regarded as that conduct on the part of a plaintiff which will
lead not to a complete defence but to a reduction in damages.
Before the enactment of the Contributory Negligence Act, the
defence of contributory negligence was a complete defence in
tort:
it was not a defence in contract - where the issue was more likely
to be simply causation. I therefore conclude, in
the absence of
any clear authority to the contrary, that the first limb of the
definition of s.2 determines the meaning of
the word 'fault' as
it relates to the plaintiff's cause of action: that accordingly,
the Contributory Negligence Act cannot
apply unless the cause of
action is founded on some act or omission on the part of the
defendant which gives rise to liability
in tort: that if the
defendant's conduct meets that criterion, the Act can apply -
whether or not the same conduct is also
actionable in contract.
By the same token - the second limb of the definition means simply
and logically that no act or omission
of the plaintiff will
entitle the defendant to a reduction of damages unless it amounts
to the sort of conduct which, prior
to the enactment of the
Contributory Negligence Act, would have afforded a defence of
contributory negligence."
90. Prichard
J felt bound by New Zealand authority to the effect that claims
for damages for professional negligence arise exclusively ex contractu
although he did not subscribe to that view, see pp 557-559, and consequently a
plea of contributory negligence was not available.
It appears that O'Connor LJ
accepted that liability may co-exist in contract and tort and consequently
there was no bar to apportionment.
The view expressed by Cooke P in Day v.
Mead [1987] NZCA 74; (1987) 2 NZLR 443, referred to by Rogers J in AWA v. Daniels (supra) has
been adopted by the Court of Appeal in New Zealand in Mouat v. Clark Boyce
(1992) 2 NZLR 559, per Cooke P at pp 564-565 and Gault J at pp 574-575. The
Court was concerned with negligence and breach of fiduciary duty of a
solicitor and the contributory negligence of the client.
91. The relevant provisions of the apportionment legislation in the United
Kingdom and in New Zealand are in the same terms as s.27a(1) and (3).
92. Whilst I accept that there has not been any authoritative
decision of an
appellate court in this country, it is necessary to decide whether the plea of
contributory negligence is available
to the defendants as I have reached the
conclusion, for reasons which I shall express, thatthe plaintiff was guiltyof
contributory
negligence. The true interpretation of s.27a(1) and (3) is, in
my view, as stated by Prichard J in Day v. Mead (supra) and accepted
by the
Court of Appeal in Vesta. It accords with the views expressed by White J in
Meddick v. Cutten and Harvey (supra) Bollen J
in Walker and Ors. v.
Hungerfords and Ors. (supra) and with an approach of Cooke P in Mouat v. Clark
Boyce (supra). It also accords
with the reasoning of Crisp J in Queen's
Bridge Motors And Engineering Co. Pty. Ltd. v. Edwards [1964] TASStRp 7; (1964) Tas SR 93. The
plea is available where the duty of care is the same in contract and in tort
and both causes of action are pleaded. I have
noted that this view has been
accepted in Canada: see Doiron v. Caisse Populaire D'Inkerman Ltee (1985) 17
DLR (4th) 660 at pp 671-672. Consideration of the circumstances as they
existed before the plaintiff became the trustee, and before each of the
mortgages was executed, easily leads to the conclusion that the plaintiff was
guilty of negligence which was also causative of its
loss. I have discussed
the nature of the plaintiff's business and its experience and expertise which
is a matter of significance.
Mr. Wood was a businessman of considerable
knowledge and experience with respect to relevant matters such as raising
finance for
business activities. The plaintiff was a member of a corporate
group which employed senior staff with considerable and relevant
expertise in
business and rural management and analysis. The plaintiff was anxious to
become the trustee as it was keen to develop
that type of business.
93. There were two crucial issues to be resolved before the plaintiff became
the trustee and incurred the
respective debts: the legal implications and the
commercial soundness of doing so. Without question Mr. Astley played no part
in
the second matter and was not called upon to do so. That matter had to be
assessed by the plaintiff. It failed to do so. Even
cursory inspection of
the accounts of the GGI Pig Trust by a person with a modicum of business
acumen would have revealed that at
all material times the Trust was insolvent.
It had no prospects of success unless there was substantial public investment.
The plaintiff
blindly accepted that there were sufficient investors standing
by to purchase units when the new trust was established and the prospectus
issued, and that sufficient capital would be obtained to resolve all of the
financial ills of the Trust, which was plainly not the
case. No enquiry was
made by the plaintiff of Mr. O'Dea or anyone else as to the identity of these
potential investors or as to
any other matter which would have revealed that
the financially hazardous position of the Trust would not be resolved by
public subscription
to units. It appears that Mr. Wood was content to rely
upon assurances given by Mr. O'Dea without any enquiry or checking, not even
from the auditors of the GGI Pig Trust. Had appropriate enquiries been made
and the accounts been considered, the plaintiff would
have realized that the
Trust was insolvent and likely to remain so with the consequence that the
plaintiff would not have agreed
to be the trustee.
