Dalian Huarui Heavy Industry International Company Ltd v Clyde and Co Australia (A Firm) [No 4]
[2020] WASC 433
•30 NOVEMBER 2020
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: DALIAN HUARUI HEAVY INDUSTRY INTERNATIONAL COMPANY LTD -v- CLYDE & CO AUSTRALIA (A FIRM) [No 4] [2020] WASC 433
CORAM: KENNETH MARTIN J
HEARD: 6 OCTOBER 2020 & ON THE PAPERS BY WRITTEN SUBMISSIONS OF 18 SEPTEMBER 2020, 25 SEPTEMBER 2020, 2 OCTOBER 2020, 16 OCTOBER 2020 & 21 OCTOBER 2020
DELIVERED : 30 NOVEMBER 2020
SUPPRESSION OF : 29 NOVEMBER 2021
REASONS LIFTED TO
ALLOW GENERAL
PUBLICATION
FILE NO/S: CIV 1279 of 2020
BETWEEN: DALIAN HUARUI HEAVY INDUSTRY INTERNATIONAL COMPANY LTD
Plaintiff
AND
CLYDE & CO AUSTRALIA (A FIRM)
First Defendant
DURO FELGUERA AUSTRALIA PTY LTD
Second Defendant
CLYDE & CO AUSTRALIA (A FIRM)
Plaintiff by Counterclaim
AND
DALIAN HUARUI HEAVY INDUSTRY INTERNATIONAL COMPANY LTD
Defendant by Counterclaim
Catchwords:
Trusts and trustees - Private advice - Whether trustee should bring anti-arbitration suit injunction - Overlay of issues - Breach of trust allegations - Agreement to arbitrate disputes - Security amount of residual trust fund retained in Australia - Discretionary considerations
Legislation:
Trustees Act 1962 (WA)
Result:
Private advice given
Reasons suppressed
Category: B
Representation:
Original Action
Counsel:
| Plaintiff | : | Mr J D MacLaurin SC |
| First Defendant | : | Mr S K Dharmananda SC & Mr T J Porter |
| Second Defendant | : | No appearance |
Solicitors:
| Plaintiff | : | Squire Patton Boggs (AU) |
| First Defendant | : | Assured Legal Solutions |
| Second Defendant | : | Ashurst Australia |
Counterclaim
Counsel:
| Plaintiff by Counterclaim | : | Mr S K Dharmananda SC & Mr T J Porter |
| Defendant by Counterclaim | : | Mr J D MacLaurin SC |
Solicitors:
| Plaintiff by Counterclaim | : | Assured Legal Solutions |
| Defendant by Counterclaim | : | Squire Patton Boggs (AU) |
Case(s) referred to in decision(s):
Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102; (2014) 48 WAR 1
CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; (1997) 189 CLR 345
Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [2020] WASC 132
Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [No 2] [2020] WASC 245
Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [No 3] [2020] WASC 312
Kraft Foods Group Brands LLC v Bega Cheese Ltd [2018] FCA 549; (2018) 358 ALR 1
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66
Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Plan B Trustees Ltd v Parker [No 2] [2013] WASC 216
Re Dawson (dec'd) (1966) 84 WN (Pt 1) NSW 399
Target Holdings Ltd v Redferns [1996] AC 421
Wood (as co-executor and trustee of the will of the deceased) v Wood [No 4] [2014] WASC 393
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484
KENNETH MARTIN J:
Introduction
I am dealing with a further application for private advice made by the first defendant Clyde & Co (as trustee) for directions pursuant to s 92(1) of the Trustees Act 1962 (WA). The advice is sought pursuant to the first defendant's amended counterclaim dated 18 September 2020 (amended by leave under order 14 of my orders of 8 May 2020) seeking advice in respect of the following matter:
In the face of the Plaintiff's conduct in issuing a Notice of Arbitration dated 10 July 2020, the Trustee is justified in bringing an application seeking an order restraining the Plaintiff from taking any step in the arbitration proceeding commenced by that Notice of Arbitration.
(Application).
This is the second application made by Clyde & Co as trustee for advice.
When the matter was last before the court for directions (on 6 October 2020), I issued orders (First Orders) to facilitate the determination of that further advice Application, including to require the trustee to file and serve:
(i)notice of the affidavit materials formally relied upon for the Application, and
(ii)a schedule of waiver contentions.
On 6 October 2020 I then issued additional directions concerning an exchange of further written submissions beyond those as already received (Second Orders) that:
4.The Application is to be determined on the papers, with reasons for decision to be suppressed until further order.
