Davan Developments Pty Ltd v HLB Mann Judd (SE Qld) Pty Ltd [2015] QDC 121

DISTRICT COURT OF QUEENSLAND CITATION: Davan Developments Pty Ltd v HLB Mann Judd (SE Qld) Pty Ltd [2015] QDC 121 PARTIES: DAVAN DEVELOPMENTS PTY LTD (plaintiff) v HLB MANN JUDD (SE QLD) PTY LTD (defendant) FILE NO: 4338/13 DIVISION: Civil (Trial) PROCEEDING: Claim ORIGINATING COURT: District Court, Brisbane DELIVERED ON: 22 May 2015 DELIVERED AT: Brisbane HEARING DATES: 17, 18 and 19 November 2014 and 26 and 27 March 2015 JUDGE: Dorney QC DCJ JUDGMENT AND ORDERS: 1. It is the judgment of the Court that the defendant have judgment against the plaintiff. 2. The Court orders that both parties file, and serve, written submissions, if any, on costs by 4pm 29 May 2015. CATCHWORDS: Professional negligence – accounting advice and treatment of assets – whether “private” intentions for “limited development” of land – whether, if breach, there was causation LEGISLATION CITED: Civil Liability Act 2003, s 11, s 11(1)(a), s 11(1)(b), s 12, s 22, s 23, s 24 Uniform Civil Procedure Rules 1999, r 166(4), r 166(5) CASES CITED: Byrnes v Kendle (2011) 243 CLR 253 CGU Insurance Limited v One. Tel Ltd (in Liq) (2010) 242 CLR 174 Chipper v Octra Nominees Pty Ltd [2006] FCA 1633 Gratrax Pty Ltd v TF & C Pty Ltd [2013] 2 Qd R 261 -- 1 of 17 -- 2 ISPT Nominees Pty Ltd v Chief Commission of State Revenue [2003] NSWSC 697 Jessup v Queensland Housing Commission [2002] 2 Qd R 270 John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd [2010] 241 CLR 1 Kauter v Hilton (1953) 90 CLR 86 Korda v Australian Executor Trustees (SA) Ltd [2015] HCA 6 Mercier Rouse Street Pty Ltd v Burness & Ors [2015] VSCA 8 Pech v Tilgals (1994) 28 ATR 197 Peldan v Anderson [2006] HCA 48 Podrebresk v Australian Iron and Steel Pty Ltd (1995) 59 ALR 529 Wallace v Camden (2012) 250 CLR 375 COUNSEL: R Anderson for the Plaintiff M Ballans for the Defendant SOLICITORS: Thomson Geer for the Plaintiff Carter Newell for the Defendant -- 2 of 17 -- 3 Introduction [1] While this proceeding, on its face, is based on a claim of professional negligence, there are complicating issues of: whether a trust was created concerning the land in question; what was the appropriate taxation treatment of the contractual (or trust) relationship concerning that land; the effect of the Australian Taxation Office (“ATO”) assessment, the objection to it and the outcome; what damages flow if there was negligence; and whether contributory negligence exists. Background facts [2] Two adjoining parcels of land were “purchased” in March 2004. They were in East Brisbane and adjacent to the Brisbane River. The real property descriptions are not in dispute and, for present purposes, the two parcels of land can be designated as 3 Laidlaw Parade and 182 Lytton Road (“the Laidlaw land”). [3] While the terms of the arrangement concerning the Laidlaw land are in dispute, at least as to their legal consequences, the two parcels of land were both, eventually, purchased by the corporate plaintiff, Davan Developments Pty Ltd (“Davan Developments”). Mr David Pearse was a director of Davan Developments. The other parties to the arrangement were Mr Jim Kearney and Mr Ralph Collins. [4] The Laidlaw land was reconfigured and sub-divided into three “residential” allotments. In an inverse numbering system, new Lot 1 became 5 Laidlaw Parade, new Lot 2 became 3 Laidlaw Parade and new Lot 3 became 1 Laidlaw Parade. In time, Lot 1 was transferred to Mr and Mrs Pearse, Lot 2 to Mr Kearney and Lot 3 to Mr Collins. [5] Although Davan Developments became the registered proprietor of the Laidlaw land, and remained so until relevant transfers were effected after the sub-division, the parcels were originally purchased separately by the plaintiff and TTK Holdings Pty Ltd (“TTK”), a company whose shareholding was owned by Mr Kearney. That purchase was as tenants in common. These events are irrelevant to the outcome here. [6] There were matters of both convenience and motivation as to why Davan Developments became the sole registered proprietor; but it is not in dispute that the agreement (“Agreement”) between Mr Pearse, Mr Kearney and Mr Collins was oral. While there was some initial discussion about formalising the Agreement as, for instance, a joint venture, for which a draft agreement was prepared by Mullins Lawyers, that document was never executed. The effect of that draft on other matters will be considered later, but it is clear from the evidence given by Mr Kearney and Mr Collins that they had no real recollection of the draft and that, anyway, it did not properly express their “intent”. Unfortunately, their evidence as to what structure was to be used is very vague. [7] Other documents were introduced into evidence, particularly some prepared by different banks, including BankWest. While it is open to me and the ATO to use such documentation in order to form a conclusion about what Mr Pearse stated to others about his subjective understanding of the Agreement with Mr Kearney and Mr Collins (and, therefore, affecting his credibility and, perhaps, what he conveyed to his advisors), since the acknowledged author of the BankWest document (Mr Dollar) was not called, one is left simply with the answers given by Mr Pearse concerning an understanding of the entries made. -- 3 of 17 -- 4 [8] “Particulars” of the oral Agreement to purchase and develop, which detailed the terms of that agreement and the dealings which occurred with the Laidlaw land, were the subject of allegations in paragraphs 5.1 to 5.3 (inclusive) of the amended statement of claim. The defendant, HLB Mann Judd (SE Qld) Pty Ltd (“HLB Mann Judd”) neither admitted nor denied those allegations, stating that it was “not required to plead to (those) particulars”. In the circumstances, I accept the submissions of Davan Developments that they were not particulars and are, therefore, pursuant to r 166(4) and r 166(5) of the Uniform Civil Procedure Rules 1999 (“UCPR”), taken to have been admitted as material facts. But some evidence was, none the less, led on exactly those “facts” which added to the whole of the evidence to be considered by me. It is to be noted at this stage that paragraph 5.2(h) expressly pleaded that part of the agreement was that Mr Pearse, Mr Kearney and Mr Collins “each had a first right of refusal” over a Lot “designated” for each