Hartley v Touyz - [2005] WASC 54

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: HARTLEY -v- TOUYZ & ORS [2005] WASC 54

CORAM: MASTER NEWNES

HEARD: 21 MARCH 2005

DELIVERED : 12 APRIL 2005

FILE NO/S: CIV 1135 of 2004

BETWEEN: KENNETH RAYMOND HARTLEY
Plaintiff
AND
COLIN TOUYZ
LIONEL MYER KING
HYMAN ISIDORE TOUYZ
Defendants
AND
BIRDANCO NOMINEES PTY LTD T/AS BIRD CAMERON
First Third Party
AND
LAURED WESLEY PARAED T/AS PRAED PUBLIC ACCOUNTANTS
Second Third Party
AND
JOHN SOUTHWARD HARTLEY
PHYLLIS MAY HARTLEY
Third Third Parties

Catchwords:

Practice and procedure - Application to strike out statement claim in third party proceedings - Whether discloses arguable cause of action - Whether outgoing trustee owes duty of care to warn incoming trustee as to potential effect on personal financial position of assuming office of trustee - Turns on own facts

Legislation:

Law Reform (Contributory Negligence and Joint Tortfeasors Contribution) Act 1947 (WA), s 7(1)(c)

Result:

Statement of claim in third party proceedings struck out

Category: B

Representation:

Counsel:

Plaintiff:     No appearance
Defendants:     Mr G J Pynt
First Third Party           :     No appearance
Second Third Party       :     No appearance
Third Third Parties        :     Mr E J Myers

Solicitors:

Plaintiff:     No appearance
Defendants:     Hammond King Touyz
First Third Party           :     No appearance
Second Third Party       :     No appearance
Third Third Parties        :     Edward John Myers

Case(s) referred to in judgment(s):

Cole v South Tweed Heads Rugby League Football Club (2004) 207 ALR 52
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 205 ALR 522

Case(s) also cited:

Armitage v Nurse [1997] 2 All ER 705
Australia & New Zealand Banking Group Ltd v Intagro Projects Pty Ltd [2004] NSWSC 1054
Mulleneux v Brennan [2002] WASC 43
Re; Manisty's Settlement [1973] 2 All ER 1203

