Johnston v Morien
[2008] WADC 96
•3 JULY 2008
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: JOHNSTON -v- MORIEN & ORS [2008] WADC 96
CORAM: COMMISSIONER DERRICK
HEARD: 21-25 & 28 APRIL 2008
DELIVERED : 3 JULY 2008
FILE NO/S: CIV 2028 of 2005
BETWEEN: DERRAN CHARMAINE JOHNSTON
Plaintiff
AND
NEIL EDOUARD MORIEN
First DefendantBOAB FINANCE ACCOUNTING PTY LTD (ACN 088 316 358)
Second DefendantPROPERTY SERVICES INVESTMENTS PTY LTD (ACN 101 346 874)
Third Defendant
Catchwords:
Contract - Formation of contract - Whether contract of retainer with accountant personally or with corporate entity - Contract of retainer with corporate entity inferred from conduct - Implied terms - Whether breach of implied terms - Whether breach of implied terms caused loss and damage
Negligence - Professional negligence - Whether duty of care owed by accountant - Whether duty of care breached - Principles of causation - Whether breach of duty of care caused loss and damage
Misleading or deceptive conduct - Sections 9, 10 and 79 of the Fair Trading Act 1987 (WA) - Whether accountant engaged in misleading or deceptive conduct by making misrepresentations - Whether loss and damage suffered by misleading or deceptive conduct
Equity - Fiduciary duties - Whether fiduciary duties owed by accountant - Whether breach of fiduciary duties by failing to obtain informed consent - Whether breach of fiduciary duties caused loss and damage - Obligation to account for profits derived from breach of fiduciary duties
Legislation:
District Court Rules 2005
Evidence Act 1906 (WA)
Fair Trading Act 1987 (WA)
Result:
First defendant breached fiduciary duty owned to plaintiff. First defendant to account for profits derived from breach of fiduciary duty.
Representation:
Counsel:
Plaintiff: Mr A Metaxas
First Defendant : In person
Second Defendant : In person
Third Defendant : In person
Solicitors:
Plaintiff: Metaxas & Hagar
First Defendant : Not applicable
Second Defendant : Not applicable
Third Defendant : Not applicable
Case(s) referred to in judgment(s):
Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1
Bennett v Minister for Community Welfare (1992) 176 CLR 408
Berryman v Hames Sharley (WA) Pty Ltd [2008] WASC 59
Boardman v Phipps [1967] 2 AC 46
Bond Corp Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Breen v Williams (1996) 186 CLR 71
Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410
Carmody v Priestley & Morris Perth Pty Ltd (2005) 30 WAR 318
Chan v Zacharia (1984) 154 CLR 178
Chappel v Hart (1998) 195 CLR 232
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Council of the Shire of Noosa v JE Farr Pty Ltd [2001] QSC 60
Craig v Troy (1997) 16 WAR 96
Dalleagles Pty Ltd v Australian Securities Commission (1991) 4 WAR 325
Equity Access Pty Ltd v Westpac Banking Corporation (1990) ATPR 40-994
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Gould v Vaggelas (1985) 157 CLR 215
Hawkins v Clayton (1988) 164 CLR 539
Henville v Walker (2001) 206 CLR 459
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110
James v ANZ Banking Group Ltd (1986) 64 ALR 347
Johnston v Morien [2006] WADC 46
Law Society of New South Wales v Foreman (No 2) (1994) 34 NSWLR 408
Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23
Maguire & Tansey v Makaronis (1997) 188 CLR 449
March v E & M H Stramare Pty Ltd (1991) 171 CLR 506
Medlin v State Government Insurance Commission (1995) 182 CLR 1
Merret v Babb [2001] 3 WLR 1
Mordecai v Mordecai (1988) 12 NSWLR 58
Naxakis v Western General Hospital (1999) 197 CLR 269
Pavan & Gowshan & Associates Pty Ltd v Ratnam (1996) 23 ACSR 214
Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165
Punjab National Bank v de Boinville [1992] 1 WLR 1138
Re Morris Fletcher & Cross' Bill of Costs [1997] 2 Qd R 228
Ross v Ross, unreported; SCt of WA; Library No 980679; 26 November 1998
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
Sharp & Dymond v Ramage (1995) 12 WAR 325
Stambulich & Ors v Ekamper [2001] WASCA 283
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Townsend & Anor v Roussety & Co (WA) Pty Ltd & Anor [2007] WASCA 40
Voli v Inglewood Shire Council (1963) 110 CLR 74
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Warman International Ltd v Dwyer (1995) 182 CLR 544
COMMISSIONER DERRICK:
Introduction
The plaintiff alleges against the first defendant various causes of action, namely breach of contract, negligence, misleading or deceptive conduct, breach of fiduciary duty and failure to repay a debt due and owing. The causes of action are alleged to arise out of the first defendant's conduct during 2003 and 2004 when he acted as the plaintiff's accountant and financial advisor. The plaintiff claims damages for the alleged breach of contract, negligence and misleading or deceptive conduct, equitable compensation or an account of profits or both for the alleged breach of fiduciary duty and repayment of the alleged debt.
The plaintiff's focus throughout the trial was on the breach of fiduciary duty claim. In par 8 of the written closing submissions filed on the plaintiff's behalf it is asserted that while all of the plaintiff's various causes of action remain "live" it is not necessary for the court to determine them "because of the first defendant's concession of a fiduciary duty and the clear breaches of that duty". In the absence of any formal abandonment by the plaintiff of her pleaded causes of action it is necessary for me to deal with them.
The plaintiff's Writ of Summons dated 8 September 2005 and re‑amended statement of claim dated 8 September 2006 names Boab Finance Accounting Pty Ltd (ACN 088 316 358) and Property Services Investments Pty Ltd (ACN 101 346 874) as the second and third defendants respectively. However, at the beginning of the trial I was informed by the plaintiff's counsel that the second defendant was de‑registered on 16 January 2007, that the third defendant was de‑registered on 26 November 2007 and that therefore no relief was sought by the plaintiff against either company. The trial therefore proceeded on the basis that the alleged causes of action and claims against the second and third defendants were not pursued and were not something that fell for determination.
The first defendant represented himself at the trial.
Non-contentious factual background
The plaintiff is a sole parent. At the time of the trial she had been employed by Silver Chain Community Care for three months.
The plaintiff met the first defendant some time in 2002. She met him in social settings through his de facto partner, a Ms Robyn Straughan. Ms Straughan's son was attending the same play group as the plaintiff's son. Ms Straughan and the plaintiff were on the play group committee together. They became strong friends.
Over the course of her relationship with Ms Straughan the plaintiff ascertained that the first defendant was an accountant. At the relevant time the first defendant carried on business as a public accountant and business consultant.
At all material times the first defendant was the sole director and shareholder of the second defendant and the sole director and shareholder of the third defendant.
On 15 November 2002 the plaintiff's father, who lived in New Zealand, passed away. By his last Will and Testament he bequeathed his estate ("the Estate") to the plaintiff. The plaintiff was also appointed the Executrix under the Will. The principal asset in the Estate was the plaintiff's father's former residence.
On or about 27 November 2002 the plaintiff appointed Cooney Lees Morgan, a firm of solicitors in New Zealand, to act for her in the administration of the Estate.
On the death of her father the plaintiff travelled to New Zealand. She returned to Australia some short time prior to 20 December 2002.
After she had returned to Australia from New Zealand the plaintiff was contacted by either Cooney Lees Morgan or the real estate agent appointed to sell her father's former residence and told that an offer had been made to purchase the residence. She was told, in effect, that she needed to respond to the offer on an urgent basis.
On the morning of 20 December 2002 the plaintiff, with the knowledge that the first defendant was an accountant, telephoned the first defendant to arrange a meeting with him. She wanted to speak to the first defendant about financial issues arising as a result of her inheritance. She also wanted to obtain his advice in relation to the offer that had been made to purchase her father's former residence. During her telephone conversation with the first defendant the plaintiff told the first defendant that her father had died and that she had inherited money and her father's former residence. She said that she required some financial advice in relation to the management of the inheritance. The first defendant agreed to meet with the plaintiff at his offices at 10 am that morning.
In accordance with the arrangement that had been made during the telephone call the plaintiff met with the first defendant at his offices on the morning of 20 December 2002. The first defendant's offices were situated at 30 Ledgar Road in Balcatta.
During the meeting the plaintiff told the first defendant that the principal asset of the Estate was her father's former residence which was to be sold. She said that her primary source of income was a supporting parent's benefit. She told the first defendant that she was concerned about the effect that the money that she was to receive from the administration of the Estate would have on her pension entitlement. She told the first defendant that she was concerned about being liable to pay tax on any money received from the administration of the Estate. She also told the first defendant about the offer that had been made to purchase her father's former residence. She instructed the first defendant that she wanted him to act as her accountant and to provide advice in relation to taxation and financial planning matters and, in particular, advice in relation to the effect that the money that she would receive from the administration of the Estate would have on her pension entitlement and liability for taxation.
At the meeting the first defendant obtained from the plaintiff some details about the inheritance. He advised her that given the recent death of her father she should defer making a decision on the offer that had been made to purchase her father's former residence until after the Christmas and New Year holiday period at which time she would be better able to make a reasoned decision in relation to the matter. The first defendant also recommended to the plaintiff that they should meet again in January so that the two of them could work on her affairs in a more calm and considered manner.
On or about 22 December 2002 the first defendant prepared, signed and sent a letter to the plaintiff bearing that date (Exhibit P10). The letter was on "Boab Advantage" letterhead. However, at the bottom left hand corner of each page of the letter there was a reference to:
"Beazley Nemass Pty Ltd
Public Accountants & Business Consultants
Registered Tax Agent – Registration 6264207"
followed by the telephone, facsimile and email details of the company. On the bottom right hand corner of the first page of the letter there was a highlighted block which contained the following information:
"A Boab Group Company
Corporate Administration
Post Office Box 109
Greenwood WA 6924."
The telephone, facsimile and email contact details of the Boab Group appeared immediately under the above information. It was therefore clear from the face of the letter that Beazley Nemass Pty Ltd ("Beazley Nemass") was a member of the Boab Group of companies. The signature clause of the letter read as follows:
"Yours sincerely
Beazley Nemass Pty Ltd
Neil E Morien
Consultant – Tax Advising."
