Safetycare Australia Pty Ltd v Phillip Maxwell Earle [1999] VSC 535

Supreme Court of Victoria|1999-12-14|Before: Gillard J

Safetycare Australia Pty Ltd & Ors v Phillip Maxwell Earle & Ors

PRACTICE - Defendants' application for summary judgment - alternatively a striking out application - Alleged breaches of fiduciary duties

The plaintiff, Safetycare Australia Pty Ltd ("Safetycare") Paul Whateley, Robert Marcuzzo and two companies associated with the individuals, Whately Holdings Pty Ltd and Marcuzzo Holdings Pty Ltd, issued their writ on 29 July 1999 against seven defendants. Subsequently the plaintiffs filed a Notice of Discontinuance against the third, sixth and seventh defendants.

The first two defendants, Phillip Earle and Rodney Davidson, at all relevant times practised as solicitors and partners in the firm of Home Wilkinson & Lowrey ("the firm"). The third and fourth defendants are Carnavon Nominees Pty Ltd, a company controlled by Mr Earle, and Disney Davidson Holdings Pty Ltd, a company controlled by Mr Davidson. They are now the only defendants.

The plaintiffs delivered a statement of claim with the writ, but subsequently were granted leave to file and serve an amended statement of claim.

It is alleged in the amended statement of claim that the two plaintiffs, Messrs Whately and Marcuzzo, in 1986/87 owned and operated a business known as Safetycare Productions, which involved the production, marketing and sale of workplace safety training video tapes under the name of Australian Safetycare Series.

In July 1986 Mr Whately retained the firm of Home Wilkinson & Lowrey to give him advice in relation to legal matters. In January 1987 Mr Davidson, in his capacity of solicitor, provided investment advice to Mr Whately. In February 1987 Mr Earle advised Mr Whately of the benefits to their business if investors provided funds to the business. In about April 1987 and pursuant to a retainer between Messrs Whately and Marcuzzo and the firm, Mr Earle advised that a syndicate of investors could be formed to raise capital for the business.

It is alleged that in mid 1987 Messrs Earle and Davidson advised Messrs Whately and Marcuzzo that it would be in the latters' interest to sell their half interest in the business to the two men.

The first plaintiff Safetycare was incorporated to operate the business. Discussions took place, culminating in Heads of Agreement being signed on 24 July 1987, pursuant to which Messrs Whately and Marcuzzo sold 50 per cent of their business to Messrs Earle and Davidson. As a result of the agreement, the business was transferred to Safetycare, and four parcels of shares were allotted, fifty per cent to Mr Earle and the company controlled by Mr Davidson, and the balance to Messrs Whately and Marcuzzo.

It is further alleged that at all material times up to and after July 1987, Messrs Davidson and Earle as solicitors owed fiduciary duties to Messrs Whately and Marcuzzo as their clients. It is alleged that Messrs Earle and Davidson breached their fiduciary duties, as a result of which Messrs Whately and Marcuzzo suffered loss and damage by selling the 50 per cent interest in their business to Messrs Earle and Davidson. It is asserted that if they had obtained independent legal advice, they would not have entered into the Heads of Agreement. The statement of claim sets out the alleged loss and damage which totals a substantial sum of money. The claim includes the dividends paid to Messrs Davidson and Earle as shareholders of Safetycare which the plaintiffs seek to recover.

The first cause of action pleaded, is that there was a relationship between Messrs Whately and Marcuzzo and Messrs Davidson and Earle, pursuant to which the latter owed the former fiduciary duties, and that the duties were breached which caused the former damage. Equitable relief is sought, namely, rescission of the agreement which effected the sale of the 50 per cent interest in the business, return of the shares in Safetycare and an accounting of the profits received by the two men and their companies. A claim for declaratory relief in the form of a constructive trust is sought. That is the first cause of action.

An alternative claim is put. It is alleged that at all times up to the date when the Heads of Agreement were signed, Messrs Davidson and Earle occupied as fiduciaries, a position of trust and confidence upon which Messrs Marcuzzo and Whately relied, that the solicitors were privy to the facts concerning the nature and financial potential of the business and knew that Messrs Whately and Marcuzzo were in a position of special disadvantage. It is put they took unfair and unconscientious advantage of them and as a result the Heads of Agreement were entered into to their disadvantage.

