EQUITY - Fiduciary Relationship - agency to find prospective investors in units and to obtain from them and submit applications for such units to principal (insurance group) - same agent also agent for bank to obtain and submit applications from the prospective investors for finance to enable them to invest in the units - pleading that bank knowingly assisted agent to breach fiduciary duty owed to principal - whether reasonable cause of action pleaded based on second (accessory) limb of Barnes v Addy

REASONS FOR JUDGMENT INTRODUCTION On 12 September 1997 I gave the applicants, to which I shall also refer as "the National Mutual Companies", leave to file a fourth further amended statement of claim. By an amended notice of motion filed on 20 October 1997, the respondent ("Citibank") seeks the following substantive orders: "1. That the leave granted to the applicants on 12 September 1997 to file the Fourth Further Amended Statement of Claim be revoked as to paragraphs 141 to 151 (inclusive). 2. In the alternative, that paragraphs 141 to 151 (inclusive) of the Fourth Further Amended Statement of Claim be struck out pursuant to Order 11 r15 or alternatively Order 20 r2. 3. In the further alternative, (a) that the proceedings on paragraphs 141 to 151 (inclusive) of the Fourth Further Amended Statement of Claim be stayed unless and until the applicants add the first and second cross-respondents as respondents to the Fourth Further Amended Statement of Claim; (b) alternatively, that the first and second cross-respondents be added as respondents to the Fourth Further Amended Statement of Claim. 4. That the leave granted to the applicants on 12 September 1997 to file the Fourth Further Amended Statement of Claim be revoked as to the applicants' addition of its claims against the respondent in respect to the following: [six persons or couples of persons are named] 5. In the alternative, that it be made a condition of the leave granted for the addition of the claims described in the preceding paragraph that the amendment is to operate without prejudice to the respondent's entitlement to rely upon any limitation defence which was available to it in respect to those claims (or any of them) as at the date of the amendment. 6. That the leave granted to the applicants on 12 September 1997 to file the Fourth Further Amended Statement of Claim be revoked as to the addition of L Grima as a 'presenter' in Schedule 4 and the representations which are attributed to him. 7. That the leave granted to the applicants on 12 September 1997 to file the Fourth Further Amended Statement of Claim be revoked as to the removal of the applicants' claims in respect to the following: [three persons are named] 8. In the alternative, judgment in favour of the respondent in respect to the applicants' claims described in the preceding paragraph. 9. An order that the seventh cross-respondent (Wayne Fitcher) and the thirteenth cross-respondent (G Blakelock) be removed as parties to these proceedings and that the applicants pay on an indemnity basis the cross-claimant's and the respective cross-respondent's costs of the Cross-Claim against those cross-respondents. 10. That the leave granted to the applicants on 17 October 1997 relieving them of the need to conduct their case on affidavit evidence be revoked and in lieu thereof, that time be extended for the applicants' affidavit evidence in chief, up to and including 31 January 1998 in the case of affidavits from the Investors identified in the orders made on 17 October 1997." Citibank led evidence on the hearing of its motion directed to showing that the solicitors for the National Mutual companies had forwarded the then proposed fourth further amended statement of claim to Citibank's solicitors only two days before 12 September; that the form of the document which, on 12 September, I gave the applicants leave to file, and which they in fact filed on 15 September, differed in certain respects from that which had been supplied to its solicitors; and that counsel who had held the brief for Citibank throughout, was overseas at the time and was therefore unavailable to advise in relation to the document. This evidence explained why Citibank did not object on 12 September to my granting leave for the filing of the fourth further amended statement of claim. There was also evidence of events between the granting of leave and the filing of Citibank's notice of motion on 20 October which satisfies me that Citibank filed the notice of motion without delay after it had the opportunity to consider the fourth further amended statement of claim as filed. The major issues debated on the hearing have related to Citibank's attack on pars 141-151 of the fourth further amended statement of claim. Those paragraphs purport to plead a case against Citibank of accessory liability founded on Barnes v Addy (1874) LR 9 Ch App 244, in respect of alleged breach by Lance Kelly ("Kelly") and Lance Kelly Financial Management Pty Ltd ("LKFM") of a fiduciary duty said to have been owed by them to the applicants. On the return date of Citibank's motion, 17 November 1997, the applicants filed a notice of motion seeking leave to amend further their fourth further amended statement of claim by substituting new pars 102-106 and new pars 141-152 for their existing counterparts, and leave to file a further amended application. The proposed further amended application included a new claim against Citibank for equitable compensation for the applicants' loss suffered as a result of the breach of fiduciary duty by Kelly and LKFM. Apparently the applicants had overlooked the claiming of such relief when they obtained leave on 12 September to file the fourth further amended statement of claim. Although Citibank opposes the applicants' motion for leave to amend, it does so for those reasons which cause it to attack the fourth further amended statement of claim itself. It was common ground that I should provisionally grant the applicants leave to amend as sought by them in order that the present debate should address the pleading as the applicants wish to amend it. Accordingly, I granted that leave provisionally. The argument and these Reasons therefore address the fourth further amended statement of claim as containing the substituted pars 102 to 106 and 141 to 152 (I will call the composite document "the Pleading"). BACKGROUND AND THE PLEADING GENERALLY General background and history of the proceeding I delivered a judgment in this proceeding on 1 November 1995 ((1995) 132 ALR 514). The Pleading and the nature of the proceeding reflect substantial changes since then. There are three applicants: NMFM Property Pty Limited (formerly National Mutual Property Services (Australia) Pty Limited) ("NMPS"), National Mutual Assets Management Limited ("NMAM") and National Mutual Life Association of Australasia Limited ("NMLA"). NMPS and NMAM are wholly owned subsidiaries of NMLA. NMPS and NMAM offered units in the National Mutual Australian Property Trust No. 1 (the "Property Trust") as part of a "Negative Gearing Package". The Negative Gearing Package is described in par 19 of the Pleading. The following account of the Negative Gearing Package is derived from the Pleading. Investors would apply to NMPS and NMAM for an initial number of units in the Property Trust ("the initial units"). The acquisition of the initial units would be funded from sources other than the National Mutual companies. Investors would apply to NMPS for a loan from the National Mutual Australian Income Fund ("the Mortgage Trust") or from NMLA, in either case on interest only terms, in order to fund their purchase of further units in the Property Trust ("the further units"). The initial units and the further units would stand as security for the loan, under a "unit mortgage". The investors would also take out an insurance policy with NMLA. In some cases, and in all that are relevant to this proceeding, the purchase price of the initial units, the first year's interest on the loan from the Mortgage Trust, and the first year's premium on the insurance policy, or some of these amounts, would be funded by an interest only loan from