Hurt v Freeman

[2002] NSWSC 1145

CITATION:	HURT & ORS v FREEMAN & ANOR [2002] NSWSC 1145 revised - 16/12/2002
CURRENT JURISDICTION:	EQUITY
FILE NUMBER(S):	SC 4126 of 1999
HEARING DATE(S):	06-11-02
JUDGMENT DATE:	29 November 2002
PARTIES :	Bruce Raymond Mostyn Hurt - First Plaintiff Robert Charles Mostyn Hurt - Second Plaintiff Sally Mostyn White - Third Plaintiff Gina Mostyn Sutton - Fourth Plaintiff Andrew Bruce Mostyn Hurt - Fifth Plaintiff Eric Kenneth Mostyn Hurt - Sixth Plaintiff Robert Thomas Mostyn Hurt - Seventh Plaintiff Raymond Sydney Freeman - First Defendant National Australia Financial Management Ltd - Second Defendant
JUDGMENT OF:	Bryson J at 1

COUNSEL :	A. Henskens - Plaintiffs S.G. Habib - 2Dft
SOLICITORS:	Kanjian & Co. - Plaintiffs Mallesons Stephen Jaques - 2Dft
CATCHWORDS:	COSTS - successful plaintiffs joined NAFM as second defendant and obtained orders attaching proceeds of policy with NAFM owned by judgment debtor - discretionary decision on costs of application against NAFM where Notice of Motion was resisted combatively - Costs order against NAFM.
CASES CITED:	Cook and Anor v. ANZ Bank and Ors (McLelland CJ in Eq) 16 June 1995 unreported
DECISION:	Second Defendant to pay plaintiffs' costs of the Notice of Motion of 4 August 2002.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J.

FRIDAY 29 NOVEMBER 2002

4126/99 HURT & ORS v. FREEMAN and NATIONAL AUSTRALIA FINANCIAL MANAGEMENT LTD

JUDGMENT

1 HIS HONOUR: These reasons relate to the costs of the plaintiffs’ Notice of Motion of 21 August 2002; costs were argued at length after the principal claims in the Notice of Motion had been resolved by agreement, although not without difficulty and repeated attendances by the parties before the Court. The respondent to the Notice of Motion is National Australia Financial Management Ltd (NAFM), which was not, until the Notice of Motion was issued, a party to the proceedings, but is now the Second Defendant.

2 In the principal proceedings Santow J on 4 April 2002 published reasons for judgment on the plaintiffs’ claim, which was (shortly) a claim for remedies against the first defendant Mr Freeman arising out of dealings between him and the mother, since deceased, of the plaintiffs. Santow J’s decided to grant a number of remedies including an order that Mr Freeman’s investment in National Flexible Income Plan L0291356 with NAFM be impressed with a remedial constructive trust to secure to the plaintiffs payment of $1,420,500 with interest.

3 The hearing before Santow J was lengthy and concluded on 20 September 2001. On 7 September 2001 during that hearing Mr Freeman gave an undertaking to the Court that he would not draw down or disburse funds invested for him without further order of the Court, with qualifications enabling him to draw down the current monthly payments of $6000 and reasonable legal expenses. On 21 September 2001 the plaintiffs’ solicitor Mr Kanjian wrote to MLC Management Ltd, which was in some way involved in NAFM’s business, notifying that this undertaking had been given and asking to be informed of any dealing contrary to the undertaking. On 2 October 2001 Catherine Bourne, Legal Counsel, Wealth Management of National Australia Bank Ltd, on letterhead of NAFM, replied in terms which declined co-operation, saying that Mr Freeman’s undertaking to the Court was not binding on NAFM, that NAFM must observe Mr Freeman’s entitlements under the policy and that NAFM’s duty to Mr Freeman prevented NAFM notifying the plaintiffs of any dealings by Mr Freeman. On 9 October 2001 the plaintiffs’ solicitor replied asserting that action with knowledge that Mr Freeman was in breach of the undertaking might expose NAFM to constructive trust liability.

4 On 5 April 2002 Mr Kanjian again wrote to Ms Bourne advising the effect of Santow J’s decision, enclosing a copy of some paragraphs and contending that as the plaintiffs had been adjudged entitled to exercise a tracing remedy against the investment further draw-downs were no longer permissible; the plaintiffs’ solicitor called for NAFM’s agreement, and for a statement of account. After further correspondence calling for reply Mr Andrew Mitchell Legal Counsel of MLC Management Ltd replied on 15 April and declined to accede to what had been called for.

