Charles Delius Somerville Alexander and Ors (t/as Minter Ellison) v Perpetual Trustees WA Limited

Per Stein JA, Davies AJA, and Ipp AJA 1) The evidence of Mr Lewis was inconsistent and the trial judge was entitled to be highly critical of his credibility. It cannot be concluded on the evidence that he honestly believed that he had put in place an alternative means of protecting the investors and that he was conducting himself in good faith.

2. The failure of the appellant to advise the respondents of the breach of the Subscription Agreement was inexcusable. The breach of trust was conscious and blatant.

3. The conduct of the appellant was not in the honest belief that it was for the benefit of the beneficiaries. The appellant's conduct cannot be the subject of exclusion from liability by the clauses relied upon as it was a breach of trust committed in bad faith.
   • Armitage v Nurse [1998] Ch 241 - considered
   • Walker v Stones [2001] 2 WLR 623 - considered

4. The purpose of the exclusion clauses was to protect the appellant from liability if they complied with their responsibilities under the Subscription Agreement. This construction does not deprive the clauses of operation as they operate in the event of a loss of funds where the appellant has carried out its obligations.

5. The exclusion clauses do not extend to the appellants breach of the agency agreement with the respondents, as the agency was a separate appointment not provided for in the Subscription Agreement.

6. There was no common obligation owed by both the appellants and the respondents. The transactions, although related, were not 'of the same nature and the same extent' as required for a right of contribution to arise. There was no liability on the part of the appellant which was capable of being co-ordinate with the respondents' liability to the beneficiaries.
   • Cockburn & Ors v GIO Finance Ltd [2001] NSWCA 177 - applied
   • Re La Rosa; Ex Parte Norgard (1991) 31 FCR 83 - applied Per Davies AJA:
   1. The appellants had a clear conflict of interest. They disregarded the terms of clauses 3.3 and 4.3 of the Subscription Agreement, and accepted investment monies knowing that the agreement would not be complied with. Orders:

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

STEIN JA DAVIES AJA IPP AJA Monday, 30 July 2001 Charles Delius Somerville ALEXANDER and Ors (t/as MINTER ELLISON) v PERPETUAL TRUSTEES WA LIMITED and PERPETUAL TRUSTEE COMPANY LIMITED JUDGMENT

1 STEIN JA: Introduction 2 In proceedings before Rolfe J forty plaintiffs sued various defendants to recover moneys that they had invested in EC Consolidated Capital Ltd (ECCC) and which were subsequently lost. ECCC was placed in provisional liquidation in 1997. 3 According to his Honour, the plaintiffs were generally people of or approaching retirement and desirous of placing their moneys in a safe investment. With the exception of two plaintiffs, they sought advice from an investment advisor, Feldworth Financial Services Pty Limited (Feldworth). This company was placed in liquidation in 1998. Mr Hans Felden provided advice to the plaintiffs and was Feldworth's managing director. He advised the plaintiffs to invest in ECCC. 4 The Feldworth company and Mr Felden did not defend the proceedings brought against them by the plaintiffs. His Honour found that if the plaintiffs had been advised of the nature of the investment with ECCC, they would not have authorised it. Rolfe J found for the plaintiffs against Feldworth and Mr Felden. They have not appealed. The plaintiffs also sued the present respondents, Perpetual Trustees WA Limited and the Perpetual Trustee Company Limited and succeeded against each of them. The trustee companies cross-claimed against Minter Ellison, solicitors. His Honour gave judgment in favour of the trustee companies against Minter Ellison for equitable compensation for breach of trust.

The Investment Plan and its Execution 5 In 1991 or early 1992 ECCC instructed Mr I G Lewis of Minter Ellison (the solicitors) to advise it on the legal aspects of its plan to raise moneys from the public for the purposes of its business. Mr Lewis, a specialist in commercial and insolvency law based in the solicitors' Melbourne office, was the only partner who had any relevant connection with the subject transactions. 6 The investment proposal was that ECCC would invite subscriptions from the public to redeemable 'A' class preference shares in its capital. It was stated in the Invitation that ECCC's redemption obligations were supported by a deposit certificate issued by a Prime Bank. 'Deposit Certificate' was defined in the Subscription Agreement as meaning: … the bearer certificate of deposit, guarantee or letters of credit drawn against and with full recourse to the Prime Bank to be lodged in accordance with clause 4 of the Subscription Agreement with the Paying Agent on the terms of the Paying Agency Agreement. (Emphasis added) 7 The 'Paying Agent' was National Registries Pty Ltd. Under the Paying Agency Agreement, the 'Paying Agent' agreed to hold the 'Deposit Certificate'. The 'Prime Bank' was defined as 'Dresdner Bank AG'. 8 The Invitation stated that investments of less than $500,000 would not be accepted, obviating the need to comply with the prospectus requirements under the Corporations Law. The plaintiffs' moneys (together with that of other investors) was pooled and furnished by a fund manager to two trustee companies, Perpetual Trustees WA Limited and Perpetual Trustee Company Limited (both will be referred to as 'Perpetual'). Perpetual was appointed trustee of the various trusts involved. 9 Between 4 May 1993 and 5 December 1995 a number of tranches of A class preference shares in ECCC were subscribed for and issued. The amount of the investments exceeded $10 million. Only some of this was money invested by the plaintiffs. 10 The business of ECCC was investment in international money markets and in commodities contracts in major international markets. 11 In the Preliminary Information Memorandum of 1 September 1992 it was stated: … As a term of the Investor's subscription for Preference Shares under the Subscription Agreement, the Company will be obliged to procure for the Investor the benefit of the Deposit Certificate. The Deposit Certificate (issued by Dresdner Bank AG … ) will be held by the Paying Agent (Westpac Banking Corporation Limited) to be applied for the benefit of the Investor in accordance with the Paying Agency Agreement. The Deposit Certificate will be procured by the Company prior to Completion (as detailed in Clause 4 of the Subscription Agreement) and delivered to the Paying Agent.

(Note: Westpac was later replaced as Paying Agent by National Registries Pty Ltd) 12 The Memorandum also included the following: Investors should note that all of the relevant credit rating agencies (including Moody's and Standard & Poor's) have given Dresdner Bank AG a rating of 'AAA' which is the highest rating obtainable. 13 In relation to the Deposit Certificate his Honour said: … Further, it was not in issue that the Deposit Certificate had to be a "Bearer" Certificate of Deposit, i.e. one which was negotiable by its holder. Accordingly, the Deposit Certificate, by which name I shall hereafter refer to the bearer Certificate of Deposit only, was in itself, worth its face value and, upon presentation by the bearer to the Bank, i.e. the Prime Bank, the Bank had no alternative but to meet it. Of course if the party which was bound to indemnify the Bank for so doing could not, in the present case that being ECCC, that would give rise to a dispute between the Bank and ECCC. However, in the hands of the bearer there was no room for argument so far as the Bank was concerned. That was a feature of critical importance in the whole arrangement to furnish investors with security for the return of the principal sum . (Emphasis added)