Citibank. Further loans would be sought subsequently from NMLA against the value of any policies issued, and applied to fund either ongoing premium liability for the policies or the purchase of further units in the Property Trust. It was expected that the investment in the units would result in a reduction in the income tax payable by the investor (the investment was designed for persons paying the top marginal rate of income tax). This reduction in income tax, along with income derived from the units, would enable payment of the interest on the interest only loan from Citibank or from the Mortgage Trust. At the end of a nominated number of years, the units would be redeemed and the policy surrendered. The monies payable upon redemption and surrender would be used to repay the loans from Citibank and from the Mortgage Trust or NMLA, leaving the investor with a substantial profit. It was not essential that an investor accept each part of the Negative Gearing Package. For example, an investor might have obtained funding from a source other than Citibank or might even have used his or her own funds. According to the applicants, they required that at least 20 per cent of the funds invested come from a source external to themselves. Those investors who borrowed from Citibank are described in the Pleading as "Citibank Investors" and are the 132 persons listed in Schedule 1 to the Pleading (I count co-investors as one "person"). The attraction of the investment appears to have been that the investor was not obliged to outlay funds "up front" and was obliged to make the first payment of interest only after a year, by which time he or she would be saving income tax by reason of the investment, and, hopefully, earning income from the units. In sum, the investment could end up costing the investor nothing, while providing him or her with a lump sum at the end of the nominated period, depending upon the performance of the units. Unfortunately, the value of the units steadily declined from February 1991 and the investors lost money. According to Schedule 1 to the Pleading, the Citibank Investors alone lost amounts totalling $10,240,440.62. According to the Pleading, NMPS, NMAM and NMLA engaged Dennis Jones ("Jones"), Dennis Jones & Company Pty Ltd ("DJC"), Kelly and LKFM as agents for the purpose of obtaining applications for units and for loans and proposals for insurance. Both Jones and Kelly were duly accredited representatives of NMAM pursuant to the Securities Industry (Victoria) Code ("SIC"), NMAM itself being an investment adviser under that Code. The "agencies" to which I have referred are variously pleaded in pars 15-18 (Jones and DJC) and 45-48 (Kelly and LKFM) of the Pleading to which I will refer in more detail later. It is appropriate, however, to note that the allegation is no more than that they were authorised to obtain and submit applications and proposals; it is not alleged that they were authorised to commit their principals contractually. As noted above, the proceeding once took a different form from the present one. (I gave a detailed account of the amended statement of claim filed on 8 November 1994 at (1995) 132 ALR 516-528). Although NMPS, NMAM and NMLA were then, as they still are, respectively the first, second and third applicants, at that time the investors were also parties - as fourth applicants. Although Citibank was the first respondent, LKFM, Kelly, DJC and Jones were respectively second, third, fourth and fifth respondents, and, during the course of the proceeding, American Home Assurance Company ("AHA") was added as sixth respondent. AHA was sued as the insurer of DJC and Jones. I need not say anything more of the National Mutual companies' cause of action against AHA. Those of the investors who were introduced to the Negative Gearing Package by DJC (which acted through Jones and others) were called "Jones applicants". Those who were introduced by LKFM (which acted through Kelly and others) were called "Kelly applicants". The Jones applicants were listed in Schedule 2, and the Kelly applicants in Schedule 4, to the amended statement of claim. It was pleaded that DJC and Jones were vicariously liable for the conduct of those who introduced the Jones applicants and that LKFM and Kelly were vicariously liable for the conduct of those who introduced the Kelly applicants. Importantly, it was also alleged that Jones and DJC acted as agents for Kelly and LKFM, with the result that Kelly and LKFM were liable to the Jones applicants as Jones and DJC themselves were. It was pleaded that the National Mutual companies were vicariously liable to the Kelly applicants and the Jones applicants, and under a coordinate liability to them with LKFM and Kelly and with DJC and Jones, as the case might be. It was pleaded that LKFM was the agent of Citibank for the purpose of obtaining applications to Citibank for, inter alia, its "Mortgage Power Loan"; that LKFM engaged Kelly, DJC, Jones and other individuals to assist in promoting and selling the Mortgage Power Loan; and that they succeeded in respect of "the Citibank applicants", who were those Jones applicants and Kelly applicants listed in Schedule 6 to the amended statement of claim. The amended statement of claim pleaded that there was a coordinate liability of the National Mutual companies on the one hand, and various of LKFM, Kelly, DJC, Jones and Citibank on the other, to the respective classes of applicants. For example, it was pleaded that the National Mutual companies were subject to a coordinate liability with Citibank to the Citibank applicants. The National Mutual companies therefore claimed to be entitled to equitable compensation, or indemnity or contribution under s 5 (1) (c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) or s 23B of the Wrongs Act 1958 (Vic), from LKFM, Kelly, DJC, Jones and Citibank. But there were also other bases of the National Mutual companies' claims. They pleaded various forms of "direct" liability to them of LKFM, Kelly, DJC, Jones and Citibank. In view of later developments, I need not discuss these, beyond noting that in the case of Citibank, the allegation was that by entering into the Mortgage Power Loan transactions, Citibank made certain representations to the National Mutual companies and thereby contravened s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act") and breached a duty of care which Citibank owed to NMPS and NMAM. Importantly, prior to the launching of the proceeding, the National Mutual companies satisfied the claims of the fourth applicants and took purported assignments from them of their causes of action against LKFM, Kelly, DJC, Jones and Citibank. I held in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 that the assignments were ineffective. I also ordered that the pleading of the TP Act and negligence causes of action against Citibank be struck out. The National Mutual companies applied for leave to appeal which was refused by Lehane J on 16 November 1995. My rulings did not touch on the question of the National Mutual companies' entitlement to recover from Citibank by way of equitable compensation, indemnity or contribution in respect of the moneys which it paid to satisfy the claims of the Citibank Investors. The fourth further amended statement of claim reflects the earlier judgment and makes other changes. Since the earlier judgment, the fourth applicants have discontinued and have ceased to be parties. The National Mutual companies have also settled their claims against LKFM, Kelly, DJC, Jones and AHA, and have agreed to discontinue against them. Until the recent amendments the subject of these Reasons for Judgment, this left on foot only the claims by the National Mutual companies against Citibank for equitable contribution, indemnity or contribution based on the alleged coordinate liability of Citibank and the National Mutual companies to the former Citibank applicants. I digress to note the general nature of the settlement reached between the National Mutual companies and the second to sixth respondents. AHA paid $6,000,000 to NMLA made up as follows: (a) $2,232,517.45 in respect of the National Mutual companies' claims