Angas Securities Ltd v Cardiff Capital Pty Ltd

Case •

[2022] WASC 95

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   ANGAS SECURITIES LTD -v- CARDIFF CAPITAL PTY LTD [2022] WASC 95

CORAM:   MASTER SANDERSON

HEARD:   15 NOVEMBER 2021

DELIVERED          :   15 FEBRUARY 2022

PUBLISHED           :   15 FEBRUARY 2022

FILE NO/S:   CIV 2012 of 2015

BETWEEN:   ANGAS SECURITIES LTD

Plaintiff

AND

CARDIFF CAPITAL PTY LTD

First Defendant

MATTHEW JOHN HOWER

Second Defendant


Catchwords:

Practice and procedure - Application to strike out amended statement of claim - Turns on own facts

Legislation:

NIL

Result:

Claim struck out in part

Category:    B

Representation:

Counsel:

Plaintiff : TC Russell
First Defendant : CS Williams
Second Defendant : CS Williams

Solicitors:

Plaintiff : Charlton Rowley
First Defendant : Solomon Brothers
Second Defendant : Solomon Brothers

Case(s) referred to in decision(s):

Barnes v Addy (1874) LR 9 Ch App 244

Young Investments Group Pty Ltd v Mann [2012] FCAFC 107

MASTER SANDERSON:

  1. This is an application to strike out certain parts of an amended statement of claim.  The original application was made by letter on 2 August 2021 and related to an amended statement of claim filed 8 July 2021.  Submissions were lodged by the defendants on 20 September 2021 and answering submissions were filed by the plaintiff on 5 November 2021.  The plaintiff then resolved to further amend the statement of claim.  A document described as 'further revised final substituted statement of claim' was filed by the plaintiff on 15 November 2021.  I will refer to that document as 'SSOC'.  The SSOC had been provided to the defendants sometime prior to its lodgement.  The defendants lodged an outline of submissions addressing deficiencies they allege in the SSOC.  The matter was thus able to proceed even though the SSOC was lodged on the date of the hearing. 

  2. Before detailing the SSOC and the defendants' complaints, I should note that the principles applicable to strike-out applications were not in dispute.  They were summarised in pars 3 through to 10 of the defendants' submissions filed 20 September 2021.  Without repeating what was said in those submissions, I have applied those principles to this application. 

  3. The overall structure of the SSOC can be summarised in this way.  The plaintiff sues as a signee of CM Jolly Pty Ltd (CMJ) and Waikiki Asset Pty Ltd (Waikiki) for alleged breaches of duties owed to CMJ or Waikiki by the first defendant arising out of four separate transactions in which CMJ or Waikiki advanced funds to the first defendant to lend to a third party.  It is alleged that in making these loans, the first defendant acted as trustee for CMJ or Waikiki.  I would note in passing that the claim as pleaded is somewhat unusual.  It would not be surprising if CMJ or Waikiki had advanced funds to the first defendant with the first defendant to advance funds to third parties.  That might be an agency relationship or it might simply be a contractual relationship, as the loans being made by CMJ and Waikiki were on certain terms and conditions.  But that is not what is pleaded here.  What is pleaded is a series of trusts with the first defendant as trustee for CMJ and Waikiki. 

  4. The plaintiff pleads that at all material times the first defendant had two directors - the second defendant and Paul Stephen McCarthy.  The second defendant is sued on the basis that he has accessorial liability for the first defendant's alleged breaches of trust.  Mr McCarthy is not sued. 

  5. Paragraphs 4 and 5 of the SSOC plead the position of CMJ, Waikiki and the third party borrowers.  Paragraphs 6 to 8 of the SSOC plead four trusts pursuant to which the plaintiff says the first defendant received monies from CMJ or Waikiki and pursuant to which the first defendant held its rights of repayment from the third party borrowers and its securities for such repayment on trust for CMJ or Waikiki.  The alleged conduct of the first defendant with respect to each individual trust is pleaded at pars 9 to 18 (the VFE Trust), pars 19 to 30 (the GIC Trust), pars 31 to 42 (the Green Trust) and pars 43 to 53 (the GEH Trust).  The pleadings of the alleged breaches of each of the four trusts are not identical and the conduct alleged against the first defendant and the specific duties breached vary between each trust.  However, there is a significant degree of commonality in the conduct alleged of the first defendant with respect to each of the four trusts. 

