FTV Holdings Cairns Pty Ltd v Smith
[2014] QCA 217
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- Notable Unreported Decision
- Appeal Determined (QCA)
- FTV Holdings Cairns Pty Ltd v Smith[2014] QCA 217
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FTV Holdings Cairns Pty Ltd v Smith[2014] QCA 217
FTV Holdings Cairns Pty Ltd v Smith[2014] QCA 217
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO/S: | |
Court of Appeal | |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | |
DELIVERED ON: | 29 August 2014 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 4 August 2014 |
JUDGES: | Holmes and Fraser JJA and Ann Lyons J Separate reasons for judgment of each member of the Court, each concurring as to the order made |
ORDER: | Appeal dismissed with costs. |
CATCHWORDS: | CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – FORMATION OF CONTRACTUAL RELATIONS – ACCEPTANCE – GENERALLY – PARTICULAR CASE – where the respondent solicitor acted for clients (“the borrowers”) who owed money to the appellant – where the appellant’s solicitor and the respondent negotiated an “Irrevocable Authority” whereby the borrowers irrevocably directed their debt to be paid out of the proceeds of an anticipated sale of their house – where the borrowers executed that document, gave it to the respondent, and where the respondent sent it to the appellant – where the borrowers sold the house but did not repay their debt and are now insolvent – where the appellant seeks to recover from the respondent – where the respondent argues there was no concluded contract between the appellant and the borrowers upon the terms of the authority – whether amendments made during negotiation abrogated the appellant’s acceptance – whether the appellant by its subsequent conduct nonetheless confirmed its acceptance of the authority CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSIDERATION – WHAT AMOUNTS TO CONSIDERATION – GENERAL – where the respondent argues there was no contract between the appellant and the borrowers upon the terms of the authority because the appellant gave no valuable consideration – whether the appellant gave consideration by forbearing to sue and/or by accepting a lower interest rate on the debt CONTRACTS – PARTICULAR PARTIES – PRINCIPAL AND AGENT – RELATIONS BETWEEN AGENT AND THIRD PERSONS – LIABILITES OF AGENT – IN RESPECT OF MONEY RECEIVED – where the appellant argues the respondent is liable as an agent of the borrowers on the basis of Art 112 of Bowstead and Reynolds on Agency, a form of common law attornment of money – where the respondent had negotiated the Irrevocable Authority and sent it to the appellant – whether the respondent by his conduct impliedly promised the appellant that the debt would be repaid – whether the respondent ever received the proceeds of sale CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – PARTIES – RIGHTS AND LIABILITIES OF THIRD PARTIES – where the appellant argues the respondent is liable under s 55 of the Property Law Act 1974 – whether the respondent made any promise for the benefit of the appellant within the meaning of s 55 of that Act EQUITY – TRUSTS AND TRUSTEES – IMPLIED TRUSTS – CONSTRUCTIVE TRUSTS – GENERALLY – where the appellant argues the respondent is liable for equitable compensation because he was a trustee of the proceeds of sale for the appellant – where there is no evidence the respondent ever held the balance of proceeds of sale – whether there ever existed a trust fund of which the respondent could be a trustee EQUITY – EQUITABLE REMEDIES – EQUITABLE COMPENSATION – BREACH OF FIDUCIARY OBLIGATIONS – where the appellant argues the respondent is liable because he knowingly assisted the borrowers to breach their fiduciary duties to the appellant – whether there was an equitable assignment of the debt to the appellant such that the borrowers owed the appellant fiduciary duties – whether the borrowers breached those fiduciary duties – whether the respondent knew the facts from which the borrowers’ breaches of their fiduciary duties should be inferred and thereby breached the second limb of the rule in Barnes v Addy APPEAL AND NEW TRIAL – APPEAL GENERAL PRINCIPLES – POINTS AND OBJECTIONS NOT TAKEN BELOW – WHEN NOT ALLOWED TO BE RAISED ON TRIAL – QUESTIONS NOT RAISED ON PLEADINGS OR IN ARGUMENT – GENERALLY – where the appellant did not plead that the borrowers dishonestly and fraudulently breached their fiduciary duties and that the respondent knew the facts from which such an inference should be drawn – whether the appellant’s pleadings and argument at trial made sufficient allegations about the borrowers’ and respondent’s states of mind such that the appellant’s case based on a breach of the second limb of the rule in Barnes v Addy could succeed Property Law Act 1974 (Qld), s 55 Uniform Civil Procedures Rules 1999 (Qld), r 150(1)(a), r 150(1)(f), r 150(1)(k), r 150(2) Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509, considered Barnes v Addy (1874) LR 9 Ch App 244, considered Cashmere Enterprises Ltd v Mathias [2002] NZCA 46, distinguished Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22, considered Grogan v Orr [2001] NSWCA 114, distinguishedPalette Shoes Pty Ltd v Krohn (1937) 58 CLR 1; [1937] HCA 37, citedPalmer v Carey [1926] AC 703; [1926] UKPC 30, consideredQuince v Varga [2009] 1 Qd R 359; [2008] QCA 376, consideredRe Androma Pty Ltd [1987] 2 Qd R 134, considered Rodick v Gandell (1852) 1 De GM & G 763; [1852] EngR 857, citedRoyal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378; [1995] UKPC 4, cited Twinsectra Ltd v Yardley [2002] 2 AC 164, [2002] UKHL 12, cited Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12, cited Webster v Shueard (2012) 113 SASR 99; [2012] SASC 93, distinguished |
COUNSEL: | K Wilson QC, with P Somers, for the appellant T J Bradley QC for the respondent |
SOLICITORS: | James Conomos Lawyers for the appellant Cooper Grace Ward for the respondent |
[1] HOLMES JA: I agree with the reasons of Fraser JA and the order he proposes.
[2] FRASER JA: The respondent, a solicitor, acted for clients (“the borrowers”) who owed money to the appellant. After the appellant repeatedly demanded payment, the borrowers proposed an arrangement for repayment. The appellant’s solicitor and the respondent, acting as the borrowers’ solicitor, then negotiated the terms of an “Irrevocable Authority” by which the borrowers irrevocably authorised and directed “you” (an undefined term) to pay the debt out of the proceeds of the anticipated sale of the borrowers’ house. The borrowers executed that document and gave it to the respondent. Upon the borrowers’ instructions the respondent sent the executed document to the appellant’s solicitor. The borrowers subsequently retained the respondent to act for them in relation to the sale and instructed him that they would not pay any of the proceeds of the sale to the appellant. In accordance with those instructions, in a settlement statement given to the purchaser’s solicitor, the respondent directed the purchaser to pay the bulk of the proceeds of the sale by bank cheque to the borrowers’ bank for the credit of the borrowers’ accounts. The purchaser duly paid the balance purchase price at settlement by such a bank cheque, which was credited to the borrowers’ accounts. Part of that money was required to discharge the borrowers’ mortgage debt to their bank, but a substantial amount was retained by the borrowers.
