Feiglin v Ainsworth
[2015] VSCA 326
•7 December 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2014 0105
| ESTHER CELIA FEIGLIN | Applicant |
| v | |
| DAVID SARGON AINSWORTH | Respondent |
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| JUDGES: | TATE, OSBORN and McLEISH JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 18 November 2015 |
| DATE OF JUDGMENT: | 7 December 2015 |
| MEDIUM NEUTRAL CITATION: | [2015] VSCA 326 |
| JUDGMENT APPEALED FROM: | [2014] VSC 376 (Elliott J) |
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PRACTICE AND PROCEDURE – Application for leave to rely upon amended pleading – Whether new cause of action pleaded – Whether pleading implied or imputed trust substantively departs from pleading constructive trust – Application refused.
PRACTICE AND PROCEDURE – Application for leave to appeal against summary judgment – Judgment on certain claims – Claims statute-barred – Allegation of institutional constructive trust – Whether sufficient factual basis to establish trust – Limitation of Actions Act 1958 ss 5(2) and (8), 22(1)(b), 27 – Application for leave to appeal refused.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr R C Macaw QC with Mr M D Tehan | Barry B Moshel |
| For the Respondent | Mr S Stuckey | Dimos Lawyers |
TATE JA:
I have had the advantage of reading, in draft form, the reasons of McLeish JA. I agree, for the reasons his Honour gives, that leave to appeal should be refused.
As McLeish JA observes, a very considerable period has elapsed since the commencement of this proceeding. This is regrettable. It is also regrettable that such a dispute has arisen between a daughter, the applicant, and her father, the respondent, especially given that the respondent is now of considerable age. The refusal of leave to appeal should serve to fix the scope of the proceeding. It is to be hoped that the parties may now seek to resolve their dispute, perhaps through mediation, but failing that, through a swift path towards trial.
OSBORN JA:
I agree with McLeish JA, for the reasons that his Honour gives, that leave should be refused.
McLEISH JA:
In the course of a regrettably long-running proceeding, an associate judge ordered that there be judgment for the first defendant in relation to certain of the plaintiffs’ claims on the basis that they were statute-barred. That judgment was upheld by a judge in the Trial Division on 20 August 2014. One of the unsuccessful plaintiffs now seeks leave to appeal. For the reasons that follow, leave should be refused.
The proceeding was commenced on 15 June 2010. Originally, the plaintiffs (the present applicant and her husband, Mr Mark Feiglin) sued the first defendant (the present respondent) and others seeking the imposition of a resulting or constructive trust over real property of which the defendants were at various times the registered proprietors, and upon which the applicant and Mr Feiglin resided. In May 2011, the applicant and Mr Feiglin sought leave to introduce an additional claim, which is the
subject of the proposed appeal. By that claim, the applicant and Mr Feiglin alleged an agreement made in 1985 between the respondent, who operated a consultancy business, and Mr Feiglin by which Mr Feiglin agreed to introduce clients to the respondent. It was alleged that, in return for such introductions, the respondent would share the fees received equally with Mr Feiglin. Mr Feiglin claimed an account and for recovery of half of the fees paid to the respondent by the clients introduced. The application for leave to introduce this claim was heard by an associate judge on 17 May 2011.
Amended statement of claim
In order to understand the way in which the proceeding has developed, it is necessary to set out the series of ways in which the claim has been pleaded. By their amended statement of claim dated 13 May 2011, the applicant and Mr Feiglin originally alleged against the respondent as follows:
8L Further, in or about 1985 and subsequently —
(a)Ainsworth carried on business as a taxation, finance and investment consultant; and
(b) Mark through his personal and business connections, had access to and influence with a number of persons who were in a position to benefit from taxation, financial and investment advice which might be provided by Ainsworth.
8MIn or about 1985, Ainsworth and Mark entered into an Agreement (“the Commission Agreement”) by which Ainsworth agreed to pay Mark a commission upon the introduction by Mark to Ainsworth of persons who subsequently became clients of Ainsworth and received from him taxation, financial and investment advice.
PARTICULARS
The Commission Agreement was partly oral and partly to be implied. Insofar as it was oral, it was constituted by conversations, in or about the year 1985, between Ainsworth and Mark to the effect alleged. Insofar as it was implied, it was implied from the subsequent conduct of Mark in introducing clients to Ainsworth for whom Ainsworth provided advice, was paid a fee and remitted a part thereof to Mark.
8NThere was a term of the Commission Agreement that in the event that Mark introduced a person to Ainsworth, to whom Ainsworth provided
services, in respect of which Ainsworth earned fees, that those fees would be shared equally with Mark.
PARTICULARS
The second named plaintiff refers to and repeats the Particulars subjoined to paragraph 8M hereof.
8OIn all the circumstances, Ainsworth owed Mark fiduciary duties as —
(a) the Commission Agreement was not committed to writing and there were no express terms thereto requiring Ainsworth to account to Mark or to give him information relevant to the calculation and payment of commission;
(b)Mark trusted Ainsworth to keep him informed in relation to persons referred to him by Mark, as to whom —
(i) Ainsworth provided services, and
(ii) Ainsworth earned fees and in what amount;
(c) in all the circumstances, including the fact that Ainsworth was his father-in-law, Mark trusted him to be honest with him and to provide him with all information relevant to his entitlements; and
(d)Mark was vulnerable to loss if Ainsworth failed to honour his obligation to provide all relevant information to Mark and to remit to him commission to which [he] was entitled.
8PPursuant to the fiduciary duties owed by Ainsworth to Mark Ainsworth had a duty to account to Mark, and more particularly —
(a) in relation to all persons introduced to Ainsworth by Mark, a duty to inform him as to whether he had provided services as a result of which he had earned fees;
(b) to account in relation to the amount of fees earned by him, and therefore to account to Mark in respect of the amount owed to him; and
(c)to remit to Mark, by way of commission, his share of the earned fees.
