Belsand Pty Ltd v Bridgeland Securities Ltd
[1995] FCA 360
•2 JUNE 1995
CATCHWORDS
TORT - relationship between accountant and client - whether accountants provided investment advice - whether client gave instructions to withdraw funds - whether such instructions were carried out - whether accountants negligent in discharging services - whether duty of care arose in relation to investment - whether there was a relationship of proximity - whether duty of care was breached - failure to provide statements in accordance with agreed system was negligent - whether positive duty to seek instructions - whether actions of accountants caused the damage.
CONTRACT - whether failure to provide monthly statements breached contract - whether failure of client to complain constituted waiver or acquiescence.
Trade Practices Act, 1974 (Cth)
Fair Trading Act, 1987 (NSW)
March v E & MH Stramare Pty Limited & Anor (1991) 171 CLR 506
Gala v Preston (1991) 172 CLR 243
Jaensch v Coffey (1984) 155 CLR 549
Hackshaw v Shaw (1984) 155 CLR 614
Sutherland Shire Council v Heyman (1985) 157 CLR 424
Hawkins v Clayton (1988) 164 CLR 539
BELSAND PTY LTD v BRIDGELAND SECURITIES LTD t/as BRIDGELANDS FINANCIAL SERVICE & ORS
No. NG683 of 1990
Beazley J
2 June 1995
Sydney
IN THE FEDERAL COURT OF AUSTRALIA )
) No. NG683 of 1990
NEW SOUTH WALES DISTRICT REGISTRY )
)
GENERAL DIVISION )
BETWEEN:BELSAND PTY LTD
Applicant
AND:BRIDGELAND SECURITIES LTD t/as BRIDGELANDS FINANCIAL SERVICE
First Respondent
PAUL FREDERICK TURNER
BRUCE WILLIAM PHILLIPS
JOHN WILLIAM BEALE
KEVIN WILLIAM ENGLISH AND
BRIAN ALBERT McSWEENEY
t/as PHILLIPS McSWEENEY
Second Respondents
CORAM:BEAZLEY J
PLACE: SYDNEY
DATE: 2 June 1995
REASONS FOR JUDGMENT
BEAZLEY J: This is a claim for damages arising out of the applicant's loss of approximately $520,000 invested at call with Estate Mortgage Financial Services Limited (in liquidation), through the services of the first respondent (Bridgeland).
The claim against Bridgeland was settled prior to the commencement of the hearing. The claim against the second respondents (Phillips McSweeney) is brought in tort, contract, for contravention of s 42 of the Fair Trading Act, 1987 (NSW) and for breach of fiduciary duty. The applicant (Belsand) and Phillips McSweeney have agreed that in the first instance I deliver my reasons for judgment in respect of the actions in tort and contract only. As the reasons advanced for this course appeared appropriate, I propose to deal with those claims only in these reasons for judgment. If, upon an examination of these reasons, either party requests that I deliver my reasons on the other two causes of action, I will do so prior to the making of orders in the matter.
The parties
Belsand is a trustee company with power to invest trust funds. For the most part, its affairs are managed by one of its directors, Mrs Veda Rae Deaton. Phillips McSweeney were, at the time of the events subject of these proceedings, a partnership of accountants trading under that name. The fourth named second respondent, Kevin William English, is deceased and his Estate has not been joined in the proceedings. The composition of the partnership and the name of the firm have now changed, although those matters are not relevant to the issues.
From about the beginning of 1986, Belsand retained Phillips McSweeney as its accountants, with Mrs Deaton mostly dealing with the firstnamed second respondent (Mr Turner). The extent of Phillips McSweeney's retainer is an issue in the proceedings. Phillips McSweeney were also the accountants for members of Mrs Deaton's family, various Deaton family companies, as well as for the estate of Mrs Deaton's husband and sister. Bridgeland was a licensed securities dealer with whom Belsand placed funds for investment in the period from about mid 1989 until about May 1990. Mr Preston, a specialist in the money market, was the person at Bridgeland with whom Mrs Deaton dealt.
Background Facts
The Deaton family had run a successful printing company. In about 1986, the business was sold for about $1.5 million. Upon the advice of Phillips McSweeney, Belsand was established as a trust company for the purposes of investment of those monies. Phillips McSweeney attended to the formalities required to establish the corporate and trust structure.
For the most part, Belsand invested its money in the short term money market. On one occasion, it entered into a first mortgage security loan transaction with another client of Phillips McSweeney (the client mortgage investment). It also had investments in public companies, with Phillips McSweeney being Belsand's address for service of notices in respect of those investments. Other members of the Deaton family or their family companies also had various types of investments. These included real estate investment and investment in a private company, Soyfoods Pty Limited, which was associated with Mrs Deaton's sister.
The fourth named second respondent (Mr McSweeney) recommended that Mrs Deaton utilise the services of Mr Preston for Belsand's short term money market investments. Mr Preston was, at that time, working as an investment adviser with the stockbroking firm, Bridges, Son & Shepherd. Later, Mr Preston moved to a new firm, Aetna Preston Securities Limited. Mrs Deaton transferred Belsand's business to that firm and continued to deal with Mr Preston.
Bridgeland was established in 1989. Mr Turner, Mr McSweeney and Mr Preston were its directors. On 26 June 1989, Phillips McSweeney wrote to Mrs Deaton advising her that:
"...John Preston has joined Bridgelands Securities Limited which is a wholly owned division of the firm.
We are pleased to welcome John to our operation.
...
Bridgelands Securities Limited will provide all of those services which John has offered in the past including:-
*On Call Deposits
*Commercial & Bank Bill Transactions
*Sharebroking
* Other listed and non-listed investments.
As the financial year is drawing to a close, it would be opportune to transfer your existing deposits to Bridgelands Securities Limited to remain under the management of John Preston...
If you would like us to arrange the transfer of those funds currently with Aetna Preston Securities Limited please sign the enclosed authority and
return it to reach us by 30 June 1989."
Initially, Belsand did not transfer its funds to Bridgeland. However, Mrs Deaton said that Mr Turner raised the matter with her on a number of occasions, saying similar words each time, to the effect:
"Have you given any more thought to transferring your funds to Bridgelands?"
Mrs Deaton said she replied:
"Yes, but I am still thinking about it. I have followed Preston from Bridges Son & Shepherd to Aetna. I don't particularly want to change again. In fact, I am not comfortable changing to Bridgelands, it seems it's all a bit too in house and incestuous."
Mrs Deaton also referred to another occasion when Mr Turner said:
"This will be a good time to transfer the funds out from Aetna Preston to Bridgelands. We will be looking after your funds and your interest all in the one premises and we can do things immediately. It simply makes good sense to have instant communication and control within the one organisation. We feel most fortunate that we have acquired the services of Mr Preston. We feel that he will greatly enhance the service we can offer our clients in the financial advisory areas."
Mr Turner responded:
"OK Paul you seem so set on this, I will transfer as
you suggest."
