Feiglin v Ainsworth

1 This is an appeal by the plaintiff, Esther Celia Feiglin ("Feiglin") from a judgment of an associate judge ("the Primary Judgment")[1] ordering judgment in favour of the 1st defendant, David Sargon Ainsworth ("Ainsworth") in relation to some of the claims made against Ainsworth.

2 The claims the subject of the Primary Judgment ("the Claims")[2] relate to an agreement struck between Ainsworth and the husband of Feiglin ("the Husband") in the mid 1980s ("the Commission Agreement"). The outcome of the appeal concerns the proper construction of ss 21(1)(b) and 27 of the Limitation of Actions Act 1958 (Vic), and the application of those provisions to the facts of the case as pleaded by Feiglin.

3 Feiglin seeks to prosecute the Claims as assignee of the causes of action founding the Claims. Those causes of action were assigned to Feiglin by the trustee in bankruptcy for the Husband on 1 August 2013.[3] At the time of the hearing before the associate judge, the Husband was the 2nd plaintiff and was seeking to prosecute the Claims in his own right.

4 The Primary Judgment was given on the basis that the Claims had no real prospect of success.[4] For the reasons that follow, the appeal will be dismissed.

5 This proceeding was commenced on 15 June 2010. The initial claims concerned relief in relation to the matrimonial home of Feiglin and the Husband. These claims were met with a defence and counterclaim, which included relief sought for possession of the matrimonial home, unpaid rent of $1,222,244 and other losses. In May 2011, the plaintiffs (ie Feiglin and the Husband) sought leave to amend the statement of claim to introduce additional claims, which ultimately became the Claims the subject of the Primary Judgment.

(1) Ainsworth and the Husband entered into the Commission Agreement in or about 1985, pursuant to which the Husband was to introduce prospective clients to Ainsworth and, in return, would receive 50 per cent of the fees earned for any services provided by Ainsworth to the clients introduced by the Husband.[5]

(2) Pursuant to the Commission Agreement, Ainsworth owed the Husband fiduciary duties. These duties were alleged to arise because of various matters, including that the Commission Agreement was not in writing, the Husband trusted Ainsworth, the relationship between Ainsworth and the Husband of father-in-law and son-in-law, and that the Husband was vulnerable to loss if Ainsworth failed to honour his obligations.

(3) The fiduciary duties were said to give rise to a duty to account to the Husband in relation to all persons introduced to Ainsworth by the Husband for the purpose of Ainsworth providing services. This included a duty to inform the Husband of any services provided to such persons for which Ainsworth earned fees, and to account for those fees.

(4) Pursuant to the Commission Agreement, in 1986 and 1987, the Husband introduced persons to Ainsworth, who then provided services to those persons, resulting in payments being made by Ainsworth to the Husband.

(5) In or about 1990, the Husband introduced Ainsworth to a particular client ("the Client") and Ainsworth provided services and charged fees to the Client.

(6) Pursuant to the Commission Agreement, Ainsworth paid the Husband $12,000 for the work performed by Ainsworth in relation to the Client.

(7) In or about 1991 or 1992, Ainsworth performed further services for the Client ("the Further Services") and earned fees in the region of $5 million.

(8) In breach of the fiduciary duties, Ainsworth failed to account to the Husband in relation to the fees earned with respect to the Further Services.

(9) The Husband is entitled to obtain an account of fees earned by Ainsworth in relation to all clients introduced to Ainsworth by the Husband, and in particular an account of the fees earned by Ainsworth for the Further Services.

7 On 19 September 2011, Mukhtar AsJ delivered judgment refusing leave to the plaintiffs to amend the statement of claim.[6] His Honour did so on the basis that the claims sought to be introduced were statute barred. The judgment of his Honour is of some significance to the outcome of this appeal. I will return to it shortly.[7]

8 Notwithstanding Mukhtar AsJ's refusal, he granted leave to the plaintiffs to file and serve an amended statement of claim to introduce new allegations of fraud. This leave was granted because, at the hearing before Mukhtar AsJ, counsel for the plaintiffs had informed the court of his instructions to make these allegations with the intention of postponing the commencement of the limitation period pursuant to s 27 of the Limitation of Actions Act.

9 On 17 October 2011, the plaintiffs filed and served a further amended statement of claim. The allegations referred to in paragraph 6 above were substantially repeated. Essentially, the new allegations were that the Husband had only discovered, in May 2007, that Ainsworth had provided the Further Services and earned fees in the region of $5 million in relation to the Client. It was then pleaded that:

The breaches of the Commission Agreement and fiduciary duties of Ainsworth ... constituted fraud by Ainsworth within the meaning of s 27 of the Limitation of Actions Act 1958.

It was further alleged that the right of action of the Husband arising out of the Commission Agreement was concealed by fraud, in that Ainsworth failed to inform the Husband of the Further Services provided and the fees earned. There were also minor amendments to the prayer for relief.

10 On 2 November 2011, the defendants sought further and better particulars of the further amended statement of claim. That request included seeking particulars in relation to the fraud alleged. On 23 November 2011, particulars were provided by the plaintiffs in relation to the alleged fraud as follows:

The breaches of the Commission Agreement and fiduciary duties of Ainsworth, as pleaded ... were fraudulent in that Ainsworth has -

(a) knowingly concealed from [the Husband], and

(b) knowingly failed to inform [the Husband] -

of the services rendered to [the Client], on the second occasion, in the light of knowledge of [the Husband]'s entitlement to commission as a result of those matters and with the intention and purpose of depriving [the Husband] of the commission which should have lawfully been paid to him.

