Cowen, P.J. v Murphy, J.W

[1990] FCA 636

T OF AUSTRALIA 1 1

OF THE 1 QLD. B1253 of 1988

S ATE OF OUEENSLAND T 1

RE :	PATRICK JAMES COWEN
EX PARTE:	JOHN WILLIAM MURPtiY  RECEIVED

1 6 NOV 1990

MINUTES OF ORDER EDERAL COURT OF

JUDGE MAKING ORDES:  SPENDER J.

8	-	25 OCTOBER, 1990	.
WHBRE:	BRISBANE
TIIE COURT DIRECTS m:

1. In respect of the matters referred to in paragraphs 5 to 7D inclusive of the Statement of Claim, that the trustee deliver and file points of claim within 14 days, and that points of contention to those points of claim be filed by the second respondent within a further 14 days.

2. Each party make discovery within 8 weeks, the discovery in respect of the files of Mr Boyce to be restricted in the following way:

the second respondent prepare a schedule showing the files the subject of the practice in which he has been concerned from October 1988 onwards, identifying, if possible, the client, the nature of the work and the quantum of the work, and further identifying which of them have any connection with the bankrupt or prior clients of the bankrupt.

3. Any further affidavits on which the trustee wishes to

rely to be filed by 18 January 1991 and any affidavits on which the respondent wishes to rely to be filed by 15 February 1991.

W Z E :	Settlement and entry of orders ie dealt with in Rule
124 of the Bankruptcy Rules.

4. The matter be set down for mention at 9.30 a.m. on Wednesday 20 February 1991, and the parties have liberty to apply on three working days' notice.

The application be dismissed and the second respondent, (the applicant on the application) to pay the trustee's costs, including reserve costs, to be taxed if not agreed.

1

1     QLD. B1253 of 1988

1  

RE :	PATRICK JAMES COWEN
EX PARTE:	JOHN WILLIAM MURPHY

sEuwLL

BRISBANB 25 October 1990

m TEMPORE REASONS FOR JUDGMENT

The reason that I decline the application to strike out is that the claim advanced by counsel for Mr Boyce in support of his striking out application is not clear beyond argument, that claim being that the practice which he presently conducts is different from that which he purchased in October 1988. It seems to me at the very least that it is arguable that, on the assumption that the original purchase is void against the trustee, there has been a mixture of the

creditors and that which presently is the subject of Mr	assets which the trustee holds for the benefit of the
Boyce's practice.
I ought, I suppose, refer to those observations to which Miss Kiefel Q.C. for the trustee referred. In relation to the position of the practice as at the date of purchase in October 1988, while I accept that there are real difficulties in characterising what precisely is "a legal practice", the
observat ions o f p r i n c i p l e b y Dixon CJ and Fullagar J. i n m

v Staoletor\ ( 1 9 5 2 ) 88 CLR 322 , a t 336 , are r e l e v a n t , where

t h e i r Honours s a i d : d e f i n i t i o n o f

" The view t h a t i m p o s s i b i l i t y o f p rec i se

t r u s t shares precludes the making

o f an order f o r a t r a n s f e r o f shares seems

r e a l l y t o amount t o something l i ke an i n v e r s i o n

o f the t r u e p s i t i on. I n the present case i t s

prac t i ca l e f fec t seems to be to p lace the

burden o f i d e n t i f i c a t i o n upon t h e wrong

shoulders . I n F r i t h v. c a r t l a n d (1865) 2 H . &

M. 417, a t p. 418 [71 E.R. 525, a t p. 5261 M r .

R o l t Q.C. s a i d , gxauendo, 'The t r u s t e e who

mixes t r u s t money wi t h his own must h i m s e l f

d i s t i n g u i s h them'. M r . R o l t ' s argument was

s u c c e s s f u l , S i r W . Page Wood V-C saying: ' I f a

man mixes t r u s t funds w i t h his own, the whole

w i l l be t r e a t e d a s the t r u s t proper ty , excep t

so f a r a s h e may be a b l e t o d i s t i n g u i s h what i s

his own' (1865) 2 H. & M . a t p. 420 [71 E.R.,

a t p.	5261.	I n Re	H a l l e t t ' s	Es ta t e :	Knatchbull
v. H a l l e t t	(1879) 13 Ch.	D.	696,	a t p.	719
J e s s e l	M.R.,	a f t e r	quot ing	t h i s	passage,
observed:	' t h a t	i s ,	the	t r u s t p roper t y	comes