  6. There is an alternative claim for money had and received in par 54.  That paragraph is not relevant to the present strike out application.  Paragraph 55 pleads the assignment of CMJ's and Waikiki's causes of action to the plaintiff.  Again, that is not presently relevant.  The claim against the second defendant for accessorial liability for the first defendant's alleged breaches of trust is pleaded in par 56.  This was the main focus of the defendants' strike out application.  However, issue was taken with a number of other paragraphs and it is convenient to deal with these matters before considering the accessorial liability claim. 

  7. The defendants complain that pars 9.6 and 12, 19.5 and 24, 31.5 and 36 and 43.5 and 47 are inconsistent pleadings of breaches of duties.  The defendants' position can be illustrated by reference to the VFE Trust which is pleaded in par 9.  Paragraph 9 pleads the terms of the VFE Trust instrument by which it is alleged that one of the four trusts was established.  There is a similar pleading of the terms of the instruments alleged to establish the other three trusts.  One of the terms of each instrument that is pleaded for each of the four trusts is a term prescribing actions to be taken by the first defendant 12 months after the defendant received the advance of monies from CMJ or Waikiki.  For the VFE Trust, this term is pleaded in par 9.6.  That term reads as follows:

    9.6Twelve (12) months following the advance by CMJ to the Trustee of the VFE Funds, the VFE Trust would vest and the Trustee would realise the corpus of the VFE Trust and distribute it to CMJ by taking steps to.:

    9.6.1.To the extent that the VFE Funds had not been loaned by the Trustee, or loaned by the Trustee and subsequently repaid by or recovered from VFE, pay those moneys to CMJ; and/or

    9.6.2.To the extent that the VFE Funds had been loaned by the Trustee but not repaid by or recovered from VFE:

    9.6.2.1.Realise the VFE Securities and pay any moneys to CMJ; and

    9.6.2.2.Enforce the VFE Guarantees and pay any moneys to CMJ; or

    9.6.2.3.Alternatively, assign the Trustee’s rights under the VFE Securities and the VFE Guarantees to CMJ.

  8. The defendants say that sub-pars 9.6.2.1 and 9.6.2.2 on the one hand, and sub-par 9.6.2.3 on the other hand, are fundamentally inconsistent with each other.  It is said the first defendant could not both enforce the 'VFE securities' and 'VFE guarantees' and simultaneously assign them to CMJ.  Clearly, that is why sub-par 9.6.2.3 is pleaded in the alternative. 

  9. In par 12 the plaintiff pleads conduct which it alleges breached the 'Trust Duties' which are pleaded in par 8.  That conduct is then linked to specific Trust Duties in par 13.  In pars 12.2 and 12.3 the plaintiff pleads the first defendant breached the Trust Duties by failing on or after 15 April 2010 - that is 12 months after CMJ advanced the funds to the first defendant - to realise and distribute the corpus of the VFE Trust or to enforce the 'VFE guarantees' or 'VFE securities'. 

  10. The defendants say this advances two inherently inconsistent cases as to what the first defendant was required to do after the expiry of 12 months has resulted in the pleading of breaches in par 12, which is inconsistent with the allegation of the terms of the VFE facility in par 9.6.2.  Specifically, pars 12.2 and 12.3 are directly inconsistent with sub-par 9.6.2.3.  Further, it is said there is no pleading of a failure by the first defendant to assign to CMJ the first defendant's rights under the VFE securities and the VFE guarantees.  The defendants say the result is a confusing, inconsistent and embarrassing pleading which alleges the first defendant did wrong after the expiry of 12 months from the VFE advance. 

  11. It is the case that the pleading is not a model of clarity.  That may arise from this rather complex pleading of a trust arrangement.  However, any difficulties occasioned by the plea will disadvantage the plaintiff.  The defendants know the case they have to meet.  In essence, it is quite simple.  The plaintiff alleges the failure of the first defendant to take action after the 12 month period renders it liable to the plaintiff.  The difficulties with the pleading, while real enough, are matters of form rather than substance and I would not strike-out the paragraphs complained of.  In essence, the complaint made in relation to the four trusts is the same and with respect to each, the pleading can stand. 

