Fay v Moramba Services Pty Ltd

Barnes v Addy (1874) 9 LR Ch App 244 CASES CITED : Fay v Moramba Services Pty Ltd (No 3) [2008] NSWSC 1037 Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082 Young v Murphy [1996] 1 VR 279

3365/07 Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff) Lisa Fay (second cross defendant) Moramba Services Pty Ltd (defendant/cross claimant) 5032/06 PARTIES : Garrick E Fay (first plaintiff/first cross defendant) Dallas Fay (second plaintiff/second cross defendant) Justinthyme Pty Ltd (third plaintiff/third cross defendant) Henry Kai Tong Au (first defendant/first cross claimant) Hugh Edward Halliday (second defendant/second cross claimant) Allan Ni Kwan Kwok (third defendant/third cross claimant) Stephen Thomas Pollitt (fourth defendant/ fourth cross claimant)

COUNSEL : Mr D E Grieve QC (plaintiffs) Mr R M Smith SC w Mr P W Flynn (defendants)

SOLICITORS : Whittens Lawyers & Consultants (plaintiffs) Corrs Chambers Westgarth (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST

5032/06 Garrick E Fay & 2 Ors v Henry Kai Tong Au & 3 Ors 3365/07 Garrick E Fay & 1 Or v Moramba Services Pty Ltd JUDGMENT (ex tempore) 1 HIS HONOUR: In proceedings 5032/06, the plaintiffs seek leave to further amend their Statement of Claim by adding new claims for relief 8 and 9 in the following terms: 8. An order that the partners of Corrs Chambers Westgarth repay to the new trustees the sum of $138,183.83 paid to them by the defendants out of the estate of the late Claude Augustus Fay on account of the defendants' costs of these proceedings.

9. An order that the partners of Corrs Chambers Westgarth repay the sum of $412,794.95 to Moramba Services Pty Ltd and that they repay such further sums as they may have received from that company on account of the defendants' costs in these proceedings since 15 September 2008. and by substituting, for the existing paragraph 28C, which is in the following terms: In breach of the duties referred to in paragraphs 15 (a) and 15 (e) the defendants have caused Leerac to pay or provide approximately $300,000 to their solicitors Corrs Chambers Westgarth on account of their (the defendants') costs of these proceedings. the following proposed new paragraph 28C: In breach of the duties referred to in paragraphs 15(a) and 15(e) the defendants' [sic] have caused Moramba Services Pty Ltd to pay not less than $413,294.95 to their solicitors Corrs Chambers Westgarth on account of their (the defendants') costs in these proceedings and further they have caused that company to pay to those solicitors $260,355.85 on account of its costs in proceedings no. 3365 of 2007 which sum is substantially in excess of the costs incurred by Moramba Services Pty Ltd in those proceedings. 2 In proceeding 3365/07, the plaintiffs seek leave to amend their Summons by adding claims for relief 3, 4 and 5 in the following terms: 3. An order that the partners of Corrs Chambers Westgarth have the Defendant's costs assessed on an indemnity basis.

4. In the event that the Defendant's costs are so assessed are less than $260,355.85 (and such further sum, if any, as the Defendant may have paid to Corrs Chambers Westgarth on account of costs) an order that the partners of Corrs Chambers Westgarth repay to the Defendant the difference in costs between the costs as so assessed and the total received by them from it on account of costs.

5. Costs. 3 It is convenient to deal first with the proposed substitution of new paragraph 28C in the Statement of Claim in proceedings 5032/06. The existing paragraph 28C was inserted as a result of an amendment permitted by me on 17 September 2008 [see Fay v Moramba Services Pty Ltd (No 3) [2008] NSWSC 1037, [15]-[20]]. The substance of the proposed amendment is to substitute reference to Moramba Services Pty Ltd for Leerac Pty Ltd; to specify the amount said to have been paid on account of costs in respect of proceedings 5032/06 as $413,294.95 in place of the current reference to "approximately $300,000"; to add an allegation that the defendants have caused Moramba to pay $260,355 on account of costs in proceedings 3365/07; and to assert that that sum is substantially in excess of costs incurred by Moramba in those proceedings. 4 Insofar as the amendments specify with more particularity the amounts in dispute, I do not think any complaint is taken about them, or, if it were, that it would carry significant weight. The principal basis upon which the amendment is opposed is that the allegation it makes is, in substance, so untenable that it would be liable to be struck out or summarily dismissed. It is said, in this respect, that the reference to Moramba Services in place of that to Leerac makes it one step further removed from a tenable argument that a relevant duty was owed by the defendant to the plaintiffs, having regard to the decision of the Supreme Court of Victoria in Young v Murphy [1996] 1 VR 279, that directors of a trustee company do not owe duties to the beneficiaries.

