Famel Pty Ltd v Burswood Management Ltd

[1990] FCA 212

Re: FAMEL PTY LTD and STEVEN P.H. LUNN
And: BURSWOOD MANAGEMENT LIMITED; DALLAS REGINALD DEMPSTER; LIM KOK THAY; WEST
AUSTRALIAN TRUSTEES LIMITED and RIDER HUNT and PARTNERS
No. WA G121 of 1988
FED No. 212
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Practice and Procedure - pleadings - statement of claim - late amendment - separate trial of preliminary issue set down - amendment vitiating utility of separate trial of issue - leave to amend on condition - security for costs of amendment and costs thrown away.

Elders Trustee and Executor Co. Ltd v E.G. Reeves Pty Ltd (1987) 78 ALR 193

Flannigan in (1989) 9 Oxford Journal of Legal Studies 285

HEARING

PERTH

#DATE 24:5:1990

Counsel for the Applicants: Mr D. Stone

Solicitors for the Applicants: Williams and Hughes

Counsel for the First and Mr S.J. Archer
Second Respondents: and Mr P.C. Blackman

Solicitors for the First Robinson Cox
and Second Respondents:

Counsel for the Fourth Mr K. Martin
Respondent:

Solicitors for the Fourth Phillips Fox
Respondent:

Counsel for the Fifth Mr J.R.S. Ley
Respondent:

Solicitors for the Fifth Freehill Hollingdale and Page
Respondent:

ORDER

On the Applicants' motion filed 21 May 1990:

1. The applicants have leave to amend paragraph 20 of the statement of claim as set out in the minute filed 21 May 1990.

2. The applicants have leave to amend the answers to the fourth respondent's request for further and better particulars of the statement of claim delivered on 1 December in accordance with the minute filed herein, the filing and service of the minute to stand as filing and service of the amended particulars.

3. Provided that the applicants pay into Court on or before Tuesday, 29 May 1990 the sum of Two Thousand Five Hundred Dollars ($2,500) by way of security for the first and fourth respondents' costs of the motion and costs thrown away by reason thereof:

(a) The applicants have leave to amend paragraph 18 of the amended statement of claim by the inclusion of the words "the facts and matters pleaded in paragraph 7 so far as they are pleaded against the fourth respondent" after the words "derives from".

(b) The trial of the preliminary issues set down for 1 and 5 June be vacated.

4. The applicants to file and deliver their amended statement of claim on or before 29 May 1990.

5. The first and fourth respondents to file any amended defences on or before 5 June 1990.

6. The time limited by the directions given on 19 April 1990 for filing of outlines of argument in relation to the trial of the preliminary issue be extended to 31 May 1990 provided that if the applicants comply with the conditions set out in paragraph 3 hereof no such outlines are to be filed.

7. The applicants to pay the first and fourth respondents' costs of the motion and any costs thrown away by reason of the amendments.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This application relates to statements contained in a prospectus issued in April 1985 inviting members of the public to subscribe to units in the Burswood Property Trust to the extent of $50 million. The Trust was established to raise funds for the construction of the Burswood Resort Complex. The applicants who are investors in the Trust, allege that in subscribing they relied upon statements as to the costs of the project which were misleading or deceptive, were made fraudulently and reflected breaches of fiduciary duty. Their action is brought against the Fund Manager, Burswood Management Limited, its directors, Dempster and Lim Kok Thay, the trustee of the Unit Trust, West Australian Trustees Limited, and the quantity surveyors, Rider Hunt and Partners. Most of the interlocutory processes have been completed and the action has been set down for trial for four weeks commencing 1 August.

1. The amended statement of claim as it presently stands alleges the existence at all material times of a fiduciary relationship between the Fund Manager and Trustee respectively and the applicants. Their relationship is pleaded in paragraph 18 in the following terms:
   

"18. At all material times a fiduciary relationship existed between the First Respondent and the Fourth Respondents and the Applicants and each of them. Such relationship derives from:-

(a) the position of the Fourth Respondent as Trustee for the unit holders, and

(b) the fact that the First Respondent issued the Prospectus and from the position of the First Respondent as Manager of the Trust Fund for the benefit of the unit holders and the Applicants and each of them as potential, and ultimately actual, holders of units in the Burswood Property Trust to whom the Prospectus was addressed. In the premises the First and Fourth Respondents, had a duty to the Applicants and potential unit holders to make full disclosure of the true estimated construction costs of the Burswood Resort Complex."

