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Queensland University of Technology Law and Justice Journal |
A COMPARATIVE EVALUATION OF DEVELOPMENTS IN EQUITABLE RELIEF FOR BREACH OF FIDUCIARY DUTY AND BREACH OF TRUST
MALCOLM
COPE[*]
I INTRODUCTION
It is a very great pleasure to be able to deliver the 2005 WA Lee
lecture. There are many reasons in my own mind which led me to accept
the
invitation to deliver the lecture. Together with Professor Myles
McGregor-Lowndes, I was involved in the establishment of this
lecture in
recognition of the contribution made by Tony Lee to Equity and Trusts as a
teacher scholar and law reformer. I have to
say that the idea to establish the
lecture came from Myles although I was happy to be involved in the establishment
and administration
of the lecture having worked with Tony for many years as a
colleague in the law school at the University of Queensland. I was in
fact
taught Equity and Trusts by Tony in 1973 or perhaps it was 1974.
During
the time that I worked in the Law School at the University of Queensland, Tony
and Professor Harold Ford of the University
of Melbourne, published the first
edition of what has become the leading Australian work on the Principles of
the Law of Trusts, new editions of which continue to appear regularly. It is
generally acknowledged that Tony has also made a very significant and
enlightened contribution to the reform of Trusts and Succession Laws in
Australia. I hope therefore that this lecture will serve
as a fitting tribute
to these and other contributions which Tony has made as teacher scholar and law
reformer.
This lecture is intended to provide a brief glimpse of some of
the themes which I have been examining in the course of writing a new
book on
Equitable Obligations: Duties, Remedies and Defences which is scheduled
to be published by Thomson Legal and Regulatory in 2006. The focus of the new
work is on liabilities and remedies
for breach of trust and breach of fiduciary
duty and hence, I have decided to talk about some aspects of the developments
which have
occurred in relation to those aspects of equitable relief. The focus
will be on Australian developments in the context of comparative
perspectives
drawn from developments in the United Kingdom, New Zealand and Canada. I would
also like to add that the focus of the
lecture is concerned with how the courts
deal with the question of how a fiduciary (including a trustee) ought to act and
what the
courts will do in the event that the fiduciary has not acted as he
ought to have acted. This requires an examination of the moral
qualities of the
fiduciary’s actions which is manifested in terms of the fiduciary’s
obligation of loyalty requiring
the adherence to a selfless standard of
behaviour rather then self-interested behaviour. Other standards of conduct are
also considered
when assessing the moral quality of the fiduciary’s
behaviour. So I will begin by reflecting on developments which have occurred
in
relation to the fiduciary’s obligation of loyalty.
II DEVELOPMENTS IN RELATION TO LIABILITIES FOR BREACH OF
FIDUCIARY DUTY AND BREACH OF TRUST
[201] Developments in relation to a fiduciary’s obligation of
loyalty
It has traditionally been accepted by Australian and English
authorities that when the characteristics which give rise to a fiduciary
relationship are present, that the feature which marks the fiduciary out for
special scrutiny is the obligation of loyalty which
is reflected in various
facets, the most important of which is the duty to avoid a conflict of duty and
interest and the duty not
to misuse the fiduciary position without the fully
informed consent of the beneficiary. These are simply facets or different
aspects
of the core duties of loyalty and fidelity which entitles the
beneficiary to the single minded loyalty of the fiduciary. What lies
at the
heart of the fiduciary obligation is a standard of conduct and that standard is
one which requires the fiduciary to act selflessly
and with undivided loyalty in
the interests of the other party. It is a very high standard, the effect of
which is to limit the way
in which the fiduciary may use a discretion or power
over another party. The fiduciary must only have regard to the interests of
the
other party so that the self interest of the fiduciary has to give way to the
interests of the
beneficiary.[1]
The operation
and the determination of liabilities of a fiduciary based on conflict of duty
and interest or a misuse of a fiduciary
position in a wide variety of fiduciary
contexts is well established and documented in terms of the requirements which
have to be
satisfied. However, in more recent cases the courts have been called
upon to consider whether there are other duties embraced within
the framework of
the fiduciary’s obligations of loyalty and fidelity and in particular
whether there is scope for subjecting
the fiduciary to other more positive
duties. The courts have been called upon to consider the extent to which it
might be justifiable
to invoke the fiduciary standard to regulate new situations
in the interests of justice. Here, it is useful to compare the approach
that
currently prevails in Australia with that which has found support in some
Canadian cases.
In Australia, the fiduciary standard can only be invoked
to protect particular economic interests and the High Court of Australia
has not
been prepared to countenance intervention on the basis of a fiduciary
relationship to provide an independent source of positive
duties to create new
forms of civil wrongs outside of the law of contract and tort. The court has
only been prepared to recognise
proscriptive obligations not to obtain an
unauthorised benefit from the relationship and not to be in a position of
conflict, and
it has resisted the imposition of positive legal duties on the
fiduciary to act in the interests of the person to whom the duty is
owed. Thus,
for example, in the context of the relationship of doctor and patient, the court
has only been prepared to recognise
proscriptive obligations and has declined to
allow the fiduciary standard to provide the basis for an obligation on a doctor
to provide
a patient with access to medical records. The proscriptive
obligations prohibit the fiduciary from engaging in certain kinds of activities
without imposing any positive duties to act and the obligations which affect the
fiduciary do not prescribe either the content of
what is legal conduct or the
means by which the beneficiary’s interests are to be protected. In
Australia, the conflict and
profit rules are considered to represent the
hallmark of the fiduciary’s duty of loyalty. The fiduciary can be made to
account
for benefits and make good losses on the basis of these rules but cannot
otherwise incur liabilities which stem from the imposition
of positive legal
duties to act in the interest of the person to whom the duty is
owed.[2] It is therefore still
necessary in Australia to plead cases in which relief is claimed on the basis of
a breach of fiduciary duty
by pleading facts which demonstrate a breach of the
conflict or profit rules.
In other jurisdictions, particularly in North
America the courts have imposed positive duties to disclose information to
beneficiaries
about matters which affect the interests of the beneficiary, and
in Canada some judges have sought to invoke fiduciary obligations
as a basis for
enabling patients to have access to medical records held by doctors. Such an
approach involves an expansion of the
types of interests that fiduciary law is
invoked to protect so as to include not only economic interests but also
individual and
social interests particularly in relation to vulnerable and
disadvantaged classes of people, including indigenous peoples. In McInery v
Macdonald[3] it was decided that
the relationship of physician and patient gave rise to a duty to make proper
disclosure to the patient on the
basis of an assumption that the information
conveyed to the doctor remained the information of the patient and is held in a
fashion
akin to a trust. The onus was placed on the physician to justify denial
of access to the information.
The judgment of McLachlin J in the case of
Norberg v Wynrib[4] is also of
interest in this context. There it was accepted that fiduciary duties are not
confined to the exercise of power which
can affect the legal interests of the
beneficiary but also encompasses ‘the beneficiary’s non-legal
interests or practical
interests’.[5] Under this
approach, fiduciary obligations are not confined to matters such as
confidentiality, conflict of duty and interest and
under influence. The
obligations may extend to protecting societal and practical interests, and
justified a finding in that instance
that a breach of duty occurred when a
doctor took advantage of a patient, dependent on drugs for sexual favours.
Particular importance
was attached to the power of the physician and the
vulnerability of the patient, as giving rise to a fiduciary relationship. Under
this analysis, the fiduciary standard is capable of assuming a new dimension of
protecting ‘fundamental human and personal
interests’.[6] This provided the
passport to relief in the form of damages ‘to protect the
plaintiff’s interest in receiving medical
care free from exploitation at
the hands of the
fiduciary’.[7]
[202] Developments
in relation to the identification of a fiduciary relationship
The
application of the fiduciary standard is dependent upon the existence of a
fiduciary relationship. In many instances the existence
of such a relationship
will not pose any great difficulties particularly if the relationship is one of
the well established fiduciary
relationships. In this lecture, attention will
focus on the developments which have occurred in relation to the issue of what
scope
exists for fiduciary duties to arise in the context of a more extensive
range of relationship and it will be suggested that on the
basis of recent
developments in relation to the criteria which have to be satisfied to establish
the existence of a fiduciary relationship,
that there is considerable scope for
fiduciary duties to arise in the context of a more extensive range of
relationships, including
a broad range of professional advisory relationships.
Perhaps the most significant development in relation to the criteria for
establishing
the existence of such a relationship, is the emergence of what may
conveniently be referred to as the reasonable expectation test.
The
courts have declined to adopt any comprehensive definition of who is a fiduciary
and have left open the possibility that such
a relationship might arise in an
infinite variety of circumstances. Key factors singled out in the leading
Australian High Court
authorities have been a position of disadvantage or
vulnerability on the part of one of the parties, which causes him or her to
place
reliance on the other, and an undertaking to act for or on behalf of, or
in the interests of the another in the exercise of a power
that will affect the
interests of that other in a legal and practical
sense.[8] For many years, the focus in
the Australian cases has therefore been on finding on the basis of the
particular facts of the case,
an undertaking to act on behalf of another in some
particular matter or matters. It may be that there is greater scope for such an
undertaking to be found on the basis of a reasonable expectation. Finn J in his
more recent judicial and extra judicial writings
on fiduciary obligations has
brought this test to the forefront of the requirements, which have to be
satisfied to establish a fiduciary
relationship. The approach is one, which
requires the establishment of a reasonable expectation on the part of one party,
to the
relationship that the other will act in the interests of that party and
not in the interests of himself or herself or the interests
of some third party.
The expectation must be such that the fiduciary must act not merely having
regard to the other party’s
interests, but must act solely and selflessly
in the interests of the
beneficiary.[9] Under this approach,
it would seem that there is greater scope for a fiduciary obligation to arise
because it encompasses situations
in which someone has either undertaken to act
in the interests of another, as well as situations in which there is a
legitimate expectation
that such an undertaking has
arisen.[10]
In both New
Zealand[11] and Canada, some judges
have opted to determine the issue as to the existence of a fiduciary
relationship, by application of a reasonable
expectation test that a party would
act in the best interests of the other party. Those who adopt this approach
usually have regard
to a non-exhaustive list of evidential factors including
influence, vulnerability and trust without regarding vulnerability as a
necessary ingredient for the existence of such a
relationship.[12] Other judges have
dissented from this view, and adopted a more restrictive approach. Instead,
vulnerability has been singled out
as the distinguishing characteristic so that
the existence of a fiduciary relationship requires a determination as to whether
one
party is dependent upon the power of another. One party has to have
unilateral power over another’s affairs, placing the latter
at the mercy
of the former’s
discretion.[13]
Under the
reasonable expectation approach there is scope for fiduciary obligations to
arise in a commercial setting and for them to
arise as the consequence of the
contract and the terms of the contract in a particular business setting. Under
this approach, the
obligations will arise when it is necessary to give effect to
the expectations which the parties properly entertain of each other,
in
consequence of the contract and its terms within the particular business
setting. Findings may be made that self interest is required
to be subordinated
to acting in the best interests of the other, in some or all matters which are
the subject matter of the agreement.
On the other hand, such findings will not
be open if that will distort the arrangement which has been entered into by the
parties.
The contract may be the source of the fiduciary duty, as for example,
it is in the case of agency and partnership, as well as providing
the foundation
for the modification of the extent and nature of the duties owed in the
particular case.[14]
It is
possible to make a few brief observations about some of the contexts which are
occurring in which fiduciary duties are from
time to time found to have arisen
outside of the well established presumptive relationships, on the basis of the
particular circumstances
surrounding the relationship between the parties. The
most commonly recurring situations which have arisen in recent years are those
which have involved various kinds of professional advisers (including financial
advisers) and their clients, other than lawyers and
their clients, although as
will be made apparent in a moment, lawyers and their clients also figure very
prominently in the cases.
In such instances whether or not the obligation of
loyalty has arisen will depend upon whether the requirements of proof discussed
earlier have been satisfied for proof that the relationship is in fact
fiduciary. Accountants[15] have been
found to incur fiduciary obligations, as have stockbrokers when undertaking an
advisory role in relation to
investments,[16] or where there is
an expectation that the adviser will act in the interests of the customer in
providing advice as to the wisdom
of proposed investments. Potentially many
kinds of financial service relationships are open to scrutiny, including banks
when they
come to occupy the position of an investment
adviser.[17] Under the approach
based on the reasonable expectation of the client, such findings are open
irrespective of the level of sophistication
of the customer or the ability of
the customer to accept or reject the advice. It does not require a total
assumption of power by
the adviser or total reliance of the client on the
adviser.[18]
[203] Developments
in relation to claims for breach of fiduciary duty against professional
advisers
There has been a lot of litigation in recent years against
lawyers, accountants and various financial advisers by claimants seeking
to
establish entitlement to relief on the basis of a breach of fiduciary duty. For
the purpose of this lecture, the main focus will
be on the operation of
fiduciary duties in relation to lawyers, although some brief comments will also
be made in relation to application
of fiduciary duties in claims brought against
financial advisers.
It is generally assumed that a solicitor is subject
to the usual obligations of fidelity and loyalty owed by fiduciaries generally.
Manifestations of this include; the duty to preserve the confidentiality of
information received as a consequence of the solicitor
client relationship and
not to disclose such information without the client’s fully informed
consent; to avoid conflicts of
duty and interest; to account for unauthorised
profits; and to avoid any actual conflict between the duty to serve the
interests
of one client and the duty to serve the interests of another
client.[19] It is the latter duty
which has been gaining increasing prominence in two situations, one of which is
commonly described as the simultaneous
representation of clients in the same
matter, sometimes referred to as same matter conflicts, and the other which is
commonly referred
to as successive representation in separate matters. In the
first, the fiduciary acts for separate clients in the same matter and
in the
second, the fiduciary has on an earlier occasion acquired information which is
relevant to another matter in respect of which
the fiduciary is now acting for a
different client. It is now necessary to offer some explanation as to the
current state of the
authorities in Australia and in other jurisdictions in
relation to both aspects of this duty.
At the moment there is no leading
High Court authority in relation to simultaneous representation of clients in
the same matter, although
there have been a number of cases in which both State
and Federal judges have enunciated some relevant principles in relation to
this
matter. Those authorities do not go so far as to prohibit a solicitor from
acting for more than one party, even in instances
where the solicitor is also
one of the parties to the transaction so as to raise issues not only of conflict
of duty but also conflict
of duty and interest. However, it is repeatedly
asserted that the solicitor must avoid any conflict between the duty to serve
the
interests of one client and the duty to serve the interests of another
client. In part, the intervention of the court will depend
upon whether the
solicitor has obtained the ‘unfettered consent of all the relevant clients
after fully disclosing all the
material facts, or the duty is attenuated by
contract, with relevant client’s fully informed
consent’.[20] However, the
obligation of the solicitor does not cease at that stage, as the solicitor must
be constantly vigilant and alert to
perceive the possible emergence of a
conflict of interest not only between the clients but also between the client
and the solicitor.
It is generally acknowledged that situations can arise in
which it is impossible for the solicitor to act fairly and adequately for
both
parties, even if there has been informed consent. The courts will readily
intervene if there have been failures by the solicitor
to properly inform a
particular client when in possession of information material to the
client’s interests. Significant material
non-disclosures and conflict of
interests on the part of the solicitor such as close family and commercial ties
with one of the clients
will also establish a claim for
relief.[21]
There are perhaps
more instructive authorities to be found in other jurisdictions. The relevant
principles were explored by the Privy
Council in an appeal from New Zealand in
Clarke Boyce v Mouat.[22]
There it was accepted that a solicitor can act with informed consent which is
required not only in order to be able to act for both
parties, but it is also
required whenever a conflict of interest or a real possibility of a conflict
arises in the course of so acting.
