Pickering v Smoothpool Nominees Pty Ltd & Ors A3/2002 [2003] HCATrans 690 (11 April 2003)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A3 of 2002

B e t w e e n -

GREGORY JAMES PICKERING

Applicant

and

SMOOTHPOOL NOMINEES PTY LTD AND DADEETON PTY LTD

First Respondents

GREG PICKERING INVESTMENTS PTY LTD (IN LIQUIDATION) AND SILVER GLOW PTY LTD (IN LIQUIDATION)

Second Respondents

Application for special leave to appeal

KIRBY J

HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 11 APRIL 2003, AT 12.50 PM

Copyright in the High Court of Australia

__________________

MR W.J.N. WELLS, QC: If the Court pleases, I appear for the applicant. (instructed by Strachan Carr)

MR S. WALSH, QC: If the Court pleases, I appear with my learned friend, MR G.A. STEVENS, for the first respondents, Smoothpool Nominees. (instructed by Phillips Fox)

MR S.J. DOYLE: If the Court pleases, I appear for the second respondents. (instructed by DMAW Lawyers)

KIRBY J: Yes, Mr Wells.

MR WELLS: If the Court pleases. Your Honours, both the learned trial judge and the Full Court, we submit, decided this case on the following basis: first, that the 1980 deed created an express trust of the abalone authority for the benefit of Smoothpool Nominees, which was the trustee of the Edmunds family interests, and Mr Pickering, the trustee, retained possession of the trust asset throughout; second, that the 1982 deed was in substance a sale to the trustee, Mr Pickering, by the cestui que trust, Smoothpool Nominees, and that the sale by Smoothpool was caused by or contributed to by the trustee's breaches of trust and the sale was at an undervalue, the trustee not having made full disclosure and it was therefore voidable at the election of the beneficiary; and third, that thereafter, although there was a delay of some seven years before Smoothpool asserted its claim against Pickering and then a further delay of, it seemed something like eleven years before the action was listed for trial, nevertheless, there was no inaction as could amount to gross laches. Therefore, the appropriate remedy was to set aside the 1982 deed and to restore the parties to their pre-1982 position.

In our submission, this view of the case overlooks the following critical features which constitute the basis for our application. In 1982 the trustee repudiated the trust in the mistaken belief that the trust created by the 1980 deed was illegal and unenforceable. After taking the advice of very able senior counsel the Edmunds thought that they might be right, that is, thought that Mr Pickering's view of the matter might be right, and feared that if they brought an action challenging the repudiation they might not only lose but be exposed to penalty from the department and a counterclaim by Mr Pickering.

Although they were mistaken in these fears, the learned trial judge found that in 1982 the lawfulness of the 1980 deed was not clear and that the fears were therefore genuine. Accordingly, the Edmunds entered into negotiations with Pickering on the basis of that view and, with the assistance of legal advice on both sides, reached a settlement. In the mistaken belief that the trust might be illegal, the Edmunds compromised their claim, their claim being a claim to enforce the trust.

Your Honours, that is the true view, we submit, of the 1982 deed. The consideration that Mr Pickering paid under the 1982 deed, $112,000, was not the value of the abalone authority but the discounted price paid for the acquisition of doubtful rights and the putting of an end to a controversy. We submit equity favours and protects transactions entered into to put an end to all controversy over undetermined and uncertain rights and obligations.

HAYNE J: Mr Wells, I had not read your application for leave to depend upon a contention that there was some compromise of the claim to enforce the trust. Am I mistaken?

MR WELLS: Well, your Honour, can I say that it is probably not set out as clearly as I would want to express it.

HAYNE J: Well, can you point to anywhere in your application where it is mentioned at all?

KIRBY J: I do not recall reading it either.

MR WELLS: Well, thank you, your Honours.

KIRBY J: Not even a hint.

MR WELLS: I wonder if I might be permitted in response to that to take your Honours to the other part of the submission that I am making in order to show the way in which it links in with the matters that we raise, and raise not only in our outline but also in our proposed notice of appeal. It bears upon the nature of the relief to which the plaintiffs might have been entitled and the nature of the relief to which they were entitled, and that is the way that we express the proposition. Can I just say, however, that there seems to be no doubt, from the very detailed and meticulous way in which the learned trial judge followed through the negotiations leading to that 1982 deed, that that is the correct view of that document, that deed, that it was a settlement.

