Youyang v Minter Ellison

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40740/00 ED 50083/99 HANDLEY JA HODGSON JA YOUNG CJinEQ

Monday 8th October 2001 YOUYANG PTY LIMITED (as Trustee of the Bill Hayward Discretionary Trust) v The Persons Listed in Schedule 1 trading as Minter Ellison Morris Fletcher and later as MINTER ELLISON BREACH OF TRUST - causation - effect of consequential breach - equitable compensation The proceedings arose from an investment made by the plaintiff with EC Consolidated Capital Ltd (ECCCL) in 1993. The investment agreement provided for Minter Ellison, ECCCL's solicitors, to receive the plaintiff's funds in trust and to disburse them in accordance with the agreement. The firm procured from Dresdner Bank AG (with whom some of the plaintiff 's funds were to be invested) a certificate of deposit which did not comply with the agreement because it was not payable to bearer. The plaintiff was not informed of the breaches of duty. The plaintiff later executed a deed poll consenting to the release of the monies held by Dresdner. The deed poll instructed ECCCL to withdraw the funds but did not bind it to invest the funds in a specific way, and the plaintiff simply trusted ECCCL. ECCCL was wound up, and the plaintiff lost the whole of its investment. The plaintiff commenced proceedings against the firm to recover equitable compensation for their breaches of trust. The Judge upheld the claim based on the failure to obtain a certificate of deposit in the required form and awarded $414,009 as equitable compensation but refused to award compensation for the balance of the invested funds, $221,558, which were intended to be and were paid to ECCCL. The plaintiff appealed seeking to have the award increased, and the firm cross-appealed seeking to have the award set aside or reduced. The only matter in dispute was the existence of the required causal connection between the breaches of trust and the loss. HELD, dismissing the appeal (Hodgson JA dissenting) and allowing the cross-appeal: The acceptance of the wrong form of deposit certificate did not cause the loss of either part of the invested funds. The losses would have occurred anyway. The funds in the deposit were paid to ECCCL and lost not because the deposit certificate was in the wrong form but because the deed poll authorised the payment to ECCCL. The breach of trust in paying the balance of the invested funds to ECCCL was consequential on the earlier breach and did not enlarge the plaintiff 's rights against the firm.

ORDERS

1. Appeal dismissed with costs;
2. Cross-appeal allowed in part;
3. Orders 1, 3, 4 and 5 made by Brownie AJ on 16 August 2000 set aside;
4. In lieu thereof order that there be judgment for the defendants in the proceedings;
5. Judgment for the firm for the sum of $414,009 and any interest thereon at judgment rates paid by the defendants to the plaintiff under the orders reversed, such sum or sums to bear interest at judgment rates from the date or dates of payment until the date of these orders;
6. Cross-appeal from the dismissal of the defendants' cross-claim dismissed;
7. Appellant to pay 70% of the respondents' costs of the appeal and their cross-appeal;
8. Plaintiff to pay the defendants' costs of the proceedings in the Equity Division and the defendants to pay the plaintiff 's costs of their cross-claim.

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40740/00 ED 50083/99 HANDLEY JA HODGSON JA YOUNG CJinEQ

Monday 8th October 2001 YOUYANG PTY LIMITED (as Trustee of the Bill Hayward Discretionary Trust) v The Persons Listed in Schedule 1 trading as Minter Ellison Morris Fletcher and later as MINTER ELLISON

Judgment 1 HANDLEY JA: This is an appeal by Youyang Pty Limited, the trustee of the Bill Hayward Discretionary Trust (the plaintiff), and a cross-appeal by Minter Ellison (the firm), from the award by Brownie AJ in favour of the plaintiff of $414,009 equitable compensation for a breach of trust. The plaintiff seeks to have the award increased, and the firm seeks to have it set aside or reduced. The proceedings arose from an investment of $500,000 made by the plaintiff with EC Consolidated Capital Ltd (ECCCL) on 24 September 1993. ECCCL offered investors the opportunity to profit from dealings on international money markets. Investors such as the plaintiff subscribed $500,000 or multiples thereof for redeemable preference shares in ECCCL. The subscription agreement which the plaintiff entered into provided for this sum to be invested in two ways. $256,800 was to be paid to Dresdner Bank AG, or one of its wholly-owned subsidiaries (Dresdner), for a bearer deposit certificate with a face value of $500,000 payable in ten years' time. The certificate was to be held by National Registries Pty Limited until maturity. 2 After payment of some costs and expenses, the balance of $221,558 was payable to ECCCL as the plaintiff 's contribution to its working capital. The plaintiff 's client account with ECCCL was credited with the full amount of $500,000. The plaintiff hoped to derive profits from this investment but if the worst came to the worst it would get back its original investment, without interest, when the bearer certificate of deposit matured. The subscription agreement (4/922) provided for the firm, as solicitors for ECCCL, to receive the plaintiff 's funds in trust to be disbursed in accordance with the agreement (cl 2.1). 3 For some reason which was never explained the firm procured a certificate of deposit from Dresdner which did not comply with the subscription agreement. It was for the appropriate amount, and for the appropriate term, but it was in the name of ECCCL, and was not payable to bearer. The subscription agreement was entered into and completed on the same day when the various payments were made. On 27 September the firm's Melbourne office sent the plaintiff its counterpart of the subscription agreement and the share certificate for its redeemable preference shares. The plaintiff was not informed of the breaches of duty (4/953). On the same day the firm's Melbourne office forwarded the certificate of deposit to National Registries Pty Limited (4/956). 4 The "plaintiff 's" monies remained with Dresdner until September 1994. ECCCL attempted to withdraw the funds deposited with Dresdner pursuant to subscription agreements, but Dresdner would not release them without the formal consent of the investors. The plaintiff gave its formal consent by a deed poll executed on 2 September 1994. This in terms instructed ECCCL to withdraw the funds deposited with Dresdner and deposit them with another prime bank. It also requested and authorised Dresdner to release the funds to ECCCL without being in any way responsible for their application. 