Plaintiffs v Defendants

4 The Moorabbin property was used by one or other company in the T.E.D. Engineering Group ("the T.E.D. Group") as a place from which it conducted its business operations. Tab Fried and Eva Fried were directors or officers of the companies in that group and were their ultimate beneficial owners and controllers. In 1985 T.E.D. Engineering Australia Pty. Ltd. acquired another business known as "Willi Kaufman Dymo" which included a considerable manufacturing operation in Bay Road, Cheltenham ("the Cheltenham property"). Between 1985 and 1987 there was a consolidation of the two businesses which included the physical movement of the business conducted at the Moorabbin property to the Cheltenham property. The Moorabbin property appears to have been used for some time thereafter for storage and other activities of the T.E.D. Group, but its significance for the group's operating business had declined by the middle of 1987 and was continuing to decline.

5 On 30 April 1985, Tab Fried and Eva Fried, by deed, retired as trustees of the fund in favour of the third named defendant which was initially named T.E.D. Engineering Key Employees' Superannuation Fund Pty. Ltd., but which subsequently changed its name to that in which it is sued in these proceedings ("Evatab"). Mr. and Mrs. Fried were, and remain, the directors of Evatab. The substitution of trustees coincided with some business restructure which included a change in the identity of the employing company for the group's activities. The employees who had been employed by the companies which comprised the T.E.D. Engineering Group were, after 30 April 1985, employed by T.E.D. Engineering (Australia) Pty. Ltd. which became the group employer, and which adopted the provisions, rights and obligations of the previous employer under the deed of trust which governed the superannuation fund.

6 In June 1987, Tab and Eva Fried sold the Moorabbin property to Evatab. The property was therefore transferred from the beneficial ownership of Tab and Eva Fried in their own personal capacities to the ownership of Evatab as trustee of the superannuation fund for the benefit of the members of, and the beneficiaries under, the fund. The consideration for that transaction was $600,000, being $440,000 more than the vendors had paid seven years previously.

7 The fund, which had been established in June 1979, was established for the benefit of the employees of the T.E.D. Engineering Group, and for the benefit of the dependants of those employees. The fund attracted contributions from both the employer and the employees. The trustee's report for the fund for the period 1 July 1986 to 30 June 1987 was prepared by Corporate West Ltd. It states that the then current membership of the fund as at 30 July 1987 numbered 117. On the same page it states that since 1 July 1987, there had been 22 entrants to the fund, six departures from the fund and a total of $8,140.49 paid out by way of benefits from the fund. There then follows a schedule of members of the fund containing 119 names of which no less than 105 are shown as having positive account balances. The total accrued benefit to the members as at 30 June 1987 is shown as being $816,333.08, of which $260,905.78 was held for the benefit of T. Fried and $78,726.64 was held for the benefit of E. Fried. The rest of the fund was held in various amounts for the remaining employee members. The same schedule identified the amounts standing to the credit of the account members' own contributions.

8 The acquisition by the trustee of the fund of the Moorabbin property in June 1987 was a significant event for the finances of the fund. The balance sheet for the fund at that date records net assets of $816,333.08 which includes the value of the Moorabbin property at the purchased price of $600,000. The figures from the fund's balance sheet indicate what a significant percentage of the fund's assets was then represented by the Moorabbin property. The amount of the property accounted for $600,000 of the net assets of $816,333.08 or of the gross assets of $1,064,833.08. The difference between the net and gross assets as disclosed in the balance sheet is explained wholly by a new borrowing by the trustee of $248,500 from Capital Building Society to enable the purchase price to be paid to Mrs. and Mrs. Fried. Until that purchase, the fund had had no borrowings; indeed, it had previously lent money to one or other company in the T.E.D. Engineering Group from which it derived interest income. In appendix A to the 1987 trustee's return there is recorded a loan from the trust to the T.E.D. Engineering Group of $281,500 on which $46,447.50 was received as interest income during that period at a rate of return of 16.63%. That loan was repaid to the trust, but the trust still needed to borrow additional funds, on which it was required to pay interest, for it to be able to complete the purchase of the Moorabbin property for $600,000. Thus, the fund's financial position altered in a number of critical respects by, or to give effect to, or in connection with, the purchase of the Moorabbin property: (a) a high proportion of its assets were thereafter invested in a property which was of declining importance to the operational activities of the T.E.D. Engineering Group; (b) it disposed of its interest income assets; (c) it assumed a liability to repay a borrowing; (d) it assumed a continuing liability to pay interest; and (e) because of the need to pay interest it needed to look for sufficient annual returns as would be sufficient both to pay its interest expenses and to provide for the further benefits of the employees who were entitled to rely upon the fund for future benefits.