Mr Turner denied most of this conversation. He said that he had three conversations with Mrs Deaton in respect of the transfer of funds to Bridgeland. However, he only gave evidence in respect of one. He said that, at the time of discussing the transferring of monies to Bridgeland, he said:
"By transferring the funds to Bridgelands, John will continue to look after things for you and with him being on the floor above us it would make it a lot easier for you rather than going into the city if you needed to make a quick deposit or collect a cheque. It would also make it easier for us if you want us to deposit or withdraw from the account".
In the early period of Belsand's short term money market investments, a practice was followed whereby, shortly prior to a bill maturing, Mr Preston would write to Belsand, reminding it of the date the bill matured and requesting instructions as to the further placement of the money. If Belsand did not give any instructions, the monies would be placed at call with the same organisation from which the bill had been purchased (the re-deposit practice). Mr Preston would confirm the receipt of monies lodged for investment or any instructions in relation to an investment, in a form letter in the following terms:
"We acknowledge receipt of and thank you for your deposit and/or the instructions which alter your 'at call' balance. Figures which link the old and new balances are shown on the summary above.
Acting as your agent...we have placed your money with [the named company] or in the case of withdrawal, we have left the balance (if any) of your money with that company at the current interest rate shown above...".
In about 1987, Belsand, through Bridgeland, deposited funds with, what I will describe broadly as the Estate Mortgage group. The extent of this investment or the period over which it occurred is not clear. However, it would seem that there was a break in that investment at some stage. Then, in early November 1989, Mr Preston wrote to Mrs Deaton recommending that Belsand invest monies with the:
"Estate Mortgage Trusts Group...because money placed with Estate Mortgage is backed by mortgages on large commercial properties, as it appears more secure than a deposit with Bill Acceptance, and as the Estate Mortgage interest rate is higher, it appears to make sense to transfer your funds from Bill Acceptance to Estate Mortgage.
I suggest you contact Paul Turner or myself as soon as convenient to authorise this transfer...."
Belsand accepted this recommendation and placed its short term money market investment with Estate Mortgage. This remained the position until February 1990, when Mrs Deaton gave instructions to withdraw Belsand's funds and to invest them with Bill Acceptance Corporation Limited. I will deal with the circumstances surrounding those instructions and their aftermath later in these reasons.
The statement system
Up until the latter part of 1986 or perhaps early 1987, Bridges Son & Shepherd, through whom Belsand then conducted its short term money market account, sent Belsand notification of any alteration in the investment. At about that time, Mr Turner suggested that it would be preferable if the transaction advice notices were sent direct to Phillips McSweeney. One reason for this was that Mr Turner required the information for the preparation of Belsand's accounting and financial documents. Initially, Mrs Deaton did not agree, but did so on a later occasion when Mr Turner again suggested it.
The system went through two stages. As it operated initially, the arrangement included a commitment by Mr Turner to promptly forward copies of the transaction advice notices to Mrs Deaton. However, Mrs Deaton said there were often delays in receiving the relevant information from Mr Turner. She said she expressed her dissatisfaction with the system to Mr Turner. Mr Turner denied that there were delays. However, there is no dispute that a new arrangement was agreed to. Under this arrangement, Mr Turner was still to receive the transaction advice notices from Mr Preston, but rather than sending those on to Belsand, he was to prepare and forward to Belsand, on a monthly basis, a summary of the transaction advice notices. I will refer to this second arrangement as the statement system.
There was no agreement or discussion as to the form the statements would take. However, it appears the statements were in the following format:
"ACCOUNT - S M DEATON
Today I purchased and debited the above account with $599,999.84 to cover the cost of a Bill, the details of which are:
Monetary value $626,556.00
Cost $599,999.84
Brokerage -
No of daysNinety (90)
Maturity date 30th November 1989
Interest rate 17.95%
Drawer Central Bill acceptance
Acceptor Bill Acceptance Corporation
Limited.
This debt reduced your At Call balance to $269,509.62.
Until we receive our licence from the Corporate Affairs Commission, no brolerage (sic) will be charged."
It should be noted that the above is not an example of a Belsand statement. Although no formal admission was made, the matter proceeded on the basis that this statement was most likely in the same format as the Belsand statements.
There were delays in the statement system. There was a 4 and 5 month gap respectively in the statements between January 1987 and May 1987 and May and October 1987. There were delays of 2 months in the provision of the statements between: November 1987 and January 1988; March and May 1988; August and October 1988; October and December 1988; December and February 1989. There was a 3 1/2 month delay between September and December 1989 and a 4 1/2 month delay between December and May 1989. Mrs Deaton said that either she or her son, Rik, often telephoned Mr Turner and complained about the delay in receiving the statements.
Once the statement system was introduced, all transaction advice notices, including the notification of when a bill might mature and any request for instructions in relation to investment of the proceeds, were sent by Mr Preston to Mr Turner. The evidence did not reveal what system or practice was adopted in respect of obtaining instructions from Mrs Deaton for the reinvestment of bills upon their maturity, save that Mrs Deaton said she did not think:
"...they had ever changed from one thing to another without reference to me".
She added:
"I would like to think they would refer to me if they were going to take it from one thing to another".
Services provided by Phillips McSweeney
There is no dispute that Phillips McSweeney provided to Belsand traditional accounting and financial services, such as the preparation of income tax returns, year end accounts and
financial statements, gave income tax advice and attended to company secretarial matters. Nor is there any dispute as to the existence of the statement system. However, there is a dispute as to whether, and if so the extent to which, Phillips McSweeney provided advice and assistance to Belsand in relation to investments. This dispute and Phillips McSweeney's obligations in relation to the statement system are central to the controversy between the parties.
Belsand relied upon a number of factors to establish that Phillips McSweeney gave advice in relation to investment. The first was the way Phillips McSweeney dealt with correspondence and notices from public companies for which it was Belsand's address for service. If the correspondence or notices from a public company required any action to be taken, Phillips McSweeney would forward the communication to Belsand, with a letter indicating what had to be done or recommending what should be done. The following letter dated 19 November 1986 is an example:
"BRIERLEY INVESTMENTS LIMITED
Please find enclosed a dividend cheque received from the above named company for $AUS73.79. This cheque should be banked in the company's account. Also enclosed is a letter of entitlement form from the company which entitles you to 200 shares in the company at a price of $3 New Zealand per share.
It is recommended that you accept this offer and you should organise a New Zealand draft for $600 to be forwarded direct to New Zealand by 8th December 1986..."
The letter was signed on behalf of Mr Turner.
Belsand did not conduct a bank account. Thus, agreement was reached that Phillips McSweeney would forward dividend cheques to Mr Preston for deposit in Belsand's current at call account. This practice is evidenced by a letter dated 5 May 1987. It stated:
"Please find enclosed a letter received from Capel Court Powell Limited. We have forwarded the cheque for $2.50 to John Preston at Bridges Son Shepherd to be added to the At Call Funds of Belsand.