HAYNE J: Mr Wells, I have this difficulty. At the moment it seems to me that the two points you seek to agitate on appeal to this Court would be the application of a defence of laches and a point about the framing of relief. What appears to me to be assumed as the basis for the agitation of those points is that there is a trust which has been broken and which the cestui que trust seeks a remedy against the trustee of an express trust. But am I wrong?

MR WELLS: I would not presume to say that your Honour is wrong. What I would submit is that the proposition that I have just put and summarised has a direct bearing upon the characterisation of the claim for relief and a direct bearing upon the defence of laches, for reasons that I would seek the Court's leave to elaborate in order to respond to your Honour's very question.

Can I put it in this way. In relation to the defence of laches, the view that I have expressed by way of the propositions that I put has this consequence, that contrary to what the learned trial judge said at page 232 of the first application book, which was, in effect, where there is an express trust and the trust asset is still in the trustee's possession, mere lapse of time will rarely, if ever, be sufficient to constitute a defence of laches, that is not the case where, as here, there has been a repudiated trust and, in consequence of the repudiation, the parties have changed their position.

That is the significance, in my submission, of the 1982 deed. It constituted a critical change of position and it constituted a critical change of position because, by reason of that deed, Mr Pickering was led to believe, and indeed as things then stood was entitled to believe, that this abalone authority was his and that that had certain consequences for the way in which he conducted his affairs. Most importantly in that respect - and we place very considerable reliance on this, if the Court pleases - it can be seen from the subsequent history of the abalone authority and its change in value that whereas in 1982, the time of the deed of settlement, the abalone authority was worth about $170,000 and it retained its value at about that level until 1988 or 1989, thereafter it rose in value very steeply and by 1990 was worth over $1 million and by the time of trial was worth over $3 million.

There is a finding of the learned trial judge that had Mr Pickering at the time of the 1982 deed not been a party to that deed, that is, had there not been any negotiated settlement, he would have, as he was entitled to under the 1980 deed, have ceased to be the trustee and have pursued his own business, indeed pursued the acquisition of his own abalone authority. At that time, that was something that he could afford to do. By the time he was put on notice that the Edmunds did not accept the operation of the 1982 deed, the acquisition of an abalone authority was beyond his capacity, its having risen so steeply in value in the latter part of the 1980s.

The consequence of that is that in a very real way the lapse of time placed him at a very considerable detriment. He could have participated in the acquisition of an abalone authority and therefore benefited from its capital gain. By the time the action was taken, that was beyond him and there was evidence before the trial judge not only of the way in which abalone authorities had increased in value but there was also evidence before the trial judge of Mr Pickering's means, which would demonstrate, as we have submitted, that what was within his reach in the early 1980s was out of his reach by 1990.

That, in our respectful submission, makes the consideration of the defence of laches a very different proposition in circumstances where there was not, as we would say, incorrectly characterised simply as an express trust and the trustee holding the asset; it was a disputed trust which resulted in - let me use a neutral phrase - an agreement, a deed, as a consequence of which Mr Pickering believed that the abalone authority was his and that therefore he need not take any steps to acquire his own.

HAYNE J: Can I put the difficulty to you in this way. The 1982 deed is the transaction by which Mr Pickering claimed to acquire beneficial title to what is asserted to be trust property. If that deed was not effective, he was and is a defaulting trustee in possession of the trust property claiming it for himself.

MR WELLS: Your Honour, can I answer that in two ways. Let us assume that that be the case, and your Honour has expressed, with respect, the way in which it was viewed both by the learned trial judge and by the Full Court. That does not affect, in our submission, the proposition that I have just put which bears upon the defence of laches and in that respect, as perhaps has been suggested in Orr v Ford, reference to gross laches is probably not of any assistance. The question is whether, having regard to the nature of the trust and the breach, there has been inaction of a kind which would make it inequitable to reverse.

