Glibanovic, Adnan v Iacovino, Anthony John
[2012] VCC 1754
•15 November 2012
| IN THE COUNTY COURT OF VICTORIA | Revised (Not) Restricted |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
EXPEDITED CASES DIVISION
Case No. CI-11-04499
| ADNAN GLIBANOVIC | Plaintiff |
| v. | |
| ANTHONY JOHN IACOVINO & ANOR | Defendants |
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JUDGE: | HIS HONOUR JUDGE ANDERSON | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8 November 2012 | |
DATE OF JUDGMENT: | 15 November 2012 | |
CASE MAY BE CITED AS: | Glibanovic, Adnan v Iacovino, Anthony John & Anor | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1754 | |
REASONS FOR JUDGMENT
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Catchwords: Practice and procedure – Claim for breach of trust against a solicitor on behalf of unit holders – Whether claim arose out of “a failure to take reasonable care” – Apportionable liability legislation not enlivened – Section 24AF Wrongs Act 1958 – Pearsons Barristers & Solicitors v Avison [2009] VSCA 54 applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. G. Squirrell | bd legal |
| For the First Defendant | Mr D. M. Clark | Stewart Peters |
HIS HONOUR:
1 At an interlocutory hearing on 8 November 2012, I vacated the trial date of 3 December 2012, gave the first defendant, a solicitor, leave to amend his defence and to file and serve third party proceedings against his professional indemnity insurer and made orders relating to further discovery by the plaintiff. I reserved my decision on whether the first defendant should be permitted to add a number of persons as further defendants to the proceeding and to make further amendments to the defence in order for him to argue at the trial that the proportionate liability provisions of the Wrongs Act1958 (Vic) should apply in the event that he is found liable to the plaintiff.
2 I have determined that the first defendant’s application to join further defendants and to further amend his defence should be refused. I am not satisfied that the plaintiff’s claim is an “apportionable claim” as it does not arise “from a failure to take reasonable care”.
The plaintiff’s claim against the first defendant
3 The plaintiff’s claim is articulated in an Amended Statement of Claim dated 7 May 2012. The plaintiff is the current trustee of the Drouin Mitre 10 Unit Trust (“the Unit Trust”) pursuant to an order of the Supreme Court of Victoria made on 22 August 2011. The proceeding is brought on behalf of the unit holders of the Unit Trust.
4 The claim is for the sum of $891,773.44, which the plaintiff says was wrongfully applied by the first defendant in the payment of $880,673.91 to the solicitors for Mitre 10 Australia Limited (“Mitre 10 Australia”). This sum was apparently a debt owed by Hitchins Mitre 10 Drouin Pty Ltd (“Hitchins Drouin”) to Mitre 10 Australia. The plaintiff alleges that the sum of $891,773.44 was held by the first defendant upon trust for the unit holders in the Unit Trust and the payment of most of that sum to Mitre 10 Australia constituted a breach of trust, alternatively the first defendant was knowingly concerned in or assisted with a breach of trust by the directors of Drouin Solutions Pty Ltd (“Drouin Solutions”).
5 Drouin Solutions was the trustee of the Unit Trust and the owner of a property at 280 Princes Highway, Drouin from which Hitchins Drouin operated a Mitre 10 store. In the course of operating the business of a Mitre 10 store, Hitchins Drouin became indebted to Mitre 10 Australia. At all relevant times, the directors of both Drouin Solutions and Hitchins Drouin were Phillip Hitchins, David Guthrie and John Borovic. The first defendant was engaged by Hitchins Drouin in relation to the debt owing to Mitre 10 Australia and, shortly afterwards, was engaged by Drouin Solutions.
6 In mid-2008, Drouin Solutions sold the Drouin property for $3.02 million. An arrangement was reached between Drouin Solutions as trustee and the unit holders in the Unit Trust as to how the proceeds of sale would be dealt with. The first defendant received the sum of $891,773.44 from the sale proceeds into his trust account. It is alleged that despite knowing that the money was the property of the unit holders and held upon trust for them, the first defendant, on 3 December 2011, made the payment of $880,673.91 to the solicitors for Mitre 10 Australia to satisfy the debt of Hitchins Drouin.