[3] After the appellant discovered that the borrowers had sold their house and retained the balance proceeds of sale, the appellant commenced proceedings in the District Court against the borrowers and the respondent. The borrowers went bankrupt and the appellant received a small dividend in that bankruptcy. The appellant went to trial against the respondent upon a cause of action for monies had and received by the respondent to the use of the appellant, a cause of action under s 55 of the Property Law Act 1974 for damages for breach of a promise by the respondent, and a claim for equitable compensation. The primary judge dismissed the appellant’s claim.
[4] In this appeal, the appellant contends that its claim should have been upheld on each of the three bases it had advanced at the trial.
Relevant facts
[5] The evidence adduced at the trial was confined to an agreed bundle of documents. In most respects the effect of the documents was not contentious.
[6] On 8 June 2004 the appellant advanced $200,000 to the borrowers upon the terms, expressed in a written loan agreement, that the borrowers would pay the appellant interest on the balance of the principal owing from time to time monthly in arrears at five per cent per calendar month, and the borrowers would repay the loan with interest no later than five years from the date of the advance. The loan was related to a lease by the appellant to the borrowers of a shop in the appellant’s shopping centre. The principal fell due 30 days after the lease was terminated, which occurred in early 2006. On 31 May 2005 the appellant asked the borrowers to pay outstanding interest of $120,000 for the period between July 2004 and June 2005. The borrowers responded that they were in no position to pay any interest. Thereafter the appellant made monthly demands for payment of arrears of interest. Its demand made on 12 August 2005 referred to its expectation, which the borrowers had not fulfilled, that the borrowers would provide a payment plan. On 7 September 2005 the appellant claimed interest totalling $150,000.
[7] On 12 September 2005 the borrowers gave instructions to the respondent to prepare a letter for the borrowers to sign and give to the appellant. Those instructions were reflected in the borrowers’ “without prejudice” letter to the appellant dated 13 September 2005. The borrowers offered two alternative proposals. The first proposal was that the borrowers “will pay out the entire loan of $200,000 forthwith upon settlement of the sale of our house together with interest on the sum of $200,000 at 5% per annum to be capitalised on each anniversary of the loan.” After setting out the second proposal, the borrowers’ letter stated that they “felt that these proposals give a reasonable outcome for both parties…”.
[8] On 19 September 2005 the appellant’s solicitor wrote to the respondent advising that the appellant was agreeable to the borrowers’ first proposal, and that “[i]n order to protect my client’s interest, to avoid the costs of a potential second mortgage of caveat, my client is agreeable to the matter simply being resolved by your client signing the enclosed irrevocable authority.” On 28 September 2005 the respondent replied on the borrowers’ behalf to the appellant’s solicitor, stating that he returned “the Irrevocable Authority dated 23rd September 2005”, it was “signed by my clients”, and he had changed the text “slightly” to agree with the terms of the borrowers’ offer. He sought confirmation that the irrevocable authority was acceptable.
[9] The enclosed document (which I will call “the Authority”) was in this form:
“IRREVOCABLE AUTHORITY
I, Sharna Rauch and Hans Rauch of PO Box 450, Gordonvale, Queensland, 4865 irrevocably authorise and direct you to forward to Williams, Graham, Carman of lA Water Street, Cairns, Queensland, 4870 the sum of $200,000.00 plus 5% interest calculated annually from the 08th June 2004 to the date of the repayment (i.e. the settlement date), ("the monies") for monies lent to us by FTV Holdings Pty Ltd. Payment of the monies is to be made to Williams, Graham, Carman from the proceeds of sale of our property located at 12 Corcoran Street, Gordonvale, Queensland, 4865. Payment of the amount of $200,000.00 plus 5% interest per annum is to be made to Williams, Graham, Carman prior to any other deductions from the Settlement proceeds and must be paid at Settlement of our property at Gordonvale. I authorise and direct you to communicate with Williams, Graham, Carman details of the current status of Settlement as and when requested from time to time by Williams, Graham, Carman Solicitors.”
[10] There was no further communication between the parties until 7 November 2005, when the appellant’s solicitor sent an email to the respondent seeking “an update in relation to your client’s sale of the property.” The respondent replied by email on the following day that the borrowers had not yet secured a buyer and that they had changed agents. On 1 December 2005 the appellant’s solicitor wrote to the respondent referring to his email of 8 November 2005 and expressing their client’s concern that the sale was taking considerably longer than had been envisaged. The appellant’s solicitor sought the borrowers’ agreement to a second registered mortgage over the property, that debt and accrued interest be paid within two months, and that the borrowers execute and deliver a surrender of lease within 14 days. On 7 December 2005 the respondent replied that his clients “have given their irrevocable authority which contains the terms of Settlement of this matter”. The respondent conveyed his instructions that the borrowers were attempting to sell the property. He gave details about the price. He advised that the borrowers were not willing to execute a second mortgage and did not agree to the request in the appellant’s solicitor’s email of 1 December 2005.
[11] Subsequently, the appellant’s solicitor wrote to the respondent repeating the appellant’s proposal that the respondents provide a second registered mortgage within 14 days. There was no reply. The appellant’s solicitor again wrote to the respondent, noting that the 14 days had expired without a response or provision of the mortgage and seeking information about the borrowers’ intentions. The respondent replied that the borrowers’ instructions were that they were attempting to sell the house “and pay all monies owing upon completion of the sale”. In May 2006 a debt collection company retained by the appellant demanded that the borrowers pay the appellant $440,000 and advised that the company had been instructed to commence recovery proceedings. The respondent replied on the borrowers’ behalf requesting documents evidencing the claim for $440,000 and specified details about that claim. The company replied in terms which made it clear that the demand was for the repayment of the loan of $200,000 together with interest. The documents enclosed with that reply included a copy of the Authority.
[12] In January 2007 the borrowers entered into a contract to sell their property for $495,000. The buyer paid a deposit of $48,000, which the borrowers’ real estate agent held in its trust account. The respondent was retained by the borrowers to complete the sale on their behalf. On 14 February 2007 the borrowers signed a letter of instructions to the borrowers’ bank (who held a first mortgage) to surrender deeds or other documents they held in exchange for the settlement amount. The instructions allocated part of the anticipated settlement amount to one of the borrowers’ accounts with the bank to pay out the mortgage debt, with the anticipated balance (about $268,000) to be distributed amongst three of the borrowers’ accounts.
[13] On 21 February 2007 the borrowers signed a document prepared by the respondent which authorised the respondent to take $550.00 for his professional fees and GST from the sale proceeds or from money held in trust on their behalf upon completion. The respondent admitted in particulars of his defence that, also on 21 February 2007, the borrowers told the respondent that they were not going to pay the appellant from the settlement of their contract and that the borrowers instructed the respondent to pay the net proceeds of the sale to a bank account in the borrowers’ names. The particulars refer to part of the relevant conversation:
“(ii)The instructions were given orally in the course of a conversation in which the parties exchanged words to the following effect:
[Respondent]:Are you going to pay FTV from the settlement?
[Borrower]:Of course we are not paying that.
[Respondent]:If FTV don’t chase you for the money you can be sure that if it goes broke the liquidator will chase you.”
