Bli Bli #1 Pty Ltd v Kimlin Investments Pty Ltd
[2008] QSC 289
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- Bli Bli #1 Pty Ltd v Kimlin Investments Pty Ltd[2008] QSC 289
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Bli Bli #1 Pty Ltd v Kimlin Investments Pty Ltd[2008] QSC 289
Bli Bli #1 Pty Ltd v Kimlin Investments Pty Ltd[2008] QSC 289
SUPREME COURT OF QUEENSLAND
PARTIES: | |
FILE NO: | |
Trial Division | |
PROCEEDING: | Application |
ORIGINATING COURT: | |
DELIVERED ON: | 19 November 2008 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 30 June 2008 |
JUDGE: | Daubney J |
ORDER: |
|
CATCHWORDS: | PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – SUMMARY JUDGMENT – where plaintiffs seek declaration that third defendant holds property as constructive trustee as a result of breach of fiduciary duty by other defendants – where third defendant applies for summary judgment in respect of plaintiffs’ claim against it on the basis that the claim is defeated by the indefeasibility provisions of the Land Titles Act 1994 (Qld) (“the Act”) – whether plaintiffs have no real prospect of success – whether there is no need for a trial of the claim or part of the claim PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – PLEADING – GENERALLY – where plaintiffs seek declaration that third defendant holds property as constructive trustee as a result of breach of fiduciary duty by other defendants – where third defendant applies for striking-out of plaintiffs’ claim against it on the basis that the claim is defeated by the indefeasibility provisions of the Act – whether plaintiffs’ case is so clearly untenable that it cannot succeed CONVEYANCING – LAND TITLES UNDER THE TORRENS SYSTEM – INDEFEASIBILITY OF TITLE: CERTIFICATE AS EVIDENCE – EXCEPTIONS – FRAUD OR FORGERY – where joint venture to purchase and develop property – where plaintiffs allege defendants breached fiduciary duties by deliberately frustrating the joint venture so that third defendant could become sole registered proprietor of property – where plaintiffs seek declaration that third defendant holds property as constructive trustee – where third defendant seeks striking-out and/or summary judgment in respect of claim against it on the basis that the claim is defeated by the indefeasibility provisions of the Act – whether fraud adequately pleaded CONVEYANCING – LAND TITLES UNDER THE TORRENS SYSTEM – INDEFEASIBILITY OF TITLE: CERTIFICATE AS EVIDENCE – EXCEPTIONS – GENERALLY – where plaintiffs seek declaration that third defendant holds property as constructive trustee as a result of breach of fiduciary duty by other defendants – where plaintiffs’ claim based on first and second limb of Barnes v Addy – whether breach of fiduciary duty can give rise to claims under Barnes v Addy – whether claim under first limb of Barnes v Addy can give rise to in personam exception to indefeasibility – whether claim under second limb of Barnes v Addy adequately pleaded CONVEYANCING – LAND TITLES UNDER THE TORRENS SYSTEM – CAVEATS AGAINST DEALING – LAPSE REMOVAL AND WITHDRAWAL – REMOVAL – where first plaintiff lodged caveat claiming interest as beneficial owner of fee simple on basis of constructive trust – where third defendant applies for removal of caveat – whether there is a prima facie case to be tried – whether the balance of convenience favours retention of the caveat CONVEYANCING – LAND TITLES UNDER THE TORRENS SYSTEM – CAVEATS AGAINST DEALING – LAPSE REMOVAL AND WITHDRAWAL – LAPSE – where first plaintiff lodged caveat claiming interest as beneficial owner of fee simple on basis of constructive trust –where plaintiff seeks declaration that caveat has lapsed – whether proceeding set out in Claim and Statement of Claim is a proceeding to establish the interest claimed in the caveat Land Titles Act 1994 (Qld) Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 1999 (Qld) Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266 Australian Broadcasting Commission v O'Neil (2006 ) 227 CLR 57 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248 Barnes v Addy (1874) LR 9 Ch App 244 Bruce v Oldhams Press Ltd [1936] 1 KB 697 Consul Development v DPC Estates Pty Ltd (1975) 132 CLR 373 Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202 Farah Constructions Pty Ltd & Ors v Say Dee Pty Ltd (2007) 230 CLR 89 Frazer v Walker [1967] AC 569 Friedman v Barrett [1962] Qd R 498 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Harpur v Ariadne Australia Limited [1984] 2 Qd R 523 Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 Kingaroy Mall Pty Ltd v E & N Collins Pty Ltd [2008] QSC 66 Le Neve v Le Neve (1747) Amb 436 LHK Nominees Pty Ltd v Kenworthy (2002) 26 WAR 517 Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133 Mercantile Mutual Life Insurance Co Ltd v Gosper (1991) 25 NSWLR 32 Re Jorss’ Caveat [1982] Qd R 458 Re Oil Tool Sales Pty Ltd; Classified Pre-mixed Concrete Pty Ltd [1966] QWN 11 Tara Shire Council v Garner [2003] 1 Qd R 556 Truth About Motorways Pty Ltd v Macquarie Infrastructure Investments Ltd [1998] FCA 525 Vassos v State Bank of South Australia [1993] 2 VR 316 Young v Hoger [2000] QSC 455 White v Tomasel & Anor [2004] 2 Qd R 438 |
COUNSEL: | K Barlow for the plaintiffs C Wilson for the third defendant |
SOLICITORS: | Tucker & Cowen for the plaintiffs Attwood Marshall for the third defendant |
[1] This is an application by Ross Cook and Brett Cook Pty Ltd (“the third defendant”) for orders pursuant to Uniform Civil Procedure Rules 1999 (“UCPR”) r 171(1)(a) striking out the first and second plaintiffs’ claims to an interest in land over which the third defendant is the registered owner. The third defendant applies in the alternative for summary judgment under r 293.
