Pearsons Barristers and Solicitors v Avison
[2009] VSCA 54
•27 March 2009
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No 3808 of 2008
| PEARSONS BARRISTERS AND SOLICITORS | Appellant |
| v | |
| SHARYN AVISON | Respondent |
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JUDGES: | WARREN CJ, BUCHANAN and ASHLEY JJA | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 17 February 2009 | |
DATE OF JUDGMENT: | 27 March 2009 | |
MEDIUM NEUTRAL CITATION: | [2009] VSCA 54 | |
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Trust and Trustees – Monies held by solicitors for two persons – Terms of settlement of a dispute between the beneficiaries supplied the terms of the Trust – Distribution of trust funds contrary to the terms of settlement – Trustee did not act on the instructions of the plaintiff – Trustee not entitled to the protection of s 67 of the Trustee Act 1958 (Vic) – Equitable compensation.
Practice and Procedure – Summary judgment – Cause of action verified – No real question to be tried – Existence of claims against third parties and desire to obtain documents on discovery did not require the grant of leave to defend – Defendant not entitled to an adjournment to lead further evidence – Plaintiff entitled to judgment.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr C M Caleo, SC with Ms R N Annesley | Frenkel Partners |
| For the Respondent | Mr S W Stuckey | Zervos Lawyers |
WARREN CJ:
I have had the benefit of considering the draft judgments of Buchanan JA and Ashley JA. I agree with the reasons of their Honours and that the appeal should be dismissed.
BUCHANAN JA:
A judge in the County Court entered summary judgment in favour of the respondent against the appellant pursuant to the provisions of Rule 22.01 of the County Court Rules. In this appeal the appellant contends that his Honour erred in failing to grant the appellant leave to defend the proceeding.
In an affidavit in support of the application for summary judgment, the respondent deposed that she lived in a domestic partnership with Mark Scott between June 2002 and September 2005. Upon their separation, litigation between the respondent and Scott ensued in order to determine their respective interests in three properties, one at Altona Meadows, the others at Rye and Essendon. The Altona Meadows property was purchased by the respondent before she commenced to live with Scott. The respondent borrowed money to effect the purchase and the loan was secured by a mortgage over the property. The other properties were purchased by the respondent and Scott while they lived together. The couple financed the purchases with loans secured by mortgages over those properties and by the respondent’s mortgage over her Altona Meadows property.
The respondent and Scott agreed to sell the Essendon property. The proceeds of sale were sufficient to discharge the mortgage over that property. The balance, $69,050, was received by the appellant, a firm of solicitors acting for Scott, and placed in the firm’s trust account for the benefit of the respondent and Scott.
In October 2006 the litigation was settled. Clause 1 of the terms of settlement provided that the Rye property would be sold for $330,000. Clause 2 provided that the proceeds of the sale were to be applied to discharge two loans: one a loan of
approximately $107,000, the other a loan of approximately $250,000. Clause 3 of the terms of settlement provided:
That a sum of $69,050 currently held by Pearsons solicitors on behalf of [the respondent and Scott] be applied as follows:
3.1To complete and secure discharge of both of the loans referred to in paragraph 2(b) [the two mortgages].
3.2 $7,500 to [the respondent].
3.3 The remainder to [Scott].
The terms provided that the respondent was to ‘retain the Altona Meadows property for her sole use and benefit absolutely.’ It appears that the first of the loans referred to in cl 2 was a second loan in respect of the Essendon property and that the second loan was secured by a mortgage over the Rye land and by the respondent’s mortgage over the Altona Meadows land.
The Rye property was sold at a price of $330,000. As proposed by Scott, the conveyancing company, First Settlement Conveyancing (‘First Settlement’) acted for the vendors.
On 1 November 2006 Leanne Abela, a partner of the appellant firm, wrote to First Settlement stating:
We advise that with respect to the settlement of the sale of the Rye property the following has been agreed upon and signed by both parties with respect to the sale proceeds:
1. All costs and commissions of the sale are to be paid.
2.The RAMS Mortgage Loan No. 001661719 (approximately $107,000) and Loan No. 001326396 (approximately $250,000) be paid out.
3.Any shortfall, and there will be a shortfall, from the sale proceeds to discharge the mortgage is to be paid from funds that we are currently holding in trust.
‘The mortgage’ was evidently the mortgage over the Rye property.
On 6 December 2006 First Settlement wrote to Harwood Andrews, the respondent’s solicitors, requiring the firm to produce at settlement two withdrawals of caveat and indicating that they would receive a cheque for $7,405.40 at settlement, the plaintiff’s entitlement under the terms of settlement less the amount of the registration fees for two caveat withdrawals.