[14] The agreed documents include a file note, also dated 21 February 2007, which the index to the bundle states was the respondent’s file note. The first line of the note refers to the settlement of the borrowers’ sale of their property on 23 February 2007, noting that there is a mortgage to the borrowers’ bank. The text is difficult to read, but the parties agreed at the trial that an entry at the end of the note reads as follows:
“Re: F.TV:. shops went broke
. can’t get money from importer.
. RS sd don’t worry or communicate with ors”
[15] That note appears to record the respondent’s statement to an employee of the borrowers’ instructions to the respondent. At the trial senior counsel for both parties agreed that the last line of the note conveyed that the respondent said not to worry or to communicate with others, the appellant’s senior counsel submitted that the change in the borrowers’ instructions to the respondent was hidden from the appellant, and the respondent did not object to or contradict that submission. That submission was justified by the documentary evidence in the absence of any contrary evidence. Although the file note does not make it entirely clear that the reference to not communicating with others concerned the borrowers’ instructions to the respondent not to pay the appellant’s debt out of the proceeds of sale, that seems the better view in the context of the formatting of the file note (which suggests that each of the three lines related to the appellant), the impending settlement of the borrowers’ sale, the borrowers’ other instructions given on the same day, and the respondent’s omission to communicate the change of instructions to the appellant’s solicitor.
[16] On 22 February 2007 the respondent sent a settlement statement to the solicitor acting for the purchaser. Allowing for the deduction from the contract price of the $48,000 deposit and some minor adjustments apparently in accordance with the contract, the anticipated balance due at settlement was $447,375.35. The respondent’s settlement statement directed that the cheques to be provided at settlement comprised a cheque to the Council for $754.15, one cheque for $550 to the respondent (for his fees) and (consistently with the purchaser’s solicitor’s draft settlement statement) one cheque for $446,071.20 to the borrowers for the credit of their account with their bank. The sale settled on 23 February 2007. On the same day the respondent instructed the agent to pay the balance of the deposit in its trust account (after deduction of the agent’s commission) to the borrowers. Also on the same day, the respondent wrote to the borrowers advising them that the contract had settled in accordance with the settlement statement and that a bank cheque for $446,071.20 was deposited into their bank account “in accordance with your instructions”.
[17] On 18 July 2007 a solicitor acting for the appellant wrote to the respondent. The solicitor recorded that one of the borrowers had asserted to the appellant that the borrowers’ property had been sold and transferred in February 2007 but the appellant had not been paid the settlement monies. The appellant’s solicitor wrote that, assuming the respondent held the settlement monies, in light of the respondent’s knowledge of the irrevocable authority he should pay the borrowers’ debt to the appellant by 24 July 2007. The letter stated that the debt was $230,833.33. (That was the debt calculated in accordance with the terms of the Authority – $200,000 plus interest at five per cent per annum from 8 June 2004 to 23 February 2007).
[18] In the event, deduction of the amount secured by the borrowers’ mortgage ($264,913.72) from the settlement proceeds after deductions made at settlement (including of the respondent’s fees, which the appellant did not challenge) left $181,157.48. Adding the balance of the deposit ($33,892.50[1]), the sale produced $215,049.88 which could have been paid to the appellant’s solicitor at settlement in partial satisfaction of the appellant’s debt.
[19] On 19 October 2011 the appellant received payment for its proof of debt in the borrowers’ bankruptcy of $33,468.04. The appellant acknowledged that this amount should be deducted from its claim. Accordingly, the amount in issue in this litigation seems to be $181,581.84 ($215,049.88 minus $33,468.04), plus interest.[2]
The agreement between the appellant and the borrowers
[20] Before discussing the three bases of the appellant’s claim, it is useful to describe the effect of the agreement made between the appellant and the borrowers. That agreement was not spelled out but it may readily be derived from the terms of the authority and the exchanges between the appellant and the borrowers and between their solicitors. The borrowers agreed to pay to the appellant $200,000.00 plus five per cent interest per annum from 8 June 2004 to the date of settlement of the sale of the borrowers’ property, such payment to be made at that settlement, from the proceeds of that settlement prior to any other deductions, and by whoever attended to settlement on the borrowers’ behalf to the appellant’s solicitor on the appellant’s behalf. In exchange, the appellant agreed to accept that payment in discharge of the borrowers’ indebtedness to the appellant under the loan agreement for $200,000.00 plus five per cent interest per month payable monthly. Upon the appropriate commercial construction of the agreement, and bearing in mind that the deposit formed part of the sale price due to the borrowers upon settlement, the word “proceeds” in the Authority should be construed as comprehending, in addition to the balance of the sale price payable in exchange for the conveyance, the balance of the deposit after deduction of the borrowers’ agent’s commission.
[21] The agreement did not oblige the borrowers to ensure that the respondent (or whoever else attended to settlement on the borrowers’ behalf) would receive or hold the relevant part of the sale proceeds, but it did require the borrowers to ensure that the respondent (or other agent of the borrowers) would “forward” or pay that money to the appellant’s solicitor “from” the proceeds of settlement and “at” settlement. That should be understood as requiring the borrowers to separate out of the settlement proceeds and arrange for payment to the appellant’s solicitor at the settlement of an amount sufficient to pay the appellant’s debt. An obvious way of complying with that obligation was for the borrowers to instruct the respondent to direct the purchaser’s solicitor under cl 2.5(1) of the standard REIQ/QLS contract (the form which was used in this case) to pay the relevant part of the proceeds of sale by bank cheque to the appellant’s solicitor (who would be invited to attend the settlement) and to pay the balance by a separate bank cheque[3] to the borrowers’ bank for the credit of the borrowers (out of which the borrowers’ mortgage debt could be discharged). Perhaps the borrowers would have complied with their obligations if the respondent had instead received the relevant part of the sale proceeds into his trust account upon trust for the appellant and forthwith paid that amount out to the appellant’s solicitor, but if that was permitted it was not required by the agreement.
A concluded agreement
[22] The respondent argued that there was no concluded agreement between the borrowers and the appellant upon the terms of the Authority because the respondent’s letter enclosing the Authority amounted to a counter-offer (because of the amendments the respondent had made to the draft authority), the appellant did not accept that counter-offer because it did not give the confirmation requested by the borrowers that the Authority was acceptable to the appellant, and the appellant through its solicitors and debt recovery company acted as if there were no concluded agreement. That argument is not easy to reconcile with the respondent’s allegation in his amended defence that the changes he made to the appellant’s draft “were formal in nature and did not substantively alter the terms …”,[4] which was consistent with the respondent’s statement in his letter of 28 September 2005 that he had changed the appellant’s solicitor’s draft “slightly”. Most of the changes were immaterial. The insertion in the Authority of the appropriate information in the blank spaces left in the draft for that purpose was immaterial, as was the replacement in the Authority of the uncontroversial date of the advance and other text to the same effect as words in the draft “the date of the advance” and “due and payable in accordance with a loan deed between ourselves as borrower and FTV Holdings as lender”.