11 In the Primary Judgment, it was noted that the particulars of fraud were circular, and did no more than set out what was already pleaded.[8] Of course, pleading fraud is a serious matter. It requires proper pleading and particularisation.[9]

12 The defendants did not accept the adequacy of the pleaded case based on fraud, and applied by summons for judgment. The summons filed by the defendants on 13 December 2011 did not refer to any rule of the Supreme Court (General Civil Procedure) Rules 2005 (Vic). The summons simply stated that Ainsworth sought judgment, together with costs, "on the claims contained in paragraphs 8L to 8Y of the plaintiffs' further amended statement of claim dated 17 October 2011, together with prayers for relief D to I inclusive". As a result of the form of the summons, the associate judge made the following observations:[10]

It is unclear pursuant to which particular provision the summons is brought. However, given that affidavit material has been filed by both the plaintiffs and the defendants in relation to the relief sought, I will treat the same as an application for summary judgment on the basis that the commission claim is barred by operation of the Limitation of Actions Act 1958.

No exception was taken by the parties to these observations as to how the summons should have been treated.

13 As would be apparent from what is set out above, to this point, there was no allegation based upon the existence of any constructive trust.

14 A matter of days before the hearing, the plaintiffs gave notice that they would apply to amend the prayer for relief to include a new paragraph GG, seeking declaratory relief in the following terms:

A declaration that fees earned by the first defendant as a result of providing services to persons introduced to him by the second plaintiff, which have not been disclosed to the second plaintiff by the first defendant, are held upon constructive trust for the second plaintiff as to one half thereof, alternatively as to the entirety thereof upon an obligation that the first defendant forthwith pay one half thereof to the second plaintiff.

(Emphasis added.)

As may be seen, the proposed declaratory relief concerning a constructive trust was confined to those fees not disclosed to the Husband. No amendment was proposed to be made to the body of the pleading to allege any trust existed.

15 Even though no constructive trust was pleaded in the body of the statement of claim, the plaintiffs' written submissions put an alternative case to the claims made for breach of fiduciary duty and concealment by fraud. In the plaintiffs' written submissions the following was contended:

Alternatively, Feiglin contends that the fees from the second [Client] transaction [ie from the Further Services], are held by [Ainsworth] upon a trust, either direct[11] or constructive, to hold those fees as to 50% thereof on behalf of Feiglin. Ainsworth had an obligation to hold those proceeds so as to account to Feiglin in respect of them, and to remit 50% thereof to Feiglin, and was not free to act in his own interests in relation thereto ... All of the profits made by Ainsworth in the utilisation of funds held by him on behalf of Feiglin are held subject to a constructive trust for Feiglin.

16 For reasons not necessary to go into, there was a delay in the service and filing of a notice of appeal by Feiglin.[12] An extension of time was granted to serve a notice of appeal. Upon delivering judgment granting the extension, I suggested to counsel for Feiglin that if, as had been foreshadowed, Feiglin intended to allege that a constructive trust was in existence from approximately 1985 onwards, then a pleading to that effect ought to be before the court at the time of the appeal.[13]

17 A proposed second further amended statement of claim ("the Proposed Statement of Claim") was served prior to the appeal and was the subject of submissions on behalf of Feiglin. On its face,[14] that document removed the Husband as a plaintiff and made various other amendments which are not relevant to the Commission Agreement.

18 Relevantly, there is only 1 new allegation. It appears after the allegations concerning breach of fiduciary duties by Ainsworth, and reads as follows:

In the premises, the fees earned by Ainsworth in relation to all clients introduced to him by [the Husband], and, in particular, the fees earned as a result of the introduction by [the Husband] to Ainsworth of a third party [ie the Client], together with the proceeds of the investment or other use of those fees by Ainsworth, were and are held by Ainsworth on constructive trust for [the Husband].

This allegation is broader than the subject matter of paragraph GG in relation to the property alleged to be the subject of a constructive trust. Paragraph GG no longer forms part of the proposed prayer for relief. Instead, a new paragraph CC is proffered as follows:

A declaration that fees earned by Ainsworth as a result of providing services to persons introduced to him by [the Husband], which have not been disclosed to [the Husband] by Ainsworth, together with the proceeds of investment or other use of those fees are held, as to one half thereof, by Ainsworth on constructive trust for [the Husband].

Accordingly, notwithstanding the wording is different, the subject matter of the new paragraph CC of the prayer for relief is also confined to those fees alleged not to have been disclosed to the Husband.[15]

19 Upon enquiry during argument, counsel for Feiglin said that the words "In the premises" at the beginning of the new allegation were a reference to everything pleaded before this new paragraph. An earlier paragraph in the pleading, alleging the fiduciary duty, referred to "In all the circumstances".[16] I invited counsel for Feiglin to inform the court whether, on present instructions, there was anything further which might be pleaded that was not contained in the Proposed Statement of Claim. No circumstances beyond those already pleaded are sought to be relied upon.

C. Approach on appeal where summary judgment ordered by an associate judge

20 The Supreme Court Rules provide that, on an appeal such as this, a judge of the court has the power to, amongst other things, give any judgment and make any order which ought to have been given or made and make any further or other order as the case may require.[17]

21 In Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Construction) v Blanalko Pty Ltd,[18] Warren CJ and Nettle JA[19] discussed a line of authority concerning the test to be applied when considering a summary judgment application under s 63 of the Civil Procedure Act. Section 63 provides as follows:

(1) Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.

(2) A court may give summary judgment in any civil proceeding under subsection (1)-

...

(b) on the application of a defendant in a civil proceeding;

...

(Emphasis added.)

22 Section 64 of the Civil Procedure Act provides:

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because -

(a) it is not in the interests of justice to do so; or

(b) the dispute is of such a nature that only a full hearing on the merits is appropriate.

23 Having considered the relevant authorities, their Honours identified the test under s 63 of the Civil Procedure Act, stating that, in order to be successful, the respondent to the application for summary judgment must have a "real" chance of success, not just a "fanciful" chance of success. Their Honours also stated that the "real chance of success" test is, to some degree, more liberal than the "hopeless" or "bound to fail" test that previously prevailed. Their Honours then continued:[20]

[A]s the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent's case is not 'hopeless' or 'bound to fail', it does not have a real prospect of succeeding.

24 As may be seen, even if s 63 of the Civil Procedure Act is satisfied, the court still has the discretion to refuse an application for summary judgment pursuant to s 64.

