Austin v Austin [1906] HCA 5; (1906) 3 CLR 516 (14 March 1906)

Austin and Others Plaintiffs, Appellants; and Austin and Others Defendants,Respondents.

This is a suit by the present representatives of James Austin, who died in March, 1896, against the executors of one W. H. Bullivant, who died in January, 1901, and who was one of the original executors and trustees under Austin's will, to recover a sum of £7,000 alleged to have been lost through the wilful neglect and default of Bullivant as executor and trustee of Austin's will.

In November, 1889, Austin, who had been a resident of Victoria, but then resided in England, executed a power of attorney by which he appointed Bullivant, who was his son-in-law, and one J. H. Grey, a member of a firm of solicitors who carried on practice at Geelong under the name of Taylor, Buckland & Gates, and who had for some time been Austin's solicitors, to be his attorneys and agents, with large powers of disposition over Austin's lands in Victoria and full authority to deal with any debts owing to him. The power of attorney included an authority "to accept or join in accepting any mortgage ... or security ... over any real or personal estate that may for any purpose be executed to me." Acting under this power, Bullivant in 1893 in concurrence with Grey agreed to advance a sum of £7,000 to the executors of one Ware on the security of land subject to the Transfer of Land Act. Grey and one C. E. Gates, another member of his firm, were two of Ware's executors, the third being one Shannon. At this time both Grey and his firm enjoyed a high reputation, and they continued to do so until the year 1899, when Grey, who was then the sole surviving member of the firm, absconded. Of the £7,000 a sum of £5,000 was to be advanced in April, 1893, and the remaining £2,000 in the following July. Ware's executors, including Grey, accordingly executed a mortgage in duplicate in favour of Austin in the form prescribed by the Transfer of Land Act, and the duplicates were forwarded to Bullivant by Taylor, Buckland & Gates for signature by him as attorney for the mortgagee. It appears that Bullivant on or about 5th April took these documents, duly signed by him, to Taylor, Buckland & Gates, and gave that firm a cheque for the £5,000. The mortgage, which contained a stipulation that Ware's executors should not be personally liable on the covenants, was never registered, but remained in the custody of Taylor, Buckland & Gates, who in fact always acted as solicitors for Ware's executors, and conducted their financial business, as well as acting for Bullivant in his capacity of Austin's attorney. The sum of £2,000 to be advanced in July was in fact paid by Bullivant to Grey on behalf of Ware's executors, but Grey misappropriated it, and the estate never received the benefit of it. Taylor, Buckland & Gates, however, regularly accounted to Bullivant for the interest on the whole sum of £7,000, which was payable in February and August of each year. The principal was by the terms of the mortgage repayable on 4th August, 1897. It does not appear whether Bullivant formally reported to Austin the making of this loan, or whether any arrangement was made between Bullivant and Ware's executors that the mortgage should not be registered, or whether Austin ever received any information on that subject. The complaint now made against Bullivant does not relate to his conduct as attorney in making the advance, or in failing to see to the registration of the mortgage as such att??? although the propriety of his conduct in the latter respect??? incidentally in question, as will be afterwards seen. In the absence of any evidence on the point we think that the proper inference to be drawn, if either fact is material, is that Bullivant informed Austin that he had advanced the £7,000 to Ware's executors, and that Austin knew that Grey and Gates were two of those executors.

Austin by his will appointed two gentlemen, practising in partnership as solicitors, as his English executors and trustees, and appointed Bullivant and Grey as his Australian executors and trustees. The trusts of the will as to the Australian estate were "that my Australian Trustees shall as soon as conveniently may be after the sale and conversion of my personal estate in Australia or elsewhere out of Great Britain either remit the net proceeds of such sale and conversion and also such part of my personal estate in Australia or elsewhere as shall consist of money to my English Trustees or shall account for the same to them as they shall direct." The will, however, contained the following provision: "I authorize and empower the acting executors or executor for the time being of this my will both in Great Britain and Australia and so that the powers next hereinafter contained may be exercised by such respective acting executors or executor with regard to the property in respect of which they ... are ... appointed executors or executor without the concurrence of any other acting executors or executor ... to accept any security real or personal for my debts owing to me or my estate and to allow such times for the payment of any such debts ... either with or without taking security for the same as to them or him shall seem reasonable." The will also contained the following clauses:—