The Settlements 14 The solicitors acted on behalf of ECCC and also as agent for the investors (that is Perpetual) on completion of each settlement. The solicitors never sighted nor received a Deposit Certificate and, as Rolfe J found, this was a fact that the solicitors well knew. It was conceded that this constituted a breach of trust and negligence by the solicitors. 15 In the proceedings the plaintiffs did not join the solicitors as a defendant, indeed they probably could not have done so. However, as mentioned earlier, the Perpetual companies (who were defendants) cross-claimed against them. The solicitors' response was that while there was a breach of trust and negligence, it was mere inadvertence. Moreover, the solicitors claimed to be protected by the terms of exclusions to be found in cl 3.4 and Schedule 4 of the Subscription Agreement. 16 At the first settlement on 6 May 1993, at which the solicitors attended as agent for Perpetual, a document dated 4 May 1993 and referred to as a Deposit Certificate, was handed over by ECCC. The document was a letter to Dresdner. It was plainly not a conforming Deposit Certificate as required by the Subscription Agreement. 17 On 13 May 1993 the solicitors wrote to their client, ECCC, indicating that 'we have still not received the original Certificate of Deposit …'. 18 On 31 May 1993 the solicitors again wrote to ECCC, inter alia, as follows: … We draw to your attention that as a result of the delay in providing the Certificate of Deposit you have breached the terms of the Subscription Agreement between EC and the Trustee (to the extent that the Certificate of Deposit has not been provided to the Paying Agent). Accordingly the Trustee could rescind the Subscription Agreement and demand that EC return all of the funds the Trustee has paid to EC . The delay would be of great concern to the Trustee and as we are holding original documents for the account of the Trustee unless we receive the substituted Certificate of Deposit by the close of business tomorrow we feel obliged to notify the Trustee of this delay . (Emphasis added) 19 Rolfe J said that this letter made it transparently clear that the author (Mr Lewis) understood that the Deposit Certificate had to be in bearer form, that the failure of ECCC to provide a conforming Deposit Certificate was a breach by ECCC, and that the breach should be remedied immediately. 20 However, notwithstanding the solicitors' full appreciation of the situation, they took no steps whatsoever to notify Perpetual of the breach so that it could consider what to do. This highlights the extraordinary conflict of interest which the solicitors had. 21 On 1 June 1993 ECCC sent Mr Lewis a document from Dresdner of that same date. It was also not a bearer certificate and, it was conceded at the hearing, was not a conforming Deposit Certificate. 22 Nevertheless, the solicitors wrote to the Paying Agent, National Registries, on 2 June 1993 purporting to enclose the 'Deposit Certificate' for safe custody. A similar letter was sent after each settlement during the period of tranches. 23 On 17 June 1993 the solicitors wrote to Perpetual about the settlement of 6 May 1993. Of the letter his Honour had this to say: … Firstly, it was a letter said to be written on the instructions of ECCC. Secondly, it made no reference to the Deposit Certificate, let alone to its not conforming with the terms of the Subscription Agreement. Thirdly, although Minter Ellison had acted as [Perpetual's] agent at settlement the letter made no reference to what Minter Ellison had done for [Perpetual] on settlement and, in particular, it made no reference to their not having received a Deposit Certificate, which complied with the terms of the Subscription Agreement. 24 His Honour summarised the situation thus:

(i) The solicitors were aware that the Deposit Certificate had to be a bearer document.

(iii) The solicitors were aware that it did not comply with the requirements of the Subscription Agreement.

(iv) The solicitors' letter of 2 June 1993 (to National Registries) implied that the document was a Deposit Certificate, when they knew that it was not.

(v) The solicitors failed to disclose to Perpetual (their principal) that they had not, on settlement, obtained a Deposit Certificate which complied with the Subscription Agreement. 25 The same method and procedure of settlement was followed thereafter by the solicitors, who never received a conforming Deposit Certificate, or ever informed the Paying Agent or Perpetual that they had not. This was, so his Honour found, a 'gross dereliction of their duties'.

The position of Perpetual 26 His Honour then turned to the position of Perpetual, of whom he was equally scathing. He said: … In my opinion their appointment of Minter Ellison as their agent, notwithstanding the potential conflict of interest and without having satisfied themselves as to how Minter Ellison proposed to overcome that problem and their having considered whether that was appropriate, was a clear breach of how a reasonable and prudent trustee should have acted. That breach was compounded by the inexplicable failure of [Perpetual] to make any enquiry from Minter Ellison or National Registries whether settlement had been completed in the proper way and, in particular, whether the crucial Deposit Certificates had been received. Nor did they seek to inspect them. The very fact that Minter Ellison did not advise that conforming Deposit Certificates had been received should, in my opinion, have alerted [Perpetual] to the prospect that that may not have occurred and, at the very least, have caused them to make enquiries. 27 Rolfe J concluded that Perpetual was also guilty of gross dereliction of duty as a trustee. His Honour was satisfied that the Perpetual was guilty of 'gross and inexcusable neglect and default'. 28 The plaintiffs (except two of them) were entitled to recover against Feldworth and Mr Felden. They were also entitled to recover against the Perpetual companies. Perpetual's cross-claim against the solicitors 29 So far as the cross-claim by Perpetual against the solicitors is concerned, the solicitors pleaded that no loss or damage was recoverable from them or, in the alternative, it should be apportioned to reflect the proportion of their respective responsibilities. 30 At the trial the solicitors conceded liability for breach of trust and negligence, subject to the exemption clauses. Of the solicitors' conduct his Honour said: … I have come to the conclusion that in performing the duties on behalf of [Perpetual] Mr Lewis was grossly negligent. He was, in my opinion, aware at all times that there was a requirement that the Deposit Certificate should be a bearer document; that such a document was critical to the whole arrangement and, particularly, to the protection of the investors; and that ECCC not only did not provide such a document, but even when the matter was drawn to its attention forcefully by Minter Ellison, it continued to refuse to supply it. There was, in my opinion, an obvious duty on his part to advise [Perpetual] that this was occurring, with which he failed to comply. What is more, I agree with his concession that on one reading of the letter to National Registries, in so far as it referred to a certificate pursuant to clause 3 of the Subscription Agreement, it was misleading. 31 Moreover, Rolfe J stated: … Minter Ellison through Mr Lewis and, perhaps to a lesser extent, Mr Gaffney, were not merely negligent, but derelict in their duty as agent for the investors, which constituted a breach of trust, in circumstances where Minter Ellison owed a duty both to ECCC and the investor and, in these circumstances, clearly preferred the interest of ECCC. The continued failure of Minter Ellison to advise the investor that conforming Deposit Certificates were not being obtained was, in my opinion, inexcusable. I do not accept there was any excuse for it, nor that it was a result of oversight. In saying that I have regard to the criticality of a conforming Deposit Certificate so far as the investor, and those who stood behind the investor i.e. the ultimate investors, was and were concerned. 32 Before turning to the solicitors' argument regarding the effect of the exclusion clauses, his Honour concluded: … Mr Lewis' evidence confirmed beyond doubt the concessions that Minter Ellison acted in breach of trust and negligently. It also established that such breaches were gross and occurred in circumstances where the interest of ECCC was preferred to that of the investor. Mr Lewis was unable to provide an explanation for his failure to do a number of things. I found certain of his evidence unsatisfactory, contradictory and unacceptable, and I have referred to those portions in my review. I do not accept, for the reasons I have given, that Mr Lewis lost sight of or failed to appreciate the significance of the requirement for Bearer Deposit Certificates. Such a conclusion would be totally at odds with all the other evidence to which I have referred, and the appropriate inferences to be drawn from it. 33 Clause 3.4 of the Subscription Agreement provides: The parties agree and acknowledge that the Company's Solicitors have no liability for disbursement of the funds held pursuant to clause 2.1 and the parties indemnify and hold the Company's Solicitors harmless for any claim, demand, action or cost arising out of or in connection with the disbursement of any funds under this Agreement. 34 The letter in Schedule 4 stated in its final paragraph: Further, I absolutely and unconditionally release and discharge you for any liability or obligation to me arising under the Subscription Agreement. 35 Rolfe J concluded that cl 3.4 was intended to protect the solicitors only in so far as they were correctly carrying out their obligations under the Agreement and in the event of any loss which occurred notwithstanding that they acted in that way. 36 The liability or obligation asserted against the solicitors did not arise under the Subscription Agreement. It did not arise, said his Honour, by virtue of the solicitors having complied with the terms of the Agreement. 37 His Honour also found that it would be unconscionable for the solicitors to seek to rely upon the exemption provisions 'where the necessity to do so arises from breaches by Minter Ellison of their obligations, of which breaches Minter Ellison were aware and did not communicate to the other parties …'. 38 Rolfe J was further satisfied that the solicitors were guilty of misleading and deceptive conduct under Fair Trading legislation. 39 Turning to the issue of contribution, Rolfe J said that the solicitors and Perpetual did not have the same obligation to a third party. He concluded: … I do not consider this is a case in which the principles of contribution arise. The amount recoverable on the cross-claim by [Perpetual] will be more than they are obliged to pay under the principal claim, although it includes that amount. It is not "the same damage". The damage springs from different breaches and there is no co-ordinate liability. 40 Accordingly, in the orders which his Honour ultimately made, judgment was given for the Perpetual companies against the solicitors for $12,439,524 (see Orders 8 and 9 as varied). 41 The appeal by the solicitors concerns essentially two issues - those of contribution and the exclusion clauses. It is appropriate to deal first with the issue of the exclusion clauses.