The letter was headed "Re: Taxation & Financial Planning Matters". In the first paragraph of the letter the first defendant stated:
"Firstly, thank you for your trust in engaging my firm to provide your professional support and advice in relation to your taxation and financial planning matters. On behalf of my firm and our staff I can assure you that we will strive to return your trust with the highest possible quality of client service and advice."
The first defendant then confirmed the recommendations that he had made during the meeting on 20 December 2002. He then stated that "our firm offers a package of services and support through our Boab Advantage network of associates". He identified what the package of services included and stated:
"Although I specialise in business consulting and tax advising our professional practice is analogous with your GP Doctor. I am the 'Business Doctor' and provide my clients with a one‑to‑one point of contact. If client matters require 'specialist treatment' then I supervise and coordinate referral of the business matters to each specialist so that advice in one area of specialisation takes into account the requirements and planning in all other business areas."
In his letter the first defendant stated that in the normal course "our" fees are calculated on the "time taken – hourly rate" basis. He set out the normal hourly rates charged by the firm for various types of work performed. The rates specified included his hourly rate. He stated that he would keep the plaintiff fully informed "as to my work and the fees/costs on at least a monthly basis".
On 21 December 2002 the plaintiff, despite the advice that she had received from the first defendant during the meeting on 20 December 2002, instructed Clooney Lees Morgan to accept the offer that had been made to purchase her late father's former residence.
On 21 January 2003 the plaintiff met the first defendant at his offices for a second time. She had previously informed the first defendant by telephone that she had accepted the offer to purchase her father's former residence.
At the meeting on 21 January 2003 the first defendant obtained some background information about the plaintiff relevant to her financial situation. He also asked her about her plan for the use of any funds that she received from the administration of the Estate. He advised her that it was important for her to execute a Power of Attorney and a Will because she was a sole parent. He said that he could be appointed as the plaintiff's Attorney if there was nobody else who she would prefer to appoint. He suggested that she think about these matters.
During the course of the meeting on 21 January 2003 the first defendant prepared four authorities all dated 21 January 2003 for the plaintiff to sign. The plaintiff signed the authorities at the meeting. Each of the authorities was also signed by the first defendant as director and consultant of Beazley Nemass.
By the first of the authorities (Exhibit P18) the plaintiff informed the real estate agency in New Zealand that was handling the sale of her late father's former residence that the first defendant had been appointed as her accountant and financial advisor, and authorised and instructed the agency to communicate with the first defendant and to provide him with any information that he may request in relation to her property dealings and, in particular, in relation to the administration of the Estate.
The second of the authorities (Exhibit P19) was addressed to Clooney Lees Morgan. By the authority the plaintiff informed Clooney Lees Morgan that the first defendant had been appointed as the plaintiff's accountant and financial advisor, and authorised and instructed Clooney Lees Morgan to communicate with the first defendant and to provide him with any information as he may request in relation to the plaintiff's "legal and finance affairs and in particular all information as he may consider necessary in relation to the administration of the Estate … ".
The third authority (Exhibit P21) was addressed to the managers of the Joondalup and Whitfords branches of the National Australia Bank ("the NAB") as well as the NAB's Business Banking Consultants at the Osborne Park Business Banking Centre. In the authority the plaintiff informed the addressees that the first defendant had been appointed as her accountant and financial advisor. She authorised and instructed the addressees to communicate with the first defendant and to provide him with any information as he may request from time to time in relation to her banking and financial matters. She stated in the authority that the first defendant had her express legal authority to represent her in dealings with the bank.
The final authority (Exhibit P20) was not addressed to any specific person or entity. By the authority the plaintiff stated that the first defendant had been appointed as her accountant and financial advisor, and provided a general authorisation to communicate with the first defendant and to provide him with any information as he may request in relation to her "banking, financial, investments, income, taxation and/or life insurance and superannuation matters".
On or about 27 January 2003 the plaintiff had a telephone conversation with the first defendant. During this conversation she informed the first defendant that she wanted some work done on the ceilings of her house at 11 Trafford Court in Craigie ("the Property"). She told him that she had already obtained a quote for the undertaking of the work. She also said to the first defendant that she might want to do a quick tidy up and renovation of the Property so that she could put it on the market for sale, or words to this effect. In response to these statements the first defendant told the plaintiff, in substance, that he had a building company that could do the work for her and that he could arrange for a Mr Liam Schofield, who was a tradesman experienced in building, to visit her at the Property and provide her with some advice as to whether the quote that she had obtained for the ceiling repairs was reasonable. The plaintiff accepted the first defendant's offer to arrange for Mr Schofield to attend the Property.
The building company that the first defendant referred to in his conversation with the plaintiff was the third defendant.
After his conversation with the plaintiff the first defendant instructed Mr Schofield to visit the plaintiff at the Property. Mr Schofield was a qualified carpenter joiner. He had completed his apprenticeship in the 1970's. He had no other trade qualifications and was not a registered builder. At the time he was employed by the third defendant. He was the manager of the third defendant's operations.
Within a week or so of the plaintiff's conversation with the first defendant on 27 January 2003 Mr Schofield visited the plaintiff at the Property. He inspected the Property with the plaintiff. Either during this inspection or at another meeting between the plaintiff and Mr Schofield that took place some short time after the initial inspection, the plaintiff informed Mr Schofield that she also wanted some renovation work done on the bathroom of the Property. She told him that she had already obtained a quote from a company for the cost of re‑surfacing the tiles and bowls in the bathroom. Mr Schofield ultimately provided the plaintiff, on behalf of the third defendant, with a quote of $3,500 for the repair of the ceilings and $5,500 for a complete renovation of the bathroom and toilet.
After Mr Schofield had provided the plaintiff with his quote the plaintiff contacted the first defendant or Mr Schofield or both and told them that she wanted Mr Schofield to repair her ceilings and to carry out the renovation work to the bathroom and toilet area of the Property for the amounts quoted by Mr Schofield. The first defendant then instructed Mr Schofield to proceed to do the work.
On 28 February 2003 Clooney Lees Morgan completed settlement of the sale of the plaintiff's father's former residence in New Zealand.
The repair work to the ceilings of the Property was commenced on or about 20 March 2003 and was substantially completed by the end of that month. The work on the bathroom and toilet did not commence until late April 2003 and was completed in or about June 2003. Mr Schofield performed the majority of the work on the bathroom and toilet himself.
After the work on the bathroom and toilet area of the Property had been completed the plaintiff instructed the first defendant and Mr Schofield that she wanted further renovation work to be undertaken at the Property. The work included a renovation of the kitchen as well as some work on the outside of the Property. The first defendant subsequently instructed Mr Schofield to arrange for this additional work to be carried out. Mr Schofield did so.
The additional renovation work to the Property was in the main carried out by a Mr Brian Byfield, an employee of the third defendant, and a Mr Alan Jago who was a sub‑contractor engaged by the third defendant. This additional renovation work commenced in or around November 2003 and was completed some time in late December 2003 or early January 2004.
On or about 2 April 2003 the plaintiff had a further meeting with the first defendant at the first defendant's offices. At this meeting the plaintiff instructed the first defendant that she wanted to use part of the funds that she was to receive from the administration of the Estate to repay a debt to her sister, to pay out the plaintiff's personal loan with the NAB and to pay out a debt on her mother's credit card. In light of these instructions the first defendant ultimately advised the plaintiff that she should instruct Clooney Lees Morgan to transfer NZ$30,000 from the funds arising from the administration of the Estate into the second defendant's business account which was held with the Osborne Park branch of the NAB ("the Account"). I pause here to say that the plaintiff and the first defendant are in dispute as to the circumstances which lead to the first defendant providing this advice to the plaintiff.
At the meeting on 2 April 2003 the first defendant arranged for the plaintiff to sign four further authorities. All of the authorities were dated 2 April 2003 and were on "Boab Advantage" letterhead.
The first of the authorities (Exhibit P71) was not addressed to any specific person or entity. By its terms the plaintiff stated that the first defendant had been appointed as her accountant and financial manager, and authorised and instructed the recipient of the authority to communicate with the first defendant and to provide him with any information as he may request in relation to the plaintiff's "banking, financial, investments, income, taxation and/or life insurance and superannuation matters". The first defendant signed the authority as "Director and Consultant" of the second defendant. At the bottom of the authority there was a reference to Beazley Nemass which was identical in its terms to the references made to that company in the previously mentioned letter to the plaintiff dated 22 December 2002 (Exhibit P10) and in the authorities signed by the plaintiff on 21 January 2003 (Exhibits P18 to P21). This authority (Exhibit P71) was the only one of the four signed by the plaintiff on 2 April 2003 that was also signed by the first defendant. It was also the only one of the four authorities that contained any reference to Beazley Nemass.
The second of the authorities (Exhibit P72) was similarly not addressed to any specific person or entity. It was headed "Re: Appointment – Alan Muir, Mandela Pty Ltd Future Wealth". By the terms of the authority the plaintiff stated that Mr Alan Muir and his firm Future Wealth had been appointed as her financial planner. She authorised and instructed the recipient of the authority to communicate with "Mr Muir and/or any of his delegated employees and to provide to him any information as he may request in relation to any banking, financial, investments, income, taxation and/or life insurance and superannuation matters". In the authority the plaintiff also stated that information requested by Mr Muir should be communicated to a specified email address or to a mail, facsimile or email address as instructed by Mr Muir. The address specified in the authority was:
"Derran C Johnston
c/- Future Wealth
30 Ledgar Road
Balcatta WA 6021".
The third of the authorities (Exhibit P73) was addressed to Clooney Lees Morgan. By its terms the plaintiff authorised Clooney Lees Morgan to draw upon the funds of the Estate held in its trust account for the purpose of enabling a transfer of NZ$30,000 to the Account.
The fourth of the authorities (Exhibit P74) was addressed to the first defendant at Boab Finance Accounting Pty Ltd, 1st Floor, 30 Ledgar Road in Balcatta. By its terms the plaintiff authorised the first defendant to draw upon the Estate funds as received from the trust account of Clooney Lees Morgan for the purpose of completing the following transactions:
"Pay to National Australia Bank – the balance of my Personal Loan 086‑495 54‑098‑7061
Payment of accounts to Property Services Investments Pty Ltd (Schofield Property Services)
Payment to my sister [Debra Lee Johnston] such amounts as you negotiate to be finalisation of her claims upon me for reimbursements and other amounts
Payment to my mother [Nancie E Johnston] the amount of $3000 to her credit card account [Westpac Challenge 4564‑7160‑8010‑1075]
Payment to my personal bank account [National Australia Bank 086‑495/65‑681‑1228] the amount of $3000
Retain such amounts as may be the balance on account of professional fees and costs."
