Belsand Pty Ltd v Bridgeland Securities Ltd & Ors [1995] FCA 360

CATCHWORDS TORT - relationship between accountant and client - whether accountants provided investment advice - whether client gave instructions to withdraw funds - whether such instructions were carried out - whether accountants negligent in discharging services - whether duty of care arose in relation to investment - whether there was a relationship of proximity - whether duty of care was breached - failure to provide statements in accordance with agreed system was negligent - whether positive duty to seek instructions - whether actions of accountants caused the damage. CONTRACT - whether failure to provide monthly statements breached contract - whether failure of client to complain constituted waiver or acquiescence. Trade Practices Act, 1974 (Cth) Fair Trading Act, 1987 (NSW) March v E & MH Stramare Pty Limited & Anor (1991) 171 CLR 506 Gala v Preston (1991) 172 CLR 243 Jaensch v Coffey (1984) 155 CLR 549 Hackshaw v Shaw (1984) 155 CLR 614 Sutherland Shire Council v Heyman (1985) 157 CLR 424 Hawkins v Clayton (1988) 164 CLR 539 BELSAND PTY LTD v BRIDGELAND SECURITIES LTD t/as BRIDGELANDS FINANCIAL SERVICE & ORS No. NG683 of 1990 Beazley J 2 June 1995 Sydney

IN THE FEDERAL COURT OF AUSTRALIA ) ) No. NG683 of 1990 NEW SOUTH WALES DISTRICT REGISTRY ) ) GENERAL DIVISION ) BETWEEN: BELSAND PTY LTD Applicant AND: BRIDGELAND SECURITIES LTD t/as BRIDGELANDS FINANCIAL SERVICE First Respondent PAUL FREDERICK TURNER BRUCE WILLIAM PHILLIPS JOHN WILLIAM BEALE KEVIN WILLIAM ENGLISH AND BRIAN ALBERT McSWEENEY t/as PHILLIPS McSWEENEY Second Respondents CORAM: BEAZLEY J PLACE: SYDNEY DATE: 2 June 1995 REASONS FOR JUDGMENT BEAZLEY J: This is a claim for damages arising out of the applicant's loss of approximately $520,000 invested at call with Estate Mortgage Financial Services Limited (in liquidation), through the services of the first respondent (Bridgeland). The claim against Bridgeland was settled prior to the commencement of the hearing. The claim against the second respondents (Phillips McSweeney) is brought in tort, contract, for contravention of s 42 of the Fair Trading Act, 1987 (NSW) and for breach of fiduciary duty. The applicant (Belsand) and Phillips McSweeney have agreed that in the first instance I deliver my reasons for judgment in respect of the actions in tort and contract only. As the reasons advanced for this course appeared appropriate, I propose to deal with those claims only in these reasons for judgment. If, upon an examination of these reasons, either party requests that I deliver my reasons on the other two causes of action, I will do so prior to the making of orders in the matter. The parties Belsand is a trustee company with power to invest trust funds. For the most part, its affairs are managed by one of its directors, Mrs Veda Rae Deaton. Phillips McSweeney were, at the time of the events subject of these proceedings, a partnership of accountants trading under that name. The fourth named second respondent, Kevin William English, is deceased and his Estate has not been joined in the proceedings. The composition of the partnership and the name of the firm have now changed, although those matters are not relevant to the issues. From about the beginning of 1986, Belsand retained Phillips McSweeney as its accountants, with Mrs Deaton mostly dealing with the firstnamed second respondent (Mr Turner). The extent of Phillips McSweeney's retainer is an issue in the proceedings. Phillips McSweeney were also the accountants for members of Mrs Deaton's family, various Deaton family companies, as well as for the estate of Mrs Deaton's husband and sister. Bridgeland was a licensed securities dealer with whom Belsand placed funds for investment in the period from about mid 1989 until about May 1990. Mr Preston, a specialist in the money market, was the person at Bridgeland with whom Mrs Deaton dealt. Background Facts The Deaton family had run a successful printing company. In about 1986, the business was sold for about $1.5 million. Upon the advice of Phillips McSweeney, Belsand was established as a trust company for the purposes of investment of those monies. Phillips McSweeney attended to the formalities required to establish the corporate and trust structure. For the most part, Belsand invested its money in the short term money market. On one occasion, it entered into a first mortgage security loan transaction with another