The Exclusion Clauses 42 Rolfe J held that neither exclusion clause (both set out above) operated to relieve the appellants of liability for essentially four reasons. First, as a matter of construction. Secondly, that it was unconscientious or unconscionable for the solicitors to rely on them. Thirdly, that since the solicitors were not a party to the Subscription Agreement, they could not sue upon cl 3.4. Lastly, there was a want of consideration. The respondents do not press the privity and consideration arguments, and I will therefore put them aside. 43 On behalf of the appellants, Mr Pembroke SC submits that his Honour erred in construing the exclusion clauses by not giving them their ordinary and natural meaning and by depriving them of any operation. It is submitted that the ordinary and natural meaning of the exclusion clauses is to relieve the solicitors of all liability to the respondents. 44 Mr Robb SC, on behalf of the respondents, submits that his Honour's decision was correct. He submits that the Subscription Agreement did not contemplate that Minters would act as Perpetual's agent on completion and decide (on Perpetual's behalf) whether ECCC had tendered due performance on settlement. The arrangement whereby the solicitors became the agent of Perpetual for the completion of the Agreement was an additional obligation accepted by the solicitors. The exclusion clauses therefore did not extend to the breaches by the solicitors on settlement. Accordingly, his Honour's construction did not deprive the clauses of any effect. They continue to operate to protect the solicitors in respect of payments under cl 3.3. If this were not so, the exclusion clauses could even operate to absolve the solicitors from advertent breaches. 45 Perpetual rely on the nature and content of the Subscription Agreement, the authorisation for payment and the context in which the exclusion clauses appear in the Agreement. 46 It is useful to set out some of the principal clauses of the Subscription Agreement. Clause 2.1 provides: The Investor [Perpetual] on signing this Agreement will provide an unendorsed non-negotiable bank cheque made payable to the Company's Solicitors trust account for the aggregate of the Subscription Moneys … to be held in trust by the Company's Solicitors in accordance with the provisions of this Agreement. 47 Under the heading 'Deposit Certificate' cl 3 provides the mechanism by which conforming deposit certificates were to be procured. Clause 3.1 provides: Prior to Completion, from the funds provided by the Investor to the Company's Solicitors pursuant to clause 2.1, the Company will procure the delivery of the Deposit Certificate. The Company has entered into the Put Option which provides, among other matters, for the delivery to the Paying Agent [National Registries] of the Deposit Certificate which complies with the requirements detailed in clause 3.2. 48 Clause 3.2 sets forth the criteria which the certificate has to satisfy to conform to the requirements of the Agreement. Clause 3.3 then provides: The Investor by his execution of this Agreement authorises the Company's Solicitors prior to Completion to release that amount requested by the Company up to and not exceeding the Deposit Certificate Purchase Limit to be applied by the Company solely for the purpose of procuring the Deposit Certificate by way of the Put Option. 49 Accordingly, the solicitors were authorised to pay out part of the funds held on trust on an unsecured basis in the expectation that ECCC would honour cl 3.3 and be in a position to deliver the Deposit Certificate on completion, in return for the balance of the invested moneys. Between the first release of part of the invested funds and the settlement of the balance, there was a risk that the initial moneys could be lost. 50 The Exclusion Clause (3.4) then follows. Contextually, it is set under the heading 'Deposit Certificate'. It is not located as a stand-alone clause at the end of the Agreement, which is the position one might reasonably expect if the clause was intended to comprehensively absolve the solicitors from all liability, including liability for breach of trust. 51 Clause 4 deals with completion, which was to be a physical completion at the solicitors' office. On completion, cl 4.2(b) requires that Perpetual provide the written authorisation to the solicitors in the form of Schedule 4. 52 This would require the solicitors to pay to ECCC the balance of the invested funds, given the earlier release of part of the moneys to enable ECCC to procure a conforming Deposit Certificate. 53 Clause 4.3 provided that: At Completion the Company's Solicitors from the funds held pursuant to clause 2.1 will pay to the Company the aggregate of the Subscription Moneys remaining after the provision of the Deposit Certificate. 54 Clause 4.4 required ECCC to take a number of steps, including procuring the Deposit Certificate to be delivered to the Paying Agent. By cl 4.5, if the matters required to be done by the solicitors and ECCC, under cll 4.3 and 4.4 respectively, did not occur, Perpetual would not be obliged to complete and would be entitled to a full refund of the prepaid portion of the subscription moneys. 55 Normally it would be expected that Perpetual would attend on settlement and satisfy itself that the requisite documents under cl 4.2 were handed over. That is, that ECCC and the solicitors were ready, willing and able to complete the transaction in accordance with the Subscription Agreement. The Agreement itself did not authorise the solicitors to act as agent for Perpetual on completion. As mentioned earlier, the appointment of the solicitors as Perpetual's agent on completion was effected by the separate mechanism of delivery of a letter from Perpetual (with respect to each settlement) confirming that the solicitors would act as Perpetual's agent for the purposes of completion. 56 Thus, the respondents contend that the exclusion in the authorisation for payment was limited to liability arising under the Subscription Agreement and made no reference to liability which might arise out of the solicitors' acceptance of Perpetual's appointment of them as its agent on completion. 57 It is submitted by Mr Robb that, on its proper construction and giving weight to the context in which the exclusion appears, and to the nature and object of the Agreement, the effect of the clause was to exclude the solicitors from any liability which might arise from them paying out the funds necessary to procure the conforming Deposit Certificate. ECCC was given control of part of the funds on an unsecured basis for a period of time, and this created a risk. It was commercially understandable that the solicitors be absolved from any consequences of releasing that part of the trust moneys. This explains, in Mr Robb's submission, why cl 3.4 follows immediately after the provisions dealing with the partial release of the invested funds. 58 Alternatively, the respondents submit that the exclusion clauses should not be construed so as to absolve the appellants from intentional breaches of trust or of good faith. Again, in the alternative, the respondents submit that the appellants ought be precluded in equity from relying on the exclusions, because to do so would be unconscionable, or an unconscientious reliance on legal rights. 59 Senior Counsel for the solicitors accepts that the exclusions do not extend to fraud. In his address in reply he also accepted that bad faith cannot be excluded. His Honour expressly found, and he was so entitled to find on the evidence, that the solicitors conduct amounted to gross negligence and gross dereliction of duty as a trustee. Their conduct was plainly deliberate and with knowledge over a very lengthy period of time. It was clearly conscious and wilful misconduct. 60 The question arises as to whether the conduct of the solicitors constituted bad faith. It is plain that their conduct was not in the honest belief that the risk being taken was in the best interests of the beneficiaries. Indeed, far from it. Does this make their conduct not in good faith?