94. Furthermore, the plaintiff failed to inform Mr. Astley of the true
position. He was assured that the proposed
venture was commercially viable
and without risk.
95. Mr. Colyer argued that in cases of professional negligence the defence of
contributory negligence is not available with respect to a breach of the core
or primary duty of the professional and that support
for such a proposition
is to be found in the reasoning of Rogers J in AWA Ltd. v. Daniels at pp 842
ff and the authorities referred
to therein. True it is that Rogers J
acknowledged that the defence is not available, where it is based upon the
negligent conduct
of a person to an auditor if the relevant duty of the
auditor is to check and report upon the conduct of that person. So, an
auditor
could not seek contribution from a company which failed to keep proper
books of account if the core or primary duty of the auditor
was to ensure that
it did and report to the Board if it did not. Mr. Colyer contended that there
can never be contributory negligence
in the case of a professional advisor
unless the performance of his duty was hindered by an act or default said to
constitute the
contributory negligence. No doubt such a situation commonly
exists, but this proposition cannot be elevated to a principle of law.
Whether in the context of professional relationships, not involving an
auditor, the defence of contributory negligence will be denied
because the
professional is in breach of a core or primary duty will depend upon the
circumstances. No such circumstances exist
here. As I have found, the
plaintiff was exposed to personal liability due to the failure of Mr. Astley
to give appropriate advice and because of its own failure to assess
the
financial worth of proposed trust. Both the default of Mr. Astley and the
default of the plaintiff were "concurrent and successive
causes of" the
plaintiff's loss, March v. Stramare [1991] HCA 12; (1991) 171 CLR 506 per Mason CJ at p 512,
and the responsibility for that loss must be apportioned in accordance with
well known principles. I am unable
to distinguish between the plaintiff and
Mr. Astley as to the share of responsibility for the loss which should be
borne by each
of them. I apportion responsibility fifty percent to each of
the plaintiff and the defendants.
96. Before turning to the assessment
of damages, it is appropriate to
consider two matters raised by the defendants. The first is their application
to dismiss this action
on the ground of abuse of process due to failure to
give discovery at appropriate times. The second is the contention that,
regardless
of any breach of contract or negligence by Mr. Astley, the
plaintiff has not suffered any loss due to the implications of the sale
of its
shares on 1st March 1990.
97. The facts upon which the application to dismiss this action is based may
be stated briefly.
The action was commenced in the Supreme Court of New South
Wales on 9th December 1988. The defendants were served on 15th December
1988.
On 17th March 1989 the action was transferred to this Court. An application
by the plaintiff for a direction that the issues
of liability and damages be
tried separately was refused, so the plaintiff was aware that it had to
present its case on damages when
the issue of liability was tried. Discovery
was made from time to time. It appears that although discovery was made
through the
plaintiff's solicitors in this State, a considerable quantity of
documents was produced for that purpose through the plaintiff's
solicitors in
Sydney. Discovery was extensive and included discovery from third parties.
The solicitors for the parties were co-operative
in the discovery and
inspection process and appropriate short cuts were taken. There were some
problems in identification and inspection
of documents but efforts were made
to overcome those problems sensibly and expeditiously. Discovery and
inspection of the plaintiff's
documents was still being undertaken when the
trial commenced on 5th February 1993. During the course of the trial
substantial further
discovery was made after the plaintiff's legal advisers
had decided that legal professional privilege would be waived in order to
facilitate proof of the alleged reasonableness of the plaintiff's involvement
in litigation. There has been selectiveness in the
further discovery and I
accept that although opinions of counsel have been discovered, documents,
including statements of witnesses
which formed part of the instructions to
counsel, were not discovered. It is also asserted by the defendants that
other documents
have not been discovered but there is dispute as to the
existence of some of them. Much of the late discovery occurred after all
of
the witnesses in the plaintiff's case, with the exception of Mr. James, had
completed their evidence. The defendants contend
that they have been
prejudiced in the conduct of their defence by the late discovery and the
failure to discover certain documents,
which could not be overcome by
witnesses being recalled or the trial being adjourned. There was no
application for any witness to
be recalled or for an adjournment of the trial.
If either application had been made and relevant prejudice was established,
appropriate
orders would have been made to prevent prejudice or injustice to
the defendants.
98. There is no doubting the power to dismiss the
action of a plaintiff who
fails to comply with rules of court or orders requiring discovery: R.59.06 of
the Supreme Court Rules 1987.