This cause of action is based upon the principles stated by the High Court in Commercial Bank of Australia Ltd v. Amadio [1983] HCA 14; (1983) 151 C.L.R. 447. The same relief is sought as the first claim, but as Justice Deane stated in that case at p.480, the relief will be moulded to avoid the stronger party from taking advantage of what was gained as a result of the unconscientious conduct. This may result in a transaction being set aside. As His Honour said:

"Relief against unconscionable dealing is purely an equitable remedy."

A third cause of action is pleaded in paragraphs 28-31. It is asserted that the four men formed a company known as Safetycare (UK) Ltd in 1992 in which each had a quarter interest and this company distributed the products in the UK. It is asserted that Messrs Earle and Davidson only acquired their interest in the English company by a reason of the breaches of duties, namely fiduciary duties they owed and it is alleged that as a result, they hold their shares in the English company on a constructive trust for Messrs Whately and Marcuzzo. Consequential relief to the effect of transferring the shares to them is sought.

The plaintiffs seek an order that the Heads of Agreement be rescinded and a declaration that the companies associated with Messrs Earle and Davidson hold their shares in the plaintiff Safetycare in constructive trust for Messrs Whately and Marcuzzo and an order that the shares be transferred. Damages are also claimed alternatively equitable compensation.

Originally, the statement of claim pleaded a contractual retainer between the various parties, an allegation of breach and a claim for damages. This is a common law claim in the nature of negligence. However, it is obvious that the Limitation of Actions Act loomed large in respect to that claim and it was abandoned.

The prime claim is for alleged breaches of fiduciary duties and one of the important issues is whether or not there is any limitation defence.

The first part of the defendant's defence put the plaintiff's to their proof. The only positive assertion made is that on several occasions in 1987, Mr Earle advised Messrs Whately and Marcuzzo they should seek their own legal advice about the transactions contemplated by the Heads of Agreement. Other than that positive assertion, the first part of the defence comprises denials and a number of admissions.

However, the defence then goes on from paragraph 34 to assert a number of facts concerning events from early 1987 through to 1997. It is then asserted that the parties had all proceeded upon "the conventional assumption and understanding that Whately, Marcuzzo, Earle and Davidson (or their nominees) each held and was entitled in equity to 25 per cent of the shares in the capital of the company and of the underlying economic interest to the business and assets of the company."

It is then alleged that the plaintiffs are estopped from denying that the defendants are at law and in equity, owners of their respective shares in the company.

In addition, the defendants allege that the claims made by the plaintiffs which are of an equitable nature are barred by what is described as "the equitable doctrine of analogy." It is further alleged that insofar as they seek equitable relief in the discretion of the court, the court should refuse the relief by reason of the doctrine of Laches.

There are four broad issues for consideration and determination, they are:

1. Have the defendants a good defence on the merits? - this is purely a factual question. 2. Are the defendants entitled to have the causes of action struck out alternatively summary judgment on the ground that the plaintiffs are unable to prove a breach of any fiduciary duty? This is a mixed question of fact and law. 3. Are the claims by the plaintiffs barred by delay? This is also a mixed question of law and fact and 4. Does the statement of claim adequately plead the causes of action?

Pursuant to Rule 23.03 of the Rules of Court, the court may give judgment for a defendant against the plaintiff "if the defendant has a good defence on the merits."

On an application by a defendant it is open to any party to adduce evidence by affidavit or if the court thinks fit, orally. The rule requires the defendant to prove that he has a good defence on the merits. It is well established that the defendant carries a heavy burden.

Dixon J in Dey v. Victorian Railways Commissioners [1949] HCA 1; [1949] 78 C.L.R. 62 said at p.90 -

"It (the Order) is peculiar to Victoria. ... Order 14A is the counterpart for defendants of Order 14. It confers a power of summarily dealing with an action which ... should be reserved for exercise as to actions that are absolutely hopeless."

I emphasise the burden, namely that it is necessary for the court to come to the conclusion that an action is absolutely hopeless before judgment could be given for a defendant.

It is well established that judgment would not be given for a defendant if the proceeding raised for determination an important and difficult question of law or an issue of fact. See Bayne v. Bailleau [1908] HCA 39; [1908] 6 C.L.R. 382.