[23] It is arguable that a material change was made by the omission in the Authority of introductory words in the appellant’s draft authority which had addressed it to the respondent and described it as being from the borrowers. The respondent argued that, in circumstances in which the respondent sent to the appellant the executed Authority rather than a copy of it, this change enlarged the utility of the Authority by allowing the appellant to give it, not only to the respondent, but also to any agent the borrowers retained to attend to settlement. This change and the sending of the original Authority to the appellant did make it clear that the borrowers promised that any person (not just the respondent) who controlled the proceeds of sale on behalf of the borrowers would pay the appellant out of that money at settlement, but that would have been implicit in an agreement upon the terms of the appellant’s solicitor’s draft authority. To treat the respondent’s name on that draft as confining the borrowers’ promise to a case in which they retained the respondent to attend to settlement would be to give the borrowers the power to set at nought the evident object of securing to the appellant the relevant part of the sale proceeds. Upon the necessary objective analysis, it is difficult to accept that the parties could have contemplated such a result. The better view is that the respondent’s name on the draft authority would have been redundant if the borrowers had retained a different agent to attend to settlement. On that view, the amendment to omit the words addressing the draft authority to the respondent had no substantial effect, so that the agreement was concluded when the respondent sent the executed Authority to the appellant’s solicitor (or at least when the appellant’s solicitor received it). The respondent’s request for confirmation that the appellant agree to the slight changes was not so expressed as to make that confirmation essential for a concluded agreement.
[24] In any case the appellant did confirm its acceptance of the Authority, by its conduct in discontinuing its monthly demands for interest, its forbearance from taking action to recover interest, and by its solicitor’s email of 7 November 2005 requesting information about the sale of the property (which invoked the obligation in the last sentence of the Authority). That both parties regarded themselves as having concluded an agreement is demonstrated by those matters, the fact that neither party adverted to any need for any further acceptance by the appellant, and the respondent’s unequivocal statement in his letter of 7 December 2005 that his clients “have given their irrevocable authority which contains the terms of Settlement of this matter”.
[25] The respondent also argued that the appellant’s solicitor’s letter of 1 December 2005 requesting that the borrowers execute a registered second mortgage providing for the repayment of the debt and interest within two months, the appellant’s solicitors’ follow up letter of 9 February 2006, and the debt recovery company’s subsequent correspondence seeking payment of the debt in accordance with the loan agreement, were inconsistent with any agreement having been concluded upon execution of the Authority. There is an inconsistency, but the first such communication (which was readily explicable by the delay in the sale of the borrowers’ property) was not made until months after the agreement was concluded. The respondent did not allege, and it did not argue at trial or on appeal, that this correspondence amounted to a repudiation of the agreement or that any such repudiation was accepted by the borrowers.
A binding contract
[26] The respondent argued that any agreement between the appellant and the borrowers was not binding as a contract because the appellant did not give any consideration in exchange for the borrowers’ promises. The primary judge’s reasons do not directly address that issue, but the primary judge did discuss a closely related question in relation to the claim under s 55 of the Property Law Act 1974. The primary judge did not make any clear finding whether, as the appellant pleaded, the appellant accepted an alleged promise by the respondent (in effect, to comply with the terms of the Authority) by agreeing to the terms of the Authority, but the primary judge rejected the appellant’s argument that it accepted that alleged promise by forbearing from recovering the debt. The primary judge reasoned that the appellant did not forbear because it instead pressed for further security and its commercial agent pursued the alleged debt. That finding would logically require rejection of forbearance as consideration for the agreement between the appellant and the borrowers.
[27] The appellant pleaded (albeit in a confusing way [5]) and its senior counsel argued at the trial that it gave consideration for the borrowers’ agreement by forbearing to recover the loan. The following circumstances justified the implication that, in exchange for the Authority, the appellant gave consideration by forbearing from taking the action to recover the loan which it would have been entitled to take under the loan agreement: the appellant made repeated demands for the interest to which it was entitled under the loan agreement, the borrowers responded by referring to their inability to pay interest, the appellant subsequently referred to the borrowers’ delay in producing a repayment plan, the borrowers then offered to pay out the loan with interest upon settlement of the sale of their house, that offer was designed to “clear this matter” and to “give a reasonable outcome for both parties”, the appellant’s solicitor’s reply referred to the borrowers’ failure to make any of the payments required by the loan and agreed to the resolution of “the matter” by the borrowers executing the Authority, and after the borrowers executed the Authority the appellant did not commence proceedings to recover the debt pursuant to the agreement for the loan.
[28] The documents establish that the appellant also gave a more obvious form of consideration for the borrowers’ agreement. The loan agreement provided for interest at five per cent per month payable monthly, the appellant repeatedly claimed payment at that rate in the months leading up to the agreement upon the Authority, the appellant referred to that interest obligation in its letter of 28 September 2005, and the borrowers did not deny their obligation to pay interest at that rate under the loan agreement. By accepting the rate of five per cent per annum stated in the Authority the appellant made a substantial compromise. (In fairness to the primary judge, who did not advert to this point, it should be noted that whilst the appellant pleaded that its agreement to the terms of the Authority amounted to consideration,[6] neither that pleading nor the appellant’s arguments at trial specifically referred to the reduction in interest as consideration.)
[29] The parties’ agreement took effect as a contract.
Monies had and received
[30] The first cause of action upon which the appellant relied is described in Article 112 of Bowstead and Reynolds on Agency:[7]
“(3)Where an agent is directed or authorised by his principal to pay to a third party money out of a fund existing or accruing in his hands to the use of the principal, and he expressly or impliedly promises such third party to pay him, or to receive or hold such money on his behalf or for his use, he is personally liable to pay such third party, or to receive or hold such money on his behalf or for his use, as the case may be, even if he has had fresh instructions from the principal not to pay such third party.”
[31] This is a form of common law attornment of money.[8] The primary judge held that this cause of action was not established for two reasons: the respondent did not make any promise to the appellant and the respondent did not receive the proceeds of sale. (The appellant did not rely upon the respondent’s receipt of the small amount for his fees.)
[32] An express or implied promise by the agent to pay the third party is an essential element of this cause of action.[9] The respondent did not make any such promise in express terms. The appellant argued that such a promise was to be implied by the cumulative effect of various circumstances: the Authority was part of an agreement to compromise the appellant’s claim for an outstanding debt, the respondent amended the draft provided by the appellant’s solicitor, the respondent organised for his clients to execute the Authority, the respondent sent the executed Authority to the appellant’s solicitor, and the respondent subsequently referred to the Authority as being in force in letters he wrote to the appellant’s solicitor. Those circumstances are incapable of supporting the alleged implication. In the respondent’s communications with the appellant the respondent acted and professed to act only on behalf of the borrowers as their solicitor. The respondent did not say or do anything which could fairly be construed as a personal promise to the appellant.
[33] The appellant relied upon Webster v Shueard.[10] In the course of holding that a solicitor had given personal undertakings to the creditor White J referred to the solicitor’s use in a letter to his client’s creditor of the word “we” in the expression “we are to repay to you…”, his statement in a subsequent letter that “we” will act upon that authority, and the absence of any indication that the undertaking was given as solicitor and agent for the client rather than in a personal capacity.[11] The respondent did not use any similar words indicating a personal assumption of responsibility. His communications instead conveyed that he acted only as the borrowers’ solicitor. The primary judge was right to reject this cause of action for that reason.
