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Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd

 

[2010] QSC 421

 

SUPREME COURT OF QUEENSLAND 

 

CITATION:

Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd & ors [2010] QSC 421

PARTIES:

TOGITO PTY LTD

(plaintiff)

v

PIONEER INVESTMENTS (AUST) PTY LTD

(first defendant)

and

JAMES CONOMOS

(second defendant)

and

LEONARDUS GERARDUS SMITS

(third defendant added by Counterclaim) 

FILE NO/S:

BS5325/08

DIVISION:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

Supreme Court, Brisbane

DELIVERED ON:

11 November 2010

DELIVERED AT:

Brisbane 

HEARING DATES:

24 - 28 May 2010

JUDGE:

Margaret Wilson J

ORDER:

 

CATCHWORDS:

MORTGAGES – MORTGAGEE’S REMEDIES – sale under power – proceeds of sale – where nine mortgages over land – where mortgagee exercised power of sale under two mortgages – where court order that part of proceeds of mortgagee's sale be paid into account pending further order of the court – whether that part of proceeds "in fact received" within meaning of Property Law Act 1974 (Qld) s 88

MORTGAGES – PRIORITY OF SECURITIES – effect of exercise of power of sale – where deed of priority which pre-dated mortgagee's sale – where purported assignments of mortgages having priority after those under which power of sale exercised – where priority disputes among mortgagees – whether first mortgagee required to pay surplus funds to subsequent mortgagees pursuant to Property Law Act 1974 (Qld) s 88

EQUITY – TRUSTS AND TRUSTEES – where deed of settlement between first defendant and his company and third defendant by counterclaim and his company – where provision for distribution of moneys in solicitor's trust account – where claims on the fund – where application by trustee under Trusts Act 1973 (Qld) s 96 – where parties in negotiations – where consent order for distribution including payment of some of the fund to first defendant, payable to trust account of its solicitor, the second defendant – where moneys deposited into second defendant's trust account pursuant to Legal Profession Act 2007 (Qld) s 248 – whether undertaking by second defendant that moneys would be held pending determination of entitlement – whether second defendant acted in breach of trust by paying moneys at first defendant’s direction

EQUITY – TRUSTS AND TRUSTEES – where moneys paid out of trust account in accordance with trust account authority of first defendant – whether first defendant acted in breach of trust

TORT – deceit – representation by silence – where third defendant by counterclaim held rights in respect of mortgages over the land – where parties negotiating at arm's length with legal advice – where third defendant by counterclaim assigned rights in respect of mortgages to plaintiff – where assignment not disclosed to first defendant or its director prior to deed of settlement executed the following day – whether duty of disclosure – whether fraudulent representation to first defendant that third defendant by counterclaim continued to hold rights under mortgages – whether intention that alleged representation be acted upon by first defendant – whether first defendant acted in reliance upon the alleged fraudulent representation

Legal Profession Act 2007 (Qld), s 248

Property Law Act 1974 (Qld), ss  88, 94

Real Property Act 1900 (NSW), s 58(3)

Trust Accounts Act 1973 (Qld), s 12(4)

Trusts Act 1973 (Qld), s 96

Australia and New Zealand Banking Group Ltd v Evans [1992] 2 Qd R 230, cited

Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44, cited

Briginshaw v Briginshaw (1938) 60 CLR 336 at 362, cited

Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276, cited

Magill v Magill (2006) 226 CLR 551, cited

COUNSEL:

PW Hackett for the plaintiff

DC Gration for the first defendant

PA Freeburn SC for the second defendant

AJ Greinke for the third defendant added by counterclaim

SOLICITORS:

Morgan Conley for the plaintiff

Lillas & Loel Lawyers Pty Ltd for the first defendant

Coyne & Associates for the second defendant

  1. MARGARET WILSON J: On 3 August 2007 the sum of $323,192.61 was paid into the trust account of James Conomos Lawyers pursuant to an order of the Court made the previous day.[1] The second defendant ("Conomos"), who was the principal of that firm, disbursed those moneys in accordance with a trust account authority from the first defendant ("Pioneer"), which was his client, as follows –

To James Conomos Lawyers general account$137,731.85

(on account of legal fees)

To Pioneer $185,460.76

$323,192.61

  1. The plaintiff ("Togito") alleges that it was entitled to the $323,192.61. It alleges that Conomos acted in breach of trust in paying the moneys in the manner he did, and that Pioneer knowingly assisted in that breach of trust. It seeks orders for the payment of $323,192.61 and interest to it.
  1. Pioneer counterclaims against Togito and its director Leonardus Gerardus Smits ("Smits") for damages for fraudulent misrepresentation and interest. 

Background

  1. Ammbar Pty Ltd ("Ammbar") was the registered proprietor of land at Yeppoon described as lot 202 on SP 161001 in the County of Livingstone, Parish of Hewittville.  Gallus Properties Pty Ltd was a party to a joint venture agreement for the development of the land. Ammbar agreed to sell the land to Broadbeach Vista Pty Ltd ("Broadbeach Vista"), which was the trustee vehicle for the joint venture.
  1. The joint venture was beset with conflict between the joint venturers and financial difficulties. The land was subject to a considerable number of mortgages. 
  1. On 8 November 2004 the Court appointed Philip Gregory Jefferson and Matthew Leslie Joiner ("Jefferson & Joiner") as receivers to Broadbeach Vista and Ammbar to take charge of and receive the land and all of the other assets and undertaking of the joint venture.[2]
  1. Ammbar ceased to be the registered proprietor of the land on 30 March 2006, when a transfer by mortgagees exercising power of sale under mortgage number 702987988 to Zonebar Pty Ltd ("Zonebar") was registered. On the same day mortgage number 709480691 in favour of Suncorp Metway Ltd ("Suncorp") was registered.[3]
  1. Ammbar went into liquidation on 2 December 2005. It was deregistered on 3 June 2007.[4]

Leonardus Gerardus Smits

  1. Smits, a retired Sydney solicitor, is an investor who lives in Mullumbimby in northern New South Wales.
  1. At all material times he was the sole director of Zonebar[5] and he and his wife were the directors of Togito,[6] which was the trustee of a family trust.[7]
  1. Kevin Richard Shirlaw ("Shirlaw") was a friend of Smits.

James Beresford Loel ("Loel")

  1. Loel is a Queensland solicitor and an investor. At all material times he was the director and controlling mind of Pioneer.
  1. Loel has been a principal of or consultant to a number of firms, including John M O’Connor & Co, Colavitti Lillas Lawyers and Lillas & Loel.
  1. Between about 1990 and 2005, Loel performed legal work for Smits and his associated companies. Loel also had business dealings with Smits other than in his capacity as a solicitor.
  1. On 2005 Loel received instructions to act for Peter Gallus and his companies concerning the land.
  1. Loel had acted for Shirlaw in a trial in New South Wales. He knew that Shirlaw was likely to receive moneys in his capacity as receiver and manager of Ostabridge Pty Ltd ("Ostabridge").
  1. In about June 2005, while he was acting for Smits in other matters, Loel first asked him if he was interested in becoming involved with the land. Later he suggested to Smits that he might wish to ascertain whether Shirlaw would be interested in becoming involved, too.[8]

Business Bridging Finance Pty Ltd ("BBF")

  1. BBF was a company associated with Chris Conley ("Conley").
  1. Conley was formerly a solicitor and principal of the firm Morgan Conley.

Morgan Conley

  1. Morgan Conley is a firm of solicitors. At all material times the principal of that firm was Joel Hunter Pitman ("Pitman").

Mortgages

  1. There were nine mortgages over the land registered between 3 November 1998 and 1 November 2005. As a result of dealings in those mortgages and between mortgagees, the holders of those mortgages and the order of priority immediately before the exercise of the power of sale was as follows –

Dealing number

Name of holder

702987988

Shirlaw in his personal capacity and as receiver and manager of Ostabridge

704246070

Shirlaw in his personal capacity and as receiver and manager of Ostabridge

703494840

BBF

703570735

Shirlaw in his personal capacity and as receiver and manager of Ostabridge

704544382

BBF

707227959

BBF

707742234

Mary Dewar

707949495

MacGillivrays

709100851

BBF

  1. By a declaration of trust dated 11 November 2005, Shirlaw held mortgages 702987988 and 704246070 on trust for three parties as tenants in common in equal shares –
  • Shirlaw in his personal capacity and as receiver and manager of Ostabridge
  • Pioneer
  1. By a subsequent declaration of trust, Shirlaw held mortgage 703570735 on trust for two parties as tenants in common in equal shares –
  • Pioneer
  1. As at 28 November 2005 there were priority disputes among the various mortgagees and a priority dispute between the mortgagees and Jefferson & Joiner (the receivers). The priority disputes among the mortgagees included a dispute between Shirlaw and BBF based upon differing interpretations of a deed of priority dated 24 July 2000.[11] BBF had taken a transfer of the third mortgage, and it claimed that the first and second mortgages were "hollow" given the provisions of the deed of priority between the holders of the second, third and fourth mortgages.

