George v Webb
[2011] NSWSC 1608
•20 December 2011
Supreme Court
New South Wales
Medium Neutral Citation: George v Webb & ors [2011] NSWSC 1608 Hearing dates: 28 & 29 November 2011 Decision date: 20 December 2011 Jurisdiction: Equity Division Before: Ward J Decision: Judgment for the plaintiff on claim against first and second defendants for equitable compensation for breach of Quistclose trust and against third defendant for accessorial liability in respect of that breach of trust; claim against first and second defendants not an apportionable claim for purposes of statutory proportionate liability regime; judgment for cross-claimants on cross-claim against third defendant for misleading and deceptive conduct in breach of Fair Trading Act.
Catchwords: EQUITY - TRUSTS - whether moneys paid into firm of solicitors' trust account was held on express trust for plaintiff as it was only to be used for a prescribed purpose - whether trust was breached by payment out of trust account of moneys for purposes other than prescribed purpose - whether plaintiff entitled to equitable compensation - whether third defendant liable as an accessory to breach of express trust or breach of Quistclose trust under the first and/or second limbs of Barnes v Addy - consideration of Quistclose trust - HELD - express trust in favour of plaintiff - breach of trust established - plaintiff entitled to equitable compensation - third defendant liable for receiving and becoming chargeable with trust property and for knowing assistance in breach of trust - TORTS - NEGLIGENCE - duty of care - whether firm of solicitors, as trustees under Quistclose trust owed plaintiff a duty of care in relation to moneys held in trust account and whether that duty has been breached - HELD - had this issue arisen breach of duty of care would have been established - CONTRACT - whether contract between plaintiff and third defendant and if so whether third defendant is liable to repay moneys pursuant to frustration of contract or on a failure of consideration - HELD - contract established between plaintiff and third defendant - had this issue arisen third defendant would have been liable on total failure of consideration or on frustration of contract - PROPORTIONATE LIABILITY - whether claim for equitable compensation for breach of trust is an apportionable claim pursuant to Part 4 of the Civil Liability Act 2002 (NSW) - HELD - liability for breach of trust where that liability not predicated on failure to take reasonable care is not an apportionable claim - FAIR TRADING ACT - whether cross-defendant liable for misleading and deceptive conduct - HELD liable to indemnify for loss caused by misrepresentation that funds were beneficially his - EQUITABLE CONTRIBUTION - whether power to order unequal contribution between concurrent wrongdoers - HELD - equitable contribution had it arisen in this case should be pro rata Legislation Cited: Civil Liability Act 2002 (NSW)
Civil Procedure Act 2005 (NSW)
Fair Trading Act 1987 (NSW)
Fair Trading Amendment (Australian Consumer Law) Act 2010 (NSW)
Law Reform (Miscellaneous Provisions) Act 1946 (NSW)Cases Cited: Acohs Pty Ltd v RA Bashford Consulting Pty Ltd (1997) 144 ALR 528
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Burke v LFOT Pty Limited [2002] HCA 17; (2002) 209 CLR 282
Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694; (2007) ANZ ConvR 481
Commonwealth Bank of Australia v Witherow [2006] VSCA 45
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Degiorgio v Dunn [No 2] [2005] NSWSC 3; (2005) 62 NSWLR 284
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James Hardie & Co v Wyong Shire Council [2000] NSWCA 107; (2000) 48 NSWLR 679
Jones v Dunkel (1959) 101 CLR 298
Jones v Mortgage Acceptance Nominees Ltd (1996) 63 FCR 418
Knight v Knight (1840) 3 Beav 148
Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] 3 VR 166
Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133
Mahoney v McManus [1981] HCA 54; (1981) 180 CLR 370
Main Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2010] VSC 5
McLean v Discount & Finance Limited (1939) 64 CLR 312
McManus RE Pty Ltd v Ward [2009] NSWSC 440; (2009) 74 NSWLR 662
Morgan Equipment Company v Rodgers (1993) 32 NSWLR 467
New Cap Reinsurance Corporation Ltd v General Cologne Re Australia Ltd [2004] NSWSC 781
Payne v Parker [1976] 1 NSWLR 191
Pearsons Barristers and Solicitors v Avison [2009] VSCA 54; (2009) 1 ASTLR 417
Peter Cox Investments Pty Ltd (in liq) v International Air Transport Association [1999] FCA 27; (1999) 161 ALR 105
Pilmer v The Duke Group Ltd (In Liq) [2001] HCA 31; (2001) 207 CLR 165
Re Armstrong (1960) VR 202
Re Associated Securities Ltd and the Companies Act [1981] 1 NSWLR 742
Re Elizabethan Theatre Trust, Lord v Commonwealth Bank of Australia (1991) 30 FCR 491
Re EVTR; Gilbert v Barber [1987] BCLC 646
Re Miles; Ex parte National Australia Bank Ltd v Official Receiver in Bankruptcy (1988) 85 ALR 216
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Spangaro v Corporate Investment Australia Funds Management Ltd [2003] FCA 1025; (2003) 54 ATR 241
Syrimi v Hinds (1996) 6 NTLR 1
Twinsectra v Yardley [2002] UKHL 12; 2 AC 164
Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505
Walker v Corboy (1990) 19 NSWLR 382
Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415
Walsh v Permanent Trustee Australia Ltd (1996) 21 ACSR 213
Wickman Tools v Schuler AG [1974] AC 235
Wright v Atkyns (1823) Turn & R 143Texts Cited: Gummow, WMC 'Equity: Too Successful?' (2003) 77 Australian Law Journal 30
Gurr, A, 'Accessory Liability and Contribution, Release and Apportionment' (2010) 34, Melbourne University Law Review
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Young, Croft and Smith, On Equity (2009)Category: Principal judgment Parties: Jane Anne George (Plaintiff)
Lewis James Webb (First Defendant)
Dennis Patrick Grogan (Second Defendant)
Martin Geoffrey Burke (Third Defendant)Representation: Counsel
J C Kelly SC (Plaintiff)
I Griscti (First and Second Defendants)
J Young (Third Defendant)
Solicitors
Uther Webster & Evans (Plaintiff)
Gilchrist Connell (First and Second Defendants)
Diamond Conway (Third Defendant)
File Number(s): 09/291563
Judgment
HER HONOUR : These proceedings involve claims in relation to moneys disbursed out of a trust account maintained by a firm of solicitors (Grogan Webb) otherwise than for the purpose for which the plaintiff, Mrs Jane George, contends those moneys were to be paid.
There is no doubt that a sum of $150,000 was paid into the trust account of Grogan Webb on 13 October 2008. Mrs George effected the transfer. Those moneys came from a joint account held in the names of Mrs George and her husband (Mr Peter George), though there had earlier been deposited into that account moneys in excess of the amount so transferred drawn from a separate account in Mrs George's sole name. Mrs George contends that the moneys were paid into the solicitors' trust account upon terms that those moneys were to be held on trust for her and used for the purposes of an investment referred to broadly as the Elderslie/Allco HIT acquisition.
The 13 October 2008 email, pursuant to which Mr George notified the first defendant (one of the partners of Grogan Webb) that his wife would that afternoon be transferring the money to that account, advised Mr Webb that the moneys were "to be used for" the Elderslie/Allco HIT acquisition and were "to be distributed at the direction of Martin Burke", the third defendant. It is alleged that this gave rise to what is commonly referred to as a Quistclose or purpose trust.
It is not disputed that Mr Burke (who describes his occupation as a salesman) and Mr George, a former director of Elderslie Finance Corporation Pty Ltd, had been in discussion from some time in August/September 2008 as to a proposal by Mr Burke that the latter be involved in the proposed acquisition (by a consortium of investors then being co-ordinated by Mr Burke) of assets of two companies then in receivership or administration (Elderslie and Allco HIT Ltd).
There is a dispute as to the precise agreement ultimately reached on 13 October 2008 between Mr Burke and Mr George in relation to the proposed acquisition (and as to whether the latter was acting as agent for his wife in reaching such an agreement). It was following this meeting that the moneys were transferred to the Grogan Webb trust account. This was at either Mr Burke's suggestion or at his request.
Grogan Webb had acted for Mr Burke, and companies associated with him, for many years and was, as at October 2008, so acting on at least two matters - a dispute as to unpaid private school fees in relation to Mr Burke's children's education and a dispute between a company associated with Mr Burke, Mymurra Pty Limited, and a regional Aboriginal Land Council. The firm had not previously acted for Mr and Mrs George (nor does it accept that it acted for either of them in relation to the transaction pursuant to which funds were deposited into the firm's trust account in October 2008.)
For Mrs George, it is contended that it was agreed with Mr Burke (that agreement being made by her husband acting as her agent) that the funds would be deposited in the Grogan Webb trust account on the basis that they would be available to be used (and only to be used) in the event that there was a successful acquisition of the Elderslie/Allco HIT assets.
In para [4] of the Amended Statement of Claim, it is alleged that the oral agreement so reached included terms that:
(a) Mr Burke would continue negotiations which were then underway with a view to arranging a consortium of investors, who would seek to acquire through an entity yet to be formed part or all of the assets of Elderslie and Allco HIT;
(b) in the event that the consortium of investors, could be found and in the event that it succeeded in making the proposed acquisition within a reasonable time, Mrs George would contribute $150,000 towards the funds to be used in the proposed acquisition;
(c) in consideration for the contribution of $150,000, to be made only in the event that the proposed acquisition proceeded within a reasonable time, Mrs George would be the holder of a 2% equity interest in the entity to be formed for the proposed acquisition;
(d) pending the proposed acquisition, payment of $150,000, as a demonstration of "his" [sic] commitment to the proposed acquisition, would be paid into a trust account held by the solicitors for Mr Burke and paid out only for the purpose of the proposed acquisition;
(e) the sum of $150,000 would be paid out of the trust account at the direction of Mr Burke but only for the purpose of the proposed acquisition; and
(f) the said sum would, upon payment out of the trust account for the purpose of the acquisition, constitute Mrs George's contribution to proposed acquisition.
Certain implied terms were pleaded in [5], namely (a) that the said sum would not become part of the assets of and would not be at the free disposal of Mr Burke but used exclusively by him for the purpose of the proposed acquisition and (b) that in the event that the proposed acquisition failed or was unable to proceed within a reasonable time the said sum would be repaid to Mrs George by Mr Burke; those terms being said to be implied as a matter of law.
It is not disputed that Mr Burke offered Mr George the opportunity to acquire a percentage of Mr Burke's "share" of equity (referred to in submissions for Mr Burke as the "expected equity") in what was described loosely as the 'consortium'. Having regard to the evidence of both Mr Burke and Mr George, in my view that can only sensibly be understood as a percentage of the share that Mr Burke was to take in the proposed joint venture (and, since the intention at the time was that the acquisition of the Elderslie/Allco HIT assets was to be through a new company then proposed to be formed, presumably the share of equity there contemplated was a shareholding in that company), it being impossible (other than in the world of Shylock) to take a "share" of a consortium of investors as such - it could only be a share of whatever interest those investors had in the project or the vehicle through which the project was to be pursued by them.
Mr Burke's position is that once the sum payable for that share ($150,000) was paid into the Grogan Webb trust account it became his property absolutely (which he was then free to disburse as he wished), whether or not the Elderslie/Allco HIT asset acquisition proceeded or any vehicle for the implementation of the venture was established, and there was no obligation to refund that sum if the acquisition did not proceed.
The day after the funds were received into the Grogan Webb trust account Mr Burke authorised the distribution of those funds to various entities and for various purposes (the bulk of which was expended for payment of his children's then outstanding school fees with the balance used to pay Grogan Webb's fees incurred in other matters, to pay a debt owed by Mr Burke to another company (FCT) and for payment to a company of which Mr Burke had then only recently become the sole shareholder and director, Cadorna). It is not suggested that any of the money was disbursed for purposes directly or indirectly associated with the Elderslie/Allco HIT acquisition. Indeed no such acquisition (whether by the proposed consortium members or by the proposed, but never incorporated, corporate vehicle) has ever transpired.