1. On 9 April 1990 on the motion of the Trustee an order was made for the separate trial of the question whether a fiduciary relationship existed between the Trustee and the applicants at the relevant times. The order was in the following terms:
   

"1. There be determined before the trial of this matter the preliminary question:- "Prior to the applicants becoming unit holders in the Burswood Property Trust, did a fiduciary relationship exist between the fourth respondent and the applicants by reason of the position of the fourth respondent as trustee of the unit holders of the Burswood Property Trust?"

And on the Fund Manager's motion filed 9 April 1990 an order was made on 19 April 1990:

"The following question be determined before the trial of this action:

"Between 20 February 1985 and 20 May 1985 did a fiduciary relationship exist between the first respondent and the applicants by reason only of:

(a) the fact that the first respondent issued the prospectus;

(b) the first respondent having the position of manager of the Trust Fund established under the Trust Deed; and

(c) of the applicants being potential holders of units in the Trust."

The latter order embodied an amendment made during argument to the definition of the issue as set out on the first respondent's motion. The note of the order in the Court notebook referred in an abbreviated way to the motion but the order as extracted was evidently taken from an unamended copy of the motion on the file. The extracted order is incorrect and will be amended to reflect that which was in fact made.

1. The trial of the preliminary issues as between the applicants, the Trustee and the Fund Manager, has been set down for 1 and 5 June 1990. Directions were given on 19 April for the parties to file outlines of their submissions on or before 25 May. On the same day leave was given to the applicant's to file and serve an amended statement of claim on or before 24 April in accordance with a minute then before the Court.

2. On 21 May the applicants filed a motion initially returnable on 28 May but brought on on 23 May seeking leave to further amend their statement of claim and to redefine the preliminary issues for trial on 1 and 5 June. The significant part of the amendment relates to paragraph 18 setting out the fiduciary relationship between the Trustee and the Fund Manager respectively and the applicants. As further amended in the course of argument, the proposed new paragraph 18 reads:
   

"18. At all material times a fiduciary relationship existed between the First Respondent and the Fourth Respondents and the Applicants and each of them. Such relationship derives from:-

(a) the facts and matters pleaded in paragraph 7, insofar as they are pleaded against the Fourth Respondent and the position of the Fourth Respondent as Trustee for the unit holders, and

(b) the facts and matters pleaded in paragraph 7, insofar as they are pleaded against the First Respondent, the fact that the First Respondent issued the Prospectus and from the position of the First Respondent as Manager of the Trust Fund for the benefit of the unit holders and the Applicants and each of them as potential, and ultimately actual, holders of units in the Burswood Property Trust to whom the Prospectus was addressed. In the premises the First and Fourth Respondents, had a duty to the Applicants and potential unit holders to make full disclosure of the true estimated construction costs of the Burswood Resort complex."

1. It can be seen from the amendment that the applicants now seek additionally to invoke in support of the claimed fiduciary relationship "the facts and matters pleaded in paragraph 7" as against the Trustee and Fund Manager respectively. To understand the implications of the amendment it is necessary to resort to paragraph 7 which reads:
   

"7. On or about the 27th April 1985 the First Respondent issued a Prospectus to the public to subscribe for units in the Burswood Property Trust. Each of the Second, Third and Fourth Respondents was directly or indirectly knowingly concerned in or party to the preparations of the Prospectus and authorised the issue of the Prospectus."

By its defence the Fund Manager admits that on 27 April 1985 it issued a Prospectus to the public to subscribe to units in the Trust. And that is the only fact pleaded against it in paragraph 7. The amendment proposed to paragraph 18, in my opinion, adds nothing to the existing plea so far as it relates to the Fund Manager. It is true that the words "to the public to subscribe for units in the Trust" do not appear but I take that to be implicit in the plea that it issued the Prospectus. The amendment to paragraph 18 in this respect adds nothing but circumlocution and will not be allowed so far as it relates to the Fund Manager.

1. The amendment so far as it relates to the Trustee however adds a significant factual base for the existence of the fiduciary relationship, namely that the Trustee authorised the issue of the Prospectus. And in argument it was put that the concept of authorisation as pleaded extends beyond consent to the issue contemplated by the Trustee. The status of the Trustee as trustee is not in issue as appears from paragraph 4 of the amended statement of claim and paragraph 2 of the Trustee's defence. In relation to the pleas in paragraph 7 however the Trustee inter alia, admits that it perused drafts of the Prospectus prior to its issue for the purpose of providing its consent to be named as trustee in the Prospectus but denies that it authorised the issue of the document. In particular it pleads a disclaimer in the Prospectus as an answer to the allegation of authorisation.