9 There were other critical respects in which the fund's financial position changed that should also be mentioned. The consequence of the purchase of the Moorabbin property was that the trustee became entitled to receive rental income. It seems that both parcels of land comprising the Moorabbin property were initially leased to companies in the T.E.D. Engineering Group (or successors to them) but on 28 September 1987 one parcel (namely, 3 Kinwall Court, Moorabbin) was leased for three years to unrelated third party lessees at $33,000 per annum. The other parcel seemed to produce some $60,000 per annum rent from a related lessee. The fund might also enjoy any increase in the capital growth of the value of the property.

10 It seems clear that the transaction through which the Moorabbin property was acquired by Evatab constituted serious breaches of trust by the trustee and its directors. The transaction placed the directors in a position of clear conflict of interest in which, in my view, they preferred their own interest to that of the whole of the members of the fund. Mr. and Mrs. Fried were former trustees and were the directors of the then current trustee as well as being the individuals standing to benefit from the proceeds of a sale of the Moorabbin property at a price which, on their evidence, was the then market value: see Bentley v. Craven[1]; McKenzie v. McDonald[2]; Tracy v. Mandalay Pty. Ltd.[3]; Re James[4]. There was also a breach of the then provisions of s.4A of the Trustee Act 1958 and, although it may not matter for non-tax purposes, there was also a breach of regulation 16(1)(b) of the Commonwealth Occupational Superannuation Regulations 1987.

11 The contest in this proceeding, as I have indicated, was not concerned with whether there were breaches, but rather, with whether the defendants were able to avail themselves of particular exculpatory defences upon which they sought to rely.

12 The first exculpatory defence invoked was that found in cl.13 of the Trust Deed. Clause 13 of the Trust Deed at the relevant time provided:

"No person being a Trustee or being a member of the Board of Directors of the Trustee or being a director or officer of the Trustee or any other person authorised by the Trustees or the said Board of Directors to act in respect of the Fund shall be under any personal liability in respect of any loss or breach of trust relating to the Fund unless the same shall have been due to his own dishonesty."

The defendants contend that by virtue of this provision neither Evatab (as trustee) nor Tab and Eva Fried (as directors of the trustee) are under any personal liability in respect of any loss or breach of trust because no loss or breach was due to any of their dishonesty within the meaning of the clause. In relation to this provision the defendants also maintained that the provisions of s.237(1) of the Companies Act and/or 241(1) of the Corporations Law do not affect the effect of cl.13.

13 Counsel for the defendants relied upon the decision of the Court of Appeal in Armitage v. Nurse[5] in support of the proposition that cl.13 was valid and effective according to its terms as a defence to the allegations of breaches of trust. Armitage v. Nurse concerned a clause in a settlement which limited a trustee's liability for loss of damage to that "caused by his own actual fraud". The case came to be considered by way of proceedings on a preliminary point involving the extent to which that clause could be relied upon on the pleadings as they stood. It was held that the clause was effective and not contrary to public policy.[6] Millett, L.J. (with whom the other members of the Court agreed) upheld the validity of the clause but said:

"I accept the submission made on behalf of Paula that there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts. But I do not accept the further submission that these core obligations include the duties of skill and care, prudence and diligence. The duty of the trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the minimum necessary to give substance to the trusts, but in my opinion it is sufficient. As Mr. Hill pertinently pointed out in his able argument, a trustee who relied on the presence of a trustee exemption clause to justify what he proposed to do would thereby lose its protection: he would be acting recklessly in the proper sense of the term."[7] (My emphasis.)

