AIKMAN -v- THE OWNERS OF STRATA PLAN 48817 - 16 DOLPHIN DRIVE MANDURAH [2016] WASC 380 (18 November 2016) - WASC 2016 case summary

Supreme Court of WA|2016-11-18|Before: Pritchard J

1 PRITCHARD J: The plaintiff, Ms Aikman, has applied by Chamber Summons for an order for an expedited hearing of this action (which was commenced on 9 September 2016) or, alternatively, for interlocutory injunctive relief (the Application). The interlocutory relief sought is set out below at [49].

2 At the conclusion of the hearing of the Application on 9 November 2016, I indicated that I was not persuaded that an order should be made for an expedited hearing. My reasons for that view are set out below at [192] - [208]. I reserved my decision in respect of the application for interlocutory injunctive relief (the Injunction Application). For the reasons set out below, the Injunction Application will be dismissed.

Factual background;
The interlocutory injunctive relief sought;
The principles applicable to applications for interlocutory injunctions;
Assessment of the strength of the plaintiff's case;
Balance of convenience factors;
Why interlocutory injunctive relief should not be granted;
Why an order for an expedited trial should not be made; and
The plaintiff's objections to the first Getta affidavit.

4 In support of the Application, counsel for Ms Aikman read affidavits sworn by Ms Aikman on 8 September 2016 (the first Aikman affidavit) and 19 October 2016 (the second Aikman affidavit) and an affidavit sworn by Mr Barrie Goldsmith, Ms Aikman's solicitor, on 2 November 2016.[1]

5 Counsel for the first to fourth defendants read affidavits sworn by Mr Maciej Matuesz Getta, a solicitor employed by the first to fourth defendants' solicitors, on 1 November 2016 (the first Getta affidavit) and 3 November 2016 (the second Getta affidavit). Counsel for Ms Aikman objected to numerous paragraphs of the first Getta affidavit. Those objections are addressed at the end of these reasons.

6 Counsel for the fifth defendants read an affidavit affirmed by Ms Michelle Anne Taylor, a solicitor employed by the fifth defendants, on 1 November 2016 (the Taylor affidavit).

7 The parties' submissions largely focused on the factual material set out in, and documents annexed to, the first and second Aikman affidavits.

8 The following facts are not contentious. The first defendant is the strata company incorporated pursuant to the Strata Titles Act 1985 (WA) (the ST Act) in respect of a strata property at 16 Dolphin Drive, Mandurah, known as the Seashells Resort (the property). The property comprises numerous lots, some used by shortstay visitors, others for commercial purposes, and others by longterm residents.

9 Ms Aikman is the proprietor of one of the lots in the property.

10 The second defendants comprise the Council of Owners of the first defendant.

11 The first defendant levies the proprietors of the lots at the property (the proprietors) to accumulate and maintain a fund to cover the administrative expenses of the first defendant (the Administrative Fund), which is sometimes referred to as the Maintenance Fund, and a fund for more substantial expenses (the Reserve Fund).

12 The third defendant is a company engaged by the first defendant as the strata manager, on-site manager and caretaker of the property, pursuant to three agreements dated 17 March 2006: the Management Agreement, the OnSite Managers Agreement and the Caretaking Agreement (collectively, the Agreements).[2]

13 The first and second-named fourth defendants are a director and employee, respectively, of the third defendant, and both are also proprietors.

14 The fifth defendant is a firm of solicitors which acts for the third and fourth defendants in defamation proceedings brought by the third and fourth defendants against Ms Aikman in this Court (the defamation proceedings). Mr Williams is a partner in the fifth defendant and appeared as counsel for the fifth defendant at the hearing of the Application.

15 It is necessary to say something about the defamation proceedings, because those proceedings have been the catalyst for the present action.

16 It appears that there is an ongoing dispute between some of the proprietors, and the second, third and fourth defendants in relation to the operation and maintenance of the property. That dispute has been manifested in proceedings commenced by some of the proprietors against the first defendant in the State Administrative Tribunal (SAT). It appears that in the course of the SAT proceedings a report was prepared by a firm of accountants pursuant to an order of the SAT (the Coombs Report). The Coombs Report contained expressions of opinion by its author in relation to the management of the property.

17 The third and fourth defendants allege that the Coombs Report contains statements about them which are defamatory and that some of the proprietors, including Ms Aikman, distributed the Coombs Report to other persons.

18 On 9 July 2015, the third and fourth defendants commenced the defamation proceedings against Ms Aikman. The defamation proceedings have been case managed by his Honour Kenneth Martin J. On 21 July 2016, his Honour listed the defamation proceedings for a fiveday trial commencing on 23 November 2016.

19 On 9 September 2016, Ms Aikman commenced the present action. Initially, she did so by filing an Originating Summons. In the week of 11 October 2016, the matter was referred to me for management in the CMC List. On 13 October 2016, I made orders that the action proceed on pleadings as if commenced by writ, and that Ms Aikman file and serve a Statement of Claim by 18 October 2016. Ms Aikman did so. The Statement of Claim has been amended twice since then, most recently on 27 October 2016. It was apparent from the submissions of counsel for Ms Aikman at the hearing of the Application that the Amended Statement of Claim will require further amendment to set out fully the case which Ms Aikman seeks to advance. The defendants have not yet filed defences.

20 There is no dispute that the legal fees incurred by the third and fourth defendants for the legal services performed by the fifth defendants in the defamation proceedings (the Legal Fees) have been paid out of the funds of the first defendant.[3] However, counsel for the first to fourth defendants did not make any concession as to the source of the payments (that is, whether they came from the Administrative Fund or elsewhere).[4] (I note that the ST Act does not preclude a strata company from establishing accounts other than the administrative fund or the reserve fund referred to in s 36 of the ST Act.[5])

21 There also does not appear to be any dispute that at the annual general meeting of the first defendant on 4 June 2015 (the 2015 AGM) it was resolved that there should be included in the budget for the first defendant's operations for the following year an allocation of $25,000 for 'Admin Legal and Debt Collection Fees' (the 2015 Resolution). It does not appear to be in dispute that an identical resolution for expenditure in the following year (the 2016 Resolution) was passed at the annual general meeting of the first defendant on 16 June 2016 (the 2016 AGM).

22 Ms Aikman's concern is that as a result of the 2015 Resolution and the 2016 Resolution, the funds of the first defendant (which include contributions levied from her as a proprietor) have been used by the first and second defendants to fund the defamation proceedings brought against her by the third and fourth defendants.

23 Ms Aikman's action against each of the defendants, as presently pleaded, is summarised below.

24 Ms Aikman alleges that the allowances included in the first defendant's budget by virtue of the 2015 Resolution and the 2016 Resolution were intended to, and did, cover legal costs and expenses incurred, or to be incurred, in connection with the defamation proceedings (that is, the Legal Fees).[6] Ms Aikman pleads that the defamation proceedings are, by their nature, personal to the third and fourth defendants, and that neither the first defendant nor the proprietors as a whole have any interest in the defamation proceedings.[7]

25 Ms Aikman alleges that the defendants all knew or ought to have known that the purpose of the 'Admin Legal and Debt Collection Fees' allowance (the Allowance) in the first defendant's budget was to pay for legal costs and expenses to be incurred in the defamation proceedings or other defamation matters.[8]

26 Ms Aikman alleges that the 2015 Resolution and the 2016 Resolution were beyond the power of the first defendant because the payment of the Legal Fees was a payment made in breach of the first defendant's powers or duties as conferred by the ST Act or the by-laws of the first defendant.[9]

Ms Aikman's claim against the second defendants

27 Ms Aikman says that the second defendants owe fiduciary duties to the first defendant, and to the proprietors as a whole. She claims that those duties are: to be truthful and honest with the proprietors; to disclose such information as the second defendants are aware of in connection with the property or the rights and obligations of the proprietors; to provide reasonable and responsive answers to any questions asked or matters raised by any of the proprietors; and to act in the best interests of the proprietors as a whole, including as to the use and management of proprietor contributions to the Administrative Fund and the Reserve Fund.[10]

28 Ms Aikman claims that those duties arose by virtue of the nature of the appointment of the second defendants, pursuant to s 44(1) of and Item 4(1) of sch 1 to the ST Act, and as a consequence of the second defendants' management and control of proprietor contributions to the Administrative Fund and the Reserve Fund.[11]

