McMahon v Livingstone - [2001] NSWSC 55

CITATION: McMahon v Livingstone & Ors [2001] NSWSC 55

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 2000 of 1998

HEARING DATE(S): 30 and 31 January, 1 and 2 February 2001

JUDGMENT DATE:
16 February 2001

PARTIES :

Brian McMahon (Plaintiff)
Kenneth Livingstone (First Defendant)
John Joseph Scott (Second Defendant)
Ophix Finance Corporation Pty Limited (Third Defendant)

JUDGMENT OF: Windeyer J at 1

COUNSEL : Mr S Rushton SC (Plaintiff)
In person (First Defendant)
Mr B Coles QC with him Mr D Ronzani (Second and Third Defendant)
Mr B J Skinner (Trustee of the bankrupt estate of the First Defendant)

SOLICITORS: Horowitz & Bilinsky (Plaintiff)
In person (First Defendant)
Church & Grace (Second and Third Defendant)

CATCHWORDS: EQUITY - fiduciary obligations - funds given by clients to accountant A for investment lodged in account operated by other accountants B and used by a company controlled by accountants B to lend or for its own developments - funds collected by accountant A not separately identified in books of accountants B - as between clients and accountant A moneys held on trust - as between accountant A and accountant B and company relationship debtor and creditor - losses or payments made by company on matters in which accountant A interested charged against the general account to detriment of clients of accountant A - whether breach of trust - whether participation in breach by accountant B and company - whether claim for return of moneys available or order for taking of accounts - question of parties necessary on the account EQUITY - remedy for knowing assistance or participation in breach of trust - where trust had many beneficiaries and trustee bankrupt - third party liable to account to trustee in bankruptcy for trust funds lost in breach - individual beneficiaries not entitled to equitable compensation from third party as their interest in debut due not ascertained

LEGISLATION CITED: Bankruptcy Act 1966

CASES CITED: Barnes v Addy (1874) LR 9 ChApp 244
Hayim v Citibank NA [1987] AC 730
Sharpe v San Paulo Railway Co (1873) LR 8 ChApp 597

DECISION: See paragraphs 51 to 54

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

FRIDAY 16 FEBRUARY 2001

2000/98 BRIAN MCMAHON v KENNETH LIVINGSTONE & ORS

JUDGMENT

Introduction

1 Mr Livingstone (the first defendant) was the accountant of Dr McMahon (the plaintiff) a retired dentist.

2 Mr Livingstone accepted from Dr McMahon a series of deposits for the purpose of investing them over a period of around fourteen years commencing in April 1982, with the last recorded deposit made on 21 March 1996. The total amount of these deposits with interest as agreed was approximately $1,900,000.00.

3 Mr Livingstone paid this money or most of it into an account operated by Mr Scott (the second defendant) and Mr Slattery, both also accountants and Mr Livingstone’s former employers. This account was known as the Scott and Slattery Clearing Account (the clearing account).

4 Moneys from this account were lent to borrowers in the…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading McMahon v Livingstone

Details

AGLC: McMahon v Livingstone [2001] NSWSC 55
Case: [2001] NSWSC 55
Decision Date: 16 February 2001

CaseChat Overview and Summary

In McMahon v Livingstone, the plaintiffs sought to recover funds from the defendants, who were accountants, for alleged breaches of fiduciary duty. The plaintiffs had entrusted money to the first defendant, an accountant, for investment purposes. This money was placed in an account operated by another set of accountants, the second and third defendants. The second and third defendants controlled a company which used the money for its own developments and lending, without clearly segregating the funds from its own assets. The plaintiffs argued that the moneys were held on trust for them, and the second and third defendants, along with the company, breached this trust by using the funds for unauthorised purposes and charging losses against the general account, thereby affecting the plaintiffs' interests.

The legal issues before the court included whether the moneys were held on trust, whether the second and third defendants and the company breached any fiduciary obligations, and what remedies, if any, were available to the plaintiffs. The court considered whether the plaintiffs were entitled to the return of the moneys or an order for the taking of accounts. It also examined whether the third defendant, who was a party to the account, could be held liable for the actions of the other defendants.

The court found that the moneys were indeed held on trust for the plaintiffs, separate from the general business of the second and third defendants and the company. It held that the second and third defendants, along with the company, breached their fiduciary duties by misapplying the trust funds. The court ruled that the third defendant, as a party to the account, could be held liable for the breach. Regarding remedies, the court determined that while the plaintiffs could not seek equitable compensation from the third defendant as their individual interests in the debt due had not been ascertained, they could pursue an account from the third defendant for the trust funds lost due to the breach. The court also found that the plaintiffs could claim the return of the trust funds or seek an order for the taking of accounts against the defendants.

The final orders of the court were that the third defendant was liable to account to the trustee in bankruptcy for the trust funds lost due to the breach. The individual plaintiffs were not entitled to equitable compensation from the third defendant, but they could seek the return of the trust funds or an order for the taking of accounts. The court directed the trustee in bankruptcy to take steps to recover the trust funds from the third defendant.

Orders