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Commonwealth Law Reports > Volume 106 > Mann Defendant , Appellant ; and Hulme Plaintiff , Respondent .

Mann Defendant , Appellant ; and Hulme Plaintiff , Respondent .

106 CLR 136
Court:

H C of A

Judges:

Dixon C.J., Fullagar, Taylor, Menzies and Windeyer JJ.

Date:

11 April 1961, 12 April 1961, 2 August 1961

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Catchwords | Top
Legal Practitioners Solicitors Partnership Moneys received by partner for investment Personal promissory note given by partner as
*

added security Misapplication of moneys by partner Liability of firm Measure of liability Partnership Act, 1892 (N.S.W.), s. 11 .

Headnote | Top
A partner in a firm of solicitors informed the respondent and her husband, who were clients of the firm, that the firm had clients engaged in the
building trade who wanted to borrow money from time to time on second mortgage and he offered to invest their money in this way, and assured
them that their capital would be quite secure. As an added inducement he told them that he would be prepared to give his own promissory notes
"as an added security" for their investment. Thereafter, in response to requests from the partner, the respondent and her husband forwarded
him sums of money from time to time to be invested by him on their behalf in this way. The partner prepared and delivered to the respondent
and her husband his personal promissory note in respect of moneys so advanced. During the period covered by the transactions various
payments of interest were made to the respondent and her husband by cheques signed by the partner and drawn on the firm's trust account.
The partner misapplied the moneys. The respondent and her husband then instituted proceedings against the firm, the appellant being the other
partner therein, claiming that the firm was liable for the moneys misapplied together with interest thereon.

Held: (1) That the arrangement for the giving and acceptance of the promissory notes as "added security", whilst most unusual, afforded no
ground for saying that the receipt of the moneys was not in the ordinary course of the partnership business.

(2) That the moneys were placed in the partner's hands for the purpose of making specific investments from time to time upon securities
prepared by him and such a finding was sufficient to bring the case within s. 11 of the Partnership Act, 1892 (N.S.W.).

Hallinan v. Kinsey (1934) 51 W.N. (N.S.W.) 162, , referred to.

(3) That the measure of the firm's liability under s. 11 of the Partnership Act was the amount of the moneys misapplied.

Decision of the Supreme Court of New South Wales (Full Court): Hulme v. Mann, [1961] S.R. (N.S.W.) 136; (1960) 78 W.N. 90, , affirmed.
R. A. H.

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Appeal from the Supreme Court of New South Wales.

On 27th August 1958 Rowland Talbot Hulme and his wife Ivy Alice Victoria Hulme brought proceedings in the Supreme Court of New South
Wales in its equitable jurisdiction against Edward Rolf Mann and Gordon Arthur Richardson, who formerly practised in partnership as solicitors
under the name of "E. R. Mann & Co.", seeking declarations that certain sums of money paid by them to Richardson were held by the
defendants upon trust for the plaintiffs and for an order that the total of such sums of money be paid over to them. The moneys in question
had actually been received by Richardson from the plaintiffs to be invested by him on their behalf, but he had misapplied the same. It was
not suggested that the defendant Edward Rolf Mann had any knowledge of the receipt by Richardson of the moneys or of his subsequent
misapplication thereof.

The suit was heard by Myers J., who dismissed the same as against the defendant Mann and made the declarations and orders sought against
the defendant Richardson.

The plaintiffs appealed to the Full Court of the Supreme Court against so much of the decree of Myers J. as dismissed the suit against the
defendant Edward Rolf Mann.

The appeal was heard by Owen, Maguire and Wallace JJ., who allowed the same and declared that both defendants were jointly and severally
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liable to the plaintiffs in the total sum of 2,565 together with interest thereon: Hulme v. Mann .

From this decision the defendant Mann appealed to the High Court.

Prior to the hearing of the appeal the plaintiff Rowland Talbot Hulme died. His co-plaintiff Ivy Alice Victoria Hulme was the sole executrix of his
estate.

Further relevant facts appear in the judgment of the Court hereunder.

