Fouche v Superannuation Fund Board

Fouche v Superannuation Fund Board - [1952] HCA 1 - HCA 1952 case summary — Zoe

[21]

On the hearing of the actions a very considerable amount of evidence and argument was devoted to two contentions of the board which, as will be seen, we do not find it necessary to consider. The first was that the board was entitled at common law to "rescind", and had "rescinded", its contract with Fouche, so far as that contract bound it to advance further sums to Fouche. This contention was, of course, advanced in answer to Fouche's claim to enforce that contract. It rested on certain alleged breaches by Fouche of his part of the contract, which breaches were said to go to the root of the contract. These breaches consisted of departures from the original plans of the hotel. Modified plans had been prepared by Haslock when he succeeded Dorney as architect for the building, and his Honour found that these new plans would involve a total expenditure of some £20,000 more than the original plans. He, however, like ourselves, did not find it necessary to consider the legal consequences of this departure, which was said by Fouche to have been sanctioned by Rule. The second contention of the board was based on the clause in the deed of further charge relating to water supply. This also, of course, was directed to Fouche's claim to enforce the contract to advance further sums. As to this, his Honour found and declared that the board was entitled not to be satisfied, and was not satisfied, that an adequate water supply was available upon the land. His Honour dealt with what we regard as the main issues in the actions by declaring that the investment of the sums advanced to Fouche (apart from the original £3,500) and the covenant to advance further sums constituted breaches of trust, and that Fouche had received the sums advanced to him with notice that their payment was a breach of trust. He ordered Fouche to repay to the board on or before 29th November 1950 the sum of £21,900 with interest at 4¼ per cent, and he ordered that, in default of payment, the mortgage security be realized, and that the board be paid out of the proceeds the amount due to it. He held that the claim against the four ex-members of the board failed, but he declared that Rule was not entitled to retain as against the board any sum paid to him by Fouche by way of costs. There are appeals to this Court by every party to the actions.

[22]

Before considering the position generally it is necessary to examine a little further the nature and incidents of the transaction which is impeached. Even from what has so far been said it would appear that the investment was of a hazardous and speculative nature. Even if the hotel were duly erected without delay or mischance, the value of the security would depend entirely on the success and prospects of the business to be carried on. The learned Chief Justice accepted the evidence of two expert witnesses, Messrs. Edney Moore and Waldron. The former said that there was no known market for such a building situated in country surroundings in a place like Old Beach. Both said that the value of a hotel as a hotel cannot be considered except in connection with the business being conducted in it. The fate of two luxurious country hotels in New South Wales, which was cited in evidence, aptly illustrates the precarious character of such investments. But there were features about the transaction in this case which make it appear in a very much worse light than the ordinary case of an investment on mortgage of property of dubious value. No serious inquiries were made about matters which were obviously important, the most elementary precautions were neglected, and very special risks which were obvious seem to have been ignored. On this part of the case we are in complete agreement with the Chief Justice. If he erred at all, it was not on the side of severity. No serious inquiry was made about Fouche's means or his prospects of being able to finance the building of the hotel, which, according to the original estimate, was to cost £80,000. Fouche appears in fact to have had no substantial means. Rule was content with the vaguest assurances about what Fouche could or might do, and the rest of the board, if they thought about the matter at all, were content with whatever Rule told them. The deed of further charge refers to plans and specifications, but there were no specifications in existence. There was not in existence at any time any contract with any builder: there appears to have been some sort of loose arrangement between Fouche and a man named Barker, but even in this no price was mentioned.