  12. The plaintiffs seek to strike-out pars 14.1, 26.1, 38.1 and 48.1 of the SSOC.  The background to this part of the application begins with par 8 of the SSOC.  That paragraph is in the following terms:

    8.Further to the duties prescribed by the Trustees Act 1962 (WA), and on account of the matters pleaded in paragraphs [6] and [7] herein, the Trustee owed certain duties to CMJ and/or Waikiki as follows ("the Trust Duties") in respect of each of the Trusts:

    8.1.A duty to invest trust funds properly and according to the terms of the Instruments using care, skill and diligence ("the Investment Duty").

    8.2.A duty to exercise reasonable care in the management of the business of the Trusts and to exercise the same diligence and prudence as an ordinary prudent man of business would exercise in conducting their own business ("the Management Duty").

    8.3.A duty to preserve the value of the trust assets ("the Preservation Duty").

    8.4.A duty to keep and render proper accounts and to give full and complete information when required or requested by CMJ and/or Waikiki, as the case may be ("the Records Duty").

    8.5.A duty not to deal with trust property for its own benefit or make a profit ("the No Profit Duty").

    8.6.A duty to act gratuitously unless otherwise stated in the terms of the Instruments and, without informed consent, to avoid conflict or a real or substantial possibility of conflict with the interests of CMJ and/or Waikiki ("the No Benefit Duty").

  13. The paragraphs complained of relate to the four separate trusts.  The nature of the defendants' complaints can be illustrated by reference to the VFE Trust.  By par 12, the plaintiff alleges the trustee (the first defendant) breached the Trust Duties in a number of different ways.  By par 12.5, it is said the Trust Duties were breached by the first defendant providing the VFE Funds in circumstances where there was a registered mortgage on a property which took priority to the VFE securities.  That then leads to the alleged breach of the Trust Duties pleaded in par 14.1. 

  1. Paragraph 14.1 pleads that had the trustee 'discharged' the Trust Duties, CMJ would not have advanced the VFE Funds to the trustee.  The use of the word 'discharge' is unfortunate.  It presumably means (or is at least interchangeable with) an allegation of breach.  Given that the 'Trustee Duties', as defined in par 8, include six duties.  It is not entirely clear what the plaintiff says the trustee did wrong.  But in the circumstances, the pleading does have sufficient clarity to enable the defendants to know the case they have to meet.  I would not be prepared to strike out these paragraphs.

  2. The defendants also criticise the SSOC because it is said there is inconsistent pleading of breaches of duties.  By way of example, it is said the breach pleaded in pars 12.2 and 12.3 follows only the investment term.  The defendants say if the obligation of Cardiff was the investment term then what is pleaded in pars 12.2 and 12.3 would not constitute a breach.  Moreover, no conduct that would constitute a breach of the investment term is pleaded either in the alternative to pars 12.2 and 12.3 or otherwise. 

  3. The defendants' submissions on this issue are not without merit.  But the pleading itself, while somewhat complex, is relatively clear.  In other words, the constituent parts of the 'Trust Duties' are pleaded as are the alleged breaches.  The defendants may point to inconsistencies but they cannot really be in any doubt as to what is put against them.  It is also difficult to see that the pleading either raises a false issue or raises matters which will delay a fair trial of the action.  Accordingly, I am not satisfied that the pleading ought be struck out. 

  4. The defendants say the plaintiff is in fact pleading prescriptive fiduciary duties.  To make good this submission, it points to the plaintiff's written submissions which seeks to characterise the allegations of Cardiff failing to disclose particular matters as breaches of the 'Records Duty' and the 'Management Duty' rather than relying on a fiduciary duty to make disclosure.  The defendants say the 'Records Duty' could not possibly be breached by a failure to disclose matters of the sort complained of by the plaintiff.  The defendants point out this is not a case of the trustee failing to keep records of its dealings with trust property or produce them to the beneficiary or the court upon request.  Further, any such failure to make disclosure complained of could not constitute a breach of the 'Management Duty' because whether or not such matters were disclosed form no part of the management of the affairs of any trust by Cardiff.

  5. With respect, this criticism of the SSOC is a matter which really raises issues which should be determined at trial.  It is trite to say a pleading must disclose a party's case.  It must plead material facts which are said to give rise to a cause of action and if that cause of action is made out, the plaintiff is entitled to relief.  Here the pleading is sufficiently clear to allow the defendants to understand the case they have to meet.  I would not strike out any portion of the SSOC based upon the alleged pleading of prescriptive fiduciary duty. 

