Re Raymond Gerald Simersall; David Ernest Willis Blackwell v Barroile Pty Limited; Peter Cannell Baines Larcombe and Margaret Boland Carrying On Practise As Solicitors Under the Firm Name Or Style of Westgarth Middletons [1993] FCA 189 (23 April 1993)

FEDERAL COURT OF AUSTRALIA

Re: RAYMOND GERALD SIMERSALL; DAVID ERNEST WILLIS BLACKWELL
And: BARROILE PTY LIMITED; PETER CANNELL BAINES LARCOMBE and MARGARET BOLAND
carrying on practise as solicitors under the firm name or style of WESTGARTH
MIDDLETONS
No. NB859 of 1989
FED No. 245
Number of pages - 33
Bankruptcy - Legal Practitioners
(1993) 114 ALR 173
(1993) 42 FCR 151

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
BANKRUPTCY DIVISION
Foster J(1)

CATCHWORDS

Bankruptcy - trustees - derivative action by trustee - no duty at general law for the bankrupt's former solicitors to inform the trustee of details of the bankrupt's loan transaction.

Legal Practitioners - solicitor and client - negligence - whether failure to procure effective security in loan transaction - whether failure to give proper advice - solicitor declining to recommend transaction - client making own commercial decision to proceed with loan - client acting contrary to advice - client made bankrupt - whether duty of care owed by solicitor to inform trustee in bankruptcy of details of the loan transaction.

Bankruptcy Act 1966 - s 77, s 263(1), s 265, s 267C

Companies Code - s 459

Hawkins v Clayton and Ors (1988) 164 CLR 539

HEARING

SYDNEY, 12-15 October 1992
23:4:1993

Counsel for the applicant: Mr J. Neil QC

Mr M.G. Aldridge

Instructed by: Cutler Hughes and Harris

Counsel for the second respondents: Mr P.G. Hely QC
Mr S.G. Finch

Instructed by: Mallesons Stephen Jaques

ORDER

The Court orders that:

1. The application is dismissed.
2. The question of costs is reserved.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

DECISION

FOSTER J The applicant ("Blackwell") is the trustee of the bankrupt estate of Raymond Gerald Simersall ("Simersall") against whom a sequestration order was made on 5 June 1989. The second respondents are the partners in the firm of solicitors practicing under the firm name of Westgarth Middletons. The first respondent ("Barroile") is a shelf company provided to Simersall by the second respondents for purposes to which reference will be made later in these reasons.

2. By his Further Amended Points of Claim, Blackwell makes two broad claims against the second respondents. The first is a derivative claim. It asserts that Simersall has a cause of action in negligence against the second respondents by virtue of the failure of an employee Andrew John Lumsden ("Lumsden") to procure effective security for Simersall in respect of a loan of $500,000 made by Simersall on or about 9 August 1988. It is asserted that this failure was a breach of the duty of care owed by the second respondents to Simersall as his solicitors acting for him in the commercial transactions to which I shall make reference hereafter. Although not pleaded directly, an allegation of failure to give proper advice in respect of the transactions by Lumsden to Simersall is also made. Blackwell seeks to enforce these causes of action, allegedly available to Simersall, for the benefit of his estate.

3. Blackwell also alleges that the second respondents and Barroile owed to him a duty of care at common law, as trustee of Simersall's bankrupt estate, to inform him of facts relevant to the loan made by Simersall and as to the existence or otherwise of security for that loan and as to the existence and disposition of the proceeds of sale of certain containers allegedly involved in the commercial transactions engaged in by Simersall. It is asserted that failure to provide this information prevented Blackwell from taking appropriate measures for the financial benefit of the estate.

4. All Blackwell's claims are denied by the second respondents. Barroile was not represented and took no part in the proceedings. A large number of documents were tendered as being annexures to affidavits read on behalf of Blackwell or separately as documents obtained in other ways. In the ultimate only a few of these documents were relied upon in argument. I shall not refer to any documents which did not become the subject of submissions. The case presented by Blackwell was somewhat amorphous depending, in the first instance, upon inferences to be drawn from documents and upon portions of affidavits filed by the second respondents. Simersall, although alleged to be the victim of the second respondents' negligence, provided no evidence in support of that claim. As will also appear, other leading participants in the commercial transactions surrounding Simersall's loan gave no evidence in the proceedings. Indeed, it is only through the evidence of Lumsden and two of the second respondents, Andrew Wentworth Stevenson ("Stevenson") and Stuart David Westgarth ("Westgarth") that any factual pattern appears. All three gave evidence on affidavit and orally. I find the following facts established by this evidence and the documents to which I shall make reference.

5. Westgarth had acted for a client, Harry Costello ("Costello"), in a number of matters since 1985. Costello was a shareholder and director of a number of companies which included Costello Investments Pty Limited ("Costello Investments") and K (Asia-Pacific) Pty Limited ("KAP"), a company in which Costello Investments had a controlling interest. KAP was a company involved in shipping. The nature of this involvement was not made clear in the evidence. Costello also had a controlling interest in a company Castle Containers Inc which provided and dealt in containers to be used in the shipping industry.