The principles to be applied upon an
application to dismiss an action for such non-compliance were discussed in
Birkett v. James
(1978) AC 297. Lord Diplock, at p 318, expressed them as
follows:-
"The power should be exercised only where the court is satisfied
either
(1) that the default has been intentional and contumelious,
e.g., disobedience to a peremptory order of the court or conduct
amounting to an abuse of the process of the court; or (2) (a) that
there has been inordinate and inexcusable delay on the
part of
the plaintiff or his lawyers, and (b) that such delay will give
rise to a substantial risk that it is not possible
to have a fair
trial of the issues in the action or is such as is likely to cause
or to have caused serious prejudice to
the defendants either as
between themselves and the plaintiff or between each other or
between them and a third party."
99.
This Court must also have regard to the principles set out in R.2
regarding positive case flow management and the efficient use
of the court's
resources by the requirement that parties must be ready for trial.
100. Usually the problem of inadequate discovery
will not arise during trial
because an action will not be entered for trial unless the court is assured
that all pre-trial procedures
and requirements, including discovery, have been
completed. Here, the parties proceeded with extensive continuing discovery
after
the date for trial had been fixed and were willing to do so. There was
no objection to that course and there was mutual desire to
hold the trial date
and proceed without further delay. I was informed that there was no reason
why the trial could not commence
on time and there was substantial and
commendable co-operation between the parties to ensure that all discovery was
completed and
issues of admissibility of documents resolved by agreement
before trial. The substantial additional discovery occurred mainly because
of
the decision by the plaintiff's legal advisers to waive legal professional
privilege. It is unnecessary to mention the many cases
which discuss the
principles to be applied when considering whether an action should be
dismissed as an abuse of the process of the
Court. It is clear that the
circumstances which will justify such a course must be rare and exceptional.
In my view they do not
here exist. It is likely that the defendants would
have preferred to have had all of the documents before certain witnesses were
cross- examined, but it has not been established that the recall of relevant
witnesses or the adjournment of the trial would not
have overcome any
prejudice or disadvantage which the defendants perceived had occurred to them.
Furthermore, I am bound to have
regard to R.3.01 which provides:-
"Subject to Rule 2 except where the Court otherwise orders no
breach of or non compliance
with a Rule which does not arise out
of disobedience or contumacy in relation to a prior order of the
Court shall cause any
proceedings to abate or be dismissed out of
the Court. In cases of disobedience or contumacy the Court shall
not order that
the proceedings abate or be dismissed unless there
is no other way of securing obedience to or compliance with the
orders
of the Court. Nothing in this Rule affects: (a) the
inherent jurisdiction of the Court to dismiss proceedings which
disclose
no cause of action known to the law or cannot by
amendment be made to disclose such a cause of action, or which are
frivolous,
vexatious or an abuse of the process of the Court;
(b) the power of the Court to grant a stay of proceedings where
the justice
of the case so requires."
101. Even if the late discovery was due to the disobedience of rules of court
or orders or contumacy in
relation to an order, and I am not satisfied that it
was, I think R.3.01 requires that the drastic step of dismissing an action
should
be avoided unless justice admits of no other course, which accords with
the principles to be applied in civil actions where an abuse
of the process of
the court is alleged due to failure to make discovery. I think it is very
likely that in view of the vast amount of documentation in the possession or
control
of the plaintiff, the late discovery was due to the lack of
appreciation by legal advisers of many documents and not wilfulness or
contumacy. I decline to dismiss the plaintiff's action for failure to give
discovery.
102. I now turn to the second of these two
matters which arises for
consideration in this way. On 1st March 1990 Elders Finance sold to Totners
Pty. Ltd. ("Totners") all of
the issued shares in the plaintiff. The terms
and conditions of the sale are set out in a memorandum of agreement of that
date between
those two companies Elders IXL Limited ("Elders IXL") and State
Government Insurance Commission of South Australia. Elders IXL participated
in that transaction in that it indemnified and agreed to keep indemnified
Totners in respect:-
"of any claim, demand, cause of
action, action, loss or expense
incurred directly or indirectly by the Company (the plaintiff) in
its own right or as trustee
of the G.G.I. Rural Income and Growth
Trust in relation to the management, administration or winding up
of the said Trust."
103. This indemnity was conditional upon the Totners doing various things of
a nature common to indemnities. Furthermore it was
agreed that Totners would
procure the plaintiff to pay to Elders Finance or otherwise as directed by it
any moneys recovered by the
plaintiff from any other party in relation to the
Trust and to account to Elders Finance for any such moneys. It is unnecessary
for present purposes to set out the precise terms of the memorandum of
agreement in these respects. The evidence establishes that
these terms of the
agreement have been carried into effect. Elders Finance has met the financial
obligations of the plaintiff arising
out of the Trust since 1st March 1990
and, in conformity with other provisions of the memorandum of agreement,
directions as to the
conduct of the matters arising out of the Trust have been
given by management of the two Elders companies.