We also enclose copies for your records of share certificates for the Trust's recent share purchases in Climax Mining Limited, Austpac Gold N L and Sarich Technologies Trust.
We have lodged the original certificates with the ANZ Bank at Chatswood for safe custody. Since the shares were purchased in January they have increased in value by 26%. Should you have any queries concerning any of the above, please do not hesitate to contact us."
Mr Turner also gave evidence that if he received a notice from a public company in respect of, for example, a rights issue, he would have obtained instructions from Belsand as to whether it wanted to exercise its rights.
The second factor relied upon to prove that Phillips McSweeney gave investment advice to Belsand was the nature and extent of the contact between Mrs Deaton and Phillips McSweeney and with Mr Turner in particular. Mrs Deaton stated that she attended Phillips McSweeney's office to deal with the various affairs of her family and their companies, including Belsand's affairs, about twice a month during the period from 1986 until mid 1990. Mr Turner did not accept that visits were as frequent, but conceded that there were visits on an average of about once a month. He also conceded that Mrs Deaton trusted him to give her accurate information in her dealings with him.
The third factor related to matters discussed at these meetings or which otherwise arose in the course of the family's dealings with Phillips McSweeney. It was contended on behalf of Belsand that Phillips McSweeney, and Mr Turner in particular, gave advice in relation to investments. Mrs Deaton said that she discussed matters relating to the statements in these meetings. Mr Turner said that he "basically had nothing to do with Belsand". I do not accept this assertion. It is contradicted by his own affidavit evidence in which he stated that, from time to time, he and Mrs Deaton discussed Belsand's investments and available investment options. His denial that he did not give investment advice is inconsistent with his evidence in cross-examination that it was not unusual, although it was not frequently the case, for Mrs Deaton to raise concerns with him about an investment. It is also inconsistent with his evidence that Mr Rik Deaton asked questions about investments from time to time. Mr Turner also conceded that at the time that he introduced the client mortgage investment to Belsand, he would have told Mrs Deaton's son, who was dealing with that matter, that it was a good proposal.
A particular example which Mrs Deaton gave where Mr Turner gave advice as to the investment of Belsand's funds was an occasion when he recommended that as Belsand had some surplus funds:
"it would probably be a good idea to spread your investment and make up a bit of a portfolio."
Mr Turner denied this evidence, although he stated that he told Mrs Deaton that he knew an investment adviser who had given him professional advice in the past. He said that Mrs Deaton responded by saying:
"I would like to buy some shares if ...can recommend a good buy."
Mrs Deaton also recalled that periodically Mr Turner would telephone her and say words to the effect:
"Interest rates on bills are good. I see you have a lot of money at call. Perhaps now would be a good time to convert some to bills."
Mrs Deaton said that she believed that after these conversations, Mr Turner gave effect to the decision taken. Mr Turner denied there were ever any such conversations.
The next factor relied upon to establish that advice was given in relation to investments was Phillips McSweeney's memoranda of fees rendered to Belsand in the period 1987 to 1990, which
included a specific charge for advice and assistance in respect of investment matters. For example, the memorandum of fees dated 31 January 1988 included a charge for
"Discussions concerning investments and the reconciliation of the Trust's...at call account."
The second part of this item clearly related to the statement system. The first part, by its terms, did not. This memorandum also included an item: "Advice and assistance generally".
In the memorandum dated 30 November 1988, there were two items relating to investment. They were:
"Numerous discussions during the period concerning investments and the reconciliation of the movements in the...at call account;
...General taxation investment and other professional advice."
The reference to "investments" in each of these memoranda, and the items "advice and assistance generally" and "[g]eneral investment... advice" did not fall into any of the categories of professional assistance which Mr Turner contended Phillips McSweeney provided to Belsand. Notwithstanding his denial that Phillips McSweeney provided investment advice, Mr Turner was unable to explain what these items referred to. He said that he was not able to do so without reference to the charging sheets from which the memoranda of fees were drawn
up. No such evidence was forthcoming. However, he stated that he did not charge for items for which no work was performed.
Finally, reliance was placed upon the fact that Phillips McSweeney distributed a newsletter to its clients which contained information as to trends in interest rates, investments, the state of the national economy, budget proposals and the like.
The question whether Phillips McSweeney gave advice in relation to investment depends in part upon whether I accept the evidence of Mrs Deaton or that of Mr Turner. I deal with the credibility of these witnesses below and conclude that I prefer the evidence of Mrs Deaton. Her evidence in respect of this issue, taken with the other matters upon which reliance is placed, establishes, in my opinion, that Phillips McSweeney did give such advice to Belsand.
Investment with Estate Mortgage
It will be recalled that in about November 1989, Belsand invested funds with Estate Mortgage. Mrs Deaton's late sister's estate, of which Mrs Deaton was one of the executors, also had monies invested with Estate Mortgage. On 15 February 1990, the co-executor of the estate telephoned Mrs Deaton and informed her that there appeared to be problems with Estate Mortgage and that he considered the estate monies should be moved out of any investment in Estate Mortgage. With Mrs Deaton's concurrence, the co-executor arranged for the immediate withdrawal of the estate funds.
Mrs Deaton said that shortly after her conversation with her co-executor, she telephoned Mr Turner. She said she told him she had been informed there was a problem with Estate Mortgage and that her co-executor had said they should get their money out. Immediately after speaking to Mr Turner, she telephoned Mr Preston and conveyed the same information to him. Mr Preston sought to allay her fears by assuring her that the funds "are very secure". Mrs Deaton had discussions with members of her family and again telephoned Mr Turner expressing her concern about Estate Mortgage. She said she told him that although Mr Preston had assured her the funds were secure, she was still worried and that Mr Turner responded that he did not think there was any need for worry.
On 16 February 1990, Mrs Deaton said that she again raised the issue of Estate Mortgage with Mr Preston. He again assured her that there were no problems and Mrs Deaton still took no action.
On Monday 19 February 1990, Mrs Deaton telephoned Mr Preston and informed him that she had decided to move all monies out of Estate Mortgage. She said she gave instructions that all monies be placed with Bill Acceptance, by way of a $500,000 30 day bill, with the balance of the account of about $20,000 to be placed at call. On either that day or shortly thereafter, Mrs Deaton telephoned Mr Turner. She advised him that she would be staying in the country for a short period. She said she also told him:
"I definitely want our money out of Estate Mortgage. I have just told John Preston to take our monies out of Estate Mortgage."
Mr Turner again assured her about the security of Estate Mortgage. Mrs Deaton responded:
"...even though you and John Preston have been assuring me that Estate Mortgage is safe and secure with huge assets and are completely safe, I have been worried sick about it and have told John Preston to take our money out of Estate Mortgage and place them with Bill Acceptance Corporation with $500,000 in a bill and $20,000 at call".
Mr Turner responded:
"Okay I understand. Thanks for the phone number. I will call you if there is any need".