[26]

The manner in which advances were made under the deed was not less open to censure than the transaction itself. Indeed it is the most damning feature of the whole case, revealing, as it does, a reckless disregard of the interests of the board and the safety of the fund. For the fact is that no certificate complying with the requirements of the deed was ever given, although a total sum of £21,900 was paid out of the fund to Fouche. Nineteen "certificates" in all were obtained by Fouche, six being given by Dorney and thirteen by Haslock. The last four were given after the resignation of the old board, and were not honoured. It has already been mentioned that the first payment of £2,500 to Fouche was made without anything that even purported to be a certificate. Of the certificates given by Dorney, one (on which a payment of £1,000 was made on 12th November 1948) is undated and merely says "I certify that £1,250 is due on job at Ballarton, Old Beach". The remaining five are on a printed form. They read: "I hereby certify that Mr. F. Fouche is entitled to receive" a named sum "on account of contract to works to hotel at Old Beach in accordance with terms of agreement". The words "in accordance with terms of agreement" are part of the printed form. In fact Dorney never inquired about, and did not know, the terms of the "agreement". This, of course, accounts for the fact that the certificates did not certify what the agreement required to be certified. Haslock, like Dorney, did not know the terms of the agreement, and did not bother about such a trifle. His first certificate was given on 24th December 1948. The material part of it said merely: "We hereby issue our first certificate in favour of F. Fouche Esq. on the above project". The second did not differ in substance. The next five said: "we issue a certificate in your favour on the above project based on your statement covering labour and materials". The eighth "advised having checked the current account for materials used and services supplied as submitted by you" and stated that these were found to be in accordance with the work done and to warrant a progress payment of £3,750. This certificate was given six days after the previous certificate, which had been for £1,250. The ninth (the last which was honoured) said: "We advise having checked on the cost of labour and general expenses regarding the above to date. We find these warrant a progress payment to date of £1,250". On each of these certificates Fouche received a sum equal to four fifths of the amount to which the certificate said that he was entitled. They were thus treated as meaning something that none of them could possibly mean. But the important point is that none of them certified what the deed required to be certified.

[28]

As to the nature of the breach of trust, we agree with the learned Chief Justice of Tasmania. It is no mere case of a trustee advancing too much on a proper security. The case is not touched either by s. 10 or by s. 11 of the Trustee Act 1898. The investment was of such a kind that it ought never to have been made at all for any amount large or small. The case is like Re Whiteley; Whiteley v. Learoyd [1] , but is a much more glaring case. There the hazard attached to the carrying on of an existing business on the land. Here there is a twofold hazard attaching to the erection of a building and the carrying on of a business in the building after erection. Considering that the full amount of £3,500 for which the land was a proper security had already been advanced on it, it is perhaps open to argument, and Mr. Baker did indeed argue, that the investment was not made on "first mortgage of real estate" within the meaning of the Trustee Act. But we do not think that this technical question is of importance. What is important is that the investment was, in itself and by reason of its inherent nature, and not merely because of the investment of an excessive amount, a breach of trust. The words of Lindley L.J. in In re Whiteley [2] apply with redoubled force to this case. Speaking of the investment there in question he said: - "A security of so hazardous a nature as this, though in one sense and to some extent a real security, is not a proper security for trust money; it is not in truth a real security for any sum beyond the value of the land as land. The security for more than this value is the solvency of the borrower, and the trade carried on by him" [3] . In Royds v. Royds [4] , although the security was found to be ample in point of value, the whole case proceeded on the footing that the investment was in breach of trust because of the hazardous nature of the security. The importance of the fact that the vice of the investment lay in its inherent nature is this. It follows that there was a breach of trust ab initio, and that at any moment early or late after the execution of the deed, equity would be both able and bound, at the suit of any competent plaintiff, to do everything necessary both to prevent the breach of trust from being carried out or further carried out, and to redress the position and restore the trust fund.

[30]

