Plaintiff v First Defendant

LITIGATION GUARDIAN - Removal of litigation guardian under r 15.03(4)(a) of the Supreme Court (General Civil Procedure) Rules 2025 (Vic) - Conflict of interest - Where a defendant is litigation guardian of another defendant in proceeding.

1 This proceeding comes before me on the hearing of two summonses as follows.

(a) The first summons, filed by the plaintiff on 6 March 2025, seeks removal of the second defendant as litigation guardian for the first defendant, and the appointment of a replacement. The plaintiff also seeks orders:

(i) for the reimbursement of the first defendant to the extent the second defendant has sought indemnity from her on account of the second defendant's legal costs incurred as litigation guardian during his attorneyship; and

(ii) for the payment of his costs in the event he is successful in the application for removal.

(b) The second summons, filed by the second defendant on 11 April 2025, seeks summary judgment in respect of the plaintiff's claim made against the second defendant, alternatively, that the plaintiff's claim be struck out, and costs. The second defendant's summons also sought dismissal on the basis of asserted non-compliance with discovery orders made in the proceeding but that application was not pressed at the hearing.

2 Despite being filed later in time than the plaintiff's summons, the determination of the second defendant's summary judgment application in the second defendant's favour would obviate the need to consider the plaintiff's application, and accordingly, I have considered that application first.

3 For the reasons that follow in this ruling, I will make orders:

(a) dismissing the second defendant's summons;

(b) removing the second defendant as litigation guardian for the first defendant under r 15.03(4)(a) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('Rules'); [1] and

(c) appointing Mr Lachlan Vallance, solicitor, under r 15.03(4)(b) of the Rules as litigation guardian for the first defendant.

4 I will reserve my decision on the question of costs and on the other matters raised in the plaintiff's summons until hearing further from the parties.

5 The first defendant is the plaintiff's elderly mother. The second defendant is the plaintiff's brother-in-law, and the first defendant's son-in-law.

6 The first defendant appointed the second defendant as her attorney under an Enduring Power of Attorney dated 19 July 2021 ('POA'). The POA appoints the second defendant to act for the first defendant in both personal and financial matters.

7 In this proceeding, the plaintiff claims that he had an equitable interest in the real property located at 156 Brisbane Street in Hobart ('Brisbane Street Property'), being the land more particularly described in certificate of title volume 27493 folio 1. The plaintiff signed the contract of sale and paid the deposit when the Brisbane Street Property was purchased in July 2001.

8 The plaintiff claims that he and his parents formed the common intention in July 2001 that:

(a) the plaintiff's parents would assist him to obtain the loan for the purchase of the Brisbane Street Property;

(b) the rental income received from multiple tenancies at the Brisbane Street Property would be used to pay the mortgage instalments;

(c) the plaintiff would be responsible for advertising for, selecting and managing tenants;

(d) the plaintiff would be responsible for all maintenance works at his own expense;

(e) the plaintiff would renovate the Brisbane Street Property at his own expense;

(f) the plaintiff would be entitled to reside at the Brisbane Street Property rent-free; and

(g) the plaintiff would be the full beneficial owner of the Brisbane Street Property as his investment property.

9 The plaintiff alleges, further or in the alternative, that in or about August 2001, he and his parents commenced a joint endeavour, the purposes of which were to assist the plaintiff to purchase the Brisbane Street Property as an investment and to provide mutual support, security and benefit. He also alleges that his parents represented that if rental income was used to pay off the mortgage to Westpac, he could reside at the Brisbane Street Property rent-free and would be the full beneficial owner.

10 In about September or October 2001, the first defendant and her now deceased husband obtained a loan from Westpac Banking Corporation. That loan was used to purchase the Brisbane Street Property, and was secured by a mortgage over that property. Subsequently, the first defendant and her husband also mortgaged their family home to secure the loan from Westpac.

11 The first defendant became the registered proprietor of the Brisbane Street Property as a joint tenant with her now deceased husband on 6 November 2001. The plaintiff believed he was a registered proprietor of the Brisbane Street Property, a fact he learned to be untrue in about 2003.