Proposed sale of the land

  1. On 16 November 2005 Shirlaw entered into a conditional contract to sell the land to Capricorn Projects Pty Ltd ("Capricorn") for $3.5 million plus GST. The contract was subject to a condition precedent that Shirlaw obtain the leave of the Court to enter into possession as mortgagee and sell.[12]

Order of Helman J

  1. On 18 November 2005 Shirlaw filed an application for leave, naming 10 respondents including Ammbar, the receivers, BBF, Dewar and MacGillivrays: proceeding 9791/05. On 28 November 2005 Helman J gave that leave on a number of undertakings and by consent of most of the parties (including those respondents just referred to). Of present relevance, Shirlaw (in his personal capacity and as receiver and manager of Ostabridge) undertook to pay the proceeds of sale into an interest bearing account in the joint names of Shirlaw (in his two capacities), Jefferson & Joiner (the receivers) and BBF pending the further order of the Court.[13]
  1. The contract with Capricorn was not completed. Instead, Shirlaw as mortgagee exercising power of sale under mortgages 702987988 and 703570735 entered into a contract to sell to Zonebar for $3.4 million.[14]

23 December 2005

  1. The transaction was completed on 23 December 2005, Zonebar obtaining finance from Suncorp.
  1. On the same date, BBF, Conley, Shirlaw (in his two capacities), Peter Gallus, Gallus Properties Pty Ltd and Broadbeach Vista entered into a deed of settlement.[15] Shirlaw agreed to pay BBF $1,368,112.32. BBF agreed, upon payment of that amount, to assign to Shirlaw legal title to mortgages 703494840, 704544382, 707227959 and 709100851, and debts owed by Ammbar secured by the first three of those mortgages.[16] It was a settlement between competing mortgagees to which neither Ammbar nor Pioneer was a party.
  1. On settlement Shirlaw gave Zonebar a registrable transfer of the fee simple free of any encumbrance.[17]
  1. It was common ground at the trial that on settlement Zonebar paid approximately $1.9 million.
  1. Of that amount, $1,368,112.32 was paid to BBF pursuant to the deed of settlement, $500,000 was paid into an account purportedly in compliance with the order of Helman J, and the balance was applied in satisfaction of the costs of sale.[18]
  1. One-and-a-half million dollars of the purchase price was not paid. The previous day (22 December 2005) Smits had given Shirlaw a handwritten guarantee in these terms:

"In consideration for you agreeing today to grant a priority to Suncorp Metway for this lender to provide funding for the development of the Yeppoon project formerly mortgaged to BBF & to others, I confirm my agreement to guarantee that you & Ostabridge P/L will become entitled to $1.5m plus interest at 18.7% per annum and that this is personally guaranteed by myself."[19]

  1. According to an historical title search of the land, these dealings were subsequently registered –
  1. Transfer 709480639 lodged at 11.47 am on 30 March 2006 – mortgages 703494840, 704544382, 707227959 and 709100851 transferred to Shirlaw;
  1. Transfer 709480683 lodged at 11.52 am on 30 March 2006 – transfer by third party under mortgage 702987988 to Zonebar; and
  1. Mortgage 709480691 lodged at 11.53 am on 30 March 2006 to Suncorp ("the Suncorp mortgage").[20]

Section 88 trusts

  1. Section 88 of the Property Law Act 1974 (Qld) provides –

"88Application of proceeds of sale

(1) Subject to this section, the money arising from sale, and which is in fact received by the mortgagee, shall be held by the mortgagee in trust to be applied by the mortgagee -

(a) firstly, in payment of all costs, charges and expenses properly incurred by the mortgagee as incident to the sale, or any attempted sale, or otherwise; and

(b) secondly, in discharge of the mortgage money, interest and costs, and other money (if any) due under the mortgage; and

(c) thirdly, in payment of any subsequent mortgages or encumbrances;

and the residue (if any) of the money so received shall be paid to the person entitled to receive or entitled to give receipts for the proceeds of sale of the mortgaged property.

(2) The money that is in fact received by a mortgagee arising from sale in the exercise of the power conferred under the Mineral Resources Act must, subject to subsection (1)(a) and (b), be dealt with as provided under that Act.

(3) The proceeds of sale arising from a sale by a mortgagee in the exercise of the power conferred by the Land Act shall be disposed of as provided in that Act."

  1. Pioneer and Conomos contend that the $500,000 was not "in fact received" within the meaning of s 88.
  1. Section 88(1) contains two concepts – the actual receipt of proceeds of sale and the application of those proceeds. With respect to the former, the words "in fact" are not found in analogous legislation in other jurisdictions. The discussion of this aspect of s 88 in Duncan and Vann’s Property Law and Practice includes the following[21]

"Moreover, it is submitted that the words do not limit the selling mortgagee’s duty to account under s 88 to cash actually received in the hand, and so does not alter the well established rules as to mortgages back by the purchaser.[22] Thus, where the selling mortgagee accepts as part of the purchase price a mortgage from the purchaser as a means of financing the sale, it is submitted that he or she must be treated as having ‘in fact’ received the money secured by the purchaser’s mortgage because the transaction in substance is a loan by the selling mortgagee to the purchaser in exchange for the mortgage and a payment of the sale price by the purchaser to the selling mortgagee out of the loan in exchange for a conveyance of the property.[23]"

  1. In Australia and New Zealand Banking Group Ltd v Evans[24]  de Jersey J described this section as a machinery provision designed to give effect to priorities otherwise legally established. In Bofinger v Kingsway Group Ltd[25] the High Court considered an analogous provision in New South Wales legislation[26] and decided that, notwithstanding the words of the statute, a first mortgagee was not required to pay surplus funds to the second mortgagee in circumstances where equity would otherwise require the first mortgagee to pay the surplus funds to a guarantor by reason of the guarantor’s right of subrogation.
  1. I do not accept that the $500,000 was not "in fact received" by Shirlaw. In my view, the proper analysis of what happened at settlement is that approximately $1.9 million was in fact received, and that $500,000 of what was received was paid into an account in purported compliance with the order of Helman J to await the determination of the priority disputes – the dispute between Jefferson & Joiner and the mortgagees and the dispute between Shirlaw (in respect of mortgages 702987988 and 704246070) and BBF (in respect of the four mortgages it then held).

Shirlaw’s acquisition of the BBF mortgages on 23 December 2005

  1. In exercising the power of sale, Shirlaw acted as trustee for the three parties on whose behalf he held the first two mortgages – himself in his two capacities, Pioneer and Smits.
  1. He used some of the proceeds of the mortgagee’s sale to acquire the rights under the BBF mortgages. Accordingly, arguably he held the rights under the BBF mortgages (i.e. the benefit of the personal covenants which had been secured by those mortgages) which he so acquired on resulting trust for the same three parties – himself in his two capacities, Pioneer and Smits.

Consequence of mortgagee’s exercise of power of sale

  1. The land was sold by Shirlaw in exercise of his power of sale as mortgagee, and the purchaser Zonebar acquired a clear title to it.[27] Upon the sale, the holders of the various mortgages ceased to have any security interest in the land; they continued to have the benefit of the personal covenants of the debtor Ammbar.
  1. The amount owing by Ammbar under the various mortgages at the time of the sale was not proved in this proceeding. It was common ground that the two mortgages under which the power of sale was exercised (702987988 and 704246070) were cross-collateralized. However, I am unable to make a finding as to whether the liabilities secured by them were discharged by the exercise of the power of sale.

