MULLENEUX v BRENNAN
[2002] WASC 43
MULLENEUX & ANOR -v- BRENNAN [2002] WASC 43
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2002] WASC 43 | |
| Case No: | CIV:2649/2001 | 12 MARCH 2002 | |
| Coram: | MASTER SANDERSON | 18/03/02 | |
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for plaintiffs | ||
| B | |||
| PDF Version |
| Parties: | ELIZABETH MULLENEUX MICHAEL LEE SHANE MICHAEL BRENNAN |
Catchwords: | Practice and procedure Claim against trustee for losses occasioned by being knowingly and dishonestly in breach of trust Summary judgment |
Legislation: | Nil |
Case References: | Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VLR 332 Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 Lill v Merchant Capital (WA) Ltd (1996) 15 WAR 536 Walker v Stones (2000) 4 All ER 412 Allstate Life Insurance Co v Australian & New Zealand Banking Group Ltd (1995) 57 FCR 360 Armitage v Nurse (1998) Ch 241 Associated Leisure Ltd (Phonographic Equipment Co Ltd) v Associated Newspapers Ltd (1970) 2 QB 450 Bartlett v Barclays Trust Co (No 1) [1980] Ch 515 Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 13 WAR 11 Birch Investments Pty Ltd v Kiap Khee Lim, unreported; SCt of WA; Library No 7396; 12 July 1998 Commonwealth Bank of Australia v Smith (1991) 102 ALR 453 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Davy v Garrett (1877) 7 ChD 473 Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896 Elder's Trustee & Executor Co Ltd v Higgins (1963) 113 CLR 426 Evans v Bartlam [1937] AC 473 Fouche v The Superannuation Fund Board (1952) 88 CLR 609 General Credits (Finance) Pty Ltd v Shipton Holdings Pty Ltd, unreported; SCt of WA; Library No 2054; 19 May 1977 Gillon & Ors v Kyle, unreported; SCt of WA; Library No 9123; 16 October 1991 Honey v McLennan & Ors (1997) 18 WAR 384 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Jacobs v Booth's Distillery Co (1901) 85 LT 262 Knudsen v Kara Kar Holdings Pty Ltd [2000] NSWSC 715 Langston v Ollivant (1807) Coop G 33 Lewkowski v Bergalin Pty Ltd, unreported; SCt of WA; Library No 7675; 26 May 1989 McLauchlan & Anor v Prince & Anor [2001] WASC 43 Metropolitan Gas Company v The Federal Commission of Taxation (1932) 47 CLR 621 Mills v Mills (1938) 60 CLR 150 Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 Parkes Management Ltd v Perpetual Trustee Co Ltd (1977) 3 ACLR 303 Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149 Pope v DRP Nominees Pty Ltd & Anor (No 2) [2000] SASC 65 Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 Re Harari's Settlement Trusts [1949] 1 All ER 430 Re Manisty's Settlement [1973] Ch 17 Re Smith [1896] 1 Ch 71 Sawiak v The Public Trustee, unreported; SCt of WA; Library No 930479; 3 September 1993 Shuttleworth v Cox Brothers & Co Ltd [1927] 2 KB 9 Strategic Minerals Corp NL v Hendry Rae & Court (a firm), unreported, SCt of WA; Library No 8999; 16 August 1991 Sydney Holdings Pty Ltd v New Holders Pty Ltd [1938] VLR 217 Thesus Exploration NL v Foyster (1972) 126 CLR 507 Webster v Lampard (1993) 177 CLR 598 Westpac Banking Corporation v Thorpe, unreported; SCt of WA; Library No 970465; 18 September 1997 White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 White v Johnston (1886) 8 ALT 53 White v Lady Lincoln (1803) 32 ER 395 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- MICHAEL LEE
Plaintiffs
AND
SHANE MICHAEL BRENNAN
Defendant
Catchwords:
Practice and procedure - Claim against trustee for losses occasioned by being knowingly and dishonestly in breach of trust - Summary judgment
Legislation:
Nil
Result:
Judgment for plaintiffs
(Page 2)
Category: B
Representation:
Counsel:
Plaintiffs : Mr G H Murphy
Defendant : Mr R J L McCormack
Solicitors:
Plaintiffs : Pullinger Readhead Stewart
Defendant : Corsers
Case(s) referred to in judgment(s):
Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VLR 332
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Lill v Merchant Capital (WA) Ltd (1996) 15 WAR 536
Walker & Ors v Stones & Anor (2000) 4 All ER 412
Case(s) also cited:
Allstate Life Insurance Co v Australian & New Zealand Banking Group Ltd (1995) 57 FCR 360
Armitage v Nurse (1998) Ch 241
Associated Leisure Ltd (Phonographic Equipment Co Ltd) v Associated Newspapers Ltd (1970) 2 QB 450
Bartlett v Barclays Trust Co (No 1) [1980] Ch 515
Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 13 WAR 11
Birch Investments Pty Ltd v Kiap Khee Lim, unreported; SCt of WA; Library No 7396; 12 July 1998
Commonwealth Bank of Australia v Smith (1991) 102 ALR 453
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Davy v Garrett (1877) 7 ChD 473
Dundee General Hospitals Board of Management v Walker [1952] 1 All ER 896
Elder's Trustee & Executor Co Ltd v Higgins (1963) 113 CLR 426
Evans v Bartlam [1937] AC 473
(Page 3)
Fouche v The Superannuation Fund Board (1952) 88 CLR 609
General Credits (Finance) Pty Ltd v Shipton Holdings Pty Ltd, unreported; SCt of WA; Library No 2054; 19 May 1977
Gillon & Ors v Kyle, unreported; SCt of WA; Library No 9123; 16 October 1991
Honey v McLennan & Ors (1997) 18 WAR 384
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Jacobs v Booth's Distillery Co (1901) 85 LT 262
Knudsen v Kara Kar Holdings Pty Ltd [2000] NSWSC 715
Langston v Ollivant (1807) Coop G 33
Lewkowski v Bergalin Pty Ltd, unreported; SCt of WA; Library No 7675; 26 May 1989
McLauchlan & Anor v Prince & Anor [2001] WASC 43
Metropolitan Gas Company v The Federal Commission of Taxation (1932) 47 CLR 621
Mills v Mills (1938) 60 CLR 150
Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255
Parkes Management Ltd v Perpetual Trustee Co Ltd (1977) 3 ACLR 303
Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149
Pope v DRP Nominees Pty Ltd & Anor (No 2) [2000] SASC 65
Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211
Re Harari's Settlement Trusts [1949] 1 All ER 430
Re Manisty's Settlement [1973] Ch 17
Re Smith [1896] 1 Ch 71
Sawiak v The Public Trustee, unreported; SCt of WA; Library No 930479; 3 September 1993
Shuttleworth v Cox Brothers & Co Ltd [1927] 2 KB 9
Strategic Minerals Corp NL v Hendry Rae & Court (a firm), unreported, SCt of WA; Library No 8999; 16 August 1991
Sydney Holdings Pty Ltd v New Holders Pty Ltd [1938] VLR 217
Thesus Exploration NL v Foyster (1972) 126 CLR 507
Webster v Lampard (1993) 177 CLR 598
Westpac Banking Corporation v Thorpe, unreported; SCt of WA; Library No 970465; 18 September 1997
White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169
White v Johnston (1886) 8 ALT 53
White v Lady Lincoln (1803) 32 ER 395
(Page 4)
1 MASTER SANDERSON: This is the return of two chamber summonses, the first in time being the plaintiffs' application for summary judgment. This was followed a week later by the defendant's application for summary judgment. In the event the defendant did not proceed with his application and it is the plaintiffs' application which falls for determination.
