Supreme Court of WA|2008-04-07|Before: Miere J

JOYCE -v- PALASSIS [No 4] [2008] WASC 45 (7 April 2008)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : JOYCE -v- PALASSIS [No 4] [2008] WASC 45

Civil practice and procedure - Pleadings - Statement of claim - Deed of settlement and release - Application to amend statement of claim - Whether sufficient connection between proposed amendments to damage and loss and the material facts already pleaded - Turns on own facts

Civil practice and procedure - Injunction - Deed of settlement and release - Application for injunction to restrain plaintiffs from amending the statement of claim - Turns on own facts

Application to amend statement of claim granted in part

1 LE MIERE J: The plaintiffs have applied to amend their statement of claim in the form of a minute of substituted statement of claim dated 11 December 2007 (the Minute). The defendants oppose the amendment of the statement of claim to insert a new particular 6 of the particulars of loss and damage in [18] and also to insert a new [18A]. The defendants also object to the amendments to the prayer for relief which are consequential upon the amendments objected to. The defendants oppose those amendments on the basis that they would be liable to be struck out as disclosing no reasonable cause of action. Further, the defendants have applied for an injunction restraining the plaintiffs from making those amendments on the basis that to do so would breach the terms of a deed of settlement and release between the first defendant, Mr Palassis, and the first plaintiffs dated 10 November 2000 (the Deed). The defendants do not object to the proposed amendments to the statement of claim other than the proposed insertion of particular 6 to [18] and the proposed insertion of [18A] and the consequential amendments to the prayer for relief.

2 The plaintiffs applied by originating summons for the determination of a question of construction arising under the deed. I delivered reasons for judgment in that matter on 24 July 2007 (Joyce v Palassis [2007] WASC 156). On 6 September 2007 I delivered judgment on the plaintiff's application to disallow amendments to the defence of the second defendant (Chattock) and Chattock's application to amend its defence to re-plead the disallowed amendments if they are disallowed (Joyce v Palassis [No 3] [2007] WASC 214). In those reasons for judgment I outlined the issues in these proceedings. I will commence by repeating that outline of the issues in these proceedings.

3 According to the statement of claim, the first plaintiffs and Mr Palassis are accountants who used to practice together as Stanton Partners. Mr Palassis was the managing partner of Stanton Partners. The second defendant, Chattock, is an entity related to Mr Palassis. Chattock owned a building at 5 Ord Street, West Perth. In or about 1992 Mr Palassis proposed to the first plaintiffs that Stanton Partners should take a lease of premises at 5 Ord Street (the Premises). Thereafter the first plaintiffs and Mr Palassis (together the Partners) and Chattock negotiated for the terms of a lease.

4 The plaintiffs allege that throughout the negotiations Mr Palassis acted for and on behalf of, and as agent of, Chattock. The plaintiffs say that Mr Palassis, for and on behalf of, and as agent of Chattock, made oral proposals to the plaintiffs in respect of the rent and outgoings payable under the proposed lease, for the payment to the Partners of management fees in respect of the management of the building and in respect of rights of pre-emption which the Partners would have over the shares in Chattock and the building (the Proposals).

5 Between November 1992 and January 1993 Mr Palassis delivered to the first plaintiffs a written statement of certain Proposals (the Written Proposals). The Written Proposals did not include certain Proposals namely the 'Right of Pre-emption Proposal', the 'Rent Proposal' and the 'Shares Proposal'. The Right of Pre-emption Proposal was that the Partners would have a right of pre-emption over the shares in Chattock in that each of the shareholders in Chattock would grant the Partners the first right to purchase their shares in Chattock if they wished to sell them. The Rent Proposal was that if the total rent received in respect of the building should exceed the sum of $450,000 plus unrecoverable outgoings per annum (the Excess) then the Partners would receive 74.27% of the Excess. The Shares Proposal was that at the expiration of each calendar year, Chattock would allot 100 fully paid ordinary shares in itself for each $10,000 by which the gross income received or receivable in respect of the building exceeded $450,000 and the Partners were to receive 37.14% of the allotted shares. The first plaintiffs say that they and Mr Palassis orally agreed to the Proposals and on 7 February 1993 entered into occupation of the Premises and commenced to pay rent and, by reason of those matters, the Partners and Chattock entered an agreement for lease (the Agreement for Lease). The plaintiffs say that the terms of the Agreement for Lease included the Right of Pre-emption Proposal, the Rent Proposal and the Shares Proposal.