of them. [9] As Davan Developments quite correctly pointed out in its written submissions, the evidence led at trial, as well as the statutory declarations provided to the ATO during the course of its audit, were to a quite similar effect overall, noting also that such pleading represented the case put by the defendant on the plaintiff’s behalf as tax agent to the ATO during that audit. But HLB Mann Judd did advance a defence that denied that the “intention” of each participant in the Agreement was to “build a family home” because, amongst other arguments, it was not communicated to it. [10] The focus in this proceeding is on what Mr Kearney (with his wife) eventually did with his parcel of land that was transferred to him as Lot 2, after sub-division, by Davan Developments. But it is necessary, initially, to examine, for the purposes of the professional negligence allegations, the way in which the agreement was structured, on what initial and, or alternatively, later advice, and the consequential taxation effects. “Implied” trust [11] In providing further and better particulars of the amended statement of claim, filed 6 November 2014, Davan Developments alleged that the plaintiff held the Laidlaw land on trust for Mr Pearse, Mr Kearney and Mr Collins, commencing on or about 12 March 2004, respectively for those persons as to Lots 1, 2 and 3, and that the trust was “an implied trust”. [12] Davan Developments did not shy away from the proposition that the trust alleged was an express trust, with the implication contended to arise from the conduct of all relevant parties (namely, Davan Developments, Mr Pearse, Mr Kearney and Mr Collins). [13] Very recently, the High Court in Korda v Australian Executor Trustees (SA) Ltd1 canvassed the relevant principles concerning an express trust. As Gageler J held, where there is no reason to consider that parties entering into a contract have not said what they meant or meant what they said, an express term in the contract that one party is to hold property “on trust” for another party, or for a third party, will be recognised and enforced in equity as a trust: at [109]. Nevertheless, he added, conversely, where parties to a contract have refrained from contractual use of the terminology of trust, an intention to create a trust will be imputed to them only if, and to the extent that, a trust is the legal mechanism which is appropriate to give legal 1 [2015] HCA 6. -- 4 of 17 -- 5 effect to the relationship, between the parties or between a party and a third party, as established or acknowledged by the express or implied terms of the contract: also at [109]. Thus, he held the question is whether recognition and enforcement of a trust is appropriate to give effect in law to entitlements and obligations which the parties, according to ordinary principles of contractual interpretation, can be taken together to have intended to exist in fact: also at [109]. Keane J, by reference to authorities such as Kauter v Hilton2 (at 97) and Byrnes v Kendle3 (at 272 [49]) referred to the following principles:  the established rule is that, in order to constitute a trust, the intention to do so must be clear (and it must also be clear what property is subject to the trust and be reasonably certain who are the beneficiaries);  the need for clarity as to the intention to create a trust and its subject matter is of particular importance in a commercial context, where acceptance of an assertion that assets are held in trust is apt to defeat the interests of creditors of the purported trustee, arising from the traditional inclination of the courts to protect creditors against the use of a straw company as a trading trustee; and  the language of the relevant document, or documents, is not to be strained to discover an intention to create a trust, because, unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, the courts ought not to be astute to discover indications of such an intention; at [204]-[208]. Byrnes v Kendle4 stressed that it is the “outward manifestations” of the real intentions that stands “in command of the field”: at 275 [59]. [14] Other aspects raised in Korda were:  by Hayne and Kiefel JJ, that, in considering whether “commercial necessity” requires the imputation of a trust, it would need a context such that the documents, for instance, “must be understood as providing protection … against the consequences of commercial adversity”: at [87];  by Gageler J, that, “while a duty to hold trust money separate from one’s own is the ‘automatic consequence of the imposition of a trust’ and ‘is a hallmark duty of a trustee’, an intention that money be held in a separate fund is for that reason indicative, although not conclusive, of an intention to create a trust over that money”, and to that, for the same reason, “although failure in fact to hold money in a separate fund need not negate the existence of an express trust otherwise conclusively established, absence of a contractual intention that money be held in a separate fund must surely be fatal to the imputation of a contractual intention to create a trust over that money”: at [111]; and  by Keane JA, that, relying on Jessup v Queensland Housing Commission5 (at 274- 275 [12]-[13]), while a provision of an agreement which requires that a recipient of funds keep an accounting system capable of identifying income emanating from the funds and another provision for keeping of records so as to enable entitlements to be identified “are or resemble obligations like those imposed by equity on a trustee in similar circumstances”, in the end, they tell against, rather than in favour of, the existence of a trust, because if an intention had been to create a trust, it would have been simple to have said so, instead of descending into the detail that it did: at [227]-[228]. 2 (1953) 90 CLR 86. 3 (2011) 243 CLR 253. 