Background
The ongoing disputation between the plaintiff (Dalian), second defendant (Duro) and the trustee (Clyde & Co) during 2020, is already considerable. To that end, see my earlier reasons this year in Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [2020] WASC 132 delivered 24 April 2020 (Dalian [No 1]), Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [No 2] [2020] WASC 245, published 1 July 2020 (Dalian [No 2]), and Dalian Huarui Heavy Industry International Company Ltd v Clyde & Co Australia (a firm) [No 3] [2020] WASC 312 (Dalian [No 3]) delivered 2 September 2020:
By reference to the most recent Dalian [No 3] reasons it is convenient to repeat for orientation purposes, what I said at [49], [51], [52] and [53]:
49In essence, the current dispute is raised over whether or not Dalian can or should be injuncted, in effect, by Clyde & Co by an anti-arbitration suit order from this court - stopping Dalian from advancing the freshly notified breach of trust dispute grievances sought to be put before the Tribunal and not to this court. The injunction would [be] sought, on the basis, in effect, that Dalian's conduct to date within the present action amounts to conduct in the nature of a waiver of any right it once held to ventilate such breach of trust matters under arbitration and confining Dalian, in effect, to proceeding to ventilate such grievances, should that be its wish, only in this court in this proceeding as was once foreshadowed. To that end, I observe, cl 9 of the trust agreement had said:
'This agreement shall be governed by and construed in accordance with the law of Western Australia and any dispute, controversy or claim arising out of or relating to this agreement, or the breach, termination or invalidity thereof shall be settled by arbitration. The arbitral tribunal shall be the Tribunal in the Arbitration unless that Tribunal is functus officio, in which case the following applies. The apportioning authority shall be the Singapore International Arbitration Centre. The number of arbitrators shall be 3. The seat of the arbitration shall be Singapore. The language used in the arbitration shall be English. (my emphasis in bold)
...
51Because Clyde & Co is a trustee it also seeks, in order to further protect its position via s 95 of the Trustees Act to obtain the court's advice. As I assess it, by par 4 of its chamber summons, Clyde & Co seeks the further advice of the court for it as a trustee, towards its bringing of an anti-arbitration suit injunction, rather than it proceeding now to simply file such an application, immediately.
52To that end of further advice as a trustee, Clyde & Co's minute of orders as submitted for the purposes of the present application towards the seeking of judicial advice had proposed, in effect, an exchange of affidavit and written submissions as between Dalian and itself under a timetable to be set towards the obtaining of such further judicial advice.
53As I indicated to counsel at the directions hearing of the summons, were I to determine such a further judicial advice request made by Clyde & Co (which seems to be the obvious course given my familiarity with the parties and their issues presenting to date), then, hypothetically, were it to be my advice to sanction the bringing by Clyde & Co of an anti-arbitration suit injunction, then clearly some other judicial officer of this court ought then to render any required determination upon that injunction issue. For present purposes, however, the question only is as to the procedural timetabling steps towards an obtaining of the further judicial advice by Clyde & Co.
Materials
In accord with my Second Orders on 9 October 2020 Clyde & Co filed a table identifying the materials relied upon for the present Application (see folio document 85). In short, the materials comprise annexures found within three earlier affidavits sworn by one of the lawyers of record for Dalian, namely, Mr Timothy James O'Shannassy (extracted out of his earlier affidavits of either 12 March 2020, 25 February 2020 or 25 August 2020). In addition, there is the procedural history affidavit sworn by Mr Kirk Warwick of 25 August 2020, one of the lawyers of record for the trustee, Clyde & Co, and to parts of which I refer in Dalian [No 3]. The materials referenced have been the subject of consideration under previous arguments and decisions.
Also, in accord with order 1(ii) of my Second Orders, Clyde & Co filed a schedule of waiver contentions - assembled by reference to transcript passages from earlier hearings or from written submissions in the court's reasons referable to the present issue of waiver (see folio document 84). This is all in a context of Clyde & Co's present Application seeking s 92 Trustees Act private advice from this court as to bringing an anti-arbitration suit in this court as trustee. That Application is, of course, grounded, in part, on Clyde & Co's contention that Dalian has waived its right to arbitrate the issues of alleged breach of trust in terms of Clyde & Co not earlier paying over to Dalian's Australian lawyers the full security amount of $AUD27 million. Dalian, in effect, complains that the payment over should have occurred immediately and more proximate to the issuance of PO 17 (on 24 January 2020) by the Singapore seated arbitral tribunal (Tribunal) so that a failure by Clyde & Co to act and remit the security sum sooner amounted to a breach of trust and for which the trustee should be held accountable to Dalian.
Breach of trust allegations
It will be remembered when the present action was commenced by Dalian's originating summons in this court on 25 February 2020, that the urgent relief then sought by Dalian went beyond merely a desired direction or order that the trustee pay over the trust moneys to Dalian forthwith. Dalian had also sought by its originating summons commencing the present action:
1b)a declaration that the Trust Moneys ought to have been paid by the First Defendant [ie, by Clyde & Co] to the plaintiff on 24 January 2020 and that the plaintiff is entitled to a payment of interest from the First Defendant on the Trust Moneys from that date until payment at such rate as to this Honourable Court may seem just. (my emphasis in bold)
...
It has also been demonstrably evident to me as CMC case manager of the present action from inception (as an arbitration list related matter) that even from the first directions hearing on 12 March 2020, that Dalian, through senior counsel, in then seeking an expedited trial to obtain a final order of this court compelling payment of the Trust Amount over to it by Clyde & Co, was also articulating its deepest aggrievement over the trustee's allegedly wrongful and sustained non‑remission of the funds, even to that point. That sum was held by the trustee in a trust account with the National Australia Bank in Victoria to abide the potential outcome of the arbitration before the international Tribunal - in effect, as Australian jurisdiction security for the arbitral victor.