5 The deed poll was not executed by ECCCL, and did not bind it to invest the funds in a bearer deposit certificate to be left with National Registries. The plaintiff simply trusted ECCCL with the funds. 6 On 20 September 1994 Dresdner having received the deeds paid the funds to ECCCL. They were invested from time to time with other banks, but on 27 March 1996 ECCCL withdrew them from the NatWest Bank and used them in its business. This was done without the knowledge or approval of the plaintiff or the other investors. On 2 May 1997 ECCCL wrote to the plaintiff, and inferentially its other investors, to inform them that it had suffered substantial losses as a result of an investment in the bonds of the Bangkok Bank of Commerce. On 28 May provisional liquidators were appointed and on 15 June ECCCL was ordered to be wound up. The plaintiff received no dividend in the winding-up and lost the whole of its investment. 7 The plaintiff commenced proceedings against the firm to recover equitable compensation for their breaches of trust. The summons alleged receipt of its $500,000 and its disbursement in breach of trust, by paying for a certificate of deposit which did not comply with the subscription agreement, and by accounting to ECCCL for the rest of the funds. The firm admitted these breaches. 8 It was common ground that the partner handling these transactions knew at the time that the certificates of deposit which the firm obtained did not comply with the subscription agreement. 9 The Judge upheld the claim based on the failure to obtain a certificate of deposit in the required form and awarded $414,009 as equitable compensation. He refused to award compensation for the breach of trust committed in accounting for the rest of the funds to ECCCL. He found that if there had been no breach of trust by paying for and obtaining a certificate of deposit in the wrong form the plaintiff would have had its capital returned to it in 2003 but would have lost the rest of its investment. He rejected the plaintiff 's argument that it was entitled to have the whole trust fund replenished, accepting the submissions on behalf of the firm based on Target Holdings Ltd v Redferns [1996] AC 421, 433-5. 10 The Judge also upheld the plaintiff 's claim in negligence, but found contributory negligence which he assessed at 20%. This did not affect the plaintiff' 's right to equitable compensation. The firm brought a cross-claim against the plaintiff seeking contribution on the basis that its liability to its beneficiaries for breach of trust was co-ordinate with the firm's liability for breach of trust. The Judge held that they were not co-ordinate liabilities to make good the same loss and rejected the claim for contribution. The plaintiff has appealed against the rejection of its claim to recover in full and the firm has cross-appealed against the award of compensation and the rejection of its contribution claim. 11 The Judge held that the plaintiff could recover for the funds paid for the deposit certificate on 24 September 1993, but not for the misapplication of the balance because "if there had been no breach … the plaintiff would have lost the rest of its investment". Mr Martin SC, for the plaintiff, submitted that these findings were inconsistent and the Judge had overlooked the separate breach of trust involved in paying the balance of the funds to ECCCL. 12 The plaintiff executed the deed poll without obtaining independent advice, without making any enquiries, and without attempting to withdraw its investment. Although cl 4.5 of the subscription agreement entitled it to a full refund if the firm failed to comply on completion with the requirements of the subscription agreement, Mr Martin accepted that there was no automatic right to a refund and an election was necessary. The plaintiff made no attempt to "redeem" in this or any other way in 1993, 1994 or 1997 although it was not aware of the facts in 1993 and by 1997 it would have been too late. 13 Mr Hayward, who controlled the plaintiff and made decisions on its behalf, said in his evidence-in-chief that if he had known "at any time" that the deposit certificate was not in bearer form the plaintiff would have sought to redeem its investment. He was challenged on this in cross-examination and the Judge did not accept his evidence. He was not satisfied that the plaintiff would have sought to redeem if Mr Hayward had learned that the certificate of deposit was in the wrong form. 14 Mr Martin submitted that the Judge's adverse findings did not relate to Mr Hayward's state of mind on 24 September 1993, but the cross-examination was not limited to particular dates or periods. The finding cannot be disturbed and Mr Martin's submission that it did not cover Mr Hayward's state of mind on 24 September 1993 must be rejected. 15 This conclusion provides the basis for deciding the question of causation raised by the appeal and cross-appeal. The breaches of trust are admitted, and the whole of the plaintiff 's original investment has in fact been lost. The only matter in dispute is the existence of the required causal connection between the breach and the loss. 16 The principles which govern the assessment of compensation for breaches of trust and other breaches of equitable duty are not in dispute. They are those stated by Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] AC 421, 433-9. This decision has been followed and applied by this Court in Greater Pacific Investments Pty Ltd v Australian National Industries Ltd (1996) 39 NSWLR 143, 153-4; O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262, 272-7; and Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1, 89-93; and by the High Court in Maguire v Makaronis (1997) 188 CLR 449, 469-70. The relevant principles are: (i) the object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation ( O'Halloran 272C); (ii) the Court must decide, using hindsight and commonsense, what loss was in fact caused by the breach of equitable duty ( O'Halloran 273C); (iii) the question is whether the loss would have occurred if there had been no breach ( O'Halloran 275C, 275F); (iv) the question is whether the loss would have been caused even if the breach had not occurred ( Beach Petroleum , para 434); (v) if these issues are determined favourably to the beneficiary, it does not matter that the immediate cause of the loss was the dishonesty or breach of duty of a third party, since there is no scope in equity for the common law rules of remoteness and the effect of new intervening acts ( O'Halloran 275 E-G); (vi) there is a sufficient connection between the loss and the breach when the loss would not have occurred if there had been no breach of duty (O'Halloran 277A). 