Earlier, His Lordship had observed that much of the argument before the Court which disputed the ability of a trustee exemption clause to exclude liability for equitable fraud or unconscionable behaviour was misplaced. That was because no such conduct was pleaded:

"What is pleaded is, at the very lowest, culpable and probably gross negligence. So the question reduces itself to this: can a trustee exemption clause validly exclude liability for gross negligence?"[8]

It is important, therefore, to bear in mind that the decision in Armitage v. Nurse accepted the proposition that a trustee does have "an irreducible core of obligations" owed to beneficiaries. The minimum thought necessary was described in that case as a duty both "to perform the trusts honestly" and to perform the trusts "in good faith" for the benefit of the beneficiaries. The case itself did not concern a clause like that found in this proceeding and it is clear that neither dishonesty nor fraud was sufficiently alleged in the pleadings in Armitage v. Nurse. It is also the case that the Court considered the concept of "dishonesty" to be different from "fraud", as is undoubtedly the case. This may adequately be seen from the following passage:

"In opening the appeal counsel for Paula expressly disclaimed any intention to allege dishonesty. He did the same before the judge. I would not, myself, hold him to this concession, from which he later resiled, because I think he may have understood the word 'dishonesty' more narrowly than is justified. I take his concession to mean only that it is not intended to allege that any of the trustees acted for their own personal benefit."[9]

In this proceeding, however, the very allegation is that the trustees acted for their own personal benefit of Mr and Mrs Fried and not merely that their honest conduct was negligent. The very point conceded in Armitage v. Nurse is the very point relied upon in this proceeding. Whether his Lordship meant to imply that a trustee acting for his or her own personal benefit is to be regarded as an instance of dishonest behaviour need not be pursued.

14 The first matter which needs to be considered (as indeed occurred also in Armitage v. Nurse[10]) is the scope of the protection offered in this case by cl.13 in the context in which it appears. I am not inclined to give the specific exemption found in the clause of this superannuation fund trust deed a wide operation. An exemption clause appearing in a trust deed should be given a narrow construction against the person relying upon it[11]. That view is reinforced to my mind by the particular fiduciary relationship created by the trust and assumed by the trustee and its directors. In this case there is the additional circumstance the defendants were from the inception of the creation of the trust in a position where they were both trustees (at first in fact and subsequently as directors of Evatab) as well as beneficiaries. This circumstance was contemplated to exist from the inception of the trust, was in part an objective to be obtained, and was permitted by the terms of the Trust Deed itself. In such circumstances there was created the possibility of a conflict of interest whereby the trustees might be faced with preferring their interests to the interests of the other beneficiaries. The trust here created was for a superannuation fund for the benefit of employees upon their retirement. This class of beneficiaries was potentially large and also potentially vulnerable. Those preparing the deed may not in fact have turned their mind to the precise scope intended by the protection afforded by cl.13, however, the context in which cl.13 is found leads me to conclude that its proper construction as a protection to trustees should be limited.

15 Dishonesty is not the same as fraud. What will amount to dishonesty will vary with the circumstances of each case and must be measured by an objective standard. Lord Nicholls of Birkenhead said in Royal Brunei Airlines Sdn. Bhd. v. Tan[12] that, in the context of accessory liability, acting dishonestly, or with a lack of probity, (which he regarded as synonymous) meant "simply not acting as an honest person would in the circumstances."[13] He went on to say:

"This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty. Thus for the most part dishonesty is to be equated with conscious impropriety. However, these subjective characteristics of honesty do not mean that individuals are free to set their own standards of honesty in particular circumstances. The standard of what constitutes honest conduct is not subjective. Honesty is not an optional scale, with higher or lower values according to the moral standards of each individual. If a person knowingly appropriates another's property, he will not escape a finding of dishonesty simply because he sees nothing wrong in such behaviour.

In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless. However, in the situations now under consideration the position is not always so straightforward. This can best be illustrated by considering one particular area: the taking of risks."

In the context of criminal prosecutions (where it might be thought that what will amount to "dishonest" behaviour might import some higher standard) it was said ordinarily to involve "the standards of ordinary, decent people"[14].

16 The defendants each allege that their conduct was not dishonest. It is, of course, for them to make good the proposition as an affirmative defence raised and relied upon by them. The question, therefore, is whether they have discharged the onus of proof which they have assumed. I do not believe that they have. I am not satisfied that the defendants have discharged their onus of proving that the sale of the Moorabbin property to Evatab was not due to dishonesty such as would enable them to rely upon the protection of cl.13. I am not satisfied that the sale of the Moorabbin property at $600,000 was an honest dealing for the purposes of cl.13. That dealing, as I have said, preferred the interests of Mr. and Mrs. Fried to those of the trust. The fact was that the property had been owned by Mr. and Mrs. Fried as individuals and they elected to convert that equity into cash at the expense of the trust.