So the proposition your Honour puts does not affect the defence of laches in the way that I have expressed it at all. But if I am right in the characterisation that my submission places upon the 1982 deed, then a fortiori the defence of laches comes into very clear prospect and, in our respectful submission, has two parts to it: the lapse of time and the change of position, but, more importantly, the loss by Mr Pickering of his ability to acquire his own authority. Indeed, during that time his own exertions have so contributed to the husbanding of the abalone authority and preserved it during that time that by the time of the notice of the claim, it must be seen that he has himself by his own exertions contributed to the capital gain in the value of the abalone authority.

KIRBY J: I understand the way you put that, but the courts below addressed that issue as they thought appropriate by reference to substantive equity and rejected the respondents' claims for the proceeds of the exploration, so it really would be inviting us to address the matter, if you overcame the hurdle of laches, really going through all the facts and trying to understand them for ourselves virtually as a trial court, and that just is not our function.

MR WELLS: No. We would respectfully submit that that is not required. There are very few relevant facts that are needed in order to dispose of this matter, if the Court pleases.

Can I give another example, which leads me to my third point, and that is the complaint we make about the absence, in the relief that is granted, of providing for restitutio as a consequence of ordering a setting aside of the 1982 deed. It is, in our respectful submission, apparent that there could not be restitutio and that in what the learned trial judge did, there was not restitutio. Three reasons: first, the pre-1982 position cannot be restored. That position was reflected and marked by an uncertainty as to rights which the 1980 deed gave rise to and which has now been resolved. There is no uncertainty as to the rights under the 1980 deed. It is not possible in those circumstances to effect restitutio.

HAYNE J: Restitutio in whose favour?

MR WELLS: Your Honour, the first step when there is a rescission is to restore both parties to their - - -

HAYNE J: So the defaulting trustee is to be put into some position before the trustee defaulted? That is an unusual doctrine.

MR WELLS: No, with great respect, your Honour, that is not the characterisation that we place on it. What we say is that if one is to start from the premise that we are dealing with a defaulting trustee, the remedy for that is rescission; that is, the document which has resulted from the default is set aside. But equity does not do that without taking account of the rights and benefits that have flowed from that document and without taking account of the necessity of placing the parties in the position that they were before that document, which includes - - -

HAYNE J: And ordinarily, one would have thought, requiring the defaulting trustee to account to the beneficiary for all of the proceeds of exploitation of the trust property during the period of the default.

MR WELLS: Yes, your Honour, and that was dealt with separately and differently for the reasons that the learned trial judge gave. What our focus is on, however, is the capital gain in the trust asset.

KIRBY J: Yes, we understand that.

MR WELLS: The capital gain, your Honours, had two sides to it, and one is that in the orders that the learned trial judge made, no account was taken of the fact that Mr Pickering had in the meantime, in the belief that he was the owner, contributed and contributed exclusively to the capital gain by maintaining the asset and working it, and yet nothing is done - - -

KIRBY J: The real reason for the capital gain was adventitious developments in the market; that is the truth of the matter.

MR WELLS: Well, with great respect, your Honour, one had to have an asset in the market in order to take the benefit of it - - -

KIRBY J: That is true.

MR WELLS: - - - and that required the personal exertions of Mr Pickering not only once, but continuously from day to day.

KIRBY J: No doubt, but the factor that led to the even value of the authority up to a certain point and then the sudden rise was not because of a marginal increase in his contribution; it was by reason, presumably, of an increase in the market for abalone.

MR WELLS: Indeed, and - - -

KIRBY J: Well, that is something external to your client's efforts. He contributed by keeping the business alive, but the real reason for the increase in the capital gain is something that is separate from his contribution and that is what you want a share in.

MR WELLS: But for his efforts, there would have been no capital gain because without his efforts there would not have been an authority to which a value would have attached and that was his particular skill and expertise. Can I add to that, because I notice my time is coming to an end, that the other side of that coin is again - and this is not taken account of either in the orders for relief - that is, by reason of Mr Pickering's acting on the 1982 deed and expending his personal authorities under the authority, he has put himself out of the ability to acquire his own. If there is to be restitution, then some account has to be taken of the capacity to obtain a capital value in an authority, which has been put beyond him by reason of the 1982 deed and his working on it. If we are going to restore, that has to be taken account of as well - his lost capacity. Those are our submissions, if the Court pleases.