6. In early July 1988 Westgarth was approached by Costello or by Mr Campbell, the company secretary of KAP, to act for Costello and KAP in relation to the urgent obtaining of funds for the operation of KAP. Westgarth was advised that a Mr Hartigan had been retained to look for potential investors in KAP. He was told that a certain Mr Arnott-Smith was a likely investor either personally or through companies owned and controlled by him.

7. Shortly thereafter Mr Arnott-Smith instructed Stevenson to act in relation to Arnott-Smith's making an investment in KAP. Stevenson caused Lumsden, then an employed solicitor of the second respondents, to act for the proposed investors in relation to their investment in KAP. Arnott-Smith was a friend and client of Stevenson. Over the years Stevenson had advised him and also his company Hednesford Pty Limited in relation to legal matters. In July 1988 Stevenson and Lumsden came to act for a syndicate which was proposing to lend $1,000,000 to KAP and to acquire shares in the company. At that time the syndicate comprised Arnott-Smith and his company Hednesford Pty Limited, Simersall, a company Randville Pty Limited and one Robert Wachjo ("Wachjo"). The evidence does not establish clearly what role Wachjo had in the syndicate. Another person John Dotch also played a role, the nature of which was not made clear.

8. Barroile was the shelf company selected and provided to the syndicate by the second respondents to be the vehicle for the lending of money to KAP and the acquisition of shares in that company.

9. Stevenson obtained a report from the firm Duesburys on the financial position of KAP. This report was obviously available to all members of the proposed syndicate including Simersall. The contents of the report are in evidence, being an annexure to Lumsden's affidavit. No reliance has been placed upon its contents by any party in the litigation in the sense that no argument has been addressed to the Court based upon specific material in it. It was suggested in cross-examination to Lumsden and Stevenson that the report indicated that KAP was insolvent. This suggestion was not accepted although it was conceded that KAP was in a precarious position if it did not receive an urgent injection of funds. Quite clearly the members of the proposed syndicate were approaching the provision of funds and the acquisition of shares in KAP as a business venture, not an act of charity. They were looking at the transaction as one capable of producing profit to them through the continued operation of KAP both by way of their receipt of interest on the loan and their acquisition of a substantial shareholding in the company.

10. In July Westgarth, acting for Costello and KAP, and Stevenson and Lumsden, acting for the potential investors, proceeded with the preparation of necessary documentation to enable Barroile to be the investment vehicle for the syndicate and for Barroile to enter into a secured lending transaction with KAP. This involved (inter alia) the production of a document known as the Finding Support Deed and also documentation creating a floating charge over the assets of KAP in favour of Barroile. These documents are in evidence but no reference has been made to their provisions in argument, and nothing turns upon their contents.

11. Some criticism was made of the fact that the second respondents were acting for both sides in these transactions. There was some reference to conflict of interest. However, no case based upon these criticisms was pleaded or developed. I accordingly put them to one side. Indeed, I can see nothing in the evidence to suggest that Simersall was in any way disadvantaged by the fact that Westgarth was acting for Costello and his interests.

12. It is quite clear that there was a fairly high degree of urgency involved in the obtaining of funds for KAP. Stevenson and Lumsden were aware of this and of the fact that the speed with which matters were developing prevented any proper or thorough investigation of all aspects of the funding proposal. Neither solicitor felt able to recommend that the proposal proceed. In a facsimile dated 28 July 1988 they advised the intending syndicate members, including Simersall, that:-

"... given -
- the somewhat uncertain knowledge of the level of KAP's
creditors,
- the present financial position of KAP,
- KAP's uncertain tax position,
- the various qualifications in the Duesburys' report,
- the softness of the warranties from the warrantors,
- the lack of hard assets which support the warranties.
It is suggested that Costello Investments has only
$100,000 (plus Bilgola House and Harry's car - which
Harry wants quarantined from claims),
- the Dalgety involvement,
- the different interests of the various participants in
Newco which suggests to me that DL and MS should be
added as parties to covenant as to the Dalgety deal
and as to their non-claim against KAP till Newco's $1
million is recouped - depending of course on the
amount advanced (although they will not be Newco
shareholders),
- BAS's absence overseas,
- RS's non day-to-day involvement in the many
discussions which have taken place (of which I
understand he has been duly informed),
- that a large sum needs to be injected into KAP by the
purchasing group on Day 1,
I have difficulty in being able to recommend that the
proposal should proceed nor, obviously, can I countenance
the situation in which this firm is in any way held liable
or accountable for any decision which the purchasing group
may make to proceed.
The above is not to say that the purchasers should not take
whatever decision they regard as being appropriate, but
rather it makes it very difficult for me (as your lawyer) to
recommend the deal.
We have yet to finally negotiate with Harry as to the
outstanding issues previously discussed.
Moreover I have not been asked to consider the separate tax
or other positions of any of the Newco participants."

13. It is clear that the reference to RS in this facsimile is a reference to Simersall and that the reference to BAS is a reference to Arnott-Smith who was, in fact, overseas during the greater part of this negotiating period. The reference to the "Dalgety involvement" and the "Newco shareholders" is not explained in the evidence. However, the general content of this document makes it plain that there were a large number of outstanding issues in respect of which the solicitors felt unable to provide advice, with the result that they could make no recommendation one way or the other about the proposal and were not prepared to accept any liability in respect of any decision the syndicate members should make at a commercial level.