4 (2011) 243 CLR 253 5 [2002] 2 Qd R 270. -- 5 of 17 -- 6 [15] A recent appellate decision which considered whether a trust had arisen in a contractual context is Mercier Rouse Street Pty Ltd v Burness & Ors.6 The argument in question was whether the terms of a Joint Venture Deed constituted a particular party as trustee, such that, as at the date of a particular charge, it held the bare legal title to real property on trust. Santamaría JA, with whom Warren CJ and Neave JA agreed generally (on points relevant here), held that while both the relevant Partnership Deed and the Joint Venture Deed contained extensive provisions that regulated the relationship of the participants to the purported trustee, and of the participants among themselves, it was unquestionable that their mutual obligations were “contractual in nature” and that, while the fact that relations arise out of contract does not prevent there being concurrent fiduciary obligations, the scope of any fiduciary obligation may be modified by the terms of the contract: at [92]. He then referred, in particular, to John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd7 where the Court approved (at 36 [91]) what Mason J had said in Hospital Products Ltd v United States Surgical Corporation (citation omitted), namely: “In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it still exists at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such way as to alter the operation which the contract was intended to have according to its true construction.”; : at [92]. [16] In Mercier Rouse Street, Santamaría JA went on to consider the issue of a “bare trustee” or “the trustee of a bare trust”. Referencing CGU Insurance Limited v One. Tel Ltd (in Liq)8 (at 182 [36]), he quoted the Court’s statement that: “The trustee of a bare trust has no interests in the trust assets other than those which exist by reason of the office of trustee and the holding of legal title. Further, the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee, with result that the property awaits transfer to the beneficiaries or awaits some other disposition at their direction.”; : at [96]. [17] He then referred to the decision by Barrett J (as he then was) in ISPT Nominees Pty Ltd v Chief Commission of State Revenue9 (at [271] – [282]) to the following effect: “It seems to me that an ‘active power’ (as opposed to an ‘active duty’), regardless of its significance, will be sufficient to render the trust something other than a bare trust. That does not have to be a duty expressed as such. A power expressly conferred upon a trustee will give that trustee an interest in the property other than the minimal interest that exists by simply virtue by the trusteeship itself. The fact that, in this case, the terms of the trust were spelled out in a trust deed means that the trust could not be a bare trust having no express incidents and including only such terms as are implied by law.”; 6 [2015] VSCA 8. 7 [2010] 241 CLR 1. 8 (2010) 242 CLR 174. 9 [2003] NSWSC 697. -- 6 of 17 -- 7 : at [98]. [18] I have already noted that there was no contest that part of the terms of Agreement provided that each of the three named persons had a “first right of refusal” over one of the designated lots which would follow sub-division. Furthermore:  there were no written documents;  unsurprisingly, given the implication inherent in the alleged trust, the statutory declarations of Mr Pearse, Mr Kearney and Mr Collins for the ATO audit purposes did not, anywhere, refer to any evidence about a trust being formed orally;  there was no evidence of any declaration by Davan Developments of a trust;  as at March 2004, the lots, later designated as Lots 1, 2 and 3 did not exist in that form;  none of the three Contracts for the purchase by each of the three persons from Davan Developments referred to any trust relationship;  the evidence was that Davan Development treated the Laidlaw land that it obtained as part of its own assets, with it utilising loans given to it alone for development of the Laidlaw land;  there was no evidence of any separate bank account for the funds received or expended in respect of the Agreement, such funds being intermingled with funds of Davan Developments’ other property development dealings;  the security taken by Davan Developments for the development was not limited, but extended to all assets of Davan Developments; and  there was evidence, including evidence from Mr Kearney, that he “purchased” his Lot (namely, Lot 2) from Davan Developments. [19] It is clear beyond argument that if a trust existed it was no “bare” trust. [20] As to the matter of the “right of first refusal”, as set out by Jessup J in Chipper v Octra Nominees Pty Ltd,10 by reference to cited authority, the holder of a right of pre- emption does not, on the occurrence of the triggering event, become the holder of an equitable interest in the relevant land and what is granted as a right of pre-emption is only properly called an option when the will of the grantor turns it into an option by deciding to sell and thereby binding the grantor to offer it for sale to the grantee, it thereby becoming an interest in land because there is then a change in the nature of the right: at [104]. [21] It is thus entirely inconsistent with the existence of a trust that each of the nominated persons had a right of first refusal (or a right of pre-emption) over a particular designated Lot (which designation – although before the sub-division took effect at law – was only decided long after Davan Developments first obtained title to the Laidlaw land). [22] Thus, on any test, the evidence in this case does not support the existence of any trust concerning the land in question, in whatever form. The rights and obligations concerning such land, from time to time, were simply a matter of contractual rights and obligations, particularly where Davan Developments’ activities were carried out, to any outside observer, in a commercial context. 