MAIDMENT v DAVIS No. SCGRG-99-1672 [2000] SASC 191

Supreme Court of SA|2000-06-29|Before: Doyle CJ, Lander JJ, Duggan J

Judgment No. [2000] SASC 191

(Full Court: Doyle CJ, Duggan and Lander JJ: Civil)

DUGGAN J. In my view this appeal should be allowed for the reasons given by Lander J.

LANDER J. The appellant was the defendant in proceedings brought by the respondent in the Magistrates Court. I shall refer to the parties as plaintiff and defendant.

On15 March 1999 the plaintiff, Ms Roma Davis, commenced proceedings against the defendant claiming that the defendant was liable to her for the sum of $10,000 and interest for breach of statutory duty, breach of trust and in the further alternative negligence. The Magistrate found the defendant was in breach of a statutory duty owed by the defendant to the plaintiff and further was negligent and therefore liable to the plaintiff in the amount claimed. He assessed interest at $2,500. Judgment was entered for the plaintiff for $12,500 together with the plaintiff's costs.

The defendant appeals against both the judgment and the award of interest.

The defendant is a solicitor who in 1993 practised in premises adjacent to another legal practitioner, Mr Gannon.

The plaintiff was a director of Fairline Pty Ltd which was a special purpose company incorporated for entering into transactions for the purchase of land.

Quinbeau Pty Ltd (Quinbeau) was a company under the control of Mr Gannon's family companies. On 5 November 1992 Quinbeau entered into a contract to purchase land at O'Halloran Hill (the O'Halloran Hill land) from Investment Properties Pty Ltd and Rudolf Bodonyi. The purchase price was $245,000. Settlement was to be on 15 December 1992.

On 12 November 1992 Quinbeau entered into a contract to sell the O'Halloran Hill land to Berrimall Pty Ltd (Berrimall). The sale price was $1,884,000. A deposit of $10,000 was payable on or before execution of the contract. The contract provided that the sum of $10,000 was to be paid and held by a stakeholder. The contract did not nominate the stakeholder.

The contract was subject to a further special condition relating to the development of the property and subject to the vendor obtaining a loan of not less than $1,000,000 for the purpose of that development.

The contract provided in Annexures A and B for the purchaser delivering to the vendor a deed of guarantee and indemnity in a form approved by the vendor whereby the guarantor would guarantee to the vendor the punctual payment to the purchaser of all monies due by the purchaser to the vendor. Specifically the guarantor was to be a related corporation approved by the vendor.

The contract contemplated the carrying out of building work over a period of up to and including 1 March 1994.

On 12 November 1992 Berrimall entered into a contract for the sale of the O'Halloran Hill land to Fairline Pty Ltd (Fairline) for the same sum of money which it had paid for the purchase of the land, namely $1,884,000. The Berrimall/Fairline contract provided for a deposit of $10,000 and that the deposit be paid to Sydney G Maidment Trust Account, who was to hold the deposit as a stakeholder.

That contract apparently included annexures A and B in the same form as annexures A and B to the Quinbeau/Berrimall contract and therefore the purchaser was under an obligation to provide a guarantee in the same terms as the guarantee required in the Quinbeau/Berrimall contract.

On 12 November 1992 Ms Davis drew a cheque on her account with the ANZ Bank in the sum of $10,000, made payable to Sydney G Maidment Trust Account for the purpose of paying the deposit due under the Berrimall/Fairline contract. She handed the cheque to Peter Thomas, who was a representative of Berrimall. It was given to him as Fairline's deposit pursuant to the Berrimall/Fairline contract. It was Ms Davies understanding and also the understanding of her brother, Dean Sellars, who was also a director of Fairline, that Mr Thomas would deliver the cheque to Mr Maidment for deposit into Mr Maidment's trust account to be held by him as stakeholder in relation to the Berrimall/Fairline contract.

On 19 November 1992 Mr Gannon sent to Mr Maidment a document termed "Inter Office Memorandum" in respect of the purchase of the property at O'Halloran Hill.