6 The plaintiffs say that Mr Palassis, in breach of the fiduciary duties he owed to the plaintiffs, and to the knowledge of Chattock, did not ensure that a lease was prepared and executed containing the terms of the Agreement for Lease. The plaintiffs say that in or about 1997 Marjoe Nominees Pty Ltd (who at the time owned one half of the issued shares in Chattock) sold its shares in Chattock without offering to the Partners the first right of refusal. The plaintiffs say that at some time the total rentals received or receivable in respect of the building exceeded $450,000 but Chattock has not paid the 74.27% of the Excess or any sum to the Partners. The plaintiffs further say that in the financial years ending 30 June 1997 and 1999 Chattock received gross income in respect of the building in a sum exceeding $450,000 but Chattock has not issued any shares to the Partners. The plaintiffs allege accordingly that Mr Palassis breached fiduciary duties he owed to the plaintiffs and Chattock breached the terms of the Agreement for Lease. The plaintiffs claim damages for breach of the Agreement for Lease.

7 The plaintiffs originally made further claims against the defendants. However, those claims were compromised by the Deed.

8 Mr Palassis' defence is set out in a re-amended defence filed on 23 March 2000. Mr Palassis says that in or about 1992, whilst acting as managing partner of Stanton Partners, he proposed to the plaintiffs that the partnership take a lease of the Premises. Mr Palassis denied that he acted for or on behalf of, or as agent of, Chattock. Mr Palassis denied that he made the Proposals but says that between about November 1992 and February 1993, whilst acting as managing partner of Stanton Partners, he made oral proposals to the plaintiffs as to rent and outgoings payable under the proposed lease and as to management fees in respect of the building. Mr Palassis admits that he subsequently delivered a written statement and that the written statement did not include all of the Proposals. Mr Palassis admits that the Partners entered into occupation of the premises but denies that they entered an agreement for lease on the terms of the Agreement for Lease alleged by the plaintiffs. Mr Palassis denied that any Agreement for Lease was made, denied that it was breached and denied any obligation to the plaintiffs as alleged by the plaintiffs.

9 Chattock's defence is in the form of a further re-amended defence filed 21 March 2000. Chattock denies that the plaintiffs are entitled to the relief claimed against Chattock or any relief. The defence of Chattock is different from that of Palassis insofar as Chattock admits that Mr Palassis acted for and on behalf of, and as agent of, each of Chattock, the plaintiffs and Stanton Partners in making proposals and during negotiations for a lease.

10 The Deed makes reference to other litigation between the plaintiffs and Mr Palassis. The Deed refers to Supreme Court proceedings CIV 2025 of 1998 and Supreme Court proceedings CIV 1616 of 1999, as well as the present proceedings.

11 The Deed included the following settlements. First, the plaintiffs agreed to discontinue CIV 2025 of 1998. Secondly, Mr Palassis agreed to discontinue the counterclaim in CIV 2025 of 1998, and to discontinue CIV 1616 of 1999.