It therefore follows that if there are any disputed facts which are essential to the determination of the issues in the proceeding then the court is bound to permit the plaintiff to proceed to trial. The same observation is made if not all the evidence is before the court. Further, the court in an application such as the present must proceed on the basis of accepting the facts most favourable to the plaintiffs. In the end the court would have to be satisfied to a high degree of proof that the plaintiffs' case is indeed hopeless.

There is no doubt that if there is a limitation defence that is a basis for entering judgment for a defendant. See Doundoulakis v. Antony Sdrinis & Co [1989] VicRp 68; (1989) V.R. 781 at 783.

Where the Limitation of Actions Act 1958 applies and the date that the cause of action arose is established, it is not difficult to determine whether the limitation period has expired. If the defence is pleaded, which is a bar to the proceeding then the result is clear and results in success to the defendant. In the absence of the application of the statute the position is not so clear.

The defendants rely upon three grounds for summary judgment although the issues do raise different considerations.

First, on the facts neither Messrs Earle or Davidson acted in their capacity as solicitors in relation to the relevant transactions; they made it clear to Messrs Whately and Maruzzo that they were not acting in any capacity as lawyers. Further it is asserted in regard to this that at all times Messrs Earle and Davidson made it quite clear to the other men that they ought to obtain separate legal advice. These are purely factual issues.

The second basis, upon a proper analysis, is an application to strike out part of the statement of claim because it does not disclose a cause of action. This is an application under Rule 23.01. Even though the parties may adduce evidence on this application, see Rule 23.04(1), where the evidence is contested then the court must consider this application on a view of the facts most favourable to the plaintiffs.

Mr Norman O'Bryan of counsel on behalf of the defendants submitted that the plaintiffs could not prove their case in respect to the first cause of action because they cannot prove there was a fiduciary duty which was in fact breached by the first and second defendants. In a nutshell he submits that the plaintiffs, Messrs Whately and Marcuzzo, at all times were aware of all relevant facts and therefore there was no breach of duty. He further submitted that it was not part of their obligations to advise the men to obtain independent legal advice before entering into the Heads of Agreement.

I interpolate to note that in their version the first and second defendants did tell the men to obtain independent legal advice but this fact is hotly contested by Messrs Whately and Marcuzzo and clearly, cannot be resolved on this application.

The third basis relied upon is a limitation defence. It is alleged that the equitable doctrine of analogy applies to bar the claim. The determination of this issue inter alia involves making an assessment of the date when the alleged cause of action arose.

It is trite law that a plaintiffs claim would not be dismissed unless the court was satisfied that all relevant facts were before the court, and that on the facts and law, the defendant must succeed because the plaintiff's claim was hopeless. If the court is not satisfied to that high degree of satisfaction the plaintiff must have his day in court. It follows that if there is a disputed fact or a difficult question of law which cannot be resolved then the trial must proceed.

It is inappropriate on an application such as the present for the court to spend a great deal of time going through cases where the principles of law are not clear. Having said that Sir Garfield Barwick said many years ago, that if it is clear the defendant should succeed even if it takes some time to establish the court would be duty bound to dismiss the proceeding. But I do emphasise this is meant to be a summary procedure. The applications have gone over one day.

In support of their application Mr Davidson swore an affidavit on 1 December 1999 and Mr Earle swore an affidavit on 29 November 1999. In answer to the affidavits the plaintiffs, Paul Whately and Robert Marcuzzo each swore affidavits on 6 December 1999. The thrust of the defendants' case is they were not acting as solicitors for the plaintiffs prior to signing the Heads of Agreement. Further they allege they advised the plaintiffs to obtain independent legal advise and it is asserted that Mr Whately's reaction was to express little interest in doing so. Further it is alleged that in fact they received independent advice from their accountant, Sid Catlin. In substance they deny the retainer. They both deny the bulk of the allegations made in the statement of claim.

In answering affidavits, Messrs Whately and Marcuzzo swear that the allegations contained in the statement of claim are correct. It is quite clear from the answering affidavits of Messrs Whately and Marcuzzo that there are disputed facts as to the true relationship between them and Messrs Earle and Davidson, that the plaintiffs swear there was a solicitor's retainer and it follows as a matter of law that there were fiduciary duties. The plaintiffs vehemently deny that they were ever told to obtain independent legal advice.

In the light of the disputed factual matters going to the very heart of the issues in the case, I am not persuaded that on a factual basis, the plaintiffs' case is hopeless. Accordingly, the defendants fail to establish that they have a good defence on the merits, based on the facts.