in relation to the "Kelly/non-Citibank Investors"; (b) $2,175,572.25 in respect of the National Mutual companies' claims in relation to the "Jones/non-Citibank Investors"; and (c) $1,591,910.30 in respect of interest and legal costs in relation to claims (a) and (b). In return, the National Mutual companies agreed to discontinue against LKFM, Kelly, DJC, Jones and AHA. Clearly, an objective was to leave "unsettled" the National Mutual companies' claims in relation to investors who borrowed from Citibank. The Pleading in more detail The applicants allege that Kelly, LKFM, Jones and DJC breached duties of care which they owed to the investors and engaged in misleading or deceptive conduct when introducing them to the Negative Gearing Package, by not advising them of the risks involved or by making certain representations, including, relevantly, a representation that a solicitor would be engaged on their behalf. In respect of certain investors, namely, those to whom Kelly and Jones made representations, it is also alleged that Kelly and Jones, respectively, contravened sections 68C and 68E of the SIC. The Pleading alleges that in addition to being an agent for the applicants, LKFM was an agent for Citibank for the purpose of procuring applications for loans from Citibank in connection with the Negative Gearing Package, and that LKFM engaged Kelly, Jones and DJC and others to assist it in selling and promoting Citibank's products (pars 102-104). Those persons, including LKFM itself, are described as "the Citibank agents". The Citibank agents are said to have solicited applications from the 132 Citibank Investors for Citibank's Mortgage Power Loan, as part of their entering into the Negative Gearing Package (par 105). The applicants allege that in doing so, the Citibank agents made representations and gave advice to the Citibank Investors (par 106), had a duty to warn them of certain matters (par 107), had a duty to provide them with a written explanation of the Negative gearing package, including the Mortgage Power Loan (par 108), but breached their duty and engaged in misleading or deceptive conduct (pars 109-112). Again, with respect to those investors to whom Kelly and Jones made representations, it is also alleged that they, respectively, contravened sections 68C and 68E of the SIC (pars 113, 114). The Pleading also asserts that the Citibank agents owed a duty of care to the Citibank Investors which they breached (pars 115,116). Paragraph 117 of the Pleading, alleges that the Citibank agents had authority (actual or apparent) from Citibank to make representations about the Negative Gearing Package or the constituent parts of it, or alternatively, that Citibank ratified the actions of its agents, and, in either case, is liable to the Citibank Investors for any loss suffered by them as a result of the said conduct of the Citibank agents (pars 117, 118). It is also claimed in par 119 that the conduct of the Citibank agents is deemed to have been engaged in by Citibank by virtue of s 84 of the TP Act. Paragraphs 120-122 plead reliance by the Citibank Investors, their suffering loss and damage, and the liability of the Citibank agents to pay damages to the Citibank Investors under s 68F of the SIC. In par 123-126 of the Pleading, it is alleged that Citibank owed a duty of care to the Citibank Investors in respect of an "inherently dangerous" product, namely, the Mortgage Power Loan, and breached that duty of care in certain ways. Paragraphs 127-129, 138 and 140 plead the coordinate liability of the applicants and Citibank to the Citibank Investors, or alternatively the applicants' entitlement to contribution or indemnity from Citibank pursuant to s 5 (1) (c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) or s 23B of the Wrongs Act 1958 (Vic). I have referred earlier to Schedule 1 to the Pleading which identifies the 132 Citibank Investors. Schedule 2 gives particulars of sixty "Jones Investors", that is, those investors who were introduced to the Negative Gearing Package by or through Jones. Schedule 3 gives particulars of forty-seven of the Jones Investors to whom Jones was allegedly in breach of the duty imposed on him by ss 68C and 68E of the SIC. Schedule 4 gives particulars of seventy-two "Kelly Investors", that is, those investors who were introduced to the Negative Gearing Package by or through Kelly. Schedule 5 gives particulars of forty-seven of the Kelly Investors to whom Kelly was allegedly in breach of the duty imposed on him by ss 68C and 68E of the SIC. I need not discuss Schedule 6. Schedules 7A, 7B, 7C and 7D list various groups of Citibank Investors according to four classes of "irregularity" in relation to the conduct of a Ms P Van Minnen, which are said to have occurred in their cases. They are discussed below. As I indicated earlier, on the hearing of Citibank's motion, attention has been directed chiefly to pars 141-152 of the Pleading. Those paragraphs plead the breach of a fiduciary duty said to be owed by Kelly and LKFM to the National Mutual companies, and the accessory liability of Citibank. The claim is based on the fact that Ms Van Minnen purported to act as solicitor for the Citibank Investors when she was not in fact a solicitor, and that in some cases she had them sign an acknowledgment that they had been advised by a solicitor, or advised to consult a solicitor, when they had not received such advice at all. It is alleged that these facts were known to Kelly and LKFM and that they breached their fiduciary duty by failing to disclose the irregularities for fear of losing the commission payable to them upon their procuring persons to invest. It is claimed that Kelly and LKFM and anyone knowingly assisting them in their breach of fiduciary obligation are liable compensate the applicants for the loss suffered by them in settling with the investors. The Pleading alleges that Citibank is such a person. CITIBANK'S ATTACK ON THE PLEADING Grounds of Citibank's attack on the Pleading Citibank attacks pars 141 to 151 of the Pleading, those asserting "the Barnes v Addy liability". It advances six arguments in support: "A. Paragraphs 141 to 151 (inclusive) of the Statement of Claim fail to plead facts constituting the necessary elements of a Barnes v Addy claim and the pleading should be struck out under FCR O11 r16(a) (alternatively, FCR O20 r2(1)(a)). B. The matters pleaded in paragraphs 141 to 151 (inclusive) of the Statement of Claim are so obscurely stated, contain such irrelevancy and lack of logic that the pleading should be struck out as tending to cause prejudice, embarrassment or delay or as being an abuse of process under FCR O11 r16(b) and (c) (alternatively FCR O20 r2(1)(b) and (c)). C. The case pleaded in paragraphs 141 to 151 (inclusive) of the Statement of Claim is in fundamental respects unsupported by the affidavit evidence in chief of National Mutual, is inconsistent with that evidence and is contrary to other sworn testimony of National Mutual's witnesses, with the effect that the proceeding is frivolous or vexatious or an abuse of the process of the Court under FCR O20 r2(1)(b) and (c). D. Citibank's alleged Barnes v Addy liability, being ancillary and dependent upon the liability of the defaulting fiduciaries (LKFM and Kelly ('the Kelly interests')) and the fiduciaries having received an unqualified release of that liability, it follows as a matter of law that Citibank is likewise released from that liability and the amendment should be struck out as futile. E. The proceedings are defective for want of proper parties, unless and until the primary obligor (being the Kelly interests) is joined as respondent to the proceedings. F. The period of limitation for the claim being six years, and that period having expired, the claim is statute-barred and hence futile." Relevant Federal Court Rules Order 11 r 16 of the Federal Court Rules provides: "Where a pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or (c) is otherwise an abuse of the process of the Court, the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out." Order 20 r 2(1) provides: "Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding: (a) no