104. The defendants contend
that the effect of those arrangements is that any
losses since 1st March 1990, are not the losses of the plaintiff but of Elders
Finance and, or, Elders IXL, save and except possibly some nominal loss
occasioned by putting the arrangement into effect. On their
case the plaintiff
cannot recover more than it has lost: Parry v. Cleaver [1969] UKHL 2; (1970) AC 1 at p 13 and
Haines v. Bendall [1991] HCA 15; (1991) 172 CLR 60 at p 63. The plaintiff contends that the
effect of the arrangement is that the plaintiff has a collateral benefit and
the defendants
cannot rely upon the existence of such a benefit to diminish or
avoid liability to the plaintiff.
105. I have not found it necessary
to resolve the issues raised by the
extensive arguments addressed by both parties as the extent of the plaintiff's
entitlements is
to be ascertained from the true effect of the transaction
recorded in the memorandum of agreement. The plaintiff remains the same
entity despite the change of name and ownership of the shares. The parties to
the agreement acknowledged that the plaintiff would
go on defending the
various actions, suits, claims and demands against it arising out of the Trust
and that it would continue to
prosecute this action. Those matters represent
contingent assets and liabilities of the plaintiff, but it was agreed by the
parties
to the deed that the financial implications would not affect the
purchaser, Totner. That does not mean that as from the date of
the
transaction the plaintiff has not suffered, or could not suffer, any loss
arising out of the Trust. All it means is that any
such losses were, pursuant
to the terms of the sale of the shares in the plaintiff, to be, in effect,
paid by Elders IXL and that
any losses recovered were to be paid to Elders
Finance. Any losses remain those of the plaintiff.
106. The only significance of
this transaction for present purposes is, in my
view, that since 1st March 1990 the plaintiff has not, in fact, been called
upon
to expend any of its own funds and therefore no damages for the loss of
use of its money after that date may be awarded.
107. I
now turn to the assessment of the plaintiff's damages. The plaintiff
claims damages in respect of four primary heads of loss which
were
compendiously described at the trial as the Reeves claim, the YSF claim, the
AMIC claim and the costs of winding up the trust.
The plaintiff also seeks
damages for the loss of the use of its money caused by having to pay various
expenses and losses out of
its own funds. I propose to deal with each of
these claims in that order.
108. There were three claimants with respect to the Reeves
claim, Mr. Reeves'
Company and Mr. and Mrs. Reeves. For present purposes they may be treated as
one claimant and referred to as
"Reeves". It was on the day that GGI gave the
notices to the plaintiff, 15th March 1985, that Reeves gave notices of demand
with
respect to the mortgages over Booka and the Young property and the other
securities. Booka was eventually sold by members of the
syndicate mortgage as
mortgagees in possession for $500,000. Settlement of that sale was effected
on 17th March 1986. Consequently
there was no payment to Reeves with respect
to the second mortgage. Reeves instituted various actions in the Supreme
Court of New
South Wales claiming moneys due pursuant to the mortgages and
bill of sale. In one action Reeves sought judgment for the amount
due under
the mortgage over the Booka property, $490,000, together with interest. The
plaintiff filed a defence and claimed rectification
of the mortgage. It then
took proceedings in the Federal Court of Australia on 30th September 1986
claiming that Reeves had committed
breaches of ss.52 and 53A of the Trade
Practices Act 1974 (Cth.) and sought relief which would have had the effect,
inter alia, of removing its obligations to Reeves under the mortgage and
also
for rectification of the mortgage to include that it had mortgaged Booka to
Reeves as trustee and to limit its liability to
the trust assets. In brief
terms, the alleged breaches of the Trade Practices Act were that Reeves had
failed to make certain disclosures to the plaintiff when obliged to do so and
that certain representations were
false or misleading. The detail of the
plaintiff's claim is set out in the judgment of Gummow J in Elders Trustee and
Executor Co.
Ltd. v. E.G. Reeves Pty. Ltd. and Ors. [1987] FCA 332; (1987) 78 ALR 193. In
order to be able to proceed in that Court the plaintiff was ordered, on 9th
October 1986, to deposit $484,000 in an interest
bearing deposit, to abide the
order of the court and it did so on 9th November 1986 from its own funds. At
the same time Reeves
was restrained from proceeding further with its action in
the Supreme Court of New South Wales with respect to the amount due under
this
mortgage. After a lengthy trial which commenced on 16th February 1987, the
plaintiff's action was dismissed. Reasons for judgment
were given on 29th
September 1987 and judgment was entered on 12th February 1988. The plaintiff
did not appeal. Interest continued
to run pursuant to the mortgage and, in
all, the plaintiff had to pay to Reeves the sum of $699,473.75. This amount
was paid as
follows: $400,000 on 4th November 1987 and the balance on 11th
July 1988. Of the balance $166,625 came from the interest bearing
deposit,
which included interest, and the remainder was paid by the plaintiff out of
its own funds.