f irst ' . I t i s e s s e n t i a l l y the same p r i n c i p l e

t h a t Sargant L. J . ( d i s s e n t i n g ) wished t o a p p l y

t o a con t rac t f o r the s a l e o f 500 t o n s o f

wheat, par t o f a s p e c i f i c l a r g e r q u a n t i t y , i n

Jn Re	Wa&	(1927) 1 C h .	606, p a r t i c u l a r l y a t p.
654.	The m a j o r i t y o f the Court	o f Appeal	were

o f opin ion t h a t the goods were n o t ' s p e c i f i c

goods' w i t h i n the meaning o f the S a l e o f Goodg

1893 (Imp.) (56 & 5 7 ) V i c t . c. 7 1 ) , and

t h a t t h e r e was no room i n such a case f o r the

a p p l i c a t i on o f equi t a b l e d o c t r i n e s .

Cases i n which one who has i n h is hands the

proper ty o f another conver t s t h a t p roper t y i n t o

w i t h h is own have been f a m i l i a r b o t h t o c o u r t s	some other form or mixes proper ty o f another
o f law and to c o u r t s o f e q u i t y . Cour ts o f l aw
were concerned w i t h l e g a l ownership, and c o u r t s
o f equf t y w i t h e q u i t a b l e ownership, b u t , up t o
a p o i n t , a s i s well known, t h e d o c t r i n e s o f t h e
two sptems were i d e n t i c a l . Nothing could be
c l e a r e r than the expos i ti on o f t h e common law by Lord Ellenborough C. J . i n Tavlor v. Plumer (1815) 3 M. & S . 562 [ l 0 5 E.R. 7211. There a
broker was e n t r u s t e d w i t h moneys i n order t h a t
h e might b u y Exchequer b i l ls for h i s p r i n c i p a l .
H e purchased American s t o c k and b u l l i o n ,
i n t e n d i n g t o abscond w i t h f t . H e was, however,
i n t e r c e p t e d and made bankrupt . I t was h e l d
t h a t the American s t o c k and b u l l i o n belonged to

his pr inc ipa l and n o t t o h is ass ignees i n

bankruptcy. The judgment o f Lord Bllenborough

i s very wel l known, b u t i t i s w o r t h w h i l e t o

r e c a l l i t . H i s Lordship sa id : ' I t makes no

d i f f e r e n c e i n reason or i n law i n t o what other

form, d i f f e r e n t from the o r i g i n a l , the change may have been made.. . f o r the product o f or s u b s t i t u t e for the o r i g i n a l t h i n g s t i l l fo l lows

the na ture o f the t h i n g i t s e l f , a s l o n g a s i t

can be ascer ta ined t o be such,	and	the r i g h t
o n l y ceases when	the means	o f ascertainment

f a i l , which i s the case when the s u b j e c t i s turned i n t o money, and mixed and confounded i n a general mass o f the same d e ~ c r i p t i o n . The

d i f f i c u l t y which a r i s e s i n such case i s a

d i f f i c u l t y o f f a c t and n o t o f law."

That case was concerned with a subject matter much less difficult than the inquiry here, being an inquiry into what precisely is the relationship between the legal practice sold in 1988 and the legal practice presently being conducted by W Boyce. However, those principles, at least for the purpose of a striking out application, make it plain that the inquiry is one of whether, in fact, the current practice has a separate identity to the practice sold in October 1988 as counsel for Mr Boyce alleges, or whether, in fact, there has

been a conversion of that to which the trustee is entitled	into something which has a component that may be traced to
that which was sold.
Now, that is what appears to be the central problem here, and it is only after the inquiry has been made that one can say whether the claim of the trustee is valid or not. If it doe6 turn out to be a valid claim, the nature of the relief to which the trustee is entitled seems to follow along the
l i n e e o f the i n q u i r i e s postulated b y Mason J . i n H -
B o d u c t a Ltd v . u n i t e d S t a t e e S u i c a l C o r v o r a t h ( 1 9 8 4 ) 156
CLR 4 1 a t 109-110 where h i s Honour s a i d :

" The propos i t ion which I have s t a t e d based on

t h e observa t ions o f James L. J . needs t o be

modi f i ed i n order t o t a k e account o f the

s i t u a t i o n where the f i d u c i a r y has so mixed an

i n d e t e n n i n a t e	p r o f i t	w i t h	h i s	own	proper ty	a s
t o	render	the	i d e n t i f i c a t i o n	o f	the	gain
imposs2ble.	There	'. .	.the	whole	w i l l	be

t r e a t e d a s t r u s t proper ty , excep t so f a r a s he

may be a b l e t o d i s t i n g u i s h what i s his own':...