61 It is instructive to consider the decision of the English Court of Appeal in Armitage v Nurse [1998] Ch 241, in particular the judgment of Millett LJ. This appeal involved an exclusion clause for trustee liability which absolved the trustee from any liability for loss to the plaintiff's fund from any cause, unless caused by fraud. Was the clause repugnant to the trust or void on grounds of public policy? The Court held that it was open to the parties to exclude liability for negligence, even for gross negligence. Even if the trustees deliberately breached the trust by consciously acting beyond power, their conduct was not fraudulent if they did so in good faith and in the honest belief that they acted in the interests of the beneficiaries. 62 After quoting from Maugham J in In re Vickery [1931] 1 Ch 572 at 583, Millett LJ said at 252: … But if he [the trustee] consciously takes the risk in good faith and with the best intentions, honestly believing that the risk is one which ought to be taken in the interests of the beneficiaries , there is no reason why he should not be protected by an exemption clause which excludes liability for wilful default. (Emphasis added) 63 His Lordship accepted that there was an irreducible core of obligations owed by trustees to beneficiaries and enforceable by them. While these core obligations did not include skill and care, prudence and diligence, the duty was to 'perform the trusts honestly and in good faith for the benefit of the beneficiaries'. 64 The common law, unlike civil law, did not draw the line between liability for ordinary negligence and gross negligence. English law had always drawn 'a sharp distinction between negligence, however gross … and fraud, bad faith and wilful misconduct'. Millett LJ pointed out that while gross negligence may be evidence of mala fides, it was not the same thing, citing Goodman v Harvey (1836) 4 A & E 870 at 876 per Lord Denman CJ. 65 In Walker v Stones [2001] 2 WLR 623 Sir Christopher Slade considered Armitage v Nurse. The trial judge had stated the proposition that a trustee's conduct could not be categorised as 'dishonest' even if he knew he was acting in breach of trust, if he acted in a genuine belief that what he was doing was for the benefit of the beneficiaries. The proposition was said to be supported by Armitage wherein Millett LJ had said at 251: … if they do in good faith and in the honest belief that they are acting in the interests of the beneficiaries their conduct is not fraudulent. 66 Of this proposition Sir Christopher said: … 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. [at 657] 67 The learned judge then referred to accessory liability for breach of trust in the decision of the Privy Council in Royal Brunei Airways Sdn Bhd v Tan [1995] 2 AC 378. He said that he could see no grounds for a different test of honesty in the context of a trustee exemption clause from that applicable to the liability of an accessory in a breach of trust, see 659. 68 Sir Christopher continued: … Millett LJ was directing his mind to the not uncommon case of what Selwyn LJ had once described as "judicious breaches of trust". I think it most unlikely that he would have intended this dictum to apply in a case where a solicitor-trustee's perception of the interests of the beneficiaries was so unreasonable that no reasonable solicitor-trustee could have held such belief. Indeed in my opinion such a construction of the clause could well render it inconsistent with the very existence of an effective trust. [at 659 - 660] 69 He added that Millett LJ's analysis of trustee exemption clauses emphasised the need for courts to construe such clauses no more widely than their language requires on a fair reading. 70 Accordingly, he concluded that the clause did not exempt trustees from liability for breach of trust, even if committed in the genuine belief that it was in the interests of the beneficiaries, if the belief was so unreasonable that no reasonable solicitor-trustee could have held it. [at 660] 71 Turning to the instant appeal, it is submitted on behalf of the appellants that the conscious breach of trust by the solicitors as found by his Honour, was still, in the belief of the solicitors, for the benefit of the beneficiaries. Mr Lewis believed that he had found another way of achieving protection for the beneficiaries, in lieu of the bearer Deposit Certificate required by the Subscription Agreement. 72 In support of this submission the appellants rely on the contents of paragraph 12 of the statement of Mr Lewis, which they submitted largely survived his Honour's findings. The paragraph is as follows: By 18 October 1993 I formed the view (rightly or wrongly) that, in relation to future settlements, a satisfactory procedure for protecting the capital investment of the investors was in place. I assumed that the requirements of the Subscription Agreements would be complied with. If there was error by me it was because I did not look at the form of the certificates of deposit by comparison to the definition in the Subscription Agreements. I assumed that the irrevocable direction, in relation to which I had given advice to ECCCL, together with the Deed of Confirmation and the Paying Agency Agreement, protected the investors and would be followed in relation to future settlement. If I had not formed that view, I would not have permitted Minter Ellison to disburse the funds held by it under the Subscription Agreements in relation to the subsequent settlements which occurred on and from 19 October 1993. 73 Counsel for the solicitors also relies on a passage in his Honour's judgment under the heading 'Causation'. It is as follows: Mr Pembroke submitted that if Minter Ellison were guilty of any of the breaches alleged, no damage flowed from them because the chain of causation was broken. This submission proceeded on the basis that there were two events, either of which brought about that result. Firstly, he submitted that had [Perpetual] become aware that conforming Deposit Certificates were not being furnished, they would have insisted that they should be and, upon that happening, ECCC would have issued such certificates in which case the loss would not have occurred. I do not accept this submission, essentially for the reasons I have given. Notwithstanding the persistent efforts by Minter Ellison to have ECCC provide conforming Deposit Certificates, it failed to do so. That occurred in the context that it had received tax advice that such certificates would not provide the best result, and that in any event Minter Ellison were of the view that the Deed of Confirmation and Irrevocable Authority would provide equivalent security to the conforming Deposit Certificate. 74 In my opinion, a careful reading of his Honour's lengthy examination of the evidence of Mr Lewis reveals that nothing in paragraph 12 of his statement survived to establish that Mr Lewis honestly believed that he had put in place an alternative means of protecting the investors and was conducting himself in good faith and for the benefit of the beneficiaries. In any event the supposed alternative protection took, according to Mr Lewis, until 18 October 1993, to be put in place. 75 One of the difficulties with the evidence of Mr Lewis is the abundance of internal inconsistencies. For example, in the paragraph relied upon, he says that he assumed that the requirements of the Subscription Agreement would be complied with and any error on his part (if there was one) was only that he did not look at the form of the Deposit Certificate to see if it complied. However, these sentences are completely at odds with the letters which the solicitors sent to ECCC on the 13 and 31 May 1993 and indeed, inconsistent with other evidence which Mr Lewis gave at trial. 76 Rolfe J made many findings which were highly critical of the evidence of Mr Lewis. I mention only a few. 77 His Honour found that the continued failure of the solicitors to advise Perpetual that conforming Deposit Certificates were not being obtained was inexcusable. Moreover, he found that it was not an oversight. Accordingly, I interpolate, that it was deliberate. 78 Further, Mr Lewis knew, at least by June 1993, that ECCC did not intend to comply with the Subscription Agreement and provide the requisite Deposit Certificates. Notwithstanding, Mr Lewis made no amendments to the documents. His only response was to say that he either lost sight or failed to appreciate what was required, and, from June 1993, thought that the investors were protected by the Deed of Confirmation, the Paying Agency Agreement and the irrevocable direction from ECCC to Dresdner. 79 His Honour records that at one stage in his evidence Mr Lewis said that he thought the Deposit Certificate received on 1 June 1993 conformed to the definition in the Agreement. He also said that it was not apparent to him that it had to be a bearer certificate. Rolfe J found this answer 'strange' since Minters drafted the agreement. Mr Lewis, however, accepted that paragraph 38 of his statement to the ASC was true and that it was apparent to him in December 1992 and May 1993 that the Deposit Certificates were not in bearer form. His Honour then noted that 'Mr Lewis backtracked and said that it was not apparent to him because he did not recall examining the Deposit Certificates. His Honour said that at this point Mr Lewis' evidence 'became unacceptable' and that 'Mr Lewis was aware from at least December 1992 that ECCC had not furnished conforming Deposit Certificates and was disinclined to do so'. 80 Rolfe J said that Mr Lewis' evidence that he did not recognise that the certificates were not in proper form or the problem to which it gave rise, or that he simply lost sight of or failed to appreciate the situation, was not credible. 81 These findings must dispose of the second and third sentences of paragraph 12 of Mr Lewis' statement. 82 Rolfe J also found that Mr Lewis 'did not consider in any realistic way the position of the investor'. This left Mr Lewis with his statements that his firm was giving ECCC every opportunity to correct the position whilst, according to his Honour, leaving the investor unsecured and at risk. Rolfe J noted that Mr Lewis sought to explain the situation by saying that they had an obligation to their client to allow it to produce a 'better certificate'. In this regard, his Honour categorised some of Mr Lewis' answers as 'simply incorrect'. His Honour then noted the totally inconsistent evidence by the witness on this topic. 83 The judge was also critical of Mr Lewis' evidence that even by 31 May 1993, when it was clear (at the latest) that the investor had a right to rescind and have its money back, he had no obligation to tell the investor of the true position. Mr Lewis provided no reason which his Honour found to be acceptable for this stance. 84 His Honour found that Mr Lewis' evidence created: … the very serious difficulty that to his knowledge Minter Ellison were receiving non-conforming Deposit Certificates, without any authority from the investors but because it suited ECCC, and were not only not advising the investors but were putting forward those Certificates as conforming. The breach of trust was blatant. 85 After agreeing in cross-examination that the document received from Dresdner on 1 June 1993 was the same as that received on settlement in December 1992 and that it was not a bearer certificate, Mr Lewis gave what the judge described as 'some very strange evidence'. This is set out at pp 615 - 616 of Rolfe J's judgment. It is to the effect that ECCC did not intend to provide a bearer certificate for tax reasons. 86 Rolfe J noted the obvious difficulties with this evidence. First, there had never been any change in the contractual arrangements which the solicitors had put in place on ECCC's instructions. Secondly, the obligation of the solicitors, as the Perpetual's agent on settlement, to obtain a bearer certificate, had not changed. Thirdly, from December 1992 Mr Lewis had been aware that ECCC did not want to provide a bearer certificate. Fourthly, there was absolutely no evidence that between 31 May and 1 June 1993 Mr Lewis became aware of any changed requirement. Moreover, Mr Lewis' evidence was totally inconsistent with the solicitors' letter to the client of 31 May 1993. His Honour said: If Mr Lewis' evidence is to be accepted on this point, he was not merely breaching the trust duties and being negligent but he was, in my opinion, acting in complete disregard to the interests of the investor , and in a way which, on any view of the matter, could not be justified. [My emphasis] 87 The judge added that in 'a totally unconvincing piece of evidence' Mr Lewis said that one implied from the Deed of Confirmation that the Deposit Certificate was not to be a bearer document. His Honour said that Mr Lewis' evidence on this matter was unacceptable and accordingly rejected. 88 His Honour noted that Mr Lewis attempted to clutch at straws and 'clung to the suggestion' that 'another interpretation' that a bearer certificate was not required was possible. In this regard his Honour said: I regret to say that this evidence did no credit to Mr Lewis. It tended to point up the view I had formed earlier that he was prepared, on several occasions, to say anything that came into his mind that might, as he saw it, assist his position. 89 Mr Lewis suggested that the problem was corrected on 1 June 1993 by the document Dresdner issued. His Honour continued: … He agreed they were wrong in accepting a non-bearer certificate and he said the error Minter Ellison made was that the arrangement connected with the taxation advice was something which could be accepted in lieu of a Bearer Deposit Certificate. That answer compelled him to agree that that state of mind required an appreciation that the Bearer Deposit Certificate would not be provided, and:- "Q. So it was quite plain to Minters that if this new arrangement existed, it involved a different security arrangement? A. It should have been plain, but unfortunately it wasn't. Q. I am putting to you that it was plain by virtue of the very appreciation of this arrangement that the Bearer Certificate was not going to be provided? A. If it had been plain, we would have done something about it": TP.248. It is very difficult to accept that neither Mr Lewis nor Mr Gaffney appreciated what was happening and that the numerous settlements, which happened after May 1993, proceeded without any proper appreciation of the position, and I do not accept it. 90 His Honour noted that Mr Lewis agreed that the intended replacement procedure had fundamental defects, which were not communicated to Perpetual, that there should have been a complete restructuring of the documents, and that the investor should have been told of the problems. The correspondence made it clear that the solicitors knew that they should communicate with Perpetual. His Honour identified answers from Mr Lewis which acknowledged a belated recognition of the rights of the beneficiaries. 91 In summing-up his appreciation of Mr Lewis' evidence, his Honour said that he found certain aspects of his evidence to be 'unsatisfactory, contradictory and unacceptable'. In particular, his Honour expressly rejected the contention that Mr Lewis had lost sight of or failed to appreciate the significance of the requirement for bearer certificates. 92 These were findings which were completely open to his Honour and are not challenged. While his Honour did not make an express finding that Mr Lewis believed (by October 1993) that a satisfactory procedure to protect the investors was in place, his findings on the lack of credibility of Mr Lewis' evidence make it almost impossible to accept at face value the claims made in the first and fourth sentences of paragraph 12 of the statement. 93 Nor do I accept that anything said by his Honour under the heading 'Causation', referred to earlier, constitutes a positive finding by his Honour that Mr Lewis honestly believed that he had found another means of protecting the beneficiaries and that he was, accordingly, acting in their best interests. The statement by his Honour is far from an acceptance of Mr Lewis' assertions in paragraph 12. It does not correspond with his Honour's finding that the solicitors were derelict in their duty as agent for Perpetual, which dereliction constituted a blatant breach of trust, as well as his subsequent finding that the solicitors' conduct amounted to a gross breach of trust. 94 The argument advanced by Mr Pembroke, of behalf of the appellants, may be ingenious but it cannot be accepted when one takes account of his Honour's findings on the lack of credibility of Mr Lewis in almost every respect. It cannot be concluded on the evidence that a finding could be made that Mr Lewis honestly believed that he had achieved an alternative means of protecting the beneficiaries to the extent required by the agreement and thus believed that he was acting in their best interests and in good faith. 95 I am driven to the inevitable conclusion that the conduct of the solicitors was in bad faith for a number of reasons. Plainly the solicitors consciously and deliberately preferred the interests of their client (ECCC) over that of Perpetual and the beneficiaries. It cannot be gainsaid that they had a very substantial conflict of interest, and so much is acknowledged. It is obvious that the solicitors paid absolutely no heed to their trust duties to Perpetual or to the plight of the beneficiaries. The solicitors proceeded with settlements over a period of around 2 ½ years knowing, on each occasion, that no bearer Deposit Certificate would be forthcoming from ECCC. They knew that their client was in breach of the Subscription Agreement on each occasion. They knew that what they were doing could not possibly be in the interests of the beneficiaries. 96 I have already rejected the proposition that the solicitors honestly or genuinely believed that the beneficiaries were protected. It seems to me that they neither knew nor cared. The breach of trust was conscious and, as his Honour found, blatant. Their conduct in not telling Perpetual about the breach was plainly carried out with the intention of deceiving it into believing that all was well. 97 The solicitors' conduct cannot, in my view, be the subject of exclusion from liability by the clauses relied on, primarily because it was a breach of trust committed in bad faith. A compelling indication of this is that the solicitors, once they knew that they would likely never be handed a conforming Deposit Certificate by ECCC on settlement, nonetheless proceeded to obtain the exclusions on each occasion without ever advising the Perpetual of the true situation. This was simply dishonest. 98 It matters not that the service was a voluntary one. It is not relevant that the solicitors obtained no financial gain except client fees and ECCC's business until December 1995. The solicitors duty to Perpetual was plain - to tell Perpetual right from the beginning that ECCC would not be handing over a bearer certificate on completion. Failing to carry out this duty was to act in bad faith, given the interests of the beneficiaries. Every day that the breach continued placed the beneficiaries at greater risk. The continuing silence of the solicitors compounded the breach and the potential for loss. The plain fact is that no settlement should ever have taken place. 99 I am also of the opinion that the appellants' case on construction of the exclusion clauses fails. 100 One may start with the statement of principle from the High Court in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510: … the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. 101 The structure of the Subscription Agreement is important. Following Part 1 on 'Interpretation', the subscription for shares is provided in Part 2. Clause 2.1 creates the trust by the solicitors for the subscription moneys provided by Perpetual. The moneys are to be 'held in trust … in accordance with the provisions of this Agreement'. Clause 2.3 requires that the Company (ECCC) use the subscription moneys to procure the provision of the Deposit Certificate 'as detailed in clause 3'. 102 Clause 3 is headed 'Deposit Certificate' and, in 3.1, reiterates the requirement that the Company will procure the delivery of the Deposit Certificate 'prior to Completion, from the funds provided by the Investor to the Company's solicitors pursuant to cl 2.1'. The clause also refers to the delivery to the Paying Agent of the Deposit Certificate 'which complies with the requirements detailed in cl 3.2'. Clause 3.2 sets forth the requirements to which the Deposit Certificate must conform. Clause 3.3 authorises the solicitors to release, prior to completion, an amount up to a specified limit (50%) 'to be applied by the Company solely for the purpose of procuring the Deposit Certificate'. Then follows the exclusion clause (3.4). On its face it refers to the exclusion of liability for the 'disbursement of the funds held pursuant to cl 2.1'. 103 Clause 4, dealing with 'Completion', then follows. It covers the obligations of the Investor and the Company on completion (4.2 and 4.4 respectively). Clause 4.3 provides that on completion the solicitors will pay to ECCC the remaining funds held by them pursuant to cl 2.1. Clause 4.5 provides that the Investor will not be obliged to complete the subscription for the shares and will be entitled to a full refund if, at completion, the events in 4.3 and 4.4 do not occur. Thereafter, nine pages of the Agreement follow, dealing with diverse aspects of the transaction, including for example, waiver. 104 Schedule 4 to the Agreement is in the form of an authority for payment addressed by Perpetual to the solicitors. It authorises the disbursement by the solicitors of moneys held in accordance with cl 2 and acknowledges that an amount up to the limit may have already been disbursed pursuant to cl 3. Thereafter follows the second exclusion clause relied on by the solicitors, which has been set out earlier. 105 Why was the exclusion clause (3.4) placed within the section of the Agreement dealing with the 'Deposit Certificate'? Obviously it was to provide some protection for the solicitors in relation to the disbursement of funds held on trust pursuant to cl 2.1. The disbursement arose at two points of time. The first tranche was to enable ECCC to obtain the Deposit Certificate. At this time, the moneys were unsecured and at risk through loss by the company. The solicitors, as part of their trust obligation in relation to the funds, were obliged to form a view that a conforming Deposit Certificate would be obtained by the company. On completion, when the solicitors were required to pay over the remainder of the moneys held by them in trust pursuant to cl 2.1, the solicitors had to be satisfied that a conforming Deposit Certificate was handed over. This was particularly so given that the solicitors agreed to act as agent for Perpetual on settlement. These were basic trust obligations which could not have been intended to be excluded.