In that document he referred to previous discussions in relation "to this matter" and wrote:

"The purchaser Berrimall Pty Ltd was reluctant to pay the deposit (understandably so) to my trust account and accordingly has made the deposit to your trust account. I would be obliged if you would accept my instructions in relation to this matter to act on behalf of Quinbeau Pty Ltd. Further I enclose for your information a contract note from Quinbeau Pty Ltd as Purchaser and Investment Properties and Bodony (sic) as Vendors."

The defendant therefore was instructed to act on behalf of Quinbeau. He was, by that memorandum and the documents that accompanied it, advised that Quinbeau had entered into a contract for the purchase of the land from Investment Properties Pty Ltd and Bodonyi on 5 November 1992 and that Quinbeau had entered into a further contract on 12 November 1992 for the sale by Quinbeau to Berrimall of the same land.

He was also advised that Berrimall was reluctant to pay the deposit to Mr Gannon and accordingly had made the deposit payable to Mr Maidment's trust account.

Mr Maidment would have noticed that the contract did not provide for the payment of that deposit to his trust account.

Specifically Mr Maidment was not made aware of any contract between Berrimall and Fairline.

Sometime shortly before the creation of the memorandum of 19 November 1992 Mr Thomas had handed to Mr Gannon Ms Davis' cheque in the sum of $10,000. Mr Gannon believed that it was being delivered to him to satisfy payment of the deposit by Berrimall in relation to the Berrimall/Quinbeau contract.

He attached that cheque to the memorandum to Mr Maidment.

It was Mr Gannon's evidence that he had no knowledge of Ms Davis when he received that cheque.

Mr Maidment said in evidence that he received the memorandum from Mr Gannon on or about 19 November and received instructions at the same time to give consideration to the guarantee clause referred to in the Quinbeau/Berrimall contract.

Specifically Mr Gannon asked him to check out the guarantor to make sure the guarantor had the ability to perform Berrimall's obligations should Berrimall fail to do so.

Mr Maidment's evidence was that he received the cheque drawn by Ms Davis from Mr Gannon in the passageway between his office and Mr Gannon's office.

He said that Mr Gannon said to him words to the effect "this is the Berrimall deposit cheque".

Mr Maidment said that he immediately took the cheque into his wife's office and asked her to issue a receipt for the cheque. His wife manages his trust account and his office account.

He said that he gave specific instructions to his wife as to how the deposit should be entered into the ledgers in his trust account.

The receipt issued on 23 November 1992 was in the following form:

"Received from Roma R Davis re: Quinbeau re sale of land to Berrimall."

A ledger card was opened which was entitled "Mr Thomas J Gannon". The first entry for 23 November 1992 gave these particulars:

"Received from Roma R Davis cheq. re deposit paid on behalf of Berrimall P/L."

Mr Maidment wrote to the directors of Berrimall on 26 November 1992 in the following terms:

"Would you please note that the deposit cheque for the sum of $10,000.00 paid pursuant to the terms and conditions set out in the certain Contract for Sale and Purchase of Land dated 12 November 1992 made between Quinbeau Pty Ltd, as vendor, and your company as purchaser, has been delivered to me by Thomas J. Gannon solicitor for the purpose of the monies being deposited in my trust account and held as "stakeholder"."

He then raised questions relating to the guarantee. He sent a follow up letter to Berrimall on 7 December 1992. On 16 December 1992 Berrimall's solicitors, Low & Partners sent, a proposed guarantee to Mr Maidment.

The proposed guarantor was Fairline. The recital in the draft guarantee recorded that Fairline had requested Quinbeau to enter into the contract with Berrimall and that Fairline had agreed to guarantee the obligations of Berrimall.

When he received the guarantee Mr Maidment was told that no financial statements were available from Fairline. On 23 December 1992, Mr Maidment wrote to Low & Partners seeking further details of the identity of the proposed guarantor and details of its financial circumstances.

On 21 February 1992, Mr Gannon, in a memorandum to Mr Maidment, requested Mr Maidment to write to Berrimall pointing out that there had not been an approval of the guarantor under the contract and that no approval could be given on the information available at that time.

On 4 March 1993, Mr Gannon wrote to Mr Maidment including a copy of the ASC search of Fairline. Mr Gannon pointed out:

"There is nothing in the guarantee, or any information provided on the company search that indicates:-

1. Any relationship between Berrimall Pty Ltd and Fairline Pty Ltd and

2. Any ability on the part of Fairline Pty Ltd to perform its obligations under that contract."

On 28 February 1993, Mr Rice, a director of Berrimall wrote to Mr Maidment seeking the "status of planning and building approvals and the intended commencement date for construction works at O'Halloran Hill".