12 The plaintiff alleges that between 2001 and 2019, he managed tenants, performed maintenance works at the Brisbane Street Property at his own expense and renovated units 1, 2, 3 and 4, and commenced construction of a 5th unit which remains unfinished. He alleges that he thereby:

(a) acted to his detriment in reliance on the common intention;

(b) made contributions to the pleaded joint endeavour; and

(c) relied on the alleged beneficial ownership representation to his detriment.

13 Following the first defendant's husband's death in October 2011, the second defendant engaged in the following dealings with the Brisbane Street Property on behalf of the first defendant in his capacity as the first defendant's attorney under the POA.

(a) In May 2022, he refinanced the loan previously provided by Westpac in respect of the Brisbane Street Property and borrowed an additional sum of money from the Bendigo & Adelaide Bank.

(b) In October 2022, he:

(i) registered the first defendant as sole proprietor of the Brisbane Street Property by survivorship;

(ii) discharged the mortgage in favour of Westpac over the family home;

(iii) discharged the mortgage granted to Westpac over the Brisbane Street Property; and

(iv) granted a new mortgage over the Brisbane Street Property in favour of Bendigo & Adelaide Bank in relation to the refinanced Westpac loan, and to secure the new advance.

(c) On 2 February 2024, he signed a contract of sale of the Brisbane Street Property to a third party for the sum of $1,112,000.

14 On 19 April 2024, the sale of the Brisbane Street Property settled. The plaintiff claims that the first defendant, or the second defendant as her attorney, holds the proceeds of sale or their traceable proceeds on trust for the plaintiff, being a common intention constructive trust, a Baumgartner trust and/or a constructive trust as a result of a proprietary estoppel.

15 The plaintiff separately claims against the second defendant that, as the first defendant's attorney, he knowingly procured or induced the first defendant's breaches of trust, and so is 'accessorially'[2] liable as a constructive trustee, and liable for equitable compensation.

16 The second defendant makes application for summary judgment under s 62 of the Civil Procedure Act 2010 ('CPA') on the ground that the plaintiff's case against him has 'no real prospect of success'. Subject to s 64, the Court may give summary judgment under s 63 of the CPA if it is so satisfied.

17 The test under s 63 of the CPA is whether the claim has a 'real' as opposed to a 'fanciful' chance of success.[3] The authorities urge caution, and that regard be given to the overarching purpose under the CPA, when exercising the power to terminate a proceeding summarily, given that, in consequence, the party against whom summary judgment is given will be deprived of the chance to pursue their claim or defence.[4] As such, the Court should only exercise the power where it is clear that there is no real question to be tried.[5]

18 Even if there is no real prospect of success of the claim, under s 64 of the CPA, the Court may nevertheless decline to give judgment summarily if:

(a) having considered the circumstances of the case, it determines 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.

19 An application for summary judgment under the CPA must be made by summons supported by an affidavit verifying the facts of the claim and stating that it is the belief of the deponent that the claim has no real prospect of success. The plaintiff may 'show cause against the application by affidavit or otherwise to the satisfaction of the Court.'[6]

20 The authorities also establish that if an application for summary judgment is refused, it is undesirable for the Court to give detailed reasons for so ruling.[7]

Should the plaintiff's claim against the second defendant be dismissed summarily?

21 At paragraph 38 of his statement of claim, the plaintiff alleges that the second defendant procured or induced the conduct of the first defendant that is said to amount to the breach of trust, and that he did so 'knowingly'. This is a plea of liability that seeks to engage a separate and distinct form of accessory liability for breach of trust to the two most commonly recognised grounds, being those conventionally described as arising 'under the two limbs of Barnes v Addy'.[8] The second defendant submits that the High Court has not endorsed the underlying principles relied upon by the plaintiff, and so the plaintiff is bound to establish, consistently with the second limb of Barnes v Addy, that the second defendant was knowingly assisting in a dishonest and fraudulent design on behalf of the first defendant. The second defendant submits that the plaintiff has no real prospect of establishing that case. I do not agree that the plaintiff is confined to establishing liability under one of the two limbs in Barnes v Addy.