12 By the Deed the first plaintiffs and Mr Palassis gave mutual releases and discharges in favour of each other. By cl 4.1 of the Deed the first plaintiffs released Mr Palassis from all claims against him arising out of all 'claims, issues and matters alleged or raised' at anytime in this action excluding the 'Surviving Claims'. Clause 6.1 defines the Surviving Claims and provides that no other cause of action or material facts will be pleaded in this action. Clause 6.2 provides that the plaintiffs will amend the statement of claim in the form of the sch 3 minute. Clause 6.3 provides that Mr Palassis and Chattock will sign a minute of consent orders in the form annexed as sch 4 of the Deed. That minute provides that the plaintiffs have leave to amend their statement of claim in terms of the sch 3 minute. Clause 6.4 provides that once the court has given leave for the plaintiffs to amend their statement of claim in the form of the sch 3 minute, the plaintiffs will not make any amendments to their statement of claim to plead any other cause of action or material facts, but may amend their particulars or give further particulars as they see fit, provided those particulars are limited to loss or damage. Clause 6.5 provides that if Mr Palassis or Chattock makes any amendment to his or its defence, the plaintiffs may amend their statement of claim, provided that the need to make the amendment fairly arises from and is consequential to the amendment to Mr Palassis' defence or Chattock's defence and provided that the plaintiffs shall not in any circumstances plead any cause of action or plead any material fact raised in the claim, as defined.

13 On 14 November 2000 the parties filed a memorandum of consent orders in the present proceedings providing for the plaintiffs to have leave to amend their statement of claim in terms of the sch 3 minute. On 7 December 2000 a Registrar made orders that the plaintiffs have leave to amend their statement of claim in terms of the sch 3 minute, and the defendants file and serve amended defences by 22 January 2001. The amended statement of claim gives effect to the settlement effected by the Deed.

14 On 22 January 2001 both Mr Palassis and Chattock filed further re-amended defences purportedly pursuant to the order of the registrar made on 7 December 2000. The further re-amended defence of the first defendant is non-contentious for present purposes. However, the further re-amended defence of Chattock withdrew the admission that Mr Palassis, for and on behalf of, and as agent of, Chattock, proposed to the plaintiffs that the partnership should take a lease of the Premises, that the Partners and Chattock entered into negotiations for the terms of a lease and that throughout the negotiations Mr Palassis acted, amongst other things, for and on behalf of, and as agent of, Chattock.

15 On 7 February 2001 the plaintiffs applied to disallow the amendments to Chattock's defence on the grounds that the amendment was not authorised by the order of the registrar of 7 December 2000 and alternatively that Chattock should not be permitted to withdraw its earlier admission because to do so would cause undue prejudice to the plaintiffs. Chattock maintained that its amendment of 2001 was valid but by chamber summons issued on 16 April 2007 made an application to amend its defence in the terms of the further re-amended defence filed on 22 January 2001.

16 The plaintiffs foreshadowed that if Chattock had validly amended its defence, or was given leave to amend its defence, in accordance with the further re-amended defence of 22 January 2001 then the plaintiffs proposed to amend the statement of claim by the addition of [18A] to [18E] of a minute dated 15 January 2007 and entitled 'Second Minute of Substituted Statement of Claim' put before the court on the hearing of the originating summons to which I have referred. The proposed amendment to the statement of claim amounted to adding a plea of breach of warranty of authority to the existing plea of breach of fiduciary duty by Mr Palassis, if Chattock was correct in contending that Mr Palassis had no authority to negotiate or deal on its behalf.

17 As I have said, the plaintiffs applied by originating summons for the determination of a question of construction arising under the Deed and for a declaration of the rights of the plaintiffs. The question of construction concerned the right of the plaintiffs to amend their statement of claim. Mr Palassis contended that the first plaintiffs were precluded from making the proposed amendments to the statement of claim by the Deed.

18 On 24 July 2007 I delivered reasons for judgment in CIV 1061 of 2002 and subsequently made an order declaring that the Deed does not preclude the plaintiffs from amending their statement of claim in accordance with the second minute of substituted statement of claim dated 15 January 2007 in the event that Chattock is allowed to withdraw the admissions contained in [11] and [12] of its defence dated 22 January 2001.

The 2007 disallowance and amendment applications

19 On 6 September 2007 I delivered reasons in which I found that the amendments to Chattock's defence contained within its amended further re-amended defence of 22 January 2001 should be disallowed on the grounds that they were not authorised by the registrar's order. I determined that Chattock should have leave to amend its defence to withdraw the admission that Mr Palassis acted for and on behalf of Chattock in the negotiations on terms that the defendants should not raise any limitation point in opposition to an application by the plaintiffs to amend their statement of claim in the manner proposed and should not further amend their defences so as to plead any limitation point in answer to the plaintiff's proposed amended statement of claim.

