AED Oil Ltd v Back (No 2)

IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT

No. 2001 of 2008

AED OIL LIMITED & ORS (according to the schedule attached)	Plaintiffs
And
ELIZABETH BACK & ORS (according to the schedule attached)	Defendants
AND BETWEEN:
MINTER ELLISON (a firm)	Plaintiff by Counterclaim
And
AED OIL LIMITED (ACN 110 393 292) and AED SERVICES PTY LTD	Defendants by Counterclaim

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	15 February 2010
DATE OF JUDGMENT:	25 February 2010 (1^st Revision 31 May 2010)
CASE MAY BE CITED AS:	AED Oil Ltd v Back (No 2)
MEDIUM NEUTRAL CITATION:	[2010] VSC 43

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PRACTICE AND PROCEDURE – Application to strike out claim – Allegation that third party was a ‘concurrent wrongdoer’ pursuant to Part IVAA of the Wrongs Act 1958 – Allegation of breach by trustee of fiduciary obligations – Accessory liability - Barnes v Addy – Dishonest and fraudulent design – Whether claims so manifestly faulty they do not admit of argument - Application allowed in part.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr W T Houghton QC with Dr M J Collins	Corrs Chambers Westgarth
For the First and Fourth to Ninth Defendants	Mr J B Davis	Freehills
For the Second and Tenth Defendants	Mr P H Solomon	Herbert Geer
For the Third Defendant	Mr C C Macaulay SC with Dr A Hanak	Monahan + Rowell
For the Eleventh Defendant	Mr A J McClelland	DLA Phillips Fox

HIS HONOUR:

On 19 January 2010 I gave leave to the second defendant, Andrew Venables, to file and serve an amended defence and counterclaim, reserving to the plaintiffs the right to apply to strike out the “Lamp Oil Trust” case[1] once the added defendant to counterclaim, David Russell Dix, had been served with the counterclaim and other proceedings in which allegations of breach of directors duties were made against him. The plaintiffs foreshadowed complaints about the Lamp Oil Trust case and the claims against Mr Dix, but as at that time Mr Dix had not been served with Mr Venables amended defence, the counterclaim, or the proposed third party proceedings.
[1]Described in more detail below at [29] – [40].

Leave was granted to amend the defence, add Mr Dix as a defendant by counterclaim and to serve the third party notice. Orders were made to ensure that Mr Dix would have an opportunity to participate in any debate about the viability of the claims. It was hoped that such a course would avoid unnecessary delay and a multiplicity of hearings in a matter of some complexity involving 16 parties. The scope of the anticipated challenge to Mr Venables’ new case of breach of directors duties and the Lamp Oil Trust case was confined to the viability of the pleading and causes of action. It was not suggested that leave should not have been granted for any other reason.

In his amended defence and third party statement of claim Mr Venables alleged that Mr Dix (a director and executive chairman of the first plaintiff, AED Oil, and a director of the second plaintiff, AED Services) was liable as a concurrent wrongdoer with Mr Venables, having breached duties owed by him to the plaintiffs. In his counterclaim, Mr Venables alleged accessorial liability of Mr Dix and the plaintiffs under the Lamp Oil Trust case. The Lamp Oil Trust case relied upon the second limb of Barnes v Addy.[2] Mr Venables proposed to make similar concurrent wrongdoer allegations against Timothy Patrick Burke, a consultant to the plaintiffs.
[2](1874) LR 9 Ch App 244.

The allegations of breach of duty against Mr Dix fell into two categories. The first category culminated with an allegation that Mr Dix was a concurrent wrongdoer within the meaning of Part IVAA of the Wrongs Act 1958 (Vic). The second category involved a third party claim by Mr Venables for contribution from Mr Dix. The allegations of breach are not identical, although each category had a common objective – to attribute liability to Mr Dix as a concurrent wrongdoer having caused the plaintiff the same loss and damage as that alleged to have been caused by Mr Venables.

Minter Ellison also proposed to make concurrent wrongdoer claims against Mr Dix and Mr Burke. Their applications for leave to amend their defence and serve third party notices has been stood over to 15 February 2010.