It will be convenient to deal first with the claims of Fouche, which present no difficulty. These are, in substance, two in number. Each is based on a common law right said to arise from the contract between Fouche and the board, but the first is a claim for a common law remedy, and the second is a claim for an equitable remedy. The first is a claim for £3,100, claimed as the balance of progress payments on certificates given by Haslock as architect. The certificates relied upon were all given after the members of the "old" board had resigned, and are dated respectively 29th June, 26th July, 26th July and 11th August 1949. The total amount "certified" is £7,000. Four-fifths of this is £5,600, and, after giving credit for the sum of £2,500, which was paid without any certificate, the balance claimed is £3,100. There are, in our opinion, two answers to this claim. The first has effect at law, and the second in equity. The first is that none of the certificates on which reliance is placed complies with the requirements of the deed of further charge. The four certificates in question are no better than their predecessors, which have already been considered. The deed requires certificates as to "the value of the work and materials applied towards the completion of the hotel since the payment of the last previous advance". Of the four certificates in question, the first says that "labour and general expenses on the project" for the period from 31st May to 28th June "warrant a payment as follows". The second says that Fouche's "accounts submitted for materials and services provided on the project" have been "checked", and that it is found that these "warrant a progress payment to date as follows". The third, which was given on the same date as the second, says: "On inspection we find that labour and general expenses on the project for the period 28th June to 25th July warrant a progress payment as follows". The fourth (dated 11th August 1949) is based on "statements submitted regarding the initial works performed on the project during the period July 1947 to June 1948" and says that "after investigating the position, it seems apparent that a progress payment is warranted for the period". It is clear that none of these certificates complies with the requirements of the deed.

[36]

Apart from this, however, we are of opinion that all the former members of the board are personally liable to make good any loss incurred. We do not think it necessary to consider either the question whether the transaction was, in the strict sense, ultra vires the board, or the question whether the individual corporators were, in any sense or for any purpose, to be regarded as trustees. Nor do we think it relevant to inquire whether they owed any and what duty to the contributors to the fund, whom the learned Chief Justice regarded as beneficiaries under the trust. We do not think, indeed, that the contributors are beneficiaries in the proper sense: they have, of course, an interest in the trust fund which would probably give them standing in a court of equity, but they have not such a beneficial interest in the fund as has an ordinary cestui que trust. The trust is not a trust for persons but for statutory purposes. But, while conceding the correctness of much of what the Chief Justice has said as matter of general principle, we can see no escape from the view that the individual members of the board owed a duty to the corporation which they constituted and whose property and affairs they controlled and managed. Nor can we doubt that this duty is enforceable in equity. The board being plaintiff, and the duty being owed to the board, the case is not like Wilson v. Lord Bury [1] . On the other hand it finds a very close analogy in Joint Stock Discount Co. v. Brown [2] . The learned Chief Justice seems to have thought that, if the members of the board owed any duty to anybody, it could only be enforced by action for damages - presumably at common law - and he said that the pleadings contained no claim for damages, and that no damage had been proved. But, whatever the position might be at law, the plaintiff board is seeking an equitable remedy, and, the administration of a trust fund being involved, it is clear that there is ample jurisdiction in equity to give appropriate relief if a breach of duty is proved.

[44]

It remains only to consider the relief actually given by the Chief Justice on the board's counterclaim and in its own action. The main point argued in this connexion was that Fouche, who covenanted by the deed to repay the principal sums advanced to him on 25th May 1953, could not be ordered to repay such sums before that date. We think that the real answer to this argument is that, for reasons already given, the deed is not binding on the board. From this it follows that, even if the money could not be recovered at law before 26th May 1953, there is nothing in the deed that can stand in the way of the board when it seeks the aid of equity to redress the breach of trust and, as an incident of the redress, to recover moneys wrongfully paid away. It is not indeed clear that the moneys could not be recovered at law forthwith because they were paid away on certificates produced by Fouche which did not comply with the terms of the deed, and it might well be suggested that an action for money had and received would lie. It is unnecessary, however, to consider this question, for it is in equity that relief is sought, and the position in equity seems clear enough. It is impossible for Fouche to maintain that, in respect of the moneys paid to him, he stands in the position of a bona fide purchaser for value without notice. In order to refute that suggestion it is quite enough to say that he knew that the moneys were being paid to him out of a trust fund, and he knew all the facts which made the transaction a breach of trust. Even if this were not enough, as we think it is, there is the added fact that he must be taken to have known that all the moneys paid to him were paid to him without performance of a condition prescribed by his agreement with the board, for he never produced a single certificate which complied with the terms of that agreement. In respect of moneys so obtained under such circumstances, he cannot maintain that he occupies any such position at law as can enable him to defeat or delay the equities of the board.

At a glance

Court

Decision date

Before

Source

Judgment (48 paragraphs)

Parties

Cited By (5)