25 The Court of Appeal had not delivered this judgment on ss 63 and 64 at the time the associate judge delivered the Primary Judgment. However, the associate judge correctly observed that great care should be exercised in the court's discretion before awarding summary judgment.[21] This must particularly be so in cases involving provisions concerning limitations of actions, where an otherwise valid claim could be made.[22]

26 The notice of appeal focuses primarily upon 2 matters.

27 First, issues are raised in relation to the existence or otherwise of an institutional constructive trust. In substance, Feiglin contends that a case can be put that an institutional constructive trust was in existence before Ainsworth committed any breach of the Commission Agreement and that the associate judge failed to properly address this issue. It is also contended that the associate judge declined to consider Feiglin's submissions alleging a breach of fiduciary duty; the alleged fiduciary duty forming the basis of allegations that a constructive trust was created.

28 If Feiglin is able to establish that an institutional constructive trust existed, then, by operation of s 21(1)(b) of the Limitation of Actions Act, no period of limitation will apply to the claim to recover from Ainsworth as trustee.[23] Such a claim would be for the recovery, as trust property, of the Husband's share of half the fees earned by Ainsworth pursuant to the Commission Agreement.[24]

29 Secondly, the notice of appeal concerns the allegations that the action was based on the fraud of Ainsworth and that, until May 2007, the fraud had been fraudulently concealed within the meaning of s 27 of the Limitation of Actions Act. This may have the result of postponing the commencement of any limitation period until May 2007.[25]

30 Particular focus is placed on the findings by the associate judge to the effect that, in the mid 1990s, the Husband was aware that he had a claim against Ainsworth for a breach of the Commission Agreement in relation to the fees charged to the Client for the Further Services. Feiglin's contention is that the associate judge should not have found that the knowledge of the Husband was such that time under the provisions of the Limitation of Actions Act was not postponed.

31 In short, the notice of appeal suggested the associate judge was incorrect in making the findings of fact that he did on the degree of knowledge of the Husband in the mid 1990s. In particular, it was put that the associate judge should not have found that the Husband could not have discovered the fraud in May 2007, given he knew the relevant circumstances in the mid 1990s.

E. Feiglin v Ainsworth [2011] VSC 454

32 As already noted above,[26] judgment was delivered on 19 September 2011 refusing to grant leave to the plaintiffs to amend the statement of claim to introduce allegations relating to the Commission Agreement. The plaintiffs chose not to appeal from this decision. Although the decision is interlocutory, the fact that there was no appeal is, at the very least, a matter which may properly be taken into account in a court exercising its discretion in any subsequent application seeking the same relief.[27]

33 The key findings by Mukhtar AsJ, in substance, were as follows:[28]

(1) The foundation of the alleged legal relations between Ainsworth and the Husband concerning the Commission Agreement was contractual.[29]

(2) There was no express term of the Commission Agreement that Ainsworth was to account to the Husband or to give him information about the calculation and payment of commission. Further, it was not put that such a term ought to be implied as being necessary to enable the Husband to have the benefit of a full realisation of the bargain or to give the Commission Agreement business efficacy. Rather, the Husband alleged "in all the circumstances" Ainsworth owed the Husband fiduciary duties.[30]

(3) The fiduciary duties alleged to be owed, namely to account to the Husband for the fees earned and to remit the Husband's half share, were duties to act positively. No proscriptive duty was alleged.[31]

(4) In making the application for leave to amend, the Husband provided no explanation as to why this substantial claim had not been made earlier.[32]

(5) Section 5(2) of the Limitation of Actions Act applies a 6 year limitation period to all actions of account at law or equity, whether based on a legal or equitable liability to account. Pleading the claim as a breach of fiduciary duty (for which there is no statutory limitation period) does not avoid the application of the 6 year limitation either directly or by analogy under s 5(8) of the Limitation of Actions Act. "The limitation period will apply unless [the Husband] is going to contend as part of his case that there has been fraudulent concealment of facts affecting the accrual of the cause of action."[33]

(6) If Ainsworth is an accounting party as alleged, that is because of the contractual relations between Ainsworth and the Husband. It is alleged Ainsworth promised under the Commission Agreement to give the Husband half the fees, which would make Ainsworth an accounting party. The question still remains as to whether Ainsworth is a fiduciary.[34]

(7) Ainsworth is not alleged to be the Husband's agent. On the contrary, the Husband was going about spotting clients for Ainsworth "and then stepping away".[35]

(8) The "vulnerability" relied upon as part of the circumstances from which a fiduciary relationship arose is "only 'vulnerability' in the loosest of senses", namely the Husband being dependent on Ainsworth's honesty as to the amount of fees earned.[36]

(9) "The prospect of an unfulfilled expectation does not therefore create a positive fiduciary obligation."[37]

(10) A statute of limitations may apply to equitable claims. If the statute bars the legal right, and a court of equity is exercising its auxiliary or concurrent jurisdiction, ordinarily it will not award an equitable remedy in aid of a barred legal right; it will act in accordance with the statute.[38]

(11) In equity's exclusive jurisdiction, the court is still bound to follow any limitation statute, imposed either expressly or by implication. If a statutory limitation is not so imposed, equity will follow the law where the rights are similar and apply the limitation period by analogy, unless special circumstances would make it an injustice to do so.[39]

(12) A simple duty to account, which is what is alleged by the plaintiffs, is not a fiduciary duty even when it is owed by a person in a fiduciary position.[40]

(13) A person may be an institutional constructive trustee where that person, although not expressly appointed, assumes the duties of a trustee by a lawful transaction, independent of and preceding any breach of trust.[41]

(14) A remedial constructive trust is imposed by a court of equity where the trust obligation arises as a direct consequence of an unlawful transaction and a person is required to hold property on trust which, in all conscience, belongs to another.[42]

