National Trustees Executors and Agency Company of Australasia Limited v Barnes

REASONS FOR JUDGMENT THE COURT: INTRODUCTION This is an appeal from a sequestration order made against the estates of the appellants by a judge of this Court on 26 November 1997. The formal order concluded with the words "... as Trustees of the Pinwernying Family Trust", a matter to which we return below. FACTUAL BACKGROUND The appellants' estates have been the subject of two earlier sequestration orders. On 6 September 1984 the appellants became bankrupt on their own petition. They were unconditionally discharged from that bankruptcy on 14 February 1986. On 6 November 1990 a sequestration order was made against the appellants' joint and several estates. We were not told whether that bankruptcy has been the subject of automatic discharge through effluxion of time, though that seems to be a reasonable inference. But first it is necessary to go back somewhat further in time. Until approximately 1983 the appellants had been involved in business as stock and feed producers, either on their own account in partnership, or as trustees of a family trust or through limited companies. The respondent, a firm of accountants, was engaged in 1983 by Australian Bank Ltd ("the Bank"), which had provided finance to that business. Initially, the respondent's task was to carry out a financial investigation in respect of the business and to furnish a report to the Bank. In August 1984 two accountants, being either partners in or employees of the respondent firm, were appointed by the Bank as receivers and managers of the business. The report and the conduct of the receivership have given rise to much litigation between the parties to the present matter. One of those cases was an action in the Supreme Court of Western Australia in which the appellants sued the respondent for damages said to have arisen out of the preparation by it of the report which we have just mentioned. On 10 June 1991, after a hearing which lasted 17 days, Murray J dismissed that action. His Honour ordered the appellants to pay the respondent's costs to be taxed. The appellants appealed to the Full Court of the Supreme Court of Western Australia against Murray J's judgment. On 14 July 1994, after a hearing which lasted four days, the Full Court dismissed that appeal. The appellants sought special leave from the High Court of Australia to appeal against the Full Court's decision. On 9 December 1994 the High Court of Australia dismissed the appellants' application for leave to appeal from that judgment. Costs of the Supreme Court action were taxed at $163,967.27. It is common ground that those costs have not been paid. On 20 June 1996 the respondent caused a bankruptcy notice, based on those costs, to be served on the appellants "as trustees of the Pinwernying Family Trust". The appellants did not apply to set aside the bankruptcy notice, nor did they comply with its terms by 11 July 1996 (being 21 days from the date of service of the bankruptcy notice and being the period fixed for compliance with it). On 18 November 1996 the respondent lodged a petition in this Court seeking the sequestration of the appellants' estates "as trustees of the Pinwernying Family Trust". The appellants filed a notice of intention to appear and oppose the petition. The male appellant, Mr Bride, swore an affidavit in opposition on 13 January 1997, which was before his Honour. Mr Bride's affidavit exhibited four volumes of documents. There were three main bases for the appellants' opposition to the petition and, in turn, for the appellants' appeal against the judgment at first instance in this matter. They were essentially as follows: 1. The petition was brought by the respondent for an improper purpose, namely, to delay, defeat and thwart two other actions in the Supreme Court of Western Australia which we shall call "the pending Supreme Court actions". In the first of those actions (No. CIV 1570 of 1989) the appellants, as trustees of their family trust, sue the Bank, Southern Rolled Oats Pty Ltd [formerly Southern Foods (1986) Pty Ltd] and Milne Feeds Pty Ltd. In the second of those actions (No. CIV 1804 of 1989) the appellants, again as trustees of their family trust, sue Messrs Peat Marwick Mitchell, a firm with which the respondent merged some years ago. The pending Supreme Court actions seek to call into question the conduct of the receivers of the businesses formerly conducted by the appellants, including the sale of certain properties owned by the appellants; 2. The Court should go behind the judgment for the abovementioned costs and enquire whether it was validly obtained; and 3. The Court should have found that the appellants have an outstanding claim against the respondent in a greater amount than the judgment debt. This was the subject matter of Action No. CIV 1804 of 1989. THE DECISION AT FIRST INSTANCE His Honour examined the history of the proceedings between the appellants and the