Asset Risk Management v Hyndes

COUNSEL : Appellant: R. McFarlan QC/A.S. Martin Respondent:I. Harrison SC/G. Grant SOLICITORS : Appellant: Clayton Utz Respondent: Pappas J. CATCHWORDS : Equity - account - employer/employee - abscence allegations of wrongdoing, breach of express term of contract, equitable duty; - allegation breach implied term abandoned. CASES CITED: Peninsular and Oriental Steam Navigation Co v Johnson [1937-1938] 60 CLR 189; Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41. DECISION : Appeal allowed.

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

TUESDAY 13 JULY 1999 ASSET RISK MANAGEMENT LIMITED v Mathew Jonathon HYNDES JUDGEMENT ASSET RISK MANAGEMENT LIMITED v Mathew Jonathon HYNDES

1 MEAGHER JA: This is an appeal from a judgment of Young J denying the appellant the remedy of an account against the respondent. The facts may be stated briefly. Indeed it would be difficult to do otherwise, as almost no evidence was tendered to the Court. 2 The appellant employed the respondent under an agreement called the Executive Services Agreement under which he would be General Manager, Asia. Despite his title he had a superior in Thailand, a Mr Gatland, who is now missing, probably murdered. 3 During the respondent's service, two sums of money to which the appellant was entitled were transferred to an account in the respondent's name with the Bangkok Bank Public Company Limited. Shortly afterward they were transferred from that account into another account in the joint names of the respondent and his fiance. Since that transfer the funds have gone astray, no one knows how or where. The amounts involved were 450,000Bahts and 28.4 million Deutschmarks. In Australian currency, the aggregate value of the two amounts is in the order of $46,000,000. 4 The appellant was concerned to know where its money had gone. The respondent replied that it had been dispersed in accordance with Mr Gatland's directions. He also stated that in writing, not once but several times, that he would explain to the appellant exactly what had happened. But explain he never did. The appellant then sued him in Equity for an account. It lost. 5 Young J, in a careful judgement, gave a detailed history of the equitable action of account. He also pointed to the many features of this very curious case which seemed to favour the respondent: there was no allegation of legal wrongdoing, no allegation of breach of any express term of the contract; an initial allegation of breach of an implied term of the contract was abandoned. Nor was there any allegation of breach of any equitable duty, - other, of course, than breach of duty to account. There was no allegation that the respondent held the moneys on trust, or on some quasi-trustee basis. There was no allegation of any breach of confidence. There was no evidence that an account would be too complicated to take at law. There was no suggestion that the respondent had profited personally from the transaction. It seems to have been conceded that the moneys had been distributed in accordance with the appellant's direction. His Honour was much teased with the question whether the respondent stood in a fiduciary relationship with the appellant, but did not seem to decide the question. 6 Mr R.B.S. Macfarlan QC took the Court -and at some length - through the relevant academic discussions of account, and also the case law cited by his Honour. 7 Neither side seemed to notice that the respondent was in fact guilty of a breach of one of the express terms of the contract. Clause 11.1(a) of the agreement was in the following terms: "The Executive represents and warrants that: he will immediately inform the Company of any matter which may come to his notice during the Employment which may be of interest or of any importance or use to the Company or its subsidiaries;" 8 In my view it would be wrongful to hold the appellant disentitled to bring an action for account. The respondent was its superior agent. The respondent obviously stood in a relationship of confidence to the appellant. The respondent had received an enormous sum of the appellant's money. Why should he not account for it? If authority be needed, one need go no further than Snells Principles of Equity (28th ed.) where it is said: "Account in aid of a legal right. Secondly, the Court of Chancery had a concurrent jurisdiction to order an account in certain cases in aid of a legal right. These cases appear to have been the following: Principal and agent. A principal could maintain a suit in equity for an account against his agent on the ground of the confidence reposed by the principal in the agent and the impossibility of discovering, except by the oath of the agent, how he had acted in the execution of his agency, and the agent was also required to account for any secret profits he had made." As Latham CJ stated in Peninsular and Oriental Steam Navigation Co v Johnson [1937-1938] 60 CLR 189 at 218 "Any person who, as agent or manager or director, has in fact the disposition or control of the moneys or other property of another person is a person who may be ordered to bring in an account." 9 Moreover, if authority were needed that a man in the respondent's position owed a fiduciary duty to his master, one need search no further than Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 68, 96 and 141. 10 In my view the following orders should be made:

1. Appeal allowed. 2. Judgment and order of Young J set aside. 3. In lieu thereof, order: a)An order than an account be taken of all moneys received and disbursed by the respondent in and from the Bank Account for the period from 29 April 1996 to the present date. b)An order that the Respondent within fourteen days from the making of this order file and serve upon the Appellant his detailed account verified by his affidavit of all moneys received and disbursed by the respondent in and from the Bank Account for the period from 29 April 1996 to the present date. c)An order that the said account shall specify: (i)the date and amount of each receipt; (ii)from whom each amount was received; (iii)the purpose for which each amount was received; (iv)the date and amount of each payment; to whom each payment was made; (v)the purpose for which each payment was made. d)An order that the Respondent within fourteen days from the making of this order file and serve upon the Appellant his detailed statement verified by his affidavit specifying each transaction entered into as a consequence of each payment made out of the Bank Account for the period from 29 April 1996 to present date. e)An order that the Appellant be at liberty within seven days after service upon it of the said account and statement to apply to the Master, Equity Division, to examine the respondent viva voce or upon interrogatories in respect of the said account and statement. f)An order that the respondent pay to the Appellant the amount, if any, which shall be found to be due to it upon the taking of such account together with interest thereon. 4. Order that the respondent pay the appellant's costs at first instance. 5. Order that the respondent pay the appellant's costs of the appeal, but to have a certificate in respect thereof under the Suitors Fund Act if otherwise entitled. 11 SHELLER JA: I agree with the reasons of Meagher and Stein JJA and the orders proposed by Meagher JA. 12 STEIN JA : I agree with Meagher JA and with the orders he proposes. 13 As his Honour observes, in so far as the facts are known to the court, it is an extraordinary case. For example, it appears that A$46,000,000 was paid into the respondent's bank account in Thailand within a day of the commencement date of his employment under the contract of service or very shortly thereafter. 14 Two matters are however abundantly clear. First that the respondent owed a fiduciary duty to the appellant by reason of his employment (Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41). Second, it is clear that the respondent breached cl 11.1(a) of his contract (the clause is set out in Meagher JA's judgment). Also to the point is cl 4.1(b) dealing with the respondent's duties. It provides as follows: 'The Executive will: (b) well and faithfully serve the Company and its subsidiaries and use his best endeavours to promote their interest and welfare'. 15 Further, as Meagher JA makes plain, Peninsular and Oriental Steam Navigation Co. v Johnson (1937 - 1938) 60 CLR 189 at 218, is authority for the proposition that a manager who has disposition and control of the moneys or property of another may be ordered to bring in an account. Latham CJ stated that such a person is a trustee for the company and in a fiduciary position to it. Moreover, the Chief Justice said that each case must be considered in relation to all the circumstances. 16 Contrary to the respondent's further written submissions, I do not understand Peninsular to be authority for the proposition that accounts will not be granted in the absence of a case of impropriety against the accounting party. Nor is it authority that a court will only grant such relief where there is a prima facie case of impropriety established. Neither do I understand it to be authority for the proposition that there must be evidence of suspected defaults before there is jurisdiction to grant the relief. 17 In my opinion, the appellant is entitled to an order that an account be taken.

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