109. After Gummow J delivered
judgment, there were negotiations betwee n the
plaintiff and Reeves through their respective legal advisers as to the other
outstanding
litigation and costs. According to Mr. James, the plaintiff,
after taking legal advice, decided to cut its losses and agreed to
pay to
Reeves the further sum of $205,646.57. Mr. James prepared a calculation of
the potential loss to the plaintiff should the
various actions proceed on best
and worse case bases with respect to each action. He expressed the best
position in money terms
at $174,225 and the worst at $319,958. He agreed to
settle after discussing the matter with Mr. Ware. A deed incorporating the
terms of settlement was executed by Reeves and the plaintiff on 17th April
1990 and the amount due to Reeves was paid during April
1990. After the sale
of the Young property and the payment due with respect to the Eagle Star
mortgage and other expenses and liabilities,
there remained $164,967 which was
invested in interest bearing deposits. This sum and the interest earned was
used to pay the amount
due to Reeves. According to Mr. James, there was an
excess of about $49,000 after this settlement which was retained by the
plaintiff,
however, his calculation made for Mr. Ware shows an excess of
$80,748.42. Under this head, the plaintiff claims damages to be calculated
as
to the total amount paid to Reeves, namely $905,120.32 and all of the costs
which it paid to Mr. James and to its solicitors on
a solicitor and client
basis incurred in relation to the Reeves claim and in prosecuting the action
in the Federal Court.
110. The
defendant's case upon this head of damages is that the plaintiff is
not entitled to any damages for interest beyond 30th June 1986
when it should
have paid the amount due under the mortgage which was then $487,005 including
interest and that it is not entitled
to any costs or other expenses of the
litigation or any damages by way of interest.
111. I accept that the amount due to Reeves
at that time after the payments
which had been made from the proceeds of sale of pigs and plant and machinery
is as calculated by
the defendants and upon allowing interest at 20% to 30th
June 1986.
112. The evidence establishes that in June 1985 the plaintiff
had received an
opinion from senior counsel that it was personally liable for the debts of the
Trust, including any shortfall under
the mortgages and other securities. It
had ample funds to pay the Reeves claim but chose not to do so.
113. In assessing damages
under this head an important question arises as to
whether the plaintiff may recover from the defendants all of the costs,
expenses
and interest which it had to pay to Reeves. I have mentioned the
amount which was owing to Reeves on 30th June 1986, after the sale
of Booka
and the Young property, namely $487,005. In the end result it had to pay
Reeves $903,120.32. It also paid Mr. James $437,123.39,
a substantial, but
unproven, part of which was incurred with respect to the proceedings in the
Federal Court. The plaintiff paid to its solicitors legal fees amounting
to
$741,324.64 with respect to the Reeves claim. As might be expected, the
defendants contend that total payments of nearly $2m,
after allowing some part
of Mr. James' fees for other aspects of the winding up, is so unreasonable as
to not be recoverable from
the defendants. They point to the well known
principle expressed in Short v. Kalloway (1839) 11 A. and E. 29 at 31:- "...
no person
has a right to inflame his own account against another by incurring
additional expense in the unrighteous resistance to an action
which he cannot
defend."
114. The plaintiff contends that its conduct in defending the Reeves claim
and prosecuting its own action
was reasonable in all the circumstances and was
supported by legal advice.
115. The plaintiff had the advice of yet another senior
counsel. His
opinions were admitted into evidence. The first was given on 15th October
1986 after the plaintiff had commenced the
action in the Federal Court. It is
clear that he did not have a good deal of information. He stated that the
only opinion which
he expressed, "as a legal matter is that on the facts known
to me there is a proper basis for instituting the proceedings by way
of the
properly drafted Statement of Claim". The only other opinion which he
expressed was on 16th January 1987, after he had received
extensive
instructions. He concluded by saying:- "In summary, my view is that the
present action from the point of view of the
Trustee is a very difficult one
with no certainty of success but with some prospects."
116. Careful consideration of those opinions
and the reasons for judgment of
Gummow J does not suggest that the plaintiff was taken by surprise at the
trial or that there was
some unforeseen circumstance which caused an
apparently sound claim to be defeated. At best the plaintiff's action was
speculative.