respondent in the Supreme Court, both at first instance and on appeal in that Court. Rather than attempt to summarise that analysis, we set it out in full below. "THE JUDGMENT IN THE SUPREME COURT The nature of the action brought in the Supreme Court of Western Australia is fully described in the judgment of Murray J which is reported as Bride and Another as Trustees for the Pinwernying Family Trust v KMG Hungerfords (1991) 109 FLR 256. It is also summarised in the judgment of the Full Court. It is not necessary to repeat the detail of it here beyond a reference to its salient features. KMG Hungerfords was engaged in 1983 by the Australia Bank Ltd [sic] which had provided finance to the Brides' business of stock and feed producers. The engagement required the firm to carry out a financial investigation in respect of the business and to report back to the Bank. Bryan Guthrie Stewart ("Stewart"), under the control of Messrs de Crespigny and Norgard, partners in the firm, compiled the report. It is alleged that KMG Hungerfords became the Bank's financial controllers of the Brides' business and affairs. Subsequently, Stewart was said to have been appointed "and unlawfully assumed the role of receiver/manager for the Bank". The appointment was said to be unlawful on the ground that the Brides were not in default in respect of the loan which they obtained from the Bank and no demand had been made for repayment. Allegations of negligence were made against KMG Hungerfords. Stewart, allegedly lacking relevant competence and professional experience in the milling industry, was said to have produced a report factually incorrect and damning in its tone. The breach of duty of care on the part of KMG Hungerfords allegedly lay in its failure to have appointed to the task for which it was engaged by the Australia Bank, a person of sufficient and relevant competence and skill. It was further alleged that KMG Hungerfords had acted fraudulently between February 1983 and August 1984 in respect of the affairs of the Brides. In the April 1983 report, presented by KMG Hungerfords to the Bank, it was said to have deliberately and falsely misrepresented the assets of the Pinwernying Family Trust. Other fraudulent statements of fact or opinion were said to have been made in the April 1983 report and a further report dated 29 January 1993. Various other allegations of fraud were also made against KMG Hungerfords. The learned trial judge also identified a claim in the pleadings amounting to an allegation that the firm owed a fiduciary duty to the Brides and had breached that duty by using its position of involvement in the Brides' business "dishonestly for the benefit of another party". It was alleged that the Brides had suffered "loss of personal status due to eventual bankruptcy" and "extreme mental anguish and torment due to the eventual bankruptcy" as well as the loss of their family home and one hundred and four acres of rural land of which they were said to be the respective registered proprietors. Damages by reason of loss of income and earnings were claimed. The action was brought by the Brides in their capacities as Trustees of the Pinwernying Family Trust. In the event, the trial judge found that the business in respect of which their action was brought was owned and operated by them in partnership and not as trustees. They therefore lacked standing to bring the claim, it having vested in the trustee in bankruptcy under a sequestration order which had been made on 6 November 1990. Despite his finding adverse to their standing, Murray J went on to consider the substance of the claims made in case he was in error on the standing question. The negligence claim would have failed for want of a relationship of proximity giving rise to a duty of care. If there were a duty of care, the court was not persuaded that there was in any respect a breach of that duty by KMG Hungerfords. No evidence could be found to sustain the conclusion that KMG Hungerfords had put incompetent people into the task or that the task had been carried out other than with an appropriate and reasonable degree of care and skill in the conduct of the investigation and the compilation of the report which followed it. On the fraud claims, it was his Honour's opinion that the true cause of action pursued by the Brides was not deceit but the more limited cause of action described as "injurious falsehood". The action with respect to injurious falsehoods, having been based on fraud, the court would not find them made out except upon the clearest evidence. There was, it was held, not only no persuasive evidence but no evidence at all of deliberate falsehood or error or of an intention by any such means to deliberately injure the Brides' commercial interests. Murray J said at 281: "In my view it is abundantly clear that the evidence in this case does not meet the required standard of persuasion in respect of any of the alleged misstatements or the conduct which