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EPAS Ltd v James[2007] QSC 127

 

SUPREME COURT OF QUEENSLAND

  

CITATION:

EPAS Ltd v James & Ors; TCSSL v James & Ors [2007] QSC 127

PARTIES:

EPAS LIMITED (ACN 010 642 314)
(applicant/plaintiff)
v
TERRANCE ROBERT JAMES
(first defendant)
and
JOHN KENNETH SHEILDS
(second defendant)
and
JEFFREY JOHN JAMES
(third defendant)
and
GERALD LEONARD PARKER
(fourth defendant)
and
HENRY ANTHONY GREENROD
(fifth defendant)
and
MERVYN J HEAD, JOHN R CHEEL and KENNETH J THOMPSON
(sixth defendants)
and
OMITTED
(seventh defendant)
and
AMP GENERAL INSURANCE LIMITED (ACN 008 405 632)
(respondent/eighth defendant)

 

TRUST COMPANY SUPERANNUATION SERVICES LIMITED
(applicant/plaintiff)
v
TERRANCE ROBERT JAMES
(first defendant)
and
JOHN KENNETH SHEILDS
(second defendant)
and
JEFFREY JOHN JAMES
(third defendant)
and
GERALD LEONARD PARKER
(fourth defendant)
and
HENRY ANTHONY GREENROD
(fifth defendant)
and
MERVYN J HEAD, JOHN R CHEEL and KENNETH J THOMPSON
(sixth defendants)
and
EPAS LIMITED ACN 010 642 314
(seventh defendant)
and
AMP GENERAL INSURANCE LIMITED (ACN 008 405 632)
(respondent/eighth defendant)

FILE NO:

S3543/2000 (TCSSL v James & Ors)

S3544/2000 (EPAS v James & Ors)

DIVISION:

Trial Division

PROCEEDING:

Application

DELIVERED ON:

1 June 2007 

DELIVERED AT:

Supreme Court, Brisbane

HEARING DATE:

23 April 2007

JUDGE:

Wilson J

ORDER:

On the application filed on 2 April 2007:

1.That the application to strike out paragraphs 88(b)(iii) and 88(b)(iv) of the eighth defendant’s defence be dismissed.

2.That the eighth defendant file and serve particulars of the losses and gains relied upon in paragraphs 88(b)(iii) and 88(b)(iv) of the eighth defendant’s defence on or before 6 July 2007.

3.That the applicant plaintiff pay the respondent eighth defendant’s costs of and incidental to the application to be assessed on the standard basis.

On the application filed on 9 February 2007:

1.That the application be dismissed.

2.That the applicant plaintiff pay the respondent eighth defendant’s costs of and incidental to the application to be assessed on the standard basis. 

CATCHWORDS:

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – PLEADING – DEFENCE AND COUNTERCLAIM – the defendant pleads a right to set off profits against losses made in breach of trust – the plaintiff seeks to have that part of the defence struck out, alleging that it is untenable, or that it would prejudice or delay the trial – the law in this area is not settled – whether to strike out that part of the defence

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – PLEADING – PARTICULARS – the defence pleads that the Court should use its discretion under s 30C Trusts Act 1973 (Qld) to set off profits against losses – the plaintiff seeks to have that part of the defence struck out, alleging that it is embarrassing because it does not outline the grounds (and material facts supporting those grounds) relied on to support the exercise of the Court’s discretion – alternatively, the plaintiff seeks an order that further and better particulars be provided – whether to strike out that part of the defence – whether to order particulars

Trusts Act 1973 (Qld) s 30C

Uniform Civil Procedure Rules 1999 (Qld) r 171

Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515, considered

Brown v KMR Services Ltd [1995] 4 All ER 598, cited

Cameron v Murdoch (No 2) [1984] WAR 278, considered

Deare v Deare (1895) 2 Drew 258; 11 TLR 183, cited

Fletcher v Green (1864) 33 Beav 426; (1864) 55 ER 433, considered

General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125, followed

COUNSEL:

R M Derrington SC and M A Hoch for the applicant plaintiff in each proceeding

P L O'Shea SC and S E Brown for the respondent eighth defendant in each proceeding

SOLICITORS:

Corrs Chambers Westgarth Lawyers for the applicant plaintiff in each proceeding

Minter Ellison for the respondent eighth defendant in each proceeding

  1. Wilson J: There is an application before the court in each of proceedings S3543/2000 (Trust Company Superannuation Services Limited v James & Ors) and S3544/2000 (EPAS Ltd v James & Ors) to strike out certain paragraphs of the Third Amended Defence and Counterclaim of the eighth defendant (AMP General Insurance Limited), or in the alternative for particulars of one of those paragraphs. The statement of claim and the defence of the eighth defendant in each proceeding are relevantly in the same terms. Accordingly I will consider the application in proceeding S3543/2000 on the premise that the same arguments and the same result are applicable to the application in proceeding S3544/2000.  