14. Stevenson went overseas on 28 July 1988 and did not return to Australia until the first week of September 1988. The conduct of the matter was left in Lumsden's hands under the supervision of another partner. It is clear that, for practical purposes, Lumsden, who was an experienced commercial solicitor, dealt with the proposed syndicate members after Stevenson's departure.

15. On 1 August 1988 a meeting was called between the proposed investors and KAP and Costello and his interests. Lumsden attended at the meeting which took place in the offices of the second respondents. The Costello interests and KAP were represented by Westgarth. I am satisfied that the meeting continued until late in the evening. It is not clear whether it started late in the afternoon or somewhat before then. I am satisfied that before the main meeting in which the negotiating parties met, an earlier meeting was held between Lumsden and the proposed syndicate members. Notes kept by Lumsden of this meeting contained the following "again explained to Simersall the marginal nature of this deal, deal is very risky especially since not going to get control of KAP and had no idea about the 5%".

16. It is apparent that the reference to the "5%" is a reference to the fact that there was an outstanding shareholding in KAP not under the control of Costello. This shareholding could create difficulties in the future.

17. Reference is also made in the notes to a charge by Westpac Banking Corporation ("Westpac") over KAP. There were problems in obtaining an effective charge in favour of Barroile whilst the Westpac charge remained in existence. Lumsden advised of problems that could arise under s 459 of the Companies Code if any advances were made by Barroile to KAP before KAP's charge in favour of Barroile was in place. There was obviously some reference made to "containers" and their use in the lending transaction. Significantly, Lumsden recorded the following admonition as having been issued to the syndicate members by him in what seems to have been either before the main meeting or during it:

"Don't look at recovering your $500,000 from Westgarth
Baldick's professional indemnity policy. This is a very
marginal deal. We know next to nothing about these Cayman
Island containers, nor who is to own them or how. If you
want to do it this way then fine but don't look to me for
commercial advice or for that matter legal advice re these
shares because I don't know, simply not time".

18. Lumsden gave evidence of events at the meeting between the negotiating parties on 1 August 1988. At the outset of the meeting Costello said "this deal must be signed tonight". Lumsden stated in evidence that this was the first time he had been aware that this was a requirement of the meeting. All the potential investors were present. There had been a common intention of the syndicate investing via Barroile in KAP up to $1,000,000. However, as the meeting progressed all the proposed investors withdrew from the syndicate leaving Simersall alone. Simersall was prepared to continue with the investment in KAP but only to the extent of $500,000. He was prepared to follow the original scheme of lending this amount to Barroile which company would then on-lend it to KAP. In order to accommodate the changed circumstances it was necessary only to amend the transaction documents so that they referred to Simersall alone as the investor and recorded that the amount of his loan would be $500,000 rather than the $1,000,000 originally contemplated.

19. There emerged, however, an impediment to the finalisation of the arrangements that night. KAP's charge in favour of Westpac had not been discharged. Costello had, despite assurances previously given, not arranged for this. He said that it should be no problem and that the "position with Westpac" should be resolved within 24 hours. I accept that when this announcement was made by Costello, Lumsden, as he deposes, said to Simersall words to the effect:-

"The security being offered to Barroile, namely the first
floating charge over KAP, will only be worthwhile if
Westpac's charge is discharged and if the money is advanced
by Barroile after KAP has given Barroile the charge. The
arrangements contemplated by the Funding Support Deed which
you are proposing to sign will have to be held in escrow
pending resolution of the position with Westpac and the
granting of the charge to Barroile."

20. I am satisfied that it was accepted at the meeting that the Funding Support Deed could not go forward until Westpac's floating charge was removed and a charge in favour of Barroile put in place over the assets of KAP.

21. Although all the investors, except Simersall, who had displayed original interest in joining the syndicate withdrew from participation during the meeting of 1 August, it is clear that Simersall contemplated that an entity referred to as "Essington" might become an investor. If this were to happen, the investment would be made by way of the taking of a shareholding in Barroile and the advancement of money to Barroile to be on-lent to KAP. I am satisfied that, at the meeting, Simersall told Lumsden that, in the first instance, he would own the two issued shares in Barroile, one directly and one via Wachjo who would hold a share in trust for him. He further said that Wachjo represented the interests of a shipping concern Djarkarta Lloyd who "looks like taking an interest in the investment if and when it gets FIRB approval".

22. I am quite satisfied that Lumsden was given to understand by Simersall that although he, Simersall, was the only investor on the night prepared to advance monies to KAP via Barroile, there were in the wings other investors who might advance further monies in the same way. Obviously, these investments, if they materialised, could not be finalised until Westpac's charge was removed and KAP's charge in favour of Barroile substituted.

