THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD -v- FIELDHOUSE [No 5] [2013] WASC 121 (12 April 2013)

THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD -v- FIELDHOUSE [No 5] [2013] WASC 121 (12 April 2013) - WASC 2016 case summary — Zoe

[90]

56 The contract between Mr Fieldhouse and the Underwriters was to provide professional indemnity insurance. Mr Fieldhouse was a legal practitioner in New South Wales. Legal practitioners were required to obtain and maintain a minimum level of professional indemnity insurance the compulsory layer. The purpose of the contract between Mr Fieldhouse and the Underwriters was to provide additional professional indemnity insurance ('topup' cover) over and above the compulsory layer. The compulsory layer professional indemnity insurance was linked to the issue of a practising certificate. Section 41(1) of the LPA provided that the Law Society Council must not issue a practising certificate to an insurable solicitor unless it is satisfied, amongst other things, that the solicitor has in force an approved insurance policy. At the time, the scheme for providing professional indemnity insurance to solicitors was that which I have outlined earlier in these reasons. Claims of up to $1.1 million in respect of liability of solicitors for their practices were met by the insurers under the Master Policy when the aggregate amount of claims for the year exceeds $58 million. Until that aggregate amount has been reached the Master Policy does not cover the solicitors' liability. The solicitor must look to the Fund to indemnify him in respect of the first $1.1 million of a claim against him. In those circumstances the parties to the contract between Mr Fieldhouse and the Lloyd's syndicates could not have intended that the Underlying Insurers only means the insurers under the Master Policy and not the Fund because whether or not the insurers under the Master Policy give any indemnity depends on whether or not the aggregate of claims in any year exceeds $58 million. If the Underlying Insurers refers only to the insurers under the Master Policy, then condition C could only be satisfied in years when the aggregate of claims exceeds $58 million. In other years the Underwriters would be under no liability to indemnify Mr Fieldhouse. Mr Fieldhouse would have no topup cover unless and until the aggregate claims in a year exceeded $58 million. Furthermore, it may not be known for some time after the year in which the claim was made whether or not the aggregate claims for that year would exceed $58 million. Commercial common sense dictates that the Underlying Insurers must refer to the insurers providing the compulsory layer of insurance.

[145]

90 Mr Fieldhouse proceeded to brief Mr Bloom QC to give advice in relation to the possible sale of the Life Governor's Share. Mr Fieldhouse met in conference with Mr Bloom on 21 and 22 March 1991. Mr Fieldhouse delivered a written brief on 7 May 1991 and again met in conference with Mr Bloom on 13 May 1991. He delivered a supplemental written brief on 5 July 1991 and met in conference again on 18 June and 9 and 10 July 1991. There is no evidence from which it can be inferred that in doing so Mr Fieldhouse ceased to be acting for Mr Hancock alone and started to act for Mr Hancock and the Hancock Foundation. Mr Hancock gave no such instructions. Neither Mr Hancock nor anyone else on behalf of the Hancock Foundation gave any such instructions. In his written brief to Mr Bloom, Mr Fieldhouse stated that he acted for Mr Hancock. Mr Fieldhouse stated that 'in order to raise sufficient funds to meet his needs for the rest of his life, my client proposes to sell or otherwise dispose of his rights under his Life Governor's Share in HPPL for a substantial sum of money'. Mr Fieldhouse's brief to Mr Bloom was not a brief to advise only in relation to a proposal for Mr Hancock to sell the Life Governor's Share to the Foundation. The brief asked counsel to advise generally on the effectiveness of four proposals and, in particular, to advise upon the income tax ramifications of them. The proposals Mr Bloom was asked to advise about involved the Foundation, the Trust and Mrs Rinehart. Only one of the four proposals was for Mr Hancock to sell the Life Governor's Share to the Foundation. The second proposal was for Mr Hancock to sell the Life Governor's Share to the Foundation and the Hope Margaret Hancock Trust jointly. The third proposal was for Mr Hancock to sell the Life Governor's Share to a company the shares in which would be owned by the Foundation and the Trust jointly. The fourth proposal was for the payment by one or more of the Foundation, the Trust and Mrs Rinehart to Mr Hancock in consideration of Mr Hancock arranging by way of a Special Resolution to relinquish all rights, privileges and qualities pertaining to the Life Governor's Share.