reasonable cause of action is disclosed; (b) the proceeding is frivolous or vexatious; or (c) the proceeding is an abuse of the process of the Court, the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding." Order 11 r 16 is concerned with pleadings; O 20 r 2(1) is concerned with proceedings and claims for relief in proceedings. Although the "absence of a reasonable cause of action" ground occurs within par (a) in both O 11 r 16 and O 20 r 2(1), the difference between the two provisions is radical. This is illustrated by the fundamental difference between the orders for which the two rules provide. Order 11 r 16 authorises the Court to "order that the whole or any part of [a] pleading be struck out". The word "pleading" is defined in O 1 r 4 as follows: "'pleading' includes a statement of claim and a cross-claim to which Order 5 applies and subsequent pleadings, but does not include an application, notice of motion or affidavit; ... " Unlike the prescribed form of "statement of claim" (Form 7) and the prescribed forms of "cross-claim to which Order 5 applies" (Forms 8, 9 and 10), the prescribed form of application (Form 5) is not required to "plead as required by the rules". An applicant is, however, required by O 4 r 6 to "file and serve with the application either an affidavit or a statement of claim, whichever is appropriate". Order 20 r 2, on the other hand, authorises the Court to "order that [a] proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding". Where a motion under O 20 r 2 is brought by the respondent against the applicant, the ultimate focus of concern is the claims for relief made in the application, since that is where the claims for relief, and therefore the proceeding's identifying character, are to be found. In so far as par 2 of Citibank's motion seeks an order that pars 141-151 be "struck out pursuant to ... Order 20 rule 2" the paragraph reveals a misconception. I approach the present motion on the basis that par 2 seeks a striking out pursuant to O 11 r 16. If I decide to strike out pars 141-151 of the Pleading as disclosing no reasonable cause of action, in principle the distinct question would then arise whether the claim against Citibank for equitable compensation for the applicants' loss suffered as a result of the breach of fiduciary duty by Kelly and LKFM, that is, for equitable compensation founded upon the second limb of Barnes v Addy, could nonetheless be saved by amendment of the pleading; cf General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (Barwick CJ) at 137-138. I discussed the principles relating to summary dismissal and the striking out of pleadings in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (No 1) (1995) 132 ALR 514 at 528-529 and will not repeat that discussion here. In General Steel Industries, Barwick CJ accepted that argument, even of an extensive kind, may be necessary to determine whether a pleading fails to disclose a reasonable cause of action. To a similar effect, and of particular present relevance, is the following passage from the speech of Lord Templeman in Williams and Humbert Ltd v W & H Trademarks (Jersey) Ltd [1986] AC 368 at 435-436: "if an application to strike out involves a prolonged and serious argument the judge should, as a general rule, decline to proceed with the argument unless he not only harbours doubts about the soundness of the pleading, but, in addition, is satisfied that striking out will obviate the necessity for a trial or will substantially reduce the burden of preparing for trial or the burden of the trial itself." (emphasis added) In the present case, there was debate, not only about the adequacy of the Pleading, but also about the effect on the trial of a striking out of the Barnes v Addy claim. The parties have suggested that the trial is likely to run for up to four months. A significant amount of time may be saved if the Barnes v Addy claim is struck out. This consideration militates in favour of exploration of the issue at this stage. Although counsel for the applicants suggested that the evidence of the facts which support the claim of Barnes v Addy liability would need to be adduced in any event, this is not clearly the case. The relevant part of the Pleading revolves around the alleged conduct of Ms Van Minnen. The Pleading relating to the liability of Citibank for the conduct of its agents, on the other hand, revolves around their conduct in soliciting investors. Although one of the alleged representations is that a solicitor would be engaged to act on behalf of the Citibank Investors (pars 20 (b), 77 (b) and 106 (b) of the Pleading), not much is made of this. The only reference to Ms Van Minnen in the first 140 paragraphs of the Pleading is in particular (v) to par 117 (u). This is no more than one particular of a pleading that Citibank knew that there was a likelihood that its agents were making representations that investors would have a solicitor engaged on their behalf who would look after their interests. In my view, a striking out of pars 141-151 of the Pleading would significantly reduce the evidence to be led at trial. In particular, it seems that evidence of the conduct of Ms Van Minnen, the relationship between Ms Van Minnen and LKFM, whether Citibank knew of the conduct of Ms Van Minnen, and whether the National Mutual companies knew of the conduct of Ms Van Minnen, would all become irrelevant. In my view, in this case the prospect of a significant saving of time at trial warrants a reasonably detailed examination of the part of the Pleading sought to be struck out, as against leaving the pleading question raised to be resolved on the final hearing: cf the approach taken by Hill J in Unilan Holdings Pty Ltd v Kerin (1992) 107 ALR 709. PARAGRAPHS 141-151 OF THE PLEADING The applicants allege in par 141 that each of Kelly and LKFM owed to each of the applicants the duties of a fiduciary in respect to the obtaining and forwarding to the applicants of applications for financial products offered by them, including units in the Property Trust and loans from the Mortgage Trust or from NMLA to purchase units in the Property Trust. The paragraph pleads that this fiduciary duty was owed by reason of the matters alleged in pars 45-48. Those paragraphs plead the agency of Kelly (pars 45 and 46) and of LKFM (pars 47 and 48). In each case, the agency is said to have been for the purpose of obtaining applications for financial products, including units in the Property Trust and loans from the Mortgage Trust or from NMLA to purchase such units. In the case of Kelly, the principals are said to have been NMPS and NMAM and the agency is said to have subsisted "from at least June 1988 until at least April 1993". In the case of LKFM, the principals are said to have been all three of NMPS, NMAM and NMLA, and the agency is said to have subsisted "from at least June 1988 until at least January 1993". Paragraph 142 asserts that each of Kelly and LKFM was obliged as a fiduciary: "(a) to act in the interests of the Applicants to the exclusion of the interests of Kelly and LKFM in respect to these matters [the obtaining and forwarding of applications for financial products including units in the Property Trust and loans from the Mortgage Trust or from NMLA to purchase units in the Property Trust]; and/or (b) to act with loyalty to the Applicants in respect to these matters; and/or (c) not to withhold information material to be known by the Applicants in respect to these matters." Paragraph 143 alleges that, in relation to those ninety-eight Citibank Investors named in Schedule 7A, Kelly or LKFM, or both, submitted an application to the applicants to purchase units in the Property Trust and an application for a loan from the Mortgage Trust or from NMLA to provide approximately 80 per cent of the funding for the units, the remaining 20 per cent of the funding to be provided by a Citibank Mortgage Power loan "secured over the investor's home". Paragraph 144 alleges that in submitting those applications, Kelly and LKFM withheld from the applicants certain material facts. The material facts allegedly withheld varied as between the Citibank Investors in respect