20 Subsequently, Chattock decided to abandon its application for leave to amend its defence. Accordingly, Chattock's defence has not been amended.

The proposed amendment to statement of claim [18]

21 Paragraph 18 of the statement of claim, with the marked up proposed amendments in italics, is as follows:

18.1 Mr Palassis breached the duties pleaded at paragraphs 7.1, 7.2, 7.3 and 7.4;

18.2 Chattock breached the terms of the Agreement for Lease, whereby

18.3 Chattock has profited; and

18.4 the Partners have suffered loss and damage;

18.5 the First Plaintiffs have suffered loss and damage.

PARTICULARS OF LOSS AND DAMAGE AGAINST CHATTOCK

(1) Loss of the opportunity to acquire one half of the issued shares in Chattock.

(2) Loss of 74.27% of the Excess.

(3) Loss of issued shares in Chattock.

(4) Paragraph 17A is repeated.

(5) Paragraph 17B is repeated.

PARTICULARS OF LOSS AND DAMAGE AGAINST MR PALASSIS

(6) The Partners have paid rental to Chattock which they would not otherwise have paid. The Partners have also paid contributions to the maintenance upkeep and the provision of services to the Building which they would not otherwise have paid:

(a) the Partners paid rent at a rate of $97.50 per square metre (that is $56,783.88) per annum together with variable outgoings and rates and taxes for the period 1 February 1993 - 30 June 1995, which amounted to $84,362.53 for the period;

(b) thereafter, the Partners paid rent at the rate of $195.00 per square metre (that is $113,548.56) per annum together with variable outgoings and rates and taxes, from 1 July 1995 - 30 October 1998;

(c) on or about 20 January 1999, the Partners entered into a lease of 1 Havelock Street, West Perth, and;

(i) for the period 1 December 1998 - 30 November 1999, paid rent at the rate of $125.00 per square metre together with variable outgoings and rates and taxes;

(ii) for the period 1 December 1999 - 31 January 2000 paid rent at the rate of $150.00 per square metre together with variable outgoings and rates and taxes;

(d) had the Partners not entered into the Agreement for Lease, then they would have entered into a lease of alternative premises at a net effective rent of $70.00 to $80.00 per square metre per annum over a seven year term.

Further particulars of loss and damage will be delivered after discovery and interrogatories.

22 The plaintiffs submit that the proposed particular 6 to [18] is a particular of loss and damage. They submit that the loss and damage, which is essentially for payment of rent over the market rate, is claimed against Mr Palassis as a consequence of his breach of fiduciary duty pleaded in [7] and [18.1] of the statement of claim. The plaintiffs say that the particulars rely upon expert evidence, which has already been served. The expert evidence was served in connection with the plaintiffs foreshadowed amendments to the statement of claim to plead a breach of warranty of authority by Mr Palassis if Chattock had succeeded in amending its defence to contend that Mr Palassis had no authority to negotiate or deal on its behalf. As I have said, ultimately Chattock did not proceed with that amendment to its defence.

23 The plaintiffs proposed to amend the statement of claim by the addition of the following new [18A]:

Further or alternatively, by reason of the premises referred to at paragraph 18 Mr Palassis must account for his profit.

PARTICULARS OF LOSS AND DAMAGE

(1) The first plaintiffs cannot provide further particulars at this time. The precise amount by which Mr Palassis has profited is a matter within his peculiar knowledge.

24 The plaintiffs submit that this new paragraph arises from [7] and [18] as well as [3] and [4] of the current statement of claim. They submit that in preferring the interests of Chattock, Mr Palassis profited, because he held shares in a company called Tableau and Tableau held shares in Chattock.

25 The prayer for relief, with the proposed amendments shown marked up in italics, is in the following form:

AND THE PARTNERS CLAIM

(1) Damages for breach of the Agreement for Lease. Interest on damages under Section 32 Supreme Court Act 1935 as amended at the rates following:

(a) 8% from 30.07.92 to 11.09.97

(b) 6% from 12.09.97 to date of judgment.