After the meeting on 2 April 2003 the first defendant, acting pursuant to the authority that had been given to him by the plaintiff, instructed Clooney Lees Morgan to transfer the sum of NZ$30,000 into the Account.
On 3 April 2003 Clooney Lees Morgan transferred NZ$30,000 to the Account. The second defendant received AUS$27,289.30 into the Account on 4 April 2003.
On or about 4 April 2003 the first defendant arranged for the sum of $1,501.50 to be transferred out of the plaintiff's funds held in the Account in payment of fees and costs of the first defendant and his firm said to have been incurred in the provision to the plaintiff of professional services relating to taxation and financial matters during the period December 2002 to March 2003.
As at 8 April 2003 Clooney Lees Morgan retained in their trust account for the Estate NZ$207,591.31. They informed the first defendant of this fact by email dated 8 April 2003.
During the period 6 to 9 April 2003 the first defendant arranged for the second defendant to use the plaintiff's funds held in the Account to make payments to the NAB, the plaintiff's mother and the plaintiff as instructed by the plaintiff in the authority dated 2 April 2003.
On 6 April 2003 the first defendant arranged for the second defendant to pay out of the plaintiff's funds held in the Account the sum of $3,481.17 to the third defendant in respect of work carried out at the Property.
On 7 April 2003 the plaintiff had a telephone discussion with the first defendant. At the end of this discussion the plaintiff instructed the first defendant to purchase on her behalf a computer and associated equipment and software (hereafter referred to as "accessories"), and to arrange for the computer's installation and connection to the internet at the Property.
The computer and accessories were installed at the Property and connected to the internet some time in the first half of April 2003. This was done by a Mr Paul Osborne who was a computer technician. Mr Osborne performed work for a company called TPM (Australia) Pty Ltd ("TPM"). TPM was a company in which the first defendant had a financial interest. The company was controlled by the first defendant.
On 16, 17 and 18 April 2003 the first defendant arranged for the second defendant to make a number of payments out of the plaintiff's funds held in the Account to TPM in respect of the provision and installation of the computer and accessories. The payments were as follows:
Computer$2,920.50
Office XP software $ 577.50
Norton anti‑virus software $ 109.95
Windows XP software $ 373.95
Hyundai monitor $ 467.50
Keyboard and mouse $ 99.50
Speakers$ 109.95
Printer$ 463.80
Games and movies $ 588.60
Technology services and on site support $1,056.00
On 30 June 2003 the first defendant arranged for the second defendant to pay $3,544.23 out of the plaintiff's funds held in the Account to the third defendant. On the same date he also arranged for the transfer of $1,094 out of the plaintiff's funds held in the Account in payment of the fees and costs of the first defendant and his firm said to have been incurred as a result of the provision to the plaintiff of professional taxation and financial management services.
On 22 August 2003 the plaintiff had a further meeting with the first defendant. At the meeting the plaintiff and the first defendant discussed the application of the balance of the funds owing to the plaintiff from the administration of the Estate. The plaintiff authorised the first defendant to arrange for the transfer of the balance of the funds to the Account.
During the meeting on 22 August 2003 the first defendant again raised with the plaintiff the need for her to execute a Will and a Power of Attorney. He provided her with draft versions of both documents. The parties are in dispute as to the precise form of the draft versions of the documents that the first defendant provided to the plaintiff at the meeting.
On 23 August 2003 the first defendant sent to the plaintiff an email which purported to confirm matters discussed at the meeting held on 22 August 2003 (Exhibit P109). The plaintiff received the email but not, she says, the attachment which was embedded in the body of the email. The attachment was a letter from the first defendant on "Neil E Morien" letterhead to the plaintiff dated 23 August 2003.
In the body of the email dated 23 August 2003 the first defendant confirmed "various matters discussed at yesterday's meeting". He stated that based on the Administration Statement received on 21 August 2003 the balance of the funds available to the plaintiff from the administration of the Estate would be approximately $179,000. He stated that, as discussed, these funds could be transferred to "our company account (Boab Finance Accounting Pty Ltd) and then dispersed as required to make payment of all accounts and then in accordance with the allocation of funds". He then set out a "Budget Allocation of Funds".
In the email under the heading "Last Will and Testament Power of Attorney Enduring Power of Attorney" the first defendant said the following:
"As discussed – in your personal circumstances as a single parent with no close immediate family on whom you are prepared to rely to look after your son, it is essential that you have protective arrangements in place.
The most essential is of course a current Will.
In my opinion a Power of Attorney and an Enduring Power of Attorney are also essential for protective purposes – including; emergencies, accidents, sudden short‑term illness and long‑term illness and mental incapacity.
I have therefore provided you with the draft documents for you to read, take independent advice and then on an informed basis to have the documents finalised for appropriate signatures and witnessing.
I have also provided you with a draft of my explanatory or precautionary letter in relation to the Power of Attorney. This letter applies similarly to the Enduring Power of Attorney.
For your reference I am providing (by way of attachment to this email) an amended copy of my letter which has been amended from the draft given to you yesterday to make clear the all‑encompassing purposes of the Power of Attorney.
As discussed at the end of our meeting yesterday – what you now need to do is to carefully consider the matters we discussed (as detailed above) and then (a) confirm if there are any changes to the 'Budget Allocation of Funds' and (b) make your decision as to the documents provided.
I will now wait for your telephone call next week to arrange our next meeting."
The first defendant's letter to the plaintiff dated 23 August 2003, that is the attachment to the email which the plaintiff asserts she did not receive, read as follows:
"Dear Derran
Re: Power of Attorney
I enclose a Power of Attorney document as per our discussions at our meeting.
A Power of Attorney is a powerful legal document for the Attorney – in this case, for me whom you are appointing as Attorney. In unequivocal terms – a Power of Attorney gives me all legal rights to act on your behalf and sign all and any documents and to enter into any legal transactions I consider necessary or desirable on your behalf. In effect I stand in your shoes and act in your personal legal capacity – whether or not you later agree or disagree with my actions.
I point out the legal power of a Power of Attorney so that you understand the full extent of the consequences of signing the document.
The purpose of the Power of Attorney in your case is (a) so that I can act on your behalf in whatever matters may from time to time be necessary for the protection and wellbeing of your son, Beau Lewis Johnston (b) to provide instructions to financial planners, lawyers and financial institutions as necessary to proceed with financial and investment planning and upon my judgment, commit you to financial arrangements as we have discussed and will discuss further from time to time and (b) so that I have the capacity to immediately act on your behalf during your absence, illness or other incapacity.
I trust that this letter sufficiently emphasises the importance of the document. Further, you should feel free to seek independent legal and financial advice before signing the Power of Attorney documents."
During the period between 23 August 2003 and 28 August 2003 the plaintiff took the draft copy of the Power of Attorney which she had been provided with at the meeting on 22 August 2003 to a friend who was a non‑practising solicitor from Scotland. He had a "quick look over" the Power of Attorney and told the plaintiff that the document did not give rise to anything she should worry about.
On 28 August 2003 the plaintiff attended a meeting with the first defendant at his offices. The parties are in hot dispute as to much of what occurred at that meeting. What is clear, however, is that at the meeting the plaintiff executed her last Will and Testament (Exhibit P11) as well as a Power of Attorney (Exhibit P116).
The plaintiff's execution of the Will was witnessed by a Ms Sherida Joy Fagan and a Mr Nicholas Graham Rogers. Ms Fagan worked as an administration assistant in the first defendant's office. Mr Rogers worked as an administration manager in the office. By the terms of the Will the plaintiff appointed the first defendant as her Executor and Trustee.
The plaintiff's execution of the Power of Attorney was also witnessed by Ms Fagan and Mr Rogers. By the Power of Attorney the plaintiff appointed the first defendant as her Attorney.
At the meeting the plaintiff provided to the first defendant a signed copy of the first defendant's letter to her dated 23 August 2003 regarding the Power of Attorney (Exhibit P108). She signed the letter to indicate that she "acknowledged and accepted" its terms. It is therefore clear that regardless of whether or not the plaintiff received this letter as an attachment to the first defendant's email dated 23 August 2003, she did receive a copy of it at some point prior to or during the meeting on 28 August 2003.
Also at the meeting on 28 August 2003 the plaintiff signed two authorities that were prepared for her by the first defendant. Both of the authorities were on Boab Advantage letterhead and were dated 28 August 2003.
The first of the authorities was addressed to Cooney Lees Morgan (Exhibit D320). By the authority the plaintiff authorised and instructed Cooney Lees Morgan to transfer the full amount of the balance of the funds that had been derived from the administration of the Estate to the Account "in accordance with the confirmation of arrangements and instructions" of the first defendant. The first defendant arranged for this authority to be sent to Cooney Lees Morgan.
The second of the authorities was addressed to the first defendant himself (Exhibit D321). It read as follows:
"You are hereby authorised to hold in your company account and draw upon as required all such funds as received from the Trust Account of Cooney Lees Morgan for the purpose of the following transactions –
Payment of your fee accounts, costs and disbursements to date
Payment of accounts and prepayments to Property Services Investments Pty Ltd
Funds transfers to investments accounts as required from time to time
Retain such amount as may you anticipate may be required for prepayments and final payments on account of any professional fees and costs of your company, lawyers, financial advisors and/or other consultants."
On 4 September 2003 Cooney Lees Morgan, in accordance with the instructions contained in the plaintiff's letter of authority to them dated 28 August 2003, transferred NZ$209,241.80 to the Account. This amount represented the balance of the money obtained from the administration of the Estate. On the same date AUS$183,876.55 was received into the Account.
On 4 September 2003 the first defendant sent an email to the plaintiff in which he confirmed that NZ$209,241.80 had been converted to AUS$183,876.55 (Exhibit P139).
Some short time after 4 September 2003 the first defendant advised the plaintiff in one or more conversations that he was making enquiries on her behalf as to the most appropriate bank account into which to deposit the funds that had been received from Cooney Lees Morgan.
On 6 September 2003 the first defendant arranged for the second defendant to pay $85,000 from the plaintiff's funds held in the Account to a revolving line of credit account held by a company called Kauri Holdings Pty Ltd ("Kauri") with the NAB. The first defendant was the sole director and shareholder of Kauri. The payment was made to reduce the balance of the debt owed by Kauri to the NAB.