[2] The third defendant also seeks an order pursuant to s 127 of the Land Title Act 1994 (“the Act”) to remove Caveat No. 710611610 (“the Caveat”) from the register or, in the alternative, a declaration that the Caveat has lapsed in accordance with s 126(4).
Background
[3] The third defendant is the registered owner of Lot 4, Bli Bli Road, Nambour (title reference 108035103) (“Lot 4”).
[4] By the Claim in this proceeding filed on 14 June 2007, the first and second plaintiffs relevantly seek declarations that:
(a)a fiduciary relationship existed between the first defendant and second defendant and each of the plaintiffs,
(b) the first and second defendant breached fiduciary duties arising out of this relationship;
(c)by reason of these breaches, the third defendant holds one third of any benefits and advantages acquired by reason of it being knowingly concerned in the breaches of the fiduciary duties on constructive trust for the plaintiffs; and
(d)the third defendant holds one third of its interest in Lot 4, or in a portion of Lot 4 described in the statement of claim as the “JV Land,” on constructive trust for the plaintiffs.
[5] The plaintiffs’ claims are said to arise out of a joint venture (the “JV”) entered into by the 4th and 5th defendants with a third person (referred to in the Further Amended Statement of Claim (“FASOC”) as ‘Rubin’) to acquire part of Lot 4 from an individual referred to as ‘Cooney’ and develop it. This initial JV was, according to the plaintiffs, subsequently supplemented by an agreement to obtain an option to lease another part of Lot 4 as well as an adjoining property (“Lot 1”) for the purpose of carrying on a quarry. Both the option to purchase and the option to lease were granted by Cooney. On the plaintiffs’ case, the joint venture agreement (“JVA”), which was oral, included terms that each of the JV parties would be entitled to one third of the profits of the venture and would each hold a one third interest in the land.
[6] Prior to the exercise of these options, Rubin assigned his interest in the option to purchase to the first plaintiff and the option to lease to the second plaintiff.
[7] The fourth and fifth defendants were, on the plaintiffs’ case, responsible for carrying on negotiations in relation to Lot 4. The plaintiffs allege that, at the time of negotiations, the fourth and fifth defendants deliberately planned: (a) not to exercise the option to purchase part of lot 4, (b) not to recognise the assignment of the option to lease, (c) to have the third defendant buy the whole of Lot 4 unencumbered by any obligation to sell or lease all or part of it to the joint venture, and (d) not to inform the plaintiffs of the opportunity to buy the whole of Lot 4. It is said that this prevented the plaintiffs from profiting from the joint venture.
[8] The plaintiffs allege that these plans were actually carried out and say that, consequently, the defendants breached fiduciary duties:-
(a) not to put themselves in a position where their interests conflicted with the interests of their co-venturers; and
(b) not to profit from their position of trust other than in accordance with the joint venture.
They also contend, further or in the alternative, that the defendants’ conduct was misleading or deceptive or constituted knowing involvement in misleading or deceptive conduct.
[9] This breach of fiduciary duty and misleading and deceptive conduct is, inter alia, said to give rise to constructive trusts over Lot 4 in favour of the plaintiffs.
[10] Before giving further consideration to the plaintiffs’ allegations, it should be recalled that the present application is one for striking-out or, in the alternative, for summary judgment. The authorities are clear that the courts exercise the power to strike out sparingly and with caution. So, for example, it has long been held that a pleading will be struck out as failing to disclose a reasonable cause of action only if the plaintiff’s case is so clearly untenable that it cannot succeed.[1]
[11] In respect of the summary judgment application, the relevant principles are set out in r 293 of the UCPR. Before granting summary judgment it is necessary for the court to adopt an appropriately cautious approach and be satisfied both:-
(a)that the plaintiff has no real prospect of succeeding on all or part of the plaintiff’s claim; and
(b) that there is no need for a trial of the claim or part of the claim.[2]
[12] The third defendant’s applications to strike out and for summary judgment were advanced on essentially the same basis. The central tenet of its assertions was that the interest claimed by the plaintiffs over the land is, on account of the registration of the third defendant’s title, defeated by the indefeasibility provisions of the Land Title Act 1994 (Qld) (“the Act”).
[13] An assessment of this proposition requires a consideration of whether the plaintiffs’ claims activate the exceptions to indefeasibility contained in s 184(3) and 185(1)(a) of the Act. The third defendant sought to exclude the operation of any of these exceptions by referring me to a number of ‘deficiencies’ in the plaintiffs’ pleading. The ‘deficiencies’ contended for by the third defendant can be summarised as follows:
(a)a claim for knowing receipt under the first limb of Barnes v Addy[3] does not give rise to an ‘equity’’ within the terms of s 185(1)(a) of the Act;
(b)knowing assistance under the second limb of Barnes v Addy is not properly pleaded by the plaintiffs in this case;
(c)fraud generally is not explicitly pleaded by the plaintiffs;
(d)the claim under section 52 of the Trade Practices Act 1974 (Cth) (“TPA”) is deficient in that ‘detrimental reliance’ is not pleaded.
Indefeasibility
[14] The third defendant is the registered owner of Lot 4. Section 184(1) of the Act provides for indefeasibility of title in the following terms:
‘184 Quality of registered interests
(1) A registered proprietor of an interest in a lot holds the interest subject to registered interests affecting the lot but free from all other interests.
(2) In particular, the registered proprietor—
(a) is not affected by actual or constructive notice of an
unregistered interest affecting the lot; and
(b) is liable to a proceeding for possession of the lot or an interest in the lot only if the proceeding is brought by the registered proprietor of an interest affecting the lot.
[15] Without anything more, ss 184(1) and (2) would preclude the plaintiffs, as holders of a claimed unregistered interest, from seeking to enforce that interest as against the third defendants. They are, therefore, driven to the exceptions to indefeasibility in ss 184(3) and 185(1)(a) of the Act:
“184 Quality of registered interests
…
(3) However, subsections (1) and (2) do not apply—
(a) to an interest mentioned in section 185; or
(b) if there has been fraud by the registered proprietor,
whether or not there has been fraud by a person from or through whom the registered proprietor has derived the registered interest.