A file note made by Ms Abela on 7 December 2006 recorded a conversation with Fiona at First Settlement. According to the note:
Fiona the conveyancer advised … the matter is now being taken over by Kemp Strand (sic) Solicitors in Sydney, they want $302,116.71 payable to RAMS.
On the same day First Settlement wrote to the appellant in the following terms:
We confirm that Kemp Strang, the solicitor now representing RAMS Mortgage Corporation, have advised us that the final payout figure to RAMS @ 8th December 2006 is $302,016.71.
On 7 December 2006 the appellant sent a facsimile to First Settlement referring to a
… telephone attendance with Ms Abela of our office on the 6th December 2006 and wish to confirm that we have different instructions with respect of the balance of the money and where they are to be paid.
We confirm that your advices are that you have access to $311,000 for the sale of the Rye property and that the money is to be disbursed as follows:
(a) $293,425.80 to RAMS in payment of mortgage regarding Rye; and
(b)$7,405.40 to the other party [being $94.60 deducted for withdrawals of caveats at their expense)]
We confirm that the balance is to be paid by way of cheque made payable to Mr Mark Scott, our client.
The proceeds of the sale of the Rye property were not used to pay the costs of sale and discharge the loans referred to in cl 2 of the terms of settlement. Instead, Scott received the net balance of the deposit ($23,848 subject to his solicitors giving First Settlement a cheque for $14,092, which was part of the $69,050 residue of the sale of the Essendon property), approximately $300,000 went to RAMS and $7,500 to Harwood Andrews for the respondent, with the balance held by First Settlement to be paid to Scott at settlement. After settlement the balance of the $69,050 trust fund was apparently disbursed by the appellant to Scott.
In her statement of claim in these proceedings the respondent alleged that:
(a)on 13 October 2006 the appellant received the balance of the funds from the sale of the Essendon property in an amount of $69,050 on trust jointly for the respondent and Scott;
(b)on 26 October 2006 the respondent and Scott entered into the terms of settlement;
(c)insofar as the appellant had any instructions from the respondent for the payment or application of the monies held on trust, they would apply them in accordance with the terms of settlement;
(d) the loan in respect of the Rye land was not paid out but reduced to an amount of $68,478;
(e)in breach of the terms of the trust, the appellant did not apply the trust monies in accordance with the terms of settlement but instead paid the sum of $14,438.92 to Scott and paid the balance of the trust monies to Scott;
(f)by reasons of the appellant’s breach of trust, the plaintiff had suffered loss and damage in that she remained liable for the amount of the second mortgage.
The relief claimed by the respondent was repayment of the trust monies misapplied by the appellant, equitable compensation, interest and costs.
On the basis that the appellant held the sum of $69,050 on trust for the respondent and Scott and the terms of the trust were constituted by the terms of settlement, the appellant was obliged to disburse the sum it held to Scott only after both the loans had been discharged and $7,500 had been paid to the respondent. Instead, it appears that the appellant paid sums to Scott from the funds held in trust before the loans had been discharged, with the result that the sum remaining owing under the mortgage secured over the Altona Meadows property (the mortgage over the Rye land having been discharged) was greater than the sum that would have been owing if the appellant had waited until both loans had been discharged. The difference between the two amounts represents the sum which the appellant misappropriated.
The County Court judge held that the appellant had committed a breach of trust –
by its failure to ensure that at settlement of the Rye property ‘RAMS mortgage Loan no 001661719 (approximately $107,000) and Loan no 001326396 (approximately $250,000) be paid out an any shortfall, and there will be a shortfall from the sale proceeds to discharge the mortgage, is to be paid from funds that we are currently holding on trust’ (letter dated 1 November 2006). As a consequence of the breach of trust, it will now cost the plaintiff $80,373.39 to discharge mortgage no 001326396. This is the plaintiff’s loss and she was entitled to have judgment entered for that sum, together with the costs of the proceeding.
His Honour duly entered judgment in those terms and made the order for costs.
In this Court the appellant contended that his Honour erred in concluding that the respondent had adequately verified the facts upon which her claim was based, in concluding that there was not a question that ought to be tried within the terms of R 22.06(1)(b), in rejecting the submission made by the appellant that there ought for some other reason to be a trial and in refusing to grant to the appellant an adjournment of the application in order to enable it to file further affidavit material.