of whom the new cause of action is pleaded. In summary, these material facts are as follows: a) in relation to the ninety-eight Citibank Investors identified in Schedule 7A, that Ms Van Minnen purported to act as solicitor for the investor when she had not been engaged by the investor to act as solicitor, was not in fact a solicitor, and it was unlawful, by reason of s 93 of the Legal Profession Practice Act 1958 (Vic) and s 117 of the Legal Profession Act 1987 (NSW), for her to do such work for reward; b) in relation to the thirty-eight Citibank Investors identified in Schedule 7B, that Ms Van Minnen issued or published a form of "Borrower's Acknowledgment" to Citibank or its solicitors, purportedly witnessed by her, in which the investor acknowledged that the security documents had been fully explained to the signatory by his or her solicitor, Ms Van Minnen, who was the witness to the document, and that the signatory understood the true purpose, nature and effect of the documents and his or her obligations under them, when in fact Ms Van Minnen had not explained the security documents to the investor, had not witnessed his or her signature, and did not know whether the investor understood the true purpose, nature and effect of the security documents and his or her obligation under them; c) in relation to the twenty-three Citibank Investors identified in Schedule 7C, that Ms Van Minnen issued or published a form of a Borrower's Acknowledgment to Citibank or its solicitors, purportedly witnessed by her, in which the investor stated that he or she had been advised to consult a solicitor but had decided of his or her own free will not to employ a solicitor, and declared that he or she understood the true purpose, nature and effect of the security documents which he or she had read, when in fact Ms Van Minnen knew that the investor had not been advised to consult a solicitor, had not decided of his or her own free will not to employ a solicitor, she had not witnessed the investor's signature, and she did not know whether the investor understood the purpose, nature and effect of the security documents; and d) in relation to the twenty-two Citibank Investors identified in Schedule 7D, that Ms Van Minnen issued or published a form of a Borrower's Acknowledgment to Citibank or its solicitors, purportedly witnessed by her, in which the investor made each of the statements referred to in (b) and (c) above, when, in truth, she knew that the statements were not true, and, further, she had not witnessed the investor's signature. The applicants claim that Kelly and LKFM must have known of these facts because: Kelly had an office on the same floor as, and near to, Ms Van Minnen; for each Citibank Investor, a common file containing all applications, security documents and other documents relevant to each transaction was maintained; Ms Van Minnen had the care and custody of the files and gave them regularly to Kelly for review; and investors regularly saw Kelly together with Ms Van Minnen, in circumstances in which Ms Van Minnen was apparently acting under the direction or control of Kelly. Paragraph 145 alleges that Kelly and LKFM withheld from the National Mutual companies the matters mentioned because they believed that disclosure might imperil their prospects of earning and continuing to earn substantial commissions from them and from Citibank. Paragraph 146 asserts that the facts pleaded constitute a breach of fiduciary duty by Kelly and LKFM to the applicants. Paragraph 147 asserts that the applicants suffered loss and damage by reason of the breach of fiduciary duty, being the amounts totalling $5,615,193.63 which they paid to the sixty Jones Investors identified in Schedule 2 and the amount of $4,625,246.99 which they paid to the seventy-two Kelly Investors identified in Schedule 4 (total $10,240,440.62), " ... in reasonable settlement of their claims against the Applicants whereupon Kelly and LKFM as defaulting fiduciaries and any other party who knowingly assisted Kelly and LKFM in their breach of fiduciary duties are liable to make good any such loss or damage by way of equitable compensation." Paragraph 148 alleges that Citibank knew of the "irregularities" referred to above touching the conduct of Ms Van Minnen and the forms of Borrower's Acknowledgment, and of the non-disclosure of those irregularities by Kelly and LKFM to the applicants. It further alleges that Citibank knew that as a result there was a risk or likelihood that the Citibank Mortgage Power Loans granted to the ninety-eight Citibank Investors identified in Schedule 7A (it may be that the pleader had intended to refer to the Mortgage Power Loans granted to all the Citibank Investors identified in Schedules 7A, 7B, 7C and 7D) might be invalid or unenforceable "and/or that Kelly/LKFM or Citibank might incur a liability to the said investors", and that there was also a risk or likelihood that any issue of units in the Property Trust or any grant of a loan from the Mortgage Trust might be invalid or unenforceable "and/or that the applicants might incur a liability to the said investors". The paragraph pleads that notwithstanding its knowledge of all these matters, Citibank: "(h) armed with the above knowledge, accepted the applications from the said investors, granted Citibank Mortgage Power loans to them and accepted mortgages over their homes, all on a continuing basis, and further, (i) did not require Kelly and LKFM to cease to use Ms P. Van Minnen in preparation of documents relating to Mortgage Power Loans granted by Citibank; (j) did not require Kelly or LKFM to instruct Ms P. Van Minnen not to act as a solicitor for investors seeking Mortgage Power Loans from Citibank for as long as she was not so qualified; (k) did not require investors seeking Mortgage Power loans to obtain independent skilled advice; (l) did not require Kelly or LKFM to instruct Ms P. Van Minnen to cease to make false statements in Borrowers' Acknowledgments; (m) paid Kelly and LKFM commissions on successful Citibank Mortgage Power loan applications, and enabled Kelly and LKFM to earn commission from the Applicants." It will be noted that pars (i), (j), (k) and (l) plead inaction by Citibank, whereas pars (h) and (m) plead positive acts by it, and that both the inaction and the positive acts enabled the Citibank Investors to enter into the Negative Gearing package, and, accordingly, Kelly and LKFM to earn commissions from the applicants. It is contended in par 149 that "in the premises" Citibank "procured or assisted" the breach by Kelly and LKFM of their fiduciary obligations to the applicants, in par 150 that Citibank did not act as an honest person would in the circumstances, and in par 151 that Citibank is liable in equity to make good the loss suffered by the applicants as a result of the breach of fiduciary duty by Kelly and LKFM, being the amounts which the applicants paid to the Citibank Investors in reasonable settlement of their claims. REASONING Liability under the second limb of Barnes v Addy In Barnes v Addy, Lord Herschell said: "strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees." (1874) LR 9 Ch App 244 at 251-252) We are concerned here, not with the first limb (receipt of trust property), but with the second limb (knowing assistance in "a dishonest and fraudulent design" on the part of fiduciaries). The liability in question has been variously called "accessorial liability", "secondary liability", "participatory liability" and liability for "knowing assistance". For the purposes of the present case, the elements of this second limb of Barnes v Addy liability may be taken to be: (a) a breach of trust or of fiduciary duty; (b) participation by the third party in the manner in which the breach has occurred; and (c) knowledge, or at least suspicion, by the third party, at the time of participation, that by the conduct constituting the breach, the fiduciary was perpetrating a wrong upon the beneficiary of the fiduciary obligation. This formulation is similar to those of Professor A J Oakley in Constructive Trusts (3rd ed, 1997), at 238-9 and in "Liability of a Stranger as a Constructive Trustee" in