The establishment of an informed consent is
dependent upon the solicitor demonstrating not only that each party has
consented to
the solicitor acting for both parties, but also demonstrating when
a conflict has arisen, that there has been such disclosure that
the client
appreciates that the solicitor is acting under a disability and the consequences
of not receiving proper advice. Consequently,
a solicitor will be in breach of
duty if he or she acts for both parties in the transaction without disclosing
this to one of them,
and even if this is disclosed, the solicitor will also be
in breach if the solicitor fails unbeknown to one party, to disclose to
that
party material facts relative to the other of which he or she is
aware.
In the United Kingdom, the obligations of a fiduciary who acts for
more than one party have been formulated with even more stringency
by Millett LJ
in Bristol and West Building Society v
Mothew.[23] There it is accepted
that a solicitor may not act for two principals without the informed consent of
both principals, and that a solicitor
must also ‘take care not to find
himself in an actual conflict of duty so that he cannot fulfil his obligations
to one principal
without failing in his obligation to
another’.[24] The solicitor
may be left with no alternative other than to cease to act for one and
preferably both. In addition, Millett LJ also
stated that: ‘even if a
solicitor is properly acting for two principals, the solicitor must act in good
faith in the interests
of each and must not act with the intention of furthering
the interest of one principal to the prejudice of the
other’.[25] Liability here
depends on intentional conduct, although it need not be dishonest. It should
also be noted that in the United Kingdom,
the obligation to avoid conflicts of
duty may not be limited to conflicts in relation to the same transaction, but
may also extend
to instances in which there is some reasonable relationship
between the two
matters.[26]
There is also
now, a considerable body of authority in relation to the circumstances under
which a solicitor may act against a former
client and under what circumstances
injunctive relief may be available to restrain a solicitor from acting against a
former client.
In Australia, as yet, there is no authoritative statement of the
applicable principles by the High Court. A diversity of approaches
have been
adopted by State and Federal judges when called upon to deal with this issue,
and intervention has been based on three
possible grounds, namely, a duty of
loyalty owed to the former client expressed in terms of conflict of duty and
interest, the protection
of confidential information and the court’s
control over the conduct of solicitors as officers of the
court.[27] It is necessary to make
some comments about each of these grounds. Although, in a number of the cases,
both conflict of interest
and preventing the disclosure of confidential
information are identified as closely related grounds, the principles and
findings
are usually stated in terms of a there being a real and sensible
possibility of confidential information being
used.[28] However, there are also
statements to the effect that a conflict can arise simply because the
advancement of the case of a new client
will prejudice the interest of a former
client, and some judges have gone so far as to suggest that only in rare and
very special
cases could a solicitor properly be permitted to act against the
former client whether or not there is any real question that the
use of
confidential information could
arise.[29] In addition, some cases
have been decided on the basis that the solicitor’s duty to the court is
such as to prevent the solicitor
from acting, and even although there may be no
breach of fiduciary duty or likelihood of the misuse of confidential
information.[30] The need for the
objective appearance of independence on the part of the solicitor has been
stressed.
In some of the cases which have been dealt with on the basis of
preventing a disclosure of confidential information, a strict approach
has been
adopted so as to not too readily allow a solicitor to act in a matter adverse to
the interests of the old client. The courts
have endeavoured to guard against
disclosures of confidential information that will be of disadvantage to the
former client and to
guard against subconsciously drawing on the information.
The courts will consider whether there is a real risk of the disclosure
of
confidential information, both conscious and unconscious, although, the
possibility of real mischief must be proved. It is necessary
to prove that the
information was confidential to the plaintiff when it was communicated and that
it should be kept confidential
and
secret.[31] The courts have not
accepted the approach adopted in an early Queensland case, that the interest of
the previous client should prevail
if there is any evidence of communication of
confidential information,[32] and
nor have the courts been prepared to introduce an irrebuttable presumption that
a prior retainer has resulted in the acquisition
of confidential
information.[33] In general, the
courts in Australia have not been prepared to place much reliance on
arrangements such as the utilisation of undertakings
and Chinese walls, and the
onus has in some cases been placed on the recipient to prove the absence of any
defined risk, as the only
workable approach having regard to the large size of
modern law firms.[34]
A brief
comparison of the above approach with that endorsed in the United Kingdom and
Canada provides some useful comparative perspectives.
In Prince Jefri Bolikah
v KPMG,[35] a case which was
concerned with a firm of accountants, the House of Lords rejected the approach
adopted in Rakussen Ellis v Mundey
Clarke,[36] which required it to
be demonstrated that there is real mischief and prejudice if the solicitor is
allowed to act. There the court
was content to accept the undertakings and seems
to have been in favour of allowing the solicitor to act. The remarks of the
House
of Lords in Bolikah were made in the context of the emergence of
huge international firms with enormous resources operating on a global scale
offering
a comprehensive range of services. This case was dealt with on the
basis that the only duty which survives the termination of the
client
relationships is a continuing duty to preserve the confidential information
imparted during its subsistence.[37]
The case for a strict approach was found to be unanswerable and so it was
accepted that the court should intervene unless there is
no risk of disclosure,
although the risk has to be a real one and not fanciful or theoretical, but it
need not be substantial. Under
this approach, the evidential burden shifts once
the former client has established that the defendant firm is in possession of
confidential
information, which was imparted in confidence and that firm is
proposing to act for another party with an interest adverse to the
former client
in a matter to which the information is or may be relevant. It is up to the
defendant to show that there is no risk
that information will come into the
possession of those acting for the other party. The court also has to be
satisfied that effective
means have been taken, that no reasonable disclosure
will occur, and the establishment of ad hoc Chinese walls was not considered
to
be an effective
measure.[38]
In Canada the
Rakussen approach was also rejected in MacDonald Estate v
Martin.[39] Under the approach
adopted in that case, the court would infer that confidential information was
imparted once it is shown that there
existed a previous relationship which is
sufficiently related to the retainer from which it is sought to remove the
solicitor, unless
the solicitor satisfies the court that no information was
imparted which could be relevant. A heavy burden is placed on the lawyer,
and
assurances and undertakings not to use the information are of no avail.
Essentially a lawyer who has confidential information
cannot act against a
former client and there is a strong inference that lawyers who work together
share confidences. The lawyer has
to satisfy the court that all reasonable means
have been taken to ensure that no disclosure will occur. In the United Sates,
the
courts have adopted an even more stringent approach of an irrebuttable
presumption that the knowledge of one member of a law firm
constitutes knowledge
of all the lawyers in that firm.
Aside from lawyers and their clients,
the other professional relationship in which breach of fiduciary duty claims are
being raised,
is in the context of the relationship of a financial adviser and
client. All of the usual fiduciary duties may be brought into play,
although as
yet the body of case law is sparse, but is steadily increasing as a result of
the growth of financial advisory work undertaken
by banks, financial
institutions, firms of accountants and others operating as independent
professional advisers. There have been
instances of successful claims based on
conflict of duty and interest established against financial
advisers,[40] and of additional
obligations having to be discharged because of the advisory role undertaken
which will result in the court examining
the quality of the advice and the
fairness of the transaction.[41]
There have also been instances in which the courts have intervened where there
has been a conflict of duty and duty on the part of
a bank
manager.[42]
[204] Developments
in relation to non-fiduciary obligations of trustees
Apart from fiduciary
obligations, there are a range of other obligations owed by trustees many of
which relate to the conduct of trustees
in the administration and management of
trust affairs. The most important of these is the duty of care which the trustee
has to discharge
in the management of trust affairs. The standard of conduct
which the trustee is required to adhere to in this context may be less
exacting
than the fiduciary standard and it is sometimes suggested that the duty of care
is more akin to that of negligence at common
law. A few brief observations need
to be made about the standard of care which will affect the separate
responsibilities of each
trustee, where there is more than one
trustee.
It is well established that the duty of a trustee in the conduct
of the business of a trust ‘is to conduct the business of the
trust with
the same care as an ordinary man of business would extend to his own
affairs’.[43] This statement
of the duty is, however on its own a little misleading, for it is also well
accepted that a trustee is not in exactly
the same situation as an ordinary
business person. A trustee is expected to exercise caution so as to preserve
the trust property
and a trustee unlike an ordinary business person does have to
take into account the interests of the beneficiaries to whom the obligations
are
owed. The expectations and responsibilities of the trustees are therefore
significantly different to those of an ordinary business
person and this may as
Finn J pointed out in ASC v AS Nominees
Ltd,[44] be reflected in the
‘different risks that persons who invest their assets in companies on the
one hand and in trust on the
other are considered likely to have
assumed’.[45]
As well
distinguishing the trustee’s standard of care from that of the ordinary
prudent business person, there is also scope
for a higher standard of care to be
expected of some trustees in contemporary circumstances. The standard of care
was adopted in
the late nineteenth century at a time when trust corporations
were not used for trading and investment and at a time when professional
trustees were not common. The standard of care adopted did not differentiate
between different types of trustees. Today, trust corporations
and professional
trustees are common and as such they invite reliance upon themselves by members
of the public by virtue of the specialist
knowledge which they appear to have in
the business of trust management. It has therefore been proposed by some English
and Australian
judges, although not yet fully endorsed and regularly applied,
that a higher duty of care is applicable to someone like ‘a
trust
corporation which carries on a specialised business of trust
management’.[46] The rationale
for the higher standard is based on trust corporations holding themselves out in
their advertising as being above ordinary
mortals, who in the conduct of their
business employ specialist trained trust officers and managers as well as having
access to financial
information and professional advice for dealing with trust
problems on a daily basis. Under this approach, such trustees would be
rendered
liable for losses if the loss arises from the trustees’ neglect to
exercise the special skill and care which it professes
to have. The scope for
liabilities to be established on this basis remains to be fully explored. In
Queensland the higher duty of
care has been introduced as an amendment to the
Trusts Act 1973. Section 22(1) of that Act now provides that a
trustee in exercising a power of investment must ‘(a) if the
trustee’s profession, business
or employment is or includes, acting as a
trustee or investing money for other persons - exercise the care, diligence and
skill a
prudent person engaged in that profession, business or employment would
exercise in managing the affairs of other persons’.
The section also
provides ‘(b) if the trustee’s profession, business or employment is
not, or does not include, acting
as a trustee or investing money for other
persons – exercise the care diligence and skill a prudent person would
exercise in
managing the affairs of other
persons’.
[205] Developments in relation to claims for breach of
trust by trustees holding funds on a resulting trust
There have been some
recent attempts to render trustees of a resulting trust liable for breach of
trust. This is an aspect of breach
of trust which has so far received little
attention. On the basis of what little authority that exists, it may be
necessary to establish
some level of knowledge on the part of the resulting
trustee in order to succeed in such a claim. The matter was considered by
McPherson
JA in Port of Brisbane Corporation v ANZ Securities
Ltd,[47] without resolving
whether there was a resulting trust on the facts, with the judge indicating that
it would be offensive to notions
of equity and common sense to hold ANZ
Securities liable for a supposed breach of trust “it had never undertaken
and was not
aware that any such obligation
existed”.[48] In this
instance, before any claim was made in relation to the money, it had been fully
disbursed. It also had been received in good
faith without any notice that
another laid claim to the money. ANZ had considered itself a trustee for
another, apart from the resulting
trust alleged by the plaintiff. It had never
held the funds as part of its general assets.
A similar approach was
adopted in the United Kingdom by Robert Walker LJ in Allan v Rea Brothers
Ltd[49] in rejecting a claim,
because the trustee company did not at any time have both actual knowledge that
the transfer payment was invalid
and should be returned, and nor did it have the
means of either ascertaining what was due to be returned to trustees of a scheme
or of raising that sum. The trustee company did not know the true position and
it was found that the company had made repeated inquiries
and had been deceived
as to the true position.
[206] Developments in relation to recipient
liability of third parties for breach of trust and breach of fiduciary
duty
There has not been any recent authoritative statement by the High
Court as to the requirements which have to be satisfied in order
to render a
third party personally liable for a breach of trust. As is the case in some
other jurisdictions, there is a diversity
of approaches which have been adopted,
although most of the approaches centre around a knowledge based approach. There
has been no
consistency as to the levels of knowledge which have to be satisfied
in order establish liability against the third party. Without
going into the
possible five levels of knowledge which have bedevilled this area of liability,
the more recent authorities have settled
on level one to four but not
five.[50] This, at least was the
approach which found favour with De Jersey J in Doneley v
Doneley,[51] where
the judge also acknowledged that a recipient claim is essentially proprietary,
although it does not require actual possession
of trust property or an absolute
interest in it, in order to establish the recipient element. What it requires is
that the recipient
has been a direct beneficiary of the breach of trust as a
result of having received the property which is ‘identifiable with
the
trust property the subject of the
breach’.[52] In this case it
was found that the bank knew of all the material facts necessary to establish
the breach of trust in relation to
the securities affecting the trust property.
It has also been acknowledged in another case that in a recipient claim it is
not necessary
to establish that the defendant acted dishonestly or with a want
of probity,[53] and in the same case
the Judge expressed a preference for a strict liability approach, but did not
apply that approach. This approach
will be considered in more detail in a
moment, in the context of the English developments in relation to recipient
liability.
In the United Kingdom there has for many years been an almost
endless stream of litigation involving claims based on the receipt of
trust
property in breach of trust by third parties, and the courts have found it very
difficult to settle on an agreed approach for
the determination of such claims,
other than requiring a requisite level of knowledge to render the recipient
liable. It also seems
to be agreed that dishonesty is not a prerequisite for
liability. What level of knowledge will suffice has been a matter of
considerable
disagreement, and as will be explained in a moment, the English
courts are being called upon to abandon the requirement of knowledge
altogether.
In the period following the case of Re Montagu’s
Settlement,[54] the general
trend of authorities was to settle on level one to three as the basis for
liability to arise, but not levels four and
five. However, more recently some
judges have opted to shift the emphasis away from knowledge to commercially
unacceptable conduct
and to impute knowledge to a person guilty of commercially
unacceptable conduct. Such an approach does not eliminate knowledge entirely
as
a factor. In BCCI Ltd v
Akindele[55] it was stated that:
‘All that is necessary is that the recipient’s state of knowledge
should be such as to make it unconscionable
for him to retain the benefit of the
receipt’.[56] It was asserted
somewhat hopefully, that this approach would avoid the difficulties of
definition which arise under a solely knowledge
based approach enabling the
‘courts to give common sense decisions in a commercial
context”.[57] Even so, the
findings in that case were still expressed in terms of knowledge, and a
preference was expressed for liability to be
fault based.
In contrast to
all of the above, stands the approach favoured by Lord Millett as enunciated in
Twinsectra v Yardley[58] to
the effect that liability for knowing receipt is receipt based and does not
depend on fault. The cause of action was identified
by Lord Millett as
restitutionary and is available only where the defendant has received or applied
money to his own use or benefit.
Lord Millett could see no basis for requiring
actual knowledge of the breach of trust let alone dishonesty, as a condition of
liability.
Constructive notice would be sufficient, although Lord Millett would
prefer liability to be strict subject to a defence of change
of
position.[59]
It should also
be noted that there is also some scope for recipient liability to arise where
property is held in a fiduciary capacity,
although not trust property in a
strict sense. The invocation of this category of liability where profits and
gains have been received
as a result of a breach of a fiduciary duty is more
problematical because of the absence of any pre-existing trust or fiduciary
relationship
in respect of the property even although potentially, the property
may be subject to a constructive trust because of the breach of
fiduciary duty.
Such cases would normally fall to be determined under the accessory category of
liability, the key developments in
relation to which will now be
explained.