First defendant’s defences
7 The first defendant in his defence in the proceeding admits that he knew that Drouin Solutions was the sole proprietor of the property but believed that it had purchased the property and borrowed money, for that purpose and to carry out renovations, in its own right and not as trustee for the Unit Trust. As a consequence, the first defendant asserts he did not know that “the directors of Drouin Solutions owed any duty to the unit holders of the Unit Trust”. Further, the first defendant asserts that Drouin Solutions (and the first defendant) was “bound and obliged…to pay the debt owed to Mitre 10 Australia before payment to any of the unit holders”.
8 The first defendant said that this obligation arose from an agreement in May 2008 by the directors of Drouin Solutions to pay “the debt owed by Hitchins Drouin to Mitre 10…from the proceeds of sale of the property” in consideration of Mitre 10 Australia agreeing “to assign the debt together with any securities in favour of Mitre 10 to Drouin Solutions upon receipt of the debt”.
9 On 26 November 2008, prior to the payment of the debt, the first defendant obtained from the three directors of Drouin Solutions and Hitchins Drouin (Hitchins, Guthrie and Borovic) a signed written authority to pay the debt to Mitre 10 Australia from the proceeds of sale. The directors agreed to indemnify the first defendant against any claims that may arise from breaches of arrangements made with the unit holders the previous day. The directors also agreed to arrange a loan for $600,000 and to pay that amount to the first defendant’s trust account “to enable a distribution to all unit holders and to proceed to finalisation of the Unit Trust”.
10 Needless to say, the amount of $600,000 was never paid. Hitchins, Guthrie and Borovic are bankrupt, Drouin Solutions was deregistered in July 2011, and Hitchins Drouin (now Hitchins Drouin Pty Ltd) went into liquidation in October 2010.
Proposed concurrent wrongdoers
11 Hitchins is currently the second defendant in the proceeding. He is now bankrupt and apparently the plaintiff does not intend to seek leave to proceed with the action against him.
12 The first defendant by his summons filed 2 November 2012 seeks leave of the Court to join a number of further parties, not in order to seek relief against them, but so as to rely upon the proportionate liability provisions of the Wrongs Act, if he should be found to be liable to the plaintiff.
13 The proposed further parties are:
a. Mitre 10 Australia Ltd;
b. Hitchins Drouin Pty Ltd in liquidation (formerly Hitchins Mitre 10 Drouin Pty Ltd);
c. John Borovic’s bankrupt estate;
d. David Guthrie’s bankrupt estate;
e. Michelle Anne Guthrie.
14 Further, the first defendant seeks similar consideration in relation to others which it does not need to join as parties because the relevant alleged wrongdoer “has ceased to exist or has died” or, in the case of Mr Hitchins, is already a defendant. These alleged wrongdoers are:
a. Phillip Hitchins;
b. Drouin Solutions Pty Ltd (now deregistered);
c. Paul Violi (who died in June 2010).
15 The first defendant’s proposed Amended Defence (Exhibit SFSP 27 to the affidavit of Stuart Francis Sturrock Peters sworn 2 November 2012) sets out the basis upon which it is alleged that each of these proposed parties and other entities are “concurrent wrongdoers” in relation to the plaintiff’s claim and how their respective “acts or omissions…caused the loss and damage that is the subject of the [plaintiff’s] claim”.
16 Against Mitre 10 Australia, the first defendant alleges that the unit holders’ loss and damage arising from the payment to Mitre 10 Australia of $880,673.91 alleged in breach of trust was also caused by the actions of Mitre 10 Australia in receiving the said sum with actual or relevantly imputed knowledge that “it received the sum in breach of the fiduciary duties owed by Drouin Solutions, Borovic, Guthrie and Hitchins”, including specifically knowledge that the property was not owned by its debtor, Hitchins Drouin, that the property owner, Drouin Solutions, was the trustee of the Unit Trust and that a number of the unit holders were in dispute with the trustee and had lodged a caveat over the property prohibiting any dealings.
17 Against Drouin Solutions, the first defendant alleges that if the company acquired the property “in its capacity as the trustee of the Unit Trust”, then any direction by the directors that, “The proceeds of the sale of the said property be paid out to satisfy the debts of Hitchins Drouin and the potential guarantee liabilities of the directors [breached] a fiduciary duty to conserve and use the assets of the Unit Trust for the benefit of the Unit Trust unit holders”.