Cope (ed), Equity: Issues and Trends (The Federation Press, 1995) at 63; Professor Patrick Parkinson in Parkinson (ed), The Principles of Equity (1996) at 754; and Professor Finn (as his Honour then was) in "The Liability of Third Parties for Knowing Receipt or Assistance" in D W M Waters (ed), Equity, Fiduciaries and Trusts (Carswell, 1993) at 217-218. The parties' submissions also refer to Finn J's description of the second limb of Barnes v Addy liability in Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 523, as "a fault-based form of accessorial liability" which: "can be formulated (conservatively) as one which exposes a third party to the full range of equitable remedy available against a trustee if that person knowingly or recklessly assists in or procures a breach of trust or of fiduciary duty by a trustee". The concepts of "participation" and "knowledge", in particular, are apt to give rise to difficulty. Clearly, the third party must have actually known all the circumstances constituting the elements of the breach of fiduciary duty. There has been some difference of opinion, however, as to the nature and extent of the awareness required of the third party, and, therefore, on the issue of the third party's "fault" or "blameworthiness: cf Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 398 (Gibbs J); Royal Brunei Airline SDN BHD v Philip Tan Kok Ming [1995] 2 AC 378 (PC) at 384-385, 392; Finn, "The Liability of Third Parties for Knowing Receipt or Assistance", above, at 214-218; Oakley, Constructive Trusts, above, at 191-220; Parkinson, above, at 748-754. This potential area of difficulty need not concern me in relation to the Pleading. The parties are not at issue over the elements of liability. The issue which divides them is whether the Pleading sufficiently pleads facts constituting those elements. (a) The pleading of breach of fiduciary duty by Kelly and LKFM Fiduciary relations are of many different kinds and where a fiduciary relationship exists, it does not necessarily follow that all aspects of the relationship bear a fiduciary character. Paragraph 141 of the Pleading asserts that Kelly and LKFM owed the duties of a fiduciary to each of the applicants "in respect to the obtaining and forwarding to the applicants of applications for financial products offered by the applicants ... ". Similarly, par 142 pleads that "in respect to these matters" each of Kelly and LKFM was obliged as a fiduciary (a) to act exclusively in the interests of the applicants, (b) to act with loyalty to the applicants, and (c) not to withhold from the applicants information material to be known to them. The obtaining and forwarding of applications covers the entire scope of the agency as pleaded. The material quoted does not limit the scope of the fiduciary duty. Another consideration of general importance is that the scope of the fiduciary aspect of a relationship must be consistent with any agreement between the parties which is effective to control their relationship: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97 (Mason J). This is important in the present case. It has not been in dispute that it was part of the agency agreement that Kelly and LKFM were to earn commissions from the introduction of prospective investors. That is to say, the agency agreement accepted that they had an interest in their dealings with the applicants and were entitled to make profits out of those dealings. Citibank does not dispute that the relationship between principal and agent is a fiduciary one, in the sense that it gives rise to some fiduciary obligation. As noted earlier, the Pleading asserts that at relevant times, Kelly was an agent for NMPS and NMAM, and LKFM was an agent for NMPS, NMAM and NMLA, "for the purpose of obtaining [and it may be taken, submitting] applications [and proposals] for financial [and insurance] products", including units and loans. It is important for present purposes always to bear in mind the "minimalist" nature of the agency of Kelly and LKFM as pleaded: they were authorised to solicit, obtain and submit applications. It is not even pleaded that Kelly and LKFM had bound themselves (positively) to do anything as agents, or (negatively) not to find applicants for financial products offered by competitors of the applicants, or that they could commit the applicants contractually. It is desirable with this in mind to re-examine the facts pleaded which are said to give rise to the fiduciary obligation of disclosure. According to par 141, the duties of a fiduciary in respect of the obtaining and forwarding of applications for financial products are said to arise by reason of the matters alleged in pars 45-48. Those paragraphs plead the agencies of Kelly (par 45) and LKFM (par 47) as described above and terms of those agencies (pars 46, 48): (a) that the agent would indemnify the principal in respect of any loss as a result of the agent's conduct, (b) that the agent would take all reasonable and proper steps to ensure that all information supplied to the principal in application forms and otherwise was accurate and correct, (c) that the agent would not withhold from the principal information known to the agent to be material to applications being put forward by the agent, and (d) that the agent would ensure that any representation made by the agent to potential applicants was made in a lawful manner and did not contravene the TP Act. In their submissions, the applicants did not rely only on pars 45-48 and the fiduciary nature of "agency" to support the existence of the three particular obligations referred to in par 142. They also referred to the facts, known to Kelly and LKFM, that the applicants required 20 per cent of the finance to be obtained elsewhere before they would provide the remaining 80 per cent; that Citibank required investors to sign an acknowledgment that they had been advised by a solicitor in relation to the investment, or at least had been advised to seek such advice, in order to be protected against later claims that they had not properly understood the scheme; that investors were signing the acknowledgments even though no such advice was being given to them; and, hence, that there was a "cloud" hanging over the 20 per cent of finance to be provided by Citibank. On its face, par 142 seems to assume that it necessarily follows from the pleading of "agency" and the fact that agency is a well accepted class of fiduciary relationship, that the three general obligations (exclusion of self interest, loyalty and disclosure) referred to in par 142, arise "in respect to" the obtaining (and submission) to the applicants of applications and proposals. As will appear below, in my opinion they do not all necessarily arise in this case. I will address them in turn. First, the exclusion of self-interest. The applicants submit that "[i]t will be a breach of fiduciary duty, as Breen v Williams (1996)186 CLR 71 indicates, if a fiduciary is in a position of conflict between interest and duty, or is profiting out of its fiduciary position…". This proposition accords with other statements of the obligations of a fiduciary: see, for example, Bray v Ford [1896] AC 44 (PC) at 51-52 (Lord Herschell); Chan v Zacharia (1984) 154 CLR 178 at 198 (Deane J). However, the duties owed by a particular fiduciary vary from case to case: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 539; Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 102 (Mason J). In the passage last cited, Mason J said this: "The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship. Fiduciary relationships range from the trustee to the errand boy, the celebrated example given by Fletcher Moulton LJ in his judgment in In re Coomber, in which, after referring to the danger of trusting to verbal formulae, he pointed out that the nature of the curial intervention which is justifiable will vary from case to case. In accordance with these comments it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case: ... . The often repeated statement that the rule in Keech v Sandford ... applies to fiduciaries generally tends to obscure the variable nature of the duties which they