The first and second defendants (the two solicitors practising in partnership as Grogan Webb) submit that the real dispute (in which they say they are caught in the middle) is a dispute between Mrs George (and/or her husband) and Mr Burke, on the basis that they simply received and disbursed the funds in question on the understanding (derived from Mr Burke) that those funds belonged to Mr Burke.
The principal claim against Grogan Webb is for breach of trust (as pleaded in the Amended Statement of Claim at [10] - [19]). There is an alternative claim in negligence (pleaded at [37] - [40]) on the basis that Grogan Webb owed Mrs George a duty of care (by reason of the fact that it held her money in trust) and that this duty was breached when Grogan Webb paid the money away pursuant to a direction from Mr Burke which was self-evidently for a purpose other than the Elderslie/Allco HIT acquisition. During the hearing, it was conceded by Senior Counsel for Mrs George (Mr J C Kelly SC) that the alternative claim in negligence was predicated on the existence of a trust in respect of the funds in question (and pressed only if there were to be a finding that there was a trust but that there had not been a breach of trust). Counsel for Grogan Webb (Mr I Griscti) in turn in effect conceded that, if a purpose trust were found to have been established, then little could be said against the proposition that the payment out of the funds by Grogan Webb as it did was in breach of that trust.
Some time after the proceedings had been commenced (a delay to which Counsel appearing for Mr Burke, Mr J Young, attributes some significance), Mrs George amended her pleadings and joined Mr Burke as the third defendant. The claim against Mr Burke is principally a claim of accessorial liability arising out of his alleged knowing receipt of the trust funds (at the time he directed the funds to be paid to settle his personal debts) and alleged knowing assistance in Grogan Webb's breach of trust (by giving the direction for payment of the funds in the manner he did) (as pleaded in the Amended Statement of Claim at [19A] - [19D]). In addition, there are alternative claims in contract against Mr Burke based on an implied promise to repay the $150,000 in the event that the Elderslie/Allco HIT acquisition did not proceed, for frustration of contract and for a total failure of consideration (as pleaded in the Amended Statement of Claim at [45] - [52]), as well as a further alternative claim against Mr Burke for breach of trust (in the event that it be held that a Quistclose trust for repayment by Mr Burke arose at the time the direction was given).
The first and second defendants (to whom I will refer collectively as Grogan Webb) have raised a defence of apportionment under Part 4 of the Civil Liability Act 2002 (NSW), on the basis that if they are liable to Mrs George and there is a finding that their liability arises from a failure to take reasonable care, then the action is an apportionable claim within the meaning of s 34(1) of that Act and that Mr Burke is a concurrent wrongdoer within the meaning of s 34(2) of the Act. Mr Griscti submits that while Mr Burke might be an excluded wrongdoer (if there were to be a finding that his liability arose from a fraudulent or intentional act), the partners of Grogan Webb are not excluded wrongdoers as they were not intentionally the cause of the loss. Mr Griscti submits that if Mrs George's version of events is accepted, then any apportionment ought to be on the basis that responsibility for the loss lies substantially with Mr Burke - submitting that Mr Burke has manipulated a misappropriation of funds and the substantial proportion of blame is attributable to him (referring in this regard to Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 ; (2007) ANZ ConvR 481 and Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505 .)
Grogan Webb has cross-claimed against Mr Burke for damages for misleading and deceptive conduct in breach of s 42 of the Fair Trading Act (NSW) 1987; for restitution (on the basis that moneys were paid out of the solicitors' trust account for Mr Burke's benefit under the mistaken belief that Mr Burke was entitled to the moneys); and for equitable contribution (it being submitted that such contribution may be assessed on a proportionate basis). Mr Griscti has confirmed that this cross-claim is of relevance only if (as ultimately I have found to be the case) Grogan Webb were to be found to be liable to Mrs George and the finding of liability is such that this is not an apportionable claim under the Civil Liability Act . Further, Mr Griscti approached the matter on the basis that if George Webb succeeds on the misleading and deceptive claim, it may not be necessary to consider the alternative claims in restitution or for equitable contribution.
As noted above, Mr Burke contends that the arrangement he reached in relation to the Elderslie/Allco HIT acquisition was an arrangement reached with Mr George (and thus that Mrs George has no standing to bring the claims against him in these proceedings). In any event, Mr Burke contends (in essence) that the arrangement was one whereby what was being acquired was a percentage of the equity that he expected to acquire ('a share of Burke') in a vehicle to be established to hold certain assets of the Elderslie/Allco HIT Group if negotiations then ongoing for their purchase came to fruition (referred to by Mr Young in the course of submissions variously as a purchase of the "expected equity" and as the purchase of an "option" to participate in a venture that might or might not eventuate), in cognisance of the risk that this "equity" might not materialise. What was thus said to be 'acquired' seems to have been no more than an opportunity.
Mr Young confirmed that Mr Burke's primary position was that Mr George (not his wife) had purchased an option and had paid $150,000 for the "benefit of a share in the acquisition if and when it arose and if the acquisition did not occur that was at his risk". He submits that this is consistent with what the funds were in fact used for - it being said that they were expended "in the normal course of Mr Burke's business ... as an individual consultant". (This being the somewhat unconvincing explanation, in my view, as to why expenditure on personal expenses could be working capital). The emphasis placed on the concept of working capital arises because it is Mr Burke's contention that there was an agreement that the funds to acquire his share in the equity were, in effect, released to him unconditionally in advance of the establishment of the investment or acquisition vehicle (and in advance of the acquisition of the assets) so that he could use those funds for working capital (and that he offered a discount for the price of his share on that basis).
It is therefore said for Mr Burke that there was no frustration of contract or failure of consideration (and no obligation on Mr Burke to repay any part of the sum expended by Mr (or Mrs) George as the case may be) when the acquisition of the Elderslie/Allco HIT assets failed to eventuate (and even though there was no new company formed for the purpose of acquisition of those assets and no equity as such in any established joint venture). The arrangement was said to be one whereby Mr George made the payment in question knowing that it was at "risk [of] loss" but with a corresponding prospect of a substantial "gain" or "upside" if the "equity" eventuated. (In this regard, Mr George accepted in cross-examination that the proposal was for the acquisition of a "small equity in a substantial acquisition" (T 26.16) and with the potential to receive consultancy fees, but did not accept that the arrangement was one whereby a (not insubstantial) sum was paid for nothing more than an opportunity to participate in the consortium or the project of the consortium that being described by him, graphically, as "buying thin air" - T 31.11).
The expression "Elderslie/Allco HIT acquisition" seemed to be used in this proceeding in two different senses from time to time: as a reference to the proposed acquisition of the assets of the companies in question and as a reference to the acquisition of a share of the 'expected equity' in the venture pursuant to which it was proposed that those assets be acquired. I have used the expression in the former sense but conscious of the fact that the parties may have used it in one or other of the two senses.
Mr Young contends that there was no breach of trust by Grogan Webb (since the funds when paid into the trust account were the property of Mr Burke and able to be released on his direction for whatever purpose he chose) and hence that it follows that there can be no accessorial liability on the part of Mr Burke. (Insofar as it was submitted in the course of argument by Mr Young that the terms of the trust were clear (and the funds were disbursed in accordance with those terms), as I understand it his client's primary position is that the funds were never held on trust for Mr or Mrs George but rather that they were (at all times from receipt into the trust account) funds belonging absolutely and unconditionally to Mr Burke.)
As to the cross-claim, it is submitted by Mr Young that the communications between Mr Burke and Grogan Webb were at all times consistent with the terms of the agreement that Mr Burke contends came into existence and hence that Mr Burke did not engage in misleading conduct and there was no mistake in the way the funds were distributed by Grogan Webb. He further contends that even if there has been misleading or deceptive conduct on Mr Burke's part (in representing to Grogan Webb that the moneys were his to do with whatever he wished) there was no reliance on that representation and that the cause of the payment out of the trust fund of the moneys (on this hypothesis in breach of trust) was a mistake on the part of Mr Webb in reading the relevant email.
Issues
The following were agreed (as between Mrs George and Grogan Webb) to be the issues for determination in these proceedings (there being no demur from Mr Young in this regard):
(i) whether the $150,000 paid into the trust account of Grogan Webb on 13 October 2008 was held on trust for Mrs George pursuant to an express trust for the purpose of funding the Elderslie/Allco HIT acquisition;
(ii) whether Grogan Webb breached that trust by paying away the $150,000 for purposes other than funding the Elderslie/Allco HIT acquisition;
(iii) whether Grogan Webb is liable to restore the fund of $150,000 plus interest by way of equitable compensation for breach of trust;
(iv) in the alternative, whether Grogan Webb owed Mrs George a duty of care in relation to the trust fund; breached that duty; and is liable for common law damages in the sum of $150,000 plus interest;
(v) whether Mr Burke is liable, under the first and/or second limbs of Barnes v Addy, as an accessory to the breach of trust by Grogan Webb or is liable for breach of a Quistclose trust for repayment of the fund arising upon the failure of the purpose of the express trust;
(vi) in the alternative to (v), whether Mr Burke is liable to repay the $150,000 plus interest pursuant to:
(a) an implied term of an agreement [with Mrs George] that the fund would be repaid upon failure of the Elderslie/Allco HIT acquisition;
(b) frustration of an agreement [with Mrs George] under which the $150,000 was paid into trust for the purpose of the Elderslie/Allco HIT acquisition; or
(c) by reason of a total failure of consideration under that agreement.
(vii) whether the claim for breach of trust (and any accessorial liability for such a breach) is an apportionable claim for the purpose of Part 4 of the Civil Liability Act 2002 ;
(viii) if the answer to (vii) is in the affirmative, what is a just apportionment of any liability between the defendants for Mrs George's loss; and
(ix) whether Mr Burke is liable to indemnify Grogan Webb in respect of part or all of any liability the firm may have to Mrs George by reason of:
(a) misleading and deceptive conduct,
(b) restitution, or
(c) equitable contribution.