[34] I also agree with the primary judge that this cause of action fails for the reason that the respondent did not receive or hold the money at any time. Even putting aside the circumstance that the respondent acted throughout only as agent for the borrowers, the appellant did not prove that the respondent ever held or controlled the bank cheque for the balance of the purchase price.
Property Law Act 1974, s 55
[35] In relation to the appellant’s second cause of action, s 55 of the Property Law Act 1974 provides that “[a] promisor who, for a valuable consideration moving from the promisee, promises to do or to refrain from doing an act or acts for the benefit of a beneficiary shall, upon acceptance by the beneficiary, be subject to a duty enforceable by the beneficiary to perform that promise.” The term “promise” is defined to mean, relevantly, a promise which is or appears to be intended to be legally binding and which creates or appears to be intended to create a duty enforceable by a beneficiary.
[36] The primary judge rejected the claim based upon s 55 on the grounds that the respondent did not make such a promise and that there was no clear acceptance of any alleged promise by the appellant in any event. The appellant acknowledged that this claim could not succeed if the respondent did not make any personal promise for the benefit of the appellant. For the reasons given in relation to the first cause of action, the respondent did not make such a promise. The claim under s 55 was correctly rejected for that reason.
Equitable compensation
[37] The primary judge rejected the appellant’s third basis of claim, the claim for equitable compensation, on the grounds that: there was no declaration of trust by the respondent of the proceeds of sale for the benefit of the appellant, the respondent was not an accessory to a breach of trust by the borrowers for the benefit of the appellant because of the absence of a necessary intent to create a trust, the respondent did not receive the proceeds of sale (other than for the payment of his fees, which are not in issue), he had not been actively involved in the dissipation of the funds of any trust, and it was unclear that he had assisted the borrowers to an extent sufficient to found a claim based in equitable compensation.
The respondent was not a trustee for the appellant
[38] One basis argued at the trial for the appellant’s claim for equitable compensation was that the respondent had constituted himself a trustee of part of the proceeds of sale for the appellant. The primary judge considered that this was inconsistent with Cashmere Enterprises Ltd v Mathias,[12] in which the New Zealand Court of Appeal held that the debtor’s execution of an irrevocable authority did not amount to a declaration of trust because there was no express term or reasonable implication that the document evidenced an intent to alter the beneficial interest in future property; the transaction was “no more and no less than an authority to pay, expressed as being irrevocable”. In this case the parties’ agreement extended beyond a mere authority by a debtor to an agent to pay the debt, because it included an express direction by the borrowers to pay the debt at settlement from the proceeds of sale. However that does not indicate that the respondent constituted himself as trustee for the appellant.
[39] In relation to this basis of claim it is sufficient to record that, because there was no evidence that the respondent ever held or controlled the proceeds of sale (apart from an amount for his fees, which is not in issue), the appellant failed to prove that there was any trust fund of which the respondent might have become a trustee for the appellant.
A claim against the respondent for knowingly assisting the borrowers to breach their fiduciary obligations
[40] The second basis argued at the trial for the appellant’s claim for equitable compensation was that the respondent knowingly assisted the borrowers to breach their fiduciary duties to the appellant. The effect of the appellant’s argument was that:
(a) The appellant acquired an equitable interest in the proceeds of sale as a result of the borrowers’ execution of the Authority.
(b) The borrowers owed fiduciary duties, as trustees or fiduciaries, to the appellant.
(c) The borrowers breached those fiduciary duties by instructing the respondent not to pay the proceeds to the appellant.
(d) By complying with those instructions the respondent was complicit in and assisted the borrowers’ in their breach of those duties knowing that the borrowers were breaching their promise to the appellant.
[41] The parties’ presented competing arguments on the question whether the evidence was sufficient to establish such a claim. The respondent also argued that the appellant did not plead such a claim and that it was not litigated at the trial. The appellant replied that, taking into account that its claim could succeed only upon that basis, it must have been obvious to those at the trial that it was pursuing that claim. I have concluded that the respondent’s pleading point should be upheld. It is nevertheless appropriate to discuss the merits of this claim.
The borrowers’ breaches of fiduciary duties
[42] The propositions in [40](a) – (c) of these reasons should be accepted. In Palmer v Carey[13] the Privy Council approved a statement in Rodick v Gandell[14] that “an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts or fund to which the order refers.” That is the effect of the agreement upon the terms of the Authority between the appellant and the borrowers. The borrowers did not merely promise that they would fund payment of the appellant’s debt from the proceeds of the sale of their house. The borrowers agreed to appropriate the proceeds of sale to the appellant to the extent necessary to discharge the appellant’s debt. So much was made clear by the borrowers’ direction to “forward” and pay that part of the proceeds “at” settlement “from” the proceeds of settlement. The principle in Palmer v Carey is applicable, just as it was found to be applicable in other cases where, for consideration from the creditor, a debtor communicated to the creditor that the debtor had given the debtors’ agent an irrevocable authority and direction to similar effect.[15] A different conclusion was reached in Cashmere Enterprises Ltd v Mathias, but on the basis that the irrevocable authority in that case included only “words of authority not disposition”;[16] the Authority included an irrevocable direction which did amount to a disposition of part of the proceeds. The authority discussed in Grogan v Orr, which did include an irrevocable direction to the solicitor to pay the creditor, was held not to constitute an assignment of future property to the creditor because the creditor had not given valuable consideration for the alleged assignment.[17] Here the appellant gave consideration.
[43] The respondent argued that the execution of the Authority could not amount to an unconditional assignment of future property because the operative words were contingent upon receipt of the sale proceeds. That misconceives the equitable doctrine. There can be no immediate assignment in law or in equity where the property to be assigned does not yet exist. What purports to be a present assignment of future property must be contingent, in the sense that the assignment can occur only when the property is brought into existence. Where that contingency is not expressed in the contract, equity gives effect to the parties’ intention by construing what purports to be a present assignment of future property as a contract to assign the property when it comes into existence; where the contingency is expressed, the contract takes effect in equity according to its terms. McPherson J explained all of this in Re Androma Pty Ltd.[18]
[44] The respondent also argued that there was at best a charge on the proceeds of sale to secure payment of the appellant’s debt. A contract for such a charge may itself amount to an equitable assignment,[19] but the contract in this case obliged the borrowers to separate out from the proceeds of sale and pay to the appellant an amount sufficient to discharge the debt described in the Authority: see [21] of these reasons. It follows that immediately upon the proceeds of the sale of the borrowers’ house coming into existence the borrowers held part of those proceeds sufficient to discharge the appellant’s debt upon trust to pay the appellant,[20] and in the meantime the appellant held an equitable right which was “a higher right than the right to have specific performance”[21] of its contract with the borrowers. That conclusion also requires rejection of the respondent’s alternative characterisation of the parties’ arrangement as amounting only to a bill of exchange drawn by the borrowers upon the solicitor in favour of the appellant.