185 Exceptions to s 184
(1) A registered proprietor of a lot does not obtain the benefit of
section 184 for the following interests in relation to the lot—
(a) an equity arising from the act of the registered proprietor;”
The fraud exception
[16] The exception to indefeasibility contained in s 184(3) arises in cases where “there has been fraud by the registered proprietor” and requires “actual fraud, personal dishonesty or moral turpitude.”[4] The fraud exception is designed “to qualify the operation of the doctrine of indefeasibility upon what would have been the rights and remedies of the complainant if the land in question were held under unregistered title”.[5]
[17] In equity, a transferee who, after having notice of an unregistered interest, relies upon the provisions of a statute in order to defeat that interest, is said to act fraudulently.[6] However, merely accepting a transfer with knowledge of a prior equitable interest does not amount to fraud under s 184(3)(b). So much is made clear by s 184(2)(a), which provides that a registered proprietor will not be affected by “actual or constructive notice of an unregistered interest affecting the lot”.
[18] The effect of the predecessor to this provision was confirmed by the Full Court in Friedman v Barrett[7] where Mansfield CJ, with whom Stanley J agreed observed:
“Such actual notice would be sufficient to impute fraud in equity, but if actual notice or knowledge of the unregistered interest of a third party is held to be fraud within the meaning of the section, the express provisions of the section that the transferee is not to be affected by direct notice of any unregistered interest would be of no force or effect.”[8]
[19] Thus, it is clear that the plaintiffs are required to demonstrate something more than mere notice of their interest in order to impugn the indefeasibility of the third defendant’s title. For example, the cases draw a distinction between cases of mere knowledge and instances where a registered proprietor is implicated in the fraud. In the latter circumstance, the registered owner will not obtain the benefit of indefeasibility.[9]
The personal equity exception
[20] In Frazer v Walker[10] the Privy Council observed that indefeasibility “in no way denies the right of a plaintiff to bring against a registered proprietor a claim in personam, founded in law or in equity, for such relief as a court acting in personam may grant.”[11]
[21] This view is reflected in Section 185(1)(a), which provides that a registered proprietor does not obtain the benefit of indefeasibility as against “an equity arising from the act of the registered proprietor”.
[22] The Act does not further define what is meant by ‘equity’ in this context. It is clear, however, that s 185(1)(a) “was not intended to do more than state the existing law”.[12] Mahoney JA considered the meaning of the term “equity” in Mercantile Mutual Life Insurance Co Ltd v Gosper[13] and observed that it refers “simply to the fact that the person involved may invoke the assistance of the equity court or equity principles to achieve the relevant relief.” Whatever the precise meaning of s 185(1)(a), it is clear that the section contemplates a “known legal or equitable cause of action.”[14]
[23] In Vassos v State Bank of South Australia[15], Hayne J referred to the proposition enunciated in previous cases that an equity must not be inconsistent with the “terms or policy” of the legislation, noted that personal equities will arise only from the acts of the registered owner, and then said:
“However whatever the limits may be on such 'personal' equities the very language used to describe the right and the reference to the remedies being 'in personam remedies' is a clear reference to the remedies being available in circumstances where equity would act, i.e., in cases which equity would classify as unconscionable or unconscientious.”[16]
[24] In the present case, the plaintiffs’ assertions that the third defendant’s title is not indefeasible rest on the principles set out in Lord Selbourne’s classic statement in Barnes v Addy:
“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.”[17]
[25] This statement has given rise to two categories (or, as they are commonly referred to, “limbs”) of circumstance in which relief by way of a constructive trust may be sought. The first is frequently referred to as ‘knowing receipt’, and the other as ‘knowing assistance’. The first category includes instances where a third party has at some point received trust property. The second category includes cases where a third party, irrespective of whether they have actually received trust property, has in some way participated in or assisted with a breach of trust.
[26] Whether both limbs of Barnes v Addy extend beyond cases where the property is subject to a trust to include cases where it is the subject of some other fiduciary duty is still not clear.
[27] There is no doubt that the ‘knowing assistance limb’ does. In Consul Development v DPC Estates Pty Ltd[18] Gibbs J (as he then was) said:[19]
“However in my judgment, the principle under discussion extends to the case where a stranger has knowingly participated in a breach of fiduciary duty committed by a person who is not a trustee even though nothing that might properly be regarded as trust property – even property stamped with a constructive trust – has been received. The strict rule of equity that forbids a person in a fiduciary position to profit from his position appears to be designed to deter persons holding such a position from being swayed by interest rather than by duty (see Bray v Ford); it is a “rule to protect directors, trustees, and others against the fallibility of human nature”: Costa Rica Railway Co Ltd v Forwood. If the maintenance of a very high standard of conduct on the part of fiduciaries is the purpose of the rule it would seem equally necessary to deter other persons from knowingly assisting those in a fiduciary position to violate their duty. If, on the other hand, the rule is to be explained simply because it would be contrary to equitable principles to allow a person to retain a benefit that he had gained from a breach of his fiduciary duty, it would appear equally inequitable that one who knowingly took part in the breach should retain a benefit that resulted therefrom. I therefore conclude, on principle, that a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation.”
[28] This view was confirmed by the High Court in Farah Constructions Pty Ltd & Ors v Say Dee Pty Ltd[20]:
“As conventionally understood in Australia, the second limb makes a defendant liable if that defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.”[21]
[29] The Court in Farah, however, was more equivocal in its consideration of the first limb of Barnes v Addy’s application to cases involving misuse of property subject to fiduciary obligations, saying only:
“In recent times it has been assumed, but rarely if at all decided, that the first limb applies not only to persons dealing with trustees, but also to persons dealing with at least some other types of fiduciary.”[22]
[30] Neither party sought to question this assumption before me. Accordingly, for the purpose of the present application at least, the plaintiff should have the benefit of the assumption that application of the first limb of Barnes v Addy extends beyond trustees to include persons dealing with some other types of fiduciaries.