Summary
For the reasons set out below, I am of the view that the above questions should be answered as follows:
(i) the $150,000 paid into the trust account of Grogan Webb on 13 October 2008 was held on trust for Mrs George, namely an express trust that it was to be used for the purpose of funding the Elderslie/Allco HIT acquisition (by which I mean the proposed acquisition of certain of the assets of those companies) albeit that the moneys were able to be disbursed for those purposes in accordance with directions from Mr Burke (I consider that any direction by Mr Burke for the funds to be used for other purposes would have been a fraud on the power given to him to direct the use of the funds);
(ii) Grogan Webb breached that trust by paying out the $150,000 for purposes other than the funding of the Elderslie/Allco HIT acquisition; (even had the trust been no more than a trust to hold the moneys to be used for the purposes of the acquisition of a 2% equity interest in whatever vehicle was established to acquire the Elderslie/Allco HIT assets, there would still have been a breach of trust in that the moneys were paid out otherwise than for those purposes - as must be the case where the vehicle in question had never been formed and there was nothing at that stage to acquire and the moneys were paid for school fees and the like);
(iii) Grogan Webb is liable to restore to Mrs George the fund of $150,000 plus interest (quantified as at 28 November 2011 at $41,953.77 on the basis of interest at the RBA cash rate + 4% pursuant to s 100 of the Civil Procedure Act 2005 (NSW)) by way of equitable compensation for breach of trust;
(iv) in light of the above findings, it is not necessary to address the alternative claim in negligence; suffice it to say that the finding that the funds were held on trust for Mrs George would in my view have sustained a finding that there had been a breach of a duty of care in relation to the trust fund in view of the failure by Grogan Webb to make any enquiry of Mrs George as to the payment out of the funds on the giving by Mr Burke of directions for the payment of moneys for purposes so obviously outside the purposes of the Elderslie/Allco HIT acquisition (such as the outstanding school fees or legal fees referable to other unrelated matters);
(v) Mr Burke is liable, under both limbs of Barnes v Addy, as an accessory to the breach of trust by Grogan Webb, for the repayment of the funds knowingly received by him or paid out for his benefit at his direction and having thereby knowingly assisted in a breach of trust;
(vi) in light of the finding in (v), it is not necessary to consider this issue; however, had it arisen I would have found that there was an agreement between Mr Burke and Mrs George (her husband acting as her disclosed agent in this regard) pursuant to which she agreed to pay $150,000 to invest in the acquisition of the Elderslie/Allco HIT assets (that investment to be by means of the acquisition of a 2% "equity" in the acquisition vehicle), and to allow the funds for that investment to be held by Mr Burke's solicitors in advance of the acquisition and to be available for use in the acquisition of the assets at Mr Burke's direction; that there was a total failure of consideration for that agreement and/or it was frustrated when the Elderslie/Allco HIT assets were sold elsewhere or were otherwise unable to be acquired at the time when the acquisition vehicle had not been established) and therefore that Mr Burke was liable to repay the $150,000 plus interest to Mrs George; (I would not have found that there was an implied term for the repayment of the funds in the event that the acquisition did not proceed - although that would have been the practical result in accordance with the above findings);
(vii) the liability that Grogan Webb bears for breach of trust (and the accessorial liability of Mr Burke for such a breach) is not an apportionable claim for the purpose of Part 4 of the Civil Liability Act 2002 since that liability is not predicated on (and does not arise from) a failure to take reasonable care (and the fact that an alternative claim in negligence would have been a liability arising from a failure to take reasonable care is not to the point as it is not pressed in the context of the finding I have made on the principal claim);
(viii) had the answer to (vii) been otherwise, I would have considered that a just apportionment of any liability between the respective defendants for Mrs George's loss would have been in the order of 60% on the part of Grogan Webb (though as an intentional and hence excluded wrongdoer Mr Burke would remain liable for the full amount of the loss - subject of course to the practical rider that the plaintiff could not recover more than its loss), on the basis that although Mr Burke precipitated the events leading up to the loss by issuing the direction, the ultimate cause of the loss was the payment out of the funds for purposes unconnected with the acquisition of the Elderslie/Allco HIT assets without any enquiry as to the validity of the direction given by Mr Burke to do so; and
(ix) Mr Burke is liable to indemnify Grogan Webb, in respect of all of the liability that Grogan Webb has to Mrs George, by way of damages for misleading and deceptive conduct in breach of the Fair Trading Act (Mr Webb having acted on the direction to pay, and read the email authorisation from Mr George, in reliance on Mr Burke's earlier representation that the funds were his); had such a claim not succeeded I would have found on the facts that Mr Burke was liable in restitution to Grogan Webb having been unjustly enriched by the payment at his direction and on his behalf of funds under a mistaken belief induced by him that he was the beneficial owner of those funds; had the claim fallen to be dealt with by way of a claim for equitable contribution, I would have been inclined to the view that the appropriate order would be for a pro rata contribution having regard to the weight of authority as to the question whether there is power to award unequal contribution on the application of the principles of equitable contribution; finally, I am not satisfied that Mr Burke would have had a principal liability as trustee for breach of trust as I am not satisfied that a separate Quistclose trust arose at the time of the giving of the direction by him to Grogan Webb;
Background Facts
The first defendant (Mr Webb) has known Mr Burke for over 15 years. During that time Mr Webb and his firm have acted for Mr Burke and for companies with which he is associated in various matters. Mr Burke, in cross-examination, explained the basis on which Mr Webb had so acted over the years as being one under which fees were paid from time to time as and when funds were available (T D2 21.26) (as a quid pro quo for which he says he referred clients from time to time to Grogan Webb). (As the respective days transcript is not numbered consecutively, I refer to the second day of transcript as T D2 for convenience.)
Mr Burke also gave evidence that from time to time he had made use of the firm's resources (and it would seem its trust account) in effect as an administrative convenience for the deposit of funds that the firm then paid out on Mr Burke's behalf or at his direction (though, as I understand it, this was not necessarily related to particular matters in which the firm was engaged at that time); this being Mr Burke's explanation as to why on his case the $150,000 was paid into the solicitors' trust account and not direct to him (T D2 25.17).
As at mid 2008, Mr Webb was in regular contact with Mr Burke on a number of ongoing matters. At least one of those matters was a claim against Mr Burke for outstanding private school fees of around $85,000 (in respect of which proceedings had been threatened, if not by then already instituted, by the school). Another was a substantial dispute between a company associated with Mr Burke (Mymurra Pty Ltd) and the Karuah Local Aboriginal Land Council (in which by early 2009 there was litigation on foot, since Mr Webb's evidence was that he was in court on that very matter when an email from Mr George in February 2009 complaining as to matters in relation to the funds deposited in Grogan Webb's trust account was received in his office). Mr Webb knew at the time that Mr Burke was short of funds (T 45.26).
Mr George is a former director of Elderslie Finance. That company was placed into receivership in July 2008. Mr George has since been placed into bankruptcy (in December 2009, on his own petition, following a dispute as to legal fees claimed by Elderslie's lawyers in connection with an unrelated matter). Mr George accepted (at T 26.41) that he was in severe financial straits from February 2009 to the end of that year, though he did not consider bankruptcy to be 'on the cards' until about September 2009 (T 27).
Mr Burke says that, during the course of 2008, he had discussions with various people in relation to the proposed formation of a consortium of investors for the purpose of acquiring assets of Elderslie (including a loan book said to have been valued at somewhere in the order of $700m) as well as certain assets of the Allco group which was then also in financial difficulty (the latter assets being referred to as the Allco HIT assets). As noted above, I refer to the proposed acquisition in general terms as the "Elderslie/Allco HIT acquisition" (but do so bearing in mind that Mr Burke contends that the term as used in the critical 13 October 2008 communication has a different meaning).
Mr Burke deposes that he had a number of ongoing daily discussions with a business associate, Mr Neil Youren (who, according to Mr Burke, played a large role in the proposed acquisition and was responsible, to the exclusion of Mr Burke, for the arrangements in relation to the funding of the acquisition T D2 22.18), concerning the proposed acquisition and the structure and ownership of the proposed new company that would be used to acquire the assets and that Mr Youren proposed that Mr Burke take a 30% share of the new company with the balance to be held by Mr Youren and other members of "the syndicate".
I interpose to note that Mr Burke had a tendency to refer in his evidence to the consortium as if it had some separate legal existence or was a separate legal entity but, when I clarified this with him at T D2 27.13 it became apparent that he was simply referring to the group of potential investors (the membership of which group was by no means fixed as at the relevant times).
Mr Burke was introduced to Mr George in August 2008 by a Mr John Garrett (who was called by the plaintiff to give evidence in the proceedings but not cross-examined by the defendants). Mr George had had a close business relationship with Mr Garrett for a number of years (T 23.7/10) but had not dealt with Mr Burke prior to the events in question. (The fact that there was no longstanding relationship between Mr George and Mr Burke is said by Mr Kelly to make it more likely that the subsequent payment of moneys into the Grogan Webb trust account was done so as to ensure that the moneys were kept secure until applied for the purposes nominated, rather than to be applied on a broader basis. I agree that this is a more plausible view of events than that either Mr or Mrs George was knowingly paying a not inconsiderable sum unconditionally for Mr Burke's benefit on the basis of no written documentation to acquire an 'equity' or interest that on no version of events then existed in any concrete form (and hence that being an interest that even if, as Mr George said in evidence, he believed already existed, there was no step taken to effect its transfer). At best, what was being acquired, on Mr Burke's version of events, was the benefit of a promise (as to the enforceability of which there might well be thought to have been an issue) by him that if and when he acquired an interest in a venture to be set up for the acquisition of the Elderslie/Allco HIT assets he would make 2% of that interest available for Mr or Mrs George).
Mr Garrett was one of the persons Mr Burke identified as being part of the consortium at least for some period (and it seems, by reference to the notes made at the 13 October meeting with Mr George, that even as Iate as mid-October 2008, Mr Burke was suggesting that Mr Garrett might play a consulting role with the 'new company').
According to Mr Burke, the "preferred acquisition strategy evolved" during September 2008 and the "strategic intention" was then for a new company to be formed to acquire the assets of Elderslie from the receiver and that Allco HIT would be separately acquired by the new company. (This is one of the few parts of Mr Burke's evidence that Mr Kelly invites me to accept as correct.). There was no formal arrangement ever put in place between the members of the proposed consortium (that term, as noted above, being used by Mr Burke to refer to a disparate group of potential investors); nor was any new company ever formed for the purposes of the proposed acquisition. Mr Burke has deposed that: "The new company was never required to be formed as the receiver of Elderslie entered into an agreement with another party for the sale of the Elderslie businesses and assets" (at [38] of his affidavit). Any 'share' of the equity or 'expected equity' of Mr Burke in the consortium must have been a reference to a share of whatever interest Mr Burke might ultimately have acquired when the arrangements between consortium members were finalised (say, by the establishment of the new company that Mr Burke considered was the preferred acquisition strategy or by some form of joint venture).
There were discussions in September/October 2008 between Mr Burke and Mr George in relation to the proposed Elderslie/Allco HIT acquisition. As noted earlier, it seems not to be in dispute that Mr Burke invited Mr George to participate or invest in that acquisition on the basis that Mr George could acquire from Mr Burke part of Mr Burke's "equity" or "expected equity" in the venture to be undertaken by the consortium. (There is a discrepancy between Mr George's recollection that Mr Burke was to have a 15% equity in the venture and Mr Burke's recollection that it was to be 30% but, other than suggesting that one or other of the witness' recollections is not wholly reliable, nothing turns on this.) I interpose to note that while Mr Burke says that the arrangement he proposed was that Mr George acquire 2% of his (Mr Burke's) equity, he confirmed that in fact what he was proposing was not 2% of 30% (or 2% of 15%, whichever be the case) but 2% of the total investment of the consortium members in the acquisition of the assets (ie 28% or 13% respectively); that 2% to be made available by Mr Burke taking 2% less than he would otherwise have taken in the venture.
Mr George concedes that from February 2009 he was in some personal financial difficulty (due, as noted, to a dispute as to fees claimed against him by Elderslie's then lawyers). It is not clear whether that was the case in late 2008, a fact that could be of potential relevance insofar as if he were then it might be more likely that any investment in the proposed acquisition would have been by way of the use of his wife's funds. In any event, it is accepted by both Mr George and Mr Burke that in their discussions in late 2008 there was reference to moneys in Mrs George's account (though Mr Burke claims that Mr George told him it was 'his' money sitting in that account - T 71).
At T 28.43, Mr George accepted in cross-examination that he wanted to 'get in on the ground floor' with a small equity investment to achieve potential substantial future benefit. At T 29, Mr George said that he thought the 2% was of the total 'consortium' and at T 29.25 that he thought Mr Burke already had that percentage in the consortium. Pausing there, it seems to me that it would be consistent with an agreement to acquire an existing share in a vehicle that was itself to acquire certain assets that there would be a risk for the investor in that the assets might not ultimately be acquired by the said vehicle (and hence the value of the interest in that vehicle might not emerge) but it is by no means clear that there would be a risk that moneys paid to enable the purchase of those assets would be at risk, since logically if the assets were not acquired then the money to purchase them would not have been expended. Even if the risk was that the investor would buy a share of the investment or acquisition vehicle that might not later be worth that share (because not all the underlying assets were acquired), this does not arise in the current situation where no acquisition vehicle has ever been established. Mr George's understanding that there was already an interest available to be acquired in the 'consortium' is therefore not necessarily inconsistent with the claim presently made. Nor is it necessarily inconsistent with the complaint later made to the Law Society that money had been paid but no share of the assets was obtained (nor with the email from Mr George to Mr Burke withdrawing from the investment as Mr George no longer wanted to be part of the consortium). All those matters seem to be predicated on an interest actually being acquired for the payment of the not insubstantial sum deposited in the solicitors' trust account, as opposed to the suggestion that no more was acquired than an opportunity.