I now turn to the second basis relied upon. The plaintiffs have pleaded in paragraph 17 that Messrs Davidson and Earl owed them fiduciary duties. One of the duties that is pleaded is an obligation to advise the men to obtain independent legal advice. For the purposes of this argument I proceed on the basis that at all relevant times, there was a relationship of solicitor/client between Messrs Davidson and Early and Messrs Whately and Marcuzzo.

Mr O'Bryan referred me to a number of authorities which he submitted supported the proposition that there was no such duty to advise clients in the circumstances to obtain independent legal advice, that the main duties resting on a fiduciary were to avoid a conflict of interest and not to make a profit out of the office. He submitted that a fiduciary does not breach his duty in either respect if he makes full disclosure. The recommendation to obtain independent legal advice is no more than a means of making a full disclosure, but it is not an independent duty in itself.

He makes the obvious point that in the present case Messrs Whately and Marcuzzo knew that they were dealing with solicitors and that the latter were investing in a business with all the attendant risks of an investment. It followed, there was an expectation of success but with the knowledge of the risk of failure and therefore Messrs Whately and Marcuzzo knew all they had to know, i.e. the potential for conflict and profit from office. They, in fact, were aware of those matters.

He referred me to a number of cases. I start by referring to what Justice Mason said in the case of Hospital Products Limited v. United States Surgical Corporation [1984] HCA 64; (1984) 156 C.L.R. 41 at 102. His Honour said:

"The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate relationship. Fiduciary relationships range from the trustee to the errand boy, the celebrated example given by Fletcher Moulton LJ in his judgment in in re Koomba in which, after referring to the danger of trusting to verbal formulae, he pointed out that the nature of the curial intervention which is justifiable, will vary from case to case. In accordance with these comments it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case. The often repeated statement of the rule in Keach v. Sandford .. applies to fiduciaries generally tends to obscure the variable nature of the duties which they owe. Rigorous standards appropriate to a trustee will not apply to a fiduciary who is permitted by contract to pursue his own interests in some respects. Thus, in the present case, the so called rule that a fiduciary cannot allow a conflict to arise between duty and interest .. cannot be usefully applied in the absolute terms in which it has been stated."

I emphasise what His Honour said, namely, that the "scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case."

In Breen v. Williams (1996) 186 C.L.R. 71, Gaudron and McHugh JJ said:

"One commentator has recently pointed to the vast differences between Australia and Canada in understanding the nature of fiduciary obligations. One significant difference is the tendency of Canadian courts to apply fiduciary principles in an expansive manner so as to supplement tort law and provide a basis for the creation of new forms of civil wrong. The Canadian cases also reveal a tendency to view fiduciary obligations as both proscriptive and prescriptive, where Australia courts only recognise proscriptive fiduciary duties. In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on a fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed."

"Equitable remedies are available where the fiduciary places interest in conflict with duty, or derives an unauthorised profit from an abuse of duty. It would be to stand established principle on its head, to reason that because equity considers a defendant to be a fiduciary, therefore a defendant has a legal obligation to act in the interests of the plaintiff, so that the failure to fulfil that positive obligation represents a breach of fiduciary duty."

Mr O'Bryan submits that it is clear from those authorities that there is no obligation on Messrs Davidson and Earle to recommend independent legal advice. He states that Messrs Whately and Marcuzzo knew of the potential for conflict, and they knew that the men may make a profit from their involvement. He also referred the court to BLB Corporation Australia v. Jacobson [1974] 48 A.L.J.R. 372 as an example of disclosure.

Mr Noel Magee QC who appeared with Mr Damien Austin for the plaintiffs, submitted that the law was clear. That in certain circumstances the law did impose an obligation on a fiduciary to advise the person to whom the duty was owed, to obtain legal advice, especially when the fiduciary was acquiring an interest in property owned by the other person.

He referred to a number of authorities which established that proposition. The cases were Maguire v. Macaronis [1997] HCA 23; (1997) 188 C.L.R. 449; O'Reilley v. Law Society of New South Wales (1988) 24 N.S.W.L.R. 204 at 209. He also referred to a text book.