[161]

101 In Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd [2001] NSWSC 448 Girvan Australia Ltd (Girvan Australia) was a member of the Girvan group of companies that included Girvan Corp (NZ) Ltd (Girvan NZ). Through a chain of subsidiaries Girvan NZ indirectly controlled one of its subsidiaries, Maronis Holdings Ltd. Maronis' principal asset was the Liverpool Truck Stop site in New South Wales. Duncan and Ambler, directors of Girvan Australia and Girvan NZ, caused Maronis to mortgage the site to Nippon Credit Australia Ltd to secure a loan of $15 million to Girvan Australia. Clayton Utz, solicitors for Girvan Australia, acted for Girvan Australia in handling various related matters including the loan transaction. Clayton Utz did not have instructions from Maronis, but corresponded with the Land Titles Office as if it acted for Maronis. Maronis issued proceedings against the directors, Clayton Utz and Nippon Credit. Bryson J, having held that there was no contractual retainer between Clayton Utz and Maronis and that no retainer could be implied, held that Clayton Utz owed no duty to Maronis to advise on the wisdom of entering into the mortgage. Bryson J found that Clayton Utz had not undertaken the conduct generally of Maronis' legal business relating to the mortgage or undertaken to give Maronis advice on the commercial wisdom of giving the mortgage or on any other matter. There was no evidence that any director or officer of Maronis relied on Clayton Utz to do any of those things. Bryson J observed that an undertaking to act in a particular way, and reliance on the undertaking or action of another person or a party embarking on performance of some task in relation to which the duty arose, or assuming responsibility for the task, are common elements in situations in which a duty of care is imposed by tort but that they were not present in that case. Bryson J held that where the putative duty of care owed by a solicitor to a nonclient conflicts with the duty to the client, that is an important factor telling against the imposition of a duty of care. Bryson J said:

[208]

This value appears to have been derived on the assumption that Mr Hancock could utilise the powers of the Life Governor's Share 'to take out most of the assets of the Company by way of dividends' ...

... Mr Fieldhouse's value appears to have been calculated based on previous values of the A and C class shares in Hancock Prospecting. It appears that Mr Fieldhouse has adopted this approach on the assumption that Mr Hancock can influence the dividend policy and pay the value of the future dividend assumed to be paid to the A and C class shares in these valuations to himself.

Given that the Life Governor's Share had dividend rights then this was indeed possible. However, Mr Fieldhouse implicitly assumes that dividends could be paid to the Life Governor's Share equal to the dividends in perpetuity on the A and C class shares. As the Life Governor's Share could only control the dividend policy while Mr Hancock was alive, this is an incorrect assumption. However, a substantially adverse impact on the value of [the Hancock Foundation's] shareholding in Hancock Prospecting would arise if the assets of Hancock Prospecting were sold distributing a large proportion of the proceeds distributed to the holder of the Life Governor's Share ...

I note, however, that the methodology used by Mr Fieldhouse to arrive at the $20 million is not correct.

Firstly, the value appears to have been derived by taking 50% of the difference in values of the A and C class shares at two different valuation dates. Why Mr Fieldhouse took 50% of the difference rather than the average values of the two valuations is not clear.

Secondly, Mr Fieldhouse adjusts the $17 million value derived from the difference to reflect the fact that 'Mr Hancock is already indebted to the Foundation'. This indebtedness should have no bearing on the value of the Life Governor's Share.

On this basis, it is clear that Mr Fieldhouse's valuation has not been based on the application of the correct valuation methodology. However, an assessment of the reasonableness or otherwise of the price paid by [the Hancock Foundation] depends upon whether it is a market value or a special value which is being determined.

I also note that Mr Fieldhouse's valuation appears to ignore the fact that the purchaser only had a onethird interest in the A and C shares in Hancock Prospecting.

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