10 [2006] FCA 1633. -- 7 of 17 -- 8 History of accounting and business advisory services [23] It is not in dispute that, between July 2005 and November 2012, Davan Developments engaged HLB Mann Judd to provide:  preparation of accounts, income tax returns and financial statements, and lodgement of such returns (including BAS and annual statements); and  compliance services in relation to its tax affairs (being compliance with ATO requirements). HLB Mann Judd denied, in its pleading, that it provided any advice. This is contrary to its written submissions where it conceded that it did provide some advice: see paragraphs 28(c) and 184. [24] As isolated to this case, the issue of professional negligence, if any – with the content of such duty not being a matter of dispute – revolves around the advice alleged to be given and the accountancy services provided in relation to the proper treatment of the Laidlaw land that came to be held by Davan Developments. As outlined in Davan Developments’ written submissions, the plaintiff’s case is that negligently, or in breach of its contractual obligation to exercise reasonable care, HLB Mann Judd caused the land to be treated as trading stock in the hands of Davan Developments, thus causing it to “needlessly incur GST and income tax liabilities”. Thus, there is no need to go beyond the terms of the retainer. [25] It will be necessary, later on, to examine how Mr Pearse, Mr Kearney and Mr Collins treated the land, in its various forms, over time, in order to determine the consistency between that and what Davan Developments’ case is concerning what was disclosed to HLB Mann Judd. [26] For the moment, though, attention will be focused on the development of the relationship between Davan Developments and HLB Mann Judd. [27] It is not contested that HLB Mann Judd caused the Laidlaw land, and the conversion into the sub-divided Lots, to be treated as Davan Developments’ own trading stock. It is also not disputed that Davan Developments was a property developer in its own right (being, in fact, chosen by the three persons involved because of that very activity). Additionally, the 2004 tax return had an entry for “closing stock” of $140,000.00 (which reflected sums already paid for the Laidlaw land). [28] The evidence that both Mr Pearse and Mrs Pearse gave was to the effect that they attended meetings at the office of HLB Mann Judd, initially with Mr James Henderson and Mrs Kerryn Stanford (nee Angel), and, later, with Ms Katherine Patel. Such meetings were held once or twice a year and the first was held in or about July 2005. That initial engagement was for the purpose of providing accounting and business advice for three corporate entities (namely, Davgan Pty Ltd, Davan Developments and KA Consulting Pty Ltd, as trustee for the Davgan Trust) as well as for the Pearse Superannuation Fund and Mr Pearse and Mrs Pearse themselves, as individuals. [29] As at July 2005, Mr Pearse and Mrs Pearse were engaged in a dispute with the ATO about the treatment of a parcel of land at Dakabin that had been transferred from Mrs Pearse to Davan Developments. Expressing dissatisfaction with the advice that they received from their former accountants, they were referred to HLB Mann Judd by Mullins Lawyers. -- 8 of 17 -- 9 [30] With respect to that first meeting in July 2005, no one attending had any detailed recollection of what said. This is relatively unsurprising given the fact that the trial took place some 9.5 to 10 years later. Unsurprisingly again, what recollections there were, including attempts at refreshing memories from notes made prior, or subsequently, revealed quite different recollections. [31] The recollection of Mrs Pearse was, certainly, the most detailed. She stated that HLB Mann Judd was told that Davan Developments had purchased two blocks of land, that one had settled and that the blocks in question were going to be sub-divided into three Lots, with three parties involved, each with an intention to build a home on such a Lot. Her further recollection was that each home was to be a “personal home” to live in and that was the intent that the lot was to be created for. Mrs Pearse had prepared an agenda for that first meeting. That agenda sought advice with respect to many issues, including the tax consequences of taking certain steps. While there was a reference to the two parcels then recently bought by Davan Developments which were described as “the Laidlaw site”, Mrs Pearse made no note even vaguely suggesting any “personal” aspect concerning the Laidlaw land. Mr Pearse had little recollection of what occurred. Hence, to say that he did not, later on, tell Mr West “anything (more or) less than (he) told Mann Judd” stretches credibility. [32] Mr Henderson had some notes which were made, in total, by his company. But it is to be inferred from an early entry on those notes that they were made after 1 August 2005. One entry, which was later entitled “I/VIEW NOTES”, was not made by Mr Henderson. The rest, with respect to relevant matters, referred to:  the two parcels of land and that the same were to be sub-divided into three blocks each of 16 perches (in a 64 perch area);  although “Colonial” had advanced funds, “BankWest” would be the lender, after consolidation; and  there were, also, two additional properties in which Davan Developments had an interest being, respectively, in Agnes Waters and in Bowen Hills. The entries, though written later, were detailed as to sums spent and borrowed, suggesting either a strong recollection or a transfer from previous notes, although Mr Henderson has no recollection at this time about such matters. As well, given the information in these notes, some inquiry, or information proffered, must have formed the basis for them – yet no notation suggesting anything of a “private” nature was recorded. [33] Before turning to other matters, what is clear from both of those written notations is that Mr and Mrs Pearse were seeking some advice both for Davan Developments and themselves, at least. It was not simply that HLB Mann Judd were being asked to prepare, and lodge, income tax and other returns. This conclusion is reinforced by a “question sheet” prepared by Mrs Pearse for a meeting had with Mr Henderson on 15 June 2006. What is important about that document is that it contains, in Mrs Stanford’s handwriting, advice which was given: see, for instance, the question about what “are the tax implications?” and the advice in response. If that advice was wrong, it would still not be determinant of what otherwise occurred between the parties. What is, however, important is that the advice was charged for: see the Tax Invoice dated 30 June 2007. [34] Insofar as the later meeting of mid-June 2006 was informative about the knowledge possessed by HLB Mann Judd of the “intentions” with respect to the Laidlaw land, the advice about the margin scheme – which would be incorrect only if the knowledge -- 9 of 17 -- 10 possessed by HLB Mann Judd was of the Pearses’ “intentions” with respect to the Laidlaw land, though correct if Davan Developments was selling it as part of its business – confirmed the particular view that HLB Mann Judd had formed about the Laidlaw land (namely, that it was part