Supreme Court of WA|2000-11-29|Before: Mr P

Menz & Anor v Same & Ors [2000] WASC 288 (29 November 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : MENZ & ANOR -v- SAME & ORS [2000] WASC 288

Practice and procedure - Application for leave to amend statement of claim - Turns on its own facts

Clarkson v Davies [1923] AC 100

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360

Levi v Stirling Brass Founders Pty Ltd, unreported; FCt of WA; Library No 970209; 9 May 1997

Nocton v Lord Ashburton [1914] AC 932

O'Neill v Phillips [1999] All ER 961

Re Eyre-Williams [1923] 2 Ch 533

Taylor v Davies [1920] AC 636

The Metropolitan Bank v Heiron (1880) 5 Ex D 319

Tito v Waddell [1977] Ch 106

Unioil v Deloitte Touche Tomatsu (1997) 17 WAR 98

Urquhart v McPherson [1880] 6 VLR 17

1 MASTER SANDERSON: This is the plaintiffs' application for leave to amend their statement of claim in terms of the minute of proposed further amended statement of claim dated 25 August 2000. The amendments themselves are relatively minor. However, the effect of the amendments is significant, at least so far as the plaintiffs are concerned. To understand the nature of the amendments it is necessary to say something of the facts of the case.

2 The first three paragraphs of the amended statement of claim identify the parties. In particular, the defendants are identified as partners in a firm of solicitors: par 3. It is then pleaded that from June 1988 the first plaintiff engaged the defendants as solicitors resulting in the establishment of a solicitor-client relationship: par 4. Particulars of the engagement are provided and in these particulars reference is made to a dispute between the first plaintiff and NZI Broadlands Finance and Esanda Ltd. It is important to note that the fiduciary relationship was said to have arisen in June 1988 and that it related to advice in relation to certain specified and limited respects.

3 Paragraphs 7 through to 21 plead that between October 1989 and April 1990 the third defendant and the plaintiff, together with a third party, established a business relationship. It is then said the defendants were advising the first plaintiff while the commercial relationship was being established and that they therefore owed fiduciary duties to the first plaintiff: par 22. It is then pleaded that the third defendant, by entering into the commercial relationship with the first plaintiff, in circumstances where the fiduciary relationship existed as a consequence of the solicitor-client relationship, was in breach of a fiduciary duty: par 23. I might pause at this point to say that I have some doubts as to whether the mere fact that a solicitor and client who have that relationship go into business together can amount to a breach by the solicitor of his fiduciary duty to the client. Nonetheless, par 23 is not subject of amendment and has stood unchallenged for some time. It must be accepted that the defendants regard the position as at least arguable.

4 Paragraph 24 is a plea in the alternative. It is said that as a consequence of the fiduciary duty owed by the defendants to the plaintiff the third defendant ought to have given certain advice to the plaintiff. It is said that the failure to give that advice was a breach by the defendants of their fiduciary duty to the first plaintiff. There then follows par 24A which in its unamended form reads as follows:

"By reason of the breaches pleaded in 2.3 and 2.4, the Defendants and/or the Third Defendant are constructive trustees for the Plaintiffs or either of them in relation to any benefit derived by the Defendants."

5 The plaintiffs now seek to strike out the words "are constructive trustees" and replace these words by the words "being in a fiduciary relation, are in equity express or direct trustees". In other words, the plea that the defendants are constructive trustees is replaced by the claim that they are express trustees. It is to be noted that the amendment does not seek to plead any new material facts to justify the change of characterisation of the defendants.

6 Paragraphs 25 and 26 deal with the establishment of the first plaintiff's family trust and the appointment of the second plaintiff as trustee of that trust. Paragraph 27 pleads again that it was a breach of the defendants' fiduciary duty to the plaintiffs for the defendants to continue to advise the first plaintiff while the first plaintiff and the third defendant had a business relationship. Once again there is no explanation as to why this should amount to a breach of trust.

7 Paragraphs 27.2 through to 27.8 then set out a series of ways in which the plaintiff says he was unfairly treated by the third defendant in respect of his business dealings. By this time the commercial relationship between the first plaintiff and the third defendant had resulted in a company being formed which is referred to in the pleading as "a quasi partnership": See par 19. The nature of the complaints made by the plaintiffs can be illustrated by quoting the pleading which relates to "director's fees and dividends treated unfairly". This is part of par 27.2 and it reads as follows:

"27.2.1 Throughout the life of the Company, dividends and Directors' fees were treated unfairly as a means of obtaining payment from the Company by the Third Defendant:

27.2.2 On 10 December 1992 the Directors signed a Members' Minute in which no dividend to share holders would be payable, but Directors' fees would be $40,000 for the year ended 30 June, 1992.

27.2.3 On or about 13 June 1994 the Company resolved to pay Directors' fees of $200 per week to the Third Defendant and ............, which fees reflected the proportion of issued capital, not paid up capital.

27.2.4 The payment of Directors' fees did not bear any relation to the physical contribution to the Company by the Directors."

8 By par 28 it is said that the actions of the defendants, not the third defendant alone but the defendants, are in breach of their fiduciary duties. It is said that the plaintiffs hold the benefit derived from the breach of these fiduciary duties as constructive trustees for the plaintiffs. It is now sought to amend par 28 to delete the reference to constructive trustees and refer again to express or direct trustees.