Pioneer lodges caveat

  1. On 5 June 2006 Pioneer lodged a caveat over the land, claiming an equitable estate or interest as equitable chargee, based on a right in equity to have mortgage 704246070 restored to the register.[28]

Receivers’ claim ranks behind mortgages

  1. On 23 June 2006 Holmes J determined that Jefferson & Joiner’s claim ranked subsequent in priority to mortgages 70357035, 703494840, 704544382, 707227959 and 709100851.[29]

31 July 2006

  1. On 31 July 2006 Shirlaw (in his two capacities) and Smits entered into a deed of assignment.[30] Shirlaw assigned to Smits (inter alia) all his right, title and interest in and in respect of mortgage 704246070 and the declaration of trust "purportedly made" between Shirlaw, Smits and Pioneer on 11 November 2005.
  1. Also on 31 July 2006 Shirlaw (in his two capacities) executed a transfer of mortgages 702987988, 704246070, 703494840, 703570735, 704544382, 707227959 and 709100851 in favour of Smits.[31]
  1. The deed of assignment between Shirlaw and Smits related only to one mortgage – 704246070. At most, it could have effected an assignment of the legal title to the personal covenants the performance of which had been secured by that mortgage, and the one-third beneficial interest in those covenants which Shirlaw held as a tenant in common pursuant to the declaration of trust in November 2005.
  1. The "transfer" of the seven mortgages from Shirlaw to Smits could not have effected an assignment of the beneficial interest in the personal covenants, the performance of which had been secured by those mortgages, to the extent that beneficial interest was not held by Shirlaw. It did not effect an assignment of Pioneer’s half interest as tenant in common in mortgage 703570735 pursuant to the declaration of trust in early December 2005. If Pioneer had a beneficial interest in the rights under the mortgages Shirlaw acquired from BBF on 23 December 2005,[32] (mortgages 703494840, 704544382, 707227959 and 709100851), it did not effect an assignment of that beneficial interest.

Orders of de Jersey CJ

  1. On 1 August 2006 Pioneer commenced a proceeding against Zonebar, Shirlaw and Smits to establish the interest claimed in the caveat: proceeding 6354/06. In its statement of claim in that proceeding filed on 26 September 2009 Pioneer sought an order that the $500,000 be paid to Shirlaw and Ostabridge and that they hold it pursuant to the 11 November 2005 trust, that is, for Shirlaw (in his two capacities), Pioneer and Smits as tenants in common in equal shares.[33]
  1. By 17 October 2006, BBF’s claim based on the interpretation of the deed of priority had been resolved by the deed of settlement of 23 December 2005 and Jefferson & Joiner’s claim had been determined against them. There was a dispute between Smits and Pioneer about entitlement to the $500,000.
  1. On that day de Jersey CJ made similar orders in proceedings 9791/05 and 6354/06 – that the moneys held in the joint account in the names of Shirlaw (in his two capacities), Jefferson & Joiner and BBF pursuant to the order of Helman J made on 28 November 2005 be paid to the trust account of Morgan Conley Solicitors, to be invested by them in the names of Smits and Pioneer, to abide the outcome of proceeding 6354/06 or earlier order.[34] Those orders were sealed by the Registry on 23 October 2006.

Assignment of Suncorp mortgage

  1. On 26 March 2007 Suncorp assigned to Smits mortgage 709480691 and the debt owing to it by Zonebar and secured by that mortgage. The transfer was expressed to be pursuant to s 94 of the Property Law Act 1974 (Qld), by which a mortgagor entitled to redeem may require the mortgagee to transfer the mortgage to someone else.[35]

Negotiations between Smits and Loel

  1. There was other litigation resulting from disputes between Smits and Loel: proceedings 10163/06[36] and 10707/06.[37]
  1. In about April 2007 Smits and Loel commenced negotiations with a view to settling all outstanding proceedings and disputes between them and their various companies.[38] To some undefined extent, Doug Robertson ("Robertson"), a businessman known to them both, acted as facilitator. Morgan Conley acted as Smits’ solicitors and James Conomos Lawyers acted as Loel’s solicitors.

BBF’s claim on the moneys in Morgan Conley’s trust account

  1. On 30 May 2007 Conley on behalf of BBF gave Morgan Conley notice of a claim on the moneys in its trust account.[39] This claim was based on BBF’s claim to be subrogated to rights of Dewar under her mortgage 707742234.[40] A copy of the notice was sent to Conomos on 31 May 2007.[41] Pitman treated this as notice under s 12(4) of the Trust Accounts Act 1973 (Qld), and refused to disburse the moneys.[42]

Deed of settlement 13 June 2007

  1. Ultimately, a deed of settlement between Pioneer and Loel on the one hand and Zonebar and Smits (personally and as assignee and agent of Shirlaw in his two capacities) on the other was executed on 13 June 2007.[43]
  1. The Deed of Settlement was a somewhat complex document. Essentially, it provided as follows –
  1. that Pioneer receive one lot in the development, unencumbered by the Suncorp mortgage, for a notional consideration of $200,000; Zonebar indemnified Pioneer against payment of this amount, but it was obliged to pay the applicable GST; Pioneer might pay the GST by bank cheque or by deduction from the moneys in Morgan Conley’s trust account;
  1. that proceedings between the parties to the deed be discontinued, and moneys paid by Pioneer as security for costs be returned to it;
  1. that the parties sign all necessary consent orders in the various proceedings between them;
  1. that Smits (as assignee of Shirlaw) assign to Pioneer all his rights in a costs order made against Jefferson & Joiner;
  1. that Pioneer provide Zonebar with a stamped request to withdraw caveats it had lodged;[44]
  1. that Pioneer assign its interests in mortgages 702987988, 704246070 and 703570735 to Smits;
  1. that Loel as director of Pioneer sign a trust account authority for the disbursement of the moneys held by Morgan Conley pursuant to the orders of de Jersey CJ;
  1. that there be mutual forbearances to sue.
  1. The order in proceeding 6354/06 to which the parties agreed to consent was in these terms –

"Upon the Plaintiff [Pioneer] undertaking to:

(a)assign absolutely to the Third Defendant [Smits] for valuable consideration all rights, interests, estates, claims and choses in action asserted in these proceedings by the Plaintiff and otherwise arising out of or with respect to the subject matter of these proceedings.

(b)admit that there was no Joint Venture as alleged by the Plaintiff in the pleading or otherwise in respect of Lot 200 on SP 199666 at Yeppoon in the State of Queensland.

Then subject to the plaintiff strictly complying with the terms of settlement the Third Defendant abandons his claim to the fund invested in the trust account of Morgan Conley Solicitors the subject of the orders of De Jersey CJ made 23 October 2006.

BY CONSENT THE ORDER OF THE COURT IS THAT:

  1. caveat Nos. 709658190 and 710590745 be removed from the Register of Titles;
  1. the orders of De Jersey CJ made 23 October 2006, and the orders of Muir J 18 December 2006, 28 February and 1 March 2007 and Chesterman J made 11 May 2007 be vacated and the parties be released from any associated undertakings;
  1. the hearing date to be commenced 9 August 2007 be vacated [sic];
  1. the moneys held in this Honourable Court pursuant to the orders of Justice Fryberg in BS9791/05 made on 19 September 2006 and also pursuant to the orders of Justice Philippides made on 18 October 2006 in this proceeding, together with any accretions thereon, be paid to the plaintiff;
  1. the application for costs assessment filed 23 April 2007 be dismissed with no order as to costs.
  1. the Plaintiff be granted leave to discontinue the proceedings with no order as to costs."
  1. The proposed trust account authority was in these terms –

"TRUST ACCOUNT AUTHORITY

Pioneer Investments (Aust) Pty Ltd –v – Zonebar Pty Ltd and Ors

Investment pursuant to the order of De Jersey CJ 23 October 2006 (17 October 2006)

I, James Beresford Loel Director of Pioneer Investments (Aust) Pty Ltd hereby authorise and direct Morgan Conley Solicitors to disburse funds, held in trust, in regard to the above matter as follows:

(a)the sum of $156,590 to Leonardus Gerardus Smits (and/or nominee) plus an amount equivalent 156590/500000 of all accretions above $500,000;

(b)the balance to be paid to James Conomos Lawyers Trust Account.

Dated:2007

……………………………………..

