Via Bertino Pty Ltd v Yee

[2018] NSWSC 1587

Supreme Court

New South Wales

Medium Neutral Citation:

Via Bertino Pty Ltd v Yee [2018] NSWSC 1587

Hearing dates:

18 October 2018

Decision date:

23 October 2018

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

1.   Judgment for the plaintiff against the second defendant for the sum of $69,420.55;

 

2.   Subject to orders (3) and (4), the second defendant pay half the plaintiff’s costs of the proceedings;

 

3.   Order (2) is stayed for 21 days;

 4.   If any party seeks an order in relation to costs which is different from order (2), that party must relist the matter by contacting my Associate within 21 days of the date of these orders.

Catchwords:

EQUITY – Trusts and trustees – Breaches of trust – Misappropriation of trust property
COSTS – Party/Party – General rule that costs follow the event – Application of the rule and discretion – Where the claim succeeded against one defendant on a point that was not raised until the hearing

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW)

Category:

Principal judgment

Parties:

Via Bertino Pty Ltd (Plaintiff)
Michael Manson Yee (First Defendant)
Australian Legal Research House Pty Ltd t/as Goodwyn Legal Pty Ltd (Second Defendant)

Representation:

Counsel:
J Burnett (Plaintiff)
I Griscti (Defendants)

  Solicitors:
Sarvaas Ciaparra Lawyers (Plaintiff)
Gilchrist Connell (Defendants)

File Number(s):

2017/180598

Publication restriction:

None

Judgment

Introduction

1. In these proceedings, the plaintiff, Via Bertino Pty Ltd (Via Bertino), claims damages from the first defendant, Mr Michael Yee, and the second defendant, Australian Legal Research House Pty Ltd trading as Goodwyn Legal Pty Ltd (Goodwyn), in the sum of $67,171.30 together with interest and costs. Prior to 21 August 2014, Mr Yee was a partner of the law firm L W Williams & Associates. On or about that date, Goodwyn acquired the business of L W Williams & Associates and from that time until 30 June 2018, Mr Yee worked as a consultant for Goodwyn, although it appears that he continued to carry on practice under the name L W Williams & Associates. From the time the two firms merged, the combined firm operated one trust account.

2. As pleaded, the claim was put in two ways. First, it was alleged that on or about 30 March 2015, Mr Yee entered into a contract with Via Bertino (the Contract) to hold the sum of $67,171.30 in his trust account until the resolution of a dispute between Via Bertino, on the one hand, and Makram Constructions Pty Ltd (Makram) and Pymble Property Developments Pty Ltd (Pymble) (together, the Developers), on the other, in relation to a sale off the plan to Via Bertino of a unit in Five Dock for the sum of $868,500. It is alleged that Goodwyn, in breach of the Contract, paid the funds held in trust to the administrator of Makram, who was appointed on 3 September 2015, and to Mr Adel Makram.

3. Second, it was alleged that the defendants owed Via Bertino a fiduciary duty to hold the trust funds in their trust accounts and not to disburse the funds to any person except in accordance with the Contract and that in breach of that fiduciary duty, they paid the funds in the way I have indicated.

4. The defendants raised a number of defences to that claim. They denied that there was any contract between them and Via Bertino. Any contract in relation to the payment of the money in dispute was between Via Bertino and the Developers. As to the claim based on breach of fiduciary duties, the defendants contended that, as pleaded, that claim still depended on the Contract. The defendants also raised defences that Via Bertino had failed to mitigate its loss by seeking to recover the amount claimed from the Developers and a proportionate liability defence alleging that the Developers and the administrator of Makram were concurrent wrongdoers who were each liable for a proportion of the loss.

5. The proceedings were commenced in the Local Court. They were transferred to this Court after it became apparent to Via Bertino that the defendants also relied, as a defence to the claim for breach of fiduciary duties, on the contention that the claim was properly characterised as a claim for equitable compensation and that the Local Court did not have jurisdiction to grant relief of that kind.

6. As finally put, the case differed substantially from the way that it was pleaded. At the time the statement of claim was filed, Via Bertino incorrectly believed that Mr Yee was still practising as a principal of L W Williams & Associates, whereas in fact he was already an employee of Goodwyn. Consequently, there was no material difference between his position and the position of Goodwyn and Via Bertino’s real case was that Mr Yee had entered into the Contract on behalf of Goodwyn and Goodwyn breached that contract or its fiduciary duties by paying the money in the way that it did.