2. If the amendment is allowed, the trial of the preliminary issue will involve contested factual matters that would divest it of its current utility as a means of deciding what is essentially a legal question upon largely uncontested facts. And in a further departure from their case on this question as previously explained to the Court, the applicants' counsel indicated that they would seek to characterise the Trustee as a promoter having in mind the observations of Gummow J. in Elders Trustee and Executor Co. Ltd v E.G. Reeves Pty Ltd (1987) 78 ALR 193 at 236.

3. The effect of the proposed amendments is thus to mark a significant shift in the direction of the applicants' case to the extent that it alleges a breach of fiduciary duty on the part of the Trustee.

4. As presently pleaded the applicants' case against the Trustee sets up a fiduciary relationship based solely upon its status. The additional facts sought to be relied upon set up its conduct in authorising the issue of the Prospectus. But that very conduct is pleaded in paragraph 20 as a breach of the duty. How it can constitute both a foundation and breach of the duty is difficult to see and the difficulty is not dispelled by the passing reference to a short passage in the reasons for judgment in the Elders Trustee case.

5. However, fiduciary relationships spring not only from status whereby certain relationships are automatically so characterised but also from factual circumstances that give rise to fiduciary duties. In this connection analysis of the fiduciary obligation by Flannigan in (1989) 9 Oxford Journal of Legal Studies 285 is helpful and in particular the observation at 309:
   

"Who, then, is a fiduciary? Our conventional analysis discloses four classes. The first two classes of fiduciary are status-based. Certain relationships will automatically be fiduciary for the purposes of either intermediary costs or undue influence or both. A third class of fiduciary is composed of those persons who are trusted with access to assets. A fourth class contains those persons who are trusted in such a way that they acquire the ability to influence the trusting party. These third and fourth classes are fact-based. They extend the bases of the two general categories of status-based fiduciary relationships. The first three classes are readily identifiable. It is only necessary to ascertain whether the necessary status existed or to show that the trusted party had a defined or limited access to assets. The identification of the fourth class of fiduciary will be somewhat more complex. An examination of the whole relationship will be required. The analysis will reveal facts which suggest or establish that an ability to influence was present."

I cannot exclude the possibility that the conduct of authorising the issue of a Prospectus may, in appropriate circumstances, support a fiduciary relationship with prospective subscribers independent of or related to the status of the person authorising. The amendment cannot in my opinion be disposed of on the basis that it is unarguable as a matter of law.

1. The question whether it should be allowed reduces to a consideration of the usual factors governing amendments to pleadings. Despite the proposal by the applicants to reword the preliminary issue to take account of the amendments, I am satisfied that if they are allowed the trial of the preliminary issue will no longer be a convenient or expeditious procedure.

2. In practical terms the amendment will result in inconvenience to the parties and the Court and no doubt a significant element of wasted costs. As I observed to counsel for the Trustee in the course of argument however, the fact that the trial of the preliminary issue may have to be vacated is not irreparably prejudicial to his client or the Fund Manager. The Trustee is not entitled to complain that where it had the promise of the question of fiduciary duty being determined upon narrow facts, that issue may now be more broadly based. There is no suggestion that the preparation for the substantive hearing embodying these issues would be prejudiced. The prospect is raised by counsel for the Trustee of now having to attend at a four week trial, much of which will not concern or affect the principal issues joined between the applicants and the Trustee. This of course raises a separate question about the conduct of the trial which can be addressed separately. It should be possible for evidence relating to the position of the Trustee, other than that going to the accuracy of the Prospectus, to be presented discretely so that the Trustee's attendance is not required for the full duration of the proceedings. But so far as the amendment is concerned the real prejudice flows from wasted time and costs. A mere order for costs thrown away will not reassure the Trustee in this case as the first applicant has already been required to provide security for costs in an amount which is said to be considerably less than the likely costs of the proceedings and was fixed on the general assumption of an orderly progress to trial.

3. In my opinion the loss of time and costs can and should be addressed by making it a condition of the amendment that the first and fourth respondents' costs of the motion and costs thrown be paid by the applicants and that the amount of $2,500 be paid into Court by way of security for those costs. In fixing that figure I bear in mind that some of the preparation for the preliminary issue will be applicable to the trial of the action. I do not intend however to pre-empt the function of the taxing officer. It will be for the parties to agree or tax the costs in question in the usual way.

4. The applicants have left it to the eleventh hour to seek an amendment which has a significant impact upon the viability of the preliminary trial. In the interests of a proper resolution of all matters in dispute they may have the amendment but in the circumstances they must provide the assurance by way of security that they can pay for the waste of time and costs that flow from it.