Iain Duncan Cameron v Wendy Le Noble t/as Wendy Le Noble & Co
[2010] ACTSC 131
•29 OCTOBER 2010
IAIN DUNCAN CAMERON & ORS v WENDY LE NOBLE t/as WENDY LE NOBLE & CO
[2010] ACTSC 131 (29 OCTOBER 2010)
NEGLIGENCE – professional negligence – claim against accountant – pooled investment – pooled funds of accountant and clients – investment lost – whether negligence advice – whether accountant negligent in paying client funds out without authority – whether asserted negligence causative of loss
CONTRACT – breach of contract – retainer between accountant and client – pooled investment – pooled funds of accountant and clients – whether investment in course of accountant’s practice – whether governed by contract of retainer
TRUST – breach of trust – payment by accountant of client funds out of trust account – whether authorised by client – effect of Trusts Act 1973 (Qld) – effect of Trust Accounts Act 1973 (Qld)
FIDUCIARIES – breach of fiduciary duty – accountant and client – pooled investment – pooled funds of accountant and clients – investment lost – whether accountant was a fiduciary – whether breach of fiduciary duty
Trust Accounts Act 1973 (Queensland)
Trusts Act 1973 (Queensland)
Carruthers v McMillan Partners [1999] WASC 120
Nocton v Lord Ashburton [1914] AC 932
No. SC 459 of 2006
Judge: Master Harper
Supreme Court of the ACT
Date: 29 October 2010
IN THE SUPREME COURT OF THE )
) No. SC 459 of 2006
AUSTRALIAN CAPITAL TERRITORY )
BETWEEN:IAIN DUNCAN CAMERON AND OTHERS
Plaintiffs
AND:WENDY LE NOBLE t/as WENDY LE NOBLE & CO
Defendant
ORDER
Judge: Master Harper
Date: 29 October 2010
Place: Canberra
THE COURT ORDERS THAT:
Judgment be entered for the defendant.
It has been said that when an investment opportunity appears too good to be true, it generally is. The present action concerns such an investment.
The plaintiff is an information technology professional. He worked for some years in the Commonwealth Public Service. In March 2000 he changed departments, and had the opportunity to become an independent contractor rather than an employee, though effectively doing the same work for a Commonwealth agency. A friend of his had earlier been through the same process. With the assistance of the defendant, an accountant, the friend had formed a company which employed him to undertake contract work with the Commonwealth. The friend had incorporated or acquired a second company to act as trustee of a self-managed superannuation fund. Through this employment structure the friend had been able to reduce his tax significantly. The plaintiff, finding out about this, decided to set up a similar structure. The friend gave him the defendant’s name and he contacted her.
The defendant is qualified as an accountant and is a member of the National Institute of Accountants. She conducts a sole private practice, with a small number of employees, in the southern suburbs of Brisbane.
After the initial contact with the plaintiff, the defendant travelled to Canberra and discussed his requirements at a meeting at his mother’s home in April 2000. After discussion the plaintiff instructed the defendant to set up a structure similar to that of his friend. In the event, the plaintiff acquired a shelf company and changed its name to Venyce Pty Limited. Apparently contrary to the defendant’s advice, he decided to use the same company as his employer and as trustee of his superannuation fund. Thereafter the plaintiff engaged the services of the defendant from time to time to prepare business activity statements, tax returns and accounts generally for the company and the fund.
The plaintiff’s friend had also told him that the defendant sometimes had access to investment opportunities. The plaintiff talked to the defendant about this during their initial meeting in Canberra. From time to time, when they spoke by telephone about accounting matters, over the next few months the plaintiff would ask the defendant whether she had heard anything about investment opportunities, though nothing came of these discussions until early the following year.
The defendant had during some earlier period been an authorised representative for a business named Mawson Securities, which was a licensed financial adviser under Commonwealth legislation. As an authorised representative, the defendant held an authority to introduce investors, for which she would receive a commission. Her relationship with Mawson Securities had come to an end before she met the plaintiff.
Both the plaintiff and the defendant, by the time they met, had had some experience of investing on the stock exchange using an online broking service, the plaintiff with some success.
The defendant was originally from New Zealand. Some time before the events giving rise to the present action, she had met another New Zealander, Henry Strawbridge, at a conference in New Zealand. She had seen him again from time to time, and he had discussed investment opportunities with her. Mr Strawbridge introduced the defendant to another New Zealander, Chris Hollows (who identified himself as a nephew of the late Fred Hollows, ophthalmologist) and Robert Gray, an Australian who lived on the Queensland Gold Coast. They met at a grand hotel. They told her that they were arranging short-term funding for a developer who was facing liquidated damages and penalties if he did not complete a development on time. The arrangement was that lenders would put in an amount for thirty days and receive it back at the end of that time with 100% profit. The defendant was attracted to the scheme, and put in $10,000.00. She was told that other lenders were putting in at least another $40,000.00. After thirty days she was paid $20,000.00, being her initial loan and the 100% profit.