[207] Developments in relation to accessory liability of
third parties for breach of trust and breach of fiduciary duty
Once again
in Australia there have been no recent pronouncements from the High Court in
relation to the requirements which have to
be satisfied in order to render a
third party personally liable as an accessory to a breach of trust. One of the
key elements that
has been insisted upon is knowledge, and it would seem that
probably levels one to four but not five will suffice for the purpose
of
rendering a third party liable. The courts have been unwilling to countenance
liability on the basis that the circumstances would
have put an honest and
reasonable person on inquiry. There are signs that the courts in Australia will
follow the lead provided by
their English counterparts and allow dishonesty to
be accepted as the test of liability in breach of trust claims and that an
objective
test of dishonesty will be
adopted.[60]
It is therefore
appropriate and relevant to say something about what has emerged in recent
English authorities in relation to this
issue. There it is accepted that
accessory liability is not dependent upon the receipt of trust property and that
liability does
not spring from any proprietary dominion. An accessory claim has
been clearly differentiated from a receipt claim in so far as an
accessory claim
is concerned with a third party who has interfered with the trust relationship
by assisting a trustee so as to deprive
the beneficiary of the trust property.
In Royal Brunei Airlines v
Tan[61] it was emphasised that
accessory liability is not property based, and therefore not concerned with the
liability of a person who
has received any property. It focuses on the
interference with the due performance of the personal fiduciary obligations owed
by
the trustee and as such is fault based. Subsequently, Lord Millett pointed
out in Twinsectra v
Yardley[62] that the action is
not restitutionary, but one in which the claimant seeks compensation for
wrongdoing and that liability is not
strict.[63] It would also seem that
this category, at least in the United Kingdom, is no longer confined to
dishonest and fraudulent conduct
by the trustee and that it is sufficient if the
assistance occurs in relation to the use of trust funds not permitted by the
trust.[64] It is not proposed to
examine in any detail all of the various requirements which have to be
satisfied, but instead to focus on developments
which have taken place in
relation to the requirement of knowledge, which was insisted on as one of the
key ingredients until the
decision in Royal Brunei. Once again, it proved
difficult for the courts to settle on the levels of knowledge required to
establish liability, although by about
1995 it seemed to be settled that an
accessory should know of the relevant facts. In addition, some judges had begun
to lay particular
stress on dishonesty and want of probity as a basis for
accessory liability. In Royal Brunei it was accepted that dishonesty was
a necessary foundation of accessory liability, whereas negligence was rejected
as the basis of
liability, since a third party does not normally incur the
burden of having to discharge a duty of care owed to the beneficiaries.
According to Lord Nichols:
A liability in equity to make good the loss
attaches to a person who dishonestly procures or assist in a breach of trust or
breach
of fiduciary obligation. It is not necessary that, in addition, the
trustee or fiduciary was acting dishonestly although this will
usually be so
where the third party is acting
dishonestly.[65]
What does
dishonesty or acting with want of probity mean in this context? Under the
approach adopted by Lord Nichols in Royal Brunei it means: ‘simply
not acting as an honest person would in the
circumstances’.[66] Lord
Nichols also suggested that it has a strong objective element and that it is
more concerned with advertent conduct, conscious
impropriety rather than with
inadvertent conduct and that carelessness does not constitute dishonesty. It was
stressed that the standard
of what constitutes objective conduct was not left to
be determined on the basis of the subjective moral standards of the individual
and that it would not be enough to escape liability ‘because he believes
he sees nothing wrong in such
behaviour’.[67] Honesty was
identified as an objective standard and that it was a matter of looking at all
of the circumstances known to the third
party at the time, as well as having
regard to the personal attributes of the third party including ‘experience
and intelligence
and the reason why he acted as he
did.’[68] Lord Nichols,
bravely proclaimed that the approach would avoid the “tortious
convolutions about the sort of knowledge
required”[69]
Notwithstanding
the hopes of Lord Nichols for the new approach, what seems to have occurred is a
new avenue for dispute about the
required standard of dishonesty and the
relevance of subjective factors associated with the specific characteristics of
the defendant.
Moreover the approach does not seem to have eliminated knowledge
altogether on the part of the accessory, as a relevant consideration
in
determining liability. In the subsequent case of Twinsectra v
Yardley,[70] the House of Lords
interpreted Lord Nichols statements as requiring a subjective test of
dishonesty. Lord Hoffmann stating that it
requires a ‘dishonest state of
mind that is consciousness that one is transgressing ordinary standards of
honest behaviour’[71] and Lord
Hutton stating that an accessory can ‘not be dishonest even if he does not
know that what he is doing would be dishonest
to honest
people’.[72] Lord Millett
delivered a very vigorous dissent on the basis that the standard is objective,
and that an accessory is required to
attain the standards which would be
observed by a person placed in similar circumstances, although account must be
taken of subjective
considerations such as the defendant’s experience,
intelligence and his actual state of knowledge, although it is not necessary
that he actually appreciate what he was doing was
dishonest.[73] This approach would
seem to accord with what Lord Nichols said in Royal Brunei, although
knowledge seems to return through the back door as a factor indicative of
dishonesty.
Further clarification has been provided by the Judicial
Committee of the Privy Council in Barlow Clowes Internationl Ltd (in
liquidation) v Eurotrust International
Limited.[74] The judgment was
delivered by Lord Hoffman and it should be noted that Lord Nichols was present
at the hearing. Their Lordships accepted
that the standard for determining
whether the defendant’s mental state can be characterised as dishonest is
an objective standard
and it is irrelevant that the defendant judges honesty by
a different standard. It was also accepted that a dishonest state of mind
is a
subjective mental state on the part of the person who assists in the breach of
trust and that: ‘Such a state of mind may
consist of knowledge that the
transaction is one in which he cannot honestly participate (for example, a
misappropriation of other
people’s money), or it may consist in suspicion
combined with a conscious decision not to make
inquiries’.[75]
It was
accepted that there is an element of ambiguity in the remarks of Lord Hutton and
Lord Hoffman in Twinsectra. According to their Lordships the reference in
Lord Hutton’s judgment to:
what he knows would offend normally
accepted standards of conduct’ meant only that his knowledge of the
transaction had to be
such as to render his participation contrary to normally
acceptable standards of honest conduct. It did not require that he should
have
had reflections about what those normally acceptable standards
were.[76]
Similarly the
reference by Lord Hoffman to ‘consciousness that one is transgressing
ordinary standards of honest behaviour’
was interpreted as ‘intended
to require consciousness of those elements of the transaction which make
participation transgress
the ordinary standards of behaviour. It did not also
require him to have thought about what those standards
were’.[77] In addition their
Lordships also confirmed that ‘Someone can know and certainly suspect,
that he is assisting in a misappropriation
of money without knowing that the
money is held on trust or what a trust
means’.[78] It was also not
necessary to know the precise involvement of the other party in another’s
affairs in order to suspect that
there was no right to use the money as
one’s own.
The approach just outlined is expressed in terms which
are applicable to both accessory liability for breach of trust and breach of
fiduciary duty. In Australia it is well established that a third party may incur
liability as an accessory as a result of involvement
in the misconduct of a
fiduciary, so as to provide an avenue for rendering third parties liable to
account for profits, benefits
and gains received by a third party who has
participated in the breach of fiduciary duty committed by the fiduciary, as well
as for
losses suffered as a result of the third party’s participation.
This was accepted as long ago as 1975 by the High Court in
Consul Development
Pty Ltd v DPC Estates Ltd.[79]
The requirements to establish liability in Consul were stated in
terms of knowledge with levels one to four but not level five being required to
establish liability. The High Court
has not yet had an opportunity to re-examine
Consul in the light of more recent English developments outlined above,
so it is not entirely clear if the dishonesty approach will prevail
in
Australia. In cases decided by both Federal and State judges, the approach has
been accepted as a statement of modern Australian
law.[80]
In Canada an
assistance claim in the context claims for the disgorgement of profits received
by a third party must, under the current
authorities, be based on receipt of a
benefit with actual knowledge, recklessness or wilful blindness to the breach.
The Surpreme
Court of Canada has not yet pronounced on whether
‘“knowingly” should give way to “dishonesty” as
the
“defining ingredient” of accessory
liability’.[81]
III DEVELOPMENTS IN RELATION TO REMEDIES AND DEFENCES FOR BREACH OF FIDUCIARY DUTY AND BREACH OF TRUST
[301] Developments in relation to proprietary remedies for breach of
fiduciary duty
It is up to the court to determine the appropriate remedy
for a breach of fiduciary duty. The remedy will depend largely upon the
nature
of the case. Since the breach of obligation is exclusively equitable, the range
of remedies are exclusively equitable in
nature.[82] The remedial response in
equity is in the main different from the common law and there is a wider range
of remedial considerations
which come into play in equity. Restoration rather
than punishment is the purpose that is sought to be achieved. Relief is usually
devoid of common law limitations. In addition, presumptions may be available to
facilitate proof of a claim. Counter-entitlements
may be awarded in favour of
the fiduciary. It is a cardinal principle of equity that the remedy must be
fashioned to fit the nature
of the case and the particular facts. The courts
will award whatever remedy may be appropriate to achieve an account of the gain
derived by the fiduciary. The full range of both personal and proprietary
remedies is available and many of these remedies go beyond
offering compensation
to the plaintiff. The plaintiff can elect to claim multiple or alternate
remedies.
In Australia the courts have been called upon to determine the
extent to which there is scope in a breach of fiduciary duty claim
to award
proprietary relief, and there have been some significant developments in
relation to the willingness of the courts to grant
such relief in such cases.
Before discussing these developments it is necessary to place this development
in the context of other
developments which have taken place in relation to the
requirements which have to be satisfied in order to obtain proprietary relief
in
Australia. These developments have occurred in the context of delineating the
circumstances in which a proprietary remedy in the
form of a constructive trust
may be awarded as an appropriate form of relief. It should be noted that there
may be other proprietary
remedies such as an equitable lien or charge which may
also be part of the framework of proprietary remedies available in equity.
In a
series of cases, the High Court of Australia has accepted the constructive trust
as an appropriate form of equitable relief,
beginning in Hospital Products
Limited v United Surgical
Corporation[83] where Deane J
stated that: ‘a constructive trust may be imposed as the appropriate form
of relief in circumstances where a person
could not in good conscience retain a
benefit or the proceeds of a benefit in breach of his contractual or other legal
or equitable
obligations’.[84]
Subsequently in Muschinski v
Dodds[85] the same judge
described the constructive trust as a ‘remedial institution which equity
imposes regardless of actual or presumed
intention (and subsequently protects)
to preclude the retention or assertion of beneficial ownership of property to
the extent that
such retention or assertion would be contrary to equitable
principle’.[86] Particular
emphasis was placed on the doctrines of equity which are designed “to
prevent a person from asserting or exercising
a legal right in circumstances
where the particular assertion or exercise of it would constitute unconscionable
conduct”.[87] It is generally
accepted in Australia that in order for a remedial constructive trust to be
imposed there has to be identifiable
trust property to which a trust could
attach and a legal or equitable basis for treating the retention of the property
as unconscionable.
That the constructive trust is available as a
remedial response to a claim for equitable intervention was confirmed by the
High Court
in Giumelli v
Giumelli[88] and as a remedial
response: ‘It obliges the holder of the legal title to surrender the
property in question thereby bringing
a determination of the rights and titles
of the parties’.[89] The order
made by the court is ‘akin to an order for
conveyance’.[90] In addition
‘it does not necessarily impose upon the holder of the legal title the
various administrative duties and fiduciary
obligations which attend the
settlement of property to be held by a trustee upon an express trust for
successive interests’.[91] The
remedial constructive trust has the added dimension of flexibility as to its
date of operation. It can be so framed that the
commencement of its operation
may be from the date of judgment or formal order or from some other date. This
enables the court to
protect the legitimate claims of third parties particularly
creditors who may be prejudiced by the imposition of a constructive trust
at an
earlier date than the judgment or
order.[92] In other contexts the
constructive trust is thought to arise as soon as the circumstances necessary
for its establishment are present.
In New Zealand there has been some
support for the acceptance of a remedial constructive trust based on unjust
enrichment[93] rather than
unconscionable denial of a beneficial interest, whilst in Canada the
availability of a constructive trust based on unjust
enrichment is well
established.[94] In the United
Kingdom, the House of Lords has left open the question of whether English law
should adopt the remedial constructive
trust ‘to be decided in some future
case when the point is directly in
issue’.[95]
The
approach of the High Court to the award of a constructive trust in respect of
gains acquired in breach of fiduciary duty has changed
significantly in recent
years. In earlier authorities, it was asserted that a constructive trust arises
in respect of the gains and
that the advantage must be held for the
beneficiary.[96] In Henry (Keith)
& Co v Walker (Stewart)[97]
Dixon CJ, McTiernan and Fullagar JJ indicated that any property acquired by
use of the fiduciary position is held by the fiduciary
in trust for the
beneficiaries,[98] whilst in
Hospital Products Mason J also indicated that the fiduciary must account
in equity, and the appropriate remedy is by means of a constructive
trust.[99]
In more recent
cases, the Australian courts have adopted a more flexible approach in relation
to the award of proprietary relief for
breach of fiduciary duty. There is no
doubt that a breach of fiduciary duty may be redressed by relief in the form of
a constructive
trust, and that the claimant may be able to follow and trace the
gain into identifiable property for the purpose of establishing
an entitlement
to proprietary relief. This is no longer automatic or as of right. In
Bathurst City Council v PWC Pty Properties
Ltd[100] the court indicated
that it was necessary to first decide whether having regard to the issues in the
litigation, there are other remedies
available to quell the controversy. An
equitable remedy which falls short of a trust may assist in avoiding a result in
which the
plaintiff gains a beneficial proprietary interest over equally
deserving creditors of the
defendant.[101] In the Queensland
decision of the Court of Appeal in Wickham Developments Ltd v
Parker[102] McPherson JA and
Pincus JA highlighted the fact that liability for breach of fiduciary duty is
personal and that it is for the court
to decide whether a proprietary remedy
should be imposed in addition to a personal remedy to account. It did not follow
that a proprietary
remedy would be imposed and that it was necessary to consider
the impact on general creditors if the fiduciary becomes insolvent.
This
approach severs the issue of liability based on the existence of a fiduciary
relationship from the issue of what is the appropriate
remedy, and whether it is
appropriate to award the constructive trust as a proprietary
remedy.[103]
In more recent
cases, the High Court has also expressed a preference for personal remedies
rather than proprietary remedies in breach
of fiduciary cases, as well as in the
context of other claims such as those based on estoppel. In Warman v
Dwyer[104] the court rejected
the constructive trust as the appropriate remedy and indicated that an account
of profits was the preferred remedy
for that case. The liability of the
fiduciary was considered to be essentially
personal.[105] In Giumelli v
Giumelli[106] the court
considered that an estoppel claim was such that a monetary sum should be fixed
to represent the value of the equitable claim,
with the court indicating that
the court should first of all decide if there ‘is an appropriate remedy
which falls short of
the imposition of a constructive
trust’.[107] In addition the
High court has also stressed in Warman that liability of the fiduciary
should not be transformed into a vehicle for the unjust enrichment of the
plaintiff when assessing
the quantum of the profits. The court is required to
ascertain precisely what the fiduciary should account for as a consequence of
the fiduciary’s breach of duty or in the case of a loss, the quantum of
the loss.[108] In Warman,
the assessment was to be made on the basis of the loss of the agency agreement
which would only have lasted for a further year.
It is also now well
established that equitable compensation may be granted as an alternative to a
constructive trust. In Distronics Ltd v
Edmonds[109] it was decided to
award compensation, and in doing so the judge took into account the fact that it
was necessary to protect the interests
of third parties including those of a
mortgagee.[110] In other cases,
judges have been prepared to take account of unjust consequences to the
fiduciary and the creditor’s of the
fiduciary.[111]
It would
seem that as a consequence of these developments in relation to relief for
breach of fiduciary duty, it is misleading to
continue to express the liability
of the fiduciary in terms of constructive trusteeship as though it will
automatically entitle a
claimant to a proprietary remedy. It also leads one to
assume that a constructive trust automatically arises prior to the declaration
of such a trust. This is no longer the case, as liability and remedial issues
have been severed so that there are no longer any automatic
proprietary
consequences based on a breach of fiduciary duty. The determination of what is
the most appropriate form of relief is
matter within the discretion of the
court. The constructive trust has emerged as one of the possible remedies within
the armoury
of the court and when it is invoked the court is free to determine
how it will operate in any give case having regard particularly
to the
consequences to third parties arising as a result of such relief. It may be that
in the vast majority of cases that a constructive
trust will not be the most
appropriate remedy. In both New
Zealand[112] and Canada a flexible
approach has been adopted in relation to relief for breach of fiduciary duty and
in other contexts including
breach of confidence
claims.[113] In these
jurisdictions, the constructive trust is not considered to be the most
appropriate remedy in the vast majority of cases.
