FTV Holdings Cairns P/L v Rauch & Ors [2013] QDC 292

DISTRICT COURT OF QUEENSLAND CITATION: FTV Holdings Cairns P/L v Shana Rauch & Ors [2013] QDC 292 PARTIES: FTV HOLDINGS CAIRNS PTY LTD ACN 082 256 791 (plaintiff) v SHANA RAUCH (first defendant) and HANS RAUCH (second defendant) and ROBIN LINDSAY SMITH (third defendant) FILE NO: BD 311/08 DIVISION: Civil PROCEEDING: Claim ORIGINATING COURT: District Court, Southport DELIVERED ON: 26 November 2013 DELIVERED AT: Brisbane HEARING DATE: 21 November 2013 JUDGE: Everson DCJ ORDER: Claim Dismissed CATCHWORDS: PROFESSIONS AND TRADES – LAWYERS – DUTIES AND LIABILITIES – SOLICITOR AND THIRD PARTY – PRINCIPLES OF AGENCY – APPLICATION OF s 55 PROPERTY LAW ACT 1974 – Effect of irrevocable authority negotiated by solicitor COUNSEL: Mr K Wilson QC (for the plaintiff) Mr T Bradley QC (for the third defendant) SOLICITORS: James Conomos Lawyers (solicitors for the plaintiff) Cooper Grace Ward (solicitors for the third defendant) -- 1 of 7 -- 2 Introduction [1] In this proceeding the plaintiff claims the sum of $166,531.96 together with interest and costs from the third defendant. The third defendant acted as the solicitor for the first and second defendants who borrowed $200,000.00 from the plaintiff on or about 8 June 2004 and failed to repay any of this amount despite being obliged to do so. [2] Ultimately both the first and second defendants were declared bankrupt and the plaintiff looks to the third defendant to recover the balance of the monies owing pursuant to this loan together with interest and costs. The plaintiff alleges that the third defendant is liable to pay this amount on three bases. Firstly, it is alleged that the sum of $166,351.96 is payable by the plaintiff as monies had and received. Secondly, it is alleged that this amount is owing as damages pursuant to s 55 of the Property Law Act 1974 (“PLA”) and thirdly it is alleged that this amount is owing as equitable compensation. Factual background [3] It was clear to the plaintiff that the first and second defendants were in financial difficulty and negotiations took place between the parties, largely through their respective solicitors with a view to securing payment of the debt owing to the plaintiff. A proposal from the first and second defendants that they pay the entire loan of $200,000.00 upon the settlement of the sale of their house together with interest at 5% per annum to be capitalised on each anniversary of the loan was ultimately accepted by the plaintiff’s solicitors by letter dated 19 September 2005. Relevantly, the letter was in the following terms:1 “I advise my clients are agreeable to accept your client’s proposal number 1. In order to protect my client’s interest, to avoid the costs of a potential second mortgage or caveat, my client is agreeable to the matter simply being resolved by your client signing the enclosed irrevocable authority. Would you please confirm your client is agreeable to proceed with the Irrevocable Authority. If so, in order to complete the Authority please advise your clients full names, address and the location of your client’s property which is for sale.” [4] The irrevocable authority referred to in this letter (“the draft irrevocable authority”) was in the following terms2: “IRREVOCABLE AUTHORITY TO: ROBIN SMITH SOLICITOR PO Box 1408 CAIRNS QLD 4870 FROM: SHARNA and HANS RAUCH 1 Exhibit 2, doc 30 2 Ibid -- 2 of 7 -- 3 I, SHARNA AND HANS RACH of ## irrevocably authorise and direct you to forward to Williams Graham Carman of 1A Water Street, Cairns Q 4870 the sum of $200,000.00 plus 5% interest calculated annually from the date of the advance to the date of the repayment (i.e. the settlement date) (“the monies”) for monies due and payable in accordance with a loan deed between ourselves as borrower and FTV Holdings as lender. Payment of the monies is to be made to Williams Graham Carman from the proceeds of sale of our property located at ____________________________, Gordonvale, 4865, Queensland. Payment of the amount of $200,000.00 plus 5% interest per annum is to be made to Williams Graham Carman prior to any other deductions from the settlement proceeds and must be paid at settlement of our property at Gordonvale. I authorise and direct you to communicate with Williams Graham Carman details of the current status of settlement as and when requested from time to time by Williams Carman Solicitors.” [5] The third defendant telephoned the plaintiff’s solicitor on 22 September 2005 informing him that the first and second defendants accepted the relevant offer but that he would be changing the draft irrevocable authority before sending it out to them to sign.3 Ultimately the third defendant wrote to the plaintiff’s solicitors on 28 September 2005 in the following terms4: “I refer to your facsimile of 19th September 2005 and I now return the Irrevocable Authority dated 23rd September 2005, duly signed by my clients. Would you please note that I have changed the words slightly to agree with the terms of my clients’ offer. Please confirm that the Irrevocable Authority is acceptable.” [6] The enclosed irrevocable authority which had been signed by the first and second defendants was dated 23 September 2005 (“the irrevocable authority”). It was in the following terms5: “ IRREVOCABLE AUTHORITY I, Sharna Rauch and Hans Rauch of PO Box 450, Gordonvale, Queensland, 4865 irrevocably authorise and direct you to forward to Williams, Graham, Carman of 1A Water Street, Cairns, Queensland, 4870 the sum