Judgment | Top
The following written judgment was delivered:

Aug. 2

Cur. adv. vult.

Dixon C.J., , Taylor, Menzies and Windeyer JJ.

This is an appeal which arises out of a suit brought by the respondent and her late husband against the appellant and one Richardson, whereby
declarations were sought that certain sums of money paid to Richardson were held by him and the appellant upon trust for the plaintiffs and for
an order that the aggregate sum be paid over to them. The moneys in question were actually received by Richardson who, at the material time,
carried on practice as a solicitor in partnership with the appellant but it is not suggested that the appellant took part in or had any knowledge of
the dealings with which we are concerned. The respondent's husband died before the hearing of this appeal and she is the sole executrix of his
estate.

The partnership practice was carried on under the name of E. R. Mann and Company and the firm had been known to the respondent and
her husband for a number of years prior to 1953. This circumstance accounted for the fact that when, in December of that year, Mr. Hulme
was gravely ill it was a member of that firm, Richardson, who made his will. For this purpose he visited the respondents' home at their request,
obtained his instructions there and forthwith prepared the will in his own handwriting and had it executed. In the course of obtaining instructions
Richardson made enquiries of Mr. Hulme concerning his assets and he ascertained that the latter held a number of War Savings Certificates
which had matured. Richardson pointed out that the capital sums involved were not earning interest and said that since his firm had many
avenues for investing money with various clients at substantial rates of interest the respondent and her husband might, perhaps, think about

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whether they would like to take advantage of the opportunity which this situation presented. Subsequently, in January 1954, Mrs. Hulme went
to the firm's office for the purpose of having her will prepared. There she saw Richardson and it was he who prepared it and arranged for its
execution in the firm's office. Later, in May 1954, when Mr. Hulme had partially recovered, he and his wife went to the firm's office where again
they saw Richardson. They reminded him of the conversation during which he had discussed the possibility of making investments on their
behalf and, according to Mrs. Hulme, Richardson told them that the firm had clients engaged in the building trade who wanted to borrow money
on second mortgage from time to time and he offered to invest their money in this way. He said that the building trade was booming at that time
and their investments would be quite safe. According to Mrs. Hulme he said that it was his practice to investigate these clients before he made
any loans to them and he assured them that their capital would be quite secure. As an added inducement he said that he would be prepared to
give his own promissory notes "as an added security" for these investments and there would be no fear or worry as to the safety of their money.
The respondents said that they would leave the matter in his hands as they trusted the firm and they thought "that would be quite all right".

A few days after this conversation Richardson telephoned Mrs. Hulme and said that he had a builder client who needed 400 and another one
who needed 600. He said he would like two separate cheques because two builders were involved. In response to this request two cheques
for the sums mentioned were forwarded to Richardson. On subsequent occasions other requests were made by him for moneys for similar
transactions and in all, the sum of 2,565, which came from the joint funds of the Hulmes, was deposited with him for investments of this
character. It is unnecessary to recount the substance of the conversations which are said to have taken place from time to time concerning the
individual transactions but it is not without importance to pay some attention to the times when the various amounts were placed in Richardson's
hands. The first two amounts of 400 and 600 were sent to Richardson on 5th May 1954. Thereafter the following amounts were advanced on
the dates specified:
14th May 1954

400

10th November 1954

600

14th March 1955

200

23rd May 1955

150

3rd November 1955

215

All of these amounts were paid to Richardson by cheque and during the period covered by the transactions various payments of interest were
made to the respondent and her husband. These amounts were as follows:
18th August 1954

25

9th November 1954

65

18th November 1954

25

1st March 1955

105

These sums totalling, in all, 220 were paid by cheques signed by Richardson and drawn on the firm's trust account.