23. It is clear that the question of "containers" was also raised during the meeting. It was raised in the context that Costello could cause Castle Containers Inc to make containers owned by it available as additional security for KAP's repayment of monies to be advanced to it by Barroile. Costello could also make available as security his shares in Castle Containers Inc. According to Westgarth's evidence which I accept, the matter was raised by Simersall during the meeting. He said that Barroile would want a charge or mortgage over the shipping containers. Costello agreed but stipulated that as Barroile was only putting in $500,000 that there had to be "some mechanism so that any containers available after $500,000 worth of containers had been utilised to repay you are free of the charge". This was agreed and Westgarth then drafted for the meeting a letter, a copy of which is annexed to his affidavit. It reads as follows:-

"The Directors,
Barroile Pty Limited
Dear Sirs,
FUNDING OF K (ASIA-PACIFIC) ("KAP")
In consideration of Barroile Pty Limited making advances to
KAP up to $500,000.00 and entering into the document called
'Funding Support Deed' dated 1st August, 1988, we Henry
Lancelot Costello and Costello Investments Pty Limited agree
and undertake jointly and severally to cause Castle
Containers Inc to charge in favour of Barroile Pty Limited
all of the shares in and the containers owned by Castle
Containers Inc as security for the aforesaid advances up to
$500,000.00 such that in the event of the liquidation of
KAP, Barroile Pty Limited will be entitled to sell the said
shares or the containers and after retaining sufficient
moneys to cover its sale expenses and outstanding advances
to KAP will pay the surplus balance to Henry Lancelot
Costello or Costello Investments Pty Limited or as they
otherwise jointly direct. In exercising its rights
hereunder Barroile Pty Limited shall have the same rights,
duties and obligations as a mortgagee.
It is further agreed that if Barroile Pty Limited recovers
any part of its advances from KAP then in exercising its
rights hereunder Barroile Pty Limited shall be entitled only
to retain the balance of moneys after giving credit for the
amounts recovered from KAP."

24. The letter was signed by Costello personally and on behalf of Costello Investments. It was also signed by Simersall to indicate Barroile's acknowledgment and agreement.

25. The Funding Support Deed and documents related to it were also executed late in the evening of 1 August 1988. I am satisfied that, because of the existence of the charge in favour of Westpac, that all concerned understood that the execution of the documents was in escrow and that the documents were not to take effect until the Westpac charge was disposed of and the charge in favour of Barroile substituted.

26. It is also clear that Costello, on behalf of KAP, was prepared to accept a loan of $500,000 from Simersall via Barroile but expressed the view that an extra $500,000 was still required. It was the hope of all concerned that a further investor or investors would be found to make up the difference. It is plain that it was understood that the additional funding was fairly urgently required in order to maintain KAP in operation.

27. Lumsden gave evidence, which I accept, that he had a further conversation with Simersall at the meeting of 1 August 1988 in which Simersall inquired as to whether, in order to overcome the problem of the Westpac charge, he could "personally advance the $500,000 to KAP directly". I am satisfied that Lumsden, as he said, advised Simersall against this on the basis that such an advance would be unsecured and that he said words to the effect "until the position vis a vis Westpac and KAP is resolved there can be no valid charge to Barroile or you personally over the assets and undertakings of KAP".

28. I am further satisfied that Lumsden went on to say to Simersall words to the effect:-

"You could ask Harry Costello to charge the Castle Container
shares in your favour rather than Barroile's favour and then
have Barroile repay you and become the lender but any charge
to you personally could only be made after the position with
Westpac is resolved.
You have to be careful. Harry Costello has undertaken to
Barroile to cause Castle Containers to charge in Barroile's
favour all of the shares in and the containers owned by
Castle Containers only in consideration of Barroile making
advances to KAP. If you wish to make the money available
personally you will have to reach agreement with Harry
Costello to make the covenant in your favour. Further, you
must realise that Barroile will not hold any security over
the assets of Castle Containers until the position with
Westpac is resolved and the escrow on the Funding Support
Deed is lifted."

29. On 3 August 1988, Lumsden sent a facsimile message to Costello and Simersall in the following terms:-

"KAP
We refer to previous discussions and in particular to
settlement, in escrow which we confirm took place on 1st
August 1988. As previously advised no moneys are to be
advanced to KAP by Barroile Pty Limited until such time as
the position with Westpac has been resolved. We understand
from Geoff Hartigan with whom we have spoken this morning
that he is endeavouring to contact Westpac however that they
have not been forthcoming in answering his calls etc.
The reason for the foregoing is Section 452 of the Companies
Code which provides:-
'A floating charge on the undertaking of property of
the company created within six months before the
commencement of a winding up is unless it is proved
that the company immediately after the creation of the
charge was solvent, invalid except to the amount of
any moneys paid to the company at the time of or
subsequent to the creation of and in consideration for
the charge together with interest on that amount at
the rate of 8% per annum or such other rate as is
prescribed.'
Lastly we confirm that you are continuing to negotiate with
Essington Limited and will advise us when the negotiations
have reached a stage that shareholders other than Ray
Simersall are to be introduced to Barroile Pty Limited."

30. I accept that the following day Lumsden had a discussion with Simersall as to the preparation and submission of documents to Essington Limited in relation to the possibility of that company becoming an additional investor. During the course of this conversation, Simersall advised Lumsden that, despite Lumsden's advice to the contrary, he had in fact "placed $50,000 into KAP's account". Lumsden advised Simersall to refrain from any further "drip feeding" until the position with the Westpac charge was resolved.