29 Ms Aikman alleges that the second defendants breached the alleged fiduciary duties in that they were not truthful and honest with the proprietors (including at the 2015 and 2016 AGM) in relation to the use of proprietor contributions to the Administrative Fund or the Reserve Fund; they did not disclose that the Allowance in 2015 was to pay for the Legal Fees to be incurred in the anticipated defamation proceedings; they did not provide particulars of the anticipated defamation proceedings; they did not advise the proprietors that the first defendant was under no legal obligation to provide funding for the defamation proceedings; the answers given to questions from proprietors at the 2015 AGM and the 2016 AGM were not truthful and honest, or were not reasonable and were nonresponsive; they did not advise proprietors that the Allowance in 2015 and 2016 might not be sufficient to cover all of the Legal Fees to be incurred in the defamation proceedings; and the second defendants did not act in the best interests of the proprietors as a whole, in that there was no benefit to the proprietors as a whole in funding the defamation proceedings.[12]

30 Ms Aikman alleges that the same conduct constituted conduct which was misleading and deceptive in nature, or fraudulent.[13]

31 Ms Aikman also alleges that the second defendants owed additional fiduciary duties to the proprietors to act in the best interests of the proprietors. The content of these additional duties was said to be that the second defendants were required not to pay any monies out of the Administrative Fund or the Reserve Fund other than for the purposes for which the first defendant was constituted or in the discharge of an obligation of the first defendant, and to hold the contributions paid by the proprietors for their benefit, for purposes prescribed by the ST Act and any by-laws.[14]

32 Ms Aikman alleges that the second defendants breached these additional fiduciary duties in that they authorised or directed (whether directly or via the third defendant) the payment to the fifth defendant of monies towards the Legal Fees.[15] She alleges that the decisions by the second defendants to do so were in breach of their duties because it was not in the best interests of the proprietors for contributions levied from them to be paid for the benefit of the third and fourth defendants; because the money was not paid for a purpose for which the first defendant was constituted, or in the discharge of an obligation of the first defendant; and because the payment of the Legal Fees was not a purpose for which contributions by the proprietors could be applied pursuant to the ST Act or any by-laws.[16]

Ms Aikman's claims against the third and fourth defendants

33 Ms Aikman alleges that the third and fourth defendants owed fiduciary duties to the first defendant, and thus to each of the proprietors.[17] Those duties are said to have arisen in the circumstances; by virtue of the nature of the third defendant's retainer by the first defendant as the strata manager, and the relationship of the fourth defendants to both the first and third defendants; as a consequence of their roles in the use and management of monies in the Administrative Fund and the Reserve Fund; and as a question of law.[18]

34 Ms Aikman alleges that the fiduciary duties owed by the third and fourth defendants to the first defendant and to the proprietors were a duty not to submit claims for the payment of legal costs and expenses to the first or second defendants unless those costs and expenses were properly incurred for the purposes for which the first defendant was constituted, or in the discharge of an obligation owed by the first defendant to the third defendant; a duty not to assert that the third and fourth defendants were entitled to have the Legal Fees paid out of monies that were the property of the first defendant when they were not so entitled; and a duty not to accept such payment in respect of the Legal Fees out of the Administrative Fund or the Reserve Fund.[19]

35 Ms Aikman alleges that the third and fourth defendants acted in breach of these fiduciary duties in that they submitted claims for payment of the Legal Fees when those costs were not properly incurred for the purposes of the first defendant, or in the discharge of an obligation owed by the first defendant to the third defendant; asserted that they were entitled to have the first defendant pay the Legal Fees when they were not so entitled; and accepted payment (directly or via the fifth defendants) for the Legal Fees from proprietor contributions to the Administrative Fund or the Reserve Fund.[20]

36 In their submissions, counsel for Ms Aikman characterised the duties owed and breaches of duties committed by the third defendant somewhat differently. They submitted that the third defendant breached its fiduciary duties to the first defendant, and to the proprietors, to avoid a conflict of interest, in that the payment of the Legal Fees conferred a benefit on the third defendant and its employees (the fourth defendants) to the detriment of the first defendant, Ms Aikman and the other proprietors.[21] Counsel for Ms Aikman also submitted that the third defendant breached its fiduciary duty not to profit from its fiduciary relationship with the first defendant and the proprietors.[22]

37 In addition, counsel for Ms Aikman submitted that the first defendant's payment of the Legal Fees involved the receipt of funds by the third defendant, in the knowledge that the payment of the Legal Fees was made without power or in breach of fiduciary duties owed to the first or second defendants.[23] Counsel for Ms Aikman also submitted that the payments made for the benefit of the fourth defendants were made in circumstances where the fourth defendants were knowingly assisting in the payments being.[24]

Ms Aikman's claims against the fifth defendants

38 Finally, Ms Aikman alleges that the fifth defendants owed fiduciary duties to the first defendant, and thus to the proprietors.[25] She alleges that those fiduciary duties arose in all of the circumstances; as a consequence of its knowledge of the defamation proceedings and its knowledge that the first defendant was paying the Legal Fees; as a question of law; and/or by virtue of the fifth defendant having provided legal advice and assistance to the first and second defendants.[26]

39 Ms Aikman alleges that the fifth defendant has provided legal advice and assistance to the first and second defendants in connection with the defamation proceedings, other defamation actions and in connection with the 2015 AGM.[27] Ms Aikman alleges that it was the second defendants who instructed the fifth defendant to commence the defamation proceedings and who caused the first defendant to pay the Legal Fees charged by the fifth defendants.[28]

40 As for the 2015 AGM, Ms Aikman alleges that Mr Williams was invited to attend that AGM by the second defendants (and thus by the first defendant); that the fifth defendant entered into an engagement letter with the second defendants, and thus with the first defendant; that the fifth defendant submitted invoices to the second defendants for payment in connection with work done at the 2015 AGM; and that at the 2015 AGM, Mr Williams gave advice to the proprietors on voting proxies and on the publication of the Coombs Report.

41 Ms Aikman also alleges (and there is no dispute) that the fifth defendant provided legal advice and assistance to the third and fourth defendants in connection with the defamation proceedings and other defamation matters.[29]

42 Ms Aikman alleges that the fiduciary duties owed by the fifth defendant to the first defendant, and thus to the proprietors, comprised a duty to act in the best interests of the proprietors; a duty to advise the proprietors of any matters that could adversely affect their interests; and a duty not to put itself in a position whereby it had a conflict of interest, or potential conflict of interest, and to take steps to avoid any such conflict.[30]

43 Ms Aikman alleges that the fifth defendant acted in breach of its fiduciary duties in that it failed to act in the best interests of the proprietors in that it knew that the defamation proceedings were to be funded by the first defendant, when neither the first defendant nor the proprietors had any interest in those proceedings, yet the fifth defendant failed to advise the proprietors of that fact, and submitted invoices for its fees to the first defendant for payment when it knew that those fees were not properly payable by the first defendant.[31]

44 Ms Aikman also alleges that Mr Williams failed to advise the proprietors at the 2015 AGM that the first defendant was not obliged to pay the Legal Fees; failed to advise that the payment of those Fees was an unnecessary financial burden on the proprietors; failed to advise that the defamation proceedings were a legal action against another proprietor; failed to advise the proprietors that his firm would be the beneficiary of the payment of those Fees; and that the fifth defendant was in a position of actual or potential conflict between its duties to the third and fourth defendants and its duties to the first and second defendants, yet the fifth defendant continued to act in the defamation proceedings and to receive payment of the Legal Fees from the first defendant.[32]

45 In their submissions, counsel for Ms Aikman also submitted that the receipt by the fifth defendants of the payment of the Legal Fees involved a breach of the fiduciary duties the fifth defendant owed to the first defendant, in that it involved a conflict of interest arising from the fact that the fifth defendant acted for both the first defendant and the third and fourth defendants.[33] They also submitted that the payment of the Legal Fees involved a breach of the fifth defendant's fiduciary duty (presumably to the first defendant) not to profit from the fiduciary relationship. Finally, counsel submitted that the Legal Fees were received by the fifth defendant in the knowledge that the payments were beyond power or in breach of the fiduciary duties owed by the first or second defendants.[34]

46 Ms Aikman pleads that she has standing to bring the present action at common law pursuant to the exceptions to the rule in Foss v Harbottle.[35] The basis for that claim is that the conduct of which she complains is beyond the power of the first defendant; constitutes a fraud on the minority and that the wrongdoers are in control; that she brings the action bona fide in the interests of all of the proprietors; that there is no other remedy available; and that serious injustice would arise if she were precluded from pursuing the action.[36] Ms Aikman pleads that she brings the present action in the interests of all of the proprietors to prevent the unlawful or fraudulent use by the first and second defendants of funds that are the property of the proprietors for the personal financial benefit of the third and fourth defendants.[37]

47 In addition, Ms Aikman pleads that she has standing in her own right as a proprietor of one of the lots at the property with a proprietary interest (jointly with other owners) in the common property and as a contributor to the funds held by the first defendant.[38]

48 Ms Aikman pleads that by virtue of the pleaded conduct of the defendants, she has suffered, and will continue to suffer, loss and damage.[39] There is no particularisation of that loss or damage in the Amended Statement of Claim and Ms Aikman does not seek relief in the form of the payment of any damages.