Between 19 January and 15 February 2010 Mr Venables took the opportunity to reformulate his claims. When the matter resumed on 15 February 2010 Mr Dix, Mr Burke and Appleby & Dalton International Pty Ltd were represented by counsel and made application to strike out the breach of duty allegations contained in paragraphs 169 - 175 of Mr Venables amended defence; paragraphs 7, 8, 11, 13 and 15 of the third party statement of claim seeking contribution; paragraphs 184 – 187A in Mr Venables counterclaim (the Lamp Oil Trust case); and opposed the grant of leave to Minter Ellison to amend its defence and to file and serve its third party proceeding in which it proposed to allege concurrent wrongdoing by them. The plaintiffs also applied to strike out the Lamp Oil Trust case.

Argument proceeded on the assumption that the outcome in relation to the breach of duty allegations in Mr Venables’ amended defence would govern the outcome of the attack on the relevant parts of the contribution claim in the third party statement of claim.

Proportionate liability case

The allegations now advanced by Mr Venables in support of his proportionate liability case against Mr Dix are set out below. The amendments marked in the pleading are those made since 19 January 2010.

Proportionate Liability – Dix
169. Dix:
(a)is and at all relevant times has been the Executive Chairman of AED Oil Ltd (ACN 110 393 292) (AED Oil);
(b)since 15 November 2006, has been a director of AED Services Pte Ltd (AED Services);
(c)is qualified, at tertiary level, in each of law and economics; and
(d)has extensive experience in both recourses and corporate finance, has held executive positions at Shell, and has been in corporate advisory positions at each of UBS AG and Macquarie Bank.

170.In his capacity as Executive Chairman of AED Oil, Dix owed to AED Oil duties as follows:
(a)a duty to act with due care, skill and diligence;
(b)a duty to exercise his powers and discharge his duties as a director of AED Oil with the degree of care and diligence that a reasonable person would exercise if a director of AED Oil in the circumstances;
(c)a duty to exercise powers and discharge duties as a director of AED Oil in good faith in the best interests of AED Oil;
(d)a duty to exercise his powers and discharge his duties as a director of AED Oil for proper purposes.

171.In his capacity as a director of AED Services, Dix owed to AED Services duties as follows:
(a)a duty to act with due care, skill and diligence;
(b)a duty to exercise his powers and discharge his duties as a director of AED Services with the degree of care and diligence that a reasonable person would exercise if a director of AED Services in the circumstances;
(c)a duty to exercise powers and discharge duties as a director of AED Services in good faith in the best interests of AED Services.

172.Dix breached the duties he owed to each of AED Oil and AED Services, set out above.
Particulars
The facts and circumstances constituting the said breaches of duty are as follows:
(a)Dix permitted negotiations in relation to the FPSO Charter Contract to be concluded in the space of one week, notwithstanding that:
(i)its terms were complex;
(ii)the terms proposed by Sea Production were substantially different and less advantageous to it compared to a model contract prepared by Back and Minter Ellison prior to the commencement of and for the purposes of the negotiation;
(iii)the amount of the contract was substantial;

(b)Dix ~~appointed~~ permitted the appointment, further or in the alternative did not take any steps to prevent the appointment of a General Counsel, Back, with inadequate experience;
(c)Dix, having ~~appointed~~ permitted the appointment of Back, further or in the alternative, having failed to take any steps to prevent the appointment of Back:
(i)inappropriately allocated tasks to her unsuited to a General Counsel with legal skills only;
(ii)failed properly to supervise, further or in the alternative to supervise that others (both other management and external consultants) supervised Back in her employment roles;

(d)Dix assumed responsibility to advise AED Oil on financial terms in respect of the FPSO Charter Contract;

(e) notwithstanding this, Dix:
(i)failed to advise that article 2 of Appendix C to the FPSO Charter Contract did not reflect the agreement AED Oil considered that it had made with Sea Production in or about October 2005;
(ii)further, failed to identify that Sea Production could conceivably have intended to make a return as low as 12% (inclusive of its actual financing costs which were at that time unknown) of the (direct) Capex cost (in particular, having regard to the effective cost and return required by Commonwealth Bank of Australia to provide a bridging facility to purchase the MV Gerritta at the relevant time);

(f)further, in relation to the US$160,000 day rate estimated by Sea Production to be payable under the terms of the FPSO Charter Contract, Dix neither made nor caused to be made by any others (encompassing both other management and external consultants) any adequate financial analysis of applicable costings involved in the said rate.