The appellant’s first contention was that the respondent had not verified the cause of action. Counsel for the appellant submitted that there was a dearth of evidence of the facts constituting the trust. The mere fact that a sum was deposited in the trust account of the appellant was not inconsistent with the appellant holding the funds on trust for its client alone. The terms of settlement, which came into existence two weeks after the receipt of the so-called trust monies, reflected a contract between the respondent and Scott to which the appellant was not a party. Further, particulars of the receipt and holding by the appellant of the sum of $69,050 as trustee for Scott and the respondent, as pleaded in the statement of claim, relied upon a letter dated 26 September 2006 from the appellant to another firm of solicitors. The letter, however, was not exhibited to the respondent’s affidavit in support of the application for summary judgment.
I would reject that contention. The appellant initially received the sum of $69,050 on trust for the respondent and Scott. The appellant knew the sum represented the proceeds of the sale of property owned jointly by the respondent and Scott, and placed the monies in its trust account. The appellant also knew of the terms of settlement, which recorded the beneficial entitlements to the monies upon which the respondent and Scott had agreed, for the appellant attended the mediation at which the terms of settlement were executed and the appellant’s letter to First Settlement dated 1 November 2006 apparently drew upon the terms of settlement. In those circumstances I am of the opinion that the terms of settlement constituted instructions from the beneficiaries which the trustee was obliged to observe. I add that the letter referred to in the preceding paragraph was evidently inconsequential. The particulars stated that a copy might be inspected at the office of the solicitors for the respondent. Had there been anything in it which controverted the respondent’s reliance upon the appellant’s knowledge of the terms of settlement, Ms Abela would surely have adverted to it in her affidavit. Moreover, the document originated from the appellant, so no question of Scott maintaining legal professional privilege could arise.
It was then submitted on behalf of the appellant that an arguable defence to the claim arose from the advice given to the appellant by First Settlement that the proceeds of the sale of the Rye property were sufficient to satisfy the amount required by the mortgagee. Counsel for the appellant submitted that the advice either constituted instructions from the respondent or founded a claim pursuant to s 67 of the Trustee Act 1958 that the appellant had acted honestly and reasonably and ought fairly to be excused for the breach of trust.
In my opinion, neither contention is tenable. While First Settlement did act for the respondent and Scott in the conveyance of the title to the Rye land, there is no evidence that First Settlement was authorised by the respondent to alter the instructions constituted by the terms of settlement or direct the appellant as to the manner in which the appellant was to act in accordance with the terms of settlement. I do not think it could be established that such functions are within the ostensible authority of a conveyancer. The conversation recorded in the file note and the contemporaneous letter did not purport to be instructions from the respondent, but simply relayed information said to have been obtained from a firm of solicitors. Accordingly, it is hardly surprising that Ms Abela did not describe or apparently treat the communications as instructions from the beneficiaries.
As to s 67 of the Trustee Act, counsel for the respondent submitted that the appellant should not be permitted to raise the argument for the first time on appeal. The jurisdiction to relieve a trustee from the consequences of a breach of trust was not advanced before the County Court judge. While ordinarily an appellant is bound by the way in which proceedings in the court below have been conducted, I think that justice requires this Court, in the context of an application for summary judgment, to entertain a debate as to whether an arguable defence emerged from the material before the judge.
The jurisdiction conferred by s 67 of the Trustee Act, ‘is … one which must be exercised with great caution’.[1] In October 2006 the amount required to discharge the loans was said to be $357,000. The letter from the appellant to First Settlement dated 1 November 2006 confirmed that amount and showed that the appellant realised that the proceeds of the sale of the Rye property could not satisfy the debts. A little over a month later, First Settlement said that the mortgagee required payment of a significantly smaller sum than that anticipated by the appellant, the respondent and Scott. That amount was not attributed to any particular loan. There was no intimation to the appellant that the respondent or Scott had reduced the debts or even that there were funds available to the respondent and Scott to enable them to reduce the debts. It does not appear that the appellant sought confirmation of First Settlement’s advice from the beneficiaries or even enquired as to what occurred at settlement of the sale of the Rye land.[2] Indeed, the appellant apparently took no steps to verify what on its face was a statement at odds with the facts known to the appellant.
[1]Re Allsop [1914] Ch 1, 13 (Cogens-Hardy MA). See also Craven-Sands v Koch (2000) 34 ASCR 341, 367 (Bergin J).
[2]See Jalmoon Pty Ltd (in liq) v Bow [1997] 2 Qd R 62; Re Dive [1909] Ch 328, 344 (Warrington J).
In those circumstances I do not consider that there is any prospect that the appellant would be held to have acted reasonably in the sense that a prudent person would have disposed of the trust property as the appellant did if it had been the property of that person,[3] or ought fairly to be excused for the breach.[4]
[3]Re Kirner [1897] 1 Ch 536.