Context

  1. EPAS Limited (“EPAS”) was the trustee of a superannuation fund from 21 July 1987 to 21 May 1999, and Trust Company Superannuation Services Limited (“TCSSL”) became the substitute trustee from 21 May 1999. The first to fifth defendants were directors of EPAS over different periods, some overlapping, of the time it was the trustee. The sixth defendants were the auditors and the eighth defendant the insurer.
  1. While it was the trustee, EPAS entered into a series of transactions alleged to have been in breach of trust. There are nine groups of transactions alleged – the Shellbeach transactions, the McIntyre Hawkins transactions, the Emerald Bay transactions, the Double-O-Seven transactions, the Laidley Developments transactions, the Reefreach transactions, the East Star Investments transactions, the Javalon transaction, and the Campbell Atway transactions. Within each group, some transactions are alleged to have been in breach of trust and to have resulted in losses, and there are others in respect of which no allegation of loss is made.

Application

  1. The application is to strike out paragraphs 88(b)(iii) and 88(b)(iv) of the defence. It is brought pursuant to r 171 of the Uniform Civil Procedure Rules (“UCPR”) which provides –

“171 Striking out pleadings

(1) This rule applies if a pleading or part of a pleading—

(a) discloses no reasonable cause of action or defence; or

(b)has a tendency to prejudice or delay the fair trial of the proceeding; or

(c) is unnecessary or scandalous; or

(d) is frivolous or vexatious; or

(e) is otherwise an abuse of the process of the court.

(2) The court, at any stage of the proceeding, may strike out all or part of the pleading and order the costs of the application to be paid by a party calculated on the indemnity basis.

(3) On the hearing of an application under subrule (2), the court is not limited to receiving evidence about the pleading.”

The applicant plaintiff relied on sub-rule(1)(a) and (b).

  1. Such an application is to be approached cautiously; the court should not strike out those paragraphs unless satisfied that they are so clearly untenable that they cannot possibly succeed. See General Steel Industries Inc v Commissioner for Railways.[1]

Defence paragraph 88

  1. Paragraph 88 of the eighth defendant’s defence is in these terms –

“88.  The Eighth Defendant:

(a)denies paragraphs 451 and 452 they being allegations of law;

(b)says further in relation to paragraph 452 that:

(i)EPAS is not legally liable to pay any such sum to TCSSL because of the provisions of the Trust Deed set out in paragraph 2A above which exempt it from liability;

(ii)EPAS is not legally liable to pay any such sum to TCSSL to the extent that reliance is placed on s.55(3) of the SIS Act, because TCSSL is not a person who has suffered loss and damage within the meaning of that subsection and accordingly has no right to bring an action under that subsection;

(iii) if (which is denied) EPAS is legally liable to TCSSL, denies that EPAS is liable to pay the loss and damage set out in paragraphs 59, 63, 106, 109, 143, 146, 186, 221, 222, 258, 300, 345, 390 and 393 insofar as the claim fails to account for the gains made by the other investments made by the Insured Trust.

Particulars

The Eighth Defendant will provide an expert report to trial.

(iv)further and alternatively, if (which is denied) EPAS is legally liable to TCSSL, says that pursuant to s.30C of the Trusts Act, the Court should in considering any loss for which EPAS is liable arising out of the investments made in breach of trust, set off all or part of the loss resulting from such investments against all of the gain resulting from other investments whether in breach of trust of not.