[31] It is on this footing that I will consider the complaints made by the third defendant in respect of the case pleaded against it.
Indefeasibility and the first limb of Barnes v Addy
[32] A claim under the first limb of Barnes v Addy is pleaded in paragraphs 26 to 28B of the FASOC (set out in [42] below).
[33] A claim under the first limb of Barnes v Addy is clearly a recognised cause of action in the general sense. At first blush then, it would appear to be capable of amounting to an ‘equity’ within the meaning of s 185(1)(a). It is necessary, however, to recall that “in many cases, an obligation which the general law, and in particular a doctrine of equity, would have imposed upon the registered proprietor has had to give way to the indefeasibility of the registered interest.”[23]
[34] There has been some uncertainty as to whether claims premised on the first limb of Barnes v Addy fall into this category. The appellate courts of other states had previously taken the view that liability under the first limb of Barnes v Addy could not impugn the title of a registered proprietor: see Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd;[24] LHK Nominees Pty Ltd v Kenworthy.[25] The Queensland Court of Appeal, however, took the contrary view in Tara Shire Council v Garner[26]
[35] The High Court in Farah resolved this controversy by endorsing the view enunciated by the majority in Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd:
“In personam exception. An exception operating outside the language of s 42(1) can exist in relation to certain legal or equitable causes of action against the registered proprietor. So far as Say-Dee was relying on Barnes v Addy, it was certainly alleging a recognised equitable cause of action. In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd Tadgell JA (Winneke P concurring, Ashley AJA dissenting) held that a claim under Barnes v Addy was not a personal equity which defeated the equivalent of s 42(1) in Victoria, namely the Transfer of Land Act 1958, s 42(1). Tadgell JA said:
“[H]ere it is not possible to escape the circumstance that, if there was a 'knowing receipt' by the appellant, it was a receipt by virtue of registration under the Transfer of Land Act.”
He continued:
“The argument for the respondent appears to assume that the acquisition by a mortgagee, in that capacity, of a proprietary interest following registration of a forged instrument of mortgage in respect of property that is subject to a trust amounts to a receipt by the mortgagee of trust property. If it were so, it might be possible to treat the holder of the registered proprietary interest as a constructive trustee arising from 'knowing receipt' of trust property. As it seems to me, however, there is neither room nor the need, in the Torrens system of title, to do so. If registration of the mortgagee's interest is achieved dishonestly then the registration, and with it the interest, are liable to be set aside not because, on registration, the registered holder became a constructive trustee but because s 42(1) recognises that fraud renders the interest defeasible. If, on the other hand, the registration is not achieved by fraud the Act provides, subject to its terms, for an indefeasible interest. Those terms allow, it is true, a claim in personam founded in equity against the holder of a registered interest to be invoked to defeat the interest; and a claim in personam founded in equity may no doubt include a claim to enforce what is called a constructive trust ... [T]o recognise a claim in personam against the holder of a mortgage registered under the Transfer of Land Act, dubbing the holder a constructive trustee by application of a doctrine akin to ‘knowing receipt’ when registration of the mortgage was honestly achieved, would introduce by the back door a means of undermining the doctrine of indefeasibility which the Torrens system establishes. It is to be distinctly understood that, until a forged instrument of mortgage is registered, the mortgagee receives nothing: before registration the instrument is a nullity. As Street J pointed out in Mayer v Coe... the proprietary rights of a registered mortgagee of Torrens title land derive ‘from the fact of registration and not from an event antecedent thereto’. In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property. The argument that the appellant is liable as a constructive trustee because it had ‘knowingly received’ trust property should in my opinion fail”.
That reasoning, with which four judges in the Full Court of the Supreme Court of Western Australia agreed in LHK Nominees Pty Ltd v Kenworthy, and with which Davies JA agreed in Tara Shire Council v Garner, applies here. In that latter case, however, Atkinson J (McMurdo P concurring), in deciding whether a claim was arguable on the pleadings, disagreed with Davies JA and with the majority in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd. Atkinson J and McMurdo P preferred the dissenting judgment of Ashley AJA in that case, the dicta of Hansen J in Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd, where the indefeasibility point was not argued, and where in any event there was dishonesty; and the dicta of de Jersey J in Doneley v Doneley, where indefeasibility was not argued either.
The essential point on which Ashley AJA differed from the majority in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd was put thus:
“The proposition that an equity may be recognised and enforced so long as it involves no conflict with the indefeasability [sic] provisions has not prevented the High Court from imposing constructive trusts so as to recognise equities in cases where the transfer of real property was effected at different stages in the course of events giving rise to the equities”.
He referred to Bahr v Nicolay (No 2), Muschinski v Dodds and Baumgartner v Baumgartner. Earlier, Ashley AJA had said that the “necessary balance” between personal equities and indefeasibility was “disclosed by the judgment of Wilson and Toohey JJ in Bahr v Nicolay (No 2)”. However, as Pullin J pointed out in LHK Nominees Pty Ltd v Kenworthy, in those cases “the defendant was the primary wrongdoer, attempting to ignore an obligation to share or convey the land with or to the plaintiff. In none of those cases was the defendant a party who merely had notice of an earlier interest or notice of third party fraud.” There is no analogy between the constructive trusts involved in those cases and that which can arise from application of the first limb of Barnes v Addy” (citations omitted). [27]
[36] To the extent, therefore, that the plaintiffs attempt to rely on the first limb of Barnes v Addy and contend, as they do, that it is “not necessary to show that the recipient of trust property was fraudulent or knew of fraud by the trustee,” they have misapprehended the implications of Farah. A claim for a constructive trust as a result of the operation of the first limb of Barnes v Addy cannot be sustained in the face of the registration of title in favour of the third defendants.