At the heart of Dalian's articulated misconduct concerns, frequently repeated to me thereafter by senior counsel, was its contention that Clyde & Co, by not having already paid over the Trust Amount, whilst at the same time maintaining their role as the lawyers of record for Duro (the second defendant) in the international arbitration, were in a position of obvious conflict of interest and in effect, preferring their client's interests over that of their trustee role concerning the security funds in Australia that they controlled yet would not release to Dalian.
The constantly reiterated refrain both in written submissions and by senior counsel for Dalian was that this grave conflict of interest had led Clyde & Co to preferring Duro's interests, as its client, in preference to meeting Clyde & Co's fiduciary duty as trustee over the funds who had agreed to hold and was then holding the security funds in Australia pursuant to the terms of the express Trust Agreement.
Indeed, on 12 March 2020 at the very first directions hearing, the emphasis of Dalian's senior counsel's submissions then was that no relief was then being sought against Duro's administrators. It was said that the action to compel the payment was essentially directed only at Clyde & Co as trustee of the Trust Amount, with Duro added only as an interested party. Mr MacLaurin SC for Dalian at ts 6 on 12 March 2020 said:
And as I noted, the only reason that they [Duro] appear there is because it's proper to join all parties to a trust deed, which takes us to the trustee moneys originating summons if I might put it that way. Your Honour would have seen that the imperative that my client seeks is really to have the money paid as they should have done, we say, at least at the time that the tribunal, the arbitral tribunal, directed that it be done. And we don't want other issues such as, for instance, interest or the question of damages that we say would flow from the finding that Clyde & Co should have paid those moneys at least when directed to by the tribunal under the contractual mechanism ...
And see also Mr MacLaurin SC at ts 9:
So while I make that point, your Honour, can I make this point: that as things stood when we filed our submissions, we viewed it as exactly that, that this was a simple case where a trustee was declining to distribute moneys, seemingly taking into account all sorts of factors that have more to do with Duro and Duro's situation than actually their responsibilities as a trustee.
See also ts 10.
Issues for determination on this advice Application
The emerging and ongoing issues of disputation as between Dalian and Clyde & Co as trustee are chronicled sufficiently within my three earlier published reasons for decision in this action, as mentioned.
For the purpose of the present advice Application, I have effectively received five tranches of written submissions. Three sets were from the trustee, Clyde & Co (filed 18 September, 5 October and 21 October 2020). For Dalian, I hold its written submissions of 25 September 2020, then its reply submissions of 16 October 2020. Those reply submissions attach a schedule which effectively comments upon, elaborates, or joins issue with an earlier schedule of contended waiver events and materials as prepared and submitted by the trustee of 9 October 2020.
The scale of ongoing disputation between these two parties, if anything, seems to have intensified, leaving very little that is not caviled over. This includes a clash (again) over whether any curial advice at all should be given to the trustee. Again, my view is that it should. The Application is properly made. It will also be remembered that applications of this nature are supposed to be non-adversarial. If only that were so here!
The essential question, however, in a unique environment of a private advice application by a trustee is over whether Clyde & Co, if successful, should receive the protections of private advice. The advice now concerns the question of Clyde & Co's expressed desire to bring an anti‑arbitration suit injunction in this court against Dalian, by reason of Dalian's fresh arbitral proceedings commenced against Clyde & Co under Dalian's notice of arbitration of 10 July 2020. That fresh arbitration is to be determined by the same Tribunal, under the terms of Dalian's statement of claim of 21 August 2020 in that arbitral forum. Of course, this is all contingent on the court providing such advice.
Trustees Act s 92: principles concerning an application for private advice
The principles concerning private advice applications made by a trustee under s 92 of the Trustees Act were not in dispute here. I have canvassed them at some length in a prior decision: see Wood (as co‑executor and trustee of the will of the deceased) v Wood [No 4] [2014] WASC 393, particularly by reference to the leading High Court of Australia authority in this area, namely, Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66. I also discussed in Wood v Wood [No 4] an earlier decision in this court concerning trustee advice applications by Edelman J (then of this court) in Plan B Trustees Ltd v Parker [No 2] [2013] WASC 216, especially [37] - [53] of that decision.
In brief, the unique as envisaged advice process for a trustee is supposed to manifest certain qualities, including that it is non‑adversarial, summary in character, swift and inexpensive as to cost.
One advantage of obtaining such advice from a court of equity as regards the commencing or defending (or otherwise) of adversarial proceedings in the nature of litigation (or of arbitration) is that the obtaining of s 92 advice provides a mechanism by which a trustee can then protect itself ultimately from any later contention of it acting in breach of trust (see s 95 of the Trustees Act).