In the United Kingdom there is
very little recent authority in relation to this matter, and as yet little scope
for use of a remedial
constructive trust. English judges have usually expressed
the liability of the fiduciary as being a personal
one,[114] and instances of
proprietary relief being utilised for the recovery of gains from a breach of
fiduciary duty are hard to find except
in relation to the renewal of leases and
the purchase of freehold reversions. Proprietary relief has also been usually
restricted
to claims which are based on an established equitable interest in
property, as for example, where trust or company property is misappropriated
or
utilised for the purpose of making a gain in breach of fiduciary
duty.
There is a further consequence of the above developments, which is
in need of re-consideration in the light of these developments
and that is the
assumption in Attorney General for Hong Kong v
Reid[115] that as soon as a
bribe is received by a fiduciary it is held on a constructive trust for the
person injured.[116] This means
that the injured party is entitled to seek a proprietary remedy as of right,
rather than depending upon the exercise of
the court’s discretion. As
such, the constructive trust under this approach is institutional rather than
remedial. Such an
approach is incompatible with the approach which now prevails
in the context of other situations in which relief is sought for breach
of
fiduciary duty in which the award of proprietary relief is at the discretion of
the court. There is no compelling reason why the
approach adopted in relation to
relief available in respect of bribes received by a fiduciary or a third party
should fall outside
of this general framework, although there is and ought to
remain scope for proprietary relief in the case of a bribe. Equally there
ought
also to be scope to take into account the adverse consequences to third parties
of awarding such relief
[302] Developments in relation to equitable
compensation as a remedy for breach of trust and breach of fiduciary
duty
One of the key remedies which is utilised for the purpose of
providing relief in respect of both breach of trust and breach of fiduciary
duty
claims is that of an award of equitable compensation. In both contexts, the
courts have had to address a number of issues in
relation to the assessment of
the quantum of the compensation. Here attention will be focused on issues of
causation, contributory
responsibility and the apportionment of losses as well
as exemplary damages.
In breach of trust claims, the courts have had to
decide whether a trustee who is liable to compensate the beneficiary for losses
should be confined to making good losses that are caused by the breach of trust.
This issue has been addressed in the context of
the almost universal acceptance
of the proposition derived from an extensive statement by Street CJ in Re
Dawson[117] that the
obligation of a defaulting trustee is essentially that of effecting restitution
to the trust estate. In Youyang Pty Ltd v Minter
Ellison[118] the High Court of
Australia accepted that the quantum of the compensation is to be determined at
the trial using the full benefit
of hindsight, and in that instance was
satisfied that the loss would not have been suffered but for the
breach.[119] In adopting this
approach, the court approved of some statements by Lord Browne-Wilkinson in the
decision of the House of Lords in
Target Holdings v
Redferns.[120]
In
Target, one of the issues addressed was whether a trustee was
liable to compensate the beneficiary for not only losses caused by the breach
of
trust but also for losses which the beneficiary would have suffered in any event
if there had not been a breach of trust. It was
accepted that compensation
should be confined to making good losses caused by the breach of trust and that
the quantum should be
fixed at the date of
judgment.[121] It was also
accepted, that in this instance, the transaction would have gone ahead even if
there had been no breach of trust. This
does not mean that the common law rules
as to the assessment of damages apply in the context of a traditional trust,
although there
does have to be some causal connection between the breach of
trust and the loss to the trust estate, for which compensation is recoverable.
It should be noted that the remarks of Lord Browne-Wilkinson were made in the
context of a bare trust and in which the transaction
was completed. In this
instance it was considered to be artificial to talk in terms of the obligation
to re-constitute the trust
so as to enable the beneficiary, in this case the
client of a solicitor, to recover from the solicitor more than the client had in
fact lost. Relief was restricted to requiring the solicitor to restore moneys
wrongly paid away from the solicitor’s trust
account before completion of
the transaction. In the end, the court was unwilling to give compensation for
losses not caused by
the breach and the loss was measured at the time of the
judgment with the full benefit of hindsight.
It is also worthwhile to
consider the approach which has been adopted in relation to the issue of
causation when assessing compensation
for breach of fiduciary duty given that it
is now widely accepted that equitable compensation can now be ‘awarded for
a wide
variety of infractions of fiduciary and other
duties’[122] across a number
of common law jurisdictions.[123]
In Australia, the High court is yet to formally confirm what principles will be
adopted in claims for compensation for breach of
fiduciary duty although there
are some indications provided in Pilmer v Duke Group Ltd (in
liq)[124] even although it was
accepted that no relevant fiduciary duty was owed in this instance. The court
therefore did not consider it necessary
to provide an ‘exhaustive
consideration of the
topic’.[125] What does
emerge from statements in this case is that the measure of compensation for
breach of fiduciary duty is to be determined
by equitable principles, and that
these do not necessarily reflect the rules for the assessment of damages at
common law in tort
or
contract.[126] Although, Kirby J
dissented in this case and found that a fiduciary obligation had arisen, Kirby J
also accepted that the measure
of equitable compensation would differ from the
measure of common law damages and that often the measure would be greater in
equity.[127]
The matter was
also touched upon again by the High Court in Maguire v
Makaronis[128] where Brennan
CJ, McHugh, and Gummow JJ did accept that there was ‘need to specify
criteria for a sufficient connection or causation
between the breach of duty and
the profit derived or the loss sustained or the
asset’.[129] Particular
importance was attached to the obligation of a defaulting trustee to effect
restitution to the trust estate, and a presumption
that the default continues
until restitution has been made. Particular importance was also attached to
holding trustees to their
duties and the need to protect the interests of the
beneficiaries. In addition, a similar stringent response was considered to be
appropriate in relation to other delinquent fiduciaries, particularly solicitors
and other professional advisers. In this context,
the same judges, as well as
Kirby J, accepted the continuing applicability of the reasoning in an early
decision by the Privy Council
in London Loan Savings Co v
Brickenden,[130] that it is
not open to the court to speculate what course would have been adopted if the
fiduciary in breach of duty had have discharged
the obligation to make
disclosure of material facts.[131]
This would seem to preclude the court from speculating about what the
beneficiary would have done in the event that the fiduciary
has fulfilled his or
her obligations.
Notwithstanding the High Court’s re-assertion of
the importance attached to the obligation of the defaulting fiduciary to make
restitution, there have been a series of judgments by both State and Federal
judges in which the issue of causation has been addressed
in breach of fiduciary
duty claims, on the basis that the assessment of compensation can be made having
regard to the full benefit
of hindsight and that it is necessary to establish
that the breach of fiduciary duty caused the loss. Under this approach there has
to be an adequate or sufficient connection between the breach and the
loss.[132] Similar developments
have occurred in Canada, as exemplified in Canson Enterprises Ltd v Boughton
& Co[133] where a
solicitor was held responsible only for the losses directly flowing from the
breach of duty, but not for losses caused by
an intervening act unrelated to the
breach of duty. There, one judge was prepared to follow the common law in
assessing damages,[134] whilst
another was prepared to assess the loss at the time of the trial using the full
benefit of hindsight and insisted that there
needed to be a link between the
equitable breach and the loss for which compensation is claimed. However, in
other cases the courts
have not been so keen to follow the approach in Canson
in the context of different types of breach of fiduciary duty and have
insisted on the full restitutionary
approach.[135] In the United
Kingdom, the matter is yet to be considered by the House of Lords. There are
instances in which Brickenden has been accepted and
applied,[136] and in other
instances it has been accepted that it is necessary to address the issue of
causation, so that it is necessary to show
that the loss suffered has been
caused by the relevant breach of fiduciary
duty.[137] In the case of
Swindle v Harrison,[138] a
majority of the Court of Appeal were satisfied that the loss did not flow from
the failure to make full disclosure because the
disclosure would not have
affected the claimant’s decision to proceed with the
transaction.
In the context of awarding equitable compensation as relief
for breach of trust or breach of fiduciary duty, the courts have also
been
called upon to determine whether there is any scope for the apportionment of
losses. In breach of trust claims, it has generally
been assumed that the courts
are not able to apportion losses on the basis of some form of equitable
distribution or on the basis
of a consideration of contributory negligence on
the part of the claimant. Judgment for the full amount of the loss will be
awarded
so as to replenish the trust. In Australia, the High Court has
re-affirmed the opinion expressed in Astley v Australia
Ltd[139]that there are:
‘severe conceptual difficulties in the path of acceptance of notions of
contributory negligence to diminish
awards of equitable compensation for breach
of fiduciary duty’.[140]
This was rationalised on the basis that contributory responsibility focuses on
the conduct of the claimant, whereas fiduciary law
focuses on the obligations of
the fiduciary to act in the best interests of the beneficiaries. In contrast,
there has been some judicial
acceptance in New Zealand of contributory
responsibility as a complete or partial defence to a claim for breach of
fiduciary duty
based in part on the fusion of law and equity, and by analogy
with the Contributory Negligence
Act.[141] Such an approach has
not been universally
supported,[142] and even if such a
defence can be raised it is still necessary to make out a very strong case given
the very high standards expected
of fiduciaries.
In some jurisdictions,
the courts have also had to consider whether in exercise of the equitable
jurisdiction over fiduciaries, it
is possible for an award of exemplary damages
to be made to punish the fiduciary for reprehensible conduct, as well as to
deter others
of like mind from similar conduct. Different responses have arisen
in different jurisdictions. In Australia, the courts have responded
in the
negative, although in one instance there has been an outstanding dissent from
this view. In Queensland, Moynihan J in Taylor & Co v
Peffer[143] accepted the
defendant’s submission: ‘that it is difficult to reconcile a notion
of exemplary damages and an
account’.[144] In New South
Wales, the matter was comprehensively examined by the Court of Appeal in
Digital Pulse Pty Ltd v
Harris,[145] following
a decision by the trial judge that Australian law permits such an award. By a
majority, the Court of Appeal decided that
there is no power to award exemplary
damages for breach of fiduciary duty, although Mason P in a well considered
dissent, declined
to regard the proposition that equitable compensation was
indicative of the limits of monetary relief available in equity suggesting
that
the remedies go far beyond offering compensation.
In Canada, there have
been some isolated judicial statements that exemplary damages are available for
breach of fiduciary duty.[146] In
New Zealand, it has been accepted that exemplary damages are available for
breach of fiduciary duty in: ‘serious and exceptional
cases,’[147]and it was also
accepted by Cook P in Acquaculture Corporation v NZ Green Mussell
Co[148] that exemplary damages
could be awarded for actionable breach of confidence, although in this case
Somers J regarded equity and penalties
as
strangers.
[303] Developments in relation to equitable compensation as
a remedy for breach of an equitable duty of care by a fiduciary
In
Mothew v Bristol West Building
Society[149] Millett LJ
suggested that: ‘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 a
distinction without
a
difference’.[150] On that
basis Millett LJ therefore concluded that:
There is no reason in
principle why the common law rules should not be applied by analogy to 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”.[151]
This approach has been followed by New Zealand
judges[152] and by some
Australian judges. In Permanent Building Society v
Wheeler[153] Malcolm CJ,
Seaman and Ipp JJ in a joint judgment of the Full Court of the Supreme Court of
Western Australia said:
there is a fundamental distinction between
breaches of fiduciary obligations which involve dishonesty and abuse of the
trustee’s
advantages and the vulnerable position of the beneficiaries on
the one hand and honest but careless dealings which breach mere equitable
obligations on the other. There is ample justification on policy grounds for
more stringent rules in the case of breaches of fiduciary
obligations but not
where there has been honest but careless dealings. A court of equity applying
principles of fairness should
not require an honest but careless trustee to
compensate a beneficiary for losses without proof that but for the breach of
duty those
losses would not have occurred. It is significant as regards matter
of policy, that tortious duty not to be negligent and the equitable
obligation
on the part of trustees to exercise reasonable care and skill are in content the
same. There is every reason in such circumstances
to apply the equitable maxim
that equity follows the
law.[154]
Notwithstanding
the above approach, it should not necessarily be assumed that the High Court of
Australia will open the door for the
assimilation of the calculation of
compensation in equity with the calculation of compensatory damages in tort or
contract. Such
an approach did not find favour with Gleeson CJ, McHugh, Gummow,
Kirby and Hayne JJ in
Youyang[155] although in
that instance: ‘the complaint was not merely of the imprudent exercise of
a power of an investment, by failure to
employ care and diligence which equity
requires’.[156] It was
acknowledged that it had been accepted in some cases where the maladministration
involves a failure to exercise care and
diligence that equity requires, that an
award of equitable compensation resembles common law damages. Even although this
question
did not arise in the appeal, Glesson CJ, McHugh, Gummow, Kirby and
Hayne JJ went on to suggest that:
there must be a real question whether
the unique foundations and goals of equity which has the institution of the
trust at its heart,
warrant any assimilation even in this limited way of the
measure of measure of compensatory damages in tort and contract. It may
be
thought strange to decide that the precept that trustees are to be kept by
courts of equity up to their duty has an application
limited to the observance
by trustees of some only of their duties to beneficiaries in dealing with trust
funds.[157]
This statement
seems to be directed particularly at trustees in relation to their dealings with
trust funds but one might reasonably
anticipate that a similar approach might be
adopted in relation to a claim based on a lack of care and diligence by a
fiduciary other
than a trustee. It seems unlikely the High Court would favour
the intermingling of law and equity for the purpose of assessing equitable
compensation for breach of an equitable duty of care on the part of trustees and
other fiduciaries. This stands in marked contrast
to the approach which has
found favour in the United Kingdom, New Zealand and
Canada.
[304] Developments in relation to following and tracing
property in equity
In the next section, comments are provided about some
of the developments which have occurred in relation to the operation of the
rules for following and tracing trust property in equity in breach of trust
claims for the purpose of maintaining a proprietary
claim to the trust property
resulting in the award of a proprietary remedy usually in the form of a
constructive trust or equitable
charge or lien. Before considering proprietary
relief in the context of claims for breach of trust, it is necessary to provide
some
background information about developments which have occurred in relation
to the general requirements, which have to be satisfied
in order to follow and
trace property in equity. Proprietary relief in the context of breach of
fiduciary claims has already been
considered in an earlier section, although the
developments there, referred to in relation to the basis upon which proprietary
relief
is available in Australia, are also relevant to the background which is
presented here about developments in relation to the requirements
which have to
be satisfied in order to follow and trace property in equity.