The relief sought by Ms Aikman in the present action

An order that such monies as may be found by the Court to have been paid, whether directly or indirectly, to the fifth defendant by the first defendant as a result of the commencement or pursuit of any defamation claim by or in the name of the third or fourth defendants out of any fund held by, in the name or on behalf of the first defendant, be repaid forthwith by the fifth defendant to the first defendant.
An order restraining the first and second defendants from paying or authorising to be paid from any fund held by, in the name or on behalf of the first defendant, any monies on account of, in connection with or for the purpose of any defamation claim by the third or either of the fourth defendants; and

Such further or other order or orders as to the Court seems just.[40]

50 The defendants have not yet filed defences. However, their likely defences, or at least the key parts thereof, could be discerned from the submissions of counsel at the hearing of the Application.

51 In the Application, Ms Aikman seeks the following interlocutory orders:

Until after judgment in this action, or further order, the first defendant, whether by itself, its officers, servants, agents or otherwise, be restrained and an injunction is hereby granted restraining it from paying to the fifth defendant or any other legal practitioner any sum from its administrative fund or reserve fund (or any other fund held by it on behalf of the proprietors of 16 Dolphin Drive, Mandurah) for legal costs or expenses of the plaintiffs in CIV 2063 of 2015.
Until after judgment in this action, or further order, the second defendants, whether by themselves, their officers, servants, agents or otherwise, be restrained and an injunction is hereby granted restraining them from arranging, authorizing or consenting to payment to the fifth defendant or any other legal practitioner any sum from the first defendant's administrative fund or reserve fund (or any other fund held by the first defendant on behalf of the proprietors of 16 Dolphin Drive, Mandurah) for legal costs or expenses of the plaintiffs in CIV 2063 of 2015;
Until after judgment in this action, or further order, the third and fourth defendants, whether by itself or themselves, its or their officers, servants, agents or otherwise, be restrained and an injunction is hereby granted restraining them from arranging, authorizing or consenting to payment to the fifth defendant any sum from the first defendant's administrative fund or reserve fund (or any other fund held by the first defendant on behalf of the proprietors of 16 Dolphin Drive, Mandurah) for legal costs or expenses in CIV 2063 of 2015;
The fifth defendant, whether by themselves, their officers, servants, agents or otherwise, be restrained and an injunction is hereby granted restraining them from accepting any payment made directly or indirectly by the first defendant for legal services performed for the plaintiffs in CIV 2063 of 2015.
Within 7 days from the date of this order, the fifth defendant pay to the first defendant all sums paid to it by the first defendant or the third defendant in respect of any advice or work undertaken in relation to defamation proceedings threatened or actually commenced against any proprietor of Strata Plan 48817, 16 Dolphin Drive Mandurah or against Danae Coombs or Paramount Wealth Accountants in the period 2015 and 2016.

52 The latter order is in the nature of a mandatory injunction, in so far as it requires the fifth defendant to repay to the first defendant any sum it has received as payment for its legal services in the defamation proceedings (or related defamation matters).

53 Having regard to the terms of the relief sought, it is evident that the grant of that relief would equate to the grant of the final relief sought by Ms Aikman in the action itself.

3. The principles applicable to applications for interlocutory injunctions

54 The principles in relation to the grant of interlocutory injunctive relief are well established. They were recently set out by Newnes JA in Mineralogy Pty Ltd v Sino Iron Pty Ltd[41] where his Honour (with whom Corboy J agreed) said:

The two main enquiries that arise are whether the plaintiff has made out a prima facie case and whether the balance of convenience favours the grant of the injunction. The first inquiry as to a 'prima facie case' does not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed. It is sufficient that the plaintiff show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending the trial. How strong the probability needs to be depends upon the nature of the rights the plaintiff asserts and the practical consequences likely to flow from the orders the plaintiff seeks. The second inquiry is whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs, or is outweighed by, the injury which the defendant would suffer if an injunction was granted: Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; (1968) 118 CLR 618; Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57. Whether an applicant for an interlocutory injunction has made out a sufficient prima facie case and whether the balance of convenience favours the grant of such relief are related, not independent, questions: Warner-Lambert Co LCC v Apotex Pty Ltd [2014] FCAFC 59 [70].

It is clear that on an application for an interlocutory injunction the court does not 'undertake a preliminary trial, and give or withhold interlocutory relief upon a forecast as to the ultimate result of the case': Beecham, 622. But it is necessary for an assessment to be made of the strength of the plaintiff's probability of ultimate success. It is plain from the test described in Beecham and O'Neill that the plaintiff's probability of success at trial is a critical factor in the determination of such an application. In that respect, as the Full Court of the Federal Court observed in Samsung Electronics Co Ltd v Apple Inc [2011] FCAFC 156; (2011) 217 FCR 238 [59], it is not enough simply to conclude that the plaintiff has a 'prima facie' case. What is required is an assessment or evaluation of the case for the purpose of deciding whether the plaintiff has made out a prima facie case of sufficient strength to justify the grant of an interlocutory injunction and to enable the strength of the case to be taken into account in an assessment of the balance of convenience and justice: Samsung [87] - [88].

56 A further consideration to be taken into account is whether, if the injunction is not granted, the plaintiff will suffer irreparable injury for which damages will not be adequate compensation. As Edelman J observed in National Australia Bank Ltd v Joyce,[43] there has been some controversy over whether the adequacy of damages as an alternative remedy is a factor to be considered as part of the balance of convenience, or as a separate consideration in the overall exercise of discretion whether to grant injunctive relief. In my view, it is more appropriate to consider the adequacy of damages as part of the overall balance of convenience rather than as a discrete consideration.[44]

57 As I have already observed, order 5 of the orders sought in the Application constitutes a mandatory injunction to compel the fifth defendant to pay the first defendant any sums paid by the first or third defendants in respect of the Legal Fees. The test to be applied in the case of an application for a mandatory interlocutory injunction is no different from that in the case of a prohibitory interlocutory injunction.[45] Specifically, no different standard applies in terms of the degree of confidence that the court should have (in terms of the correctness of the order sought) before granting the injunctive relief which is sought. Instead, in every application for an interlocutory injunction, determining where the balance of convenience lies will involve a consideration of the consequences of granting or refusing the relief sought, including any injustice that might result from granting or denying relief. The fact that the relief sought is mandatory will often, although not always, tilt the balance of convenience in the defendant's favour.[46] One aspect of the balance of convenience considerations, which is particularly relevant in the present case, will be whether the grant of a mandatory order will amount to giving the plaintiff the final relief sought, but without affording the defendant a full hearing of the issue.[47] I will return to that issue later in these reasons.

4. Assessment of the strength of the plaintiff's case

58 As is apparent from the outline above, Ms Aikman's case against the defendants has two primary planks. (For present purposes, I intend to ignore the claim based on misleading and deceptive conduct, which received no attention from counsel for Ms Aikman during the hearing of the application.)

59 The first plank of Ms Aikman's case concerns whether the first defendant acted beyond its power when it paid the Legal Fees. The second concerns the alleged breach of the fiduciary duties which are said to be owed by the first defendant to the proprietors, and by each of the second to fifth defendants to the first defendant and to each of the proprietors.

60 In order to succeed in the action, Ms Aikman will also need to establish that she has standing to bring the action.

61 For the reasons outlined below, and having regard to the evidence adduced on the Application, I have concluded that Ms Aikman's prospects of success on her case overall are only reasonable. That is because the claim that the payment of the Legal Fees was beyond the power of the first defendant appears to be reasonably strong, but not 'overwhelmingly' so, as senior counsel submitted.[48] It cannot be said that it is assured of success. However, Ms Aikman's claims that the defendants were subject to, and breached, fiduciary duties to the first defendant, or to the individual proprietors, are weak. Finally, Ms Aikman faces not insignificant difficulties in establishing that she has standing to pursue causes of action that the first defendant would ordinarily be entitled to pursue.

Ms Aikman's claim that the first defendant had no power to pay the Legal Fees

62 Ms Aikman's case is that the Legal Fees were paid out of the Administrative Fund, but that the Administrative Fund could not be used for the payment of the Legal Fees because such payments did not fall within the permitted uses of an administrative fund prescribed by s 36(1)(a) of the ST Act, in particular because the payments were not made to discharge an obligation of the first defendant.[49] Subsection 36(1)(a) requires a strata company:

[T]o establish a fund for administrative expenses that is sufficient in the opinion of the company for the control and management of the common property, for the payment of any premiums of insurance and the discharge of any other obligation of the strata company.

