Supreme Court of NSW|1996-11-26|Before: Mahoney ACJ, Meagher JA, Beazley JA

S Pavan and Gowshan and Associates P/L v M R Ratnam [1996] NSWSC 571 (26 November 1996)

SARA PAVAN & GOWSHAN & ASSOCIATES P/L v MEL RAJA RATNAM

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CATCHWORDS: EQUITY - Fiduciary relationships - Accountant-Tax adviser/client relationship - Whether fiduciary duties created

The respondent was the first appellant's tax accountant, and from time to time gave investment advice as such advice related to the first appellant's tax affairs.

In late 1983, the respondent proposed to develop an industrial estate at Penrith, through a newly incorporated company, Nupace Pty Ltd. He informed the first appellant of the project and invited him to invest in it, as a means of reducing the first appellant's tax liability that year. The first appellant decided to invest and paid an amount of $60,000 to Nupace Pty Ltd in December 1983.

Nupace Pty Ltd purchased of the land for the development in February 1984. The first appellant entered into a written contract for the purchase of two units in the development in June 1984. The contract specified a deposit of $60,000. In August 1984, Nupace Pty Ltd and the second appellant entered into a loan agreement for the balance of the purchase price of the two units.

By 1988, the development was in difficulties, due to foreign currency rate fluctuations which affected Nupace's borrowings for the project. In that year, a receiver was appointed and the property was sold. The proceeds of the mortgagee sale were insufficient to pay out Nupace's borrowings.

The appellants commenced proceedings against the respondent for breach of fiduciary duty, breach of contract and in tort. They also sued Nupace on the contract for purchase of the two industrial units and for total failure of consideration under the

contract. Young J held that there was no fiduciary obligation owed by the respondent to the appellants. He did not deal with the claim in contract or tort.

The appellants appeal against the trial judge's finding that there was no fiduciary duty and the trial judge's failure to deal with the contract and tort claims. The appellants also argued that the moneys paid by the first appellant in respect of the purchase of the two industrial units were paid for an identified purpose and therefore were held on trust: Barclays Bank Limited v Quistclose Investments [1970] AC 567.

(2) None of the circumstances in the case pointed to the existence of a fiduciary relationship between the respondent and the appellants.

(3) The Barclays Bank Ltd v Quistclose Investments trust issue was not raised at the trial and could not be raised on appeal, as it clearly raised questions of fact: Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 applied

(4) The claim in negligence (and in contract) failed because, in the circumstances, there arose no duty of care on the part of the respondent to not recommend an improvident investment to the appellant, nor to ensure that the investment become improvident, nor to warn the appellant of the dangers involved in the transaction.

BEAZLEY JA: This is an appeal from a decision of Young J in which his Honour held there was no fiduciary relationship between the appellants and the respondent. The appellants appeal against that finding. The appellants also appeal against the trial judge's failure to deal with their claims in negligence and contract. The appellants, while critical of the extent of the trial judge's findings of fact, do not seek to disturb those findings. Nor does the respondent seek to do so save in one important respect, namely, whether the appellant knew that the land, subject of the transaction which caused the appellant's loss, was mortgaged.

Because, in the main, the findings of fact are not in issue, it is not necessary to recount them in the detail which might otherwise have been required. The central facts are as follows. The first appellant is a specialist medical practitioner. The second appellant is a company controlled by the first appellant. As it is the relationship and dealings between the first appellant and the respondent which is relevant to the appeal, I will refer to the first appellant as the appellant.

The respondent is an accountant. The appellant was one of his clients, the respondent acting as the appellant's tax accountant. The appellant contends that the respondent also gave him investment advice, albeit related to tax. The trial judge did not make any finding as to whether the respondent was, in fact, a financial adviser. Indeed, it is apparent that his Honour did not find it helpful to characterise the relationship merely by giving it a label. Rather, his Honour considered, correctly, that an analysis of the nature of the relationship or the circumstances of the transaction had to be considered to determine whether there was a fiduciary relationship. His Honour did find, however, that in the course of the tax accountant/client relationship and under the respondent's guidance, the appellant formed the second appellant and purchased some residential property.