James Beresford Loel

Director – Pioneer Investments (Aust) Pty Ltd" (Emphasis added)

  1. The deed of settlement did not provide on whose behalf Conomos was to hold the moneys; nor did it contain an explanation why some of the moneys were to be paid to Smits personally and balance of the fund was to be paid to Conomos’ trust account rather than to Pioneer. If it was in deference to the claims of BBF and Dewar, that was not express. It may have been to secure the payment of legal fees owing by Pioneer to Conomos. If Smits’ claim to one-third of the fund stemmed from his one-third interest in the 11 November 2005 trust, as he claimed in cross-examination,[45] Pioneer also had a one-third interest in that trust, and Smits claimed to have the remaining one-third as assignee from Shirlaw[46]. On that thesis, it was open to Pioneer and Smits to apportion the fund as part of the overall settlement of the disputes between them.
  1. By clause 3 of the deed, the parties agreed as follows –

"3.PAYMENT

3.1Upon Completion or such other date as agreed in writing between Loel and Smits, Smits shall sign the Consent Orders in the various proceedings as set out in item 1 of the Schedule.

3.2For the purposes of clause 3.1, Smits shall cause his solicitors Morgan Conley to:

(a)take such steps as are necessary to have the consent orders described in paragraph 3.1 made; and

(b)forthwith on the making of the consent orders and delivery of the authority in item 3 of the Schedule, draw cheques as provided for in the said consent order in respect of the money invested in Morgan Conley’s solicitors trust account; and

(c)sign any documents and do anything necessary to give the effect to this deed and in particular clause 3.1 and the terms of the consent orders.

3.3Smits acknowledges that he will, if necessary, sign a further consent order (including a consent order in BS9791/05) or other document to enable the moneys described in paragraph 2 of the Consent order to be paid to Pioneer.

3.4Loel acknowledges that he will, if necessary, sign further documents or consent orders to give effect to this deed and in particular the terms of the consent orders specified in clause 3.1."

  1. Loel signed the trust account authority[47] and the other documents required of him.[48] Chesterman J made the consent order in proceeding 6354/06 that day (13 June 2007).[49]

Assignment Smits to Togito 12 June 2007

  1. Unbeknown to Pioneer and Loel, on 12 June 2007, the day before that deed of settlement was executed, Smits assigned to Togito all his rights in and in respect of mortgages 703494840, 703570735, 704544382, 707227959 and 709100851 ("the Togito mortgages"), and the debts payment of which was or was intended to be secured by them and advances secured or intended to be secured by them for consideration of one dollar.[50]
  1. It was not until 13 July 2007 that Morgan Conley purported to give notice of the assignments to the debtor Ammbar, by notice to the receivers.[51]
  1. Smits asserted in evidence that he wanted to remove these mortgages from his ownership before exercising his power of sale under the mortgage he had acquired from Suncorp.[52] He intended to "sell through" the caveats lodged by Pioneer over lot 202.[53] This was to "arrest the losses" that were being incurred on the project because Suncorp was unwilling to release the development finance while the caveats were on the title.[54] He was concerned about the potential merger of the Togito mortgage rights with the Suncorp mortgage rights.[55] He wanted to avoid the possibility of Pioneer or Loel taking steps to impede his selling through the caveats, such as by injunction.[56]
  1. He said he wanted to use the Togito mortgage rights as the basis for proceeding with claims against third parties, including John M O’Connor & Co (where Loel had previously been a consultant) and Citimark (a former holder of mortgages 702987988 and 703570735).[57]
  1. Smits also said that he decided to go ahead with the assignment when he did because the negotiations broke down about 11.00 am on 12 June 2007.[58] That day he was in northern New South Wales. Pitman was conducting negotiations on his behalf by email with Heath Allard ("Allard") of Conomos’ office. Robertson may have been continuing to play some role as an intermediary between Smits and Loel, but the precise part he played on that day was not established. The chain of emails passing between the solicitors that day does not demonstrate any breakdown in the negotiations.[59] I do not accept Smits’ evidence in this regard.
  1. Smits did not disclose the assignment of his rights under these mortgages to Pioneer before the deed of settlement was executed on 13 June 2007.
  1. Pioneer and Loel made no inquiry whether Smits still held those rights before executing the deed of assignment.
  1. Pioneer contends that Smits’ intention was to induce Loel and it to enter into the deed and then continue to be able to bring claims that they had every reason to believe were settled by the deed of settlement. It contends that had Smits not assigned those rights to Togito, there would have been no basis on which he could have asserted the rights now being asserted by Togito in this proceeding.
  1. Assuming Smits’ objective was legally and commercially sound, it is doubtful he could have achieved it merely by the assignment of his interest in the Togito mortgages.
  1. As at 12 June 2007, Smits had a beneficial interest in only a one-half share as tenant in common in the rights arising from mortgage 703570735. The beneficial interest in the other one-half share as tenant in common was held by Pioneer until the execution of the deed of settlement the next day.[60] Arguably, he had a beneficial interest in no more than a two-thirds share as tenant in common in the rights under the other Togito mortgages.[61]
  1. Apart from the $500,000 fund, the claims of the holders of the various former mortgages were claims based on the personal covenants of Ammbar. Unbeknown to Smits, Ammbar was deregistered on 3 June 2007.[62] In other words, it ceased to exist before the assignment of the rights under the Togito mortgages. The effect of Ammbar’s demise on the enforceability inter se of the rights of former mortgagees was not fully explored in this proceeding.

Morgan Conley’s refusal to disburse moneys in its trust account

  1. Pitman continued his refusal to disburse the moneys in his trust account because of BBF’s claim. Conley was prepared to consent to the payment of part of those funds to Smits, but not to any payment to Pioneer. Conomos would not agree to a payment to Smits unless the balance was paid to Pioneer.[63] Dewar’s solicitors gave notice of her claim on the fund.[64]

Application under Trusts Act 1973 (Qld) s 96

  1. On 30 July 2007 Pitman filed an application in proceeding 6354/06 for the following relief –

"1.Pursuant to section 96 of the Trusts Act 1973 (Qld) a direction that the funds held by the Applicant in his trust account pursuant to the order of De Jersey CJ on 17 October 2006 be paid firstly to the Third Respondent in accordance with the authority of 13 June 2007 and consent of 23 July 2007;

  1. The balance to be paid by directions pursuant to section 96 of the Trusts Act 1973 (Qld); together with consent for the Applicant to deduct from those funds [or alternatively from that sum as deemed to be held on behalf of the First Respondent] his costs and outlays for legal services rendered;…"

Pioneer, BBF, Smits and Dewar were served with the application. It was listed for hearing on Thursday 2 August 2007.

  1. On 1 August 2007 Dibbs Abbott Stillman Lawyers wrote to Morgan Conley; they sent copies of their letter to Conomos and the solicitor for Dewar. They said –

"We advise that we act on behalf of Mr Smits, the Third Respondent and Togito Pty Ltd (‘Togito’).

We refer to the application by Mr Pitman, as trustee, pursuant to the Trusts Act 1973 (Qld) and his supporting affidavit sworn on 30 July 2007. That application seeks directions in relation to a fund established following a mortgagee sale of property located at Yeppoon.

As is evident from pages 3 to 7 of the exhibits to that affidavit, on 12 June 2007 Mr Smits assigned to Togito his rights under certain securities described in the various notices issued pursuant to section 199 of the Property Law Act 1974 (Qld).  Those securities were formerly registered over the property and have priority in respect of a claim by any of the respondents to the present application.

Accordingly we are instructed to appear at court tomorrow on behalf of our clients seeking orders that: 

  1. the sum of $176,000 (“the Smits moneys”) be paid to Mr Smits in accordance with an agreement between he and the First Respondent.  In that regard, Togito is prepared to waive its priority claim on the limited basis that the waiver only applies in favour of Mr Smits and only in respect of the Smits moneys; and
  1. the balance, plus accretions and minus any expenses that the trustee is lawfully entitled to, be paid to Togito Pty Ltd.

Please ensure all further correspondence in relation this matter is directed to our office."[65] (Emphasis added.)

  1. Conomos responded by letter sent at 5.28 pm on 1 August 2007, noting that Dibbs Abbott Stillman were acting on behalf of both Smits and Togito, asserting that Smits was proposing to breach the agreement of 13 June 2007, alleging fraud by Smits, and threatening that Pioneer would again lodge a caveat over the properties. They went on –

"As well, at the hearing tomorrow we will inform the court of the dispute between the parties (including the conduct of Mr Smits) and ask that the moneys held in Morgan Conley’s trust account be paid into court pending the determination of the dispute between our client, Mr Smits and Togito Pty Ltd.

As to Togito Pty Ltd, we note that you assert that certain securities have been assigned to Togito Pty Ltd. We are unaware of any assignment and have no evidence as to the alleged assignments or their effectiveness.