Probate was granted to Bullivant and Grey in 1896. At this time the mortgage from Ware's executors, which being unregistered operated only as an equitable charge upon the land comprised in it, was still in the custody of Taylor, Buckland & Gates, of which firm at that time Grey and Gates were the only members. Gates died in May, 1898. Bullivant took no steps to remove the mortgage from the custody of the firm or to procure its registration. Shortly before the time appointed for repayment, 4th August, 1897, it was verbally arranged between Bullivant and Grey that the £7,000 should remain outstanding on the same security. This arrangement, in which Grey seems to have professed to act as representing Ware's executors, was in fact made without the concurrence of his co-executors; for on 30th September a cheque for £5,164, representing the £5,000 and interest, and drawn upon their bank, was received by Grey, either acting as an executor of Austin or as solicitor for himself and Bullivant as joint executors, and placed to the credit of his firm in their bank. It does not appear what became of the mortgage security. Grey misappropriated the money thus received, but his firm paid interest, represented to have been received from Ware's executors, to Bullivant on the full sum of £7,000 up to February, 1898, and credited him in their accounts with interest up to the time of Grey's absconding. Bullivant being dead, this action was brought against his executors. The breaches of duty alleged against him as executor and trustee are—(1) That he negligently permitted Grey or his firm to have the sole custody and control of the mortgage security; (2) That he negligently omitted to see to the repayment of the £7,000 on and after 4th August, 1897; (3) That he negligently omitted to inquire or make any provision for the safety of that sum on and after the same date; (4) That he negligently authorized or allowed the firm of Taylor, Buckland & Gates to act on behalf of the Australian executors and trustees of Austin's will in the matter of the repayment.

The learned Judge from whose decision this appeal is brought gave judgment for the defendants. We have unfortunately not had the advantage of his considered opinion on the questions of law raised on the facts, for, according to the report of his judgment[1], he considered himself bound to follow a rule which he supposed to have been laid down by this Court in Marshall v. Colonial Bank of Australasia[2], although he thought that rule inconsistent with principle and authority. The passage referred to by the learned Judge is as follows:—"If the rule is put in the form that he (the drawer of a cheque) must use reasonable care to prevent forgery, the question arises what is meant by reasonable care. Usually in considering whether a thing is reasonable or not all the circumstances must be taken into consideration. In this view what would be reasonable care in an illiterate farmer might not be reasonable care in a skilled accountant. A rule which would make the question depend upon the capacity or education of the drawer of the cheque can hardly form part of the Mercantile law." It is sufficient to say that in this passage this Court did not purport to lay down any rule or principle of law. They stated a proposition which is no more than a truism for the purpose of showing the fallacy of an argument which had been addressed to them in that case, and which they rejected. The question of the degree of care required under an implied contract to use reasonable care in the performance of an act requiring personal skill is obviously quite a different question from that of the reasonable prudence required by law from persons in a fiduciary position. The learned Judge however went on to add, obiter, some expressions of opinion as to the merits of the case.

The rule to be applied in cases like the present is clearly settled. In Speight v. Gaunt[3], Lord Blackburn thus expressed it: "The authorities cited by the late Master of the Rolls I think show that as a general rule a trustee sufficiently discharges his duty if he takes in managing trust affairs all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own." We proceed to apply this rule to the facts of the present case. The first point that arises is whether Bullivant acting as attorney was guilty of any negligence in not seeing to the registration of the mortgage. For, if he was, he must, we think, be taken to have discovered when he became executor that the security was in an unsafe condition, and must be held responsible for not doing what an ordinary prudent man of business would have done to make it safe by registration. But can it be said that there was a want of ordinary prudence in not getting the mortgage registered? We think not. No evidence was offered to show that a loan on sufficient security by way of equitable mortgage was imprudent as between Austin and his attorney, even if the former did not know of the non-registration. Nor, so far as we can use our knowledge of Australian conditions, could such a proposition have been established by evidence. Was it then imprudent to leave the deeds and equitable mortgage in the possession of the solicitors for the trust after Austin's death? We will first consider the matter apart from the circumstance that those solicitors were also, in their capacity of Ware's executors, joint mortgagors. It is common knowledge that in Australia trustees do in fact habitually leave securities in the hands of their solicitors, and we do not know of any authority to show that this may not prudently be done in the case of equitable mortgages. Ordinarily an equitable mortgage will not be discharged by the mortgagor without a return of the security and an acknowledgment from the mortgagee, but the mere custody of a security does not afford any evidence of authority in the custodian to receive the debt. It was attempted to draw an analogy between equitable mortgages and what are called "bearer" securities, but the analogy fails for the reason just given, the possession of a bearer security being sufficient proof of authority to receive the debt evidenced by it. Does then the circumstance that both members of the firm of Taylor, Buckland & Gates were at this time two of Ware's executors, and consequently nominally mortgagors although not personally bound by the covenants in the mortgage, alter the case? In the first place the employment of that firm as solicitors for Austin's executors was expressly authorized by the will, and in our opinion their employment as such solicitors also justified the leaving of the security in their hands. On the assumption, however, that it did not, then, if, by reason of the security being improperly left in their hands, it had been lost to Austin's estate, and the debt had become irrecoverable from Ware's estate, Austin's executors would have been liable to make it good. But this did not happen: the debt was paid by Ware's estate, and after such repayment had been made it became quite immaterial whether the security had originally been good or bad, or whether proper care had or had not been taken of the securities. In this respect the case in the events that happened does not differ from a debt due on personal security. Executors may be guilty of negligence in not getting in such a debt with proper diligence, but when it has once been paid, since no loss has occurred by reason of the want of security, no claim can be made against the executors for their technical breach of trust from which no loss arose.