This experience evidently satisfied the defendant that such apparently extraordinary returns could be made where a borrower had an urgent need for short-term finance, and that the people she was dealing with were trustworthy and competent in this field of finance and commerce. With the benefit of hindsight, one must suspect that this was the belief which at least one and perhaps all three of the gentlemen concerned were seeking to instil.
The defendant had further contact with Mr Strawbridge in December 2000. He told her of another and more profitable deal which had become available. Her evidence was that he told her that it was a “three to one” deal. The deal would be through an entity called Creditnet Bank Internationale. The investment would be secured against United States gold-backed bonds. Mr Strawbridge told her that Mr Hollows was treasurer of the bank, which was run by Mr Gray.
The defendant expressed interest and asked Mr Strawbridge to get Mr Hollows to telephone her to discuss it. Mr Hollows confirmed that the investment would be secured by United States bonds. The defendant asked whether there would be written agreements and Mr Hollows confirmed that there would be. He said that Mr Gray was overseas but would be returning to Australia the following weekend to sign written agreements.
On 13 January the plaintiff contacted the defendant to query some aspect of a business activity statement he was preparing. In the course of the conversation he asked whether she had heard of any investment deals. She told him about the investment opportunity through Creditnet Bank Internationale. She told him that she knew the people behind the bank. She told him that it was a three to one deal. The plaintiff asked if there were any guarantees. Her evidence is that she replied in the negative. He asked about a written agreement. She said that there was a written agreement which would be signed by Mr Gray. The plaintiff told her that he would think about it. She told him that she would have to know by 17 January, because the money had to be in Creditnet’s bank account by then.
On about 16 January 2001 the defendant rang the plaintiff and asked whether he had made a decision. He said that he had decided to invest, and wanted to put in $40,000.00. The defendant’s evidence is that she told him that she thought that amount was too much because the investment was a high-return but high-risk one. She says that she suggested that he put in something like $10,000.00. He said that he wanted to put $40,000.00 in because he had had some losses in his superannuation fund. She says that she asked him whether he was taking the money out of his superannuation fund. He said that he was. She says that she advised him to be sure that the investment was consistent with the fund’s investment strategy, and she also told him that he would have to keep minutes of the decision to invest. He told her that he would do so. During the conversation, her evidence is that he said “I want to make up some money quickly in my super fund – some large amounts in my super fund quickly.”.
The defendant told the plaintiff he would need to send the money to an overseas account in the name of Creditnet Bank Internationale and that she would get the account details to him later in the day. He asked whether she was putting money in and she said that she was. Her evidence is that he told her that he did not feel comfortable transferring money overseas and did not know how to go about it. She told him that it was simple and involved him going to his bank and giving them the details. He repeated that he did not feel comfortable doing it. She says that he asked whether he could put the money into her trust account for her to send overseas with her money. She reluctantly agreed to this course, and sent him her trust account details by fax.
The defendant’s evidence was, further, that the plaintiff “should do his own due diligence”. She offered to give him contact details for Mr Strawbridge and Mr Hollows so that he could speak to them by telephone. He said “No, I don’t need to do that. If it’s good enough for you, if you’re doing it, then I’m okay with it.”.
The defendant says that in the same conversation the plaintiff said “If it goes bad I’ll just make a claim on your insurance policy.”. She replied immediately that if he felt like that he should not proceed. She said that it was not a regulated investment and it was not covered by her insurance policy. The plaintiff, she says, then said that he had just been joking. He appreciated that he was taking a risk but had to make some money quickly.
On 17 January 2001, the plaintiff transfered $40,000.00 to a trust account in the name of the defendant’s accounting firm. $35,000.00 came from an account with the Commonwealth Bank, Woden, in the name of Venyce Pty Limited. The evidence is that that was money belonging to the company. On the same date the plaintiff transferred $5,000.00 from another bank account in the name of Venyce Pty Limited as trustee for his superannuation fund. A bank statement relating to the defendant’s account in the name of Wendy Le Noble & Co Statutory Trust Account with the National Australia Bank shows that on 17 January 2001 an amount of $40,000.00 was received by bank transfer from the Venyce accounts.
The defendant had for some time maintained a trust account for the purposes of her accounting practice. Her evidence was that she used this almost exclusively for payments from clients to the Tax Office and payments from the Tax Office to clients. On 21 November 2000 she opened another trust account. This was the account into which the $40,000.00 was received. Apart from a cash deposit of $10.00 to open the account, no deposits were made until 15 January 2001. Over the next two days a total of $122,000.00 was deposited to the trust account. This included $40,000.00 associated with the plaintiff’s interests, $22,000.00 of the defendant’s money, and a balance of various contributions by other clients of the defendant’s practice.