In all of these circumstances, we therefore reserve our client’s rights against Mr Smits, Togito Pty Ltd and the directors of Togito Pty Ltd involved in the breach or anticipatory breach of the settlement deed.

We urge you to obtain the instructions of Mr Smits to withdraw your current instructions to enable him to comply with the terms of the settlement deed dated 13 June 2007.

In the absence of a response from you to the effect stated in the previous paragraph by 8.30 a.m. tomorrow, we have clear instructions to immediately terminate the settlement deed and relodge caveats over the various properties and to the extent necessary, apply for injunctive relief to restrain any further dealings with the property pending the determination of our client’s claims."[66] (Emphasis added.)

  1. Conomos has since acknowledged having received notice of the assignment from Smits to Togito in correspondence from Forbes Dowling, solicitors for Jefferson & Joiner, on 23 July 2007, although he did not receive any document such as a deed of assignment.[67]
  1. At 6.03 pm on 1 August 2007 Pitman emailed Conomos. He said he had just received notice that Dewar was withdrawing her claim to the fund. He considered he was "free to–
  1. pay the $20,000 pulled down from the investment to L Smits;
  1. to draw down and pay the amount of $156,590 and the accrued in the percentage of 156590/500000;
  1. draw down and pay [his] costs on an indemnity basis from the balance payable to [Conomos’] trust account…
  1. draw down and pay the balance to [Conomos’] trust account."

He continued –

"If the amounts relating to my costs and for the distribution of funds are agreed tomorrow morning I would not need to attend on the court other than to dismiss my application if they are not agreed but that with time they could be then I am minded to adjourn my application to a date to be fixed."[68]

  1. There was then some discussion between Pitman and Conomos, much of it "off the record." Pitman emailed Conomos at 6.48 pm. He said –

(a)"I note that we discussed that the assignment by Smits to Togito was of the subsequent mortgages not 88 and 70."

(b)"I understood your client does not object to the payment of the $20,000 which has been drawn down into my trust account. I note that this was for the GST for lot 77 transferred to your client under the terms of settlement."

(c)"I do not recall that the payment to L Smits was otherwise agreed. Is that the case?"

(d)"I have confirmed Hackett’s fees…"

(e)"I am still finalising my accounts and I hope to have them to you shortly."[69]

  1. Conomos responded at 7 pm advising that Pioneer would not consent to the barrister Hackett’s fees coming out of the fund. Otherwise it would consent to an order that Morgan Conley’s fees as trustee for the fund be assessed and paid from the fund.[70]
  1. At 9.11 am the next day (the day of the hearing) Pitman emailed Conomos saying –

"I would have thought that once the order for my payment was dealt with all we need do is have an order that I make payment in accordance with the authority of 13 June 2007."[71]

Orders made 2 August 2007

  1. Early that morning there was an exchange of emails between Smits and Scott Guthrie ("Guthrie") of Dibbs Abbott Stillman. At 7.52 am Smits emailed Guthrie –

"I confirm my instructions to deny any fraud and to allow the payments in accordance with the Chesterman J Order less the Trustee costs agreed to be paid by Jim from the Pioneer balance. Thanks for your input." (Emphasis added.)

Guthrie responded –

"Thanks Leo.

I confirm these instructions and am writing to Conomos on that basis now."[72]

  1. At 8.19 am Guthrie sent a letter to Conomos by email; he sent copies to Pitman and Dewar’s solicitor. Guthrie said –

"We refer to your facsimile dated 1 August 2007.

Our client vehemently denies such fraud as alleged in your correspondence.

Notwithstanding the above, we are instructed that Togito Pty Ltd is prepared to permit the funds to be released in accordance with the order of His Honour Justice Chesterman dated 13 June 2007 and the agreement executed by Pioneer Investments (Aust) Pty Ltd and Mr Smits that day, subject to any reasonable claim by the trustees for their fees and expenses.

Please forward us a draft consent order forthwith."[73] (Emphasis added)

  1. Anne Gubbins, a solicitor in the employ of Dibbs Abbott Stillman, ("Gubbins") sent Smits a copy of the letter at 8.40 am.[74]  At whatever time Smits read that email,[75] he admitted in cross-examination that the letter was in accordance with his instructions.[76]
  1. At about 9.20 am Conomos emailed Pitman a draft order; he sent a copy to Gubbins.[77] He asked Gubbins to obtain instructions from Smits urgently.
  1. Gubbins attended the Court that morning, where she instructed Kylie Downes SC ("Downes"). Outside the courtroom there were discussions between Downes and Conomos about the draft order. Pitman and Gubbins were there, too, although they do not seem to have played any active part in the discussion. Ultimately handwritten amendments were made to the draft orders as follows –

"BY CONSENT, THE ORDER OF THE COURT IS THAT:

  1. The moneys held in the trust account of Morgan Conley on behalf of the first and third Respondent [Pioneer and Smits respectively] being $500,000.00 plus accretions of $31,679.91 ("the trust fund") be paid out in the following order and priority;

(a)The sum of $22,000.00 to the applicant/trustees for his costs of and incidental to the holding of the trust fund;

(b)The sum of $176,590.00[78] to the third respondent;

(c)An amount equivalent to 15690/500000 of the accretions of $31,679.91 be paid to the third respondent;

(d)The balance of the trust fund be paid to the first Respondent, payable to James Conomos Lawyers.

  1. The application be dismissed;
  1. Each party pay their own costs."[79]

The amount of the accretions was inserted in Downes’ handwriting, and the words "payable to James Conomos Lawyers" were inserted in Conomos’ handwriting. The draft order was signed by Pitman, Downes as counsel for the third respondent (Smits) and Conomos as solicitor for the first respondent (Pioneer). I am satisfied that these changes were made before the application was called on before White J.

  1. BBF and Dewar[80] had been served with the application but did not appear in response to it. There is no evidence that MacGillivrays or Jefferson & Joiner maintained any claim against the fund.
  1. White J made orders in proceeding 6354/06 reflecting the amended draft.[81]

For whom were Dibbs Abbott Stillman acting?

  1. In the present proceeding, Togito alleged that it had given notice of its interest in the fund by Dibbs Abbot Stillman’s letter of 1 August 2007, and that there was no determination by White J as to the entitlement of Pioneer in the fund or that Pioneer had priority to the fund ahead of Togito, BBF, Dewar, MacGillivrays or Jefferson & Joiner.[82]
  1. Smits acknowledged that Dibbs Abbott Stillman’s letters of 1 and 2 August 2007 accorded with his instructions.[83] In the first of those letters, they said they were acting for both Smits and Togito, and in the second they conveyed the substance of Togito’s instructions to them. Togito was not a party to the application. When the order came to be made, Downes correctly announced her appearance as being on behalf of Smits. Nevertheless, in all the circumstances I am satisfied that Dibbs Abbott Stillman acted for Togito as well as Smits in negotiating the terms of the consent order, and when Gubbins instructed Downes to consent to the draft order as amended. I reject Smits’ evidence that they were acting only for him in his personal capacity.[84]
  1. The order of White J was that the balance of the fund be paid to Pioneer. The mechanism for that payment was payment to the trust account of James Conomos Lawyers. Even if that was a variation of the deed of settlement (which I doubt), it was a variation agreed to by Smits by his solicitors. If it defeated then existing rights of Togito (which I doubt), that was an outcome to which Togito consented by its solicitors Dibbs Abbott Stillman.

No undertaking by Conomos to hold balance of fund

  1. Togito alleged –

"On 2 August 2007 Conomos in his capacity as the solicitor for Pioneer and on his own behalf agreed to hold part of the Fund in the amount of $323,192.61 in his trust account (the James Conomos Lawyers Trust Account) pending the determination of the dispute with Togito (‘the Undertaking’)."[85]

  1. In particulars supplied on 5 February 2009, Togito alleged that the agreement/undertaking was partly express (being partly oral and partly in writing) and partly implied.[86] Those particulars were as follows –

"3.Paragraph 25A:

The alleged Agreement was:

(a)Express and implied;

(b)Impliedly from the facts and circumstances that on 1 August 2007 the second defendant undertook in writing to the plaintiff’s solicitors that the subject trust funds would be paid into Court pending the resolution of the dispute between the parties as to the disposition of those funds, on 2 August 2007 the draft Order formulated by the second defendant was amended in handwriting by the second defendant to allow payment of the funds in lieu of payment to the first defendant and on 3 August 2007 the second defendant collected a trust cheque from Morgan Conley, Solicitors drawn in favour of the trust account of the firm of the second defendant and the funds were paid into that trust account and in accordance with the terms of the Deed of Settlement dated 13 June 2007.

