|
|
Home
| Databases
| WorldLII
| Search
| Feedback
High Court of Australia Transcripts |
Last Updated: 12 December 2006
IN THE HIGH COURT OF AUSTRALIA
Office of the
Registry
Sydney No S347 of 2006
B e t w e e n -
FARAH CONSTRUCTIONS PTY LTD
First Appellant
FARAH ELIAS
Second Appellant
LESMINT PTY LTD
Third Appellant
MARGARET ELIAS
Fourth Appellant
SARAH ELIAS
Fifth Appellant
JADE ELIAS
Sixth Appellant
and
SAY-DEE PTY LTD
Respondent
GLEESON CJ
GUMMOW J
CALLINAN
J
HEYDON J
CRENNAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON TUESDAY, 12 DECEMBER 2006, AT 10.18 AM
Copyright in the High Court of Australia
__________________
MR F.M. DOUGLAS, QC: May it please the Court, I appear with my learned friends, MR V.R.W. GRAY and MR R.J. HARDCASTLE, for the appellants in this matter. (instructed by Strathfield Law)
MR A.J. SULLIVAN, QC: May it please the Court, I appear with my learned friends, MR J.K. KIRK and MR J.S. EMMETT, for the respondent. (instructed by Esplins)
GLEESON CJ: Yes, Mr Douglas.
MR DOUGLAS: There are just some procedural matters which may need to be handled beforehand, one of which is the summons seeking to raise, if necessary, any amended grounds of appeal. I have an amended summons which I think the Court has and my learned friends have. The Court may feel it is appropriate to deal with that matter during the course of the hearing, but to a certain extent I am in my learned friend’s hands and the Court’s hands.
GLEESON CJ: Is that opposed, Mr Sullivan?
MR SULLIVAN: In respect of one ground only, your Honour, that is the second ground, the substitute ground 9.
GLEESON CJ: Why do we not hear argument from the parties and then we can decide what we will do about the application in the light of the argument we hear from the parties.
MR SULLIVAN: If your Honour pleases, we have no problem with that, and may I just add my own housekeeping there? We have foreshadowed in our written submissions a notice of contention which we would seek leave to file as well and I take it that - - -
GLEESON CJ: What is your attitude to that, Mr Douglas?
MR DOUGLAS: We have made our attitude known in our reply submissions and we are content to have that dealt with in the course of argument.
GLEESON CJ: All right, we will do the same with that, too. Yes, Mr Douglas.
MR DOUGLAS: If it please the Court.
GUMMOW J: Was there not a judgment last week in the Court of Appeal varying the orders?
MR DOUGLAS: That is the other matter which I wanted - - -
GUMMOW J: That would seem to change the subject matter.
MR DOUGLAS: It does, yes, your Honour. The orders which are under appeal have been changed and it seems to us that, as we have intimated in our reply submissions, the Court may need to give consideration to giving special leave to appeal from that matter as well so that the whole matter can be before the whole court.
GUMMOW J: It is a question of whether you seek it, I suppose.
MR DOUGLAS: We do seek it, yes, your Honour.
GLEESON CJ: What is your attitude to that, Mr Sullivan?
MR SULLIVAN: It makes good sense, in our respectful submission, for all the issues to be before the Court. We must say that until we saw the reply submissions yesterday we were unaware of that matter being raised, but we will be able to deal with it.
GLEESON CJ: Yes, you have that special leave, Mr Douglas.
MR DOUGLAS: Thank you, your Honour.
GLEESON CJ: The grounds on which you are appealing against that latest order, have they been settled?
MR DOUGLAS: No, they have not, your Honour.
GLEESON CJ: Well, you will need to let us have those by 10.15 tomorrow.
MR DOUGLAS: If it please the Court. If your Honours go to page 785 of the appeal books, you will find that there is a map and on that map you will see in black highlighted pen No 11 Deane Street indicating what is DP 1012934. No 13 Deane Street is the property immediately adjoining it which has a “12” on it, and DP 208948. The property 15 Deane Street is the one immediately adjoining that, which is SP 43444, and the property which is 20 George Street is the one behind that which is called SP 43359, and immediately adjoining that, DP 774175 is what has been referred to in the evidence as No 18 George Street.
GLEESON CJ: Which is No 13?
MR DOUGLAS: No 3 - I am sorry, your Honour, I will get back to that. You will see there is a little handwritten “13” on it, but it is actually No 12, DP 208948. So it is the property immediately next door to No 11 Deane Street.
GUMMOW J: Do we know the state of the title of these properties?
MR DOUGLAS: There is not a lot of evidence about it, your Honour.
GUMMOW J: It has been odd to declare a constructive trust over some land when what the land is other than physical location is not understood. Are there mortgages over these properties? Where is the mortgagee?
MR DOUGLAS: There is some evidence of mortgages over the properties. For example, there is evidence, I think, that National Australia Bank has a mortgage over No 11 and there is evidence of mortgages in respect of Nos 13 and 15, and there is various – but one would have to say, your Honour, that the evidence in relation to that is not terribly clear. If one goes to pages 640 to 641, you will see that evidence has been provided of the encumbrances over the title to No 11, but similar evidence is not in, as we understand it, in respect of the titles to Nos 13 and 15.
You will see on that page that the National
Australia Bank has a first registered mortgage - this is on page 640,
item 3 - that from
22 July 1998 it has a first registered
mortgage:
over C/T Folio Id. 11/208948 being property at 11 Deane Street, Burwood NSW
Stamped to $470,000 collateral - - -
GUMMOW
J: There was some mortgage over the family home, was there
not?
MR DOUGLAS: There was a mortgage over the family home.
GUMMOW J: The title of which is in the wife - - -
MR DOUGLAS: Wife’s name.
GUMMOW J: Yes.
MR DOUGLAS: The evidence in relation to that - - -
GUMMOW J: Is that on this National Bank document?
MR DOUGLAS: No, it is not,
your Honour. It really only comes from certain answers which were given in
evidence, but that is all. It is an answer
which was given at page 98 of
the transcript, AB 107, where the suggestion was put to Mr Elias at
line 25:
Q. You just put the property in the names of your children as a convenient device, didn’t you?
A. No, I didn’t . . .
WEBER: Q. Your children made no contribution towards the purchase price of these properties, did they?
A. As the little contribution they’ve made from their little savings they’ve got but the most emphasis was on that, that was my wife’s decision. When we purchased these properties we had to mortgage the house, withdraw every single cent possible on the house in my wife’s name. We had to save – get all the saving from our accounts, from my wife’s account. We had to borrow money from my brother. We had to borrow any dollar we could possibly get to really secure these properties and my wife had – I had a discussion with her and she made it quite clear if you ever want to use this sort of money, my house, I want to make sure it would be for the benefit of my daughters and I had a lot of discussion with her. Most time I try to convince her and that was the discussion I had, me and her.
That is the evidence. It has not been challenged and it was accepted in the Court of Appeal and by the trial judge, as we understand it. The relevant facts have been put together in our submissions in-chief from paragraph 4 and following, and up to paragraph 15. The first matter which we wish to deal with is the Fox v Percy point which is really this, that there was an issue at trial and on appeal as to whether, in fact, the principals of Say-Dee were ever told about the opportunity to acquire, firstly, Nos 15 and 20 and, secondly, No 13.
It is important, as we would see it, from the aspect of the scope of the fiduciary duty which exists in this case to bear in mind that it was Nos 15 and 20 which were purchased first, and No 13 subsequently, almost a year afterwards, and the evidence supports the view that No 13 was not available for sale at the time when Nos 15 and 20 were acquired. Nos 15 and 20 were acquired as a result of Mr Farah Elias making an approach to the registered proprietor of both of those properties, and there was accepted both at first instance and on appeal that that was a development site in itself going between the two streets and was only available for sale as a combined allotment.
In reply, from paragraphs 9 to 18, we have set out our responses to the respondent’s submissions in relation to the Fox v Percy point and there is also a chronology, which is annexure 2 to our submissions in-chief, which is useful. The first of those disputed conversations, the evidence in relation to that is collected, firstly, in our submissions in-chief at paragraph 13 where we say that in May 2001 Farah Elias met with Dalida Dagher. There is a dispute on the evidence about what was said at that meeting. That is considered in the next section. Farah Elias claimed he told Dalida Dagher that he was negotiating to buy Nos 15 and 20 and invited Say-Dee to participate and that she declined. Dalida Dagher denied this claim.
On 30 June 2001 Farah Elias, Margaret Elias, Sarah Elias and Jade Elias each entered into a contract for the purchase of one of the four units in the building located at No 15 and one of the four units in the building located at No 20. They are each blocks of four units. There were eight contracts and the total purchase price is there set out, being $1,080,000 for No 15 and $980,000 for No 20, being $2,060,000 in total. In the Court of Appeal Justice Tobias indicated that although the vendor companies were different, the contracts indicated that the companies were commonly controlled and that the properties were being offered for sale as a package.
Now, in relation to the disputed conversations, it is firstly useful to go to the judgment of the trial judge, Justice Palmer, and if you could go to volume 2 of the appeal book and at about, I think, commencing at page 792 he sets out the circumstances in which they agreed to invest in No 11 - - -
GUMMOW J: I am sorry, Mr Douglas, where does No 13 slot in in the chronology?
MR DOUGLAS: No 13 slots in in the chronology in that it was offered for sale in August 2002 and the sale was completed in, I think, November or December 2002. The contracts, if you look at the chronology, were completed on 6 November 2002 and there was a disputed conversation as to what was said in August 2002. The evidence as to how No 13 - your Honour has taken me slightly out of my path but I will draw your Honour’s attention to something and then go back to where I was going.
How the opportunity to acquire No 13 arose is dealt with more specifically in our reply submissions at paragraph 15. The actual circumstances do not appear very clearly in either the primary judgment or in the judgment of the appellate court. If you look at paragraph 15 of our reply submissions, we say that there was no doubt that the possibility of developing No 13 with No 11 was a matter which had detracted Farah Elias because his evidence establishes that he had been seeking to obtain No 13 since 1998 or 1999 but the owner had told him, “Don’t contact me. When I’m ready to sell, I will sell”. That conversation was in mid-1999.
It is also clear from the answers that he gave that when he purchased No 13 this was a cause of withdrawing a development application – that is in respect of No 11. The availability of No 13 for sale arose in August 2002 when a friend, Eli Bechera, told him in August 2002, “George, No 13 is for sale. You’d better rush”. Mr Bechera was described as “a friend who originally introduced me and Sadie [Elias] into the business”. No 13 at that stage was listed through agents for sale. Mr Elias did approach the owner of No 15 of his own volition, and that was the year earlier, when the property was not on the market for sale.
There is no evidence that at the time Farah Elias approached the owner of No 15 he was aware of any possibility of acquiring No 13 and his evidence was that since 1999 he had not contacted the owner of No 13 and he only became aware of its sale following a call from Mr Bechera. He also gave evidence to the effect that he had most probably conveyed to Dalida Dagher and Sadie Elias the earlier conversations in 1998 and 1999 concerning approaches he made to the owners of No 13, although he was not sure about the importance of it. So that was his state of mind in 1998 when he entered into the contract to purchase No 11.
The first disputed conversations which are referred to by the trial judge arise in relation to Nos 15 and 20. Of course, what we say about that is that at the time when he was considering the purchase of Nos 15 and 20, No 13 was not on the market for sale and there was no evidence that it was on the market for sale. If you wanted to develop No 11 with Nos 15 and 20, you would have had to acquire No 13 and No 13 may never have become available. So there is a real question, as would see it, as to what was the extent of his obligations in respect of the venture which they had embarked upon towards Say-Dee in relation to Nos 15 and 20.
Now, the actual
terms of the joint venture, if I could put it that way, are set out in
paragraph 12 of Justice Palmer’s judgment
which is the letter
dated 20 April 1998 from Say-Dee’s solicitors to Farah’s
solicitors. It says:
“We understand that the parties to the purchase of the above property, wish to formalise their arrangement in a joint agreement.
As we understand the situation:
1. Both parties are the purchasers in equal shares.
2. Say-Dee is to advance to the joint venture $225,000.
3. Balance of funds to be borrowed by the joint venture and secured by way of mortgage over the subject property.
That is the mortgage I took your Honours to previously, the
mortgage from NAB.
4. Upon completion of the project the profits are to be allocated as follows:
a) 1st priority - repay Say-Dee $225,000.
b) 2nd priority - pay all agents commission and legal expenses.
c) 3rd priority - distribute balance 50/50 to joint ventures.
There was reference to the preparation of the joint venture agreement in a question which is put at the end of the letter, but in fact no joint venture agreement was ever completed.
GUMMOW J: The mortgage referred to in point 3 is the one you took us to on page 640?
MR DOUGLAS: Yes, your Honour. You will see
from judgment No 3 that there is evidence that it has now been assigned to
interests associated with
Say-Dee. Contracts were exchanged on 2 April
1998 for the purchase of No 11 and the purchase was settled on 17 September
1998.
There is reference to a report of the group manager of Environmental and
Community Services of Burwood Council on a development application
which had
been lodged to the Council’s Building and Development Committee. That is
to be found at appeal book page 390. What
the parties wanted to do, as
your Honours will see from page 391, was to build or erect:
an 8-storey, Mixed Commercial and Residential Development, consisting of commercial premises on the ground floor level and 30 x 1-bedroom units above, over 4 off-street parking spaces -
It had been resolved on 26 April 2000 -
“That the application be DEFERRED for further consultation to allow issues raised by the Applicant and Council staff to be considered.”
Then there was an amended proposal which had been submitted on
27 April 2000. There had been, apparently, no additional consultation
in relation to that issue. In relation to the amended proposal a storey had
been dropped off. There was:
a seven (7) storey, Mixed Commercial and Residential Development –
and a description is given of it there. If your Honours go
to page 393 at about line 39, you will see that under the heading
“Comments”
it is said that:
The amended application is:
• not consistent with the advices of DUAP -
and we come to DUAP
later. That is Department of Urban Affairs and Planning –
concerning the use of a SEPP No. 1 Objection regarding Development Standards;
• not consistent with the Draft Town Centre Commercial LEP and DCP in regard to the maximum FSR, maximum building height (storeys), podium height along Deane Street;
• not supported from an Urban Design and Streetscape view, in that it still proposes a six (6) plus storey along the Deane Street elevation, does not have any variation in height or scale and is not in scale with development to the west;
• not in compliance with the Off-Street Car Parking Code in that there has been an increase in the need for the provision of off-Street car parking, thereby incurring a shortfall of thirty (30) car spaces -
Then under the heading
“Conclusion” at page 394 at about line 24 you will see
that it is said that:
The site should be amalgamated with the adjoining properties -
or rather I should start at the beginning
of the paragraph -
The proposed development is considered an over-development of a narrow 11m wide site as evidenced by the inability to provide for car parking due to the lack of manoeuvring space available. The site should be amalgamated with the adjoining properties to achieve its maximum development potential and a more appropriate development permissible under the Draft Town Centre Commercial LEP No. 46 and DCP No. 10.
Then under the
heading “Recommendations” your Honours will see that it
was recommended that it be refused, and I draw attention in particular to 3,
that it is “contrary
to Council’s policy”, et cetera; 4,
“excessive in height, bulk and scale”; 5, “grossly inadequate
provision
for” car parking; 6, “The development is an
overdevelopment of the site”, et cetera.
Then his Honour refers in his judgment, having referred to that report, to the fact that the committee’s decision was conveyed to Mr Farah Elias by letter dated 28 June 2000, and that is to be found at 433 to 434, in particular 434. Then by letter dated 12 July he wrote to the chairman of the committee making further submissions at to why the development should be approved, and that is to be found at 436, but I will not take the Court to the terms of those letters.
Then on 3 April 2001 the council’s group manager
provided a further report to the Building and Development Committee and that
report is to be found at 485. That is the report of the Building and
Development Committee. That report noted that the original
application had been
forwarded to the Department of Urban Affairs for approval and that the council
had in fact supported the application,
citing the need for affordable
accommodation. The Department had declined to vary the applicable development
standard. I draw attention
in particular on page 486 where, under the
heading “Advice from DUAP”, it is said at line 40:
The Urban Design assessment suggests that the site is too small to achieve its full development potential and return a positive urban design outcome. The site needs to be amalgamated with adjacent sites to maximise its development potential. The provision for off-street parking is inadequate and the inability of the vehicles to adequately manoeuvre reinforces the need for a larger site.
Then over at the top of the next page,
page 487:
In particular, the assessment report states that the proposal would set a precedent for similar mixed-use developments, as it would result in a poor design outcome that would potentially increase local concerns over inappropriate high rise development in Burwood.
Copies of previous relevant reports to the Building and Development Committee relating to this item, the letter from DUAP and the urban design assessment from UDAS are attached.
The letter from DUAP is to be found
at page 492. The report is to be found at page 493. In relation to
the report, we draw attention
in particular at page 506 under the heading
“Conclusions and Recommendations” - the photocopy is not
too good on the left-hand side, but it says:
In its assessment of the application, UDAS concurs with the findings of this report to Council’s Building and Development Committee (20 June 2000). Specifically the finding that the site is too narrow to maximise its development potential and that the site needs to be amalgamated with an adjacent site in order for its development potential to be achieved is agreed with.
Also, at the foot of that page, your Honours will
note, at about 47:
This is an unacceptable precedent for residential flat buildings generally. That the proposal would generally set an unacceptable precedent for similar mixed use developments, as it would result in a poor design outcome that would potentially increase local concerns over inappropriate high rise in Burwood.
CALLINAN J: Mr Douglas, was there any
evidence that No 11 could have been redeveloped in a much less intensive
way, for example, than the application
contemplated? It was an application for
an eight storey development, was it not? Very big.
MR DOUGLAS: It was eight and then seven, your Honour.
CALLINAN J: Eight and then seven. Was there any evidence about any intermediate position?
MR DOUGLAS: I do not think there was any dispute that
it could have been separately developed, but not a development of this size.
There was
an admission between the parties which is at page 533 which
throws some light on that. Item 3 says:
The fact that a development on a larger scale would be possible on an aggregated site does not necessarily mean that the larger development would be profitable - - -
CALLINAN J: That was
the trial judge’s finding.
MR DOUGLAS: No, this is the - - -
CALLINAN J: I know, but that is what the trial judge referred to, I think, did he not?
MR DOUGLAS: He
did, yes, your Honour.
or even less subject to risk of loss than a smaller development on 11 Deane Street alone.
So implicit in that agreement is a fact that
one could have a smaller development on Deane Street alone. One of the other
findings
of the trial judge was that the amalgamation of the site would not lead
to increased benefits to both of them, if I could put it
that way, when you have
just got a larger site on which you can put a larger
development.
CALLINAN J: I understand that. Was there any evidence about what the parties were saying or doing with respect to No 11 during the period when – I know there is a dispute as to what the respondents were told or what they claimed they were told about the council’s attitude or what they were not told about it. It seems odd to me that with the passage of time there was not some evidence about what the parties were saying they would do with No 11 because, on any view of it, the application had not been approved - - -
MR DOUGLAS: Yes.
CALLINAN J: - - - so one would think that Mr Sullivan’s clients would be saying “Well, what are we going to do with it, what is going to happen?” Is there any evidence about that?
MR DOUGLAS: There is correspondence in the middle of 2001 which I will be taking the Court to in due course where he says, “Well, look, I have been to the council several times and we are not getting anywhere”, and that letter itself, in its first sentence, contains the sentence which says, Over the past year I have kept you informed as to what is happening in relation to this particular property”. As to the particulars of the evidence as to what actually was discussed between the parties in the period before 2001, apart from the disputed conversations, I do not think there is much as to what their plans were, but certainly there is the evidence which I think I referred to earlier, that Mr Elias, at the time when he bought No 11, was aware of the possible benefits that would accrue from having No 13, because it would be a bigger development and possibly more acceptable.
CALLINAN J: I am just surprised that anxiety was not being expressed and concern because there is independent evidence which the trial judge accepted that the respondent’s businesses were not doing very well and one senses that there would have been a shortage of money. They put up 230,000, did they not?
MR DOUGLAS: They put up the 230,000.
CALLINAN J: Did they borrow that, Mr Douglas, is it known?
MR DOUGLAS: I do not know that the evidence discloses how they came by that money, your Honour.
CALLINAN J: In any event, that has an opportunity of costs. Their businesses are not doing well. You would have thought they would have been very anxious and would have been pressing Mr Elias about what was happening.
MR DOUGLAS: It seems as though the properties were going up in value and that property was going up in value in the interim because it was bought, I think, at $680,000. That was in 1998 and by the time Mr Elias was aware of the opportunity to acquire No 13 in August 2002, he paid $1.68 million.
CALLINAN J: It is an almost identical property.
MR DOUGLAS: Slightly larger, if you look at the - - -
CALLINAN J: Slightly larger. It had four units on it too, did it not?
MR DOUGLAS: All of these were developed, I think, with units, your Honour, and I think there is evidence – and I will find it – in the appeal books somewhere where a development consent was, in fact, obtained separately in respect of No 13, but obviously because of the disputes between the parties I do not think much has happened in relation to 11, apart from the assignment of a mortgage of No 11.
GUMMOW J: What was the completion of the project that was being talked of in that letter that is the foundation – paragraph 12 of the primary judge’s judgment?
MR DOUGLAS: My understanding of that is, your Honour, that the completion of the project was the project of redeveloping No 11.
CALLINAN J: He keeps on referring to “the above property”. It is all singular.
MR DOUGLAS: It is, your Honour, yes. There is no suggestion that they would necessarily buy another property. Obviously, however, there is always a possibility that that could occur. The formal refusal of the first development application referred to in paragraph 22 of Justice Palmer’s judgment is to be found at page 399. That is the motion in council, and then the notification of that to Mr Elias is to be found at page 440, which is the notice of determination of the development application.
Then in paragraph 23 the trial judge deals with the acquisition on 30 June of Nos 15 and 20 and he refers there to a conflict in the evidence to which he would return shortly. There is part of a contract in relation to that acquisition in evidence and it may have come about as part of the editing of the appeal books. I think at – I cannot find it at the moment but I will find it, but the front pages of the contracts to acquire those properties are there if need be. Going back to his Honour’s judgment, he then gives a description of where the properties were situated which I have sought to give to the Court by reference to page 785 of the appeal book. At page 626 you will see at least the front page of the contracts to acquire the properties at 15 and 20 and that goes through to page 633.