31. On 9 August 1988 Lumsden received information from John Dotch that "Essington" was "waiting to see what the position was in relation to the outstanding 5% of KAP before committing themselves any further". He also advised Lumsden that Simersall had made further advances to KAP "because he was being pressured by KAP". This information was confirmed in a telephone conversation with Simersall shortly thereafter. Lumsden's notes of the conversation indicate that Simersall told him that he had advanced $550,000 to KAP and that he would "take his chances on the containers" he further said that he was "just going to rely on the containers only".

32. Lumsden was clearly concerned that Simersall was providing this money to KAP. He sent a letter to Simersall the following day, 10 August 1988, in which, inter alia, he said:-

"(W)e are most concerned that moneys have been made
available to KAP before the charge to Barroile has been
registered. We note that you are happy to rely on the
charge over the shares in Castle Containers Limited
notwithstanding our concern that this company might be
investigated in any winding up of KAP and may be an asset
which Harry Costello's trustee in bankruptcy might seek to
include within his assets and hence be available for his
creditors.
You may wish to consider the possibility of the moneys that
you have already made available to KAP being made available
from you personally (with Harry and Costello Investments
agreeing to charge the Castle Containers shares in your
favour) rather than from Barroile and then subsequently have
Barroile refinance your loans to 'take you out'. This
procedure should from Barroile's point of view elevate the
problems we have previously discussed in relation to s.452
of the Companies Code. Please ring to discuss.
The Funding Support Deed will remain in escrow until Westpac
either consents to the registration of Barroile's charge or
is taken out."
(The word "elevate" was a typing error. The word should
have been "alleviate").

33. It is clear that nothing further eventuated in relation to Simersall's obtaining any form of security for the monies advanced by him to KAP. It is alleged by Blackwell that Lumsden should have procured appropriate security for Simersall and that his failure to do so was a breach of duty owed by him to Simersall rendering the second respondents liable to make good any loss thereby suffered by Simersall. In this regard, evidence was called by Blackwell as to the steps which it was alleged that Lumsden could and should have taken to protect Simersall's interests. An experienced solicitor, Mr Moses, gave expert evidence on this topic.

34. Mr Moses, for the purposes of his evidence, assumed that at the meeting on 1 August 1988 Simersall had indicated to Lumsden that he might find it necessary to advance monies to KAP even though the Funding Support Deed had not yet become operative through KAP's inability to obtain discharge of the charge in favour of Westpac. He also assumed that Lumsden told Simersall that Barroile could hold the security over the assets of Castle Containers until the Westpac position was resolved. A further assumption was that on 9 August 1988 Simersall told Lumsden that he had advanced the funds to KAP and was happy to rely "on the containers only". He also took into account the letter signed by Costello during the meeting of 1 August 1988, which is set out above.

35. In light of these facts, Mr Moses expressed the view, in his affidavit, that:

"(I)t was essential, if Mr Simersall was to have the benefit
of the promised Charge over the containers that either the
monies advanced could be shown to have in fact been advanced
by Barroile or that the letter containing the promise from
Mr Costello and his company be varied to include Mr
Simersall as a prospective Chargee as well as Barroile."

36. Mr Moses expressed the view that these objects could have been achieved by adopting any of the following courses:-

"(a) A deed being entered into by Mr Costello and his said
company acknowledging that advances by Mr Simersall
would be regarded as advances entitling him to the
same security as that promised to Barroile; or
(b) Mr Costello and his said company acknowledging that
the advances by Mr Simersall to KAP were advances by
Barroile so that the Charge promised to Barroile would
become operative (assuming all other conditions in the
arrangement were satisfied) and in that event Barroile
would have held its Charge in trust for Mr Simersall
who was the person who had in fact provided the
advance; or
(c) (If it be true) by providing evidence that Mr
Simersall had advanced the funds as a nominee of and
for and on behalf of Barroile so that the advance had
in fact been made by Barroile and not by Mr Simersall; or
(d) By Mr Simersall assigning the benefit of the debt owed
by KAP to him to Barroile and KAP acknowledging that
the advance by Mr Simersall thereby satisfied
Barroile's obligations under the Funding Support Deed
to make the advance of up to $500,000."

37. He further said that it would have been standard practice for Simersall to be advised as to the availability of these courses once he had indicated a wish to obtain security over the containers and that he should take prompt action to secure his position by adopting one of them.

38. Mr Moses readily acknowledged in cross-examination that these courses were "blindingly obvious" and that each one of them could have been embarked upon only if Simersall were prepared to accept the advice and act upon it. He also agreed that the first, second and fourth courses would require the full co-operation of Costello for their implementation, it being assumed that KAP was effectively under Costello's control.

39. I should state that, at this point, in my view, the "containers" did not achieve the prominence in discussion which they later assumed. KAP itself was obviously regarded by Simersall as a company worth saving and worth investing in. The charge over its assets was seen to be a worthwhile security. Once its current precarious financial position could be rectified, its operations could produce a profitable future. The "containers" were, in my view, being regarded as a secondary form of security. Nothing much was known about them. They were owned by a Cayman Island company. Their physical whereabouts were something of a mystery. Whilst it is true that some months later they proved capable of being sold and the monies from the sale being made available for the operation of KAP and other purposes, there is no reason to suppose that this should have been clear to Lumsden at the time in the absence of precise information being provided to him by Simersall. In the absence of evidence from Simersall, there is nothing to demonstrate that even Simersall was aware of the value, if any, of the containers as security for his advances to KAP.