(15) Although a breach of constructive trust may have no time limits under the Limitation of Actions Act, a case seeking the imposition of a remedial constructive trust is different. A remedial constructive trust is not a "trust" for the purposes of s 21 of the Limitation of Actions Act.[43] With respect to a remedial constructive trust, courts of equity may apply a statute of limitation either directly or by analogy.[44]

(16) A claim for an account in equity, absent the existence of a trust, has no equitable element. It is based on legal rights. Where a liability to account is contractually based, equity acts in obedience to the statute of limitations.[45]

(17) The fact that Ainsworth may be a fiduciary and may have failed to account to the Husband does not make his failure a breach of fiduciary duty or make Ainsworth liable to pay equitable compensation. Any failure to account is subject to s 5(2), which prescribes a 6 year limitation period (whether the cause of action be characterised as a claim at law or in equity). In any event, if there be any doubt, equity would apply by analogy the 6 year limitation.[46]

34 I have set out the findings of Mukhtar AsJ at some length not only because there was no appeal from these findings, but principally because, in my view, they are plainly correct.

35 As already noted,[47] no allegation was made that the Husband and Ainsworth agreed, either expressly or impliedly, that Ainsworth would act as a fiduciary or a trustee. Further, it is not alleged in the Proposed Statement of Claim that Ainsworth intermeddled with trust matters or made himself a trustee of his own wrong or a de facto trustee.[48] Accordingly, in order to establish a constructive trust existed at the time Ainsworth allegedly received the fees and failed to pay 50 per cent to the Husband, it must be established that Ainsworth assumed the duties of a trustee. This is because a constructive trust must have an independent existence separate from the alleged fraud for s 21(1)(b) of the Limitation of Actions Act to be applicable.[49]

36 To elaborate on what is stated in the previous paragraph, observations made in Nolan v Nolan[50] are helpful in demonstrating what must be in existence for a person to be properly considered an institutional constructive trustee. In that case, Ormiston JA said as follows:[51]

A person becomes an institutional constructive trustee because there is evidence from which it may be inferred either that that person intended to hold property on behalf of others or that he or she should have had such an intention. If, however, the person intends to act adversely to other persons having a right in the property, then it could not be said that that person then acts as trustee, whatever other remedies might be had against that person, which might comprehend the declaration of a remedial constructive trust at the appropriate time.

(Emphasis added.)

37 Pausing here, there is no allegation in the Proposed Statement of Claim, nor is there any evidence from which it might be inferred, that Ainsworth ever intended or should have intended to hold property as a trustee. The debts alleged to have been paid by him prior to the provision of the Further Services are not alleged to be anything more than debts paid by a debtor to a creditor in the usual way. There is no allegation that the moneys paid were from the actual fees earned by Ainsworth, that such fees had been held on trust or that that ought to have been the position in relation to those fees.

38 Ormiston JA made extensive reference to Paragon Finance plc v DB Thakerar & Co[52] with approval. In so doing, Ormiston JA agreed with the identification of a significant difference between "the institutional class of constructive trusts and that of remedial 'constructive trusts'".[53] His Honour continued:[54]

The first arise (at least in most cases) by reason of a lawful transaction which precedes any alleged breach, but the latter, if properly so described, come into existence only by reason of some act of fraud or other unlawful dealing. Although the first category are properly described as "constructive trusts", the latter have been misdescribed as such and, at the highest, those who have been subjected to remedial relief should be called "constructive trustees" only for convenience' sake to identify the kind of equitable relief available against them. As Millett LJ [in Paragon Finance plc v DB Thakerar & Co] expressed it:

In such a case [she or he] is traditionally though I think unfortunately described as a constructive trustee and said to be 'liable to account as constructive trustee'. Such a person is not in fact a trustee at all, even though [she or he] may be liable to account as if [she or he] were. [She or he] never assumes the position of a trustee, and if [she or he] receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions 'constructive trust' and 'constructive trustee' are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are 'nothing more than a formula for equitable relief' ...

As his Lordship later said, in describing the distinction drawn in Taylor v Davies:

That was the distinction between an institutional trust and a remedial formula - between a trust and a catch-phrase.[55]

(Citations omitted.)

39 The above passages make it plain that the extent to which a person seeks to rely on the wrongful conduct of another to establish, by that conduct itself, a "constructive trust", the constructive trust is remedial only;[56] it is not truly a constructive trust.

40 In the Primary Judgment, after expressly referring to the written submissions of the plaintiffs contending for the existence of a fiduciary relationship and[57] a constructive trust (set out, in part, in paragraph 15 above), the associate judge said[58]s follows:58

This is the very issue which was ventilated before Mukhtar AsJ in his Honour's judgment of 19 September 2011 in determining whether or not s 5(2) of the Limitation of Actions Act applied directly or by analogy. His Honour concluded that the claim was statute barred and thus refused the application for leave to amend. Contrary to what is set out in submissions, there is no new pleading relying upon the breach of fiduciary duty and, in particular, any action by a beneficiary under a trust to recover from the trust property or the proceeds thereof in the possession of the trustee. The claim for breach of fiduciary duty to which it is contended no limitation period applies, was before Mukhtar AsJ. The claim sought to be introduced by prayer GG[59] to impose a constructive trust was also, in effect, considered by Mukhtar AsJ. It is clear from the scheme of the pleading that the constructive trust referred to in prayer GG [is] a remedial constructive trust.

41 His Honour then determined that no case could be made by the plaintiffs based on an institutional constructive trust. He did this on 2 bases.

42 First, he stated the interests of justice did not require him to entertain a reconsideration of what had been determined by Mukhtar AsJ concerning the applicability of the Limitation of Actions Act to the claims for breach of fiduciary duty and "a claim for an action by a beneficiary under a trust".[60] As to the claims under a trust, his Honour observed that "it is not altogether clear that that is what is actually pleaded as the trust is raised in the prayer and not the pleading itself".[61]

43 Secondly, and in any event, his Honour concurred with the reasons of Mukhtar AsJ in relation to the applicability of s 5(2) of the Limitation of Actions Act and further agreed with the alternative imposition of a 6 year limitation period by analogy.[62]

44 On appeal, Feiglin criticised this approach. Feiglin submitted that a case based on an institutional constructive trust was not before Mukhtar AsJ and therefore could not have been the subject of the earlier decision. Further, it was contended that the associate judge erred in confining his considerations to the pleading as it then stood given that it was a summary judgment application. It was submitted by Feiglin that, even if the associate judge was of the view that a case based on Ainsworth being an institutional constructive trustee had not been pleaded, because of the submissions made by Feiglin his Honour ought to have considered the matter on the basis that such a case would be pleaded in the future.