Mr Turner did not agree with this version of events. He stated that on the 15 February he had been attending an all day seminar. He telephoned his office at about 12 noon and was told that he should ring Mrs Deaton. He says he did so and they had the following conversation.
Mrs Deaton:
"I've been speaking to [my co-executor]. He believes there are problems with Estate Mortgage and is taking out the Estate money and purchasing a 30
day Bill. I don't know what to do about Belsand's investments".
Mr Turner:
"If you're worried about it why don't you do the same"
Mrs Deaton:
"I'll ring John Preston and get him to move Belsand ... into [a] 30 day Bill".
Mr Turner said that when he returned to the office on 16 February he made a diary note of this conversation. The diary note produced in support of Mr Turner's version was dated 15 February 1990. I do not accept that the whole of the diary note was written by Mr Turner. Not only is it dated 15 February, but its contents, including certain time references, indicate that a major portion of the note was made by someone other than Mr Turner. Further, there is a marked distinction between the handwriting of the last entry and the balance of the file note. This last entry, which states:
"12.10PT spoke to VRD & suggested for her piece (sic) of mind to put funds into 30 Day Bill. She was to organise direct with J.P. for her funds"
supports Mr Turner's version of the conversation. Unfortunately, there was no cross-examination on the diary note. It is not necessary, however, to determine which version of the conversation is correct, as there is no
disagreement between the parties that on 19 February 1990, Mrs Deaton told Mr Turner that she had instructed John Preston to take the monies out of Estate Mortgage.
There is also a variance between other parts of the conversation between Mrs Deaton and Mr Turner at this time. Mrs Deaton said she told Mr Turner:
"I definitely want our money out of Estate Mortgage. I have just told John Preston to take our monies out of Estate Mortgage
...I have told John Preston...to place them with Bill Acceptance Corporation with $500,000 in a Bill and $20,000 at call."
Mr Turner's version is that Mrs Deaton said:
"...I have just spoken with John Preston and instructed him to take our money out of the Estate Mortgage and to purchase a 30 day bill"
and that he replied:
"You mentioned you were going to do that last Thursday".
The significance in the different versions is that it was contended on behalf of Phillips McSweeney that the evidence did not support the conclusion that Mrs Deaton had given instructions to Mr Preston to withdraw all of Belsand's funds from Estate Mortgage. It was submitted that even accepting Mrs Deaton's version, its effect was the same as the
conversation alleged by Mr Turner, and that Mr Turner's evidence ought to be accepted. I do not agree that Mrs Deaton's evidence, properly understood, is that she only gave instructions in relation to the withdrawal of funds to purchase a bill. Her evidence is that she told Mr Preston that she wanted "all" of Belsand's monies out of Estate Mortgage and that she gave instructions in relation to the purchase of a Bill and the investment of the balance at call.
On 19 February 1990, Bridgeland, forwarded a transaction advice notice to Mr Turner advising that Belsand's account had been debited with $499,999.50 to cover the cost of a bill with Bill Acceptance Corporation. The advice concluded:
"This debit reduced your At Call balance from $520,295.99 to $20,296.49."
As events turned out, the "At Call balance" at all times remained with Estate Mortgage and was never deposited with Bill Acceptance.
It appears that between 19 February 1990 and early March, Mrs Deaton withdrew $2000 from the at call account. This was advised by Bridgeland to Mr Turner in the usual way, by letter dated 5 March 1990 which stated:
"BELSAND No. 2 TRUST
We acknowledge receipt of instructions which alter your "At Call" balance. Figures which link the old and new balances are shown on the summary below.
$
Old Balance20,296.49
Withdrawal -2,000.00
New Balance 18,296.49
WITHDRAWAL Payee Name R DEATON MASTERCARD
DETAILS Cheque No. 423352
Bank Name Westpac Bank
Milsons Point Branch
Bank Acc. 516-320-100-029-7057
Acting as your agent and for a fee to be paid by Estate Mortgage, we have left the balance (if any) of your money with Estate Mortgage, at the current interest rate of 17.50%. This rate may be changed by Estate Mortgage without notice.
Your deposit, which is registered in the name of Bridgelands Nominees Limited, is held by Estate Mortgage.
May we remind you that the deposit may be increased (or reduced) before 12 noon on any business day. Any deposit or withdrawal received after noon will be processed on the next business day."
On 12 March 1990, Bridgeland wrote to Mr Turner advising that the $500,000 bill would be repaid on 21 March 1990. The letter further stated:
"As the current bill rates...are less than the current "at call" rate...and as I do not expect the [Estate Mortgage Trust] at call rate to drop in the near future, I shall place the proceeds of the maturing bill at call unless you advise me to the contrary".
Mr Turner took no action in respect of this letter.
On about 20 or 21 March 1990, Mrs Deaton telephoned Mr Preston's office and spoke with a Ms Kim Garrett in respect of a withdrawal of some funds. During the telephone call she
said to Ms Garrett:
"While I am here, what is [Belsand's]... at-call balance..."
Ms Garrett advised her that it was $517,000. Mrs Deaton queried why the balance was so high and was advised that it was because her bill had matured.
At the end of March 1990, Mrs Deaton had a meeting with Mr Turner, during which Mr Turner said:
"You did know your bills matured with Bridgelands."
Mrs Deaton responded:
"Yes, Kim told me on the phone. Leave it at call for the present."
Mr Turner's version of this conversation is:
Mrs Deaton said:
"I spoke to Kim the other day and she told me the bill had matured and is back at call. Do you know what's happening with Estate Mortgage? I took all the money from Estate Mortgage a month ago after Sid phoned and told me of the newspaper story".
Mr Turner said:
"John told me the bill had matured and that he has reinvested it at call. I haven't heard anything more about Estate Mortgage since that story over a month ago. I believe the interest for the December quarter was credited on time on the first couple of days in January.
Mrs Deaton said:
"Do you know the latest interest rates".
Mr Turner said:
"The last time I checked with Kim bill rates for 30 days were around 15.7% and the Estate Mortgage at call rate is still 17.5%".
Mrs Deaton said:
"I am not sure what to do. I will leave it at call for the time being and think about what to do with it."
Mrs Deaton agreed that there was possibly a conversation to that effect.
On 12 April 1990, Mrs Deaton had a further meeting, this time with both Mr Turner and Mr Preston. She was advised that a moratorium had been placed on monies invested with Estate Mortgage. Shortly afterwards, the various Estate Mortgage companies were placed in liquidation. Belsand's funds of approximately $520,000 have been lost.
Witness' credit
In large measure, Mr Turner denied the evidence given by Mrs Deaton. The differences in their evidence is critical on a number of issues. The first is the extent, if any, that Mr Turner gave investment advise to Belsand. The second is the nature and extent of the statement system. The third is
whether Mrs Deaton gave Mr Turner notice or advice of her instructions that all Belsand's funds were to be withdrawn from Estate Mortgage. I have already dealt with the last of these issues, determined by my acceptance of Mrs Deaton's evidence.