40. Lumsden's evidence on this aspect of the case is simply that, having given the advice to Simersall at the meeting on 1 August 1988 that if he personally advanced the $500,000 to KAP without the prior removal of the charge to Westpac he would be unsecured and liable to lose the money if KAP was put into liquidation, he made the suggestions set out above when he learnt, to his concern, that Simersall had nevertheless made the loan. Thereafter, he could obtain no instructions from Simersall to take any further action to protect him. Simersall told him that, as a purely commercial decision, he was prepared to take the risk.

41. Moreover, I accept the submission made on behalf of the second respondents that there could have been sound commercial reasons for not encumbering Barroile with any obligation to Simersall in respect of Simersall's advance. On the basis of the matter proceeding as originally contemplated, namely a loan by Simersall to Barroile to be on-lent by Barroile to KAP, with Barroile receiving security from KAP by way of an equitable charge and from Castle Containers as contemplated in Costello's letter of 1 August, then a trust or other encumbrance by Barroile in favour of Simersall could have resulted in Barroile's assets being charged in favour of its sole shareholder. This could have impeded it in its capacity to carry on business and also in its capacity to attract new investors which, quite clearly, in August 1988 was something which Simersall wished to achieve.

42. It must also be observed that the obligations of Castle Containers in favour of Barroile created by Costello's letter of 1 August would come into existence only when Barroile made the required loan to KAP. Until that event occurred Barroile achieved no benefit from Costello's promise, and had no charge over the containers or the shares in Castle Containers. It had nothing from which it could confer any benefit to Simersall.

43. Accordingly, it was plain that if Simersall lent money directly to KAP, he could get no security from KAP whilst the charge to Westpac remained in place, nor could he obtain any security over the "containers" by virtue of Costello's undertaking to Barroile of 1 August 1988. He could obtain security over the containers only by entering into some fresh arrangement with Costello and Castle Containers Inc. This is, in fact, what he was advised to do by Lumsden.

44. For this new arrangement to eventuate it was, of course, necessary that Costello agree to it. There is no evidence to suggest that Simersall asked Costello to agree to it or that Costello would have agreed to it if asked. It is plain from the plethora of documents in this case that there was much activity in the background of the salvage operation for KAP. There was a prospect, or at least the possibility, of other parties being interested. Mention is made of names of possible investors whose interests might have had to be considered. It is quite impossible to infer that a request to Costello to alter the arrangements arrived at at the meeting of 1 August would have been successful.

45. I am quite unable to derive from the fact that Lumsden made a note on 9 August 1988 of Simersall's telling him that he was "just going to rely on the containers only" that he was thereby giving some definite instructions to Lumsden to draw up necessary security documents for the giving to Simersall of a charge over the containers. In the same conversation, apparently, he told Lumsden that he had put $550,000 into the transaction and would "take his chances on the containers" and would "revert when there is something to tell". Nor do I accept that the conversation amounted to an assertion to Simersall that he had at that time security over the containers. In fact a letter sent by Simersall on 5 August to the directors of Barroile asserted that Simersall was going to lend the money to KAP personally. This letter appears to have been discovered amongst documents other than those held by the second respondents. I am satisfied that Lumsden was not aware of it. In the light of advice previously given to Simersall by Lumsden, Simersall could not reasonably have considered that a direct loan by him to KAP would be secured over the "containers or the shares in Castle Containers Inc".

46. In the absence of evidence from Simersall or Costello, I gain the distinct impression that, when the arrangements originally sought to be put in place through the documentation drawn up for the meeting of 1 August were stalled by the fact that Costello had not arranged to discharge Westpac's charge over KAP's assets, the two men entered into negotiations on their own with fleeting and incomplete references back to the solicitors over the ensuing months. It appears that matters came to something of a head in November when Costello began to sell containers. On 9 November 1988 there was a meeting attended by Westgarth, Costello, Simersall, Lumsden and others which was apparently intended to provide an opportunity to review the current situation. Lumsden records in his note of the meeting that Simersall said, in relation to his advances of $500,000 to KAP that "he always thought he would be covered". It is clear, from the note, and Lumsden's evidence, that he responded that on three separate occasions he had advised Simersall that he was not covered but that he went ahead anyway. Moreover, it is not clear whether at that stage Simersall was asserting that it was Barroile, at that stage clearly his alter ego, that was covered. It seems that he asserted that as 114 containers had been sold Barroile "should get first crack" at the proceeds.

47. The balance of discussion at the meeting which appears to have been lengthy seems to have involved attempts to arrive at new methods of providing finance to KAP.

48. The situation appears to have been confused and attempts were made to arrive at some new solution in circumstances where there was no agreement that Simersall or Barroile had any claim over the containers. I think the inference is inescapable that after Simersall advanced the $500,000 direct to KAP, perhaps under some pressure from Costello, the two men had never come to any final understanding as to whether Simersall could make a claim to the same security over the containers as had been provisionally provided to Barroile. The situation was fluid and the problem unresolved.