I refer to what was said in Maguire's case. In the joint judgment at p.463 Their Honours said:

"The claims which from the relationship of solicitor and client, may arise in favour of the client which includes claims founded in contract, tort and for breach of fiduciary duty. Insofar as the solicitors held moneys or other property on trust for the client, there may be an allegation of breach of trust. Each cause of action may have its own strengths and weaknesses, so that the client may fail in one and succeed in another. In particular, periods of limitation may differ. The courts and legislatures have tended to save from the imposition of arbitrary time limits, complaints of breach of trust or other fiduciary duty. Thus in Nocton v Lord Ashburton, the framing of the claim against the solicitor in respect to the original mortgage transaction of 1904 is one for breach of fiduciary duty; 'was probably deliberately done in order to endeavour to get over the difficulty occasioned by the statute of limitations as regards a mere case of negligence. In Hospital Products Limited v. United States Surgical Corporation, supra Gibbs CJ said: 'The archetype of a fiduciary is of course the trustee, but it is recognised by the decisions of the courts, and there are other classes of persons who normally stand in a fiduciary relationship to another - eg partners, principal and agent, director and company, master and servant, solicitor and client, tenant for life and remaindermen. There is no reason to suppose that these categories are closed.' The present case is not one in which there is a need to specify criteria by which it may be determined whether parties not being within the accepted categories referred to by Gibbs CJ, stand in a fiduciary relationship. The solicitor is classically a fiduciary to the client and as such owes certain duties in each particular case." (Emphasis added.)

"The present case stands apart from those just mentioned because it involves both the fiduciary relationship within a well recognised category as well as a claim to a well established remedy. Nevertheless, even here to say that the appellant stood as fiduciaries to the respondents calls for the ascertainment of the particular obligations owed to the respondents, and consideration of what acts and omissions amounted to failure to discharge these obligations." (Emphasis added.)

Again I emphasise what Their Honours said, namely, that issue required the ascertainment of the particular obligations owed to the respondents, and consideration of what acts and omissions amounted to a failure to discharge those obligations.

"Equity intervenes particularly where the fiduciary is a solicitor, not so much to recoup a loss suffered by the plaintiff as to hold the fiduciary to and vindicate the high duty owed the plaintiff. Thus while significant, inadequacy of the consideration or other improvidence of the transaction is not determinative. The approach taken by the Judicial Committee in the passage set out above is consistent with the reasoning, underlying a number of decisions of this court. In CIBC Mortgages PLC v. Pitt, Lord Browne Wilkinson referred to the considerations of general public policy which found what he identified as the long standing principle whereby those in fiduciary position who enter into transactions with those whom they owe fiduciary duties, labour under a heavy duty to show the righteousness of the transactions. Similar considerations are evident in the formulation by Lord St Leonard's LC in Lewis v. Hillman that if a transaction between solicitor and client is to stand, it must be open and free from all objection, not merely fair." (Emphasis added.)

Their Honours went on to consider various matters in relation to the obligations, and at p.466 they said:

"Thirdly, in the circumstances disclosed above, if the appellants were to escape the stigma of an adverse finding of breach of fiduciary duty with consequent remedies, it was for them to show by way of defence informed consent by the respondents, the appellants acting in relation to the mortgage with a divided loyalty. What is required for a fully informed consent is a question of fact in all the circumstances of the case, there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstance of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party. On no footing could it be maintained that the appellants had taken the necessary steps of this nature to answer the charge of breach of fiduciary duty. However, it should be noted that contrary to what appeared to be suggested by the respondents in argument, there was no duty as such on the appellants to obtain an informed consent from the respondents, rather the existence of an informed consent would have gone to negate what otherwise was a breach of duty."

Now again, their Honours are emphasising that there is no particular formula, that it is a question of fact in all the circumstances of each case as to what has to be done in order to discharge the duty that a fiduciary owes to a client.

The same point is made in the New South Wales Full Court decision of O'Reilly which is reported in (1988) 24 N.S.W.L.R. 204 and I refer to what President Kirby as he then was said at p.209. He makes the point also - and I will not set out what he said, but he also makes the point that one has to look at all the circumstances to determine the obligations and that includes looking at the retainer, looking at the conduct and, as he points out, that may lead to a situation where the fiduciary has some obligation to advise and facilitate the provision of independent advice.

The same point is made in Lawyers Professional Responsibility in Australia and New Zealand by Mr G.E. Dal Pont, a 1996 publication at p.139 whereunder the heading of "A lawyer purchasing clients' property" he notes that the foregoing principles apply likewise to sales of property by clients to their lawyer.