of the assets of Davan Developments). Even the reference in that meeting to “the profits (being) distributed to all 3 parties” does not raise the question about what HLB Mann Judd should have been alerted to and, therefore, made enquiries about, because the use of the term “profits” is inconsistent with the “intentions” (if they were expressed by Mrs Pearse as such, originally). If she had expressed that view earlier then this would reflect a change – but the wording is not expressed in that manner. [35] Turning, for the moment, back to the agenda notes written by Mrs Pearse prior to the first meeting, while it can be, objectively, discerned from the statement that the reference to the Laidlaw site noted that “we” contributed funds to it and that “we” would receive reimbursement for such funds, unless explained it would have meant nothing to Mr Henderson without elaboration, because of the common occurrence of directors and their associates being lenders to the corporate entity. [36] Important additional background facts are that Mr Henderson was informed at the relevant time that the property at Dakabin was part of Davan Developments’ business, even though Ms Patel conceded that the treatment of the Laidlaw land as a business asset of Davan Developments was “an assumption”. But it must be understood that this assumption was made at a later time and was undoubtedly based upon the way that the asset had been treated by HLB Mann Judd over time. [37] Although it is clear from the evidence given by each of Mr Pearse, Mr Kearney and Mr Collins – which evidence I accept on this score – that the three of them had an original intention expressed to, and accepted by, each other that the Laidlaw land be held for development as a personal residence for each, over time that was modified and changed. But such a modification, or change, does not appear to have occurred before July 2005. I also accept that the engagement and use of the architect, Wiltshire Stevens, demonstrated, consistently with the evidence of Mr Pearse, Mrs Pearse, Mr Kearney and Mr Collins, that such was their intent as early as July 2004. [38] The conclusion that I reach about the engagement of HLB Mann Judd is that it is improbable that Mrs Pearse did refer, at least in some more significant way than those words that appear in the agenda document, to the three relevant persons who had contributed funds to purchase the Laidlaw land. On that conclusion, I reach the further conclusion that Mr Henderson, as the moving party for HLB Mann Judd at the time, did pay sufficient attention to the information that he was given by Mr Pearse and Mrs Pearse. There is nothing, therefore, which should have led to an elaboration, by a simple request to them, of what was occurring and the limited role played by Davan Developments. After all, Davan Developments’ own tax return for the previous year had included part of the Laidlaw land as “stock” and the borrowings that were made were all made by it as well. It is not of utility that Mr West, the tax advisor from McCullough Robertson brought in to assist during the time of the ATO audit, was able, by making his enquiries, to discover what the parties who had contributed to purchase price of the Laidlaw land did actually intend. This was at a later time when things had gone awry and everyone was anxious to reveal everything. -- 10 of 17 -- 11 History of dealings with the Laidlaw land [39] As I have just canvassed, I accept that each of the relevant contributing parties to the purchase of the Laidlaw land did engage an architect from an early stage and that, at least for some time, each had the intention that the ultimately developed subdivided Lot would be used as their personal residence. [40] I conclude, therefore, as did Mr West, that there is sufficient evidence to show that Mr and Mrs Pearse, Mr Kearney and Mr Collins did not intend that the subdivision and subsequent transfer of the Laidlaw land would be part of a business operation, or “enterprise”, but, rather, part of a “limited development” (which Mr West described as being “in the sense of wanting to simply subdivide to have three lots so that they could build houses on the properties”). [41] It is important to examine, at least a little further, the conclusions that Mr West reached. While they are not binding on me, they do show what an informed and thorough investigation could reveal when detailed information was forthcoming. Before proceeding, it should be noted that, having conducted a separate review of the evidence myself which was relied upon by Mr West, I accept that he reached conclusions that I find as the correct conclusions of fact on the information led at trial. [42] Mr West, in reaching the conclusion that the correct tax treatment of the land was not as trading stock, put particular weight on the earlier instructions given to the architect, the funding arrangements with CBA and BankWest, and the facts contained in the eventual statutory declarations about the nature of the agreement reached by Mr Pearse, Mr Kearney and Mr Collins. [43] In this analysis, it is not necessary to form any concluded view about when the “designation” of each of Lots 1, 2 and 3 was made. To the extent that it does matter, despite Mr Pearse answering a question of mine that the decision about the designation of the Lots occurred after the sub-division was approved, I do accept that the clarification undertaken by learned counsel for Davan Developments did yield a revised recollection – which I accept after some consideration of the way in which the clarification occurred – that the decision was reached when the sub-divisional plans were drawn up so as to show “how the lots were going to appear once the subdivision was done”. [44] In May 2006, Mr Pearse sought further finance from BankWest to further fund the “limited development”. As it subsequently eventuated, that funding, as always from such sources, was provided directly to Davan Developments. I accept that the memorandum prepared by the relevant BankWest representative is correct when it recorded the “wish” to place the three Lots on the market for sale. It is clear that the survey plan reconfiguring the Lots was dated 2 March 2006, so that reference to those Lots would have been correct. It is to be noted that both Mr Pearse and Mrs Pearse gave evidence that, at that time, there