The claim which the respondent and her husband made in the suit was based upon the assertion that subsequently to the receipt of the
moneys in question they were misapplied by Richardson. It is, of course, said as against the appellant that the moneys were received by
Richardson whilst acting within the scope or apparent scope of his authority as a partner in the firm. The fact that they were misapplied by
Richardson is beyond dispute though a ground of appeal was taken that there was no evidence to this effect. But at all times the litigation
seems to have been conducted on the basis that Richardson had misapplied the moneys and there is a great deal to be said for the proposition
that this was admitted on the pleadings. What, in fact, happened to the moneys we do not know. We do know, however, that Richardson is
serving a sentence of imprisonment for fraudulent misappropriation and that the formerly subsisting partnership was dissolved some time ago.
This has been stated to each court below with the concurrence of the parties and it may well have been understood to have constituted an
acknowledgment that the moneys formed part of the sum which was misappropriated. But at the conclusion of the argument on the appeal
it was said that the appellant, who, naturally enough, knows nothing of Richardson's actions in the matter, does not know whether or not the
moneys in question were appropriated by Richardson to his own use and it is asserted that at no time was any admission of misappropriation
made. But whilst asserting this counsel for the appellant ultimately invited us to deal with the appeal on the basis that the moneys were
misapplied by Richardson "in the sense that they were not applied in accordance with the instructions which he received". Particular mention of
this matter is made for reasons which will appear later and in the meantime we shall deal with the case on this basis.

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Richardson did not defend the suit and the hearing, therefore, proceeded against the appellant only. In the result the plaintiffs failed to secure
any relief against him. But an appeal to the Full Court of the Supreme Court was allowed and a declaration was made that Richardson and the
appellant were jointly and severally liable to pay to Mr. and Mrs. Hulme the sum of 2,565 together with interest on the several sums involved for
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specified periods. There was a further order that the total sum be paid within a time limited: Hulme v. Mann . This appeal is now brought from
the order of the Full Court.

It will be necessary to examine the reasons which led to these contrary decisions but first of all it is desirable to make some observations
concerning the character of the suit and to identify the basis upon which the respondent is said to be entitled to the relief which the order of
the Full Court affords. Presumably the foundation of the suit was the proposition that where moneys are entrusted to an agent expressly for
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the purpose of applying them in some specified manner the agent becomes a trustee thereof (Burdick v. Garrick and North American Land
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and Timber Company, Limited v. Watkins ). And where the agent is one of several partners and he receives the moneys of the principal in the
course of performing an act "for carrying on in the usual way business of the kind carried on by the firm of which he is a member" (Partnership
Act, 1892 (N.S.W.), s. 5) it may well be that his partner or partners become trustees also although they have no knowledge of the transaction
and the moneys never actually reach their hands. Receipt by one partner in those circumstances may well be sufficient to create the
relationship. But, as will be seen, the question whether this proposition is entirely valid is not of much importance in the case and, since we have
no information whatever as to what happened to the Hulmes' moneys after they reached Richardson's hands, we do not think it either necessary
or desirable to examine this proposition further. Such an examination would be of importance only for the purpose of determining whether the
suit was open to objection on the ground that Mr. and Mrs. Hulme had no equity entitling them to proceed in the equitable jurisdiction. That
objection was in fact taken in the appellant's statement of defence but it was not pursued as it was obvious to him that if it could be established
that in accepting the Hulmes' moneys for investment Richardson had acted within the scope of his apparent authority as a partner and that
he subsequently misapplied them, the firm would ultimately be held liable to make good the loss (Partnership Act, s. 11 (a)). If, therefore, the
Hulmes were prevented from litigating these issues in the present proceedings there would be fresh proceedings and the appellant had no wish
to take the risk of incurring another set of costs which, because of Richardson's depredations, he would be unlikely to recover even if he should
ultimately be successful. Accordingly, we were asked by the appellant, consistently with his attitude below, to consider the matter in the light
of s. 11 of the Partnership Act and the material issue therefore was whether Richardson was acting within the scope of his apparent authority
as a partner in the firm in his dealings with the respondent and her husband. This we think is a convenient and proper course to pursue and
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accordingly we propose to deal with the appeal on that footing. It is of some interest to note that in Hallinan v. Kinsey , Long Innes J. entertained
a suit in a form which as between the parties to that suit raised this very issue.