On 17 January 2001 $122,000.00 was transferred out of the trust account by the defendant, who went to her bank and filled out a teletransfer application, for the remittal of that amount to an account in the name of Creditnet Bank Internationale at the Robina branch of Westpac Bank. In relation to the $40,000.00 which made up part of that amount and was related to interests connected with the plaintiff, there is an issue as to whether the defendant had authority for the transfer.
It appears from documents subsequently produced by Westpac that the Robina account was in the name of Robert Bruce Gray as trustee for Creditnet Bank Internationale. The account had been opened in November 2000 and some funds had passed in and out of it. The Westpac records confirm that the sum of $122,000.00 was received into that account on 17 January 2001. On the same date another payment of $10,000.00 was received into the account. The next day, 18 January 2001, the sum of $132,000.00 was withdrawn from the account. One cannot determine from the Westpac records where the money went next.
On 18 January 2001 an amount of $77,000.00 was paid into the defendant’s firm’s other trust account. The statement shows that amount as having been received from Robert Gray.
The defendant’s evidence in cross-examination was that those funds had “to do with that first deal that we did with them.”. Apart from her $10,000.00 contribution, there had been other people who had put money in. She could not remember who any of them were, or even how many people had joined in the deal. I found her evidence about this unsatisfactory. It was not possible to work out from her bank statements how that money was accounted for.
There is a conflict of evidence between the plaintiff and the defendant as to the telephone discussions between them during the days leading up to 17 January 2001. The plaintiff’s evidence is that the defendant telephoned him on 13 January to tell him about the investment opportunity. He told her that he would think about it, and asked her to telephone him again if she had not heard from him by the final date for decision. His recollection was that the final date was 17 January. She telephoned him again on 16 January. After further discussions about the details of the investment, she confirmed that he would receive “paperwork that guaranteed the investment.”. She confirmed that if he put in $40,000.00, he would get the $40,000.00 back at the end of three months, with a further $80,000.00 three months later. She told him that he would have to put the money through her trust account. She would fax him the details.
The plaintiff received the fax with details of the bank account to which he was to transfer the money. He organised a transfer of $35,000.00 from the company account and $5,000.00 from the superannuation fund. He was told by someone at his bank that the funds might not be cleared into the defendant’s account by the end of the afternoon on 17 January. The plaintiff telephoned the defendant and conveyed that information to her. She told him that she would contact his bank manager. He did not have any further contact with her for some little time after that. During the next three months he spoke to her from time to time about accounting matters concerned with his company, and asked her how the investment was going. He did not become concerned until mid-April when he spoke to her again about repayment of his initial capital of $40,000.00. She told him that she had been advised by her contacts that the arrangements for repayment had changed, and that both principal and return would be paid after six months. He asked the reason for this but did not get a satisfactory answer. He never received any receipt for the funds, nor did he ever see any documentation about the investment. A number of times the defendant told him that there was no need for concern and that the “paperwork” was on its way.
The plaintiff gave evidence, and was cross-examined, during the first two days of hearing in September 2008. It was not put to him in cross-examination that there had been any further telephone contact on 17 January 2001 between him and the defendant.
When the hearing resumed in June 2009, counsel for the defendant opened her case. In the course of the opening he said that the defendant would be giving evidence that on 17 January 2001, after she had spoken to the plaintiff and given him her trust account details, she received a call from Mr Hollows, who informed her for the first time that the moneys were to be paid not into an overseas account but into the Creditnet Westpac account at Robina. The defendant had still not received contract documents and asked where they were. Mr Hollows assured her that there had been some holdup but that Mr Gray would be coming to Australia soon to complete the documentation and provide it to the contributors. The defendant was concerned because, in respect of the money she held in her trust account for the plaintiff, this did not accord with his instructions. She telephoned him, using her mobile telephone, from her car, and told him about the changes. She told him that there were still no signed contract documents and that the money was to be paid into a Queensland bank account. She asked him whether he wished to go ahead in those circumstances, and he instructed her to do so. She then went into the bank and proceeded to effect the transfer.
The defendant proceeded to give evidence in chief to that effect. She added that she had telephoned the other people who had contributed funds, gave them the same information and received their oral confirmation also.
Counsel for the plaintiffs objected to this evidence on the basis that it had not been pleaded, and more significantly, had not been put to the first plaintiff in cross-examination. After submissions from counsel I allowed the evidence. On reflection, however, I must infer that this second telephone conversation between the plaintiff and the defendant on 17 January 2001 was not mentioned in the defendant’s proof of evidence. If it had been, it was clearly a matter of importance and the plaintiff would have been asked about it in chief. Counsel for the defendant did not suggest that he had been aware of it when the first plaintiff was cross-examined some nine months earlier or suggest that he had somehow inadvertently overlooked cross-examining the plaintiff about it.