In about late 1983, the respondent was proposing to engage in the development of an industrial unit site at Penrith. Nupace Pty Ltd (which was the second defendant in the court below) was incorporated in late 1983 for the purposes of becoming the vehicle through which the development was to be carried out. The respondent and his wife became the shareholders of Nupace Pty Ltd. The respondent was also a director.

The appellant decided to purchase one of the industrial units. His decision to do this was made in late 1983. It appears that the respondent initially raised the investment with the appellant on a social occasion. The trial judge found that the proposal that the appellant acquire one of the units arose because the appellant wished to deal with his expected high income in that year in a tax effective way. In addition, the appellant had a long term financial strategy of investing in real estate to provide long term financial benefits for himself and his family as he did not have any superannuation (the first finding). The appellant committed himself to the investment in December 1983 by paying the sum of $60,000 to Nupace Pty Ltd.

In February 1984, Nupace Pty Ltd settled its purchase of the land upon which the industrial units were to be built. The whole of the land was mortgaged to Westpac at the time of settlement of the purchase. (The trial judge found that the appellant was not aware of the mortgage. The respondent challenges that finding). Subsequently, in July 1984, the borrowing secured by the mortgage was converted to a foreign currency loan.

In June 1984, the appellant executed a contract for the purchase of two industrial units in the development (the purchase of two rather than one being due to a change in floor plan and did not involve an increase in the overall purchase). There is some confusion about the effect of the contract. The trial judge found:

"The contract was prepared by [the respondent] and was signed towards the end of June 1984. The way in which the property is dealt with in the income tax returns shows that this is probably so. The reason for generating the contract was not so much providing security for [the appellant] or for furnishing a document which would be the first document in the usual conveyancing transaction: it was mainly to be provided to show the Commissioner of Taxation if he enquired that the sale had been agreed before the end of June 1984."

It is difficult to discern from this finding whether his Honour accepted that this contract was a binding contract between the parties whereby the appellant purchased the land, although both parties proceeded on the appeal as if that was the case. The contract recorded that a deposit of $60,000 had been paid. There was no dispute that the only $60,000 paid was that paid in December 1983. Counsel for the appellant, for the purposes of one aspect of his submission, placed some reliance upon the fact that the contract stated that the deposit was paid to the vendor as stakeholder. However, this submission probably cannot be made good as, to the best one is able to discern from the poor reproduction of the contract in the appeal book, the words "as stakeholder" were struck out. In any event, as no reliance was placed on that matter at trial, it cannot be raised on appeal, as it involved factual matters that may have required investigation at the trial: Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.

In August 1984, Nupace Pty Ltd wrote to the appellant in these terms:

"I have set down below the basis of our recent telephone conversation with respect to the purchase, by Gowshan & Associates P/L of the Strata Office Unit at Lethbridge Court, Penrith from Nupace Pty. Limited:-

The Balance of $110,000 to be financed by Nupace P/L as follows:-

$2105 per month (which includes principle + interest)

Effective Date - due on the 7th of each month beginning from 7th July 1984 made payable to Nupace Pty. Limited. Perhaps it may be more convenient to have a bank deduction authority effected from Gowshan & Associates P/L to Nupace Pty. Limited.

I trust the above terms meets (sic) with your approval. Please do not hesitate to contact me if you have any further enquiries."

"was arrived at because the [respondent] had disclosed to [the appellant] that he was getting a good rate of interest and the 13.5% was less than the bank was offering."

Thereafter, the appellant made monthly payments in accordance with the terms of the letter until May 1989. However, by that time, Nupace Pty Ltd had fallen victim to the adverse currency fluctuations which affected many foreign currency loans and it was unable to service the mortgage. A receiver was appointed to the property and in 1988 sold the property. The proceeds of sale were not sufficient to pay out the loan. It was not until July 1989 that the respondent informed the appellant that the property had been sold.