Particulars

The Eighth Defendant will provide an expert report prior to trial.”[2]

Paragraph 88(b)(iii)

  1. The structure of the statement of claim is such that each of the paragraphs referred to in paragraph 88(b)(iii) of the defence refers to the losses alleged to have arisen from a particular group of transactions. For example, paragraph 59 of the statement of claim relates to losses alleged to have arisen from the Shellbeach transactions, and it is convenient to adopt the course followed by counsel in argument of confining my analysis to that group of transactions, on the premise that it applies mutatis mutandis to each of the other groups.
  1. The eighth defendant has provided the following response to a request for particulars of paragraph 88(b)(iii) –

Second Request for Further and Better Particulars

  1. As to the request for particulars at paragraph 88(b)(iii) of the Further Amended Defence, the Eighth Defendant says:-

(a)in relation to subparagraph (a):

(i) the period to which the allegation relates is a period from 1994 until the date of trial;

(ii)the ‘other investments’ referred to are the other investments entered into by EPAS between 1994 and 21 May 1999. Particulars will be provided after disclosure is completed;

(iii)the Eighth Defendant is unable to particularise the gains made by such investments until after disclosure is completed.

(b)in relation to subparagraph (b), this is not a proper request for particulars, but is a matter of law;

(c)in relation to subparagraph (c) the Plaintiffs has [sic] alleged that the Eighth Defendant is obliged to indemnify EPAS for the specified loss and damage;

(d)the gains which it is claimed can be taken into account, are:

(i)gains resulting from any other investment pursuant to s.30C of the Trusts Act 1973:

(ii)alternatively gains made from investments made in breach of trust which is the same breach of trust for which damage is claimed in the Amended Statement of Claim, being the failure to invest in a pooled superannuation fund for which loss and damage is sought.[3]

(The particulars were provided at a time before the insertion of paragraph 88(b)(iv) into the defence; this explains paragraph (d)(i) of the response.)

  1. In order to understand the attack on paragraph 88(b)(iii) it is necessary to analyse more fully the allegations in the statement of claim about the Shellbeach transactions, and to consider the case law about the circumstances (if any) in which profit derived from breach of trust may be set off against loss resulting from breach of trust.

Statement of claim

  1. It is alleged that between 22 June 1993 and 21 August 1997 Shellbeach acquired land and developed eight childcare centres which were ultimately sold. EPAS advanced funds to Shellbeach and or to Mr and Mrs Farnan (directors of Shellbeach) for the purchase of the lands and in two cases (Rosewood and Leichhardt) for construction costs. Allegations of breach of trust resulting in loss relate to three of the centres (Leichhardt, Rosewood and Runcorn). The eighth defendant seeks to set off gains from other centres (Yamanto, Tewantin and Kawana) against losses from Leichhardt and Rosewood.[4]
  1. The allegations against EPAS in relation to Rosewood and Leichhardt are of imprudent lending, non arm’s length dealings, the absence of a detailed investment strategy and lending not in accordance with an investment strategy.[5] In so acting, EPAS is alleged to have acted negligently and in breach of trust.[6] Its conduct is alleged to be causally linked to the making of the Rosewood and Leichhardt loans.[7] The losses alleged to have resulted from that conduct are set out in paragraph 59. In particular, subparagraphs 59.1 and 59.2 –

“59.As a result of the negligence and breach of duty referred to in paragraph 56 above EPAS has caused the loss and damage and diminution to the Trust being:

59.1  the advances of principal made to Shellbeach and Patrick and Paula Farnan of $1,195,000.

59.2loss of interest that would have accrued to the Trust if the $1,195,000 had been invested properly, such interest being calculated from the date of each advance until the trial.”

  1. Paragraphs 450, 451 and 452 of the statement of claim –

draw together the various paragraphs alleging conduct on the part of EPAS, relevantly for the Shellbeach transactions – paragraphs 53, 54 and 55;[8]

allege that each of those matters was a wrongful act by EPAS in connection with the trust as an act or omission which was negligent and in breach of its duties as a trustee, relevantly for the Shellbeach transactions – as set out in paragraph 56;[9]

allege that by reason of those wrongful acts EPAS is liable to TCSSL as trustee of the trust for the amounts of loss and damage, relevantly for the Shellbeach transactions – set out in paragraph 59.[10]

Then in paragraph 453 it is alleged that the eighth defendant is liable to indemnify EPAS and pay those amounts to TCSSL.

Particulars of losses claimed

  1. The eighth defendant sought particulars of the loss and damage claimed, including the interest calculations and how the money would have been “invested properly”.
  1. In its response filed on 12 December 2005[11] the plaintiff relied on a report by an actuary Bill Buttler in relation to the interest calculations[12] and on an affidavit by an investment manager David Hartley in relation to how the moneys should have been invested.[13]
  1. Of present relevance are the particulars of paragraph 59.2, including –

“1. As to paragraph 59.2 of the Further Amended Statement of Claim the plaintiff:

1.4 Says that if the monies had been invested properly, they would have been invested in a diverse group of assets of the kind and in the percentages referred to in DCH 8 of the affidavit of David Charles Hartley sworn 23 September 2004.”