(c)In so far as the Agreement was express, it was partly oral and partly in writing;

(d)In so far at [sic] it was written, herewith is a copy of the Order as amended in handwriting by the second defendant and the terms of the Deed of Settlement dated 13 June 2007;

(e)In respect of the oral component of the Agreement:

(i)it was made on 2 August 2007;

(ii)the persons who were parties to the oral conversations were the second defendant, Anne Gubbins, Solicitors and the Counsel, Ms Kylie Downs for Leo Smits and indirectly Leo Smits;

(iii)as between the second defendant, Anne Gubbins, Solicitor and Counsel, Ms Kylie Downs and for Leo Smits the conversations were in person and as between Anne Gubbins and Leo Smits the conversation was by telephone;

(iv)the material words or substance of the conversation or conversations were as deposed to by Leo Smits in his 15 December 2008 affidavit."

  1. Conomos denied this allegation, pleading that there was no such agreement, that the disposition of the money was dealt with by the consent order of 2 August 2007 and that the only agreement concluded by the parties was that evidenced by that consent order.[87]
  1. I find that no such undertaking was given and no such agreement was made.
  1. In his instructions to Guthrie at 7.52 am that morning Smits had referred to the balance of the fund as "the Pioneer balance".
  1. There is no evidence to support the oral making of any such undertaking/agreement.
  1. Those present at Court were Pitman, Conomos, Downes, and Gubbins. During the negotiations Gubbins telephoned Guthrie, who in turn telephoned Smits.
  1. Pitman was not called as a witness. I infer that he could not have given evidence of an undertaking or agreement as alleged.[88]
  1. Downes, Guthrie and Gubbins all made statements which were admitted into evidence.[89] None of them was cross-examined.
  1. I accept the evidence of Downes that she did not receive any instructions to enter into any agreement with Conomos that he was to hold the money in his trust account pending a determination as to who was entitled to the balance of the fund, and that she did not have any discussion with him to that effect.
  1. I accept the evidence of Gubbins that she did not have any discussion with Conomos at Court to that effect, and that had there been such a discussion she would have instructed Downes to have the terms of the agreement or undertaking recorded as part of the consent order. I accept her evidence that she did not inform Smits that Conomos had agreed to hold the moneys in his trust account pending a determination as to who was entitled to the balance of the fund. Indeed, she did not speak with Smits while she was at Court that day.[90]
  1. Gubbins telephoned Guthrie from the courthouse about the proposed amendment of the draft order. Despite her uncertainty about precisely when the words "payable to James Conomos Lawyers" were inserted, I am satisfied on the balance of probabilities that all of the handwritten amendments had been made before she called Guthrie.
  1. Guthrie called Smits for his instructions. I accept the evidence of Guthrie –

"14.I recall that Ms Gubbins rang me on my mobile phone from Court during the course of the morning.  At the time, I was out of the office.

  1. Ms Gubbins told me the terms of the proposed consent order.  I recall her saying words to the effect that there had been a minor amendment to the terms of the draft order, which had been previously emailed to my office that morning.
  1. I rang Mr Smits and told him what was proposed.  My recollection is to the effect that Mr Smits simply wanted to know whether the orders reflected the terms of the previous agreement and orders.  I understood this to be a reference to the terms of the agreement dated 13 June 2007 and the subsequent orders of Chesterman J.
  1. I was satisfied that the proposed consent order reflected the terms of the previous agreement and the orders of Chesterman J and I told Smits that.  He told me that he was happy to agree to those orders and I then conveyed this to Ms Gubbins at court.
  1. It was my understanding at the time that the June 2007 agreement was intended to resolve all issues between the parties to it.
  1. I have no recollection of Mr Smits saying to me words to the effect that it was not necessary for his company, Togito Pty Ltd, to intervene in the application.
  1. I have no knowledge of any agreement or undertaking given by Mr Conomos to hold any monies paid to his trust account pending the determination as to the ownership of those monies.
  1. If I had been advised that the monies were to be held in Mr Conomos’ trust account pending determination of the ownership of the monies, it would have been my practice to have those terms inserted in the court order or otherwise to write a letter the same day confirming the terms of any such agreement or undertaking given."
  1. Nor is there any evidence to support the making of any such undertaking/agreement in writing or by implication.
  1. In his letter of 1 August 2007, Conomos said that pending resolution of the dispute between Pioneer, Smits and Togito, he would inform the Court of that dispute and ask that the whole of the money be paid into Court. The relevant handwritten change to the draft order was the addition of the words "payable to James Conomos Lawyers". The draft order still provided for payment of the balance to Pioneer: the effect of the handwritten change was merely to provide a mechanism for achieving that end.
  1. In their letter of 2 August 2007 Dibbs Abbott Stillman said Togito was prepared to permit the funds to be released in accordance with the order of Chesterman J and the agreement between Pioneer and Smits made 13 June 2007.
  1. The deed of settlement of 13 June 2007 provided for the payment of the fund to Smits and James Conomos Lawyers Trust Account in the same proportions as those in the consent order;[91] the order of Chesterman J recited that upon Pioneer strictly complying with the terms of settlement, Smits abandoned his claim to the fund. At the time that deed was executed, Pioneer did not know of the assignment from Smits to Togito. There was nothing in that deed from which an agreement/undertaking on 2 August 2007 to hold the balance of the fund pending resolution of the dispute with Togito could be inferred.
  1. The signed draft consent order did not expressly provide that Conomos was to hold the money as a trustee. It did not identify the purpose or duration of any trust upon which he was to hold the money.
  1. On Friday 3 August 2007 Conomos caused a member of his staff to collect a cheque for $323,192.61 drawn in favour of James Conomos Lawyers Trust Account[92] from Morgan Conley. He did not receive any notice from Morgan Conley that Pitman did not have the authority or consent of Togito to pay the money from its trust account.[93] He deposited it into his trust account, as he was obliged to do by s 248 of the Legal Profession Act 2007 (Qld), and obtained a special clearance on it that day. Later that day, not having received notice from anyone that ownership of the moneys was in dispute, he paid the moneys out of his trust account in accordance with a trust account authority signed by Loel as director of Pioneer.[94]
  1. At 9.01 pm on Sunday 5 August 2007 Smits sent Conomos an email headed "Notice under Trustee Accounts Act 1973 (Qld)" and signed "Leo Smits Sole director, Togito Pty Limited".[95] Conomos read it when he arrived at his office the next morning. Smits asserted that Togito had an interest in the balance of the fund as his assignee of "all of [his] rights, title and interest in any and to all debts, loans and associated security concerning formerly registered Mortgages 704544382, 707227959, 703707735, 709100851 and 703494840". He said –

"Togito did not object in the face of an order of the court for payment out of the fund of all moneys, interest and/or costs due, or payable to or chargeable by:

(1)Smits pursuant to the Trust Account issued to Morgan Conley by Pioneer on 13 June, 2007;

(2)Morgan Conley on account of their trusteeship of or over the fund established by Order of de Jersey CJ on 17 October, 2006;

(3)the balance to the trust account of James Conomos Lawyers.

Accordingly, Togito hereby gives to you notice pursuant to Section 12(3) of the above Act not to distribute any other portion or part of the trust funds represented or included in item (3) above, against which Togito has claims under the Mortgage Rights. Togito confirms and gives to you further notice of Togito’s interest in the trust funds and in priority to any alleged claim of Pioneer, which is denied absolutely by Togito in any event."

  1. Togito’s purported notice under s 12(3) of the Trust Accounts Act 1973 (Qld) is not consistent with an agreement/undertaking having been made on 2 August 2007. In any event, the Trust Accounts Act 1973 (Qld) had ceased to be applicable to legal practitioners with the commencement of the Legal Profession Act 2007 (Qld) on 1 July 2007, and Conomos had already disbursed the funds.
  1. In summary, Conomos received the moneys pursuant to the consent order of 2 August 2007. In doing so he received them subject only to his obligations to Pioneer. He acted properly in paying the moneys as he did.