45 Dealing with the last point, although the associate judge commented on the absence of a pleading, he did so in the context of considering whether he ought to exercise his discretion to decline to reconsider issues pertaining to the Limitation of Actions Act.[63] If it were appropriate to take such an approach to a summary judgment application, this appears to be a matter relevant to the exercise of such a discretion. However, it is clear that, generally, the inadequacy of the pleading is not, of itself, a basis to finally dismiss a plaintiff's claim.[64]

46 Further, the notice of appeal appears to raise the issue of whether the associate judge declined to consider the claim based on breach of fiduciary duty. This point was not developed in Feiglin's submissions. Perhaps this is because it is clear the associate judge specifically addressed this issue,[65] and, unlike the institutional constructive trust case, it was squarely before, and correctly decided by, Mukhtar AsJ.

47 In any event, the real issue on appeal is whether or not it is open for Feiglin to plead a constructive trust (beyond a remedial constructive trust), based on the material facts pleaded in the Proposed Statement of Claim. In so far as Feiglin seeks to rely on any wrongful conduct of Ainsworth as the basis of a "constructive trust", it is clear from what is set out above that such conduct cannot establish a constructive trust in the relevant sense.

48 In this context, Feiglin placed considerable reliance upon the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation.[66] Reference was made to this decision for the uncontroversial proposition that contractual and fiduciary duties may co-exist, and that the existence of a contractual relationship may provide a foundation for a fiduciary relationship.[67]

49 More significantly, it was submitted that the observations of Mason J concerning relief for breach of fiduciary duty, which breach gave rise to a liability to account, assisted Feiglin in establishing an arguable case for the existence of an institutional constructive trust. With respect, this submission is misguided. Although Mason J speaks of a constructive trust in the passages relied upon,[68] it is plain that his Honour was speaking in terms of a remedial constructive trust; that is, a constructive trust being imposed by a court of equity once it is established that the fiduciary is liable to account.

50 No better example can be given of this than the following extract from Beatty v Guggenheim Exploration Co,[69] quoted by Mason J:[70]

A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts [the fiduciary] into a trustee.

(Emphasis added.)

51 Finally, Feiglin referred to Cohen v Cohen,[71] in which Dixon J was sitting in the original jurisdiction of the High Court. The case concerned various agreements between a bankrupt husband and his wife. The following passage was relied upon:[72]

The Statute of Limitations, by its terms, does not operate directly upon equitable remedies. But such remedies are barred in Courts of equity by analogy to the statute. The analogy is found in the case of constructive trusts, where the equity is fastened upon the trustee not because [she or he] intended to become the fiduciary of property but because of the character of [her or his] dealings and in spite of [her or his] intention to take the property for [herself or himself]. But Courts of equity have refused to see any analogy when a person, intending to act in a capacity which is fiduciary, has received, as and for the beneficial property of another, something which [she or he] is to hold, apply or account for specifically for [her or his] benefit. Such a person is either an express trustee, or, if that name does not in strictness belong to [her or him], [she or he] stands in the same position as a direct or express trustee.

(Citations omitted, emphasis added.)

At the end of this passage, Dixon J referred to the case of Soar v Ashwell.[73] That case is far removed from the circumstances at hand. In Soar v Ashwell, the court was dealing with a solicitor who, while not being the appointed trustee, had knowingly received trust funds and had failed to account for them.

52 After referring to a number of other authorities concerned with persons receiving funds, and having an obligation to keep those funds distinct and separate and to hold them for the benefit of another,[74] Dixon J said:[75]

In Henry v Hammond Channell J, after referring to these authorities, says: -

We must apply that principle to a case where the property is a sum of money. It is clear that if the terms upon which the person receives the money are that [she or he] is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then [she or he] is a trustee of that money and must hand it over to the person who is [her or his] cestui que trust. If, on the other hand, [she or he] is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as [she or he] pleases, and when called upon to hand over an equivalent sum of money, then, in my opinion, [she or he] is not a trustee ... but a mere debtor.

(Emphasis added.)

53 Dixon J then observed that the application of the principles he had referred to depended on making the correct inferences of fact.[76]

54 His Honour then turned to the facts of the case and determined that, in relation to 2 of the debts claimed, it had been intended that the husband account specifically for the proceeds in relation to the transactions in question. His Honour concluded that in "neither case do I think he could reasonably conceive himself as receiving money as his, incurring a mere debt to his wife".[77] However, in relation to the other debt claimed by the wife, Dixon J found that the husband "was not accountable specifically for the money he received nor the goods into which it was transformed or the proceeds of these goods".[78] Accordingly, notwithstanding the relationship between the parties, Dixon J held in relation to this cause of action that it was subject to a time bar.[79]

55 Returning to this appeal, on no proper view of the facts could the moneys received by Ainsworth be considered to be other than his money. There is no suggestion he was required to open a separate bank account or to keep the moneys separate for the purposes of meeting the debt to the Husband. He was not acting as the Husband's agent. In short, Ainsworth was performing the services as part of his practice for his clients in his own right. In these circumstances, the passage relied upon by Feiglin of Dixon J in Cohen v Cohen does not advance Feiglin's case any further.