By the time they gave evidence both the plaintiff and the defendant were giving evidence about events of seven or eight years earlier, about which neither of them had made contemporaneous notes. I can more comfortably accept evidence where it is consistent with contemporaneous written records such as bank statements. I can also more readily accept the evidence of what took place where the plaintiff and the defendant generally have a similar recollection about it. The credit of both plaintiff and defendant was attacked in closing address by counsel for the other party. I shall return to issues of credibility.
In September 2004 the defendant went to the police to report the loss of the money. By then it had become painfully apparent that the money had gone, and that she had been the victim of a scam. She spoke to a constable at Logan Central Criminal Investigation Branch and made a written statement.
She stated that in about January 2001 Mr Strawbridge had spoken to her, telling her that Mr Hollows and Mr Gray had an investment opportunity that would pay five to one. This meant, for example, that for every $10,000.00 invested, the investor would receive $50,000.00.
The defendant told the police that she had sent two payments from a National Australia Bank trust account in her business name, for amounts of $122,000.00 on 17 January 2001 and $20,000.00 on 19 January 2001. In the same statement, she referred to a telephone conversation she had had with Mr Hollows in about August 2001 in which she told him that she was in serious financial trouble and needed the funds so that she could pay her mortgage. Mr Hollows told her that he had sold some property and could forward her $10,000.00.
The defendant did not tell the police that any of the funds invested belonged to anyone other than herself. She referred to the money paid out as her investment, and her money. A reader of the police statement would be quite unaware that any of the money invested belonged to persons other than the defendant, and I have no doubt that this was the impression gained by the police officer who took the statement.
The five-to-one as opposed to the three-to-one issue came up in another context. The defendant’s evidence was that shortly before she transferred the funds to Mr Gray’s Creditnet Bank Internationale account, she asked Mr Hollows for a draft of the contract which was to be signed when Mr Gray returned to Australia. Mr Hollows sent her the draft, I infer within a few days of payment of the money. The draft contract was of some sixteen pages, and stated that the contract had been made and entered into on 17 January 2001, with an effective date of 19 January 2001 and a redemption date of 18 July 2001. The document stated that the first coupon was payable at 90 days, that is on 19 April 2001, and would be for the face value of the bond attached to the contract. The second coupon was to be payable at 180 days, that is on 18 July 2009, and would be for five times the first coupon payment. In all other respects the documentation was consistent with the expectations of both the plaintiff and the defendant.
I infer that both the draft contract and the defendant’s police statement were produced to the plaintiff’s solicitors on discovery.
The defendant was taken in chief to the inconsistency. Her evidence was that she read the draft contract when she received it, and realised that the return of five-to-one was different to what she had been told. She telephoned Mr Hollows and asked him for an explanation of the difference. He told her that the document was just a draft and would be corrected before it was signed. He told her that he expected that it would be signed within a week. As I have recounted previously, this did not happen.
Until the end of 2004, the defendant continued with her pressure on Messrs Strawbridge, Hollows and Gray for payment of the amount due to her. There was correspondence between them over the period, sufficient to keep alive the defendant’s hopes of payment. On 6 October 2004, Mr Gray wrote to her in the following terms:
Wendy, regarding the matters of our recent discussions relative to a joint venture enhancement facility and in particular your claims of being guaranteed an extravagant five times return; we are not occasioned to dishonour our word even though in this case it was given without full authorisation of Creditnet. We do not contract with individuals or statutory companies. In consideration of your claims and communications we propose a settlement.
Hence; in consideration of the time frame we will make arrangements to make payment as per your claims. Please confirm in writing your acknowledgement of that being: –
i) Five (5) times the deposits of AUD $122,000.00 and AUD $20,000.00.
ii) Five (5) times the deposit of USD $16,000.00 – reference Peter Kimberley.
Additionally, we have your relayed instructions to act on behalf of Robert Wrey Boyle; once again reiterating our position that we do not contract with individuals or statutory companies, however we will make payment as per your reference to one (1) year amortised at six percent (6%) per month. Please confirm in writing your acknowledgement of that being: –
i) Deposit of USD $310,958.00 plus seventy two percent (72%).
At this time, we intend to issue payments upon receipt of all Joint Venture Participants disbursement instructions.
Although we are in receipt of your email instructions, please send us by general post the original of your instructions regarding the above mentioned disbursements of the Joint Venture Participants (JVPs) that you represent, which should include the JVPs bank name and address, bank account number and branch code number. We also require a confirmation in writing, signed by the authorised signatory, that upon receipt of a cash payment, as specified herein, any agreement, verbal or otherwise implied, regarding any matter relating to the participation in an enhancement facility is completed and at an end and no further recourse will be entered into by either party. Until then, warm regards.
Robert Gray, Managing Trustee
For and on behalf of Creditnet Bank Internationale
The defendant replied on 8 October 2004, accepting the offer and giving the details of her practice trust account as the account for payment of all of the amounts. She concluded that on receipt of cleared funds into that account within seven days of her letter, she agreed to release Mr Gray from any further claims.