17 The application of these principles to the objective facts, and the Judge's finding as to Mr Hayward's state of mind, leads to only one conclusion. The acceptance of the wrong form of deposit certificate made no difference to the result. The loss would have occurred anyway, "even if " the right form of deposit certificate had been obtained. The breach of trust committed when paying $221,558 to ECCCL was consequential on the earlier breach and was not an independent breach in its own right. The existence of this consequential breach does not enlarge the plaintiff 's rights against the firm. In any event the Judge's finding as to Mr Hayward's state of mind establishes that if he had been told about the form of certificate that had been issued, he would not have been concerned and would have proceeded with the investment. 18 The acceptance of the deposit certificate in the wrong form did not cause the loss of the invested funds. The funds remained intact and safe until the plaintiff 's deed poll of 2 September 1994 was delivered to Dresdner. The funds were paid to ECCCL and lost not because the deposit certificate was in the wrong form but because the deed poll authorised the payment to ECCCL. Using hindsight and commonsense the breach of trust in paying for and accepting the wrong form of deposit certificate was not a cause of the plaintiff 's ultimate loss. 19 In my judgment therefore the plaintiff 's appeal fails and the firm's cross-appeal from the award of equitable compensation succeeds. This means that the cross-appeal from the dismissal of the firm's cross-claim must fail because there was no liability on which its cross-claim could be based. However the cross-claim would have failed in any event because the liability of the plaintiff to the trust beneficiaries was not of "the same nature and to the same extent" as any liability of the firm to the plaintiff. There was no "common obligation" on the firm and on the plaintiff. See Smith v Cock [1911] AC 317, 326. The authorities were reviewed in Alexander & Ors (trading as Minter Ellison) v Perpetual Trustees WA Ltd & Anor [2001] NSW CA 240 in which judgment was given on 30 July. 20 If the plaintiff had succeeded in recovering from the firm in full, any liability to its trust beneficiaries for breach of trust would have been extinguished. If a new trustee had been appointed, in Court or out of Court, the new trustee, on this supposition, would also have been entitled to recover from the firm. In that event any cross-claim by the firm against the former trustee would also have failed because its liability to restore the trust fund would have been extinguished by the recovery effected by the new trustee. If the plaintiff had been sued by the trust beneficiaries, and compelled to restore the trust fund, its rights against the firm would not have been affected, but it would have no outstanding liability to its beneficiaries on which a claim to contribution could have been based. 21 The plaintiff 's position is analogous to that of a surety for a surety. The liability of a surety for a surety is secondary to that of the guaranteed surety, and one further removed from the liability of the principal debtor. A surety for a surety is entitled to be indemnified by the surety whom he has guaranteed and also by the original principal debtor. He is also entitled to recover contribution from any co-sureties who have co-ordinate liability with the surety he has guaranteed, but is not liable for contribution at the suit of the surety he has guaranteed, or any other co-sureties with the same liability. See "Rowlatt on Principal and Surety", 4th ed, 1982, pp 153-4. As the Privy Council said in Scholefield Ltd v Zyngier [1986] AC 562, 575 "Contribution is founded on the principle that equality is equity, and there is no room for this doctrine unless the surety against whom contribution is claimed has placed himself on the same level of liability as the surety who claims contribution from him". 22 During the closing stages of the hearing, the Court asked counsel for the firm whether there had been any interim payments under the judgment appealed from. The question was not answered immediately, but some days later we were informed that the firm had paid the amount of $414,009 and interest thereon in accordance with orders 1 and 3 made by the trial Judge. Counsel for the firm should have drawn these facts to the Court's attention in their written submissions, or at the latest during the hearing, and relief, by way of restitution, should have been sought. If the Court gives judgment on the appeal, without being made aware of interim payments, the orders it makes will fail to deal with the question of restitution, and the party which made the interim payments will be forced to seek appropriate relief by motion resulting in delay, increased costs, and waste of court time. Compare TCN Channel 9 Pty Limited v Antoniadis [No 2] (1999) 48 NSWLR 381. 23 The firm, having succeeded on the relevant part of their cross-appeal, are entitled to an order for the repayment of the monies paid to the plaintiff under the orders reversed, together with interest thereon at judgment rates, from the date or dates of payment to the date of these orders. 24 In my opinion the following orders should be made: (1) Appeal dismissed with costs; (2) Cross-appeal allowed in part; (3) Orders 1, 3, 4 and 5 made by Brownie AJ on 16 August 2000 set aside; (4) In lieu thereof order that there be judgment for the defendants in the proceedings; (5) Judgment for the firm for the sum of $414,009 and any interest thereon at judgment rates paid by the defendants to the plaintiff under the orders reversed, such sum or sums to bear interest at judgment rates from the date or dates of payment until the date of these orders; (6) Cross-appeal from the dismissal of the defendants' cross-claim dismissed; (7) Appellant to pay 70% of the respondents' costs of the appeal and their cross-appeal; (8) Plaintiff to pay the defendants' costs of the proceedings in the Equity Division and the defendants to pay the plaintiff 's costs of their cross-claim. 25 HODGSON JA: The circumstances of this appeal are set out in the judgment of Handley JA. I agree with Handley JA that the cross-appeal should be allowed, to the extent of setting aside the primary judge's order in favour of the respondent for equitable compensation amounting to $414,009.00. However, in my opinion, the appeal should be allowed, and the appellant should have judgment against the respondents for $221,588.00 plus interest at Supreme Court rates from 24th September 1993. 