Here the advice is sought in respect of Clyde & Co's foreshadowed desire to bring an anti‑arbitration suit injunction against Dalian in this court - so as to inhibit Dalian from continuing any further with the arbitral exercise it has begun under its notice of arbitration of 10 July 2020. By that consent of the parties and the Tribunal, the arbitration has not progressed very far. The Tribunal awaits, in effect, what this court may say or do as regards an injunction as foreshadowed. This advice application is thus a precursor to a possible injunction application by Clyde & Co in this court, depending on the ultimate advice of the court to the trustee about that exercise.
A convenient assembly of legal principles underlying the basis of an anti‑arbitration suit injunction is Kraft Foods Group Brands LLC v Bega Cheese Ltd [2018] FCA 549; (2018) 358 ALR 1, and see particularly [61] - [67] and [97] - [109].
But in short, this court holds an inherent jurisdiction to restrain parties over whom it exercises in personam jurisdiction (as it does here over Dalian) from proceeding any further with an arbitration, if that arbitral process could likely interfere with, or would carry a tendency to interfere with this proceeding, or with this court's processes. Governing principles for an anti‑arbitration suit are, in effect, closely akin to those applicable for an anti‑suit injunction, see CSR Ltd v Cigna Insurance Australia Ltd [1997] HCA 33; (1997) 189 CLR 345 at 391 - 392.
An alternative basis for a stay may also arise where a party has, by its own conduct, clearly waived a right it once held to arbitrate: see again Kraft Foods v Bega at [112] - [117].
Both those key principles are relied upon here by Clyde & Co against Dalian.
What is the residual fight about?
It is necessary to say something more concerning the as articulated breach of trust grievances as they have been ventilated to date by Dalian as against Clyde & Co in this court.
My assessment at the end of the day, however, is that, waiver considerations aside, there is now an inseparable connection and overlap as between the breach of trust grievances directed against Clyde & Co and which Dalian has effectively articulated from the very inception of this proceeding directed at the conduct of Clyde & Co as trustee. It does not matter why such trustee misconduct grievances were previously raised in this court. They were, and strongly so. The scale and frequency of such serious breach of trust charges, coupled with the manner in which this proceeding has been conducted in this court to date displays, on my assessment, that there is an overwhelmingly safer course and an allied greater convenience in confining all residual disputes concerning Clyde & Co's alleged breach conduct, to a resolution by this court. As put by Dalian, this alleged misconduct involves Clyde & Co, as trustee, not paying over more timeously all of the security sum of $AUD27 million, at a time not later than 24 January 2020 (when PO 17 issued). All those issues are more appropriately, safely and conveniently to be resolved in this court, rather than elsewhere.
Past history
By the terms of the Trust Agreement, perfected in September 2019 as between the parties, seeking to implement PO 15, Dalian might well have chosen to arbitrate its non‑remission grievances against Clyde & Co over not receiving the funds timeously ‑ before the Tribunal (the Tribunal not being functus officio then). Dalian responds it had obtained PO 17, yet still nothing happened thereafter. That is correct. However compulsive orders as to payment were not then obtained from the Tribunal against Clyde & Co as trustee.
Urgent trial - March 2020
Instead, Dalian deliberately chose to commence litigation in this court, seeking an urgent trial to effectively obtain compulsive orders requiring the payment of all the Trust Amount then held on trust to it, by Clyde & Co.
Clyde & Co, by first entering only a memorandum of conditional appearance in this court after being served with Dalian's originating summons, was then faced with a jurisdictional choice as to either voluntarily participating in Dalian's litigation in this court or, alternatively, seeking a stay of the litigation under the International Arbitration Act 1974 (Cth), so as to have the dispute as it had then manifested determined before the Tribunal, as the dispute resolution process identified in the Trust Agreement.
In the end, Clyde & Co effectively chose to submit to the jurisdiction of this court. It resolved not to press for the dispute to be a subject of arbitration, as it otherwise might have.
In due course, Duro's resistance in this court to orders being sought by Dalian (with Duro then being in administration) effectively overtook all other matters as a priority. Dalian was successful in the ensuing trial against Duro (see Dalian [No 1]), with Clyde & Co essentially abiding the result and not otherwise participating. But when post trial orders came to be made on 8 May 2020 (May Orders), Dalian's then administrators foreshadowed seeking freezing orders from this court (see Dalian [No 2]). That application came to be heard and dismissed on 29 May 2020. Again Clyde & Co simply abided that decision.
Ultimately post trial and post determination of the freezing order application, these followed a remission of the substantial component of the $AUD27 million Trust Amount that was paid over to Dalian's lawyers immediately after 29 May 2020, when the freezing order application was dismissed.
The only funds not paid over then to Dalian's lawyers were funds expressly held back amounts of $80,000 and $500,000 respectively.
Those sums were essentially held back at the behest of Clyde & Co, under my May Orders, so as to retain some part of the Trust amount in Australia for the potential longer term access by the trustee for its costs ‑ the $80,000 being held over to cover Clyde & Co's then claimed legal costs of participation in the expedited trial proceedings heard across 23 March 2020. The extra $500,000 amount was held back and isolated under those May Orders, again at Clyde & Co's behest in respect of a possible costs entitlement as a trustee arising if it were necessary in the future to resist and defend Dalian's articulated breach of trust grievances against it (see order 11(f)(ii)) of the May Orders):
contingent future legal costs of defending proceedings foreshadowed by the Plaintiff in an amount provisionally assessed for the purposes of retention from the trust fund pending further order, at $AUD500,000.00.