On 5 March 1993 Mr Maidment responded to Berrimall's letter of 28 February 1993 pointing out that he had not yet received a guarantee or any financial information relating to the "propsoed (sic) Guarantor" (Fairline Pty Ltd) to support its ability to "perform" if so required."

On 15 March 1993 Berrimall wrote to Quinbeau in the following terms:

"The above company acknowledges receipt of the notice of termination dated 2/3/93 pursuant to Quinbeau's purchase contract from Investment Properties Pty Limited of the development site located Mellors Road, O'Halloran Hill. In view of recent verbal advice from your solicitor having indicated that the notice of termination was possibly at this date not absolute, please advise without delay the status of your contract with Investment Properties Pty Ltd. In the event that the contract referred to above is now considered legally rescinded the above company requests that the deposit paid totalling $10,000 be refunded forthwith. We will be pleased to receive a prompt response to our queries and request."

On the next day Mr Gannon wrote to the directors of Berrimall in the following terms:

Firstly Mr Maidment has been instructed as solicitor in relation to this matter which was explained to Mr Ryan of Floreani Coates & Co when I spoke to him on Friday 12/3/93.

1. The contract for purchase of the land at O'Halloran Hill with Bodonyi & Investment Properties Pty Ltd has not at this stage been terminated notwithstanding the Notice of Termination.

2. If the contract is terminated you will be advised forthwith and the deposit returned (which continues to be held in Mr Maidment's trust account).

One matter which remains outstanding is the approval of the guarantor under the contract of the 12/11/92 (Clause 3.2 of Annexure A). I wrote to your company on the 25/11/92 (to the registered office) and follow up letters from Mr Maidment on the 26/11/92, 23/12/92 and 5/3/93 in relation to information required for approval of the guarantor.

A recent company search of Fairline Pty Ltd provides no information on which Quinbeau Pty Ltd could properly consider approving the guarantor.

The outstanding matter of the guarantor has not assisted with the financing of the project. This matter is now of some urgency and I shall be obliged if you would give it your earliest attention."

Again on the same date he sent a memorandum to Mr Maidment in these terms:

"1. On Friday 12/3/93 I received a phone call from Sean Ryan of Florianai Coates & Co on behalf, I believe, of Berrimall Pty Ltd, asking what the current situation was. I explained that you were solicitor acting as I was a Director. Ryan asked if the contract for purchase, Quinbeau Pty Ltd from Bodonyi & Investment Properties Pty Ltd, had been terminated as per the Notice of Termination. I said that although the NOTE had been received that we had been in contact with the Vendors and that they were not terminating at this stage (our contract for purchase with Bodonyi etc is subject to Finance) and that if the contract was terminated we would immediately advise and return the deposit held in your trust account. 2. Enclosed is a copy of a letter of 15th March received from Berrimall Pty Ltd and my reply fax which are self explanatory."

On 17 March 1993, Mr Maidment rendered an account for work relating to "Quinbeau Pty Ltd for sale of land to Berrimall Pty Ltd". At the same time he sought further instructions, because he had been advised by Mr Thomas of Berrimall that the contract for Quinbeau to purchase the O'Halloran Hill land had been rescinded.

On 19 March 1993, Mr Gannon wrote to Mr Maidment in the following terms:

"I would be obliged if you would forward written notice of termination to Berrimall Pty Ltd of this contract and forward the $10,000.00 deposit sum. I suggest the contract be terminated because of our inability to obtain finance pursuant to clause 2 of Annexure A of the contract (although I would like to discuss this with you). I have spoken to Peter Thomas and informed him of this action. He does not seem to have a problem."

On 19 March 1993 Mr Maidment had a telephone conversation with Mr Thomas of Berrimall.

There was some discussion about the parties mutually rescinding the contract between Quinbeau and Berrimall.