9 Some general comments can be made about the nature of the claim as it stands at present and the amendments. It is at least arguable that directors and shareholders who are improperly paid directors' fees and dividends hold the amounts they receive as constructive trustees. However, it would seem that they would be constructive trustees for the company. The plaintiff on any view not having the right to these funds. Further, so far as the first, second, fourth and fifth defendants are concerned, it is somewhat difficult to see how on the case as pleaded, they could in any way be liable to the plaintiffs. It is nowhere in the pleading alleged that they received anything from the company. The primary relief claimed is a declaration that money received consequent upon the breach of fiduciary duty is held by the defendants as trustees, direct or constructive. But as it is not alleged that anyone other than the third defendant received any money, it is difficult to see how a declaration can be made against the other defendants.

10 It is perhaps of assistance to know why the plaintiffs seek to make these amendments. As counsel for the plaintiffs acknowledged during the course of his submissions, if the defendants are found to be constructive trustees, then it will be open to them to rely on a limitation defence. Equity applies limitation statutes by analogy. This action is akin to an action for moneys had and received. It is clear the cause of action arose more than six years before the issue of the writ. There is, then, at least the possibility that the plaintiffs' claim will be time-barred. However, if the defendants are direct or express trustees, then the Limitation Act has no application: See s 25(2) of the Supreme Court Act. It can be seen then that these amendments are of some importance to the plaintiffs.

11 A constructive trust is a trust which arises by operation of law rather than from any intention of the parties express or implied. It is a trust imposed by a court as a result of the conduct of the trustee and very often contrary to the wishes and intentions of the constructive trustee: See Brown v Litton [1711] EngR 8; [1711] 24 ER 329. It was submitted on behalf of the plaintiff that in certain circumstances equity would regard a person who might otherwise have been characterised as a constructive trustee as an express or direct trustee. It was said that the facts as pleaded in this case gave rise to a situation where the defendants were express trustees.

12 In support of the application counsel for the plaintiffs relied upon the decision of the Court of Appeal in Soar v Ashwell [1893] 2 QB 390. The facts in this case as taken from the headnote were as follows:

"A trust fund was held by trustees under a will in trust for two persons in equal shares for their respective lives and, after the death of each, in trust as to his share for his children. The fund was entrusted by the trustees to a solicitor employed by them (Ashwell) as solicitor to the trust, and was by him invested, together with other moneys belonging to different trusts, on an equitable mortgage by deposit of title deeds, in his own name. The mortgage being paid off in January, 1879, the solicitor received the money so invested from the mortgagor, and distributed one moity of it, the tenant for life having died, among his children, who by his death had become absolutely entitled to the same. He did not account for the other moity to the trustees, but retained the same in his own hands."

13 The question for determination was whether Ashwell held the money as an express trustee or under a constructive trust. If it was the latter then the action was time-barred. If it was the former, as in Western Australia, no limitation period applied. Lord Esher MR analysed the facts situation in the following way (at 394):

"The moment the money was in his (Ashwell's) hands, he was in a fiduciary relation to the nominated trustees; he was a fiduciary agent of theirs; he held the money in trust to deal with it for them as directed by them; he was a trustee for them. He was therefore a trustee of the money before he committed, if he did commit, the alleged breach of trust, and was in possession of and had control over the money before he committed, if at all, the alleged breach of trust."

14 This seems to me to be the important aspect of Soar v Ashwell and the later cases upon which the plaintiffs rely. There was no question of Ashwell being a trustee by direct appointment. But he received moneys from the trustees knowing them to be trust property. It was as a consequence of this knowledge that his fiduciary relationship to the trustees arose. In my view that does not mean that in any situation where one of the two receives money which might be held by him on constructive trust, he is automatically to be regarded as an express or direct trustee. There must be something more. The recipient of the funds must know that they are trust funds and act accordingly. To quote again from the Master of the Rolls (at 394):

"The cases seem to me to decide that, where a person has assumed, either with or without consent, to act as a trustee of money or other property, ie, to act in a fiduciary relation with regard to it, and has in consequence been in possession of or has exercised command or control over such money or property, a Court of Equity will oppose upon him all the liabilities of an express trustee, and will class him with and will call him an express trustee of an express trust. The principal liability of such a trustee is that he must discharge himself by accounting to his cestui que trusts for all such money or property without regard to lapse of time."

15 I need not go through the other authorities relied upon by the plaintiff. They are to like effect. Nowhere in this pleading is it alleged that the third defendant, let alone the other defendants, took any money with the knowledge that it was subject to some kind of trust. In the circumstances of the case it is difficult to imagine that such a plea could be made. But in the absence of such a plea there is no basis in my view for categorising the defendants as being in equity direct trustees. I would not allow the amendments to the plaintiffs' statement of claim.

16 Before leaving this matter I should say something generally about the way the claim is pleaded against the defendants. In fairness to the plaintiffs I should preface these remarks by saying that the time for the defendants to apply to strike out the statement of claim in its unamended form has long since passed. However, I have grave doubts that the claim as presently pleaded can succeed. It would be inappropriate for me to go into any detail beyond repeating comments I have made earlier in these reasons. I would respectfully suggest, however, that the plaintiffs reconsider their action generally and the statement of claim in particular.

17 The plaintiffs' chamber summons should be dismissed. The plaintiff should pay the defendants' costs including the reserved costs of the application.

Menz & Anor v Same & Ors [2000] WASC 288

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Judgment (41 paragraphs)

Menz & Anor v Same & Ors [2000] WASC 288 (29 November 2000)

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