Reeves (including interest) as at 30 June 1986, and in a later judgment he allowed interest to 31 January 1987. The amount of the judgment which Reeves recovered was paid as follows:
$400,000 on 4 November 1987
$299,473.95 on 11 July 1988
209. The appellant argues that the amount which would have been payable on 1 February 1987 was $521,527.00, and that interest should have been allowed on a deemed payment of that amount on that date, rather than, as apparently was done, from the date of the actual payments.
210. We would reject that submission.
211. Interest is allowed to compensate the appellant for being kept out of its money. It paid the principal owing and interest to Reeves at a later date, as a result of its own unreasonable conduct on the judge's findings.
212. If the claim is presented as a claim for the interest paid to Reeves between 1 February 1987 and the date of actual payment to Reeves, the answer is that the additional interest was paid because the appellant failed to act reasonably.
213. If, as argued by Mr McAlary QC, it is presented as a claim for interest on a deemed payment on 1 February 1987, we cannot understand how or why the court should deem the money to have been paid then.
214. Another complaint relates to the claim for legal costs incurred by the appellant and paid to its own solicitors. Those costs amounted to $741,324.00. His Honour found that the appellant was entitled to recover reasonable legal costs in connection with the Reeves claim, certain costs in connection with the YSF claim and the sale of the Young property and the reasonable costs of defending the AMIC claim. There was a dispute as to the reasonableness of some of the amounts charged by the relevant solicitors. The judge said that if the parties could not reach agreement evidence would have to be heard.
215. His third judgment in the matter records that the parties "had agreed the plaintiff's damages for the legal costs of $118,854".
216. Mr McAlary QC argued, as we understood him, that the appellant had proved what was recoverable, that His Honour should have decided the matter, that the agreement reached should be disregarded and that the amount claimed should be awarded by us.
217. In our opinion that submission is untenable. The parties had the choice of reaching agreement or having His Honour determine the matter. Having reached an agreement, that is the end of the matter.
218. There remains for consideration the issue of damages for loss of use by the appellant of the money which it recovered. Such a claim was made in accordance with Hungerford v Walker (1988) 171 CLR 125.
219. The trial judge allowed Hungerford rates, on the relevant figures, up until 1 March 1990. Thereafter he allowed interest at rates applicable under Section 30c of the Supreme Court Act. The appellant contends that Hungerford's rates ought to have been applied up to judgment.
220. Mullighan J approached the matter on this footing -
- The appellant made payments to the relevant claimants from its
own monies up to 1 March 1990.
- After that date, other companies in the Elders IXL Group
(primarily Elders Finance) paid all relevant outgoings. That was
because, as a result of the sale of shares in the appellant, after
that date the vendor indemnified the appellant in respect of any
liabilities it had to meet, and any moneys recovered by the
appellant in connection with the trust were payable to the vendor
of the shares.
- The appellant would, prior to 1 March 1990, have invested its
monies in associated companies, had they not been paid out to meet
liabilities properly said to arise from the respondents'
negligence. This therefore attracted the Hungerfords principle.
- However, after 1 March 1990, there were no additional payments
by the appellant which denied it the use of its funds. Any
additional payments were made by another company, and the
appellant was not deprived of the use of its money.
- Section 30c therefore applied in respect of heads of damage
which arose subsequently to 1 March 1990.
221. Mr McAlary QC argued that it was illogical to terminate all Hungerfords' interest as at that date. The rationale for awarding such interest in respect of monies previously disbursed by the appellant continued to operate up to judgment. Furthermore, he drew attention to the fact that, under its contractual arrangements as from 1 March 1990, the appellant was obliged to pay interest on any monies advanced on its behalf.
222. In considering this argument it is necessary to remind oneself of the basis of the award of damages for loss of use of moneys. In Hungerfords v Walker (1989) 171 CLR 125 the basis was identified by Mason CJ and Wilson J as follows (at 143):
"Judged from a commercial viewpoint, the plaintiff sustains an
economic loss if his damages are not paid promptly, just as he
sustains such a loss when his debt is not paid on the due date.
The loss may arise in the form of the investment cost of being
deprived of money which could have been invested at interest or
used to reduce an existing indebtedness. Or the loss may arise in
the form of the borrowing cost, i.e., interest payable on borrowed
money or interest foregone because an existing investment is
realized or reduced."
223. In the present case, as from 1 March 1990, the appellant made no further payments. Any moneys it might have received would have been payable, more or loss forthwith, to another company. Even as to monies paid by the appellant before 1 March 1990, it was no longer deprived of the use of such moneys, because had it received them they too would have been disposed of pursuant to the arrangement under which the shares in the appellant were sold.
224. In our opinion the trial judge was correct in allowing damages for loss of use of money only until 1 March 1990.Cross Appeal on costs
225. There was a cross-appeal by the respondent against His Honour's decision on costs.
226. The appellant had formulated a claim before trial at $5,253,000. It obtained a judgment for $587,687.96. The respondent had, on 3 February 1993, filed an offer to consent to judgment for $500,000.
227. His Honour declined to deprive the appellant of any part of its costs. He rejected a number of arguments advanced by the appellant.
228. On appeal the only basis upon which his decision was attacked was that the appellant had advanced an exaggerated or excessive claim. We agree that that is a matter to be considered. We also agree that the formulated claim appears to have been ambitious, and perhaps exaggerated. But this was not a case of exaggeration in the sense in which that term is used of a plaintiff who falsely claims to have suffered injuries or losses which did not occur. The dispute here was over the losses attributable to a breach of duty, and whether the amounts which the appellant had undoubtedly expended were reasonably expended. On a number of matters the appellant failed, but still it recovered more than the respondent's offer.
229. A decision as to costs involves the exercise of a discretion. In our opinion it cannot be said that a proper exercise of that discretion required the trial judge to disallow some part of the appellant's costs. Nor did he overlook this aspect of the matter, even though he referred to it only in passing.
230. We would dismiss the cross-appeal against the order for costs.
Summary
231. Our conclusions are as follows:
(1) The respondent's appeal against the finding of a breach of
duty by the respondent should be dismissed.
(2) The appellant's appeal against the finding of contributory
negligence by the appellant should be allowed.
(3) The appellant's appeal against the finding that the appellant
acted unreasonably in contesting the Reeves claim after 1 February
1987 should be dismissed.
(4) We are inclined to allow the appeal against the decision of
the trial judge to deduct $200,160 from the amount payable in
respect of the debt and interest payable to Reeves and to reduce
the amount of the deduction to $129,971. We invite the parties to
put submissions on the correct amount if they so wish.
(5) The appellant's appeal against the refusal to make any
allowance in respect of the work done by Mr James should be
dismissed.
(6) The appellant's appeal against the failure to award interest
from 1 February 1987 on the amount of $521,527.00 should be
dismissed.
(7) The appellant's appeal against the amount awarded by agreement
in respect of the legal costs paid by the appellant should be
dismissed.
(8) The appellant's appeal against the refusal to award damages
for loss of use of money after 1 March 1990 should be dismissed.
(9) The respondent's appeal against the trial judge's decision on
costs should be dismissed.
232. Subject to further submissions on item (4), the parties should submit minutes of order giving effect to our decision. If the resulting calculations, which will implement this decision, cannot be agreed, we will hear the parties.
JUDGE3 DUGGAN J
233. I agree with the orders proposed by Doyle CJ and Olsson J in their joint judgment and I agree with the reasons they have given in support of their conclusions.
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