26 The respondents committed at least two breaches of trust: (1) payment of $256,800.00 of the appellant's money to Dresdner Bank AG or its subsidiary (Dresdner) without obtaining a bearer deposit certificate with a face value of $500,000.00 payable in ten years' time; and (2) payment of $221,558.00 to E.C. Consolidated Capital Limited (ECCCL) when such a bearer deposit certificate had not been obtained. 27 In relation to the first of those breaches, what was obtained was a deposit certificate for the appropriate amount and for the appropriate term, but in the name of ECCCL and not payable to bearer. The significance of the difference was this. The bearer certificate stipulated for would in itself have been worth its face value, and upon presentation to Dresdner, Dresdner would have had to meet it. Further, the bearer certificate was to be held for the appellant by National Registries Pty. Limited, which would have been required to act on the instructions of the appellant and not ECCCL. On the other hand, the certificate in the name of ECCCL, not payable to bearer, was not in itself worth anything, but rather was evidence of money held by Dresdner for ECCCL, which ECCCL might be able to obtain from Dresdner without production of the certificate. 28 The breach had this additional significance. ECCCL had been advised by the respondents in May 1993, in connection with earlier similar transactions, that a deposit certificate of the type obtained in this transaction was in breach of ECCCL's agreement in that it was not in bearer form; and yet ECCCL persisted in procuring non-conforming certificates and the respondents persisted in paying over investors' money, without advising investors, including the appellant, of ECCCL's continuing, deliberate, and deliberately concealed breaches of its agreement. These circumstances, if known, would be likely to discourage investors such as the appellant from entrusting large sums of money to ECCCL. This background also makes it clear that the respondents could not have obtained a bearer deposit certificate for the appellant; so that they could have proceeded with the investment consistently with their duty only by obtaining instructions from the appellant to proceed with the investment notwithstanding that the deposit certificate offered did not comply with the agreement. 29 Turning to the question of loss consequent on the first breach, as it happened Dresdner refused to pay over money evidenced by the ECCCL certificate without the consent of the appellant. Accordingly, until that consent was given by means of the appellant's deed poll of 2nd September 1994, the appellant suffered no compensable loss from the first breach of trust. Because of Dresdner's attitude, the appellant's rights in relation to payment from Dresdner have not been shown to be worth any less than they would have been had a bearer certificate been obtained, or indeed to be worth less than the value of the appellant's money paid to Dresdner together with appropriate interest on that money from 24th September 1993. 30 All that changed by reason of the deed poll of 2nd September 1994. As noted by Handley JA, the effect of the deed poll, entered into by the appellant at the request of ECCCL and without the involvement of the respondents, was to entrust the proceeds of the money which had been paid to Dresdner to ECCCL's unfettered control. In my opinion, unless the entry into the deed poll can itself be regarded as a consequence of the respondents' breach of trust or other wrong-doing, the loss of money due to the deed poll cannot, as between the appellant and the respondents, and as a matter of common sense and experience, properly be seen as caused by the respondents' breach of trust. 31 The question of whether entry into the deed poll was itself a consequence of the breach of trust or other wrongdoing does not appear to have been squarely contested at the hearing. It may have been possible for the appellant to show that, had the breach not occurred, the appellant would have learnt of ECCCL's deliberate and persistent and deceptive misconduct in relation to such certificates, as referred to earlier, and would therefore not have entered into the deed poll and entrusted the money to ECCCL's unfettered control. 32 However, that contention does not appear to have been raised by the pleadings or the evidence or submissions. The respondents' defence included an allegation that the appellant's loss was caused by the appellant's own conduct, including entry into the deed poll dated 2nd September 1994. The appellant's reply merely joined issue with this, and did not allege that the entry into the deed poll was itself caused or contributed to by the respondents' conduct. The appellant's evidence relevantly was to the effect that, if it had learnt that the deposit certificate did not correspond with the contractual requirement, the appellant would have sought to redeem its shares in ECCCL. That evidence does not really touch on the point I have raised, and it was not in any event accepted by the primary judge. There do not appear to have been any submissions going to the point as I have formulated it. 33 In those circumstances, in my opinion the primary judge was in error in finding a loss resulting from the first of the breaches that I have identified. 34 Turning to the second breach, the payment of $221,558.00 to ECCCL did not immediately cause loss to the appellant. The money was subsequently lost, albeit by trading of the type actually contemplated by the appellant when it made the investment. However, in my opinion this does not mean that the loss was not a consequence of the breach. But for the respondents' breach, the payment to ECCCL would not have been made at all, and the appellant would have retained $221,558.00 at 24th September 1993. In my opinion, the appellant's loss, albeit through subsequent trading, is, as between the appellant and respondents and as a matter of common sense and experience, properly to be seen as caused by the respondents' breach of trust. 35 The respondents have relied on the primary judge's finding that he was not satisfied that, if the appellant had learnt that the deposit certificate obtained did not correspond with the contractual requirement, the appellant would have sought to redeem its shares. In my opinion, that finding has no bearing whatsoever on the present question. But for the respondents' breach, the investment would not have been made at all, and there would have been no question of redemption of the investment in ECCCL. 