The letter of 16 July which Mr Elias
wrote is to be found at 635 and there are two copies of it and the underlined or
ticked copy
is at 636, but you will see that on Monday, 16 July 2001
Mr Elias says to the principals of Say-Dee:
Over the past year or so we have regularly kept you informed of the current status of the property and the trust although we have not stressed our difficulties involved - - -
GUMMOW J: What is the trust?
MR DOUGLAS: I understand that there was a suggestion that there could be some trust formed but there never was a trust.
HEYDON J: Did not the council write to Mr Elias as being an officer of the Dean Trust?
GUMMOW J: Yes. That is on several of the letters.
MR DOUGLAS: That of itself refers to the “Dean
Development Trust” but as far as I am aware, there is no formal trust deed
in evidence,
nor was any evidence elicited as to what the terms of the trust
were or what in fact it was proposed to do. Then it says:
Over the past year or so we have regularly kept you informed of the current status of the property and the trust although we have not stressed our difficulties involved with the ongoing management of the trust and the property being very sympathetic to the real difficulties that presents for you over the last few months.
The management of the trust has now requiring critical attention due to the culmination of the following events:
• After several months of submissions to the Burwood Council and the State government the council has refused the current development application and we enclose copies of that correspondence.
The correspondence is apparently not in evidence and there does
not seem to be much dispute that the correspondence was in fact enclosed
and I
think Justice Tobias refers to the fact in his judgment that these ticks
were imposed upon this letter in part by using it
as an agenda, but we do not
know what correspondence was actually enclosed except constructively possibly by
reference to the letters
from council which had in fact been sent. The finding
of Justice Tobias in relation to that is at page 849 at paragraph 59
where
he says:
Even if the correspondence enclosed with the letter of 12 July 2001 included Council’s Notice of Determination of 4 April 2001 (and it was not suggested that there was any other relevant correspondence) so that Dalida and Sadie became aware of the Council’s formal reasons for refusal, it does not follow, as a consequence of being informed that No. 11 was considered too small to achieve its full development potential and return a positive design and urban outcome, that, given their complete lack of knowledge of or experience in the intricacies of land development, they appreciated in any meaningful sense that the Council would only consent to the redevelopment of No. 11 to anything like its maximum potential under the draft LEP and draft DCP if it was amalgamated with the adjoining properties.
So his Honour’s findings seem to proceed, at least at that level, on the basis that he was prepared to assume that the correspondence included the notice of determination by the Council but that even that would not have been enough. Then he refers to various other matters, including the Land Tax Office pursuing legal action. There is a continuing shortfall of a trading account, some of which emerges from letters from the National Australia Bank which are in evidence.
GUMMOW J: What is the trading account with the bank?
MR DOUGLAS: There was apparently a trading account for this particular property into which the rents were deposited and the bank was then repaid the interest on the mortgage. There is some reference to that from 644 and following and you will see there are some account statements at 643, and at 642 you will see the amount of the outstanding mortgages there. The debit of the interest is shown, the interest rate as well and I think it must include the receipt of rentals as well, although it does seem to be principally – yes, at 648, I think. It seems to have been largely an account which reflected the debit of interest against the outstanding mortgage moneys.
I am not sure that any account was actually tendered into evidence which showed the amount of rent being earned, but it seems as though the amount of rent being earned was not sufficient to cover the amount of outstanding and accruing interest on the loan and various dishonour notices were given, including that at page 662.
GLEESON CJ: Just a
matter of detail, Mr Douglas. In paragraph 54 on page 802 of the
appeal book Justice Palmer is dealing with this important
issue of fact as to
whether Mr Elias asked the Say-Dee ladies whether they were interested in
acquiring Nos 13 and 15. In the second
sentence in paragraph 54 Justice
Palmer says that:
[Mr Elias’] unchallenged evidence was that he found great difficulty in raising the money for these acquisitions.
That, Justice Palmer thought, supported the proposition that it was probable that he would have sought to raise further money from them. You referred us to page 107 of the appeal book, line 40 and thereabouts, where Mr Elias gave an account of the difficulty he had in raising money for these acquisitions, which is presumably the unchallenged evidence that Justice Palmer is referring to in paragraph 54 on page 802.
MR DOUGLAS: Yes, your Honour.
GLEESON CJ: But Justice Tobias, on
page 865 at line 48, says:
there was no evidence to support [Justice Palmer’s] finding (at [54]) that Mr Elias found great difficulty in raising the money for the acquisition of the two properties - - -
MR DOUGLAS:
Yes, your Honour. We contend that his Honour overlooked that
evidence, your Honour.
GLEESON CJ: But you have Justice Palmer referring to unchallenged evidence and you have Justice Tobias saying there is no evidence.
MR DOUGLAS: There are a number of difficulties with Justice Tobias’ analysis, as we would see it, your Honour, in terms of the facts which I was going to come to next. We would say that Justice Palmer’s appreciation of the evidence and the difficulties which he deposed to under cross-examination is the evidence which should be accepted by this Court.
CALLINAN J: Mr Douglas, it is a much bigger and different thing to undertake a development involving three parcels than it is to undertake a development involving one. The profits might be much greater, but the risk is also and the time involved and the costs might be very different.
MR DOUGLAS: Yes. Well, it would be a major undertaking to develop four properties, because there were four properties, not three properties.
CALLINAN J: What Justice Palmer thought confirmed his view were the financial difficulties – I do not want to overstate it, but financial problems perhaps that the respondents were facing themselves, plus, I think, the very serious illness of one of them, which might have made them very averse to any further risk or outlays.
MR DOUGLAS: Not only that, but Justice Palmer came to the view that the principals of Say-Dee had not been particularly forthcoming about the financial circumstances of those businesses and that the evidence was inconsistent in their affidavits in relation to their reasons why they could not participate in these proposed acquisitions.
CALLINAN J: What might distinguish this case from a Fox v Percy situation is that Justice Palmer relied very much upon the written material provided by the respondents, the contradictions in their own affidavits, which he analysed as to their state of knowledge and of what they were informed.
MR DOUGLAS: Well, that analysis is to be
found at page 795 and really relates to different stories which they told
in their evidence. Commencing
at paragraph 29, he refers firstly to
Mr Elias’ evidence. Mr Elias’ evidence commences at
page 220 – that is his
affidavit – and at page 236 he
relevantly gives his evidence as to what he told the principals of Say-Dee in
relation to the
possibility of acquiring No 15 and No 20 George
Street. So in paragraph 22 on page 236 he tells them –
this in May of 2001:
“I have been negotiating some options to purchase on 20 George Street and 15 Deane Street and the owners don’t want options, they want to sell outright. The owners want two million dollars. Are you interested in these properties?”
And he says Miss Dagher
said:
“We can hardly manage our businesses as it is. Financially things are not going too well and Sadie is very sick. Good luck to you George, we are not interested. We are already trying to sell our businesses, a food chain store and coffee lounges, to minimize our commitments. This is enough for us.”
He said:
“I’m sorry to hear that. That’s Ok.”
Then he says that:
Soon after my wife Margaret Elias and I met Miss Dagher and Miss Elias for coffee at Gasparo Coffee shop Burwood and we conversed to the following effect:
I said: “We are buying the properties at Burwood we spoke
about.”
Miss Dagher: “Good luck to you. We wish you the best. We’re in
no financial position to commit ourselves on this one. We just can’t do it.”
In late June 2001 contracts for the purchase of the units were exchanged. (Exh FE 1 PP 69-76). As I received oral inquiries regarding the sale of 11 Deane Street from any buyers and agents, I conveyed them orally to Miss Dagher for her consideration.
Then he refers to the
letter of 16 July 2001 which I have just taken the Court to at AB 636.
He says:
We did arrange a round table conference . . . We scheduled a meeting at my offices at Enfield for late August 2001. I used the letter as an agenda –
et cetera.
GLEESON CJ: As I understand it, a central question of fact at the trial was whether, before acquiring these adjoining properties, Mr Elias attempted to engage the participation of Ms Dagher and Ms Elias in the wider development. Justice Palmer though it was probably that he would have done that because he had trouble raising - - -
MR DOUGLAS: Finance.
GLEESON CJ: - - - from his own sources the funds for any wider development. When Justice Tobias came to review that central finding of fact he said there was no evidence that Mr Elias had any trouble raising funds for the wider development and yet, Justice Palmer said there was unchallenged evidence to that effect.
MR DOUGLAS: Which is the evidence I have taken the Court to. In our submission, on that ground alone, Justice Palmer’s findings ought to be reinstated. In addition to the question of financial capacity, Justice Palmer did rely upon the inconsistencies in these affidavits as reflecting adversely upon the credit of the principles of Say-Dee. He relied upon the demeanour of a witness - - -
GLEESON CJ: I am sure all the witnesses write their own affidavits for themselves.
MR DOUGLAS: Well, they did not, your Honour, we know that.
GLEESON CJ: We know the way that is done.
MR DOUGLAS: I think, as we have put in our submissions, what troubled Justice Palmer in relation to the versions of Sadie Elias and Dalida Dagher was that they seemed to be somewhat consistent in their inconsistencies between the two batches of affidavits that they filed because one batch of affidavits came along which admitted to a conversation which took place in or about August 2002 in this coffee lounge where they apparently used to meet where, on their own evidence, they said to him in relation to the development of these properties “Why don’t we do a combined development with the property which you own next door?” In their latter affidavits they had denied any knowledge that he in fact owned the property next door or any other properties near. Justice Palmer said that inconsistency is just unexplained. There was no cross-examination about the inconsistencies.
The question of Browne v Dunn was taken to the Court of Appeal. It is not pursued here. The Court of Appeal took the view that the inconsistencies had been outlined in the affidavits which have been filed and there was no need for cross-examination. In our respectful submission, when one looks at Justice Tobias’ analysis of Justice Palmer’s findings in relation to the discrepancies in the affidavits of the principals of Say-Dee, his analysis of those discrepancies is not in the least bit persuasive.
GLEESON CJ: Did the principals of Say-Dee say in their evidence at the trial that if they had been given the opportunity to participate in the wider development they would have been willing and able to take it?
MR DOUGLAS: No, your Honour. The whole case has
been run on the basis of Phipps v Boardman, Regal (Hastings) v
Gulliver, Brickenden, that line of country. In fact, the evidence as
Justice Palmer said was to the contrary. If your Honours look at the
foot of page
801, paragraph 48, after dealing with the
inconsistencies in the affidavits, it said:
In her cross examination, Ms Dagher conceded a state of affairs as to the financial position of Say-Dee at the time of acquisition of Nos 13 and 15 which shows that what she had said in paragraph 25 of her affidavit of 17 June 2004 had been less than frank and forthcoming.
Say-Dee had purchased a café business at Miranda in April 1999 for $285,000, $245,000 of which was apportioned to goodwill. The rent for the premises was $193,500 and the lease was to expire on 2 August 2000.
Ms Dagher conceded that the Miranda café business proved very uneconomic and that it would have been very difficult to make the business profitable if the lease had been renewed. She conceded that Say-Dee was not able to sell the goodwill of the business and that by August 2002 it had lost its investment of $285,000 in the business.
Further, in March 2000 Ms Dagher had sold her interest in a restaurant business called “Italian Flavour”. Ms Dagher conceded that the business had not been doing well. As at the date of sale, there were arrears of rent and interest amounting to just over $31,000.
The income tax returns of Ms Dagher and Ms Elias for the years ended 30 June 2000, 2001 and 2002 disclose that neither received a substantial income in those years.
This evidence is consistent with Mr Elias’ evidence that when he proposed to Ms Dagher the acquisition of Nos 13 and 15 he was told that the businesses of Ms Dagher and Ms Elias were “not going too well” and that it looked as if Say-Dee could lose $350,000 in the café business at Miranda, so that Say-Dee could not afford any more investment in the Deane Street development.
One thing which seems to have played a role in Justice Tobias’ analysis of the evidence in relation to Farah Elias is the fact that he did seek to make an offer for purchase of No 11 in late 2002 or early 2003, purportedly through nominees but in fact by himself, and his Honour came to the view that, whilst not excusable, this might be understandable in the circumstances.
One of the circumstances, as we
have pointed out in our written submissions was that he approached them with an
offer to purchase
it for something in the order of $1.6 million. This is dealt
with, I think, at paragraph 101 of Justice Tobias’ judgment at
page 863, and I think this goes to the question which your Honour the
Chief Justice asked me. He says:
The primary judge’s impression (at [61]) of Mr Elias was that he was “an essentially truthful witness” and that he did not think (at [58]) that Mr Elias was being untruthful in the evidence he gave in cross-examination on the present issue notwithstanding a number of apparent contradictions. Given those findings together with his finding (at [48]) that Dalida’s evidence concerning the financial position of Say-Dee at the time of acquisition of Nos. 13 and 15 “had been less than frank and forthcoming”, I can accept his Honour’s conclusion that if Dalida and/or Sadie had been asked to participate in those acquisitions, they would have declined for financial reasons. But it does not necessarily follow that his Honour was correct in finding that they were so asked: their financial difficulties may have been imparted by them to Mr Elias at different times and in different contexts. After all, it was common ground that they met up for coffee at Burwood on numerous occasions during the relevant period.
But nonetheless it does seem to be a certain acceptance of what
was being said in relation to that. A matter which
Justice Tobias
– going back to where I was before –
also placed some emphasis upon, was that this offer which was made for
No 11 by
interests associated with Mr Elias was made without
disclosing that he was in fact the true buyer. In relation to that it will be
seen that in paragraph 54 he says:
I find it inherently probable that Mr Elias would have asked Ms Dagher and Ms Elias if they were interested in acquiring Nos 13 and 15. His unchallenged evidence was that he found great difficulty in raising the money for these acquisitions. The two sites were obviously suitable for an amalgamated development with No 11 –
That has to be said, if you could obtain 13 –
and there is no suggestion in the evidence of any reason, whether of animosity, necessity or greed, for Mr Elias to keep secret from Ms Dagher and Ms Elias the possibility of a larger development incorporating all three pieces of land. It would have made obvious commercial sense for Mr Elias to endeavour to raise funds for the proposed acquisition of Nos 13 and 15 from his co-investors in No 11. If, as he says, he had asked Ms Dagher and Ms Elias, it is probable that he would have been met with the response which he says he received.
And that is the finding which his Honour made which
Justice Tobias just referred to. He then says:
I am not satisfied that Mr Elias failed to disclose . . . On the contrary, I am satisfied that he did so and that his invitation was declined, as he says.
He says his reasons are:
the unsatisfactory evidence of Ms Dagher and Ms Elias as to how and when they learned of the acquisition of Nos 13 and 15; the inherent probability that Mr Elias would have asked Say-Dee to provide funds for the acquisitions and the inherent probability that Say-Dee would have declined through financial inability.
In making this finding, I have not overlooked the submission that Mr Elias’ credit should not be accepted because of contradictions in his evidence in cross examination and because of an allegation that he endeavoured to mislead Ms Dagher and Ms Elias as to the identity of the interests proposing to acquire No 11 in late 2002 or early 2003.
I do not think that Mr Elias was untruthful in the evidence which he gave in cross examination. Mr Weber SC . . . points to apparent contradictions in Mr Elias’ evidence but I do not think that they are of the character which Mr Weber ascribes. I take into account that although Mr Elias is perfectly fluent in English, it is not his first language and he sometimes expresses himself in a way that is not idiomatic, particularly in his use of tenses and moods. This, I think, has led to some ambiguity and confusion in his answers.
I am prepared to find that in late 2002 or early 2003 Mr Elias put forward to Ms Dagher and Ms Elias an offer to purchase No 11, representing that he was a consultant to the offeror when, in fact, his interests solely controlled the offeror. I think that his motivation for this misrepresentation was to avoid the disputation which was likely to arise if he himself made an offer directly.
At or about paragraph 122 Justice Tobias
makes certain findings about that and says that he just cannot accept that that
was an appropriate
way for the trial judge to have dealt with that matter on the
evidence. We have dealt with that also quite extensively in our written
submissions at paragraph 32 of the appellants’
submissions.
GLEESON CJ: Obviously the Court of Appeal took a different view of the facts from that expressed in paragraph 6 of Justice Palmer’s judgment on page 791.
MR DOUGLAS: Yes, your Honour, but when one looks at it, it is really up to the trial judge to say whether he is prepared to excuse some conduct which could be characterised as being untruthful on the part of Farah Elias, having seen him, observed him. Justice Tobias sought to get into that arena by saying, “I’m not prepared to accept that that was an appropriate thing to do in the circumstances and therefore I’m not prepared to believe him”.
The evidence as a whole discloses that at the time when he had been negotiating to – he had just acquired No 13, I think in August, and completion was in November and there had been negotiations between him and the principals of Say-Dee in relation to the possibility of acquiring No 11 and it was only at a latter stage of those negotiations that he himself became involved through a subterfuge of using an alias to actually seek to acquire the property.
The evidence is uncontradicted that in the negotiations which he was having with the principals of Say-Dee, they were seeking to obtain from him at or about this time a price of $3 million for their half-share of No 11, which would mean that the property had gone up by something like 10 times in value from 1998 when they had acquired it.
The evidence in relation to that is referred to by us at
paragraph 25 of our submissions in reply where we say that with regard to
the respondent’s submissions, the trial judge’s conclusion that
Farah Elias misled Dalida Dagher and Sadie Elias understandably
but not
excusably is a valid conclusion which was open for the trial judge to make on
the basis of the evidence.
That evidence from Farah Elias’s
perspective included evidence that he had asked Say-Dee or its principals to
participate in
the acquisition of each of Nos 15, 20 and 13 and they had
declined for reasons which included their financial inability to participate.
When approached with an offer for their half-share in No 11, they had
countered with a figure of $3 million. The reference to that
is – it
is a secondary reference but it is our submissions in-chief, which
is - - -
HEYDON J: What is the point of this submission, though? Mr Elias behaves inexcusably but an excuse can be found in the fact that they were behaving inexcusably to him.
MR DOUGLAS: The judge obviously took the view that his conduct could be excused and it is important to look at the circumstances in which his conduct could be excused, as we would see it. In other words, why did the judge come to that view? Justice Tobias has said, as we would understand it, “I’m not going to excuse him for having done what he did and so therefore I’m not prepared to accept his evidence”.
HEYDON J: All Justice Palmer says, though, is if he had made an offer directly there would have been some row so he made an offer through a nominee.
MR DOUGLAS: Yes, but that is just contextual, is it not, your Honour - - -
HEYDON J: What does it matter that the ladies made an egregiously ambitious demand?
MR DOUGLAS: Well, I am just trying to give some content to Justice Palmer’s view that it was understandable but not excusable. In other words, the understandable part of it may relate to the fact that the negotiations had got to that stage. The relevant reference to the evidence, and I will desist at this stage, is to be found in volume 1 of the appeal book at page 242 at the foot of the page.
CALLINAN J: Mr Douglas, it does rather suggest though that there may have been some ill will or suspicion between the parties if your client was doing this through an intermediary which - - -
MR DOUGLAS: Yes, by that stage I do not – yes, your Honour. I think it is quite obvious that by that stage relations had deteriorated somewhat.
CALLINAN J: Mr Douglas, I wanted to ask you about paragraph 62 on page 850 in Justice Tobias’s reasons. I just want to know who tendered the correspondence, incomplete as it was, referred to in that paragraph.
MR DOUGLAS: Your Honour, I am on paragraph 62 at page - - -
CALLINAN J: Page 850, Justice Tobias’s judgment. I will tell you why I am interested, Mr Douglas. There may be a question of onus involved. The issue litigated was the issue on the cross-claim. That is Mr Sullivan’s clients so I suppose the onus lay upon them. In paragraphs 56, 59 and 62 it seems to me that Justice Tobias has made Browne v Dunn type findings. Anyway, just look at 62 for present purposes. Now, what was tendered by whom?
MR DOUGLAS: Your Honour, we tendered the letter - - -
CALLINAN J: Is that the letter of 16 July 2001 - - -
MR DOUGLAS: Yes, your Honour.
CALLINAN J: - - - which was referred to on page 846?
MR DOUGLAS: And which is to be found at 635.
CALLINAN J: Yes. Anyway, that letter states, and
Justice Tobias has highlighted it – it is at page 846:
we enclose copies of that correspondence.
Do you see that?
MR DOUGLAS: Yes, your Honour.
CALLINAN J: Now, who actually tendered the letter of 16 July 2001?
MR DOUGLAS: Your Honour, it was Exhibit FE1 to the affidavit of Farah Elias.
CALLINAN J: Your client?
MR DOUGLAS: My client, yes.
CALLINAN J: Was your client cross-examined on any question of incompleteness of enclosures or anything of that kind?
MR DOUGLAS: No, your Honour.
CALLINAN J: Well, was not the onus, one would have thought, on Mr Sullivan’s clients to prove that the enclosures were incomplete?
MR DOUGLAS: In our respectful submission, yes. It may depend on how you characterise the legal question, but yes.
CALLINAN J: Mr Douglas, it might be appropriate to look at, at some stage - I know it was said in a criminal case but the joint judgment of Justices Gummow, Kirby and myself about Browne v Dunn in MWJ v The Queen 80 ALJR at paragraphs [38] to [41].
MR
DOUGLAS: Thank you, your Honour. In that context also, in relation
to the acquisition of the property at No 13 Deane Street, it is
important
to bear in mind what the evidence is as to what Mr Elias said to
Ms Dagher as to the desirability of acquiring that property before
it was
acquired. That is to be found in his affidavit at page 239 where he
says:
“The property at the 13 Deane Street Burwood has come on the market. I need to talk to you very urgently, it’s very important.”
He said:
“We have to buy this property in Deane Street. It has come onto the market for sale by tender and is a good proposition for redevelopment in conjunction with 11 Deane Street.”
Miss Dagher: “How much?”
I said: They are talking about $1.55 million, possibly more.”
The ultimate price is 1.68 -
Miss Dagher: “Don’t you think that is too much?”
I said: “Look, Dalida, it is not a matter of how much. It’s a matter of not letting it go, I don’t want anybody else to buy this property except for us.”
Miss Dagher: “George, we are not in a position to purchase any thing at this time -.
and then refers to financial
difficulties -
I said: “Dalida, It will be difficult for me to do it on my own. We should do it together. We must...”