was an intention to sell all of the three Lots. Despite Mr Pearses’ evidence about his conversations with Mr Dollar, the entries made in BankWest memoranda are not consistent in any way with an expressed intention of Mr Pearse, Mr Kearney and Mr Collins to undertake the “limited development” rather than in some manner such as that recorded in the recitals to the draft Joint Venture Agreement. It was a striking feature of the evidence in this case that, even though I have accepted the original “intentions” were as Mr Pearse indicated, nearly all memoranda of conversations with him, or with him and Mrs -- 11 of 17 -- 12 Pearse, appear to reflect the contrary. It seems that they never did express their “concerns” either with clarity or in any detail. [45] Although Mrs Pearse’s note for the meeting between Mr Pearse, Mrs Pearse, Mr Henderson and Ms Stanford records all Lots “going on the market” on 17 June 2006, there is also evidence Mr Pearse had engaged real estate agents to sell the Lots around this time. Whatever Mrs Pearse’s “understanding” was as at 15 June 2006 regarding the listing of the Lots, it is clear that by September 2006 there was an intention to sell all three Lots. By December 2006, Mr Collins decided to depart from that arrangement. [46] From the email sent from HLB Mann Judd, through Ms Angell, dated 28 March 2007, it clear that the “sale” to Mr Collins of Lot 3 was then to proceed. The later BankWest memoranda of late April 2007 recorded that the intention to sell “vacant blocks” had changed to one “to build and sell”. [47] The next important date is 28 November 2007. On that date, Davan Developments transferred, by a properly executed Transfer Form, as transferor, Lot 2 to Mr and Mrs Kearney, as transferees, for a stated consideration of $1,600,000.00. The fact that Mr Kearney was not the only transferee is irrelevant for present purposes. [48] Mr Kearney and Mrs Kearney then sold Lot 2 for $4,950,000.00. A house had been constructed on that Lot in the meantime. [49] There is nothing in the sale of Lots 1 and 3, which both were the subject of transfers in proper form subsequent to the transfer of Lot 2, which to my mind undermines the conclusions that I have reached regarding what was conveyed to HLB Mann Judd in 2005 concerning the then held intentions of Mr Pearse, Mr Kearney and Mr Collins with respect to the Laidlaw land. ATO investigation [50] In early December 2011 the ATO commenced a review of the taxation affairs of Davan Developments. A first meeting of relevant representatives occurred on 20 December 2011. It can be pointed out that responses (to enquiries made by the ATO) by representatives of HLB Mann Judd were not initially questioned by Davan Developments’ representatives. But the later history showed that there was a gradual realisation that HLB Mann Judd had not been “aware” of the “true” arrangements concerning the “limited development” of the Laidlaw land. [51] Regarding Lot 2, the ATO, considering the flimsy nature of the evidence advanced concerning the calculation of value underpinning the consideration paid of $1,600,000.00, did not accept that as the actual market value. It was, eventually, accepted after a significant negotiation, that its value was much higher (namely, $2,124,061.00). [52] The primary significance that the undervaluing had is with respect to the penalty amounts paid and costs incurred with respect to the ATO audit. [53] Concerning Lot 2, the ATO, on 12 April 2012, issued an audit report, income tax assessments and GST assessments. In general terms, it did not accept, with respect to Lot 2, given the history, particularly from that discerned from documentation, that all -- 12 of 17 -- 13 three Lots had not been treated as part of Davan Developments’ “enterprise” of property development. [54] The Objection, drafted by Mr West, lodged by Davan Developments with the ATO and dated 21 May 2012, never asserted the existence of a trust (mainly because Mr West, on his review of the evidence, did not consider that there was sufficient to support the existence of a trust) but did contend, although not objecting to the assessments with respect to the sale of Lots 1 and 3 (on the basis that it would have been difficult to maintain a view that any original intention had not changed when the sale of such lots was made to third parties), that the sale of Lot 2 was not disposed of as part of Davan Developments’ enterprise. [55] Although Davan Developments commenced proceedings for review before the Administrative Appeals Tribunal on 11 December 2012, they were eventually compromised. No party suggested that the compromise, at that stage, was unreasonable. Effect of failure to document the limited development [56] There is no doubt that a substantial plank in the ATO’s assessments was the lack of documentation of the intention of the parties to the Agreement. Necessarily, this was a product of the way in which HLB Mann Judd included the Laidlaw land as an asset of Davan Developments and the consequential way in which HLB Mann Judd continued to treat the successive events that occurred with respect to that Laidlaw land. There were other significant documentary difficulties as well. These included entries made in bank documents and the way in which the Laidlaw land was used as security for borrowings by Davan Developments. Furthermore, when a house on one of the original properties was rented out, the rental income was returned in Davan Developments’ accounts. The effect was inevitable, as the ATO investigation and its aftermath have proved. [57] But as at mid-2005, even if HLB Mann Judd had been given the “correct” information, while much of the adverse documentation would not have eventuated, the position as viewed by the ATO might still have been no different if only because of the absence of any contemporaneous documentation of “intent” on the initial purchase of the Laidlaw land and of the presence of the advice sought (including instructions given) about the Joint Venture Agreement document and prior BankWest documents: see Mr Howlett’s evidence of his ATO experience; and the Joint Statement of Experts:- at [4.1(d)] concerning Alternative 3. Negligence/breach of contract [58] I find that no trust relationship existed between Davan Developments and the three individuals, Mr Pearse, Mr Kearney and Mr Collins. Accordingly, it