The learned trial judge dismissed the suit in his court as against the appellant because he was of the opinion that Richardson's acts were not
within the scope of his apparent authority as a partner in the firm. With this in mind it is convenient to revert for a moment to the fact, which
already appears, that Richardson told the respondent and her husband that he was prepared to give his own promissory notes as "added
security" for the safety of their investments. In fact he did on the occasion of each receipt prepare and deliver to the Hulmes his personal
promissory note and this circumstance was a matter to which the learned trial judge attached a great deal of importance. He did not find, and
it is not now suggested, that the Hulmes made personal loans to Richardson. Indeed such a finding would have been not only diametrically
opposed to the oral evidence but quite inconsistent with much of the circumstantial detail which is beyond dispute. The Hulmes had come
in contact with Richardson as a member of the firm, according to the oral evidence the loans were to be made to builder clients of the firm,
consistently with this evidence specified sums were asked for from time to time and were in fact provided and during the period over which the
transactions extended interest payments were made by cheques drawn on the firm's trust account. But his Honour saw in this aspect of the
transaction "a condition" that Richardson should make himself personally liable for repayment of his promissory notes and become a "principal
debtor" to the Hulmes. Then, having accepted the proposition that it was within the ordinary scope of the business of a solicitor to accept money
to be lent to specific though unnamed persons, he held that the annexing to such a transaction of a condition having the effect which he had
described, would take the transaction outside the ordinary scope of such a business. To this proposition there is, we think, a clear answer.
First of all, the so-called condition and the giving of the promissory notes pursuant thereto did not, on any view of the evidence, constitute
Richardson a principal debtor to his own clients. The promissory notes were given as "added security" for the proposed investments and were
intended to secure the Hulmes' capital only in the event of loss upon any of the contemplated investments. But they did not alter the character
of Richardson's obligations to the Hulmes so long as the moneys remained uninvested. Nor did they relieve the appellant from any obligation
which the receipt of the moneys imposed upon him as a partner in the firm. It will be seen, therefore, that the arrangement that promissory notes
should be given was purely collateral and although it may be said that such an arrangement was most unusual the fact that it was made does
not afford any ground for saying that the receipt of the money was not in the ordinary course of the partnership business. The conclusion of the

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learned trial judge was, it appears to us, dependent upon the validity of his view that Richardson became primarily liable to the Hulmes. As he
said, "it is not within the ordinary scope of a solicitor's business to accept money to be lent on mortgage on condition that the solicitor shall make
himself personally responsible for repayment of his promissory notes making him a principal debtor to his own client". Acceptance of this view
would, it seems to us, lead inevitably to the conclusion that the dealings were personal to Richardson in the sense that the moneys in question
were lent to him and any subsequent inquiry as to whether the transactions were within the scope of his apparent authority as a partner would
be quite pointless. But his Honour did not entertain the view that the moneys were advanced merely as personal loans to Richardson; his view
seems to have been merely that the giving of the promissory notes, having the effect which he ascribed to them, removed the transaction from
the ordinary scope of a solicitor's business. As already pointed out however, his view as to the effect of the promissory notes was erroneous;
quite clearly their purpose was to constitute Richardson a surety in respect of each investment undertaken and if investments had in fact
been made they would have done no more than this. In those circumstances the fact that they were offered and given in no way changed the
character of the principal transaction which, according to the evidence, was the entrusting of funds to Richardson as a partner in the firm for
the purpose of making specific investments on the Hulmes' behalf. No doubt promissory notes were offered as an inducement to the Hulmes to
provide funds, but this fact no more removed the transaction from the ordinary course of business than did Richardson's representations that he
had builder clients who required advances and that they were prepared to pay substantial rates of interest. In our view the decision of the Full
Court on this point was correct.