After 6 September 2003 the first defendant arranged for the second defendant to make the following payments from the plaintiff's funds held in the Account to the persons and entities listed below:
9 September 2003–third defendant $ 2,899.45
13 September 2003–Advantage Logiservaus for a refrigerator $ 1,600.00
30 September 2003–third defendant $ 2,211.00
30 September 2003–first defendant $ 2,579.50
1 October 2003–iiNet $ 82.34
11 October 2003–third defendant $10,000.00
20 October 2003–plaintiff $ 3,000.00
31 October 2003–third defendant $ 2,637.42
1 November 2003–third defendant $ 5,000.00
8 November 2003–advantage Logiservaus for white goods $ 3,600.00
17 November 2003 – third defendant $ 5,000.00
30 November 2003‑third defendant $ 9,619.34
1 December 2003–third defendant $ 5,000.00
4 December 2003–plaintiff $ 2,500.00
10 December 2003–third defendant $ 2,500.00
12 December 2003–plaintiff $ 3,000.00
31 December 2003–third defendant $ 3,904.82
31 December 2003–first defendant $ 2,194.50
31 December 2003–TPM for technology support $ 352.00
2 January 2004–iiNet $ 82.34
21 January 2004–plaintiff $ 3,000.00
31 January 2004–third defendant $ 1,980.45
5 February 2004–plaintiff $ 7,000.00
24 February 2004–plaintiff $ 2,000.00
25 February 2004–plaintiff $ 9,000.00
16 March 2004–plaintiff $ 9,000.00
27 March 2004–first defendant $ 1,353.00
7 April 2004–iiNet $ 82.34
29 April 2004–Norton internet security installation of updates $ 259.95
9 May 2004–plaintiff $ 4,000.00
28 June 2004–TPM for technology support and onsite training $ 396.00
30 June 2004–first defendant $ 544.50
1 July 2004–iiNet $ 82.34
The above statement that a number of payments were made out of the Account to the first defendant personally is based on an express admission to this effect contained in par 29 of the re‑amended defence dated 20 September 2006. The first defendant did not attempt to resile from this admission during the trial. The evidence adduced during the trial revealed that the payments in question were made in payment of the fees and costs of the first defendant's firm said to have been incurred as a result of the provision to the plaintiff by the first defendant and his firm of professional taxation and financial management services. The evidence did not reveal whether the payments were made into a personal account of the first defendant or some other account that was under his control. In light of the admission made in par 29 of the re‑amended defence it is curious that the first defendant did not make a similar admission in the re‑amended defence in respect of the previously mentioned payments made out of the Account in respect of professional taxation and financial management services on 4 April 2003 and 30 June 2003.
On 20 October 2003 the first defendant sent an email to the plaintiff in which he advised the plaintiff that he had identified a number of bank facilities which would provide an interest rate of between 4 per cent per annum and 5 per cent per annum for the plaintiff's funds, which funds could be deposited into such accounts on an "on call" basis. In the email the first defendant said that he was awaiting documents from the banks in order to establish the accounts.
On 28 October 2003 the plaintiff sent an email to the first defendant (Exhibit 351B, p 183). In the email the plaintiff complained about Mr Byfield. She asserted, in essence, that he did not have the necessary skills and experience to undertake the renovations to the kitchen and the outside areas of the Property, and that as a result the work was taking too long, and costing too much, to complete.
On 3 December 2003 the first defendant met with the plaintiff to discuss the concerns that she had raised in her email dated 28 October 2003.
On 4 December 2003 the first defendant sent two emails to the plaintiff (Exhibit D523 and Exhibit D525) in which he responded to the concerns that she had raised in relation to the renovation work being carried out at the Property. In one of the emails (Exhibit D523) he set out what had been agreed between himself and the plaintiff in relation to the future performance of the renovation work.
On 12 February 2004 the plaintiff again met with the first defendant. During the meeting the plaintiff requested information about the expenditure of the funds that she had received from the administration of the Estate.
On 22 March 2004 the first defendant sent an email to the plaintiff (Exhibits P271 and D692) in which he stated, in part:
"I refer to our meeting on 12 February and your subsequent telephone calls and email of 14 March.
At our meeting we had the draft financial report, I provided you with an overall summary and I advised that the remaining 'at call' or 'available' funds were less than $20,000 – that is, excluding the $85,000 which was previously transferred to our NAB account for a higher rate of interest.
The 'delay' in providing you with the final Financial Report and the various schedules and supporting documents has been due to a number of factors, including –
•having to review the transactions to check the correctness of amounts (as per your query in relation to the iiNet quarterly internet access charges)
•updating transactions for the January‑March quarter of this current year
•other urgent and priority attendances – including the 'tax seminar season'
•preferable to provide the report at the end of March to finalise quarterly transactions.
I would still prefer to wait until the end of the March quarter but in the meantime I will try to send to you interim reports, related paperwork and a number of specific emails advising on separate issues of your financial, budget/expenditure and Centrelink/taxation matters."
On 21 June 2004 the plaintiff sent an email to the first defendant (Exhibit D722). In the email the plaintiff said:
"In response to our phone conversation last week, I had expressed to you a further need to draw my funds which I understand to be in your business acc to incur a higher interest rate. And I can fully understand your concern on my expenditure to date, (I did a calculation going on my records) all I can say is, I have made some decisions and I have to live with them whether they were the correct ones or not. The monies so far I have to say haven't been wasted i.e. increasing the value of my property which I intend to have valued on completion, I can hear you say when will she stop? Well in answer to that question after this last draw of funds which I have calculated to be $8000 this will be for the installation of doors for the indoor outdoor room, furniture for this room, and a outdoor BQ setting and some landscaping, and rates, there will not be any further draws unless of extreme circumstances. The above mentioned funds I would like available as soon as possible…I would also like to know exactly how much the money is earning per month in dollar value whilst being in your business acc. Also Neil, I have a lot of recepts (sic) in regards to the works that have taken place at home what do you suggest I do with them, I look forward to your quick response in regards to all of the above."
On 18 August 2004 the plaintiff attended a meeting with the first defendant at his offices. She asked him for a break down of the expenditure of the funds that had been received from the administration of the Estate and which were being held in the Account. In response to this request the first defendant produced an "Account and Transaction Details" statement dated 18 August 2004 (Exhibit P298) ("the Account Statement"). The Account Statement was not a bank statement. It was a statement apparently produced from the second defendant's records. The Account Statement recorded all of the payments made from the plaintiff's funds held in the Account as well as details of those payments for the period 31 March 2003 through to 1 August 2004. It therefore contained entries recording all of the above referred to payments made out of the plaintiff's funds. The Account Statement also indicated that as at 1 August 2004 the plaintiff in fact owed the second defendant some $9,408.27.
Shortly after the meeting on 28 August 2004 the plaintiff consulted solicitors. On 8 September 2004 the plaintiff's solicitors issued a letter of demand to the first defendant at "Beazley Nemass Pty Ltd Public Accountants" bearing that date. In the letter the solicitors asked the first defendant to "forward by way of bank cheque directly to [the plaintiff] all residual monies which you, your firm or any third party hold on her behalf". The first defendant did not pay any money to the plaintiff in response to this demand or later demands.
The plaintiff's claim - quantum
The claim as originally pleaded
The plaintiff's claim as initially pleaded was for the sum of $138,165. This amount was calculated as follows:
Plaintiff's funds paid to
the Account $ 27,289.30
$183,876.55
$211,165.85
Less:
(a)payments made to the plaintiff or
at her direction $ 43,500.00
(b)reasonable allowances for renovation
work carried out at the Property $ 26 500.00
(c)computer $ 3,000.00
$138 165.00
The amount of $138,165 included the $85,000 paid out of the Account on 6 September 2003 to the revolving line of credit account in the name of Kauri.
The order for summary judgment
In late 2005 the plaintiff made an application for summary judgment against the first defendant in respect of the $85,000. On 7 December 2005 the Deputy Registrar made an order granting the first defendant leave to defend the action conditional upon the payment of a sum of money into court.
The first defendant appealed against the order of the Deputy Registrar. The appeal was heard by Sleight DCJ on 20 February 2006. His Honour dismissed the appeal: Johnston v Morien [2006] WADC 46. His Honour made the following orders:
1.The first defendant have leave to defend the action subject to par 2 of these orders;
2.Leave to defend that part of the plaintiff's claim which relates to the payment of $85,000 from the bank account of the second defendant to be conditional upon the payment by the first defendant of $75,591.73 into court to the credit of the action within 14 days;
3.There be liberty to apply for an order that the amount paid into court be paid out into an investment approved by the court pending the outcome of the action;
4.In the event that the first defendant does not comply with the conditions set out in par 2 of the orders, then the plaintiff be at liberty to apply to amend the statement of claim pleading a debt between the plaintiff and the first defendant prior to applying for judgment.
The fourth of his Honour's orders was made because the plaintiff's application for summary judgment was based upon a claim for a debt even though the plaintiff's claim against the first defendant as pleaded at that time was for unspecified damages.
It is not necessary to attempt to detail herein the nature of the first defendant's defence to the plaintiff's claim for the $85,000 as presented at the hearing before Sleight DCJ. It suffices to say that in his judgment Sleight DCJ observed at [57] that he had serious doubts about the bona fides of the first defendant's defence to the plaintiff's claim for the return of the $85,000. His Honour stated at [61] that in his opinion the defence reeked "of sophistry designed to avoid accounting to the plaintiff for funds belonging to her".
The first defendant failed to comply with the order made by Sleight DCJ requiring payment of a sum of money into court. Accordingly, the plaintiff made an application to amend her pleading pursuant to the fourth of the orders made by his Honour.
On 19 April 2006 orders were made granting the plaintiff leave to amend the statement of claim so as to allege that the payments of the funds arising from the administration of the Estate into the Account "were a loan by the plaintiff to the first defendant payable on demand by the plaintiff to the first defendant". The amendments made appear in pars 32A to 32D of the re‑amended statement of claim.