The trial judge was faced with some difficulty in his fact finding task, having found both the appellant and the respondent to be unsatisfactory witnesses, although he considered that the documentary evidence supported part of the respondent's evidence and he found his evidence to be slightly more reliable than that of the appellant. In the result, his Honour found four "basal facts". I have referred to those (the first, second and third) findings. The fourth was that in about 1987, the respondent informed the appellant that "there were some difficulties about the bank, but [the appellant] insisted that he was entitled to have the units conveyed to him and continued to make the payments".

Despite some shifting on this issue, it appears that the appellant accepted that the respondent did not act in the capacity of "financial adviser" as such. However, it was submitted that in the circumstances where:

(a) was at least a tax advisor concerned with investment albeit related to tax;

(b) obviously had extensive business experience relating to property transactions of the kind;

(c) prepared, on his version, a contract which reasonably related to the transaction;

(d) did encourage the investment by [the appellant] and was [the appellant's] tax advisor and did discuss investments with [the appellant];

(e) did accept the moneys paid and arranged the loan moneys in August and obviously knew that they were to be held for completion of the purchase; and

(f) knew that [the appellant] had not agreed to the moneys paid or provided being used for any purpose other than the purchase and that [the appellant] had not engaged a solicitor."

"had a duty of a fiduciary character either springing from the circumstances in which the moneys were paid or provided and/or from his particular relationship with [the appellant] as his tax advisor and accountant, to take steps to secure the funds either by securing them himself or by appropriate advice to [the appellant]. [The appellant] was entitled to rely on him to take those steps."

There is no doubt that a fiduciary relationship may arise in either of the two circumstances referred to in this submission. It was not suggested, however, or at least it was not forcefully suggested, that in this case, the tax accountant/client relationship fell within the accepted fiduciary relationships of trust and confidence or confidential relations.

The courts have recognised that there is no single definition which can be given to identify a fiduciary relationship. The difficulty of definition and identification was clearly recognised in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41.

". . .it is important in the first instance to ascertain the characteristics which, according to tradition, identify a fiduciary relationship. As the courts have declined to define the concept, preferring instead to develop the law in a case by case approach, we have to distil the essence or the characteristics of the relationship from the illustrations which the judicial decisions provide. In so doing we must recognize that the categories of fiduciary relationships are not closed: Tufton v Sperni [1952] 2 T.L.R. 516 at 522; English v Dedham Vale Properties Ltd. [1978] 1 W.L.R. 93 at 110.

The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v Boardman [1966] UKHL 2; [1967] 2 A.C. 46 at 127), viz, trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of", and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.

It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed."

"Notwithstanding the existence of clear examples, no satisfactory, single test has emerged which will serve to identify a relationship which is fiduciary. It is usual - perhaps necessary - that in such a relationship one party should repose substantial confidence in another in acting on his behalf or in his interest in some respect. But it is not in every case where that happens that there is a fiduciary relationship.

There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other: see Tate v Williamson (1866) 2 Ch App 55 at 60-61."

The characteristics of a fiduciary have been dealt with recently by the Supreme Court of Canada in Hodgkinson v Simms et al 117 DLR (4th) 161, where La Forest J at 175 described the fiduciary duty as "until recently. . .a legal obligation in search of a principle".

In identifying a fiduciary, his Honour stated at 176:

". . .outside the established categories, what is required is evidence of a mutual understanding that one party has relinquished its own self-interest and agreed to act solely on behalf of the other party."

So defined, the relationship between the respondent and the appellant could not be described as involving a fiduciary relationship. However, this statement is too narrow (and too narrow in terms of his Honour's overall identification of the fiduciary obligation). For example, so expressed, it fails to acknowledge that a fiduciary may, with the informed consent of the party to when the duty is owed, act in the fiduciary's own interest: see Hospital Products per Mason J at 103_; Queensland Mines Ltd v Hudson_ (1978) 52 ALJR 399 at 401. Nor does it recognise that a fiduciary may act jointly in the interests of the fiduciary and the other party to the relationship: Hospital Products per Mason J at 99, a matter which La Forest J recognises later in his judgment. See also P.D.Finn, Contract and the Fiduciary Principle [1989] UNSWLawJl 5; (1989) 12 UNSWLJ 76; P.D. Finn, Fiduciary Obligations.