KIRBY J: Yes, thank you, Mr Wells. The Court will not need the assistance of Mr Walsh or Mr Doyle and I will ask - - -

MR DOYLE: Your Honour, I wonder if I might interrupt. I do not know whether your Honours have appreciated the unusual position in which the second respondents found themselves where - - -

KIRBY J: We have noted that you adopt the applicant's submissions. So do you want to supplement the applicant's submissions, do you?

MR DOYLE: I did wish to briefly supplement those submissions, your Honour, focusing in particular on just the issue of relief, which is the issue that has the practical impact upon my clients. If I might focus on the question that arose during this - - -

KIRBY J: Is this on a hypothesis of a grant of special leave or is this a submission addressed to the relief granted by the courts below?

MR DOYLE: This is a submission in support of the grant of relief and my clients have an interest in the sense that there was consequential relief which flowed, but even the primary relief itself, my client has an interest in that.

KIRBY J: Yes, very well.

MR DOYLE: If your Honours would turn to page 277 of the application book, this is the issue about the nature of the capital growth in this case, and the findings expressed there by Justice Lander were in terms of Mr Pickering having not only preserved the authority but also having enhanced its value. We submit, your Honours, that this is different to a case where there has merely been a fluctuation, for example, in the market value of trust property. We say this is a circumstance in which the change in value, or the increment in value, has at least in some way been contributed to by the conduct of the defendant in this case.

We say that fact in combination with the delay, together with the fact that there is a lost opportunity, which is really the flipside of the capital growth, we say it is the combination of those factors, your Honours, which meant that it was appropriate in this case that the Court exercise its discretion to withhold rescission and we say that is the primary position. In the alternative, there ought to have been some attempt in fashioning the relief to take account of the capital gain.

We say, for the compelling reasons that led the court to take account of delay and the efforts of Mr Pickering in relation to the income stream, those same matters ought to have applied with equal force in relation to the capital component of the relief and we say ought to have resulted in relief being withheld. In the alternative, there ought to have been terms fashioned to take account of it. The only other factor, of course, your Honours, we would throw into the equation is the potential existence of a compensatory remedy. We say that is a matter where the plaintiffs would not be left out of court even in relation to the capital component in that there would still be a substantial compensatory remedy.

KIRBY J: Now, Mr Doyle, your clients are the corporate face of the applicant, is that correct?

MR DOYLE: Yes, your Honour.

KIRBY J: And you have supplemented the submissions which Mr Wells put before us in support of the position of the corporate face of the applicant?

MR DOYLE: Yes, your Honour.

KIRBY J: But the issues of principle are basically the same in respect of your client and no differential principle has been suggested by you?

MR DOYLE: We do not identify any differential principle.

KIRBY J: No, very well. Thank you very much. Is there anything you wish to add?

MR DOYLE: No, your Honour.

KIRBY J: Thank you very much. Mr Walsh, the Court does not need your assistance as counsel for the first respondents. I will ask Justice Hayne to give the reasons and pronounce the orders of the Court.

HAYNE J: The applicant, with the support of the second respondents, seeks special leave to appeal confined to two issues raised in an action for breach of trust which the first respondents as beneficiaries of the trust brought against the applicant as trustee. The applicant seeks to contend that the Full Court of the Supreme Court of South Australia misdirected itself about the criteria for the application of a defence of laches and in any event had not moulded relief appropriate to all the circumstances of the case.

The particular issues which the applicant seeks to agitate depend for their resolution upon a close analysis of all of the facts and circumstances of the case. No point of general application would fall for determination if leave were granted. We are not persuaded that the interests of justice in the particular case or the interests of justice more generally require the grant of special leave.

Accordingly, special leave is refused with costs.

AT 1.17 PM THE MATTER WAS CONCLUDED