Case: Law Society of Tasmania v Turner [2001] TASSC 129 ; (2001) 11 Tas R 1
Outcome: referred to
is contended by the applicant that PWB was contractually obliged to refund investors' monies within one month of the investor giving notice of its demand. Justice Crawford, as his Honour then was, made factual findings to this effect in Law Society of Tasmania v Turner [2001] TASSC 129 ; (2001) 11 Tas R 1 at [7] . Investors were provided by PWB with a "PWB Mortgage Register Information Sheet" and with a "Mortgage Investment Form" to sign. Though these forms appear to have changed slightly over time, they are, in all relevant respects, the same. The Information Sheet states that the terms of the investment are contained in the Investment Form and the Information Sheet. The Information Sheet contains a term, under the heading "Withdrawals" that "[o]ne month's notice is required for both partial and total withdrawal of funds". The respondents contend for an interpretation of this term that is both contrary to the finding of Crawford J and contrary to the plain meaning of the document. They submit that, read in conjunction with another section of the Information Sheet which is headed 'Loan Advances' and states "[l]oan advances are interest only and repayable on demand. Capital repayments are accepted subject to notice", one should understand the 'Withdrawals' term to refer to the loans made by PWB to borrowers on behalf of the investors, not to funds invested with PWB and repayable by PWB. I do not accept this submission. PWB was liable to investors for the repayment of their monies on one month's notice. Investors had a cause of action for breach of contract against PWB as at April 2002. As at 10 April 2002, causes of action in breach of trust had accrued in investors. PWB was in a trust relationship with investors in the Fund. PWB was more than an agent, it was a trustee. Investors invested their funds with the Fund, not with a specific borrower. They were, amongst other things, entitled to be informed and kept up to date about the loans in which their money had been invested. PWB engaged in conduct that breached the trust arrangement constituted by the Fund between PWB and the investors. Judgment has not been entered in relation to these claims, but, in accordance with the authorities referred to above, I am satisfied that these claims as at 10 April 2002 were likely to become debts of the bankrupt. I base this finding on the following: PWB regularly substituted investor funds in defaulting loans without advising clients and without client consent. The bankrupt has conceded as much. Justice Crawford found at [37] of Law Society of Tasmania v Turner : [i]n my opinion a competent legal practitioner, paying proper regard to a practitioner's duty to investor clients, would have realised long before November 1998 that the firm's practice of substituting clients' funds into defaulting loans, without the authority of the clients, amounted to a breach of that duty. It is unnecessary to quantify the equitable debts that these breaches of trust gave rise to in light of my finding in relation to the contractual right of investors to their funds. Quantifying the debts of the bankrupt resulting from the breaches of trust is not straightforward. On the evidence, it is in the realm of millions of dollars. Absent the debts of the bankrupt as a result of the breach of contract, I am satisfied the bankrupt would not have had the ability to meet the debts arising from claims in breach of trust. Law Society proceedings On 19 December 2001, the Law Society of Tasmania applied to the Supreme Court of Tasmania for a declaration that PWB, the firm, was in fiduciary default (proceeding TASC M 377 of 2001). Mr Turner was not named as a respondent to this action because he was not a partner of the firm at that date. An order was made on 1 October 2002 that PWB was "in default". The Solicitors Trust paid $80,216.04 into the Court fund subsequent to that order. That amount increased to $195,601.74 by August 2004.