"The duty to ensure that the client seeks independent expert advice regarding the transactions, is especially important in such cases for two reasons: first, the lawyers fiduciary responsibility prohibits him or her profiting from information or opportunity derived by reason of the fiduciary position. Secondly, the lawyer's position of influence may lead the client to accept the terms and conditions of the sale as suggested by the lawyer."

Mr O'Bryan in his reply this morning referred to some of the cases and also referred to that text and pointed out in relation to the latter that no authority was cited in relation to the propositions put by the author. I note what he has said this morning, but as I pointed out in the course of discussion, this is a pleading summons, a summons seeking summary judgment and I do not think that it is appropriate that the Court should go through each case and decide whether each case should or should not apply and closely analyse the factual matters. The fact is that the authorities do demonstrate that there is much room for debate and argument and in the absence of a full investigation of the facts the Court is naturally wary of making any definitive rulings. The text does put a view and cannot be ignored.

In my view, the cases which have been quoted by Mr Magee QC and the text establish that in determining the nature and extent of a fiduciary duty one will have to look at all the circumstances. There are no closed categories in relation to obligations, even though the main ones caution avoidance of conflict and making a profit out of one's office.

In the end it is a question of looking at all the circumstances and I think what has come out of the discussion of the various cases is that there is a real contest in this case as to whether or not there was an obligation arising out of the particular retainer, which I will assume for present purposes, that the solicitors in question should have taken the step of advising their clients to obtain independent legal advice. The fact was the solicitors were acquiring an interest in the business conducted by Messrs Whately and Marcuzzo.

In the light of these observations, in my view, the plaintiffs case is clearly arguable and one could argue based on some of the authorities, one of substance. I think putting it around the other way it could not possibly be said that the claims are hopeless.

I am not persuaded that given the facts most favourable to the plaintiffs that they would fail and hence in my view the defendants have not established a basis for striking out the statement of claim or being entitled to summary judgment in respect to the claims based on fiduciary duties.

I now turn to the limitation defence. It is clear that the plaintiffs have brought their claim in equity because of the concern that a claim for damages, for breach of retainer at common law would be statute barred. The original English Limitation Statute of 1623 did not impose a bar to the bringing of a proceeding in equity. The Victorian Limitation of Actions Act 1958 does bar some equity claims. For example: a claim to recovery of trust property, see s.21, also for an account, see s.5(2).

However, the Victorian Statute does not by its terms bar an equitable claim against a fiduciary. The relief sought here is purely equitable. It is well established law that in certain circumstances an equitable claim may be barred by what is known as the doctrine of analogy. This operates to apply the statutory limitation period where the claim made in equity is analogous to a claim which is expressly provided for in the limitation statute.

But as a rule the principle will apply only where the equitable remedy has some relation or similarity to the legal remedy.

The principle was expressed by Dixon J in Cohen v. Cohen [1929] HCA 15; [1929] 42 C.L.R. 91 at 99 in these terms:

"The statute of limitations by its terms does not operate directly upon equitable remedies (see also for Victoria s.79(2) of the Supreme Court Act 1915). But such remedies are barred in courts of equity by analogy to the statute. The analogy is found in the case of constructive trusts where the equity is fastened upon the trustee, not because he intended to become a fiduciary of the property but because of the character of his dealings and in spite of his intention to take the property for himself. But the Courts of equity have refused to see any analogy when a person intending to act in a capacity which is a fiduciary, has received, as and for the beneficial property of another, something which he is to hold, apply or account for specifically for his benefit. Such a person is either an express trustee or if that name does not in strictness belong to him, he stands in the same position as a direct, or express trustee (see Soar v. Ashwell)."

The equitable doctrine of analogy is preserved by s.5(8) of the Victorian Act. The limitation periods for contractual and tortious claims are six years and it is asserted here that the six-year period should be applied because the reality is that the major claim is in the nature of a breach of a retainer.

In Soar v. Ashwell [1893] 2 Q.B. 390, the court was concerned with a solicitor to a trust failing to account. The issue arose as to the nature of the trust. The principle of analogy did not apply to an express trust as distinct from a constructive trust.