Needless to say, the offer and acceptance were not followed by payment of any money.
The defendant did not refer to the offer and acceptance in chief. She was cross-examined about it.
The defendant’s evidence was that she did not show the letter of offer from Mr Gray to the plaintiff or any of the other investors before she accepted the offer, or indeed at all.
The defendant conceded in cross-examination that she had permitted her trust account to go into overdraft by some $3,700.00 for a period of about ten days in May 2001. She said that when she realised the position, she put funds of her own into the account to take it back into credit. She also agreed that the bank had paid interest on credit balances in the trust account for a time, and that she had not accounted to any client for the interest received. The total interest, I accept, was a relatively small amount, and it would have been difficult if not impossible to apportion it accurately between the persons whose funds had been in the trust account at the relevant times. Nevertheless I had the impression that the defendant had a poor appreciation of her responsibilities as a trustee of client moneys, and that on a number of occasions she committed breaches of trust, probably without realising it.
On 21 May 2001, her bank statement shows that she received into her trust account an amount of $9,985.00 from Mr Hollows. The amount was paid out by two cheques on the same day, a cheque for $7,985.00 in favour of her own firm, and a cheque for $2,000.00 in favour of the Seragi Family Trust, associated with a practice client. I found her evidence about these transactions unsatisfactory. Her explanation for the receipt of funds from Mr Hollows was that this was a gift. She had told Mr Hollows that because of the Creditnet saga she had financial commitments to meet. They talked about this at length. He told her that he was selling a property in New Zealand and would send her some money as a gift. The explanation seems to me inherently improbable.
Both the first plaintiff and the defendant were giving evidence about events of more than seven years earlier. The first plaintiff purported to have a clear recollection of events and of conversations. Nevertheless I regarded some of his evidence as a little embellished and self-serving. I did not conclude that the first plaintiff was consciously giving false evidence, but I think that his recollection of events over the years has probably been reinforced to some degree by reconstruction which suits his case. Whilst I generally preferred his evidence to that of the defendant, I was far from persuaded that it was entirely reliable and accurate.
I found the defendant’s evidence unsatisfactory in a number of respects. She purported to have a precise recollection of the words used in telephone conversations many years earlier but to have no recollection of other matters, for example relating to other investors in the Creditnet deal. I formed the view that the defendant was willing to alter her evidence to suit her case.
I am satisfied on the balance of probabilities that the deal which was put to the defendant by Messrs Strawbridge, Hollows and Gray was one where she would get her initial investment back after three months, and a further payment equal to four times the initial investment three months thereafter. I am satisfied that the defendant conveyed the deal to the plaintiff as one where investors would get their initial investment back after three months, and a further payment equal to double the initial investment three months thereafter. I am satisfied that the intention of the defendant was to keep for herself the difference between the fourfold profit she expected to make and the twofold profit for which she would account to the plaintiff. I am confirmed in this view by the fact that she told the police that the arrangement was for a fourfold return. I have no doubt that it never occurred to her that a copy of her police statement might find its way into the hands of the plaintiff. Moreover, it would seem quite extraordinary that Mr Gray should write a letter in October 2004 referring to a fourfold return. The letter referred to the defendant’s “claims of being guaranteed an extravagant five times return”.
Having regard to my assessment of the relative credibility of the first plaintiff and the defendant, I do not accept that the defendant made a telephone call to the first plaintiff from her car outside her bank in the suburbs of Brisbane on 17 January 2001. I find that she accepted Mr Hollows’ assurance that she would receive signed documentation within a few days of the payment, accepted that there was some good reason for the deadline which required the money to be paid that day, and took a decision to proceed with the investment, on her on behalf and on behalf of at least the plaintiffs and probably the other investors she had introduced, to release the funds notwithstanding that the documentation had not been signed.
Having made the finding, I should add that I think that it probably made no difference, in the sense that if she had spoken to the first plaintiff when she says she did, it is more likely than not that the first plaintiff would have made the same decision she did, to go ahead with the investment on the assurance that the documentation would be forthcoming within a few days. I have come to the view that both the first plaintiff and the defendant, by 17 January 2001, were unrealistically optimistic about the investment and were determined to proceed with it rather than back out and lose the opportunity of such a high return over such a short period.
It is unnecessary for me to consider what might have been the plaintiffs’ entitlements if the investment had worked out in the way the defendant believed it would, and she had received the initial investment back, plus a fourfold profit. I suspect that in those circumstances she would have paid the first plaintiff his twofold profit and that he would have been delighted with it, and unaware that she had made a super profit on his contribution, but I need not take that speculation any further.