The other ground upon which the suit failed as against the appellant rested upon the view which the learned trial judge took of the facts. This
was that his Honour felt "unable to find affirmatively that the plaintiffs did arrange with Richardson that the money should be lent to clients on
second mortgage". He did not go so far as to say that he believed the arrangement was not made but he was inclined to believe that it was not.
But it is about as clear as it could be from the sequence of events that the moneys in question were provided for the purpose of investment and,
as already mentioned, it is not suggested that we should conclude that the advances were made from time to time for Richardson's personal
use. In these circumstances we find great difficulty in seeing why Mrs. Hulme's evidence on this aspect of the case should not be accepted. It
spoke of an arrangement of a commonplace character and considerable support for it is provided by the events which followed and concerning
which there can be no real dispute. We think there is great force in what was said in the Full Court on this aspect of the matter and we agree
that the proper conclusion on the evidence is that "the moneys in question were handed to Richardson to be invested by him on behalf of the
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plaintiffs on second mortgages" . But even if no mention was made of "second mortgages" there can be no doubt that the moneys were placed
in Richardson's hands for the purpose of making specific investments from time to time upon securities prepared by him, and such a finding
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would be sufficient to bring the case within s. 11 (cf. Hallinan v. Kinsey ).

The only other point which we need mention is that which was raised by counsel for the appellant at the conclusion of the argument. This was
based upon the concluding words of s. 11 of the Partnership Act which provides that in the circumstances specified in the section "the firm is
liable to make good the loss". It was not established, it is said, that Richardson had appropriated the moneys in question to his own use but
only that they had not been applied in accordance with his instructions. Then, seizing upon the word "loss" the appellant contended that if the
respondent should otherwise succeed in the suit the order of the Full Court should nevertheless be varied by deleting the order for repayment
and by substituting an order for an inquiry as to the loss which the appellant has sustained. But this submission proceeds upon a mistaken view
of the meaning of the relevant words. The respondent has lost the moneys which have been misapplied and this is the measure of the firm's
liability. She is not bound to endeavour to trace the moneys and then, in order to ascertain whether or not she has suffered a loss, to accept and
give credit for any investment that may be found to have been made by the misapplication of the moneys in question. No doubt, on the analogy
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of the liability of trustees for breach of trust she might have followed this course had she so wished (cf. In re Salmon; Priest v. Uppleby ). But the
claim which she and her husband made plainly indicates a rejection of any such right.

For these reasons we are of the opinion that the appeal should be dismissed though the order of the Full Court should be varied to meet the
situation caused by the death of her husband subsequently to the appeal to that court.

(Note: The Honourable Mr. Justice Fullagar died at Melbourne before judgment in this appeal was delivered.Ed.)

Orders | Top

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Decree of the Full Court of the Supreme Court of New South Wales varied by substituting for the word "plaintiffs" where it appears in the
declaration contained in the decree and in the immediately ensuing order and in the order for payment of costs the words "the appellant Ivy Alice
Victoria Hulme". Otherwise appeal dismissed with costs.

Legal Representatives | Top

D. A. Staff Q.C. and R. J. Bainton, for the appellant.

R. W. Fox and H. H. Bell, for the respondent Ivy Alice Victoria Hulme.

Solicitors for the appellant, E. R. Mann & Co.

Solicitor for the respondent Ivy Alice Victoria Hulme, R. W. Hawkins, Public Solicitor.

Footnotes | Top
*
Section 11 of the Partnership Act, 1892 (N.S.W.) provides:"In the following cases, namely: (a) Where one partner acting within the scope
of his apparent authority receives the money or property of a third person and misapplies it; and (b) When a firm in the course of its business
receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in
the custody of the firm; the firm is liable to make good the loss."
1
[1961] S.R. (N.S.W.) 136; (1960) 78 W.N. 90.
1
[1961] S.R. (N.S.W.) 136; (1960) 78 W.N. 90.
1
(1934) 51 W.N. (N.S.W.) 162.
1
[1961] S.R. (N.S.W.), at p. 140; (1960) 78 W.N., at p. 93.
1
(1889) 42 Ch. D. 351.
2
(1870) L.R. 5 Ch. 233.
2
(1934) 51 W.N. (N.S.W.) 162.
3
[1904] 1 Ch. 242.

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