Both Mr and Mrs George say that the discussions Mr George had with Mr Burke were on Mr George's behalf. Mrs George deposed that it was not unusual for her to seek her husband's advice in relation to her investments. She asserted that she had authorised her husband to negotiate on her behalf (and appears to have relied on him throughout not only in the dealings with Mr Burke but also with Grogan Webb when later seeking the return of the moneys transferred to that firm's trust account), though her evidence as to what was said or done so as to account to such authorisation indicates that this was largely manifested by her (on her evidence habitual) acquiescence in decisions taken by him. (Mr Burke had no direct business dealings with Mrs George, though he admits that he was twice introduced to Mrs George when visiting Mr George.)
Mrs George said in oral evidence given in chief at T 8.29 that:
... I think at one point [during the first meeting at her home] Mr Burke said was I going to join the meeting but I didn't. I just served coffee because Peter does all my negotiating for me and looks after my monies
In cross-examination by Mr Young, Mrs George said that the negotiation was done on her behalf because "It was my money and Peter often negotiated investments for me on my behalf" (T 8.47) and that "It was my investment because it was my money" (T 9.7).
Mr Garrett (who, as noted above, Mr Burke acknowledges was initially one of the proposed members of the "consortium") deposes to a conversation with Mr Burke in about September 2008 in which he says Mr Burke informed him that he had approached Mr George to see if he would invest $150,000 in the acquisition vehicle in return for a share allotment and had offered Mr George an ongoing consultancy. (This is consistent with Mr George's evidence that there was an initial meeting in about August or September 2008 and with Mr George's evidence as to the proposed investment. Mr George deposed, in a passage which I read not as to the truth of the communication or probative of the terms of the agreement with Mr Burke but as indicative of Mr George's state of mind or understanding at the time and subject to relevance, that he had told Mr Garrett "If we go ahead it will be Jane's investment".) (Mr Burke accepts, however, that when the issue was raised in early 2009, Mr George's demand was to "get the money back to my wife", which is consistent with that being Mr George's understanding of the arrangement. Mr Burke's position at this stage does not seem to have been to deny that the moneys had been invested by Mrs George.
Mr Garrett (in a passage of the affidavit similarly read as to the fact of what was communicated to him and not as to the truth of the communication) says that when he asked Mr Burke how he would do this (ie provide the interest in the acquisition vehicle) when the receiver had not yet accepted their offer for the assets, Mr Burke said:
I will get them to put the money into my solicitor's trust account and then when we have the deal done and the shares allotted the money can be released to the new entity.
The making of such a statement to Mr Garrett by Mr Burke was not challenged in cross-examination on behalf of Mr Burke and is consistent with what Mr George says was the basis on which Mr Burke had suggested to him that the funds should be transferred into the Grogan Webb trust account. It is also consistent with the communication to Grogan Webb when the funds were in due course paid into the solicitors' account. (Mr Burke in the witness box took issue with Mr Garrett's account of the conversation, but had read the latter's affidavit and had apparently chosen not to dispute it in his affidavit evidence.) Whether or not what Mr Burke had told Mr Garrett was true, I accept that this was the way in which Mr Burke himself had described events to at least one other potential consortium member at the time.
(Mr Garrett's affidavit also deposes to his reaction when he heard from Mr Burke in February 2009 that the latter had issued an authority to Grogan Webb and drawn down the funds or some of the funds to pay Mymurra's debts - that being that the payment was improper. There was an objection taken to the relevance of this evidence and while it is consistent with Mr Garrett's understanding of what Mr Burke had told him the previous year as to the basis on which the money was to be paid into the Grogan Webb account, I do not consider it probative as to what was agreed at the relevant meeting. Mr Kelly relies on Mr George's conversation with Mr Garrett after the event as Mr George's understanding of the transaction and state of mind at the time (that it was an investment by his wife, Jane, and that the sum was to be held pending a share allotment in the investment or acquisition vehicle) (such that it cannot be said that this is something raised for the first time when proceedings were commenced) and (and Mr Young does not object to the use for this latter purpose) to counter the suggestion put to Mr George in cross-examination that he had no grievance at all in relation to the transaction so far as Mr Burke was concerned. I read this subject to relevance, noting that the subjective understanding of the terms of contract is not the issue in determining what the contract (and its terms) was. By the same token, I accept that Mr Burke's response to Mr Garrett (that he was allowed to draw down the funds at his direction because he was giving Mr George 2% of his interest in the acquisition vehicle) is consistent with the position taken in the proceedings before me (though not with what he communicated to Mr Garrett in 2008).)
The relevant discussions between Mr Burke and Mr George in October 2008 (after the initial meeting at Mr George's home in about August or September 2008) took place in a coffee shop in the central business district of Sydney, Mr Burke having no business premises from which he then operated. The first of those coffee shop discussions took place on 9 October 2008; the second, on 13 October 2008. (Although Mr Burke says that there were a number of meetings at which the acquisition was discussed, these are the only two meetings on which reliance seems to be placed for the agreement then said to have been reached between the respective parties.)
Mr George says that in the course of the first coffee shop discussion on 9 October 2008 he told Mr Burke that he did not have any money of his own (because Elderslie had "wiped him out") but that his wife had some savings that she might be prepared to use and that, if his wife were to invest her funds, then he would want a consultancy contract as well (para [11] of Mr George's affidavit of 5 May 2010). (This is consistent with the evidence that Mrs George did maintain a separate bank account at that time, from which funds had been transferred in July 2008 to the joint account, albeit at a time before any discussion with Mr Burke as to this particular investment.) Mr Burke, on the other hand, says that Mr George told him that it was 'his' money in his wife's account. It was not, however, put to Mrs George that she was holding funds belonging to her husband in her separate account.
Mr George says that on that occasion (9 October) Mr Burke said that he was associated with the principal of Monash Capital Group (Mr Neil Youren) and that the two were putting together a consortium (to acquire the Elderslie/Allco HIT assets) and aiming to be one of the biggest finance companies in Australia in three to five years. (No evidence was adduced from Mr Youren to contradict Mr George's understanding of the proposed acquisition or to corroborate Mr Burke's version of events, from which Mr Kelly invites me to draw a Jones v Dunkel inference. I refer to this later. ) Mr George says that Mr Burke offered him up to 3% of Mr Burke's "proposed holding" and had said he was willing to sell to him at $150,000 per one percentage.
Mr Burke, in contrast, says that at that meeting he told Mr George that he wanted him to be involved with the "reworking" of the Elderslie assets and that he was offering him "a lifeline in the new company" (something Mr George emphatically denies); that his equity in the new company would be 30% and that, if Mr George was interested, the cost for a one percent share would be $150,000 (and for a 2 percent share $300,000). At [17] of his affidavit, he says that he made a file note "during the discussion" and he annexes a copy of what he says is a true copy of that note. He describes that in his affidavit as a "composite file note of my discussions with Mr George on 9 and 13 October 2008". He identifies in that paragraph the words that he says recorded the discussion on 9 October and those which recorded the following meeting. (In the witness box his evidence was inconsistent with this, at least to the extent of what words he then said had been written on the note after 9 October 2008.) (I refer to this as the composite note. It is one of three relevant handwritten notes of Mr Burke.)
At the second coffee shop meeting on 13 October (during part of which Mr George believes Mr Youren was present, something which Mr Burke denies but which Mr Youren was not called to contradict), Mr George says that there was a discussion as to the proposed consortium and as to the negotiations for the acquisition of the assets, during which Mr Burke made notes on a foolscap notepad ([15]). Mr George says that at this meeting he told Mr Burke that in principle his wife would be interested but that "we would need to know a lot more about who is actually in the consortium, what the equity and debt structure is going to be and what will be the final assets to be acquired", to which he says that Mr Burke responded by saying that the position was "fluid" and that what he was offering was "part of my 15% equity in the consortium". (Mr Burke says that his equity was proposed to be 30% but he agrees that what he was offering at that time was a percentage of his 'equity', whatever that percentage that might ultimately have been.)
Relevantly, in the context of providing an explanation for the payment of the money in advance of the acquisition, Mr George says that Mr Burke said to him "Elderslie alone is a great deal, so we need to be ready with the cash, so we can act quickly when the time comes" and that he hoped to be in a position in the next 10 days or so to give him a written heads of agreement but that he needed to know "who is in and who is out" and that there had to be some trust.
Mr George then says that he said to Mr Burke:
I appreciate a decision has to be made, but I have nothing to rely upon and you can hardly expect me to give you a cheque for $150,000, without something in writing
to which he says that Mr Burke responded:
I don't expect you to, but I am asking you to put the funds into my solicitor's trust account for the acquisition of the Elderslie Allco HIT assets at my direction, pending the successful acquisition by the consortium. Neil [accepted to be a reference to Mr Neil Youren] and I need to be sure, the money is there to complete the purchase and we don't want to be in a position where we sign a Contract and then have people changing their minds and pulling out at the last minute".
It was put to Mr George in cross-examination that the comma in front of word "pending" in the above paragraph was misplaced and that the intent of the communication was that the money was to be paid "and could be used pending the acquisition" not "held pending the successful acquisition". Mr George said he would not have thought the comma made much difference. (Mr Burke, for his part, denied using the words "pending the successful acquisition by the consortium" at all.)
Where there is affidavit evidence of an oral conversation, the placement of punctuation (such as a comma), assuming that not solely be for grammatical purposes, can surely be no more than (at most) a reflection of the witness' recollection of the emphasis placed on words used, or pauses, in the conversation in question (even assuming that the witness has deliberately placed the punctuation in that fashion, as opposed to it being inserted in the typing of the affidavit or otherwise). Mr George's evidence in the witness box suggests he did not consciously place the comma at this point in the paragraph. Therefore, it seems to me that I can place no weight on the placement of the comma (though in passing I note that the discussion was reminiscent of the account in Lynne Truss' book "Eats, Shoots and Leaves - The Zero Tolerance Approach to Punctuation" (Profile Books Ltd 2003) of the would-be Irish insurrectionist, Sir Roger Casement reputed (somewhat inaccurately) to have been "hanged on a comma" - pp 99-101 - a warning as to the need for accuracy in punctuation).
Mr Burke at T 23.48 D2 said that the agreement he had reached was one "between Peter and myself a share of my equity it had nothing to do with the consortium. That was the agreement reached" (in re-examination).
Mr George says that in response to the above request he said to Mr Burke words to the effect: "I understand this is not a normal acquisition and I can appreciate your problem. On the basis that the funds go into the solicitor's trust account to be used only for the Elderslie/Allco HIT acquisition at your direction, I think is safe enough" and referred to the interest he would be losing while the money was in that account (to which he says Mr Burke responded that he could keep the interest earned in the trust account).
He also says that he told Mr Burke that he would speak to his wife and that, if she agreed, he would get his wife to put her money in the account later that day. On Mr George's version of events, therefore, he made it clear that any investment would be with his wife's money.
Mr George says that Mr Burke wrote out his solicitor's name and trust account details on a piece of paper that he gave to him and that Mr Burke wrote down on the reverse of that page details of what had been discussed. He also says that Mr Burke wrote down the instructions to be given to the solicitor as to what the funds were for and that he, Mr George, said "Make sure it is clear, that the monies are for the Elderslie/Allco acquisition". I refer to this file note (Exhibit D) as the original note (since what was tendered was an original, not a copy, of the note).
Mr George, at T 31.1 denied that there was any mention of option and said "I was putting money away in a trust account to purchase the assets of Allco HIT and Elderslie". He also denied that the payment was made and in the risk/gain scenario described at T 31.7, saying at T 31.11 that "you actually have to get the consortium together before it could be valuable".
Mr Burke's recollection of the meeting is that it lasted approximately 30 minutes and that the discussion included Mr George's acquisition of a share of "my equity in the new company to be formed to acquire the Elderslie assets". There was no reference in Mr Burke's account of the conversation to the acquisition of an option as such. He says that he told Mr George he would outline the details "again" and said "As I have already proposed, you will have 2 percent of Burke for $300,000".
Mr Burke says that when Mr George said he was interested but "I only have $200,000 sitting in my wife's trust account and this is all I can use" (something, I might add, that is inconsistent with the fact that it was a sum of $315,000 that had been transferred in July 2008 to the joint account), he then offered Mr George 2 percent of his equity for $150,000 and said that "This discount is on the condition that this $150,000 is used by me for my working capital " (my emphasis). He says that he referred to Mr George working in the new company as a consultant and that he had said that "The risk is that the whole deal falls over and you could lose the $150,000 but the upside is huge. The reason for offering you the 2 percent for $150,000 is because it allows you to have equity and not use all of your $200,000. This way forward will give you equity and consultancy fees".