(2) Further or other relief.

AND THE FIRST PLAINTIFFS CLAIM AGAINST MR PALASSIS:-

(1) Equitable compensation;

(2) Alternatively, an account of profits;

(3) Further or other relief.

26 The plaintiffs submit that these amendments are merely 'tidying up'. They submit that the cause of action for breach of fiduciary duty against Mr Palassis has always been pleaded.

27 The defendants object to the proposed amendments on a number of grounds. It is convenient to deal with those objections.

28 The proposed amendments purport to be amendments to particulars of loss and damage. The plaintiffs do not rely upon anything in the proposed amendments as material facts. The plaintiffs could not put forward the proposed particulars to [18] as material facts because they are precluded from doing so by the Deed. The defendant's objections to the proposed amendments and the plaintiffs' answer to them must be considered in those circumstances.

29 The defendants submit that both the proposed particular 6 to [18] and the proposed [18A] claim relief against Mr Palassis arising out of the alleged breach by Mr Palassis pleaded in [15] of the alleged fiduciary duties of Mr Palassis pleaded in [7]. Paragraphs 7.1, 7.3, 7.4 and 15 each plead prescriptive fiduciary duties, being fiduciary duties allegedly imposing positive obligations on Mr Palassis to act in a particular manner, as opposed to proscriptive duties imposing negative obligations on Mr Palassis to not act in a certain manner or place himself in a certain position. Paragraph 7.2 pleads a proscriptive fiduciary duty - that Mr Palassis not put himself in a situation where his personal interests, the plaintiffs' interests or Chattock's interests conflicted or where there was a real and sensible possibility of conflict between these interests - but the statement of claim does not plead that Mr Palassis breached this duty. The only allegation of a breach of fiduciary duties is contained in [15] which pleads that Mr Palassis breached a prescriptive duty to take the positive step of ensuring that a lease containing the terms of the agreement for lease was prepared and executed.

30 Mr Solomon, counsel for the defendants, submits that Australian law recognises only proscriptive, not prescriptive, fiduciary duties: Breen v Williams [1995] HCA 63; (1996) 186 CLR 71, 113 (Gaudron and McHugh JJ) 137 - 138 (Gummow J) and Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 [74] (McHugh, Gummow, Hayne and Callinan JJ). Mr Solomon submits that a pleading that alleges a prescriptive fiduciary duty raises no reasonable cause of action and ought to be struck out: National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd [1998] FCA 564 (Lindgren J); P & V Industries Pty Ltd v Porto [2006] VSC 131; [2006] 14 VR 1, [12] - [25], [42] - [48]; Levy v Bablis [2007] NSWSC 565, [9] - [18]. Counsel submits that as the relief claimed against Mr Palassis is alleged to arise solely in respect of alleged prescriptive fiduciary duties, the proposed particular 6 and [18A] discloses no reasonable cause of action and should be struck out. Accordingly, leave to amend to include them should be refused.

31 In response counsel for the plaintiffs, Ms Pitt, submits that no application is made to strike out [7.1], [7.3], [7.4] and [15] which have been pleaded since the inception of these proceedings.

32 An application to strike out part of a statement of claim must clearly specify the alleged offending parts. In Niven v Grant (1903) 29 VLR 102 the court ordered that certain points of law be set down for argument before trial. Holroyd J (Madden CJ concurring) said:

In the argument of the point or points set down, not only must all the facts alleged in the pleading which is attacked be accepted as true, but it must be taken for granted that on all other points that pleading is unassailable (106).