MASTER NEWNES: In the third party proceedings the defendant has filed a single statement of claim, pleading claims against each of the first to third third parties. I have before me an application by the third third parties ("the Hartleys") to strike out the defendants' statement of claim in the third party proceedings, so far as it relates to them, and to dismiss the claim against them. In the meantime, the defendants have applied to amend the statement of claim and have filed a minute containing the proposed amendments. Although, in the absence of the other third parties, the amendments were not formally moved at the hearing of this application, it was agreed that the minute, so far as it related to the Hartleys, would be treated as the pleading of the defendants’ claim against them.
In the action the plaintiff alleges that the defendants, who are the partners in a firm of solicitors, were negligent in acting for him in relation to the affairs of a family trust. The claim arises in the following way. The plaintiff is the son of the Hartleys. By a Deed of Settlement dated 5 July 1977 a discretionary trust known as the "John Hartley Family Trust" (the "Trust") was established. Mr Hartley was the Appointor and Guardian, and Mr and Mrs Hartley were the trustees, of the Trust. The primary beneficiaries of the Trust were Mr and Mrs Hartley's sons, including the plaintiff, and the general beneficiaries of the Trust included the wives of those sons, their children and grandchildren.
By the terms of the trust deed, the Appointor was entitled by writing to remove any trustee and appoint any new trustees, provided that if the appointor was a member of the class of general beneficiaries the Appointor was not eligible to be appointed a trustee and a beneficiary of the Trust could not be appointed as a trustee (the "proviso"). The Appointor was entitled to appoint any other person as Appointor. The trustees of the Trust, with the consent of the Guardian, were entitled to distribute the income and capital of the Trust to the beneficiaries or any of them.
The plaintiff alleges that on 29 January 1998 the Hartleys, and the plaintiff and his wife, instructed the defendants to advise on and prepare, among other things, documents to appoint the plaintiff and his wife as trustees in place of the Hartleys and to remove Mr Hartley as Guardian and Appointor and appoint instead the plaintiff and, on his death, the plaintiff's wife. Those instructions came to the defendants through a firm of accountants, the first third party ("Bird Cameron"), whom the plaintiff says were acting for the Hartleys and the plaintiff and his wife.
The defendants prepared a Deed of Appointment to replace the trustees and a Deed of Variation to replace the Guardian and Appointor and those documents were sent to Bird Cameron on 19 February 1998 to arrange for execution by the Hartleys and the plaintiff and his wife. The documents were executed on 26 and 27 February 1998.
On 26 May 1998 a meeting took place between Mr Touyz of the defendant and Mr Lloyd of Bird Cameron. At that meeting Mr Lloyd told Mr Touyz that the plaintiff and his wife were having "matrimonial difficulties".
At a meeting on 28 May 1999, Mr Touyz informed Mr Lloyd that the Deed of Appointment and the Deed of Variation were ineffective because of the proviso in the Deed of Settlement and that advice was confirmed in writing on the same day.
By letter of 10 June 1999, Bird Cameron instructed the defendant to take "remedial action" so that the changes to the Trust could be "continued with". The defendant prepared a further Deed of Variation which, on 5 August 1999, they sent to Bird Cameron for execution by the Hartleys. The plaintiff says that the effect of that Deed was to delete the proviso from the Deed of Settlement. The further Deed of Variation was executed by the Hartleys on 25 August. The effect, therefore, was that an Appointor who was a general beneficiary of the Trust could be appointed as a trustee, as could any beneficiary of the Trust.
A meeting took place between Mr Cook of Bird Cameron and Mr Touyz on 19 November 1999. The plaintiff says that during the meeting Mr Touyz asked Mr Cook if the plaintiff and his wife were still having marital difficulties and Mr Cook said he did not know but he would enquire.
The defendants subsequently prepared a further deeds ("Deeds of Ratification") to ratify the original Deed of Variation and the Deed of Appointment. The Deeds of Ratification was prepared and sent by the defendant to Bird Cameron with a letter of 23 November 1999.
The plaintiff says that on 4 April 2000 an employee of Bird Cameron told Mr Touyz that the plaintiff's wife had refused to sign the Deeds of Ratification. He instructed Mr Touyz to prepare documents removing Mr and Mrs Hartley as trustees and appointing the plaintiff alone in their place, and removing Mr Hartley as Guardian and Appointor and appointing the plaintiff alone in his place. The effect, therefore, was to transfer effective control of the Trust to the plaintiff alone, rather than, as originally envisaged, to the plaintiff and his wife.
The defendants prepared the documents (the "June 2000 documents") and sent them on 19 June 2000 to the Hartleys and the plaintiff for execution. The documents were executed a few days later. The plaintiff accordingly became the trustee of the Trust, with power to make distributions of the income and capital of the Trust to himself as a beneficiary.