  6. The pleading of accessorial liability directed to the second defendant is found in para 56 of the SSOC.  The paragraph is complex and multi‑layered and I will quote it in full.  I do so with some hesitation but attempting to summarise the paragraphs risks not doing it justice.  It reads as follows (marking up omitted):

    56.Hower knowingly assisted the Trustee breach its duties as pleaded in paragraphs [13], [25], [37] and [48] herein as follows:

    56.0.The conduct and breaches of trust of the Trustee as pleaded in paragraphs [6] to [54] herein, and the formulation and implementation of that conduct, constituted a fraudulent and dishonest design ("the Design") on the part of the Trustee to deal with the assets of CMJ and/or Waikiki ("the Assets"):

    56.0.1.In a manner and on terms inconsistent with that disclosed to Jolly in the Instruments or otherwise.

    56.0.2.In breach of the Trust Duties as pleaded in paragraphs [13], [25] [37] and [48] herein.

    56.0.3.To procure the corpora of the Trusts for purposes other than for the purpose disclosed as pleaded in paragraph [9.2], [19.2], [31.2] and [43.2], or as agreed, and to the benefit of the Trustee, Hower and McCarthy or any of them.

    56.1.At all material times, Hower had knowledge ("the Hower Knowledge") of the Design and particularly the conduct of the Trustee as pleaded in paragraphs [12], [24] [36] and [47] herein.

    56.1.1.The Hower Knowledge was actual knowledge because of the matters pleaded in paragraphs [3], [10], [20], [32], [44] and [56.1B] herein.

    56.1.2.In the alternative to paragraph [56.1.1] herein, was deemed knowledge because of the matters pleaded in paragraphs [3], [10], [11], [20], [21], [32], [33], [44], [45] and [56.1B] herein.

    56.1.3.In the further alternative to paragraph [56.1.1] and [56.1.2] herein, was knowledge of Hower to be inferred because of the matters pleaded in paragraphs [3], [10], [11], [12], [20], [21], [24], [32], [33], [36], [44], [45], [56.1B] and [47] herein.

    56.1.4.In the further alternative to paragraphs [56.1.1] to [56.1.3] herein, was knowledge arising because Hower:

    56.1.4.1.Wilfully shut his eyes to the facts and matters pleaded in paragraphs [3], [12], [24], [36] and [47] herein; and, or in the alternative

    56.1.4.2.Wilfully and recklessly failed to make enquiries as an honest and reasonable person would make that would have demonstrated that the Trustee was engaged in conduct which was dishonest and in breach of the 32 duties pleaded in paragraphs [8], [13], [25], [37] and [48] herein.

    56.1.5.Yet further or in the alternative to the matters pleaded in paragraphs [56.1.1] to [56.1.4] herein, if, which is denied, Hower did not have the Hower Knowledge, Hower ought to have been aware of the facts and material matters pleaded in paragraphs [12], [24], [36] and [47] herein by reason of the matters pleaded in paragraphs [3], [10], [11], [20], [21], [32], [33], [44], [45] and [56.1B] herein which would indicate to a reasonable person that the Trustee was engaged in conduct which was dishonest and/or otherwise in breach of the duties pleaded in paragraphs [143], [25], [37] and [48] herein.

    56.1A.On a date prior to 2008, and in a manner known to Hower but not known to Angas, Jolly sold his business interests for an amount in the order of $40,000,000.00, which funds comprised in part the Assets and were thereafter available for investment.

    56.1B.On a date in 2008 known to the Defendants but not otherwise known to Angas, Hower and McCarthy met with Mr Murray Martin ("Martin") and Jolly to make certain statements to Jolly ("the Meeting"):

    Particulars

    (a)The Meeting took place at Coco’s Restaurant at the address of 85 The South Perth Esplanade, South Perth in the State of Western Australia on a date in 2008.

    (b)At the Meeting, the statements were conveyed to Jolly as follows or to the following effect:

    (i)Hower had the majority of shares in and was a founding director of Angas.

    (ii)Hower was also in control of other investment companies which provided higher rates of return on investment including Barker Mortgages Pty Ltd and the Trustee.