It follows from the foregoing considerations that the plaintiffs' claim in the present case must be based, not upon the negligent custody of the securities, but upon Bullivant's permitting the £5,000 to come into the hands of Grey or of Taylor, Buckland & Gates. It was pressed upon us that he and his firm could not have received the money if they had not been in possession of the securities. But this is not by any means certain. Grey as one of Austin's executors had authority to receive and give a discharge for the £5,000, and the independent executor Shannon might well have been contented to pay him and take his receipt, leaving the return of the deeds to follow at convenience. There is no evidence of what actually took place when the mortgage was paid off; but it is not improbable, having regard to the fact that Taylor, Buckland & Gates were solicitors for Ware's executors as well as for Austin's executors, and that Grey transacted the legal and financial business of the former, that nothing was said about the custody of the security, and that, if Shannon took any active part in the matter, he contented himself with taking Grey's receipt, assuming that the deeds would thereafter be held for Ware's estate. It does not appear whether the receipt, which it must be supposed was given, was signed by Grey as executor or in the name of Taylor, Buckland & Gates. If anything turns on this point we think the onus is on the plaintiffs to establish the actual fact. Assuming, however, that Grey could not have obtained payment of the debt if he had not had possession of the security, the question to be considered is: Ought Bullivant to have taken steps to prevent him from receiving payment? As executor Grey had authority to receive the debt and give a valid discharge for it. Bullivant had no reason to suspect his probity, even if he had known (which he did not) that Ware's executors intended to pay off the loan. Moreover, he was expressly authorized by the will to appoint an agent to receive moneys. In making such an appointment he was, of course, bound to use due care, but Grey was a person specially designated by the testator as a fit person to be appointed as agent. We cannot see any reason for holding that Bullivant was guilty of any negligence in not communicating personally with Shannon, or that he was bound to warn Shannon not to pay the debt except to himself. If Bullivant had known in August, 1897, that the £5,000 had been received by Grey, he would, no doubt, have been bound to take steps to get it under their joint control. And, if he ought to have known, and negligently failed to acquire the knowledge, he would be in no better position. But Grey, being both one of the nominal mortgagors and a co-executor, had told him that it was desired that the repayment should be deferred, and Bullivant had assented to giving time. Having regard to the course of dealing in Austin's lifetime and afterwards, we cannot see any reason why he should have disbelieved Grey, or have communicated with Shannon to ask if what Grey said was true. He was therefore justified in agreeing to give time to Ware's executors for payment of the debt, and since interest on the full sum of £7,000 continued to be paid or credited to Austin's executors' account, he had no reason to suspect that the principal had been paid. The case, therefore, is simply one in which one of two co-executors has received a debt due to the estate without the knowledge of the other, and under such circumstances as to justify that other in not enforcing payment and not inquiring whether the debt has been paid or not. Under such circumstances no negligence can be imputed to him.

If, however, the £5,000 ought to be taken to have been received by Taylor, Buckland & Gates as solicitors for Austin's executors, and not by Grey as one of the executors, then we think that the appointment of that firm to receive the money would have been justified by the terms of the will, and that a general authority to the firm to receive all debts due to the estate may be inferred from the course of business as disclosed by the evidence.

If Grey and Gates had been actual and not merely nominal debtors to Austin, or if the employment of Taylor, Buckland & Gates as solicitors for the Australian executors had not been expressly authorized by the will, very different considerations would arise. But under all the circumstances we are unable to point to anything left undone by Bullivant which an ordinary prudent man of business would have done in managing similar affairs of his own.

If knowledge of the receipt of the £5,000 by Grey in August, 1897, ought to be imputed to Bullivant, the defendants would be entitled to discharge themselves of their liability by showing that any steps which could then have been taken by Bullivant to recover the money from Grey would have been ineffectual: Mucklow v. Fuller[4].

So far as regards the £2,000, the plaintiffs' case rests on a different basis, namely, negligence in not ascertaining as executor that that sum had not, in Austin's lifetime, reached the hands of Ware's executors. This part of the case was not pressed before us, and we say nothing about it.

Solicitors, for respondents, McConkey, Melbourne, for Harwood & Pincott, Geelong.

[1] (1905) V.L.R., 564; 27 A.L.T., 43.

[2] [1904] HCA 31; 1 C.L.R., 632, at p. 660.

[3] 9 App. Cas., 1, at p. 19.

[4] Jac., 198; 23 R.R., 29.

High Court of Australia

Austin v Austin [1906] HCA 5; (1906) 3 CLR 516 (14 March 1906)

HIGH COURT OF AUSTRALIA