17 Conduct can fairly be described as a person's "own dishonesty" where the duty is breached by act or omission. The transaction constituting the breach was plainly enough effected by Evatab, Mr Fried and Mrs Fried: they each acted at least to that extent. They were also responsible (and hence it may fairly be said to be their own dishonesty) by failing to discharge their duties to inform themselves sufficiently to enable them to turn their minds to the matters that they had to decide. It is no answer for individuals who assume fiduciary obligations to say that they did assume them but that they simultaneously entrusted those obligations to others. Fiduciaries may rely upon others in the discharge of their duties, but they cannot, without move, shed the duties they have assumed. Much of Mr Fried's evidence was to the effect that he had left the details of the transaction to his solicitor and brother in law, Mr Aroni. Much of Mrs Fried's evidence was that she had little appreciation of the transaction. Neither can complain if they be saddled with the conduct of others as their own, or if their fault is found in the leaving of their charges with others.

18 Some suggestion was made that the propriety of the transaction could be seen from the fact that Mr. and Mrs. Fried were beneficiaries under the trust and, therefore, had themselves stood to lose from the sale if not proper or for value. Such a submission, however, fundamentally ignores the effect of the transfer of ownership from them absolutely and entirely to the trustee when any loss is suffered by a broader group of people who had no effective say or control over the transaction or its terms. In any event, I have no confidence that the amount which had been struck for the sale price was in any way fair or reasonable. Evidence was given by Mr. Aroni and Mr. Fried that there had been a valuation of the Moorabbin property at the time of the sale to the fund. Mr. Aroni in particular was clear in his recollection that there was a valuation at the time of the sale to the superannuation fund. That may be his belief, but I am not inclined to accept it for my purposes as reliable given the other evidence and the passage of time. At the time of the transaction it was not known that there needed to be a written valuation for the purposes of the transaction. Such contemporaneous evidence as is now available is, in my view, inconsistent with there having been a written valuation at the time of the sale by Mr. and Mrs. Fried to the superannuation fund. No written valuation has been discovered and the solicitor who had the carriage of the transaction did not refer to a valuation in the conduct of the files which he maintained. No valuation is listed as an expense in the accounts of the trust for the financial year ended 30 June 1987 and there is no reference to a valuation in the letter and account from the solicitors which otherwise referred to the advice in relation to prospective investment decisions in the 12 months before January 1987. In the ledger for the main superannuation file there is no amount recorded for a valuation, although other valuations were included on the main superannuation file when undertaking in October 1988 and 1992. In a letter dated 24 April 1987 there is a valuation referred to but that is a reference to a valuation to be undertaken by the Capital Building Society. In cross-examination Mr. Aroni, who was the solicitor acting generally for both Mr. and Mrs. Fried and also the superannuation fund, said that there was no physical valuation; the inference being that such valuation as there was, was at best, obtained orally.

19 Much evidence was led about the value which could today be determined to have been the value of the property at the time of its sale to the superannuation fund. There was a valuation of the property carried out in October 1988 by Mr. Elcock which valued the property at $715,000. Mr. Elcock's valuation at the time did not indicate the basis upon which it was made. He was called by the defendants to give evidence about his valuation and confirmed that it was a valuation made by him at the time. His recollection was poor and he was unable to shed light on the instructions which had been given to him for the purposes of conducting the valuation in 1988. He gave no separate values in 1988 for the two lots comprising the Moorabbin property. The valuation suffered from other defects including an erroneous recording of the area size of the building which Mr. Elcock accepted would affect a valuation of the property. Also the rental figures used by him did not accord with the actual rents received by the trustee. Further, Mr. Elcock's valuation was criticised by the two other valuers called (one by each of the opposing parties) to provide retrospective valuations of the Moorabbin property. The two other valuers each valued the property upon different bases with each producing different valuations. Mr. Keck was called for the defendants and tendered a report which valued the Moorabbin property at $595,000. Mr. Keck was rightly careful to indicate the difficulties of undertaking a retrospective valuation of the property. A Mr. Norman was called for the plaintiffs and he valued the property as at 30 June 1987 at $500,000. It is probable that there was a valuation conducted by the Capital Building Society which had lent money to the trust for it to complete the purchase from Mr. and Mrs. Fried. The total loan obtained from the building society was $248,500 which meant that any valuation that it obtained needed to have been only for $372,750 to satisfy the provisions of s.57(1)(b) of the Building Societies Act 1986. It is therefore Mr. Keck's valuation which comes closest to establish a retrospective valuation of the properties at about $600,000. His method of valuation was to attempt a direct comparison of comparable properties which in this case was thought by him to be that at 35-37 Isabella Street, Moorabbin. That property was different from the Moorabbin property but it was the best available to Mr. Keck in the circumstances of the substantial passage of time. In the end I am not satisfied that the defendants have sufficiently established that the sale was at a proper value. The highest that this evidence reaches is that Mr. and Mrs. Fried sold the property to the trustee of the superannuation fund for the highest amount that a retrospective valuation might support.

