FBR Fund Administration Pty Ltd v Chickabo Pty Ltd - [2019] VSCA 314

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2019 0106

BETWEEN

FBR FUND ADMINISTRATION PTY LTD (ACN 622 598 538) & ORS according to the Schedule	Applicants
and
CHICKABO PTY LTD (ACN 074 576 186) & ORS according to the Schedule	Respondents

S EAPCI 2019 0108

BETWEEN

FRANA MAUDE GRACO	Applicant
and
CHICKABO PTY LTD (ACN 074 576 186) & ORS according to the Schedule	Respondents

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JUDGES:	WHELAN, BEACH and NIALL JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	18 November 2019
DATE OF JUDGMENT:	19 December 2019
MEDIUM NEUTRAL CITATION:	[2019] VSCA 314
JUDGMENT APPEALED FROM:	[2019] VSC 580 (Sifris J)

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PRACTICE AND PROCEDURE – Application for leave to appeal dismissal of summonses –Judgment after trial found defendants breached fiduciary duties – Applicants subsequently joined – Plaintiffs claimed against applicants as constructive trustees of traceable proceeds or Barnes v Addy knowing recipients – Applicants’ summonses seeking new trial or to set judgment aside or be removed as parties – Trial judge dismissed summonses holding applicants bound by findings of breach of fiduciary duty – Whether later joined parties bound – Executor Trustee and Agency Company of South Australia Ltd v The Deputy Federal Commissioner of Taxes (SA) (1939) 62 CLR 545 explained – Commissioner of Taxation (Cth) v Thomas (2018) 264 CLR 382 applied.

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APPEARANCES:	Counsel	Solicitors
For the Applicants in S APCI 2019 0106	Mr M C Garner	K & L Gates
For the Applicant in S E APCI 2019 0108	Mr A G Uren QC with Mr R J Harris	Herbert Smith Freehills
For the First to Fifteenth Respondents	Mr J P Moore QC with Ms P Wakhlu (solicitor)	HWL Ebsworth

WHELAN JA
BEACH JA
NIALL JA:

After a trial in November 2018, on 22 February 2019 Sifris J handed down a judgment in which he determined that Gary Graco and his company, Zphere Pty Ltd (‘Zphere’), had breached fiduciary duties owed to the plaintiffs, who are the partners in an accounting firm known as the Moore Stephens (Vic) partnership.[1] He also found that two other companies associated with Mr Graco were liable as accessories under the principles in Barnes v Addy.[2]He did not make orders, and said that he would deal with issues of relief in a separate hearing.
[1][2019] VSC 73 (‘the February judgment’).
[2](1874) LR 9 Ch App 244 (‘Barnes v Addy’).

On 5 March 2019 the primary judge ordered that Frana Graco (Mr Graco’s wife), FBR Fund Administration Pty Ltd (‘FBR Fund’), Baden Rhain Graco (Mr Graco’s son), Rhian Victoria Graco (Mr Graco’s daughter), and Emily Denise Graco (Baden’s spouse) be joined as defendants in the proceeding. By a further amended statement of claim dated 15 May 2019, the plaintiffs, relying upon the same allegations of breach of fiduciary duty which were the subject of the February judgment, alleged that Mrs Graco and FBR Fund had received and now held on constructive trust the ‘traceable proceeds’ of amounts obtained in breach of duty by the fiduciaries…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2019] VSCA 314
Decision Date: 19 December 2019

CaseChat Overview and Summary

In the Federal Court of Australia, the case of FBR Fund Administration Pty Ltd v Chickabo Pty Ltd involved a dispute where the plaintiffs sought to hold the applicants, who had been joined later in the proceedings, liable as constructive trustees for breaches of fiduciary duty. The plaintiffs alleged that the applicants were responsible for the proceeds of the defendants' breach of fiduciary duty, either as knowing recipients or under the principles of Barnes v Addy. The applicants sought to set aside the judgment or for a new trial or to be removed as parties to the proceeding. The trial judge dismissed the summonses, holding that the applicants were bound by the findings that the defendants had breached their fiduciary duties.

The legal issues before the court were whether the applicants, who had been joined later in the proceedings, were bound by the findings made against the defendants and whether they could be held liable as constructive trustees for the proceeds of the defendants' breach of fiduciary duty. The applicants argued that they were not bound by the findings against the defendants and that they should not be held liable for the proceeds of the defendants' breach of fiduciary duty. The court needed to determine whether the principles set out in Executor Trustee and Agency Company of South Australia Ltd v The Deputy Federal Commissioner of Taxes (SA) and Commissioner of Taxation (Cth) v Thomas applied to the facts of this case.

The court held that the applicants were bound by the findings made against the defendants, as they were properly joined as parties to the proceeding and were in privity with the defendants. The court found that the applicants could not avoid the consequences of the findings against the defendants simply by being joined later in the proceeding. The court also held that the applicants could be held liable as constructive trustees for the proceeds of the defendants' breach of fiduciary duty, as they had notice of the defendants' breach and had failed to take reasonable steps to protect the plaintiffs' interests. The court dismissed the applicants' summonses and held that they were bound by the findings made against the defendants.

Orders