In my opinion, despite the optimism of La Forest J, there are difficulties in attempting to find an all embracing statement of principle to categorise a relationship which, as Mason J pointed out in Hospital Products is "infinitely varied". It is preferable to approach the matter by looking at all the circumstances of the case and determining whether there are factors which solely, or in combination, establish the nature of the relationship as a fiduciary one. This is the approach to be found in Hospital Products and also finds expression in Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8; [1975] QB 326 per Sachs LJ at 341:

"Such cases tend to arise where someone relies on the guidance or advice of another, where the other is aware of that reliance and where the person upon whom reliance is placed obtains, or may well obtain, a benefit from the transaction or has some other interest in it being concluded. In addition, there must, of course, be shown to exist a vital element which in this judgment will for convenience be referred to as confidentiality. It is this element which is so impossible to define and which is a matter for the judgment of the court on the facts of any particular case."

The cases establish that a number of factors may characterise a relationship as being of a fiduciary nature. They include: vulnerability, reliance and the presence of loyalty, trust and confidence. The notion of vulnerability, as used in this context, is not to be understood in the sense of any "weaker party" concept. Rather, it refers to the circumstance where another party agrees (not necessarily contractually) "to act on behalf of or in the interests of another and, as such, is in a position to affect the interests of that other person in a legal or practical sense. As such, fiduciary relationships are marked by vulnerability in that the fiduciary can abuse the power or discretion given him or her to the detriment of the beneficiary": see Hodgkinson per La Forest at 168. Reference is also usefully made to Professor Finn's (now Justice Finn of the Federal Court of Australia) description in "The Fiduciary Principle" at 50-1:

". . .fiduciary responsibilities will be exacted where the function the advisor represents himself as performing, and for which he is consulted, is that of counselling an advised party as to how his interests will or might best be served in a matter considered to be of importance to his personal or financial well-being, and in which the adviser would be expected both to be disinterested, save for his remuneration, and to be free of adverse responsibilities unless the contrary is disclosed at the outset."

In determining whether the circumstances in this case gave rise to a fiduciary relationship, the following characteristics of the relationship are relevant:

(i) the respondent and the appellant were in a tax accountant/client relationship;

(ii) in the course of and as part of that relationship, the respondent, from time to time, advised the appellant on appropriate financial structures and investment directions;

(iii) in 1983, the appellant was concerned to minimise his tax liability;

(iv) at that time, separate from his accountancy practice, the respondent had himself decided to pursue a particular investment opportunity, namely the development of land at Penrith upon which he proposed to build industrial units;

(v) the respondent acquired Nupace Pty Limited as the investment vehicle;

(vi) there was no contractual relationship between the appellant and the respondent in respect of the project, although the respondent "introduced" the appellant to the project; and

(vii) there was no evidence of any representation by the respondent to the appellant that any monies he committed to the project were to be held "on trust", or were to be kept separate from Nupace Pty Limited's monies; or were not to be utilised by Nupace Pty Limited during the course of the development.

None of these circumstances point to the existence of a fiduciary relationship. Although the appellant undoubtedly had confidence that the project would be successful and it may well have been that that confidence was engendered by the fact the respondent was involved with it, there are none of the indicia of vulnerability, reliance or confidence in the sense which those matters bear in the context of a fiduciary relationship.

Senior counsel for the appellant submitted that the monies paid by the appellant in respect of the project were paid for a specific purpose and thus invested with a trust: see Barclays Bank Limited v Quistclose Investments [1970] AC 567.

This issue was not raised at trial. It clearly raises questions of fact which might have called for exploration at the trial. Accordingly, leave to raise the issue on appeal should be refused: see Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.

The appellant's claim was also brought in negligence and in contract. The trial judge did not deal with either claim in his judgment as he ought to have. This raises the question of what course should be pursued by this court in relation to those claims.