of $200,000.00 plus 5% interest calculated annually from the 08th June 2004 to the date of the repayment (i.e. the settlement date), (“the monies”) for monies lent to us by FTV Holdings Pty Ltd. Payment of the monies is to be made to Williams, Graham, Carman from the proceeds of sale of our property located at 12 Corcoran Street, Gordonvale, Queensland, 4865. Payment of the amount of $200,000.00 plus 5% interest per annum is to be made to Williams, Graham, Carman prior to any other deductions from the Settlement proceeds and must be paid at Settlement of our property at Gordonvale. I authorise and direct you to communicate with Williams, Graham, Carman details of the current status of Settlement 3 Ibid, doc 32 4 Ibid, doc 34 5 Ibid -- 3 of 7 -- 4 as and when requested from time to time by Williams, Graham, Carman Solicitors.” [7] As can be seen the alterations to the draft irrevocable authority were not particularly significant save for the fact that it was no longer addressed to the third defendant. It was now not addressed to anyone. [8] Thereafter the plaintiff became concerned at the time it was taking for the first and second defendants to sell their house. Ultimately the plaintiff’s solicitors wrote to the third defendant on 1 December 2005 stating that they were instructed that the plaintiff required a registered second mortgage over the property at the cost of the first and second defendants to be provided stamped and in registrable form within 14 days and that the debt and the interest accrued thereon be paid within two months.6 The third defendant responded in a letter dated 7 December 2005:7 “I refer to your E-mail of 01st December 2005. My clients have given their irrevocable authority which contains the terms of Settlement of this matter. Naturally, one can’t predict how long it will take to sell a property. My clients are making earnest attempts to sell the property and have in fact listed it for an asking price considerably below valuation. The asking price is $595,000.00. My clients are not willing to execute a second mortgage and do not agree to the terms requested in your E-mail of 01st December 2005. My clients will be happy to sell their house to your client for the asking price and set off against the asking price, the amount of the loan and interest accrued. Please refer this offer to your client for its consideration.” [9] Subsequent attempts to obtain further security in respect of the debt owing pursuant to the loan by the plaintiff proved unsuccessful. Ultimately a debt recovery firm was engaged by the plaintiff and a letter of demand was sent to the first and second defendants demanding $440,000.00.8 In a letter from the debt recovery firm to the third defendant dated 13 October 2006 this sum was expressed to be the original sum borrowed of $200,000.00 together with interest incurred to 8 June 2006.9 [10] The first and second defendants eventually sold their house for less than they hoped. As settlement approached the first and second defendants decided not to honour their obligation to repay the loan to the plaintiff from the proceeds of the sale of their house. A diary note of the third defendant dated 21 February 2010,10 as explained in the third defendant’s further and better particulars dated 8 March 2013, reveals that they instructed the third defendant not to pay the plaintiff from the proceeds of settlement. It is uncontroversial that he thereafter acted in accordance with these instructions. Significantly, none of the proceeds of settlement were received by the third defendant into his trust account. This is confirmed by the settlement statement which further shows that the third defendant only received a cheque in the sum of $550 at settlement, presumably in respect of his fees.11 6 Ibid, tab 37 7 Ibid, tab 40 8 Ibid, tab 47 9 Ibid, tab 49 10 Ibid, doc 61 11 Ibid, doc 65 -- 4 of 7 -- 5 The monies had and received argument [11] The plaintiff asserts that the third defendant is personally liable to the plaintiffs for the balance of the monies owing by the first and second defendants together with interest and costs for moneys had and received. [12] The allegation has its genesis in Bowstead and Reynolds on Agency12 at Article 112 which states inter alia: “(3) Where an agent is directed or authorised by his principal to pay to a third party money out of a fund existing or accruing in his hands to the use of the principal, and he expressly or impliedly promises such third party to pay him, or to receive or hold such money on his behalf or to his use, he is personally liable to pay such third party, or to receive or hold such money on his behalf or to his use, as the case may be, even if he has had fresh instructions from the principal not to pay such third party.”13 [13] It is submitted by the plaintiff that the irrevocable authority constituted an implied promise that the third defendant would pay the amount of $200,000.00 plus 5% interest per annum prior to any other deductions from the settlement proceeds upon settlement of the sale of the first and second defendants’ property (“the alleged promise”). It is further submitted that the third defendant effectively gave an undertaking as a solicitor to this effect. However unlike the circumstances under consideration in Webster v Shueard14 there has never been an acknowledgment by the third defendant that he was giving an undertaking to this effect. Rather the alleged promise occurred in circumstances where the irrevocable authority was no longer