"I said well that all my concern is that the parties just mutually rescind the contract they get back to square one and they can continue to negotiate or deal with this particular matter as they may seem (sic) fit. He said yes I do not have a problem with that I cannot speak for Fairline and what they are doing he said but as far as Berrimall is concerned that will be the end of the matter with Gannons and I will or someone will be around at your office at 2.00pm today to pick up the cheque."

On 19 March in accordance with his instructions Mr Maidment wrote to Berrimall Pty Ltd "Attention: Mr Peter Thomas" in the following terms:

"I refer to my telephone conversation with you on even date. I confirm that whilst the Gannon Group (Quinbeau Pty Ltd) has not at this time been refused finance (in relation to the most recent finance application) on the other hand it has not been successful in obtaining the finance or getting a clear indication that such finance is available. Given that the time has elapsed under the contract for obtaining the finance I am returning herewith the deposit of $10,000.00 as agreed by you and instructed by my clients. The deposit is returned strictly on the basis that the parties mutually agree to accept it and to treat the return of the deposit and the acceptance of such as a mutual recission of the contract. Thank you for your help and assistance in this matter and to agreeing to the matter being terminated on an informal basis. Enclosed please find my trust cheque for $10,000.00."

On the same day, Mr Rice, as managing director of Berrimall, replied to Mr Maidment's letter in the following terms:

"The above company acknowledges receipt of your letter dated 19/3/93 and has noted the contents accordingly. The directors have been advised of the telephone conversation conducted earlier today by you with our representative Mr P Thomas in relation to this matter. In relation to the contents of your subsequent letter, part only is correct, and I refer you to an attached copy of correspondence of todays date directed to Tom Gannon Jnr representing Quinbeau Pty Ltd in answer to your letter. Further, Quinbeau Pty Ltd by their own decision, and at their hand, recinded the contract to Berrimall Pty Ltd forthwith, the above company acknowledges the receipt of the $10,000 initial deposit."

Subsequent to that date Fairline became aware, from Mr Weir, that the contract between Berrimall and Fairline was not to proceed. On 25 March 1993 Mr Weir, of Low & Partners, wrote to Berrimall in the following terms:

"We refer to the above matter and to the deposit of $10,000.00 paid by Fairline Pty Ltd in relation to such. We have now received information that the contract between Investments Properties Pty Ltd as the owner of the land and Quinbeau Pty Ltd has lapsed. Furthermore we are advised that the contract between Quinbeau Pty Ltd and Berrimall Pty Ltd has lapsed and that Quinbeau Pty Ltd has returned to your company the $10,000.00 deposit. It follows of course that the contract between Berrimall Pty Ltd and Fairline Pty Ltd has now also lapsed. Would you please arrange for the deposit of $10,000.00 paid by Fairline Pty Ltd in relation to its contract with Berrimall Pty Ltd to be forwarded to this office made payable to "Low & Partners Trust Account" within four (4) days of the date of this letter."

Apparently no reply was received, because on 23 April 1993 Mr Weir wrote a further letter to Berrimall seeking the recovery of $10,000 deposit paid. The letter also sought repayment of other monies, which are unimportant in a consideration of this matter.

On 11 June 1993 Low & Partners reported to Mr Sellars that they had been unable to recover the sum of $10,000 from Berrimall.

On 26 July 1993 Mr Sellars obtained from Mr Maidment a copy of the receipt and the trust ledger relating to the receipt and deposit of $10,000.

On 5 August 1993 Mr Maidment received a letter from Fairline claiming that Fairline had deposited to his trust account the sum of $10,000 in a cheque signed by Roma Davis. It sought payment of those funds within 10 days of the date of that letter.

Mr Maidment responded to that letter on 9 August 1993 saying that he had never acted for Fairline and never held money on trust for Fairline. He said:

"The cheque which you refer to for the sum of $10,000.00 was deposited into my trust account in the name of Thomas John Gannon under instructions that it was a deposit paid on behalf of Berrimall Pty Ltd pursuant to the terms of a contract between Berrimall Pty Ltd as purchaser and Quinbeau Pty Ltd as vendor (a copy of which was supplied to me by Mr Gannon). On Mr Gannon's instructions that contract was terminated and the deposit returned to the purchaser of Berrimall Pty Ltd on the 19th March 1993."

The plaintiff, Roma Davis, did not bring these proceedings until 15 March 1999, nearly 6 years to the day after the defendant had paid the sum of $10,000 to Berrimall.