8QPursuant to the Commission Agreement, in 1986 and 1987 —
(a) Mark introduced persons to Ainsworth;
(b)Ainsworth provided services to these persons and earned fees therefrom; and
(c)Ainsworth remitted to Mark amounts which Ainsworth claimed were the correctly calculated amounts of commission due to Mark.
8R(a) In or about 1990, Mark introduced to Ainsworth a third party with the intention that Ainsworth might provide services to that third party;
(b)Subsequently, Ainsworth provided services to the third party;
(c)Thereafter, Ainsworth remitted commission to Mark, in the amount of $12,000 as his equal share of fees earned by Ainsworth as a result of the provision of services to the third party.
8SFurther, in or about 1991 or 1992, at a time which Mark cannot, prior to discovery and inspection in this proceeding, specify —
(a) Ainsworth provided further services of an extended and very valuable kind to the third party; and
(b) Ainsworth earned fees in an amount which Mark is presently unable to specify but which is in the region of five million dollars ($5,000,000).
8TIn breach of the fiduciary duties pleaded in paragraphs 8O and 8T [sic] hereof, Ainsworth —
(a) failed to inform Mark that he had performed services for the third party, on this second occasion, and had thereby earned fees;
(b) failed to account to Mark in respect of fees which he had earned as a result of the provision of services to the third party, on the second occasion, and to account to Mark in respect of his share of those fees; and
(c) failed to remit to Mark the commission earned by Mark.
8UIn the premises, Mark is entitled to obtain from Ainsworth an account of fees earned by him in relation to all clients introduced to him by Mark and, in particular, an account of fees earned as a result of the introduction by Mark to Ainsworth of the third party.
The relevant paragraphs of the prayer for relief sought:
DAn account in equity or an account of profits identifying fees earned by Ainsworth in the case of all persons referred or introduced by Mark in respect of services provided to those persons by Ainsworth;
EAn order that Ainsworth pay Mark, upon the taking of the said account, the amount found to be due from Ainsworth to Mark.
The associate judge held that the proposed claim was statute-barred by reason of s 5(2) of the Limitation of Actions Act 1958, which provides as follows:
An action for an account shall not be brought in respect of any matter which arose more than six years before the commencement of the action.
He referred also to s 5(8), which provides:
This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the enactment corresponding to that provision was applied before the repeal of that enactment by the Limitation of Actions Act 1955.
The associate judge held that s 5(2) applied to all actions for an account, whether brought at law or in equity. He based that view, first, on a reconciliation of sub-ss (2) and (8) which treated the former provision as revealing an intention to deal explicitly with any action for an account.[1] He further relied on authority to the effect that a simple duty to account, such as that alleged in the present case, is not a fiduciary duty even when it is owed by a person in a fiduciary position.[2]
[1]Wheatley v Bower [2001] WASCA 293, [123].
[2]Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, 415, 416; Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707; Nolan v Nolan [2004] VSCA 109, [61].
The associate judge held further that, if there was any doubt about the matter, a court of equity would apply the six year limitation period in s 5(2) by analogy in any event.[3]
[3]Spry, Equitable Remedies (8th ed, 2010) 420; Knox v Gye (1872) LR 5 HL 656, 674–5.
Applying these principles, the associate judge held that the proposed action for account was subject to the limitation in s 5(2) and that leave to plead the claim should therefore be refused. However, since counsel for the applicant and Mr Feiglin had indicated that, should it be necessary, they intended to allege a fraudulent concealment of the cause of action, leave was granted to amend the statement of claim within 28 days. A direction was made that, if they could do so, the applicant and Mr Feiglin may positively plead such a concealment by the defendants, instead of raising such claims by way of reply.
Further amended statement of claim
A further amended statement of claim dated 17 October 2011 was subsequently filed and served. The revised pleading introduced a new allegation of breach of the commission agreement. It still alleged breach of the alleged fiduciary duties and claimed an entitlement to an account of fees earned. It added the following relevant paragraphs:
8W In or about May 2007, Mark discovered that —
(a)Ainsworth had provided further services of an extended and very valuable kind to the third party, and
(b) Ainsworth had earned further fees in the region of $5,000,000 in respect of the provision of these further services.
PARTICULARS
The discovery of the matters pleaded occurred as the result of a conversation which occurred in or about May 2007 between the third party himself and Mark on a social occasion at a house at 18 Helenslea Road, Caulfield North, Victoria, and which conversation was to the effect alleged.
8XThe breaches of the Commission Agreement and fiduciary duties of Ainsworth, as pleaded respectively in paragraphs 8T and 8U hereof, constituted fraud by Ainsworth within the meaning of s 27 of the Limitation of Actions Act 1958.
8YFurther to paragraph 8W and 8X hereof, or in the alternative, the right of action of Mark arising out of the Commission Agreement was concealed by the fraud of Ainsworth in failing to apprise Mark that —
(a) he had provided further services of an extended and very valuable kind to the third party, and
(b) he had thereby earned fees in the region of $5,000,000.
The current respondent thereafter made an application on summons for judgment in relation to the relevant claims, alternatively orders striking out paragraphs 8L to 8Y from the further amended statement of claim, on the basis that the claims were precluded by the Limitation of Actions Act.
At the hearing of the respondent’s application, before a different associate judge, the applicant and Mr Feiglin applied to amend the prayer for relief in order to add a new paragraph GG. The proposed paragraph claimed a declaration that fees earned by the respondent as a result of providing services to persons introduced to him by Mr Feiglin, which had not been disclosed to Mr Feiglin, were held upon a constructive trust for Mr Feiglin as to one half thereof, alternatively as to the entirety thereof upon an obligation that the respondent forthwith pay one half thereof to Mr Feiglin. The pleading itself did not allege that any part of the fees received by the respondent were held upon a constructive trust.