22 In Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[9] the High Court emphasised that the two limbs of liability described in Barnes v Addy are not exhaustive of the circumstances in which a third party might be accountable as a constructive trustee for their participation in a breach of fiduciary duty by a trustee or other fiduciary. In particular, the Court stated:

Before Barnes, there was a line of cases in which it was accepted that a third party might be treated as a participant in a breach of trust where the third party had knowingly induced or immediately procured breaches of duty by a trustee where the trustee had acted with no improper purpose; these were not cases of a third party assisting the trustee in any dishonest and fraudulent design on the part of the trustee.[10]

The case does not clearly elucidate the level of knowledge required to establish liability, with the result that 'the weight of authority has hitherto proceeded cautiously',[11] but, in my view, it does acknowledge that other forms of third party liability remain in existence.

23 Having proceeded cautiously, it now appears that, following the NSW Court of Appeal's decision in Pittmore, which synthesised and approved the principles established in several decisions at first instance in both this Court[12] and in the NSW Supreme Court, the weight of authority favours the view that dishonesty on the part of the third party is not a requirement to establish liability for inducing or procuring a breach of trust.[13] As Leeming JA explains in Pittmore, the conduct of someone who knowingly procures a breach of trust or fiduciary duty could fairly be described in plain language as 'dishonest', however, dishonesty is not an element for liability, and its use is somewhat of a distraction.[14] Rather, what is required is that the third party have knowledge of the breach of trust or fiduciary duty within one of the first four categories set out in Baden v Societe Generale pour Favoriser le Developpement du Commerce et de l'Industrie en France SA.[15]

24 In Pittmore, Leeming JA explained the knowledge element thus:

A third party's liability for inducing or procuring a breach of trust or fiduciary duty has two elements. The first is the intentional conduct which causes, and is intended to cause, the breach of trust or fiduciary duty. The second is that the third party knew that he or she was bringing about a breach of trust or fiduciary duty.

In some cases, the third party's conduct will involve dishonest deception of the fiduciary. The forged marriage certificate in Eaves v Hickson is the paradigm example. In the case of an honest trustee or fiduciary who properly seeks to adhere to the trust or fiduciary obligations to which he or she is subject, procuring or inducing a breach of trust or fiduciary duty will almost always involve a knowing deception of the trustee.

In other cases, where the trustee or fiduciary is less than scrupulous in attending to his or her duties, or indifferent to those duties, or indeed utterly unconcerned to abide by them, then there will be less need for deception by the third-party procurer or inducer.

But however scrupulous or casual trustees or fiduciaries be in adhering to their duty, the third party will in all cases know that the result intended to be brought about, which is in fact brought about, is something which would reasonably be regarded as a breach of trust or fiduciary obligation. I see no difficulty in describing the third party's conduct in those circumstances as "dishonest". However, the essential aspect of the third party's liability is not so much the conclusion that the conduct is dishonest. Rather, it is the knowledge that the third party has procured a breach of duty by the trustee or fiduciary.[16] (emphasis added)

Any of the first four [Baden] categories is sufficient to satisfy the knowledge requirement for knowing assistance. Consistently with equity's regard for conscience and the reasoning in Farah Constructions, the same is true for a third party who procures or induces a breach of trust or fiduciary obligation. It is sufficient if the inducer or procurer of a breach of trust or fiduciary duty knew of the facts which, to a reasonable person, would indicate a breach of trust or fiduciary duty.[17] (emphasis added)

Leeming JA's formulation of the elements of the claim and the level of knowledge required of the third party was endorsed in this Court by Nichols J in Coonwarra Pty Ltd v CornoNero Pty Ltd.[18]

25 Having regard to the above, I do not accept the second defendant's submission that the plaintiff's case can only be brought under the second limb of Barnes v Addy, and that his case under that limb enjoys no real prospect of success. The authorities discussed above reveal there is a distinct form of liability standing alongside that described in the two limbs of Barnes v Addy, which does not require proof of dishonesty. It is this case that must enjoy a real prospect of success to survive summary judgment.