The opinion of his senior counsel was hardly encouraging. I am
unable to accept that the prosecution of the action at such enormous
expense
was justified given that the plaintiff's goal was to avoid paying the Reeves
claim. There was no evidence to suggest that
any sound commercial
consideration was brought to bear in the decision to prosecute the action. A
reasonable analysis of the facts
and circumstances as they existed at the time
leads to the conclusion that the plaintiff was not justified in resisting the
Reeves
claim.
117. The plaintiff appealed to the principles relating to mitigation of
damage in order to justify its action in the Federal
Court and in opposing the
Reeves claim. In my view, given the advice of the senior counsel and the
known facts and circumstances
at the time, it could not now be said that the
plaintiff would have failed to mitigate its loss if it had simply paid out the
Reeves
claim. Despite the forceful argument of the plaintiff to the contrary,
the action taken by it was not in appropriate mitigation
of its loss. It was
an attempt to offset personal liability for the Reeves claim by the
prosecution of a speculative action that
was, almost inevitably, bound to
fail. Consequently, it was unreasonable and the breach of duty by Mr. Astley
was not causative of
these expenses and losses.
118. The defendants also contend that the plaintiff should have applied to
the Reeves claim the surplus
of funds upon the sale of the Young property and
the profits from trading at that property before the sale. After the
plaintiff
assumed the management of the Trust, it continued the trading
operation at the Young property. There was dispute between the first
mortgagee and Reeves about various matters. Mr. James caused the plaintiff to
institute proceedings in the Supreme Court of New South
Wales for an order for
sale of the property and for orders as to the distribution of the proceeds of
sale. Those proceedings were
necessary. The documentary evidence presents a
confusing picture as to what was the amount of the net proceeds of sale. The
defendants contend that the evidence discloses that
the amount is $200,160 and
was available to be paid in part satisfaction of the Reeves claim. The
plaintiff is obliged to prove
all facts upon which its claim for damages is
based. Having considered the evidence and attempted various calculations, I
accept
the calculation of the defendants as being probably accurate. The
majority of this amount, together with interest, was in fact applied
to the
Reeves claim and the balance was probably applied to other expenses incurred
by the plaintiff in the winding up. It is convenient
to deduct this amount
from the Reeves claim.
119. The evidence does not permit a finding that there was any amount
available from
the proceeds of trading at the Young property to be applied in
reduction of the Young claim. Whilst there is no evidence to establish
the
reasonableness of each of the expenses set out in the amounts of that trading,
I accept that there was no surplus of funds. There
was an excess of income
over expenditure in trading of about $100,000, but there were costs which were
not of a trading nature amounting
to $128,397.02 which were paid, in part,
from the trading surplus. Some of those expenses may not be justified but
others clearly
are and so I do not reduce the Reeves claim on account of the
trading profits.
120. Thus far I would allow the Reeves claim at
$487,005 less $200,160, ie
$286,845. In addition I allow the reasonable legal costs incurred by the
plaintiff seeking advice as
to the Reeves claim and generally as to obtaining
advice as to whether it was personally liable. Such costs are to be
calculated
on the basis of what would be allowed a solicitor and client basis
upon a taxation of costs in the Supreme Court of New South Wales.
121. I consider the claim for Mr. James' costs with respect to the Reeves
claim under the head of the costs of the winding up.
122.
I turn to the YSF claim. YSF Pty. Ltd. ("YSF") provided pig feed during
the period from December 1984 to March 1985 which was used
at the Young
property. The cost of that feed was $82,515.96 which was not paid by Golden
Grove Industries Pty. Ltd. or by the plaintiff.
YSF instituted proceedings in
the District Court of New South Wales at Young on 16th July 1986 for recovery
of that amount and interest.
I have mentioned that in June 1985 the plaintiff
had the opinion of senior counsel advising that it was personally liable for
the
debts of the Trust. In October 1985 it had an opinion from another member
of the senior bar that it was liable for the debt due
to YSF. The plaintiff
defended the proceedings which were transferred to the Equity Division of the
Supreme Court of New South Wales.
In May 1988 the plaintiff was advised by
its solicitors that it was personally liable for this debt. It continued to
defend the
proceedings because of claims which might be made by other
creditors of the Trust should judgment be obtained by YSF. In early 1991
there was a "readiness" hearing before Young J who expressed the tentative
view that the plaintiff appeared to have little prospects
of successfully
defending the proceedings. The limitation period with respect to the other
claims expired not later than 15th March
1991, six years after the manager
ceased to manage the Trust. Nevertheless the plaintiff refused to settle the
YSF claim even though
it had sufficient funds to do so. It decided simply to
put off the evil day for payment for as long as possible.
123. The proceedings
went to trial and Young J found for YSF. By that time,
22nd April 1991, the claim had grown to $173,314.58. The plaintiff has
appealed
and the appeal is to be heard shortly.