Conclusion on Togito’s claims against Pioneer and Conomos

  1. I am satisfied that there was no breach of trust by Conomos or Pioneer.
  1. Conomos received the moneys into his trust account pursuant to the consent order. I have found that Dibbs Abbott Stillman acted for Togito in consenting to the disposition of the moneys in accordance with the terms of the draft order negotiated by Downes and Conomos. Even if that finding ought not to have been made, Conomos had no more than notice of a claim by Togito: Togito did not establish that he knew its claim was well founded and that accordingly Pioneer had no authority to give instructions for the disbursement of the moneys.[96]
  1. Before the orders were made by White J, Togito by its solicitors consented to the proposed disposition of the moneys. Pioneer received the moneys in accordance with the order of the Court. In doing so, it did not act in breach of trust.
  1. Togito’s claims against Conomos and Pioneer should be dismissed.

Pioneer’s counterclaim against Togito and Smits

  1. In Magill v Magill[97] Gleeson CJ said –

"The elements of the tort of deceit were stated by Viscount Maugham, in Bradford Third Equitable Benefit Building Society v Borders[98], as follows (omitting his Lordship’s citation of authority):

'First, there must be a representation of fact made by words, or, it may be, by conduct.  The phrase will include a case where the defendant has manifestly approved and adopted a representation made by some third person.  On the other hand, mere silence, however morally wrong, will not support an action of deceit.  Secondly, the representation must be made with a knowledge that it is false.  It must be wilfully false, or at least made in the absence of any genuine belief that it is true.  Thirdly, it must be made with the intention that it should be acted upon by the plaintiff, or by a class of persons which will include the plaintiff, in the manner which resulted in damage to him.  If, however, fraud be established, it is immaterial that there was no intention to cheat or injure the person to whom the false statement was made.  Fourthly, it must be proved that the plaintiff has acted upon the false statement and has sustained damage by so doing.'

His Lordship’s reference to 'mere silence' contemplates, by way of contrast, the possibility of a case where there is a legal or equitable duty to speak and disclose the true facts" (Emphasis added)

  1. Pioneer’s counterclaim against Smits and Togito for damages for fraudulent misrepresentation is largely a defensive proceeding premised on its not succeeding in its defence to Togito’s claim. The damages claimed were particularised as follows –

"(a)the amounts payable (if any) by Pioneer to Togito in respect of Togito’s claim against Pioneer;

(b)the amounts payable (if any) by Pioneer to Conomos in respect of legal fees if Conomos is required to pay Togito some or all of the amounts received by Conomos from Pioneer in respect of Conomos’ legal fees;

(c)the costs (on an indemnity basis) of and incidental to engaging James Conomos Lawyers to act on its behalf to respond to the correspondence and application referred to in paragraph 25 of the statement of claim; and

(d)the costs (on an indemnity basis) of and incidental to defending these proceedings."[99]

The application was the one made by Pitman under the Trusts Act 1973 (Qld) s 96 which came before White J on 2 August 2007, referred to in paragraph 26 of the further amended statement of claim.

  1. Because Togito has failed on its claim, Pioneer cannot recover the damages under paragraphs (a) and (b) of its counterclaim.[100] This leaves the claims for indemnity costs of responding to correspondence and the application under the Trusts Act 1973 (Qld) and indemnity costs of defending Togito’s claim in this proceeding.
  1. The counterclaim was formulated in this way. Togito and Smits knew of the assignment from Smits to Togito when the deed of settlement was executed: Smits had executed the assignment on his own behalf and on behalf of Togito. They did not disclose the assignment to Pioneer and Loel, who they believed were ignorant of it. Pioneer alleges that this conduct constituted a representation to Pioneer and Loel that Smits continued to hold the rights alleged in paragraph 13 of the statement of claim:

"On 31 July 2006 Shirlaw and Ostabridge assigned and transferred to Smits their rights in respect of Mortgages 702987988, 704246070, 703494840, 703570735, 704544382, 707227959 and 709100851 including their rights in respect of the Section 88 Trusts."

The representation is alleged to have been fraudulent having regard to Smits’ and Togito’s knowledge of the assignment, their failure to disclose it, and their belief that Pioneer and Loel were ignorant of it. Pioneer and Loel are alleged to have relied on the representation in executing the deed of settlement.[101] The losses claimed are alleged to have been sustained as a result of the fraudulent misrepresentation. But the pleading does not contain an allegation that the representation was made with the intention it should be acted on by Pioneer and Loel in a manner resulting in the alleged loss and damage[102] – an essential element in the tort of deceit.

  1. Fraud is a very serious allegation, which must be strictly proved.[103]
  1. The representation relied on was a representation by silence.
  1. This is more than a case of non-disclosure of knowledge of changed circumstances: Smits brought about that change of circumstances and then failed to disclose having done so. In the circumstances his silence was morally wrong. Nevertheless, I am not persuaded that he had a duty of disclosure.
  1. The parties were negotiating at arm’s length. Pioneer was represented in the negotiations by a solicitor (Conomos personally until he went overseas, and then Allard, a solicitor in Conomos’ employ), and its sole director Loel was himself a solicitor. Neither Conomos nor Loel made any relevant inquiry to establish whether Smits had dealt with his interest in the Togito mortgages in any way adverse to Pioneer or Loel. There would have been a duty of disclosure if the parties had stood in some fiduciary relation to each other or if there were a relevant statutory duty,[104] but this was not such a case.
  1. Pioneer did not prove that it relied on the alleged representation.
  1. Loel’s evidence was that his primary focus in entering the deed of settlement was the discontinuance of proceedings, withdrawal of caveats, transfer of a property, assignment of a costs order and payment of some moneys. He was being advised by a solicitor, who was conducting the negotiations for him. He did not focus on the Togito mortgages at all.[105] His evidence went no further than that, had he known of the assignment to Togito, because of his distrust of Smits, he would have been wary to the point of not signing the deed.[106]
  1. At trial, considerable time was spent in the cross-examination of Smits in an endeavour to prove his intention to induce Pioneer and Loel to enter into the deed of settlement and then, through Togito, to continue to litigate claims they believed were compromised by the deed of settlement. His explanation of his conduct was attacked as commercially and legally unsound and dishonest.
  1. For the reasons I have already given, I consider that the counterclaim must fail. Accordingly, it is not necessary for me to make a finding as to Smits’ real intention in assigning his interest in the Togito mortgages on 12 June 2007.
  1. For the sake of completeness, I mention another reason why Pioneer could not succeed against Smits on part of the counterclaim. Pioneer’s costs of responding to correspondence and the application under the Trusts Act 1973 (Qld) were its costs of and incidental to that application, to which it was a party. White J ordered, by consent, that each party to the application should pay its own costs. In consenting to that order, Pioneer compromised any right it may have had to recover those costs from Smits.

Conclusion on the counterclaim

  1. The counterclaim should be dismissed.

Orders

  1. I will hear the parties on the form of the orders and on costs.

Footnotes

[1] Order of White J, court document 103 in proceeding 6354/06, between Joel Hunter Pitman (applicant) and Pioneer Investments (Aust) Pty Ltd (first respondent), Business Bridging Finance Pty Ltd (second respondent), Leonardus Gerardus Smits (third respondent) and Mary Dewar (fourth respondent).

[2] [2004] QSC 415.

[3] Trial bundle (exhibit 1) tabs 154, 29, 33. In subsequent footnotes, unless noted to the contrary, documents cited relate to this matter, namely file number 5325/08.

[4] Organisational search on Ammbar Pty Ltd (exhibit 12).

[5] Trial bundle tab 153.

[6] Trial bundle tab 155

[7] Transcript 2-69.

[8] See affidavit of Loel sworn 29 September 2009 (court document 133; exhibit 21) paras 1-15, 19-21, 30.

[9] Trial bundle tab 23 Declaration of Trust dated 11 November 2005; but see further amended statement of claim filed by leave on 24 May 2010 (court document 203) para 4.

[10] Trial bundle tab 26 Declaration of Trust dated 9 December 2005; but see further amended statement of claim filed by leave on 24 May 2010 (court document 203) para 5.

[11] Trial bundle tab 7.

[12] Trial bundle tab 157; affidavit of Loel in proceeding 9791/05 sworn 20 November 2005, para 9.

[13] Trial bundle tab 159.

[14] There were two versions of the contract: Trial bundle tabs 27 and 28. The second version included a provision: "The purchase price payable shall be reduced by the amount owed under Bill of Mortgage 704246070 which the property is being sold subject to and Bill of Mortgage 702987988." The trial of this proceeding was conducted on the basis that nothing turned on which was the correct version. Transcript 1-8 – 1-9.

[15] Trial bundle tab 32.

[16] Trial bundle tab 32.

[17] Trial bundle tab 29.