The argument before the second associate judge was that Mr Feiglin had discovered in May 2007 that the respondent had received commission from Mr Joseph Gutnik ‘in the region of $5,000,000’ for services performed by the respondent following his introduction by Mr Feiglin in accordance with the alleged commission agreement. Mr Feiglin argued that the actions of the respondent constituted fraudulent concealment of his cause of action. Reliance was placed on s 27 of the Limitation of Actions Act, which relevantly provides:
Postponement of limitation periods in case of fraud or mistake
Where, in the case of any action for which a period of limitation is prescribed by this Act—
(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or
(b) the right of action is concealed by the fraud of any such person as aforesaid; …
…
the period of limitation shall not begin to run until the plaintiff has discovered the fraud ... or could with reasonable diligence have discovered it …
The associate judge found, relying on correspondence between Mr Feiglin and the respondent between 1995 and 1997, that the evidence clearly demonstrated that, contrary to what was set out in Mr Feiglin’s affidavit and at paragraph 8W of the further amended statement of claim, Mr Feiglin was asserting his claim to an account as early as 2 October 1995. He further held that the correspondence demonstrated that Mr Feiglin was aware of all the elements of his claim for an account in 1995 and 1996. He held that knowing the exact amount of the claim was not an element of the cause of action. Accordingly, s 27 of the Limitation of Actions Act did not apply to stop time from running. The claim for an account was therefore statute-barred.
The associate judge therefore ordered that there be judgment for the respondent in respect of the claims in paragraphs 8L to 8Y of the further amended statement of claim and refused leave to amend the prayer for relief.
In the meantime a sequestration order had been made against Mr Feiglin’s estate. After the orders of the second associate judge were made, the trustee in bankruptcy decided not to prosecute the proceeding any further. The trustee subsequently assigned Mr Feiglin’s interest in the causes of action in the further amended statement of claim to the appellant. The appellant thereafter applied for orders that Mr Feiglin be removed as a party to the proceeding and that time for filing a notice of appeal from the judgment of the second associate judge be extended. Orders to that effect were duly made.
Second further amended statement of claim
Before the appeal was heard by the judge in the Trial Division, a proposed second further amended statement of claim was served. This pleading added an allegation that the fees earned by the respondent in relation to clients introduced to him by Mr Feiglin were held by the respondent on constructive trust for Mr Feiglin. The additional paragraph read:
8UUIn the premises, the fees earned by Ainsworth in relation to all clients introduced to him by Mark, and, in particular, the fees earned as a result of the introduction by Mark to Ainsworth of a third party, together with the proceeds of the investment or other use of those fees by Ainsworth, were and are held by Ainsworth on constructive trust for Mark.
The prayer for relief, apart from making drafting amendments, added the following additional paragraph (instead of the previously proposed paragraph GG):
CCA Declaration that fees earned by Ainsworth as a result of providing services to persons introduced to him by Mark, which have not been disclosed to Mark by Ainsworth, together with the proceeds of investment or other use of those fees are held, as to one half thereof, by Ainsworth on constructive trust for Mark.
There were two issues in the appeal before the primary judge. The first was whether there was any real prospect of success in proving the allegation that a constructive trust existed before any of the alleged breaches of the agreement took place. The significance of the constructive trust alleged was that, if there was a basis for it, no period of limitation would apply to the claim to recover from the respondent as trustee. That is because of s 21(1)(b) of the Limitation of Actions Act. Section 21(1) is in the following terms:
(1)No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—
(a)in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or
(b)to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.
Secondly, the issue of fraudulent concealment, decided against the applicant by the second associate judge, was again agitated. The primary judge found that the submissions asserting that Mr Feiglin did not know the relevant facts of the causes of action in the mid 1990’s were fanciful. That finding is not challenged in the present application for leave to appeal.
The judge dismissed the appeal, on the basis that the pleaded facts did not provide a proper basis for establishing an institutional constructive trust. Because the Limitation of Actions Act therefore applied, the claims in question enjoyed no real prospect of success within the meaning of s 63 of the Civil Procedure Act 2010.
The primary judge identified the real issue on the appeal before him as whether or not it was open to Mr Feiglin to plead a constructive trust, beyond a remedial constructive trust, based on the material facts pleaded in the proposed second further amended statement of claim. That was because, the judge held, a constructive trust must have an independent existence separate from any alleged fraud in order for it to be a ‘trust’ for the purpose of s 21(1)(b) of the Limitation of Actions Act.[4] That conclusion, which is well supported by authority, is not sought to be challenged in the proposed appeal.
[4]Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, 408–10 (Millett LJ); Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366, 402–5 (Lord Millett); Nolan v Nolan [2004] VSCA 109, [61]–[65] (Ormiston JA, with whom Chernov and Eames JJA agreed).
The primary judge held that on no proper view of the facts could the fees received by the respondent, for services rendered to persons introduced by Mr Feiglin, be considered to be other than his own. He held that there was no suggestion that the respondent was required to open a separate bank account or to keep the monies separate for the purpose of meeting the alleged debt to Mr Feiglin, nor was he acting as Mr Feiglin’s agent. Instead, the respondent was performing the alleged services as part of his consultancy business in his own right. Accordingly, on the most favourable view to Mr Feiglin, the facts as pleaded in the proposed second further amended statement of claim did not afford a proper basis for establishing an institutional constructive trust. As a result, s 21 of the Limitation of Actions Act did not apply and the periods of limitation prescribed by that Act were not excluded. Section 5(2) therefore applied directly or by analogy. It followed that the second associate judge was correct to enter judgment for the respondent.
The appeal was therefore dismissed. The primary judge otherwise permitted the applicant to file and serve her second further amended statement of claim, omitting paragraphs 8L to 8Z[5] and the associated paragraphs CC to I of the prayer for relief. In the events that have happened, this was not done.
[5]Paragraph 8Z alleged the assignment of the causes of action to the applicant.