1. Allegations of fraudulent concealment for the purpose of postponement of limitation periods

56 For completeness, before dealing with the issues concerning fraudulent concealment, I note that Feiglin sought to rely upon allegations concerning the commission of a fraud by Ainsworth to attract the operation of the first limb of s 27 of the Limitation of Actions Act. Such reliance is not soundly based. For there to be a fraud for the purposes of s 27(a), the fraud must be an essential element of the cause of action.[80] That is not the case here.[81]

57 As to the issue of fraudulent concealment, there are some propositions which may be stated:

(1) This limb of the section may be satisfied as part of the conduct giving rise to the cause of action or by subsequent conduct.[82]

(2) Fraud for the purposes of paragraph (b) of s 27 is not confined to fraud in the common law sense; it includes conduct which is unconscionable having regard to the relationship between the parties.[83]

(3) On the issue of a plaintiff discovering the fraud or being in a position where, with reasonable diligence, it could have been discovered, a plaintiff will be found to be in such a position if she, he or it knows of the facts capable of proving a prima facie case.[84]

58 The associate judge found that the Husband had been asserting a right to commission since late 1995.[85] He also found that the correspondence clearly demonstrated that the Husband was asserting his claim to an account and was aware of all of the elements of his claim for an account in or about 1995 or 1996.[86] In addition, the associate judge found that the evidence showed that since 1997 the Husband had maintained that he was owed the funds claimed.[87]

59 The conclusion from these factual findings made by the associate judge was that in the 1990s the Husband had identified and knew of sufficient facts to be capable of bringing a suit for an account.[88]

60 It was submitted by Feiglin that his Honour made no finding, as he ought to have, that it was arguable that the action was based on Ainsworth's fraud, and that the right of action was concealed by his fraud. It was further submitted that his Honour erred because he failed to find the date upon which the Husband "discovered the fraud".

61 In the Primary Judgment, his Honour carefully and extensively set out the evidence recording the knowledge of the Husband in the 1990s. That evidence included the following:

(1) Correspondence in which the Husband expressly referred to the Client, including noting that commissions had been paid in relation to both the "first deal" and a further transaction with the Client of which the Husband alleged Ainsworth was "well aware".[89]

(2) Correspondence asserting there was no reason why Ainsworth should not pay the Husband 50 per cent of the net profit from the subsequent transaction with the Client.[90]

(3) A letter from Ainsworth dated 1 November 1995 effectively acknowledging, or at the very least not denying, that the subsequent transaction had occurred.[91]

(4) A letter from the Husband in response recording the fact that Feiglin had put "our case forward" to Ainsworth "after the transaction". The letter also stated that the Husband had performed his side of the bargain, he had "delivered and the profit was made" (emphasis added). The Husband again stated that there was "no reason why I should not be fairly accounted for and receive my 50 per cent share of the profit".[92]

(5) Correspondence from the Husband dated 20 December 1995 expressly stating that:

(a) the Husband had been informed by "my sources" that a commission had been paid to Ainsworth in relation to the Further Services performed for the Client in the sum of approximately $1.2 million;

(b) at a previous meeting Ainsworth had told the Husband that Ainsworth had shredded all the details of the transaction;

(c) Ainsworth had asserted that only approximately $100,000 of commission had been paid in relation to the Further Services;

(d) "My sources" confirmed that $100,000 represents only a small percentage of the total commission paid;

(e) given the amounts involved in the transactions, Ainsworth's fee would have been in the range of $1.2 million.[93]

(6) The final piece of correspondence[94] dated 16 May 1997 in which the Husband asserted that "we owe you funds and you also owe us funds".[95]

(7) A position paper prepared on behalf of the Husband dated 27 February 1998 which asserted the Client had undertaken a substantial transaction with Ainsworth and that Ainsworth had "received a fee, understood by [the Husband] to be in the vicinity of $2.2 million. Despite numerous requests from [the Husband] in this regard, [Ainsworth] has refused to account to [the Husband] in respect of that transaction". The position paper also stated the Husband's claim as being 50 per cent of the fees received by Ainsworth from the Client, "including but not limited to the transaction referred to herein".[96]

62 Notwithstanding repeated claims made by the Husband in the 1990s asserting the relevant facts as now alleged in this proceeding (save for the precise amount of money earned), Feiglin submitted that the evidence only showed statements made by the Husband rather than actual knowledge of the existence of the causes of action. It was submitted that, simply because the Husband made the assertions that he did, it did not follow that he could not have "discovered the fraud" in May 2007.

63 Further, it was submitted that, even though notwithstanding that the assertions made by the Husband were substantially correct, it did not follow that he knew of all the relevant facts needed to bring a case for an account. It was said the Husband's state of mind depended on the basis of the knowledge of the Husband at the time the relevant statements were made. Furthermore, it was submitted that the information the Husband relied upon might have been unreliable. Moreover, it was submitted that the Husband might have made the statements that he did not because he knew them to be accurate, but because of particular motives that he may have had.

64 As the associate judge found,[97] the submissions made in asserting that the Husband did not know the relevant facts in the mid 1990s are fanciful. Although his Honour was hearing a summary judgment application rather than a trial, it is perfectly acceptable in an appropriate case for questions of substantive fact to be determined summarily. If, as his Honour found, there is evidence which demonstrates incontrovertibly that what the Husband was contending concerning the "discovery" in May 2007 was wrong, the court should act upon that evidence.[98] The correspondence and other documents referred to above clearly demonstrate that the Husband knew of the circumstances which were capable of making a prima facie claim against Ainsworth to account for fees received pursuant to the Commission Agreement, including with respect to the Further Services.

65 But, even if it could be said that, contrary to this conclusion and in the face of these documents from the 1990s, there might still be some real chance of success with respect to the Claims, the prospects are put well below such a chance by what the Husband has stated in his evidence on the summary judgment application. In affirming the allegation that, in or about May 2007, he "discovered that Ainsworth had provided [the] [F]urther [S]ervices ... to the [Client]", the Husband said as follows:

In May 2007, I found out, from [the Client] himself, that the commission paid was far in excess of $100,000 or $200,000, and was in fact in the region of $5,000,000. I received this information from [the Client] on the occasion of [an] engagement in or about May 2007 at a house at 18 Helenslea Road, Caulfield North. I was surprised at this communication, because on a number of occasions in the past I had attempted to raise the matter with [the Client]. He had been reluctant to discuss the matter with me and, in particular, was reluctant to disclose the amount of commissions paid to my father-in-law. Despite my best efforts, I was unable to extract the particular information I needed from [the Client], namely the amount of commissions he had paid to [Ainsworth]. The reference to "my sources" in the letter of 20 December 1995[99] ... was not to [the Client], but to other third party sources.