Mrs Deaton presented as a quiet person who was admittedly nervous in giving her evidence. She retracted one part of her evidence given in cross-examination. She attributed her error to her nervousness. She otherwise gave her evidence in an assured way. She presented as a reserved person, but one who paid attention to the detail of the family's investments. Mr Turner considered that:
"She certainly had more knowledge of financial matters than the average lady of those years..."
Without commenting upon the generality of that statement, I consider it to be implicitly consistent with what I have just said. Her reserve, however, in my opinion, affected her relationship with Mr Turner. She stated:
"I don't like going against advice of people who are advising me".
Mrs Deaton's evidence was corroborated in various respects by Mr Rik Deaton. Mr Deaton was also assured in his evidence and was not effectively challenged in cross-examination.
Mr Turner gave answers to questions in a way which I described during the course of the proceedings as giving "the minimum version". It is perhaps more accurate to describe his manner as defensive. There were occasions when his evidence was inconsistent. Mr Turner attempted to distance himself from any proposition which had any shade of suggestion that he gave investment advice to Belsand. However, as I have already stated, his own evidence revealed the contrary. His denial that Phillips McSweeney did not give investment advice is inconsistent with his evidence that from time to time he discussed with Mrs Deaton Belsand's investments and available investment options. It is also inconsistent with the advice he gave Mr Rik Deaton in relation to the client mortgage investment, namely that it was a good proposal. The firm's exhortation to follow Mr Preston to Bridgeland is consistent with it being concerned in Belsand's investments. Further, the memoranda of fees are telling evidence against his denial that Phillips McSweeney gave Belsand investment advice. More generally, taking into account the overall relationship between Mrs Deaton and Mr Turner, it is clear Mr Turner concerned himself with investment matters. His agreement that he provided advice in relation to rental reviews of properties owned by one of the Deaton companies and by Mr Rik Deaton is an example of this.
Mr Turner denied in cross-examination that the statement system operated unsatisfactorily. He said that on all but nine occasions the monthly statements were sent "within a short time and after the month end as arranged". It is doubtful that this performance could properly be categorised as satisfactory. However, leaving that aside, Mr Turner acknowledged in his cross-examination that Mrs Deaton relied upon him to provide statements at least every second month. Even if that was the arrangement, Mr Turner did not honour it during the period September 1989 and December 1989 or in the critical period December 1989 to May 1990.
Another example of the unsatisfactory nature of Mr Turner's evidence is revealed in the following cross-examination:
"Do you seriously think there is a possibility Mrs Deaton did not rely upon the accuracy of the summaries you sent?---I don't know. As I said, I never got involved. We prepared the information and mailed it to her and to my knowledge we never had any discussion about anything that was on those over the years".
Shortly afterwards, Mr Turner gave different and more telling evidence. He stated:
"[Mrs Deaton] trusted you to give her accurate information in the meetings you had with her, didn't she?---Yes
It would be true to say that the professional relationship between you and her, with you as her accountant, could not have worked without such trust, could it?---No.
Well then, Mr Turner, do you put the [statements] you sent out to her in some different category to that?---No.
She had to trust that information as well, didn't she?---I presume so, yes, she had to.
Not only is this evidence inconsistent with the earlier answer, which is an example of an occasion when Mr Turner sought to distance himself from Belsand's affairs, it recognises the true import of the statement system - namely, that it was the only source of information which Belsand had in relation to its short term money market investment through Bridgeland.
It follows from what I have said that, save in the respect in which I have found it unnecessary to determine which evidence I accept, I prefer the evidence of Mrs Deaton to that of Mr Turner where their evidence conflicts.
Claim in tort
Belsand alleges that Phillips McSweeney were negligent in the manner in which they discharged the services for which they were retained. It further alleges that, given the events of March 1990, an ad hoc duty of care arose which Phillips McSweeney breached by failing to take any steps in relation to the investment of Belsand's monies in Estate Mortgage.
Counsel for Belsand submitted that Phillips McSweeney were under a duty of care to discharge their retainer with skill and care. It was also submitted that because of the proximity between the parties arising out of the relationship of accountant and client, Phillips McSweeney owed a duty of care to Belsand to take care in the manner in which it performed the tasks it was retained to undertake. These broad propositions were not disputed. However, the duty of care in this case does not arise out of a strict relationship of accountant and client. Nor does the alleged breach of duty arise out of the performance of what might be strictly characterised as accounting work. In essence, the question is whether, in the circumstances, Phillips McSweeney owed any duty of care to Belsand arising out of and relating to Bridgeland's placement of Belsand's funds with Estate Mortgage. Integral to that question is the operation of the statement system.
It is now well established that a duty of care arises where parties are in a proximate relationship. As was stated in the joint judgment of Mason CJ, Deane, Gaudron and McHugh JJ in Gala v Preston (1991) 172 CLR 243 at 252-253:
"Commencing with Jaensch v Coffey (1984) 155 CLR 549, this Court in a series of decisions, has accepted that a relevant duty of care will arise under the common law of negligence only in a case where the requirement of a relationship of proximity between the plaintiff and the defendant has been satisfied: see Sutherland Shire Council v Heyman (1985) 157 CLR 424 at 461-462, 506,507; Stevens v Brodribb Sawmilling Co. Pty Limited (1986) 160 CLR 16 at 30-50-52, San Sebastian Pty Limited v The Minister (1986) 162 CLR 340 at 354-355; Cook v Cook (1986) 162 CLR 376 at 38-382. The requirement of proximity constitutes the general determinant of the categories of case in which the common law of negligence recognises the existence of a duty to take reasonable care to avoid a reasonably foreseeable and real risk of injury."
Deane J, in particular, in the cases to which the majority referred, has examined the meaning of proximity as the determinant of the existence of a relevant duty of care and its relationship with the concept of reasonable foreseeability. In Jaensch v Coffey (1984) 155 CLR 549, his Honour stated:
"In Donoghue v Stevenson ([1932] A.C. 562 at 580), the common law duty of care was defined, for the purposes of the law of negligence, as a duty to take reasonable care when it can be reasonably foreseen that one's "acts or omissions" are likely to injure one's "neighbour". A "neighbour" was identified as being, in the view of the common law, a person who is "so closely and directly affected by my act that I ought reasonably to have [him or her] in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question" ([1932] A.C. 562 at 580). The significance of the requirement contained in the words "so closely and directly affected...that" is that they constitute a control upon the test of reasonable foreseeability of injury.
His Honour pointed out, at 579-580, that the requirement of proximity is a "substantive and independent" requirement, differing:
"...in nature from the test of reasonable foreseeability in that it involved both an evaluation of the closeness of the relationship and a judgment of the legal consequences of that evaluation."