Third further amended statement of claim (first version)
The applicant filed a notice of appeal from the orders of the primary judge on 1 September 2014. As set out further below, an application for leave to appeal was made subsequently. In the meantime, the respondent sought to rely on yet another proposed pleading. There has been more than one version of this pleading. The first version, dated 18 March 2015, retained the claims in paragraphs CC to I of the prayer for relief and paragraphs 8L to 8Z, but omitted the allegations of fraudulent concealment in paragraphs 8X and 8Y and substituted a fresh paragraph 8UU in the following terms:
In the premises, the fees earned by Ainsworth in relation to all clients introduced to him by Mark, and, in particular, the fees earned as a result of the introduction by Mark to Ainsworth of a third party, together with the proceeds of the investment or other use of those fees by Ainsworth, were and are held by Ainsworth on constructive trust for Mark in that it is fair and just in all the circumstances to impose an obligation on Ainsworth not to treat fees received from clients introduced or referred by Mark as entirely his own money, because inter alia —
(a)the parties would not have considered it fair that in the event that Ainsworth received fees of $5,000,000 from a client introduced or referred by Mark that Ainsworth could use the full amount as his own, for example, by discharging a personal debt in that sum, and incurring concurrently an obligation to pay Mark $2,500,000 at some future unspecified date and out of uncertain independent resources; and
(b)if fees received by Ainsworth in the amount of $5,000,000, for example, were invested, the parties would have considered it unfair for Ainsworth to have 100% of the proceeds of such investment, and, on the other hand, fair that 50% of the proceeds of such investment should be regarded as belonging to Mark; and
(c)Mark had used considerable diplomatic and related skills and the services of third parties to persuade persons to engage Ainsworth so that it is reasonable to see the receipt of fees by Ainsworth as the product of a two-phase process, in which Mark was responsible for the first phase, and Ainsworth the second, and, in those circumstances, the arrangement formed an informal joint venture in which fees received were in fact owned by the informal joint venture.
It can be seen that the new paragraph 8UU contained the material facts upon which the applicant sought to allege that a constructive trust arose, being a trust of a kind within s 21(1)(b) of the Limitation of Actions Act.
After this further proposed pleading was filed, the respondent indicated to the Court that, beyond filing a written submission, he wished to take no further part in the appeal. His solicitors sought leave to cease acting. Unfortunately, shortly before the appeal came on for hearing, on 19 May 2015, counsel for the applicant became unable to appear through serious illness. The hearing was adjourned until 7 August 2015.
In the meantime, the Court drew the attention of the parties to the question whether leave to appeal from the orders of the primary judge was required, on the basis that the matter in the Trial Division was an appeal from an application for summary judgment, in respect of part only of the case, and was therefore an interlocutory application within the meaning of s 17A(4)(b) of the Supreme Court Act 1986.[6] The applicant accepted that leave was required and sought it, on the basis that there was ‘doubt about the correctness’ of the order sought to be set aside. The applicant’s written submissions in effect canvassed again the merits of the case, without reference to matters that might bear specifically on the question of leave to appeal. In response, the respondent too concentrated substantially on the merits of the case.
[6]Shaw v Yarranova Pty Ltd [2014] VSCA 48, [14].
Third further amended statement of claim (final version)
After applying for leave, on 31 July 2015 the applicant filed a further version of the proposed new pleading, settled by new counsel, which it is convenient (albeit inaccurate) to call the third further amended statement of claim. The changes to the pleading were extensive, but not marked so as properly to identify them. No new relevant written submissions were provided at the time.[7] These actions necessitated the further adjournment of the hearing and the making of orders to remedy those matters.
[7]The applicant filed and served new written submissions before the hearing of the application for leave to appeal, based on the third further amended statement of claim.
The third further amended statement of claim makes a number of relevant changes.
(a) Paragraph 8O, which had alleged that the respondent owed Mr Feiglin fiduciary duties, was replaced by a paragraph alleging the circumstances attending the making of the alleged commission agreement, and a new paragraph 8OO was added asserting implied terms of the agreement, including an obligation on the part of the respondent to hold and apply the fees earned from clients introduced by Mr Feiglin for equal division between them after deduction of reasonable expenses.
(b) Paragraph 8P asserted fiduciary duties expressed slightly differently to those previously relied on and adopting the alleged implied obligation just noted.
(c) Paragraph 8T expanded on the breaches of the agreement alleged, and paragraph 8U made a related claim of breach of fiduciary duty. In particular, paragraphs 8T(b) and 8U(a) alleged that the respondent had attempted to conceal from Mr Feiglin the fact that he had provided services and earned fees.
(d) Paragraph 8UU was amended to omit the elaboration of the basis for alleging a constructive trust that had been incorporated in the preceding version, and to omit the reference to a ‘constructive’ trust.
(e) New paragraph 8UUU asserted that the new breaches pleaded in paragraphs 8T(b) and 8U(a) constituted fraud in equity.
(f) New paragraph 8WW alleged that the breaches of contract and fiduciary duty caused Mr Feiglin loss.
It is convenient to set out the relevant paragraphs in full.
8OThe circumstances attending the making of the Commission Agreement included the following —
(a)the Commission Agreement was not committed to writing and there were no express terms thereto requiring Ainsworth to account to Mark or to give him information relevant to the calculation and payment of commission;
(aa)Ainsworth trusted Mark to exercise with tact and discretion his influence over persons who might be persuaded to engage the services of Ainsworth;
(aaa)the parties contemplated that substantial earnings might be generated by Ainsworth as a result of such engagements.
(b)Mark trusted Ainsworth to keep him informed in relation to persons referred to him by Mark, as to whom –
(i)Ainsworth provided services, and
(ii)Ainsworth earned fees and in what amount;
(bb)the confidentiality attaching to the provision of services supplied by Ainsworth to persons introduced by Mark meant that Mark could not expect to be given by Ainsworth or otherwise to acquire detailed information in relation to those services;
(c)Mark trusted Ainsworth to be honest with him and to provide all appropriate information relevant to his entitlements and conscientiously to account for those entitlements; and
(d)Mark was vulnerable to loss if Ainsworth failed to honour his obligation to provide all appropriate information to Mark and to remit to him commission to which he was entitled.