Plainly, a looming breach of trust action by Dalian directed against the trustee, on the basis of it not earlier remitting the Trust Amount over to Dalian and all claimed interest as from 24 January 2020 had been flagged then by Dalian and had been squarely left post the trial outcome on the table for this court to resolve in future as an issue separated out of the initial trial hearing for convenience. But an issue already raised locally in this litigation by Dalian, nonetheless.
By its submissions Dalian says there were good reasons for raising all that - such as trustee misconduct being raised as relevantly going against the court awarding costs to Clyde & Co, or not providing trustee advice to Clyde & Co. Be all that as it may, the fact is that such alleged trustee misconduct grievances matters were frequently ventilated to this court - albeit not to be resolved, initially.
Duro's freezing order application - May 2020
After refusing the freezing order application by Duro at 29 May 2020 (see Dalian [No 2]), my earlier May Orders took effect from that day. That saw no more obstacles left emanating from Duro as against a remission of $AUD26,420,000.00 to Dalian's lawyers, Squire Patton Boggs (see order 1 of my May Orders). That event followed.
But order 2 of the May Orders had also dealt with the interest earned on the $AUD27 million Trust Amount, providing:
Without prejudice to any claims of the Plaintiff against the First Defendant in respect of the non-payment of the Funds prior to the date of payment pursuant to Order 1 herein, by no later than Monday, 11 May 2020, the First Defendant is further ordered to pay to the Plaintiff, by payment to the Plaintiff's Australian solicitors' (Squire Patton Boggs') nominated trust account, all interest accrued on the $AUD27 million original amount held on trust since 24 January 2020 until these payments (Interest). (my emphasis in bold)
It will be seen, therefore, towards interest and so as regards any possible arguments by Dalian concerning its loss of interest that, by reference to the relief obtained under Dalian's originating summons concerning its claim for damages and (lost) interest, that the May Orders once implemented (upon the dismissal of Duro's freezing order application), would deliver then to Dalian, all the accrued interest on the full trust sum as from 24 January 2020 on the full amount of $AUD27 million.
Clyde & Co's summons - August 2020
By the terms of the parties' Trust Agreement, which is the subject of Dalian [No 3], Duro had been expressly entitled to receive all interest earned upon the funds held in trust in Australia, right up until the time of their payment out to the arbitration victor. Duro might thereby have argued that Duro (not Dalian) should receive all the interest as accrued on the Trust Amount right up until those funds were actually paid over to Dalian's Australian lawyers (after the freezing order application of Duro was dismissed at 29 May 2020). However, my May Orders concerning interest, gave to Dalian all of the interest that had accrued on the Trust Amount from after 24 January 2020 (the time of PO 17), and upon the full $AUD27 million.
In other words, if, hypothetically, of course, Clyde & Co as trustee had immediately paid over all funds it controlled at 24 January 2020, then Dalian as regards interest, would still have been in no worse position, as regards arguments over lost interest on the full amount of the fund ‑ by reason of it not being received until later, at 29 May 2020 (or most of it then at least).
The May Orders effectively, regarding interest, afforded to Dalian, all it might otherwise have best achieved as regards an interest earning opportunity, had all the $AUD27 million in funds been paid over at 24 January 2020. It is a strain then to see any interest loss claim there for Dalian given all that.
As regards Dalian losing the $80,000 amount set aside out of the security fund to cover Clyde & Co's (as trustee) legal costs of participation in the expedited trial of 23 March 2020, I have explained the position under Dalian [No 3]. Concerning my costs orders of 8 May 2020 against Duro, I said at [23]:
To that end, I had issued a costs award of that trial against Duro and favouring Dalian in respect of the costs of the proceedings - see order 9 of the 8 May 2020 orders. That costs order made against Duro would, of course, extend to Dalian's obligation to meet the legal costs of Clyde & Co from its trust funds, as ascertained.
I continued as regards costs at [24]:
As regards the costs of Clyde & Co, in respect of that trial, I had accepted at 8 May 2020, in effect, that Clyde & Co, as a trustee of the Trust Amount held as security by reference to implementing the PO 15 orders of the Tribunal of 30 September 2019, should, as a trustee, receive its properly incurred out of pocket legal costs associated with its involvement in the trial. That was so, albeit Clyde & Co was only really communicating that it was abiding by the ultimate decision of the court as to the ultimate destination of the trust money it held.
Consequently, Dalian held cost recoupment rights against Duro for the $80,000 held back in respect of funds held back for Clyde & Co's legal costs as against Duro, and against whom it had been successful at trial. Whether Dalian exercises this or not is its choice. Given that, it would not be legitimate for Dalian to seek to claw back via the back door in an arbitration the $80,000 against Clyde & Co. That would inconsistently undermine and subvert the effect of my costs orders as an abuse of process. And if there is any costs deficiency for Dalian as regards the $80,000 not received, the reason is that it has chosen not to pursue Duro to recoup most, if not all, of that sum.