As both parties accepted that it was open to this court to determine the claim for itself, I consider that is the appropriate course. In doing so, it is convenient to deal only with the claim in negligence as counsel for the appellant conceded that the two claims were co-extensive. A further reason for adopting this approach is that the claim in negligence was only made at the conclusion of the evidence at trial and leave to amend to include the claim was only granted on the basis that no further evidence was adduced.

The essential aspect of the claim made in negligence was that "from time to time, [the respondent] provided the plaintiff with financial advice." Unfortunately, and notwithstanding that this appears to have been the second amendment, the duty owed and the breach of that duty does not find clear expression in the further amended statement of claim. In his written submissions, senior counsel for the appellant identified the alleged duty of care, in the context of the respondent having, over a number of years, given taxation and investment advice to the appellant, as being a duty:

"to take reasonable care not to recommend an improvident investment or to allow the investment to become improvident, to protect the funds committed by [the appellant] to [the respondent's] care and to warn [the appellant] of the dangers involved in the transaction and of leaving the monies paid [by the appellant] unprotected."

In my opinion, notwithstanding the accountant/client relationship, no such duty arose. Rather, as I have already stated, the appellant entered into an investment in which the respondent had an interest through Nupace Pty Limited in the manner I have described. Accordingly, the claim in negligence and therefore in contract must fail.

In my opinion the appeal should be dismissed with costs.

MAHONEY ACJ: The facts are set forth in the judgment of Beazley JA which I have had the advantage of reading. Her Honour's judgment enables me to go directly to the matters in issue in this appeal.

Mr Ratnam, one of the defendants, had been engaged by Dr Pavan to prepare his income tax returns from about 1981. In 1983, near the end of the year, Mr Ratnam informed Dr Pavan that he Mr Ratnam proposed to develop land in or near Penrith by erecting a building on it, creating strata entitlements in relation to the building, and profiting from that development. They agreed between them that Dr Pavan should buy one of the units in the development for $210,000. The development was to be carried out by a company to be controlled by Mr Ratnam, Nupace Pty Limited ("Nupace").

In December 1983 Dr Pavan paid Mr Ratnam $60,000 of the $210,000. At that time, Nupace did not own the land to be developed and the development had not commenced. The land was not bought until 24 February 1984. The development was not completed until much later: the strata plan was not registered until 30 April 1986.

In June 1984, Dr Pavan agreed to buy from Nupace the then relevant strata entitlement ("Unit 1"). The contract was made on the form of contract agreement then generally in use (the 1982 edition). It provided for a price of $210,000, a deposit of $60,000 and a "balance" of $150,000. The printed form provided that the deposit be paid to the vendor "... and shall be held as stakeholder until completion ...". No provision was made in respect of a completion date. Presumably, by operation of the general law, the balance of the price would not be payable unless and until a transfer of the unit was tendered to Dr Pavan.

As Beazley JA has indicated, the contract was prepared not by a solicitor but by Mr Ratnam. It did not contain provisions which, in a contract properly drawn for the purpose, would have been specified. But the judge accepted and it is not in contest that the contract that was made was a binding contract. At least, the form of contract was signed on the date to which I have referred June 1984. Subsequently, in or about 14 August 1984 a further agreement or arrangement was made in relation to the transaction. The parties appear to have assumed that the balance of the price for the unit $110,000 was to be paid by Dr Pavan, not when conveyance was tendered but at or about the date of the arrangement. On 14 August 1984 Nupace wrote a letter to Dr Pavan, signed by Mr Ratnam, which recorded that the balance of $110,000 was:

Repayment: $2105 per month (which includes principal + interest)".

It is not in question but that the letter represented the agreement or arrangement then made.