173.In these premises, if (which is denied) Venables is liable to the Plaintiffs, or one or more of them, in respect of the said apportionable claim, then Dix is a person who is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage the subject of the said apportionable claim.
174.Accordingly, Dix is a concurrent wrongdoer, within the meaning of Part IVAA of the Wrongs Act 1958 (Vic).
175.By reason of the matters set out in paragraphs 166 – 174 above, if (which is denied) Venables is liable to the Plaintiffs, or one or more of them, in respect of the said apportionable claim, the liability of Venables is limited to an amount reflecting that proportion of the loss that the Court considers just, having regard to the extent of Venables’ responsibility for the said loss, pursuant to Part IVAA of the Wrongs Act 1958 (Vic).

The third defendant, Minter Ellison, made a similar, although not identical, claim against Mr Dix.[3] Minter Ellison sought leave to file and serve a proposed amended defence and counterclaim and to file and serve a third party notice of contribution incorporating substantially the same allegations.[4]
[3]See paragraphs 165-170 of Minter Ellison’s proposed amended defence and counterclaim.
[4]See paragraphs 3 - 6 and 22 of Minter Ellison’s proposed third party statement of claim against Mr Dix.

Mr Venables and Minter Ellison submitted that the formulation of their claims against Mr Dix, in which they allege breaches of his duties as director of the plaintiffs, involve a conventional application of the statutory regime in Part IVAA of the Wrongs Act. They alleged that Mr Dix was a concurrent wrongdoer whose acts or omissions caused the loss and damage that is the subject of the claim by the plaintiffs against Mr Venables and Minter Ellison.

The breaches of duty by Mr Dix, alleged by Mr Venables in his amended defence, distil to allegations of commercial misjudgement in the appointment of Ms Back as general counsel when he knew that negotiations in relation to the FPSO Charter Contract would be complex and significant. Further, having assumed responsibility to advise AED Oil on financial terms in respect of the FPSO Charter Contract it is alleged that Mr Dix failed to identify, or advise in relation to, certain anomalies in the contract and made no financial analysis of a day rate payable under the contract.

Mr Venables and Minter Ellison both described the loss and damage flowing from the alleged breaches of duty by Mr Dix by reference to the plaintiffs’ formulation of their damages claims against them. The convenience of such an approach is obvious although entirely self-serving. It does not assist any real analysis of the fundamental question as to whether the allegation of “same damage” was viable.

In the case of Mr Venables, he alleged that “Dix is a person who is one of two or more persons whose acts or omissions caused, independently of each other or jointly, the loss or damage the subject of the said apportionable claim”. The “said apportionable claim” referred back to the plaintiffs’ statement of claim. In the plaintiffs’ statement of claim the allegation of loss and damage against Mr Venables is at paragraph 101B.6F. The loss and damage was said to be caused by Mr Venables’ failure to advise AED Oil that Ms Back intended to participate in a corporation that would acquire an equity interest in PDC Pty Ltd. The particulars conclude,

(ii)AED Oil’s loss and damage is accordingly the loss and damage occasioned by reason of not having done the things referred to in sub-paragraph (1).
(iii)That loss and damage includes the loss and damage referred to in paragraph 93 above, to the extent that it occurred after the date on which Mr Venables breached the said duty.