[4]Cf National Trustee Company v General Finance Company [1905] AC 373; Re Windsor Steam Coal Company [1929] 1 Ch 151.
The High Court has said:
The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried.[5]
In the present case I am of the opinion that the criticisms of the respondent’s evidence are without foundation and that the matters advanced in the appellant’s affidavits do not disclose that there is a real question to be tried.
[5]Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99 (Mason, Murphy, Wilson, Deane and Dawson JJ).
It was submitted on behalf of the appellant that shortcomings in discovery by the respondent and the inhibition to the production of documents by the appellant caused by Scott maintaining a claim to legal professional privilege meant that, in the words of r 22.06(1)(b), ‘there ought for some other reason be a trial.’
While the appellant did complain about the inadequacy of discovery by the respondent and it does appear that Scott claimed legal professional privilege in respect of certain documents, there is no reason to suppose that undisclosed documents exist which could establish a defence to the respondent’s claim. The central questions in the proceeding concerned the instructions conveyed by or on behalf of the respondent to the appellant and the state of knowledge and steps taken by the appellant with respect to the trust funds. It was not suggested that the respondent or Scott possessed documents withheld from the appellant which could throw any light on those matters, and no other defence was mooted in respect of which there may have been missing documents. In any event, if documents were the subject of legal professional privilege when the application was heard, there is no reason to suppose that they would not remain privileged at trial. Complaint was also made as to the lack of access to documents in the possession of First Settlement. The production of the documents could have been compelled by subpoena, but no subpoena was issued.
It was also submitted that the proceedings should have gone to trial because the solicitors then acting for the respondent had attended the settlement and had acquiesced in the disposition of monies. At its highest, counsel for the appellant submitted that this might confirm that the respondent had given the instructions which were claimed to have been given by First Settlement to the appellant. Alternatively, it was submitted that the respondent’s former solicitors, First Settlement and/or Scott, might be liable to indemnify or make contribution to the appellant. A variant of the last submission was that Part IVAA of the Wrongs Act 1958 applied to the respondent’s claim and thus the appellant should have the opportunity to join the allegedly concurrent wrongdoers.[6]
[6]Unless they were brought in, s 24AI(3) of the Wrongs Act would operate.
It was not suggested on behalf of the appellant that the respondent’s former solicitors held a document from First Settlement at the time of the settlement of the sale of the Rye land, which indicated exactly how First Settlement was allocating the monies it held. In her affidavit of documents sworn on 6 May 2008, the respondent had deposed that her former solicitors maintained a file relating to the proceeding, that the solicitors had refused to provide her with the entire file and that she had discovered all documents from her former solicitors’ file that were then in her possession, custody or power. She made a like deposition in respect of the file of First Settlement. In her affidavit of documents, the respondent did maintain privilege in respect of certain correspondence from the former solicitors’ file, but it is notable that she listed no relevant correspondence between 23 October 2006 and 6 February 2007. It is also notable that the appellant’s solicitors did not subpoena the file of the former solicitors or the file of First Settlement at the hearing of the summary judgment application. Accordingly, in my opinion, the suggestion that the respondent’s former solicitors might have been able to confirm that the respondent had given the instructions which the appellant asserted had been conveyed by First Settlement to the appellant was entirely speculative and opposed to the evidence which was before the County Court judge.
Turning to the submission that the appellant might have claims for indemnity or contribution against one or other of the respondent’s former solicitors, First Settlement and Scott, no claim in that respect had been initiated by the time of the hearing of the summary judgment application, and in any event the appellant was not prevented by summary judgment against it prosecuting claims for indemnity or contribution.
The appellant pleaded in its defence that the respondent’s claim was an apportionable one to which Part IVAA of the Wrongs Act applied. The appellant pleaded that the respondent was a concurrent wrongdoer. It did not plead that the respondent’s former solicitors or First Settlement or Scott met that description. In this Court, however, counsel argued that the proportionate liability regime might apply if the ordinary principles of indemnity and contribution did not. No reference was made to the respondent being a concurrent wrongdoer.
Although the point need not be decided, I doubt that a claim for breach of trust, albeit one seeking equitable compensation, falls within the description in s 24AF(1) of the Wrongs Act as ‘arising from a failure to take reasonable care.’ In any event, the writ had been issued on 6 February 2008 and the hearing of the application for summary judgment took place on 30 May 2008. No step was taken between those dates to bring in any of the alleged concurrent wrongdoers. In those circumstances, I am of the opinion that the asserted availability of the proportionate liability regime did not provide a reason for refusing summary judgment.
Finally, it was contended that the County Court judge erred in refusing an application on behalf of the appellant for an adjournment.