client of Phillips McSweeney (the client mortgage investment). It also had investments in public companies, with Phillips McSweeney being Belsand's address for service of notices in respect of those investments. Other members of the Deaton family or their family companies also had various types of investments. These included real estate investment and investment in a private company, Soyfoods Pty Limited, which was associated with Mrs Deaton's sister. The fourth named second respondent (Mr McSweeney) recommended that Mrs Deaton utilise the services of Mr Preston for Belsand's short term money market investments. Mr Preston was, at that time, working as an investment adviser with the stockbroking firm, Bridges, Son & Shepherd. Later, Mr Preston moved to a new firm, Aetna Preston Securities Limited. Mrs Deaton transferred Belsand's business to that firm and continued to deal with Mr Preston. Bridgeland was established in 1989. Mr Turner, Mr McSweeney and Mr Preston were its directors. On 26 June 1989, Phillips McSweeney wrote to Mrs Deaton advising her that: "...John Preston has joined Bridgelands Securities Limited which is a wholly owned division of the firm. We are pleased to welcome John to our operation. ... Bridgelands Securities Limited will provide all of those services which John has offered in the past including:- * On Call Deposits * Commercial & Bank Bill Transactions * Sharebroking * Other listed and non-listed investments. As the financial year is drawing to a close, it would be opportune to transfer your existing deposits to Bridgelands Securities Limited to remain under the management of John Preston... If you would like us to arrange the transfer of those funds currently with Aetna Preston Securities Limited please sign the enclosed authority and return it to reach us by 30 June 1989." Initially, Belsand did not transfer its funds to Bridgeland. However, Mrs Deaton said that Mr Turner raised the matter with her on a number of occasions, saying similar words each time, to the effect: "Have you given any more thought to transferring your funds to Bridgelands?" Mrs Deaton said she replied: "Yes, but I am still thinking about it. I have followed Preston from Bridges Son & Shepherd to Aetna. I don't particularly want to change again. In fact, I am not comfortable changing to Bridgelands, it seems it's all a bit too in house and incestuous." Mrs Deaton also referred to another occasion when Mr Turner said: "This will be a good time to transfer the funds out from Aetna Preston to Bridgelands. We will be looking after your funds and your interest all in the one premises and we can do things immediately. It simply makes good sense to have instant communication and control within the one organisation. We feel most fortunate that we have acquired the services of Mr Preston. We feel that he will greatly enhance the service we can offer our clients in the financial advisory areas." Mr Turner responded: "OK Paul you seem so set on this, I will transfer as you suggest." Mr Turner denied most of this conversation. He said that he had three conversations with Mrs Deaton in respect of the transfer of funds to Bridgeland. However, he only gave evidence in respect of one. He said that, at the time of discussing the transferring of monies to Bridgeland, he said: "By transferring the funds to Bridgelands, John will continue to look after things for you and with him being on the floor above us it would make it a lot easier for you rather than going into the city if you needed to make a quick deposit or collect a cheque. It would also make it easier for us if you want us to deposit or withdraw from the account". In the early period of Belsand's short term money market investments, a practice was followed whereby, shortly prior to a bill maturing, Mr Preston would write to Belsand, reminding it of the date the bill matured and requesting instructions as to the further placement of the money. If Belsand did not give any instructions, the monies would be placed at call with the same organisation from which the bill had been purchased (the re-deposit practice). Mr Preston would confirm the receipt of monies lodged for investment or any instructions in relation to an investment, in a form letter in the following terms: "We acknowledge receipt of and thank you for your deposit and/or the instructions which alter your 'at call' balance. Figures which link the old and new balances are shown on the summary above.