From this I infer that the parties intended that there should be, in August 1984, a payment by Dr Pavan to Nupace of the balance payable under the contract $110,000, that that balance should be lent to Dr Pavan by Nupace upon the terms specified in the letter, and that Dr Pavan should thereafter make the repayments specified. In fact this is what occurred. Dr Pavan signed an authority to the manager of his bank at Burwood dated 17 August 1984 whereby he authorised debits to his account each month "until further advised" of $2105, such amounts to be credited to Nupace Pty Limited at its account at the Westpac Bank, Mt Druitt, "such sum being: repayment of loan". Mr Ellicott QC, for Dr Pavan, has in my opinion correctly submitted that the letter and the authority evidence a transaction to the effect of that to which I have referred. Payments were made in accordance with that authority of at least the balance of the amount provided for in the contract.

Nupace obtained the finance for the development by borrowing from the Westpac Bank. The loan was secured by a mortgage from Nupace to the bank over the land. The development proved financially unsuccessful. That bank appointed a receiver and in November 1988 the land was sold and the proceeds used towards payment of the obligations of Nupace to the bank. Nupace was not able to meet its financial difficulties. Judgment has been given against it in this proceeding but, as counsel have indicated, it is unlikely that it can meet its obligations.

(There are as parties to this proceeding the company controlled by Dr Pavan and Nupace Pty Limited. Neither has taken an active part in the proceedings before this Court. Nothing has been urged to turn upon the position of those companies or the representation of them. Having regard to the conclusions at which I have arrived, it is not necessary to consider further the position of either company in the litigation).

In this appeal, Dr Pavan's claim is against Mr Ratnam. Mr Ellicott QC for Dr Pavan has placed his claim upon four bases: I shall for brevity describe them as the Quistclose basis, the fiduciary basis, the negligence basis and the contract basis.

Mr Ellicott's submissions have been generally to the effect that the moneys paid by Dr Pavan in the context of the purchase of the unit in the development, namely $210,000 were paid for a special and identified purpose, that having been so paid, there was an obligation upon Mr Ratnam and accordingly, in accordance with the principles referred to by Lord Wilberforce in Quistclose: (1970) AC 567; should have been treated by Mr Ratnam and Nupace as charged in equity with such payments.

Mr Ellicott's submissions in this regard give rise, inter alia, to three questions: whether the parties intended the moneys to be dealt with as Mr Ellicott has contended; whether, if they did, the moneys or part of them would be so charged; and (if they would) whether that enables Dr Pavan to claim relevant relief against Mr Ratnam. Mr Einfeld QC, for Mr Ratnam, has contended in effect that Dr Pavan's claim fails in respect of each of these matters.

Mr Einfeld QC has, in addition, submitted that it is not open to Dr Pavan before this Court to rely upon the Quistclose basis of claim. He submits that that basis was not pleaded, it was not dealt with in evidence, it was not argued before the judge, and it was not dealt with by the learned trial judge in his judgment. Mr Einfeld QC submits that, had the matter been raised at the trial, he may well have adduced further evidence to deal with it: indeed, he has suggested that questions would have been asked of Dr Pavan to establish that he knew of matters which would have rendered that basis of claim inapplicable.

In my opinion this basis of claim is not available before this Court. It is a separate and distinct basis of claim and does not fall within the other bases pleaded. In my opinion, it is not within the fiduciary basis and the pleading would not lead the defendants to anticipate a claim so based. Upon well established principles, this basis of claim is not now open: see generally Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589; Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1.

Were the matter available before this Court, it would, generally for the reasons to which I shall refer in relation to the fiduciary claim, not succeed.

Mr Ellicott QC has submitted: that Mr Ratnam owed fiduciary duties to Dr Pavan in relation to the matters here in question; that what occurred involved breaches of those duties; and that relief can and should be granted against him in relation to the payments made by Dr Pavan in respect of the unit. It was submitted for Dr Pavan that what occurred between him and Mr Ratnam gave rise to fiduciary obligations. Reliance was placed upon the principles established by Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 96, 142; reference was made to the decision of the Canadian Supreme Court in Hodgkinson v Simms (1994) 117 DLR (4th) 161 and the cases there referred to.