20 The defendants further contend that any loss suffered by the trust was not caused in the relevant legal sense by the acquisition of the property. In this regard reliance was placed on March v Stramare[15], Henville v Walker[16], and Environment Agency v Empress Car Co. Ltd[17]. Questions of causation call for an answer by reference to common sense and experience and the answers will differ according to the purpose for which the question is asked[18]. In my view the relevant legal loss occurred when the Moorabbin property was acquired. At that point, the fund's assets were substituted for the interest in the land. The amount which the land was ultimately sold for enabled the loss to be measured at the time of sale, but the cause of the loss is to be found in the breaches by which the trust's fund was converted from loans to property investments by the transaction through which the land was acquired.

21 The second exculpatory defence relied upon by the defendants is that the proceeding is out of time. Section 21 (2) of the Limitation Actions Act 1958 provides that certain actions by beneficiary shall not be brought after the expiration of six years from the date on which the right of action accrued. The defendants point to this proceeding being an action "in respect of" a "breach of trust" within the meaning of that section and contend that the action cannot be maintained because it was commenced on 3 June 1998, being some eleven years after the accrual of the cause of action on 30 June 1987. The plaintiffs' reply to this defence is partly that the six year limitation period has not yet expired, and partly that they may avail themselves of one or more of the exceptions found in s. 21 of the Limitation Actions Act 1958. In my view the first response is not made out because the right of action against the trustees accrued when the breach occurred in 1987. It is necessary, therefore, to consider whether the plaintiffs come within the exceptions found in s. 21.

22 The limitations posed by s. 21 (2) are expressly made subject to the terms of s. 21 (1) and also contains an express proviso. The express proviso in s. 21 (2) itself does not in my view have application to these facts because this is not a case of a beneficiary's future interest having fallen into possession, nor (despite Mr North's courageous submission) is it relevant that the sixth named plaintiff became the trustee within the six years prior to the commencement of this proceeding.

23 Section 21(1)(a), however, provides that no period of limitation shall apply to an action by a beneficiary under a trust, being an action

"in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy."

The plaintiffs rely upon this provision and contend that fraud in this section includes equitable fraud and should be construed widely. Such a view was adopted by the Court of Appeal in Applegate v Moss[19] where the Court had to consider the meaning of the word "fraud" appearing in the Limitation Act, 1939 (UK). In that case it was held that fraud in the context of that limitations provision did not necessarily import moral turpitude. It was enough for the conduct of the defendant, or of the defendant's agent, to be so unconscionable that it would be inequitable to allow the defendants to rely upon the limitation. Lord Denning MR said:

"Those cases show that 'fraud' is not used in the common law sense. It is used in the equitable sense to denote conduct by the defendant or his agent such that it would be 'against conscience' for him to avail himself of the lapse of time. The section applies whenever the conduct of the defendant or his agent has been such as to hide from the plaintiff the existence of his right of action, in such circumstances that it would be inequitable to allow the defendant to rely on the lapse of time as a bar to the claim. Applied to a building contract, it means that if a builder does his work badly, so that it is likely to give rise to trouble thereafter, and then covers up his bad work so that it is not discovered for some years, then he cannot rely on the statute as a bar to the claim. The right of action is concealed by 'fraud' in the sense in which 'fraud' is used in this section."[20]

Support for a broad view of the exception may also be found in Rasmussen v Rasmussen[21], although a different view seems to have been taken in Di Sante v Camando Nominees Pty Ltd[22].

24 Dr. Pannam QC, who appeared with Mr. Elliott for the defendants, contended that a broad view of the exception was not the law and should not be applied in this case. In Banque Commerciale S.A. v. Akhil Holdings Ltd.[23]. It was said in the joint judgment of Mason C.J. and Gaudron J. in relation to the expression "fraud or fraudulent breach of trust" appearing in s.69 of the New South Wales Trustee Act 1925:

"The section itself does not disclose what is meant by those expressions. But it would be surprising if the legislature had meant to exclude from the operation of s.69(1) breaches of trust which were not fraudulent in the ordinary sense of the word, that is, committed with dishonesty or at least some knowledge of the impropriety of the conduct involved ..." (My emphasis)[24]

Their Honours cited as authority a passage of the decision in Joliffe v. Baker[25] where it was said that, in the context of that case, the term "fraud" was used and was to be understood "in the common meaning of the word, as it is ordinarily used in the English language, and as implying some base conduct and moral turpitude"[26].