5 On 16 April the plaintiffs’ solicitor wrote to Mr Mitchell stating that on that day Santow J had made final orders and making contentions about their effects. The plaintiffs’ solicitor referred to a reduction in the amount to credit in the investment account of which he had learnt (and the reduction was not necessarily, on the face of things, in breach of the undertaking) and calling for NAFM to act so that there would be no further dealings before the next court hearing on 29 April. The enclosed form of order included an order that Mr Freeman pay the principal amount awarded with interest, and an order that pending compliance Mr Freeman hold various assets on trust for the plaintiffs including the funds in the National Flexible Income Plan Policy; the order also established that the plaintiffs were entitled to trace into the policy for the purpose of obtaining payment.

6 On 17 April 2002 the plaintiffs’ solicitor spoke to Mr Mitchell who firmly put the view that NAFM was not a party to the litigation and therefore did not consider itself to be bound by the order. On 17 April the plaintiffs’ solicitor by letter asserted to the effect that the Bank would or might incur a liability if it permitted a dealing with the policy in breach of the order, and calling for a statement of the ground of opposition.

7 On 29 April 2004 Santow J made further orders dealing with a stay of execution which Mr Freeman then sought, and among many other things required Mr Freeman to direct NAFM not to make or permit to be made further withdrawals, payments or redemptions until further order, to direct NAFM to send to the plaintiffs’ solicitors at the same time as to Mr Freeman all statements, accounts and reports in relation to the NAFM’s policy and to direct NAFM to endorse the policy with a notation of the plaintiffs’ equitable interest in it. The stay of execution had effect until 14 May.

8 On 29 April Mr Freeman wrote to National Australia Bank Ltd referring to the policy and making a direction in accordance with the conditions of the stay of execution. On 2 May the plaintiffs’ solicitor wrote to National Australia Bank Ltd informing the Bank of the terms of the order for stay of execution and calling on NAFM to act in accordance with it.

9 On 13 May 2002 the Court of Appeal on Mr Freeman’s application ordered on terms that the stay of execution be extended pending determination of the appeal or further order.

10 On 1 August 2002 Mr Kanjian wrote to National Australia Bank Ltd referring to orders of the court, enclosing a further copy of the order of 29 April and calling for acknowledgment that pending further order funds held in the name of Mr Freeman (1) were held trust for members of the Hurt family and (2) would not be diminished by payment out or commutation.

11 On 12 August 2002 the Court of Appeal terminated the stay of execution upon hearing evidence that Mr Freeman had dealt with funds standing to the credit of NAFM policy in breach of his undertaking to Santow J of 7 September 2001. On 13 August the plaintiffs’ solicitor wrote to the Bank notifying this order and its effect and calling for an indication of intention of NAFM to act in accordance with the orders of 16 April, and calling on NAFM to make a report of the amount currently outstanding and of the transactions affecting the policy from 16 April 2002 awards, and calling for other indications of compliance.

12 By 21 August Mr Kanjian had not received any significant response from NAFM apart from the early indications of non-compliance and had not received any statements, accounts or reports, or any other information whatever, such as were referred to in Mr Freeman’s direction of 29 April 2002. The plaintiffs then filed the present Notice of Motion, naming NAFM as the only respondent, and supported by Mr Kanjian’s affidavit of 21 August 2002 showing the history which I have briefly set out.

13 The Notice of Motion came before Austin J on 28 August 2002 and a number of orders were made joining NAFM as second defendant in the proceedings, restraining further withdrawals, payments or redemptions relating to the policy, requiring delivery of a copy of the policy documents and requiring a written report on the present credit balance and on all transactions since 16 April 2002. The Notice of Motion was adjourned to 18 September 2002.

14 On 18 September 2002 after a short hearing before Hamilton J the court by consent made an order extending the order of 28 August 2002 (meaning, it would seem, the time for compliance) to 9 October 2002, reserving costs and adjourning the Notice of Motion to 9 October 2002. On 9 October 2002 Campbell J made orders by consent again extending the orders to 30 October 2002, reserving costs and adjourning the Notice of Motion to 30 October. On 30 October Campbell J made orders by consent extending the restraint until the proceeds of the policy were paid to the first plaintiff for and on behalf of the plaintiffs. This dealt with the substance of the Notice of Motion, because, by some arrangements which were not explained to me in detail, the policy was then wound-up and realised and the proceeds were paid to the plaintiffs. The Notice of Motion was adjourned to 6 November 2002 before me, when costs were argued.