36 In his judgment, Handley JA expressed the view that the primary judge's finding as to Mr. Hayward's state of mind establishes that if he had been told about the form of certificate that had been issued, he would not have been concerned and would have proceeded with the investment. I respectfully disagree. There is in my opinion a world of difference between, on the one hand, an investor seeking to reverse an investment that has already been made because of a matter of the form of a certificate considered in isolation and, on the other hand, a proposed investor instructing a trustee to go ahead and make an investment notwithstanding that the party to whom the money is to be entrusted is deliberately breaching its contract by not proffering the security for the investment which it undertook to provide. In my opinion, the primary judge's finding concerning the former matter says nothing about the latter. 37 The $221,558.00 would not have been lost had the respondents not committed a breach of trust, unless the appellant would have instructed the respondents to go ahead with the payment in such circumstances as to make the payment other than a breach of trust. In my opinion, if a trustee wishes to assert that a breach of trust caused no damage for the reason that the beneficiary would, if asked, have authorised the very action which constituted the breach of trust, then there is at least an evidentiary onus on the trustee to make good that proposition. The question of authorisation is only hypothetical because of the trustee's omission to seek authorisation; and it would in my opinion be plainly unjust to require the beneficiary, as part of its case, to investigate a hypothetical question that did not arise in fact precisely because the trustee breached its trust and omitted to seek the beneficiary's authorisation. If the respondents had sought to discharge the onus, this would have required them to say what they would have done in seeking the instruction to proceed; and in my opinion, if the instruction to proceed was to be effectual, that would have at least included informing the appellant that the certificate being offered was not in accordance with ECCCL's obligation under its contract. Such information would, almost inevitably, have drawn further questions from the appellant, which the respondents would have been required to deal with honestly. Thus, this would probably have raised the issues that I referred to before, namely whether the appellant would have been willing to trust ECCCL upon learning of its misconduct in relation to this matter. In relation to this second breach, the failure to explore this issue does not redound to the disadvantage of the appellant. 38 In his judgment, Handley JA also expressed the view that the breach of trust of paying $221,558.00 to ECCCL was consequential on the earlier breach and not an independent breach in its own right; and that the existence of this consequential breach does not enlarge the appellant's rights against the respondents. I respectfully disagree with that view also. I see no reason for not considering the payment of $221,558.00 to ECCCL as a breach of trust having its own consequences, for which the respondents are liable. 39 I need also to comment on two matters raised by Young CJ in Eq. in his judgment. 40 Young CJ in Eq. has suggested that the loss from the respondent's failure to obtain the appropriate bearer certificate, and the loss from the payment of moneys in breach of trust, was the same; and that because the appellant released its right to compensation for the former of those breaches, it cannot obtain compensation for the latter. I respectfully disagree, for the following reasons:

(1) The two breaches of trust identified by Young CJ in Eq. did not cause the same damage: the first, on its own, only caused damage in so far as the deposit certificate obtained was of less value than the deposit certificate which should have been obtained, while the second caused the whole of the difference between the value of what was paid and the value of what was received. (2) Accordingly, the action of the beneficiary in relation to the first breach, disentitling the beneficiary from claiming in respect of the lesser value of the deposit certificate, had nothing to do with the beneficiary's claim in respect of other differences in value between what was paid and what was received. 41 Young CJ in Eq. also raised the question as to whether the question of damages should be approached on what he called the breach of fiduciary duty basis or what he called the common law basis. As noted by Young CJ in Eq., Brownie AJ considered the case on the former basis, and the respondents did not suggest this was erroneous. In any event, in my opinion the conduct of the respondents in paying money over with full awareness of ECCCL's deliberate breach of contract goes far beyond mere carelessness, and requires the application of the equitable rather than the common law approach. Accordingly, the fact that, on the common law approach, the loss might be regarded as too remote (because seen as flowing from a risk which the appellant was prepared to take, at least on the assumption that ECCCL was honest) is irrelevant. 42 I agree with Handley JA that the respondents' cross-claim for contribution must fail. In my opinion, the matter is concluded by the Court of Appeal decision in Alexander v. Perpetual Trustees WA [2001] NSWCA 240. 43 For those reasons, in my opinion the appeal should be allowed. The cross-appeal should be allowed to the extent specified by Handley JA, and there should be judgment for the appellant against the respondents for $221,558.00 plus interest at Supreme Court rates from 24th September 1993. 44 YOUNG CJ in Eq: The court is considering an appeal by the plaintiff against the quantum of a judgment given in its favour by Brownie AJ and a cross appeal by the defendants (a) as to causation and (b) as to contribution. 45 It is convenient to deal first with the cross appeal as to causation. 46 The necessary facts and circumstances in respect of the cross appeal are fully set out in the reasons for judgment of the learned Presiding Judge and, generally speaking, there is no need for me to repeat them. 47 The plaintiff sued the defendants for (a) breach of trust; (b) breach of agreement; (c) negligence; and (d) breach of the Victorian Fair Trading Act. The learned trial judge found that the plaintiff failed on causes of action (b) and (d). He found that there was a liability on the defendants to pay equitable compensation, but not for as much as the plaintiff wished (hence the appeal). His Honour also found negligence. He said, applying the test enunciated by the High Court in Medlin v State Government Insurance Corporation (1995) 182 CLR 1, 6, that "as a matter of common sense and experience, the defendants' negligence did cause the plaintiff's loss." However, he considered that there was 20% contributory negligence. 