Claims under the second limb of Barnes v Addy and for fraud generally
[37] This is not, however, to say that the plaintiffs’ claim, as a whole, is bound to fail. The FASOC also sets out claims for fraud generally, and under the second limb of Barnes v Addy. It is convenient, for present purposes, to deal with these allegations in tandem.
[38] In circumstances where a transfer is procured by fraud, s 184(3) of the Act will give rise to an exception to indefeasibility. Section185(1)(a) operates in the same way when it can be established, in accordance with the second limb of Barnes v Addy, that there are circumstances which indicate that a person has knowingly participated in a “dishonest and fraudulent design” by a trustee or a fiduciary.
[39] The third defendant makes two primary complaints about the plaintiffs’ case in these respects. First, it is said that, to the extent that fraud is sought to be established, it must be specifically pleaded[28], and it is contended that the plaintiffs have failed to do this. Secondly, it is submitted that the ‘dishonest and fraudulent’ design required to ground a claim under the second limb of Barnes v Addy is not pleaded.
[40] In response, the plaintiffs submit that the pleading asserts facts by which the defendants acquired property which was rightly the property of the JV and that, in doing so, they were dishonest. Reference in this respect is made to paragraphs 25 and 25B of the FASOC. These paragraphs (together with paragraph 24 for context) assert:
“24.On 26 April 2006 Ryder, for and on behalf of the First Plaintiff and the Second Plaintiff and Rubin, attended a meeting with B Cook (on his own behalf and on behalf of the First Defendant, the Second Defendant and R Cook) at the offices of Coastal Tipper Hire at Nerang (“the Meeting”).
“25.At the Meeting, B Cook orally represented to Ryder [the plaintiffs’ director] that;-
(a)at the Meeting, he spoke for and on behalf of himself, the First Defendant, the Second Defendant and R Cook;
(b)The interests of Rubin in the Joint Venture had been that Rubin was entitled to one-third of the profits of the Joint Venture, had a one-third interest in the JV Land and the Lease Land, and upon sale of the JV Land was entitled to receive one third of the proceeds of the JV land after costs (prior to the 1st Assignment and the 2nd Assignment) and was entitled to one-third of the profits derived from the Lease Land;
(c)the assignments of the interests of Rubin as Trustee in Option 1 and Option 2 to the First Plaintiff and the Second Plaintiff respectively were acknowledged;
(ca)the First Defendant, the Second Defendant, R Cook and B Cook recognised and acknowledged the Plaintiffs’ respective interests in Option 1 and Option 2 and in the Joint Venture, in lieu of those of Rubin and Rubin as Trustee.
(d)the expiry date for Option 1 was approaching;
(e)both Option 1 and Option 2 could be exercised before 10 May 2006;
(f)the Joint Venture would proceed, as between the New Co-Venturers, and the First Plaintiff’s and Second Plaintiff’s interests would be “looked after”; and
(g)there were reasonable grounds for making the representations referred to in paragraphs (a) to (f) hereof,
(“the Representations”).
…
25BIn the circumstances described in paragraph 25A, to the knowledge of the defendants, the representations pleaded in paragraphs 25(c), 25(ca), 25(e), 25(f) and 25(g) were false.”
[41] In paragraph 25A, the plaintiffs plead that the defendants sought to secure, to the exclusion of the plaintiffs, the JV’s assets prior to the expiry of the option periods:
“25AThe defendants had taken the following steps before the Meeting;;
(a)the step referred to in paragraph 23 above;
(b)They had decided not to take any steps to exercise Option 1 or Option 2;
(c)they had decided that, instead of taking steps to exercise Option 1, the third defendant would purchase Lot 4;
Particulars of (b) and (c)
In a telephone conversation on 31 March 2006 between Mr Garrett, solicitor for the defendants, and Mr Clark, solicitor for Cooney, Mr Garrett told Mr Clark that the defendants were proposing to buy the whole of Lot 4 with settlement on 1 July 2006.
Between 31 March 2006 and 12 April 2006 the defendants and Cooney agreed on the terms on which the defendants, or one or more of them, would buy Lot 4, as evidenced by a letter dated 12 April 2006 from Mr Clark to Mr Garret.
By letter dated 18 April 2006 from Mr Garrett to Mr Clark, Mr Garrett said that the third defendant would the purchaser of Lot 4.
By letter dated 21 April 2006 from Mr Clark to Mr Garrett, Mr Clark confirmed that Cooney and the defendants had agreed to terminate the existing options and to enter into a contract for the sale of Lot 4 to the third defendant.
(d)They had informed Cooney that they had “ousted” Rubin from the Joint Venture;
Particulars
Mr Garrett orally informed Mr Clark to that effect in a telephone conversation on 21 April 2004.
(e)they had decided not to recognise, nor to accept as valid, the assignment of Option 2 to the Second Plaintiff by the 2nd Assignment.
Particulars
Mr Garrett orally informed Mr Clark to that effect in a telephone conversation on 9 May 2006.
In a letter dated 9 May 2006 from Mr Garret to Mr Clark, Mr Garret informed Mr Clark to that effect, and said that the defendants (Mr Garrett’s clients) wished to persist with Option 2, insofar as it related to part of Lot 1.
In a letter dated 19 May 2006 from Mr Garrett to Mr Clark, Mr Garrett informed Mr Clark to the effect that it was his view that the 2nd Assignment was deficient and unenforceable by the Second Plaintiff.
It may be inferred, from those matters and from the steps referred to in paragraphs (a) to (d) above, that the defendants had made that decision before the Meeting.