    (iii)While Angas, Barker Mortgages Pty Ltd and the Trustee were all separate entities, they were really one and the same and all operated out of the same offices.

    (iv)Jolly should consider investing with Hower in the Trustee because investment of the Assets in the Trustee would provide the best rates of return.

    56.1C.In reliance on the statements pleaded in paragraph [56.1B] herein, Jolly caused CMJ and Waikiki to invest in Hower and advance funds to the Trustee in the manner pleaded in paragraphs [6] to [8], [9.1], [11], [19.1], [21], [31.1], [33], [43.1] and [45] herein.

    56.2.By reason of the matters pleaded in paragraphs [2.3], [12], [24] [36], [47] and [56.1] to [56.1C] (inclusive) herein, and that:

    56.2.1.Hower and McCarthy were at all material times the controlling mind of the Trustee in the periods pleaded in paragraph [2.2] herein:

    Particulars

    (a)Angas repeats and relies upon the matters pleaded in paragraphs [10], [20], [32] and [44] herein subject to paragraph [57] herein.

    56.2.2.The disbursal of the VFE Funds, the GIC Funds, the Green Funds and the GEH Funds by the Trustee in the manner pleaded in paragraphs [12.1], [24.2], [36.3], [36.5] and [47.2] herein was conduct of Hower and, or in the alternative, conduct authorised by Hower;

    56.2.3.The refusal, failure or neglect of the Trustee to account to CMJ and Waikiki by sending statements or other written records in respect of the corpora of the VFE Trust, the GIC Trust, the Green Trust and the GEH Trust, notwithstanding the matters pleaded in paragraph [56.1] and elsewhere herein, was conduct of Hower and, or in the alternative, conduct authorised by Hower; and

    56.2.4.That the Trustee to did not take all reasonable steps to enforce the VFE Guarantees, the GIC Guarantees, the GIC Securities, the Green Guarantees, the GEH Guarantees and the GEH Securities was conduct of Hower and, or in the alternative, conduct authorised by Hower,

    56.3.Further, or in the alternative to the matters pleaded in paragraph [56.2] herein, it follows, or is therefore to be inferred that the conduct of the Trustee in deploying or using the corpora of the Trusts in part or in whole for purposes other than for the purpose disclosed as pleaded in paragraph [9.2], [19.2], [31.2] and [43.2], or as agreed, was conduct of Hower and, or in the alternative, conduct authorised by Hower in furtherance of the Design.

    56.3A.Yet further, or in the alternative to the matters pleaded in paragraphs [56.2] and [56.3] herein, Hower assisted the Trustee in furtherance of the Design by engaging in the following conduct:

    56.3A.1.He assisted the Trustee breach the Investment Duty as pleaded in paragraphs [13.1] to [13.3], [25.1] to [25.6], [37.1] to [37.3], [37.5], [37.6], [48.1], [48.2] and [48.5] herein by:

    56.3A.1.1.Providing the Instruments to CMJ and Waikiki (through Jolly) as pleaded in paragraphs [10], [20], [32] and [44] herein when he knew or ought to have known that the VFE Funds, the Green Funds, the GIC Funds and the GEH Funds would be lent by the Trustee to the borrowers pleaded in paragraphs [5.3] to [5.6] herein ("the Loans") on terms inconsistent with the Instruments as pleaded in paragraphs [12.1], [24.2], [36.3], [36.5] and [47.2] herein.

    56.3A.1.2.Failing, or acquiescing to the Trustee’s failure to prevent the Loans being made by the Trustee on terms inconsistent with the Instruments.

    56.3A.1.3.Failing, or acquiescing to the Trustee’s failure to obtain any authority from CMJ or Waikiki authorising the Trustee to make the Loans to borrowers on terms other than those contained in the Instruments.

    56.3A.1.4.Failing, or acquiescing to the Trustee’s failure to prevent the Trustee from lending the VFE Funds to VFE in the circumstances pleaded in paragraphs [12.1] herein.

    56.3A.1.5.Approving the Loans in response to the loan applications submitted for or on behalf of VFE, GIC, Green and GEH on terms inconsistent with the structure of the VFE Facility, the GIC Facility, the Green Facility and the GEH Facility as set out in the Instruments.