Exhibit DCH 8 to Mr Hartley’s affidavit is a table showing the results of a survey of asset allocation data for capital stable wholesale pooled superannuation trusts.

  1. When Mr Buttler’s report was commissioned, he was asked for his opinion on what income the superannuation fund would have earned on the moneys advanced (including the moneys lost in the various transactions) had it invested those moneys in appropriate investments. He was asked to calculate the loss of income on the basis that alternative appropriate investments would have earned income at specified rates, including the median rate of return for wholesale pooled superannuation funds.[14] He performed loss calculations on four scenarios, one of which was investment in wholesale pooled superannuation funds on two alternative bases, namely –

(a) capital stable wholesale pooled superannuation funds; and

(b) balanced wholesale pooled superannuation funds.[15]

  1. Counsel for the eighth defendant submitted that the plaintiff’s claim is based on allegations that the money lent on mortgages should not have been invested in mortgages at all, but rather in pooled superannuation funds. As I understood their argument, the various acts and omissions set out in paragraphs 53-55 of the statement of claim were not discrete breaches, but rather aspects of the one breach referred to in paragraph 59.2 (which pleads loss), namely not investing the moneys properly – and, on the plaintiff’s case (so counsel for the eighth defendant argued), investing the moneys properly meant investing them in wholesale pooled superannuation trusts.
  1. They went on to submit that the gains and losses (not only within the Shellbeach transactions, but across the whole spectrum of the trust’s transactions during the relevant period) resulted from one breach of trust – the failure to invest in pooled superannuation funds.[16]
  1. The statement of claim is a complex document, made more so by the way in which particulars of it have been provided. But it pleads the facts on which the plaintiff relies, and whether those facts constituted one or more breaches is ultimately for determination at trial. Suffice it to say that the eighth defendant’s interpretation of their effect is reasonably open.

An untenable defence?

  1. In paragraph 88(b)(iii) of its defence AMP seeks to set off gains made by some investments against losses made by others.
  1. The general rule is that a trustee may not use a profit made from one breach of trust to offset a loss made from a separate breach.[17] But there are exceptions to this general rule, and difficulty lies in defining them and their scope.
  1. The over-arching exception seems to be that set off will be allowed if the profit and loss occur in the course of the same breach.[18]
  1. Fletcher v Green[19] is sometimes cited as authority for the proposition that profits can be set off against losses incurred in the course of one transaction. There the trustees made an improper investment which resulted in a loss, but following the sale of the securities there was a profit on the investment of the sale proceeds. The trustees were allowed to take the profit into account. But that is really an example of loss and profit resulting from the one breach.
  1. In Bartlett v Barclays Bank Trust Co Ltd[20] the bank was the trustee. The trust property consisted, in part, of almost all of the shares in a private company. The company’s board decided to invest in two speculative projects. One of them, the Guildford development, produced a substantial profit, while the other, the Old Bailey development, resulted in significant losses. The beneficiaries sued the bank, which was found to have breached its duty as trustee by failing properly to supervise the conduct of the board. The bank sought to set off the gains from the Guildford development against the losses from the Old Bailey development. Brightman J said –

“The general rule as stated in all the textbooks, with some reservations, is that where a trustee is liable in respect of distinct breaches of trust, one of which has resulted in a loss and the other in a gain, he is not entitled to set off the gain against the loss, unless they arise in the same transaction: see Halsbury’s Laws of England, Snell’s Equity, Lewin on Trusts, Underhill’s Law of Trusts and Trustees. The relevant cases are, however, not altogether easy to reconcile.  All are centenarians and none is quite like the present. The Guildford development stemmed from exactly the same policy and (to a lesser degree because it proceeded less far) exemplified the same folly as the Old Bailey project. Part of the profit was in fact used to finance the Old Bailey disaster. By sheer luck the gamble paid off handsomely, on capital account. I think it would be unjust to deprive the bank of this element of salvage in the course of assessing the cost of the shipwreck. My order will therefore reflect the bank’s right to an appropriate set-off.”[21]