[42] The plaintiffs then drew my attention to paragraphs 26-28B of the FASOC. These paragraphs essentially allege that the defendants, including the third defendant, took part in a plan to secure ownership of Lot 4 for themselves, to the exclusion of the plaintiffs:
“26.On 10 May 2006:
(a)Option 1 lapsed as a consequence of the New Co-Venturers failing to exercise the option;
(b)the First Defendant, the Second Defendant, R Cook and B Cook deliberately caused the failure of the New Co-Venturers to exercise Option 1 in order to enable the Third Defendant to negotiate for, and to enter into, the contract referred to in paragraph 27 below.
27.Subsequently, and without the knowledge or informed consent of either the First Plaintiff or the Second Plaintiff, the Third Defendant, at the instance of, and caused or procured by, R Cook and B Cook and (by R Cook and B Cook) the First Defendant and the Second Defendant, entered into a contract of sale for the purchase of Lot 4 from Cooney to the exclusion of both the First Plaintiff and the Second Plaintiff.
28.On or about 1 November 2006, the Third Defendant caused itself to be registered in the Department of Natural Resources and Mines as the owner of Lot 4.
28A.At the time it entered into the contract of sale and at the time it was registered as to the owner of Lot 4, the Third Defendant, by R Cook and B Cook, knew;
(a)about the Joint Venture;
(b)about the interest that the plaintiffs, as New Co-Venturers, had, or Under Option 1 had had in the subject matter of the Joint Venture;
(c)about the fiduciary relationships pleaded below.
28BThe Third Defendant, with the knowledge and induced and procured by R Cook and Book and by (R Cook and B Cook) the First Defendant and the Second Defendant, took the steps referred to in paragraphs 26, 27 and 28 above intending thereby:
(a)to divest the Plaintiffs, and each of them, of any interest in Lot 4;
(b)to retain, for the benefit of the Third Defendant and of R Cook and B Cook, to the exclusion of the Plaintiffs, all profit and other benefits from the acquisition, lease, development and sale of Lot 4 and any parts of it.”
[43] After pleading the various fiduciary duties said to be owed by first, second, fourth and fifth defendants, the plaintiffs explicitly plead a breach of both the JVA and fiduciary duties at paragraph 33:
“In breach of the Joint Venture Agreement and their fiduciary duties (as pleaded in paragraphs 31 and 32):-
…
(c)on 11 April 2006, R Cook and B Cook incorporated the Third Defendant for the purpose of receiving and retaining, for the benefit of the Third Defendant and R Cook and B Cook, all of the benefits in respect of the acquisition and development of the JV land and the [sic] that part of the Lease Land that is on Lot 4;
(d)the Third Defendant, with the knowledge and intent referred to in paragraphs 28A and 28B above, and induced and procured by each of R Cook and B Cook, acquired Lot 4 for the purpose of benefiting itself, R Cook and B Cook to the exclusion of the Plaintiffs”
[44] Paragraph 34 then sets out what seems, fairly clearly, to be an attempt to bring the facts within the realm of the second limb of Barnes v Addy. It pleads:
“Further or alternatively, in the premises of paragraphs 5, 7, 8 and 10 to 33 above, R Cook, B Cook and the Third Defendant jointly and severally:-
(a)have at all material times been aware of the circumstances giving rise to the fiduciary relationships existing between;-
(i)the First Defendant; and
(ii) the Second Defendant.
and each of the First Plaintiff and the Second Plaintiff, the fiduciary duties owed by each of the First Defendant the Second Defendant, and each of the First Defendant’s and the Second Defendant’s breaches of the fiduciary duties; and
(b)have knowingly assisted each of the First Defendant and the Second Defendant in, and procured the First Defendant and the Second Defendant to undertake, their breaches of the fiduciary duties, and were knowingly concerned in and parties to each of those breaches, in the knowledge and with the purpose described in paragraphs 28A and 28B above.”
[45] The plaintiffs submit that these facts constitute a ‘dishonest and fraudulent design’ on the part of the defendants. In Farah, the High Court noted that, in the context of a claim under the second limb of Barnes v Addy “any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent.”[29] In doing so it unequivocally rejected a submission that “the ‘dishonest and fraudulent design’ requirement had been superseded and that it was sufficient to plead and prove any knowing participation in a breach of trust or fiduciary duty save for a ‘de minimis breach’”[30].
[46] At no point in the FASOC are the terms ‘dishonest and fraudulent design’ or ‘fraud’ employed by the plaintiffs, and the pleading is not as clear as it could and should be. Nevertheless, it seems to me that, at least in respect of the contended cases for fraud and under the second limb of Barnes v Addy, the pleading “fill[s] the picture of the plaintiff’s cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial.”[31]
[47] In light, then, of the indications in the pleading that the plaintiffs may be able to avoid the consequences of indefeasibility it cannot be said that the plaintiffs case is so “obviously untenable”[32] as to warrant the striking out of those paragraphs of the claim and prayer for relief pertaining to the claimed constructive trusts.
[48] It follows, though perhaps not inevitably, that this is not a case in which it can be said that the plaintiff has no reasonable prospect of succeeding. The pleadings establish at least a reasonably arguable cause of action arising out of the alleged breaches of fiduciary duty by the first and second plaintiffs, through their directors, the fourth and fifth defendants. This is certainly not a case where a stranger was unknowingly implicated in the wrongful conduct of a fiduciary. The third defendant is, on the material before me, the corporate vehicle of the fourth and fifth defendants and it was this third defendant which, on the plaintiffs’ case, executed the coup de grace in the breach of fiduciary duty by securing title over the property in which the joint venture held an interest.
[49] In those circumstances, it is arguable that the third defendant was a knowing participant in any breach of fiduciary duty which, if the representations alleged by the plaintiffs are able to be established, might be regarded as dishonest and/or fraudulent by a trial judge. The FASOC clearly raises issues which would benefit from further exploration at trial. The application for summary judgment should be refused.
Misleading and deceptive conduct claim
[50] Having reached this conclusion, it is not strictly necessary for me to make a finding in respect of the action under the Trade Practices Act 1974 (Cth) (“TPA”) set out in the FASOC. Nevertheless, it may be useful, for the continued progression of the matter, for me to make the following observations.