[18] Affidavit of Loel sworn 29 September 2009 (court document 133; exhibit 21) paras 114 – 115. The written submissions of senior counsel for Pioneer refer to the $500,000 in fact being paid into an account in the names of Shirlaw, Jefferson &  Joiner, White as trustee for Broadbeach Vista,  Ammbar and Gallus Properties. Nothing seems to turn on this discrepancy.

[19] Trial bundle tab 30.

[20] Trial bundle tab 154.

[21] Para [7.2810].

[22] See [7.1300].

[23] Wright v New Zealand Farmers’ Co-operative Association of Canterbury [1939] AC 439, [1935] NZLR 614.

[24] [1992] 2 Qd R 230.

[25] (2009) 239 CLR 269; [2009] HCA 44.

[26] Real Property Act 1900 (NSW) s 58(3).

[27] Property Law Act 1974 (Qld) s 87.

[28] Trial bundle tab 34.

[29] Proceeding 336/06; [2006] QSC 153; trial bundle tab 162.

[30] Trial bundle tab 35.

[31] Exhibit 16; see also trial bundle tab 37.

[32] See para 41 herein.

[33] Court document 17 in proceeding 6354/06.

[34] Trial bundle tabs 67, 68.

[35] Trial bundle tab 41.

[36] Affidavit of Loel sworn 29 September 2009 (court document 133; exhibit 21) para 153; trial bundle tab 171.

[37] Trial bundle tabs 177, 173.

[38] Affidavit of Loel sworn 29 September 2009 (court document 133; exhibit 21) para 156.

[39] Trial bundle tab 86.

[40] The principal secured by the Dewar Mortgage was $300,000. Peter Gallus guaranteed Ammbar’s obligations to Dewar. Pursuant to that guarantee, Gallus paid Dewar $150,000. That payment by Gallus was funded by BBF. See transcript 2-54 – 2-55.

[41] Affidavit of Conomos sworn 18 June 2008 (court document no 4; exhibit 22) para 25.

[42] Trial bundle tab 88.

[43] Trial bundle tab 49.

[44] The caveats were over "the balance stage 7 lots" and "the stage 8 lot". Presumably, lot 202 had been subdivided, and Pioneer had protected the interest it claimed in the land by lodging caveats against the lots in the subdivision. This was not expressly dealt with in the evidence.

[45] Transcript 1-79.

[46] Pursuant to the deed of assignment of 31 July 2006, trial bundle tab 35.

[47] Trial bundle tab 50.

[48] Trial bundle tabs 51– 53.

[49] Affidavit of Conomos sworn 24 November 2008 (court document 19, exhibit 23) exhibit JNC 1, pp 166-197.

[50] Trial bundle tab 43.

[51] Letters from Morgan Conley to Ammbar Pty Ltd care of Jefferson Stevenson & Co dated 13 July 2007 and letter from Forbes Dowling Lawyers to James Conomos Layers dated 20 July 2007 (exhibit 10).

[52] Mortgage 709480691; transcript 1-68.

[53] Amended copy of affidavit of Smits sworn 29 June 2009 (exhibit 5) para 95.

[54] Transcript 1-68.

[55] Amended copy of affidavit of Smits sworn 29 June 2009 (exhibit 5) para 151(e).

[56] Transcript 1-69, 1-73, 2-19.

[57] Transcript 1-68 – 1-69; amended copy of affidavit of Smits sworn 29 June 2009 (exhibit 5) para 151.

[58] Transcript 1-73, 1-83, 2-37, 2-44.

[59] Emails between James Conomos Lawyers and Morgan Conley Solicitors between 30 May 2007 and 13 June 2007 (exhibit 14).

[60] By the deed of settlement Pioneer agreed to assign its interest in that mortgage to Smits.

[61] See paras 41, 49 herein.

[62] Transcript 2-16.

[63] Trial bundle tab 94.

[64] Trial bundle tab 127.

[65] Trial bundle tab 130.

[66] Trial bundle tab 131.

[67] Affidavit of Conomos sworn 18 June 2008 (court document 4; exhibit 22) JNC1, tab 9; paras 28-30, 43-44.

[68] Trial bundle tab 132.

[69] Trial bundle tab 134.

[70] Trial bundle tab 134.

[71] Trial bundle tab 134.

[72] Witness statement of Guthrie (exhibit 8) SDG-3.

[73] Trial bundle tab 133; witness statement of Guthrie (exhibit 8) SDG-4.

[74] Witness statement of Guthrie (exhibit 8) SDG-5; witness statement of Gubbins (exhibit 9) para 10; AEG-5.

[75] Transcript 2-64.

[76] Transcript 2-64 – 2 -65; bundle of emails between Dibbs Abbott Stillman and Smits of 2 August 2007 (exhibit 15).

[77] Trial bundle tab 134.

[78] The amount of $176,590 was comprised of $156,590 plus $20,000 GST on the transfer of one lot in the development to Pioneer pursuant to the deed of settlement of 13 June 2007 (trial bundle tab 49).

[79] Trial bundle tab 135; affidavit of Conomos sworn 18 June 2008 (court document 4; exhibit 22) JNC tab 24; paras 49-54; statement of Downes  of 19 May 2009 (exhibit 7).

[80] On 1 August 2007 Pitman told Conomos he had received notice Dewar was withdrawing her claim to the fund: trial bundle tab 132.

[81] Court document 103 in proceeding 6354/06.

[82] Further amended statement of claim filed by leave 24 May 2010 (court document 203) para 26(d); plaintiff’s outline of submissions (exhibit 37) paras 45-46.

[83] Transcript 2-64 – 2-65.

[84] Transcript 2 -60.

[85] Further amended statement of claim filed by leave on 24 May 2010 (court document 203) para 25A.

[86] Further and better particulars requested by second defendant on 28 January 2009 in respect of the amended statement of claim filed on 24 December 2008 (court document 55).

[87] Amended defence of the second defendant filed 23 January 2009 (court document 53) para 24.

[88] Jones v Dunkel (1959) 101 CLR 298 at 308; RPS v R (2000) 199 CLR 620.

[89] Statement of Downes (exhibit 7), statement of Guthrie (exhibit 8) and statement of Gubbins (exhibit 9).

[90] Cf. Smits in cross-examination: transcript 2-58 – 2-59.

[91] See trust account authority attached to the deed: trial bundle tab 49; order of Chesterman J exhibited to affidavit of Conomos sworn 24 November 2008 (court document 19; exhibit 23).

[92] Affidavit of Conomos sworn 24 November 2008 (court document 19; exhibit 23) paras 48-50, JNC1 p 189; affidavit of Conomos sworn 18 June 2008 (court document no 4; exhibit 22) paras 56-58.

[93] Affidavit of Conomos sworn 18 June 2008 (court document no 4; exhibit 22) para 56.

[94] Affidavit of Conomos sworn 18 June 2008 (court document no 4; exhibit 22) paras 58-60.

[95] Trial bundle tab 136. In fact there were two directors – Smits and his wife: trial bundle tab 155.

[96] Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276.

[97] (2006) 226 CLR 551 at 567.

[98] [1941] 2 All ER 205 at 211.

[99] Second amended defence and amended counterclaim of the first defendant (court document 91) para 54.

[100] Counsel for Pioneer conceded this in his written submissions at para 87.

[101] Second amended defence and amended counterclaim of the first defendant filed 19 May 2009 (court document 91) paras 43, 46.

[102] Second amended defence and amended counterclaim of the first defendant filed 19 May 2009 (court document 91) paras 46, 52, 54.

[103] Briginshaw v Briginshaw (1938) 60 CLR 336 at 362.

[104] See John Fleming ,The Law of Torts (Law Book Co, 9th ed, 1998) 696.

[105] Transcript 3-25 – 3-26.

[106] Transcript 3-28 – 3-29.

Close

Editorial Notes

  • Published Case Name:

    Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd & ors

  • Shortened Case Name:

    Togito Pty Ltd v Pioneer Investments (Aust) Pty Ltd

  • MNC:

    [2010] QSC 421

  • Court:

    QSC

  • Judge(s):

    M Wilson J

  • Date:

    11 Nov 2010

  • White Star Case:

    Yes

Litigation History

Event Citation or File Date Notes
Primary Judgment [2010] QSC 421 11 Nov 2010 -
Appeal Determined (QCA) [2011] QCA 167 19 Jul 2011 -

Appeal Status

{solid} Appeal Determined (QCA)