15 NAFM did not file any evidence dealing with the principal claims in the Notice of Motion or showing grounds for opposition. On the question of costs NAFM read two affidavits of Mr Rydge solicitor sworn on 5 and 6 November 2002. Among other things Mr Rydge produced correspondence which passed during the pendency of the Notice of Motion. By letter of 11 September 2002 NAFM’s solicitors Messrs Mallesons Stephen Jacques stated NAFM’s position on the application and on compliance with the order of 28 August 2002. They said to the effect that they produced, so far as possible, a copy of the policy document and particulars of transactions on the account since 5 February 2002 to 4 February 2002. They explained why in the view of NAFM it was not possible simply to transfer the policy into the name of a person other than Mr Freeman:

In this regard, we refer you to clause 11 of the policy which expressly states that the policy is not to be transferred or assigned except on death in accordance with clause 3.5. Clause 3.5 provides for payment of the Policy Value (as defined in the policy) to the estate or spouse of the Plan Owner (as defined in the policy) upon death. While the inability to satisfactorily transfer the policy is patently clear from a casual perusal of the policy document, we refer you to particular to the form set out in cl.3.3. Generally, the policy is governed by the age of the Plan Owner and determined at the Plan Owner’s death. Simply changing the name of the Plan Owner, notwithstanding the fact that it is specifically prohibited by the policy, changes the fundamental nature of the bargain between our client and Mr Freeman. Accordingly, should your client wish to trace into the funds, the policy would need to be terminated.

16 Clause 11 is headed Dealing with this Policy and reads:

You are not permitted to:

· transfer or assign your rights under this Policy except on death in accordance with clause 3.5; or

· give a charge over or in relation to the Policy, and

National Financial Management will not recognise any prohibited transfer, assignment or charge.

17 In the limited consideration which I have been able to give the matter in the context of an argument on costs, the position taken about the effect of cl.11 in the letter of 11 September appears to be correct. Notwithstanding that the policy was not assignable by Mr Freeman, means were ready to hand to give effect, by an order of the court, to the tracing remedy so as to make all proceeds of the policy available to the plaintiffs; an order of the court could attach the policy and its proceeds as an act of the law and not by compelling Mr Freeman to assign the policy. As orders of the Court had established, in a way which bound Mr Freeman, that he held the policy on trust for the plaintiffs and the plaintiffs were entitled to a remedy by tracing into the policy and its proceeds, and as NAFM had notice of the order, NAFM had no duty or interest in resisting or delaying the achievement of some such outcome of the Notice of Motion as was actually achieved. An outcome which the plaintiffs and NAFM appear to regard as satisfactory was eventually found.

18 With Messrs Mallesons Stephen Jacques’ letter of 11 September 2002 was enclosed a copy of an affidavit of Janice Lynette Pallpratt sworn 11 September 2002; she is an officer of a company which administers part of NAFM’s affairs and she gave evidence about its practice and endeavours to locate copy of the policy document; however the position she took was not ultimately relied on, the affidavit was not filed or read in evidence and it seems that a copy of the policy document was forthcoming from some source. On 16 September 2002 Mr Kanjian replied expressing concern at the amount said to be available under the policy and seeking further information and making a proposal for the disposal of the Notice of Motion.

19 Messrs Mallesons Stephen Jacques replied on 17 September 2002 giving information about the value of the policy and further stating NAFM’s position about whether the policy could be simply cancelled so as to produce a lump sum withdrawal. The letter also stated:

Further to the above, our client is entitled to recover its costs and expenses incurred by it as an innocent third party to this matter. The Bank’s costs to date exceed $5,000. That amount will of course increase should it be required to attend Court tomorrow. In the interest of settling this matter expeditiously, our client will accept the sum of $5,000 in full and final settlement to its costs to date, assuming we are not required to attend court tomorrow and that there are no further requirements or orders against it.

This offer was not accepted, and the proceedings were adjourned on 18 September.

20 On 24 September Mr Kanjian again wrote to Messrs Mallesons Stephen Jacques and made several inquiries including an inquiry for an explanation why accretions of income since 5 April 2002 appeared not to be reflected in the information disclosed. The letter also debated, at length, the question of costs. In reply on 9 October 2002 Messrs Mallesons Stephen Jacques said among other things:

The account statement provided to you on 17 September 2002 does not reflect any accretions of income on the policy because no income has been paid from the policy since it was frozen by NAFM on 16 April 2002. Accordingly, the number of units that comprise the policy remains undiminished from that time. We note however that the value of those units would have fluctuated during that time.