He also says that when Mr George said "I am happy, we have a deal", he told Mr George he was "more than happy to commit this to writing" but that the latter said "No, I have gotten to know you and the way you do business. Your hand is more than good enough for me". (I interpose to note that the last statement attributed to Mr George seems to me extraordinary if it is suggested that Mr George was in a position to form an opinion as to the way Mr Burke did business off the back of such limited dealings to that stage - making Mr Burke's version of the conversation somewhat implausible in this regard.)
Mr Burke says that he made a file note "during our discussion on 13 October 2008" and that at page 2 (of the annexures to his affidavit) is a true copy of that file note ([20]). I refer to this as the replica file note (because, as will be shortly be seen, I consider that the evidence points to this note having been created at some time after the 13 October meeting in an apparent attempt at replication of the original note).
Mr Burke says that the discussion continued with him stating that he wanted the money transferred into Grogan Webb's trust account; Mr George asking for the details; and he then telephoning Mr Webb at 11.15am. He says that Mr Webb's account of the conversation (at [7] of the latter's affidavit) accurately records their discussion.
There was a dispute as to whether the agreement for the payment of the funds into the solicitors trust account was reached before the call made to Mr Webb or after. At T 33, Mr George says that it was before. It was put to him by Mr Young that the timeline was that agreement was reached then a request for funds to be put into account and then the call was made to Mr Webb and the wording of the direction was given. Mr George did not accept this. As it is, on that aspect of the matter (ie at what particular point the call was placed to Mr Webb during the 13 October 2008 meeting, the precise timeline does not seem to me to be critical).
Mr Webb's account in [7] of his affidavit (which Mr Burke adopts as an accurate record) was that Mr Burke said "I have done a deal to sell part of my interest in the Allco deal. Peter George, who was involved in Elderslie, is going to buy part of my interest for $150,000. He can pay that to you", to which Mr Webb's response is said to have been "It's your money?" and when the answer to that from Mr Burke was yes Mr Webb says that he said: "OK, then he just needs to give me a direction in writing saying that I can deal with the funds as directed by you" (Mr Webb further deposes that Mr Burke then said to him "OK I'll speak to him. I've already given him your trust account details").
Pausing there, although Mr Burke says that Mr Webb's affidavit accurately records the discussion, there is an obvious inconsistency between the two at least as to when this conversation occurred. Mr Webb, in his affidavit, puts this discussion at around 11/12 October. He says that his understanding at the time was that the entity had been set up and that the payment was for a share of the entity (and that when he received the email on 13 October it was consistent with what he had been told by Mr Burke and did not alter his understanding). Mr Burke, on the other hand, says he did not have Mr Webb's account details with him at the meeting on 13 October and that he phoned on 13 October to obtain them. Yet, according to Mr Webb, when Mr Burke rang him (prior to 13 October) he said he had already given Mr George those details. Again, nothing appears to turn on the timing of this conversation other than to cause some doubt as to the reliability of the witnesses' recollection of events.
What is significant, however, is the import of the question "It's your money?" followed, on Mr Webb's account of the conversation, by an immediate request for an authorisation as to Mr Burke's ability to direct the disbursement of funds out of the account.
Mr Kelly submits that the relevance of the question as to whether the money (on any version of the timing of the conversation yet to have been transferred to Grogan Webb's account) was Mr Burke's own money and the request then made by Mr Webb for a direction from the payer of the money, is that the latter must indicate an appreciation that the money belonged to someone else. It is submitted (and it must logically be the case) that if the money being transferred to Grogan Webb's account was (or would, on receipt, be) Mr Burke's money to which he was unconditionally and absolutely entitled (as is the case put by Mr Burke) then there would be no need for any such direction and the giving of such a direction would be otiose. I accept the force of this submission.
Mr Webb's explanation for this in cross-examination was that he wanted to be sure that he was authorised to disburse the money at Mr Burke's direction.
At T 47 Mr Webb accepted that he knew the purchase had not happened as at 13 October, but suggested that this was because Mr Burke had not received the money (T 47.7). He said at T 47 24 "I asked him that [is it your money] to determine whether he had the right to tell me how the moneys could be drawn". (Pausing there, one would have thought that what was necessary on that understanding of the matter was ask for confirmation that the money paid in was for Mr Burke's absolute benefit.) Put to him (at T 48) that if it was Mr Burke's money there was no rational explanation for a direction - Mr Webb reiterated that his view as to why direction needed. I accept this as a genuine attempt to explain his then thought processes but it remains the case that logically a request for such a direction is inconsistent with the moneys in that account belonging to Mr Burke unconditionally.
At T 50.18, Mr Webb said he knew from his client that the acquisition of assets had not taken place but was of the view that moneys were being paid for "acquisition of a share of what Mr Burke had - was working on but was not necessarily to be used in the future. It was monies that he had earned to that time".
I accept that the request by Mr Webb for a direction as to the disbursement of the funds may have been as a matter of more abundant caution in order to prevent any issue later arising as to Mr Webb's ability to act on those instructions in the disbursement of the funds out of the trust account, but if so then the logical confirmation to be sought from the party paying in the funds would be that these were moneys belonging to Mr Burke (say, as payment for an acquisition that had already taken place) and that the payer had no interest in those funds or perhaps that these were moneys being paid in for the benefit of Mr Burke. The immediate request for a direction to pay from the payer, when on Mr Webb's account of the conversation he was being told it was Mr Burke's money, seems to me logically to cast doubt on the proposition that the arrangement as put to Mr Webb was one under which Mr Burke was to be beneficially entitled to those moneys as and from receipt of the moneys in the trust account. It makes it more likely in my view that any deal that had been done for the acquisition of Mr Burke's interest was appreciated by Mr Burke as being one that would be finalised at some point in the future (hence the need to have an authorisation from the payer if the moneys were to be distributed in advance of that acquisition). Therefore, whether or not the words "to be used for the Elderslie/Allco HIT acquisition" were properly to be understood as referring to the acquisition of Mr Burke's "share" in the consortium (or, put more precisely, an interest in the acquiring vehicle or joint venture) or to the acquisition of the assets themselves, the request for the authorisation in question (and its provision by Mr George at the request of Mr Burke)is inconsistent with a belief that the moneys were moneys in which Mr Burke would have an unconditional beneficial interest on receipt into the trust account.
Mr Burke says that, during the discussion on 13 October, after he had rung Mr Webb, he said to Mr George:
Lewis said that's fine, he's given me his trust account details. What he needs is for you to email him an authority for him to disburse funds to Martin Burke . I will write down what's required. (my emphasis)
He says in his affidavit that he then wrote out the documents exhibited to Mr George's affidavit (ie the original note) and then completed the composite file note.
The portion of the composite file note that Mr Burke says in his affidavit recorded the discussion on 13 October 2008 reads as follows:
$150K - 2% of new entity
banked into G&W Trust Ac/t & email authority to disburse to Burke etc/working capital - discounted from $300K
* letter to P George / Risk:Loss 150: GAIN [with an arrow there pointing upwards]
*consultant - salary/incentive options etc
*Property & assets side of business
[ followed by a reference to a name and phone number and the words "call to make apt" ]
In the witness box Mr Burke was asked to highlight the words on the composite note that were written on 13 October 2008. The words emboldened above are the only words that Mr Burke highlighted as having been written on 13 October 2008. He then said that the words not highlighted on the note were added on 8 October (by which I accept he meant 9 October) (T 42) ie the highlighted words that I have emboldened above were the only words added after that 9 October meeting. I sought to clarify with Mr Burke whether what he was in fact saying was that all words not highlighted by him on the note were written during the first coffee shop meeting (on 9 October) and he said that was so. With respect that cannot possibly be the case given that "banked into G&W Trust" were not highlighted. Moreover, given the interpolation of the highlighted words with the remaining words it makes no sense that the bottom half of the note was written at different times.
Exhibit D is the original note (that Mr Burke agreed was the document he gave to Mr George at the conclusion of the meeting on 13 October 2008). On one side of the page is a roughly drawn diagrammatic representation of the assets proposed to be acquired (with values attributed to various but not all of the assets) and a list of people whose roles are designated in the note as respectively the Chair/CEO/MD; directors and a list of consultants (namely the initials of each of Mr George, Mr Garrett and Mr Burke), with the words "salary and share options" written. The note further records the following "$150k" and "2%" with an arrow pointing therefrom to the words "Solicitors Trust" and the word "Equity". This part of the note bears the hallmarks of a document written off and on during the course of a discussion (with words circled or boxed, arrows, incomplete notes and what were described by Mr Kelly colloquially as squiggles). At the foot of that page were the solicitor's details (firm name, Mr Webb's name; telephone number and trust account details) in neater handwriting.
On the reverse of the note was the following (also in Mr Burke's handwriting):
$150K INTO TRUST ACT [ which I assume to be an abbreviation of the word "account" ]
Letter to [ first defendant's name and firm details ]
"We confirm funds to your account to be used with the Elderslie/Allco HIT Acquisition.
The funds are to be distributed at the direction of Martin Burke
[ followed by email details for Mr Webb and cc to an email address identified as that of Mr Burke ]
Significantly, there is no reference in the original note to "working capital" or to the use of the funds for Mr Burke's working capital; nor is there any reference to the risk/gain of the investment; nor to there being a discount from the $300,000 (whether that be a discount for the right to have immediate use of the money, as now contended, or otherwise).
The replica file note (that Mr Burke says in his affidavit he made "during the discussion" on 13 October 2008 and as to which he gave conflicting and confusing evidence in the witness box but which he ultimately conceded in cross-examination was written afterwards as a record or update of the discussion after that meeting) on its face contains a similar diagrammatic representation of the assets and the persons to be involved in the company as contained in the original note but includes more detail of Mr Burke's position ("equity 30%") and the words:
$
150K = 1%
300K = 2% etc P.G = 2% of Burke
Jenny has $200K in account upside
Agreed $150K = 2% = working capital.
There is an arrow from the figure equity 30% to "PG = 2% of Burke" and an arrow from the bottom 2% figure to the initials P.G.
In the course of cross-examination as to those three notes (the composite note that Mr Burke says recorded matters discussed at the 13 October meeting and was completed at that time; the original note handed to Mr George at the meeting which both parties accept was written at that time; and the replica note that Mr Burke in his affidavit says he made during the meeting), Mr Burke became somewhat confused.
For example, at T D2 8.1, he said of the words "$150,000" and "2%" with the arrow to the words "solicitors trust" in the original note "Well it was [added] then [13 October 2008] or added the day before or continuing to scribble around that, whether it was done previous or that day" and then could not recall when those words were added note (in circumstances where it makes no sense that this part of the note would have been written before the meeting and it could not have been written after the meeting as the original note was given at that time to Mr George). Later, at T D2 15, Mr Burke accepted that there was no truth in the suggestion that any part of the original note was written at any earlier date.
At T D2 10.30, Mr Burke said of the replica note that it was "done at that time" (ie the meeting of 13 October 2008) and at T 10.43 that it was quite possible that the note was written as Mr George speaking (when Mr Burke wrote Jenny instead of Jane to refer to Mrs George) and said "whether I did it then or later in my discussions but that is wen it was discussed of the $200,000 on account. Whether it was done specifically at that time or later I can't recall ... [there were] many meetings where this was discussed", seemingly focussing on when things were discussed not when the notes recording the alleged discussions were made (and he further agreed that there were not in fact many meeting after this where the $200,000 figure was discussed).