48 Until 1832, it was not possible to join all these counts in the one action. After 1832, one could join counts in contract and tort, but must elect before judgment either to take damages in tort, or to waive the tort and take damages in contract. Once that has occurred, or at least when there had been satisfaction of the judgment in contract, the action in tort was barred; see United Australia Ltd v Barclays Bank Ltd [1941] AC 1. 49 Up until 1875 in England and 1972 in NSW, it was not possible to join in the one action counts sounding in common law damages and those sounding in equitable compensation. 50 In theory, there is a lot to be said for the proposition that as equity only gives a remedy where the common law is inadequate, if a person has a good remedy for damages in negligence, there is cause for equity to intervene by the remedy of equitable compensation, except perhaps to the extent to which the common law damages are clearly inadequate. Certainly the view was taken early in the history of the Judicature Act that a bill which alleged no more than negligence against a fiduciary was demurrable; see British Mutual Investment Co v Cobbold (1875) LR 19 Eq 627; Nocton v Ashburton [1914] AC 932, 956. 51 Whatever be the theoretical position, the cases show that Judicature Act Courts have, for a considerable time, been considering actions seeking both common law damages and equitable compensation on the same set of facts. An example is McKenzie v McDonald [1927] VLR 134, where, however, the common law counts failed. There can be situations where defendants have had to pay common law damages for breach of contract as well as submitting to an account of profits in equity; an example is Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488. 52 A prime example is Bristol and West Building Society v Mothew [1998] Ch 1. In that case, a solicitor was sued for breach of contract and common law negligence on the one hand, and breach of fiduciary duty on the other. The plaintiff succeeded and was given judgment on both counts in the County Court. In the Court of Appeal at page 10, Millett LJ noted that if the plaintiff succeeded at common law, there was no need to establish a breach of trust. Whether his Lordship was saying this as a matter of practicality or because there would be no equity if common law damages were adequate, is unclear. 53 Whilst in a Judicature Act Court, it is quite common for a person to sue for damages for common law negligence and for equitable compensation for breach of an equitable obligation, when this is done great care needs to be taken to see that the various causes of action are considered separately. 54 When one is carrying out this exercise, it must be remembered that there are two distinct causes of action in equity. The first is for breach of fiduciary duty or for dishonesty by a fiduciary or trustee or for equitable fraud where equitable compensation is assessed on a restitutionary basis. The second is a claim for equitable compensation for breach of trust where the reason for the claim is for carelessness by a trustee or fiduciary. Equitable compensation for cases in this second area is, by analogy with the common law, compensation as per common law damages. 55 I should note that the law is not quite as cut and dried as set out in the previous paragraph. The previous paragraph is, however, sufficient for present purposes where there was one or perhaps two connected isolated careless acts. Cases where there is gross negligence or a series of negligent acts over a sustained period are in a grey area; see Caffrey v Darby (1801) 6 Ves 488; 31 ER 1159 referred to by McHugh J in Bennett v Minister of Community Welfare (1992) 176 CLR 408, 426-7 also Armitage v Nurse [1998] Ch 241, 252-3; Alexander v Perpetual Trustees WA [2001] NSWCA 240 [61]-[69] and, generally, Davidson, The Equitable Remedy of Compensation" (1982) 13 MULR 349, 353 and 356 et seq. 56 Because this distinction is of great significance in this case, I should spend a little time on it. 57 A good starting point is the judgment of Ipp J sitting as a member of the Western Australian Full Supreme Court in Permanent Building Society v Wheeler (1994) 14 ACSR 109, 157. His Honour there noted that many difficulties in this area of the law, "stem from equating an equitable duty to exercise care with a fiduciary duty to take care. It is essential to bear in mind that the existence of a fiduciary relationship does not mean that every duty owed by the 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." 58 In the Bristol case, Millett LJ approved what Ipp J had said about the real difference between fiduciary duties and other duties that a person who was a fiduciary might owe the beneficiaries to take care. His Lordship went on to say: "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." 59 Further, in cases of breach of a duty to take care, the courts have said, "a trustee is not a surety, nor is he an insurer; he is only liable for some wrong done by himself, and loss of trust money is not per se proof of such wrong": In re Chapman [1896] 2 Ch 763, 775. Indeed, in a proper case, the court might even excuse the trustee altogether under s 85 of the Trustee Act, 1925. 60 It is apposite to reflect here on the words of Lord Browne Wilkinson in Targets Holdings Ltd v Redferns [1996] 1 AC 421, 433-4, with which Lords Keith, Ackner, Jauncey and Lloyd agreed: "The argument … concentrated on the equitable rules establishing the extent and quantification of compensation payable by a trustee who is in breach of trust. In my judgment this approach is liable to lead to the wrong conclusions in the present case because it ignores an earlier and crucial question, viz, is the trustee who has committed the breach of trust under any liability at all to the beneficiary complaining of the breach? There can be cases where, although there is an undoubted breach of trust, the trustee is under no liability at all to a beneficiary … . Therefore, in each case the first question is to ask what are the rights of the beneficiary: only if some relevant right has been infringed so as to give rise to a loss is it necessary to consider the trustee's liability to compensate for such loss." 61 His Lordship went on to say at page 435: "It is in any event wrong to lift wholesale the detailed rules developed in the context of traditional trusts and then seek to employ them to trusts of quite a different kind… . It is important, if the trust is not to be rendered commercially useless, to distinguish between the basic principles of trust law and those specialist rules developed in relation to traditional trusts which are applicable only to such trusts and the rationale of which has no application to trusts of a different kind." 62 His Lordship then said at page 436 that the trust with which he was concerned was a bare trust under which a solicitor was to authorize the payment of money pursuant to certain contractual arrangements. It was completely artificial and defied commonsense to apply the rules about reconstituting the trust fund to such a case after the underlying transaction was completed. To do so actually would be in direct conflict with the basic principles of equitable compensation. 