124. The plaintiff claims the full amount due to YSF should the appeal be
unsuccessful, including
additional interest and all legal costs on a solicitor
and client basis incurred with respect to the claim and the proceedings.
125. The defendants contend that it has not been established that Mr.
Astley's conduct in any way caused the plaintiff to incur any
liability to
YSF. I reject that contention. In my view it is very likely that if Mr.
Astley had given the advice which he should
have given, steps would have been
taken to ensure that the plaintiff did not have any personal liability for
this debt. In the alternative,
the defendants contend that damages under this
head should be confined to the extent of the original indebtedness,
$82,515.96, in
the event that the appeal is unsuccessful and that I should
assess as a contingency the prospects of the plaintiff succeeding on
the
appeal. As the determination of the appeal is imminent, I decline to assess
the prospects of the liability of the plaintiff being
maintained. I do not
think that, in the circumstances, the defendants should bear the consequence
of the plaintiff's decision to
defend the proceedings in order to avoid other
creditors and to put off payment for as long as possible. The evidence does
not establish
that other creditors did not press claims because of the
plaintiff's attitude to the YSF claim. The plaintiff could have paid the
YSF
claim at an early stage without prejudice to its rights with respect to other
claims. Delaying payment has had a consequence
opposite to mitigation. In my
view damages under this head should be limited to $82,515.96, together with
some reasonable allowance
for legal fees incurred to enable the plaintiff to
take advice at an early stage. Those fees are to be calculated on the basis
of
what would be allowed on a solicitor and client basis upon taxation by the
Supreme Court of New South Wales.
126. The AMIC claim
arises in this way. Australian Mortgage Insurance
Corporation Limited ("AMIC") carried on the business of a mortgagor insurer.
It
insured the syndicate mortgage to the extent of $325,000. When Booka was
sold there remained a shortfall of $409,342.15, including
outstanding
interest. AMIC exercized its right of subrogation and each member of the
syndicate assigned to AMIC such amount as was
owing to each of them as at 10th
April 1986, the total amount of which is the amount of the shortfall. On 12th
January 1988, AMIC
instituted proceedings against the plaintiff in the Supreme
Court of New South Wales for recovery of the shortfall and interest.
The
plaintiff filed a defence and asserts, inter alia, that it was the common and
continuing intention of the plaintiff, AMIC and
the members of the syndicate
that the mortgage bound the plaintiff to the extent only of the assets of the
Trust. The plaintiff
raises various matters by way of defence and seeks
rectification of the mortgage. It is unnecessary, for present purposes, to
set
out the issues raised by the pleadings in those proceedings. The
plaintiff and the defendants in this action contend that the plaintiff
is
likely to succeed in its defence. I accept the evidence of Mr. James that he
decided that the plaintiff should defend the proceedings
after receiving
advice to that effect from the counsel who had been retained to advise,
including senior counsel. The proceedings
have not yet come to trial. None
of the parties has taken steps to ensure a trial at the earliest possible
time. The plaintiff
has been content to allow the matter to drift along.
Nevertheless it is likely to come to trial during this year, possibly in July
or August. If the plaintiff succeeds, then there will not be any damages
under this head, except perhaps by way of compensation
for any reasonable
legal costs expended but not recovered. If judgment is entered against the
plaintiff, it seeks damages in the
same amount, together with its costs in
those proceedings.
127. The plaintiff seeks a declaration that the defendants are liable
to pay
to the plaintiff such amount, if any, as it must pay to AMIC, including costs
together with its own costs of defending the
action on a solicitor and client
basis. The defendants contend that I should now finally dispose of this claim
by assessing the relevant contingencies and that upon doing so I should
accept
that the plaintiff will succeed in its defence and therefore not have to pay
any amount to AMIC. Consequently, no damages
should be awarded.
128. There are considerable difficulties in adopting that approach. In
effect I am being asked to express a
view about the prospects of the plaintiff
successfully defending the proceedings without any knowledge of the evidence
which may
be led on the submissions made by AMIC. If the proceedings were not
to be heard for some years, such a course may be necessary in
the interests of
finalizing this litigation. However, as it is likely that they will be heard
relatively soon, I think the plaintiff's
contention is preferable.
129. In my view the defence of the proceedings by the plaintiff has been
shown to be reasonable. Mr.
Astley's breach of duty is causative of any loss
which the plaintiff may suffer with respect to the syndicate mortgage. I am
prepared
to make the type of declaration sought by the plaintiff.
130. I shall hear the parties as to its terms and whether any conditions
should be imposed upon the plaintiff or consequential orders made as it is
implicit in the approach that I have taken that the plaintiff
conduct the
litigation appropriately and at reasonable cost. Of course the declaration
must be expressed in terms which reflect
my decision as to apportionment of
responsibility.