Counsel for the defendant made much of the first plaintiff’s failure to minute decisions of the second and third plaintiffs about the investment, and his willingness to risk money from his superannuation fund inconsistently with the obligations of a trustee of such a fund. Counsel for the defendant submitted, reasonably in my view, that the first plaintiff treated the moneys he put into the investment as his own, and that he did not appear to have any comprehension of the difference between his own money, company money and superannuation fund money, or of his obligations as sole director of the company, either in relation to its own funds or as to its duties as trustee of the superannuation fund. The criticisms are well founded but it does not appear to me that they make any difference to the outcome of these proceedings.
The statement of claim was amended a number of times, most recently on the fourth day of the hearing. Causes of action are pleaded against the defendant at common law in contract, negligence and breach of statutory duty, and in equity for breach of trust and breach of fiduciary duty.
Despite the manner in which the statement of claim is drawn, counsel for the plaintiffs concedes that the losses claimed have been suffered only by the second and third plaintiffs, and that the first plaintiff cannot succeed.
The contract count pleads an agreement between the parties that the defendant, in the course of her practice as an accountant, for reward, would invest on behalf of the plaintiffs the amount of $40,000.00, on terms including that the investment would be secured against gold bonds redeemable at any bank, that the money would be invested on the international money market, and that it would be paid back after three months, with a profit component to be paid after six months. In breach of the agreement, the plaintiffs say that the defendant paid their money out of her trust account in circumstances where it was not secured against gold bonds or otherwise guaranteed. The reward relied on is the difference between the fourfold return which the defendant had agreed upon with Messrs Strawbridge, Hollows and Gray, and the twofold profit which she agreed to return to the plaintiffs.
The negligence count relies on the same facts, and on the duty of care owed by the defendant to the plaintiffs arising from the accountant-client relationship, and from an implied term in her retainer with the plaintiffs to exercise reasonable care and skill in relation to any investment recommendations she made to the plaintiffs.
The first breach of statutory duty count relies on an asserted breach of section 22 of the Trusts Act 1973 (Queensland). That section is in the following terms:
22 Duties of trustee in relation to power of investment
1) A trustee must, in exercising a power of investment –
a) if the trustee’s profession, business or employment is, or includes, acting as a trustee or investing money for other persons – exercise the care, diligence and skill a prudent person engaged in that profession, business or employment would exercise in managing the affairs of other persons; or
b) if the trustee’s profession, business or employment is not, or does not include, acting as a trustee or investing money for other persons – exercise the care, diligence or skill a prudent person of business would exercise in managing the affairs of other persons.
Based upon the same facts, the plaintiffs assert that the defendant’s conduct in paying their money out of her trust account involved a breach of trust. In support of the breach of trust count, they further say that the payment out was in breach of section 8 of the Trust Accounts Act 1973 (Queensland). That section provides:
8 Purposes for which money may be withdrawn from trust account
1) A trustee shall not withdraw any moneys from a trust account except for the purpose of –
a) making a payment to the person entitled thereto or in accordance with the directions of that person; or
b) making a payment to himself or herself for professional costs, statutory duties and charges and other proper outlays which payments shall be supported by authorisation in writing by the person for or on whose behalf the moneys were received or are held; or
c) making a payment that is otherwise authorised by law.
Maximum penalty – 100 penalty units or 1 year’s imprisonment
2) No withdrawal of moneys from a trust account for the purpose of investment howsoever of such moneys (including but without limiting the generality hereof, a deposit in the nature of an investment) or the loan thereof to any person whomsoever shall be made unless the trustee has first obtained the authorisation in writing of the person entitled to those moneys but this subsection shall not apply to the withdrawal of moneys from a trust account for the purpose of paying for any land, chattels or livestock for the purchase in the name of the client of which the moneys in question were paid into the trust account.
Maximum penalty – 100 penalty units or 1 year’s imprisonment
The asserted breach of the section is the defendant’s failure to obtain written authority from the plaintiffs for the payment out of her trust account.
The plaintiffs further assert that the defendant committed a breach of her statutory duty under the section, entitling the plaintiffs to sue for the breach.
The final count relied on by the plaintiffs is breach of fiduciary duty. They assert that such a duty arose from the defendant’s relationship with them as their accountant, and from the conflict which arose between her duty to the plaintiffs and her interest in secretly obtaining a greater profit, described in the statement of claim as a secret commission, out of the transaction.
It seems to me that the counts which rely on the Queensland Acts cannot succeed. I accept that for a very short period the defendant became trustee of the moneys of the second and third plaintiffs. It should be remembered that the money came into her trust account and was paid out again on the same day. I accept that the defendant did not have written authority to pay the money out. I am, however, satisfied that she had authority to do so. The purpose of transferring the money urgently to her trust account was to enable the payment out of the money immediately for the purposes of the proposed investment.
The failure of the defendant to obtain written authority for the payment out may have exposed her to prosecution for an offence, and to disciplinary action by her professional body, but I am of the view that section 8 of the Trust Accounts Act was not intended by the legislature to confer a right of action for breach of statutory duty against a trustee.