The application was made after counsel for the appellant commenced her submissions. Earlier suggestions by the trial judge that the appellant might need an adjournment to expand upon matters deposed to in Ms Abela’s affidavit had been rebuffed. It appears from the transcript of the hearing of the application for summary judgment that the application for an adjournment was due to a realisation on the part of the appellant’s counsel that his Honour resisted the argument that the communications by First Settlement to the appellant bound the respondent. The material that might be produced after an adjournment was not identified. Reference was made to a subpoena to First Settlement, but no explanation was given for the appellant’s failure to subpoena documents at the hearing of the application for summary judgment. It appears that the application was made for the purpose of attempting to advance a new case that might have more appeal to the County Court judge. The application for an adjournment was refused in the exercise of a discretion in a matter of practice and procedure. In my opinion it has not been shown that the exercise of the discretion miscarried.[7]
[7]See House v The King (1936) 55 CLR 499.
One matter remains. The terms of settlement required the appellant to ascertain the sum required to repay the debts referred to in cl 2 of the terms of settlement. The net proceeds of the sale of the Rye property were to be applied to repay the debts. Any shortfall was to be met from the funds held in trust by the appellant. The balance of the trust funds was to be applied by paying $7,500 to the respondent and the balance to Scott.
Although the approximate amount of the debts was known, the materials before the Court did not enable the precise amount of the net proceeds of the sale of the Rye property to be calculated. A letter from First Settlement exhibited to an affidavit by Ms Abela set out the costs of the sale, but some of the figures were illegible. It appears that the difference between the amount required to extinguish the debts and the net proceeds of the sale of the Rye land was of the order of $50,000.
From the foregoing, it appears that the amount of the trust funds misapplied
by the appellant was some $50,000. The County Court judge, however, entered judgment for a larger sum, said to represent the respondent’s loss, and presumably did so pursuant to the claim for equitable compensation.[8] Although there might be room for debate whether the entire sum awarded as compensation represented loss which was caused by the appellant’s breach of trust, no issue was taken with the sum claimed at the hearing of the application for summary judgment or with the amount of the judgment at the hearing of the appeal. Accordingly, I do not consider that the question of quantum ought to be tried.
[8]See Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484.
For the foregoing reasons, I would dismiss the appeal.
ASHLEY JA:
I have had the advantage of reading in draft the reasons for judgement of Buchanan JA. I agree, for the reasons for which his Honour gives, that this appeal should be dismissed. Concerning the possible application of s 67 of the Trustee Act 1958, I add the following.
The appellant’s letter of 7 December 2006 to First Settlement Conveyancing referred to a telephone conversation between Ms Abela and an unnamed representative of First Settlement on 6 December 2006. It noted that $293,425.80 was to be disbursed to RAMS in repayment of the Rye mortgage.
According to Ms Abela’s file note dated 7 December 2006, however, the amount required by RAMS was $302,116.71.
In her Affidavit sworn 29 May 2008, Ms Abela deposed that her letter to First Settlement dated 7 December was sent after the conversation noted in the first sentence of that letter. But that could not be so, because the letter referred to a telephone attendance on 6 December, and because the amount payable to RAMS differed significantly from the amount referred to in the file note of 7 December. It
seems clear enough that the letter of 7 December from the appellant to First Settlement must have been the subject of a fresh telephone conversation on that day, confirmed by First Settlement’s letter to the appellant dated that day.[9] Ms Abela made no reference to such a conversation in her affidavit.
[9]Attached to that letter was a copy letter of even date, addressed to Scott and the respondent, the address being that of Scott alone.
The fact that, on the face of things, the amount which RAMS required had changed by about $9,000 in the space of 24 hours appears to have gone unremarked by the appellant. Further, the file note of 7 December, whilst recording that Fiona of First Settlement had advised that RAMS required $302,116.71, also noted Fiona’s advice that ‘our client’ - that is, Scott – had said that $350,000 was owing to RAMS. So within the file note there was a plain indication that something may have gone wrong in respect of the payout figure now provided by RAMS’ solicitors. Moreover, the amount of $350,000 mentioned by Scott to First Settlement approximated the total of the two loans which the terms of settlement required to be paid out before there was any distribution to the respondent and Scott out of the $69,050 held by the appellant.
But confronted by an apparent discrepancy within the information recorded by the file note, and by the fact that RAMS had apparently advised two different payout amounts in the space of 24 hours, Ms Abela made no enquiry – whether from First Settlement, Scott, the respondent, or the solicitors for RAMS – as to the amount which was in fact required to pay out the two loans referred to in the terms of settlement.
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