63 The first to fourth defendants say that it was not necessary for the payment of the Legal Fees to fall within the description in s 36(1)(a) of the ST Act, as that provision is not an exhaustive statement of the purposes to which funds from an administrative fund may be put, nor of the power of a strata company to expend funds.[50]

64 In the alternative, the first to fourth defendants say that the payment of the Legal Fees constituted the performance of obligations of the first defendant pursuant to provisions in the Management Agreement, the OnSite Managers Agreement and the Caretaking Agreement which require the first defendant to indemnify the third defendant (the indemnity provisions).[51]

65 However, the primary basis on which the first to fourth defendants say that the payment of the Legal Fees was authorised is in reliance on s 32(3)(d) of the ST Act.[52]

66 Before turning to make a preliminary assessment of these arguments, it is appropriate to say something about the evidence in relation to how the payment of the Legal Fees came to be made.

Evidence as to how payment of the Legal Fees came to be made

67 Somewhat surprisingly, even allowing for the interlocutory nature of the Application, there was a dearth of evidence before the Court as to how the Legal Fees came to be paid. It was not disputed that the first defendant had paid the Legal Fees. The remittance advices which were in evidence[53] suggested that payment of the fifth defendant's invoices had been made by a transfer of funds from an account of the first defendant. However, there was no agreement or concession as to whether the Legal Fees were paid from the Administrative Fund. The source of the payment may be of some significance, because if the Legal Fees were not paid from the Administrative Fund, then no issue would arise as to the application of s 36(1)(a) of the ST Act.

68 Even if the Legal Fees were paid out of the Fund, that does not establish what was the underlying arrangement for the payment of the Legal Fees. Those arrangements are significant because they are relevant to the question whether the payment was made to discharge an obligation of the first defendant. By way of example, there was little evidence as to whether the Legal Fees were paid because the third defendant billed the first defendant for its costs in performing services under the Agreements (as appears to be suggested in the Amended Statement of Claim); or as to whether some agreement was reached between the second, third and fourth defendants that the first defendant would pay any invoices for the Legal Fees which were issued by the fifth defendant to the third and fourth defendants; or whether (as counsel for Ms Aikman submitted) the third defendant, acting in the capacity of the agent of the first and second defendants, retained the fifth defendant, as a result of which the first defendant was obliged to pay the Legal Fees.

69 One document which was in evidence, and on which counsel for Ms Aikman placed particular emphasis, was a letter dated 17 August 2016 from Torrens Legal, the solicitors for the first defendant, to Ms Aikman's solicitors.[54] That letter was written in response to a complaint from Ms Aikman's solicitors that the Legal Fees had been paid without authority. The first defendant's solicitors stated:

With respect we disagree with your position that there is no proper factual foundation for the Strata Company to have provided or to provide funds concerning the costs and expenses incurred by the [third and fourth defendants in the defamation proceedings].
The Proceedings concern allegations of defamatory statements and conduct towards [the third defendant] and its director and manager. Such statements have been made in the context of the performance by [the third and fourth defendants] of [the third defendant's] duties as the appointed strata manager, caretaker and on-site manager for Strata Plan 48817.
The agreements under which [the third defendant] has been appointed strata manager, caretaker and on-site manager for Strata Plan 48817 (Strata Agreements) each contain an indemnity provision concerning costs and expenses incurred by [the third defendant] in performing its duties under those agreements (Indemnity Provisions).

The provision of funds concerning the Plaintiffs' Costs have been made pursuant to the contractual obligation of the Strata Company contained in the Indemnity Provisions. They have not been provided pursuant to By-laws 25 or 26.
The [second defendants] consider that the Plaintiffs' Costs are costs and expenses properly incurred [by the third defendant] in carrying out its work pursuant to the Strata Agreements, and such costs and expenses that the Strata Company must indemnify [the third defendant] for, due to such reasons as:

7.1 the alleged defamatory statements and conduct directly relating to the performance by [the third defendant] and its director and manager of [the third defendant's] duties under the Strata Agreements;

7.2 the defamatory statements and conduct appearing to be continual and not an isolated incident; and

7.3 the alleged defamatory statements and conduct appearing to unreasonably impact on:

7.3.1 the circumstances / environment under which [the third defendant] and its employees are to perform [the third defendant's] duties under the Strata Agreements; and

7.3.2 the resources reasonably required by [the third defendant] to perform its duties under the Strata Agreements.

Should the [third and fourth defendants] ultimately not be successful in the [defamation proceedings], the [second defendant] is of the view that the Indemnity Provisions will not have been applicable to the Plaintiffs' Costs and accordingly will take action to ensure that [the third defendant] reimburses the Strata Company for these.

70 While this letter suggests that the first defendant paid the Legal Fees because the second defendants considered that the first defendant was obliged to pay the Legal Fees, one might ordinarily expect that an obligation to indemnify for any such fees would be met by payment by the first defendant to the third defendant. However, the remittance advices issued by the fifth defendant, to which I have already referred, suggest that payment of the Legal Fees was made by the transfer of funds from the first defendant to the fifth defendant.

71 The upshot is that in order to succeed in the action, Ms Aikman will need to establish the circumstances in which payment of the Legal Fees was made. At present, the evidence is limited and the evidence which is before the Court clearly does not reflect the totality of the circumstances.

Ms Aikman's case that the payment of the Legal Fees was not authorised under s 36(1)(a) of the ST Act as there was no obligation to pay

72 Ms Aikman's case in respect of s 36(1)(a) of the ST Act holds some appeal. The indemnity provision in the Strata Management Agreement is in clause 15 of that Agreement and provides that:[55]

The Strata Company will indemnify the Strata Company Manager [ie the third defendant] for all costs and expenses (including legal costs) properly incurred in carrying out work pursuant to this Agreement.

73 Clause 10 of the On-site Managers Agreement is in similar terms,[56] and so too is clause 10 of the Caretaking Agreement.[57]

74 Counsel for Ms Aikman submitted that:[58]

[O]n no reasonable view could it be said that the indemnity extends to an obligation to pay legal fees incurred by the third or fourth defendants in bringing [the] defamation proceedings in their own name and for their own benefit. Those costs are not costs incurred in carrying out the work or duties of the first defendant, either pursuant to the Management Agreement or either of the other agreements.

75 At first blush, there appears to be some force to that submission. There appears to be even greater force to the submission by counsel for Ms Aikman that the indemnity provisions do not give rise to any obligation on the first defendant to indemnify the fourth defendants in respect of the Legal Fees.[59]

76 In addition, counsel for Ms Aikman submitted that the letter from Torrens Legal (referred to at [69] above) indicated that the first defendant's solicitors accepted that the indemnity provisions would only apply if the third and fourth defendants succeeded in the defamation proceedings, and that, consequently, there could not be any obligation to pay those costs in advance of the outcome of the defamation proceedings.[60] Counsel for the first to fourth defendants submitted that to the extent that that letter contained any admission that there was no obligation on the first defendant to pay the Legal Fees, such an admission was 'as to the legal extent of the obligation to indemnify [which was] an opinion of law and therefore of little value'.[61] While the letter is not determinative of the question of liability, it does identify an alternative argument as to the operation of the indemnity provisions which assists Ms Aikman's case.

77 Despite the force of these considerations, I do not consider it beyond argument that Ms Aikman's case based on s 36(1)(a) of the ST Act will inevitably succeed, for three reasons.

78 First, the submissions of counsel for Ms Aikman assumed that the references to various items of expenditure in s 36(1)(a) are intended to limit the purposes for which payments may be made out of a strata company's administrative fund. However, as a strata company is not restricted to establishing only an administrative fund and a reserve fund,[62] it is not clear why the legislature would have been concerned to limit the purpose for which payments might be made out of either fund. An alternative view might be that s 36(1)(a) is simply concerned with ensuring that a strata company establishes an administrative fund which has sufficient funds to cover the sorts of operating expenses one would ordinarily expect for a strata company. If that is so, the power of a strata company to pay money out of its funds may derive from another provision in the ST Act.

79 Secondly, assuming that s 36(1)(a) does apply, the question is whether the payment of, or in respect of, the Legal Fees was made in the discharge of an obligation of the first defendant. I note that s 36(1)(a) refers to the discharge of an 'obligation' of the strata company. Consideration will be required at trial of what that term means, bearing in mind that the section refers to 'any' obligation of a strata company.