8OOIn the premises there were implied terms of the Commission Agreement that Ainsworth would —
(a)hold and apply fees earned from clients introduced to him by Mark for equal division between Ainsworth and Mark after deduction of reasonable expenses;
Particulars
The term arises from the inferred or imputed intention of the parties given the nature of the Commission Agreement and the circumstances attending the making of it.
(b)honestly inform Mark as to whether he had provided services to such clients as a result of which he had earned fees and the amount of those fees;
(c)account to Mark in relation to the amount of his entitlement; and
(d)remit to Mark by way of commission his share of the earned fees.
Particulars
The terms in (b), (c) and (d) are implied from the nature of the Commission Agreement and the circumstances attending the making of it and further or alternatively in order to give business efficacy to the Commission Agreement.
8PFurther or alternatively in the premises Ainsworth owed fiduciary duties to Mark —
(a)to hold and apply fees earned from clients introduced to him by Mark for equal division between Ainsworth and Mark after deduction of reasonable expenses;
(b)honestly to inform him as to whether he had provided services to such clients as a result of which he had earned fees and the amount of those fees;
(c)to account to Mark in relation to the amount of his entitlement; and
(d)to remit to Mark, by way of commission, his share of the earned fees.
8QPursuant to the Commission Agreement, in 1986 and 1987 —
(a)Mark introduced persons to Ainsworth;
(b)Ainsworth provided services to these persons and earned fees therefrom; and
(c)Ainsworth remitted to Mark amounts which Ainsworth claimed were the correctly calculated amounts of commission due to Mark.
8R(a) In or about 1990, Mark introduced to Ainsworth a third party with the intention that Ainsworth might provide services to that third party;
(b)Subsequently, Ainsworth provided services to the third party;
(c)Thereafter, Ainsworth remitted commission to Mark, in the amount of US$12,000 as his equal share of fees earned by Ainsworth as a result of the provision of services to the third party.
8SFurther, in or about 1991 or 1992, at a time which Mark cannot, prior to discovery and inspection in this proceeding, specify —
(a)Mark advised Ainsworth of a larger transaction with the third party and arranged the meeting between Ainsworth and the third party to enable that transaction; and
(b)Ainsworth provided further services of an extended and very valuable kind to the third party; and
(c)Ainsworth earned further fees in an amount which Mark is presently unable to specify but which is in the region of five million dollars ($5,000,000).
8TIn breach of the Commission Agreement Ainsworth —
(a)failed and neglected, and has continued to do so, to share the fees referred to in paragraph 8S(c) hereof, equally with Mark; and
(b)failed honestly to inform Mark that he had provided services as a result of which he had earned those fees and instead attempted to conceal that information and prevent Mark from obtaining it.
Particulars
(i)By letter dated 1 November 1995 Ainsworth acknowledged he had suggested the Commission Agreement but described it as ‘relatively unsuccessful’.
(ii)At a meeting in November 1995 in Surfers Paradise Ainsworth told Mark that the onus was on him to find out how much was made on transactions entered into with persons introduced by Mark and that he had shredded all of the details and could not remember how much he made on those transactions.
(iii)In July 1996 Ainsworth said, in relation to the offer to pay Mark $100,000, that it was based on only $200,000 profit being made but he was not prepared to share any information or proof with anyone.
8UFurther or alternatively in breach of the fiduciary duties pleaded in paragraph 8P hereof, Ainsworth —
(a)failed honestly to inform Mark that he had performed services for the third party, on the second occasion, and had thereby earned further fees and instead attempted to conceal that information and prevent Mark from obtaining it;
Particulars
The particulars set out under paragraph 8T(b) are repeated.
(b)failed to account to Mark in respect of further fees which he had earned as a result of the provision of services to the third party, on the second occasion, and to account to Mark in respect of his share of those fees; and
(c)failed to remit to Mark the commission earned by Mark.
8UUIn the premises the fees earned by Ainsworth in relation to all clients introduced to him by Mark and, in particular, the fees earned as a result of the introduction by Mark to Ainsworth of the third party, together with the proceeds of the investment or other use of those fees by Ainsworth, were and are held by Ainsworth on trust for Mark.
8UUUFurther, the breaches referred to in paragraphs 8T(b) and 8U(a) constitute fraud in equity.
8VBy reason of the matters aforesaid Mark is entitled to obtain from Ainsworth an account of fees earned by him in relation to all clients introduced to him by Mark and, in particular, an account of fees earned as a result of the introduction by Mark to Ainsworth of the third party.
8WIn or about May 2007, Mark discovered that —
(a)Ainsworth had provided further services of an extended and very valuable kind to the third party; and
(b)Ainsworth had earned further fees in the region of $5,000,000 in respect of the provision of these further services.
Particulars
The discovery of the matters pleaded occurred as the result of a conversation which occurred in or about May 2007 between the third party himself and Mark on a social occasion at a house at 18 Helenslea Road, Caulfield North, Victoria, and which conversation was to the effect alleged.
8WWAs a result of the breaches of contract and further or alternatively of fiduciary duty referred to in paragraphs 8T and 8U, Mark has suffered loss.
Particulars
Mark did not consider it appropriate to claim his entitlement under the Commission Agreement until he had the information referred to in paragraph 8W. Ainsworth has contended that Mark’s claim for recovery of his entitlement under the Commission Agreement is statute barred. If that claim were to succeed, Mark would have lost the benefit of that entitlement.
In addition, Mark has been put to considerable expense attempting to recover that entitlement.