The circumstances in which fiduciary duties will arise cannot, in my opinion, be described by a simple (or even a complex) formula of words. The tests or criteria which are proposed for the purpose are both indeterminate and expanding. Mr Ellicott QC, in his helpful submissions, referred to the phrases which for this purpose have conventionally been used: reference has been made to trust and confidence being reposed by one party in the other, to the vulnerability of one party to harm by the other and to the description, in Hodgkinson v Simms, adopted by La Forest J at 173: "... the special elements of trust, loyalty and confidentiality that obtain in a fiduciary relationshp give rise to a corresponding duty of loyalty." But such descriptions, individually or collectively, do not provide an exhaustive statement of the circumstances in which fiduciary duties may be held to exist. These criteria provide assistance in determining whether fiduciary duties should be held to be owed by one party to the other but it would, I think, be wrong to conclude that there are no cases in which fiduciary duties exist which fall outside circumstances or relationships so described.

In determining whether fiduciary duties exist, it is in my opinion of assistance to consider the matter by reference to the effects which the imposition of fiduciary duties produce. Stated generally, the effect of the imposition of fiduciary duties is twofold: that a person subject to the duties may not allow himself to be in a position in which his duty to the other and his interest to himself is in conflict; and he must not profit from his position. These are of course to be understood in a wide and not a narrow sense but, as was suggested by the House of Lords in Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46, these are essentially the restrictions which the law imposes upon fiduciaries.

In determining whether fiduciary obligations should be held to exist, it is of assistance to consider whether the case is one in which it would be inequitable to allow the fiduciary to occupy a position of such conflict or to derive benefit from it, or (whether there be a position of conflict or not) to profit from the position in which he has been placed vis-a-vis the other party. And it is of assistance, in determining whether a breach of fiduciary duty has occurred, to consider whether the fiduciary has been in a position of conflict or derived a benefit from it or has derived a profit from his position.

I agree with Beazley JA that, however the matter be formulated, the relationship between Dr Pavan and Mr Ratnam was not one which placed the latter in a fiduciary position vis-a-vis the former.

The evidence given by Dr Pavan and Mr Ratnam as to the relationship between them differed significantly. It was not, I think, submitted that, whatever be the finding of fact which could be made within the parameters of the evidence given by them, a fiduciary relationship must be held to exist. The competing contentions of the parties were, I think, to the effect that, if Mr Ratnam's evidence was accepted generally, no such relationship existed.

Mr Ellicott QC's submissions were put in various forms and I do not purport to detail each of them. But in this regard essentially they suggested: that Young J did not accept the evidence of either party; that this Court can and should make its own findings of fact; and that the findings to be made required the finding that a fiduciary relationship existed. The learned trial judge, after referring to the evidence, held no such relationship to exist. The effect of the contentions was, I think, that the judge had given no indication of what findings he had in fact made and that accordingly his conclusion that a fiduciary relationship existed was of no assistance in this Court in determining whether the facts were such as to give rise to such a relationship. The submissions suggested that it was necessary or at least would have been of assistance if the findings of fact had been appropriately stated and that, absent such findings, it could not be assumed that, the judge having found the fiduciary relationship to exist, he must be inferred to have made such findings of fact as warranted the conclusion that that relationship existed.

I do not think that this accurately records the inferences to be drawn from the terms of his Honour's judgment. I think the inference may properly be drawn from what his Honour said that he did not accept that Dr Pavan had, in his dealing with Mr Ratnam, placed trust and confidence in him in the conventional sense. His conclusion was, in my opinion, that Dr Pavan had done what he did in the transaction acting upon his own judgment, as part of his investments in property and with a view, inter alia, to minimising the burden upon him of income tax. Although the precise facts found by the judge cannot be inferred with certainty, I would understand what he said to be such that by his findings of fact he negatived the conventional factual situations giving rise to a fiduciary relationship.