26 The plaintiff's statement of claim in this proceeding pleads both elements described in Pittmore,[19] that is, intentional conduct by the second defendant that caused and was intended to cause the breach of trust, and that the second defendant knew that he was bringing about a breach of trust. The action does not depend on the receipt by the third party of a benefit, and so no such benefit needs to be pleaded. A party who knowingly induces or procures a breach of trust or fiduciary duty is jointly and severally liable for the equitable compensation for loss and damage caused by their conduct, which the fiduciary may be obliged to pay.[20] The relief sought by the plaintiff in this case against the second defendant includes declarations as to the existence of a constructive trust and equitable compensation. Finally, the second defendant submitted, without citing any authority, that knowing procurement could only apply to an express trust. I see no reason in principle for treating a third party who acts with knowledge of facts giving rise to a constructive trust differently to one who acts with knowledge of an express trust.

27 The second defendant admits that he engaged in the conduct of refinancing and selling the Brisbane Street Property as the first defendant's attorney. Albeit he does not accept that there was any breach of trust involved, if the conduct is shown to be in breach of trust, then the plaintiff will be able to establish the first element of his alleged liability, that is, that the second defendant's conduct has caused the breach of trust.

28 In his affidavits, the plaintiff has provided detailed evidence that he argues will, if accepted at trial, establish that the second defendant had knowledge of the matters giving rise to the plaintiff's claim against the first defendant. He submits that this includes evidence of his knowledge as to the purposes for which the Brisbane Street Property had been acquired and the contributions the plaintiff had made to it, before the loans secured against the Brisbane Street Property were refinanced in May 2022 and then sold in denial of the plaintiff's interest in February 2024. In his affidavit, the second defendant denies the plaintiff's evidence as to his knowledge of the alleged constructive trust, putting those factual matters into contest. The second defendant submits that the evidence adduced on this application by the plaintiff is not sufficient to show he had the requisite knowledge to establish knowing procurement.

29 In my view, the evidence relied upon by the plaintiff is adequate to show cause against the second defendant's application. The evidence on this application shows there will be extensive and complex factual disputes regarding the elements of the claim for knowingly inducing or procuring breach of trust, most particularly whether the second defendant possessed any one of the four Baden categories of knowledge essential to establishing liability. It is neither necessary, nor appropriate, for the Court to resolve those factual disputes on this application. To do so would involve a mini-trial on the documents that have been adduced for the purpose of showing cause against the application. These are not necessarily all of the documents that will be adduced to prove the allegations on the balance of probabilities. The Court would also be making a decision without the benefit of the evidence of other witnesses and without the benefit of cross-examination of these witnesses. The complex factual disputes raised on the material can only be resolved at trial upon a full examination of all of the evidence.

30 I am satisfied that the plaintiff's claim against the second defendant enjoys a real prospect of success, and I will dismiss the second defendant's application for summary judgment.

Removal of second defendant as litigation guardian

31 Having found that the second defendant's application for summary dismissal does not succeed, I must consider the removal application made by the plaintiff.

32 The first defendant filed a notice of appearance on 17 May 2024. No litigation guardian had been appointed at the time the appearance was filed. Two months after the first defendant's appearance was filed, on 17 July 2024, further documents were filed to effect the appointment of the second defendant as litigation guardian of the first defendant, including a solicitor's certificate ('Certificate') which stated that the second defendant had 'no interest in the proceedings adverse to [the first defendant]'.[21]

33 In my view, and contrary to the Certificate, given the allegations made in the proceeding against the second defendant that he knowingly induced or procured the first defendant's breach of trust, there is (and always has been) a clear conflict between his position as the first defendant's litigation guardian and his own interests. This conflict of interest disqualifies the second defendant from being the first defendant's litigation guardian. In his capacity as litigation guardian, he has a duty to defend the claim on behalf of the first defendant. At the same time, he has a personal interest in defending the claim on his own behalf, which will involve assigning liability to the first defendant. The Certificate failed to acknowledge this conflict. Instead, the second defendant was appointed, and caused a defence to be filed by the first defendant, using the same solicitors as he has engaged to defend himself. It is not to the point that the second defendant hoped or expected to be successful in a summary judgment application. Until such time as orders were made in his favour on any such application, the second defendant was in a position of conflict and could not be the first defendant's litigation guardian.