  1. In Cameron v Murdoch (No 2)[22] after the death of one of the partners in a share farming partnership the surviving partners continued the business, utilising the deceased partner’s share but not accounting to his estate. An account was ordered of what was due to the estate of the deceased partner from the estates of the continuing partners (since deceased) in respect of partnership profits attributable to the use of the deceased partner’s share from 1940 to 1983. Brinsden J had to decide whether losses should be taken into account. His Honour reasoned that because the actions had been taken in pursuance of a common policy they could be treated as part of one transaction, and so allowed the set off.
  1. Counsel for the eighth defendant relied on Bartlett and Cameron v Murdoch as authorities supporting the conclusion that separate events which occur in pursuance of a common policy can be treated as “one transaction” for the purpose of setting off gains from one event against losses from another.[23] Counsel for the plaintiff submitted that in reality each was a case of losses and gains flowing from a single breach – in Bartlett the failure to supervise and in Cameron v Murdoch the unauthorised use of the deceased partner’s share.[24] They found support for their argument in the analysis of Bartlett by Hobhouse LJ (with whom Peter Gibson LJ agreed) in Brown v KMR Services Ltd.[25]
  1. I have difficulty in accepting that the trustee bank should have been able to set off losses and gains incurred in pursuance of a policy which was not its own, but rather that of the company it failed properly to supervise, and so I lean towards thinking that by “policy” Brightman J really meant “breach”. But that may be to take impermissible liberty with the language he used. He did not define the policy, and he may have meant “the policy of development” rather than “the policy of not supervising properly”. I note that the same analysis – that the word “policy” is used in place of “breach” – could equally apply to Brinsden J’s reasoning in Cameron v Murdoch.
  1. Both analyses are tenable.
  1. It may be possible to reconcile the authorities. The American Law Institute’s Restatement of the Law, Second: Trusts[26] puts the emphasis on determining whether or not breaches are separate and distinct. It identifies a number of features relevant to that inquiry:
  • Whether the breaches are the result of a single policy, judgement, or set of interrelated decisions.
  • The amount of time between each breach.
  • Whether, between the breaches, the trustee became aware of the earlier breach (and the resulting profit or loss).
  • The trustee’s intention (ie knowledge of the breach v bona fides).
  • Whether the profits and losses affect different beneficial interests differently.

Scott on Trusts adds:[27]

  • Whether the breaches involve the same or different parts of the trust property.

The law restricts the availability of set off out of concern that to allow set off may encourage the commission of multiple breaches.[28]

  1. It is not for me finally to resolve the legal question on a strike out application. Whichever is ultimately found to be the correct principle, its application to this case will have to be resolved by reference to the facts of the case (eg for example, whether there was a common policy and if there was, whether the conduct was in pursuance of it; what constituted the breaches and whether they were truly separate and distinct) – which are for determination at trial. It cannot be said that paragraph 88(b)(iii) discloses no reasonable defence.[29]

Tendency to prejudice or delay fair trial?

  1. At the hearing counsel for the eighth defendant acknowledged their client’s obligation to give particulars of the gains and losses, and intimated that this would be done by way of an expert report to be made available within three or four weeks (of the outcome of this application).[30] Senior counsel said it was unlikely to give rise to further disclosure obligations.[31] On any measure this proceeding is a substantial one, and it is a long way from being ready for trial. In these circumstances paragraph 88(b)(iii) does not have a tendency to prejudice or delay the fair trial of the proceeding.[32]

Conclusion on paragraph 88(b)(iii)

  1. I decline to strike out paragraph 88(b)(iii).

Paragraph 88(b)(iv)

  1. Section 30C of the Trusts Act 1973 (Qld) provides –

30C  Power of court to set off gains and losses arising from investment

(1) The court may, when considering an action for breach of trust arising out of or in relation to an investment by a trustee where a loss has been or is expected to be sustained by the trust, set off all or part of the loss resulting from the investment against all or part of the gain resulting from any other investment whether in breach of trust or not.

(2) The power of set off conferred by subsection (1) is in addition to any other power or entitlement to set off all or part of any loss against any property.”

This section removes the prohibition on setting off losses and gains from distinct breaches of trust, and gives the Court an unfettered discretion to allow a set off against gains made in relation to other investments not made in breach of trust.

