Fiduciary Duty
83 It was submitted on behalf of the plaintiff that the plaintiff instructed the defendants, who were her accountants, and in whom she reposed substantial trust and confidence, to deposit her cheques to the credit of her Westpac cheque account, and that thereupon a fiduciary relationship arose in that connection between the parties. It was further submitted on behalf of the plaintiff that the defendants owed a fiduciary duty to the plaintiff to deposit the plaintiff's cheques to the credit of her Westpac cheque account in accordance with her instructions. It was further alleged on behalf of the plaintiff that the defendants committed a breach of that fiduciary duty by depositing the cheques of the plaintiff to the credit of their own trust account, albeit on trust for the plaintiff.
84 I am of the opinion that a fiduciary relationship did arise, in all the circumstances, between the plaintiff and the defendants upon the defendants accepting the instructions of the plaintiff. That fiduciary relationship came into existence, in my opinion, inter alia, because of the relationship of principal and agent which thereby came into existence, but also because of their past and present relationship including the course of prior dealings between them.
85 That past and present relationship between the parties was one of accountant and client, but went beyond that to some extent in respect of which it is plain that the plaintiff reposed significant trust and confidence in the defendants.
86 The course of prior dealings between the parties included, as appears from Mr Kwok's affidavit, the following facts:-
(1) that the defendants in about 1978 commenced acting as accountants for the plaintiff, the plaintiff's husband and their family company;
(2) that since that time the defendants were responsible for most, if not all, the plaintiff's accounting work, including the preparation of her personal income tax returns and the provision of general taxation advice to her;
(3) that during the period from 1978 to 1992 Mr Kwok occasionally provided investment advice to the plaintiff and made a number of investments on her behalf;
(4) that during the period from the late 1980's to 1992 Mr Kwok discussed with the plaintiff both in Sydney and in Hong Kong her marital affairs and personal problems, including the fact that the plaintiff and her husband were experiencing some marital problems;
(5) that the plaintiff told Mr Kwok on several occasions in the course of those discussions that she was concerned that her husband might divorce her, and she would be left penniless, and
(6) that she wished to accumulate some personal moneys in case that happened; and that it was not Mr Kwok's practice to invest funds for clients with whom he did not have a personal relationship beyond the professional relationship of client and accountant, but that the plaintiff was a client with whom he had such a personal relationship and that, in view of that relationship, Mr Kwok made a number of recommendations to the plaintiff in relation to certain investments.
87 Those investments were investments made by the plaintiff in New South Wales Treasury Corporation Premier State Bonds (early 1986 - $35,000), Westpac Term Deposit (March 1986), MLC Capital Guaranteed Bond (February 1987) and capital guaranteed bonds from Capita Financial Group (February 1987 $45,000). Relevant also, in my opinion, were the facts that a relatively large sum of money was involved and that the proposed deposit was to be unsecured, which would have been of significance for the plaintiff, having regard to her known requirements.
88 Mr. Kwok's knowledge of the importance of guarding against posible loss in respect of the plaintiff's investments appears from the following questions and answers in his cross-examination:-
"Q. You knew, Mr Kwok, that at all times when you provided investment advice to Mrs Yu, that Mrs Yu was relying on you to invest the money in a safe and conservative manner, didn't you?
A. She only wanted me to invest the money for her, without any restriction on my recommendation ...
Q. It was crucial, wasn't it, to Mrs Yu, that this money was not to be lost?
A. It was.
Q. And you knew that, didn't you?
A. I did. ...
Q. And on all occasions you knew that you should look after that money, didn't you?
A. I did.
Q. And you wouldn't put it anywhere where it might be lost, would you?
A. I wouldn't.
Q. And you would be careful to ensure that the investments you placed that money in was secure and well protected, wouldn't you?
A. At all times."
89 I am further of the opinion, as stated above, that an incident of that fiduciary relationship between the parties was a duty owed by the defendants to the plaintiff to comply with her instructions, and that that duty may properly be described as fiduciary because it involved obligations of loyalty and fidelity in the context of, inter alia, the trust and confidence reposed by the plaintiff in the defendants, and also because breach of that duty by the defendants would almost certainly (although not in this particular case) involve disloyalty, dishonesty and/or lack of bona fides in a context of potential conflict of interest in which the defendants would have preferred their personal interest to the duty they owed to the plaintiff.