106 It does not strain the words of the exclusion in cl 3.4, given its context in the Agreement, that the intention of the parties (which did not include the solicitors) was to protect the solicitors from liability if they complied with their responsibilities under the Agreement. This construction does not deprive the clause of any operation, as they operate in circumstances where the solicitors carry out their obligations and in the event of a loss of the funds. The disbursements of the trust funds were not disbursements made in accordance with the Agreement. The appellants submit that cl 3.4 is in two parts and needs to be so construed. I do not accept this. It seems to me that the clause should be read as a whole, as Rolfe J indicated. The clause has, in effect, only one subject matter. 107 The exclusion in Schedule 4 was not intended to take effect except on completion. It was accordingly held in escrow until there was a completion, at which time the solicitors carried out their obligations. 108 In summary, the solicitors would only be called on to pay out the moneys held in trust where the first tranche was to be paid out under cl 3.3 before completion in order to enable ECCC to fund the issue of a bearer Deposit Certificate. Further, the balance of the trust moneys would be paid on completion if the solicitors were satisfied that a conforming Deposit Certificate was handed to them, as agent for Perpetual, on settlement. The agency was a separate appointment by Perpetual and not one which was provided for in the Subscription Agreement. The exclusion clauses did not extend to solicitors' breach of the agency agreement when they paid the trust moneys over on completion without receiving a conforming Deposit Certificate. This provides a further reason why the solicitors cannot rely on the exclusion clauses in the circumstances. 109 Accordingly, I find it unnecessary to consider the alternative basis found by his Honour that the solicitors were precluded in equity from relying on the exclusion clauses because such reliance would be an unconscionable or unconscientious reliance on legal rights. 110 I turn therefore to the issue concerning contribution. Contribution 111 In Cockburn & Ors v GIO Finance Ltd [2001] NSWCA 177 Mason P reviewed the law on the limits of co-ordinate liabilities in a claim for contribution. I am indebted to his Honour for his review and it is convenient to draw upon it. 112 The President reiterated that the right of contribution depends on substance and not form and that a right of contribution may arise even where there is no liability to be sued. These cases, of course, involve a commonality of exposure to a similar risk, which is part of the requirement of a 'common burden', see Australian Eagle Insurance Co Ltd v Mutual Acceptance (Insurance) Pty Ltd [1983] 3 NSWLR 59 at 64 and Street v Retravision (NSW) Pty Ltd (1995) 56 FCR 588 at 599 per Gummow J. 113 His Honour noted that recent case law also establishes that there can be a common obligation notwithstanding different causes of action against co-obligors, as long as the liabilities are 'of the same nature and to the same extent', (BP Petroleum Development Ltd v Esso Petroleum Ltd [1987] SLT 345 at 348; Street at 597 and Burke v LFOT Pty Ltd (2000) 178 ALR 161 at 183. He also makes the point that the proviso emphasises the need for the parties to be liable to perform substantially the same obligation. Merely because the respective obligations arise out of related transactions is insufficient, Re La Rosa; Ex Parte Norgard (1991) 31 FCR 83. Nor is it sufficient that the claimant's payment has relieved the other party financially. Something more is required, Mahoney v McManus (1981) 180 CLR 370. 114 In Cockburn it was submitted that there was a sufficient closeness in the positions of the parties viz a viz the plaintiff to form a common liability to a single loss. At paragraphs 42 and 43, Mason P said: No doubt the cancellation of the mortgage left the GIO poorer. The money that it had advanced earlier to the plaintiff's impecunious father was now totally irrecoverable from any alternative source. But merely because a remedy is given against a defendant that hits it in its pocket is not enough to generate a right of contribution. Were it otherwise, then orders for specific performance or account of profits might generate a claim for contribution, something which (on my understanding) they cannot do. Nor, conversely, is it enough for the GIO to point merely to the advantage accruing to the solicitor by reason of the plaintiff's rescission and the court-ordered cancellation of the mortgage. Something more is required to enliven a right of contribution (see par 30 above). Were it otherwise, a debtor who paid its creditor what was due would have a right to go against its own surety, whereas the converse is true. The GIO's argument puts the cart before the horse by assuming the coordinate liability that is in issue. 115 In a judgment which agreed with Mason P, Ipp AJA said that the liabilities were not co-ordinate because they were fundamentally different in character (para 74). There was not a co-ordinate liability which was 'of the same nature and the same extent'. Moreover, there was no common burden. His Honour said that: … GIO's liability depended upon the mortgage and guarantee being set aside, but Coleman's liability depended upon the mortgage and guarantee being affirmed. The burdens of each were different, not common. There was no joinder of obligations by a common end or purpose. It follows that there is insufficient commonalty or mutuality in the burden of liabilities to give rise to a right of contribution. [para 77] 116 In this appeal before the court, the question comes down to whether there is a common liability to be sued or a common risk to bear part of the same loss. 117 The liability of Perpetual to the plaintiff beneficiaries was its breach of trust obligations owed by Perpetual to them and the negligent performance of that trust. 118 The liability of Minters to Perpetual arose out of the breach by the solicitors of the trust arising under the Subscription Agreement and by reason of the appointment of the solicitors as Perpetual's agent on settlement, as well as for negligence in the performance of their trust obligations. 119 These were different trusts and different breaches. They were simply not 'of the same nature and the same extent'. There was no common obligation owed to the beneficiaries. Indeed, the obligation of the solicitors was to the Investor (the Perpetual) and not to the individual plaintiffs. The transactions were related, however this is not sufficient. Something more is needed to enliven the right to contribution. 120 It cannot be said that the solicitors and Perpetual are liable to perform substantially the same obligation.