It was Mr Sellars' evidence and also that of the plaintiff, Ms Davis, that the $10,000 advanced by Ms Davis was a loan to Fairline.

The learned Magistrate found that the plaintiff had loaned to Fairline the sum of $10,000 for the purpose of Fairline paying the deposit on the Berrimall/Fairline contract. He found that the cheque was specifically paid over to Mr Thomas as the deposit for the purchase by Fairline from Berrimall of the O'Halloran land. Next he found that Fairline and its directors, Ms Davis and Mr Sellars, did not agree for that deposit to be used as the deposit on the Quinbeau/Berrimall contract.

He found that Mr Maidment had received the money without notice of any fraud on the part of Mr Thomas, but that when he received the monies he was placed on notice that the drawer of the cheque (Ms Davis) might be a separate entity to either of the parties of the contract.

He found that Mr Maidment had substantially contributed to his predicament "by failing to obey his full lawful obligations pursuant to s 31(4) of the Legal Practitioners Act 1981.

Next he found that Mr Maidment owed a duty of care to Ms Davis. He said:

"Accordingly I find that Mr Maidment, the defendant, was both negligent in the keeping of his records and reckless and in breach of his statutory obligations in paying out the trust monies to the person or body not entitled to the money."

It is not entirely clear, from his Honour's reasons, why it was that his Honour found that the defendant owed a duty of care to this plaintiff. Nor is it clear, with respect, from his Honour's reasons why it was that his Honour found that a statutory cause of action arose out of the provisions of s 31 of the Legal Practitioners Act.

The first point advanced by the defendant on this appeal is that the plaintiff could not in any circumstances have any claim against the defendant because on the plaintiff's own evidence the plaintiff lent these monies to Fairline and it was Fairline that advanced the deposit in relation to the Berrimall/Fairline contract.

In my opinion that contention must be upheld because on any understanding of the facts the plaintiff did not pay the deposit to Berrimall. The plaintiff lent the money to Fairline who, on the plaintiff's own case, paid the money to Berrimall.

The plaintiff has no claim against the defendant. The only party that could possibly have a claim is Fairline. The appeal must be allowed on that ground alone.

In case I am wrong about that I will address the matter as though the plaintiff had advanced these monies to Berrimall in payment of the Berrimall/Fairline deposit.

As I have already said the plaintiff raised two causes of action. First she said that Mr Maidment owed her a statutory duty which he breached and for which he was liable in damages. In the alternative she said that Mr Maidment owed her a duty of care which he breached and for which he was also liable in damages.

The statutory duty relied upon was said to arise out of s 31 of the Legal Practitioners Act. That section relevantly provides:

"(1) Subject to subsection (2), a legal practitioner must, as soon as practicable after receipt of any trust money in the course of practice, deposit the money in a trust account and must not withdraw or permit it to be withdrawn except as authorised by this Part. (2) Where at or before the time that a legal practitioner receives trust money the practitioner is given a written direction by the person entitled to the money to dispose of it in a manner specified in the direction, it is lawful for the legal practitioner to act in accordance with that direction. (3) A legal practitioner may withdraw trust money from a trust account - (a) for payment to the person entitled to the money or in accordance with the direction of that person; and (b) ... (c) ... (d) ... (e) ... (f) ... (g) ... (4) The legal practitioner must keep detailed accounts of all trust money received, and of any disbursement or other dealings with the money in a manner - (a) that accurately discloses the state of any trust accounts maintained by the legal practitioner; and (b) that enables the receipt and disposition of trust money to be conveniently and properly audited."

Section 31(8) makes a contravention of the section an offence and imposes a maximum penalty of $10,000.

There is no doubt that a legal practitioner must deal with trust monies in accordance with his or her obligations as a trustee and strictly in accordance with s 31.

The legal practitioner is not entitled to withdraw trust monies from his or her trust account except for any of the reasons mentioned in s 31(3)(b)-(g) (which I have not reproduced because they are not relevant) or in accordance with s 31(3)(a).

In this case there can be no doubt that Mr Maidment was under an obligation to pay the monies, which were standing in his trust account to the person entitled to the monies and if he failed to do so he would, if the other elements of the offence were made out, have committed an offence.