18 Against Hitchins Drouin, the first defendant similarly alleges that the instructions to pay the company’s debt to Mitre 10 Australia from the proceeds of the sale of the property resulted in a benefit to the company in circumstances where it knew that the payment was made in breach of the fiduciary duties owed by Drouin Solutions and its directors.
19 Against the directors, Hitchins, Guthrie and Borovic, the first defendant relies upon their actions as the directors of Drouin Solutions and Hitchins Drouin.
20 Against Paul Violi, the first defendant alleges that he owed a “fiduciary duty” to other unit holders to inform and advise them “of the prospective sale of the freehold properties owed by Drouin Solutions to satisfy the debts owed to Mitre 10 Australia by Hitchins Drouin”. This duty arose principally as a result of Mr Violi having previously acted as the solicitor for Drouin Solutions, Hitchins Drouin, their directors and the Unit Trust, and from the fact that he was also a unit holder.
21 On 11 April 2008, the first defendant sent Mr Violi a letter by facsimile transmission asking him, upon instructions from the three directors, to forward “his files with respect to the purchase and mortgage of the properties [as] Mitre 10 Drouin [Hitchens Drouin] has been obliged to settle with Mitre 10 Australia Pty Ltd by way of a sale of the freehold” and in order for the first defendant “to prepare auction documentation”.
22 Against Michelle Guthrie, the first defendant alleges that she was “the effective secretary of Hitchins Drouin, Drouin Solutions and the Unit Trust” and “the intermediary between” Drouin Solutions and the Unit Trust and the trustee and Unit Trust’s “accountant and adviser”, Mr Ring of the firm Preston Coe & Ring (of which she was “an employee accountant”).
23 In these circumstances, it is alleged that she owed a “fiduciary duty” to, “advise Ring and each of the other unit holders of the prospective sale of the freehold properties owned by Drouin Solutions to satisfy the debts owed to Mitre 10 Australia by Hitchins Drouin and the shortfall that may result in regard to the monies due to the unit holders”.
Do the proportionate liability provisions apply to the claim?
24 In Pearsons Barristers & Solicitors v Avison [2009] VSCA 54 at paragraph 30, Buchanan JA (with whose reasons for judgment Warren CJ and Ashley JA agreed) said, “Although the point need not be decided, I doubt that a claim for breach of trust, albeit one seeking equitable compensation, falls within the description of s24AF(1) of the Wrongs Act as ‘arising from a failure to take reasonable care’”.
25 Pearsons’ case involved the entry of summary judgment against solicitors (the appellants) who, having received the balance of the proceeds from the sale of a property on trust for both their client and their client’s former domestic partner (the respondent to the appeal), paid the monies to their client. As a consequence, the respondent suffered loss for which a claim for equitable compensation was made. The appellants pleaded in their defence that the respondent was a concurrent wrongdoer and, upon the appeal, appellants’ counsel argued that the respondent’s former solicitors, the appellants’ client, and another party, might also be concurrent wrongdoers. No attempt had been made by the appellants to “bring in any of the alleged concurrent wrongdoers” before the application for summary judgment. It was in this context that Buchanan JA made the statement in his judgment.
26 In Main Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd [2010] VSC 5, Croft J considered a proceeding which related to “a property development scheme whereby individual investors would join with other investors through an entity described as a ‘company unit trust or joint venture agreement’”. The plaintiffs relied “on a variety of grounds of claim and seek relief from some or all of the defendants on varying bases, including equitable compensation damages, the taking of accounts of profits and declaratory relief” (paragraph 1).
27 Certain defendants sought to join a further defendant as a concurrent wrongdoer. The basis for the joinder is not entirely clear from the judgment. At paragraph 16, Croft J noted that it was sought to establish that the proposed further defendant was an “investment professional” and that it was “at least arguable, that his investment expertise had been relied upon in connection with the alleged representations” with respect to the costs involved in the investment project.
28 The draft pleading against the proposed defendant, in what Croft J described as the “critical provisions”, was based on negligence. Apparently, as appears from paragraph 21, there were other claims in the proceeding (by the plaintiffs against the applicant defendants) for breaches of fiduciary duties which it was argued were “not apportionable under s24AF Wrongs Act”.