121 Indeed, they are liable with respect to different obligations and the liability is not a common one. The solicitors had no liability which was capable of being co-ordinate with Perpetual's liability to its beneficiaries. In this respect, it may be noted that a beneficiary of a trust may sue in his or her own name to recover trust property against a third party only in exceptional circumstances. If they do, the trustees must be joined as defendants. See Lidden v Composite Buyers Ltd (1996) 139 ALR 549 at 552 - 553, Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 436 - 437 and Hayim v Citibank NA [1987] 1 AC 730 at 747 [PC] 122 It follows, in my opinion, that his Honour's conclusion to dismiss the solicitors' claim for contribution was correct. 123 In the circumstances it is unnecessary to address the limited causation issue raised by the appellants. All other issues having been abandoned by the parties, the order of the court which I propose is that the appeal be dismissed with costs. 124 DAVIES AJA: I agree with the reasons of Stein JA. However, as the issues are of some importance, I should make some observations of my own. 125 A conflict of interest is an insidious thing. It clouds the mind. Aspects of a duty of care, which ought to be seen clearly and distinctly, are seen in a hazy light when a solicitor seeks to reconcile the interests of two clients who each have interests which differ from those of the other. Over many years, in judgments which I have written or in which I have joined, the point has been made that solicitors should never allow themselves to have a conflict of interest. Those judgments appear to have had no impact. Too many solicitors continue to act for two or more clients who have conflicting interests. Year after year, cases come before the courts because a solicitor, in such a position, has failed to fulfil his duty to one or more of his or her clients. 126 The present is another such case. The solicitors, as trustees, received into their trust account, from investors, monies to be applied in the following two ways:- "3.3 The Investor by his execution of this Agreement authorises the Company's Solicitors prior to Completion to release that amount requested by the Company up to and not exceeding the Deposit Certificate Purchase Limit to be applied by the Company solely for the purpose of procuring the Deposit Certificate by way of the Put Option. …