As regards the $500,000 also retained and set aside from out of the $AUD27 million Trust Amount, that sum was also deliberately held back, effectively as security in Australia for the trustee. The effect of that was to preserve (in Australia) a component of the Trust Amount from a costs protection and recoupment perspective for Clyde & Co in light of the as foreshadowed breach of trust proceedings as a looming horizon of disputation articulated against it by Dalian as at 8 May 2020, which, of course, Clyde & Co strongly resists.
Of course, the $500,000 held back from the Trust Amount would only have been needed by the trustee if Dalian chose to continue on past the trial, to press its breach of trust arguments against the trustee. Had Dalian, hypothetically of course, said at say early June 2020 that it was content then to walk away from those breach of trust grievances, it would then have had its $AUD26,920,000 back plus all the interest earned here on $AUD27 million from 24 January 2020 to 29 May 2020. It was clear then that Dalian also would receive back all, or at least most, of that $500,000 in withheld funds as were then retained if the residual for each of trust issues were taken off the table or everyone just moved on.
Of course, that was not to be as regards Dalian and its persistent breach of trust grievances. And so the expensive legal costs 'clock' has continued to 'tick' forward eroding the withheld amount day by day. The cause of Dalian not receiving the $500,000 immediately after 29 May 2020 or thereabouts, is Dalian. Given the security for an unnecessary and uneconomic breach fight is governed by this court's many orders that is another reason why this court should, if necessary, determine those issues, rather than another and more distant arbitral tribunal.
Mediation - June 2020
A further point I wish to make is that after I had rejected Duro's administrator's application for freezing orders on 29 May 2020, I then referred all residual issues in the action, meaning then all of Dalian's breach of trust grievances directed against Clyde & Co, to an early mediation conducted in this court by the Principal Registrar as mediator.
It is true that order 2 of my 2 June 2020 Orders made it express that this reference to mediation was 'without prejudice as to the parties' respective positions as to the forum in which their disputes are to finally determined, if not consensually resolved by that mediation'. Nonetheless, the mediation ensued in this court. As a matter of inference, the mediation may be discerned as being presently unsuccessful. Nevertheless the point is that this court's mediation resources have already been engaged and deployed towards a first attempt at resolving what appears to be the low level (financially) residual breach of trust grievances which remain directed at Clyde & Co by Dalian - numerically paltry as they now present - given what has eventuated as regards remitted principal, interest and the costs orders that have issued so far, all favouring Dalian over Duro.
Causation and equitable compensation
Part of a broad submission put on behalf of Dalian by senior counsel as regards its foreshadowed pursuit of Clyde & Co for alleged breach of trust, is to rely on venerable causation observations made by Street J in Re Dawson (dec'd) (1966) 84 WN (Pt 1) NSW 399, 404 and 406 - 407, namely:
[C]onsiderations of causation, foreseeability and remoteness do not readily enter into [the sum for which that trustee was liable].
But as is now well explained in Meagher, Gummow and Lehane's Equity Doctrines & Remedies (5th ed, 2015) a distinction needs to be drawn with old cases dealing with principles of a trustees' personal liability to pay equitable compensation, by contrast to more recent cases such as Target Holdings Ltd v Redferns [1996] AC 421 where the very purpose of a trust arrangement (as in that case) was to ultimately exchange the funds as held on trust, in return for viable mortgage documents. The point is that such funds are never to be held long term. They are held with a view to their early and exchanged deployment, somewhere else. As the learned authors observe at [23-205]:
... In such a case, the loss for which the trustee must compensate is prima facie the sum needed to restore the disbursed asset (or its money equivalent) to the trust. That measure of relief may be reduced if all or part of the claimed loss would have been suffered even had the trustee committed no breach.
That approach has been endorsed by the High Court of Australia in Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484. See Youyang at [50], endorsing observations of Lord Browne-Wilkinson from Target Holdings at page 437, as follows:
[T]he fact that there is an accrued cause of action as soon as the breach [of trust] is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for 'stopping the clock' immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered.'
As was the case factually in Target Holdings and as in Youyang as is explained by the authors of Equity Doctrines & Remedies, at [23-195]:
... the very reason the money was held on trust was that it should be exchanged ... (emphasis in original)
As explained, in Target Holdings, the exchange was to be for properly executed mortgage documents.
Here, the exchange of funds from Clyde & Co as trustee was always to be as security by discharge of those funds to the eventual arbitral victor.
The key point is that the funds in trust here, held by Clyde & Co, were not to be held on trust longer term. Consequently, the old trust accounting cases, particularly concerning wilful defaults and the strict liability for misapplication principles flowing from them, such as in Dawson (dec'd), were very different cases factually. from a causation of loss perspective, in equity.