Miss Dagher: “We can’t do anything now George.”
I said: “That’s Ok. I’ll have to make other arrangements on my own then.”
He says he then later purchased the
property and borrowed money from St George Bank using personal and company
guarantees. What we
say is, as the Court is well aware, that the Court of
Appeal was in error in overturning the findings of the trial judge in relation
to what was told to him. The trial judge did find in relation to what
Justice Callinan was just putting to me that they were not
told in terms of
council’s deliberations. What he meant by that appears to flow in part
from paragraph 27 of his judgment
which is at page 795 where he
says:
Ms Dagher and Ms Elias say that they were told by Mr Elias that the Council had rejected the first development application “because there were too many units in the submission”. However, they say that they were not told of the opinion of the Group Manager that No 11 was too narrow to maximise its development potential and that No 11 should be amalgamated with the adjoining properties. Although Mr Elias says that he kept Ms Dagher and Ms Elias informed of his discussions with the Council, he does not expressly say that he made known to them these particular statements in the Group Manager’s report.
But on the
other hand, one has the letter. So it seems to us that, firstly, there is an
issue as to whether he told them of the opportunity
to acquire 15 and 20 in the
first place, and 13 secondly, and secondly, whether he had an obligation to tell
them more than what
he told them.
In relation to 15 and 20, it is our respectful submission that in the current state of play at the time when those properties were acquired, he had no fiduciary duties whatsoever to ask them whether they wished to participate in the purchase because at that time Nos 15 and 20 were not capable of being developed conjointly with No 13 and were a separate development site on their own, and having regard to the nature of the agreement which existed between them, such as it was, but he had no obligation to offer them any participation in that development.
Nonetheless, if Justice Palmer’s findings were to be restored, he did offer them that opportunity. The question then is whether he needed to tell them what was in the council documents. His letter of July was subsequent to the acquisition of Nos 15 and 20 but what was said in the council documents was irrelevant to any potential purchase of Nos 15 and 20 because the acquisition of Nos 15 and 20 would not have enabled him to enlarge the development at No 11 because you had to have 13 to do it.
GLEESON CJ: There was never any suggestion on any side, was there, that he offered them participation in Nos 13 and 15 out of generosity?
MR DOUGLAS: No, he wished to have them.
GLEESON CJ: He needed their money.
MR DOUGLAS: He needed their money, yes.
GLEESON CJ: That was his account of why he did it?
MR DOUGLAS: Yes.
GLEESON CJ: It was on the objective question of whether he needed their money that there was a disagreement between Justice Palmer and the Court of Appeal. Apart from those remarks at page 107 about how the wife and daughters got into the act, was there any attempt at the hearing on either side to analyse the financial position of Mr Elias?
MR DOUGLAS: Not in any detailed way, your Honour.
GLEESON CJ: So the question which became a key question whether he needed their participation, which is the only reason he would have offered them participation, was left to be decided at a very impressionistic level.
MR DOUGLAS: I think there is also an aspect of the
evidence – if you look at that passage from the evidence at
paragraph 27 at page 240,
which is the conversation I was going to, at
about line 40, this is the discussion in relation to 13, not 15 and 20,
where he says:
“Dalida, it will [be] difficult for me to do it on my own. We should do it together. We must...”
In relation to 15 and 20 there is no such evidence but there is evidence in relation to 13. When one goes to Justice Tobias’ judgment in relation to that matter, he seeks to reinterpret the trial judge’s findings in relation to that wording “it will [be] difficult for me to do it” so as to suggest – I am sorry, I will just find the reference.
HEYDON J: Are you talking about paragraph 95 on page 861?
MR DOUGLAS: Yes, I think
that is it, your Honour. Justice Tobias says:
As I have noted in [73] above, his Honour interpreted Mr Elias’ statement that “it will [be] difficult for me to do it on my own” as indicative of the difficulty he would have in raising the money to acquire No. 13. However, in my opinion the difficulty to which Mr Elias was referring was that of redeveloping No. 13 in conjunction with No. 11. This follows from the immediately preceding statement in [27] of his affidavit where he attributed to Dalida’s lack of interest in more investment, a statement by her that Mr Elias should buy No. 13 and that, if it was later developed with No. 11, she and Sadie “can take a space equivalent to our space in 11 Deane Street”. Accordingly, the unstated and undisclosed difficulty to which Mr Elias was referring was not related to the question of the cost of acquiring No. 13, or, for that matter, the cost of redevelopment but to the difficulty of developing No. 13 otherwise than in conjunction with the redevelopment of No. 11.
It takes quite a feat, in our respectful submission, of
mental gymnastics to get oneself into a situation of disagreeing with the
trial
judge on that particular aspect of the evidence. There is simply no reason, in
our respectful submission, why the trial judge’s
interpretation of the
evidence, having had the advantage of seeing the witnesses, should not be
accepted. It is the preceding conversation.
It does not relate in any way, as
we would see it, to defer the development of the project. It relates to the
acquisition of this
property.
GUMMOW J: What about the top of 240?
MR DOUGLAS: Well, “It . . . is a good proposition for redevelopment in conjunction with 11 Deane Street”, but that does not mean that they are actually going to embark upon the cost of redeveloping at that point of time. I mean, the trial judge’s interpretation of this was obviously that he was saying, “It will be difficult for me to do it on my own”, and that meant the acquisition of the property. In any event, it is a straw in the wind, in our respectful submission, to overturn the very cogent and clear findings of the trial judge as to the view which he had formed as to the truthfulness of the witnesses on either side.
Now, in relation to those matters I think I have sufficiently developed in oral argument the reasons why we say that the findings of the trial judge should be restored. It then comes to the question of scope of fiduciary duty. So far as that is concerned, it seems to us, I think, as I began to say earlier, that different considerations apply in relation to 15 and 20 and to 13 and different considerations apply if, in fact, the Court is of the view that the factual findings of the Court of Appeal ought to remain.
GLEESON CJ: On the approach of the Court of Appeal, if as a matter of fact Mr Elias had before acquiring any of the surrounding properties inquired of these two ladies whether they were interested in participating in such acquisition themselves and had been told that they were not because they could not afford it, would that be the end of the matter?
MR DOUGLAS: In one sense, on the findings of the Court of Appeal, one suspects that he would thereafter be bound not to acquire the properties because he has asked them whether they are interested in the possibility and they have declined and so, therefore, he cannot even for his own personal advancement acquire the properties. It depends upon the scope of the fiduciary obligations which he had to them but, in our respectful submission - - -
GUMMOW J: It depends on what you mean by informed consent too, does it not?
MR DOUGLAS: It does, and whether it is a fully informed consent.
GUMMOW J: There were some detailed submissions on that, I think.
MR DOUGLAS: Yes, but, of course, fully informed consent must relate to the proscriptive duties which he owes. So one must first identify what those duties are. His duties were, in relation to No 11, does he owe duties in relation to the adjoining properties?
GLEESON CJ: Forget for the moment about the wife and daughters, put them to one side, and forget any complications about indefeasibility of title. If, having acquired in conjunction with Say-Dee No 11, either with or without having first offered Say-Dee to participate, he had gone ahead and acquired, for example, an adjourning allotment, would he thereby have put himself into a conflict of interest necessarily?
MR DOUGLAS: Not necessarily, no.
GLEESON CJ: Would he thereby have put himself into a conflict of interest if you accepted that 11 could not have been developed profitably except in conjunction with the adjoining property?
MR DOUGLAS: If 11 could not have been developed profitably except in association with an adjoining property and for the purpose of the joint venture was to develop No 11, then he would at least have an obligation, as we would see it, to inform them of what he knew arising from his position as manager of the joint venture.
GLEESON CJ: But if he went ahead and bought the adjoining property on his own account (a) with, (b) without their knowledge, what would the position be?
MR DOUGLAS: I think in the circumstance which your Honour outlined to me, which is one where you could not develop No 11 without an adjoining property profitably, it is a difficult question which I am not sure the authorities appropriately address, but one could imagine that in some circumstances – let me start that again. I think Sir Harry Gibbs said in Consul Developments if he offers them the opportunity that is good enough. They have to have sufficient information on which to - - -
GLEESON CJ: What if he offers them the opportunity and they say, “We can’t accept this, we can’t afford it”? Does that mean he can go ahead then and buy the adjoining lot in a situation where Lot 11 cannot be developed profitably except in conjunction with the adjoining lot?
MR DOUGLAS: What is the alternative, your Honour? Then some other competitive developer obtains a property and holds you to ransom on No 11. Why should he not be entitled to do that? The cases vary enormously in their facts and circumstances but there is one case which is referred to in the footnotes to our submissions and which is, I think, referred to in a case which Justice Heydon argued in the Court of Appeal called Noranda about oil wells where you had companies which were in a joint venture in relation to an oil field and one of the companies acquired the adjoining oil field and the question was whether they had breached their fiduciary duty in doing so and the court held not. That was applied in the decision of Noranda, which I think is referred to in the Court of Appeal, in relation to a question of mining leases.
In our respectful submission, if one is looking at it in terms of the proscriptive duties which Mr Elias owed to Say-Dee through his company Farah Constructions or individually as a manager, they related to No 11. Information which he acquires as a manager of No 11 for their benefit is information which they are entitled to know.
GLEESON CJ: Justice Palmer seems to have decided the case, rightly or wrongly, on the basis that once he found as a fact that Mr Elias had offered Say-Dee an opportunity to participate in a more extensive development and they had declined the offer because of financial inability to do so, that was the end of it.
MR DOUGLAS: That is the basis of his decision as we understand
it, yes, your Honour, and it is really in that part of his judgment
commencing
at page 804. His conclusion for that seems to be in part based
upon the nature of the information which was not known to the principals
of
Say-Dee. That is at paragraph 68. He says:
that information received by Farah was information which it was not entitled to exploit for its own benefit without the informed consent of Say-Dee. However, the information was really no more than that if Say-Dee and Farah wanted to construct a development of the size proposed they would have to acquire adjoining properties, and that would involve an acquisition of property beyond that which had been agreed between the parties.
Also at paragraph 72 he points out:
that when No 15 became available for purchase, there would have been no possibility for amalgamating it into a development with No 11.
So whilst one says that the scope of the fiduciary duty
ultimately controls his findings, as he says in paragraph 76:
Farah did not contract to do anything in relation to any such developments and it cannot be required by resort to the law of fiduciaries to undertake responsibilities or obligations which have no source in its contractual responsibilities.
GLEESON CJ: Is it right to say that on the attitude that council was taking Lot 11 could not be profitably developed on its own?
MR DOUGLAS: No, your Honour. That, in fact, would be contrary to the admission of the parties at page 533.
GUMMOW J: Proposition 3, is it?
MR DOUGLAS: And proposition 1.
GUMMOW J: Yes.
MR DOUGLAS: Both proposition 1 and proposition 3 really impliedly admit that you could develop No 11 Deane Street. It would have been to the benefit of the parties to have been able to exceed the - - -
GLEESON CJ: Both those agreed facts leave that question up in the air.
MR DOUGLAS: They do leave the question up in the air but they have implicit within them that you could have a separate development of No 11 Deane Street. The combined effect of them, in our respectful submission, seems to be that the development of 11 Deane Street or the development of 11 and 13 Deane Street may or may not be profitable. It could be profitable, it may not be profitable. There is certainly no evidence, in our respectful submission, to the effect that a development of No 11 Deane Street alone was not profitable; it is just that it would be less profitable.
CALLINAN J: There was evidence it had all been refurbished and was generating some rent, was there not?
MR DOUGLAS: It was generating an income, yes. The evidence arising from the judgment in Say-Dee (No 3), which is before the Court, is that the current value of Nos 11, 13 and 15 is approximately $2.7 million according to the respondent.
GUMMOW J: Where do we see that, in the reasons given last week or two weeks ago?
MR DOUGLAS: Yes, in the reasons given last week.
GUMMOW J: 28 November judgment.
MR DOUGLAS: It is in paragraph 21. It
says:
The appellant engaged Mr John La Mela to value the Properties, which he did as at 14 August 2006 in the sum of $2.7 million based on their current zoning but also taking into account the Council’s resolution of 23 May 2006.
Council’s resolution of 23 May 2006 is to be found at
paragraph 6 of the judgment and it effectively is a resolution of 23
May:
(a) to prepare a draft local environmental plan . . .
(b) to prepare a draft development control plan for the Centre;
(c) to advise the Department of Planning of Council’s resolution . . .
(d) to carry out consultations –
and then have an exhibition of the draft local environmental plan. So if one takes the figure of $2.7 million in that paragraph, which is the evidence of the respondent’s own valuer, the fact of the matter is that if you take the combined cost of Nos 11, 13 and 15 at the present time, it is $3.4 million. That does not include the cost of stamp duty, it does not include the interest which has accrued to date set off with the rental earnings, it does not include the costs of sale and it does not include the costs of a receiver who has been appointed by the court for the purposes of sale. The purpose of this application was effectively to get orders which were to be amended so as to enable the receiver to consider when would be a reasonable time to proceed with the sale, there having been a planned auction of the properties, I think, on 1 August 2006, as appears from paragraph 18.
At the moment, as is pointed out in paragraph 22 of this judgment, you will see that if the rezoning goes through, that properties could have a value of $7.43 million. If you look at paragraph 29 and over on to the top of the next page, it will take at least 12 months for the rezoning to take place. Of course, as we all know, sometimes rezonings do not happen. In fact, there is - - -
HEYDON J: That is a submission.
MR DOUGLAS: That is the submission; the rest of it is evidentiary.
GLEESON CJ: Mr Douglas, I am afraid I have not understood the facts on page 533. What is the land referred to in the second sentence in paragraph 1 on page 533?
MR DOUGLAS: The land, as we would understand it, 11 Deane Street, your Honour.
GLEESON CJ: Then what does that have to do with the question of whether or not the site could profitably have been developed without joining in some other site?
MR DOUGLAS: It is an admission, as we would understand it, your Honour, that – implicit within that admission, if I can put this way, is that 11 Deane Street could have been developed on its own and that it would have been advantageous to the parties to have obtained a development consent which was in excess of the standard planning constraints.
GLEESON CJ: That would be to state the blindingly obvious.
MR DOUGLAS: Yes, your Honour.
GLEESON CJ: So the facts on page 533 are all related only to Lot 11?
MR DOUGLAS: No, your Honour, because item 3, in our respectful submission, goes beyond that.
GLEESON CJ: Right. That is an aggregated site but it is not specific about what it is aggregated with.
MR DOUGLAS: No, your Honour, because there were more than one possibility. For example, No 18 George Street is behind No 13 and, I think, No 11.
GLEESON CJ: Do not those facts mean that the moment Mr Elias, whether with or without the knowledge or with or without the approval of Say-Dee, acquired an adjoining site he was in a position of conflict of interest?
MR DOUGLAS: Your Honour, we do not accept that because, in our respectful submission, the scope of the joint venture was one which related to 11 alone. They are entitled to be told, in our respectful submission, by the manager of that joint venture of information which affects the viability of development in respect of that property. We would say that that obligation has been discharged, amongst other things, by Mr Elias saying to the principals of Say-Dee, “We don’t want anyone else other than us to get this property”, that is No 13, because that is as much as they need to know, particularly in circumstances where, as is submitted by my learned friends - - -
GLEESON CJ: But the reason he did not want anybody else to get 13 was that whoever got 13 could hold 11 to ransom.
MR DOUGLAS: And whoever got 13, it is obviously a better development.
GLEESON CJ: So what does that mean if he gets 13 himself?
MR DOUGLAS: The scope of the joint venture, in our respectful submission, reflects upon the proscriptive obligations which are imposed upon him. There may be a distinction to be drawn between his failure to provide the information as a manager of a joint venture, on the one hand, and the proscriptive obligations which are imposed upon him. If one takes No 15, for example, it is difficult to see the proscriptive obligations not to enter into a transaction where there is conflict of duty and interest applying there, simply on the off chance that No 13 may at some stage become available.
If there is a breach – and it may be important to characterise a breach here – it may be the failure to provide the information as to the precise grounds which the council had used to reject the development rather than entering into a transaction which was a breach of one of the proscriptive duties which are placed upon trustees, that is, entering into a transaction where there was a conflict of duty and interest, because the extent of the obligation did not go that far.
If, in fact, the breach is one of failing to provide the information which would have enabled them to have been as well informed as he was, why then would it have been a breach of duty for them to compete for that site. They may have decided not to.
GLEESON CJ: If he simply acquired 13 in his own name – forget the wife and children- and then a question came up of a joint development of 13 and 11, who would negotiate with whom about the terms of the joint arrangement?
MR DOUGLAS: He would negotiate with the manager, your Honour, but there would then at that stage be a conflict, obviously, and he may need to get someone else in to negotiate on behalf of Say-Dee, but if you are looking at it at the time of acquisition, they are parties to a joint venture which, in our respectful submission, does not include No 13, but he is also the manager of a joint venture where he has an obligation, obviously, if you look at the terms of the correspondence, to impart information to them.
Now, if he is in breach of that obligation, that obligation, in our respectful submission, has to be seen in two contexts, one of which is his obligation to provide the information as a manager of the joint venture, and secondly, in relation to the questions that your Honour is putting to me, the need to obtain fully informed consent if, in fact, he is to embark upon a transaction which is a conflict of duty and interest.
GLEESON CJ: On your submission, did he have an obligation to offer them the opportunity to participate in the acquisition of any adjoining properties?
MR DOUGLAS: No, your Honour, because that is not a proscriptive duty. He had an obligation as manager to give them the information which they needed as members of the joint venture, so he could not withhold that information from them, but we would say, for example, in relation to No 13, he has more than discharged his obligation in that regard because he has provided to them his own view, “We don’t want anyone else to get that property other than us”.
Now, cautionary words may say that he should have added to that, “And, by the way, the council thinks that we should have an amalgamated site if we want a bigger development”, but he is the manager of a joint venture, and my learned friends say they have placed their trust and confidence in him. The way they seek to portray themselves in this Court are people who are requesting him to make the decision for them, so if he makes the decision and says, “Look, we can under no circumstances allow any other person to get this property”, he has discharged his obligation as manager of the joint venture, but in relation to his capacity as a fiduciary within the joint venture and his ability to enter into a transaction which is a conflict of duty and interest, you first have to ascertain is there that conflict and did he obtain fully informed consent.
Whether he obtained fully informed consent depends upon whether, in fact, what he told them, if one accepts Justice Palmer’s view of the facts, amounted to a fully informed consent. In that regard, the conversations which are related indicate that they consented. The only question is whether it was fully informed. The question whether it was fully informed depends upon whether it was sufficient to say, “We must buy these properties or it is a good idea to buy these properties. No one else should buy these properties apart from us” or whether he then had to say, “Council thinks we need to have another site and amalgamate with it to get a better development”.
Now, he did send them, prior to the acquisition of No 13, the letter of July 2001 enclosing relevant documentation from the council and, in our respectful submission, that must have included the notice of determination which included as one of the grounds on which the development was refused the fact that the council considered that one needed to have an amalgamation with an adjoining site.
Now, the principals of Say-Dee, as one can see from the evidence which is before the Court, are not babes in the woods. They certainly do not know a great deal about property development in 1998, according to the evidence, but they in their own evidence, as we have recounted in our submissions, were clearly aware of the desirability of acquiring the adjoining properties because that appears – and we have given the references in our submissions – in their own evidence which on any view of the matter is there. They are saying, for example, “Why don’t we do a big development of your property next door?” They are as conscious themselves of the need for doing this as anyone and - - -
GUMMOW J: Where are they saying that?
MR DOUGLAS: If you go to Dalida
Dagher’s evidence at 259 – I think possibly Sadie Elias, firstly,
starting at 138 – sorry, this
is Dalida Dagher, of 18 June
2003 – and going over to 145, paragraph 26:
In mid to late 2002, Mr Elias said to Sadie and myself:-
“I’m buying some other property in the area.”
Mr Elias never told me or Sadie in my presence which properties he was purchasing or any details of the purchase. He never offered myself to become involved in the purchase.
But then over the page:
In late October 2002 I received a call from Mr Elias in which he said:-
“I need to see you urgently.”
. . .
“What we have been waiting for has finally come through. I’ve been approached by a group of people wanting to buy the Property.”
My immediate response was to say:-
“Why would we want to sell the Property rather than develop it ourselves.”
Mr Elias responded:-
“We have already submitted two development applications to the Council and they have both been rejected.”
We then had the following discussion:-
Me: “Why don’t we do a development that is a bit smaller
so the Council won’t reject the development application.”
So that
shows a consciousness on her part that you could have a smaller development so
the council would not reject it.
Mr Elias: “It’s not worth it.”
Which is his view but a smaller
one – he would rather have a bigger one:
Me: “Then why don’t we do a development with the building
next door which you own.”
Mr Elias: “I am selling my properties as well.”
Me: “Why would you be selling when you know the potential
of the area and we’ve waited so long to maximise our investment.”
Now, it is that evidence in the case of
Dalida Dagher which his Honour compared to evidence which was given in
her subsequent affidavit
of 17 June 2004 commencing at page 254
where, on page 262, she refers to paragraph 22 of Mr Elias’
affidavit – paragraph
22 of Mr Elias’ affidavit is to be
found at page 236, which I have taken the Court to, which was the
discussion in relation
to the acquisition of 20 George Street and
15 Deane Street – and said:
the meeting that Mr Elias refers to therein as taking place in late May 2001, did not take place and I deny that I ever said the words attributed to me therein. Mr Elias never informed me that he was intending to purchase 20 George Street or 15 Deane Street.
I refer to paragraph 22 of Mr Elias’ Affidavit and say that on one occasion Sadie Elias and I met Mr Elias and his wife for coffee however we did not discuss any business. Sadie Elias and I regularly met with Mr Elias on a social basis. We met with Mr Elias socially on many occasions on which we did not discuss any business matters. We often met up for coffee or dinner and went to his home for a bbq. I assumed Mr Elias was running the development as we had discussed.
Then at 23 she says:
I refer to paragraph 25 of Mr Elias’ Affidavit –
and then that is a discussion about the second development
application. Then at paragraph 24 she says:
I refer to paragraph 26 of Mr Elias’ Affidavit and say that I never received a telephone call from Mr Elias regarding 13 Deane Street and deny that I ever had such a discussion with Mr Elias.