25 The difference exposed by these decisions is whether fraud "does not necessarily involve any moral turpitude" (the view expressed by Lord Denning M.R. in Applegate) or whether moral turpitude must be shown[27]. What is clear, I think, is that the courts have tended against too narrow a construction of the words "fraud" or "fraudulent" in limitation provisions[28]. In this case, however, there is in my view conduct that may properly be described as moral turpitude on the part of the defendants. I will not repeat what I have said above in relation to my conclusion that the defendants had not satisfied me that they could rely upon the protection of clause 13. A dealing with the trust property in a way that prefers the commercial interests of the trustees (or of the directors of the trustees) to the broader interests of all the beneficiaries of the trust is, in my view, conduct amounting to moral turpitude. A breach of the self dealing rule is not merely a technical gateway to establishing a cause of action, rather it is a shorthand way of describing facts which indicate that people who assumed, and had, fiduciary obligations have preferred their interests to those of others in circumstances where they have assumed duties over a fund designed, even if only in part, to provide for the future welfare of dependant employees and their dependants. A transaction such as was entered into would lack moral turpitude, that is, it would be protected from criticism, where it could be shown by the defendants that they did their utmost to ensure that the interests of the beneficiaries had been adequately preserved, protected and looked after. This they have not done. Furthermore, their conduct subsequent to the transaction is, in my view, less than acceptable from a trustee, or from persons in the position able to influence a trustee. Some of that conduct, whether by intention or simply by its effect, had the consequence of preventing a full and prompt disclosure of the nature of the breach and the consequences which might flow from it. There was not a full statement to the beneficiaries about the details of the transaction at the time that it was entered into or for some time thereafter. The evidence given on behalf of the defendants that the plaintiffs had opportunities to make enquiries is not in my view sufficient in the context of a superannuation fund established for the benefit of employees. Such disclosures as were made were in my view inadequate for a full appreciation of the transaction as would enable a dissatisfied, or concerned, beneficiary to take steps to pursue any claim. I accept as accurate the complaints made by the plaintiffs that they had not been adequately informed of the underlying matters. Indeed, the reaction of Mr. Fried to suggestions which he may have regarded, and may even have been, offensive was not a reaction that was conducive of disclosure and was not appropriate for people occupying fiduciary positions. A trustee may properly be called to account for his or her activities and should not seek to have "quashed unceremoniously" suggestions that may call for an account even though the suggestions may be perceived, or may be, offensive. In cross-examination Mr. Fried said, understandably, that he would seek to quash suggestions that he had acted dishonestly. Understandable though it may be, a trustee has duties to discharge which must transcend personal feeling and, more to the point, any reluctance to accept full scrutiny may have the consequence of concealment. Lack of full disclosure was evident also in the conduct of the proceedings with unhelpful responses to notices to admit and less than responsive answers to some critical interrogatories. Such factors combine to bring the conduct of the defendants within the provisions of s.21(1)(a) of the Limitation of Actions Act 1958.

26 The third exculpatory defence relied upon by the defendants is that of laches and acquiescence. The relevant principles to this defence have been conveniently gathered in Edmunds v. Pickering[29]. In the end the fundamental principle must be whether the conduct of the plaintiff is such that it would be inequitable or unreasonable to permit the plaintiff to assert a right[30]. Here it is said that the plaintiffs did little between 1990 and 1997 when a letter was sent by a union representing a number of the plaintiffs. It was then not until 3 June 1998 that the proceedings were commenced. This is said to have caused to the defendants considerable difficulties in conducting their defence because of the loss of documentation and the failure of memory due to the delay.