[51] Whilst there has been judicial disagreement as to whether a claim under s 52 of the TPA can amount to an ‘equity’ for the purposes of s 185,[33] the third defendant has not sought to challenge the capacity of a claim under s 52 to circumvent the indefeasibility provisions. Accordingly, it is not necessary for me to say anything further on the subject.
[52] The relevant portion of the pleading is in the following terms:
“Trade Practices Act Action
35.The conduct of the First Defendant and the Second Defendant pleaded in paragraphs 24 and 25 was misleading and deceptive conduct within the meaning of that term in section 52 of the Trade Practices Act 1974 (Cth).
…
37.In the premises pleaded in paragraphs 5, and 7 to 36 above, B Cook, R Cook and (By R Cook and B Cook) the Third Defendant were, directly or indirectly, knowingly concerned in, or parties to, the misleading and deceptive conduct of the First Defendant and the Second Defendant pleaded in paragraphs 35 and 36 above.”
[53] Particulars to paragraph 35 above are given simply as: “The matters pleaded in paragraphs 25A and 25B above.”
[54] The third defendant complains that these paragraphs do not contain the requisite plea of detrimental reliance. In order to obtain relief under ss 82 or 87 for contravention of s 52 an applicant must demonstrate that any loss or damage suffered occurred “by” the misleading or deceptive conduct. This requires a nexus between the conduct complained of and the loss or damage suffered. In Kabwand Pty Ltd v National Australia Bank Ltd[34] Lockhart J said:
“[I]t is sufficient to say that a person claiming damages must show either that he has been induced to do something or to refrain from doing something which gives rise to damage or has been influenced to do or refrain from doing something giving rise to damage by the conduct contravening s 52.”
[55] Paragraph 39 of the FASOC states:
“As a consequence of the conduct of the First Defendant, the Second Defendant, the Third Defendant, R Cook and B Cook pleaded in paragraphs 1 to 38 above, the First Plaintiff and the Second Plaintiff have each suffered loss and damage.
Particulars
The plaintiffs have lost the opportunity to participate in, and to receive, a sum equal to one-third of the profits to be derived from the development and sale of:
(a)the JV land and the Lease Land; or
(b)alternatively, Lot 4.”
[56] Because of the wide application of s 52, the factual basis on which the section is said to apply must be clearly pleaded.[35] This general statement does not adequately set out the manner by which the allegedly misleading and deceptive conduct caused the plaintiff to suffer loss. I would, however, be minded to grant the plaintiffs such leave as is required to amend the FASOC in order to rectify this deficiency.
Caveat
[57] In addition to the striking-out and summary judgment applications, the third defendant pursued an order, under s 127 of the Act, for removal of the Caveat or, alternatively, a declaration that the Caveat has lapsed in accordance with s 126(5).
[58] The Caveat was lodged by the first plaintiff and, as amended, claims:
(a)an interest as beneficial owner of the fee simple;
(b)on the ground that the third defendant holds its interest in the fee simple as trustee for and on behalf of the first defendant, the second defendant, the first plaintiff and the second plaintiff, pursuant to an agreement made in April 2006, as particularised in the original Statement of Claim filed 14 June 2007 and attached to the caveat.
[59] Section 127 of the Act provides that a caveatee may, at any time, apply to the court for an order that a caveat be removed.
[60] On such an application, the caveator (in this case, the first plaintiff) bears the onus[36] of demonstrating that:
(a) there is a prima facie case to be tried which would justify the continuation of the caveat; and
(b)the balance of convenience favours the retention of the caveat.
[61] The latter consideration requires “a sufficient likelihood of success to justify in the circumstances the preservation of the status quo”.[37]
[62] The fact that I have refused the striking-out and summary judgment applications does not necessarily prevent the third defendant from succeeding on the application to remove the Caveat. In particular, the third defendant contends that the first plaintiff has not adduced the evidence necessary to establish the interest claimed in the Caveat. In particular, it complains that there is no evidence of the April 2006 ‘agreement’ referred to in the Caveat. Nor, in the third defendant’s submission, is the ‘meeting’ in paragraph 24 and the ‘representations’ specified at paragraph 25 of the FASOC sufficiently evidenced. At the hearing of the present application, however, the plaintiffs filed a further affidavit of their solicitor in which he deposes, on information and belief, to the truth of the allegations in paragraph 24 and 25 of the FASOC. In light of this material, and remembering that it is not properly the role of the court, on an application under s 127, to determine contested issues more properly examined at trial,[38] I consider that there is a serious question to be tried as to the caveator’s interest.
[63] It is then necessary to consider where the balance of convenience lies. The third defendant did not take me to any evidence that it would be prejudiced in the event the Caveat remained. On the other hand, if I order removal of the Caveat, the plaintiffs’ interest in the property itself is liable to be lost, leaving them only with a claim for damages.
[64] The third defendant, however, contended that, notwithstanding the fact that the plaintiffs have previously provided security for the defendants’ costs up to and including the first day of trial, they would not be sufficiently protected by any undertaking as to damages given by the plaintiff corporations. This concern, however, would appear to have been met by the fact that the director of the plaintiffs, as the only person with a pecuniary interest in the plaintiffs’ claim, has “come out from behind the skirts of the company”[39] to give a personal undertaking.[40]
[65] In those circumstances, the balance of convenience favours the plaintiffs and I would refuse the application for an order that the Caveat be removed.
[66] As an alternative to an order removing the caveat, the third defendant seeks a declaration that the Caveat has lapsed for failure to comply with s 126(4). The question which arises in this respect, is whether the proceeding commenced by the Claim and Statement of Claim filed on 14 June 2007 (“SOC”) constituted a proceeding to establish the interest claimed in the caveat.