In relation of the history and communications which otherwise appear, the statement that the policy was frozen by NAFM on 16 April 2002, and the statement that no income had been paid since that event are very surprising; indeed they cannot be understood.

21 On the question of costs many assertions were made including the following:

It is not possible to hold a constructive trust over the type of policy held by Mr Freeman. The policy is personal in nature and, if the funds are to be paid to a third party, the policy must, as a necessity, terminate.

The statement is manifestly incorrect. Messrs Mallesons Stephen Jacques’ letter of 9 October went on to make a number of combative assertions and generally to maintain the position that as NAFM was not theretofore a party to the litigation, it had no responsibility with respect to undertakings by or orders against Mr Freeman. It was maintained that NAFM had put its position clearly in its facsimile of 15 April 2002. It would seem that this was put forward as an explanation for there having been no significant communication thereafter.

22 Messrs Mallesons Stephen Jacques’ letter of 9 October also enclosed a copy of a letter which NAFM or someone representing it had sent Mr Freeman on 10 May in these terms:

10 May 2002

Private & Confidential
Mr R Freeman
147 Paddington St
PADDINGTON NSW 2021
Dear Mr Freeman
NATIONAL FLEXIBLE INCOME PLAN – POLICY NO L0291356
Thank you for your letter dated 29 April 2002.
I confirm that we have noted the equitable interest of the parties named in your letter.
I regret, however, that we do not have the functionality to automatically generate and send duplicate correspondence to Kanjian & Company Solicitors as requested.
You may send copies of correspondence direct to them. Alternatively we will be happy to forward copies to them at your request as material is received.
Currently we have recorded your address for correspondence as 26 George St. Paddington. Could you please advise us if you wish to change your mailing address to Paddington Street.
If you require any other assistance or information, please do not hesitate to contact our Customer Service Centre on 13 22 95 and one of our consultants will help you.
Sincerely,
Ian Courts
Technical & quality Coordinator
National Investment Services

23 It is very difficult to understand this letter but in substance it is a refusal to comply with Mr Freeman’s request to send to Mr Kanjian at the same time as to Mr Freeman all statements, accounts and reports in relation to the policy. (The statement that it is a refusal must be qualified by whatever is meant by the sentence “Alternatively we will be happy to forward copies to them at your request as material is received.“ Possibly this sentence means that if Mr Freeman saw fit to make another request that would be complied with.) As Mr Freeman made his request in compliance with the condition imposed by the court, and the plaintiffs’ solicitor had informed NAFM that this was so, NAFM did not behave in an appropriate way by simply declining to comply with Mr Freeman’s request. To deal with Mr Freeman’s request in this way was to provoke conflict and invite involvement in the litigation.

24 Observations made by Messrs Mallesons Stephen Jacques about the limitation imposed by banker-client confidentiality are quite hollow in view of the existence of an express request by Mr Freeman to provide certain information, and of the failure to provide it. Messrs Mallesons Stephen Jacques also made the following assertion: “Our client has done everything within its power in relation to this matter.” This was an entirely hollow assertion in view of the correspondence I have mentioned. They also asserted:

The necessity or otherwise of your client to seek orders of the court to enforce his judgment is in no way attributable to the conduct of our client.

This assertion was also wrong. The need for the plaintiffs to approach the court in the Notice of Motion was partly attributable to the conduct of NAFM in not furnishing information, and was also attributable to the need to obtain a court order attaching the policy and its proceeds, as it was not wholly within its power of Mr Freeman, whether acting voluntarily or under compulsion, to bring that about.

25 Messrs Mallesons Stephen Jacques also asserted:

Our client has acted properly and reasonably at all times.

This too is an entirely hollow assertion and should not have been made. The reasonable and proper thing to do, and obviously so, was to comply with Mr Freeman’s direction. They also said:

[Our client] has never been a position to effect the various requests made by you in respect to the policy. Upon receipt of written instructions from Mr Freeman on 29 April 2002, our client acted immediately to note the equitable interests of your clients on its records for the policy and to maintain a freeze on the policy account.

This observation masks the evasion, by the letter of 10 May, of Mr Freeman’s direction to do what was, manifestly, an important part of what Mr Freeman’s letter required, and to make arrangements to send out copies.