Consequent upon the amendment in the form of pars 32A to 32D the plaintiff made an application for summary judgment by way of chamber summons dated 3 May 2006 in respect of the $85,000 payment out of the Account. On 30 June 2006 the plaintiff obtained the summary judgment sought. The terms of the summary judgment order as made by the Principal Registrar were that "the plaintiff do have judgment in relation to its claim in pars 38 to 40 of the statement of claim in the amount of $85,000". In pars 38 to 40 of the amended statement of claim, which were in the same terms as par 38 to 40 of the re‑amended statement of claim, the plaintiff alleged that on 6 September 2003 the second defendant at the first defendant's direction paid $85,000 from the plaintiff's funds in the Account to a person or entity not known to the plaintiff, that the payment was made without the plaintiff's knowledge or consent and without any direction or authorisation from the plaintiff, and that the payment was disclosed to the plaintiff by the first defendant on or about 18 August 2004. Further, in par 81 of the amended statement of claim the plaintiff claimed against the first defendant the amount of $138,117 as a debt due and owing which amount, of course, included the $85,000 the subject of the summary judgment application.
The plaintiff's claim as presented at trial
By the date of the trial the plaintiff had filed and served the re‑amended statement of claim. Thus as at the date of the trial the plaintiff's claim, as pleaded in par 58 of the re‑amended statement of claim, was for the slightly reduced sum of $120,335.85. According to par 58 this amount is calculated as follows:
Plaintiff's funds paid to the Account $ 27,289.30
$183,876.55
$211,165.85
Less:
(a)payments made to the plaintiff or
at her direction $ 43,500.00
(b)reasonable allowances for renovation
work carried out at the Property $ 44 330.00
(c)computer $ 3,000.00
$120,335.85
The amount of $120,335.85 includes the $85,000 the subject of the summary judgment order.
During his opening address counsel for the plaintiff told me about the summary judgment order that had been made. He also informed me that after the summary judgment had been obtained bankruptcy proceedings were commenced against the first defendant but were dismissed by a Federal Magistrate on the basis that the judgment was not a judgment against the first defendant. Counsel submitted, in effect, that the Federal Magistrate had erred in arriving at this decision.
I do not know what material was placed before the Federal Magistrate at the time that he made his decision. However, it is clear from the above referred to paragraphs of the plaintiff's amended statement of claim that the plaintiff alleged that the first defendant was, albeit it not solely, liable for the $85,000. Moreover, it also appears to me from reading the Principal Registrar's reasons for decision in relation to the summary judgment application, which were delivered ex tempore on 30 June 2006, that the judgment was given on the basis of the allegations pleaded in par 32A to 32D of the amended statement of claim. I am therefore of the view, notwithstanding the absence of any express reference to the first defendant in the summary judgment order, that the order was intended to be made, and was made, against the first defendant.
In an outline of submissions filed and served prior to the trial the first defendant acknowledged that "on 30 June 2006 an interlocutory judgment against Morien for the amount of $85,000 was granted to Johnston". In addition he asserted in the submissions that "the net amount of the alleged debt due and owing is now $35,335.85".
In his opening address counsel for the plaintiff highlighted the statements made by the first defendant in his outline of submissions. He maintained, as I have already indicated, that the summary judgment order was made against the first defendant. He said that in light of the summary judgment the trial was not concerned with the claim in respect of the $85,000. He said that the issue for determination was the plaintiff's claim against the first defendant for the balance of the total amount claimed, namely $35,335.85.
At no stage did the first defendant take issue with the above statements made by the plaintiff's counsel in his opening address. The result was that the trial proceeded on the basis that the issue of the $85,000 payment had been dealt with and was not something that arose for my determination.
In his closing submissions the first defendant initially disputed that the summary judgment had been entered against him. However, after I referred him to the terms of the written outline of submissions that he had filed prior to the trial and pointed out that the whole trial had been run on the basis that his liability for the $85,000 had been determined and was not in issue, the first defendant reverted to his previously stated position and accepted that the summary judgment had been entered against him.
Error in the plaintiff's calculation of the amount claimed
As is apparent from my above reference to par 58 of the re‑amended statement of claim, the correctness of the assertion made by the plaintiff's counsel in his opening address that the plaintiff's claim was for $35,335.85 is dependant upon accepting that the payments made out of the Account to the plaintiff or at her direction totalled $43,500. However, an analysis of the re‑amended statement of claim reveals that the individual amounts that the plaintiff accepts were transferred out of the Account to her or at her direction totalled $63,206.50 (see pars 26.1 to 26.6, 27.10, 27.11, 41.2, 41.5, 41.7, 41.10, 41.14, 41.16, 41.20, 41.21, 41.23 to 41.26, 41.28 to 41.30 and 41.33). This being the case the total amount of the plaintiff's claim, based on the figures set out in par 58 of the re‑amended statement of claim, is not $35,335.85 but rather $15,629.35.
In my view the answer to this difficulty lies in identifying, by reference to the individual paragraphs of the re‑amended statement of claim, exactly which payments the plaintiff alleges were made out of the Account without her authority. It is the total of these payments, less the amount of $44,330 which the plaintiff asserts in par 58 constituted a reasonable allowance for the renovation work carried out at the Property, which comprises the total amount of the plaintiff's claim. If one performs this task it reveals the following:
1. The plaintiff alleges in pars 28.3, 28.4, 29, 41.19, 42 and 62 of the re‑amended statement of claim that she did not authorise the following payments totalling $7,515.25 to be made out of the Account to TPM ("the TPM payments"):
16 April 2003 - Computer $2,920.50
16 April 2003 - Office XP software $ 577.50
16 April 2003 - Norton anti‑virus software $ 109.95
16 April 2003 - Windows XP software $ 373.95
16 April 2003 - Hyundai monitor $ 467.50
16 April 2003 - Keyboard and mouse $ 99.50
16 April 2003 - Speakers $ 109.95
16 April 2003 - Printer $ 463.80
16 April 2003 - Games and movies $ 588.60
18 April 2003 - Technology services and on site support $1,056.00
31 December 2003 – Technology support $ 352.00
28 June 2004 – Technology support and onsite training $ 396.00
2. The plaintiff alleges in pars 28.1, 28.6, 29, 41.4, 41.18, 41.27 41.32, 42 and 63 of the re‑amended statement of claim that she did not authorise the following payments totalling $9,267 to be made out of the Account to the first defendant ("the first defendant payments"):
4 April 2003 $1,501.50
30 June 2003 $1,094.00
30 September 2003 $2,579.50
31 December 2003 $2,194.50
27 March 2004 $1,353.00
30 June 2004 $ 544.50
3. The plaintiff alleges in pars 28.2, 28.5, 29, 41.1, 41.3, 41.6, 41.8, 41.9, 41.11 to 41.13, 41.15, 41.17, 41.22, 42 and 62 of the re‑amended statement of claim that she did not authorise the following payments totalling $57,777.88 to be made out of the Account to the third defendant ("the third defendant payments"):
6 April 2003 $ 3,481.17
30 June 2003 $ 3,544.23
9 September 2003 $ 2,899.45
30 September 2003 $ 2,211.00
11 October 2003 $10,000.00
31 October 2003 $ 2,637.42
1 November 2003 $ 5,000.00
17 November 2003 $ 5,000.00
30 November 2003 $ 9,619.34
1 December 2003 $ 5,000.00
10 December 2003 $ 2,500.00
31 December 2003 $ 3,904.82
31 January 2004 $ 1,980.45
As I have already indicated, some of the TPM payments were actually made on 17 April 2003, not 16 April 2003 as is pleaded. In any event, as is apparent from the above summary of the plaintiff's allegations the total amount of the plaintiff's claim, after deducting the $43,330 which she alleges reflected the reasonable cost of undertaking the renovation work at the Property, is $30,230.13.
General observations on the evidence of the plaintiff and the first defendant
Overall I did not find the plaintiff to be a particularly impressive witness. Her recollection as to the precise sequence of the relevant events was, it seemed to me, incomplete. On some occasions I gained the impression that while she purported to have a clear recollection of specific events about which she was testifying this was not in fact the case. She had a tendency, particularly in cross‑examination, to attempt to avoid answering directly questions asked of her.
In addition, there was one particular aspect of the plaintiff's evidence which in my view reflected adversely on her credibility generally. The evidence related to the meeting that took place on 28 August 2003. The plaintiff's evidence was, in effect, that at this meeting a number of documents, including the Power of Attorney, were simply "shoved" in front of her and she was told to sign them without them being explained to her. She said that she asked the first defendant in relation to the Power of Attorney, "What are all these pages?" and that he told her not to worry and that it was just a more involved version of the draft copy that had been sent to her. She said that to have such a monumental piece of paper presented to her in the way that it was at the meeting was "just disgusting".
The plaintiff's evidence as to what occurred at the meeting did not sit well with the above referred to communications that had passed between the plaintiff and the first defendant prior to the meeting in which the first defendant went to some lengths to explain the effect of the Power of Attorney. Nor did it sit comfortably with the plaintiff's signing of the first defendant's letter to her dated 23 August 2003. Furthermore, it was also completely inconsistent with not only the evidence of the first defendant but also the evidence of Mr Nicholas Rogers who was called by the first defendant as part of his defence. Mr Rogers, as I have previously indicated, was one of the two people who witnessed the plaintiff's signing of the Will and the Power of Attorney. His evidence as to what took place at the meeting was supportive of the first defendant's account and was not challenged in cross‑examination. Mr Rogers was clearly a candid witness. I accept his evidence.
In his evidence Mr Rogers said that he was in the meeting room with the plaintiff and the first defendant for a period of about 20 minutes. He said that during this time the first defendant explained to the plaintiff various matters about the Will and the Power of Attorney and the ramifications of signing them, and asked her if she clearly understood the contents of the documents that had been provided to her prior to the meeting and whether she had taken independent advice in relation to them. Mr Rogers said that the first defendant specifically asked the plaintiff whether she wanted to take independent advice. He said that in response to this questioning the plaintiff said that she understood the effect of the documents and that she did not want to seek independent legal advice in relation to them. He said that by the time that the plaintiff signed the documents he was satisfied that she fully understood the consequences of doing so.
The fact that the plaintiff gave evidence in relation to the 28 August 2003 meeting which was on my assessment unreliable if not untruthful is something that I have taken into account when deciding whether to accept material aspects of her evidence.
The first defendant gave his evidence in a calm and thoughtful manner. His recollection of the relevant sequence of events seemed to me to be more complete than the plaintiff's and was in large part supported by documentation tendered during the trial. His demeanour and manner of giving evidence was, in my view, more convincing than that of the plaintiff. Nonetheless I cannot, and do not, overlook the fact that the first defendant has been found by this Court to have unlawfully failed to account to the plaintiff for $85,000 of the plaintiff's money that he used to reduce a debt owed by one of his companies to the NAB. I have borne this conduct of the first defendant in mind when making findings of fact on issues that are in dispute and material to the determination of the plaintiff's various claims.