  1. Counsel for the plaintiff submitted that paragraph 88(b)(iv) of the eighth defendant’s defence is embarrassing because it does not identify the grounds (and the material facts supporting those grounds) relied on to support the exercise of the Court’s discretion. Counsel for the eighth defendant submitted that the discretion is to be exercised in light of all the evidence before the Court, that there are no material facts to be pleaded in relation to its exercise, and that the scope of the discretion cannot be limited by the parties by way of particulars.
  1. The eighth defendant disputed any obligation to provide particulars (other than of the losses and gains) but provided the plaintiff with an outline of matters it submitted are relevant to the exercise of the Court’s discretion under s 30C –

“(a)the discretion is more likely to be exercised favourably to EPAS to the extent that the Court finds that the alleged breaches of trust which have occurred are the result of negligence by EPAS, as opposed to actions knowingly taken in breach of trust;

(b)the discretion is more likely to be exercised favourably to EPAS to the extent that the Court assesses that the breaches which have caused the said loss can be regarded as minor, as opposed to serious;

(c)the discretion is more likely to be exercised favourably to EPAS to the extent that the Court considers that the breaches resulted from a failure to comply with the investment strategy of EPAS, as opposed to EPAS not having an investment strategy;

(d)the discretion is more likely to be exercised favourably to EPAS to the extent that the Court considers that the investment strategy of EPAS was appropriate to the object of the Fund, as opposed to it being inappropriate;

(e)the discretion is more likely to be exercised favourably to EPAS to the extent that the Court considers that the nature of the investments which caused the loss were disclosed to the members of the Fund by EPAS in the Annual Report to Members during the time the breaches occurred;

(f)the discretion is more likely to be exercised favourably to EPAS to the extent that the Court considers that the loss caused by the breach of trust resulted (in part) from events other than the breach of trust itself;

(g)the discretion is more likely to be exercised favourably to EPAS to the extent that the gain from other investments outweighs the loss from the breach of trust;

(h)the discretion is more likely to be exercised favourably to EPAS to the extent that the gain resulting from any other investment resulted from a common policy which also brought about the loss;

(i)the discretion is more likely to be exercised favourably to EPAS to the extent that the loss sustained by the Fund resulted from EPAS attempting to trade out of an existing loss in order to minimise the loss to the Fund.”[33]

Its counsel submitted that other than the matters referred to in paragraphs (g) and (h), the matters raised above have already been canvassed on the pleadings, and said that (g) and (h) can be reviewed when the limited disclosure provided has been examined by the eighth defendant’s expert.

  1. Counsel for the eighth defendant submitted the concept of pleading material facts is not applicable to the exercise of a discretion such as that conferred by s 30C – essentially, as I understood the submission, because contrary to the position in relation to a cause of action or even an equitable defence such as laches, it is for the Court to determine which facts are material to the exercise of the discretion in the particular case, and the weight to be given to each of those facts.[34] While I have some reservations about what they said about pleading obligations in relation to equitable defences, this is not the place to consider such obligations. They accepted an obligation to notify the plaintiff of matters that might take it by surprise, and submitted that they had done so.
  1. Senior counsel for the eighth defendant assured me that his client would be asking the Court to exercise the discretion on the basis of facts already pleaded, and only on the basis of facts already pleaded.[35] He went on to deal with a number of specific matters raised by counsel for the plaintiff.
  1. He submitted that the eighth defendant has not pleaded fraud. This is correct.[36]
  1. The plaintiff has alleged breaches of trust on the part of EPAS (the seventh defendant) and wrongful acts on the part of its directors (the first, second, third, fourth, and fifth defendants).[37] It has alleged that EPAS is vicariously liable for the wrongful acts of the directors,[38] that EPAS is liable to it for the amounts of loss and damage arising from those wrongful acts,[39] and that the eighth defendant is liable to indemnify EPAS and the first to fifth defendants and to pay those amounts to the plaintiff.[40]

(ii) The eighth defendant has not admitted the breaches of trust or the wrongful acts and has gone on to plead that if those wrongful acts were performed, they amounted to recklessness or dishonesty and so any liability it might otherwise have to indemnify EPAS is excluded by the relevant policy of insurance.[41]

(iii) In its reply the plaintiff has alleged that any acts of recklessness or dishonesty were acts of the directors for which EPAS is not liable.[42]

(b) The plaintiff’s counsel submitted that the plea is contrary to the case admitted by EPAS against itself. Counsel for the eighth defendant responded that this is not so in proceeding S3543/2000. He acknowledged that EPAS has made admissions against itself in the other proceeding (S3544/2000) in which it is the plaintiff. But it has done so in the context of acknowledging its own wrongdoing and seeking to recover losses from directors and auditors who it alleges caused or contributed to those losses. That in itself may be a factor which the court might take into consideration in the exercise of its discretion under s 30C – I express no concluded view on this. In any event, I do not think that the plea is inconsistent with EPAS’s case in either proceeding.