[67] The relevant part of s 126 is in the following terms:
“(4) If a caveator does not want a caveat to which this section applies to lapse, the caveator must—
(a) start a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat—
(i) if a notice under subsection (2) is served on the caveator—within 14 days after the notice is served on the caveator; or
(ii) if a notice under subsection (2) is not served on the caveator—within 3 months after the lodgment of the caveat; and
(b) notify the registrar within the 14 days or the 3 months that a proceeding has been started and identify the proceeding.
(5) If the caveator does not comply with subsection (4), the caveat lapses.
(6) The caveator is taken to have complied with subsection (4)(a) if a proceeding has been started in a court of competent jurisdiction to establish the interest claimed under the caveat before the caveat was lodged.
(7) The registrar may remove a caveat that has lapsed from the freehold land register.”
[68] The Acts Interpretation Act 1954 (Qld) (“AIA”) defines an “interest in relation to land or other property” as including:
“(a)a legal or equitable estate in the land or other property; or
(b) a right, power or privilege over or in relation to the land or other property.”[41]
[69] In this case, a notice under s 126(2) of the Act was given to the first plaintiff. The plaintiff lodged the SOC 14 days later.
[70] The relief sought in the SOC includes a declaration, in the same terms as that sought in the FASOC, that the third defendant holds one third of its interest in the relevant land on constructive trust for the first plaintiff. The third defendant contends that, notwithstanding this fact, there is a ‘disconnect’ between the manner this interest is justified in the caveat itself as compared with the SOC. Specifically, it says that the fact that the SOC does not plead the agreement made “in or about April 2006” relied on in the Caveat means that the proceeding articulated in the SOC is not a proceeding to establish the interest claimed in the Caveat. This view is, in light of the “liberal approach” to ascertaining what constitutes “starting proceedings to establish an interest” advocated by the Court of Appeal in Cousins Securities Pty Ltd & Ors v CEC Group Ltd & Anor,[42] overly technical. The fact that the grounds articulated as underpinning the claimed interest vary slightly between the SOC and the Caveat is less than ideal, but the ‘interest’ claimed (when that term is properly understood in light of the AIA), namely a beneficial interest under a constructive trust over the property, is nevertheless essentially the same in the two documents.
The plaintiffs’ application
[71] The plaintiffs filed an application on 24 June 2008 for orders granting leave to lodge a further caveat over Lot 4 on the same or substantially the same grounds as caveat number 710611610 or, alternatively, for freezing orders restraining the third defendant’s dealings with Lot 4.
[72] In light of my determination that the caveat should not be removed, it is unnecessary to further consider this application.
Conclusion
[73] Each of the third defendant’s application and the plaintiffs’ application will be dismissed. The costs of each application will be reserved.
[74] I will hear the parties as to any further orders and directions which may be required, particularly in respect of a further Statement of Claim.
Footnotes
[1] General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129, 130 per Barwick CJ.
[2] See my observations previously in Kingaroy Mall Pty Ltd v E & N Collins Pty Ltd [2008] QSC 66 and Elderslie Property management No 2 Pty Ltd v Dunn & Anor [2007] QSC 192.
[3] (1874) LR 9 Ch App 244
[4] Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 614 per Mason CJ and Dawson J.
[5] Bank of South Australia Ltd v Ferguson (1998) 192 CLR 248 at 256.
[6] Le Neve v Le Neve (1747) Amb 436 at 443.
[7] [1962] Qd R 498.
[8] at 504.
[9] Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133 at 144 per Tadgell JA..
[10] [1967] AC 569.
[11] at 585.
[12] White v Tomasel & Anor [2004] 2 Qd R 438 at 441 per Davies JA.
[13] (1991) 25 NSWLR 32.
[14] White v Tomasel & Anor [2004] 2 Qd R 438 at 454 per McMurdo J.
[15] [1993] 2 VR 316.
[16] at 333.
[17] (1874) LR 9 Ch App 244 at 251-252.
[18] (1975) 132 CLR 373.
[19] at 396-397.
[20] (2007) 230 CLR 89.
[21] at 159.
[22] at 141.
[23] White v Tomasel& Anor [2004] 2 Qd R 438 at [72] per McMurdo
[24] [1998] 3 VR 133 per Winneke P and Tadgell JA; Ashley J dissenting.
[25] (2002) 26 WAR 517 Per Murray, Anderson, Steytler and Pullin JJ; Wallwork J dissenting.
[26] [2003] 1 Qd R 556
[27] Farah Constructions Pty Ltd & Ors v Say Dee Pty Ltd (2007) 230 CLR 89 at 169-170.
[28] See UCPR r 150(1)(f)
[29] Farah Constructions Pty Ltd & Ors v Say Dee Pty Ltd (2007) 230 CLR 89 at 164.
[30] at 164-165.
[31] Bruce v Oldhams Press Ltd [1936] 1 KB 697 at 712 per Scott LJ.
[32] General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 129 per Barwick CJ
[33] See Grgic v Australian & New Zealand Banking Group Ltd (1994) 33 NSWLR 202 at 223; cf Young v Hoger [2000] QSC 455.
[34] (1989) ATPR 40-950 at 50,378
[35] Truth About Motorways Pty Ltd v Macquarie Infrastructure Investments Ltd [1998] FCA 525.
[36] Re Jorss’ Caveat [1982] Qd R 458.
[37] Australian Broadcasting Commission v O'Neil (2006 ) 227 CLR 57 at 82.
[38] Re Oil Tool Sales Pty Ltd; Classified Pre-mixed Concrete Pty Ltd [1966] QWN 11.
[39] Harpur v Ariadne Australia Limited [1984] 2 Qd R 523 at 532.
[40] See my remarks in Aqwell Pty Ltd v BJC Drilling Services Pty Ltd [2008] QSC 266 in the context of a security for costs application.
[41] Section 36
[42] [2007] 2 Qd R 520 at 532 per Holmes JA.