Breach of contract claim
The cases as pleaded
In par 11 of the re‑amended statement of claim the plaintiff alleges that on 20 December 2002 the first defendant agreed to act as the plaintiff's accountant and to advise her in respect of the effect of the inheritance on her pension entitlement and liability for taxation, and to act for the plaintiff as necessary in respect of those matters.
In par 12 of the re‑amended statement of claim the plaintiff alleges that there were a number of implied terms of the agreement reached on 20 December 2002, namely:
1.the plaintiff would pay the first defendant's reasonable fees for the services that the first defendant provided;
2.the first defendant would act for the plaintiff and advise the plaintiff with the reasonable skill, care and diligence of a competent accountant;
3.the first defendant would advise and warn the plaintiff if at any time the interests of the plaintiff and the interests of the first defendant were in conflict or if there was a risk that their respective interests might be in conflict; and
4.the first defendant would in acting for the plaintiff act in accordance with the plaintiff's lawful instructions and directions and not act in excess of any authority conferred upon the first defendant by the plaintiff.
In pars 61.1 and 61.2 of the re‑amended statement of claim the plaintiff alleges that the first defendant breached the implied term of the agreement to act for the plaintiff and advise the plaintiff with the reasonable skill, care and diligence of a competent accountant by advising the plaintiff that she should instruct Cooney Lees Morgan to transfer the $NZ30,000 into the Account. The plaintiff alleges that a competent accountant would have advised the plaintiff that it was inappropriate for the funds to be transferred into the Account and that the funds should be transferred to an interest bearing bank deposit account in the plaintiff's name and under the plaintiff's control.
In par 61.3 of the re‑amended statement of claim the plaintiff alleges that the first defendant breached the implied term of the agreement that he would advise and warn the plaintiff if at any time the interests of the plaintiff and the interests of the first defendant were in conflict by failing to advise and warn the plaintiff that his advice to the plaintiff to instruct Cooney Lees Morgan to transfer the $NZ30,000 into the Account gave rise to a conflict of interest between the plaintiff and the first defendant.
In par 62.1 of the re‑amended statement of claim the plaintiff alleges that by reason of the first defendant's financial interest in the second and third defendants, the payment by the second defendant at the direction of the first defendant of the TPM payments, the first defendant payments and the third defendant payments amounted to a breach of the implied term of the agreement that the first defendant would advise and warn the plaintiff if any at time the interests of the plaintiff and the interests of the first defendant were in conflict or if there was a risk of conflict because the payments were made without the first defendant providing any such advice or warning to the plaintiff.
In par 62.2 of the re‑amended statement of claim the plaintiff asserts that the making of the TPM payments, the first defendant payments and the third defendant payments was in breach of the implied term of the agreement that the first defendant would not act in excess of any authority conferred upon the first defendant by the plaintiff because the plaintiff had not authorised these payments.
In par 63 of the re‑amended statement of claim the plaintiff alleges that the payment by the second defendant at the direction of the first defendant of the first defendant payments constituted a breach of the implied term of the agreement that the plaintiff would pay the first defendant's reasonable fees for the services provided by the first defendant in that during the course of the agreement the first defendant provided no advice and rendered no services to the plaintiff in respect of her pension entitlements and tax liabilities.
In par 6 of the re‑amended defence the first defendant admits that the plaintiff instructed him, on behalf of the second defendant, to provide her with professional support and advice in relation to her taxation and financial planning matters generally. The first defendant asserts that he, on behalf of the second defendant, agreed to provide such services in terms that the plaintiff would pay the second defendant's professional fees and costs at the rates set out in the letter from the first defendant to the plaintiff dated 22 December 2002 (Exhibit P10), and on the basis that the requirement for the plaintiff to pay these fees was to be deferred until after funds had been received by or on behalf of the plaintiff from the administration of the Estate.
In par 7 of the re‑amended defence the first defendant denies the existence of any of the alleged implied terms of the agreement allegedly entered into between the plaintiff and the first defendant. The first defendant also denies the alleged breaches of the agreement.
In par 36 of the re‑amended defence the defendant pleads that the agreement was between the plaintiff and the second defendant not the plaintiff and the first defendant personally. He therefore asserts that no issue of conflict of interest arose between the plaintiff and the first defendant.
The alleged contract
If the plaintiff is to make out her breach of contract claim against the first defendant she must prove that a contract of retainer was entered into on or around 20 December 2002 and that the parties to the contract were herself and the first defendant. Despite the first defendant's pleaded denial that there was ever any contract entered into between himself and the plaintiff the plaintiff's counsel did not address this issue in any detail during his closing submissions or at any other time during the trial. He cited no authority in support of the plaintiff's case that there was a contract entered into between the plaintiff and the first defendant.
It is not necessary that a contract be detected using the "classical theory of contract based upon offer and acceptance": Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at 155 [1] and 177-179 [73]-[81]; Lighting by Design (Aust) Pty Ltd v Cannington Nominees Pty Ltd [2008] WASCA 23 at [21]. However, the objective circumstances must disclose the existence of a voluntary assumption of a legally enforceable duty, that is, an intention to create contractual relations: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105‑106 [24]‑[25].
The existence of a contract for professional services and the terms of the contract may be implied or inferred from the acts and conduct of the parties as well as, or in the absence of, their words: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117; Brambles Holdings v Bathurst City Council (supra) at 164-165 [25]; Townsend v Roussety & Co (WA) Pty Ltd (2007) 33 WAR 321 at 344 [77]; Lighting by Design v Cannington Nominees (supra) at [21] and [90]. Evidence of the uncommunicated subjective motives or intentions of the parties is not relevant to the determination of whether a contract in fact exists: Ermogenous v Greek Orthodox Community of SA Inc (supra) at 105-106 [24]-[25]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40]; Lighting by Design v Cannington Nominees at [24].
I am satisfied that on 20 December 2002 the plaintiff did enter into a contract of retainer with some other party pursuant to which she was to be provided with professional support and advice in relation to her taxation and financial matters arising out of her inheritance and generally. The question, in my view, is whether she entered into that contract with the first defendant. In order to answer this question it is necessary to examine the relevant facts and circumstances and the conduct of the parties.
There was no written agreement between the plaintiff on the one hand and the first defendant, the second defendant or any other party on the other. However, as I have already indicated on 22 December 2002, just two days after his initial meeting with the plaintiff, the first defendant sent a letter to the plaintiff in which he confirmed the plaintiff's engagement of his "firm" to provide her with professional support and advice in relation to taxation and financial planning matters (Exhibit P10). The letter was expressed to be from Beazley Nemass. It was signed by the first defendant as "Consultant – Tax Advising" on behalf of Beazley Nemass. The letter revealed that Beazley Nemass was a public accountant and business consultant, and that it was a registered tax agent. The plaintiff did not, after receiving the letter, raise any issue about the letter being from Beazley Nemass as opposed to the first defendant personally. In addition, the authorities which the plaintiff signed on 21 January 2003, while advising that the first defendant had been appointed as the plaintiff's accountant and financial advisor, again referred to Beazley Nemass and were signed by the first defendant on behalf of Beazley Nemass.
No evidence was adduced at trial to explain the precise nature of the relationship between Beazley Nemass and the first defendant's accountancy and business consultancy practice or Beazley Nemass and the second defendant. Presumably Beazley Nemass was, in December 2002, the owner of the accountancy and business consultancy practice, although it is not possible on the available evidence to make a positive finding to this effect. Whatever the precise nature of the relationship between Beazley Nemass and the first defendant's practice, and despite the first defendant's position as expressed in the re‑amended defence to the effect that the plaintiff contracted with the second defendant, in my view the inference that must be drawn from the above specified facts and circumstances is that on or about 20 December 2002 the plaintiff entered into a contract of retainer with Beazley Nemass for the provision of professional support and advice in relation to taxation and financial matters, and not with the first defendant personally or the second defendant. It may be that at the relevant time the plaintiff believed that her agreement was with the first defendant personally. After all, the first defendant was her point of contact. He was the person who she was dealing with and who was going to look after her affairs. However, her belief in this regard is not to the point; it cannot alter the reality of the contractual position as revealed by the objective facts and circumstances.
It is the case that in later documentation references to the second defendant appear. For example, in one of the authorities signed by the plaintiff on 2 April 2003 the first defendant has signed the document on behalf of the second defendant (Exhibit P71). Another of the authorities signed by the plaintiff on this date – the authority authorising the disbursement of funds from the Account (Exhibit P74) – is addressed to "Neil E Morien Boab Finance Accounting Pty Ltd". However, I do not think that subsequent references in documentation to the second defendant provide a basis for concluding that the plaintiff's contract of retainer pursuant to which she was to be provided with professional services was with the second defendant rather than Beazley Nemass. Nor do I consider the fact of the payment of the funds from the administration of the Estate into the Account to be a basis for inferring that the contract was not with Beazley Nemass. In any event, even if the contract was entered into with the second defendant as opposed to Beazley Nemass this would not assist the plaintiff in her claim against the first defendant. The same can be said in relation to the possibility, not established on the evidence as a proven fact, that the second defendant at some point assumed the responsibilities of Beazley Nemass under the contract.
For the reasons stated I am not satisfied that the plaintiff entered into any contract of retainer with the first defendant on 20 December 2002. It follows that I dismiss the plaintiff's claim for breach of contract.
In light of my above conclusion it is not strictly necessary for me to proceed to deal with the plaintiff's allegations of breach of implied terms and consequential loss and damage. However, for the benefit of the parties I state below in as brief terms as possible the findings that I would have made in relation to these issues if I was satisfied that the plaintiff entered into a contract of retainer with the first defendant.
The alleged implied terms
The legal principles relating to the implication of terms into a contract are well established, although they were not referred to at all by the plaintiff's counsel during the course of the trial. In general, a term will not be implied into a contract unless the following requirements are met:
1.The term must be reasonable and equitable;
2.The term must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
3.The term must be so obvious that it "goes without saying";
4.The term must be capable of clear expression; and
5.The term must not contradict any express term of the contract: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605 – 606; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 345 – 347; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 65 ‑ 66, 95, 117 – 118, 121 and 139.
It is not sufficient that it would merely be reasonable or equitable to imply the term: Codelfa Construction v State Rail Authority (NSW) (supra) at 346; Hospital Products v United States Surgical Corporation (supra) at 116 – 117 and 140 – 141.