At T 13.28, Mr Burke suggested that parts of composite note were written contemporaneously with the conversation on 13 October 2008 and then at T 14.11 he said that there were 2 file notes written on that date. He said that there was one expanded one from the 8 th (meaning the meeting of 9 October) (ie the composite note) and then there was another on 13 October (T 13.38) but was not sure at T 14.8 if the original note was done on 13 October or not. At T 11.19 Mr Burke had denied that the replica note was composed in its entirety after 13 October but later accepted that on its face the replica note appeared to have been written after 13 October (T 15.11), asserting confidently at T 18.36 that the replica note is an "exact update" of what happened in the discussion and at T 18.36 that it is an "exact record of what we had discussed".
While I accept that some of the apparent confusion might be explicable by reference to the time that has elapsed and the pressure of what was described as very vigorous cross-examination, Mr Young stressing that this was not a memory test, there were nevertheless some glaring inconsistencies between Mr Burke's explanation of events and the notes themselves. Furthermore, on one version of his evidence, Mr Burke was claiming to have written three notes during the meeting - two of which appear to record very similar things (the original and replica notes), which seems to me quite implausible. I discuss Mr Burke's credit in due course. Suffice it for present purposes to say that it seemed to me that Mr Burke's confusion is not explicable solely by reference to the pressures of cross-examination (and I say that with no disrespect to Mr Kelly's cross-examination) but that it is due in no small part to the implausibility of what he was seeking to contend (namely that all three notes were written or partially written during the 13 October meeting and that part of the original note handed over at the meeting contained material added the day before).
At least part of the composite note must have been written after the 13 October meeting (though it could logically have been written on the same day) since it refers to moneys "banked" into the Grogan Webb trust account and this did not occur until after the meeting. It is therefore obvious that the composite note contains material in the second half that was added to the note after the 13 October meeting (something inconsistent with Mr Burke's evidence in the witness box when he was asked to highlight those parts of the note added after the 9 October meeting and he did not highlight the whole of the bottom half of the note).
Leaving aside my real doubts as to the accuracy of Mr Burke's recollection of when parts of the material were added to the composite note, it is equally (if not more so) difficult to accept that the replica note was written contemporaneously with the discussion at the 13 October meeting (apart from the unlikely scenario that this would involve Mr Burke simultaneously writing two separate notes) because there is nothing to suggest that Mr George forgot his own wife's name when speaking to Mr Burke nor would one expect a person writing down points as matters were discussed to write down a different name (Jenny) from that being spoken at the time (which was presumably Jane), (especially as the names seem sufficiently dissimilar from an acoustic perspective as to be unlikely in my opinion to have been misheard or confused as spoken). (Mr Burke had already met and been introduced to Mrs George by that stage but I do not suggest that this would not preclude a later mistake as to her name.)
It seems to me far more likely that the replica note was written at a later date than that it was written (as Mr Burke deposed under oath in his affidavit that it was) during the discussion and Mr Burke ultimately accepted this. I accept that there might be an innocent explanation for this - for example, it may well have been that Mr Burke (having handed to Mr George the actual note of the discussion) later wanted for his own records to have a copy of what he recalled. However, that is not what Mr Burke's evidence was (at least initially in his affidavit - since in the witness box his evidence on that matter was inconsistent and confused) as to the time the note was taken. Moreover, it is hard to see why there would be a need for such a note if the composite note had also by then been completed to include reference to the 13 October meeting. (The fact that the replica note seems to have been written in an attempt to replicate the format in which the note was given to Mr George could in my view support the inference that not only was this done at a later stage but that it was drafted, or concocted to use Mr Kelly's description, to suggest that it had in fact been written at the meeting itself - but it does not seem to me necessary to make any finding as to this). As for the composite note, as already that seems unlikely to have been completed at the 13 October meeting as it refers in the past tense to money banked into the solicitors' account.
Whatever Mr Burke's motivation in this regard, it seems to me clear that both the completion of the composite note and the creation of the replica note occurred after the 13 October meeting (rather than during the meeting itself).
The absence of any reference to "working capital" on the original note given to Mr George is in my view telling; as is the absence of any reference to "Risk/Gain" or to a "discounted" price. If there had been a discussion about the use of the funds for working capital during the meeting then there seems no logical explanation why that would not have been recorded in the original note (particularly given the significance it appears to have assumed in Mr Burke's mind - he having said that he formed the view that the money would be his own and available to be spent for personal purposes during that very meeting). That, coupled with the generally unconvincing nature of Mr Burke's responses when questioned as to these notes (and I say that without drawing any adverse inference from the confusion on his part in the witness box as to whether the first coffee shop meeting was on 8 or 9 October), leads me to the conclusion that the composite and replica notes both contain additions which were either an ex post facto attempt (or concoction) by Mr Burke to put forward a basis on which it might be suggested that the disbursement of funds for his personal benefit had been authorised at the meeting or (at best) a gloss that Mr Burke now seeks to put on what was discussed and/or agreed at the meeting.
The need to know the outcome of the claim in order to apply Pt 4 is emphasised by s 34 A. The operation of that section - and, therefore, the ambit of Pt 4 as a whole - depends on the ability to know, among other things, whether a person "intended to cause" or "fraudulently caused" the "loss or damage that is the subject of the claim". These things can be judged only after the loss or damage and its causes have been identified through a process of fact finding and analysis. Viewed in prospect and in its pending state, a claim might allege an intentional or fraudulent act or omission, but it is impossible to say, at that point, whether any loss or damage was caused and, if it was, what caused it - in particular, whether it was intentionally caused or fraudulently caused.
On this basis, the nature of a "claim", for the purposes of Pt 4, will be determined by what the court has decided in the case, not by what might be prayed or pleaded in an initiating process or points of claim. In short, "claim" refers to a claim as proved and established, not a claim as made or advanced.
His Honour noted that this approach accorded with that taken by Middleton J to the analogous Victorian legislation in Dartberg and that the decision of Bryson AJ in Chandra v Perpetual Trustees Victoria Ltd [2007] NSWSC 694 ; (2007) ANZ ConvR 481 reflected the same approach. In Chandra, Bryson AJ proceeded on the basis (at [110] and [111]) that the question of "concurrent wrongdoer" status was to be addressed and determined by reference to findings as to liability and causation already made in the proceedings.
In Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd (2007) 164 FCR 450, 458, Middleton J said (at [30]):
Where a claim brought by an applicant does not have as one of its necessary elements any allegation of failing to take reasonable care, an additional enquiry into the failure to take reasonable care may become relevant in the course of a trial to determine the application of Pt IVAA. Even though the claims in this proceeding themselves do not rely upon any plea of negligence or a "failure to take reasonable care" in a strict sense, a failure to take reasonable care may form part of the allegations or the evidence that is tendered in the proceedings. At the end of the trial, after hearing all the evidence, it may be found that Pt IVAA applies.
Barrett J concluded in Reinhold that "a claim may properly be regarded as one "arising from a failure to take reasonable care" if, "at the end of the trial", the evidence warrants a finding to that effect and regardless of the absence of "any plea of negligence or a 'failure to take reasonable care'". The nature of the claim, for the purposes of Pt 4, is to be judged in the light of the findings made and is not determined by the words in which it is framed." and said at [31]-[32]:
There is good reason in policy to take this approach. The clear objective of Pt 3 is to abolish "solidary liability" under which all defendants found guilty of relevant breach are jointly and severally required to meet an undissected verdict. The provisions reflect legislative views about allocation of risk as between plaintiffs and defendants. The New South Wales Attorney-General in office at the time of the enactment of Pt 3 made this clear when he said of the new provisions:
[I]n cases of negligence not involving personal injury, considerations of prejudice to plaintiffs weigh less strongly than the value of limiting liability of defendants according to their share of responsibility, and as a consequence the CLA(PR) Bill proposes in Part 4 the introduction of proportionate liability in the context of economic loss and property damage.
(The Honourable Robert Debus MP, "Tort Law Reform in New South Wales: State and Federal Interactions" (2002) 8 UNSW L Rev 13).
The provisions of Pt 4 are compulsory. They change substantive rights, so that a plaintiff's ability to obtain an adjudication of joint and several liability is removed where the circumstances are of the type to which the alternative regime of proportionate liability is applied. A case no doubt needs to be pleaded and proved by one or more defendants so as to engage the statutory provisions. But it will be the findings ultimately made that determine whether the statutory conditions compelling the court to adopt the proportionate approach are satisfied.
In my view, irrespective of the fact that the failure to take reasonable care may have contributed to or been the underlying cause of the conduct that amounted to the relevant breach of trust, the principal liability here is a liability for breach of trust by the payment out of the funds other than in accordance with the express purpose trust on which they were held. This breach of trust would have occurred (and the liability arises) whether or not there had been a failure on the part of the solicitors to take sufficient care in complying with the directions that were given to them. Therefore I consider that the liability, as found, is not one predicated on or arising from a failure to take reasonable care and this is not an apportionable claim. I consider below what the position would have been had my conclusion been otherwise.
(viii) if there is an apportionable claim, what is a just apportionment of any liability between the defendants
Mr Griscti submits that if Mrs George succeeds then it follows on any view that Mr Burke has been the primary cause of her loss since it was he who negotiated with Mr George with the result that a deal was struck for the payment of $150,000; he who arranged for Mr George to pay the money into the Grogan & Webb trust account; he who instructed Mr Webb that the funds were his property; and he who directed the funds to be disbursed for purposes other than the acquisition.
Mr Kelly submits, to the contrary, that if it is necessary for Mrs George to fall back on the negligence and contract claims, then by operation of s 35 of the Act, Grogan Webb and Burke are liable for the same loss and damage in such proportion as the Court considers just having regard to the extent of their responsibility and that, as the fund was in a solicitor's trust account, the solicitor had overall legal responsibility for the fund and the power to ensure that moneys were not paid away in breach of trust (no matter what Mr Burke may have said in order to encourage the payment of their fees from trust, as well as his other debts), the major causal and legal responsibility for any apportionable loss lies with Grogan Webb and there should be judgment accordingly (with Grogan Webb left to recover their loss from Burke, at their own expense, on the cross claim).
When assessing the appropriate contribution under the proportionate liability legislation, reference it seems that the discretion is not limited to considering the 'responsibility' of each party for the loss ( Reinhold at [57]-[58]); what may also be taken into account is whether the concurrent wrongdoer has profited from its actions which caused the loss. Here, Mr Burke has clearly benefited from the payments out (though to a lesser extent so has Grogan Webb in the satisfaction of its claim for its fees against Mr Burke).
In Reinhold , when considering the approach to apportionment, Barrett J said at [60] - [61] that:
Because the legislature has seen fit to adopt in s 35(1)(a) of the Civil Liability Act a form of words concerning apportionment which is almost indistinguishable from that which has long been used in statutes concerning contributory negligence and contribution among tortfeasors, I consider it appropriate to follow approaches to the meaning of those words developed and sanctioned by appellate courts. I therefore approach the matter before me on the basis that my principal task is to make findings about
(a) the degree of departure from the standard of care of the reasonable man, as regards the causative conduct of Lotteries and the Newsagents; and
(b) the relative importance of the acts of Lotteries and the Newsagents in causing the economic loss suffered by Mr Reinhold,
making a comparative examination of the whole conduct of each of Lotteries and the Newsagents in relation to the circumstances in which the loss was sustained.
I also approach the matter on the basis that, if either party has profited from its own actions causative of the plaintiff's loss and the other is or will be out of pocket, that imbalance can and should be brought into account as an element of the respective degrees of responsibility.
In Vella , Young CJ in Eq (as his Honour then was) says at [578]:
The operation of s 35 was considered by Palmer J in Yates, where his Honour stated at [94]:
How the Court is to assess what is 'just' is not explained. The Court must exercise a large discretionary judgment founded upon the facts proved in each particular case. The principles upon which the Court will exercise this discretionary judgment will come to be developed on a case-by-case basis. However, it seems clear enough that the policy of Pt IV is that a wrongdoer who is, in a real and pragmatic sense, more to blame for the loss than another wrongdoer should bear more of the liability. This calls for the exercise of the same kind of judgment as the Court exercises in apportioning responsibility as between a defendant sued in tort for negligence and a plaintiff who, by his or her own negligence, has been partly responsible for the injury.