After I received the letter dated 31 July 1996 from [Ainsworth], I saw no way of ascertaining what amount might be due to me owing to [the Client]'s refusal to tell me, [Ainsworth]'s refusal to tell me, and the latter's assertion that he had shredded all relevant documents.

66 It is of considerable significance that the surprise expressed by the Husband is that the Client was willing to discuss the matter with him. No surprise was expressed as to the fact that the Further Services had been provided by Ainsworth, or that Ainsworth had been paid by the Client for the Further Services. What was apparently discovered by the Husband as a result of this discussion in May 2007 was the quantum of the "commission" paid. The fact that the amount was larger than the Husband might have previously believed is plainly not material to the question of whether he knew in the 1990s of the elements of the cause of action Feiglin is now pursuing. Equally, in the circumstances where the Husband had the knowledge that he did, if Ainsworth had, in or before 1995, destroyed some of the evidence relevant to the claim in relation to the Further Services,[100] this does not cause any time limitation to be postponed.[101]

67 Moreover, notwithstanding the opportunity to do so, the Husband has not given any evidence as to his state of mind and the basis of his knowledge at the time of the correspondence in the 1990s. Thus, submissions made on such matters can be given little weight. Contrary to Feiglin's submissions, the extent of the Husband's knowledge at the relevant time is not a triable issue and the court should not find it "should not be disposed of summarily".[102]

68 Finally, in relation to the submissions made concerning the absence of findings (see paragraph 60 above), the associate judge did make relevant findings as to the knowledge of the Husband and the existence or otherwise of fraud.

69 First, his Honour found, correctly, that the breach of the Commission Agreement, whether or not a breach of fiduciary duty, did not have fraud as an element of any cause of action.[103]

70 Secondly, his Honour made findings to demonstrate that, if there were any fraudulent concealment, there was no ongoing concealment capable of postponing the limitation period as alleged.[104]

71 Thirdly, although not giving a specific date, it is plain that his Honour found the elements of the cause of action had been "discovered" by 1998, at the very latest.[105]

72 On the most favourable view, the facts as pleaded in the Proposed Statement of Claim do not lend themselves to being a proper basis for establishing an institutional constructive trust. Given no other trust recognised by s 21 of the Limitation of Actions Act is contended for, that provision does not apply. Accordingly, the periods of limitation prescribed by the Act are not excluded by s 21.

73 For the reasons explained,[106] in circumstances where s 21 does not apply, the limitation period prescribed in s 5(2) must be applied either directly or by analogy, subject to s 27.

74 Section 27 does not apply because the Husband knew all the material facts sometime in the 1990s. There is no sensible basis upon which it can be put that Ainsworth successfully concealed the material facts up to May 2007. Accordingly, the period of limitation was not postponed until this time, or any time beyond the late 1990s.

75 Accordingly, the associate judge was correct to enter judgment for Ainsworth in the manner in which he did. The appeal is dismissed.

[1] Feiglin v Ainsworth (No 2) [2013] VSC 83.

[2] "The Claims" is a reference to the claims the subject of the pleadings before the associate judge and, where applicable, the claims the subject of the proposed pleading relied upon on the appeal: see par 17 below.

[3] For further details in relation to matters relating to the assignment, see: Feiglin v Ainsworth [2014] VSC 233, [16].

[4] Civil Procedure Act 2010 (Vic), s 63.

[5] Although not reflected in the pleading, during the course of argument, Feiglin's counsel accepted that Ainsworth was entitled to deduct any expenses incurred by Ainsworth in earning the fees.

[6] Feiglin v Ainsworth [2011] VSC 454.

[7] See pars 32-33 below.

[9] Wallingford v Mutual Society (1880) 5 App Cas 685, 701.6 (Lord Hatherley); Davy v Garrett (1878) 7 Ch D 473, 489.6 (Thesiger LJ); Supreme Court Rules, r 13.10(3)(a).

[11] On appeal, counsel for Feiglin accepted no case could be put on the basis of the existence of an express or implied trust.

[12] Feiglin v Ainsworth [2014] VSC 233, [23]-[32].

[13] The reference to a constructive trust in the prayer for relief referred to in par 14 above could only be a reference to a remedial constructive trust. As already noted, there was no allegation of an institutional constructive trust in the further amended statement of claim dated 17 October 2011. It was expressly conceded by counsel for Feiglin on 15 May 2014 that, to that point in time, no pleading had been proffered by Feiglin that embraced the constructive trust claim: T9.29.

[14] Formally, no application for leave to amend has been made as yet.

[15] Nothing really turns on this, as the prayer for relief may be amended if a valid claim were otherwise made.

[16] See par 33(2) below.

[18] [2013] VSCA 158.

[19] With whom Neave JA agreed, [36].

[20] [2013] VSCA 158, [29].

[22] Total Gas Care Pty Ltd v Barry Bros Specialised Services Pty Ltd [2012] VSCA 303, [22] (Hargrave AJA, with whom Whelan JA agreed); Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 533.8 (Mason CJ, Dawson, Gaudron and McHugh JJ).

[23] "Trust" and "trustee" in the Limitation of Actions Act have the same meaning respectively as in the Trustee Act 1958 (Vic): s 3(1). The definitions of "trust" and "trustee" in the Trustee Act extend to implied and constructive trusts: s 3(1).

[24] The prayer for relief in the Proposed Statement of Claim seeks a declaration that "those fees are held, as to one half thereof, by Ainsworth on constructive trust for [the Husband]". See par 18 above and also fn 5 above.