[45] The borrowers committed at least three breaches of fiduciary duties they owed to the appellant. First, before settlement, the borrowers instructed the respondent not to pay any of the proceeds of sale to the appellant’s solicitor but instead to pay the balance of the proceeds after discharge of the borrowers’ mortgage to the borrowers. That was necessarily a breach of fiduciary duty because it was designed to produce a breach of the borrowers’ prospective duty as trustees to pay the relevant part of the proceeds to the appellant. Secondly, at settlement the borrowers received the whole of the balance proceeds of sale without accounting to the appellant for its debt and, thirdly, after settlement the borrowers retained the resulting credit balance in their bank. Those were breaches of the borrowers’ fiduciary duty as trustees to pay the relevant part of the proceeds to the appellant.
Liability of the respondent as an agent who participated in the borrowers’ breach of fiduciary duties
[46] The next issue concerns the appellant’s proposition summarised in [40](d) of these reasons that, by complying with the borrowers’ instructions, the respondent knowingly assisted the borrowers’ in their breach of their fiduciary duties. The respondent’s senior counsel argued that, upon the appellant’s case, it was the borrowers who held the proceeds of sale on trust for the appellant to the extent of the amount set out in the Authority and there was no suggestion that the respondent was involved in the borrowers’ dissipation of the funds from the borrowers’ account; if there was a breach of trust it occurred after the respondent’s involvement; and any such breach of trust was effected by the borrowers’ giving instructions to the bank as to the disposition of the proceeds represented by the bank cheque, it being the bank “who really decides whether there’s a settlement or not”.[22] Those arguments divert attention from the respondent’s assistance in the first two of the borrowers’ three breaches of fiduciary duty identified in [45] of these reasons, which occurred before the proceeds of sale reached the borrowers’ bank accounts. There is no evidence to support a case (which was not pleaded) that the borrowers’ bank was entitled to receive or insisted upon receiving any of the proceeds of sale in addition to the amount which was necessary to discharge its mortgage. On the evidence the borrowers could have obtained a discharge of the bank’s mortgage in exchange for payment of the mortgage debt and paid the balance proceeds of sale of $215,049.88[23] to the appellant in part satisfaction of the appellant’s debt. The respondent complied with the borrowers’ instructions, given in breach of their promise to the appellant, by directing the purchaser to pay the bulk of the proceeds of sale by one bank cheque to the borrowers’ bank for the credit of the borrowers and by cooperating in the settlement on that basis. That constituted breaches by the borrowers of their fiduciary obligations to the appellant. With respect to the primary judge’s contrary conclusion, the respondent’s conduct in complying with those instructions was plainly sufficient assistance in the borrowers’ breaches of fiduciary for the purposes of this equitable claim.
[47] The critical issue concerns the borrowers’ and the respondent’s states of mind. Because I conclude that the appellant’s case at trial did not include necessary allegations about the borrowers’ and respondent’s states of mind, none of what follows should be construed as involving any finding adverse against any of them upon this issue.
[48] In Farah Constructions Pty Ltd v Say-Dee Pty Ltd[24] the High Court discussed the “rule in Barnes v Addy”. In Barnes v Addy[25] Lord Selbourne LC said:
“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. 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.”
[49] The appellants relied upon the last sentence of that passage. The “first limb” of the last sentence comprehends agents of trustees who “receive and become chargeable with some part of the trust property”. In Quince v Varga,[26] Holmes JA referred with apparent approval to decisions which distinguish receipt by an agent acting only as a mere depository or channel from receipt by an agent for the agent’s own benefit or in the agent’s own right:
“In the case of Clinton McLaughlan, there is a different issue: whether his receipt as trustee of the funds paid into the CHT bank account constitutes receipt by him for Barnes v Addy purposes. Douglas J has referred to Finkelstein J’s statement in Spangaro v Corporate Investment Australia Funds Management Ltd & Ors, that “‘receipt’ is taken to mean receipt in the recipient’s own name or for the recipient’s own benefit”. In Trustor AB v Smallbone & Others (No 2), Morritt V-C expanded on that form of words:
“It is … necessary that the receipt by the defendant should be for his own benefit or in his own right in the sense of setting up a title of his own to the property so received”,
a proposition for which he cited the judgment of Sir Clifford Richmond in Westpac Banking Corporation v Savin. In that judgment, his Honour said,
“So it can be argued that an agent who receives trust funds from the trustee will be within the first category [ie the first limb of the rule in Barnes v Addy] only if he is setting up a title of his own to the funds which he has received and is not acting as a mere depository or …merely as a channel through which money is passed to other persons.”.
Here, I think, Clinton McLaughlan was doing more than acting as a mere depository or channel; the funds vested in him as trustee, and their disbursement from the CHT account were his responsibility.”
[50] Presumably the bank authorised someone to act as its agent at settlement to receive the bank cheque in exchange for the release of its mortgage, but if the respondent instead took delivery of the bank cheque in favour of the borrowers’ bank for the credit of the borrowers he probably acted “merely as a channel” to deliver it to the bank. It is not necessary to express a conclusion upon that issue because the appellant did not prove that the respondent ever had possession of the bank cheque or of any of the proceeds of sale (other than the small amount of his fees, which are not in issue). There was no scope here for the application of the first limb in Barnes v Addy.
[51] In Farah Constructions Pty Ltd v Say-Dee Pty Ltd, the High Court observed that the second limb in Barnes v Addy was not expressed as an exhaustive statement of cases in which a third party who has not received trust property and who has not acted as a trustee de son tort might be held accountable as a constructive trustee,[27] but the appellant did not argue that the respondent might be held liable in equity as a trustee de son tort or otherwise than in accordance with the rule in Barnes v Addy. That leaves only the second limb of the rule in Barnes v Addy. The appellant’s argument in this appeal focussed upon that basis of liability. The High Court has made it plain that liability under the second limb requires both that the trustees’ breach of trust or breach of fiduciary duty was “dishonest and fraudulent”[28] and that the requirement that the trustees have “knowledge” in the dishonest and fraudulent design of the trustees is satisfied by proof of circumstances falling within any of the following first four categories (but not the fifth category) in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA:[29]
“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”
[52] Each of the first four categories reflects the contrast made by Lord Selbourne in Barnes v Addy between those “actually participating in any fraudulent conduct of the trustee” and those “dealing honestly as agents”.[30] Proof that an agent’s knowledge fell only within the fifth category is insufficient to establish such a flaw in the agent’s conscience as to justify the imposition upon the agent of liability for the principal’s breach of trust or other fiduciary duty. In relation to the least demanding, fourth category of knowledge required for the agent to be held liable (“knowledge of circumstances which would indicate the facts to an honest and reasonable man”), the High Court observed in Farah Constructions Pty Ltd vSay-Dee Pty Ltd that “there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons.”[31]
[53] Subject to the respondent’s pleading point and in the absence of any other evidence, the documentary evidence adduced at trial justified inferences that the borrowers breached their fiduciary duties dishonestly and fraudulently and that the respondent knew the facts from which that should be inferred. Of particular importance for those conclusions are the available inferences that: the respondent knew that the appellant had compromised its claim against the borrowers in exchange for the borrowers’ irrevocable authority and direction to the respondent to pay the appellant’s debt from the proceeds of the sale at settlement of that sale; when the borrowers gave contrary instructions to the respondent shortly before settlement the respondent acknowledged the borrowers’ obligation to pay the appellant by his response to the instructions (see [13] of these reasons); on the same day the borrowers instructed the respondent not to communicate the borrowers’ revocation of the authority and direction which they had represented to the appellant as being irrevocable (see [15] of these reasons: this circumstance in particular might be regarded as a badge of fraud by the borrowers which would be apparent to any reasonable person in the respondent’s position); and the respondent complied with his instructions by not informing the appellant’s solicitor of the departure from the terms of the Authority and organising settlement of the sale as instructed.