Paragraph 93 refers to delays and cost overruns in the performance by PDC Singapore of the joint venture works. The particulars under paragraph 93 are as follows:

(i)Neither AED Oil nor AED Services has been able, as at the date of this amended statement of claim, to secure from PDC Singapore an indemnity in respect of the loss and damage referred to in the particular sub-joint paragraph 89J above.
(ii)Some of that loss and damage may be recovered as a result of the claims made in the counterclaim in the WA Proceeding.
(iii)It would have been necessary to attempt to recover that loss and damage by way of counterclaim in the WA Proceeding if the Installation Contract had contained protections of the kind referred to in the particulars subjoined to paragraph 90E above; alternatively, the loss and damage would have been able to be more fully, easily and cost-effectively recovered.
(iv)The plaintiffs’ loss and damage is the whole of the loss and damage referred to in the particulars subjoined to paragraph 89J above, less any amount recovered in the counterclaim in the WA Proceeding, plus the costs and expenses incurred in relation to the recovery or attempted recovery of the loss and damage in the WA Proceeding.
(v)Further particulars will be provided at the time of provision of expert reports as to quantum.

Paragraph 89J alleges loss and damage through significant delays in the performance by PDC Singapore of the joint venture works. It is alleged that the delays would not have occurred had different contractors been appointed to perform the works. Thus, Mr Venables attributes concurrent liability to Mr Dix for the cost overruns and delays brought about by the appointment of PDC Singapore as contractor and a failure to renegotiate the arrangements which were commercially unfavourable because of the appointment of Ms Back and Mr Dix’ failure to identify commercial disadvantages in the contract.

Minter Ellison adopted a different approach. It alleged that the breaches of duty by Mr Dix “caused the loss or damage that is the subject of the FPSO Charter Contract claim”. By that reference Minter Ellison adopted paragraphs 69 - 79A of the plaintiffs’ amended substituted statement of claim. Those paragraphs make allegations against Mr Venables and Minter Ellison in connection with the drafting of the Charter Contract. In that respect its position is quite different to that of Mr Venables’ breach of duty case against Mr Dix. The loss and damage alleged in paragraph 79 is as follows:

The plaintiffs’ loss and damage is:
(i)the amount of the Amended Capex Return on Sea Production’s financing costs in connection with the conversion of the Front Puffin paid by AED Oil and AED Services, namely (to 30 June 2007) USD$7,458,888. The loss is continuing. Further particulars will be provided before trial.
(ii)the costs and expenses incurred by AED Oil and AED Services in relation to the dispute referred to in paragraph 74 above, including the cost of the Clayton Utz advice referred to in paragraph 76 above and the costs and expenses of the amendments to the FSPO Charter Contract referred to in paragraph 78(b) above.

Minter Ellison formulated the breach by Mr Dix as follows:

170.In failing to instruct or advise Minter Ellison of the matters alleged in paragraph 169(e) above and in engaging in the conduct alleged in paragraph 169(a) to (d) and (f) above, Dix:
(a)breached the duties referred to in paragraphs 166 and 167 above;
(b)thereby caused the loss or damage that is the subject of the FPSO Charter Contract Claim.

The relevant conduct is Mr Dix’ failure to properly manage the approval process for the Charter Contract including instructions to Minter Ellison.

Mr Dix submitted that the allegations made against him presuppose that he was acting in his capacity as a director. He argued that the claims by Mr Venables and Minter Ellison should be confined to claims for contributory negligence of the plaintiffs. He further submitted that the loss and damage which the plaintiffs claim to have suffered as a consequence of his actions is not the same loss and damage they claim to have suffered as a consequence of the breach by Mr Venables and Minter Ellison.

The principles applicable to an application to strike out a claim are well understood and not in dispute.[5] Insofar as a party seeks to strike out a claim made by another party the applicant ordinarily bears the onus of demonstrating that it is:

… so obviously untenable that it cannot possibly succeed; manifestly groundless; so manifestly faulty that it does not admit of argument; discloses a case which the Court is satisfied cannot succeed; under no possibility can there be a good cause of action; be manifest that to allow them (the pleadings) to stand would involve useless expense.[6]

[5]Dey v Victorian Railways Commissioners (1948) 78 CLR 62; Little v Law Institute of Victoria (No 3) [1990] VR 257; Hubbuck & Sons Ltd v Wilkinson Heywood & Clark Ltd (1899) 1 QB 86; Mutual Life and Citizens Assurance Co Ltd v Evatt (1970) 122 CLR 628; Batistatos v Roads and Traffic Authority of NSW (2006) 226 CLR 256; 275.