His Honour then described proximity at 584-585 as being:
"...directed to the relationship between the parties in so far as it is relevant to the allegedly negligent act of one person and the resulting injury sustained by the other. It involves the notion of nearness or closeness and embraces...circumstantial proximity such as an overriding relationship of employer and employee or of a professional man and his client and causal proximity in the sense of the
closeness or directness of the relationship between the particular act or cause of action of the injury sustained: cf. the "signposts or guidelines or relevant considerations" referred to by Cooke J. in Rutherford v. Attorney-General ([1976] 1 N.Z.L.R. 403 at 411)."
In Hackshaw v Shaw (1984) 155 CLR 614, which involved the question of the nature of the duty of care owed by an occupier to a trespasser, Deane J stated at 663:
"A prerequisite of any such duty is that there be the necessary degree of proximity of relationship. The touchstone of its existence is that there be reasonable foreseeability of a real risk of injury to the visitor or to the class of person of which the visitor is a member. The measure of the discharge of the duty is what a reasonable man would, in the circumstances, do by way of response to the foreseeable risk.
...
The additional factor or combination of factors which may, as a matter of law, supply the requisite degree of proximity or give rise to a reasonably foreseeable risk of relevant injury are incapable of being exhaustively defined or identified.
Negligent conduct is usually more easily recognised where some positive act is involved. As Deane J stated in Sutherland Shire Council v Heyman at 502,
"...The distinction between a failure to act and positive action remains a fundamental one. The common law imposes no prima facie duty to rescue, safeguard or warn another from or of reasonably foreseeable loss or injury to take reasonable care to ensure that another does not sustain such loss or injury...".
His Honour clearly recognised that an omission may constitute negligence, although he considered that the categories of case in which such proximity of relationship will be found to exist are properly to be seen as special or exceptional.
Sometimes, what may initially appear to be a case of omission, involves a positive duty. Thus in Hawkins v Clayton (1988) 164 CLR 539, it was recognised that there may be a duty to disclose information. In that case, a firm of solicitors had prepared a will appointing an executor and leaving him the residue of the Estate. The testatrix died in January 1975. The solicitors did nothing about locating or informing the executor of the will until March 1981, by which time, the main asset in the Estate, a house, had fallen into disrepair and had been vacant for a substantial period.
It is clear from Hawkins v Clayton that reliance and assumption of responsibility may be relevant determinants of proximity in a particular case: see Mason CJ and Wilson J at 545. Deane J stated at 579:
"The content of the duty of care in a particular case is governed by the relationship of proximity from which it springs. It may, in some special categories of case, extend to require the taking of positive steps to avoid physical damage or economic loss being sustained by the person or persons to whom the duty is owed....the categories of case in which a relationship of proximity gives rise to a duty of care which may, according to circumstances, so extend are...commonly those involving the related elements of an assumption of responsibility and reliance... It is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps, beyond the specifically agreed professional task or function, to avoid a real and foreseeable risk of economic loss being sustained by the client. Whether the solicitor-client relationship does give rise to a duty of care requiring the taking of such positive steps will depend upon the nature of the particular professional task or function which is involved and the circumstances of the case."
Gaudron J indicated that reliance and assumption of responsibility might be alternative and not cumulative criteria for the establishment of a relationship of proximity. Her Honour stated at 591-593:
"There may be... situations in which, although non-disclosure cannot in its context be regarded as equivalent to misstatement, the failure to disclose may give rise to a liability because of the reliance by the injured party upon care being taken to disclose all relevant information in circumstances where the other party ought to know of such reliance, whether or not that other party assumed a responsibility to impart all relevant information. Certainly that must be a possibility if assumption of responsibility and reliance are possible alternatives and not cumulative criteria for the relationship of proximity, as appears to have been accepted by Deane J in Heyman (at 498) and in the joint judgment in San Sebastian (at 357)".
Of particular relevance to the facts of this case, is her Honour's statement at 595:
"Reliance, as a criterion of proximity, is a factor which is primarily relevant when the question of proximity is approached from the perspective of the injured party. However, reliance as a criterion of proximity viewed from the perspective of the injured party is by no means co-extensive with the test of neighbour formulated in Donoghue v Stevenson from the perspective of the person who owes a duty of care. A more approximate formulation, in the context of economic loss, may be that of a person whom the injured party might reasonably expect would have his interests and the likelihood of injury to those interests in contemplation when directing attention to the acts or omissions called in question."
and further at 596
"...a relationship of proximity may be constituted by the reasonable expectation of a person (including a reasonable expectation that would arise if he turned his mind to the subject) that the other person will provide relevant information or give reliable information, if that expectation is known or ought reasonably to be known by the person against whom the duty is asserted. Of course, the foreseeability of the risk of injury is necessarily relevant to a consideration of the reasonable expectation."
Counsel for Phillips McSweeney submitted that the duty of care was circumscribed entirely by Phillips McSweeney's contractual obligation, which, he submitted was, relevantly, no more than to prepare a summary of account transactions. Alternatively, he submitted Mr Turner was a mere bystander to the relationship between Belsand and Bridgeland - a mere conduit for information from Bridgeland to Belsand. He further submitted that the relationship between Bridgeland and Belsand was all encompassing, so that there was no room for a relevant duty of care owed by Phillips McSweeney to Belsand, save in relation to the preparation of accurate statements. For the reasons which follow, I do not agree.
Belsand's counsel submitted that the factors which were relevant to there being a duty of care in the circumstances were: the fact that the accountant/client relationship had existed for a period of at least 5 years; the regular dealings between Mrs Deaton and Mr Turner at which the status of Belsand and other family investments were discussed, including the giving of investment advice; the statement system and its effect in putting Mr Turner in control of all information relating to Belsand investments through Bridgeland; the fact that Mr Turner and Mr McSweeney were directors of Bridgeland and that Mrs Deaton had been advised that Bridgeland was a division of Phillips McSweeney; and the fact that Mrs Deaton, as Mr Turner appreciated, relied upon Mr Turner to give her accurate information. I agree that these are relevant factors in determining whether there was a relationship of proximity between Belsand and Phillips McSweeney. I consider that there should also be added to these factors two other aspects of reliance. The first is that Mrs Deaton relied upon Mr Turner as her adviser and that she did not like going "against the advice of people who are advising me". The second is that she expected to be consulted about a change of investment and did not think that there was ever any change of investment without consultation with her and that she expected. Another relevant factor is the extent of the communication between Mrs Deaton and Mr Turner, including the fact that Mrs Deaton usually kept Mr Turner informed of what she was doing with Mr Preston.
The central relationship between the parties was, of course that of accountant and client. As such, as Mr Turner agreed, the relationship was one of trust in which Mrs Deaton relied upon him to provide her with accurate information on any matter subject of discussion between them. Phillips McSweeney also agreed to perform functions additional to those of a purely accounting nature. In particular, Phillips McSweeney agreed to be the recipient of all information relating to the applicant's short term money market investments and to provide a statement of those transactions to Belsand on a monthly basis. Phillips McSweeney were aware that the statement system was the only source of information Belsand had as to the status of its money market investments. Phillips McSweeney also knew that Belsand relied upon them to accurately summarise the material provided by Bridgeland. It was not a part of the responsibility assumed by Phillips McSweeney to analyse that information or to check with Bridgeland or Belsand as to whether Bridgeland had carried out Belsand's instructions.