On 27 November 2001 the plaintiff's wife applied to the Family Court of Western Australia for a property settlement under the Family Law Act 1975 (Cth) (the "Act"). Subsequently, the Family Court of Western Australia made consent orders in respect of a property settlement between the plaintiff and his wife. The plaintiff says that as the result of his position as trustee of the Trust, as effected by the June 2000 documents, the assets of the Trust were regarded as his assets for the purposes of the property settlement, pursuant to s 79(1) of the Act. The plaintiff says that, as a result, he was required to pay to his wife an amount of some $264,000 more than he would otherwise have been liable to pay.
The plaintiff alleges, in essence, that in preparing and sending out for execution the June 2000 documents the defendants were negligent in that, being aware the plaintiff and his wife were having marital difficulties, they failed to obtain advice, or to refer the plaintiff for advice, from counsel or a solicitor experienced in family law as to the implications of the proposed changes to the Trust if his wife applied to the Family Court for a property settlement.
In the third party proceedings the defendants plead that if they are liable to the plaintiff then the Hartleys are liable as joint tortfeasors. The defendants allege that the Hartleys knew, or ought to have known, of the plaintiff's marital difficulties, and that the plaintiff and his wife had separated on 25 July 1999, before instructing the accountants to have the June 2000 documents prepared and before they executed those documents.
It is alleged the Hartleys also knew, or should have known, that the plaintiff's appointment as trustee, Guardian and Appointor would give him effective control of the Trust assets and that he was also a beneficiary. The defendants plead that, in that knowledge and as trustees of the Trust, the Hartleys owed to the plaintiff, as a person about to be appointed as trustee of the Trust, a duty to take reasonable care to avoid a real and foreseeable risk of economic loss being sustained by him if he became trustee.
Similarly, it is alleged that, as the Appointor, Mr Hartley owed such a duty to the plaintiff as a person about to be appointed as trustee of the Trust.
It is alleged the Hartleys were in breach of their duty by failing, before instructing Bird Cameron or the defendants to draw the June 2000 documents, or before they were executed, to recommend to the plaintiff that they instruct Bird Cameron or the defendants to obtain advice from a lawyer experienced in family law, or by failing to refer the plaintiff for, or themselves seeking, advice from a lawyer experienced in family law, or by failing to ask Bird Cameron or the defendants whether those parties should obtain advice from a lawyer experienced in family law, as to the implications of the execution of the June 2000 documents on any property settlement that the plaintiff’s wife may subsequently seek.
The defendants say that, accordingly, if they are liable to the plaintiff the Hartleys are joint tortfeasors, pursuant to s 7(1)(c) of the Law Reform (Contributory Negligence and Tortfeasors Contribution) Act 1947 (WA) and the defendants seek indemnity or contribution in respect of any amount for which the defendants may be found liable to the plaintiff in the action.
As emerged in a course of argument, the defendants' case against the Hartleys is, in essence, that by failing to take the steps alleged the Hartleys negligently allowed the plaintiff to put himself in the position where the assets of the Trust were deemed to be his assets, with the result that he became liable to pay to his wife a greater amount than he would otherwise have been liable to pay and he has suffered a loss in that amount. Counsel for the defendant disavowed any claim in respect of a diminution of the Trust assets and accepted that the current statement of claim in the third party proceedings, and the minute, required amendment to make that clear.
The third party has sought summary judgment on the basis that the claim is not arguable as, by the terms of the trust deed, the Hartleys, as trustees, are not liable for "any error or forgetfulness … or generally for any breach of duty trust (sic) whatsoever …", except in the case of fraud or bad faith.
I do not, however, consider that that provision affords the Hartleys a clear defence to the claim. I accept the defendant’s submission that it is clearly arguable the clause relates to "errors or forgetfulness" in the administration of the Trust, not to a claim of negligence of the present kind. In any event, the relevant ambit of that somewhat Delphic expression is by no means clear.
In the alternative, the Hartleys contended that it was plain beyond argument that they did not owe to the plaintiffs any duty of care of the nature alleged. An outgoing trustee, it was submitted, has no duty to warn or advise the incoming trustee of the possible personal financial consequences to the incoming trustee of assuming the position of trustee. Similarly, an outgoing Appointor has no comparable obligation to an incoming trustee.
The basic principles applicable to a claim in negligence are not in doubt and were recently succinctly stated by McHugh J in Cole v South Tweed Heads Rugby League Football Club (2004) 207 ALR 52 (at 59-60) as follows:
"Basic principle in the law of negligence holds that a defendant is liable in negligence only when the defendant owed a duty of care to the plaintiff, [or, in cases where the plaintiff sues in respect of injury to a third person – such as cases under Lord Campbell's Act, or in actions for nervous shock or per quod servitium amisit – the third person] breached that duty, and, as a result, caused injury to the plaintiff of a kind that was reasonably foreseeable. If the defendant owed a duty of care to the plaintiff, breach of duty is determined by considering whether an act or omission of the defendant gave rise to a risk of injury to the plaintiff that, by the exercise of reasonable care, could have been foreseen and avoided. In determining the breach issue, what the defendant knew or ought to have known is critical. If the duty has been breached, the defendant will be responsible for any injury suffered by the plaintiff that, as a matter of common sense, is causally connected with the breach and is of a kind that was a reasonably foreseeable consequence of the breach."
In cases of pure economic loss, that is, economic loss not consequential upon injury to person or property, it is not sufficient to show that the defendant’s negligence caused the loss and the loss was reasonably foreseeable. Something more must be shown before a duty of care will be found to have arisen. In a number of cases an assumption of responsibility by the defendant and known reliance by the plaintiff have been found to give rise to a duty of care. But in Woolcock Street Investments Pty Ltd v CDGPty Ltd (2004) 205 ALR 522, Gleeson CJ, Gummow, Hayne and Heydon JJ observed (at 528):
"Since Caltex Oil, and most notably in Perre v Apand Pty Ltd (1999) 198 CLR 180, the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. 'Vulnerability', in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, 'vulnerability' is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant."
Their Honours went on to suggest that it might be possible to explain the cases that have been determined by reference to assumption of responsibility and known reliance, by reference to notions of vulnerability, but considered it unnecessary, and therefore did not attempt, to identify or articulate the breadth of any general proposition about the importance of vulnerability.
In the present case the only relevant relationship alleged between the Hartleys and the plaintiff is that of outgoing trustee and incoming trustee and, in the further separate case of Mr Hartley, of outgoing Appointor and incoming trustee. The duty of care is said to arise, not in relation to the administration of the Trust, or the duties or responsibilities of the trustee or Appointor, but in relation to the effect on the plaintiff's own personal financial circumstances of assuming the role of trustee. The defendant did not refer to any case where such a duty has been found to exist.
I do not consider that any of the duties alleged by the defendant could arguably be said to arise by reason of the matters pleaded.
At all relevant times accountants and solicitors had been engaged by, among others, the plaintiff to act in relation to the changes to the Trust. It is not alleged that the Hartleys had any relevant expertise not possessed by the plaintiff. Nor (not surprisingly) is it alleged that there were facts in relation to the plaintiff’s marital difficulties (or indeed any other relevant facts) which were known to the Hartleys but which were not known to the plaintiff, or that the Hartleys knew that the accountants and solicitors were not aware of all the relevant facts. Moreover, it is not suggested that the Hartleys were aware (if it is the case) that the solicitors engaged to prepare the documents were not sufficiently cognisant of family law to give to the plaintiff any advice that was reasonably required as to the effect on his personal financial circumstances of his appointment as trustee.
There is nothing pleaded which suggests, or is capable of suggesting, that the plaintiff relied on the Hartleys for any information, advice or assistance necessary to avoid the damage which he allegedly suffered, nor that he was in a position of vulnerability that might cast the consequences of loss on the Hartleys. The plaintiff was no doubt better placed than the Hartleys to appreciate the need to obtain any advice on the possible effect of the changes on his own personal financial position and there was no impediment to the plaintiff obtaining such advice.
There is also nothing pleaded which might suggest that the Hartleys had some obligation to draw to the plaintiff's attention a need to get advice in relation to his personal financial position. The Hartleys stood in no relevant relationship to the plaintiff other than they were the existing trustees and, in the case of Mr Hartley, the Appointor, of the Trust and he was to be appointed trustee in their stead. There is nothing pleaded in regard to the relationship of the Hartleys as outgoing trustees and the plaintiff as incoming trustee, or of Mr Hartley as outgoing Appointor and the plaintiff as incoming trustee, that is capable of giving rise to the duties alleged.
In my view, therefore, the facts pleaded are not arguably capable of establishing the duty of care alleged and, accordingly, are not arguably capable of making out the claim that the Hartleys are joint tortfeasors. I would therefore strike out the statement of claim.
I would not, however, at this point strike out the third party notice against the Hartleys. Given the nature of claims in negligence, I do not consider that it can yet be said that it would be impossible for the defendants to plead facts that would give rise to an arguable claim against the Hartleys. I would therefore allow the defendants a further opportunity to plead a statement of claim in the third party proceedings, if they are advised that a basis for such a claim exists.
I will hear the parties on the form of the orders and on costs.