It is now
widely acknowledged that following and tracing is a process which can be invoked
for the purpose of ascertaining what has
happened to the claimant’s
property. Following is the process of following the same asset at moves from
hand to hand and tracing
is the process of identifying a new asset as the
substitute for the old asset. The boundaries or the limits of this process are
set
by the doctrine of the bona fide purchaser. In the decision of the House of
Lords in Foskett v
McKeown,[158] Lord Millett
described tracing as a process whereby assets are identified and as belonging in
the realm of evidence, and as such tells
us nothing about the legal or equitable
right to the asset traced. It is not a claim or remedy but: ‘Merely the
process whereby
a claimant demonstrates what has happened to his property,
identifies its proceeds and the persons who have handled or received them,
justifies his claim that the proceeds can properly be regarded as representing
his property’.[159] Tracing
involves the identification of: ‘the traceable proceeds of the
claimant’s property[160] and
‘enables the claimant to substitute the traceable proceeds of the original
asset as the subject matter of his
claim’.[161] However, it
does not effect or establish the claim, which under orthodox principles, to be
considered in a moment, depend upon the
nature of the claimant’s interest
in the original asset. The claimant will normally be able to maintain the same
claim to the
substituted asset as he could have maintained to the original asset
subject to: ‘potential defences as a result of intervening
transactions’[162]
including the defence of bona fide purchaser and the defence of change of
position. Under this analysis, which has found acceptance
in some judicial
statements in Australia,[163] the
process of identification is not be confused with a proprietary right, although
the conduct of the process may also be a required
as a preliminary step when
making a proprietary as well as a personal claim against a recipient or
accessory, because in respect
of some of these claims it is still necessary to
demonstrate what has happened to the claimant’s property. Moreover, a
claimant
does not have to seek a proprietary remedy, and may elect instead to
seek a personal remedy, in which case it does not mean that
the claimant has
ratified the actions of the
defendant.[164]
Under well
established principles, the right to follow and trace the property into the
hands of third parties and into other substituted
property is said to depend
upon the existence of an existing equitable proprietary interest. Proprietary
claims in equity are said
to depend upon the establishment of an existing
equitable proprietary right. Under this approach, the proprietary claim is
based
on the vindication of ‘a proprietary right and is not based on
unjust enrichment or unjust factor. It is not dependent upon
the discretion of
the judge.[165] It is necessary to
identify that interest and to establish the priority of that interest against
other claimants, as well as establishing
that the property in question
represents the whole or part of that interest. The claimant will succeed by
virtue of title to the
property and not on the basis of what is determined to be
fair just and
reasonable.[166]
In
accordance with the need to base a proprietary claim on the existence of an
equitable interest in the property, a fiduciary relationship
in respect of the
property which is the subject matter of a proprietary claim, has been regarded
as a pre-condition which must be
satisfied in order to follow and trace property
as the identifiable subject matter of the proprietary relief. In Re
Diplock,[167] the Court
of appeal insisted that a fiduciary relationship was an essential pre-requisite,
although it was sufficient that there was
a fiduciary relationship between the
claimant and a third party, through whose hands the property passed. It did not
have to exist
between the claimant and the defendant, thus enabling the next of
kin in that case to claim against the defendant charities, who
did not stand in
a fiduciary relationship to the claimant in circumstances where the executors
had paid away money under a mistake
to the charities. The English judges have
continued to insist ever since Diplock that there must be some fiduciary
relationship which permits the assistance of equity to be raised. There must be
some initial fiduciary
relationship to start the tracing process in
equity.[168]
The matter was
once again considered by Lord Millett in the decision of the House of Lords in
Foskett v McKeown.[169]
Although reservations were expressed about the requirement, it was not
abandoned. Moreover, it was not necessary to explore the matter
in any detail as
it was a straightforward case in which a trustee had misappropriated trust money
and mixed it with the trustee’s
own money in order to pay for an asset for
the benefit of the trustee’s
children.[170] As one judge has
pointed out in a subsequent case, Lord Millett: ‘stopped short of deciding
that the traditional pre-condition
of tracing in equity should be
overruled’.[171] Hence, it
is still necessary in the United Kingdom to raise an equity to follow and trace
property on the basis of a fiduciary relationship.
It is necessary to
briefly reflect on whether there is any such requirement under Australian law.
It is not entirely certain that
such a requirement will be insisted upon in
Australia, although the existence of such a requirement has been acknowledged in
New
Zealand.[172] This matter must
also be considered in the context of the acceptance in Australia of the remedial
constructive trust, which enables
a proprietary claim to be sustained even
although there is not any subsisting equitable interest as the basis for
sustaining a proprietary
claim to identifiable property. There is no decision
binding on lower courts in Australia which requires a fiduciary relationship
for
the purpose of maintaining a proprietary claim and for the purpose of enabling
the claimant to follow and trace property in equity.
It may therefore be the
case that it is not a requirement which has to be satisfied under Australian
law, given that a remedial constructive
trust is available on the basis of an
unconscionable denial of a beneficial interest, and that proprietary relief does
not have to
be confined within a framework of established categories, largely
dependent upon the existence of a fiduciary relationship. This
avoids the
temptation to distort the notion of a fiduciary relationship, as sometimes
occurs, in order to invoke the armoury of proprietary
remedies, and it enables
flexibility and discretionary considerations to play their part when the
proprietary claim is sought without
any established proprietary right as the
foundation of the claim. It also takes into account the existence of a variety
of rationales
for equitable relief, apart from instances which involve a breach
of trust or a breach of fiduciary duty.
[305] Developments in
relation to the rules for following and tracing trust property in
equity
It is now necessary to turn our attention to some developments in
relation to aspects of the rules which evolved in equity for the
purpose of
following and tracing property in equity, when the pre-condition of a fiduciary
relationship is satisfied. It is necessary
to observe that both the common law
and equity developed rules and presumptions in relation to following value
through a series of
transactions. Not only were the rules in equity
differentiated from the common law rules on the basis of the requirement of a
fiduciary
relationship, but the rules themselves were better able than the
common law rules, to deal with intermingling of funds in bank accounts
and in
other substitutions. Equity, unlike the common law, was able to resolve an
amalgam into its separate parts by notionally charging
a fund for the purpose of
recovering the intermingled amount. Notwithstanding these differences, the
process is the same at common
law and equity, although there are different
pre-conditions which have to be satisfied in order to invoke the process. Lord
Milett
drew attention to this in Foskett v
McKeown,[173] indicating that
the requirement in equity of a fiduciary relationship relates not to the process
but to the nature of the claim or
right, rather than the exercise of
identification. In his opinion, there is nothing inherently legal or equitable
about the exercise
of identification, and hence no logical justification for
different rules for tracing at law or in equity and for the distinction
to
produce capricious results in cases of mixed funds. On the other hand, whether a
proprietary claim could be maintained was a different
matter, and it is in that
context, at least in the United Kingdom, that the existence of a fiduciary
relationship may still be relevant,
but not in relation to the process of
tracing whether it be at law or in equity.
It may be that the time has
come for the maintenance of separate rules for the location of value to be
abandoned irrespective of whether
the claim is a legal or an equitable claim.
The process is inherently the same whether one is seeking to enforce a legal or
an equitable
right. This seems to have been contemplated by Lord Millett in
Foskett in indicating that: ‘There was certainly no justification
for allowing any distinction between them to produce a capricious
result in
cases of mixed substitutions by insisting upon the existence of a fiduciary
relationship as a pre-condition for applying
equity’s tracing
rules’.[174] However, it
would seem that ‘it cannot be said that Foskett has swept away the
long recognised difference between common law and equitable
tracing’,[175] in so far as
he: ‘stopped short of deciding that the traditional pre-conditions of
tracing in equity should be
overruled’[176] in English
law.
There are some aspects of developments which have occurred in
relation to the operation of the equitable rules for following and tracing
trust
property in breach of trust claims which are worth mentioning. It seems to be
now well established that a beneficiary does
have the option to claim a
proportionate interest when tracing misappropriated trust property into mixed
substitutions. This seems
to be well established in Australia on the basis of
the decision of the High court in Scott v
Scott[177] that the
beneficiaries may elect to: ‘take such part as bears the same proportion
to the whole of the misapplied trust moneys
bore to the purchase
price[178] including the profit
irrespective of whether the property is specifically severable or
not.[179] Various mechanisms,
including a charge and a constructive trust, are available to give effect to
each party’s proportionate
entitlements.[180]
In the
United Kingdom, it is also now accepted as: ‘established law that the
mixed fund belongs proportionately to those whose
money was
mixed’.[181]
According to Lord Millett in Foskett, the beneficiary has the option
to take a proportionate part of the property or a lien on it, depending on which
is the most advantageous
when a trustee had bought property partly with his or
her own moneys and partly with misapplied trust moneys. The lien will be
available
for the amount of the misappropriated trust moneys. It does not matter
whether the mixing precedes the investment or occurs at the
time of the
investment by making simultaneous or sequential payments out of different funds.
It is only necessary to show that the
claimant’s property contributed to
the acquisition of the new asset. It is not necessary to establish that it has
contributed
to any increase in the value of the new
asset.[182]
In
circumstances where the asset has been disposed of in favour of a gratuitous
donee, the donee is unable to acquire any better title
than the trustee
wrongdoer, and the lien is enforceable against the trustee and those who claim
under him other than a bona fide
purchaser for value without notice. The
beneficiary is able to enforce the lien against any part of the property, and
those who take
through the wrongdoer must subordinate their claim until the
beneficiary’s contribution is satisfied. In this context, innocent
recipients will be in no better position than the wrongdoer trustee donor of the
innocent recipients.
Apart from a lien for the amount of the
misappropriated trust moneys, it was also accepted in Foskett that the
beneficiaries may also seek to claim any increase in value based on their
contribution, as against those who claim as substitutes
through the wrongdoer,
on the basis of a pro-rata division of the property. There is also scope for
such a division to be excluded,
and sometimes the beneficiary may be able to
claim all of the property against the wrongdoer and those other than a bona fide
purchaser
for value without notice, including
volunteers.[183] In
Foskett, the children of the trustee who were volunteers of the asset
acquired with funds, consisting of the trustee’s own funds and
misappropriated trust funds, were considered to be in no better position than
the wrongdoer from whom they acquired the asset gratuitously.
They were not able
to raise the defence of a bona fide purchaser.
In Diplock,
it was decided that where an innocent volunteer has mixed his or her
own funds with those of the beneficiary’s funds, both parties
are required
to recognise each other’s claims to the fund and the claim of the
equitable owner is not entitled to take priority
against the claim of the
volunteer.[184] The result is that
each share pari passu. This approach was endorsed in Foskett, by Lord
Millett as applicable where a mixed fund consists of misapplied trust property
and contributions of innocent parties rather
than the trustee’s own
contribution to the mixed fund. In such instances the claims would be treated
inter se, as there is
no basis upon which such claims are able to be
subordinated to any others. The beneficiaries and the innocent contributors are
required
to share the property rateably and the gains and losses will also be
borne rateably.
The rules for following and tracing property in equity
have also evolved for the purpose of dealing with the allocation of losses
between two or more claimants to a mixed fund, including mixed funds which
consist of more than one set of beneficiaries. One of
the problems which arises,
is how are losses to be borne between claimants when moneys are withdrawn from
the fund and dissipated.
Sometimes the rule in Clayton’s case is
applied, that is losses are allocated on a first in first out basis. On other
occasions, the losses are attributed pari passu
as between the beneficiaries
constituting the fund. It is now generally accepted in Australia, New Zealand,
Canada and the United
Kingdom that the first in first out principle is not
necessarily appropriate for application to large funds between the victims of
large scale fraud.[185] Sometimes
the courts will regard the moneys as consisting of a common pool enabling the
contributors share rateably on the basis
that the equities are
equal.[186] There are no hard and
fast rules and the courts will endeavour to adopt the most equitable formulae
having regard to a range of factors.
There are a number of reported instances in
which Australian judges have demonstrated a marked reluctance to apply the rule
in Clayton’ case, in the context of mixed funds from more than one
trust particularly where the claimants have participated in a common pooled
fund.[187] Funds are very often
distributed proportionately on the basis of contributions to the funds
particularly if no other rational basis
is available to distinguish the
contributions of different claimants. Sometimes the court is able to use records
to differentiate
between different claimants. In New Zealand, it has also been
accepted that the rule in Clayton’s case can be displaced if it is
impossible to determine the order of payments in or
out,[188] and in Canada pro rata
sharing has been considered to be a more workable
rule.[189] In addition, the courts
in Canada have also declined to apply the lowest intermediate balance rule which
leads to a conclusion that
a particularly beneficiary’s share has been
misappropriated and dissipated. Pro rata sharing of funds which remain has been
permitted amongst multiple contributors to a common
pool.[190] It also should be noted
that Clayton’s case has been accepted as applicable in the case of
mixed funds of an innocent volunteer and trust funds but only in instances of an
active
unbroken bank account. A rateable division is regarded as applicable to
other property acquired by a volunteer utilising such a mixed
fund,[191] although it has been
asserted in more recent English cases that the claimant should be able to
recover in full, the traceable proceeds
out of mixed fund, without having to
acknowledge the entitlement of the innocent volunteer to a share of the funds,
subject to a
defence of change of
position.[192]
It has
already been demonstrated that a degree of flexibility has been adopted for the
purpose of identifying the claimant’s
property when the process of
following and tracing trust property is invoked. In the United States it is also
possible under what
is referred to as the ‘swollen asset’ theory to
obtain proprietary relief even although the claimant is unable to identify
specific property by application of the traditional rules and presumptions for
following and tracing property. So far, that approach
has not won acceptance in
Australia or the United Kingdom. In Space Investments Ltd v Canadian Imperial
Bank of Commerce Trust Co,[193]
Lord Templeman speculated about what would happen if it was impossible for
the beneficiaries to trace misappropriated trust moneys
into any particular
asset in the context of a trustee who was a bank and had used all of the deposit
moneys for the general purposes
of the bank. Lord Templeman indicated that the
beneficiaries would be able to trace into all of the assets of the bank and
would
be entitled to an equitable charge over all of the assets of the bank. As
well they would be entitled to priority over the unsecured
creditors who were
considered to have voluntarily assumed the risk. It was even suggested that a
lien could be imposed over the assets
even where it could be demonstrated that
the bank had dissipated the funds belonging to the
beneficiaries.[194] However, it
was not necessary to apply this approach in Space Investments, as
there was an express term in the trust instrument which permitted the trustee to
treat the money notionally deposited, as if the
trustee was beneficially
entitled to the money. The claim of the new trustee was treated as that of an
unsecured creditor, which
ranked pari passu with that of the other unsecured
creditors and this was rationalised on the basis that the seller had accepted
the risk of insolvency by allowing the trustee to treat the funds as if the
funds were the trustee’s own money.
The approach outlined by Lord
Templeman in Space Investments has not been endorsed in subsequent
judicial statements in the United Kingdom and it is yet to find any support in
Australian cases.[195] In El
Ajou v Dollar Land Holdings
plc[196] Millett J indicated
his approval for such an approach, and in principle was prepared to impose a
lien even although it was not possible
to identify the claimant’s money in
bank accounts mixed with other moneys by application of the traditional rules
and presumptions.
On the other hand, the Privy Council in Re Goldcorp
Exchange[197] rejected the
broad approach of Lord Templeman in Space Investments, deciding that it
would not overcome: ‘the difficulty that the moneys said to be impressed
with the trust were paid into an
overdrawn account and thereupon ceased to
exist’.[198] It has also
been confirmed by the English Court of Appeal in Bishopsgate Investments Ltd
v Hoaman[199]that moneys
misapplied cannot be pursued through an overdrawn and therefore non-existent
fund. In that case Leggatt LJ regarded Space Investments as
‘authority for no wider proposition than that where a bank trustee wrongly
deposits money with itself, the trustee is able
to trace into all the
bank’s credit
balances’.[200]
[306] Developments
in relation to defences to claims for breach of fiduciary duty and breach of
trust
There is an extensive range of defences which are frequently raised
in an effort to defeat claims for breach of fiduciary duty and
breach of trust.
There are some specific developments and possible future developments that will
be highlighted here, although like
other parts of this lecture, it is not
intended to be a comprehensive review of those defences and the requirements
which have to
be satisfied in order to establish the particular defences.