63 After that digression, I return to the cross appeal. 64 The pleadings took the form of a pleaded summons under the procedure adopted in the commercial list. Paragraph 27 pleaded a breach of the duty of a trustee to exercise the same diligence and prudence in the conduct of the affairs of the trust as that person would exercise in his or her own affairs and breach of a duty to inform the plaintiff forthwith of any matter coming to its attention by which the investment might be put at risk. 65 The defendants did not admit paragraph 27, but did admit the terms of the trust and that they had breached them. In particular as to paragraph 27, the defendants submitted in argument (White 52) that they were bare trustees whose duties were set out in the Trust Deed and that they had no duty except to pay the money in accordance with the deed. (Herdegen v FCT (1988) 84 ALR 271, 281; Harmer v FCT (1989) 91 ALR 550, 559). In particular, they had no obligation to give notice to the beneficiary that the monies had been paid over without a bearer certificate (they cited Re Lewis [1904] 2 Ch 656). The trial judge did not need to adjudicate on this. 66 Brownie AJ considered the case on the basis that the breach of fiduciary measure of damages applied. No-one at the hearing seems to have suggested that this was an erroneous approach. I will thus approach the cross appeal on the basis that this is correct, though I have doubts. 67 On this basis, and putting aside for the moment the common law negligence count, I agree with the presiding Judge that the cross appeal should be dismissed. 68 I should, however, briefly deal with two matters which gave me concern when I was considering my position on the cross appeal. These were (1) the significance, if any, of the fact that Brownie AJ had found the defendants guilty of common law negligence; and (2) the significance, if any, of the fact that Brownie AJ when dealing with negligence, held as a fact that "as a matter of commonsense and experience, the defendants' negligence did cause the plaintiff's loss of money deposited...". 69 The order that was made solely recorded that judgment was entered against the defendants for $414,009 with consequential orders. This was the sum found by the judge under the heading "Breach of Trust Case". Neither in the formal order entering the judgment nor in the notice of appeal or cross appeal is there any mention of negligence. 70 The question that arises in my mind (and it was not one addressed in argument) is whether a plaintiff in the present situation waives the tort if, he or she enters judgment for a sum of equitable compensation when a smaller sum was also awarded as damages in negligence. I should add "and the judgment is satisfied" as was the case in the instant litigation. 71 It would seem to me that whilst the old doctrine of waiver of tort is irrelevant, these circumstances show an election and a res judicata against the cause of action in tort. As Spencer Bower & Turner say in "The Law Relating to Estoppel by Representation, 3rd edition (Butterworths, London, 1977) pp 361-1: "The action of the elector in signing judgment based on one of two available causes of action must produce a situation from which there can be no retreat. One of two inconsistent rights has been chosen, and this right - transit in rem judicatam - has been transmuted into a judgment of the Court. But the finality of such a step arises rather from the principles of res judicata than from election." 72 This is res judicata in a broad brush use of the term; see Green v Weatherill [1929] 2 Ch 213, 221-2 and Spencer Bower & Handley, Res Judicata, 3rd edition, (Butterworths, London, 1996) page 232. 73 Thus, I consider that, probably, the cause of action in tort, which was not the subject of a judgment nor is it mentioned in the documents on appeal, is gone for good. There is, thus, no possibility if the cross appeal is allowed, of judgment now being entered for common law damages for tort. 74 I must confess that I have some disquiet about this. The point was not the subject of argument on appeal and it is a little bizarre that, if the cross appeal on the equitable counts succeeds, there should be a verdict for the defendants who were found by the trial judge to be liable in common law negligence for probably $414,009 less 20%, ie $331,207. However, the answer to this may well be that, had the causation in tort question been the subject of an appeal, the appeal may well have been allowed. 75 The key question in the cross appeal is whether the act of the plaintiff in delivering a deed poll authorising the release of a deposit was the operative cause of the plaintiff's loss so that no equitable compensation was payable to it for the breach of trust in not ensuring that a bearer certificate was acquired, which, if the release had not occurred would have caused the plaintiff loss. 76 Handley JA at para [16] has set out the relevant principles of equity on the assumption that the fiduciary rules apply, which have recently been considered in depth by this court in O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262, 272-7 and Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1, 89-93. 77 On this assumption, one looks at the basal test as laid down by McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129, 163, a test accepted in identical words by Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421, 439, and by this court in O'Halloran at 273C: "Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which on a common sense view of causation were caused by the breach." 78 Lord Browne-Wilkinson said in the Target Holdings case at p 432 that, while the detailed rules of common law and equity as to causation and quantification differ, the principles underlying both were the same. At page 439 he summed up the equitable rule that a fiduciary had "to make good a loss … which, using hindsight and commonsense can be seen to have been caused by the breach." 79 Had I been approaching the case afresh, I believe that I would have reached the same conclusion that was reached by Handley JA, that the loss was not at all caused by the deposit certificate being in the wrong form, but because the deed poll voluntarily authorised payment of the deposit to ECCCL. 