It can be seen that there are two main differences, for present purposes, between the pleading now sought to be relied on and that upon which the primary judge made his decision. First, the allegation of constructive trust has been replaced with a more general allegation of trust. Although the pleading does not say so expressly, the applicant submits that the trust is to be inferred or imputed from the circumstances alleged in paragraph 8O. Those circumstances, it is alleged, give rise both to an implied term of the alleged commission agreement and a fiduciary duty. Secondly, the implied term and the fiduciary duty now alleged both extend to an obligation on the part of the respondent to hold and apply the fees earned from clients introduced by Mr Feiglin for equal division between them after deduction of reasonable expenses. (It may also be noted that an allegation of fraud in equity has been added as an aspect of the alleged breach of fiduciary duty, but nothing turns on this for present purposes.)
Overview
There are three matters before the Court. The first is the applicant’s application for leave to appeal against the decision of the primary judge. The second is any appeal pursuant to such leave. The third is her application for leave to rely on the proposed third further amended statement of claim as part of the application for leave, and any appeal.
The applicant submits that the pleading discloses a sufficient factual basis to establish ‘an institutional (as opposed to a remedial) trust’ which would attract the operation of s 21(1)(b) of the Limitation of Actions Act. The critical question for the present application is whether there is a sufficient factual basis alleged to establish such a trust. As already mentioned, the principles governing the operation of s 21(1) are not in issue in the proposed appeal.[8]
[8]See paragraph [22] above.
The distinction between an ‘institutional’ and a ‘remedial’ constructive trust, while it has been described as superficial, serves to mark the difference between a relationship which exists and arises under the law independently of any court order, and a relationship actually established by such an order.[9] The distinction between the two kinds of constructive trust was explained, without using these descriptors, by Millett LJ in Paragon Finance plc v DB Thakerar & Co.[10]
[9]Muschinski v Dodds (1985) 160 CLR 583, 614.
[10][1999] 1 All ER 400, 408–9. See also Nolan v Nolan [2004] VSCA 109, [60]–[65]; Sze Tu v Lowe [2014] NSWCA 462, [150]–[155].
Millett LJ distinguished between a ‘true’ constructive trust where a person, while not expressly appointed as trustee, assumes the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust in question, and the case where a trust obligation arises as a direct consequence of the transaction which is impeached. In the first class of case the person really is a trustee, having received and been obliged to deal with the property according to the terms of the constructive trust, from which it is unconscionable for him or her to depart. In the second class of case, the person is liable to account as if he or she were a trustee, but in fact is not a trustee at all, never having assumed that position or having held the purported trust property at all unless by an unlawful transaction; in the latter case, the trust is not so much a trust as a ‘catchphrase’ to describe the remedial obligations which the law imposes.[11]
[11][1999] 1 All ER 400, 413.
Leave to rely on new pleading
It is convenient to deal first with the third of the three matters before the Court. It is not possible to address the application for leave to appeal, or any appeal, without first determining which pleading the applicant is entitled to rely upon.
In that regard, counsel for the applicant submitted that the proposed pleading alleged an ‘institutional trust’ arising either from the inferred or imputed intention of the parties or because equity would impose a trust in the circumstances. Reliance was placed on Nolan v Nolan,[12] where Ormiston JA observed that ‘[a] person becomes an institutional constructive trustee because there is evidence from which it may be inferred either that that person intended to hold property on behalf of others or that he or she should have had such an intention’. The pleading was said to reflect the following similar statement of the law found later in the same judgment:[13]
To create an institutional constructive trust there must be some act which either directly displays such an intention [i.e. to hold as trustee and not adversely to the interests of any beneficiary] in the supposed trustee or some acts or circumstances from which it may be inferred that he had an intention to act as a trustee or fiduciary or in some other role which imported an obligation to hold property as if he were a trustee.
[12][2004] VSCA 109, [60].
[13]Ibid [80].
Attention was also drawn to the use of the language of imputed intention, in the context of an express trust, in the judgment of French CJ in Korda v Australian Executor Trustees (SA) Ltd.[14]
[14](2015) 317 ALR 225, 228 [3].
On this basis, it was submitted that the proposed pleading articulated the two possible ways in which an institutional constructive trust could be established, but by reference to the same underlying facts as the pleading which was before the primary judge. The tests for imputing intention (as reflected in paragraph 8OO) and imposing a constructive trust (as alleged in paragraph 8O under the head of fiduciary duty) were said to be interchangeable. The new pleading, it was said, set out expressly what in substance had already been the case alleged in the earlier pleading.
Counsel for the respondent disputed that the tests for an implied or imputed trust and a constructive trust were the same. The former, it was submitted, required an inquiry as to the intentions of the parties, whereas the latter treated that matter as irrelevant, so that a constructive trust could be imposed irrespective of those intentions. Further, the applicant had, until the newly proposed pleading, relied only on an imposed constructive trust and had expressly eschewed asserting a trust based on intention. In effect, it was submitted that giving the trusts now pleaded the name ‘institutional’ was not helpful and the Court should look to the substance of what had been pleaded.
As the respondent submitted, the labels attached to various kinds of trust may be apt to confuse. As French CJ explained in Korda:[15]
[15]Ibid 228 [3], 229–30 [8]–[9] (citations omitted).
The question whether an express trust exists must always be answered by reference to intention. An express trust cannot be created unless the person or persons creating it can be taken to have intended to do so. Absent, as in this case, an explicit declaration of such an intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or oral dealings having regard to the nature of the transactions and the circumstances attending the relationship between the parties.
…
The implication of intention precedes the ascertainment of an express trust. Failure to appreciate that sequence may lead to the imputation of a trust without proper consideration of intention. The ascertainment of an express trust may come to resemble the imposition of a constructive trust, which has been described by this court as ‘a remedy which equity imposes regardless of actual or presumed intention’. Although it has been suggested that ‘unconscious express trusts’, like constructive trusts, are ‘imposed by the court, in truth, in recognition of a factor affecting the conscience of the common law owner of the property’, ascertainment is not a vehicle for imposition.
The boundaries between express and constructive trusts have not always been clear and have sometimes varied according to their significance for particular statutory provisions. But while there may be overlap in their application, the requirement of an imputed intention marks a conceptual distinction between them.