49. There was a meeting between Lumsden and Simersall on 2 December 1988 the contents of which are recorded in a note annexed to Lumsden's affidavit. I am satisfied from this note that Lumsden expressed concern to Simersall that the "transaction would seem to have varied significantly from the documentation prepared" and that Simersall confirmed that he had received advice from Lumsden on a number of occasions on the evening of 1 August not to proceed with the transaction but that he nevertheless wished to do so. Lumsden also advised Simersall that his present intention to use money that might become available through the sale of containers as security for further advances by the bank for the continued funding of KAP was dangerous to Simersall's interests as it would reduce his security in the containers "significantly to the point where he may have no security available whatsoever for the monies that he had advanced KAP". Simersall is recorded as having said that he understood this but he wished to take the "commercial" decision to do so despite being warned against it.

50. It appears that despite this advice being given, a joint account was set up between Costello and Simersall into which proceeds of container sales were paid. Various payments were made out of this account. It seems most likely that the interest was regarded as being that of Barroile rather than Simersall. In any event, it was all done against Lumsden's advice.

51. It appears that, ultimately, in February 1989 Lumsden received positive instructions from Simersall "to act on your behalf in the regularisation of the affairs of Barroile and yourself insofar as they relate to certain loans and other advances made to KAP". It appears that these instructions were received in light of the impending payment out of Westpac's charge over the assets of KAP. In effect, when this was done, what was sought to be achieved was the implementation of the agreement entered into on 1 August but held in escrow since that time. I am unable to derive from the efforts that were made in February any suggestion that Lumsden had been wanting in proper diligence in respect of Simersall's interests up to that point of time. In February he merely set out to achieve what Simersall had always wanted, namely, as counsel for the second respondents put it, "a situation in which Barroile advanced the $500,000 to KAP and in which Barroile got the benefit of the KAP security as well as the Castle Containers security". That these arrangements had not been put in place earlier was due to the fact that, apparently, Costello had not arranged for the removal of Westpac's floating charge over KAP's assets and by Simersall's lending of the money to KAP notwithstanding that the charge had not been removed and he had no agreement with Costello to take the benefit of a charge over Castle Containers' shares and containers.

52. In all these circumstances, I am quite unable to find that Lumsden was guilty of any negligence towards Simersall either in failing to procure security for Simersall's loans, as pleaded, or in failing to provide him with adequate advice. I think he did the best that he could in a hopelessly difficult situation. Accordingly, the applicant's first claim fails.

53. I come then to the applicant's second claim.

54. This claim, as already indicated, is based upon duties of care allegedly owed to Blackwell as trustee of the bankrupt estate of Simersall. The Further Amended Points of Claim allege that such a duty arose upon the second respondents becoming aware that Blackwell was:

"(a) Trustee of the bankrupt estate of Simersall;
(b) Seeking information in relation to Simersall's and
Barroile's affairs."

55. It is further asserted that the duty, then said to arise, required that the second respondents "as solicitors or former solicitors for Simersall:

(a) promptly to inform the Applicant of the circumstances
surrounding the advance by Simersall to KAP of
$500,000;
(b) promptly to inform the Applicant of the existence of
the undistributed proceeds of the sale of the shipping
containers...;
(c) to refrain from acting for Barroile or Costello,
Costello Investments, Castle Containers, John Anthony
Bray and Brian Raymond Campbell in the preparation of
the deed dated 1 February 1990 and from participating
to the extent of $27,593.94 in the funds that had
arisen from the sale of some of the said shipping containers."

56. Breaches of the duty of care thus defined are assigned in the Further Amended Points of Claim. It is not necessary to set them out in these reasons.

57. The Further Amended Points of Claim also allege the breach of a duty of care owed by Barroile and said to arise in the following way:-

"26. Further, the First Respondent became aware before 1 February
1990 that the Applicant was:
(a) Trustee of the bankrupt estate of Simersall;
(b) Would, in the normal course of his duties be seeking
information in relation to Simersall's and Barroile's
affairs.
Particulars
Letter dated 20 June 1989 from the Applicant to the Second
Respondents who were solicitors for the First Respondent.
27. Thereafter, the First Respondent became under a duty to the
Applicant:
(a) promptly to inform the Applicant of the circumstances
surrounding the payment by Simersall to KAP of
$500,000;
(b) promptly to inform the Applicant of the existence of
the undistributed proceeds of the sale of the property
referred to in paragraphs 8, 18 and 21 hereof;
(c) to refrain from disposing of any of the rights of
Barroile or the proceeds thereof."

58. Breaches and consequential loss are set out in the Further Amended Points of Claim. It is not necessary to set them out in these reasons. The reference to a deed dated 1 February 1990 is to an agreement constituted by a deed of that date to which Simersall was not a party but to which Barroile, Costello and the other persons and entities referred to above, were. This deed provided for the disbursement of the balance of monies obtained from the sale of containers. There was no provision for payment of any such monies to Simersall. The amount of $27,593.94, referred to above, were legal costs of the second respondents charged to Barroile.

59. The threshold question in relation to these claims is whether the respective common law duties of care relied upon have been established.