occurred thereafter. There is nothing I think to establish deliberate falsehood, as part of a scheme by the defendant to injure the plaintiffs' business so as to reduce its value for the purpose of enabling its acquisition upon favourable commercial terms by any person, let alone any specific person or entity. So in my view, there is not only no persuasive evidence but no evidence at all of deliberate falsehood or error or of an intention by any such means to deliberately injure the plaintiffs' commercial interests." THE APPEAL TO THE FULL COURT Issues raised before the Full Court on appeal included the following: 1. The refusal of the trial judge to allow the Brides to lead "similar fact evidence" of alleged conduct by KMG Hungerfords in unrelated matters said to have features in common with the conduct complained of in the present case. On this matter, the Full Court declined to interfere with the discretion of the trial judge. 2. The ruling of the trial judge that a subpoena served on Mr R.C. de Crespigny to testify for the Brides was not enforceable. In his reasons for judgment the trial judge had commented that: "...upon all the evidence before me, it would seem to me that Mr de Crespigny, if he was present and able to give evidence would have been unlikely to add to the picture before me in any significant way." The Full Court was of the view that nothing had been put before it on the part of the Brides to suggest that Murray J's appraisal of the matter was in any way in error. 3. The refusal of the trial judge to order that Mr J.C. Vaughan, who had acted as solicitor for KMG Hungerfords, produce certain documents which, according to Mr Bride, he had failed to produce in response to a subpoena duces tecum. The Full Court held that the production of the additional letters was not subsequently pursued by Mr Bride. The letters were included among the additional documents the subject of the Brides' application for leave to have them admitted as further evidence on the appeal. That application was dismissed at the hearing of the appeal. 4. Allegations of fraud. The findings of the trial judge and the evidence before him were comprehensively reviewed by the Full Court. The challenges to those findings were comprehensively rejected. In the judgment of the Chief Justice, with which the other two members of the Court agreed, it was said at p 106: "I would only add with regret, that in my opinion, the nature of the allegations of fraud and conspiracy in this case and the lack of evidence in support of them, make it an example of the kind of case to which Lord Pearce referred in Rondel v Worsley [1969] 1 AC 191 at 257 when he said: "The history of this case has, in its general lines, followed a pattern which is not unfamiliar. Even in your Lordships' House many hours are spent each year (and in the Court of Appeal the numbers are naturally larger) in listening to wholly unbalanced attempts to re-open, without justification, a case which a party has lost and which, by brooding over it, he can no longer see in an objective light. Disgruntled by a decision, he reflects on various side issues (often quite irrelevant or at least not matters of decisive importance) of which he now considers that the judge failed to take any account or any sufficient account."" His Honour, the Chief Justice said at 107: "The learned trial Judge described Mr Bride as an astute man, as well as being passionately convinced of the merits of his case. I accept this assessment. As difficult as it may be for him to accept it, the fact remains that as against these respondents there was no evidence to support the pleaded case in fraud or the broader allegations of conspiracy made at the trial which, unfortunately, extended to include persons who were not parties to the action." 5. Negligence. The Full Court also found that so far as KMG Hungerfords choice of Stewart was concerned, there was no evidence upon which it could be found that they owed the Brides a duty of care. It went further and agreed with the conclusions of Murray J that even if there were a duty of care it had not been breached by the appointment of Stewart to carry out the task of investigation and report undertaken by KMG Hungerfords." His Honour then turned to the challenges which the appellants raised before him to Murray J's judgment. They were as follows: . the fact that at the trial the appellants had no legal representation whereas the respondent was represented by "a team of lawyers"; . a claim that Murray J was "misled as to the ownership and conduct of the business". This complaint related to an amendment to the defence which raised the question of the appellants' standing. The appellants said that this was an amendment which had re-opened an issue previously concluded in their favour before Master Ng in the Supreme Court of Western Australia; . the non-production of documents pursuant to a subpoena served on a solicitor acting for the respondent, Mr J C Vaughan;