is only necessary to examine other aspects of the alleged breach of duty in order to determine whether such a breach occurred. [59] Such an approach leaves for later examination whether the correct basis for tax and accounting treatment should have been in accordance with the facts as pleaded in paragraph 5 of the amended statement of claim (apart from any trust ramifications). [60] Importantly in that approach is the underlying premise that the Agreement was both private in nature and that each individual participant held an intention to develop the -- 13 of 17 -- 14 Lots, in particular the Lot eventually designated to that person, into that person’s own residence. [61] From what I have already analysed, I accept both those particular premises. In particular, I have already rejected the fact that the parties considered and implemented a joint venture in the form of the draft Joint Venture Agreement. [62] Further, I have accepted the plaintiff’s argument that the involvement of relevant architectural drawings supports this private intention. [63] As for any inferences that might be drawn from the BankWest memoranda, I accept Mr Pearse’s explanation which, essentially, went to the effect that that bank was guided in its understanding – which was in fact misguided – by its knowledge that Davan Developments was itself a property developer. But entries at later stages in such memoranda do reflect the changing nature of that original intention; and I have accepted that Mr Pearse did not himself explain the “real” position with any clarity. [64] But the particular focus is with respect to Lot 2, since only a limited issue of damages has been raised in any way by Davan Developments with respect to a breach of duty concerning Lots 1 and 3. As to whether there was change of intent with respect to Lot 2, while it is open on the evidence to identify an indication that Mr Kearney may not have intended to live in the residence that he was constructing once it was finished, I do accept that the evidence shows, on the balance of probabilities, that when Lot 2 was transferred from Davan Developments to Mr and Mrs Kearney that he did hold that intention to build his private residence on it. [65] The next point for consideration is what HLB Mann Judd should have done on the conclusion that I have reached that insufficient information was disclosed to Mr Henderson at the first meeting. Given the knowledge (attributed to Mr Henderson in particular) of Davan Developments as a property developer, the 2004 tax return (which formed a basis for the 2005 return), and the other information available to him as sparingly given, in particular by Mrs Pearse, it was not sufficient – unlike the circumstances encountered by Mr West – to indicate to him, or put him on inquiry in any way, that there were underlying factual circumstances as I have found them to be as at mid-2005. [66] Unfortunately, Mr Pearse did not correct any “misunderstandings” – which must have been obvious to him if he even looked at HLB Mann Judd’s treatment of the Laidlaw land in the uncomplicated accounts of Davan Developments – when Mr Pearse, in particular, had the background knowledge to understand the accounts and returns and correct them. [67] Once it is accepted that that kind of information was not conveyed to Mr Henderson, the admission by HLB Mann Judd of paragraph 8(c) of the amended statement of claim [to the effect that “it knew or ought to have known that (Davan Developments) would rely and act on its advice insofar as that advice was given in response to instructions from (Davan Developments) that reflected the true position”] can have no resonance here. [68] Thus, I find that there has not been a relevant breach of professional duty. -- 14 of 17 -- 15 Causation [69] As a result of my finding of no breach, it is unnecessary to consider the following further matters. But I will still express my conclusions on them should the need arise to consider them. Even given that the Civil Liability Act 2003 (“CLA”) does not bring into play, in this case, s 22 (since the giving of advice in relation to the risk of harm is a limitation upon application of that section), it is still necessary to consider the general principle outlined in s 11, bearing in mind that s 12 states that, in deciding liability for breach of a duty, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation. [70] As to the matter of factual causation – the concern of s 11(1)(a) of the CLA – it could not be contended that there would be little difficulty in this case concluding that such a breach of duty, if found, would qualify as a necessary condition for the harm caused by the actual assessments made by the ATO, through decisions of the relevant Deputy Commissioner of Taxation. [71] But it could not be of concern that s 11(1)(b) of the CLA was not satisfied. It deals with the scope of liability. With respect to that, in Gratrax Pty Ltd v TF & C Pty Ltd11 by reference to Wallace v Kam12, it was held that once the “but for” test is affirmed, the answering of the “normative question” in s 11(1)(b) is achieved by applying precedents on the footing that that provision “guides but does not displace common law methodology”: at [26] per Fraser JA, with whom Morison JA and Wilson J agreed. There are no precedents that suggest that any contended scope would not fall within the already accepted boundaries. [72] In argument, HLB Mann Judd contended that it was not “the cause”, or had not “materially contributed to the cause”, of the damage claimed by Davan Developments. The basis of that was that the existence of the trust relationship was a necessary component in the connection between the breach and the claim, particularly that part of the claim alleged in paragraph 19 of the amended statement of claim. It was a claim made which was based, pursuant to the Deed of Settlement between Davan Developments and the ATO concerning incurred tax liabilities, on the premise that the same sum would not have been that assessed if the correct tax and accounting treatment (for income tax and GST) was applied in the context if a trust. [73] Leaving, for the moment, to one side the issue of the existence of a trust, my conclusion is that the statutory concern here is not with the scope of liability but with the factual causation. [74] On the asserted ground of a failure by Davan Developments to properly document the development venture, I rely upon the conclusions that I have reached. This is supported by the fact that the ATO accepted the assertions that:  Davan Developments, TTK Holdings Pty Ltd (or Mr Kearney) and Mr Collins were part of the development;  Mr Kearney (or TTK Holdings Pty Ltd) had a beneficial interest in Lot 2 and/or the development or Mr Kearney (or TTK Holdings Pty Ltd) had, by a verbal agreement, a right of first refusal to acquire Lot 2 from Davan Developments; 11 [2013] 2 Qd R 261. 