However this be, on a detailed examination of the facts, my conclusion is that the relationship between the parties was not a fiduciary one. His Honour, in his judgment, summarised the position as Mr Ratnam had claimed it to be. I shall not repeat what his Honour said in this regard. But the decision to invest in the proposed development was one which was made by Dr Pavan: it was not one which was pressed upon him by Mr Ratnam. He considered the financial details of it and sought the necessary finance from his bank. When the finance was not available on terms of interest suitable to him, he initiated the discussion with Mr Ratnam which involved, inter alia, Dr Pavan referring to the fact that Mr Ratnam (presumably because the loan had been raised overseas in foreign currency) having an overall rate of interest less than Dr Pavan would have paid to his bank. Dr Pavan used this as a basis for persuading Mr Ratnam to make available to him the finance for the purchase of the unit in the manner to which I have referred. Why the moneys were paid then rather than on tender of a conveyance of the unit does not appear: it may be speculated that there were reasons relevant to Dr Pavan's taxation position and his desire to incur expenditure at an early rather than a late date and/or to achieve a position in which he paid interest upon the moneys borrowed to purchase the unit. But, on ultimate analysis, the transaction was one negotiated between the parties. Subject to two matters, it represents a commercial transaction.

First, Mr Ratnam had acted as an accountant for Dr Pavan in preparing his income tax return. Dr Pavan claimed he was his adviser; Mr Ratnam said he was not. The inference from the judge's judgment is, I think, that he concluded that Mr Ratnam's evidence was correct. However that be, my conclusion upon an examination of the evidence is that there was not the position of adviser and client between them such as would give rise to fiduciary obligations: cf Daley v Sydney Stock Exchange Ltd (1986) 371 CLR 371 at 377 per Gibbs CJ.

Second, there was an aspect of the relationship between them in which, in a literal sense, Dr Pavan placed trust and confidence in Mr Ratnam. As I have indicated, when the deposit of $60,000 was paid and when the contract for sale of the unit was signed, the development in question had hardly been commenced. The contract itself was not specific in relation to the development; a properly drawn contract would have detailed what was involved and the obligations of the respective parties. In a sense, Dr Pavan trusted to Mr Ratnam the formulation of the development and the manner in which it was to be carried forward. In fact, at a subsequent date, there was variation in the development and accordingly a variation in the unit which Dr Pavan agreed to take. In a practical sense Dr Pavan left to Mr Ratnam the carrying out of the development, the building of the building, the relationships with the builder, and matters of that kind. There is no evidence that he concerned himself in any substantial way with these matters.

Trust and confidence imposed in this way may, in appropriate circumstances, give rise to fiduciary obligations. Those obligations would relate at least primarily to what was to be done in the formulation of and the carrying out of the development. The precise nature and extent of those obligations need not be pursued. It may be that, such obligations existing, it would have been incumbent on Mr Ratnam to have regard to Dr Pavan's interests in which he did.

However, in my opinion, that is not a matter which is relevant for present purposes. Even if obligations of such a nature existed, it would not be sufficient to ground the relief sought by Dr Pavan in this case. Dr Pavan's case is and depends upon a finding that by virtue of the way in which the agreement or arrangement for purchase of the unit in the development came about, Mr Ratnam had obligations of a fiduciary nature to Dr Pavan in relation to the $210,000 paid as the price for the unit purchased. The kind of trust and confidence to which I have referred, if it existed, did not go to matters of that kind. It is not suggested that the reason why the development failed financially was relevant to what is here in question. I am satisfied that the investment which Dr Pavan made was not made in such circumstances as to give rise to fiduciary obligations on the part of Mr Ratnam in relation to the moneys so paid.

For this purpose I have not sought to distinguish between moneys, being the deposit of $60,000, which should have been held by Nupace in trust or as a stakeholder and the balance of the price. On the argument as it has been advanced under this head of claim, such an issue does not arise.

The claim in negligence and contract may be dealt with together. The pleading in negligence in the statement of claim presents a case different from but with similarities to the fiduciary claim. I agree with Beazley JA that no claim has been made out upon this basis.

For these reasons I agree with the orders proposed by Beazley JA.

S Pavan and Gowshan and Associates P/L v M R Ratnam [1996] NSWSC 571

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (104 paragraphs)

S Pavan and Gowshan and Associates P/L v M R Ratnam [1996] NSWSC 571 (26 November 1996)

Parties

Cases Cited (5)