4.3 At Completion the Company's Solicitors from the funds held pursuant to clause 2.1 will pay to the Company the aggregate of the Subscription Moneys remaining after the provision of the Deposit Certificate."

Those clauses refer to a " Deposit Certificate". This Deposit Certificate was to be handed over by the Company (E C Consolidated Capital Limited) at " Completion". It was the specified means by which an investor was to be provided with a degree of security in respect of the investment in the Company. Whenever an investment was made, an agreement containing these provisions was executed. 127 Even before the subject investments were made, the solicitors became aware that the Company would not or could not obtain and provide a Deposit Certificate. Because they had a conflict of interest, for they were acting as advisers to the Company as well as trustees of the investors' funds, the solicitors disregarded the undeniably clear terms of cls 3.3 and 4.3 of the Agreement. They accepted investment monies knowing that the Agreement under which the investment was made would not be complied with. In each case, the solicitors paid out the first tranche of money under cl 3.3 knowing that the Company would not procure a Deposit Certificate and, in each case, they paid out the balance of the monies at Completion, knowing that the Company did not pass over a Deposit Certificate. 128 Counsel for the solicitors submitted that the solicitors acted honestly. It is not necessary to debate this point. Their breach of trust was a blatant, deliberate breach of trust, albeit that, over the years, they came to forget that they were acting in breach. As the solicitors had agreed to act as agent for the investors at Completion, their actions in paying out the investors' monies was a gross breach of their duty to the investors as beneficiaries and a gross breach of their duty to the investors as their principals. 129 It is unfortunate that, having ascertained that the Company could not or would not obtain and provide a Deposit Certificate, the solicitors continued to accept monies from investors and to have the investors execute the investment Agreements which, in cl 3.4, purported, inter alia, to hold the solicitors harmless from any claim, demand, action or cost arising out of or in connection with the disbursement of any funds under the Agreement. The solicitors have relied upon this clause although, when each Agreement was executed, the solicitors intended to pay out the investment monies otherwise than in accordance with the Agreement. 130 Clause 3.4 provided:- "3.4 The parties agree and acknowledge that the Company's Solicitors have no liability for disbursement of the funds held pursuant to clause 2.1 and the parties indemnify and hold the Company's Solicitors harmless for any claim, demand, action or cost arising out of or in connection with the disbursement of any funds under this Agreement." 131 In Walker v Stones [2001] 2 WLR 623 at 660, Sir Christopher Slade, with whom Nourse and Mantell LJJ agreed, referred to:- "… the need, as a matter of policy, for the courts to construe clauses of this nature no more widely than their language on a fair reading requires."