GLEESON
CJ: Just go back to paragraph 19 on page 262, on several
occasions when Mr Elias pressed her to sell their interest in 11 Deane
Street,
on each occasion she said “we want to be part of the redevelopment
of the site”. When was the first time that Mr Elias
pressed her to
sell her interest in 11 Deane Street?
MR DOUGLAS: It was towards the end of 2002, your Honour. That is on Mr Elias’ account and, I think, on her account too. In paragraph 29 to 31 of his affidavit he gives his account of discussions, so it is around about Christmas 2002.
GLEESON CJ: Go back to page 146.
MR DOUGLAS: Of his affidavit?
GLEESON CJ: The affidavit at page 146.
MR DOUGLAS: Yes, the affidavit at 146.
GLEESON CJ: Did Justice Palmer accept the evidence in paragraphs 33 and 34?
MR DOUGLAS: Justice Palmer used that evidence as being – let us put it this way, that is part of the evidence which Justice Palmer referred to as being inconsistent with the latter evidence.
GLEESON CJ: It is just that there you have Mr Elias, according to that evidence, saying, “I have got you a fantastic offer of $1.5 million”, and they say, “No, that’s not enough”, and he goes back and he comes back and says. “I’ve negotiated the price upwards to $1.8 million”, whereas the person who is the offeror is himself.
MR DOUGLAS: Yes, your Honour, that is true.
GLEESON CJ: What did Justice Palmer make of that?
MR DOUGLAS: Justice Palmer accepted generally that he, in fact, had made an offer under a subterfuge, but that it was understandable, if not excusable, at the time when the offer was made.
GLEESON CJ: It is not just making an offer; it is negotiating the offer with himself up to $1.8 million.
MR DOUGLAS: Yes, your Honour. As we have said before, there were negotiations between the parties at that time. Justice Palmer was of the view that having regard to the nature of the relationship which existed between the parties at the time, as we would understand his reasons, this was done to avoid disputation. There was no suggestion that that was an offer which was at an under value. In fact, when one looks - - -
GLEESON CJ: It is certainly a good way of avoiding disputation, but the point I was fastening onto was the difference between the two offers. He did not just make an offer. He made an offer and then when it was rejected went away and came back with a better offer and said, “I have negotiated for more”.
MR DOUGLAS: Yes, but, your Honour, I do not think we in any way dispute that that was a breach of duty. We could not because he was a manager of a joint venture. He was engaged in this development with the ladies. It was something which was done after, in our respectful submission, he had tried to get them involved in the acquisitions of Nos 13 and 15 to 20 and they had refused. He was in the difficult position because he had a half interest in No 11 with them and they were refusing to sell except on terms that they got $3 million for their half interest.
GLEESON CJ: Anyway, did Justice Palmer accept that evidence?
MR DOUGLAS: Justice Palmer did not accept that evidence in terms, although I think he probably accepted the increase in the offer.
GLEESON CJ: Let me go back a step. Did Mr Elias dispute that evidence?
MR DOUGLAS: Mr Elias did not dispute that he had made an offer under a subterfuge, no.
GLEESON CJ: Or that he had pretended to negotiate with the vendor to increase the offer?
MR DOUGLAS: No, he did not dispute that. Justice Palmer’s consideration of it, if I can just take the Court to it - - -
HEYDON J: The paragraph is set out at page 798.
MR DOUGLAS: Page 798.
Justice Palmer in referring to that evidence was using it to isolate
the conflict as he saw it which existed between the versions
of events which had
been given by Ms Dagher in her two affidavits. In relation to making an
offer under a subterfuge, one has to
bear in mind, firstly, paragraph 57 in
which he says:
I have not overlooked the submission that Mr Elias’ credit should not be accepted because of contradictions in his evidence –
and he also says in
paragraph 59:
I am prepared to find that in late 2002 or early 2003 Mr Elias put forward to Ms Dagher and Ms Elias an offer to purchase No 11, representing that he was a consultant to the offeror when, in fact, his interests solely controlled the offeror. I think that his motivation for this misrepresentation was to avoid the disputation which was likely to arise if he himself made an offer directly.
GLEESON CJ: But his
obvious motivation was to buy it as cheaply as he could. That is evident from
the conversation, is it not?
MR DOUGLAS: He was not, your Honour, because he – but, your Honour, the offer was a very expensive offer. There was an offer of - - -
GLEESON CJ: He could have saved himself $300,000 if they had accepted the first offer.
MR DOUGLAS: Your Honour, even $1.5 million was a very generous offer. The current valuation of all three properties is $2.7 million on the respondent’s own evidence.
CALLINAN J: Why was he offering so much for this?
MR DOUGLAS: Because obviously, your Honour, it is not much use having a joint venturer in a site of this nature if they are no longer prepared to invest and if you need to put the site together in order to develop it.
CALLINAN J: But if the respondents had known that he was the offeror and he was prepared to, and they could get another $300,000 so easily, and they had known he was the one, would not they have said, “Well, you have come up 300, what about another 300?”
MR DOUGLAS: They did, your Honour, they went to $3 million for their half share - $6 million, your Honour.
CALLINAN J: Did they know then that he was the true buyer, true purchaser?
MR DOUGLAS: Yes, your Honour. Well, that is another aspect of the factual finding which emerges from Justice Tobias’ analysis of the findings made at trial, because in part of his evidence he said, “I always told you”, and of course, he did not always tell them, but he never gave evidence of a prior conversation in which he in fact told them that he was the buyer behind this vehicle which was putting this offer, and Justice Tobias made great play of that, but the fact of the matter is what he is really saying, as we say in our submissions, in something of that nature is, “I could not fool you, you always knew”.
I am not seeking to suggest for one moment, your Honour, that what Mr Elias did in Christmas 2002 was something which he should be proud of, but on the other hand - - -
GUMMOW J: It was not going to work. Sooner or later there was going to have to be a memorandum of transfer signed. They were joint owners. Did he think he was going to get away with it?
MR DOUGLAS: The evidence is that the respondents found out that it was him because they did a company search and found out the company which was offering was one which had him as a director. So it is not as though he was - - -
GUMMOW J: Where do we see that evidence?
MR DOUGLAS: You will see it in, I think, Dalida Dagher’s affidavit.
GLEESON CJ: Was that the company called Burwood Centre, or some name like that? Yes, Burwood Centre, page 147 line 40.
MR DOUGLAS: Yes, paragraph 39. I mean, they did have to be – how would I put it – very astute, and certainly it shows a certain lack of astuteness on his part, if I could put it that way. We seem to have tracked back beyond scope of fiduciary duty back into what I might describe as a Fox v Percy matter, but so far as Fox v Percy is concerned, this is a matter which in paragraphs 57 and 59 Palmer J addressed correctly and it is obviously a matter which goes to credit and it is something which he weighed up having regard to the advantages which he had as a trial judge and having seen the demeanour of the man in the witness box.
He was satisfied that he had offered them participation in 15 and
20 and in 13, and that is prior to this conversation taking place.
If you look
at the circumstances as disclosed in the evidence which was before him, there is
clearly a situation in which neither
party was acting very well, having regard
to the counter offer which was made. If, in fact, there had been an offer at a
substantial
undervalue there would have been a clear-cut, dead-set case for a
breach judiciary duty in respect of any profit which he had made
as a result of
it, but as one can see on the evidence, he was offering fair value at any
price.
So if I could then just go back to the question of the scope of
fiduciary duty. I think we have made our submissions in relation
to that to the
effect that the scope depends upon the contract; the contract did not include
the adjoining properties. The benefits
of acquiring adjoining properties were
matters which he had to disclose in his capacity as manager of the joint
venture, that he
did so, but nothing further which he could have disclosed would
have, in any way, affected the decision made by Say-Dee, and that
if, in fact,
his fiduciary obligations extended to the acquisition of adjoining properties,
he has in fact discharged those obligations
and has, in fact, obtained a fully
informed consent by reason of the acceptance of his evidence by Justice Palmer
which ought to
be reinstated.
GUMMOW J: What do you say the content of his duty was, because it is that with which he must not place himself in conflict? Unless we sort that out we do not start to get airborne, so what is his duty?
MR DOUGLAS: Our primary submission is that his duty related only to No 11.
GUMMOW J: What do you mean “related to No. 11?”
MR DOUGLAS: The way I put it is question begging, but it was No 11 itself in the same way, for example, as the oil well case.
HEYDON J: You are aligning yourself with the submissions of Mr Gray on page 806, paragraph 71?
MR DOUGLAS: Certainly in relation to 15 and 20, yes. I do not align myself – sorry. The scope of the venture was the development of No 11 and nothing more. In other words, there would have needed to be agreement between the parties to expand the scope of that development. What I am seeking to draw a distinction between – and I may not be doing it very artfully – is his obligations as manager of a joint venture and his obligations as a co-joint venturer having regard to the scope of the joint venture.
So as manager of a joint venture we do not dispute whatsoever that he had an obligation to bring to the attention of his co-joint venturer matters which were relevant to the development of No 11, including the development of adjoining properties. Now, where one goes beyond that, as we would see it, is a somewhat difficult question.
GUMMOW J: We seem to know, now, by reason of the judgment delivered in November this year, that if this rezoning order, whatever it is called, goes ahead and you succeed on this appeal, you get trustees for sale at No 11 appointed, do you not? That is the leave you sought in the first place.
MR DOUGLAS: Yes, it is, your Honour.
GUMMOW J: And the proceeds of the sale of No 11 would be increased considerably if the three properties in a line proposal went ahead. So to that extent your opponents are deriving an advantage from your activities with neighbouring properties, are they not? That would be within the scope of the venture, would it not?
MR DOUGLAS: The property itself had increased in value if one has regard to the comparable sale of No 13 next door.
GUMMOW J: I realise that but it is going to increase even more if the whole thing goes ahead as one project, is it not?
MR DOUGLAS: All property is going to increase in value ultimately, your Honour. There may or may not be – the local environmental plan may or may not go through. If we sit here for 10 years, all property will, in nominal terms at least, increase in value. The amount which has been expended on these properties to date, including receivers’ fees and interest and the like, would have to make a substantial dent in that figure of 7.42 million even if it is accepted.
At the current time we would submit that the Court should proceed on the basis of the current zoning because there is no suggestion that the proposal by the council in the middle of 2006 in any way activated what was occurring in 2002. You would not then have regard to that material and say, “If we let him hang on long enough, the beneficiaries will be able to make a profit out of the deal and so therefore we’ll just leave it for at least the next 12 months until we can sort it all out”. That seems to us to be a somewhat remarkable proposition, with respect.
If I could then just move on to our other submissions. Once one gets beyond the question of a scope of a fiduciary obligation, if in fact there has been a breach of fiduciary duty, then - - -
GUMMOW J: I still do not understand what you say the scope of the fiduciary duty is. Was it to disclose any information concerning adjoining properties or the acquisition of which information would or could produce an increase in the value of No 11 and therefore in the ultimate resolution of the achievement of the project they talked about in their initial letter?
MR DOUGLAS: Your Honour, in those terms I do not think I have much difficulty with it. We would say that that obligation was discharged by saying in relation to No 13, “We must buy this property. I don’t want anyone else apart from us to buy it”.
GUMMOW J: But it did not require disclosure, did it, of the news as to the council’s attitude to height development in that area?
MR DOUGLAS: No, it did not require disclosure of that, your Honour, firstly because this was not a situation, for example, where conjoint decisions are being made. The respondent puts its case on the basis that they put their trust and confidence in Mr Elias. So far as that is concerned, he is the manager of the joint venture, he is making the decisions, and if he in fact thinks it is a good idea, that should be all they really need to know.
I mean, they seek to put themselves before the court as not being capable of making a decision about these matters, which is contrary to the evidence which has been filed on their behalf, but that is their posture before the Court. So if one accepts that posture, then the duty does not go so far as to enable them to make, if I could put it that way, a fully informed decision on the basis of information which may not mean very much to them.
On the other hand, if in fact the test is that they needed to know that amalgamation with an adjoining site was desirable, then we say they knew that and they were told that and that, in any event, they received from the council, at least in relation to No 13, which is the only relevant property, the material from council which was attached to the letter of 21 July, and so that then ultimately the question is this, as we would see it: ought Mr Elias have specifically in relation to the notice of determination from council taken them to that particular paragraph about adjoining properties and said, “And by the way, this is what council said”.
GUMMOW J: What is the connection between Mackay v Dick type reasoning in relation to this contract they had and notions of scope of fiduciary duty, other than that Mackay v Dick gets you a contract term and it is the fiduciary duty that you be a Rolls Royce of equitable remedies.
MR DOUGLAS: Well, it would be an obligation on his part to do everything necessary on his part to achieve for benefit of both parties the benefit of the venture. But one then has to turn around again and ask oneself what is the venture which they had embarked upon, because they certainly had not agreed that between themselves they would agree to buy adjoining properties.
Their only agreement was to develop No 11, and he had undertaken no obligations to them in respect of adjoining properties, but he had undertaken obligations as manager of a joint venture, to provide them with information which was relevant to their participation in the joint venture which he was managing.
GUMMOW J: This notion that he is the manager of the joint venture, how does that link itself with the contract between these parties?
MR DOUGLAS: The correspondence I think refers to - - -
GUMMOW J: It becomes a contractual term, does it not, that he was to assume that position for it?
MR DOUGLAS: He is to assume that position I think, yes, and that does impose certain other responsibilities upon him, and it is a question of how he discharges them.
GUMMOW J: ......seems to have been imperfectly performed or incompletely performed because he seems to have had some notion of having a trust company set up.
MR DOUGLAS: Yes, and that does not seem to have occurred. Whether in fact that was proposed to be some form of discretionary trust or fixed trust, the evidence is completely silent about that, or an express trust. We just do not know. But it does reflect, we accept, upon the relationship between the parties, but the fact of the matter is, in our respectful submission, the Court should approach this as a commercial relationship between the parties, but nonetheless subject to the obligations which Mr Elias assumed which are borne out by the correspondence and by the findings made by both courts.
If there was a breach of fiduciary duty by Farah Elias, that comes down then, as we would see it, to a question of remedy. So far as the other appellants are concerned, different considerations apply. It seems at the Court of Appeal that they were to be fixed with liability either as recipients of trust property or as persons who had been unjustly enriched in some way at the expense of the respondent. So far as knowing receipt is concerned, our submissions from paragraph 38 and following seek to make it clear that we are dealing here not with trust property. Mrs Elias and her daughters did not acquire any trust property; nor for that matter did Mr Elias. The information in question was not confidential information. It is information which the council was required to keep as a public record and to make available to anyone who wished to inspect it.
GLEESON CJ: What exactly was the information?
MR DOUGLAS: The information which the emphasis seems to have been placed upon is the information that if they wanted to get a bigger development through they needed to amalgamate it with an adjoining site. So it is really that opinion as expressed by the DUAP and as part of the notice of determination of the council. If one goes to Justice Tobias’ decision - - -
HEYDON J: Page 891, paragraph 174.
MR DOUGLAS: Page 849, I think it is,
commencing possibly at 848. He looks at the council reports and the reasons for
the rejection and I have
taken the Court to that – I do not want to go
back to that. He then says at the top of page 849:
There was no doubt that No. 11 was under-developed. The existing building was only two storeys and contained four units. It is equally clear, and in fact common ground, that Mr Elias was an experienced developer and that Dalida and Sadie were not. In fact, this was their first venture into the field of property development . . .
Even if the correspondence enclosed with the letter of 12 July 2001 included Council’s Notice of Determination of 4 April 2001 (and it was not suggested that there was any other relevant correspondence) so that Dalida and Sadie became aware of the Council’s formal reasons for refusal, it does not follow, as a consequence of being informed that No. 11 was considered too small to achieve its full development potential and return a positive urban design outcome, that, given their complete lack of knowledge of or experience in the intricacies of land development, they appreciated in any meaningful sense that the Council would only consent to the redevelopment of No. 11 to anything like its maximum potential under the draft LEP and draft DCP if it was amalgamated with the adjoining properties.
Furthermore . . . although it might be common sense that if one is told that a site is too small for a particular development one will need a larger site for the purpose, the Council in the present case was saying more than that: there was, as his Honour correctly termed it, “the additional dimension” that the senior planners of the Council were telegraphing that if a development of the nature of that proposed was to be recommended by the officers for approval, it would be necessary to amalgamate No. 11 with the adjoining properties.
GLEESON CJ: Does that mean that the information was that the key to maximising the development potential of this site was some form of amalgamation with adjoining properties?
MR DOUGLAS: That seems to be what Justice Tobias is saying, your Honour.
GUMMOW J: Does this have any affinity with the corporate opportunity doctrine?
MR DOUGLAS: Does this have any relation?
GUMMOW J: Yes, with the corporate opportunity doctrine.
MR DOUGLAS: Well, it is a bit like a Cook v Deeks - - -
GUMMOW J: The director of a company gets wind of something like this and then goes off and feathers his pocket and he is held accountable.
MR DOUGLAS: But if you look at the evidence – not all of which is recounted in either of the judgments of either court - he was aware of this from 1998 and 1999, made a number of approaches to the owner of No 13, believes he probably told Ms Dagher and Ms Elias about it, but did not recognise the importance of it at the time.
GUMMOW J: Your opponents refer to Cook v Deeks, do they not? I understand that in a sense.
MR DOUGLAS: They do. If one accepts that he did not tell them and if one accepts that this is commercially valuable information then it is analogous, your Honour, but we would say, firstly, that he did, on Justice Palmer’s findings, and secondly, that what was in the council documents was no more valuable than what he in fact told them himself and what they themselves knew because in their own affidavits they have said, “If the Council thinks it is too small, why don’t we do a development with the properties which you own next door?” That indicates, in our respectful submission, that they knew all there was to know about amalgamated developments.
This interpolation, which one finds in Justice Tobias’ findings at paragraph 60, that they were just a wink and a nod away from getting a development consent because of what was intimated in that letter, again, in our respectful submission, we would say that that is a gloss upon the evidence which is unwarranted, and all that the council was saying was, “If you want a development this big, you’ll need more land”.
Then if you go
to paragraph 174 on page 890, going back to the question which the
Chief Justice asked me, you will see that Justice
Tobias says:
Acting on behalf of the joint venturers in relation to No. 11, Mr Elias acquired from the Council valuable information about a method of exploiting the development potential of that property. This information (withheld from Dalida and Sadie) provided vital intelligence that was capable of being put to valuable use either in selling No. 11 to the adjoining owners or in contemplating an expansion of the original enterprise by purchasing the adjoining properties. Additionally, it formed part of the intellectual stock-in-trade of the original joint venture if it needed to be wound up when it came to an end as a result of the Council’s refusal to permit redevelopment of No. 11 standing along.
Now, so far as that is concerned, it is information. It is not confidential information. It is information of the council. It is information which the council is required to keep on public record and which is available for inspection. The only sense in which this information could be - - -
GUMMOW J: But one can have information for the corporate opportunity doctrine that is not information which is given life by reason of some confidential disclosure to anybody.
MR DOUGLAS: Yes, I accept that, your Honour. I am not seeking to put it otherwise.
GUMMOW J: You can find something out.
MR DOUGLAS: Yes, but it is important if one is looking at it in terms of Barnes v Addy liability as distinct from - - -
GUMMOW J: I agree.
HEYDON J: You say it could be limb 2 but it could not be limb 1?
MR DOUGLAS: Exactly, your Honour.
GUMMOW J: Exactly. Well, that may be right.
MR DOUGLAS: And that is really the basis on which I am putting it. I am not suggesting for one moment that if, in fact, Mr Elias had information which was a corporate opportunity and kept it to himself and did not tell his joint venturers, but he is not liable for breach of fiduciary duty in respect of that if, in fact, he has made a profit, and depending upon which remedy is appropriate. If we are coming to Barnes v Addy, Barnes v Addy only applies in respect of its first claim.
GUMMOW J: Everyone talks about Barnes v Addy. Do we need to approach limb 1 and limb 2 with some appreciation of what the several issues were in Barnes v Addy? There were a couple of issues, were there not?
MR DOUGLAS: They are well discussed in an article by your brother Heydon in - - -
GUMMOW J: Well, why do we not look at the case?
MR DOUGLAS: I am not sure we have given you a reference, but I hope we have. It is (1874) 9 Ch App 244. So this was a trust strictly so-called and there were certain solicitors who were involved.
GUMMOW J: Did the solicitors get off, to put it crudely?
MR DOUGLAS: The solicitors got off, yes, because they were just accessories – or they were not accessories is more to the point. So certain property had been left in a trust fund and Addy was the surviving trustee of the fund and he had the bad judgment to settle half of the funds of the trust upon B as trustee of that half. The solicitor advised him against the appointment of Barnes as the sole trustee and prepared deeds of appointment and indemnity and introduced him to a broker for the purpose of selling out some of the stock and the same broker afterwards transferred the half share to Barnes. Barnes employed another solicitor who warned Barnes’ wife of the risk attending the proposed transaction but settled the deed of indemnity on her behalf. So the question really was the liability of A and particularly of the solicitors who had been involved in the deal.
GUMMOW J: A had been the surviving trustee and he had unwisely, instead of appointing a plurality of successors, appointed one.
MR DOUGLAS: Yes.
GUMMOW J: And then things went wrong.
MR DOUGLAS: Yes. Barnes ultimately wasted the money and the children of Barnes sued the solicitors. I do not think Addy was alive at that stage. I am not sure if a suit was brought against his estate as well. In the speech of Lord Selborne, the Lord Chancellor, at page 251 - - -
GUMMOW J: What was the nature of the proceeding?
MR DOUGLAS: It was a proceeding against the solicitors.
GUMMOW J: The bottom of page 249:
the appointment of Barnes as the sole trustee of the testator’s will was a breach of duty and trust on the part of J.W. Addy - - -
MR DOUGLAS:
was a breach of duty and trust on the part of J.W. Addy, and a fraud upon the power to appoint new trustees contained in the will; that such appointment should, if necessary, be declared void, and set aside; that the transfer made by J.W. Addy into the name of Barnes . . . was not only a breach of trust and duty on the part of J.W. Addy and Mr. Duffield and Mr. Preston –
Duffield and Preston having been the solicitors.