2 When the application was first called on it was supported by affidavits by each of the named plaintiffs, each affidavit sworn 14 November 2001 and by an affidavit of Alan Peter Hershowitz, sworn 23 January 2002. In opposition, the defendant relied on his affidavit sworn 18 December 2001. (That affidavit says it was filed in support of the defendant's application for summary judgment. It was, however, relied upon by the defendant in opposing the plaintiffs' application.) On 5 February 2002 the plaintiffs filed an amended statement of claim. Consequently, the version of the statement of claim verified by the plaintiffs' affidavits of 14 November 2001 was not the statement of claim which properly set out their claim. Mindful of the difficulties which can arise in a situation such as this (see Lill v Merchant Capital (WA) Ltd (1996) 15 WAR 536) I adjourned the application and gave leave to the plaintiffs to file further supplementary affidavits to verify the amended statement of claim. I also granted leave to the defendant to file a further affidavit dealing with what it was said were the new allegations made in the amended statement of claim. To that end I made certain programming orders.
3 The result was a flood of new affidavit material. In compliance with the order that the plaintiffs verify the amended statement of claim, each of the two named plaintiffs filed a supplementary affidavit sworn 18 February 2002. A supplementary affidavit of the defendant sworn 8 March 2002 was also filed. To have complied with the orders I made on 14 February 2002, that affidavit should have been filed on or before 28 February. On the basis that the affidavit was late and also on the basis of its contents, counsel for the plaintiffs objected to its being admitted into evidence. I will deal with that issue below. However, there were four other affidavits which were received into evidence. There were two further affidavits of Mr Hershowitz, one sworn 11 March and the other sworn 12 March. There was a further affidavit of the second-named plaintiff sworn 11 March and an affidavit of Ronald William Bower, sworn 12 March. Each of these four affidavits were admitted into evidence without objection by any of the parties.
(Page 5)
4 After hearing argument from the plaintiffs' counsel I indicated that, save with respect to one paragraph, I would admit the defendant's affidavit of 8 March into evidence. Although it was filed late, contrary to the orders that I made, I was satisfied that there was a reasonable explanation for the late filing and that no prejudice had been suffered by the plaintiffs. The circumstances in which the delay occurred is canvassed in the affidavits of Hershowitz and Bower sworn 11 March and 12 March respectively. There is nothing to be gained by raking over the circumstances which led to the late filing of the affidavit. In my view, it is clear that the solicitors were at cross-purposes and the late filing was not in contumelious disregard of my orders. The affidavit itself is relatively brief and contains nothing that is not to be found in the defendant's earlier affidavit. Perhaps what it does do is clarify the defendant's position and address, at a subjective level, the question of his honesty. For that reason and with the one reservation, I am prepared to allow the affidavit into evidence.
5 The reservation that I have is in relation to par 15 of the affidavit. I would strike out that paragraph. To understand why I have reached that conclusion it is necessary to follow through the plaintiff's claims. Only when seen in context can the inadmissible nature of the evidence be fully appreciated.
6 The facts in this case are not in dispute. Taken from the statement of claim and the various affidavits, they can be summarised in the following way. The defendant is a legal practitioner. He is the executor and trustee of the will of the late Phillip Lloyd Crane, who died on 10 January 1994. Probate of the will was granted to the defendant in August 1994. The plaintiffs replaced the defendant as executors and trustees of the will of the deceased in June 2000.
7 Pursuant to the terms of the deceased's will the whole of his estate passed to his wife, provided he was lawfully wedded at the date of his death and his wife survived him by 28 days. In fact, at the time of his death the deceased was divorced and under the terms of his will, the whole of his estate was given to his trustees to be held upon trust and invested for the benefit of his children until they attain the age of 21 years. There are two clauses of the will which are of particular relevance to this application. First there is cl 4(c) which is in the following terms:
"4. I GIVE all my property whatsoever and wheresoever situate both real and personal and not otherwise disposed of to My Trustees UPON TRUST:
(Page 6)
- (a) …
(b) …
(c) To invest the remainder in any of the forms of investment authorised herein or by law and to stand possessed of such money and the investments for the time being representing it and all parts of my property as shall at my death consist of investments and also all my property for the time being remaining unsold (all of which money investments and property are hereafter together called 'my residuary estate') upon the trusts hereafter declared."