[6]General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 129, 130.

In Dey v Victorian Railways Commissioners, Dixon J said:[7]

A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court with or without a jury. The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. But once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it, then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process.

[7](1948) 78 CLR 62, 90

The applications before the court might have been characterised as strike out applications by Mr Dix and the plaintiffs, and an application by Mr Venables for leave to amend. In the circumstances of this case it was not appropriate to impose on Mr Dix and the plaintiffs the onus of demonstrating that the causes of action were untenable. Mr Venables had been granted leave to make the amendments, add Mr Dix as a defendant by counterclaim and to serve third party notices of contribution as a convenience to allow full argument to take place after Mr Dix had been served with all relevant material. Mr Venables had reformulated his defence, counterclaim and third party statement of claim. With the advantage of full argument by all interested parties the significance of an onus, ordinarily imposed on an applicant, lost its force.

In St George Bank Ltd v Quinerts Pty Ltd[8] Nettle JA undertook a brief review of what he described as, in effect, the national cooperative scheme to overcome what were perceived to be undesirable consequences of the joint and several liability rule. His Honour referred to Alexander v Perpetual Trustees WA Ltd,[9] setting out the following passage in which the High Court referred with approval to the decision of the House of Lords in Royal Brompton Hospital NHS Trust v Hammond:[10]
[8][2009] VSCA 245.
[9](2004) 216 CLR 109.
[10][2002] 1 WLR 1397.

The evident remedial purpose of the legislation has been relied upon, in both the United Kingdom and this country, to support what is said to be a wide or broad interpretation of the statutory right and remedy which it created. Such expressions mask the requirement that the legislation be given its proper construction having regard to its purpose and scope. The new statutory right and remedy do not operate at large. Rather, they are available only to a party who meets the criteria specified in Pt IV. In Royal Brompton Hospital, Lord Bingham of Cornhill said of the UK Act:
When any claim for contribution falls to be decided the following questions in my opinion arise. (1) What damage has A suffered? (2) Is B liable to A in respect of that damage? (3) Is C also liable to A in respect of that damage or some of it?

[Translated to the present appeal, A represents the plaintiffs, B the respondents, and C Minter Ellison.]
Where a person has suffered damage in connection with some transactions or events involving the wrongful conduct of others, the statutory creation of rights of contribution between the wrongdoers seeks to address the injustice that may result in some cases if the victim, by his or her selection of defendants, could throw the burden of liability on to one or some of the wrongdoers, to the exclusion of the others. A policy of preventing or limiting such injustice will require a legislature to make choices between different methods of giving effect to that policy. Those choices will be reflected in the terms of the legislation. The Act directs attention to a common liability by using in s 23B the expression ‘in respect of the same damage’. This is a narrower concept than that of liabilities arising out of, or by reason of, the same transactions or related transactions. In resolving questions of construction of the legislation, it is not to be assumed that the legislative purpose is always to provide the widest possible sharing of liabilities, actual or potential, real or hypothetical.[11]

[11]Citations omitted.

In Royal Brompton Hospital, the House of Lords drew a distinction between the claim by the hospital against a builder for damages for delay in the completion of a building and the claim by the hospital from the project architects for damages for negligence in certifying for time extensions, thus compromising the ability of the hospital to recover damages for delay from the builder. There is a degree of similarity between the analysis of the circumstances in Royal Brompton Hospital and Mr Venables’ case against Mr Dix. Let it be assumed that the loss and damage claimed to have been suffered by the plaintiffs as a consequence of the conduct of Mr Venables and the breach of directors duties arose out of or by reason of the same transactions or related transactions, there remained a real question as to whether it could be said that the plaintiff suffered the same damage in respect of those breaches.