For a more contemporary explanation concerning modern day causation of loss principles applicable within the realm of breach of trust and around claims for equitable compensation, see Edelman J's decision in Agricultural Land Management Ltd v Jackson [No 2] [2014] WASC 102; (2014) 48 WAR 1 particularly at [395].
At [396] Edelman J continued towards the issue of equitable compensation for losses that would have been suffered anyway, even if a conflict (of interest) had not occurred with the relevant fiduciary in question. His Honour had said at [396]:
This was the approach taken by Ipp J in Permanent Building Society v Wheeler, in the context of a claim for equitable compensation for loss caused by a lack of skill and care: 'a court of equity ... should not require an honest but careless trustee to compensate a beneficiary for losses without proof that but for the breach of duty those losses would not have occurred.' The High Court of Australia has also said that for a claim for equitable compensation for loss suffered from breach of fiduciary duty 'there directly arises a need to specify a criteria for a sufficient connection (or "causation") between breach of duty and ... the loss sustained'
[Referring to Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 468].
The High Court has subsequently reiterated that the 'basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would have suffered but for the breach'
[Referring at footnote 357 to Youyang at [46] quoting Target Holdings at page 436.]
And, in a commonly cited and approved passage in McLachlan J's well known minority judgment in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534, 556; (1991) 85 DLR 4th 129, 163, her Ladyship said that: 'it is essential that the losses [from breach of fiduciary duty] made good are only those which on a common sense view of causation, were caused by the breach' (emphasis added). These remarks of McLachlan J were surely intended to refer to the same approach as at common law: it is difficult to see how 'common sense' could be different in common law and equity.
Application of causation principles to present facts
As should now be clear, here, the nub of Dalian's as expressed breach of trust grievances directed against Clyde & Co is about Dalian not, more timeously, and immediately post PO 17, remitting to Dalian the $AUD27 million Trust Amount it held as security for the arbitral award outcome.
Evidently, $AUD26,420,000 plus all interest on $AUD27 million (from 24 January 2020) has eventually been received on behalf of Dalian by its Australian lawyers at or around 29 May 2020, once Duro's application made at the behest of its administrators for freezing order relief was refused that day.
The outer financial limits of any breach of trust and loss claim made by Dalian against Clyde & Co, would therefore only span across a period between 24 January 2020 to 29 May 2020. Yet for this period all interest earned on the full $AUD27 million across that period has also been remitted under my May Orders.
A possible loss claim would essentially sound in potential compensation for Dalian in the way of a demonstrated lost interest opportunity - occasioned by it not receiving the fund at some time earlier than 29 May 2020. However, there looks to be no viable loss claim, in respect of any lost interest in that period.
By the end of February 2020, administrators had been appointed to Duro.
It is clear that those administrators had immediately called upon Clyde & Co not to pay over the funds that it then held to Dalian - arguing first that there was an unregistered security interest in respect of the trust funds which was cut down and invalidated by the Personal Properties Securities Act 2009 (Cth) (the PPSA). Given that call, it was from the end of February 2020, more than reasonable for Clyde & Co to wait until that issue was resolved in this court.
The PPSA issue was serious and then needed to be resolved. It raised with it some complicated legal arguments which were certainly not then frivolously advanced by Duro.
My reasons of Dalian [No 1] published at 24 April 2020, after the urgent trial over that issue, eventually resolved the PPSA invalidation arguments, favourably to Dalian.
Any delays in paying over the Trust Amount in the period after the end of February 2020 to the 24 April 2020 can thus be seen as wholly attributable causatively to a need to urgently resolve that PPSA legal issue raised by Duro's administrators. Delays in not receiving the Trust Amount over that period, cannot be attributed to Clyde & Co as a trustee.
Clyde & Co, as will be remembered, was abiding the outcome of the resolution of that trial issue.
After 24 April 2020, there followed my orders of 8 May 2020. They reflect that at that time Duro, by its administrators, was then further seeking to restrain the payment over of the fund to Dalian, now on a basis of an obtaining of freezing order relief. That further issue as raised by Duro then needed to be dealt with. Again the trustee, Clyde & Co, took no side for the purposes of that argument. But it could not then, acting reasonably and responsibly, pay over the fund until that freezing order issue was determined.
Ultimately, my ex tempore reasons of 29 May 2020 (Dalian [No 2]) resolved that freezing order application, again favourably to Dalian.
The key point, however, is that any delays in the paying over the Trust Amount across May 2020 were again wholly attributable causatively to Duro - by reason of its administrators striving at that time to keep the funds in Australia and to obtain freezing orders. Again they failed. But again, the period of delay in remitting the funds to Dalian over that further period to 29 May 2020 cannot, even arguably, be causatively attributable to Clyde & Co.
Dalian's breach of trust arguments directed against Clyde & Co as trustee are of course rejected and wholly refuted by it. But even if, say, for argument's sake, they were made good, they look to go nowhere in terms of showing any adverse causative loss consequence arguably arising even as an equitable cause of action, when properly assessed as being limited to a brief six week period between 24 January 2020 to the end of February 2020.
And even in that, say, six week period, all the interest earned on the $AUD27 million was still paid over to Dalian after 29 May 2020.