(c) The legislative history of s 30C does not show that it was intended to provide only a limited relief in exceptional cases. Similar provisions have been inserted into the trusts legislation of other Australian States following the example set by New Zealand and some States in North America. South Australia seems to have been the first Australian jurisdiction to introduce it, and the parliamentary debate associated with its introduction there shows a deliberate choice to keep the discretion entirely unconstrained, but nevertheless to be exercised judicially. I think that is a fair summary of the debate, which confirms the interpretation conveyed by the ordinary meaning of the provision[43] that the discretion is unfettered, and like all judicial discretions, to be exercised according to what is fair and just in all the circumstances.

Conclusion on paragraph 88(b)(iv)

  1. I am unpersuaded that paragraph 88(b)(iv) is embarrassing and decline to strike it out.

Application for particulars

  1. The plaintiff has applied in the alternative for an order that the eighth defendant provide further and better particulars of paragraph 88(b)(iv). For the reasons I have already canvassed I decline to make such an order except perhaps in relation to the losses and gains relied on. The eighth defendant has acknowledged its obligation to provide particulars of those losses and gains, and I will hear the parties on whether an order is necessary in the circumstances.

Orders

  1. I will hear the parties on the form of the orders and on costs.

Addendum

  1. After hearing counsel, the following orders were made –

On the application filed on 2 April 2007:

  1. That the application to strike out paragraphs 88(b)(iii) and 88(b)(iv) of the eighth defendant’s defence be dismissed.
  1. That the eighth defendant file and serve particulars of the losses and gains relied upon in paragraphs 88(b)(iii) and 88(b)(iv) of the eighth defendant’s defence on or before 6 July 2007.
  1. That the applicant plaintiff pay the respondent eighth defendant’s costs of and incidental to the application to be assessed on the standard basis.

On the application filed on 9 February 2007:

  1. That the application be dismissed.
  1. That the applicant plaintiff pay the respondent eighth defendant’s costs of and incidental to the application to be assessed on the standard basis.

Footnotes

[1] (1964) 112 CLR 125, 130.

[2] Third Amended Defence and Counterclaim, document 111 on S3543/2000.

[3] Further and Better Particulars, filed 14 February 2007, document 85 on S3543/2000.

[4] Note that the alleged breach of trust in relation to the Runcorn centre is in a different category from the alleged breaches in relation to the Leichardt and Rosewood centres: see transcript of the hearing, p 45.

[5] Further Amended Statement of Claim, document 54 on S3543/2000, [53]-[55].

[6] Further Amended Statement of Claim, [56].

[7] Further Amended Statement of Claim, [57].

[8] Further Amended Statement of Claim, [450].

[9] Further Amended Statement of Claim, [451].

[10] Further Amended Statement of Claim, [452].

[11] Document 72 on 3543/00.

[12] See affidavits of Simon Alroe, filed 15 and 20 February 2007 (documents 93 and 96 on S3543/2000).

[13] Affidavit of David Charles Hartley, filed 9 February 2007 (document 84 on S3543/2000).

[14] Letter from ASIC to Mr Buttler, dated 24 November 2004. The letter appears as an attachment to Mr Buttler’s report, which is Exhibit A to the affidavit of Simon Alroe, filed 15 February 2007 (document 93 on S3543/2000).

[15] Mr Buttler’s report, Exhibit A to the affidavit of Simon Alroe, filed 15 February 2007 (document 93 on S3543/2000) p 7 of 68 (‘assumptions’).

[16] Transcript of the hearing, p 42.

[17] Deare v Deare (1895) 2 Drew 258; 11 TLR 183.

[18] American Law Institute, Restatement of the Law, Second: Trusts §213; Dal Pont & Chalmers, Equity and Trusts in Australia (3rd ed, 2004) 755; Fratcher, Scott on Trusts §213; Ford & Lee Principles of the Law of Trusts (looseleaf, 2007 update) [17145].

[19] (1864) 33 Beav 426; (1864) 55 ER 433.