    56.3A.1.6.Procuring investment of the Assets from CMJ and Waikiki (through Jolly) with the Trustee in the period from 2009 to 2011 (inclusive) while knowing and withholding or failing to disclose the matters pleaded in paragraphs [56.3A.1.1] to [56.3A.1.5] herein, as the case may be, and in the circumstances pleaded in paragraphs [12], [22], [23], [35], [36], [46] and [47] herein.

    56.3A.2.The knowledge of Hower referred to in paragraph [56.3A.1] herein was the Hower Knowledge or, in the alternative, is to be inferred from the fact that the Trustee made the Loans on terms inconsistent with the structure of the VFE Facility, the GIC Facility, the Green Facility and the GEH Facility as set out in the Instruments.

    56.3A.3.He assisted the Trustee breach the Management Duty as pleaded in paragraphs [13.1] to [13.5], [25.1] to [25.8], [37.1] to [37.7] and [48.1] to [48.5] herein by:

    56.3A.3.1.Engaging in the conduct pleaded in paragraphs [56.1B], [56.2], [56.3], [56.3A.1] and [56.3A.2] herein.

    56.3A.3.2.Failing to cause, or acquiescing to the failure of, KWS or the Trustee to disclose the matters pleaded in paragraphs [12.5] herein to CMJ.

    56.3A.3.3.Failing to cause, or acquiescing to the failure of, the Trustee to disclose the matters pleaded in paragraphs [24.8] and [36.7] herein to CMJ.

    56.3A.3.4.Failing to cause, or acquiescing to the failure of, the Trustee to disclose the matters pleaded in paragraph [47.4] herein to Waikiki.

    56.3A.4.He assisted the Trustee breach the Preservation Duty as pleaded in paragraphs [13.1] and [13.3], [25.1], [25.3], [25.6], [37.1] to [37.3], [37.5], [48.1], [48.2] and [48.5] herein by:

    56.3A.4.1.Engaging in the conduct pleaded in paragraphs [56.1B], [56.2], [56.3], [56.3A.1] and [56.3A.2] herein.

    56.3A.5.He assisted the Trustee breach the Records Duty as pleaded in paragraphs [13.4], [25.7] and [25.8], [37.4], [37.6], [37.7], [48.3] and [48.4] herein by:

    56.3A.5.1.Engaging in the conduct pleaded in paragraphs [56.1B], [56.2], [56.3], [56.3A.3.2] and [56.3A.3.3] herein.

    56.3A.5.2.Failing to cause, or acquiescing to the failure of, the Trustee to provide accounting to CMJ and Waikiki for transactions made or dealings by it in respect of the corpora of the VFE Trust, the Green Trust, the GIC Trust and the GEH Trust, as the case may be, as pleaded in paragraphs [12.4], [24.7], [36.4] and [47.3] herein.

    Particulars

    (a)Angas is unable to provide further particulars including of the purposes to which the pleaded funds were deployed and the foregoing paragraphs until the Defendants have made full and complete disclosure and/or the filing of any expert report/s.

    56.4.Hower therefore assisted the Trustee breach the duties pleaded in paragraphs [13], [25], [37] and [48] herein:

    56.4.1.In that he engaged in the conduct pleaded in paragraphs [56.0] to [56.1C], [56.2] and [56.3] and [56.3A] herein;

    56.4.2.With the Hower Knowledge; and/or in the alternative

    56.4.3.In the circumstances pleaded in paragraph [56.1.5] herein.

  1. The second defendant says the starting point is that merely being a director of a company does not render a person liable for a breach by the company of obligations it has to third parties.  Something more is required.  This statement of principle is undoubtedly correct and it is at the heart of the second defendant's submissions.  Young Investments Group Pty Ltd v Mann[1] provides a clear statement of this principle.  The plaintiff, at least by inference, accepts this to be the case.

    [1] Young Investments Group Pty Ltd v Mann [2012] FCAFC 107 [58].

  2. The second defendant notes the allegation pleaded in the chapeau to par 56 is that the second defendant 'assisted' the first defendant to breach its duties as trustee of each of the four trusts.  But merely 'assisting' in a breach of a trustee's duties is insufficient to result in the imposition of liability upon the second defendant.  The second defendant can only be liable in two possible scenarios.  First, if he knowingly assisted in a dishonest and fraudulent design by the first defendant ‑ the so‑called second limb of Barnes v Addy.[2]  If that is to be established then four elements must be satisfied.  First, there must be the existence of a fiduciary duty owed by the first defendant.  Second, there must be a dishonest or fraudulent design by the first defendant.  Third, there must be assistance by the second defendant in that design.  Finally, there must be knowledge on the part of the second defendant of the circumstances constituting that design. 