In Hospital Products v United States Surgical Corporation Deane J at 121 cautioned against over rigid application of the cumulative criteria where a contract is oral or partly oral and where the parties have never attempted to reduce it to completely written form. His Honour again made comments to this effect in Hawkins v Clayton (1988) 164 CLR 539 at 573. In Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 at 422 and 442 the High Court approved the comments made by Deane J in Hospital Products v United States Surgical Corporation and Hawkins v Clayton (supra).
In line with the above stated principles if I had found that the plaintiff's contract of retainer was with the first defendant I would also have found that the following terms should be implied into the contract:
1. The plaintiff would pay the reasonable fees of the first defendant for the professional services provided calculated in accordance with the hourly rates set out in the letter from Beazley Nemass to the plaintiff dated 22 December 2002;
2.The first defendant would exercise reasonable skill and care in acting for the plaintiff and providing his professional services to her: Craig v Troy (1997) 16 WAR 96 at 155‑157; Astley v Austrust Ltd (1999) 197 CLR 1 at 22‑27;
3.The first defendant would act in accordance with the plaintiff's lawful instructions and directions and not act in excess of any authority conferred upon the first defendant by the plaintiff.
I would not have found that it was an implied term of the contract of retainer that the first defendant would advise and warn the plaintiff if at any time the interests of the plaintiff and the interests of the first defendant were in conflict or if there was a risk that their respective interests might be in conflict. In my view there is no basis for concluding that the implication of such a term in any agreement between the plaintiff and the first defendant for the provision of professional services is so obvious that "it goes without saying" or is necessary to give business efficacy to the agreement. The implication of the term would not, in my view, be necessary to make the agreement work in a practical sense or conversely to avoid an unworkable situation: Hospital Products v United States Surgical Corporation at 66. There is no reason to think that the first defendant would not be in a position to exercise reasonable skill and care in providing professional services to the plaintiff in relation to subject matter giving rise to a conflict between the interests of the plaintiff and the first defendant. Nor is there any reason to conclude that in such circumstances the first defendant would be unable to act in accordance with the plaintiff's instructions and directions.
In response to the plaintiff's submissions the first defendant contends that he did obtain the plaintiff's informed consent to the making of the relevant payments. He relies on his disclosure of his interest in the relevant entities coupled with the execution by the plaintiff of the authorities and the Power of Attorney. He submits that proper disclosure does not require statements of the obvious, for example that a related company will make a profit in its normal course of business of providing services or goods to the plaintiff.
In determining the issue of informed consent it is necessary to deal separately with each category of payment.
First defendant payments
The fiduciary obligation to act in the interests of another does not mean that a fiduciary cannot charge the person to whom the obligation is owed for the fiduciary's services. However, the obligation may affect the manner in which the fiduciary does render bills to the principal and the content of those bills: Law Society of New South Wales v Foreman (No 2) (1994) 34 NSWLR 408; Re Morris Fletcher & Cross' Bill of Costs [1997] 2 Qd R 228.
In his letter to the plaintiff dated 22 December 2002 the first defendant stated that given the early stage of the "client relationship" he could not even "guestimate the amount of work required to attend to immediate, priority and ongoing client matters". However, he confirmed that in the normal course Beazley Nemass' fees "are calculated on the 'time taken – hourly rate' basis". He then set out Beazley Nemass' charge out rates for the various type of work that it could perform. The specified hourly rates included the first defendant's "Base" rate and his "Specialist" rate. The plaintiff at no time raised any objection to the hourly rates specified in the letter or the proposal to charge on a "time taken" basis.
As I have already indicated, by the authority addressed to the first defendant dated 2 April 2003 (Exhibit P74) the plaintiff authorised the first defendant to retain the balance of the NZ$30,000 remaining after the making of the other payments referred to in the authority "on account of professional fees and costs". The last paragraph of the authority given by the plaintiff to the first defendant on 28 August 2003 (Exhibit D321) in anticipation of the transfer by Cooney Lees Morgan into the Account of the NZ$209,241.80 was similarly worded. Thus, for reasons that I have already stated, it is my view that the plaintiff authorised the first defendant to use her funds held in the Account to pay for the professional services provided by him or his firm in the absence of any account or invoice being issued to the plaintiff.
In my opinion the specifying of the hourly rates to be charged by Beazley Nemass in the letter dated 22 December 2002 coupled with the obtaining of the plaintiff's authorisation to the use of her funds in the Account to pay for the professional services provided by the first defendant or his firm constituted the obtaining of informed consent to the making of the first defendant payments. Given that the plaintiff had sought the first defendant out in order to obtain his professional advice and services, had been informed of the precise hourly rates that Beazley Nemass would charge for its services and had already entered into a contract of retainer with Beazley Nemass at the time that the plaintiff's funds were transferred into the Account, I do not think that the first defendant was required, in order to obtain the plaintiff's informed consent to the use of the funds to make the first defendant payments, to suggest to the plaintiff that she obtain quotes for the provision of services to her from other accountancy firms. I therefore do not accept that the first defendant breached the fiduciary obligations that he owed to the plaintiff by arranging for the first defendant payments to be made.
The TPM payments
I have already set out in detail the evidence given by the plaintiff and the first defendant in relation to the plaintiff's acquisition of the computer and the accessories. It is not necessary to do so again.
It is clear from the evidence and the findings that I have made on the basis of the evidence that the first defendant disclosed to the plaintiff his interest in TPM. However, it is equally clear that he did not insist on the plaintiff seeking at least one alternative quote for the cost of obtaining and installing a computer and accessories suitable for her needs, and did not inform the plaintiff that TPM and hence himself would make a profit on the transaction.
In my view the first defendant's failure to inform the plaintiff of the above identified matters meant that he did not obtain her informed consent to the use of the plaintiff's funds held in the Account to make the TPM payments. I do not accept the submission made by the first defendant to the effect that it was not necessary for him to state the obvious, namely that TPM was going to make a profit out of the provision to the plaintiff of the computer and accessories. I am not at all sure that in the circumstances of this case the fact that TPM and hence the first defendant was going to make a profit should have been obvious to the plaintiff. However, even if it should have been obvious to her, the first defendant was not in my view absolved from the responsibility of expressly stating this to the plaintiff. The position of trust and power that the first defendant occupied as the plaintiff's fiduciary required him, in my opinion, to expressly state that TPM and hence himself stood to profit from the transaction that he was proposing.
It follows that in my opinion the first defendant breached the fiduciary duty that he owed to the plaintiff by authorising the making of the TPM payments. I add that given the requirements for the obtaining of informed consent, namely the making of a full disclosure to the principal of all relevant facts known to the fiduciary, the finding that the first defendant did not obtain the plaintiff's informed consent to the TPM payments is not, in my opinion, inconsistent with my earlier expressed conclusion that the plaintiff authorised the TPM payments to be made.
Third defendant payments
I have already set out the circumstances and evidence relevant to the plaintiff's engagement of the third defendant to undertake the renovation work at the Property. I have also referred to the authorities pursuant to which the first defendant arranged for the third defendant payments to be made out of the plaintiff's funds held in the Account. Accordingly, I confine myself below to referring only to further evidence that I have not previously mentioned but which is potentially relevant to the informed consent issue.
During his evidence in chief the first defendant testified that at the meeting that he had with the plaintiff on or about 12 May 2003 the plaintiff informed him that she had decided to scrap the bathroom plans that were supposed to have been done by a third party, that she was very happy with Liam Schofield and that she was going to deal directly with him. The first defendant said that later on that same day he met with Mr Schofield and asked him to deal directly with the plaintiff and to assist her and do whatever was necessary to satisfy her requirements. He further testified that at the meeting on 12 May 2003 he advised the plaintiff that he was not a builder and could not supervise the work because he had no building qualifications or experience. He testified that he said to the plaintiff that the third defendant could do the job on an hourly rate plus materials but it was very difficult to estimate the costs of small projects. He said that he told the plaintiff that the costs could range from approximately $30 for a labourer or general hand up to $60 or $80 an hour for a specialist tradesman. The first defendant said that the plaintiff responded to these comments by saying that she understood this and that it was "not as if I am just getting a gardener to come around and do a bit of gardening". He said that from this point on, because of the faith and confidence he had in Mr Schofield, he did not expect to have any further involvement in the renovation work at the Property. He said that it was not until November 2003 that issues or concerns in relation to the renovation work at the Property were brought to his attention by the plaintiff. These concerns were brought to his attention by the plaintiff in an email to him dated 28 November 2003 (Exhibit P351B p 183).
It is clear from the evidence that the bathroom renovations at the Property commenced in late April 2003. It therefore seems unlikely that the conversation which the first defendant says that he had with the plaintiff on or around 12 May 2003 actually occurred on or around that date if it occurred at all. The plaintiff was not cross‑examined on the conversation which the first defendant said that he had with her on or around 12 May 2003.
During cross‑examination the first defendant was asked whether when he told the plaintiff that she could engage the third defendant to do building work he also told her that she might be best advised to "shop around" and see if she could get another building company to do the work for a fixed price or on other terms. The first defendant responded to this question by saying "Yes I did". When it was pointed out to the first defendant that he had not given evidence to this effect during his evidence‑in‑chief he did not respond directly to that proposition but said that the plaintiff had already obtained a quote and that this was why he had sent Mr Schofield out in the first place and that he did the work for a cheaper price than the quote that she had already received. The first defendant's reference to the plaintiff having already obtained a quote was clearly a reference to the quote for the ceiling work. Accordingly, the plaintiff's counsel next asked the first defendant if before the scope of the works had expanded he said to the plaintiff words to the effect that she should shop around and see if she could find another builder other than his building company. The first defendant said that he did and that the plaintiff had done so. He accepted that he had not given evidence to this effect previously. He said he had not done so because the plaintiff's counsel had only just raised the issue. He said that there were dozens of conversations that he had had with the plaintiff over "those two years, so I didn't give it in chief".
When the first defendant gave evidence in what would ordinarily be re‑examination he said that when he had been asked whether he had suggested to the plaintiff that she could get the building works done elsewhere, possibly at a cheaper price, "I answered no, I had not specifically told her that". This, of course, was not the evidence that the first defendant had given during cross‑examination. The first defendant then continued by saying that the reason he had not specifically told the plaintiff that she could get the building works done elsewhere was that it was she who had elected to cancel her arrangements with other contractors and engage the third defendant through the services of Mr Schofield. He said that she had already sought quotes and received quotes and involved herself with other contractors. He said that the one example of this that came to mind was in April 2003 when she told him that she had obtained quotes from Mend‑A‑Bathroom and that she had decided not to proceed with them but wanted to deal with Mr Schofield. It is therefore clear on the first defendant's own somewhat belated admission that he did not at any time suggest to the plaintiff that she should consult with other builders before engaging the third defendant to perform any aspect of the renovation work.