GUMMOW J: They were the solicitors, were they not?
MR DOUGLAS: Yes. It was sought to claim that Addy,
Duffield and Preston:
were liable and bound to answer for and make good the sum of £2140 5s. 6d. £3 per Cent Consols - - -
GUMMOW J: Addy died, as you say, in the middle of the page.
MR DOUGLAS: Yes, and the suit was revived against his
widow:
The Vice-Chancellor dismissed the bill with costs against Mr. Duffield and Mr. Preston, but declared that J.W. Addy’s estate was liable to replace the fund which had been lost –
which is in a sense like Re Dawson relief.
GUMMOW J: And that appeal failed, so the estate of Addy ended up liable, but not the solicitors.
MR DOUGLAS: Yes,
your Honour. The reasons why the solicitors were not to be liable appear
in a speech of Lord Selborne commencing at page 251,
where he
says:
Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust - - -
GUMMOW J: He is labouring
to explain why the estate of Addy was going to be in the gun but the solicitors
were not.
MR DOUGLAS: Yes, your Honour, exactly. Having
referred to trustees de son tort, he says:
But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. Those are the principles, as it seems to me, which we must bear in mind in dealing with the facts of this case.
Then he goes on to say:
Now, what is there in this case to make either of these two solicitors responsible as a constructive trustee for the breaches of trust which were in fact committed by Mr. Barnes, and for which Mr. Addy was also responsible? The facts appear to be neither more nor less than these: that Mr. Duffield had, on the part of Mr. Addy, prepared an instrument appointing Mr. Barnes to be a trustee of what I may call the Barnes’ share of a certain trust fund, of which Mr. Addy was at that time sole trustee, and that he afterwards introduced Mr. Addy to a broker for the purpose of the sale of a part of the trust fund which was sold for the payment of certain costs. That is the case as against Mr. Duffield. As against Mr. Preston, the case is simply that he, as the solicitor of Mr. Barnes, perused and approved the instrument by which Mr. Barnes was to be appointed a trustee of the Barnes’ share of the trust property in Mr. Addy’s place.
To take the latter case first, what are the principles on which Mr. Preston can be held responsible for that? There is not the slightest trace whatever of knowledge or suspicion on his part of an improper or dishonest design in the transaction. There was nothing to lead him to suppose that Mr. Barnes, when he had been so appointed a trustee (assuming the appointment to be followed up by a transfer, which was after all a thing made neither more easy nor less easy by what Mr. Preston did), intended to sell out the fund and put the money into his own pocket. He was called in as a solicitor to approve a form of deed which a person having the legal power proposed to execute.
Then he goes on to say
that:
I entirely concur with the Vice-Chancellor who did not think it necessary to hear the Defendant’s counsel.
The case as to Mr. Duffield, when carefully examined, goes very little beyond that, and not at all, I think, beyond it in anything material to the alleged equity. In addition to the settlement for Mr. Addy, the proposed appointor, of the appointment of Mr. Barnes as a trustee, he also prepared a deed of indemnity to be executed by Barnes to Addy; and he admits that he was aware that, as a general rule, it was not a safe thing for a trustee to transfer a trust fund to a single new trustee, however regularly appointed, and therefore he advised his client against it. He says he advised against it from the beginning to the end, on that ground and that principle, not at all apprehending, and having no reason to apprehend, any dishonest purpose on the part of either Addy or Barnes, and he advised his client, if he did make a transfer, to have a deed of indemnity. I confess I cannot see how upon those grounds we could hold him a constructive trustee –
So that is really what the case was about. It has been referred to in many subsequent - - -
GUMMOW J: Just looking at the bottom of 251, there was no suggestion that the solicitors “receive and become chargeable with some part of the trust property”, was there? It was not a first limb case? So it was only the second limb or nothing.
MR DOUGLAS: The second limb or nothing, and they had to have knowledge of a fraudulent and/or dishonest design on the part of the trustees and without that knowledge nothing. Our case, in a nutshell, on Barnes v Addy is that so far as the wife and the children are concerned is that they received no trust property, firstly, and secondly, they had no knowledge of any breach of fiduciary duty on the part of Farah Elias.
They can only be liable under the knowing assistance limb because they received no trust property. It has not been pleaded or even alleged at first instance or on appeal that they had knowledge of any fraudulent and dishonest design. The pleadings at first instance simply sought to allege that they were liable because they purchased the properties at the direction of Mr Elias. So that effectively they are just buying on his account in some way. So there can be no possibility of liability under the first or second limb of Barnes v Addy in their case. Is that a convenient time?
GLEESON CJ: Yes. We will adjourn until 2.15 pm.
AT 12.44 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.15 PM:
GLEESON CJ: Yes, Mr Douglas.
MR DOUGLAS: Thank you, your Honour. Having been to Barnes v Addy, could I then take the Court to Consul Development [1975] HCA 8; 132 CLR 373 which for a long time has stood as the law in this country in relation to the development of the principles from Barnes v Addy.
GUMMOW J: Without regaling us with large passages from it, what does it all come to in terms of different views or coalescence between views?
MR DOUGLAS: There are a few aspects of it I wish to draw attention to, but it is somewhat similar to this case in that you had a solicitor who had a company which used to buy dilapidated properties. He had a clerk called Walton who used to seek them out for him and obtained information in relation to them. He had an articled clerk called Grey. Mr Grey had his own development company, even though he was only an articled clerk, and he gave evidence at trial to the effect that, based on what the managing clerk had told him he was – let me start again.
Mr Clowes was the
articled clerk and Mr Grey was the managing clerk. Mr Clowes gave
evidence at trial to the effect that, based
on what Mr Grey had told him
that he believed that Mr Walton could not afford to buy this particular
property, so he had his company,
Consul, go out and buy these properties on his
own account. Relevantly, it bears some resemblance to this case in terms of
fact
finding. If you go to the judgment of Sir Harry Gibbs at
page 391 where it is said that:
Walton did not become aware of the purchase of the Rozelle properties until January 1968 and it was only later in that year, after the first of these suits had been commenced, that he learnt of the purchase of the Chubb Street property. There is no evidence that the properties have been resold, or that any profit has in fact been made from them.
So that is Mr Walton
the solicitor.
There can be no doubt, and the learned trial judge found, that Clowes and Gray made a deliberate endeavour to disguise or hide the fact that they were participating together in the various purchases and that this indicated a consciousness on the part of both that there may have been some impropriety in these transactions. However the learned trial judge accepted Clowes’ evidence that Grey had led him to believe that Walton was not interested in the Rozelle properties and that Walton was in financial difficulties. He found that the explanation for Clowes’ belief that there may have been something wrong in relation to the transactions . . .
To one who has merely read the transcript of the evidence, and has not had the advantage of being present at the trial, some of these findings may appear unduly charitable to Clowes, and there is no doubt that some of the evidence to which I have referred, as well as other evidence, going only to credit, that I do not think it necessary to mention, seems to reflect adversely on his credibility. But the judge considered the evidence very fully; he formed a favourable opinion of Clowes as a witness and was not prepared to disbelieve him on the important questions of fact just mentioned. The principles that guide an appellate court in deciding upon appeals involving questions of fact were fully discussed in Paterson v Paterson. I need not restate them –
So the case proceeded on the basis that Clowes genuinely and
honestly believed that Walton was not in a position to acquire the properties
and, relevantly, to deal with Justice Gummow’s invitation, the two
judgments which really control the decision are that of
Sir Harry Gibbs and of Sir Ninian Stephen.
Sir Harry Gibbs is the decision which we are in. He embraced
developments in the principle
which had taken place in cases prior to that time
whereby the principles in Barnes v Addy had been extended from trustees,
per se, to fiduciaries and also, I think, to the application of those principles
to property which
is not trust property strictly so-called but, for example, the
assets of a company which have been misused by the directors who stand
in a
fiduciary position. At page 393, after referring to the various
authorities in relation to breach of fiduciary duty, he said:
It is doubtful whether it can rightly be concluded in the present case that Grey made a profit – or, rather, stands to make a profit – by the use of his position in relation to the Walton companies. That position gave him no special opportunity to acquire the properties and he did not discover them by the use of any confidential information; although it is true that he had access to the information contained in Thorne’s reports relating to the Rozelle properties, it was not established that there was anything in those reports that was of any benefit either to Grey or to Clowes. However the rule that a person in a fiduciary position is not entitled to make a profit without the knowledge and assent of the person to whom the fiduciary duty is owed is not limited to cases where the profit arises from the use of the fiduciary position or of the opportunity or knowledge gained from it. The basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and his interest conflict.
Then, I think at the foot of page 394 the position of the
director is commented upon, and at the top of page 395 it was
found:
that it was a breach of the duty which was owed by Grey to D.P.C. to buy for himself properties suitable for purchase by that company and which the company might have wished to purchase. It was immaterial that had the properties been purchased on behalf of one of Walton’s companies the purchase might have been made by a company other than D.P.C.-
et cetera. Then they go on:
to consider the case against Consul –
and relevantly in relation to Consul, after discussing Barnes v Addy and discussing the authorities up to that point of time which included Selangor and Karak Rubber which had suggested possibly a slightly less strenuous test than that which is now insisted upon by the courts in Royal Brunei in the United Kingdom - - -
GUMMOW J: Did Karak and Selangor involve banks?
MR DOUGLAS: They did, as I recall it, your Honour. Carl Zeiss was the other case which - - -
GUMMOW J: Solicitors, Herbert Smith.
MR DOUGLAS: Solicitors, yes. These are all people who generally know exactly what undertaking they have given to a person and what is required of him in the performance of that obligation. You may think that a person in the position of Mr Elias may not have such a keen awareness of exactly what he is supposed to do in such circumstances. He may not perceive the difference, for example, between telling Say-Dee you must buy this property and saying “But the council considers we need to amalgamate it with an adjoining site”.
In any event, at page 398,
Sir Harry Gibbs expressed his agreement with what had been said in
Selangor –
as to the meaning of “dishonest and fraudulent” for the purposes of the rule.
I have not sought to go back and analyse those authorities because the law has passed on quite a lot since that time. But at the time when this judgment was decided Selangor and Karak and Carl Zeiss were very much to the fore. What was decided in this case was it had to be approached as a knowing participant case, not knowing receipt, because they did not receive any trust property, similar to this case.
The information
which was provided as to the desirability of acquiring certain properties was
not regarded in any way as property
although it was referred to in the judgment
of Sir Kenneth Jacobs on appeal as a possible way of approaching it, but
then he ultimately
decided to approach it on the basis that this was a case of
participating in a dishonest and fraudulent breach. That is what it
had to be.
Justice Hutley seemed to have approached it on the same basis,
although his judgment is slightly confusing. I think Justice Hardy
agreed with
Justice Hutley, contrary to what is said in our written submissions.
Sir Kenneth Jacobs was in dissent on the appeal
and he was upheld in this
appeal, whilst Grey was liable – Grey being the managing clerk of the
firm, Consul – and Clowes’
company was not liable because it
did not dishonestly and fraudulently participate in a breach of trust or
fiduciary duty on the
part of Grey because Clowes genuinely and honestly
believed that Walton could not acquire the properties and so therefore what Grey
was telling him was something which he was entitled to use.
Sir Harry
does say in the relevant parts of his judgment that for the purposes of - I
think really at 398 at about point 2, he says:
“dishonest and fraudulent” . . . is to be understood by reference to equitable principles and, as I have already indicated, in my judgment it includes a breach of trust or of fiduciary duty.
He says that without qualification and it may be that that is something which needs to be looked at because having regard to “it has to be dishonest and fraudulent”, if it was purely a technical breach of trust there would be a real question as to whether it fell within the principle or was intended to fall within the principle. That is what Sir Harry said and it is, to a certain extent, less severe than that which was put by Sir Ninian Stephen, and the Chief Justice at the time, Sir Garfield Barwick, agreed with him.
HEYDON J: There are two issues. One is, is there a dishonest and fraudulent design on the part of - - -
MR DOUGLAS: The fourth to sixth appellants.
HEYDON J: Well, no, on the part of Mr Elias, of which the fourth to sixth defendants had some sort of notice.
MR DOUGLAS: Yes.
HEYDON J: It is not necessary to say of their conduct that it was dishonest and fraudulent.
MR DOUGLAS: No, I accept that.
HEYDON J: I understand that you say they did not have the requisite notice, but do you accept that if everything you have argued this morning is rejected, Mr Elias was responsible for a dishonest and fraudulent design?
MR DOUGLAS: No, I do not, because it was not alleged - - -
HEYDON J: You say it is a trivial breach of fiduciary duty or a - - -
MR DOUGLAS: I do not say it is trivial. It depends upon what you find. But it was not pleaded against him that he engaged in a dishonest and fraudulent breach of trust.
GUMMOW J: It would be a design.
MR DOUGLAS: Or a design, yes. It was not suggested that he engaged in any fraudulent conduct whatsoever. The case was based upon a personal equity, as we understand it, which arose out of his breach of trust, which was a failure to inform them of what was required for the development of the property. So if no allegation is made against him of a fraudulent and dishonest design, they could not have participated in a fraudulent and dishonest design.
This was a case which was based upon a breach of fiduciary duty and, as we all know, if we look at cases such as Phipps v Boardman or arbitrations of that like, people of the greatest integrity can be found to be liable for breaches of fiduciary duty. In Phipps v Boardman I think the chairman of the board went to the trouble of writing a letter seeking to make a full and frank disclosure to the beneficiaries, and that was found not to be sufficient because - - -
HEYDON J: Some of them were not of mental capacity.
MR DOUGLAS: Yes, so it is a strict test, there is no doubt about that. But nonetheless, if you wish to plead, in our respectful submission, a fraudulent and dishonest design on the part of someone, you need to do it, and in this case it is just simply a case of a breach of fiduciary duty, and if it is simply a case of breach of fiduciary duty, the second limb of Barnes v Addy is not enlivened. Of course the first limb of Barnes v Addy could be enlivened as against Farah Elias, but only if he received property, and he did not receive property, so that then leads us back to what we were discussing before lunch, which is a Cook v Deeks remedy of taking a corporate opportunity, but even there they would have to be some more serious conduct on his part, in our respectful submission.
CALLINAN J: With a Briginshaw standard too, I suppose.
MR DOUGLAS: With a Briginshaw standard, yes, your Honour.
HEYDON J: What was the cause of action against the fourth to sixth appellants then, or are they just there because the property is in their name and therefore they might be on the wrong end of a constructive trust?
MR DOUGLAS: That is how it was put, your Honour. We have analysed it to a certain extent in our reply submissions and it may be more convenient for me to give you the reference to that – or to give myself a reference to it so that I can inform your Honour what the position is. After pleading certain facts, it is alleged in paragraph - - -
GUMMOW J: Was there not a section 52 claim of misleading conduct
MR DOUGLAS: There was a section 52 claim, but this seems to have gone by the board, your Honour.
GUMMOW J: Yes.
MR DOUGLAS: But
in paragraph 55 it is pleaded, on page 13:
By virtue of paragraph 27 to 54 hereof and the other paragraphs adverted to herein or stated elsewhere herein, the Plaintiff breached its fiduciary obligations to the Defendant, Ms Dagher and Ms Sadie Elias contained in paragraphs 24 to 26 hereof.
So you need to go back to 27 and it is largely a pleading of not
telling them certain things and having entered into the transactions
without
their consent, as we would understand it. Then as against, and so far as the
fourth to sixth appellants are concerned, if
you go to paragraph 50 on
page 12 it says:
The property known as 20 George Street, another parcel of real estate adjoining the property at 15 Deane Street at the rear, consists of four strata title units. The four units are registered respectively in the name of the second cross defendant, his wife Margaret and their two daughters Sarah and Jade. Each of those persons as a registered proprietor of their particular unit stands in the fiduciary position to the cross claimant by virtue of each of the second cross defendant’s wife and his two daughters acting at his request and direction when acquiring the respective units registered in their respective names.
So there is no pleading of knowledge whatsoever and it
is only because they are said to have done it at their request and direction,
but the unchallenged evidence at trial is that they in fact made an independent
decision and that the wife chose to mortgage a house
which was in her name for
the benefit of herself and the children so that she could acquire these
development units. Now, that is
the only case which is really put against
us.
Now, if your Honours go to the judgment of Justice Palmer
you will see certain issues for determination which are set out. It is
in
paragraph 5 on page 790. It says:
- whether Farah and Say-Dee formed a partnership or a joint venture;
- what were the terms of the partnership or joint venture and what was the scope of the activity to be conducted thereunder;
- whether the opinion of the Group Manager . . . was information which it was the duty of Farah to disclose to Say-Dee - - -
HEYDON J:
The last dash is:
- if so, whether the Cross Defendants are knowing participants in Farah’s breach of fiduciary duty.
MR DOUGLAS: Yes, that is what I
am going to come to. In other words, the issue was raised but no one sought to
plead knowledge of a fraudulent
and dishonest design nor was there any evidence
which was led to that issue. No one, as far as I am aware, has ever suggested
that
these parties, that is the fourth to sixth appellants, had knowledge of a
fraudulent and dishonest design on the part of Farah Elias
and it has not been
alleged in the pleading that such breach of fiduciary duty as Farah Elias
carried out was in fact a fraudulent
and dishonest design. They can raise the
issue and there is no doubt the issue was raised in that way informally, but
they have
to either by pleading or by their facts to make the case out against
the relevant parties.
HEYDON J: They have to do it by their facts.
MR DOUGLAS: Yes. They have got to grasp the nettle and say that “This was a fraud or fraudulent or dishonest design on the part of Mr Elias and you jolly well knew about it”. None of that is put. The case, whilst it, in some respects, is not such a good vehicle for knowing assistance because really there is just no substratum of facts upon which one could make a relevant decision, at a very late stage, what my learned friends now seek to do, as I understand it, is to say that in some way on these pleadings the doctrine of bona fide purchaser for value without notice applied in these proceedings notwithstanding that - - -
GUMMOW J: Purchaser from whom?
MR DOUGLAS: Exactly, your Honour. It is a defence in an unjust enrichment case, but that again is something which was not pleaded and which only emerged once Justice Tobias had come to reach his decision on the matter and decided that this may be a basis on which the fourth to sixth appellants may be liable. That is something which is not pleaded.
If a doctrine of bona fide purchaser for value without notice has survived in the case of Real Property Act land, the rigours of sections 42 and 43 of the Real Property Act, which we do not think it has, then you would need to plead your case in such a way as to make it applicable. In any event, the case has never been put below on the basis that because of the failure of Mrs Elias and the two children to give evidence, that they are deemed to have knowledge by reason of the onus of proof which they bore to plead the doctrine of bona fide purchaser for value without notice. As I understand it, that is part of the application which my learned friend seeks to make by his notice of contention. So those are essentially the reasons why we say there is no knowing assistance here.
GUMMOW J: Have you finished Consul yet?
MR DOUGLAS: No, I have not, your Honour. Just a few
thoughts I want to collect at this time too. We have submitted it is not
confidential information
and we have referred the Court to the fact that the
relevant Act and regulations at the time required all of these documents to be
kept on a public register and to be available for inspection. At 553 there is
the admission to the effect that all of council’s
deliberations took place
in public. On no view of the world could this information be referred to as
confidential information in
the way which Justice Tobias sought to use it
by saying it is part of the intellectual property of the joint venture or
partnership,
whatever you call it and that in some way there was a receipt of
that property by virtue of its being used to acquire the adjoining
properties.
There is recent English authority which is footnoted in
our submissions to the effect that you cannot trace the benefits of confidential
information in that way into real property. It is the decision – I will
not take the Court to it - - -
HEYDON J: Douglas v Hello! Ltd?
MR DOUGLAS: Douglas v Hello! would be one of them, but Douglas v Hello! is more a case in relation to the issue which is being considered by this Court in Breen v Williams as to the fact that the relief which a court gives in respect of confidential information is based upon conscience and not on property. The authority I had in mind, your Honour, is at footnote 85 on page 21. This is that of Satnam Investments Ltd v Dunlop Heywood & Co Ltd. It may be on the list of authorities. Yes, it is actually item 32 in the list of authorities.
GUMMOW J: It is Satnam v Dunlop Heywood [1999] 3 All ER 652, is it not?
MR DOUGLAS: Satnam, yes, your Honour. I do not seem to have it in my bundle, but we have quoted from it at the top of page 21 where the English Court of Appeal has recognised it is not possible to trace information into real property purchased by a third party using such information. In their submissions in reply, my learned friend sought to rely upon some early cases in relation to the nature of - - -
GUMMOW J: About trade secrets and recipes and things.
MR DOUGLAS: - - - trade secrets and that sort of thing, and we responded to that in paragraph 53 of our written submissions. They say that our submissions insofar as they recite a formulaic requirement of a need for receipt of trust property misses the point and they call in aid the decision of Morison v Moat, a decision of the Vice Chancellor, Sir George Turner, I think, as authority which could support an analogic development of the law in relation to the receipt of confidential information.
We simply draw attention to Meagher, Gummow and Lehane where reference is made to Moorgate Tobacco v Philip Morris and Breen v Williams and other cases of that nature which have laid emphasis upon the fact that equity acts on the conscience of a defendant, not in aid of any propriety right, and for reference also to Green v Folgham as we would see it as misconceived. The principles in that case are well recognised, particularly in the decision of Smith Kline & French Laboratories, a decision of Justice Gummow in 22 FCR 73 at page 121.
We would see some real difficulty in – not difficulty, but we do not really see the need for confidential information to be recognised as being property within the first limb of Barnes v Addy for the purposes of its efficacious use, because equity at the present time provides more than adequate protection for confidential information, consistently if the authorities of this Court which have been – and that has been recognised time and time again.
The
passage in Satnam Investments, which I have now found, is at
page 671 in a judgment of Lord Justice Nourse where he says:
Before a case can fall into either category there must be trust property or traceable proceeds of trust property. Clearly, DH and Mr Murray can be regarded as trustees of the information and, clearly, Morbaine can be regarded as having been a knowing recipient of it. However, even assuming, first, that confidential information can be treated as property for this purpose and, secondly, that but for the disclosure of the information Morbaine would not have acquired the Brewery Street site, we find it impossible, in knowing receipt, to hold that there was a sufficient basis for subjecting the Brewery Street site to the constructive trust for which Satnam contends. The information cannot be traced into the site and there is no other sufficient nexus between the two. As for knowing assistance, of which dishonesty on the part of the accessory is a necessary ingredient . . . we would not have wanted to shut out the possibility of such a claim’s being successful if the judge had made a finding of dishonesty against Morbaine, dishonesty for this purpose having been equated, for the most part, with conscious impropriety; see Royal Brunei . . . No such finding having been made, a claim in knowing assistance also fails.