27 The length of time which has elapsed between (a) the events and the plaintiffs' fair appreciation of them, and (b) the commencement of the proceeding, is regrettable. Mere delay, however, is not sufficient to establish laches or acquiescence. The event which occurred in 1990 that was said by the defendants to provide sufficient details of the transaction, was the giving to the members the report of the fund for the year to 30 June 1990. That report refers to the fact of ownership of the Moorabbin property and an assertion of the value of the property at $770,750. Such facts, perhaps combined with others that may have been known to the members, might have put the plaintiffs on a line of enquiry that would have enabled them to discover the breaches. However, in my view, the defendants needed to do much more than that if they are to rely successfully upon their own conduct, or their own disclosure, to fix such events as the relevant date from which the plaintiffs might be in jeopardy if they fail to take action to protect their rights. In my view the 1990 report, even when combined with such other facts as may have been common knowledge, is not sufficient.

28 The length of delay in bringing action always carries grave risks for a plaintiff. In this case there was evidence about the destruction of documents in the ordinary course of activities without suggestion of dishonest destruction. There was also, however, evidence of relevant documents being found by Mr. Fried shortly before or during the course of the hearing. A defendant asserting a prejudice from the destruction of documents must do more than merely say that there might have been documents that could have been helpful. That would do little more than to speculate in abstract. The defendants here have not shown to my satisfaction that there was a probability (or even a likelihood) that there were particular probative documents or useful information which cannot now be located or found that would support their case. Indeed, the likelihood concerning the much debated valuation of 1987 is that there was no written valuation. There are many documents still in existence which were tendered in evidence that might be expected to indicate whether there was a written valuation. Those documents did not show there to be a written valuation. Indeed, Mr. Aroni's recollection was ultimately that although he was sure that there was a valuation it was not a written valuation. There may have been other documents that would have determined the issue conclusively one way or another but I am not inclined to speculate that such documents as have been destroyed are likely to support the defendants' case from the documents which are available.

29 In relation to acquiescence I am not satisfied that the plaintiffs in this proceeding have acquiesced to the breaches of trust which have given rise to the loss. Furthermore, the plaintiffs to this action did not adopt the sale and none gave evidence that they agreed to the sale of the Moorabbin property.

30 The fourth exculpatory defence relied upon by the defendants is that in s.67 of the Trustee Act 1958. The Court has a discretion to relieve a trustee from any personal liability where the conditions in s.67 have been satisfied. The defendants in this case must demonstrate that (a) the trustees acted honestly, (b) the trustees acted reasonably, and (c) the trustees ought fairly to be excused for the breach of trust. Whether a trustee has acted honestly and reasonably are each questions of fact to be determined having regard to all the circumstances which bear upon those questions. Each case must be decided on its own facts[31]. In view of the conclusions I have formed about the conduct of the defendants, I am not able to conclude that they have acted honestly or reasonably within the meaning of the provision. Mr. and Mrs. Fried were the directors of the trustee of a superannuation fund which purchased from the directors in their personal capacity a property in breach of trust. There was, therefore, an act by the corporate trustee in favour of its directors, and actions taken by the directors in circumstances where their interests conflicted with those of the other beneficiaries of the fund. Their subsequent conduct was less than the full and open candidness that should be the hallmark of fiduciaries, even when (if not especially when) they are called upon to account for their conduct. I am not able to regard the conduct, therefore, as satisfying the terms of s.67 of the Trustee Act 1958. It follows also that I do not believe that the trustees ought fairly to be excused for the breach of trust.

31 Determining the quantum of the loss suffered by the plaintiffs is by no means easy. In June 1987 the fund had a sum of money of some $380,000 which it had used to derive interest income by loans to the T.E.D. Group. At the time it appeared to be deriving interest at the rate of 16.5% per annum, but the loan was repayable on demand and it was not established that such an interest rate would continue to be paid. Furthermore, Mr. Aroni gave evidence that there was a need for the transaction to be reversed and the probability is that such a return would not have been received for much of the period beyond 1 July 1987. Furthermore, the money in the fund was joined with those borrowed from the Capital Building Society to form a larger pool from which $600,000 was used to purchase the Moorabbin property and to derive some rental income.