90 Nevertheless, although it is plain, in my opinion, that that fiduciary duty was breached by the defendants in depositing the plaintiff's cheques to the credit of their trust account instead of following the plaintiff's instructions, I am of the opinion, as stated earlier, that the breach did not cause the plaintiff any relevant loss. Rather, in my opinion, any loss suffered by the plaintiff was relevantly caused by the conduct of the defendants in depositing and renewing the deposit of the plaintiff's funds with BCC by reason of, in the context of the submissions on behalf of the plaintiff, the failure of the defendants to inform the plaintiff of the nature of the proposed investment (including the investment risk involved) before actually making the investment since, as submitted on behalf of the plaintiff, if this had been done, the plaintiff would not have approved the investment with BCC and her funds would have been invested elsewhere.
91 In this context of the plaintiff's submissions it becomes necessary to identify, if it exists, a duty owed by the defendants to the plaintiff to advise (inform) the plaintiff of the nature of a proposed investment (including the investment risk involved) before making any such investment, and to determine whether any such duty was a "fiduciary" duty. In my opinion no such "fiduciary" duty came into existence between the parties (see later) although a duty to that effect arising in tort did come into existence, and this view accords with the submission on behalf of the plaintiff which was as follows:-
"The Plaintiff submits that the better view is that the duty alleged arises in tort rather than by reason of any fiduciary duties that might be owed by the Defendants to the Plaintiff."
92 Alternatively, in my opinion, such a duty arose in equity, although not fiduciary in nature, in the context of the fiduciary relationship which existed between the parties arising from their present and past relationship and the course of prior dealings between them as referred to earlier.
93 In my opinion, although the parties were in a fiduciary relationship, this particular equitable duty was not a fiduciary duty because it did not, in its essential nature, involve duties of loyalty and/or fidelity, nor was it such that any breach would almost certainly involve disloyalty, dishonesty and/or lack of bona fides in a context of conflict of interest in which the defendants had preferred their personal interest to their duty to the plaintiff.
94 That considerations such as these are relevant to the description of a particular duty as being fiduciary, appears, inter alia, from the following passages in judgments and a text: In Bristol and West Building Society v Mothew [1998] Ch 1 at 16-18, Millett LJ held as follows:-
"Breach of fiduciary duty
Despite the warning given by Fletcher Moulton L.J. in In re Coomber; Coomber v Coomber [1911] 1 Ch. 723, 728, this branch of the law has been bedevilled by unthinking resort to verbal formulae. It is therefore necessary to begin by defining one's terms. The expression "fiduciary duty" is properly confined to those duties which are peculiar to fiduciaries and the breach of which attracts legal consequences differing from those consequent upon the breach of other duties. Unless the expression is so limited it is lacking in practical utility. In this sense it is obvious that not every breach of duty by a fiduciary is a breach of fiduciary duty. I would endorse the observations of Southin J in Girardet v crease & Co. (1987) 11 B.C.L.R. (2d) 361,362:-
'The word 'fiduciary' is flung around now as if it applied to all breaches of duty by solicitors, directors of companies and so forth….That a lawyer can commit a breach of the special duty [of a fiduciary] … by entering into a contract with the client without full disclosure … and so forth is clear. But to say that simple carelessness in giving advice is such a breach is a perversion of words.'
These remarks were approved by La Forest J. in LAC Minerals Ltd v International Cornoa Resources Ltd (1989) 61 D.L.R. (4th) 14, 28 where he said: "not every legal claim arising out of a relationship with fiduciary incidents will give rise to a claim for breach of fiduciary duty."
It is similarly inappropriate to apply the expression to the obligation of a trustee or other fiduciary to use proper skill and care in the discharge of his duties. If it is confined to cases where the fiduciary nature of the duty has special legal consequences, then the fact that the source of the duty is to be found in equity rather than the common law does not make it a fiduciary duty. The common law and equity each developed the duty of care, but they did so independently of each other and the standard of care required is not always the same. But they influenced each other, and today the substance of the resulting obligations is more significant than their particular historic origin. In Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145, 205 Lord Browne-Wilkinson said:
"The liability of a fiduciary for the negligent transaction of his duties is not a separate head of liability but the paradigm of the general duty to act with care imposed by law on those who take it upon themselves to act for or advise others. Although the historical development of the rules of law and equity have, in the past, caused different labels to be stuck on different manifestations of the duty, in truth the duty of care imposed on bailees, carriers, trustees, directors, agents and others is the same duty: it arises from the circumstances in which the defendants were acting, not from their status or description. It is the fact that they have all assumed responsibility for the property or affairs of others which renders them liable for the careless performance of what they have undertaken to do, not the description of the trade or position which they hold."