The loss relied upon by Mr Venables was that alleged against him by the plaintiffs in paragraph 101B.6F of their statement of claim. That loss arose from his failure to warn the plaintiffs of Ms Back’s intention to participate in the acquisition of a business opportunity in breach of her duty to the plaintiffs. “That loss and damage”[12] was said to include loss suffered as a consequence of delays and cost overruns in the performance by PDC Singapore of the joint venture works. The plaintiffs alleged that those delays would not have occurred if PDC Singapore had not been the contracting party appointed by Ms Back, who was appointed by Mr Dix.
[12]Plaintiffs’ statement of claim para 101B.6 particular (iii).

The plaintiffs’ case does not obviously connect the failure to warn with the delay cost. The alleged breaches by Mr Dix predate the Charter Contract. Mr Venables’ failure to warn post dated the Charter Contract. The plaintiffs pleading does not provide any insight into how the delay costs are attributable to a failure to warn. Mr Venables did not seek to rely upon the “FPSO Charter Contract claim” as Minter Ellison did – perhaps because it was not obviously part of the claim against him in paragraph 101B.6F.

I am not required to do more at this stage of the proceeding than to decide whether Mr Venables’ claim against Mr Dix is so manifestly faulty that it does not admit of argument. I am not persuaded that merely because Mr Dix may have been acting as a director of the plaintiffs, Mr Venables should be confined to rely upon his conduct as that of the company to allege contributory negligence. Directors duties extend beyond a duty of care.

It should also be remembered that the case against Mr Dix has been developed a little further by Minter Ellison, who seek to rely upon the FPSO Charter Contract claim and also rely upon his conduct as an employee of Appleby & Dalton Pty Ltd. The Minter Ellison case against Mr Dix does not suffer from the same tenuous connection as does Mr Venables’ case. Mr Venables was a member of that firm at the relevant time. I am not persuaded that the Minter Ellison breach of duty case against Mr Dix is so obviously untenable that it cannot possibly succeed.

While I have serious reservations about Mr Venables’ case as presently formulated, I am not persuaded that it is hopeless. In the circumstances I propose to allow the breach of duty cases to proceed to trial.

Lamp Oil Trust Case

The Lamp Oil Trust case had its origin in terms of settlement between the plaintiffs and some of the defendants recorded in a settlement and release deed made in late October 2009. Mr Venables was not a party to that deed and did not benefit financially or as a consequence of any release. He alleged that a financial benefit paid to some defendants, who were beneficiaries of the Lamp Oil Trust, should have been paid to the trustee, Equinox Energy Pty Ltd, the fourth defendant. Mr Venables is a beneficiary under the Lamp Oil Trust, holding four (25%) of the units.

Mr Venables alleges a breach by the trustee of its fiduciary obligations by its failure to ensure that the payments made to Ms Back, Mr Hoie and Mr Johnson, who were also beneficiaries under the trust and defendants in this proceeding, were paid to the trustee. He also alleged that the trustee wrongfully gave up a valuable claim against AED Oil and Puffin Installation Services Pte Ltd brought in the Supreme Court of Western Australia.

Mr Venables does not make any claim against the trustee, confining his claim to allegations of accessorial liability against the plaintiffs and Mr Dix. In paragraphs 184 – 187A Mr Venables pleaded the trust deed, its terms, the identity of the trustee and unit holders and the directors of the trustee, who are Mr Hoie and Mr Johnson. Having alleged that the trustee owed fiduciary duties to the unit holders Mr Venables pleading continued:

Knowledge – Lamp Oil Trust
189.Immediately prior to 23 October 2009, and in fact at all times since (at the latest) 30 October 2008, each of AED Oil Ltd, AED Services Pte Ltd and David Russell Dix in fact knew that:
(a)the Lamp Oil Trust was a unit trust;
(b)Equinox Energy was the trustee of the Lamp Oil Trust;
(c)as trustee, Equinox Energy owed to each of the unit holders in the Trust fiduciary duties to act fairly in relation to each unit holder, and to act impartially in exercising powers for the purposes for which they were given;
(d)Andrew Venables held one quarter of the units issued in the Lamp Oil Trust;
(e)Elizabeth Back held one quarter of the units issued in the Lamp Oil Trust;
(f)Petter Hoie held one quarter of the units issued in the Lamp Oil Trust;
(g)Michael Johnson held one quarter of the units issued in the Lamp Oil Trust.