In all those circumstances, for Dalian's breach of trust arguments to translate into anything tangible financially as claimable causative loss under a claim by it for equitable compensation against Clyde & Co - this would require some far greater and more convincing detail. An explanation extending beyond a mere reference to principles under Re Dawson (dec'd) would need to be forthcoming. But there the legal landscape is barren for Dalian.
Evaluation
I have been at pains on several occasions to try to extract some clarification from senior counsel for Dalian over to precisely what, tangibly in a financial sense, was the residual breach of trust loss of Dalian of any real magnitude left to argue about? This is particularly so in a wake of all the orders as were made favouring Dalian, as to the substantial component of the Trust Amount, the earned interest on the full capital sum accrued in the period after 24 January 2020 to the time of remission, and the costs orders made against Duro of 8 May 2020 (essentially enabling Dalian to recoup any costs exposure to the trustee for the trial costs back from Duro).
Generalities aside, I have not yet (even with the further written submissions by Dalian) received any tangible indication of a viable financial loss or damage argument, either from senior counsel or from my perusal of the claimant's notice of arbitration of 10 July 2020 or, indeed, in its statement of claim of 21 August 2020 as lodged in that arbitration.
Lurking beneath the legal verbiage of too much written documentation there might ultimately be some subterranean arguments over gaps in Dalian's ultimate costs recovery somewhere down the line. But the scale of any such costs claims looks to be fiscally trivial, viewed in overall context.
Likewise, general incantations by Dalian, as to gaining assistance from supposedly looser rules of causation in equity concerning actions for breach of trust directed against trustees ventilated in a theoretical sense, are just not presently persuasive on close scrutiny as to what is left as a great fiscal unknown covering Dalian's argued loss.
Were it to be Dalian's case, say, that if it had achieved a 24 January 2020 receipt of the full amount of the funds held in trust as security from Australia, such that then it would have then deployed the as received funds to some highly more profitable end use - but which profitable opportunity was lost or, alternatively, that Dalian found itself exposed to a liability at 24 January 2020 that it might otherwise have discharged had it held the funds earlier - then that would all be one thing. But nothing along those lines presents on the materials.
And even for an equitable claim for compensation issues such as foreseeability and mitigation would need to be explored, as regards the reasonableness of any such consequential loss claims.
Here, there is no tangible indication from Dalian of anything to date other than some theoretical alleged financial loss in a general sense - all of which only heightens my concerns over an underlying character of the fresh arbitral proceedings, as essentially, being punitive and vexatious in their true motivation, rather than truly compensatory for Dalian. That is another reason for this court to keep control of such a dispute - given its insights so far.
Waiver
A schedule of references to passages in written submissions or by counsel concerning waiver arguments, whilst extensive, are put significantly in issue. Whatever might be said about them, there is no doubt that breach of trust contentions relate to alleged conduct by the trustee under a Trust Agreement governed by Australian law as regards an alleged failure to timeously remit is conduct attributed to the trustee as conduct in Australia.
Moreover, the deliberate choice of Dalian by this action was to commence proceedings in the Supreme Court of Western Australia in order to obtain compulsive payment relief against the trustee.
Private advice to trustee
In all the circumstances, I am of the view that what looks at best to be a residually small scale or even negligible monetary dispute, in light of what has now unfolded, is intrinsically tied back to the same old breach of trust grievances as have been very frequently articulated to date within this court whilst exercising its undoubted in personam jurisdiction over Dalian and Clyde & Co. The reason for articulating such breach of trust grievances in the past does not matter now. The fact is they were put to this court before.
I accept it is most undesirable for these residual breach of trust issues now to be directed for their resolution to any other forum to be arbitrated upon, when they can, just as conveniently, and less expensively, be litigated to their conclusion in this court, if that really is necessary.
Such grievances of Dalian have already been subjected on one occasion to the mediation processes of this court, albeit unsuccessfully to date. I accept that there is an undesirable potential for overlap as to the implications of costs orders already made in this court and so, for possible inconsistencies to arise, as between what has been ordered to date in this court, as against the subject matter of what is now sought to be ventilated as issues by Dalian before the Tribunal seated in Singapore. If there is a back door attempt to subvert the effect of costs orders already made by this court, then that is also a concern from an abuse of process perspective.
Consequently, at the end, I am persuaded that it is more than reasonable and, indeed, sensible, for an anti‑arbitration suit injunction application to be brought by the trustee against Dalian. As a matter of law, I do not need to be persuaded that such an application will necessarily be successful. I only need be satisfied, as I am, that it would be legally well founded and justifiable.
I am thoroughly satisfied in that respect and consequently I will provide my advice in the affirmative to that end, in answer to the question posed by the amended counterclaim.
I reserve all other residual questions.
These reasons and advice will be provided to the lawyers of record for Clyde & Co and Dalian on a suppressed basis. The reasons and advice may be shared, of course, with client representatives and members of each party's legal teams (including counsel). Otherwise these reasons will be suppressed until further order.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RC
Associate to the Honourable Justice Martin
29 NOVEMBER 2021
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