Lord Esher, Master of the Rolls, summarised the principle as follows at p.393:

"The questions in this case therefore are, was Ashwell a trustee of the money now claimed by the plaintiff within a meaning of the word 'trustee' attributed to it in equity and was he such a trustee as a court of equity will now allow to rely on the statutes of limitations. If there is a created in express terms whether written or verbal, a trust, and the person is in terms nominated to be a trustee of that trust, a court of equity upon proof of such facts, will not allow him to vouchsafe the statute of limitations against a breach of that trust. Such a trust is in equity called 'an express trust'. If the only relation which it is proved the defendant or person charged, bears to the matter is a contractual relationship, is not in the view of equity a trustee at all but only a contractor; and equity leaves a contractual relation to be determined by the common or statute law. If the breach of a legal relation relied on whether such breach be by way of tort or contract makes in the view of the court of equity, the defendant a trustee for the plaintiff, the Court of equity treats a defendant as a trustee because so by construction and the trust is called a constructive trust and against the breach which by construction creates the trust, the court of equity allows statutes of limitations to be vouched."

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

Mr O'Bryan emphasises that in reality here the court is dealing with a trust. He points out if the plaintiffs were to succeed, part of the relief would involve a declaration of trust, but as he emphasised, it would only be as a constructive trustee and hence, the principle of analogy is appropriate in the present case. He submitted that the reality was that the main claim is analogous to a contract or tortious claim and the six year period was appropriate. Hence, in his submission, the claim - the main claim, was barred.

But this depends upon when the breach occurred. Whilst the evidence leads to the inference it was 1987, it has been contended that there was a continuing obligation resting on Messrs Davidson and Earle to avoid making a profit from their office. The evidence most favourable to the plaintiffs show that the retainer continued right through to 1997.

The law concerning the principle evolved over many, many years. Indeed, there are many, many cases, some which are difficult to reconcile, especially in the field of trust. And I refer to what Professor F.W. Maitland said in his lectures on Equity when he wrote in the 1926 edition of his work at p.76.

"The cases touching this rule about the statutes of limitations (or the protection given by courts of equity on the analogy of the statutes of limitations) are however intricate and some of them can hardly be reconciled with the others. The main recent authorities are to be found in the judgments of the Court of Appeal in Soar v. Ashwell."

What must be emphasised is that the plaintiffs seek equitable relief and the court, in applying equitable principles, is guided by what good conscience dictates. To apply the principle of analogy, the court must give effect to what good conscience dictates in the circumstances.

The Limitation of Actions Act does extend periods of limitations in certain circumstances. Section 27 of the Act is concerned with extending a limitation period where an action is based upon the fraud of the defendant or the action is concealed by the fraud of the defendant, and in those circumstances the "period of limitation shall not begin to run until the plaintiff has discovered the fraud ... or could with reasonable diligence have discovered it."

It is well established that fraud includes equitable fraud. The principle has been for centuries "that fraud unravels all". See London General Omnibus v. Holloway (1912) 2 K.B. 72 at 81. In equity, the term "fraud" not only embraces actual fraud but other conduct which falls below the standard demanded in equity.

In Nocton v. Lord Ashburton (1914) A.C. 932 at 954, Viscount Haldane LC said:

"Courts of equity took account of the breach of the sort of obligation which is enforced by the court that from the beginning regarded itself as a court of conscience."

There is no exhaustive definition of equitable fraud and one sees the application in areas of undue influence and unconscionable bargains to name two. The plaintiffs rely upon the argument based on an unconscionable bargain brought about by the particular position occupied by Messrs Davidson and Earl towards them at the relevant time. Whether or not the defendants are guilty of equitable fraud in the sense that they failed to discharge their duties as fiduciary, assuming they were fiduciaries, is a matter which would have to be considered in the light of all the circumstances.

Mr O'Bryan submitted that if the court came to the opinion that the period of limitation had lapsed, then in the circumstances of this case that was the end of the matter and the proceeding should be dismissed as stale. Clearly, equity requires the vigilant pursuit of one's rights and remedies.

The general rule is, as stated by Lord Camden L.C. in Smith v. Clay (1767) 3 Bro. C.C. 639n.

"The court of equity has always refused its aid to stale demands where a party has slept upon his right and acquiesced for a great length of time. Nothing can call forth this court into activity but conscience, good faith and a reasonable diligence. Where these are wanting, the court is passive and does nothing."

Mr O'Bryan submits that the reply does not plead any concealment or constructive fraud, but in my opinion the plaintiffs have pleaded factors, which if proven, may form a basis for not applying the principle.