80 However, as I have noted, Brownie AJ when dealing with negligence, held as a fact that "as a matter of commonsense and experience, the defendants' negligence did cause the plaintiff's loss of money deposited ... ." 81 This finding of the trial judge comes mighty close to what his Honour needed to decide with respect to the claim in equity, even though, he did not actually pose the relevant question when dealing with that part of the case. 82 Although this aspect of the case bothered me, I have reached the conclusion that this finding should not be considered as having influence on the equity side of the case. This view is reinforced by the fact that the trial judge clearly considered that the test at common law was quite different and that no counsel has placed any store on it. 83 I now turn to the appeal. 84 The essence of the appellant's case is that the defendants committed two breaches of trust, (1) by failing to ensure that there was a bearer certificate of deposit; and (2) paying over monies for investment by ECCCL when no such bearer certificate had been obtained. 85 Handley JA takes the view that the second breach of trust was merely consequential on the earlier breach and was not an independent breach in its own right. His Honour takes the view that the existence of this consequential breach does not enlarge the plaintiff's rights against the defendants. 86 On the other hand, Hodgson JA appears to me to take the view that the second breach was a breach in its own right for which the trustee must bear the consequences. He says that, whilst the monies may well have been lost in trading, the question is whether, had the plaintiff known of the first breach, it would have continued with the investment at all. The onus of showing that lay on the trustees who had not satisfied such onus. In particular, the view of Brownie AJ that he was not satisfied that the plaintiff would have sought to redeem had it learned that the certificate of deposit was in the wrong form did not go far enough. 87 The use of the term "consequential" breach of trust is not one found in the textbooks. It ordinarily matters not whether one breach of trust occurred as a natural progression of another. The connection only becomes relevant when one is considering whether a trustee who has made losses and profits from connected breaches of trust may offset gains against losses; see Lewin on Trusts, 17th ed (Sweet & Maxwell, London, 2000) para 39-17 p 1198 and Fletcher v Green (1864) 33 Beav 426; 55 ER 433. 88 The second breach is however, "consequential" in the sense that there has only been one loss, a loss of $500,000. That loss occurred when the bearer certificate was not obtained. The act of paying over the balance of the fund to ECCCL caused no further loss. 89 Had the plaintiff succeeded in its claim for the first breach of trust, there would be no way in which it could have obtained any compensation for the second. The same consequence must follow when the plaintiff releases its right to compensation for the first breach. 90 The trial judge refused relief because he said that even if there had been no breach of trust, the plaintiff would have lost the investment made with ECCCL. 91 If this were a case of breach of fiduciary duty, I would agree with Hodgson JA that this is looking at the transaction the wrong way around. Unless it can be shown that the plaintiff would have made the investment in any event, this factor has no materiality. 92 However, this second breach clearly falls into the non-fiduciary category. One thus does not apply the fiduciary rules, but, by analogy, the common law rules. The finding of Brownie AJ thus was appropriate and means a verdict for the defendants. 93 I must say, with respect, that even were this not the case, to say that this second breach was a breach in its own right is to take a rather artificial view. The payment of the balance of the monies to ECCCL was part and parcel of the same transaction which came about when the trustee winked at the failure to obtain a bearer deposit certificate. 94 Even were I to assume two distinct breaches of trust, I would reach the same conclusion. If a trustee commits two acts which produce two distinct, but connected, breaches of trust causing the same damage and the beneficiary acts in such a way as it would be inappropriate to charge the trustee with the first breach in point of time, is the trustee liable for the other? This is a question which the authorities do not seem to have covered. 95 I consider that it is appropriate to refer to "the same damage" as, realistically, the investor entered into the scheme in the knowledge that it was becoming involved with high risk investments and might lose everything except the initial $500,000 stake which should have been secured by the bearer certificate. In fact the investment over $500,000 was lost in the way contemplated. The loss of the $500,000 was brought about by the failure to obtain the bearer certificate or the release of that obligation. The loss had already been incurred when the second breach took place, which breach, if it were the only breach could have caused the same $500,000 loss. 96 Accordingly, I reach the same result as does Handley JA on the appeal. 97 This result appears to me to be consistent with principle. The authorities say that in this area of the law, courts must act with commonsense. Further, the trend of authority, culminating in Target Holdings Ltd v Redferns [1996] 1 AC 421, is that, in applying equitable principles to commercial relationships, courts must not be too technical and must take care to apply the basic equitable concepts rather than blindly follow the result of private equity cases of yesteryear. Thirdly, courts must be careful not to effectively widen liability in negligence by saying that a person who is in fact a trustee or fiduciary and who breaches his or her duty of care to the beneficiaries is charged with all losses that would not have occurred but for such carelessness without regard to principles of foreseeability or contributory negligence: Bristol and West Building Society v Mothew [1998] Ch 1, 17. 98 Finally, I must deal with the cross appeal on contribution. In view of what I have said, it is unnecessary to deal with the arguments on contribution raised on the cross appeal. If it were necessary to decide the questions, I would agree with my brethren that they are concluded against the cross appellants by Alexander v Perpetual Trustees WA [2001] NSWCA 240. 99 Accordingly, I concur with the orders set out at the end of Handley JA's reasons.

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