In setting out earlier in these reasons the non‑contentious factual background I made reference to the fact that the plaintiff, during one of Mr Schofield's early inspections of the Property, told Mr Schofield that she had obtained a quote from another company for the re‑surfacing of the bathroom tiles and bowls. This was the plaintiff's evidence. In light of this evidence I am willing to accept the first defendant's evidence that in April 2003 the plaintiff told the first defendant, in effect, that she had obtained a quote from another builder in relation to the renovation of the bathroom at the Property but that she had decided to instruct Mr Schofield to perform the work. However, to the extent that the first defendant's evidence in re‑examination was intended to convey that the plaintiff had told him that she had consulted with other builders and contractors before engaging the third defendant to perform the balance of the renovation work and that it was for this reason that he did not recommend to her that she obtain other quotes for the undertaking of the balance of the renovation work, I reject the evidence. The plaintiff did not herself give evidence that she had been in contact with other builders (apart from the companies that provided the quotes for the ceiling repairs and the bathroom work) and was not given the opportunity to respond to this assertion in cross‑examination. Moreover, I do not think it is likely, bearing in mind the precise and detailed way in which the first defendant gave his evidence, that he would have mistakenly omitted to make mention of these matters during his evidence‑in‑chief if they truthfully reflected the situation which existed at the relevant time. The fact that the first defendant initially stated in cross‑examination that he had suggested to the plaintiff that she obtain quotes from other building companies before effectively resiling from this statement provides an additional reason, in my view, for rejecting his evidence to the extent that it was intended to convey that the plaintiff had obtained alternative quotes for all aspects of the renovation work undertaken at the Property.
Accepting that the plaintiff obtained alternative quotes for the performance of the ceiling repair work and the bathroom and toilet area renovation work, and that she told the first defendant that she had done so, I do not consider that the first defendant secured the plaintiff's informed consent to the making of the third defendant payments in respect of this work by merely arranging for her to sign the authority granted to him dated 2 April 2003 (Exhibit P74). In my opinion the first defendant, in order to obtain the plaintiff's informed consent to the making of the third defendant payments referable to the ceiling and bathroom work was also required, before authorising the payments, to:
1.tell the plaintiff, in substance, that the making of the payments would result in a profit to the third defendant and consequently himself; and
2.inform the plaintiff of the precise amount of the proposed payments by ensuring that accounts or invoices for the payments were issued by the third defendant to the plaintiff.
The second of the above stated requirements is consistent with the terms of the authority granted to the first defendant which, as I have already indicated, authorised the first defendant to use the plaintiff's funds in the Account to pay accounts of the third defendant.
Similarly, so far as the remainder of the renovation work undertaken at the Property is concerned, I do not consider that the first defendant obtained the plaintiff's informed consent to the making of the relevant third defendant payments by simply arranging for her to sign the authority granted to him dated 28 August 2003 (Exhibit D321). In my view the first defendant, in order to obtain the plaintiff's informed consent to the making of these payments, was not only required to inform the plaintiff of the matters that I have stipulated above, he was also required to insist that the plaintiff obtain at least one quote from another building company for the performance of the work. My conclusion that the first defendant was required to comply with this additional requirement in the case of the third defendant payments referable to the renovation work performed on areas of the Property other than the ceilings and bathroom follows from my refusal to find that the plaintiff had either obtained alternative quotes in respect of this work or had told the first defendant that she had done so.
As is apparent from my above remarks I do not, for the reasons that I have already expressed in the context of the TPM payments, accept the argument that it was so obvious that the third defendant and consequently the first defendant were going to derive a profit from the making of the third defendant payments that this was not something that needed to be expressly disclosed to the plaintiff in order to obtain her informed consent to the making of the payments.
As to the plaintiff's reliance on cl 33 of the Power of Attorney, I have already explained in another context why in my view the first defendant's reliance on this clause for the making of the third defendant payments is misguided. It follows that I do not consider that cl 33 of the Power of Attorney or the document generally provides a basis for concluding that the first defendant was not required to disclose the matters that I have identified in order to obtain the plaintiff's informed consent to the making of the third defendant payments. I note that the Power of Attorney was executed well after the first defendant had offered the services of the third defendant to perform the renovation work on the ceilings and bathroom area of the Property.
Thus having identified the matters which the first defendant was required to disclose to the plaintiff in order to obtain her informed consent to the making of the third defendant payments, the question which remains is did the first defendant comply with his obligations in this regard? As is apparent from my summary of the evidence relevant to this issue the answer to this question is that he did not.
Accordingly, for the reasons stated I find that the first defendant breached the fiduciary duty that he owed to the plaintiff by authorising the making of the third defendant payments without obtaining the plaintiff's informed consent to the payments in circumstances where there was a conflict between his personal interests and those of the plaintiff.
Remedy for the breach of fiduciary duty
I have already found in dealing with the plaintiff's claim in negligence that she did not suffer any loss and damage by reason of the TPM payments and the third defendant payments having been made. It is therefore not appropriate to make any award of equitable compensation in favour of the plaintiff for the amounts claimed in respect of those payments or some lesser amount.
It appears from the evidence that both TPM and the third defendant did, or at least may have, made a profit as a result of providing their services to the plaintiff and being paid for those services by way of the TPM payments and the third defendant payments respectively. If TPM and the third defendant made a profit so did the first defendant. The first defendant, having breached his fiduciary duty in authorising the making of the TPM payments and the third defendant payments, and bearing in mind that both TPM and the third defendant were his companies and under his control, must account to the plaintiff for any profit that he made as a result of TPM and the third defendant being paid for their services: Stambulich & Ors v Ekamper [2001] WASCA 283.
Unfortunately the evidence simply does not permit me to make any reasonably precise assessment of what the profits were. The first defendant conceded in cross‑examination that he had no idea what profit TPM made on the transactions engaged in with the plaintiff. So far as the renovation work is concerned the evidence went no further than indicating that a 20 per cent profit margin was the usual minimum margin that the third defendant applied when charging for its work. The third defendant's "Job Analysis – Estimates" for the periods 1 July 2002 to 30 June 2003 and 1 July 2003 to 30 June 2004 (Exhibits P506 and P508) are apparently just that – estimates. They do not permit me to ascertain the profit, if any, that the third defendant actually made as a result of performing the renovation work.
In his closing address the plaintiff's counsel submitted that because the first defendant had failed to adduce any evidence to show the profit that was made by TPM and the third defendant he is liable to account to the plaintiff for the full amount of the TPM payments and the third defendant payments. He cited Ross v Ross, unreported; SCt of WA; Wheeler J; Library No 980679; 26 November 1998 as authority for this proposition.
I do not accept counsel's submission. I have already stated the relevant principle which is that the fiduciary must account for any profit or gain. Ross v Ross (supra) is not authority for any proposition to the contrary. In that case the court was concerned not with a claim for breach of fiduciary duty but rather with claims by the plaintiff, pursuant to the terms of an agreement entered into between the parties, for one half of the fair rental value of a house and for an order that the defendants account to them for the construction costs of the house. In the context of the claim for an account for the construction costs of the house Wheeler J said at 26 that what is required is an account of actual expenditure and that this cannot be proven by proving merely what would be the average or usual notional expenditure for a property of a comparable type.
In the circumstances I propose to make orders requiring the first defendant to account to the plaintiff for any profit made by him as a result of the making of the TPM payments and the third defendant payments.
Debt due and owing
In pars 32A to 32D of the re‑amended statement of claim the plaintiff effectively alleges that the amounts transferred from Cooney Lees Morgan into the Account at the direction of the first defendant were a loan by the plaintiff to the first defendant, that the loan was repayable on demand, that demand has been made and that notwithstanding the demand the first defendant has failed to repay the plaintiff. In par 81.1 the plaintiff effectively claims as a debt due and owing the total amount of her claim presented at trial, namely $30,230.13. In pars 24A to 24C of the re‑amended defence the first defendant denies the existence of any debt due and owing to the plaintiff.
In light of the basis for the summary judgment order made against the first defendant I do not propose to consider the issue of whether the transfer of the amounts by Cooney Lees Morgan into the Account constituted a loan from the plaintiff to the first defendant. It is not necessary for me to do so because, for reasons that are apparent from my findings in relation to the loss and damage aspect of the plaintiff's claim in negligence, I do not accept, even assuming that a loan did come into existence, that there is debt due and owing by the first defendant to the plaintiff in the amount of $30,213.13.
Orders
I will hear the parties as to the precise terms of the orders that should be made to give effect to my findings. However, the type of orders that I envisage making are in substance as follows:
1.Judgment is entered for the plaintiff;
2.The first defendant account to the plaintiff for any profit derived by him as a result of the payments made to TPM Australia Pty Ltd ("TPM") specified in pars 28.3, 28.4, 41.19 and 41.31 of the Re‑Amended Statement of Claim;
3.The first defendant account to the plaintiff for any profit derived by him as a result of the payments made to the third defendant specified in pars 28.2, 28.5, 41.1, 41.3, 41.6, 41.8, 41.9, 41.11, 41.12, 41.13, 41.15, 41.17 and 41.22 of the Re‑Amended Statement of Claim;
4.In the absence of agreement between the parties, an inquiry to determine the profit derived by the first defendant, if any, as a result of the payments to TPM specified in order 2 above and the payments to the third defendant specified in order 3 above, take place at a hearing before a Registrar on a date to be fixed by the court;
5.The matter be adjourned to a directions hearing before a Registrar on a date to be fixed by the court which is not less than 21 days from the date of these orders so that directions can be made as to the manner in which the inquiry referred to in order 4 above is to be conducted.
6. The first defendant pay to the plaintiff interest on any profit derived by him as a result of the payments made to TPM specified in order 2 above at 6 per cent per annum calculated from a date or dates to be specified by the Registrar until the date of the determination of the profit derived;
7.The first defendant pay to the plaintiff interest on any profit derived by him as a result of the payments made to the third defendant specified in order 3 above at 6 per cent per annum calculated from a date or dates to be specified by the Registrar until the date of the determination of the profit derived.
I will hear the parties in relation to the issue of costs.
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