29 At paragraph 28, Croft J noted that the principles to be adopted at trial (or upon appeal after a trial) “are not applicable with their full rigour for the purposes of an application of this kind which is made at a preliminary stage of the proceedings”. Croft J had, at paragraphs 8 and 9, quoted from the judgments of Middleton J in Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216 and Pagone J in Solak v Bank of Western Australia [2009] VSC 82, including by Middleton J to the effect that the element of “the failure to take reasonable care” may “form part of the allegations or the evidence that is tendered in the proceedings [and accordingly] at the end of the trial after hearing all the evidence, it may be found that Part IVAA applies”.
30 Upon this basis, Croft J concluded in paragraph 29 that it was arguable, in the context in which the claims with respect to breaches of fiduciary duties were made, that these were “claims that arise from a failure to take reasonable care”. The statement by Buchanan JA in Pearsons’ case was apparently not referred to Croft J and no reference was made to the statement in his judgment.
31 In George v Webb [2011] NSWSC 1608, Ward J at paragraph 319 referred to both the statement of Buchanan JA in Pearsons’ case and the decision of Croft J in the Main Road case. Ward J was dealing at trial with, “Claims in relation to monies dispersed out of a trust account maintained by a firm of solicitors (Grogan Webb) otherwise than for the purposes for which the plaintiff, Mrs Jane George, contends those monies were to be paid” (paragraph 1). “The principal claim against Grogan Webb is for breach of trust…There is an alternative claim in negligence [which plaintiff’s senior counsel conceded] 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)” (paragraph 14).
32 A claim was made against the third defendant which was, “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) “ (paragraph 15). “The first and second defendants (Grogan Webb)…raised a defence of apportionment…on the basis that Mr Burke [the third defendant] is a concurrent wrongdoer” (paragraph 16).
33 Plaintiff’s counsel submitted, “that the claims for breach of trust by Grogan Webb and the accessorial liability of Mr Burke do not arise from a failure to take reasonable care within the meaning of [the proportionate liability legislation] rather that they arise from a breach of trust and are therefore not apportionable claims” (paragraph 320). Counsel for Grogan Webb emphasised “that there is a claim on the pleadings (not abandoned) in negligence” (paragraph 321).
34 Ward J referred to the decision of Middleton J in Dartberg and of Barrett J in Reinhold v NSW Lotteries Corporation (No.2) [2008] NSWSC 187 and noted at paragraph 324, “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 part 4, is to be judged in the light of the findings made and is not determined by the words in which it is framed”.
35 At paragraph 325, Ward J stated the conclusion in the case before her. She said, “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”.
36 Ward J found both Grogan Webb and Mr Burke liable to the plaintiff but also “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 monies in the trust account” (paragraph 353).
Conclusions
37 I note that in the present case the first defendant, in the draft pleading in relation to each of the proposed concurrent wrongdoers, has alleged that as a consequence of the alleged breach of trust, breach of fiduciary duty or liability under the accessorial liability principles in Barnes v Addy resulted in “the loss and damage alleged in paragraph 21 of [the plaintiff’s] Amended Statement of Claim (which is denied by the first defendant)”.
38 In accordance with the principles enunciated by the Court of Appeal in St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245, the first defendant was obliged to plead that the same damage was suffered as a result of the alleged concurrent wrongdoer’s actions as the plaintiff claimed as against the first defendant in the proceeding.
39 I do not consider that even at this preliminary stage of the proceeding, the Court should exercise less “rigour” in the application of the appropriate principles. There are no allegations made by the plaintiff in the claim against the first defendant which could, in my view, give rise to the conclusion that the plaintiff’s claim arises out of “a failure to take reasonable care”.
40 I have concluded therefore that the application of the principles stated, albeit tentatively, by the Court of Appeal in Pearsons’ case and decided by Ward J in George v Webb, require me to determine that the plaintiff’s claims are not apportionable claims and that the second defendant, the proposed further parties, the deregistered company and the deceased Mr Violi, are not concurrent wrongdoers within the meaning of the proportionate liability provisions of Part IVAA of the Wrongs Act.
41 The first defendant’s applications in his Summons dated 2 November 2012 to join further defendants and to amend his Defence to include allegations to found an entitlement to have any liability on his part to the plaintiff apportioned, are refused. Further, it is necessary in the circumstances to also strike-out paragraphs 26A to 26D of the Amended Defence for which I gave the first defendant leave to file and serve on 8 November 2012.
Certificate
I certify that these 9 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 15 November 2012.
Dated: 15 November 2012
Catherine Kusiak
Associate to His Honour Judge Anderson
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