5 The duties which are alleged to have been breached by the executors causing or permitting the payment of costs in question are those asserted in paragraphs 15(a) and (e) of the Statement of Claim. Those are duties said to have been owed by the defendants "as directors of Leerac and of the other companies referred to in paragraph 13" (emphasis added) to the plaintiffs "as prospective beneficiaries" of the inter vivos settlements. The "other companies" referred to in paragraph 13 include Moramba Holdings and Moramba Services. For reasons on which I touched on in the judgment on the judicial advice application [Leerac Pty Ltd v Garrick E Fay [2008] NSWSC 1082, [30]], while the argument is confronted by significant contrary authority, including Young v Murphy, I do not think it should be said at this stage that the proposition that a duty is owed by the executors, by reason of their capacity as directors of Leerac or their capacity as directors of Moramba, to the plaintiffs as beneficiaries of the inter vivos trusts is so unarguable that it ought not be permitted to go to trial. Consistency with my decision on the earlier amendment application on 17 September 2008, and the judicial advice application on 18 September, suggests that that amendment ought not be refused on that basis. 6 The other basis upon which this amendment is opposed is that the allegation that the sum paid on account of costs in proceeding 3365/07 is "substantially in excess of costs incurred" in those proceedings lacks clarity, and raises a new factual issue. So far as clarity is concerned, in my view it should be read as a reference to costs "reasonably and properly" incurred and in its context that, I think, is its obvious meaning. So far as its being a new factual allegation is concerned, that is quite correct. Whether it will be able to be proved at the resumed hearing is another matter. 7 Mr Grieve QC has foreshadowed an attempt to call further evidence from a solicitor on the subject. Allowing the amendment should not be taken as any indication that reception of such further evidence, not previously served, will be entertained at the resumed hearing. However, it was also foreshadowed that the argument might be put simply or substantially on the basis of inference from the nature and extent of proceedings 3365/07 to date. In those circumstances, I do not think it could be said that there is no prospect of a basis for that allegation being established at the resumed hearing. 8 I will allow the substitution of proposed new paragraph 28C for the existing paragraph 28C. Mr Smith SC did not expressly submit that the defendants would be unable to deal with this issue at next week's resumed hearing, but if that proves to be the case any application in that behalf will receive a sympathetic hearing. 9 I turn then to the proposed addition of claims for relief 8 and 9 in the Statement of Claim.

10 The partners of Corrs Chambers Westgarth, who are the solicitors for the defendants, are not parties to the proceedings. The relief sought would, if granted, impose upon them a liability in excess of half a million dollars. No application is made, at least at this stage, that they be joined as defendants. Although there are a number of ways in which the argument could be put, as I understand it the essential argument advanced in support of that relief is founded on their being (allegedly) knowingly involved in breaches of trust, or knowing recipients of the proceeds of a breach of trust, for the purposes of Barnes v Addy (1874) 9 LR Ch App 244.

11 Such an allegation is a serious one, particularly when made against solicitors. I do not think it should be aired in these proceedings, as it were, by a sidewind, without joining those against whom it is made as parties, and affording them a proper opportunity to adduce evidence and otherwise respond to it. The prospect that that could be done between now and next week, when the case is to be resumed, is fantastic. It is accentuated by the absence from the pleadings of allegations of the requisite material facts to sustain it. It is accompanied by the further problem that the prosecution of that contention in these proceedings would necessarily place the defendants' solicitors and the defendants in a position of clear potential, if not actual, conflict of interest in respect of those allegations, and in that way further disrupt an already disrupted hearing. 12 These powerful discretionary considerations against permitting those amendments at this stage are fortified by the conclusion that the ability of Moramba or the estate to recover any sums paid or overpaid to Corrs will be preserved, in the sense that if new trustees are appointed, they can bring proceedings for that purpose; alternatively, the issue could potentially be agitated at a later stage of these proceedings, when the question of costs may fall for resolution. While I accept that multiplicity of proceedings is undesirable, there comes a stage in the conduct of the present proceedings - now, I think, approaching their 13th, 14th and 15th day in a disjointed hearing - that it is better to conclude what is before the Court, rather than add new claims and new parties which, while avoiding multiplicity of proceedings, will unduly prolong and disrupt the present proceedings. 13 I will therefore refuse leave to amend by adding claims 8 and 9. 14 I turn then to the proposed amendments to the Summons in proceeding 3365/07. The proposed addition of claim 4, which seeks an order against the partners of Corrs Chambers Westgarth, suffers from the same problems as I have just mentioned in respect of the proposed claims 8 and 9 in the other proceedings, and I will refuse leave to add claim 4 for those same reasons. Again, that question may be able to be agitated, if necessary, when it comes to consider questions of costs in the proceedings generally. 15 Although paragraph 3, as currently framed, is directed to the partners of Corrs, that is unnecessary; the order could be framed as one requiring the defendants to have their costs of the proceedings assessed. So framed, the order would not necessitate joining Corrs, and the difficulties that that would occasion. It cannot be said that an allegation that the costs so far said to have been paid in respect of the Moramba proceedings are excessive is so obviously untenable that it ought not be permitted. It seems to me that no significant prejudice would be occasioned to the defendants by permitting the plaintiffs to claim, in lieu of the proposed order 3, an order that the defendants have their costs of the Moramba proceedings assessed as between solicitor and client. 16 Accordingly, I will grant leave to the plaintiffs to amend the Summons in proceedings 3365/07, by adding a claim for relief to the following effect: "3. An order that the defendants have their solicitor client costs assessed." 17 My orders, therefore, are: (1) In proceeding 5032/06, grant leave to the plaintiffs to further amend the Statement of Claim by substituting for existing paragraph 28C proposed new paragraph 28C as contained in the document entitled Third Further Amended Statement of Claim, initialled by me, dated this day and placed with the papers; otherwise, refuse leave to further amend the Statement of Claim.

(2) In proceedings 3365/07, grant leave to the plaintiffs to amend the Summons by adding a claim for relief in the following form: "3. An order that the defendants have their costs as between solicitor and client assessed."; otherwise refuse leave to amend the Summons. **********

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