Moreover he would, in a civil action, be obliged to account to the person entitled for that person's money.

Whilst there can be no doubt that the solicitor would be liable to a person entitled if the solicitor failed to pay money to that person in breach of his or her obligations under s 31, I am not satisfied that s 31 erects a statutory duty for which the common law gives a civil remedy. Whether a statutory duty is erected in any legislation depends upon a construction of the legislation itself. I am not satisfied that, simply because this legislation imposes obligations upon a solicitor, the legislation also creates a statutory duty, the breach of which would make the solicitor liable in damages.

A solicitor has an obligation to account for monies in his or her trust account to the person entitled to those monies. A solicitor is not entitled to deal with those monies except as instructed by the person entitled.

This section does not impose any higher or different duty than is already imposed by the general law. The section makes a departure from that duty an offence.

There is no need for the creation of any such statutory duty and, in my opinion, the section is not intended to provide a civil liability which, if breached, would give rise to an action in damages: Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 424.

I do not believe that the plaintiff was entitled to rely upon s 31 and claim damages against Mr Maidment for his failure to pay to her the amount which was deposited in his trust account.

In any event, in my opinion, the plaintiff was not the person entitled to the money within the meaning of s 31 of the Legal Practitioners Act. Section 31 requires a solicitor to pay monies in the solicitors trust account to the person entitled to these monies.

In some cases a solicitor may not be aware of the true person entitled. For example, if a trustee was to pay monies to a solicitor, without informing the solicitor that they were trust monies, and in circumstances where the solicitor could not be aware they were trust monies, the solicitor commits no breach of the section by repaying the monies to the trustee even if the beneficiary is the person entitled. The person entitled means the person who the solicitor is aware or should be aware is entitled. It would be appropriate to read into s 31(3)(a) the word 'apparently' so that the obligation of the solicitor is to pay to the person apparently entitled.

The cheque was drawn by Ms Davis but she could easily have been an officer of Berrimall. The cheque does not disclose whose account it was drawn on. It could have been drawn on Berrimall's account. The deposit was paid to Mr Maidment upon the basis that he would hold the monies in relation to the Quinbeau/Berrimall contract. The monies were paid to him by Mr Gannon, who asked him to hold the monies in respect of that contract. He was instructed by Mr Gannon to make the payment which he did.

In the circumstances of this case Mr Maidment paid the monies to Berrimall, the person apparently entitled.

In my opinion notwithstanding that Ms Davis provided the cheque, which was misappropriated by Mr Thomas, she was not the person entitled under s 31 of the Legal Practitioners Act.

Clearly enough if Fairline claimed its position would be even weaker. There was nothing to suggest to Mr Maidment that Fairline was the person entitled to the money. Its only involvement, so far as he was concerned, was as a potential guarantor of Berrimall's obligations.

The alternative cause of action was in negligence.

The plaintiff did not articulate in her pleadings how it was that the duty of care arose, nor did she give any particulars of the duty of care itself.

She confined her claim to a plea that the failure to pay the $10,000 to the plaintiff, or the payment of the monies to Berrimall without the authority of the plaintiff, in circumstances where Mr Maidment had not made any sufficient enquiry as to whether Berrimall or the plaintiff was entitled to the monies, evidenced a breach of the duty of care.

It may be assumed from the allegations of breach that it was the plaintiff's case the duty of care included all those positive obligations. If it is to be assumed that the breach of duty which has been pleaded indicates the extent of the duty of care then in fact the relevant aspect of the duty of care owed by Mr Maidment to Ms Davis was a duty of care to make inquiry as to whether Berrimall or the plaintiff was entitled to the money.

That duty of care could only ever arise if the facts and circumstances were such that it ought to have been reasonably foreseeable that if Mr Maidment failed to carry out that obligation Ms Davis may suffer damage.

In my opinion the plaintiff's case on this cause of action fails at the threshold test.

It is right, of course, that Ms Davis drew the cheque and signed it. Mr Maidment was aware of that and the receipt which was issued shows that to be clearly the case.

However the defendant took his instructions from Quinbeau. He was not aware at any time of a contract between Quinbeau and Fairline. He was not aware at any time that the cheque drawn by Ms Davis was not drawn for and on behalf of Berrimall.