However, the relationship and the responsibilities assumed by Phillips McSweeney in relation to the statement system have to be assessed in the light of the fact that from time to time, Mr Turner discussed Belsand's investments with Mrs Deaton, gave advice in relation to those investments and sought instructions wherever action was needed to be taken in relation to an investment. They also have to be assessed in light of the unusual circumstances relating to the withdrawal of the funds from Estate Mortgage. Mr Turner knew that Mrs Deaton had been concerned about the investment with Estate Mortgage and had given instructions to Mr Preston to withdraw the funds from that institution. He also knew that, in relation to other investments, if any action needed to be taken he had sought instructions from Mrs Deaton. I consider that given these circumstances there was a relationship of proximity between the parties which gave rise to a duty of care.
I should also state that, if a relationship of proximity can be satisfied by the injured party having a reasonable expectation that the person alleged to have the duty would provide relevant information: see Hawkins v Clayton per Gaudron J, the relationship would be established in this case. The relationship between the parties was such that Mrs Deaton would reasonably expect that Phillips McSweeney would have Belsand's "interests and the likelihood of injury to those interests and the likelihood of injury to those interests in contemplation" when deciding what should be done with the March correspondence from Bridgeland. Mrs Deaton stated that she would not expect that there would be a change in her investments unless she was first consulted. Thus, she would have reasonably expected that Mr Turner would advise her of the intention to place the bill proceeds with Estate Mortgage, unless contrary instructions were received. I am also of the opinion that she would reasonably expect that Mr Turner would inquire of her whether the retention of the at call account with Estate Mortgage was in accordance with her instructions and that Mr Turner had a corresponding duty.
Breach of duty
Having determined that there was a relationship of proximity between the parties, it is necessary to determine the extent of and whether there was a breach of the duty of care owed by Phillips McSweeney. Those questions arise in two related, but distinct, respects. The first is in relation to the statement system itself. The second is in relation to the events of March 1990.
Mrs Deaton and Mr Turner agreed that the statement system was a monthly system, whereby Mr Turner would provide a summary of the transaction advice notices forwarded to him by Bridgeland. Mr Turner elaborated on the system, stating that it was intended to operate on the basis that the statements were to be provided after the end of the month. This evidence was not challenged. Mrs Deaton did agree that the system had its imperfections and that she supposed she:
"became complacent, because I'm a busy wife and mother and that was close enough and that's how it went on, rather than change it. I don't like going against advice of people who are advising me".
However, once it is accepted that the statement system was to operate on a monthly basis, it follows that the failure to provide statements in accordance with the system was negligent. In stating this, I do not suggest that time was of the essence. However, the system was intended to operate on the basis that the statements would be provided reasonably promptly. Mrs Deaton said that she and her son had complained about the delay from time to time. I do not consider the fact that a person may not have complained continually or sought some change in the system excuses the negligent performance of the system. In any event, Mrs Deaton was preoccupied in about February and March with the family's domestic affairs. One of the purposes of a system is to overcome problems which can arise when matters are overlooked when persons relying on the system are preoccupied with other matters.
The next question is whether Phillips McSweeney also breached its duty to Belsand having regard to the information which came into its possession by virtue of its receipt of the transaction advice notices of 5 and 21 March 1990, and the letter of 12 March 1990. Common to each of these situations was Mr Turner's knowledge that Mrs Deaton had instructed Mr Preston to withdraw all funds from Estate Mortgage and that he had not been advised of any different instruction, in accordance with Mrs Deaton's usual habit of keeping him informed of her instructions in relation to the investments placed through Bridgeland.
It will be recalled that the transaction advice notice of 5 March 1990 revealed that the $20,000 at call investment was with Estate Mortgage. In my opinion, Phillips McSweeney were under a duty on that occasion to check with Mrs Deaton whether it reflected her instructions to Belsand. I am of this opinion notwithstanding that Phillips McSweeney were not under a general duty of care in relation to the statement system to check whether Belsand's instructions had been carried out. However, the particular instructions relating to Estate Mortgage, Mrs Deaton's advice to Mr Turner of those instructions, her practice of keeping Mr Turner informed of her investments with Bridgeland in the overall context of the relationship of the parties gave rise to a duty of inquiry on that occasion.
On 12 March 1990 Bridgeland advised Mr Turner that the $500,000 bill would mature on 21 March 1990 and that the proceeds would be invested with Estate Mortgage at call "unless you advise me to the contrary". In my opinion, Mr Turner had a positive duty to seek instructions in relation to the placement of the funds. That positive duty arose for a variety of reasons. The operation of the statement system itself created that duty. Unless Mr Turner sought instructions from Mrs Deaton, she had no way of making any decision in relation to the investment, as she had no knowledge that the request had been made. Mr Turner was in control of all information emanating from Bridgeland. There was also a positive duty to seek instructions arising out of the unusual circumstances of the withdrawal of the funds from Estate Mortgage. Mr Turner sought no such instructions. Phillips McSweeney thus breached its duty of care to Belsand.
The letter of 21 March 1990 confirmed that the course proposed by Bridgeland in its letter of 12 March 1990 had been put into effect. Although it could be said that Phillips McSweeney's failure to do anything in response to the information in the letter of 21 March 1990 compounded the earlier acts of negligence, it is more accurate to describe it as a separate act of negligence, arising out of a failure to inquire whether Belsand's instructions in relation to investment with Estate Mortgage had changed. Phillips McSweeney thus again breached the duty of care owed to Belsand.
Counsel for Phillips Mcsweeney submitted that I could not determine that his clients were liable for breach of duty of the type alleged without the assistance of expert evidence. I do not agree. It is true the professional relationship of accountant and client is relevant in this case to the question of proximity. However, the alleged breach of duty did not relate to the services provided as an accountant as such, but arose out of a broader relationship whereby Phillips McSweeney was the recipient and processor of certain information. The standard of care required in respect of that aspect of the relationship did not require any expert evidence. Indeed, such a system could have been operated by someone who was not an accountant. It was essentially a clerical job.
Causation
The question remains whether the acts of Phillips McSweeney were the cause of the damage suffered by Belsand. Questions of causation are essentially questions of fact to be answered by reference to commonsense and experience: see March v E & MH Stramare Pty Limited & Anor (1991) 171 CLR 506. In that case the "but for" test was rejected as a definitive test of causation. Mason CJ dealt with the matter in these terms at 515:
"The common law tradition is that what was the cause of a particular occurrence is a question of fact which "must be determined by applying commonsense to the facts of each particular case", in the words of Lord Reed: Stapley v Gypsum Mines Ld [1953] AC 663 at 681...
Commentators subdivide the issue of causation in a given case into two questions: the question of causation in fact - to be determined by the application of the "but for" test - and the further question whether a defendant is in law responsible for damage which his or her negligence has played some part in producing;...[h]owever, this approach to the issue of causation (a) places rather too much weight on the "but for" test to the exclusion of the "common sense" approach which the common law has always favoured...".