7. Perhaps even more significantly, at the suggestion of the Court, Via Bertino reformulated its equitable claim as a claim for breach of trust. Mr Griscti, who appeared for the defendants, quite properly conceded that that claim did not raise any new factual issues and that consequently there was no reason why the Court should not permit Via Bertino to raise it. Mr Griscti also quite properly conceded that the defences based on a failure to mitigate and proportionate liability were not available to the reformulated claim.

Background

8. Via Bertino entered into the contract for the purchase of the unit with the Developers on 5 August 2011. Clause 7 of the contract gave Via Bertino the right to make claims before completion, but gave the Developers a right to rescind the contract if the total amount claimed exceeded 5 per cent of the purchase price of the property. Clause 7.2 provided that if the Vendor did not rescind, the parties had to complete and, if the contract completed, “the lesser of the total amount claimed and 10% of the price must be paid out of the price to and held by the depositholder until claims are finalised or lapse”.

9. On 17 December 2014, Via Bertino’s solicitor notified the defendants following a final inspection of the property that Via Bertino had identified a number of defects in the property.

10. On 23 December 2014, the Developers issued a notice to complete. The following day, Via Bertino proposed that the sale price be reduced by $86,000 as a result of the defects. In response, on 5 January 2015, the Developers issued a notice of intention to rescind under cl 7 of the contract on the basis that the amount of $86,000 exceeded 5 per cent of the purchase price of the property.

11. On 13 January 2015, Via Bertino served a notice “waiving” its claim to $86,000, but otherwise reserving its rights under the contract.

12. The Developers issued a second notice to complete on 17 March 2015, specifying a settlement date of 31 March 2015.

13. Following further correspondence between the parties, on 29 March 2015, Via Bertino’s solicitors sent a letter to the defendants indicating that it proposed to refer its claims to expert determination in accordance with cl 34 of the contract. The letter continued:

For the purpose of the expert determination our client seeks that the sum of $100,000.00 be held by you in your trust account until the determination of an expert of the matters raised in our letter/email of 29 March 2015.

Our client makes this request in the spirit of conciliation and termination of the matter.

If your client does not agree for you to hold these funds then our client shall need to consider seeking urgent orders from the Supreme Court of New South Wales for these moneys to be held until the determination.

Our client shall be contending that the vendor shall be impecunious once this matter is settled under protest.

Please let us have your direction to pay which includes the payment of $100,000.00 in your trust account until the expert determines the issues and provides his decision.

Please let us have your clients [sic] instructions in respect to the above by no later than 11am Monday 30 March 2015. If a response is not received in respect to the retaining the funds in your trust account by that time we shall assume that you [sic] client shall not agree to the request and an immediate application shall be made to the Court for the appropriate orders.

14. Mr Yee replied to that letter by email on 30 March 2015 stating:

I attach amended directions to pay and confirm my client’s agreement to the retention of $43,425.00 (being 5% of the price) in my trust account pending the outcome of the arbitration.

The email attached a letter setting out directions in relation to the payment of the balance of the purchase price, which included the payment of $43,425 to “LW Williams & Associates Trust Account”.

15. There was a dispute concerning whether Via Bertino was liable to pay default interest under the contract by reason of the delay to the settlement. On 30 March 2015, Via Bertino’s solicitor sent an email to Mr Yee which relevantly said:

Further to our previous email today, our Client shall agree to pay the alleged interest under protest and reserves its rights in respect to the same on the basis that it be paid into your firm’s Trust Account and held until this disagreement is properly resolved.

16. Following that email, the payment directions were amended to show a payment into the L W Williams Trust Account of the sum of $68,171.30.

17. Settlement occurred on 31 March 2015. At that time, the sum of $67,171.30 was paid into the trust account. The balance of $1,000 was paid in subsequently.

18. On 18 August 2016, Mr Peter Klimt was appointed by The Law Society of New South Wales “as arbitrator to determine the issues between the parties”.

19. On 3 September 2015, Makram entered voluntary administration. Shortly following that administration, the second defendant paid $29,460.65 to the voluntary administrator. On or around 28 September 2016, it paid the balance of the moneys held in the trust account to Mr Adel Makram.

20. On 6 December 2016, the arbitrator delivered his award. He made the following orders:

1.   That the companies Makram Constructions Pty Ltd and Pymble Property Developments Pty Ltd are in breach of the terms of their contract for the sale of Lot 18, 239 Great North Road, Five Dock NSW 2046 dated 5 August 2011 to the Applicant.

2.   That the Applicant be entitled to the sum of $67,171.30 from Makram Constructions Pty Ltd and Pymble Property Development Pty Ltd jointly and severally as damages resulting from their breach of contract.