Acquiescence and laches are frequently raised as defences to such
claims, and much confusion arises from the different senses in which
these words
are used, in what one Judge has described as a: ‘vague area of equity
doctrine’.[201] The various
senses in which these words can be used were spelt out by Deane J in Orr v
Ford.[202] This
judgment has, perhaps, been overlooked in subsequent cases, and it is worth
drawing attention to it, because it contains a useful
analysis and clarification
of the scope of these defences. In addition, Deane J also drew attention to the
fact that scope exists
for doctrine to be unified in the context of these
defences, instead of having to raise particular species of these defences, and
having to satisfy the particular requirement for that particular species. Such
unification may be possible within the framework of
estoppel by conduct, whereby
relief in equity would be precluded: ‘where the enforcement of rights
would be
unconscionable’.[203] To
date the High Court has not endorsed such an approach, although as will be made
apparent in a moment, such an approach may be
implicit in the adoption of the
defence of change of position, which is based upon inequitable circumstances,
particularly detrimental
outcomes not dissimilar to detrimental reliance which
underpins the doctrine of
estoppel.[204]
There is now
scope for the defence of change of position to be applied in both personal and
proprietary claims for breach of fiduciary
duty and breach of trust in Australia
and the United Kingdom. In considering this defence, it needs to be placed in
the context of
the acceptance of the defence of change position as a defence in
claims in restitution based on unjust enrichment, and in which the
defence is
being developed on a case by case basis. The High Court, in accepting that such
a defence could be raised in a restitution
claim in David Securities Pty Ltd
v Commonwealth Bank of
Australia[205] identified the
central element as that of: ‘the defendant having acted to his or her
detriment on the faith of the
receipt’.[206] In the United
Kingdom, the House of Lords approved of the introduction of the defence in
Lipkin v Karpanale Ltd[207]
and indicated that the defence was available: ‘to a person whose position
has so changed that it would be inequitable in all
the circumstances to require
him to make restitution, or alternatively to require him to make restitution, or
alternatively to make
full
restitution’.[208] Since
then, the courts in England and Australia have been developing the defence on a
case by case basis in restitution claims. An
analysis of those developments is
outside the scope of this lecture and the comments which follow are confined to
a consideration
of the extent to which there is scope for the defence to be
relied upon as a defence to a proprietary claim in equity arising out
of a
breach of trust or breach of fiduciary duty, particularly where it is sought to
sustain such a claim against a third party.
Some reference will also be made to
the scope for this defence to be raised in personal liability claims against
recipients and accessories.
In Queensland, the defence of change of
position was introduced by statute in relation to breach of trust claims, long
before the
defence was judicially accepted as a defence in restitution claims.
The defence is provided for by s 109(3) of the Trusts Act 1973 and
this section was probably introduced in response to the efforts of the court in
Diplock, in seeking a find a way to respond to the inequitable
circumstances faced by the innocent volunteers against whom it was sought
to
maintain a proprietary claim in respect of the wrongful distribution of property
in the administration of a deceased estate. The
section applies generally to the
wrongful distribution of trust property and not only to the distribution of the
estate of a deceased
person and the use of the phrase ‘any remedy’
is wide enough to encompass both personal and proprietary remedies, so
that the
defence may be raised by a third party in response to both personal and
proprietary claims. In other states where such legislation
does not exist, it
may be still possible for an innocent volunteer to raise the defence in
proprietary claims based on breach of
trust, as for example occurred in
Gertsch v
Atsas,[209]
where Foster AJ allowed the defence to be raised and made a determination on
the basis of weighing up the advantages and disadvantages
accruing to the
recipient of the money.
In Lipkin, the House of Lords appears to
have also cleared the way for the defence to emerge in relation to proprietary
claims whether advanced
at law or in equity, without however supplanting the
defence of the bona fide purchaser. According to Lord Goff, the adoption of
the
defence of change of position: ‘will enable a more generous approach to be
taken to the recognition of the right of restitution;
in the knowledge that the
defence in appropriate cases is
available’.[210] It was
subsequently acknowledged by Millett LJ in Boscawen v
Bajwa[211] that the
introduction of the defence will also enable: ‘a re-examination of many
decision of the past in which the absence
of the defence may have led judges to
distort basic principles to avoid injustice to the
defendant’.[212] This is an
obvious reference to Diplock. There seems no doubt that the difficulties
which arose in that case will now, in the absence any statutory provision like
that which
exists in Queensland, be able to be determined in the United Kingdom
by application of the defence of change of position. This may
mean some other
aspects of Diplock may need to be reconsidered, particularly the refusal
to allow funds to be traced in some of the instances that were considered in
Diplock and in which the denial of tracing was said to depend upon the
inequitable impact of tracing upon the innocent volunteer. It would
now be a
matter of deciding whether those circumstances were sufficiently inequitable so
as to enable the volunteer to rely on the
defence of change of position and if
not, tracing might now be possible in some situations rejected in
Diplock.
There is a further issue that arises as a consequence of
the acceptance of the defence of change of position, and that is the extent
to
which it may be possible for a third party to raise the defence in response to a
receipt or accessory personal liability claim.
Such a defence does not fit well
in relation to these claims, as the requirements are currently framed in terms
of knowledge, whereas
the defence of change of position is based on an innocent
change of position based on the receipt of the
monies.[213] However, as
previously mentioned, there are those who advocate the adoption of a strict
liability approach in receipt based claims
subject to a defence of change of
position. Accessory liability would remain outside of this framework and would
depend upon the
establishment of dishonest assistance in the breach of
duty.
One further matter which is worth mentioning in the context of
defences, is that of the response of the judiciary to clauses in trust
instruments, seeking to exonerate trustees from liability for breach of trust.
In Australia, the courts have generally adopted a
narrow construction in
relation to such clauses. Exemptions have been denied when trustees have acted
dishonestly and preferred their
own
interests.[214] In Minter
Ellison v Perpetual Trustee WA
Ltd,[215] the conduct of the
solicitors as trustee was not such that they had acted in good faith because
they acted consciously and deliberately
in preferring the interests of their
client and had paid no heed to their trust duties. Moreover, the court may also
prevent a trustee
from relying on an exemption clause if it is satisfied that it
would be unconscionable or unconscientious for a trustee to rely on
the clause.
Such a finding was made in one case, in circumstances where a firm of solicitors
was aware of their obligations and was
responsible for misleading correspondence
so that other parties would not become aware of the
breaches.[216]
In the case
of Armitage v Nurse,[217]
decided in the United Kingdom, the court had to consider the effect of a clause
which exonerated trustee from their ‘own actual
fraud’. This was
construed to mean dishonesty, as distinct from constructive or equitable or
fraud, so as to connote: ‘an
intention on the part of the trustee to
pursue a particular course of action either knowing that it is contrary to the
interests
of the beneficiaries or being recklessly indifferent whether it is
contrary to their interests or
not’.[218] In another
English case, the test of dishonesty as applied in the accessory liability cases
was adopted for the purpose of construing
an exemption clause which limited
liability to dishonesty.[219]
Again in the case of Allan v Rea Brothers Trustee
Ltd,[220] Robert Walker
LJ in considering the effect of an exemption clause which excluded the
trustees’ liability for ‘wilful and
individual fraud or
wrongdoing’, decided that any breaches of the trustee’s duty did not
come within any ‘measurable
distance as amounting to wilful and individual
fraud or
wrongdoing’.[221]
It
may be that the courts will also need to turn their minds to the permissible
scope of such exemption clauses and place limits on
the extent to which it is
permissible to exclude liability. In Armitage v
Nurse,[222] Millett LJ
reflected on the permitted scope of such clauses, and indicated that an
exemption clause could exclude liability for wilful
default as well as for
ordinary negligence and want of probity as well as gross negligence. However,
Millett LJ went on to suggest
that: ‘there is an irreducible core of
obligations owed by trustees to the beneficiaries and enforceable by them which
is the
fundamental concept of a
trust’[223] and in the
absence of which there are no trusts. The minimum necessary and sufficient to
give substance to the trusts was, in the
opinion of Millett LJ: ‘the duty
of the trustee to perform the trusts honestly and in good faith for the benefit
of the beneficiaries’.[224]
He did not include the duties of skill, prudence and diligence on the grounds
that it was ‘Too late to suggest that the exclusion
of liability for
ordinary negligence or want of probity is contrary to public
policy’.[225] Milett LJ also
drew our attention to the fact that it is now widely acknowledged that such
clauses have gone too far, and that in
particular, professional trustees who
charge for their services should not be able to rely on exemption clauses to
exclude liability
for gross negligence. Perhaps there is a greater willingness
on the part of the Australian judiciary to restrict the operation of
such
clauses or to deny them operation on the basis of unconscionability. In some
jurisdictions, legislation has been introduced
to deny the effect of exemption
clauses, as for example, in Jersey, where a law was introduced in 1989 which
prevents an exemption
clause from operating, which purports to absolve a trustee
from liability for his own fraud, wilful misconduct or gross negligence.
IV CONCLUSION
By way of conclusion to this lecture, I would like to offer some comments
in the form of an evaluation of the developments which have
occurred in
equitable relief for breach of fiduciary duty and breach of trust which I have
highlighted in this lecture. These comments
are made against the background of
the comparative perspective which I have adopted in outlining those
developments.
1. The attempts which have been made in some jurisdictions to expand the role of fiduciary obligations for the purpose of protecting individual and social interests should continue to be resisted in this country, so that the subordination of self interest should continue to be reflected in liabilities arising on the basis of conflict of duty and interest, misuse of a fiduciary position, undue influence and confidentiality. Other avenues may be available, and other rationales may well provide a basis for intervention without the need to resort to expanding the function served by the obligation of loyalty as currently understood in the Australian context.
2. Notwithstanding what has been suggested in the previous paragraph, there is clearly scope for the currently accepted fiduciary duties to arise in the context of a more extensive array of relationships, outside of the well established categories of such relationships. This is particularly so in relation to professional advisory relationships. There is now greater scope for this to occur on the basis of the court finding that there is a legitimate expectation of an undertaking to act in the best interests of another party to the relationship or some third party.
3. The obligation to avoid conflicts of duty and duty, has gained more prominence in claims for breach of fiduciary duty in litigation against lawyers and it has also become apparent that this duty may also arise in the context of other advisory relationships. This obligation embraces situations involving the simultaneous representation of clients in the same matter and successive representation in separate matters. In same matter conflicts, the courts should be willing to intervene whenever it is demonstrated that it is impossible for a lawyer to act fairly for both parties. When acting against a former client, the case for a very strict approach is clearly required so as to place the onus on the lawyer to demonstrate that there is no risk of disclosure of confidential information. In the last instance, the courts should continue to insist that it is up to the lawyer to demonstrate that effective means are in place to prevent disclosure from occurring, although it is probably not necessary to go so far as to adopt an irrebuttable presumption in such instances as has occurred in some jurisdictions. In addition, one should also not loose sight of the additional obligations which attach to a lawyer and others such as financial advisers when undertaking an advisory role.
4. A trustee in exercise of a duty of care, owed in relation to the management and administration of a trust, is not required to simply act as an ordinary business person. It is sometimes overlooked in formulations of this duty, that the trustee is unlike an ordinary business person, in that the trustee does have to take account of the interests of the beneficiaries to whom the obligation is owed. The duty of care is therefore coloured by the fiduciary standard which may prevent the duty from being completely assimilated with a common law duty of care. The expectations of trustees and the responsibilities of trustees are manifestly different to those of an ordinary business person. Moreover, there should also be general acceptance that a higher duty of care applies to professional trustees and trust corporations by reason of special skill and care which such trustees profess to have and that liabilities should arise when the trustees conduct falls below such a standard of care.
5. It is suggested that in recipient liability personal claims against third parties for breach of trust and breach of fiduciary duty, the liability has a proprietary rationale and is therefore receipt based and not fault based. There is therefore no place for dishonesty or want of probity as a basis for liability in respect of such claims. There is a clear need for the courts to settle on an agreed approach in relation to such claims, and if knowledge is to be an essential ingredient, then all levels of knowledge should suffice. However, a good case can be made out for the abandonment of knowledge altogether as a requirement, and instead for liability to be strict, but subject to a defence of change of position.
6. There is also a clear need for the courts to settle upon an agreed approach in relation to accessory liability personal claims against third parties for breach of trust and breach of fiduciary duty. Unlike a recipient claim, the liability does not depend upon the receipt of property and it seems to be now accepted that liability is fault based. It is a matter of settling on what will constitute fault in this context. Should it be knowledge based or should it depend upon some form of dishonesty? It would seem that it is likely for the time being at least, to be based on dishonesty, although not confined to being an accessory to dishonest and fraudulent conduct on the part of the party primarily liable. If this is to be the approach, then it should have a strong objective element and not left to be determined on the basis of the subjective moral standards of the individual. The time is long overdue for the High Court to re-examine both recipient and accessory liability, should an appropriate opportunity arise.
7. In the case of both breach of trust and breach of fiduciary duty claims, the remedies available for the purpose of redressing the breach are to a large extent discretionary, except perhaps in instances where the plaintiff succeeds on the basis of an existing proprietary right, although even in such instances discretionary factors are brought into play when deciding if the defendant is able to rely upon a defence to defeat the claim. It is for the court to determine the appropriate remedies which will depend largely on the circumstances of the particular case. In these cases, the court has available to it the full armoury of both personal and proprietary remedies. The remedial responses and the range of considerations which come into play are often very different to those which determine relief at common law. Restoration is a key feature of relief in these claims and punishment has generally not been part of the equation.
8. The adoption in Australia of a more flexible approach in relation the award of proprietary relief for the recovery of profits, gains and benefits derived in breach of fiduciary duty, is a sensible development. The award of proprietary relief is no longer automatic and in many instances it will be unnecessary or inappropriate. Personal remedies will in many instances provide adequate relief, although the remedial constructive trust may, if necessary, be declared enabling the court to shape the relief to avoid injustice to third parties. The courts are also mindful of the need to avoid unjust enrichments to the plaintiff when calculating profits, benefits or gains or when assessing losses for the purpose of equitable compensation. Fiduciary liability should be regarded as based on its own well established principles, and it is therefore suggested that it is somewhat misleading to describe that liability in terms of constructive trusteeship, as there are no loner any automatic proprietary consequences, in the absence of any existing equitable interest in the property in question. The developments which have taken place in relation to proprietary relief for breach of fiduciary duty should serve as a signal that a constructive trust should also no longer automatically arise the moment a bribe is received by a fiduciary. There should remain scope for proprietary relief in such instances, but on the basis of the flexible considerations, which prevail when a remedial constructive trust is applied.
9. The emergence in Australia of equitable compensation as a remedy not only for losses arising from breach of trust but also for relief arising from a breach of fiduciary duty and for breach of other equitable duties including equitable duties of care, is a significant and important development in relation to the relief that is available in response to such claims. As a result of this development, issues have arisen about causation and contributory responsibility for the purpose of apportioning losses in such instances. The courts have and should continue to attach particular importance to the obligation of defaulting trustees and other fiduciaries to make restitution as an aspect of the very high standards of conduct expected of such people. For that reason, the courts should tread carefully when called upon to adopt common law notions for the assessment of equitable compensation, and it may be that judges should not too readily speculate about what might have happened if the duty had been fulfilled. Even in relation to equitable duties of care owed by trustees and other fiduciaries, the standard of care is readily coloured by the fiduciary standard to protect the interests of another and it may be that common law notions derived from contract and tort are not necessarily appropriate for the purpose of the assessing quantum of equitable compensation for breach for an equitable duty of care. On the other hand, it may be permissible for the courts to insist on an adequate or sufficient connection between the breach and the loss in respect of which compensation is sought. There are also still severe conceptual difficulties preventing the acceptance of notions of contributory negligence, for the purpose of apportioning awards of compensation, although it may still be possible to reach similar results by means of awards of counter restitution in favour of the defendant and by application of established equitable defences. There is also a very strong inclination in Australia to resist the introduction of exemplary damages in breach of fiduciary duty claims, although convincing reasons have been advanced for not regarding equitable compensation as indicative of the limits of monetary relief available in equity in a breach of fiduciary duty claim. Even so, the award of such relief would be restricted to very exceptional kinds of cases.