80 Thirdly, counsel for the first to fourth defendants submitted that the letter from Torrens Legal, when read in its entirety, expressed the view that the second defendants believed that an obligation to pay the Legal Fees presently existed.[63] That submission highlighted the distinction between the existence, in fact and law, of an obligation on the part of the first defendant to pay the Legal Fees, and a belief on the part of the second defendants that the first defendant was subject to such an obligation. If a strata company receives an invoice from a supplier requiring payment for the provision of goods or services, and that invoice is paid but is later found to have contained an error (because, for example, the goods or services were not, in fact, purchased by the strata company) one would not ordinarily characterise the making of the payment as being beyond the power of the strata company. That raises the question whether the remedy (if there is one) derives from a lack of power, or from a mistaken payment.

Ms Aikman's case that the payment of the Legal Fees was not necessary for, or incidental to, the purposes for which a strata company is constituted

81 The first to fourth defendants' case is that the payment of the Legal Fees is within the power of a strata company pursuant to s 32(3)(d) of the ST Act. That provision provides that a strata company:

[M]ay do and suffer all things that bodies corporate generally may, by law, do and suffer and that are necessary for or incidental to the purposes for which a strata company is constituted.

82 Counsel for the first to fourth defendants submitted that the purposes for which a strata company is constituted are not expressly stated in the ST Act, but that one of the purposes for which a strata company may be constituted (as was the case here) was to provide hotel accommodation.

83 Counsel for the first to fourth defendants submitted that one of the purposes for which the first defendant exists is the management of the property so that it remains a desirable location for prospective guests. He submitted that in that respect, it was important to maintain the reputation of the property and that the professional business reputations of the third and fourth defendants reflected upon the property, the first defendant and the proprietors.[64] He submitted that protecting the reputations of the third and fourth defendants through the defamation proceedings would benefit the first defendant and the proprietors in that it 'maintains the confidence of existing [proprietors] in the current management and performance of the manager', 'publicly vindicates any allegations of improper management made against the third and fourth defendants' and 'maintains the value of each proprietor's lot as the reputation of the resort affects the value of the properties and the business'.[65] He submitted that the defamation proceedings, if successful, would assist in maintaining the value of the lots at the property by confirming that the proprietors:[66]

[H]ave a manager of good repute ... who is properly able to undertake its functions.

And it reflects upon them that they ... would employ as their manager an entity, and persons who are employed by the entity, of good character. And that explains, to an extent, why, in the context of the defamation proceedings, there is sought, as part of the relief, the prevention of further publications of the nature complained of against the [third and fourth defendants].

84 Ms Aikman's case is that the payment of the Legal Fees does not fall within the more general power of a strata company under s 32(3)(d) of the ST Act.[67]

85 Counsel for Ms Aikman submitted that the payment of the Legal Fees could not be regarded as necessary for, or incidental to, the purposes for which a strata company is constituted. They submitted that the object of a defamation action was, by its nature, personal to the plaintiff to that action and, for that reason, it could not be said that the payment of the Legal Fees of the third and fourth defendants was a proper use of the power vested in the first defendant or in the second defendant.[68]

86 My preliminary assessment is that Ms Aikman's claim in respect of s 32(3)(d) faces a number of difficulties, for the following reasons.

87 First, there is little authority in respect of the meaning of s 32(3)(d). The provision was considered in by Owen J in Owners of Metro Inn Apartments Strata Plan 11880 v Transmetro Corporation Ltd [No 1][69] and in an appeal from his Honour's decision in Owners of Metro Inn Apartments Strata Plan 11880 v Transmetro Corporation Ltd [No 2].[70] While those decisions establish some principles in relation to the operation of s 32(3)(d), there remain a number of unanswered questions about the operation of that section, which will arise for consideration in the present case.

88 Secondly, the starting point in considering the power of a strata company is that such bodies corporate have the capacity of a company registered under the corporations legislation, and thus the capacity of a natural person.[71]

89 While a strata company may have the capacity of a natural person, that capacity can be exercised or utilised only in relation to things that are necessary for, or incidental to, the purposes for which the company exists.[72] A question arises as to whether the power of a strata company depends on the purposes for which that particular strata company was constituted.[73]

90 Thirdly, even if all strata companies are considered to be constituted for the same purposes, broad and flexible powers would need to be afforded to a strata company given that the ST Act caters 'for a diverse range of ventures ranging from a simple, two lot residence to mixed purpose developments to resort or hotel complexes' (as in this case).[74]

91 In addition, the words 'necessary for or incidental to' themselves import some flexibility. The word 'necessary' does not mean 'essential', but refers to 'what reasonably is necessary in a common-sense way'[75] and to what is 'reasonably required' in order to accomplish the purposes.[76] 'Incidental' means 'casually met with, or occurring in fortuitous or subordinate conjunction with, something else', and 'must be judged by reference to the whole of the arrangements and to the intentions of the parties'.[77]

92 Fourthly, a related question is whether the purposes for which a strata company is constituted need to be discerned from the ST Act. In Metro Inn Apartments, Owen J concluded that the purpose behind the management agreement in issue in that case was referable to the strata company's obligation to manage and control the common property (under s 35(1)(b)) and its express power to make agreements for the provision of services and amenities to proprietors (s 37(1)(g)). However, his Honour accepted that the purposes for which a strata company is constituted were not expressly stated in the Act, but that the purposes of a strata company encompassed all of the duties, powers and functions of a strata company which were recognised in the ST Act.[78] (The Full Court reached the same conclusion.[79])

93 However, neither Owen J, nor the Full Court, considered (nor was it necessary to do so to resolve the issues in dispute) whether a purpose for which a strata company was constituted may include purposes not reflected in the duties, powers or obligations of a strata company which are expressly set out in the Act. As that particular question was not argued, it is not appropriate to express any view on it at this stage, save to say that there is nothing to suggest that the matter is unarguable.

94 Fifthly, even if the purposes for which a strata company is constituted must be discerned from the ST Act, the provisions of the ST Act make clear that a strata company is not established for the sole purpose of the management and control of the common property of a strata plan.[80] Furthermore, the ST Act gives a strata company the power to make by-laws of a wide variety[81] including by-laws which, at least at first blush, appear to be unrelated to the strata company's management of the common property of the strata plan.[82]

95 Sixthly, it is clear that the pursuit of litigation is not antithetical to the purposes for which a strata company is constituted per se. The ST Act expressly contemplates that a strata company may be a party to litigation,[83] and may commence litigation itself (such as an action brought against a proprietor for the recovery of unpaid contributions to the funds of the strata company[84]). The question then arises whether it is the conduct of litigation generally, or the particular piece of litigation in which a strata company is involved, that must be necessary for or incidental to the purposes for which the strata company is constituted.

96 In the latter respect, counsel for Ms Aikman submitted that funding the defamation proceedings could not be regarded as necessary or incidental to the purpose of maintaining the reputation of the property as desirable hotel accommodation (assuming that that could constitute a purpose for which the first defendant was constituted). In essence, his submission was that if the defamation proceedings were dismissed, that outcome would be adverse to the interests of the first defendant in that it would destroy the confidence of the proprietors in the management of the first defendant and, in turn, may diminish the reputation of the property.[85] That submission goes to the merits of funding the defamation proceedings, rather than to the question whether funding those proceedings is within the power of the first defendant. Litigation inevitably carries the risk of loss and of the adverse consequences of that loss, including in costs.

97 The absence of any authority in respect of these questions means that it is very difficult to assess the strength of Ms Aikman's claim in respect of the power of the first defendant under s 32(3)(d). Doing the best I can, her case is clearly arguable, but its prospects are far from assured.

The claims based on alleged breaches of fiduciary duties

98 In my preliminary assessment, Ms Aikman's claims of breaches of fiduciary duties face significant hurdles and, for that reason, this aspect of her claim is weak, for the reason that:

(a) In so far as the first to fourth defendants are concerned, their relationships with the first defendant or the proprietors do not fall squarely, or at all, within the established categories of fiduciary relationships;

(b) In so far as the fifth defendant is concerned, the evidence adduced on the Application does not establish a prima facie case that the fifth defendant was retained by the first defendant and thereby stood in a fiduciary relationship;

(c) Significant hurdles appear to stand in the way of establishing that the relationships in question constitute fiduciary relationships;

(d) Many of the duties said to constitute fiduciary duties owed by the defendants are not in the nature of duties ordinarily identified as fiduciary duties; and

(e) There is no evidence to establish a prima facie case that the third, fourth or fifth defendants knew that payment of the Legal Fees was beyond the first defendant's power or was a breach of a fiduciary duty by the first defendant, or that the defendants were knowingly involved in assisting the other defendants to breach their fiduciary duties.

Each of these matters are considered, in turn, below.