3.   That the Applicant be entitled to the sum of $67,171.30 held by Goodwyn Legal/LW Williams & Associates held by them pursuant to an arrangement between the parties.

4.   That the Respondents jointly and severally pay the Claimant’s costs of the arbitration.

21. On 9 January 2017, Via Bertino demanded payment of the $67,131.30.

22. On 9 October 2017, the Developers made an application to set aside the award, which was dismissed on 11 May 2018.

23. On 5 April 2018, Pymble was placed in voluntary administration. Both Makram and Pymble are subject to Deeds of Company Arrangement. The evidence is that there is little prospect of Via Bertino recovering anything from either company.

Consideration

24. This case is straightforward. It is plain that the money Via Bertino paid into Goodwyn’s trust account was held on trust. The only question is the terms of that trust.

25. In my opinion, those terms were made clear by the context and the correspondence between the parties. There was a dispute between Via Bertino and the Developers about whether Via Bertino owed the Developers the amount that had been paid into the trust account. Plainly, the defendants were aware of that dispute. On 29 March 2015, Via Bertino initially proposed that it pay the sum of $100,000 into Goodwyn’s trust account “until the determination of an expert of the matters raised in our letter/email of 29 March 2015”. On 30 March 2015, Mr Yee indicated that the Developers agreed to the payment of the sum of $43,425.00 into Goodwyn’s trust account “pending the outcome of the arbitration” and Mr Yee attached an instruction for payment including an instruction in relation to that payment.

26. A further dispute arose in relation to interest and Via Bertino’s solicitor proposed that that amount also be paid into Goodwyn’s trust account “until this disagreement is properly resolved”. Mr Yee issued amended payment instructions reflecting that proposal. Consequently, the defendants must have understood that they were to hold the money on trust for Via Bertino and the Developers until the disputes were resolved. They accepted the money on that basis. Implicit in those instructions was an instruction to pay the money in accordance with the resolution of the disputes.

27. It was a breach of trust for Goodwyn to deal with the money other than in accordance with the terms on which it was held. It is plain that had Goodwyn complied with the terms of the trust, it would have paid the amount claimed by Via Bertino to it. Accordingly, Via Bertino is entitled to equitable compensation from Goodwyn in that amount.

28. Having regard to the conclusions I have reached, it is unnecessary to deal with Via Bertino’s other claims. However, I should add that it is not readily apparent that there was a contract between Via Bertino and either of the defendants relating to the money. There is some force in the defendants’ submission that the money was paid into Goodwyn’s trust account as a result of an agreement between Via Bertino and the Developers. Goodwyn “agreed” to the payment only in the sense that it consented to act as trustee of the money. The case in contract is also likely to have failed against Mr Yee since he was clearly acting as an employee of Goodwyn and Goodwyn was the relevant contracting party if there was one. Moreover, it is not clear that there was any breach of trust by Mr Yee. He did not personally hold the money on trust. It is possible that Mr Yee knowingly participated in Goodwyn’s breach of trust. However, no such case was pleaded and there was no factual material before the Court which would justify such a conclusion.

29. It follows that Via Bertino is entitled to judgment against Goodwyn for the sum of $67,131.30 together with interest. In my opinion, interest should run at court rates from the date that the sum of $67,131.30 should have been paid to Via Bertino to the date of judgment. The date on which the money should have been paid was the date on which the Developer’s application to set aside the award was dismissed – that is, 11 May 2018. That interest amounts to $2,289.25.

30. That leaves the question of costs. Via Bertino has been successful and, in the normal course of events, would be entitled to its costs: see Uniform Civil Procedure Rules 2005 (NSW) r 42.1. However, in this case, Via Bertino succeeded on a point that was not raised until the hearing. There were difficulties with the way in which it originally put its case. It seems that had it put its case as a simple breach of trust, there would have been a real possibility that the case could have been resolved without a hearing. Judgment has only been obtained against Goodwyn. Those matters suggest that an appropriate order in relation to costs is that Goodwyn pay half of Via Bertino’s costs of the proceedings. However, the parties have not been given an opportunity to make submissions on costs. They should be given that opportunity before any final costs order is made. The orders I propose to make gives them that opportunity.

Orders

31. The orders of the Court are:

1. Judgment for the plaintiff against the second defendant for the sum of $69,420.55;

2. Subject to orders (3) and (4), the second defendant pay half the plaintiff’s costs of the proceedings;

3. Order (2) is stayed for 21 days;

4. If any party seeks an order in relation to costs which is different from order (2), that party must relist the matter by contacting my Associate within 21 days of the date of these orders.

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Decision last updated: 23 October 2018