Now, I think I had been on
Consul Developments and - - -
GUMMOW J: We have been through Justice Gibbs but we had not come to Justice Stephen.
HEYDON J: Except for this, at the bottom of 398 Justice Gibbs sets out his understanding of the knowledge test which seems to turn out to be the same as that which Justice Stephen - - -
MR DOUGLAS: Yes, it is
not very different, particularly his reference to moral obtuseness. It is that
sentence which commences:
It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognizing an impropriety that would have been apparent to an ordinary man. However, for reasons that will appear, it is unnecessary for me to express any concluded view - - -
GUMMOW J: How does that square with what you have just read to us from the English case which talks about conscious impropriety?
MR DOUGLAS: This case was decided in 1971. Since that time, in England you have had the decision of Royal Brunei, I think of the Privy Council and of the House of Lords.
GUMMOW J: What do you want us to attach ourselves to? That is why we are here, on one view.
MR DOUGLAS: I am conscious of the fact that this case has decided in R v Peters on a question of dishonesty that it is an objective and not a subjective test and has distinguished that decision of Ghosh which was referred to quite liberally in Twinsectra where the question of dishonesty was considered. In Twinsectra the House of Lords by a majority decided that the test of dishonesty was you had to be conscious of your own wrongdoing. I suppose that is the submission which would suit me best here, but in terms of the authorities it seems to us that since Twinsectra decided that in England the Privy Council in Barlow Clowes has in a decision of Lord Hoffmann, who was one of the majority in Twinsectra, leaned back towards a more objective test consistent with what this Court did in Peters’ Case in a criminal law context and also of a decision which the Court has asked us to consider, the recent decision of Justice Rix and others of the Court of Appeal in Adnan Shaaban Abou-Rahmah v Al-Haji Abdul Kadir Abacha has referred to because - - -
GUMMOW J: What is the citation?
MR DOUGLAS: It is only a media neutral citation,
your Honour. It is [2006] EWCA Civ 1492. At
paragraph 16 Justice Rix says:
Without intending or attempting myself to restate the authorities, I would merely hazard this analysis. It would seem that a claimant in this area needs to show three things: first, that a defendant has the requisite knowledge; secondly, that, given that knowledge, the defendant acts in a way which is contrary to normally accepted standards of honest conduct (the objective test of honesty or dishonesty); and thirdly, possibly, that the defendant must in some sense be dishonest himself (a subjective test of dishonesty which might, on analysis, add little or nothing to knowledge of the facts which, objectively, would make his conduct dishonest).
Then having referred to the decision of the House of Lords in
Twinsectra with Lord Millett dissenting and having referred to the
decision in paragraph 22 of Barlow Clowes where the advice of
the Privy Council was given by Lord Hoffmann but substantially consisting
of many of the same Justices of the
Law Lords who had sat on Twinsectra,
he then came to the view that – in paragraph 22 he says:
In Barlow Clowes the principal directors of an Isle of Man company providing off-shore financial services were sued by the liquidator of Barlow Clowes for having dishonestly assisted Mr Peter Clowes to misappropriate investors’ funds. The question arose as to whether the directors knew enough to incriminate them in dishonesty. The trial judge found that they did. The appellate court disagreed. The Privy Council restored the judgment of the trial judge. The single judgment was delivered by Lord Hoffmann. There are passages in the judgment which have raised academic controversy . . . as to whether the Privy Council has in Barlow Clowes rowed back towards Lord Millett’s views in Twinsectra: see at paras 10/18. For instance, Lord Hoffman said of his own speech in Twinsectra –
“16. Similarly in the speech of Lord Hoffman, the statement (in para 20) that a dishonest state of mind meant “consciousness that one is transgressing ordinary standards of honest behaviour” was in their Lordships’ view intended to require consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour. It did not also...require him to have thought about what those standards were.”
GUMMOW J: How does that
square with Justice Gibbs – that is what one is trying to find
out – with the morally obtuse person?
MR DOUGLAS: The morally obtuse person, that is essentially, as we would understand it, an objective test. In other words, you look at him and you say, “Well, surely, a reasonable person in your position must have been of the view that what you were doing was dishonest in an equitable sense”.
GUMMOW J: How does that square with Peters?
MR DOUGLAS: We would see that that is quite close to Peters because Peters says that it is the standards of ordinary, honest and decent people. I think in many ways these tests congeal to that level. I think what must be eliminated is this – let me put it this way. I suppose speaking for the appellant in this case, one puts the test which is hardest to fulfil, but looking at the authorities and trying to look at a test which is the appropriate test for this Court to apply, having regard to the way in which doctrine has moved on since Consul, in our respectful submission, the idea that someone has to know that what he is doing is wrong should not be a necessary ingredient of a test. Moral obtrusive should be enough.
HEYDON J: It is about doctrine having moved on since Consul. Doctrine only moves on from Consul if the High Court of Australia moves it on. What has Royal Brunei got to do with it?
MR DOUGLAS: We are very conscious of that, and we have made that point in our submissions, but a number of - - -
GUMMOW J: You seem to have gone backwards and forwards and partly backwards and partly forwards.
MR DOUGLAS: Part of the problem, I think, is that a suitable vehicle for considering Barnes v Addy has not arisen since 1971, but a lot of intermediate appellate courts in Australia have referred to Royal Brunei in considering questions which arise under the - - -
HEYDON J: Yes. Well, they should have concentrated on Consul Development.
MR DOUGLAS: Yes, and the decision of Cadwallader v Bajco, for example, is one which did, to which your Honour was a participant, and there is a decision of Moronis Holdings of Justice Bryson where he did precisely the same which we have referred to. There is even a decision of the New South Wales Supreme Court which we have also referred to in our submissions which is subsequent to this case, which is a very lucid exposition by Justice Bryson which was agreed to by Justices Mason and one other. It is the decision of Yeshiva Properties v Marshall [2005] NSWCA 23, which - - -
GUMMOW J: This is important because judges at first instance are perplexed if they have intermediate courts of appeal telling them one thing and Consul being still there and perhaps telling them another. It is not very fair to them.
MR DOUGLAS: Your Honour, I will take you to another authority which bears that out, but the case of Yeshiva, the President, Justice Mason, and Justices Beazley and Bryson, and the relevant authority that we would seek to rely upon states very clearly the principles arising under United States Surgical Corporation in the Court of Appeal and Consul in this Court in paragraphs [16] through to [21].
GUMMOW J: Do we have that case?
MR DOUGLAS: I have a copy and I could provide a copy. It is not on our list of authorities.
GUMMOW J: Is Yeshiva reported?
MR DOUGLAS: Yes, it is reported in
[2005] NSWCA 23; 219 ALR 112. In relation to what your Honour just said about
justices at first instances having difficulties, if I could just take you to a
recent
decision of Justice Barrett, which was only handed down in the last
couple of weeks. It is No 13 on our list and the media neutral
citation,
which is the only report now available, is [2006] NSWSC 1217.
Relevantly, under the heading “DLALC’s knowing receipt claim”,
paragraph 25, he says:
I should observe that the submissions made on behalf of DLALC with respect to Barnes v Addy made it quite clear that reliance was placed only on the first (or “knowing receipt”) limb. I may therefore safely leave to one side the second limb of the rule in Barnes v Addy, involving assistance in a fiduciary’s dishonest or improper design.
It is necessary, at this point, to emphasise an important matter. The equity DLALC seeks to vindicate by resort to the first limb of Barnes v Addy (being the equity reflected in the agreed orders) is one that arises from the impropriety of the payments –
and then he goes on to discuss that.
Then at paragraph 27 he refers to the first limb in
Barnes v Addy and then refers to the decision in this Court.
Then in paragraph 28 says:
Having said that, however, Tobias JA went on to adopt a view of the first limb that appears to pay no immediate attention to the state of notice or knowledge of the recipient. His Honour regarded the matter as not covered by High Court authority and, after reviewing in some detail the decision of Hansen J in Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] 3 VR 16, which drew upon Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, said (at [232]):
“I see no reason why the proverbial bullet should not be bitten by this Court in favour of the Birks/Hansen approach.
GUMMOW J: It is really
paragraph 30, if I can jump ahead, where there is a lament by
Justice Hamilton.
MR DOUGLAS: Yes, it is really
paragraph 30. So there are several justices at trial in
New South Wales who have referred to the fact that they:
“[face] the difficult situation of obiter dicta in the High Court some 30 years ago conflicting with recent dicta of the Court of Appeal, which have met with substantial criticism”.
Then reference is made to
Consul Development v DPC. Over the page, we rely on what
Justice Barrett says as authority, where he said:
It seems to me that, in approaching Tobias JA’s factor (c) –
which is “unjust on the ground of some
recognised factor” –
one must have regard to the state of the recipient’s knowledge since that of itself will be a major ingredient of the kind of “injustice” the Court of Appeal had in contemplation. In a “knowing receipt” case of the kind contemplated by the first limb of Barnes v Addy, the question is whether the recipient is “in privity with the breach of trust”, to quote the words of Lord Cairns in Gray v Johnston . . . Equity is, as always, concerned with the state of a person’s conscience. The court must consider whether “the conscience of the borrower [is] affected by the trust”. These are the words of Turner LJ in Ernest v Croysdill . . . itself a “knowing receipt” case.
HEYDON J: Do you
say that there is no ratio in Consul Development? There seems to be some
theory in play in the materials that Justice Barrett referred to that it
was only dicta.
MR DOUGLAS: It is referred to as being obiter dicta but - - -
HEYDON J: I think there is some common ground between Chief Justice Barwick, Justice Gibbs and Justice Stephen.
MR DOUGLAS: I should have thought in
relation to knowing assistance at least as to what the state of mind should be.
Whilst one looks at –
and we have been to Justice Gibbs’
statement of principle, we have not yet been to what Justice Stephen said.
I suppose to
complete the record, before I get there, could I just go to the
foot of 399. It is said at about point 6:
It has not been proved that Grey’s position with the Walton companies gave him the opportunity to buy the properties or that he availed himself of any information of a confidential kind in deciding to recommend the purchases to Consul . . . I have concluded that Grey would not have been in breach of his fiduciary duty to any of the Walton companies in buying a property which Walton had decided not to buy, assuming that the decision made by the Walton companies had not been induced by Grey, but had been forced upon them by their financial straits, and also that in making his decision to buy Grey was not acting on information gained from his position with the companies. If Walton had decided not to buy the property in these circumstances, it seems to me that Grey was entitled to buy it for himself. He might have been lacking in candour, and perhaps in moral sensibility, in acting behind Walton’s back, but once Walton had decided not to buy the property there was no possibility that if Grey considered buying it he would be faced with a conflict between interest and duty – the property would have been removed from the ambit of his duties.
In our respectful submission, that is something
which we rely upon in response to the questions which your Honour the
Chief Justice
was putting to me before. Could I also say that in relation
to just to the evidentiary aspect of this judgment, we rely upon the
analysis
where if a trial judge has found that a person is not being dishonest and
someone else is being untruthful, it takes a lot
to upset that finding, as
appears from that passage, and we rely upon that too.
Also, if your Honours look at that decision which I took you to with Justice Rix and Lady Justice Arden participating, the recent decision of the Court of Appeal in Adnam Shaaban Abou-Rahmah, you will see that Justice Rix was very firmly of the view that the findings of a trial judge in relation to dishonesty were really misconceived, I think, but said he was really bound them, because in that case - it was a case of one of these Nigerian banks carrying out frauds and apparently the particular Nigerian bank in question was aware or believed that the particular persons who were opening the account may use it for fraud, but did not in fact have particular knowledge that they were going to conduct a particular fraud on these particular individuals, which seems a pretty strange finding, in our respectful submission.
GUMMOW J: There is one matter I should raise with
you, Mr Douglas. At 398, Justice Gibbs talks about “moral
obtuseness” preventing
him from recognising an impropriety. Above that he
talks about “a breach of trust or of fiduciary duty”. You go over
to Justice Stephen at 412, the central paragraph, about point 5 of the
page:
If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust –
how does this, do
you say, accommodate – do those formulations accommodate a purely
technical breach of trust which might be
excusable on an application under
section 81 of the Trustee Act, or are they not to be taken
literally? There are breaches of trust all over the street.
MR DOUGLAS: There are, and I am sure that that is why Lord Selborne used the words “dishonest and fraudulent breach of trust”.
GUMMOW J: Exactly. Now, that seems to have been lost sight of in some sort of moral indignation that seems to sweep through these statements.
MR DOUGLAS: Yes, but when you have breaches of trust all over the place, the problem is, if you then have knowledge of it and it is just purely technical, you may not really appreciate - - -
GUMMOW J: We are invited to restate things in a way that gives some help to trial judges.
MR DOUGLAS: Well, in our respectful submission, the test should be restated so as to make it clear that it has to be within the terms of – and I am talking here about participatory or accessorial liability – that it has to be a dishonest and fraudulent breach of trust, not just any old breach of trust.
GUMMOW J: And when he breaches a fiduciary duty, too, are technical in view of it, too, are they not?
MR DOUGLAS: Well, yes, because – and in that context, in our respectful submission, attention has to be given to the commercial circumstances in which this principle is now applied, because the principle in Barnes v Addy has become central to much litigation which is now conducted both in this country and abroad in corporate insolvencies where the former directors and professional advisers of the company are sought to be sued.
GUMMOW J: Exactly.
MR DOUGLAS: It is so important in that context for there to be, in our respectful submission, certainty and clarity, particularly in circumstances where under the second limb a person who is, in fact, an accessory is not a person who has, in fact, received the benefit of the trust property so-called.
GLEESON CJ: I thought you said a little earlier this case was not pleaded or argued as a case under the second limb of Barnes v Addy - - -
MR DOUGLAS: It was not, your Honour.
GLEESON CJ: - - - or decided, was it?
HEYDON J: Justice Palmer never got to it – did not have to.
MR DOUGLAS: Yes, Justice Palmer did not have to get to it.
GLEESON CJ: What about Justice Tobias?
MR DOUGLAS: Justice Tobias seems to have decided that – I am not quite sure. He seems to have said that the information which we got was part of the intellectual stock and trade of the partnership and so that therefore they could not buy the properties.
GLEESON CJ: Yes, that is a fairly unfortunate metaphor. Stock and trade is something that is intended to be circulating capital, bought and sold.
MR DOUGLAS: Yes, but it is used in the colloquial sense as well in that context. The basis of Justice Tobias’ decision as I would understand it is that Mr Elias used the information which he obtained in relation to the desirability of acquiring No 13 and, for that matter, 15, for his benefit and for the benefit of his family and so that therefore they were unjustly enriched or, alternatively – and I am probably putting them in the wrong order – it was a case of recipient liability under the first limb of Barnes v Addy.
GLEESON CJ: I understand that, but I did not understand Justice Tobias to be putting the case on the basis of participation.
MR DOUGLAS: No, but if the principle is to be restated, it would be important for it to be restated by this Court in its entirety because the case which we are looking at primarily of this Court which considered these matters if factually not very distinct from this case, and that is Consul Development.
GLEESON CJ: I am not suggesting that Justice Tobias necessarily put the case on the basis of wrongdoing, but what, if anything, has anybody alleged the wife and daughters did wrong?
MR DOUGLAS: Nothing, your Honour. All they say against them is that they were volunteers. So far as that aspect of the case is concerned, we say that is quite wrong because - - -
GUMMOW J: You rely on the mortgage that was put up.
MR DOUGLAS: Yes, we rely upon the mortgage. So they mortgaged the property to acquire money from the National Australia Bank, whether by way of collateral security or otherwise, to acquire these properties. So they are not volunteers. Reference was made in that regard by the Court of Appeal to three decisions, one of which is the case of Davies in the Court of Appeal. Paul A Davies (Australia) Pty Limited v Davies [1983] 1 NSWLR 440, but that is a case which is distinguishable from this case for this reason, that in that case the company directors took money, otherwise and bona fide for the purposes of the company, from the company and used that money, together with the mortgage which they obtained in their own names, to purchase a property. They repaid the amount of moneys which had been taken from the company but subsequently the company went into liquidation.
The question arose in those proceedings, should they be entitled to say that the moneys which were obtained by mortgage in respect of which they gave a personal covenant were their contribution to the purchase of the property and that the money which was obtained otherwise and bona fide for the purposes of the company for the deposit was the company’s contribution, so that it was, effectively, a mixed fund. Now, what the Court of Appeal decided on that occasion – President Moffitt, Justices Hutley and Mahoney – was that, no, you have taken the money from the company and the mortgage was effectively obtained with the benefit of that money and that the entirety of the property is the company’s property but that you are entitled to substantial just allowances because it was a very profitable investment.
In this case, as distinct from that case, the wife and the two children have actually provided distinct property which clearly belongs to them as collateral security for a loan to be provided over the property which is to be acquired, firstly, and secondly, there is no trust property which has been used for the acquisition of No 13 or Nos 15 and 20. It is all money which has been provided by Mr Elias and his interests, unless one accepts this analogy which Justice Tobias draws with confidential information or information which is stock-in-trade which we say for the reasons which we have already submitted is not property within the meaning of the first limb in Barnes v Addy.
GLEESON CJ: If in a case like Phipps v Boardman the director does not personally take advantage of the business opportunity but points his wife in the direction of the business opportunity without her knowing that there is any impropriety or circumstance of impropriety involved and she takes advantage of it, is there any consequence attached to that?
MR DOUGLAS: She would have to know if there was a breach of fiduciary duty.
GLEESON CJ: I am assuming she does not. I am assuming her husband simply says to her, “Here is a good business opportunity”. As it happens, he has found out about this because of his association with the company to whom he owns fiduciary duty, but she does not know that.
MR DOUGLAS: And she provides her own money to acquire it?
GLEESON CJ: Yes, and makes a profit.
MR DOUGLAS: Yes, that is hers, your Honour.
GUMMOW J: Your opponent relies on Cook v Deeks where there was a company formed, but you distinguish that - - -
MR DOUGLAS: Yes. Well, Cook v Deeks, the operating mind of that company was the three directors who did not reveal to their fourth director the business opportunity. So, in other words, a guiding mind of Cook v Deeks was the very mind which was aware of the business opportunity. If a wife is simply aware that this is a good speculation and she provides the money to do it, that is perfectly appropriate, in our respectful submission.
GLEESON CJ: Suppose in the present case Mr Farah Elias and his company had not participated at all in the acquisition of these nearby properties but he had said to his wife and his daughters, “Take my word for it, it is worthwhile buying those properties”, 13 and 15, or whatever, and they invest in those properties. What are the consequences of that?
MR DOUGLAS: None, your Honour. They do not have knowledge of a fraudulent and dishonest design on his part and so they are not accessories to any breach of trust. They have provided their own money, they have obtained an indefeasible title and it is – this Court in Garcia’s Case has recognised the separate and independent status of a wife in a marriage.
GLEESON CJ: Yes. Suppose that you had a situation in which there is no wrongdoing by the wife and the daughters. There is wrongdoing by the husband who points them in the direction of the business opportunity, but they know nothing of that. What difference does it make whether the wife and daughters are financially independent of the husband or totally financially dependent upon the husband?
MR DOUGLAS: The difference it makes in terms of from equity’s point of view, leaving aside questions of registration of title, is that in one case they are volunteers and in one case they are not.
GLEESON CJ: The difference would turn upon whether or not his knowledge can be imputed to them, would it not? That would be what would be important.
MR DOUGLAS: Yes, and that is an area I have to come to and I shall.
GLEESON CJ: Suppose he was, in effect, their business agent as well as the agent of the person towards whom he was in breach of fiduciary duty. What difference would that make?
MR DOUGLAS: One has to know what the business of the agency was, so - - -
GLEESON CJ: I suppose in the present case you can impute, or you ought to impute, to the wife and daughters the knowledge of Mr Elias. What consequence does that have upon the basis of their liability?
MR DOUGLAS: None in this case, your Honour, because it has not been pleaded against Mr Elias that he engaged in a fraudulent and dishonest design. If, in fact, your agent - - -
GLEESON CJ: I thought we had put that to one side and it has come down to either knowing receipt or unjust enrichment. Is the difference between the case against them based on unjust enrichment and the case against them based on knowing receipt, that in the case on knowing receipt you have to impute to them some knowledge of Mr Elias and in the case on unjust enrichment you do not?
MR DOUGLAS: At that level I think I can agree with that proposition. In other words, in equity something has to affect your conscience. In terms of unjust enrichment, at least according to the English authorities, you would have to plead as a defence change of position or bona fide purchaser for value without notice. In other words, it shifts the onus of proof. So they would have to here, in knowing receipt, establish that we took with knowledge of – yes, if it was knowing receipt, yes, we took trust property with knowledge.
GUMMOW J: Well, it turns trust property into a nemo dat situation, does it not?
MR DOUGLAS: Yes.
GUMMOW J: It abolishes the doctrine of estates really. It does not say so but that is what it does.
MR DOUGLAS: That is unjust enrichment?
GUMMOW J: Yes, and treats property as an event.
MR DOUGLAS: Yes. I mean it tends to, if I can put it that way, obliterate a lot of fine distinctions which have been drawn up over the years for quite important purposes.
GLEESON CJ: A virtue that is claimed for it is that it has equity following the law.
MR DOUGLAS: Whereas we would say that equity prevails in this case.
GUMMOW J: It is the other way round, really.
MR DOUGLAS: The other way round.
GUMMOW J: In other words, the equitable estates are fastened upon ownership as understood at common law.
MR DOUGLAS: Yes.
GLEESON CJ: But is that the basis on which Justice Tobias decided the case, that in the first limb of Barnes v Addy he imputed to the wife and daughters the knowledge of Mr Elias and for the purpose of unjust enrichment he said it did not matter what their knowledge was, unless they could make out a defence.
MR DOUGLAS: In terms of unjust enrichment, that seems basically to have been his approach, as we would understand it.
GUMMOW J: But you would have to find an actuating factor, whatever they call it, would you not?