The p r o p r i e t y o f grant ing rel ief by way o f

cone t r u c t i v e t r u s t i s therefore closely

assoc ia ted w i t h the answers t o two ques t ions :

( 1 ) What i s the breach o f f i d u c f a r y duty? , and

( 2 ) What i s the p r o f i t or b e n e f i t which the

f i d u c i a r y has made i n consequence o f t h a t

breach? Be fore proceeding t o answer the second

ques t ion , which i s the ou t s tand ing question, I

should mention t h a t a p a r t i c u l a r problem has

a r i s e n wi t h respect to the d e c l a r a t i o n o f a

c o n s t r u c t f ve t r u s t o f a competing b u s f n e s s

e s t a b l i s h e d and c a r r i e d on by a f i d u c i a r y i n

breach o f h i s du ty . One approach, more

favourable to the f i d u c i a ry , i s t h a t he should

be he ld l i a b l e t o account a s c o n s t r u c t i v e

t r u s t e e n o t o f the e n t i r e b u s i n e s s b u t o f t h e

p a r t i c u l a r b e n e f i t s which flowed t o him i n

breach o f h i e d u t y . Another approach, less

favourable	t o the	f i d u c i a r y ,	i s t h a t he	should
be	h e l d	accountable	for	the e n t i r e b u s i n e s s and
f t e p r o f i t s ,	due	allowance b e i n g made	f o r	the

t ime , eneroy, skil l and f inanc ia l c o n t r i b u t i o n

t h a t - he h a y expended or made. I n gn re JaPvie

r19581 l W.L.R. 815, a t D. 820: r19581 2 A l l

E.R. -336, a t p. 340, bpjohn j . odservedi

correctly	i n my	opin ion ,	t h a t	it	i s	n o t
p o s s i b l e	t o	s a y	t h a t	one	approach	i s

each case depends on i t s own f a c t s and the form	u n i v e r s a l l y t o be pre fe r red t o the other, for
o f i n q u i r y which ought t o be d i r e c t e d must v a r y
according- t o the cjrcums tances . In each case
t h e form o f i n q u i r y to be d i r e c t e d i s t h a t
which w i l l reflect a s a c c u r a t e l y a s p o s s i b l e
the t r u e measure o f the p r o f i t or b e n e f i t
obtained by the f i d u c i a r y i n breach o f his
d u t y . "

I am aware that those observations are made in the context of a fiduciary relationship and that is not the case here. But, it seems to me that which of the two approaches referred to by Mason J. in that observation should be followed is going to be an issue in this litigation.

Only in a clear case will relief of the kind sought here be granted. This, in my opinion, is not such a case.

I do think, however, that something must be done to advance the delineation of the inquiries that have to be made. I ought to order points of contention. In respect of the matters referred to in paragraphs 5 to 7D inclusive of the Statement of Claim, I direct that the trustee deliver and file points of claim within 14 days, and that points of contention to those points of claim be filed by the aecond respondent within a further 14 days.

I want, as best I can, to minimise the disruption and the inefficiency of a general order for discovery. I direct	that each party make discovery within eight weeks, the
discovery in respect of the files of Mr Boyce to be restricted in the following way. I direct that the aecond respondent prepare a schedule showing the files the subject of the practice in which he has been concerned from October 1988 onwards, identifying, if possible, the client, the nature of the work and the quantum of the work, and further identifying
which of them have any connection with the bhnkrupt or prior clients of the bankrupt.
Any further affidavits on which the trustee wishes to rely should be filed by 18 January 1991, and any affidavits on which the respondent wishes to rely should be filed by 15
February, 199 1.
I will mention this matter at 9.30 a.m., Wednesday 20 February 1991. The parties have liberty to apply on three working daysp notice.
As to costs, the crucial question really was whether it is permissible for the trustee to pursue a trust claim. The contention of behalf of Mr Boyce essentially is that whatever was acquired has gone. I have ruled against the striking out claim. I do not think there is any reason that I ought not to apply the ordinary rule. The application is dismissed and the second respondent, the applicant on the
application, is to pay the trustee's costs, including reserve costa, to be taxed if not agreed.

I cortify that 1 1 - 1 8 : c :I 1 l ' , . t : g : ::d:ng

pages nrc. a true r: ; r i !':,l .-- -.- ' , 2r

judgment herpin cf	[ ! IS	I !c i~ -~~:
Mr. 'Justice Spender

&.+k- Associate

@ted 2s. 10 ' 0