The pleading point
[54] The qualification that those inferences were available subject to the respondent’s pleading point and in the absence of any contrary evidence is critical for the disposition of this appeal. Senior counsel for the respondent argued that the appellant had not pleaded such a case and that the respondent would have been called to give evidence to rebut such a case if the appellant had pleaded it.
[55] The further amended statement of claim upon which the appellant went to trial pleaded the appellant’s lease of a shop to the borrowers, the loan agreement, the advance, the termination of the lease and the concomitant obligation of the borrowers to repay the principal within 30 days, the borrowers’ failure to repay the loan, the borrowers’ retainer of the respondent as their solicitor from before September 2005 until settlement of the sale of the borrowers’ property on 23 February 2007, and the correspondence and Authority constituting the compromise between the appellant and the borrowers. Paragraph 21A then alleged that, “Pursuant to the agreement… [the borrowers] agreed to hold on trust for the benefit of the [appellant] such amount from the proceeds of sale of their property as was sufficient to pay to the [appellant] [the principal and interest on the loan] and [the borrowers] agreed to execute [the Authority which required the respondent] to pay [that] amount from the proceeds of sale… in which conveyance he was acting as the solicitor for the [borrowers]”. The pleading referred to other matters and alleged that the respondent was “subject to an equitable duty enforceable by [the appellant] to hold the proceeds from the sale of the property on trust for the [appellant] in the terms of paragraph 21A hereof.”
[56] After referring to the Authority, the solicitors’ correspondence between 28 September 2005 and 15 February 2006, and various other matters, the pleading alleged the settlement of the sale of the borrowers’ property, that the respondent acted for the respondents “in the sale, conveyance and settlement …”, and the sale price of $495,000. The pleading alleged the cheques delivered by the purchaser on settlement, that those cheques were drawn on the borrowers’ written instructions, the amount owing under the borrowers’ mortgage, and that the respondent did not direct the bank to draw a cheque or otherwise cause the appellants’ debt to be paid to it at settlement. Paragraph 31A alleged that the respondent’s conduct was “in breach of the trust pleaded in paragraph 21A and 21E hereof”. The pleading went on to allege that the respondent failed to provide the appellant “with the funds promised in the irrevocable authority” (paragraph 32) and that the respondent did not at any time “communicate to the [appellant] that they would not honour the terms of the [Authority] or that their client had revoked those instructions.”
[57] The pleading did not allege that the borrowers instructed the respondent not to inform the appellant of the borrowers' change of instructions, but that allegation was advanced without objection at the trial.[32] Whilst it and the pleaded allegations justified an allegation of a dishonest and fraudulent design by the borrowers, the pleading did not make any such allegation. Furthermore, although it was arguably implicit in the pleading that the respondent was aware of the alleged facts from which such an inference might have been drawn and that the respondent assisted the borrowers in breaching their obligation to pay the appellant’s debt at settlement out of the proceeds of sale, that was not alleged. On one view, the only pleaded equitable claim against the respondent was that he was obliged to hold the proceeds of sale upon trust for the appellant.
[58] The argument for the appellant at the trial went beyond the pleadings, but it did not comprehend the allegations about the respondent’s and the borrowers’ states of mind which were necessary for a case based upon the second limb in Barnes v Addy. The appellant’s senior counsel argued at the trial that the borrowers’ change of instructions “had been hidden from”[33] the appellant, pointed out that it was the respondent who prepared the settlement statement which directed how the cheques were to be drawn at settlement, and asked the primary judge to decide whether the respondent should have got the moneys into his account instead of paying it to the borrowers. He argued that the borrowers breached their duties as trustee or fiduciary to the appellant by instructing their solicitors not to pay the money, and that the respondent “assisted them in the breach … by complying with their directions”, “became complicit”, and must have known that the borrowers were “breaching a promise” to the appellant.[34] He argued that if the respondent “knowingly assists a fiduciary to breach the fiduciary obligation”, [35] the respondent could be liable and the respondent assisted the borrowers to breach their duty to the appellant. In the course of those submissions, the appellant’s counsel cited Royal Brunei Airlines Sdn Bhd v Tan[36] and Twinsectra Ltd v Yardley,[37] but he did not refer to or describe the effect of any particular statement in those cases. After acknowledging the difficulty of establishing that the respondent ever held any money on trust, he reiterated his argument that the respondent had knowingly assisted the borrowers to breach their trust by complying with instructions to direct the purchaser to pay the balance settlement moneys for the credit of the borrowers. He described this as “a clear breach by the trustee”[38] and submitted that the respondent was personally liable for assisting the borrowers in that breach of trust. He argued that it would not be too hard upon the respondent to hold him liable as constructive trustee “if he knows each of those elements that I previously outlined, that is the document’s been given, the promise has been made, he is involved in the carrying out of the promise, the events are about to transpire where that promise can be actually performed and the only reason why he doesn’t do so is because the clients change instructions which they have said to him won’t be changed”.[39] The primary judge then invited the appellant’s senior counsel to provide a note identifying the relevant passages in Twinsectra and Royal Brunei.
[59] At no point did the appellant’s senior counsel submit that the primary judge should find that the borrowers’ breach of fiduciary duties was dishonest or fraudulent or that the respondent knew the facts from which such an inference should be drawn. The appellant’s submissions conveyed only that the borrowers breached their fiduciary duties and that the respondent, knowing that the borrowers were breaching their promise to the appellant, assisted the borrowers’ in that breach by complying with the borrowers’ instructions to direct the purchaser to pay the balance purchase price to the borrowers and by attending at the settlement on that basis.
[60] Senior counsel for the respondent did not argue at the trial that it was not open to the appellant to claim that the respondent was knowingly involved in the borrowers’ breach of fiduciary duties in that way. To that extent the respondent acquiesced in the primary judge adjudicating upon a case which went beyond the pleadings. The respondent’s senior counsel met that case on the merits. He described it as “an extremely serious allegation” and a “very serious allegation to make against a solicitor”.[40] That submission did not necessarily imply that the respondent understood the appellant’s claim to involve allegations of dishonesty and fraud by the borrowers and that the respondent knew the facts from which such dishonesty and fraud should be inferred. As the High Court pointed out in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[41] not all breaches of trust or fiduciary duty are dishonest and fraudulent. Senior counsel may merely have been contending that an allegation that a solicitor knowingly assisted even an honest breach of trust was a serious allegation.