60. I note, at the outset, that insofar as the duties are alleged to have arisen upon Blackwell's seeking "information in relation to Simersall's and Barroile's affairs", the way in which such information was sought was the forwarding of a letter from Blackwell to the second respondents on 20 June 1989. This letter read as follows:-

"I advise that Mr D E W Blackwell was appointed Trustee of
the Estate of Raymond Gerald Simersall pursuant to Section
156(A) of the Bankruptcy Act 1966.
I am aware that your firm acted for Mr Simersall in at least
one matter, being an advance by the Bankrupt to K (Asia-Pacific)
Pty Limited (now in Liquidation). Mr Simersall had
alleged certain securities over Company assets for the
advance which security proved to be ineffective. I
understand that Mr Simersall may also have arranged for
certain guarantees to have been provided to him or his
Company, Barroile Pty Limited. Please advise me if you have
any information in regard to the guarantees provided, and
the name and address of the Guarantors if available."

61. After some discussion took place within the firm, Westgarth answered this letter on 9 August 1989 as follows:-

"We acknowledge your letters of 20 June and 18 July 1989 and
apologize for the delay in responding.
We are not aware of any guarantees having been provided to
Mr. Simersall or to Barroile Pty Limited."

62. This answer was strictly correct. No "guarantees" had in fact been provided. Notwithstanding this, were the second respondents under some common law obligation to divulge to Blackwell information in relation to the transactions of Simersall and Barroile both of whom were, of course, clients? That is, an obligation over and above the obligations imposed by relevant provisions of the Bankruptcy Act 1966.

63. It was submitted on behalf of the second respondents that the obligations of persons to disclose matters to a Trustee in Bankruptcy are exhaustively provided for in the Bankruptcy Act itself, there being, accordingly, no room for the imposing of any additional duties under the general law.

64. The Bankruptcy Act (ss 77 and 265) requires that a bankrupt make personal disclosure of his property to the Trustee. So far as other persons are concerned there is provision in s 263(1) that: "... a person shall not ... with intent to defraud the creditors of ... a bankrupt ... conceal property of the bankrupt ...". The applicant does not rely upon this provision in these proceedings. No fraudulent concealment of the bankrupt's property is alleged.

65. Again, s 267C of the Bankruptcy Act provides that a person must not provide false or misleading information in answer to a notice from the Trustee to provide information. No claim under this section is made in these proceedings.

66. I am not persuaded that the common law imposes any duty of disclosure in addition to the requirements of these sections, whether such duty is said to arise as an aspect of some general duty of care owed to the Trustee, or otherwise.

67. Counsel for the applicant sought to establish the existence of such a duty by reference to the decision of the High Court in Hawkins v Clayton and Ors (1988) 164 CLR 539. He submitted that, in effect, I should find the existence of such a duty as being relevantly analogous to the duty held in that case to be owing by solicitors holding the will of a testatrix to the executor named in the will. The solicitors had custody of the will after the death of the testatrix and took no steps to advise the executor of the existence of the will and of his appointment as executor. It was held (by majority, Brennan, Deane and Gaudron JJ, Mason CJ and Wilson J dissenting) that the solicitors were under a duty to take reasonable steps to find the executor and inform him of the existence, contents and custody of the will. Their failure to discharge this duty rendered them liable in damages.

68. Brennan J, at p 552, said:

"Wherever the title to the estate may formally vest on the
death of a testator, the executor needs to know of the will
and its contents before he can accept the office and
undertake administration of the estate in accordance with
the will. Knowledge of the will and its contents by the
executor is necessary to make the will effectual. If the
custodian owed no duty to disclose the will to the executor,
it would be legitimate for the custodian by silence to deny
enjoyment of the estate to the person entitled to it. That
result is inconsistent with the purpose for which custody
was accepted."

His Honour went on to say that, in his opinion:

"a duty of disclosure arises from custody of the will after
the death of the testator, the nature of the will and the
purpose for which custody is accepted as well as from the
foreseeable consequences of non-disclosure."

It is true that his Honour also said (at p 554):

"It may be that there is a broad principle, founded on
general standards of honesty and fair dealing, that some
duty of disclosure is imposed on one who holds the property
of another or an instrument of title to the property of
another as a bare custodian or trustee when the other does
not know of his entitlement to the property and the holder
has reason to believe that the other does not know of his
entitlement."

69. However, it is clear, in my view, that his Honour, in this passage, was not seeking to expound any general principle capable of being applied in the circumstances of this case.

70. The Trustee in Bankruptcy has a significantly different position from that of the executor of a will. He is appointed under the Bankruptcy Act and his knowledge of his appointment does not depend upon its disclosure by solicitors acting for the bankrupt. His rights to obtain disclosure of the existence of the property of the bankrupt, from the bankrupt himself and from other persons are derived from statutory provisions. There is, in my opinion, no room or warrant for any further rights in this regard being furnished to him by operation of the general law. Hawkins' case does not, in my view, generate any such right.

71. Accordingly, the applicant's second claim is also dismissed.

72. I was requested, during the hearing, to reserve the question of costs. If the parties are unable to reach agreement on this question, the proceedings should be re-listed before me for the purpose of the question being determined.

73. At this stage I make the following orders:-

1. The application is dismissed.
2. The question of costs is reserved.