131. The costs of the winding up of the Trust are substantial on the
plaintiff's
case. I have mentioned Mr. James' fees. In addition there are
legal fees and costs apart from those incurred in the claims which
I have
mentioned thus far. The defendants contend that none of the costs of the
winding up should be recovered by way of damages
as it has not been proved
that Mr. Astley's breach of duty caused, in any way, the winding up of the
Trust.
132. Whether there
is a causal link between Mr. Astley's breach of duty and
the winding up of the Trust may be tested by considering what would probably
have occurred if he had properly discharged his duty to the plaintiff. It
must readily be accepted that the plaintiff was very keen
to be the trustee.
It is reasonable to conclude that the promoters of the Trust were anxious that
the plaintiff act in that capacity.
It is likely that had the plaintiff
insisted that it be excluded from personal liability, the promoters would have
agreed and the
relevant documents would have been drawn accordingly. Had that
occurred the Trust would still have failed. Whether or not the plaintiff
was
personally liable, the debts of the Trust had no bearing upon its solvency.
Once public subscription did not occur the winding
up of the Trust was
inevitable regardless of Mr. Astley's breach of duty. In my view the costs of
the winding up are not recoverable
by way of damages from the defendants.
133. I have rejected the possibility that if Mr. Astley had given the advice
which he should
have given the plaintiff would never have become the trustee
and therefore the winding up costs would never have been incurred by
the
plaintiff. The evidence as to the enthusiasm of the plaintiff for being
involved in this type of trust prevents such a finding.
The insolvency of the
Trust existed independently of Mr. Astley's breach of duty and the necessary
causal link does not exist.
134.
That is not to say that the plaintiff is not entitled to damages for the
reasonable costs incurred in responding to the Reeves
claim, the YSF claim
and the AMIC claim consistent with the conclusions which I have expressed as
to the extent of the defendants'
liability with respect to each of those
claims. In the winding up proceedings Mr. Wood filed an affidavit in which he
deposed to
the charges which would be made by the plaintiff in the winding up,
namely $40 per hour for the chief executive, $15 per hour for
a trust officer
and $10 per hour for a secretary and a typist. At no time did the plaintiff
inform the court that it proposed or needed to engage Mr. James.
135. His
fees have been charged at rates between $175 per hour in 1986 to
$320 per hour in 1992. Members of his staff charged at lower rates.
All of
these rates were in excess of those recommended by the professional body of
insolvency practitioners on the scale approved
by the Supreme Court of New
South Wales. Needless to say they were far in excess of the costs sought by
Mr. Wood. Mr. James' fees
could not be regarded as reasonable in the present
context.
136. I would have allowed the damages for the reasonable cost of the
responding appropriately to the claims fixed upon the basis of the costs set
out in Mr. Wood's affidavit. It has not been established
to my satisfaction
that the engagement of Mr. James was necessary and reasonable. I have no
doubt that it was convenient to the
plaintiff to pass over the winding up to
him, but his costs cannot be recovered from the defendants. No claim has been
made for
the work done by Mr. Wood, Mr. Bacon or Mr. Ware and there is no
evidence upon which damages could be calculated for the cost of
their work.
137. The plaintiff also claims damages for loss of use of its money in
accordance with the principles discussed in
Hungerfords v. Walker [1989] HCA 8; (1988) 171
CLR 125. The evidence establishes that prior to 1st March 1990 amounts paid
by the plaintiff on account of the Trust were paid out of its
own funds.
Despite the detailed argument of the defendants to the contrary, the evidence
of Mr. Armstrong, which I accept, establishes
that the plaintiff earned
interest on the substantial amounts of its own money, which it had invested
with associated companies.
If it had not been obliged to pay monies for debts
and losses of the Trust, it would have invested those monies with associated
companies at the interest rates which the other investments earned. After 1st
March 1990 other companies, mainly, if not solely,
Elders Finance, paid all
such outgoings. Consequently the plaintiff was not deprived of the use of its
money and no damages can
be awarded with respect to such payments after this
date.
138. With respect to payments made before 1st March 1990 and which are
the
subject of the award of damages, the plaintiff is also to have damages for the
loss of use of that money at the rates of interest
it was receiving from time
to time with respect to the investment of money with associated companies or
at the prevailing commercial
rates whichever is the lower. I shall give the
parties the opportunity to agree the amount of such damages. If they are
unable
to do so, I shall request a Master to enquire into that matter and make
a report to me as to the extent of the loss of the plaintiff.
139. I propose to give the parties the opportunity of considering these
reasons and speaking to the terms of the judgment which
should be made.