10. It is suggested that the Australian courts, unlike their British counterparts, should avoid the temptation to restrict proprietary claims in equity within the straight jacket of an existing equitable proprietary interest, with the result that in England it is still necessary to find a fiduciary relationship in order to invoke the rules and presumptions developed in equity for the purpose of following and tracing property. There should remain scope for proprietary relief even although the claim is not advanced on the basis of an existing equitable proprietary right, and it should still be possible in such instances to enable the claimant to invoke the rules and presumptions developed by equity for the purpose of following and tracing property as part of the process of identifying the subject matter of the proprietary claim. In addition, it is also suggested that there is no logical justification for any longer, maintaining different rules for the purpose of tracing property at law or in equity. This produces capricious results in the case of mixed funds, and hence the result should be the same irrespective of whether the proprietary claim is characterised as a legal or an equitable claim.
11. There is need for flexibility in the utilisation of the process of tracing, and it has been demonstrated how the courts in different jurisdictions have responded to this need in the context of mixed funds made up of many contributors. On the other hand, there has been a very marked reluctance on the part of the judiciary, particularly in the United Kingdom, to adopt other tracing approaches to enable a claimant to recover property when the claimant is unable to identify specific property by application of the established rules for following and tracing trust property. The established principles and presumptions are clearly in need of re-examination in the context of much more sophisticated business, fiscal and investment transactions, which now very often take place internationally and by means of the electronic transfer of funds. The rules and presumptions were developed in the latter part of the nineteenth century and in the early part of the twentieth century in the context of family trusts, and, as such, are not adequate for dealing with fraud in the context of the rapid expansion and internationalisation of business, and the very substantial amounts of funds that may be involved.
12. There is scope for a more unified approach to be adopted in relation to the defences based on equitable doctrines, such as laches and acquiescence rather than continuing to deal with such defences on the basis of their own specific requirements. This has gained added momentum by reason of the introduction of the defence of change of position, based on inequitable circumstances, particularly detrimental reliance. There is therefore, a role for unconscionability doctrine in this context.
13. The defence of change of position is now clearly available in relation to both proprietary and personal claims, although it has not, and nor should it supplant the defence of the bona fide purchaser, or the registration provisions of legislative enactments such as the Land Transfer Act. The bona fide purchaser, marks the limits of proprietary relief and the limits of personal recipient liability, and it has already been suggested above, that personal recipient liability ought to be strict, but subject to a defence of change of position. In respect of personal accessory liability claims, it may be that there is no scope for a defence of change of position, given that liability is likely to depend on proof of dishonesty. In the past, the absence of any defence of change of position may have led the courts to deny the availability of the process of tracing in some situations, in order to produce just outcomes for innocent volunteers. It is no longer necessary to do this, now that a volunteer is able to raise such a defence. It may be that a claimant will be able to identify the property claimed to greater extent that might otherwise have been thought possible when seeking to trace funds wrongly distributed to an innocent volunteer. In order to resist the claim, the volunteer must now not only be able to demonstrate inequitable circumstances, but must also be able to demonstrate that those inequitable circumstances satisfy the requirements which have to be satisfied in order to make out a defence of change of position.
14. The courts should continue to scrutinise exemption clauses very closely and more attention should be given to determining the permissible scope of such clauses. There is much to be said for the view that there is an irreducible core of obligation, which is fundamental to trust and other fiduciary relationships without which, there would be no trust. The fiduciary standard which requires the fiduciary not to act out of self interest lies at the heart of such relationships. In particular, professional trustees who charge for their services should not be able too readily to avoid their obligations. Unconscionability doctrine may have a role to play here, as may legislative intervention.
15. Finally, the use of the terminology of constructive trust and constructive trusteeship has been deliberately avoided in this lecture, except in the context of the constructive trust as a proprietary remedy. These terms are often used when referring to various aspects of liabilities for breach of fiduciary duty, including the personal lability of recipients and accessories. There may be no proprietary connotations when used in such contexts. This only causes confusion and it is suggested that as a result of the developments discussed in this lecture, that the use of this terminology should be abandoned, as one is able to isolate the principles which determine liability for breach of fiduciary duty, including the principles which determine the personal liabilities of third parties from the principles which govern relief for breach of fiduciary duty and the related third party liabilities. It is no longer necessary to pretend that this topic is about constructive trusts or constructive trusteeship. It is, to a large extent, about personal obligations as they affect the party with primary responsibility, as well as the impact of those obligations on third parties for the purpose of determining the personal liabilities of third parties. It is then possible to regard the remedial framework when it is brought into operation for redressing such breaches, as a separate issue, without any automatic assumption that the relief will need to be proprietary in its consequences. Nevertheless, within that remedial framework, there is scope for both personal and proprietary remedies to be invoked, although the courts will more often than not prefer to award a personal remedy rather than a proprietary remedy. The proprietary remedy will always be dependent upon the existence of identifiable subject matter against which the remedy is able to operate with proprietary consequences. In addition, it may also be possible to sustain a proprietary claim on the basis of an equitable proprietary right, or perhaps even on the basis of an unconscionable denial of a beneficial interest, which then enables the process of following and tracing to be invoked for the purpose of identifying the continued existence of the property as the subject matter of a proprietary claim.
[*] Malcolm Cope, Barrister of
Law, Professor, Queensland University of Technology, Faculty of Law.
Lecture
delivered on 27 October 2005 as part of the WA Lee Equity Lecture Series,
Faculty of Law, Queensland University of
Technology.
[1] For an explanation
of the obligation of loyalty as the distinguishing obligation of a fiduciary see
Bristol and West Building Society v Mothew [1996] EWCA Civ 533; [1997] 2 WLR 436, 448 (Millett
LJ).
[2] This paragraph is based
on the reasoning of the High Court in Breen v Williams [1996] HCA 57; (1996) 186 CLR 71.
See also Fico v O’Leary [2004] WASC 215, [156]; Bell Group Ltd
(In Liq) v Westpac Banking Corporation [2001] WASC 315, [191-2] (Owen
J). It may be that a similar approach prevails in New Zealand see S v
Attorney-General [2003] NZCA
149.
[3] (1992) 93 DLR
(4th) 415.
[4] (1992)
92 DLR (4th) 449.
[5]
Norberg v Wynrib (1992) 92 DLR (4th) 449 at
490-1.
[6]
Ibid.
[7]
Ibid.
[8] Hospital Products
Limited v United Surgical Corp [1984] HCA 64; (1984) 156 CLR
41.
[9] ASC v AS Nominees
Ltd [1995] FCA 1663; (1995) 62 FCR 504, 521; P Finn, ‘Fiduciary Reflections’
Paper presented at 13 Commonwealth Law Conference, Melbourne, Australia, Sunday
13 April – Thursday 17 April,
2003.
[10] Woodson Sales Pty
Ltd v Woodson (Australia) Pty Ltd [1996] NSW Lexis 3758,
[73].
[11] DHL International
(NZ) Ltd v Richmond Ltd [1993] 3 NZLR 10, 23 (Richardson
J).
[12] Lac Minerals v
International Corona Resources Ltd (1989) 61 DLR (4th) 14, 40 (La
Forest J); Hodgkinson v Simms (1994)117 DLR (4th) 161, 178-9
(La Forest J).
[13]
Hodgkinson v Simms (1994) 117 DLR (4th) 161, 219 (Sopinka
and MacLachlin JJ).
[14]
Hospital Products International Pty Ltd v United Surgical Corporation
[1984] HCA 64; (1984) 156 CLR 41, where differing views were expressed as to the desirability
of extending fiduciary duties to a commercial
context.
[15] Henderson v
Amadio No 1 [1995] FCA 1300; (1995) 62 FCR
1.
[16] Daly v Sydney Stock
Exchange Ltd (1986) 160 CLR
37.
[17] Commonwealth Bank v
Smith [1991] FCA 375; (1991) 42 FCR 390.
[18]
For a Canadian example of a fiduciary relationship found to have arisen in a
financial advisory context see Hodgkinson v Simms (1994) 117 DLR
(4th) 161; see also Aequitas v AEFC [2001] NSWSC 14, where
Austin J found that a fiduciary relationship had arisen as a result of a joint
venture holding itself out as having expertise
in advising and undetaking
through their agent to provide corporate
advice.
[19] Maguire v
Makaronis [1997] HCA 23; (1996) 188 CLR 449, 495 (Kirby
J).
[20] Marron v J. Chatham
Daunt Pty Ltd BC970123 (Byrne
J).
[21] Stewart v Layton
[1992] FCA 618; (1992) 111 ALR 687; Wan v McDonald [1992] 105 ALR
687.
[22] [1994] 1 AC
428.
[23] [1996] EWCA Civ 533; [1997] 2 WLR 436. See
also Moody v Cox [1917] 2 Ch 71,
81.
[24] Bristol and West
Building Society v Mothew [1007] 2 WLR 436, 450.
[25]
Ibid.
[26] Marks &
Spencer Plc v Freshfields Bruckhaus Deringer [2004] 1 WLR 2331, 2335
(Lawrence Collins J). See also Hilton v Barker Booth & Eastwood
[2005] UKHL 8; [2005] 1 WLR 567, in which the House of Lords affirmed the strictness of the
fiduciary standards in a case of conflicting duties by a solicitor. However,
the
House of Lords dealt with the case on the basis that the fiduciary prohibition
of a conflict of duty and duty was incorporated
into the
retainer.
[27] Spincode Pty
Ltd v Look Software Pty Ltd (2001) 4 VR 501; [2001] VSCA 0248, [52];
Newman as Trustee for the estates of Littlejohn v Phillips Fox (a
firm) [1999] WASC 171.
[28]
Malleson Stephen Jaques v KPMG Peat Marwick (1991) 4 WAR 357, 360 (Ipp
J); Oceanic v HIH [1999] NSWSC
292.
[29] Wan v McDonald
[1992] FCA 4; [1992] 105 ALR 473, 494.
[30]
T and I [2001] Fam CA
351.
[31] For a very full
analysis of these issues see the judgment of Drummond J in Carindale Country
Club Estate Pty Ltd v Astill [1993] FCA 218; (1993) 42 FCR 307; see also D& J
Constructions Pty Ltd v Head and others trading as Clayton Utz (1987)
9 NSWLR 118, 122 (Bryson J).
[32]
Mills v Day Dawn Block Gold Mining Company Limited (1882) QLJ
62.
[33] Such an approach found
favour with Gummow J in National Mutual Holdings Pty Ltd v The Sentry
Corporation (1989) 22 FCR 209,
230.
[34] Colonial Portfolio
v Nissen [2000] NSWSC 1047; Newman as Trustee for the Estates of
Littlejohn v Phillips Fox (a firm) [1999] WASC
171.
[35] [1998] UKHL 52; [1999] 2 WLR
215.
[36] [1912] 1 Ch
831.
[37] Rakussen Ellis v
Mundey Clark [1912] 2 Ch 831,
235.
[38] Ibid,
235-7.
[39] (1991) 77 DLR
(4th) 249.
[40]
Aequitas v AEFC [2001] NSWSC
14.
[41] Daly v Sydney Stock
Exchange (1986) 160 CLR
37.
[42] Australian Breeders
Co-operative Society Ltd v Jones [1997] FCA 1405; (1997) 150 ALR 488; The Commonwealth
Bank v Smith [1991] FCA 375; (1991) 102 ALR
453.
[43] Bartlett v Barclays
Trust Co (No 1) [1980] 1 ALL ER 139, 150 (Brightman
J).
[44] [1995] FCA 1663; (1995) 62 FCR
504.
[45] ASC v AS Nominees
Ltd [1995] FCA 1663; (1995) 62 FCR 504,
516.
[46] Bartlett v Barclays
Trust Co (No 1) [1980] 1 ALL ER 139, 152. In ASC Nominees v AS
Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504, 518 where Finn J accepted that a higher
standard of care applied to trustee companies although it was not applied in
that case.
See also Wilkinson v Feldworth Financial Services Pty
Ltd (1998) 29 ASCR 642, 693 where Rolfe J expressed agreement with Finn
J.
[47] [2002] QCA
158.
[48] Port of Brisbane
Corporation v ANZ Securities Ltd [2002] QCA 158,
[32].
[49] [2002] EWCA
85.
[50] Gertsch v Atsas
[1999] NSWSC 898, [28] (Foster J); Hancock Memorial Foundation Ltd v
Porteous [1999] WASC 55, [ 79] (Anderson J); K & S Corporation Ltd
v S [2003] SASC 96, [23] (Besanko
J).
[51] (1998) 1 Qd R
602.
[52] Doneley v
Doneely (1998) 1 Qd R 602,
612.
[53] Koorootang Nominees
Pty Ltd v Australian and New Zealand Banking Group Ltd [1988] VR
16.
[54] [1975 1 WLR
1240.
[55] [2000] 4 ALL ER
221.
[56] BCCI Ltd v
Akindele [2000] 4 ALL ER 221,
235.
[57] Ibid,
236.
[58] [2002] UK HL
12
[59] Twinsectra v
Yardley [2002] UH HL 12, [
105]
[60] Beach Petroleum v
Kennedy (1997) 26 ACSR 114, 297 (Rolfe J); Voss v Davidson [2002] QSC
313, [28] where the judge found that the defendant was not acting
dishonestly.
[61] [1995] 3 WLR
604.
[62] [2002] UKHL
12.
[63] Twinsectra v
Yardley [2002] UH HL 12,
[296]
[64] Royal Brunei
Airlines v Tan [1995] UKPC 4; [1995] 3 WLR 64,
71.
[65] Ibid,
76.
[66] Ibid,
73-4.
[67] Ibid, 64.
[68]
Ibid.
[69] Ibid,
75.
[70] [2002] UKHL 12; [2002] 2 WLR
802.
[71] Twinsectra v
Yardley [2002] UKHL 12; [2002] 2 WLR 802,
807.
[72] Ibid,
811.
[73] Ibid,
836.
[74] Judgment delivered on
the 10 October 2005.
[75]
Barlow Clowes International Ltd ( in liquidation) v Eurotrust International
Limited judgment delivered on 10 October 2005,
[10].
[76] Ibid,
[15].
[77] Ibid
,[16].
[78] Ibid,
[28].
[79] [1975] HCA 8; (1975) 132 CLR
373.
[80] Aequitas v AEFC
[2001] NSWSC 14, [383-384] (Austin J); Emanuel Management Pty Ltd v
Foster’s Brewing Group Ltd [2003] QSC 205, [1582], where Chesterman
J accepted the formulation of Lord Nichols in Royal Brunei indicating that
Consul did not ‘contain
a definitive exposition of the necessary
ingredients to establish liability of one who assists in a breach of fiduciary
duty’.
There are also some reported instances in which accessories have
been found to have acted dishonestly, see Capital Investments Corporation Pty
Ltd v Classic Trading Pty Ltd [2001] FCA 1385. There are also signs that the
dishonesty approach will be adopted in New Zealand, see Asian-Pacific Finance
Limited v Wadell [1999] NZCA
92.
[81] Canada Inc v
Strother [2005] BCCA 385,
[25].
[82] Maguire v
Makaronis [1997] HCA 23; (1996) 188 CLR 449, 467 (Brennan CJ, McHugh and Gummow
JJ).
[83] [1984] HCA 64; (1984) 156 CLR
41.
[84] Hospital Products
International Pty Ltd v United Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41,
125.
[85] [1985] HCA 78; (1985) 160 CLR
583.
[86] Muschinski v
Dodds [1985] HCA 78; (1985) 160 CLR 583,
614.
[87] Ibid, 619-20. See also
Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR
137.
[88] [1999] HCA 10; (1998) 196 CLR
101.
[89] Giumelli v
Giumelli [1999] HCA 10; (1998) 196 CLR 101,
112.
[90]
Ibid.
[91]
Ibid.
[92] Ibid, 112-13; See
also Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583,
615.