Failure to comply with a statutory requirement which does not confer such a right of action can nevertheless be relevant to negligence. The defendant should have required the first plaintiff to send her by fax or email an authority on behalf of the second and third plaintiffs to pay the money out to Creditnet Bank Internationale. I have no doubt that if she had asked for such an authority the first plaintiff would have provided it. In the circumstances it does not seem to me that the defendant’s failure to comply with section 8 of the Trust Accounts Act was causative of any loss suffered by the plaintiffs.
The reliance on section 22 of the Trusts Act seems to me misconceived. That section, as I read it, applies to a trustee making investment decisions on behalf of a beneficiary. The relationship between the defendant and the plaintiffs of trustee and beneficiary was in this case a brief and fortuitous one. The defendant did with the money precisely what the first plaintiff wanted her to do. I have no doubt that if she had asked the first plaintiff to transfer the money direct to the Creditnet Bank account, he would have done so. It does not seem to me that section 22 of the Trusts Act has any application to the facts of the present case. It is hence unnecessary for me to determine whether or not the section is capable of conferring a right of action for breach of statutory duty, although I doubt that it is.
The case of the plaintiffs relies heavily on what was said during the telephone conversations between the first plaintiff and the defendant in the days leading up to payment of the money. I thought that the oral evidence of the first plaintiff and the defendant was, to a degree, consciously or subconsciously, somewhat tailored to favour the case of the party giving the evidence. I am unable to accept the evidence of either of them as to precisely what was said. I am, however, satisfied that the defendant gave the first plaintiff a description of the proposed investment broadly in line with the unsigned bond exchange contract in evidence, with the exception that she told the plaintiff that the return would be three times the investment and not five times. I am satisfied that the first plaintiff was well aware that all the defendant was doing was passing on to him the representations which had been made to her by Messrs Strawbridge, Hollows and Gray. I am satisfied that the first plaintiff was not under the impression that the defendant was in a position to give him any personal assurance from her own knowledge about any of these matters.
Both the first plaintiff and the defendant, on the day the payment was made, accepted that the investment was a genuine one and that they would get their money back with the additional return they had been told about. I am comfortably satisfied that if they had been provided with the bond exchange contract, signed by the named signatories (Mr Hollows and a Ms Sparaventi) they would have been fortified in their belief that the investment was genuine. I am not satisfied that either of them would have asked for any further documentary proof of the genuineness of the transaction, particularly having regard to the urgent timeframe which they believed applied to the investment.
The finding I have made that the defendant believed she would get a fourfold return on the funds invested, but that she told the first plaintiff that the return would be twofold, is consistent with the desire of the defendant to have the funds go through her trust account, rather than be paid direct by contributors including the plaintiffs to Creditnet. The defendant would not have wanted other contributors to have direct contact with Creditnet, and she would have wanted her eventual fourfold return to come to her and not to the other contributors. With this background I prefer the first plaintiff’s evidence that the money was to be paid into the defendant’s trust account at her request, to the defendant’s evidence that this was the first plaintiff’s idea and was related to the first plaintiff being uncomfortable with transferring money to an overseas account.
As to the count in breach of fiduciary duty, the starting point is that the relationship of accountant and client is not one of the recognised fiduciary relationships, although aspects of it may be: see generally chapter 5, Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 4th edition 2002, LexisNexis Butterworths. On the facts of the present case, the defendant did not gain any benefit out of the conduct asserted by the plaintiffs to have amounted to a breach of her fiduciary duty, although I have found that it was her intention to do so. If she had made a profit which included the difference between twice and four times the investment of the plaintiffs, it would have been arguable that one of the bases for being required to account to the plaintiffs for that difference would have turned on breach of fiduciary duty. The typical remedy for breach of fiduciary duty is an order that the fiduciary account to the principal for the profit made by the fiduciary arising from the breach. In the present case there was no profit.
There have been cases where breach of duty by a fiduciary has caused loss to the principal, where a court of equity has awarded compensation for the loss. An example is Nocton v Lord Ashburton [1914] AC 932, where a solicitor gave advice to a client which was favourable to the solicitor’s interests but detrimental to those of the client. The client suffered loss and was given compensation in equity. However, quite apart from the question of whether an accountant is a fiduciary on the facts of the present case, if the investment had turned out as the parties expected, it would have been beneficial to both of them. I have not been taken by counsel for the plaintiffs to any authority for the proposition that on the facts of the present case equity would award compensation for breach of fiduciary duty. On the facts as I have found them, the conduct of the defendant which might be found to amount to breach of fiduciary duty was her falsely informing him about the return on the investment. That breach was not causative of the loss sustained by the plaintiffs.