There has been academic commentary as to the responsibility those assisting in a breach of trust should bear. In her article, Ms Gurr refers, for example, to the suggestion by Charles Harpum writing in " The Stranger as Constructive Trustee (Part 1) " (1996) Law Quarterly Review that someone knowingly inducing such a breach should bear the primary responsibility for any ensuing loss except if the trustees were parties to a fraudulently induced breach of trust (in which case it is suggested that the trustees may be equally accountable). Ms Gurr refers in this regard to Syrimi v Hinds (1996) 6 NTLR 1 as perhaps reflecting the ultimate responsibility for the loss. Further, it is noted that Professor Finn (as his Honour then was) writing " The Liability of Third Parties for Knowing Receipt or Assistance: 'Should Not My Loss Be Your Loss ?'" in Donovan W M Waters (ed), Equity, Fiduciaries and Trusts 1993 (Carswell, 1993) 195, at 212-17, has suggested that third parties' degree of participation in the wrongdoing should be weighed against their level of knowledge.
Had the issue of apportionment arisen (and noting that, as an excluded wrongdoer in light of the conduct I have found on his part in intentionally causing the loss to be suffered, Mr Burke would be liable for the whole of the loss without any reduction), I would have balanced on the one hand the fact that had it not been for the payment out by Grogan Webb the direction of Mr Burke would have caused no loss (and thus the final point at which the loss could have been avoided was the point at which Grogan Webb bears ultimate responsibility) and that if one looks at the standard of care expected of a trustee, the failure to make enquiries when a direction so obviously outside the expressly stated purpose was received seems to be a not insignificant departure against the fact, on the other hand, that Mr Burke appears to have been the architect of the arrangements pursuant to which the funds were distributed contrary to the intent of Mrs George and that he obtained the benefit of the distribution of the funds (though Grogan Webb also did to an extent in the sense that the claim against Mr Burke for fees was thereby discharged, in circumstances where they knew he was otherwise short of funds). Recognising that this is largely a discretionary judgment and balancing those factors, in the end I would have held that the proportionate liability to be borne by Grogan Webb was 60%.
(ix) Cross-claim by Grogan Webb
Mr Griscti submits that, with regard to the misleading and deceptive conduct claim, the substance of the relevant representations are admitted by Mr Burke in his defence to cross claim (referring to [5] and [12]) and confirmed in evidence that he instructed Mr Webb that the $150,000 was his property. Hence, it is said that if, in fact, the agreement reached between Mr George and Mr Burke was that the funds were to be held on trust, the representations were misleading and deceptive. I agree.
The Fair Trading Amendment (Australian Consumer Law) Act 2010 No 107 contains the relevant transitional provisions:
16 (1) Subject to the other provisions of this Part and the regulations, this Act, as in force before the commencement of the ACL, continues to apply to:
(a) acts or omissions that occurred before that commencement, and
(b) direct commerce contracts (within the meaning of Division 3 of Part 4 before its repeal by the amending Act) entered into before that commencement, and
(c) other contracts entered into before that commencement, and
(d) a lay-by (within the meaning of section 60E before its repeal by the amending Act) entered into before that commencement.
(2) Section 101 of the ACL does not apply in relation to services to the extent that they were supplied before the commencement of the ACL.
(3) The reference in section 224 (2) (c) of the ACL to proceedings under Chapter 4 or Part 5-2 includes a reference to proceedings commenced before the commencement of the ACL:
(a) under or in relation to Part VC or VI of the Trade Practices Act 1974 of the Commonwealth, or
(b) under Part 6 of this Act.
It is submitted, and I accept, that the relevant representations were made in trade or commerce. Mr Young, however, submits that Mr Webb has suffered no loss as a result of any such representation because the cause of his loss was his misreading of the email, not any earlier oral representation as to whether the funds belonged to Mr Burke. In that regard, it seems to me that Mr Webb's reading of the email was necessarily affected by the understanding he had as to the transaction between Mr Burke and Mr George (based on his discussion with the former) namely that Mr Burke had done a deal with the latter. Thus it seems to me that the oral representation was a cause of the loss sustained by Grogan Webb. I accept that Mr Webb relied on Mr Burke's representation that the funds belonged to him when distributing the funds as directed and hence that Grogan Webb having incurred a liability as a result of the distribution of the funds in circumstances where those actions were undertaken by reason of the alleged misleading and deceptive conduct, Grogan Webb is entitled to be indemnified by Mr Burke for the amounts now payable by Grogan Webb to Mrs George.
Alternatively, the claim is based on restitution: namely that Mr Burke, having had the benefit of the funds that were paid under a mistaken belief that there was authorisation to do so, are recoverable from him. Again, it is unnecessary for me to determine this issue but had it arisen I would have considered that it would be unjust for Mr Burke to retain the enrichment represented by the discharge of his debts in circumstances where that occurred as a result of the mistaken belief (induced by him) that he had a beneficial entitlement to the money and could direct its disbursement unfettered by the express limitations placed on its use by Mrs George.
Finally, it is submitted that if there is a liability to Mrs George, then the actions of both Grogan Webb and Mr Burke have caused the same loss, namely the disbursement of the alleged trust funds, and Grogan Webb are entitled to equitable contribution from Mr Burke.
In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 97 Mason J noted that the rules in relation to accessorial liability reflect equity's preoccupation with protecting beneficiaries, who are vulnerable to abuse by the fiduciary due to the fiduciary's special opportunity to exercise power or discretion to the detriment of that other person and that they are intended to deter third parties from assisting or inducing breaches of trust. In Jacobs' Law of Trusts [2117]), it is suggested that the rules developed in equity for contribution as between trustees liable for breach of trust may also be applied to contribution claims as between defaulting trustees and those knowingly assisting in the breach of trust.
Insofar as Grogan Webb has sought as against Mr Burke contribution in equity, a right to contribution generally arises where a wrongdoer pays more than his or her share of a judgment in satisfaction of a common obligation ( Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 at 350-1). However, there is debate as to whether that contribution can be other than equal.
Equitable contribution is available where two parties have an obligation or liability to make good the one loss ( Albion per Kitto J, at 350). In Albion , his Honour noted that persons who are under co-ordinate liabilities to make good the one loss must share the burden for that loss pro rata. His Honour made reference to the statement in Dering v Winchelsea (1787) 1 Cox Eq Cas 318, at 321 that contribution is 'bottomed and fixed on general principles of justice'. The liability to contribute arises where one party has paid or is liable to bear more than that party's fair share of the loss. Giles JA in James Hardie & Co v Wyong Shire Council (2000) 48 NSWLR 679:
What underlies the notion is not a common liability to be sued but a common risk the burden of which should, if it falls unequally, be adjusted.
The prima face position is that in such a case each co-obligor should contribute equally ( Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38, at 43), reflecting, it is said, the maxim that equality is equity. See for example Fico v O 'Leary [2004] WASC 215 (11 October 2004) [247]-[248], where Heenan J applied the principle of equal contribution and Sky Channel Pty Ltd v Tszyu [No 2] [2000] NSWSC 1150 where Young J (as his Honour then was) dismissed an argument in favour of proportionate contribution.
Meagher, Gummow & Lehane in Equity Doctrine and Remedies, 4th ed, Butterworths, 2002, suggest that there cannot be an unequal or proportionate contribution ordered, having said (at [10-055]) that the fact that parties must be equally liable for the same obligations underlies the inability to apportion liability between them other than equally (contrary to cases of contribution between tortfeasors pursuant to statute). In On Equity , the authors suggest that this may be possible though the cases in which it would occur would be rare. The authors note that the person upon whom a disproportionate burden has fallen may look to the other for contribution (citing McLean v Discount & Finance Limited , at 341) such that no one who owes a common obligation pays more than his or her share of the burden (citing Burke v LFOT Pty Limited (2002) 209 CLR 282, at 289); preferring the term "common obligation" to "co-ordinate liability" (as referred to by McHugh J in Burke ).
What is emphasised by the authors of On Equity is that equality in this context means "proportional" contribution - either equal or proportionate where the amount of liability is different (referring to Burke and Mahony v McManus (1981) 180 CLR 30, at 38). Reference is made in particular to the dicta of Kirby J (in his dissenting opinion in Burke ) as to rateable proportions where the degree of culpability is unequal (at 324-326). The authors go on to note, however, that the court will not lightly depart from its rule of equal contribution.
In Burke , Kirby J stated (from [174]):
In cases of unequal culpability, a question arises as to whether equitable doctrine has moved on so as to recognise (as statutory entitlements to contribution have done) that a court ordering contribution may apportion the contribution of the co-obligors in a just and proportionate way. Observations favourable to this possibility have been made in Australian courts. The weight of authority, and perhaps the history of contribution to this time, appear to be against unequal apportionments. Given the purpose and character of contribution as an equitable remedy, I am unconvinced that, as a matter of principle, rateable apportionment in differing amounts is alien to the notion of contribution. I incline to the view that equity aids "the ascertainment of what would be a just contribution". If unequal contributions could be ordered, proportionate to the differing responsibilities of the co-obligors, that facility could, in some circumstances, solve the types of argument that were advanced for Mr Burke in this appeal. It would permit adjustment of contributions by reference to considerations such as culpability, causation and notions of unjust enrichment.
Any other view will tend, in particular cases, to produce artificial and unjust outcomes. It would effectively reserve contribution to cases of exact equivalence in the responsibilities of co-obligors. In life, such exact equivalence will often be missing. It would be artificial, for example, for equity to provide contribution in cases of exact equivalence but to deny it where, say, it would be just and equitable to apportion 40, 30, or 10 per cent of the common obligation to one or more co-obligors. If some, but not all, co-obligors are insured, or entitled to an enforceable personal guarantee, equity has not withheld relief by way of contribution. If double insurance is not for precisely the same risks, but each policy covers the particular loss in question, contribution may be ordered. If insurance of the same risks exists but for different limits, contribution is available. Where two guarantors have promised to redeem a debt, but the exposure of one is subject to an applicable cap or limitation, it is unpersuasive to say that equity cannot fashion a rateable contribution. Statute now permits it. And equity, like the common law, now operates in a universe of statute. In my view, equity may therefore sometimes partake of relevant characteristics adopted by analogy from statute.
Equitable remedies, such as contribution, should be developed by the courts to meet new and modern needs. In developing equitable principles to fit the modern world, courts, including this Court, should look beyond the exposition of the principles in old cases or texts that necessarily reflect the often rigid legal environment and judicial disposition of past times. Instead, they should search for the underlying purpose of the old rule: concepts, not detail. Equitable remedies need to be fashioned to meet new and changing circumstances. Contribution is one such remedy. Our admiration of equity's past is best expressed by being alert to assure its present operation and future relevance.
In this case it is not necessary to go further down this path. With the primary judge and the majority in the second Full Court, I am of the view that LFOT's misrepresentations and Mr Burke's negligence were each effective causes of Hanave's loss. Accordingly, "an equal apportionment appears a rational conclusion". (footnotes omitted)
The observations favourable to the possibility that a court may apportion the contribution of the co-obligors unequal proportions, to which reference was made by Kirby J in Burke , are as follows.
In Jones v Mortgage Acceptance Nominees (1996) 63 FCR 418, at 422; (1996) 142 ALR 561, Davies J stated (at 564 - 565):
The principle of contribution as enunciated in Albion Insurance , requires that there be a common or coordinate obligation. See also Smith v Cock [1911] AC 317 at 326 and Meagher, Gummow and Lehane, Equity: Doctrines and Remedies , para 1006. In the present case, such an obligation exists for all the respondents who are liable and Mr Bester, who is liable as a cross-respondent, have been found to have contributed to the loss suffered by the applicants and for which the applicants are to receive a sum by way of damages or equitable compensation. This common or coordinate liability is not destroyed by the fact that the applicants chose to frame their claim against Mr Done by reference to his fiduciary duty rather than by reference to his duty of care or by reason of the fact that the applicants, who had originally joined Mr Bester as a respondent, discontinued against him and chose to call him as a witness. Matters such as this do not affect the essential character of the obligation.