[93] Hayward v
Giordani [1983] NZLR 140, 150 (Cook P); MacIntosh v Fortex Group Ltd
[1997] 1 NZLR 711, 721 (Gallen
J).
[94] Pettkus v Becker
(1980) 117 DLR (3d) 257.
[95]
Wesdeutsche Landesbank Girozentrale v Islington Borough Council [1996] UKHL 12; [1996] 2
WLR 802, 839.
[96] Wicks v
Bennett [1921] HCA 57; (1921) 30 CLR 80, 98 (Higgins
J).
[97] [1958] HCA 33; (1958) 100 CLR
342.
[98] Henry (Keith) &
Co v Walker (Stewart) [1958] HCA 33; (1958) 100 CLR 342,
350.
[99] Hospital Products
International Pty Ltd v United Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 108;
see also Chan v Zacharia [1984] HCA 36; (1983) 154 CLR 178, 199 where Deane J indicated
that the constructive trust which arises because a fiduciary has made an
unauthorised gain arises at
the time of the breach of duty rather than at the
time of the court’s
order.
[100] [1998] HCA
59.
[101] Bathurst City
Council v PWC Pty Properties Ltd [1998] HCA 59, [42] (Gaudron, McHugh,
Gummow, Hayne and Callinan JJ).
[102] [1995] QCA
281.
[103] Wickham
Developments Ltd v Parker [1995] QCA 28,
[8].
[104] [1995] HCA 18; (1995) 182 CLR
544.
[105] Warman v
Dwyer [1995] HCA 18; (1995) 182 CLR 544, 555-6 (Mason CJ, Brennan, Deane, Dawson, Gaudron
JJ).
[106] [1999] HCA 10; (1998) 196 CLR
101.
[107] Giumelli v
Giumelli [1999] HCA 10; (1998) 196 CLR 101, 113 (Glesson CJ, McHugh Gummow and Callinan
JJ).
[108] [1995] HCA 18; (1995) 182 CLR 544,
561 (Mason CJ, Brennan, Deane, Dawson and Gaudron
JJ).
[109] [2002] VSC
454.
[110] Distronics Ltd v
Edmonds [2002] VSC 454, [213]; See also Victoria University of
Technology v Wilson (2004) 60 IPR 393, [221-3], where Nettle J
decided that it was inequitable to declare a constructive trust because of the
effect of subsequent developments,
particularly the adverse effects on third
parties. Relief was framed in terms requiring the defendants to pay the claimant
the value
of the shares subject to appropriate expenses and allowances. In
addition, the claimant was also to be given credit for its time
and resources
used in the development of software. The judge also recommended that a generous
view be taken of the contributions
made by the defendants in the development of
software.
[111] Katingal
Pty Ltd v Amor [1999] FCA 317; (1998) 162 ALR 287, 290 (Burchett
J).
[112] Estates Realties
v Wignall [1991] 3 NZLR 482 (Tipping J); Official Assignee of Collier
v Creighton [1996] UKPC
7.
[113] LAC Minerals v
International Corona Resources Ltd (1989) 61 DLR (4th)14, 64 (La
Forest J).
[114] Regal
Hastings v Gulliver [1942] UKHL 1; [1942] 1 ALL ER 378 where relief was restricted to a
personal liability to
account.
[115] [1993] UKPC 2; [1993] 3 WLR
1143.
[116] Attorney
General for HGong Kong v Reid [1993] UKPC 2; [1993] 3 WLR 1143, 1146 (Lord
Templeman).
[117] [1966] 2
NSWLR 211, 214-16.
[118]
[2003] HCA 15; (2003) 212 CLR 484.
[119]
Youyang Pty Ltd v Minter Ellison ([2003] HCA 15; 2003) 212 CLR 484 , 504 (Gleeson CJ,
McHugh, Gummow, Kirby and Hayne
JJ).
[120] [1995] UKHL 10; [1995] 3 WLR
352.
[121] Target Holdings
v Redferns [1995] UKHL 10; [1995] 3 WLR 352,
363.
[122] Harris v Digital
Pulse Pty Ltd [2003] NSWCA 10, [124] (Mason
P).
[123] Nocton v Lord
Ashburton [1914] AC 832, 951 (Viscount Haldane); McKenzie v McDonald
[1927] VicLawRp 19; [1927] VLR 134, 146 (Dixon
AJ).
[124] [2001] HCA 31; (2001) 207 CLR
165.
[125] Pilmer v Duke
Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165,
195-6.
[126] Ibid,
224-5.
[127] Ibid,
201.
[128] [1997] HCA 23; (1996) 188 CLR
449.
[129] Maguire v
Makaronis [1997] HCA 23; (1996) 188 CLR 449, 468 (Brennan CJ, Gaudron, McHugh, and Gummow
JJ).
[130] [1934] DLR
465.
[131] [1997] HCA 23; (1996) 188 CLR 449,
474 (Brennan CJ, Gaudron, McHugh, Gummow JJ), 492 (Kirby
J).
[132] Greater Pacific
Investments Pty Ltd v Australian National Industries Ltd (1969) 39 NSWLR
143; Beach Petroleum v Kennedy (1997) 26 ACSR 114; Biala Pty Ltd v
Mallina Holdings Ltd (1994) 13 WAR 11; Coomera Resort Pty Ltd v
Kolback [1998] QSC 20; Karam v ANZ Banking Group Ltd [2001] NSWSC
709; O’Halloram v RT Thomas & Family Pty Ltd 39 ACSR 148;
Aequitas v AEFC [2001] NSWSC
14.
[133] (1991) 85 DLR
(4th) 129.
[134]
Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR
(4th) 129, 147 (La Forest
J).
[135] Norberg v
Wynrib [1992] 2 SCR 226, 294-5 (McLachlin J); Hodgkinson v Simms
(1994) 117 DLR (4th) 161, 201-3 and 207-9 (La Forest
J).
[136] Bristol &
West Building Society v May May & Merrimans ( a firm) [1996] 2 All ER
801, 826 (Chadwick J).
[137]
Swindle v Harrison [1997] EWCA Civ 1339; [1997] 4 ALL ER 705, 733 (Mummery LJ); see also
Satnam Investments Ltd v Dunlop Heywood &Co Ltd [1999] 3 ALL
ER 652.
[138] [1974] 4 ALL ER
705.
[139] (1997) 197 CLR
1.
[140] Pilmer v Duke
Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165, 201-2 (McHugh, Gummow, Hayne and
Callinan JJ).
[141] Day v
Mead [1987] NZCA 74; [1987] 2 NZLR 443 at 451-452 Cook P; Mouat v Clark Boyce [1991]
1 NZLR 481, 498-9 (Cook
P).
[142] See the judgment of
Somers J in Day v Mead [1987] NZCA 74; [1987] 2 NZLR 443, 461-2; See also Lankshear
v ANZ [1993] 1 NZLR 481, where Wallace J decided that the actions of
the plaintiff did not justify apportionment in a claim against a third
party.
[143] [1996] QSC
248.
[144] Taylor & Co
v Peffer [1996] QSC
248.
[145] [2002] NSWSC
14.
[146] Norberg v
Wynrib [1992] 2 SCR 226,
298.
[147] Cook v Evatt (No 2)
[1992] 1 NZLR 676, 706 (Fisher
J).
[148] [1990] 2 NZLR
29.
[149] [1996] EWCA Civ 533; [1997] 2 WLR
436.
[150] Mothew v Bristol
West Building Society [1996] EWCA Civ 533; [1997] 2 WLR 436,
449.
[151] Ibid. See also
Hilton v Barker Booth & Eastwood [2005] UKHL 8; [2005] 1 WLR 567, where Lord
Walker relied on these remarks in the context of suggesting that the quantum of
equitable compensation payable for a
breach of fiduciary obligation would be the
same as the quantum for the breach of the contract of
retainer.
[152] BNZ v NZ
Guardian Trust Co Ltd [1999] 1 NZLR 664, 682 (Gault J); 686-8 (Tipping
J).
[153] (1994) 14 ACSR
109.
[154] Permanent
Building Society v Wheeler (1994) 14 ACSR 109, 166. The same sort of
reasoning was also adopted in Australian Breeders Co-operative Ltd v Griffith
Morgan Jones [1997] FCA
1405.
[155] Youyang Pty Ltd
v Minter Ellison [2003] HCA 15; (2003) 212 CLR
484.
[156] Ibid,
500.
[157] Ibid.
[158] [2000] UKHL 29; [2000] 2 WLR
1299.
[159] Foskett v
McKeown [2000] UKHL 29; [2000] 2 WLR 1299,
1323.
[160] Ibid.
[161] Ibid.
[162] Ibid.
[163] Evans Associates v
European Bank Limited [2004] NSWCA 82, [134] (Spiegleman
CJ).
[164] Foskett v
McKeown [2002] UKHL 21; [2002] 2 WLR 1299 at 1323-1325.
[165] Ibid, 1322 -
3.
[166] Ibid.
[167] [1948] 1 Ch
465.
[168] Agip (Africa)
Ltd v Jackson [1989] 3 WLR 1367, 1386 (Millett J); Boscawen v Baja
[1996] 1 WLR 329, 335 (Millett
LJ).
[169] [2000] UKHL 29; [2000] 2 WLR
1299.
[170] Foskett v
McKeown [2000] UKHL 29; [2000] 2 WLR 1299,
1324.
[171] Shalson v
Russo [2003] EWCH 1637 (Rimer
J).
[172] Re Arariamu
Holdings Ltd [1898] 3 NZLR 487, 492 (Wylie
J.)
[173] [2000] UKHL 29; [2000] 2 WLR 1299,
1324.
[174] Foskett v
McKeown [2000] UKHL 29; [2000] 2 WLR 1299, 1324.
[175] Shalson v Russo
[2003] EWCH 1637 (Rimer
J).
[176] Ibid.
[177] [1963] HCA 65; (1962) 109 CLR
649.
[178] Scott v
Scott [1963] HCA 65; (1962) 109 CLR 649,
661.
[179] Ibid, 663; see also
Hagan v Waterhouse (1993) 34 NSWLR 308,
255.
[180] Australian
Postal Corporation v Lutak (1991) 21 NSWLR 384. In this case an
apportionment of the profits was not considered to be
just.
[181] Foskett v
McKeown [2000] UKHL 29; [2000[ 2 WLR 1299, 1305 *Lord
Browne-Wilkinson).
[182] Ibid,
1326-7.
[183] Ibid,
1326-7.
[184] Re
Diplock [1948] Ch 465, 539 (Lord
Greene).
[185] El Ajou v
Dollar Land Holdings plc (No 2) [1995] 2 ALL ER 213, 222 (Robert Walker
J).
[186] This approach was
adopted in Barlow Clowes International Ltd v Vaughan [1991] EWCA Civ 11; [1992] 4 ALL ER
22.
[187] See for example
Hagan v Waterhouse (1993) 34 NSWLR 308, 357 (Kearney J); Re Global
Finance Group Ltd [2002] WASC 63, [243] and [251]; Re French
Caledonian Travel [2003] NSWSC
1008.
[188] Re Arariamu
Holding’s Limited [1989] NZHC 284; [1989] 3 NZLR 487, 498 (Wylie J); Re Registered
Securities [1991] 1 NZLR 545, 553 (Somers
J).
[189] Re Ontario
Securities Commission and Graymac Credit Corp (1986) 55 OR (2d) 673, 668-70
(Marden J).
[190] The Law
Society of Upper Canada v Toronto - Dominion Bank ( 1999) 169 DLR
(4th) 353.
[191]
Re Diplock [1948] Ch 465, 537 (Lord
Greene).
[192] Boscawen v
Bajwa [1995] EWCA Civ 15; [1996] 1 WLR 328, 338, where Millett LJ refused to apply the more
favourable approach. See also Clark v Cutland [2003] EWCA Civ 810; [2004] 1 WLR
783.
[193] [1986] UKPC 1; [1986] 1 WLR
1072.
[194] Space
Investments Ltd v Canadian Imperial Bank of Commerce Trust Co [1986] UKPC 1; [1986] 1 WLR
1072, 1074-6. The ‘swollen assets theory’ was also rejected by the
UK Court of Appeal in Barlow Clowes Int Ltd v Vaughan [1991] EWCA Civ 11; [1992] 4 ALL
ER 22.
[195] See Sutherland
(In the Mateer of Scutts) [1999] FCA 147 at [ 61-63] Sackville J;
Cashflow Finance v Westpac COD Factors [1999] NSWSC
671 at [479] Einstein J.
[196]
[1993] BCLC735
[197] [1994] 3
WLR 199.
[198] Re Goldcorp
Exchange [1994] 3 WLR 199,
222.
[199] [1994] EWCA Civ 33; [1994] 3 WLR
1270.
[200] Bishopsgate
Investments Ltd v Hoaman [1994] EWCA Civ 33; [1994] 3 WLR 1270,
1279.
[201] Orr v Ford
[1989] HCA 4; (1989) 84 ALR 146, 157 (Deane J). See also the comments of McPherson JA in
Baburin v Baburin (No 2) [1991] 2 Qd R 240, 243
.
[202] [1989] HCA 4; (1989) 84 ALR 146,
157.
[203] Orr v Ford
[1989] HCA 4; (1989) 84 ALR 146, 159.
[204]
See for example Websdale v S & JD Investments Pty Ltd (1991) 24
NSWLR 573, 583, Clarke JA decided in the context of the defence of laches that
it would be inequitable to uphold the appellant’s claim
because the
‘appellants had acted in a manner which encouraged a reasonable belief in
the respondents that the notice would
not be
challenged’.
[205]
[1992] HCA 48; (1992) 175 CLR 353.
[206]
David Securities Pty Ltd v Commonwealth Bank of Australia [1992] HCA 48; (1992) 175 CLR
353, 385 (Mason CJ, Deane, Toohey, Gaudron and McHugh
JJ).
[207] [1991] 2 AC
548.
[208] Lipkin v
Karpanale Ltd [1991] 2 AC 548,
580.
[209] [1999] NSWSC
898.
[210] [1991] 2 AC 548,
581.
[211] [1995] EWCA Civ 15; [1996] 1 WLR
328.
[212] Boscawen v
Bajwa [1995] EWCA Civ 15; [1996] 1 WLR 328,
334.
[213] See comments to
this effect in K&S Corporation Ltd v Sportingbet Australia Pty Ltd
[2003] SASC 96, [59] (Besanko
J).
[214] Reader v
Fried [2002] VSC 495, [16-17]. See also Pope v Pope [2001] SASC 26,
[33], where Duggan J refused to allow a trustee to rely on an exemption clause
which referred to dishonesty and wilful commission
or omission of an act known
to be a breach of trust. The judge found that the trustee was not acting in the
execution of the trust,
as he was acting in his own self interest and was not
acting reasonably and properly in defending the action for his
removal.
[215] [2001] NSW CA
240.
[216] Wilkinson v
Feldworth Services Pty Ltd (1998) 29 ACSR 642, 746; See also Pope v
DRP Nominees Pty Ltd (No 2) BC 200001388 SC SA, where Olsson J
described the conduct of the defendant as “not reasonably and honestly
pursued” and as pursued
for the purpose of giving effect to the agenda of
another party.
[217] [1997] EWCA Civ 1279; [1997] 2
ALL ER 705.
[218] Armitage
v Nurse [1997] EWCA Civ 1279; [1997] 2 ALL ER 705, 711 (Millett
LJ).
[219] Walker v
Stones [2000] 4 ALL ER 412, 446 (Sir Christopher
Slade).
[220] [2002] EWCA Civ
85.
[221] Allan v Rea
Brothers Trustee Ltd [2002] EWCA 85,
[69].
[222] [1997] EWCA Civ 1279; [1997] 2 ALL ER
705.
[223] Armitage v
Nurse [1997] EWCA Civ 1279; [1997] 2 ALL ER 705,
713.
[224] Ibid.
[225] Ibid.
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