33 In Kimberley Downs Pty Ltd v Western Australia (Unreported, WASC, Library No 6414, 25 August 1986) Master Staples cited Niven v Grant as authority for the proposition that on an application to strike out the pleading on the ground that it discloses no reasonable cause of action not only must all the facts alleged in the statement of claim be accepted as true but it must be taken for granted that on all other points the pleading is unassailable. Kimberley Downs has frequently been cited in this court as authority for the principle to which I have referred. In this case, the defendant seeks to disallow amendments to the statement of claim consisting of the addition of [18(6)] and [18A]. On such an application, even more so than on an application to strike out part of a statement of claim, it should be accepted that all points in the statement of claim sought to be amended are 'unassailable'.

34 The statement of claim pleads in essence or in effect that the relationship between the plaintiffs and Mr Palassis was fiduciary and Mr Palassis owed fiduciary obligations to the plaintiffs. In [15] the plaintiffs plead that Mr Palassis breached the fiduciary obligations he owed to the plaintiffs by failing to ensure that a lease was prepared and executed containing the terms of the Agreement for Lease. For the purposes of this application, it must be accepted that Mr Palassis breached his fiduciary obligations to the plaintiffs by failing to ensure that a lease was prepared containing the terms of the Agreement for Lease. This ground of objection fails.

Paragraph 18(6) - Not proper particular of allegations made in [18]

35 The defendants submit that the loss and damage particularised in the proposed particular 6 to [18] is not loss and damage arising by reason of the material facts pleaded in the statement of claim. The loss and damage particularised in the proposed particular 6 is the extent to which the rent paid by the Partners under the Agreement for Lease exceeded the market rent available in respect of comparable premises at the relevant time. The statement of claim alleges that Chattock breached the Agreement for Lease that it had with the Partners by not conferring upon them benefits arising under the incentives to the Partners within the Agreement for Lease. The statement of claim also alleges that Mr Palassis breached fiduciary duties by not ensuring that the Partners were granted a lease in terms of the Agreement for Lease. The defendants submit that the statement of claim contains no allegations of what the partners would have done had they not entered into the Agreement for Lease, the terms on which the Partners could have rented comparable alternate premises had they not entered into the Agreement for Lease or any duties Mr Palassis is alleged to have owed the Partners to have secured a lease at market rent. Consequently, the defendants submit that, firstly, the loss and damage currently pleaded in [18] is limited to loss and damage suffered by way of the Partners not receiving the benefits alleged to have accrued to them pursuant to the incentives and, secondly, that the only permissible particulars to [18] are details of such loss and damage. Consequently, the defendants submit that the proposed particular 6 is not a particular of the loss and damage pleaded in [18], or any material fact pleaded in a statement of claim.

36 In response, the plaintiffs submit that the existing statement of claim pleads against Mr Palassis a breach of fiduciary duty, the remedy for which is equitable compensation, which may be quantified by reference to the principal's loss or the erring fiduciary's gain. The plaintiffs submit that the pleading is sufficient if the plaintiffs allege, as they do in the existing statement of claim, that they have suffered loss and damage and that someone else has profited - in this case Chattock - as a result of a breach of fiduciary duty by Mr Palassis. Particular 6 is said to be the quantification of the claim for equitable compensation against Mr Palassis. It is the measure of the principal's loss as a consequence of the fiduciary preferring another's interests to the principals.

37 It is convenient to refer to the defendant's next objection before determining this objection.

38 The defendants submit that there are no material facts pleaded in the statement of claim which are capable of establishing a causal connection between the alleged breach of duty by Mr Palassis and the loss and damage to be particularised in the proposed particular 6. It is submitted that when equitable compensation is claimed it is essential that the losses made good are only those which on a commonsense view of causation were caused by the breach. That is, a claim for equitable compensation for breach of a fiduciary obligation requires a causal link between the breach and the loss. The defendants submit that questions of causation arise in respect of each item of loss and damage alleged to have been suffered by a party by reason of alleged breach of fiduciary duties by another party. It is submitted that there is no causal connection between the breach of fiduciary duty pleaded in the statement of claim and the loss and damage sought to be particularised in the proposed particular 6. The breach of fiduciary duty pleaded in the statement of claim is the failure by Mr Palassis to ensure that a lease was prepared and executed containing the terms of the Agreement for Lease. The defendants submit that the plaintiffs cannot claim equitable compensation for any loss and damage that was not caused by this breach and the only possible measure for loss and damage suffered by the Partners by reason of them not executing a lease containing the terms of the Agreement for Lease that can arise on the material facts pleaded in the statement of claim is the benefits alleged to have accrued to them pursuant to the incentives.