34 It is also possible, based on evidence adduced on this application, that the first defendant has claims against the second defendant as her appointed attorney if any of the conduct he engaged in was contrary to her wishes. Communications between the first defendant and the second defendant reveal that the first defendant told the second defendant, prior to its sale, that she wanted the plaintiff to have a 'share' in the Brisbane Street Property.[22] In addition, shortly after the sale of the Brisbane Street Property, the first defendant told the plaintiff that she thought what she had signed was for the plaintiff to receive the Brisbane Street Property, and that she 'did not know this was happening'.[23] In the ordinary course, this and other potentially relevant evidence would need to be examined by the first defendant's litigation guardian and legal advisors to determine whether she has any claims against the second defendant by reason of his conduct as her attorney. Those enquiries are unlikely to be made when the second defendant acts as her litigation guardian, and where they are represented by the same solicitors.

35 The second defendant, even if validly appointed,[24] cannot remain as the litigation guardian for the first defendant and must be removed from that role. Mr Lachlan Vallance, an experienced solicitor, has agreed to act as an independent litigation guardian for the first defendant. A copy of his signed consent has been exhibited to the plaintiff's affidavit filed on 6 March 2025.[25]

36 For the reasons given in this ruling, I will dismiss the second defendant's application. I will make orders removing the second defendant as litigation guardian (to the extent he was validly appointed), and appointing Mr Vallance in his place.

37 I will hear further from the parties on the question of costs and related matters that remain for determination in respect of the plaintiff's summons.

[1] Noting that since the application was made, the 2015 version of the Rules have been replaced by the Supreme Court (General Civil Procedure) Rules 2025. There have been no changes to the rules applicable to this application.

[2] Despite its description, this is a form of primary liability, sometimes described as 'accessory', 'third party' or 'ancillary' liability.

[3] Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd [2013] VSCA 158; (2013) 42 VR 27, 39 [29] (Warren CJ and Nettle JA) ('Lysaght').

[4] Lysaght 40 [35] (Warren CJ and Nettle JA), 42 [40]-[42] (Neave JA).

[5] Lysaght 40 [35] (Warren CJ and Nettle JA).

[6] Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 22.19 ('Rules').

[7] Ticco Pty Ltd v Complete Family Healthcare Services Pty Ltd [2005] VSCA 221 [34] (Hollingworth AJA, Charles JA agreeing).

[8] [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 ('Barnes v Addy').

[9] (2007) 230 CLR 89 ('Farah Constructions').

[11] Pittmore Pty Ltd v Chan; Chan v Tan [2020] NSWCA 344; (2020) 104 NSWLR 62, 101 [185] (Leeming JA) ('Pittmore').

[12] See, eg, Australian Super Development Pty Ltd v Marriner [2014] VSC 464.

[13] Naaman v Jaken Properties Australia Pty Limited [2025] HCA 1; (2025) 421 ALR 227, 248 [85] (Gordon, Edelman and Steward JJ) ('Naaman'); Farah Constructions [161]; Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 287 ALR 22, 79 [245].

[14] Pittmore [196], citing Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164, 202 [134].

[15] [1993] 1 WLR 509, [350] ('Baden'), which categories of 'knowledge' are commonly referred to as the 'Baden categories' and are (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.

[17] Pittmore [192], noting that Leeming JA describes this as consistent with what Brereton J (as he then was) said in Metropolitan Petar v Mitreski [2012] NSWSC 16, [165] ('Mitreski'). The second defendant described, in his oral submissions, the statement of Brereton J in Mitreski at [165] as one inconsistent with the plaintiff's case that dishonesty was not required for inducing or procuring breach of trust or fiduciary duty.

[18] [2023] VSC 781, [861]-[862].

[20] Naaman 248 [85] (Gordon, Edelman and Steward JJ).

[21] First Defendant's Litigation Guardian Certificate filed 17 July 2024.

[22] Affidavit of Lynton Sorren Reid affirmed 16 May 2025, [28(h)], Exhibit LSR-2, 74.

[23] Affidavit of Lynton Sorren Reid affirmed 6 March 2025, [9], Exhibit LSR-1, 15-16.

[24] There is some doubt about whether only the Court has power under the Rules to appoint the litigation guardian to the first defendant, including in circumstances where the first defendant had appeared in the proceeding prior to any litigation guardian being appointed. It is unnecessary to resolve this question.

[25] Affidavit of Lynton Sorren Reid affirmed 6 March 2025, [20]-[21], Exhibit LSR-1, 24-25.