The above passages show that the use of the term ‘institutional constructive trust’ to describe a trust founded on an inferred intention or one imputed to the parties may be apt to mislead. They also show that, as the respondent submitted, the test for identifying such a trust differs from that for imposing a constructive trust, notwithstanding that the results of applying the two tests may well coincide.
In the circumstances, it is necessary to look to the nature of the trust or trusts pleaded, rather than the labels that may be attached to them. When that is done, it is clear that, in both the pleading that was before the primary judge and that now sought to be relied upon, the applicant alleged that a trust arose from the circumstances in which the alleged agreement was entered into, irrespective of the intention of either party. It is also plain that the latest pleading breaks new ground in further alleging in paragraph 8OO(a) that it was an ‘implied term’ of the agreement, arising ‘from the inferred or imputed intention of the parties’, given the nature of the agreement and the circumstances attending its making, that the respondent would hold and apply fees earned from clients introduced by Mr Feiglin for equal division between the two of them after deduction of reasonable expenses. This ‘inferred or imputed intention’ is said to found the trust sought to be relied on.[16]
[16]Being based on the inferred or imputed intention of the parties given the nature of the commission agreement and the circumstances attending the making of it, the term in question is probably better described as an inferred term: see the authorities referred to in Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190, [176]–[180].
No such claim was made previously. Moreover, any such claim was expressly disavowed by counsel appearing before the primary judge. The transcript reveals that the judge was at pains to ensure that the pleading before him reflected the definitive version of the case the applicant wished to put. Counsel for the applicant made the position clear. He said:
So the submission is that this was a constructive trust, not one which arises as a result of the interpretation of the intention of the parties. That would be an express or implied trust. This is a constructive trust. So where there are references in my learned friend’s submissions to the fact that there is no evidence of the intention of the parties to do this and therefore a trust could not have arisen, that may be so in relation to a conclusion that an express or implied trust arose as a result of the interpretation of the words and conduct of the parties, rather than the contention here that is sought to be made is that the trust is imposed on the parties by the court by operation of law.
After further discussion, the applicant declined an adjournment to make further amendments.
The applicant’s pleading is therefore sought to be substantially amended, following two successful summary dismissal determinations, so as to allege a cause of action which was expressly disavowed before the judge from whose decision an appeal is sought to be brought. Only the most compelling considerations would warrant the grant of leave to permit such a course.
The applicant submitted that no unfairness had been pointed to, and sought to distinguish the disavowal of a claim at trial from a case where only the pleadings were in issue. It was further submitted that the underlying factual basis for the claim remained unchanged.
These considerations are not persuasive. The applicant seeks an unusual indulgence. It is not for the respondent to point to specific unfairness. There is inherent unfairness in permitting a party to change their case in circumstances such as the present, when the claims have been repeatedly revised and altered over a considerable period of time and the matter is still yet to go to trial.
Moreover, the parties were agreed that the matter fell to be decided solely by reference to the pleadings. The pleadings themselves disclose that the underlying basis for the claims has changed. It is therefore not to the point to contend that the underlying factual basis for the claims made is unaltered.
It is of course not uncommon for a party to seek to re-plead in the face of a pleading summons or an application for summary disposition of part or all of the proceeding. However, it will be a rare case in which leave will be granted by the Court of Appeal to raise a claim on appeal that was not pleaded or argued either at the hearing of such a summons at first instance or on appeal to the Trial Division, especially where the claim had been expressly disavowed at the last hearing.
The undesirability of a grant of leave in such circumstances is reinforced by the overarching purpose of the Civil Procedure Act 2010, namely to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute between the parties.[17] To accede to the applicant’s application would, in my opinion, fail to give effect to the overarching purpose,[18] having proper regard to many of the objects in s 9(1) of that Act, including the efficient conduct of the business of the Court, the efficient use of judicial and administrative resources and, in particular, minimising any delay between commencement of a proceeding and its listing for trial beyond that reasonably required for any interlocutory steps that are necessary for the fair and just determination of the real issues in dispute.[19]
[17]Section 7(1).
[18]Section 8(1).
[19]See Northern Health v Kuipers [2015] VSCA 172, [89].
The applicant submitted, by way of reply, that even if the cause of action based on imputed intention could not be relied upon, she should still be permitted to proceed upon the amended pleading in so far as it concerns the constructive trust claim. In this respect the main difference between the relevant pleadings is that the proposed new pleading alleges a fiduciary duty to hold the relevant fees earned and apply them equally between Mr Feiglin and the respondent.
However, this pleading attempts to obviate a difficulty with the pleading upon which the primary judge partly based his decision, namely that it contained no suggestion that the respondent was required to keep the monies he received separate for the purpose of meeting his obligation to Mr Feiglin.[20] The applicant contends that an allegation of this kind was, in any event, implicit in the previous pleading. If so, then the primary judge was in error and the applicant suffers no prejudice in not being permitted to articulate the claim expressly.[21] If it was not implicit, then, although such a claim was not expressly disavowed, the other considerations mentioned above militate against granting leave.
[20]Feiglin v Ainsworth (No 2) [2014] VSC 376, [55].
[21]I do not, in any event, accept that anything turned on such an error, if any was made. See paragaph [67] below.
For these reasons, I would refuse leave to rely on the proposed pleading which I have called the third further amended statement of claim. The application to leave to appeal, and any appeal, therefore fall to be determined according to the pleading which was before the primary judge.
Leave to appeal
The next question is whether leave to appeal should be granted. The test for leave to appeal in the present context is whether there is any doubt about the order for summary dismissal.[22] It follows that the question of leave depends on the merits of the proposed appeal. It is therefore convenient to turn now to the appeal itself.
[22]Shaw v Yarranova Pty Ltd [2014] VSCA 48, [14]; Manderson M & F Consulting v Incitec Pivot Ltd (2011) 35 VR 98, 103 [11].