190.Further, immediately prior to 23 October 2009, each of AED Oil Ltd, AED Services Pte Ltd and David Russell Dix knew that, in proceedings initiated in the Supreme Court of Western Australia, each of PDC Pte Ltd and Equinox Engineering & Installations Pty Ltd made claims against each of Puffin Installation Services Pte Ltd and AED Oil Limited.
Dealing in Trust Property
197.In these premises, in entering into the Settlement Deed, Equinox Energy has dealt with property of the Lamp Oil Trust.
Preferential Treatment
198.In:
(a)negotiating the terms of the Settlement Deed; and
(b)entering into the Settlement Deed,

Equinox Energy breached the fiduciary duties it owed to Venables, (in his capacity as a unit holder in the Lamp Oil Trust).
Particulars of breach
(i)the payment referred to in clause 3.5 of the Settlement Deed ought to be made to Equinox Energy, as trustee of the Lamp Oil Trust, but instead and to the contrary, will be made to the Equinox Parties;
(ii)the release and discharge by the Equinox Parties set out in clause 5.2 of the Settlement Deed is unfair to Venables as a unit holder in the Lamp Oil Trust, and favours the other beneficiaries in the Lamp Oil Trust, in circumstances where:
(A)the agreement to pay a sum of money set out in clause 3.5 is not an agreement to pay Equinox Energy, but instead is an agreement to pay the Equinox Parties;
(B)further to (A), the value of the claims in the Western Australian proceeding the subject of the release is substantially greater than the agreement to pay to the Equinox Parties set out in clause 3.5(b).

(iii)further, although the AED Parties gave to each of Elizabeth Back, Petter Hoie and Michael Johnson a release and discharge (Settlement Deed, clause 5.1), Equinox Energy did not seek to negotiate and obtain for the benefit of Venables a release and discharge equivalent to that set out in clause 5.1 of the Settlement Deed, and Venables, accordingly, lost the opportunity to obtain such a promise from the AED Parties.

Knowledge – Preferential Treatment
198A.Each of AED Oil Ltd, AED Services Pte Ltd and David Russell Dix knew that:
(a)the promise to pay set out in clause 3.5(b) of the Settlement Deed was a promise to pay to the “Equinox Parties”;
(b)the promise to pay set out in clause 3.5 of the Settlement Deed was not a promise to pay Equinox Energy, as the trustee of the Lamp Oil Trust;
(c)the Equinox Parties included Elizabeth Back, Petter Hoie and Michael Johnson;
(d)the Equinox Parties did not include Andrew Venables; and
(e)at no time prior to entering into the Settlement Deed did Equinox Energy in its capacity as trustee of the Lamp Oil Trust, seek to negotiate and obtain for Venables a promise, of the type conferred on (inter alia) Elizabeth Back, Petter Hoie and Michael Johnson under clause 5.1 of the Settlement Deed.

Knowing Assistance
199.By reason of the matters set out above, in entering into the Settlement Deed, each of:
(a)AED Oil Ltd;
(b)AED Services Pte Ltd; and
(c)David Russell Dix,

Knowingly assisted Equinox Energy to breach the fiduciary duties it owed to Venables, as a unit holder in the Lamp Oil Trust.
Relief
200.In the premises, each of AED Oil Ltd, AED Services Pte Ltd and David Russell Dix is liable in equity to compensate Venables, further or in the alternative to account for profits derived by reason of the breach of fiduciary duties.

Mr Venables maintained that his Lamp Oil Trust case pleaded a cause of action under the second limb of Barnes v Addy. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd[13] the High Court said,

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.[14]

[13](2007) 230 CLR 89.

[14]Ibid at [160].