[20] [1980] 1 Ch 515.

[21] [1980] 1 Ch 515, 538 (footnotes omitted).

[22] [1984] WAR 278.

[23] Written submissions of the eighth defendant, [18].

[24] Written submissions of the plaintiff, [19]-[21].

[25] [1995] 4 All ER 598, 641.

[26] §213.

[27] At §213.

[28] American Law Institute, Restatement of the Law, Second: Trusts §213.

[29] UCPR r 171(1)(a).

[30] Transcript of the hearing, p 43.

[31] Transcript of the hearing, p 65.

[32] UCPR r 171(1)(b).

[33] Letter from Minter Ellison to Corrs Chambers Westgarth, dated 26 March 2007. The letter appears as Exhibit MJK-8 to the affidavit of Michael John Kimmins, filed 2 April 2007 (document 116 on S3543/2000).

[34] Transcript of the hearing, pp 84-86.

[35] Transcript of the hearing, p 87.

[36] In reaching this conclusion, I have analysed relevant paragraphs in the pleadings in S3543/2000. The pleadings in the other proceeding (S3544/2000) are capable of similar analysis, remembering, of course, that there EPAS is the plaintiff and that it has pleaded its own wrongdoing.

[37] Further Amended Statement of Claim, [451], [456]-[457].

[38] Further Amended Statement of Claim, [458]-[459].

[39] Further Amended Statement of Claim, [460].

[40] Further Amended Statement of Claim, [461].

[41] Third Amended Defence and Counterclaim, [90A], [94].

[42] Reply and Answer to the Third Amended Defence and Counterclaim, [10], [11].

[43] Acts Interpretation Act 1954 (Qld) s 14B(1)(c) – which would be applicable if they were debates of the Queensland Parliament.

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Editorial Notes

  • Published Case Name:

    EPAS Ltd v James & Ors; TCSSL v James & Ors

  • Shortened Case Name:

    EPAS Ltd v James

  • MNC:

    [2007] QSC 127

  • Court:

    QSC

  • Judge(s):

    Wilson J

  • Date:

    01 Jun 2007

Litigation History

EventCitation or FileDateNotes
Primary Judgment[2007] QSC 3827 Feb 2007Application by defendant AMP to restrain solicitors and counsel who act for the plaintiff in proceeding SC3544/00 from continuing to do so; same solicitors and counsel act for EPAS as plaintiff in S3544/2000 and for TCSSL as plaintiff in SC3543/2000 (where EPAS is the seventh defendant); unpersuaded that it would be contrary to the due administration of justice and the integrity of the judicial process for the solicitors and counsel to continue to act for EPAS; application dismissed: Wilson J.
Primary Judgment[2007] QSC 4706 Mar 2007Costs of disqualification applications following reasons given in [2007] QSC 38; AMP pay costs on the indemnity basis, as well as the costs thrown away from the adjournment of other applications that were delayed due to the disqualification applications: Wilson J.
Primary Judgment[2007] QSC 4907 Mar 2007Application by AMP for leave to appeal cost orders made in [2007] QSC 49; application for leave dismissed: Wilson J.
Primary Judgment[2007] QSC 15501 Jun 2007Costs judgment following reasons in strike out application judgment [2007] QSC 127; applicant pay AMP's costs on 2 April 2007 and 9 February 2007 applications: Wilson J.
Primary Judgment[2007] QSC 12701 Jun 2007Strike out applications against AMP's defence in both SC3543/00 and SC3544/00 by plaintiff in both proceedings dismissed; ordered that AMP file particulars for losses and gains relied upon: Wilson J.
Primary Judgment[2007] QSC 16205 Jul 2007Application by plaintiff in SC3543/00 and SC3544/00 for summary judgment against certain defendants not active in proceeding; applications adjourned to a date to be fixed: Wilson J.
Appeal Determined (QCA)[2007] QCA 21227 Jun 2007Appeal dismissed with costs; appeal by AMP against decision in SC3544/00 to dismiss application for orders restraining lawyers for EPAS from continuing to act in both trial division proceedings; seeking to utilise inherent jurisdiction of the Supreme Court to control the conduct of its officers; it is ASIC which speaks for EPAS in giving instructions to the company's lawyers for the purpose of proceedings instituted by ASIC: Jerrard and Keane JJA and White J.

Appeal Status

Appeal Determined (QCA)

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