Appeal
The applicant submitted that what had been pleaded was a profit-sharing arrangement between persons who trusted each other, in circumstances where Mr Feiglin was vulnerable to the respondent because, unless the respondent was honest in his dealings with him, he had no way of knowing whether fees had been earned, and in what amount, as a result of introductions he had facilitated. It was submitted that a trust arose on the reasoning in Cohen v Cohen,[23] which it was said involved similar facts.
[23](1929) 42 CLR 91.
In Cohen v Cohen, the plaintiff sued her husband, asserting that he held certain amounts of money on trust for her. Relevantly for present purposes, the husband had, with his wife’s consent, sold some of her furniture after they were married and they had more furniture than they required. He retained the proceeds. In addition, the husband insured in his own name certain jewellery and furs belonging to his wife. Subsequently he received and retained an amount paid in settlement of a claim under that insurance. Both these claims, in so far as they alleged debts due to the wife, were statute-barred. The question was therefore whether the amounts in question were held by the husband on trust for the wife.
The matter was tried in the original jurisdiction of the High Court before Dixon J.[24] He quoted with approval the following statement of principle of Channell J in Henry v Hammond:[25]
It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand
over an equivalent sum of money, then, in my opinion, he is not a trustee … but merely a debtor.
[24]The husband and wife were, by the time of the proceeding, residents of different States: see Constitution s 75(iv).
[25](1929) 42 CLR 91, 101, quoting [1913] 2 KB 515, 521.
Applying this principle, Dixon J found that a trust arose in respect of both the furniture and the insurance proceeds. He held that in neither case could the husband reasonably conceive himself as receiving money as his own and incurring a mere debt to his wife. The nature of their matrimonial and financial relations afforded no ground for supposing that the wife would be likely willingly to have exchanged any specific thing for a debt.
The applicant contended that the same reasoning applied in the present case. No specific conversation or representation was required. It was submitted that the case shows that the absence of such evidence does not mark the end of the inquiry. The relationship of trust between Mr Feiglin and the respondent meant that the respondent could not conceivably have regarded Mr Feiglin as providing his services in return for a mere debt.
Further, it was submitted, Mr Feiglin was in a special position of vulnerability as a result of the relationship he had entered into with the respondent. The respondent was in a position to conduct his business in a manner that would affect Mr Feiglin’s interests by performing highly confidential work for persons introduced by Mr Feiglin and not informing Mr Feiglin of that work or the fees received in respect of it. This vulnerability to abuse was cited as a hallmark of the existence of a fiduciary duty, and therefore of the trust alleged.[26]
[26]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 96–7.
In my opinion, the analogy with Cohen v Cohen fails. The claims in that case arose from dealings in respect of the property of the wife. The imposition of a trust in respect of the proceeds of a person’s personal property stands in a very different position to the present case. The underlying source of the trust that is alleged here is contractual. Moreover, while a trust relationship may of course arise in that context, the applicant is seeking to superimpose a trust upon an alleged debt, whereas in Cohen the question was whether the transactions gave rise to a debt or a trust. Unlike in Cohen, the indicia of a trust upon which the applicant here relies must be considered against the background of the contractual relationship which has been pleaded.
The identification of such a trust requires more than the vulnerability of a party to a contract to conduct on the part of the other party in breach of the contract. All contractual parties are vulnerable in that sense. It is vulnerability in the exercise of the powers or discretions conferred on the party as a result of their relationship which gives rise to a fiduciary duty.[27] Here, although counsel for the applicant characterised the relationship as a profit-sharing one, this is not what is alleged in the relevant pleading (or, it should be noted, the pleading on which the applicant sought to rely). The suggested obligation was to pay one half of the fees earned. This was aptly described as ‘commission’, amounting to an obligation between debtor and creditor. Each party was, subject to the contract, free to act in his own interests.[28] There was no allegation that the respondent was obliged to accept Mr Feiglin’s introductions in preference to clients obtained from other sources, for whom he could perform services free of the obligation to pay half his fees to Mr Feiglin. There was no allegation that Mr Feiglin owed any obligation to the respondent not to introduce clients to other advisers. There was, in short, nothing in the nature of a joint enterprise alleged. There is therefore no foundation upon which to build a conclusion that a fiduciary relationship arose.
[27]Ibid.
[28]Ibid 72, 97–8.
Doubtless, as the applicant submitted, the arrangement envisaged Mr Feiglin performing substantial work in return for his commission. It may be assumed that this involved conversations with potential clients, and with the respondent, of a sensitive and confidential nature. But again those features do not take the case beyond a mere contract. There was, again, no suggestion that the parties were obliged at any stage to act other than in their own interests, or that their relationship conferred powers or discretions on the respondent whose exercise rendered Mr Feiglin vulnerable to abuse.
Accordingly, in my opinion, the primary judge was correct to conclude that the pleaded facts did not afford a proper basis for establishing an institutional constructive trust.
It may be observed that the same result follows even under the amended pleading. It makes express what was said to be implicit in the earlier pleading, namely that there was an obligation to treat the money separately. But it does so without reference to any factual matter other than the circumstances referred to above, from which such an obligation might be said to derive. It therefore takes the argument no further.
Conclusion
The applicant submitted by way of reply that, if the Court came to the same conclusion as the primary judge, it should none the less exercise its discretion to enable the hearing to proceed, given that the remainder of the case, involving the claim in respect of the house, would go to trial in any event and, it was submitted, the evidence in respect of both claims would overlap.
Assuming the existence of a discretion and such an overlap, I would not allow the appeal on that basis. The applicant having failed to show that doubt attaches to the primary judge’s conclusion that the commission claim is statute-barred, in my view it would be unjust to allow that claim to proceed to trial. I would therefore refuse leave to appeal.
It may be observed in conclusion that a very considerable period has elapsed since this proceeding was commenced, as the primary judge observed in the hearing of this matter. The scope of the proceeding having been resolved, it is to be assumed that the parties will cooperate in bringing the matter to a speedy conclusion, whether by a further mediation or by expediting their preparations for trial.
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