[61] On the day after the hearing, the appellant’s solicitor sent an email to the primary judge’s associate referring to identified passages in Royal Brunei Airlines Sdn Bhd v Tan, Twinsectra Ltd v Yardley, and Farah Constructions Pty Ltd v Say-Dee Pty Ltd. The passages cited from Farah Constructions Pty Ltd v Say-Dee Pty Ltd included those in which the High Court insisted upon proof that the agent’s knowledge of the trustee’s dishonest and fraudulent design fell within any of the first four of the five categories in Baden. The respondent’s solicitor responded by email to the primary Judge’s associate email making various points about the cited passages, including that the appellant had not pleaded or particularised any allegation of dishonesty against the respondent and that, if such an allegation had been made, the respondent’s defence might have proceeded differently. The respondent’s senior counsel repeated that contention in this appeal. It was consistent both with a statement by senior counsel in his opening at the trial that the respondent would give evidence and with senior counsel’s subsequent decision not to call the respondent after responses to questions by the judge revealed that the foreshadowed evidence would not have added anything material to the documents. None of the foreshadowed evidence touched upon the state of mind of the respondent or the borrowers. That was unsurprising in circumstances in which there was no pleaded allegation upon those topics.
[62] At the hearing of the appeal, the appellant’s senior counsel disclaimed any allegation of dishonesty against the respondent. If that disclaimer did not itself require rejection of a claim which is available only against an agent who does not deal honestly or is at least morally obtuse,[42] it remains the case that the appellant did not plead that the borrowers’ breach of trust was dishonest and fraudulent and that the respondent knew the facts from which such an inference should be drawn. Allegations of that character should be specifically pleaded.[43] At best for the appellant, allegations to that effect were arguably implied by the citations in the email sent by the appellant’s solicitor to the primary judge’s associate after the hearing, but the appellant did not apply to amend its pleading after the respondent’s solicitor objected to the primary judge that this was a new case. It would be unjust to permit such a case to be made for the first time on appeal in circumstances in which the respondent “could possibly”[44] have given or called oral evidence to rebut it. The appellant’s appeal against the dismissal of its equitable claim based upon the second limb in Barnes v Addy should be rejected for that reason.
Proposed order
[63] I would dismiss the appeal with costs.
[64] ANN LYONS J: I agree with the reasons of Fraser JA and the order he proposes.
Footnotes
[1] This amount was separately deposited to the borrowers’ account on the day of settlement. I have assumed that the difference between it and the deposit of $48,000 represented the agent’s commission.
[2] That assumes the accuracy of the figures and the calculations in [18] and [19] of these reasons, which were not the subject of detailed submissions or findings by the trial judge.
[3] The expression “bank cheque” comprehends “bank cheques” because the singular includes the plural: cl 10.8(1) of the 5th ed of the Standard REIQ/QLS contract.
[4] Amended defence, paragraph 11(c).
[5] Reply, paragraph 22(a)(i), and Further amended statement of claim, paragraph 21C(b).
[6] Reply, paragraph 22(a)(i), which denied allegations that the appellant did not give consideration in exchange for the borrowers’ promises by referring to further amended statement of claim, paragraph 21C(a), which alleged consideration for an alleged promise by the respondent.
[7] 19th ed, Sweet & Maxwell, 2010.
[8] Rothwells Ltd v Nommack (No 100) Pty Ltd [1990] 2 Qd R 85 at 90 (McPherson J).
[9] Grogan v Orr [2001] NSWCA 114 at [47] – [48] (Sheller JA; Meagher and Powell JJA agreeing).
[10] (2012) 113 SASR 99.
[11] (2012) 113 SASR 99 at 102 [12], 111 [56] – [60].
[12] [2002] NZCA 46 at [20] – [22].
[13] [1926] AC 703 at 706.
[14] (1852) 1 De GM & G 763 at 777 – 778.
[15] Loc-Tex International Pty Ltd (in prov liq) v Bolfox Pty Ltd (1990) 8 ACLC 1146 at 1148; Australian Commissions Credit Union Ltd v Howard & Co (1984) 114 LSJS 465 at 468 – 470; Epple v Wilson [1972] VR 440 at 442; see also Halsted (Bankrupt) v The Official Trustee in Bankruptcy [2011] FCA 1242 at [9] – [26].
[16] [2002] NZCA 46 at [23], [24].
[17] [2001] NSWCA 114 at [54] – [55].
[18] [1987] 2 Qd R 134 at 149.
[19] In addition to the quote from Rodick v Gandell in [42] of these reasons, see Durham Brothers v Robertson [1898] 1 QB 765 at 769 (Chitty LJ), Re Bruynius [1995] 1 Qd R 492 at 498 – 499 (Pincus JA and Derrington J) and at 496 (Fitzgerald P), and In re Griffin; Griffin v Griffin [1899] 1 Ch 408 at 412.
[20] Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27 (Dixon J); Re Androma Pty Limited [1987] 2 Qd R 134 at 152 – 153 (McPherson J), applying Holroyd v Marshall (1862) 10 HLC 191, Tailby v Official Receiver (1888) 13 App Cas 523, and Re Lind; Industrials Finance Ltd v Lind [1915] 2 Ch 345 at 360.
[21] Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27; Herdegen v FCT (1988) 84 ALR 271 at 281 (Gummow J); Bluebottle UK Ltd v Deputy Commissioner of Taxation (2006) 233 ALR 747 at 758 [69] (Gzell J).
[22] Transcript, 21 November 2013, at 1-65.
[23] See [18] of these reasons.
[24] (2007) 230 CLR 89.
[25] (1874) LR 9 Ch App 244 at 251 – 252.
[26] [2009] 1 Qd R 359 at 366 [3] – [4] (Homes JA), 367 [6] (Mackenzie AJA), and 381 [52] (Douglas J).
[27] (2007) 230 CLR 89 at 159 [161].
[28] (2007) 230 CLR 89 at 164 – 165 [179]-[185].
[29] [1993] 1 WLR 509 at 575 – 576 at 582, quoted at (2007) 230 CLR 89 at 162 – 164 [171] – [178].
[30] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 162 [172].
[31] (2007) 230 CLR 89 at163 – 164 [177].
[32] See [15] of these reasons.
[33] Transcript, 21 November 2013, at 1-17.
[34] Transcript, 21 November 2013, at 1-35.
[35] Transcript, 21 November 2013, at 1-36.
[36] [1995] 2 AC 378.
[37] [2002] 2 AC 164.
[38] Transcript, 21 November 2013, at 1-54.
[39] Transcript, 21 November 2013, at 1-58.
[40] Transcript, 21 November 2013, at 1-62.
[41] (2007) 230 CLR 89 at 164 [181], 165 [184].
[42] See [52] of these reasons.
[43] Uniform Civil Procedure Rules 1999, r 150(1)(a), (f), (k), and r 150(2); Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 162 [170].
[44] Water Board v Moustakas (1988) 180 CLR 491 at 497.