expressly addressed to the third defendant and in circumstances where the plaintiffs were pressing for further security and otherwise seeking to extract the monies owing to them by using a commercial agent. The circumstances were not dissimilar to those considered by the New Zealand Court of Appeal in Cashmere Enterprises Limited v Mathias15 where the court unanimously held that a solicitor who executed an irrevocable authority had not promised, either expressly or impliedly, to pay the debt of his client. He had given no personal undertaking to do so. The court stated that irrevocable authority represented no more than his client’s authority to make the payment. [14] On the facts before me I find that there was no implied promise by the third defendant in the terms of the alleged promise. I further find that no funds contemplated by the irrevocable authority were received by him in any event. The only funds which came into his possession following the sale of the first and second defendants’ property was the paltry sum noted above which was presumably received in respect of his fees. The claim based on monies had and received therefore fails. 12 19th ed, Sweet & Maxwell Ltd 2010. 13 Ibid, para 9-110 14 [2012] SASC 93 15 Unreported, 13/03/02 -- 5 of 7 -- 6 The s 55 PLA argument [15] The plaintiff further alleges that the third defendant, in making the alleged promise, promised to do an act for the benefit of the plaintiff and refrain from doing an act for the benefit of the first and second defendants and is therefore liable in damages pursuant to s 55 of PLA. [16] Relevantly s 55 is in the following terms: “(1) A promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise. … promise means a promise- (a) which is or appears to be intended to be legally binding: and (b) which creates or appears to be intended to create a duty enforceable by a beneficiary; and includes a promise whether made by deed, or in writing, or, subject to this Act, orally, or partly in writing and partly orally.” For the application of s 55(1) the third defendant is the promisor, the first and second defendants are the promisees and the plaintiff is the beneficiary. On the facts before me I am not satisfied that the third defendant in making the alleged promise made a promise which is or appears to be intended to be legally binding and which creates or appears to be intended to create a duty enforceable by a beneficiary. [17] The plaintiff further alleges that it accepted the alleged promise of the third defendant by agreeing to the terms of the irrevocable authority and by forbearing in seeking to recover the monies owed to them. On the facts before me I am of the view that there was no forbearance on the part of the plaintiff in this regard as the plaintiff continued to press for further security in respect of the monies owed and engaged a commercial agent to pursue the alleged debt. In the circumstances there was no clear acceptance of any alleged promise by the plaintiff in any event. The claim based on s 55 of the PLA therefore fails. The equitable compensation argument [18] The plaintiff also alleges that the agreement reached by the plaintiff and the first and second defendants culminating in the execution of the irrevocable authority created a trust whereby the amount the subject of the alleged promise was to be held on -- 6 of 7 -- 7 trust by the third defendant for the benefit of the plaintiff. The failure of the third defendant to act in accordance with the irrevocable authority is alleged to give rise to a claim for equitable compensation as a consequence. A similar argument was unsuccessfully attempted in Cashmere Enterprises.16 It was dismissed by the New Zealand Court of Appeal in the following terms: “The only conduct on Mrs Going’s part, which could possibly be regarded as constituting a declaration of trust in the terms suggested, was her execution of the irrevocable authority. But that document, according to its terms, neither purports to be a declaration of trust nor has it that effect in law. Neither in express terms nor as a matter of reasonable implication does the document evidence an intent alter the beneficial interest in future property. The transaction evidenced by the document is no more and no less than an authority to pay, expressed as being irrevocable.”17 [19] Subsequently it was observed that “it is impossible to find the necessary certainty of intent on Mrs Going’s part to establish a trust in relation to the relevant monies.”18 [20] Effectively what is being alleged is that the third defendant was an accessory to the breach of trust by the first and second defendants by knowingly breaching a trust which had been set up for the benefit of the plaintiff. However not only is there an absence of the requisite intent to create a trust but, as noted above, the third defendant never received the funds following settlement of the sale of the first and second defendant’s property, other than to the paltry extent of the apparent payment of his fees. He has therefore not been actively involved in the dissipation of the funds of any such trust. In my view it remains unclear that he assisted the first and second defendants to the requisite degree to found such a cause of action even if a trust was in existence. The claim based in equitable compensation therefore also fails. Conclusion [21] Each of the bases on which the proceeding is brought against the third defendant fails. [22] I dismiss the claim. 16 Op. cit 17 Ibid 18 Ibid -- 7 of 7 --