26 During the hearing of the costs application NAFM’s counsel produced Mr Rydge’s second affidavit, prepared and sworn during the hearing in response to an observation made by plaintiffs’ counsel, in which Mr Rydge averred on information of Mr Andrew Mitchell, Legal Counsel to NAFM, and on belief, that no statements, accounts or reports in relation to Mr Freeman’s policy were sent out by NAFM to Mr Freeman from mid-August 2001 to mid-August 2002. This statement is barely credible, and not useful in the form in which it was put forward. The policy includes cl.10 in the following terms:

Information on your Investment.
Annual information

Following 30 June each year you will receive the following from National Financial Management:

· a detailed Annual Statement confirming the value of the Policy at 30 June;

· information regarding the minimum and maximum income you can receive in the financial year commencing 1 July;

· a Group Certificate and other important information for inclusion in your Tax Return;

· an Investors’ Update that provides a review and update of the objectives, strategy and performance of the eight investment portfolios as well as other investment, tax and regulatory information related to your investment.

27 It is elementary that the workings of an investment mechanism like the policy would require circulation of annual information, and it is highly likely to require delivery of information at shorter intervals. I regard it as very unlikely, inherently so and also in view of the terms of cl.10, that no information whatever was sent out to Mr Freeman over 12 months. It is not impossible that none was sent out, and if none was sent out that fact should probably be attributed to some special intervention preventing it from going out. That is to say, if in fact none was sent out, it is very unlikely that a full and frank understanding of the events is conveyed simply by saying that none was sent out; in any reasonably complete narration it would be necessary to say whether any was deliberately withheld, or to explain why it did not go out. Mr Freeman’s request of 29 April, and the relationship of the events to enforcement of a court order, took the situation out of reach of any reasonable concerns relating to privacy legislation, or customer confidentiality.

28 Combative correspondence continued. More information was forthcoming and by a letter of Mallesons Stephen Jacques of 28 October 2002 comments were made on the position of the plaintiffs, which, in a correspondence in which many comments were made, did not show good consideration of every detail. Among other comments Messrs Mallesons Stephen Jacques said “We reiterate that our client’s failure to provide information was at all times reasonable and in accordance with its obligations to its customer.” The letter also said:

The Bank’s costs to date now exceed $8,500. That amount will of course increase should it be required to attend a further appearance this Wednesday, 30 October 2002. In the interests of settling this matter expeditiously, our client offers to accept the sum of $6,000 in full and final settlement of your liability for its costs to date on the basis that it is not required to appear in Wednesday, your clients drop their claim for costs against our client and there are no further requirements or orders against our client. This offer will remain open until 5 pm tomorrow .

29 Argument on the question of costs was presented at considerable length. A custodian of property with no interest in the merits, when involved in a dispute between persons who claim interests in the property, can reasonably expect a favourable exercise of the court’s power to order costs, if it takes the position of a submitting party, or puts forward reasonable considerations affecting the terms of order to be made without adopting a combative position. See Cook and Anor v. ANZ Bank and Ors McLelland CJ in Eq 16 June 1995 unreported. NAFM is not in the position to claim an order for costs on that basis. It sought, from first hearing in April 2002 of the orders of 16 April, to avoid any involvement and to brush off the plaintiffs’ reasonable assertions about the impact of the orders on NAFM. It fobbed off Mr Freeman’s letter of 29 April. It gave no information at all to the plaintiffs from 15 April until after the Notice of Motion was filed. It imposed some process referred to maintaining a freeze on the policy, but did not tell the plaintiffs or Mr Freeman that it had been imposed. It claims not to have sent out annual information which the terms of the policy require to be sent out.

30 NAFM through its solicitors resisted endeavours by Mr Kanjian to advance his client’s interest and to obtain information relating to the rights conferred on them by the constructive trust order in which Mr Kanjian was putting an essentially justified and reasonable position. Mr Kanjian’s communications exhibit degrees of vigour and zeal which may have been in excess of the needs of the occasion, but are understandable in view of the responses, and for a significant time lack of response, of NAFM. NAMF’s solicitors sought, most unsuitably, to make a weapon of large claims for costs, in amounts which do not have any discernible relation to the relatively simple nature of the business in hand for NAFM and its solicitors.

31 NAFM did not take the part of a custodian of property submitting to the decision of the court when involved in the dispute of rival claimants. That could not have led to five attendances on the Notice of Motion, but to one or two. NAFM and its solicitors adopted a combative posture, altogether inappropriate to the needs of the occasion, and supported it by making a number of assertions and taking various positions in support of their combative posture. For the purposes of a decision on costs they should be classified as an unsuccessful litigant, and should suffer the usual order.

32 ORDER: Order that the Second Defendant pay the plaintiffs’ costs of the Notice of motion of 4 August 2002.

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Last Modified: 12/17/2002