MR DOUGLAS: Of unjustness?
GUMMOW J: Yes, and that seems to be the breach of fiduciary duty and, as I understand this theology, that is not one of the accepted grounds.
MR DOUGLAS: Of which they have no knowledge.
GUMMOW J: Mistake and et cetera are - - -
MR DOUGLAS: Yes. I mean, they had no knowledge of a breach of fiduciary duty. There is a real question as to whether there has been an enrichment. I mean, they have acquired the properties with their own money. There is no suggestion at the present time - - -
GLEESON CJ: The order is supposed to take care of that, is it not?
MR DOUGLAS: Whether, in fact, they have been enriched?
GLEESON CJ: Yes. Is not the way the order is framed supposed to take account of the possibility that they have been or have not been?
MR DOUGLAS: But it is a rather unholy order of a court, if I may put it that way, which keeps parties bound together until a profit can be made so that you can have a distribution. In this case, these properties were acquired in 2002 for $3.4 million. They are now worth, in the middle of this year, $2.7 million. Since that time substantial costs have accrued. My client is the only one who is footing those costs, apart from the combined investment made in No 11. They are seeking, whether it be by their order for unjust enrichment or by their order for a constructive trust, to have this Court effectively enable them to speculate at our expense until the land is rezoned, if it is.
GLEESON CJ: When you use the expression “my client” - - -
MR DOUGLAS: Well, my clients, your Honour. Well, one is able to accommodate a certain diversity in interests, your Honour, when one appears at the Bar table and all plaintiffs, as Lewis v Daily Telegraph tells us, have to be represented by the one set of counsel and solicitors. Having left that to one side, we find it a difficult situation to contemplate that equity would lend its aid to someone who wishes to have orders of this Court made and continued until such time as they make a profit without themselves not, consistently with decisions such as Maguire v Makaronis, actually doing equity towards us.
GLEESON CJ: Is it fair to say that Justice Tobias treated Mr Elias as your female clients’ business agents as well as the agent for Say-Dee?
MR DOUGLAS: I do not think “business agent” is the right way of putting it.
GLEESON CJ: Well, just agent?
MR DOUGLAS: Well, what was he agent for, your Honour? He was agent for the purposes of, as we would understand it, negotiating with the vendors of No 15 and 20.
GLEESON CJ: If it were not for that, how would they get the requisite knowledge?
MR DOUGLAS: Well, they do not, your Honour.
GLEESON CJ: There is no suggestion that they knew anything, is there?
MR DOUGLAS: That is why we rely upon the decision of Lord Hoffmann in El Ajou, which has been referred to significantly in our reply submissions. We seek to distinguish it relevantly from recent decisions of this Court in Smits and Permanent Trustee. That is really dealt with, I think, most effectively in paragraph 30 and following of our written submissions in reply.
If you assume for the purposes of argument that he is the agent of – well, he is effectively the manager, is he not – and also one of the joint venturers in the joint venture in respect of No 11, and when he introduces his wife and his children to the business opportunity to acquire Nos 15 and 20, and it is only those properties, so far as that is concerned, it is important to bear in mind what duties of disclosure exist and what duties to investigate exist.
So at page 702 of El Ajou – and
this was a case of knowing receipt – and there was a man called
Mr Ferdman and he was the chairman of the company
as well as being
effectively the agent of the company in relevant respects. The question of
whether his knowledge should be attributed
to the company was looked at from
both perspectives, that of being the chairman and that of being an agent, and
liability was established
on the basis that he was chairman and in relevant
respects, similar to Lennard’s Carrying Company v Asiatic
Petroleum, his mind was the company’s mind for the purposes of this
transaction. But the question did arise as to whether his knowledge
should be
attributed to the company for the purposes of this transaction. So he looks at
three categories on page 702, one of which
is the “Agent’s
knowledge affecting performance or terms of authorised contract”:
First, there are cases in which an agent is authorised to enter into a transaction in which his own knowledge is material. So, for example, an insurance policy may be avoided on account of the broker’s failure to disclose material facts within his knowledge, even though he did not obtain that knowledge in his capacity as agent for the insured.
These principles have no application to this case he says and he
has referred to what Lord Macnaghten said in Blackburn Lowe & Co v
Vigors.
We are not concerned with the contractual terms upon which DLH received the traceable assets but whether it had the knowledge which would impose a constructive trust. In other words, real imputation of knowledge is required.
(ii) Principal’s duty to investigate or make disclosure
Secondly, there are cases in which the principal has a duty to investigate or to make disclosure. The duty to investigate may arise in many circumstances, ranging from an owner’s duty to inquire about the vicious tendencies of his dog . . . to the duty of a purchaser of land to investigate the title.
We put a caveat there at that point regarding sections 42
and 43 of the Real Property Act and section 164 of the
Conveyancing Act.
Or there may be something about a transaction by which the principal is ‘put on inquiry’.
So if you are put on inquiry that is a relevant matter.
If the principal employs an agent to discharge such a duty, the knowledge of the agent will be imputed to him.
Then he refers to the fraud exception and he says:
Likewise in cases in which the principal is under a duty to make disclosure (for example, to an insurer) he may have to disclose not only facts of which he knows but also material facts of which he could expect to have been told by his agents.
Those cases are referred to.
None of these cases are relevant because in receiving the traceable assets, DLH had no duty to investigate or to make disclosure. There was nothing to put it on inquiry.
Now, relevantly, in this case, the cases of Smits and Permanent Trustee are cases which have recently been considered by this Court, are cases which are similar, at least in that second category there. They are cases in which, relevantly, the agent has been authorised by the principal to make disclosures in the first case to an insurer on behalf of the insured and in the case of Smits as counsel conducting litigation. In this case the circumstances are not analogous.
Farah Elias was
aware of certain matters which on the hypothesis he was obliged to disclose to
Say-Dee. The fourth to sixth appellants
were under no duty to investigate and
had not relevantly assigned to Farah Elias any task of making appropriate
disclosures on their
behalf. Presumably, they had authorised him to negotiate
with the vendors of the relevant property concerning their willingness
to
acquire those properties and the price at which they were prepared to acquire,
but none of this impacts in any way upon the attribution
of extra agency
knowledge of Farah Elias to the fourth or sixth appellants because they did
not authorise him to make any disclosures
to Say-Dee or its principals, nor, for
that matter, did he have any obligation to make any investigations in relation
to them on
behalf of these principals. His two duties were entirely separate.
If you then look at (iv) in Lord Hoffmann’s analysis:
What it therefore comes to is that Mr Ferdman, an agent of DLH, had private knowledge of facts into which DLH had no duty to inquire. Mr Beloff said that Mr Ferdman nevertheless owed DLH a duty to disclose those facts. He then submits that because he had such a duty, DLH must be treated as if he had discharged it.
Then he goes on to discuss it. I will take the Court down to
the foot of the page where he says:
I know of no authority for the proposition that in the absence of any duty on the part of the principal to investigate, information which was received by an agent otherwise than as agent can be imputed to the principal simply on the ground that the agent owed to his principal a duty to disclose it.
He might have had a duty to disclose to us that he was in
breach of fiduciary duty, but the fact that he may have had that duty does
not
mean that we are to be imputed with his knowledge. In fact, to the contrary,
the fact that he does not disclose it, it being
knowledge which arose from
another transaction entirely which was his transaction with No 11 is
something which should not be imputed
to us. He then goes on to deal with the
case of Re David Payne which is authority against a proposition to the
contrary. He refers to that case and what Justice Buckley said. He said
in the
middle of the page, at about point e:
‘I understand the law to be this: that if a communication be made to an agent which it would be his duty to hand on to his principals . . . and if the agent has an interest which would lead him not to disclose to his principals the information that he has thus obtained, and in point of fact he does not communicate it, you are not to impute to his principals knowledge by reason of the fact that their agent knew something which it was not in his interest to disclose, and which he did not disclose.’
That his case. It is entirely
distinguishable from the circumstance which existed in Smits and
Permanent Trustee. In both of those cases, it was entirely idle and
pointless to distinguish between the knowledge of the broker and the insured in
the one case and counsel and client on the other case.
This is a case in which there was no duty on the part of the principal to investigate and certainly no duty on the part of the principal to make disclosures to Say-Dee or its principals. We have sought to set out that reasoning because we recognise the significance of that issue in this case in the submissions in reply.
There is one other matter which needs to be borne in mind in the context of this case and that is that we have section 164 of the Conveyancing Act. Section 164 of the Conveyancing Act makes it quite clear that this knowledge is not to be imputed because it is knowledge which has been obtained in another transaction. You will see that it is misleadingly headed “Restriction on constructive notice” and it says “A purchaser”.
As we understand my learned friend’s submissions, they say that because we are not a bona fide purchaser for value we are not a purchaser, but we have made submissions on that. In other words, we say we are a purchaser within the meaning of this section because Mrs Elias mortgaged a property for her benefit and the benefit of her two children and so they are purchasers within the meaning of this section.
Could I also say
whilst I am on that point, in case I do not get back to it, for we have given
the Court the benefit of some references
from Scott on Trusts which
relate to this issue and there is a specific reference in the current edition
which makes it clear that if a mother provides
property as security for the
benefit of her children then that is valued. The Court should have copies of
it, but from the 4th edition
of The Law of Trusts at
paragraph 298.3:
Consideration paid by or to a third person.
Where a trustee for consideration transfers trust property in breach of trust, the transfer is for value although the consideration is paid not by the transferee but by a third person. Thus if a father buys property for his son, the father paying the purchase price and the property being transferred at his direction to the son by way of gift from the father to the son, the transfer is for value; and although the transferor was a trustee and he made the transfer in breach of trust, the son can hold the property free of trust, if neither the father nor the son had notice of the breach of trust. So also the transfer is for value although the consideration is paid not to the trustee but to a third person at the trustee’s direction.
GLEESON CJ: If a father was a solicitor, and he took money out of his trust account and gave it to his son to pay for his son’s holiday, and the son used it to pay for a holiday, does anybody have any remedy against the son?
MR DOUGLAS: If the son used it to pay for a holiday there is not a remedy. There would be a tracing remedy.
GLEESON CJ: No, it is finished. It is consumed. It is gone, the holiday.
MR DOUGLAS: It has been consumed. No, in those circumstances there is no remedy against the son, in our respectful submission. If, on the other hand, the son knew and was an articled client working in a - - -
GLEESON CJ: It is different if the son has put the money in a savings bank and it is still there.
MR DOUGLAS: In the circumstances which your Honour puts to me it is purely a gift.
GLEESON CJ: Yes.
MR DOUGLAS: There may be – but even so I think the answer is no. Your Honour, in relation to section 164 - - -
GUMMOW J: That has a long history, does it not?
MR DOUGLAS: It does, your Honour, and it is discussed in Ashburner quite usefully and the discussion of it in Ashburner really makes clear - - -
GUMMOW J: I suppose what I am coming to is that it comes from English legislation dealing with the Old System of conveyancing.
MR DOUGLAS: It does, your Honour, yes.
GUMMOW J: It does not need to speak to the Torrens system.
MR DOUGLAS: Well, the test insofar as the - - -
GUMMOW J: I just do not know whether that is right, but is there any comment on that in Stuckey and Needham, for example - - -
MR DOUGLAS: I found no comment on
it. The application of the Act to Torrens Title land is dealt with in
section 4, I thought it was. It was
a test of inconsistency really, and,
of course, we do have section 43 of the Real Property Act as well
which is a restriction upon constructive notice but that seems to relate more to
the vendor’s title. Section 6(1)
says:
Except as hereinafter provided, this Act, so far as inconsistent with the Real Property Act 1900, shall not apply to lands, whether freehold or leasehold, which are under the provisions of that Act.
We do not see this provision as necessarily being inconsistent
with sections 42 and 43. It can place a restriction upon imputed notice
going beyond those sections because those sections deal largely with knowledge
of
impairments in the vendor’s title or persons from whom the vendor has
taken. Just going to its terms, it is:
unless . . .
(b) in the same transaction with respect to which a question of notice in the purchaser arises, it has come to the knowledge of the purchaser’s counsel as such . . . or would have come to the knowledge of the purchaser’s solicitor or other agent as such, if such searches, inquiries, and inspections had been made as ought reasonably to have been made by the solicitor or other agent.
If Mr Elias is an agent within the meaning of that section, it has to be in the same transaction and the knowledge that he was in breach of trust and the knowledge in relation to No 13 and its desirability, the desirability of acquiring it is knowledge which came to him in that transaction, not in a transaction in which he recommended the purchase of Nos 15 and 20 to his wife and children.
GUMMOW J: Are any of the cases since Consul in England cases involving land? They are money cases, are they not?
MR DOUGLAS: They are mainly banking cases, international transfers of money. I think Royal Brunei itself concerned an airline and the agent for the receipt of the funds of the airline.
GUMMOW J: Was any attention given in Consul itself to the Torrens system?
MR DOUGLAS: Not on my reading of it, your Honour, no. It is in Macquarie Bank Ltd v Sixty-Fourth Throne that we find the most attention - - -
GUMMOW J: I understand that, but I am just wondering where Consul really stands. This was land at Balmain, was it not, or Glebe or somewhere?
MR DOUGLAS: No, it is at Burwood.
GUMMOW J: No, no, in Consul.
MR DOUGLAS: In Consul, yes, your Honour, there was land at various places.
GUMMOW J: Rozelle, I see, yes.
MR DOUGLAS: I gave a reference to Ashburner, if I can just give the Court a reference to it. It is in 2nd edition by Mr Brown, and it is from pages 59 and following, and we would see what is said at page 60 which deals with the situation prior to the introduction of the ancestor of that provision in the Conveyancing Act 1882 as supporting the position which we put that in relation to the separateness of the ways in which the knowledge was obtained and the need to fasten upon that fact. That is in the paragraph on page 60 at about point 3 to point 4.
Could I whilst I am there also, before I get distracted back to Consul Development say this, that I had referred to cases in relation to the question of volunteer and there is just one other case I wanted to mention and that was Hagan v Waterhouse and that was also referred to by Justice Tobias as authority for the proposition that a person who undertakes a personal covenant under a mortgage remains a volunteer.
So far as that case is concerned, it was a case in which the trustees of the estate of their late brother mortgaged a property which had been bought with mixed funds, that is, funds of their late brother’s estate and their own funds, and they used that property for bookmaking purposes, that is, they used it as security for the overdraft for bookmaking purposes, and so that again is an entirely distinguishable situation in which trust property was used for the purposes of – for security for the advance, distinguishable from this case.
The other case referred
to by Justice Tobias in that regard does not seem to us to bear upon the
issue, which is the case of Fraser Edmiston from Queensland. So going
back then to Consul, I think we had virtually finished our exploration of
that case, but there is in Justice Stephen’s judgment, from about
page
408 a useful discussion of Barnes v Addy and the earlier
authorities, and he in fact mused at the foot of page 410 as to
whether:
there should exist this distinction between the case where trust property is received and dealt with by the defendant and where it is not; perhaps its - - -
GUMMOW J: Just stopping
there for a minute. As the Chief Justice put to you, in the Court of
Appeal this became a first limb case.
MR DOUGLAS: It was argued as a first limb case, your Honour, but it was decided, in our respectful submission - - -
GUMMOW J: No, I mean the present case, Farah, in the New South Wales Court of Appeal became a first limb case.
MR DOUGLAS: Yes, your Honour.
GUMMOW J: Lord Selborne does not actually say, “knowing receipt” and why would he? He just said, “received and become chargeable”, and you would be chargeable unless you were a bona fide purchaser for value without notice, would you not?
MR DOUGLAS: And essentially the case which he was dealing with - - -
GUMMOW J: Of a legal estate or, if it was an equitable estate, the first would prevail if the equities were equal?
MR DOUGLAS: Yes, your Honour.
GUMMOW J: Why do we talk about “knowing receipt” all the time in the first limb?
MR DOUGLAS: Your Honour, I have been.....into it because so many decisions both here and in England have done it.
GUMMOW J: I know they do, but we have to get down to basics. Perhaps we should start there.
MR DOUGLAS: It was a case about knowing assistance, and it may be that - - -
GUMMOW J: Is that not the force of the words “and becomes chargeable”?
MR DOUGLAS: “And becomes chargeable”, yes, because in those days there was an action for an account.
GUMMOW J: Those words carried a lot of baggage, “become chargeable”, with obligations to account and so on.
MR DOUGLAS: Yes, your Honour, and that is then devolved into equitable compensation or an account of profits at the option of the person who has suffered loss thereby or - - -
GUMMOW J: So what is the connection between the first limb and tracing ideas?
MR DOUGLAS: Well, the academic commentaries dwell upon this and they - - -
GUMMOW J: Forget about them. As a matter of basic principle, what is the connection? A lot of the academic writing is totally confusing.....a prejudiced view.
MR DOUGLAS: Well, obviously if a trust property remains in existence, you would seek to trace into it, as has been done in cases I think such as Brady v Stapleton and so on, and there is not necessarily a requirement - - -
GUMMOW J: But Lord Selborne was talking about “the trust property” actually.
MR DOUGLAS: “The trust property”, which is the property of a trust.
GUMMOW J: So he did not need to get into tracing?
MR DOUGLAS: No.
GUMMOW J: Receive the trust property and become chargeable.
GLEESON CJ: In the case of the solicitor’s son who goes on the holiday spending the money, why is he not chargeable? I am not saying he is or is not, but what would be the basis on which you would decide his chargeability?
MR DOUGLAS: Well, he has received trust property. According to the cases which have – they say that there has to be at least constructive notice or knowledge of the fact that the money is in fact trust property.
GLEESON CJ: But he is not a bona fide purchaser for value.
MR DOUGLAS: No, it is a gift. It may be in that case, but there is no trust property because in the example your Honour gave to me, it has disappeared.
GLEESON CJ: There is no question of tracing. It has all gone, been spent on food and drink and things like that. But what is it that enables you to decide that the son is or is not chargeable?
MR DOUGLAS: Well, in a case of knowing receipt, in our respectful submission, the cases seem to say in equity it needs to affect your conscience; in other words, there has to be at the very least constructive notice or knowledge of the fact.
GLEESON CJ: But your conscience becomes important at the time somebody asks for it back, does it not?
MR DOUGLAS: If you do not have it, yes, and if you do have it, you have to give it back. So if it is tracing - - -
GLEESON CJ: You cannot say, “My conscience isn’t affected because I wasn’t very well brought up”.
MR DOUGLAS: No, no, if it is just a gift and you have it, you have to give it back. That is similar to the case of a thief, and there are quite a number of cases where that example is given. But it is not yours and so you have to give it back. But as we would understand it, under the first limb of Barnes v Addy, there is no action against the son unless he had constructive notice of a breach of trust. Whether there is some other action against him in unjust enrichment, of course, which does not depend upon his state of knowledge, he may be able to say, “Well, I’ve changed my position. I spent the money. I thought Dad was just giving me some money, as he always does, and it was his to give”.
GUMMOW J: In Barnes v Addy itself, the reason why the first limb was mentioned is because there was a new trustee appointed.
MR DOUGLAS: Yes.
GUMMOW J: He received the trust property and Consul disappeared and all sorts of terrible things happened.
MR DOUGLAS: Well, he received a - - -
GUMMOW J: That executor was chargeable.
MR DOUGLAS: Well, he was not only chargeable, but he is the one who dissipated the property, as I understand it.
GUMMOW J: Exactly.
MR DOUGLAS: And he was the father of the children who were suing, and they were suing the solicitors.
GUMMOW J: Well, they were suing both.
MR DOUGLAS: They sued the estate of A, who was Addy who was the original trustee.
GUMMOW J: Yes, exactly.
MR DOUGLAS: But it is not – well, he received the trust property because he became the trustee, not because there was an unauthorised disbursement of the trust funds to a third party.
GUMMOW J: But he became chargeable because of the consequences of the appointment of the sole trustee as successor.
MR DOUGLAS: Yes, which was regarded as being, I would assume, imprudent on the part of Mr Addy.
GUMMOW J: Exactly.
MR DOUGLAS: And that is why he became chargeable.
GUMMOW J: Exactly.
MR DOUGLAS: If, for example, he had appointed several trustees, there would have been no improvements.
GUMMOW J: That is right.
MR DOUGLAS: And if in fact the money had been lost, Mr Addy could never have become chargeable, or his estate, for that matter.
GUMMOW J: Anyhow, you were taking us to Justice Stephen before we decided to consider some fundamentals.
MR DOUGLAS: At 410,
Justice Stephen hinted a little bit at what we have just been discussing at
about point 9 as to whether:
there should exist this distinction between the case where trust property is received and dealt with by the defendant and where it is not; perhaps its origin lies in equitable doctrines of tracing, perhaps in equity’s concern for the protection of equitable estates and interests in property which comes into the hands of purchasers for value.
Then he discusses the
authorities, such as Selangor, and then goes forward to page 412 to
the passage to which we have been before. At 413, after discussing some
authorities on the
doctrine of constructive notice he said, at the foot of that
page:
In my view the law, as it now stands, did not require Clowes to make any further inquiry once he believed that the Walton Group was not in the market for the properties here in question. He had been told this by Grey and his own knowledge of the Group’s financial situation, confirmed by his inquiries, supported the apparent truth of Grey’s statement. In that situation a reasonable, honest man would not, in my view, have had knowledge of circumstances telling of breach of fiduciary duty by Grey. This being the furthest extent to which any possible doctrine of constructive notice may go in such a case it follows that the doctrine, even if applicable, cannot impute to Consul the knowledge necessary to render it liable to the plaintiff.
Then, at the top of page 414, he
says:
There are two remaining matters to which I should refer. It is inherent in what I have said that I do not regard Consul as having received any property impressed with a trust. It did obtain the advantage of having had brought to its attention the fact that willing vendors existed who were prepared to sell on terms thought to be advantageous but this knowledge, the essence of which was wholly in the public domain, was not property capable of being owned by anyone; it was freely available to all who might seek it and to much of it the vendors had given such publicity as their means permitted.
That is
very similar to this case, as we would see it. Could I then just deal with the
Real Property Act. The indefeasibility exceptions are dealt with in
paragraph 57 and following of our - - -
GUMMOW J: Mr Sullivan’s side has a big point about pleading, does it not, and the way the case was run?