32 Equity's approach to providing redress differs from that of the common law in that it

"depends upon treating the fiduciary's obligation as one of a personal character to make restitution to the beneficiary or to the trust estate."[32]

"would appear to be whether the loss would have happened if there had been no breach."[33]

The difficulty here is that of determining the quantum of the loss. Both parties agree that the capital loss suffered by the fund was $272,270 being the difference between the acquisition costs and the net sale proceeds. Both parties also agree that interest should be awarded upon that sum but disagree about the date from which interest should be calculated and about whether the awards should be for compound interest. The loss of $272,270 was not the quantum of the loss suffered by a breach as at 30 June 1987. To award interest on that sum from that date would not, in my view, merely be compensating the plaintiffs for the loss suffered but would be giving to them a windfall. A simpler measure of the loss might have been to calculate the likely interest that might have been earned on the capital amount contributed by the trust to the purchase of the Moorabbin property, but the evidence does not support such a calculation. If it were possible to determine such income foregone, it would then be necessary to take into account the income received by the fund from the property until it was sold. It was not established that the T.E.D. group would continue to have paid 16.5% per annum and no evidence was tended for these purposes about commercial returns at interest. Mr. Aroni's evidence was that there was a need for the loan from the fund to the T.E.D. group to be reversed. The returns to other funds which can be seen from the evidence in this proceeding show a fluctuation over some of the periods in question but never achieving 16%. In any event, it is unsafe to assume that the fund would have received only interest income over the whole of the period from 1 July 1987 because it is possible that some of the funds might have been invested in shares or in other real estate. That possibility is given some foundation in this proceeding by Mr. Aroni's evidence that the loan to the T.E.D. group needed to be reversed. A reversal of that loan would have meant that the fund would have had money for investment and the possibility of its investment in shares or real estate is as likely (if not more likely) as placing the money on deposit at interest.

33 It seems to me that the fairer method of calculating damages is that submitted by the defendants. The property was sold at the end of 1996 at which point the quantum of the capital loss was crystallised as claimed by the plaintiffs at $272,270. Such income as the trust derived from the property to the date of sale will go some way (if not entirely) to compensate the trust for the net income it would have derived on the money which had been applied to the purchase of property. After sale of the property, the plaintiffs are also entitled to interest but not compounded. In my view, that will be sufficient to compensate the trust for the period of loss after crystallisation of the quantum of capital loss by the sale of the Moorabbin property on 8 and 10 October 1996.

34 Accordingly, I find for the plaintiffs and order the defendants to pay to the plaintiffs the sum of $272,270 together with interest on that amount as and from 10 October 1996. I will hear counsel on the question of costs but otherwise order that the defendants pay the plaintiff's costs.

[1] [1853] EngR 972; (1853) 52 ER 29

[2] [1927] VicLawRp 19; [1927] VLR 134

[3] [1953] HCA 9; (1953) 88 CLR 215

[4] [1949] S.ASR 143

[6] Leave to appeal was refused; see [1998] 1W.L.R. 270.

[11] Walker v. Stones [2000] 4 All ER 412; Wilkenson v. Feldworth (1999) 17 ACLC 220

[12] [1995] UKPC 4; [1995] 2 AC 378 at 389

[13] See also Walker v. Stones [2000] 4 All ER 412 at 443-446; Peters v. The Queen [1998] HCA 7; (1998) 192 CLR 493.

[15] [1991] HCA 12; (1991) 171 CLR 506.

[16] [2001] HCA 52; (2001) 75 ALJR 1410 at [60] & [97]-[109].

[17] [1998] UKHL 5; [1999] 2 AC 22.

[18] Environment Agency ibid at 29: Henville above n 16 at [99]

[19] [1971] 1 QB 406

[21] [1995] VicRp 38; [1995] 1 VR 613 at 635.

[22] [2000] VSC 211 (unreported, 25 May 2000) at [51] & [58]

[23] [1990] HCA 11; (1990) 169 CLR 279

[25] (1883) 11 Q.B.D. 255 at 270

[26] See also Hamilton v. Kaljo (1989) 17 NSWLR 381 at 386, Honey v. McLennan (1997) 18 WAR 384 at 389-392, and Seymour v. Seymour (1996) 40 NSW.LR 358 at 371-2

[27] See the discussion in Honey v. McLennan ibid at 389-391

[28] Seymour v. Seymour above n 26 at 372

[29] (1999) 75 SASR 407 at 574-5; see also Jad International Pty. Ltd. v. International Trucks Australia Ltd. (1994) 50 FCR 378 at 387-9

[30] Fysh v. Page [1956] HCA 13; (1956) 96 CLR 233 at 243-4; Orr v. Ford [1989] HCA 4; (1988) 167 CLR 316 at 337 ff.

[31] Partridge v. Equity Trustees Executors and Agency Co. Ltd. [1947] HCA 42; (1947) 75 CLR 149 at 165

[32] Hill v Rose [1990] VicRp 13; [1990] VR 129 at 144

[33] Re Dawson deceased [1966] 2 NSWR 211 at 215