[25] Section 27 provides, amongst other things, that in an action based on fraud or where the right of action is concealed by the fraud of the defendant (or agent of the defendant), the relevant period of limitation shall not begin to run until the plaintiff has discovered the fraud or could with reasonable diligence have discovered it.

[27] Phillip Morris Ltd v Attorney-General for the State of Victoria [2006] VSCA 21; (2006) 14 VR 538, 548-552 [46]-[61] (Maxwell P); cf 563 [120] (Ormiston JA), 579 [154] (Eames JA) and DA Christie Pty Ltd v Baker [1996] VicRp 89; [1996] 2 VR 582, 602.6-603.1, 605.7 (Hayne JA, with whom Brooking JA agreed), 611.6 (Charles JA dissenting).

[28] Omitting authorities and references.

[29] [2011] VSC 454, [4].

[30] At [5]. See par 19 above.

[31] At [6]. Cf Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96.8-97.7 (Mason J), at which the critical features of a fiduciary relationship are identified and discussed.

[33] [2011] VSC 454, [12]. And [32]-[33].

[38] [2011] VSC 454, [28].

[43] [2011] VSC 454, [43].

[47] See par 33(2) above.

[48] Historically referred to as a trustee de son tort: Mara v Browne [1896] 1 Ch 199, 209.3-210.4 (Smith LJ); see also Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366, 403 [138] (Lord Millett).

[49] Paragon Finance plc v DB Thakerar & Co [1998] EWCA Civ 1249; [1999] 1 All ER 400, 408d-410c (Millett LJ), referred to with approval in Nolan v Nolan [2004] VSCA 109, [61]-[65] (Ormiston J, with whom Chernov and Eames JJA agreed). See also par 33(15) above.

[50] [2004] VSCA 109 (Ormiston JA, with whom Chernov and Eames JJA relevantly agreed).

[52] [1998] EWCA Civ 1249; [1999] 1 All ER 400.

[53] [2004] VSCA 109, [61].

[55] See also Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366, 404-405 [139]-[143] (Lord Millett).

[56] There might be good arguments available as to why a remedial constructive trust would not be imposed even if the Claims were successfully prosecuted at a trial, but there is no occasion to discuss that here: see Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 172 [200] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101, 113-114 [10] (Gleeson CJ, McHugh, Gummow and Callinan JJ), 125 [49]-[50] (Kirby J).

[57] The submissions refer to the constructive trust case as being in the alternative, but this is not the manner in which it is put in the pleadings.

[59] See par 14 above.

[60] Primary Judgment, [59]. The associate judge referred to Phillip Morris Ltd v Attorney-General for the State of Victoria [2006] VSCA 21; (2006) 14 VR 538: see par 32 above and fn 27 above.

[63] Primary Judgment, [56]-[59]. See par 32 above.

[64] Manderson M & F Consulting v Incitec Pivot Ltd (2011) 35 VR 98, 104-105 [18]-[21], 107-108 [32]-[33] (Redlich JA and Judd AJA).

[65] See pars 42-43 above.

[66] [1984] HCA 64; (1984) 156 CLR 41.

[69] (1919) 225 NY 380, 386 (Cardozo J). See also Cope, Constructive Trusts (1992) 27.4, 248.6.

[70] [1984] HCA 64; (1984) 156 CLR 41, 108.5. See also at 107.7, 107.9, 108.2, 108.8, 110.2. The fact that Mason J was discussing the existence or otherwise of a constructive trust in the context of a remedial constructive trust was expressly acknowledged by Deane J, albeit his Honour's comments were made on the basis there was no fiduciary relationship in existence: at 124.4-125.5.

[71] [1929] HCA 15; (1929) 42 CLR 91.

[73] [1893] 2 QB 390.

[74] [1929] HCA 15; (1929) 42 CLR 91, 100.4-101.3.

[79] Ibid. For completeness, I note that because of a subsequent acknowledgement of this debt, it was held that the claim was not statute barred in any event: see at 103.8-104.4.

[80] Levy v Watt (2014) 308 ALR 748, 763 [59] (Santamaria JA, with whom Warren CJ and Tate JA agreed), citing Beaman v ARTS Ltd [1949] 1 KB 550, 558.2 (Lord Greene MR), 567.2 (Somervell LJ), 571.7 (Singleton LJ).

[81] See par 69 below.

[82] Levy v Watt (2014) 308 ALR 748, 760 [48]-[49], 764-765 [60]-[63].

[83] At 771-772 [85], citing Bartlett v Barclays Bank Trust Co Ltd (No 1) [1980] Ch 515, 537D (Brightman J).

[84] Skrijel v Mengler [1998] VSC 71, [48]-[60]; esp at [53] (Eames J), citing C v Mirror Group Newspapers [1997] 1 WLR 131, 138G (Neill LJ).

[94] This was the final letter sent by the Husband himself. A letter was sent by the Husband's solicitors on 1 March 1999 asserting "the evidence clearly proves our position (even by your client's own admissions) ..." The letter also said Ainsworth had failed to provide information which could have assisted in resolving the matter and that, unless Ainsworth's solicitors advised to the contrary, there was no point in continuing any dialogue between the parties. (The contents of this letter were not expressly referred to in the Primary Judgment, but nothing turns on this; the letter is referred to in the Primary Judgment at [26].)

[98] Phillip Morris Ltd v Attorney-General for the State of Victoria [2006] VSCA 21; (2006) 14 VR 538, 562-563 [118] (Ormiston JA), 579 [153] (Eames JA), cf 548 [42] (Maxwell P); Commonwealth Bank of Australia v White [1999] VSC 262; [1999] 2 VR 681, 700-701 [68] (Byrne J).

[99] See par 61(5)(a) and (d) above.

[100] See par 61(5)(b) above.

[101] See, for example, Skrijel v Mengler [1998] VSC 71, [51], [60] (Eames J).

[102] Civil Procedure Act, s 64.

[106] At par 33 above.