I respectfully agree, and endorse the comment of Ipp J in Permanent Building Society v Wheeler (1994) 14 A.C.S.R. 109, 157:-
"It is essential to bear in mind that the existence of a fiduciary relationship does not mean that every duty owed by a fiduciary to the beneficiary is a fiduciary duty. In particular, a trustee's duty to exercise reasonable care, though equitable, is not specifically a fiduciary duty…"
Ipp J explained, at p. 158:
"The director's duty to exercise care and sill has nothing to do with any position of disadvantage or vulnerability on the part of the company. It is not a duty that stems from the requirements of trust and confidence imposed on a fiduciary. In my opinion, that duty is not a fiduciary duty, although it is a duty actionable in the equitable jurisdiction of this court….I consider that Hamilton owed P.B.S. a duty, both in law and in equity, to exercise reasonable care and skill, and P.B.S. was able to mount a claim against him for breach of the legal duty, and, in the alternative, breach of the equitable duty. For the reasons I have expressed, in my view the equitable duty is not to be equated with or termed a 'fiduciary' duty."
I agree. Historical support for this analysis may be found in Viscount Haldane L.C.'s speech in Nocton v Lord Ashburton [1914] A.C. 932, 956. Discussing the old bill in Chancery for equitable compensation for breach of fiduciary duty, he said that he thought it probable that a demurrer for want of equity would always have lain to a bill which did no more than seek to enforce a claim for damages for negligence against a solicitor.
In my judgment this is not just a question of semantics. It goes to the very heart of the concept of breach of fiduciary duty and the availability of equitable remedies.
Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and in this context is in my opinion a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution.
This leaves those duties which are special to fiduciaries and which attract those remedies which are peculiar to the equitable jurisdiction and are primarily restitutionary or restorative rather than compensatory. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p.2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary…
The nature of the obligation determines the nature of the breach. The various obligations of a fiduciary merely reflect different aspects of his core duties of loyalty and fidelity. Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity. Mere incompetence is not enough. A servant who loyally does his incompetent best for his master is not unfaithful and is not guilty of a breach of fiduciary duty."
95 In Meagher, Gummow and Lehane, Equity: Doctrine and Remedies (3rd ed 1992) at 131 the following passage appears:-
"To say that a relationship is fiduciary is not - usually, at least - to provide a complete description of the legal nature of the relationship. Aspects of it may be governed by statute, common law principles - contract or tort - or other equitable rules which have nothing to do with fiduciary principles. Thus a trustee's duty to exercise reasonable care, though equitable, is not specifically a fiduciary obligation. More obviously, the relationship between partners or between agent and principal is contractual as well as fiduciary, between an employer and an employee there is a contract of employment as well as a fiduciary relationship; a solicitor occupies a fiduciary position vis-à-vis his client, but also owes his client duties arising out of the contract of retainer and under the law of tort (he has a duty of care in giving advice not because the purpose of the relationship may be described as the furtherance of the client's interests, but because his contract with his client and the law of tort both impose such a duty on him)."
96 And in Chan v Zachariah (1984) 54 CLR 178 AT 198-9 Deane J held as follows:
"There is a wide variety of formulations, of the general principle of equity requiring a person in a fiduciary relationship to account for personal benefit or gain…[these variations] are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the 'use of fiduciary position' doctrine (see, e.g., Phipps v Boardman, NZ Netherlands Society 'Oranje' Inc v Kuys), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the duty is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it."
97 See also Maguire v Makaronis (1996-1997) 188 CLR 449 at 463-467 per Brennan CJ, Gaudron, McHugh and Gummow JJ.
98 The application of these principles to the circumstances of the present case, leads, in my opinion, to the conclusion expressed above that the alleged duty of care here being considered was not fiduciary in its nature.