8 There then follows cl 7. This clause reads as follows:
"7. MONEY requiring to be invested under the trusts hereof including accumulations of income may at the discretion of My Trustees be applied or invested in the purchase of or at interest upon the security of such stocks, funds, shares, securities or other investments or property of whatsoever nature and wheresoever situate and whether producing income or not (including the purchase or improvement of property anywhere in the world for use as a residence) and whether involving liability or not or upon such personal credit with or without security as My Trustees in My Trustee's absolute discretion think fit to the intent that My Trustees have the same full and unrestricted powers of investing exchanging and varying investments in all respects as if they were absolutely and beneficially entitled thereto."
9 As of March 1996 the defendant, in his capacity as trustee of the deceased's estate, took possession of funds in the order of $329,000. Initially at least these funds were placed on deposit with certain financial institutions and they earned interest in the usual way. As at July 1996 the funds were earning interest at the rate of 6.75 per cent. Between July 1996 and 1998 the defendant lent the trust moneys, or part thereof, to J R and J M Hladin ("the Hladins"). The advances were made from time to time throughout 1996, 1997 and through to 1998. Repayments were made on various dates up until 1 September 1998. By par 14 of the statement of claim, it is pleaded that in all, $650,000 was lent, of which $430,000 was repaid. In other words, the estate has suffered a loss of some $220,000. The Hladins are now bankrupt and there is no real prospect of any amount
(Page 7)
- being recovered from them. The plaintiffs say that the defendant is liable for the loss suffered by the estate. The nub of the plaintiffs' claim is to be found in par 15, par 16 and par 17 of the amended statement of claim. Because of the importance of these paragraphs I will quote them in full (I have omitted the marking up):
"15 The said funds had been taken off deposit with a credit union at which they had been earning 6.75% interest compounded, and advanced to the Hladins:
(a) in circumstances where the Hladins were friends and/or clients of the defendant;
(b) without security;
(c) without agreement as to whether , and if so what rate of, interest would apply to the advances, alternatively by an oral arrangement whereby the Hladins would pay interest at the same rate as that paid by the credit union.
16. The defendant made the advances to the Hladins in bad faith and/or without any real and genuine consideration of whether the loan would benefit the estate and/or for the purpose of benefiting the Hladins, and not for the benefit of the beneficiaries of the estate.
Particulars
Bad faith, lack of genuine consideration and improper purpose are to be inferred from the matters pleaded in paragraphs 15(a), alternatively 15(a) and (b), alternatively 15(a), (b) and (c).
17 In the premises the advances to the Hladins were made by the defendant dishonestly and knowingly in breach of trust."
"Early in the month of August 1996, I was approached by a former client of my said law practice, namely John Hladin ('Mr Hladin'), with whom I had become socially acquainted
(Page 8)
- with (sic). Mr Hladin enquired of me as to whether I could advance to him the sum of $100,000 for a short term. He was then the proprietor of what appeared to me to be a successful business related to the sale of Prestige Motor Vehicles."