Consideration of not 'proper particular' and 'causation' objections

39 The two objections to the proposed amendments which I have referred to raise questions of what the plaintiffs are required to plead. The plaintiffs, in substance, submit that the existing statement of claim pleads the material facts which entitle them to claim equitable compensation for the loss and damage sought to be particularised by particular 6 to [18].

40 The controversy as to what is required to be pleaded by way of material facts and what may be pleaded by way of particulars of damages arises because of the terms of the Deed. In effect, the plaintiffs are precluded from amending their statement of claim to plead any new cause of action or material facts but may amend their particulars or give further particulars provided those particulars are limited to loss or damage.

41 Fiduciary obligations arise because a person has come under an obligation to act in the interests of another. The existence of a fiduciary obligation is not itself a material fact. A fiduciary obligation is the obligation that arises from the relationship of the parties and all the circumstances. It is the relationship and circumstances that constitute the material facts: Cubillo v Commonwealth [2001] FCA 1213; (2001) 112 FCR 455 [440]; Ravinder Rohini Pty Ltd v Krizaic [1991] FCA 318; (1991) 30 FCR 300, 314.

42 The plaintiffs in their existing statement of claim have pleaded the facts and circumstances which they allege are sufficient to give rise to fiduciary obligations owed to them by Mr Palassis. The pleading of those fiduciary obligations and their content is not the pleading of material facts. The plaintiffs have pleaded the fact which they allege constitutes the breach of fiduciary obligation by Mr Palassis; that is, the failure by Mr Palassis to ensure that a lease containing the terms of the Agreement for Lease was prepared and executed. It is helpful to identify the fiduciary obligation the plaintiffs say Mr Palassis breached but the failure to do so is not the failure to plead a material fact.

43 The plaintiffs have pleaded facts and circumstances which they allege are sufficient to give rise to a fiduciary relationship between the plaintiffs and Mr Palassis, to impose fiduciary obligations upon Mr Palassis and the breach by Mr Palassis of fiduciary obligations owed to the plaintiffs. Those pleas are in paragraphs of the existing statement of claim and are to be taken to be unassailable for the purposes of this application. In [18] of the statement of claim the plaintiffs plead that Mr Palassis breached fiduciary obligations owed to the plaintiffs, that Chattock has profited and the Partners have suffered loss and damage.

44 Causation is a limitation of the recovery of equitable compensation. To establish causation the plaintiff must establish that the loss would not have happened if there had been no breach of fiduciary duty: see Parkinson P, The Principles of Equity (2nd ed, 2003) [2213] and the cases there cited. The plaintiff will recover compensation for those items of loss which, but for the defendant's wrong, the plaintiff would not have suffered.

45 The material facts pleaded in the existing statement of claim do not establish that but for the pleaded breach of fiduciary obligation the plaintiffs would not have suffered the loss particularised in proposed particular 6 to [18]. There is no plea that Mr Palassis' breach of fiduciary obligation caused the Partners to enter into a lease that they otherwise would not have entered into. There is no plea that but for Mr Palassis' failure to ensure that Chattock executed a lease containing the terms of the Agreement for Lease the plaintiffs would not have paid the rent they paid to Chattock or that they would have entered into a different lease at market rent.

46 Proposed particular 6 is not a particular of any loss and damage arising from material facts pleaded. There is no sufficient connection between the loss and damage in proposed particular 6 of [18] and the material facts pleaded. For those reasons, leave should not be granted to amend the statement of claim to add proposed particular 6 to [18].