Like all clauses in a contract, cl 3.4 should be read in the light of the transaction of which the contract formed a part and in the light of the other terms which the contract contained. The transaction was a speculative investment. Security was to be provided, in each case, by a Deposit Certificate. In light of the importance of the Deposit Certificate and in light of the fact that the two obligations imposed upon the solicitors by cls 3.3 and 4.3 were trust obligations, it would be wrong to read the clause as absolving the solicitors from liability for breach of these fundamental obligations. As Millett LJ said in Armitage v Nurse [1998] Ch 241 at 253:- "… there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts." 132 In the present case, the Agreement required the solicitors to hold the monies in trust and to pay them out pursuant to cls 3.3 and 4.3. Clause 3.4 should not be read as excluding the performance of those obligations. Its terms, including the reference to "funds held pursuant to clause 2.1" and the reference to "the disbursement of any funds under this Agreement", show that the clause intended that the solicitors would disburse the monies in accordance with the Agreement. It did not purport to release the solicitors from liability should they disburse the monies otherwise. 133 This interpretation of cl 3.4 is confirmed by its placement in that part of the Agreement which dealt with the payment out of the first tranche of the monies, those funds which were to be paid to the Company solely for the purpose of procuring a Deposit Certificate. The exclusion clause did not appear in its own separate section of the Agreement. In this context, cl 3.4 turned its attention to the fate of the monies after they had been disbursed by the solicitors under the Agreement. 134 There was a further release of the solicitors' liability contained in a document entitled "Authorisation For Payment". However, again, as this document acknowledged that, pursuant to cl 3 of the Agreement, a part of the funds may have already been disbursed by the solicitors in accordance with the Agreement, and as the document also authorised the solicitors to disburse the balance of the monies in accordance with the Agreement, it is plain that the document, when read as a whole, did not intend to release the solicitors from compliance with the obligations contained in cls 3.3 and 4.3. The document was to take effect on Completion and released the solicitors from any liability in respect of the fate of the monies disbursed by the solicitors in accordance with the Agreement. 135 It is unfortunate that the solicitors may have thought that they could rely upon these provisions which, read out of context, may have appeared to release them from liability. Perhaps a misguided reliance upon these provisions encouraged them to disregard their duties as trustees. Having ascertained that the Company could not or would not provide a Deposit Certificate, the solicitors took steps to put in place an alternative arrangement to protect the investors' monies. However, they did not inform the investors of what they were doing and they did not obtain their authority to do so. That is typical of actions which occur when solicitors have a conflict of interest. They believe that they can act in the best interests of everyone when, in fact, the interests of their clients conflict. As events turned out, the replacement security arrangements were worthless. 136 The solicitors' appeal on the issue of liability must fail. 137 The solicitors have claimed contribution from parties who were two of their investors, Perpetual Trustees WA Limited (Perpetual WA) and Perpetual Trustee Company Limited (Perpetual). The claim was brought under s 5 of the Law Reform (Miscellaneous Provisions) Act, 1946 and/or s 23B of the Wrongs Act, 1958 (VIC) and/or under the equitable principles as to contribution. It is not in dispute that, had Perpetual WA and Perpetual, on the one hand, and the solicitors, on the other, been subjected to co-ordinate liabilities to pay the damages awarded in the proceedings, an order for contribution should have been made. 138 However, merely to state the proposition discloses its fallacy. Perpetual WA and Perpetual, on the one hand, and the solicitors, on the other, were not under co-ordinate liabilities in respect of the damages awarded. The damages which the solicitors were ordered to pay to Perpetual WA and Perpetual, were awarded because they flowed from the solicitors' breach of their duty to those parties. One party who has been ordered to pay monies to another party, by way of compensation for breach of trust, may not rely upon principles of contribution to recover back some of the damages which it has been ordered to pay. Negligence on the part of a beneficiary may not be relied upon by way of a claim for contribution or a claim of contributory negligence. 139 The case put for the solicitors relied upon the submission that, like the solicitors, Perpetual WA and Perpetual were trustees and owed a duty to the persons who were the direct beneficiaries of Perpetual WA and Perpetual and that they, as well as the solicitors, had failed in the performance of their duties. It was submitted that the loss in respect of which the damages were awarded was the loss of those ultimate beneficiaries. 140 Even on that basis, the claim for contribution must fail. Perpetual WA and Perpetual, on the one hand, and the solicitors, on the other, were not persons whose liability was "of the same nature and the same extent". These words were used by Lord Chelmsford in Caledonian Railway Co v Colt (1860) 3 Macq 833 at 844 and by Lord Ross in BP Petroleum Development Ltd v Esso Petroleum Co Ltd [1987] SLT 345 at 347. They were adopted by Gummow J in Street v Retravision (NSW) Pty Ltd (1995) 56 FCR 588 and by Mason P in Cockburn v GIO Finance Ltd [2001] NSWCA 177 at [28]. Mason P said that this requirement "emphasises the need for the two parties to be liable to perform substantially the same obligation". Another aspect of the same point is that the parties must be liable "on the same level of liability". See Scholefield Goodman & Sons Ltd v Zyngier [1986] AC 562 at 575; and Street v Retravision (NSW) Pty Ltd at pp 598-599. 141 Perpetual WA and Perpetual had paid trust monies to the solicitors to be held and dealt with by them as their trustee and agent. Therefore, the solicitors owed a direct duty to Perpetual WA and Perpetual, which they failed to fulfil. It was no answer to the claim made against the solicitors by Perpetual WA and Perpetual that those companies failed in their personal duty to the beneficiaries by leaving entirely to an agent, the solicitors, matters to which they ought to have given their own personal attention. Because the solicitors were trustees and agents for Perpetual WA and Perpetual and had a direct responsibility to those companies, their obligations were not on the same level. Nor were they "of the same nature and the same extent". 142 In the torts area, there have been several decisions where, although a principal and an agent have both been found liable in negligence to an injured person and, under torts law, the responsibility has been or could have been apportioned, the principal has been held entitled to recover from the agent the whole of the principal's loss including the sum payable by the principal to the injured person. See, for example, Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588; Oxley County Council v MacDonald [1999] NSWCA 126; and Redken Laboratories (Aust) Pty Limited v Docker [2000] NSWCA 100. In each of these cases, the principal had delegated to the agent the tasks the negligent performance of which caused the injuries and loss for which the parties were held to be liable. The present is an analogous case, for Perpetual WA and Perpetual authorised the solicitors to hold the funds, to deal with them in accordance with the Agreement and to act as their agent at Completion. The negligent and wrongful performance by the solicitors of their tasks caused the loss. 143 As Perpetual WA and Perpetual, on the one hand, and the solicitors, on the other, did not become subject to co-ordinate liabilities, the claim for contribution must fail. 144 I agree with the orders proposed by Stein JA. 145 IPP AJA: I agree with Stein JA.

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