11 The defendant says that he made the advance on the basis that the principal sum and interest would be payable on demand and that interest would be payable at the same rate as was being paid on the moneys then presently held with Energy Credit Union Ltd ("the Credit Union"): (See par 24). All further advances were made on that basis. What emerges from the defendant's evidence, not as a consequence of what he says but as a consequence of what he does not say, is that the agreement to loan the trust funds was oral and was never reduced to writing. No security was obtained for the loan and no checks were made of the Hladins' credit worthiness. The interest rate that was charged was exactly the same as could have been obtained from a perfectly sound financial institution. No agreement appears to have been made about arrests of interest and no agreement was reached with respect to periodic payment of interest. Moreover, it would appear that the defendant and Mr Hladin were acquainted in a social sense. Paragraph 7 of the defendant's supplementary affidavit is in the following terms:
"I have known Mr Hladin personally since about 1990 when he consulted me for legal advice. He was a motor vehicle dealer at the time and thereafter, we met regularly and established a personal friendship. Prior to the time funds were advanced to him, I had visited his premises on a regular basis and the business appeared to be successful. Based upon my personal knowledge of the motor vehicle industry in Perth and my observations of Mr Hladin's operations, I believe he operated one of the largest dealerships involving used luxury motor vehicles in Perth. Mr Hladin operated the same business at all times prior to the funds being advanced by me to him. Mr Hladin and his wife resided in a riverfront property near Guildford and I was aware from discussions with him that they enjoyed a substantial equity in the property. From my observations, Mr Hladin enjoyed a comfortable lifestyle inclusive of travel and outgoings which I joined on a luxury motor vessel which I believed he owned."
12 For the purposes of this application, and only this application, the plaintiffs made two concessions. First, they accepted that the terms of cl 7 of the will were exculpatory and allowed the defendant in his capacity as
(Page 9)
- trustee a wide range of investments. It was submitted, however, that even taking this view of cl 7 of the will, the evidence showed that the defendant had acted dishonestly and knowingly in breach of trust and that he was not protected by the terms of cl 7. Secondly, it was conceded that the defendant held an honest belief that the money lent to the Hladins would be repaid and the estate would suffer no loss. The evidence on this point is contained within the defendant's affidavits but can conveniently be summarised by quoting par 13 of the supplementary affidavit:
"With respect to the allegations as now amended at paragraph 17 of the Amended Statement of Claim, the advances I made to Mr Hladin in my capacity as trustee of the estate were made by me in my honest belief that they would be repaid and further in my honest belief that I was at no material time acting beyond what I perceived to be my clear and unequivocal power as trustee."
14 The principles of law which underlie the plaintiffs' application were set out by Sir Christopher Slade in Walker & Ors v Stones & Anor (2000) 4 All ER 412 at 443. His Honour was reviewing a decision of Rattee J at first instance. His Honour had formulated two principles in relation to a dishonest breach of trust. The first was that a deliberate commission of a breach of trust is not necessarily dishonest. We are not presently concerned with that issue. Sir Christopher Slade then went on:
"Second, it is only dishonest if the trustee committing it does so 'either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not'."
15 From this second proposition Rattee J derived support for a third proposition which he had stated in the following terms:
"It seems to me impossible to call a trustee's conduct 'dishonest' in any ordinary sense of that word, even if he knew he was
(Page 10)
- acting in breach of the terms of the trust, if he so acted in a genuine (even if misguided) belief that what he was doing was for the benefit of the beneficiaries …
Sir Christopher Slade dealing with this proposition said:
'With respect, however, I find myself unable to agree with the third proposition, if stated without qualification. At least in the case of a solicitor-trustee, a qualification must in my opinion be necessary to take account of the case where the trustee's so-called 'honest belief' though actually held, is so unreasonable that, by any objective standard, no reasonable solicitor-trustee could have thought that what he did or agreed to do was for the benefit of the beneficiaries."
17 During the course of submissions I invited counsel for the defendant to point out any aspect of the loan to the Hladin's which operated for the benefit of the beneficiaries. Counsel initially referred to a higher interest rate which was received on the moneys loaned. In fact, the affidavit of the defendant makes it plain that the interest rate received was the same as would have been received had the money remained with the credit union. Although it is not entirely clear from the evidence, it would appear that, when repayments were made by the Hladins from time to time, the
(Page 11)
- interest calculation was based upon a rate of 6.75% without any reference to what the rate might have been at that time with the credit union. Even assuming that this is what occurred, it was not in line with the agreement that was reached between the defendant and the Hladins. That agreement conferred on the beneficiaries no benefit with respect to relative interest rates.