In my opinion there was nothing about the instructions he received or the cheque itself which ought to have put him on notice that the monies were not paid on behalf of Berrimall in satisfaction of its obligation under its contract.

There was nothing in the original instructions or anything that transpired thereafter that ought to have put Mr Maidment on notice that these monies should not be paid to Berrimall.

The defendants' instructions were to pay the money into his trust account and to deposit this particular cheque to the credit of Berrimall.

Again there was nothing about his instructions which put him on notice that these monies were in fact Fairline's monies or that the cheque had been made payable in relation to the Berrimall/Fairline contract.

In due course he received clear and express instructions from the person who provided him with Ms Davis' cheque to make payment to the party who was apparently entitled to a return of the deposit when the parties agreed not to be bound by the contract.

There was nothing in the original instructions or anything that transpired thereafter that ought to have put Mr Maidment on notice that these monies should not be paid to Berrimall.

In all those circumstances I am not satisfied that Mr Maidment owed Ms Davis a duty of care, because I am not satisfied that it was reasonably foreseeable in the circumstances of this case that Ms Davis would suffer damage, but even if it was, I do not believe that he breached that duty.

Plainly, on the facts, Mr Maidment could not have owed the plaintiff a duty of care or breached it. She was not entitled to the money. She advanced the money to Fairline. It was Fairline which paid the deposit albeit with the cheque provided by Ms Davis.

There is also no reason to suggest that he owed or breached a duty of care to Fairline. His only knowledge of Fairline's involvement was as a potential guarantor of Berrimall. In those circumstances it could not be suggested that it was reasonably foreseeable that Fairline would suffer damage.

In my opinion the plaintiff's action should have been dismissed because the plaintiff failed to establish a statutory duty and failed to establish a duty of care or any breach of any duty of care.

The defendant also complained about the award of interest made by the Magistrate.

Strictly I suppose this point need not be addressed because for the reasons already given the plaintiff's action had to fail and therefore the plaintiff was not entitled to damages or interest.

However, in case the matter goes further and because of the importance of the point made, I will address the question of interest.

The Magistrate awarded the plaintiff pre-judgment interest of $2,500. He calculated interest over a period of two and a half years and applied an interest rate of 10 per cent. No complaint is made of the period over which interest was calculated, but the defendant complains of the rate of interest applied.

Section 34 of the Magistrates Court Act 1991 empowers the Magistrates Court, on the application of a party in whose favour a monetary judgment has been given, to include in the judgment an award of interest in accordance with the section. In other words the Court is empowered to award pre-judgment interest. Of course, in this context, s 34 is not speaking to the Magistrates Court as an institution but is addressing the Magistrate who is exercising the powers of the Court.

"(2) The interest - (a) will be calculated at a rate fixed by the Court; and (b) will be calculated in respect of a period fixed by the Court (which must, however, in the case of a judgment given on a liquidated claim, be the period running from when the liability to pay the amount of the claim fell due to the date of judgment unless the court otherwise determines); and (c) is, in accordance with the Court's determination, payable in respect of the whole or part of the amount for which judgment is given."

The section is in the same or similar terms to s 30C of the Supreme Court Act. The section gives the Court an unfettered discretion as to the rate of interest to be fixed by the Court. It also gives the Court a discretion over the amount upon which interest will be calculated. The period over which the interest is to run in unliquidated claims is largely left to the Court.

Section 35 of the Magistrates Court Act provides for interest on judgment debts, or post-judgment interest.

Section 35(1) provides that a judgment debt bears interest at a rate prescribed by the Rules. Clearly enough s 35 authorises, and implicitly requires the court, by Rules of Court, to fix a prescribed rate of interest, which is to apply on interest on judgment debts.

That section may be compared to s 34, which requires the court to exercise its discretion in applying a rate of interest to pre-judgment interest and, which does not empower the court to fix, by rules of court or otherwise, a prescribed rate of interest in respect of pre-judgment interest.

Rule 124 of the Magistrates Court (Civil) Rules provides:

"(1) Pursuant to sections 34 and 35 of the Act, subject to any order of the court to the contrary, interest will be calculated at the rate of 10% per annum. (2) A payment made by a judgment debtor will be credited first against the judgment debt and, after the judgment debt has been discharged, to any sum that has accrued on account of interest."