(a) In so far as the first to fourth defendants are concerned, their relationships with the first defendant or the proprietors of the lots do not fall squarely, or at all, within the established categories of recognised fiduciary relationships

99 In many respects, Ms Aikman's claims that the defendants stand in a fiduciary relationship with either the first defendant and/or the proprietors, are novel.

100 A fiduciary relationship between two parties is usually identified as one which is characterised by a duty, and corresponding expectation, of loyalty from one party (the fiduciary) towards the other (the beneficiary). Fiduciary obligations have been held to arise in the context of certain relationships, such as between partners, solicitor and client, principal and agent, director and company, and employer and employee.[86]

101 Outside those well-established categories, determining whether fiduciary obligations arise will depend on the identification of criteria indicative of the existence of a fiduciary relationship. The law on fiduciary duties in Australia is not yet settled and there is not a precise or comprehensive set of circumstances or criteria by reference to which fiduciary obligations will be imposed.[87] The circumstances which may point towards a fiduciary relationship include the existence of a relationship of confidence, inequality of bargaining power, the scope for one party unilaterally to exercise a discretion or power which may affect the rights or interests of the other, and a dependence or vulnerability on the part of one party that causes that party to rely on another.[88] None of these circumstances or criteria is individually determinative of the existence of a fiduciary duty.[89] However, one critical feature which must be present is that the fiduciary undertakes or agrees to act for, or on behalf of, another person, in the interests of that other person, in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense, and to the exclusion of the fiduciary's own interest.[90]

102 The defendants dispute the existence of the pleaded fiduciary relationships. Counsel for the first to fourth defendants recognised that there were some similarities between the relationships in this case and recognised categories of fiduciary relationships (for example, the similarity between the relationship of the second defendants to the first defendants, and that of company directors to the company itself[91]) but did not concede the existence of any of the fiduciary relationships pleaded. Mr Williams disputed the existence of any fiduciary relationship between the fifth defendant and the first defendant or the proprietors. I will deal with the position of the fifth defendant separately below.

103 Ms Aikman's claim that the third defendant stands in a fiduciary relationship to the first defendant is clearly the strongest of her claims, in that that relationship appears to be one of, or akin to that of, agent and principal. (The third defendant has all the powers, authorities, duties and functions of the first and second defendants, pursuant to the Strata Management Agreement.[92]) However, there was little evidence bearing on the existence of any criteria indicative of the existence of a fiduciary relationship as between the second defendants and the first defendant, or between the fourth defendants and the first defendant.

104 Ms Aikman's claim that the second to fifth defendants also owed fiduciary duties to each of the proprietors was even more novel. Leaving to one side the position of the first defendant, there was little evidence relevant to the question whether the second to fourth defendants had undertaken to act in the interests of each of the proprietors, to the exclusion of their own interests, so as to give rise to a fiduciary relationship.

105 Ms Aikman's case that the fifth defendant is subject to a fiduciary duty to the first defendant (and in turn to the proprietors, including Ms Aikman) requires Ms Aikman to demonstrate that the fifth defendant was retained by the first defendant. The evidence relied upon by Ms Aikman did not clearly establish that the fifth defendant was retained by the first defendant.

106 Counsel for Ms Aikman pointed to several aspects of the evidence which he submitted supported the existence of a retainer, whether expressly or by inference.

107 First, they pointed to a letter dated 14 May 2015 from the fifth defendants to the third defendant which set out the terms by which the third defendant engaged the fifth defendants to act for it in the defamation proceedings.[93] Counsel for Ms Aikman submitted that because the third defendant was an agent of the first defendant, and because the first defendant paid for the Legal Fees, the proper inference was that the third defendant, acting as agent for the first defendant, retained the fifth defendant to act as its lawyers in the defamation proceedings.[94] In short, senior counsel for Ms Aikman submitted that 'there is a live issue as to whether [the fifth defendant was] retained by the third defendant [or whether] the third defendants ... [retained the fifth defendant] as agent of the first defendant'.[95]

108 Secondly, counsel for Ms Aikman submitted that evidence in relation to the 2015 AGM demonstrated that Mr Williams of the fifth defendant attended that meeting and provided legal services to the first defendant and probably also to the second defendant. They relied on the fact that Mr Williams attended the 2015 AGM and provided some advice to the meeting. Senior counsel submitted that this was explicable only on the basis that the third defendant, acting as the agent for the first defendant, engaged the fifth defendant.[96]

109 He identified several passages in the minutes which he submitted were consistent with Mr Williams attending in the capacity of a lawyer retained by the first defendant. He placed particular emphasis, however, on an observation made at the commencement of the 2015 AGM by Ms Knowles, the chair of the first defendant's Council of Owners, who told the meeting that there were two lawyers present at the meeting (one of whom was Mr Williams) and that they had attended 'at the request of the [second defendants]'.[97]

110 Counsel for Ms Aikman submitted that Ms Aikman had an 'extremely strong case'[98] that the third defendant had engaged the fifth defendant, but that the third defendant did so in its capacity as an agent for the first defendant. With the greatest of respect to counsel, that conclusion represents one inference from the facts, but that is not the only inference which is open on the evidence.

111 Thirdly, counsel for Ms Aikman submitted that it was apparent that, whether or not it had been formally retained by the first defendant, the fifth defendant was, by the time of the 2015 AGM, providing advice to the first defendant and the second defendant, and to the proprietors more generally.[99]

112 Fourthly, counsel for Ms Aikman submitted that the second defendants told the proprietors that the second defendants, on behalf of the first defendant, had given instructions to commence the defamation proceedings in the name of the strata company.[100] Counsel for Ms Aikman pointed to a letter from Ms Knowles to the proprietors dated 27 July 2016.[101] Although the defamation proceedings were not ultimately commenced in the name of the first defendant, senior counsel for Ms Aikman submitted that it was 'telling' that the chairman of the Council of Owners told the proprietors that the second defendants had given instructions to commence the defamation proceedings.[102]

113 Furthermore, senior counsel for Ms Aikman noted that that letter from Ms Knowles advised the proprietors that 'having received advice from our solicitors, [the fourth defendants] were joined in the action'. He submitted that the reference to the solicitors in that context was clearly a reference to the fifth defendant.[103]

114 There was also some other evidence capable of supporting an inference that the fifth defendant provided advice to the first or second defendants in relation to issues arising from the alleged publication of the Coombs Report, or in relation to the defamation proceedings. In the minutes of the 2016 AGM, one of the proprietors sought 'clarification on the Coombs Report and was advised that this report was provided under the SAT Orders and was private and confidential to those proceedings. The strata manager read legal advice from [the fifth defendant] regarding the status'.[104]

115 Fifthly, counsel for Ms Aikman pointed to the fact that the fifth defendants are currently retained to act for the first defendant in other proceedings.[105]

116 The fifth defendant denies that it has been retained by the first defendant in the defamation proceedings, and says that it acts only for the third and fourth defendants in the defamation proceedings. According to Ms Taylor's affidavit,[106] the fifth defendant does act for the first defendant in other proceedings unrelated to the present dispute. Ms Taylor deposed to the fact that other than in respect of that matter, the fifth defendant 'has not entered into any engagement with any party to these proceedings other than the engagement' that was the subject of the letter from the fifth defendant to the third defendant dated 14 May 2015.[107]

117 The terms of that letter make clear that the fifth defendant was engaged to act on behalf of the third defendant. That letter contains nothing which suggests, expressly, that the third defendant was acting as the agent for the first defendant when it engaged the fifth defendant.

118 As for what occurred at the 2015 AGM, Mr Williams submitted that passages from the transcript of the 2015 AGM could not be read in isolation. He submitted that when read in context, the minutes made clear that he attended the meeting at the request of the second defendants, made some 'observations' through the Chair in relation to the question of proxy votes, but that when legal advice was required about the conduct of the meeting, that advice was sought from Mr Kipping (of Torrens Legal) who was also present.

119 In so far as it indicates that Mr Williams attended and made some remarks which may be construed as advice, the transcript of the 2015 AGM leaves me with a sense of unease as to whether the fifth defendant was acting for the first or second defendants, as well as the third and fourth defendants. That is no doubt due, in part, to the fact that no explanation has been offered for why or how Mr Williams came to attend the 2015 AGM, and no such explanation can be discerned from the transcript or the other evidence presently before the Court.