Common law and equity earlier refused relief by way of contribution in a case such as this not because of the absence of a common or coordinate obligation but because it was considered, as a matter of principle, that such relief should not be granted to wrongdoers. In this the common law and equity followed Roman law. Spence, Equitable Jurisdiction of the Court of Chancery , American ed, 1846, vol 1, pp 663-4 put the matter thus:
By the Roman law no action could be brought by one wrongdoer against another, in respect of a tortious Act, in which both had been engaged: `` Si duo dolo malo fecerint invicem de dolo non agent '', Dig iv 3.36. This doctrine was adopted by the Court of Chancery ( ``Fraus non est fallere fallentem '', Cary, p 18), and it has been considered as a sufficient answer to a claim for contribution by one wrongdoer against another: Attorney-General v Wilson 1 Craig & P 28; Pearson v Skelton 1 Mees & Wels 504; Merryweather v Nixon 8 TR 186.
Now that the principle enunciated in the cases mentioned in that passage, particularly Merryweather v Nixon , has been abrogated by statute, and the justice of an order for contribution has been recognised, there should remain no bar to the application of the general law of contribution to a case such as the present.
Thus, if there be a technical problem with the word ``liable'' where it first appears in s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act, and I think there is not, there is no cogent reason why equity should not aid the identification of the tortfeasors who ought to contribute and the ascertainment of what would be a just contribution. That is precisely what equity did when, because of problems arising from procedural rules and the non-joinder of parties in common law actions, an appropriate order as to contribution could not be made by a common law court: see Spence, p 663.
I was not referred to any final judgment in the Federal Court where a like issue has been considered. However, in Re La Rosa; Ex parte Norgard v Rodpat Nominees Pty Ltd (1991) 31 FCR 83 ; 104 ALR 237; Trade Practices Commission v Manfal Pty Ltd (No 3) (1991) 33 FCR 382 ; 105 ALR 520; Dorrough v Bank of Melbourne Ltd (1995) ATPR 46-152 and Austotel Management Pty Ltd v Jamieson (1996) ATPR 41-454, judges of this court held that the general law of contribution may apply to cases of this kind. As Lee J said in Manfal at FCR 385 ALR 523:
The categories of rights of contribution are not closed ...
Where there is a community of interest between parties in respect of a matter of liability and the delivery of a benefit to one of those parties by the enforcement of the burden of that liability against the others, a right of contribution may arise.
It follows that I am satisfied that Mr Done is entitled to an order for contribution under s 5(1) of the Law Reform (Miscellaneous Provisions) Act and that, if I were wrong in that view, Mr Done would be entitled to contribution under the principles of the common law and of equity.
In Acohs Pty Ltd v RA Bashford Consulting ; (1997) 144 ALR 528 Merkel J held that such apportionment under the general law of contribution was available (referring to Albion Insurance and Jones v Mortgage Acceptance Nominees) . There, Merkel J stated (at 22 - 23):
The Court has a wide discretion to make appropriate orders for contribution between wrongdoers to ensure that each party liable in respect of the same damage makes a just contribution by paying a proper share towards discharging the common obligation: see Albion Insurance Company Ltd v Government Insurance Office of New South Wales (1969) 121 CLR 342 at 350-1 per Kitto J and Jones v Mortgage Acceptance Nominees Ltd (1996) 142 ALR 561 at 563-5 per Davies J.
On the facts I have found, I am satisfied that Bialkower was the primary, but not the sole, cause of the breach of s52 by RMS and RMC. McCann misunderstood the information initially communicated by Bialkower and failed to adopt Bialkower's suggestion that Infosafe not be mentioned in the item. Bialkower had the opportunity, but failed, to correct McCann's misunderstanding when the proposed article was facsimiled to him.
In these circumstances I am satisfied that RMS and RMC are entitled to a substantial contribution from Bialkower in respect of the damages and any costs awarded against them in relation to Acohs' Application. In my view that contribution should be 60%.
On appeal in Bialkower v Acohs Pty Ltd & RA Bashford Consulting Pty Ltd (1998) 83 FCR 1; (1998) 154 ALR 534; (1998) 41 IPR 33, t he Full Federal Court (Beaumont, Hill and Sundberg JJ), upheld the rateable apportionment which had been made by the primary judge but did so under the Wrongs Act 1958 (Vic) . The Full Court stated (at 545);
The general law doctrine of contribution requires that the parties between whom it takes place be under coordinate liabilities to make good the one loss. Coordinate liabilities are those which stem from a common obligation. We agree with Davies J in Jones that joint tortfeasors were earlier refused relief by way of contribution, not because of the absence of a common or coordinate obligation, but because it was thought that such relief should not be granted to wrongdoers. We need not decide whether the principle of contribution is limited to cases where there is a common obligation or a coordinate liability, or whether contribution can be ordered in any case where the circumstances give rise to an equity in favour of a person who has suffered a loss because of an act intended to benefit others: see Cummings v Lewis (1993) 41 FCR 559 at 592-9.
It is not necessary in order that liabilities be coordinate or common that parties be jointly liable. The liability may be joint, joint and several or several: Dering v Lord Winchelsea (1787) 1 Cox Eq Cas 318; Meagher, Gummow and Lehane, Equity - Doctrines and Remedies (3rd ed, 1992) pp 289-90. It is sufficient if two people are both liable in respect of the one loss, even if they are liable on different causes of action: Street v Retravision (NSW) Pty Ltd (1995) 135 ALR 168 at 176; Jones at 564. There is no contribution between persons each liable in respect of a distinct portion of the one obligation. They do not share their obligation in respect of the same subject matter. The position is otherwise where persons are liable upon the whole of an obligation but with a limitation upon the quantum recoverable. Where the limitation in amount differs between the obligors, each is liable to contribute rateably according to his undertaking: see Ellesmere Brewery Co v Cooper [1896] 1 QB 75 and Retravision at 177.
One difference between contribution at law and in equity was that at law an obligor could not maintain an action until he had actually paid more than his just proportion. Equity, however, acted quia timet, and ordered contribution upon entry of a judgment against the plaintiff for the debt or liability concerned, even though the judgment was unsatisfied: see Albion at 351.
In Bialkower , while the Full Court reserved the question as to what would be the position under the common law, it made the following obiter observations, questioning the power of a court to award apportionment unequally (at 546):
However, despite the observation of Davies J in Jones at 565 that he could see no reason why equity "should not aid ... the ascertainment of what would be a just contribution", we doubt whether the general law of contribution authorises an apportionment such as that made by the primary judge. Contribution is "founded on equality" ( Albion at 351), though it is true that "equality" in the maxim "equity is equality" is not literal equality, but proportionate equality: Re Steel (dec'd) [1979] Ch 218 at 225-6. Equality was the basis of the doctrine of contribution between trustees liable to make good a breach of trust: Jacobs' Law of Trusts in Australia (6th ed, 1997) p 644. If one paid more than his share he could claim contribution from the others. In exceptional cases the rule of equal contribution was replaced by a right on the part of one trustee to obtain an indemnity from the others. But, according to Snell , until the intervention of statute (Civil Liability (Contribution) Act 1978 (UK) ss 1(1), 6(1) and 7(3)) there was no intermediate position between these two extremes: Snell's Equity (29th ed, 1990) p 296. And see Jacobs at 644. The matter was not argued before us, and since the apportionment can be supported by s 23B of the Wrongs Act, we need not decide the issue, which will be a live one in jurisdictions such as New South Wales which do not have a provision such as s 23B. (emphasis added)
In Duke Group Ltd (In Liq) v Pilmer (1998) 27 ACSR 1, at 495-496. at 495-496, the primary judge ordered contribution in unequal portions (from 383);
the proceedings against Quilty and Singleton and the first defendants claim indemnity or contribution by reason of breach of fiduciary and statutory duties. The same basis of claim is also made against Harold Abbott, Lee-Steere and Somes as well as a claim in negligence, it being alleged that they were in breach of a duty of care to the first defendants. No proceedings for indemnity or contribution have been instituted by any of the director defendants against the first defendants.
It has been seen that the claims against the director defendants for breach of fiduciary and statutory duties involve conduct which is clearly tortious even though the conduct of Quilty and Singleton has not been categorised in that way. An example is that all of the director defendants are alleged to have been in breach of the duty to exercise a reasonable degree of care and diligence in the exercise of their powers and the discharge of their duties. However, they are duties which the director defendants owed to Kia Ora, not to Nelson Wheeler Perth.
... [his Honour then made findings regarding the proportional liability as between the defendants] ...
Section 25 of the Wrongs Act 1935 (SA) provides for contribution between joint tort-feasors, which is an apt description of the first defendants and the director defendants. However, there is no allegation of any liability in tort against Quilty and Singleton. Also, there is no allegation of liability in tort on the part of Harold Abbott, Lee-Steere and Somes to the plaintiff. Nonetheless, there has been no suggestion that the first defendants are not entitled to contribution from the director defendants as a matter of law. Their conduct clearly constitutes a tort and s 25 provides for contribution where damage is suffered by any person as a result of a tort. It is appropriate to categorise all of the director defendants as tort-feasors.
On that basis, I apportion responsibility for the loss sustained by the plaintiff as indicated and the first defendants are entitled to contribution accordingly.
As far as I can determine, the director defendants have not formally sought contribution from the first defendants or from each other through reciprocal proceedings. I give liberty to each of them to apply in case they seek any order or judgment against the first defendants or any of the others of them to which, at this stage, they are entitled.
This order was subject to a separate appeal, a point noted by the High Court in Pilmer v Duke Group Ltd (In Liq) [2001] HCA 31; 207 CLR 165; (2001) 75 ALJR 1067; 180 ALR 249, at 298-299, although the issue whether unequal apportionment may be made for equitable contribution was not discussed, and it was noted that in that case, any unequal apportionment was done under the Wrongs Act 1935 (SA).
Ms Gurr, in her article referred to above, notes that there is some scope to argue for a proportionate approach to determining contribution claims involving accessories on the grounds that the equal contribution principle developed out of different relationships and is a rebuttable presumption (see p 497); contrasting the position of accessories to defaulting trustees with that of co-insurers and co-sureties whose liability arises because of their coverage of risk and referring to Morgan Equipment Co v Rodgers (1993) 32 NSWLR 467,477 (Giles JA) as an authority which suggests that the equal contribution rule is a rebuttable presumption.
Insofar as there is a right of indemnity under general equitable principles of contribution where one wrongdoer has been induced by another to act wrongfully ( Burke at 294), this would provide Grogan Webb with another avenue for indemnity from Mr Burke for having assisted in (and on Mr Webb's evidence induced) a breach of their obligations as trustee.
In the present case, the claim for equitable contribution arises because there has been a finding of liability on the part of Grogan Webb and that such liability is not an apportionable claim. In the circumstances, there is no need to determine the issue as to equitable contribution as I have found a liability on the part of Mr Burke to indemnify Grogan Webb for the full amount of the loss on the basis that this was caused by reliance on his misleading and deceptive representation as to his beneficial entitlement to the moneys in the trust account. Had it arisen, I would have applied the principle that the loss should be apportioned pro rata.
Conclusion
For the reasons set out above I find for Mrs George on her principal claim against Grogan Webb and on her claim for compensation having regard to the accessorial liability of Mr Burke in relation thereto. I find for Grogan Webb on its claim against Mr Burke for misleading and deceptive conduct. I make the following orders:
1. As against the first and second defendants an order that they pay equitable compensation for breach of trust by reason of the payment out of the funds held by them and impressed with an express purpose trust in the sum of $150,000 to the plaintiff plus interest up to and including 28 November 2011 at $41,953.77 and thereafter to the date of judgment at the applicable RBA cash rate + 4% pursuant to s 100 of the Civil Procedure Act 2005 (NSW)).
2. As against the third defendant an order that he is liable to pay to the plaintiff equitable compensation the sum of $150,000 plus interest as calculated in 1 above, under the accessorial liability principles in Barnes v Addy .
3. On the cross-claim order that the third defendant/cross-defendant indemnify the cross-claimants for the sums payable to the plaintiff in accordance with order 1 above.
I consider that costs should follow the event. Subject to any submissions as to costs I will so order.
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Decision last updated: 20 December 2011
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