It can be seen that r 124 purports to prescribe a rate of interest to both pre-judgment and post-judgment interest. Indeed the rule claims to be consequent upon both s 34 and s 35.

It was argued that in so far as the rule purported to prescribe a rate of interest for pre-judgment interest the rule was ultra vires the rule making power.

There are good reasons for leaving the rate to be fixed by the court in respect of pre-judgment interest unfettered. First, because s 34 addresses pre-judgment interest it applies to historical interest rates. Interest rates go up and down. However the court will be aware of the interest rates which are historically applicable to the period over which the interest is to be calculated. Secondly, in actions for unliquidated damages, the pre-judgment interest rate will vary depending upon the date upon which the assessment of damages is calculated. If the assessment of damages is made at the date of the tort, for example, it would be appropriate to have regard to an interest rate which includes a component for fear and expectation of inflation. If, on the other hand, the damages are assessed at the date of the trial, to use an interest rate which includes a component for inflation would be to over compensate the plaintiff; Wheeler v Page & Harris (1982) 31 SASR 1; Calvaresi & Rota Forma Pty Ltd v Lawson & Lawson (1995) 184 LSJS 147 at 169. If the assessment of damages includes an award for future losses it would be inappropriate to allow any pre-judgment interest on those components of the award: Thompson v Faraonio [1917] ArgusLawRp 74; (1979) 24 ALR 1. There are other circumstances where it would not be appropriate to award pre-judgment interest; Batchelor v Burke [1981] HCA 30; (1981) 35 ALR 15. In those circumstances it would be inappropriate to fetter the discretion to award pre-judgment interest. Thirdly, the award of pre-judgment interest is compensatory, that is to compensate a party for being kept out of his or her money and not to punish defendants from delaying settlement of claims: Wheeler v Page & Harris (supra) at 4. Post-judgment interest is payable to induce the losing party to pay the award. In that respect the award of post-judgment interest will usually be at least the prevailing rate in the market, so as to encourage payment of the judgment sum. A successful party who obtains a judgment sum will be entitled to interest on the whole of that sum. That is because the award has turned that party into an investor. That party would, if the judgment was paid, be entitled to invest the sum and obtain interest at the prevailing interest rate.

There are a number of reasons why the rate of pre-judgment interest might be different to the rate of post-judgment interest.

Whilst they are reasons, and in my opinion good reasons, for having an unfettered discretion for pre-judgment interest as opposed to a prescribed rate for post-judgment interest, that does not necessarily mean that r 124 is ultra vires the rule making power.

However, in my opinion, the defendant's contention is correct. Section 34 gives to a magistrate an unfettered discretion in respect of the interest rate to be fixed in the award of pre-judgment interest. Rule 124 in my opinion, fetters the discretion to the point of negating the discretion in s 34 and is thereby repugnant to the Magistrates Court Act and beyond the rule making power: Taylor v Gutilla (1992) 59 SASR 361. There is nothing in s 49 of the Magistrates Court Act which empowers the making of Rules of Court, which would allow the court to make a rule of this kind. In any event, in my opinion, in so far as it applies to pre-judgment interest, the Rule is implicitly contrary to the terms of the statute itself.

In so far as the Magistrate relied on r 124 for fixing the rate of interest, in my opinion, he was wrong. He did not thereby exercise the discretion given him by s 34 of the Magistrates Court Act.

The rate of interest was at large during the period over which the interest was to apply. A proper interest rate, for pre-judgment interest, in my opinion, would be 8 per cent. That is because the plaintiff, if she had succeeded, would have been kept out of her money over the relevant period.

If, contrary to my opinion, the plaintiff should succeed against the defendant then the award of interest ought to be reduced from $2,500 to $2,000.

However I would allow the appeal. I would set aside the judgment entered in favour of the plaintiff. I would substitute an order dismissing the plaintiff's claim against the defendant.

Legal Practitioners Act 1981

Magistrates Court Act 1991s 34, s

Legal Practitioners Act 1981

Magistrates Court Act 1991s 34, s

At a glance

Court

Decision date

Before

Source

Judgment (150 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (5)