12 (2012) 250 CLR 375. -- 15 of 17 -- 16  it was always the intention of Davan Developments that Mr Kearney would acquire Lot 2 from Davan Developments, subject to him meeting a required transfer price; and  the architectural house plans as drawn up were specific to each Lot in the project involving the Laidlaw land. [75] Those matters which were accepted by the ATO did not include that there was a manifested “private arrangement” between Mr Pearse, Mr Kearney and Mr Collins. This is particularly important where the rejection of the existence of a private arrangement has relied upon not only inconsistent documentation but also the absence of contemporaneous documentation. As I have considered it, the original documentation (i.e. up to July 2005) would still have been in that form. Therefore, on balance, the ATO would have come to the same conclusion anyway. Thus, GST would have been payable on Lot 1 and Lot 3 as well. Even if a “private” arrangement were to have been accepted, I would have found that it had been negated by “outward manifestations” of the parties to it by the time of sale of Lots 1 and 3. [76] While I will deal, next, with the finding in this Court about the absence of a trust, it is first necessary to address a further ground which relies upon the inherent likelihood that the ATO, in its review, would still have alighted upon the transfer of Lot 2 by Davan Developments to Mr and Mrs Kearney because of the failure to make the transfer for a consideration of actual market value. That appears to me to be a likely result - at least on the balance of probabilities. [77] Hence, it is at this stage that the experts called by both parties need to be called in aid, because their opinions go to the monetary manifestation of breach. The experts, Mr Howlett and Mr Wood, composed a Joint Statement of Experts dated 20 August 2014. In it, they considered three alternatives. Since this Court has concluded that there was no trust, it is necessary only to turn to that alternative based upon the assumption by the experts that the Court would so find. [78] It is, thus, to Alternative 1 that attention is now directed. That alternative had as its premise that the Laidlaw land was purchased by Davan Developments as both the legal and beneficial owner (which is an understandable assumption - but one that is contrary to law because, in such a circumstance, there is no separate such ownership: see Peldan v Anderson13). But I accept that it covers the present findings. The second premise for this alternative was that each “joint venturer” had a right of first refusal over a particular Lot before it was put on the market by Davan Developments. The existence of such a right has been accepted by me. [79] The experts both agreed that, on Alternative 1, the amount of tax payable by Davan Developments would have been equal to that assessed by the ATO (being both income tax and GST). [80] The consequence of all that analysis is that, even if a breach of duty had been established, there would be no proved factual causal relationship and causative “loss” (at least in negligence). Contributory negligence 13 [2006] HCA 48 at [37]. -- 16 of 17 -- 17 [81] Because of the conclusions that have been reached, there is no necessity to consider the issue of contributory negligence either. [82] But, because it may be necessary to consider this issue should my findings be in error on other issues, I proceed to make additional findings. They may prove to be of little assistance because they rely on findings which exclude any breach. [83] Sections 23 and 24 of the CLA deal with contributory negligence, including the power to determine a reduction of 100% if considered “just and equitable to do so”. [84] In Pech & Anor v Tilgals & Anor14 Dunford J found that there was a failure by a tax agent to prepare and submit accurate income tax returns. In concluding that the client contributed to the extent of 20%, he held that there was a responsibility on that client to ensure that the tax returns were accurate, particularly where there was a signed declaration to the effect that the returns were true and correct in every detail: at 205. In that particular case, although the tax agent was aware of an omitted land transfer, no mention had been made of it in the income tax return and, as well, the tax agent had not made any inquiries of the client and was either unaware of the effect of a “deemed dividend” or overlooked this aspect of the client’s taxation affairs. But those circumstances are considerably different from the ones involving Davan Developments. Mr Pearse in this case ought to have known that the Laidlaw land had been included in relevant financial documents and income tax returns. It was not that there was any failure to ask how the Laidlaw land had been dealt with, because it had been dealt with by HLB Mann Judd. [85] I do not see in this case that the Court could make, on my acceptance of the available evidence, any contributory finding that would not place the major responsibility on the plaintiff. The reasonable complexity was an overwhelming reason for it to be mentioned to the defendant in detail. Paraphrasing relevant authority, the comparative examination of the whole of the conduct of each party in determining responsibility for damage would show that the acts of Davan Developments were of the greater relative importance: see Podrebresk v Australian Iron and Steel Pty Ltd15 at 532-533, per Gibbs CJ, Mason, Wilson, Brennan and Deane JJ. Outcome [86] Given the reasons that I have discussed, there must be judgment for the defendant against the plaintiff. [87] As for costs, I will give both parties leave to file, and serve, written submissions on costs within a period of 7 days after the decision is pronounced. 14 (1994) 28 ATR 197. 15 (1995) 59 ALR 529. -- 17 of 17 --