Mr Magee QC submits that the authorities establish that the court of equity does take into account what may be described as "against good conscience" factors. And it follows the court is not in a position to rule on them until all the evidence is before the court and the parties are given the opportunity to test the evidence. His submission was that equity will not apply an analogous period where it is unconscionable to do so. He referred to a number of cases. He referred to In re Grieves deceased (1881) 18 Ch. 551 at 553 and Hawkins v. Clayton Utz 164 C.L.R. 591 at 589-590. He also referred to what Dr Spry wrote in his Equitable Remedies 5th Edition at pp.422-423.

It is only necessary for me to refer to what Jessell, M.R. said in In re Grieves deceased supra at p.553:

"In the first place, Vice Chancellor Sir John Leech stated and correctly stated this: 'The other fallacy is that the statute bars a suit in equity; which it does not. But as courts of equity will not entertain stale demands they have thought proper to adopt the limit of six years in analogy to the statute; pleas of the statute are admitted in these courts by analogy only. When the circumstances of a case are such as to make it against conscience to apply the rule founded upon this analogy, the court will not enforce it." (Emphasis added.)

As I say, Dr Spry at p.422 makes the same point. Whilst the period of six years may well have expired, the fact is that if the plaintiffs were unaware of the unfair advantage taken by the defendants of them at relevant times, then time could hardly begin to run against them.

The plaintiffs have pleaded a number of matters in reply which, if established, in my opinion, may be a basis, and I emphasise, may be a basis, for not applying the principle.

In my view this again is an area where the facts will have to be fully investigated before one can say whether the defendants have established their defence based on delay and whether in particular, whether the plaintiffs have established a basis for the period of limitation not commencing until a much later time.

Again, the factual matters are in dispute and in my opinion it would not be appropriate to conclude that the defence has been established without a full investigation because of the allegations set out in the reply.

It follows that the defendants fail in their application for summary judgment and/or strike out of the statement of claim on the basis that it did not disclose a cause of action.

In so deciding, I wish to emphasise I am not making any findings of fact and that in determining the issues raised, I have proceeded on a basis most favourable to the plaintiffs. Only time will tell whether those facts are established, but in my view, the matters of complaint should go for trial where all the facts can be properly investigated and then the contentious points of law can be decided in a factual setting which is found by the court. As I have stated, I am reluctant to say in the circumstances of this case, that the plaintiffs' claims are hopeless.

A pleading application is different to a summary judgment application. It is only concerned with the pleading and its sufficiency. The issues are to be decided on the face of the pleadings. It is therefore necessary to consider the pleading to see whether it does properly disclose the causes of action. The function of the pleadings is to apprise the defendants with sufficient clarity the case that is to be met and to define the issues.

The reason for the first objective is to ensure that the other side has a proper opportunity of meeting the case put against him. The second objective is to ensure the issues are clearly stated in order to properly conduct the trial. See Banque Commerciale v. Akhil Holdings (1990)1 69 C.L.R. 279 at 286, and Thorpe v. Holdsworth (1876) 3 Ch.D. 637 at 639.

Mr O'Bryan, in his written submissions, criticised many paragraphs of the amended statement of claim. His approach is reminiscent of the pre-Judicature Act days when causes of action could be defeated by having a word out of place or indeed in the wrong place. In this day and age the courts take a far more robust attitude to pleadings which is consistent with the Judicature Act rules and the modern approach to conducting litigation.

Subject to one matter, I am satisfied the amended statement of claim does properly plead the causes of action. The defendants could not be in doubt how the proceeding is being put. Again, I emphasise whether the plaintiffs will succeed is another matter.

The one matter that does concern me is the last cause of action. This is the pleading that asserts the cause of action in relation to the English company. In my view, insufficient material facts are set out in that part of the pleading. It is somewhat vague and uncertain and in my view, it does need tidying up. It should set out in more detail the duties that are relied upon at the relevant time which happens to be 1992, and in what way in 1992, the duties were allegedly breached.

Whilst I do not propose to strike out paragraphs 28-31, I will give leave to the plaintiffs to re-plead those provisions.

Subject to making an order to that effect, I propose to dismiss the defendant's summons.

At a glance

Court

Decision date

Before

Source

Judgment (114 paragraphs)

Parties

Legislation Cited (2)