MR DOUGLAS: So far as the fourth to sixth appellants are concerned this was dealt with in the Court of Appeal. So far as the first to fourth appellants are concerned - - -
GUMMOW J: I suppose he is saying, in effect, that it should not been dealt with in the Court of Appeal. Was it argued in the Court of Appeal?
MR DOUGLAS: Apparently it was argued over objection but that is not the subject of an appeal to this Court or a notice of cross-contention. Your Honours, the situation, as we would understand it - - -
GUMMOW J: Justice Heydon and I were exercised about this when considering the grant of special leave.
MR DOUGLAS: If one looks at the pleading on page 11,
you will see that from paragraph 34 onwards the relevant transfers are
pleaded and it is
pleaded as a fact that if, for example, in
paragraph 36:
Lesmint is the registered proprietor of 13 Deane Street Burwood a parcel of real estate adjoining the property -
then the acquisition of
a registered title in respect of all of the units in 15 and 20 are
pleaded.
GUMMOW J: Yes, I see.
MR DOUGLAS: So that effectively they set up our title and then sought to impose a constructive trust upon it. In many ways, that is the way the pleadings proceeded and so we do not see why it is not on the table so far as all of the appellants are concerned, including the third appellant as well as the second appellant.
GUMMOW J: I suppose the working out of the order by the Court of Appeal requires alteration of the register, does it not?
MR DOUGLAS: It would in some way because they are effectively then given an interest of some sort in our property which – unless, of course, the property is just sold and then we are directed to transfer our title to the incoming purchasers, in which event there may be no requirement for rectification of the registry. So far as that is concerned, one has to bear in mind, firstly, sections 42 and 43 of the Real Property Act (NSW), which have corresponding provisions in some of the other States.
GUMMOW J: It comes down to - fraud has been treated in very many cases as involving some moral turpitude for the exception and the question is how do you marry that up if you can marry it up with what is the involvement in a receipt case, on the one hand, and a knowing assistance case on the other?
MR DOUGLAS: So far as moral turpitude and so on is concerned, none of that was ever pleaded, so the fraud exception to the Real Property Act has never been invoked in this case, so they set up our title. They do not say we obtained the title by fraud.
GLEESON CJ: The relief claimed in the counter-claim does not include any relief affecting the register, does it?
MR DOUGLAS: No, I do not think so, your Honour.
GLEESON CJ: It claims, really, an order that a receiver be appointed of the subject properties and that they be sold by the receiver and the receiver then apply the proceeds in a certain way.
MR DOUGLAS: Yes, your Honour, like partnership relief in a way.
GLEESON CJ: Yes. Well, it is a response, actually, to what the original claim in the proceedings was. This case started out as a claim for the appointment of trustees for sale of No 11 and then the cross-claim was for the appointment of trustees for sale of Nos 13, 15 and 20.
MR DOUGLAS: Yes, and they could not bring one of those because they are not legally co-owners of 13 and 15.
GUMMOW J: Yes, but you can only get an order under 66G that the property is held in co-ownership.
MR DOUGLAS: Yes. Now, it may be that they could have sought to have the title rectified and done it by 66G, but they have done it by way of getting partnership relief, in a sense. Their only claim – they do not seek an account of profits. If you look at (7) they say “damages by way of equitable compensation”. One recognises there is a distinction between damages and equitable compensation without necessarily having to comment too much on that, but there is no account of profits which is sought. So we just want an order for sale. Whether that is the appropriate relief, to get just an order for sale if there are no profits, is one of the matters which we raise.
GLEESON CJ: They do not claim to be parties to a partnership of which 13, 15 and 20 were partnership assets, do they?
MR DOUGLAS: I do not think there is an allegation in the pleading that they were partnership - - -
GLEESON CJ: I read it, it is only alleged that 11 was a partnership asset.
MR DOUGLAS: Yes, and that these other properties were held on constructive trust for - - -
GLEESON CJ: For the partnership. That does seem to be the basis of the orders for sale, that 11 was partnership property and that 13, 15 and 20 were held on constructive trust for the partnership.
MR DOUGLAS: Effectively, as we would understand it,
that is their position, your Honour. But if, in fact, the situation is that you
are not going
to get any money out of realising them, why would that be the
appropriate relief? Why would not one just say, “If you have
made money
out of them, we will give them the benefit of that; if not, allow them to keep
the legal title?” Getting back to
the pleading, if they had wanted to
allege that we had obtained our title by fraud, apart from pleading the
obtaining of, the registered
interest, they would needed to have pleaded that we
obtained our title by fraud and given particulars of that fraud. They would
be
similar particulars to the particulars which they would have given of a
dishonest and fraudulent breach of trust, in our respectful
submission.
So there is not raised for consideration in this case any issue of moral
turpitude similar to that which has been considered in cases
since Assets Co
v Mere Roihi, Breskvar v Wall and so on. It is just a case of they
have a personal equity. In the case of Farah Elias, that personal equity is one
which was
said to fall within the personal equity exception under the Real
Property Act, which I think has been considered by this Court in some cases
but not finally ruled upon, and there are in other States provisions
which do
recognise the personal equity exception, but there is no such provision in New
South Wales law. The cases which have
recognised
- - -
GUMMOW J: .....Case is a New South Wales case. That is a personal equity case. It is a decision of Sir Lawrence Street’s.
MR DOUGLAS: Yes, and I think the Chief Justice participated in the decision of Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 where a personal equity was defined as simply the fact that a person may apply to the Court of Equity for relief. What the courts do make very clear is that you have to have a recognised cause of action in equity or at law in order to have a personal equity. There are a number of other authorities which we have referred to in our submissions like Grgic which is also a New South Wales case, Vassos which is a Victorian decision. I think it is in Queensland and I think in South Australia there are specific statutory provisions to which we have given references to the Court which recognise the existence of such a provision.
GUMMOW J: An obvious case of personal equity is a right to specific performance by a purchaser against a vendor.
MR DOUGLAS: It may be nothing more than saying that if you acquire an indefeasible title that does not mean that a cause of action which you have in equity or at law is thereby extinguished - - -
GUMMOW J: No, but it means you cannot overreach the bank in this situation.
MR DOUGLAS: Yes, that is right. So if the bank acquires - - -
GUMMOW J: It has or it seems to have.
MR DOUGLAS: Well, the St George Bank in one case and the NAB in another. I think in footnote 184 of our submissions in-chief we have collected the references in other States which recognise in the statute the existence of the in personam exceptions and we have also collected a number of authorities there which deal with it.
GUMMOW J: But what is the area of debate between you on this personal equity? No one seriously can say that the only interests that could be recognised are those on the register because there can be rights to get on the register. What is the area of debate here between you? I could not quite follow it.
MR DOUGLAS: The remedy of constructive trusteeship which has been sought at the trial was granted without, in our respectful submission, appropriate circumstances existing for the grant of such a remedy. It was sufficient in this case for some other remedy which would have enabled them to be compensated for the breach to have been granted, particularly in circumstances – and I need to come back to the issue of causation – they were not prepared to put money up for the purposes of acquiring the properties and were not prepared to put money up for the purposes of obtaining relief.
We would seek to draw an analogy, say, with Maguire v Makaronis where the mortgagor at least had to pay commercial rates of interest to the mortgagee. The fact that the transaction was entered into in breach of fiduciary duty did not mean that you did not have to do equity. Now, doing equity in this case involves either saying, “Well, I want the profit, what profit should have been mine”, but if they want to participate in effectively a constructive trusteeship of these properties they need to pay the half share which they would have had to pay had they acquired the properties at the cost price which we.....and also half of the costs of having owned those properties up until now, which is a period of four years.
The Court should not grant relief as they have done in the decision in which special leave was granted from today to the effect that this position of constructive trusteeship can continue until some date in the future at which a rezoning may occur in order to enable a profit to be achieved, particularly in circumstances where there are accumulating losses and the evidence in that case shows that it is placing my client under considerable financial stress.
There was a lot of evidence before the court and there were not a lot of findings in relation to that matter, but it seems to us that if, in fact, the situation is now that there was a loss and they have not established that there was a loss at trial, then they ought not to have any relief whatsoever because if we go to remedies the Court of Appeal - - -
GUMMOW J: What remedy short of this declaration of constructive trust, assuming everything else against you, would have been open?
MR DOUGLAS: Equitable compensation, which they sought.
GUMMOW J: Being what?
MR DOUGLAS: The difference between the value of the properties at the date of trial and the money which had been paid to them, half the value of the property.
GUMMOW J: Perhaps charged upon the land?
MR DOUGLAS: Yes, charged upon the land. That would be quite appropriate relief, in our respectful submission, because if everything else is decided against us – and that is a matter which should be determined at the date of trial and we say, based upon authority which we refer to in our submissions in-chief at paragraph 69 – and this is before the recent judgment in No 3 – we say the difficulty presented by the case is there is no evidence of profit. You have to demonstrate more than that he might be owed some money before he is entitled to the remedy of an account.
Given that Farah Elias purchased 15 and 13, it is
appropriate for the Court to grant the defendant a charge over the properties if
there were profits and the appellants were otherwise liable, and we made the
concession which your Honour sought from me just before.
Such an order
would reflect the principle that an account of profits is confined to profits
actually made, its purposes not being
to punish the defendant but to prevent its
unjust enrichment. Of course, there we have in mind what was this Court said in
Dart v Decor. Justice Tobias at 247 seems to have been of the view
that it was not appropriate to value the properties and provide equitable
compensation. If you look at 245, you will see a submission recorded
that:
Say-Dee is not entitled to a declaration that the relevant Farah interests [are held on trust]. Rather, the “profit” for which the Farah interests are accountable is the difference (as at the date of trial) in the value of Nos. 13 and 15 insofar as that value is attributable to their aggregation with No. 11 and not to the values of Nos. 11, 13 and 15 aggregated together. As I understand the submission, the relevant “profit” to which Say-Dee would be entitled is 50% of the aggregated site value of Nos. 11, 13 and 15 over and above the aggregated site value of Nos. 13 and 15 . . .
It is not entirely clear to me why it is necessary, on Say-Dee’s submission, for the relevant profit to be determined by apportioning the purchase price for each of the three properties to the total price . . .
Farah does not appear to accept that the three properties should be sold in one line but, rather, that they should be valued in their aggregated state and that value used to determine the relevant profit in respect of which Say-Dee would be entitled to 50%. However, such a submission smacks of one which favours equitable compensation rather than an award of an account of profits. If Farah’s submission is accepted, then the Farah interests will be entitled to retain their respective interests in Nos. 13 and 15 with the result that they will reap any future increase in the value of those properties in circumstances where they already hold one half interest in No. 11.
In
relation to that paragraph, what we need to say is, firstly, an account of
profits was not sought in the statement of claim. They
sought equitable
compensation, but to say that we will be entitled to retain our interests and
reap any future increase in the value
of those properties, that could be said
about a lot of property, that if they are not prepared to put up their money for
the purpose
of acquiring the properties, why should they be allowed to
effectively participate in that increase as a result of the orders of
this
Court? I need to add in that regard that no one is giving us any indemnity
in respect of a situation which may obtain if, in
fact, the value of these
properties does not go up and it becomes an unfortunate speculation, which is
precisely the situation which
exists at the present time.
There is one
other matter and that is the question of causation. The question of causation
was dealt with by the Court of Appeal
at paragraph 199 at AB 899 as
being generally applicable and that it was necessary:
to establish a causal link between the fiduciary relationship between [Say-Dee] and Farah on the one hand and the profit or benefit received by Farah or interests with which it was associated on the other.
Now, his Honour looked at it then in terms of a decision in Brickenden - - -
GUMMOW J: Well that is a loss case, is it not?
MR DOUGLAS: That was a loss case, yes. That was a case in which the solicitor effectively encouraged his client to put a substituted mortgage over the property and he got the money from his client and paid out the mortgage which he himself had provided.
This Court in Maguire v Makaronis has made it clear that if the situation is one where it is a transaction where the fiduciary duty forbade the appellants to enter into a transaction then Brickenden does not apply, as I would understand it. But it is a principle which has become one of somewhat uncertain content in a case such as this, assuming that there is some profit. Certainly in the case of – it seems almost abstracted to say it – the fourth to sixth appellants one would have thought that one would need to establish causation and that the principle in Brickenden would not apply to them because they are not fiduciaries. If one is seeking compensation and an account of profits - - -
GUMMOW J: If they have received trust property, that is it.
MR DOUGLAS: But they have not received trust property.
GUMMOW J: I know, and that has to be the case on the receipt so you do not have to worry about causation. This is a Youyang-type situation.
MR DOUGLAS: But if it is a Youyang situation, there is nothing to put back.
GUMMOW J: You may be right about that.
MR DOUGLAS: So if it is not a situation in which there is no trust property to put back - - -
GUMMOW J: If it is a knowing receipt case, it answers itself. The causation question solves itself.
MR DOUGLAS: It may not be applicable here, but the case does seem to have been decided on that basis and there is clear evidence that Say-Dee and its principals could not have participated in the acquisition of these properties because of their financial state. So we would say for that reason they should not have received any relief in any event. Yes, I have nothing further.
GLEESON CJ: Thank you, Mr Douglas. Yes, Mr Sullivan.
MR DOUGLAS: There is one other thing, I am sorry. Justice Callinan this morning referred to the case of MWJ v The Queen [2005] HCA 74; 80 ALJR 329 at paragraph [37] to [40]. We have read that and we would seek to adopt that and rely upon it in relation to the conflict in the evidence.
I think there is one other matter I should
mention and that is that the regulations dealing with the public nature of the
documents
which council was under an obligation to keep was amended by the
Environmental Planning and Assessment Regulation 2000. Prior to that there was
an Environmental Planning and Assessment Regulation 1994 which would
have
different numbers but was in the same terms and that would have applied to the
first development application and not the second
development
application.
I understand that the Court staff may have made that available to the Court, notwithstanding it was not specifically referred to as legislation in our submissions. If that is not the case, we could perhaps at some future stage provide that material to the Court, or do it now might be the way to do it. If it please the Court.
GLEESON CJ: Yes, Mr Sullivan.
MR SULLIVAN: Thank you, your Honours. Your Honours, in the short time available to me tonight I thought I might deal with the factual matters which your Honours have raised in discussion with my learned friend and specifically refer to where we see the answers to those problems or questions as arising and then to deal, if I may, in a more structured fashion tomorrow morning seriatim with our positive case.
Your Honours, so far as the factual matters are concerned, my learned friend has in his written submissions, although he seems to have retreated from it in his oral address, raised the spectre that in respect of two important factual findings of the Court of Appeal there was a Fox v Percy or Abalos point. In truth, it now appears my learned friend is saying that it only arises in respect of one of the factual matters.
Two factual matters I was adverting to was, first of all, the finding by the Court of Appeal that his Honour erred in finding that the opportunity to acquire Nos 13 and 15 had been offered to the Say-Dee principals. That is still the subject of a Fox v Percy, if you like, attack by my learned friend. The second matter, which is no longer the subject of attack and which is sufficient for our purposes, is the finding of the Court of Appeal that even if the offer was made of those properties, nevertheless there was a breach of fiduciary duty because it was not made in circumstances where full information was provided as to the importance of acquiring that property for the purposes of the joint venture.
That is not a matter, of course, in respect of which the principles about reviewing trial judges’ findings of fact comes into play because, quite plainly, for the reasons we have mentioned in our written submissions, as indeed, I think, is now at least implicitly acknowledged by my learned friend, the trial judge made no finding whatsoever that in substance or implicitly Mr Farah Elias had informed my clients of the council’s view as to the need to acquire the adjoining properties and to amalgamate them for the purpose of development.
GLEESON CJ: There is not any suggestion, is there, that if he had given them that information they would have found the money to participate in the development?
MR SULLIVAN:
Your Honours, there is and there is not. First of all, according to the
authorities to which I will take you tomorrow, that is
a matter of speculation
which the courts do not go into and is irrelevant and that is Boardman v
Phipps and Regal (Hastings) v Gulliver and this Court in
Warman says the same thing. But there was some evidence that
regarded – although I have to say, your Honour, it does not go very
far, but if I may take your Honours in that regard to the appeal books,
volume 1 at page 32 - and this is Delphic, your Honour, I
do
agree - Mr Weber in a very short examination-in-chief of Ms Dalida
Dagher said, at about line 30:
This morning you swore an affidavit which deals with both your personal financial position and the financial position of various companies, of which you are a director and shareholder, you recall that?
A. Yes.
Q. And the affidavit is designed to show what your net personal financial position is and was in 2000?
A. That’s right.
Q. It’s also designed [to] demonstrate the same facts concerning the companies of which you are a director?
A. Yes.
Q. I want to ask you a question about your own personal financial position. As a the time 13 and 15 Deane Street came on the market, would you have put forward your own personal assets in order to fund the purchase of half of the equity in those properties by your company Say-Dee Pty Ltd?
A. Yes, I would have.
Q. Insofar as you are a director of companies, would you have at the same time voted to utilise the resources of those companies to assist in the same purchases?
A. Yes.
Mr Marcel Dagher, Ms Dalida Dagher’s
business partner, also gave evidence along similar lines and that appears in
volume 1 of
the appeal books also at page 371 where Mr Marcel
Dagher said:
At all times since 1998 to the present I have been prepared to exercise my rights as a director of and shareholder in each of the Companies to assist Dalida Dagher and Say-Dee Pty Limited in purchasing 50% of each the properties –
and then sets out the properties –
known as 13 Deane Street, and units 1, 2, 3 and 4 of 15 Deane Street Burwood and would have exercised my rights to have the Companies assist in the purchase of the Properties had they been offered to Ms Dagher or Say-Dee Pty Limited.
So there is evidence there that - - -
CALLINAN J: Mr Sullivan, where do we see the affidavit which no doubt says what the net financial position was?
MR SULLIVAN: Your Honour, that is in a number of positions. Can I take that on board overnight and provide your Honour with that answer tomorrow?
CALLINAN J: Yes.
MR SULLIVAN: His Honour Justice Tobias also deals with this matter and quite rightly points out, in answer to the question of the Chief Justice, that evidence which was given that at a certain point of time they were not interested in acquiring when they were not told of the significance is really irrelevant and speculative. The real question to ask, if your Honour’s question was relevant on a causation question, would be, what would they have done in respect of that matter had they been fully informed as they ought to have been of the need to acquire or the desirability of acquiring the adjoining properties in order to further the acknowledged purpose of this joint venture.
GLEESON CJ: What do you say they could have done?
MR SULLIVAN: Well, your Honour, we say they could have on that evidence, and we take you to, they could have purchased the properties or paid their half share of the properties.
GLEESON CJ: Did they give evidence that they would have?
MR SULLIVAN: No, they did not.
GLEESON CJ: Just as a kind of full toss outside the leg stump - - -
MR SULLIVAN: I sometimes miss those, your Honour.
GLEESON CJ: - - - what is the essence of what you say Mr Farah Elias did wrong?
MR SULLIVAN: The essence of his wrongdoing is this, your Honour. Mr Farah Elias became aware through his dealings in his fiduciary position with the council that the development which the parties had contemplated in respect of No 11 was not going to be approved and, indeed, that no worthwhile development would be approved by the council, that in order to maximise the development, in order to develop that property in any meaningful way it had to be amalgamated with adjoining properties and he became aware – the additional information or the additional dimension, as the Court of Appeal said – that in fact there was a likelihood that if those properties were acquired, then development approval would be granted.
Armed with that, what he did wrong was this, and it can be put two ways, both of which are proscriptive. First of all, in taking steps to either acquire himself or through his family or through his controlled company, the properties without fully informing and obtaining the fully informed consent of my clients to that matter, he breached his fiduciary duty. We say that he did that knowingly, not innocently, and we will take your Honours to the material on that.
Alternatively, it can be said that much like your Honour Justice Gummow said in discussion with my learned friend, Mr Douglas, that Mr Farah Elias in his fiduciary position acquired a commercial opportunity in the sense of an opportunity of that – a knowledge that if he did certain things there was a likelihood of a large development with a potentially very large profit. That was acquired in his capacity as a fiduciary. It meant that he was precluded from taking that opportunity for himself or his privies or those such as his family again without obtaining the fully informed consent of the beneficiaries of his fiduciary duty, being my clients, and having done so, he put himself in a position of conflict and interest which required a fully informed consent to be discharged from.
Either way, in our respectful submission, he put himself in that position whereby if he had acquired the properties himself there would have been a constructive trust imposed in respect of them. That is the essence, your Honours, of what we say about his wrongdoing.
GLEESON CJ: And the wife and daughters?
MR
SULLIVAN: The wife and daughters, we say, imputed with the knowledge of
their agent – this is an agent who – and we will develop
this
tomorrow morning – had, as found by the Court of Appeal, a purpose of
acquiring these properties and developing all the
way through. The wife and
daughters have put him in the position of sole control over their affairs
in
respect of all of those matters. He had actual knowledge, in our respectful
submission, of the facts and circumstances which gave
rise to his breach of
fiduciary duty. The knowledge which is imputed to the wife and daughters is
imputed actual knowledge as set
out, for instance, by
Sir Anthony Mason in Sargent v ASL.
Therefore, for either or both – and we know that we are going to have some lively discussion tomorrow with your Honours – of the first and second limbs of Barnes v Addy or, alternatively, for other reasons including, although we put this very much as a subsidiary argument, the doctrine of unjust enrichment. Although knowledge may not be necessary but so far as knowledge is required we say that for the first or second limbs of Barnes v Addy they are in no better position than Mr Farah Elias. Indeed, we leave with this sort of jury address but it is a statement of what is a sentiment behind our submissions.
If in fact the wife and children are not found liable in this situation or not found accountable, one does not need to struggle too far to find that the principles so developed would be used by rogue fiduciaries all the time to avoid having to account for the wrongly obtained gains. It would be a very easy device to put things in the names of wives and children to avoid accounting, a very easy device. Your Honour gave the example of the father who gives some trust property to the son who squanders it. That would be a very easy device to achieve on a regular basis. We say that equity acting on conscience as it does would not readily permit that and we will take your Honours to the principles tomorrow where we say that that occurs.
GLEESON CJ: Is that a convenient time?
MR SULLIVAN: Yes your Honour.
GLEESON CJ: We will adjourn until 10.00 am.
AT
4.19 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 13 DECEMBER
2006
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/cth/HCATrans/2006/682.html