Particular 6 to [18] - Election to affirm agreement for lease

47 The defendants submit that the relief to be sought in respect of the loss and damage set out in the proposed particular 6 to [18] is inconsistent with the relief sought in respect of the loss and damage set out in the current statement of claim. It is submitted that the payment of equitable compensation calculated in accordance with particular 6 would restore the Partners to the position they allege they would have been in had they not entered into the Agreement for Lease. However, the plaintiffs are suing Chattock on the Agreement for Lease and do not seek rescission. The defendants submit that it is not permissible for the plaintiffs to both affirm the agreement for lease and yet seek equitable compensation to restore them to the position they would have been in had the agreement for lease not been entered into: Tracy v Mandalay Pty Ltd [1953] HCA 9; (1953) 88 CLR 215, 239 - 241 (Dixon CJ, Williams and Taylor JJ). The defendants further say that the plaintiffs elected in 1998 to sue for damages for breach of the agreement for lease. The pleadings together with the deed constitute the election.

48 I am not satisfied that the plaintiffs made an election. It was open to the plaintiffs after executing the Deed to amend their statement of claim by amending their particulars of loss and damage.

49 The plaintiffs may claim alternative relief. They could not, of course, recover overlapping relief. However, that would be a matter for trial.

50 Paragraph 18A pleads that Mr Palassis must account for his profits. However, the current statement of claim does not plead that Mr Palassis made any profits. The defendants submit that if a statement of claim does not allege that a fiduciary derived a profit by breach of their duties, or otherwise invoke the profit rule, then the plaintiff cannot claim the relief of an account of profits, even if this is sought in the prayer for relief: Collie v Merlaw Nominees Pty Ltd (in liq) [2003] VSCA 40 [10] (Batt JA, Ormiston and Vincent JJA concurring). In short, the defendants say that as the statement of claim does not allege that Mr Palassis derived any profits from the alleged breach of fiduciary duties it is not open for the plaintiffs to seek the relief of account of profits.

51 I uphold this objection. The current statement of claim does not plead that Mr Palassis made a profit from his actions which are said to constitute a breach of fiduciary duty; that is, it is not pleaded that Mr Palassis made a profit by failing to ensure that Chattock and the Partners entered into a lease containing the terms of the Agreement for Lease. It is not pleaded that Mr Palassis entered into a transaction with the Partners. It is pleaded that Mr Palassis held shares in Tableau and Tableau held shares in Chattock. However, those facts alone do not establish that Mr Palassis made any profit.

52 The Deed precludes the plaintiffs from amending the statement of claim to plead any other cause of action or material facts but may amend its particulars or give further particulars provided those particulars are limited to loss or damage. It is unnecessary to consider whether the proposed amendments are contrary to the Deed because I have determined that the amendments should not be allowed. Nevertheless, I will make some brief observations concerning the amendments and the Deed.

53 The proposed amendments are not precluded by the Deed if they are amendments to particulars of loss and damage. The plaintiffs submit that the proposed amendments are only amendments to particulars of loss and damage and disavow reliance upon anything in the proposed particulars as being material facts. In those circumstances no injunction should issue.

54 The proposed amendments to the statement of claim objected to by the defendants are not allowed.

55 It is strictly not necessary to consider the defendant's application for an injunction. In any event, the proposed amendments purport to do no more than amend the particulars of loss and damage. That is not precluded by the Deed. The defendant's application for injunction will be dismissed.

56 The amendment to the prayer for relief was said to be consequential upon the other proposed amendments. The parties accepted that if the amendments to proposed particular 6 of [18] and [18A] were disallowed then the amendments to the prayer for relief should also be disallowed. Accordingly, the proposed amendment to the prayer for relief are disallowed.

57 The plaintiffs will have leave to amend their statement of claim in the form of the minute of substituted statement of claim dated 11 December 2007 except for the amendments to insert particular 6 to [18], [18A] and the consequential amendments to the prayer for relief.

JOYCE -v- PALASSIS [No 4] [2008] WASC 45 (7 April 2008)

At a glance

Court

Decision date

Before

Catchwords

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Judgment (83 paragraphs)

JOYCE -v- PALASSIS [No 4] [2008] WASC 45 (7 April 2008)

Legislation Cited (1)

Cases Cited (5)