The plaintiffs and Mr Dix, who are each to be made liable in equity to compensate Mr Venables, submitted that the claim as pleaded was deficient in that it did not allege facts to support the cause of action. They did not submit that it was not appropriate to bring that claim in this proceeding. The introduction of the Lamp Oil Trust case adds a new dimension to an already complex case that has little to connect it with the substantive dispute except for an overlap between some parties. In my view it ought to have been brought, if at all, as a separate proceeding.

The plaintiffs and Mr Dix did not contend that the employment of the words “dishonest and fraudulent design” were necessary. They submitted, however, that Mr Venables was at least required to plead facts from which a dishonest and fraudulent design might be inferred, together with knowledge of those facts.

In Barlow Clowes International Ltd (in liq) v Euro Trust International Ltd,[15] Lord Hoffman formulated the question for the court thus - does the evidence disclosed that the persons alleged to have knowingly assisted had “consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour”.
[15][2006] 1 WLR 1476 at 1481.This test was adopted by the High Court in Farah Constructions at [165].

The High Court in Farah Constructions continued,

What then of the phrase “dishonest and fraudulent design”? Since the widening of the second limb of Barnes v Addy beyond breaches of express trust, attempts commonly are made in corporate insolvencies to render liable on this footing directors, advisers and bankers of the insolvent company. This makes a proper understanding of the second limb important, lest its application prove unjust. As Lord Selborne LC said in Barnes v Addy (1874) LR 9 Ch App 244 at 251: “There would be no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them.” The relevant passages in Consul establish for Australia that “dishonest and fraudulent designs” can include not only breaches of trust but also breaches of fiduciary duty; but any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent.

The proposed cause of action arises out of a settlement and release deed between the plaintiffs, Puffin IS, Mr Dix and the Equinox parties who are defendants in this proceeding. The settlement and release deed recorded the terms of a compromise by the plaintiffs and some of the defendants in relation to issues in this proceeding and the proceedings in Western Australia.

Mr Venables alleged that the trustee breached its fiduciary duty to him by failing to ensure that he participated in the proceeds from the settlement as a beneficiary under the trust. He was prejudiced by the fact that settlement funds by-passed the trustee and that it gave up its claim in the Western Australia Supreme Court. The “knowing assistance” case is predicated on knowledge by the plaintiffs and Mr Dix of the trust, the trustees’ obligations to unit holders, Mr Venables’ position as a unit holder, the existence of the Western Australia proceedings, the terms of the settlement and release deed and the fact that Mr Venables did not participate in the flow of funds under the settlement and release deed.

In my opinion the facts alleged, if proved, do not go far enough to establish a dishonest and fraudulent design or a breach of fiduciary duty that was dishonest and fraudulent. The alleged breach assumes that the flow of funds ought to have been paid to the trustee, that any value in the Western Australia proceeding ought to have been preserved and that the trustee should have negotiated a release for Mr Venables. The basis for these assumptions is unclear and was not explained. Why were the funds required to be paid to the trustee? Even if they were, what was it that made bypassing the trustee a fraudulent or dishonest design? Why was the trustee required to negotiate a release on behalf of Mr Venables? Why was the trustee not entitled to compromise a claim made in litigation? There was no allegation of purpose or knowledge that what was being done was designed to deprive Mr Venables of something which he would or might, but for the breach, have been entitled. The allegations seem to assume a relationship between the trustee and the unit holders beyond that of trustee and beneficiary. If such a relationship is to be relied upon it is not explained.

While it is true that those alleged to have knowingly assisted a dishonest and fraudulent breach need not themselves have acted dishonestly or fraudulently, they must know of the essential facts that make the breach of trust dishonest or fraudulent. Such facts are not alleged. As presently formulated, the Lamp Oil Trust case does not rise above an allegation that the plaintiffs and Mr Dix knew that Mr Venables would not benefit from the settlement and release deed.

In my opinion the Lamp Oil Trust case, as presently pleaded, is bound to fail and should be struck out.

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Citations

AED Oil Ltd v Back (No 2) [2010] VSC 43

Cases Citing This Decision

0

Cases Cited

2

Statutory Material Cited

0

St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245

Alexander v Perpetual Trustees WA Ltd [2004] HCA 7

[2010] VSC 43

25 February 2010