This brings me to the count in breach of contract. There is no doubt that there was a contract of retainer between the plaintiffs and the defendant in relation to the provision of accounting services including the preparation of accounts and tax returns and the provision of advice about tax matters. I infer from the evidence that the defendant attended to the first plaintiff’s personal tax affairs as well as those of the company and the superannuation fund, so that the contractual relationship with the defendant included each of the three plaintiffs. However, I am satisfied that the dealings between the plaintiffs and the defendant about the investment were outside the professional relationship. I am satisfied that the first plaintiff understood that the defendant had no professional expertise relating to investment opportunities of the kind he discussed with her, but merely heard from time to time of investment opportunities through her contacts. The first plaintiff realised that he would simply be pooling his money with moneys of the defendant herself and of other clients or contacts of hers. I am satisfied that the first plaintiff was well aware that the investment was not something the defendant was doing as part of her accounting practice. It does not seem to me that the use of the firm trust account as a conduit for the funds altered this. The account was used simply as a matter of convenience. The defendant was motivated to channel the plaintiffs’ funds through the account to minimise any possibility that the first plaintiff would become aware of the full return on the investment, which was reprehensible but does not alter my conclusion that the investment dealing did not happen in the course of the defendant’s practice as an accountant. I am not satisfied that the defendant made to the first plaintiff any contractually enforceable promise about what would happen with the money. The plaintiffs are accordingly not entitled to succeed on the contract count.
This leaves the negligence count. It is necessary to analyse whether the defendant owed a duty of care to the plaintiffs in relation to the investment, and if so the scope of that duty, and whether she committed a breach of it. The question is to be considered in the context that the claim of the plaintiffs is one for pure economic loss.
The defendant was a professional person, an accountant in private practice, but she was to the first plaintiff’s knowledge operating a small suburban sole tax practice and was hardly a leading figure in the accounting world. The first plaintiff was a young but reasonably senior information technology professional working with the Public Service in Canberra, who had had some success buying and selling shares on the stock market using an online broker. He had a moderate level of sophistication in money matters and was something of a risk-taker.
To the extent that the plaintiffs assert that the defendant gave negligent advice about the investment in her professional capacity, this is not made out on the evidence. The first plaintiff well understood that the defendant was not providing him with professional advice about the prudence of investing in the Creditnet deal. What she conveyed to the first plaintiff cannot be characterised as a recommendation. He had asked to be informed of investment opportunities. I am not satisfied that the defendant did any more than inform him of the opportunity at hand. Both knew that the investment offered an extraordinarily high return in a short period, and both should have realised that the investment must have carried a commensurately high risk. There was no suggestion that there was any risk in the investment known to the defendant but not known to the first plaintiff. In his words, the fact that the defendant was prepared to put her own money in was good enough for him.
The final breach of duty of care relied on by the plaintiff is the transfer of funds out of the trust account into the Creditnet account without documentation. I have already found that the defendant did not telephone the first plaintiff and obtain his oral authority to pay the money out without documentation. It follows that she made that decision in relation to the money of the plaintiffs as well as for herself. She accepted the word of Mr Hollows that the signed documentation would be forthcoming within a week or so of the transfer.
As I have already said in relation to the breach of contract count, I am not persuaded that the outcome would have been any different if the defendant had made telephone contact with the first plaintiff. I think it far more likely than not that the first plaintiff would have authorised the transfer, once he was informed that the defendant proposed to transfer her own funds on the faith of the assurance by Mr Hollows that the documentation would be forthcoming shortly afterwards. That being so, the action of the defendant in transferring the funds without first obtaining the approval of the first plaintiff cannot be seen as a cause of the loss. Additionally, I am satisfied that if the documentation had been signed and handed over, both the defendant and the first plaintiff would have accepted it at face value but would nevertheless have lost their money.
It follows that whether or not the law would recognise a claim for pure economic loss in negligence on the facts of the case, and whether or not the defendant owed the plaintiffs a duty of care which she breached, the plaintiffs, being unable to prove causation of loss, cannot succeed on the negligence count.
In dismissing a claim by a client against an accounting firm in a case with some similarities to the present one, McKechnie J said in Carruthers v McMillan Partners [1999] WASC 120 at paragraph 133 “This case is a sad reminder of the need for people to deal cautiously when trusting large sums of money to eloquent strangers.”. The same could be said of the present case, though it will give little comfort to the parties.
There will be judgment for the defendant. I shall hear the parties as to costs.
I certify that the preceding seventy-seven (77) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.
Associate:
Date: 29 October 2010
Counsel for the plaintiffs: Mr R P Clynes
Solicitor for the plaintiffs: Bradley Allen Lawyers
Counsel for the defendants: Mr D R J Laws
Solicitor for the defendants: Rod J Barnett & Associates
Date of hearing: 29, 30 September 2008, 15, 16, 17 June 2009
Written submissions finalised: 19 November 2009
Date of decision: 29 October 2010
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