120 It is neither possible nor desirable to make any finding at this stage about whether the fifth defendant was retained by the first defendant, based on the transcript of the 2015 AGM. I remain conscious of the fact that the fifth defendant, a firm of legal practitioners, denies that it had a retainer with the first or second defendants; the Court does not have before it all of the evidence which may bear upon that question; and the transcript in evidence is only an extract from the entire transcript of the 2015 AGM. If this matter proceeds to trial, there will no doubt be a need for evidence from the fifth defendant, including from Mr Williams (who, in those circumstances, could not continue to appear as counsel for the fifth defendant), and from the second defendants as to what occurred, and any such witnesses would need to be cross examined.

121 At this point, I do not think that the position can be put any higher than that there is some evidence capable of supporting an inference that the fifth defendant was retained by the first and second defendants, but I am not satisfied that that evidence supports a prima facie case that the fifth defendant was in fact retained by the first and second defendants, as well as by the third and fourth defendants, in the defamation proceedings.

(c) Significant hurdles appear to stand in the way of establishing that the relationships in question constitute fiduciary relationships

122 In addition, significant hurdles appear to stand in the way of Ms Aikman establishing that the fiduciary relationships pleaded exist in this case. Equity will not import a fiduciary relationship where the fiduciary will inevitably be in a position of potential conflict between its own interests, or the interests of other parties which it serves, and the interests of the beneficiary. Yet this would appear to be the case in relation to many of the defendants. By way of example, under s 36(4) of the ST Act, a strata company may bring proceedings against a proprietor to recover unpaid contributions, and in that event would not be in a position to act both in the best interests of the proprietors as a whole and in the best interests of an individual proprietor who is in arrears. For the same reason, a similar potential conflict would arise between the duty of the third defendant to the first defendant under the Agreements, and the third defendant's fiduciary duties to any individual proprietors. Difficulties of a similar kind would also arise if the relationship between the second defendants (each of whom will be a proprietor), and individual proprietors, were regarded as fiduciary in nature. The same problem would also arise in respect of the fourth defendants, each of whom is a proprietor but each of whom also owes fiduciary duties to the third defendant by virtue of the fact that they are the director and an employee of the third defendant respectively.

(d) Many of the duties said to constitute fiduciary duties owed by the defendants are not in the nature of duties ordinarily identified as fiduciary duties

123 Even if any or all of the relationships in question are able to be characterised as fiduciary in nature, that does not mean that all of the duties which the parties to that relationship may owe to each other can be characterised as fiduciary duties. Of all of the duties that may be owed by one party to the other, as incidents of their relationship, only those which are integral to preserving the loyalty on which the relationship is based will be identified as fiduciary duties. In other words, the existence of a fiduciary relationship does not mean that a fiduciary duty will attach to every aspect of the fiduciary's conduct.[108]

124 The requirement for loyalty, applied in circumstances where the economic interests of a fiduciary require protection, will ordinarily manifest itself in two fiduciary duties: a duty not to obtain an unauthorised benefit from the relationship; and a duty not to be in a position of conflict between the fiduciary's duty (that is, the functions or responsibilities the fiduciary has undertaken to perform for or on behalf of the beneficiary[109]) and the fiduciary's personal interest.[110] The difficulty that Ms Aikman faces in this case is that none of the duties alleged to be fiduciary duties are duties of that kind.

125 Furthermore, equity will ordinarily impose only proscriptive and not prescriptive duties on a fiduciary.[111] Yet in this case, many of the duties to which Ms Aikman says the defendants were subject, and which she says are fiduciary duties, are prescriptive in nature.

126 Although these claims were not in the Amended Statement of Claim, counsel for Ms Aikman submitted that the payment of the Legal Fees constituted the receipt of funds by the third defendant, in the knowledge that the payments were made without power or, alternatively, in breach of a fiduciary duty.[112] It appears that Ms Aikman intends to advance the same claim as against the fourth defendants. In addition, it appears that Ms Aikman also intends to advance a claim that the fourth defendants knowingly assisted the first defendant to make those payments, knowing the payments were made without power or in breach of a fiduciary duty.[113]

127 It appears that the third and fourth defendants' case will be that they did not knowingly receive funds in breach of fiduciary duties because they were under the impression that legal advice had been obtained, which indicated that it was proper for the first defendant to pay the Legal Fees, and that the payment of the Legal Fees had been approved by the 2015 Resolution and the 2016 Resolution. Counsel for the first to fourth defendants made clear that insofar as Ms Aikman claimed that any fiduciary duties were breached, or that the third or fourth defendants were knowingly concerned with any breach, those claims were denied.[114]

128 Mr Williams submitted that there was no evidence that the fifth defendant was a knowing recipient of funds paid in breach of a fiduciary duty.

129 These claims appear to be, or to be similar to, claims under both limbs of Barnes v Addy.[115] It does not presently appear that Ms Aikman has a prima facie claim under either limb of Barnes v Addy as there was no evidence led on the Injunction Application to suggest that the third to fifth defendants had knowledge that payment of the Legal Fees involved any breach of fiduciary duty.

130 The defendants deny that Ms Aikman has standing to bring the action. In so far as she seeks the repayment of money to the first defendant, her action, at first blush, appears to be derivative in nature, rather than for the vindication of a personal right. If that is so, Ms Aikman would need to establish that she has standing to bring the action. In my view, Ms Aikman's prospects of establishing that she has standing to bring the action are, at best, fair, for the following reasons.

131 First, while counsel for Ms Aikman submitted that the first defendant owed fiduciary duties to each proprietor, and there was no reason to suggest that Ms Aikman did not have standing to bring proceedings to restrain a breach of the fiduciary duty owed to her, that claim is subject to considerable doubt, for the reasons outlined above at [98] - [129].[116] But even if that is so, Ms Aikman's case goes well beyond an action to restrain the first defendant from breaching any fiduciary duty it owes to her.

132 Secondly, counsel for Ms Aikman submitted that Ms Aikman has a right, personal to her, to challenge an improper use of funds of which she may be regarded as a joint owner, and that the Court has power to make orders preserving property in aid of claims by Ms Aikman as a joint owner of the funds in the Administrative Fund.[117] There seems to me to be a real question as to whether proprietors can be regarded as having any personal rights of ownership to the joint pool of funds accumulated from contributions levied from all proprietors in a strata plan.

133 Thirdly, in the alternative to her contention that this action is brought in the exercise of a personal right, Ms Aikman claims that she has standing because her case falls within exceptions to the rule in Foss v Harbottle.[118] In the case of a corporation, Foss v Harbottle is regarded as giving rise to the rule that the proper plaintiff to bring an action in respect of a wrong done to a corporation is the corporation itself, and individual shareholders have no standing to bring such proceedings. Leaving to one side derivative actions permitted under pt 2F.1A of the Corporations Act 2001 (Cth), there are five recognised exceptions to the rule in Foss v Harbottle.

134 I understood Ms Aikman to claim that she falls within the third of those exceptions (that a personal right of a member has been, or is being, infringed and the irregularity is not one that can be condoned by the company in a general meeting) or, alternatively, the fifth exception to the rule (that it is in the public interest that she have standing to bring the action).

135 Ms Aikman claims that she falls within those exceptions because the basis for her claim is that the payment of the Legal Fees was beyond the power of the first defendant; the action is to enforce an individual right against the conduct of the majority (namely, the approval of payment of the Legal Fees); the voting at the 2015 AGM and the 2016 AGM was controlled by the third defendant and amounted to a fraud on the minority proprietors; and the interests of justice required that the action be brought.[119]

136 Ms Aikman's prospects of establishing that she has standing pursuant to an exception to the rule in Foss v Harbottle are fair, but hardly assured, for the reasons set out below.

137 There is no Western Australian authority which suggests that the rule in Foss v Harbottle applies to strata companies which are established pursuant to the ST Act. However, there is authority from other jurisdictions, in respect of proprietors' corporations established under similar strata titles legislation, which is to the effect that the rule in Foss v Harbottle applies to such bodies corporate, and that the fifth exception to that rule the interests of justice exception applies in that context.[120]

138 If the rule (and its exceptions) apply generally to strata companies in this State, then Ms Aikman would need to establish that she falls within one of the exceptions. In so far as the third exception is concerned, there is authority which casts doubt on the proposition that an action by a proprietor for a breach of fiduciary duties owed to a strata company could be said to fall within that exception.[121]

139 In order to establish that she has standing under the public interest exception to the rule in Foss v Harbottle, Ms Aikman would need to adduce evidence addressing one or more[122] (or alternatively all[123]) of the following factors: that she brings the action bona fide in the interests of the first defendant and not for an ulterior purpose; that normal corporate procedures have failed to achieve a just outcome; that there is no other remedy to address the alleged wrong; and that serious injustice would arise if she were prevented from pursuing the derivative action. To the extent that these criteria incorporate factual matters, Ms Aikman adduced evidence which prima facie addressed those matters.