    [2] Barnes v Addy (1874) LR 9 Ch App 244.

  3. The second scenario is that the second defendant procured or induced a breach of trust with knowledge that what he procured or induced constituted a breach of trust.  Liability on that basis required two elements to be satisfied.  First, intentional conduct on the part of the second defendant which caused and was intended to cause a breach of trust by the first defendant.  Second, the second defendant must have known he was bringing about a breach of trust.

  4. For a trustee to engage in a dishonest or fraudulent design, a finding of breach of trust will not itself be sufficient.  Something more is needed.  The necessary additional feature required is that the breach of duty be more than a trivial breach.  It must be a breach which is too serious to be excusable because the trustee had acted honestly, reasonably and therefore ought fairly be excused.  The requisite element of dishonesty and fraud on the part of the trustee is satisfied when there is a transgression of ordinary standards of honest behaviour. 

  5. Much judicial ink has been spilled attempting to define just what constitutes knowledge of a dishonest and fraudulent design.  Perhaps it is enough to say that it will be for the plaintiff to establish that the second defendant knew or ought to have known of the first defendant's dishonest and fraudulent design, yet went ahead and assisted the first defendant in its nefarious efforts.  As the second defendant points out, claims of dishonesty or impropriety are serious allegations which must be clearly pleaded and particularised.  An allegation of knowing participation in a dishonest and fraudulent design is one of grievous import and should not be made lightly. 

  6. The second defendant says the breaches of the Trust Duties pleaded in par 56 comprise alleged failures to comply with the requirements of the relevant trust instruments, failures to preserve the value of the trust assets, failures to maintain or provide record and so on.  It is said nothing in this conduct inherently involves any transgression from ordinary standards of honest behaviour.  Accordingly, the bald conclusion that the first defendant had a dishonest and fraudulent design is not supported by the pleaded facts. 

  7. In his written and oral submissions, counsel for the plaintiff really did not grapple with this issue.  Even accepting there was a breach of the Trust Duty by the first defendant in each and every way alleged by the plaintiff, it is not possible to find any pleaded fact which could amount to the transgression of ordinary standards of honest behaviour by the first defendant.  That is illustrated by the nature of the subsidiary duties which are pleaded to make up the Trust Duties.  On that basis alone, the plea of accessorial liability cannot stand.  However, the problems with the plea go further.  There is no plea the second defendant actually knew of the first defendant's dishonest intent.  What must be pleaded are material facts from which can be drawn a conclusion that there was actual knowledge on the part of the second defendant.  The second defendant cannot be 'deemed' to have knowledge as the plaintiff suggests.  Moreover, the fact that certain things happen cannot form the basis for an inference that the second defendant had knowledge of them.  It is logically inconsistent to say knowledge of the accessory is simply to be inferred from the mere fact of the breach itself.  To approach the matter in that way would render the requirement of knowledge illusory. 

  8. In summary, I am not satisfied that there is anything in par 56 which would render the second defendant liable to the plaintiff.  This is not a case where leave to replead is appropriate.  Given the difficulties the plaintiff has had in formulating the statement of claim, it can reasonably be assumed all the material facts the plaintiff has available are to be found in the SSOC.  The claim against the first defendant can proceed.  But there is simply not sufficient in par 56 to sustain a plea of knowing assistance and nothing to suggest any amendment to that paragraph will further the plaintiff's position.

  9. Accordingly, while I would give leave to amend in terms of the SSOC generally, I would refuse leave to include par 56.  It would then follow the claim against the second defendant would be dismissed.  At the hearing of this matter that point was not the subject of argument.  On publication of these reasons the parties should agree a date for relisting this matter in general chambers so final orders can be formulated.  If the parties are able to agree on the final form of orders so much the better.  No listing will be required.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

AH

Associate to Master Sanderson

16 MARCH 2022


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Young Investments Group Pty Ltd v Mann [2012] FCAFC 107