At 516, his Honour referred to the difficulties to which the "but for" test gave rise, in a situation which is apposite to this case. His Honour said:
"The "but for" test gives rise to a well-known difficulty in cases where there are two or more acts or events which would each be sufficient to bring about the plaintiff's injury. The application of the test "gives the result, contrary to commonsense, that neither is a cause"; Winfield and Jolowicz on Tort, 13th ed. (1989) p.134."
It was submitted that Belsand's loss was caused solely by Bridgeland's conduct in placing the monies with Estate Mortgage and was not caused by anything Phillips McSweeney did or failed to do in March 1990. The effect of this submission is to apply the "but for" test as the appropriate criterion of causation in this case. However, for the very reasons stated by Mason CJ in March v Stramare that test is not appropriate to the facts of this case, where there is more than one cause of the loss.
The question of causation has to be determined in respect of both aspects of breach of duty to which I have referred. Dealing first with the negligent operation of the statement system in the sense that it was a monthly system, the evidence does not establish that the negligent operation of the system was causative of the whole loss. No statement was provided between December 1989 and May 1990. Relevantly, Belsand was not provided with a statement summarising the February transaction advice notice from Bridgeland relating to the purchase of the $500,000 bill from Bill Acceptance Corporation. Had Belsand been provided with a statement at any time in March 1990 for transactions up to the end of February, it would have been immediately apparent that the $20,000 "at call" amount had not been withdrawn from Estate Mortgage. Belsand would then have been able to take steps to have those funds transferred out of Estate Mortgage. Thus, Phillips McSweeney's negligence was responsible for the loss of the $20,000 placed at call with Estate Mortgage.
Had the statement system operated in accordance with its terms, Belsand would have been provided with a statement sometime in April, in respect of transactions up to the end of March. The evidence discloses that, as at 12 April 1990, a moratorium had been placed upon the withdrawal of funds from Estate Mortgage. However, the evidence does not disclose the date upon which the moratorium was imposed. Even if it was not imposed until 12 April, the failure to provide a statement
by that date would not necessarily constitute a failure to comply with the statement system. It may be that the receipt of a statement after that time would have been sufficient compliance with the system. Accordingly, the evidence only establishes that this breach was causative of the loss of the $20,000 at call deposit.
It is next necessary to deal with the March transactions. Had Mr Turner made inquiries of Mrs Deaton about the at call investment when he received the transaction advice notice of 5 March, Mrs Deaton would have become aware that those funds had not been withdrawn as instructed and she could have taken appropriate steps to have the situation rectified. She was deprived of that opportunity. That breach was thus also causative of the loss of the at call monies.
Mr Turner's failure to seek instructions in relation to the investment of the proceeds of the bill deprived Mrs Deaton of the opportunity of directing that those monies not be invested in Estate Mortgage. That breach was thus causative of the loss of the $500,000.
Finally, Mr Turner's failure to inquire whether the deposit of the entirety of the funds with Estate Mortgage coincided with Mrs Deaton's instructions, after receipt of the 21 March transaction advice notice, was causative of the whole loss.
It will be recalled that Mr Rik Deaton gave evidence that had the "at call" funds been withdrawn from Estate Mortgage, the entire loss would not have occurred because of the re-deposit practice. That practice was that upon maturity, the proceeds of a bill would be deposited into the "at call" account. That may be correct, but put in that way, it is not relevant as such to the case against Phillips McSweeney. It may have been relevant in the claim against Bridgeland. Even had Belsand become aware, through the provision of a statement in respect of the February transactions, that the at call funds had not been moved from Estate Mortgage and taken steps to have that rectified, it is not certain that the re-deposit practice would have prevented the loss. It is not clear whether the letter of 12 March 1990 indicates that a specific proposal was made that the bill proceeds be deposited with Estate Mortgage because of its interest rate or because of the re-deposit practice. It is possible that had Mr Turner made inquiries when he received the 5 March notice as to whether the at call deposit accorded with Belsand's instructions, that the re-deposit practice may have operated to prevent the loss. However, having regard to the conclusions which I have reached, and the fact that neither counsel argued the case on that basis, it is not necessary to deal with the issue.
Finally, it was argued that the effect of the conversation between Mrs Deaton and Mr Turner at the end of March when Mrs Deaton confirmed that she would leave the money at call was to ratify or authorise the investment with Estate Mortgage. I do not agree. It may be that in that conversation Mr Turner was assuming that Mrs Deaton knew that the monies were with Estate Mortgage. However, that assumption was wrong. The conversation was not that Mrs Deaton knew or authorised the monies to be placed with Estate Mortgage, notwithstanding that the position of Estate Mortgage was referred to. Mr Turner's wrong assumption does not excuse his negligence.
There was no argument that the loss was not foreseeable. Rather, the matter was argued on the basis of whether there was a duty of care which was breached and whether any conduct of Phillips McSweeney was causative of any loss. I should state in passing, however, that the likelihood of loss was foreseeable in the relevant sense.
Claim in contract
The parties agreed, in essence, that Belsand case in contract was essentially the same as in tort. Counsel for Belsand submitted that Phillips McSweeney breached its contract by failing to render monthly statements. Counsel for Phillips McSweeney submitted that there was no term of the agreement or retainer between the parties which had been breached. This submission must fail, having regard to my finding that there was an agreement between the parties that Phillips McSweeney would provide a monthly statement to Belsand of its transactions placed through Bridgelands. In stating this, I take into account that time was not of the essence in relation to the provision of the statements.
I have not canvassed any other aspect of possible breach of contract, because none was pleaded and none was argued.
It was further submitted that, assuming that there was such a term of the agreement, Belsand waived or acquiesced in Phillips McSweeney's breach, constituted by its delay in sending out the monthly statements. For the same reasons that I have stated in relation to the claim in tort, I do not agree that the failure to complain more frequently of the delays generally or in respect of the delay from December 1990, or of a failure to seek a change in the system constituted acquiescence or waiver. Nor did the conversation between Mrs Deaton and Mr Turner in late March constitute an authorisation or ratification of the placement of the monies with Estate Mortgage, for the reasons which I have already stated.
Finally, for the same reasons that I have found that the negligent operation of the statement system was causative of a loss of $20,000, I am of the opinion that the loss arising from the breach of contract by failing to provide the monthly statements was also $20,000.
I certify that this and the preceding 46 pages
are a true copy of the Reasons for Judgment
of the Honourable Justice Beazley.
Associate:
Dated: 2 June 1995
APPEARANCES
Counsel for the Applicant: Mr R Harper
Solicitors for the Applicant: Messrs Laurence &
Laurence
Counsel for the Respondent: Mr I Harrison
Solicitors for the Respondent: Messrs Gillis Delaney Brown
Dates of hearing: 6,7,8 March 1995
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