140 However, a more significant issue that arises in relation to the public interest exception, is whether that exception applies only in a case in which there is no alternative remedy available, other than the derivative action.[124] Mr Williams submitted that a failure to pursue an alternative remedy precluded a finding of standing to bring a derivative action.[125] He submitted that it was open to Ms Aikman to apply to the SAT for an order under s 83(1) of the ST Act, and that the ST Act conferred standing on her to make that application. In addition, Mr Williams pointed to s 103E of the ST Act, which (he submitted) would permit Ms Aikman to pursue an application in the SAT to terminate the retainer that she alleged existed between the first defendant and the fifth defendant.[126]

141 Nothing in the ST Act derogates from the rights of a proprietor apart from under that Act.[127] However, that does not resolve the issue.

142 Counsel for Ms Aikman submitted that the SAT was not the appropriate forum because it could not grant final injunctive relief, nor make declarations in respect of the power of the first defendant to pay the Legal Fees, and nor could it grant relief as against the fifth defendant or make consequential orders for the payment of money.[128] However, bearing in mind the relief actually sought in this action (as outlined above at [49]) above, there remains a question as to what is required to preclude standing under the public interest exception: whether standing will be precluded only if there is a remedy which is precisely the same as the remedy or relief sought in the derivative action; or whether standing will be excluded if there is a remedy which addresses the alleged breaches of duty or excess of power about which Ms Aikman complains, irrespective of whether precisely the same relief might be granted by this Court in a derivative action. If something less than identical relief is sufficient, then that gives rise to a question as to whether Ms Aikman meets the requirements for standing under the public interest exception.

143 Taking into account the relative strengths and weaknesses of the various aspects of Ms Aikman's claim from her claim to standing, to the different causes of action advanced my preliminary assessment, based on the evidence and submissions in the Injunction Application, is that Ms Aikman's prospects of obtaining some relief overall are merely fair to reasonable, at best.

144 I turn to consider the factors relevant to the balance of convenience.

145 In my view, the balance of convenience favours the refusal of the interlocutory injunctive relief sought by Ms Aikman, having regard to the following factors:

(a) Ms Aikman has not shown that damages would be an inadequate alternative remedy;

(b) Ms Aikman has not identified any irreparable harm or prejudice that she will suffer if the injunctive relief she seeks is not granted; and

(a) Ms Aikman has not demonstrated that damages would be an inadequate alternative remedy

146 In any event, counsel for Ms Aikman submitted that damages would not be an adequate remedy in this case because the first defendant has no capacity to pay damages other than from the funds it holds, which are comprised of proprietors' contributions, and that it has no capacity to raise funds other than from the proprietors. Accordingly, it was submitted that the only remedy Ms Aikman had as against the first defendant was an injunction.[129] While that may be so, the difficulty with that submission is that the position of the first defendant cannot be considered in isolation in a case where the relief Ms Aikman seeks, including on the Injunction Application itself, extends to relief as against the second to fifth defendants, and includes injunctive relief which would compel the repayment to the first defendant of the Legal Fees. There is no suggestion that the defendants would be unable to pay any such amount and, in fact, counsel for Ms Aikman positively asserted that the third, fourth and fifth defendants could do so.

147 Counsel for the first to fourth defendants submitted that Ms Aikman's application was intended:[130]

[T]o reallocate the risk so the person who takes on the risk of then having to recover the money at a later stage. ... If the claim if the application is successful, it's suggested that the third and fourth defendants will put their hand in their pocket and fund the defamation proceedings and then, presumably, they would take on the risk of taking action against the first defendant to be indemnified for it. It's really just a reallocation of risk. It's all about money and that's exactly what the inadequacy of damages factor is designed to avoid.

148 That submission appears to me to be an appropriate description of the Injunction Application.

149 I should add that, in my view, it is not entirely apt, in a case such as this, to approach this aspect of the balance of convenience enquiry from the perspective of whether damages would be an adequate alternative remedy to the grant of injunctive relief. Although Ms Aikman pleads that she has suffered loss and damage, she does not expressly seek relief in the form of an award of damages. Instead, the relief she seeks, in the action and on the Injunction Application, is confined to the repayment to the first defendant of the Legal Fees (which is not characterised as a claim for damages) together with injunctive relief to prevent any further payment of the Legal Fees. In those circumstances, the more pertinent question is whether there is some imperative for the grant of that relief at this interlocutory stage, or only following a trial. That is a matter which I will address in a moment.

(b) Ms Aikman has not identified any irreparable harm or prejudice that she will suffer if the injunctive relief she seeks is not granted

150 The fifth defendant submitted that the relief sought by Ms Aikman does not preserve the status quo, but rather 'upends' it.[131] At least in so far as the relief sought extends to an injunction to compel the fifth defendant to repay the Legal Fees, there is no doubt that the relief sought goes well beyond the maintenance of the status quo, and in effect seeks relief equating to final relief.

151 Counsel for Ms Aikman did not identify any irreparable harm to Ms Aikman if the injunctive relief she seeks is not granted.

152 When pressed as to why what amounts to the final relief sought should be granted at this interlocutory stage, senior counsel for Ms Aikman did not place any reliance on a claim to prejudice or to irreparable harm which she would suffer if the relief were not granted. Instead, he submitted that:[132]

Our primary case is against the first defendant ... that it has done it [paid the legal fees] outside power or it has done it [in] breach of duty. That's going to be a clean case. The first defendant doesn't have any capacity to pay with any real money because whatever money it has is our money. ...

... The only way ... we can get any real money i.e. real damages is in pursuing one of the defendants to pay the money back to the first defendant which is part of what this case is about. ... In order to do that, rather than stopping this hearing now we're put in a position of having to run complex and uncertain potentially complex and certainly uncertain litigation and that's for this reason. ... [W]hen we get down the line in cases like this inevitably ... the third defendant will say, 'Well, look, maybe there was a conflict, but there was fully informed consent to the first defendant or the first defendant acquiesced in this' or those sort of defences. So the third defendant is then in a position to put up defences arising from the conduct of the first defendant ... And all of that then has to be thought out.

153 Ultimately, senior counsel for Ms Aikman submitted that the best argument for the grant of interlocutory injunctive relief was the strength of Ms Aikman's case, and the admission by Torrens Legal (in the letter referred to at [69]) that the indemnity provisions only applied if the third and fourth defendants were successful in the defamation action. As he put it: 'so, on their own admission, they're not entitled to be paid this money now and they've taken it.'[133] Given my preliminary assessment of the strength of Ms Aikman's case on whether the first defendant acted beyond its power, I am unable to accept that the strength of that case is so compelling, of itself, as to warrant the grant of the relief sought on the Application.

154 For the sake of completeness, I should add a further observation. The timing of the Application, and the fact that Ms Aikman sought an expedited trial and determination of her action, gave rise to the impression that the Application was brought with the aim of disrupting the trial of the defamation proceedings. When I asked senior counsel about that issue, he submitted that it could not be inferred that the present application had been brought in an attempt to stop the trial of the defamation proceedings. He submitted that the reason for the Application (in so far as it sought an expedited trial) was 'to stop the wrong'.[134] He submitted that 'the strength of the case is such that what really should be restored is the status quo, the status quo being that they had no entitlement to have these fees paid'.[135] He submitted that 'it's certainly not our expectation that [the grant of interlocutory injunctive relief] will stop [the trial] in any way, shape or form'.[136] In the end, it is not necessary to form any concluded view about that matter, given my view as to the weight of other considerations relevant to the balance of convenience. Accordingly, I have not taken this factor into account in reaching a conclusion on the balance of convenience.

155 A factor which weighs heavily against the exercise of the Court's discretion to grant injunctive relief in this case is the delay on Ms Aikman's part in bringing the action and this Application. Ms Aikman's case was that there was no delay, as it was not until late July 2016 that she became aware that the first defendant was paying the Legal Fees.

[W]hilst there was suspicion that owners' funds were being used to pay the personal legal costs and expenses of the third and fourth defendants I did not have admissible evidence of that until I received a letter dated 27 July 2016 from Sue Knowles.

157 Ms Aikman also deposed that 'at no time prior to or during [the] course of the [2025 AGM] was I informed which specific legal matters or legal work were the subject of the budgetary allowance of $25,000.'[138] Similarly, she deposed that 'at no time prior to the [2016 AGM], or during the course of it, was I informed which legal matters or legal work were the subject of the budgetary allowance of $25,000'.[139]

AIKMAN -v- THE OWNERS OF STRATA PLAN 48817 - 16 DOLPHIN DRIVE MANDURAH [2016] WASC 380 (18 November 2016)

At a glance

Court

Decision date

Before

Source

Judgment (407 paragraphs)