18 Accordingly I am satisfied that the defendant has no defence to the plaintiffs' claim that he was dishonestly and knowingly in breach of trust and judgment ought be entered accordingly.
19 Lest there be any misunderstanding, I should make it perfectly clear that in reaching this conclusion I am making no finding about the subjective intent of the defendant. That is not what is at issue. This case is concerned with equities approach to the discharge by a trustee of his obligations. There is no question of the defendant deliberately setting out to occasion loss to the estate. The defendant says he honestly believed that the Hladins would repay the money and that is the basis upon which this application has proceeded. But I am satisfied that in equity his conduct can be characterised as dishonestly and knowingly in breach of trust.
20 There remains the question of the relief which flows consequent upon the conclusion that I have reached. In the amended statement of claim the plaintiffs sought, by par 1 of the prayer for relief, an account and by implication an order that the defendant pay to the plaintiffs any amount found to be owing after the taking of the account. By par 2 the plaintiffs sought equitable compensation. Although not stated, this is presumably offered as an alternative to the claim for an account. In a minute of proposed orders tendered at the hearing, counsel for the plaintiffs urged that if I found the defendant liable to the plaintiffs, there be judgment for an amount of equitable compensation, together with an order that the defendant pay compound interest on that amount. The date from which the compound interest was to be calculated is not specified in the proposed order and it is not entirely clear from the pleading, in particular par 14, from what date interest should be calculated. Counsel for the plaintiffs indicated they were keen to avoid any delays occasioned by the taking of an account.
21 In the circumstances of this case I am not satisfied that it would be proper to do anything other than order a taking of accounts. The claim made by the plaintiffs is with respect to all advances made by the defendant: See par 14 and par 16 of the amended statement of claim. In
(Page 12)
- my view it is proper that an account be taken to establish precisely when advances were made when repayments were made and what part of the repayment was interest. That, I think is the fairest outcome for both the plaintiffs and the defendant.
22 In relation to interest I am satisfied that the plaintiffs are entitled to interest on a compound basis. In determining an interest calculation some attempt must be made to compensate a party, in this case the plaintiffs, for the fact that they were denied use of the funds. Given that had the defendant not made loans to the Hladins, the funds would have remained in the credit union, attracting compound interest, I am satisfied that is the proper basis upon which this account ought be taken.
23 The second aspect of the plaintiffs' claim relates to an amount of $18,078.78 which the plaintiffs say the defendant paid himself out of the assets of the estate, purportedly as professional legal fees: See par 19A. The plaintiffs say that the defendant has failed to keep and failed to produce upon request fee notes or accounts in respect of the legal services and charges: par 19B. Furthermore, they say that the defendant had no right to charge the estate for his alleged professional fees: See par 20. It is this issue that is addressed by par 15 of the defendant's supplementary affidavit. He says that he denies that he failed to keep any fee notes for services he performed in a professional capacity for the estate. However, he does not annexe those fee notes to his affidavit. In my view, such a statement without annexing the fee notes is meaningless and ought be struck out.
24 The evidence discloses that there has been considerable correspondence between the plaintiffs' solicitors and the defendant seeking details of the amounts charged to the estate for the defendant's professional services and copies of the fee notes. Despite all of this correspondence no fee notes have been produced. Clearly they ought to be and in my view the defendant can have no defence to this aspect of the plaintiffs' claim.
25 I think the proper order in relation to these fee notes is that there should be a taking of accounts. Neither counsel addressed the question of whether or not it was open to the defendant to charge the estate for his professional services. That is a matter about which I would be prepared to hear further argument. However, I am satisfied that prior to hearing that argument it is proper that an account be taken of the fees charged to the estate by the defendant.
(Page 13)
26 I will hear the parties as to the appropriate form of order and as to costs.
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22
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