owe. The rigorous standards appropriate to a trustee will not apply to a fiduciary who is permitted by contract to pursue his own interests in some respects. Thus, in the present case the so-called rule that the fiduciary cannot allow a conflict to arise between duty and interest ... cannot be usefully applied in the absolute terms in which it has been stated." (authorities and citations omitted) Far from giving rise to a duty to act in the applicants' interests to the exclusion of their own, the agencies of Kelly and LKFM were of a kind apt to encourage them pursue their own interests in soliciting applications. The agencies, as pleaded, were of a common enough kind in which principal and agent expect that their interests will coalesce, rather than conflict, and that what will be good for each will be good for the other. In relation to the so called duty of loyalty, Gaudron and McHugh JJ observed in Breen v Williams (1996) 186 CLR 71 at 108, that equity insists "that fiduciaries give undivided loyalty to the persons whom they serve". However, this does not assist in deciding whether Kelly and LKFM breached their fiduciary duties. Moreover, their Honours went on to quote from Bray v Ford [1896] AC 44 at 51-52 where Lord Herschell summarised the fiduciary's duties in terms of the "conflict" and "secret profit" rules. This brings me to consider directly the pleaded obligation "not to withhold information material to be known by the applicants in respect to [the obtaining and forwarding to the applicants of applications for financial products offered by the applicants]". The question is whether there is pleaded a duty, recognised in equity, incumbent on Kelly and LKFM to take the initiative of disclosing what they had supposedly learned about the irregularities touching the role of Ms Van Minnen. Citibank submits that whatever contractual or common law duties were owed by Kelly and LKFM to the applicants, there was no such positive duty of disclosure arising from fiduciary obligation. It submits that "there is no breach of duty solely in a fiduciary agent's failure to disclose a material matter to his or her principal". For example, while in Bowstead on Agency (16th ed, 1996) at 217, 223, it is said that an agent has a "duty to make full disclosure" (art 46) and a "duty to make full disclosure where he deals with his principal" (art 47), the full text of these articles shows that they are to be understood as manifestations of the conflict and secret profit rules, disclosure being a defence to what would otherwise be a breach of one or other of those rules, rather than an independent duty. In fact, there are countless statements in the authorities that fiduciaries as such (I exclude contractual undertakings) have an obligation to make voluntary disclosure, but always, so far as my researches reveal, as the means of avoiding a breach of the related duties not to have a secret interest conflicting with their duty as a fiduciary and not to make a secret profit from their fiduciary position (for two recent examples, see Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 (CA) at 435G (Mahoney JA) and In the matter of an Application by the Law Society of The Australian Capital Territory in relation to the conduct of Lardner [1998] SCACT 24 at 22). This point is made by Glover, in Commercial Equity: Fiduciary Relationships (1995), par 5.10: "There is as yet in Australia no positive rule that a fiduciary must disclose personal interests to a beneficiary, or disclose anything else. Adequate disclosure is a defence to each of the conflict and profits rules, as we will see. Any positive disclosure rule would have to have a content. It could not be a mere prohibition. This would be contrary to the scheme of fiduciary duties sketched above." (author's emphasis) In Breen v Williams (1996) 186 CLR 71, a case concerned with sought rather than voluntary disclosure, the High Court has had much to say on the present issue. In that case, a patient failed to compel her doctor to produce for her inspection his records relating to her case. It was accepted that a doctor may owe fiduciary duties to a patient. However, the High Court rejected a tendency in Canadian authorities: "to view a fiduciary relationship as imposing obligations which go beyond the exaction of loyalty and as displacing the role hitherto played by the law of contract and tort by becoming an independent source of positive obligations".(at 95 per Dawson and Toohey JJ) Gaudron and McHugh JJ said: "One commentator has recently pointed to the 'vast differences between Australia and Canada in understanding of the nature of fiduciary obligations'. One significant difference is the tendency of Canadian courts to apply fiduciary principles in an expansive manner so as to supplement tort law and provide a basis for the creation of new forms of civil wrongs. The Canadian cases also reveal a tendency to view fiduciary obligations as both proscriptive and prescriptive. However, Australian courts only recognise proscriptive fiduciary duties.… In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed." (at 112-13) (citations omitted) Gummow J reasoned to a similar effect: "Equitable remedies are available where the fiduciary places interest in conflict with duty or derives an unauthorised profit from abuse of duty. It would be to stand established principle on its head to reason that because equity considers the defendant to be a fiduciary, therefore the defendant has a legal obligation to act in the interests of the plaintiff so that failure to fulfil that positive obligation represents a breach of fiduciary duty." (at 137-8) The applicants submit that there is a fiduciary duty "in appropriate circumstances not to conceal or withhold matters from the principal". They submit that whether Kelly and LKFM were subject to such a duty to the applicants is at least arguable and should be decided at trial. In support, they refer to the following passage in the judgment of Gaudron and McHugh JJ in Breen v Williams: "If the relationship of doctor and patient was a status-based fiduciary relationship in which the doctor was under a general fiduciary duty in relation to all dealings concerning the patient, the patient might be entitled to access to all the information in his or her medical records. But there is no general fiduciary duty." (at 112) The applicants submit that this passage acknowledges that a "status-based fiduciary relationship", such as that of principal and agent, might give rise to a positive duty of disclosure. But the context of the discussion in Breen v Williams was that of a fiduciary's duty to disclose when called upon to do so by the beneficiary of the fiduciary duty, that is, the right of the beneficiary to compel disclosure, not that of a fiduciary's duty to disclose unilaterally and voluntarily. The point of relevance to the present case has been expressed succinctly in a recent note on Breen v Williams as follows: " ... a fiduciary may have to make disclosure of information in connection with his fiduciary duties, either to seek release from them or forgiveness for a breach of them; but the fiduciary duties incumbent on a person do not themselves oblige that person to offer information to his principal." (Richard Nolan, "A Fiduciary Duty to Disclose?" (1997) 113 LQR 220 at 224) As mentioned earlier, prescriptive duties are the domain of tort and contract. For example, in the context of the doctor-patient relationship, the High Court held in Rogers v Whitaker (1992) 175 CLR 479 that non-disclosure by a doctor was, in the circumstances of that case, a breach of the doctor's duty of care. Citibank gives the example of a solicitor who, when acting for a client, becomes aware of a material matter, for example, that his or her client's accountant is stealing the client's funds. If the solicitor is not personally involved in the theft, he or she is not accountable as a fiduciary for any further loss suffered by the client as a result of the client's continuing to trust the accountant, although the solicitor may be liable in damages for breach of the contract or retainer. See also Finn, "The Fiduciary Principle" in Youdan (ed), Equity, Fiduciaries and Trusts (Carswell, 1989), 1, where, after noting a view of fiduciary duties as prescriptive, the author (now Finn J of this Court) favours a proscriptive one which he proceeds to describe (at 25-26): "The alternative view sees the fiduciary principle as a proscriptive one; it is concerned with the maintenance of fidelity to the beneficiary; and it is activated when the fiduciary seeks improperly to advance his own or a third party's interest in or as a result of the relationship. And so it is held that fiduciaries 'may not profit from a breach of their fiduciary duties, even if the profit is not at the expense of or to the exclusion of a beneficiary.' On this proscriptive approach, for example, an adviser's duty of disclosure becomes a fiduciary one only when the advisory position is used possibly to advance his own or a third party's interests [i.e. where there is a breach of the conflict or profit rules]. Otherwise, as in English law, non-disclosure merely founds claims in negligence, breach of contract, or, possibly, deceit; the duty to disclose being seen as an incident of the advisory function itself." (citations omitted) The applicants do, in fact, plead (par 46(c)) that it was an implied term of Kelly's and LKFM's agency that they undertook to disclose all material information relating to the applications. But in my opinion, to conceive of the failure of Kelly and LKFM to take the positive step of alerting their principals as constituting a breach of their fiduciary duty is to take the law of fiduciary obligations further than it extends in Australia. Various cases were referred to by the applicants in support of their contention that there is a substantive fiduciary duty of disclosure. On closer study, however, they prove to be consistent with the view that disclosure assumes significance as a potential defence to an alleged breach of the proscriptive "conflict" and "secret profit" rules. In Brickenden v London Loan & Savings Co [1934] 3 DLR 465 (PC), a solicitor acted for both a loan company and mortgagors. The solicitor himself had already taken three mortgages from the mortgagors and the borrowing from the loan company was to be applied partly in discharging those mortgages. The solicitor disclosed the existence of one of the mortgages but not the other two. The non-disclosure was held to be a breach of fiduciary duty: at 468. But, what made the solicitor's conduct objectionable was that he was making a secret profit from the loan by the loan company: his non-disclosure merely meant that he had no defence to the breach of fiduciary duty consisting of making a secret profit. In McKenzie v McDonald [1927] VLR 134, the defendant was a land and estate agent. He was approached by the plaintiff who wished to sell her farm and purchase a house in Melbourne. After understating the value of the farm, the defendant convinced the plaintiff to exchange it for his (the agent's) own suburban shop and dwelling, the value of which he overstated. The defendant was held to be a fiduciary who was profiting from the fiduciary relationship. Although the plaintiff understood that he was taking her farm, by way of exchange, she did not know the true value of either property or the profit he was making from the exchange. His non-disclosure meant that he had no answer to the claim of breach of fiduciary duty constituted by the making of a secret profit. In BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372, the plaintiff, a foreign land company, bought, processed and sold yarn in Australia. The defendant was its agent and was in charge of marketing and general supervision of the plaintiff's Australian business. The plaintiff alleged that the agent breached his fiduciary duty by selling the plaintiff's product on terms which were unduly favourable to a company, Bel-Knit Pty Ltd ("the company"), of which he was a director and in which he was the principal shareholder. It was held that, although the agent did not specifically disclose his directorship of or interest in the company, the plaintiff was, as a result of previous correspondence, already well aware that the defendant had a substantial interest in it, so that there was no breach of duty. This reasoning again demonstrates the way in which disclosure, if made, operates as a defence to a claim of breach of fiduciary duty. It was also claimed that the agent breached his fiduciary duty by failing to disclose that the company was unable to pay its debts and that it was not a good credit risk. The court said that "[t]he obligation of a fiduciary to make full disclosure extends to all material information of which he is aware or which he has deliberately refrained from acquiring": at 378. Although this sentence is couched in the language of positive obligation, it must be seen in the context that the defendant was in a position of conflict, and hence had to make full disclosure in order to escape liability for breach of fiduciary duty. It does not suggest that there is a duty to disclose "material information" in the absence of either a secret conflict or a secret profit. In the present case, by contrast, the National Mutual companies knew fully the nature and extent of the interest of Kelly and LKFM in every transaction involving a Citibank Investor and of the profit which Kelly and LKFM would derive from every such transaction. Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 is perhaps harder to reconcile with the other authorities. In that case, B was held to owe fiduciary duties to W in negotiating for the purchase of shares in which W was, provisionally, to take a 1/3 interest. B was, in effect, a self-appointed agent of W. It was said that B's duties included a duty to make full disclosure of material circumstances concerning the negotiations, the shares and their value: at 833D, 835F, per Hope JA, Kerr CJ concurring. However, (at 836) this duty was clearly related to the "unauthorised profit rule" and seen as a duty arising where an agent is buying property from, or selling property to, his or her principal. In that case it was apparently considered that B was purchasing the shares and then on-selling the one third interest to W. The effect of this was that all information relating to the shares being sold had to be disclosed to W in order for the apparent conflict or the breach of the profit rule to be excused. In Chittick v Maxwell (1993) 118 ALR 728 (Young J) (on appeal Maxwell v Chittick, unreported, New South Wales Court of Appeal, 23 August 1994), M induced C to build a home on land owned by M, on the basis that C would be entitled to live in it. Despite promises that he would do so, M failed to secure C's interest and, indeed, caused a mortgage to be given over the land without C's consent or knowledge. It was held that M was a fiduciary because he had undertaken to look after the interests of C who was vulnerable to any abuse of power by M, and that M had breached his fiduciary duty by executing the mortgage, thereby obtaining a profit for himself without C's knowledge or consent. In "Fiduciary Disclosure Obligations" in Cockburn and Wiseman (eds), Disclosure Obligations in Business Relationships (The Federation Press, 1996) at 61-63, Ms Cockburn considers cases addressing the nature and extent of disclosure obligations of real estate agents to their principals. In all the cases mentioned by the author, the "duty" of disclosure was understood to have arisen because the real estate agent had an undisclosed interest in a dealing with his or her principal and so stood to make a secret profit, or was subject to a conflict between his or her duty to the principal and his or her own interest. On the Pleading, the principals authorised the agents, Kelly and LKFM, to act in their own interests and to profit from the agency. There is no pleading of facts showing a breach of either the "conflict" or "secret profit" rules which arose from the agencies of Kelly and LKFM. (b) The pleading of participation by Citibank in the breach of fiduciary duty by Kelly and LKFM. The conclusion that I have reached in relation to (a) above makes it unnecessary for me to consider this issue.