Feiglin v Ainsworth
[2011] VSC 454
•19 September 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2010 03265
| ESTHER CELIA FEIGLIN and | Plaintiffs |
| MARK FEIGLIN | |
| - and - | |
| Defendants | |
| DAVID SARGON AINSWORTH and others |
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JUDGE: | MUKHTAR AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 May 2011 | |
DATE OF JUDGMENT: | 19 September 2011 | |
CASE MAY BE CITED AS: | Feiglin v Ainsworth | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 454 | |
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LIMITATIONS OF ACTION ― Contract to pay commission ― Action for account base on an alleged right to information from commission payer ― Claim pleaded as breach of fiduciary obligation ― Whether statute barred ― Accrual of cause of action ― Application of statute of limitations to claims for equitable relief ― Application by analogy ― Limitation of Actions Act 1958 (No 6295) s 3(7), 5(2), 5(8).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr J F Bleechmore | Chadwicks – The Law Firm |
| For the Defendant | Mr S Stuckey | Dimos Lawyers |
HIS HONOUR:
The dominant question in this application is whether the plaintiffs ought be given leave to amend their statement of claim to introduce an additional case in the form of an action for an account. The defendants contend leave should be refused because the proposed claim is time barred under the Limitation of Actions Act.
This is a combative family dispute over property ownership and money. The first plaintiff, Esther Feiglin, and the second plaintiff, Mark Feiglin, are husband and wife. The first defendant, David Ainsworth, is Esther’s father. In June 2010, the Feiglins commenced this proceeding claiming rights to their family home in St Kilda East in which they live. They seek a Court order that the property be transferred to them. Their claim is based on representations allegedly made to them by Ainsworth, which they say form a foundation for an acquisitive estoppel. The property has passed through the second and third defendants, being companies controlled by Ainsworth. The plaintiffs claim that the second defendant holds the home as constructive trustee, or the third defendant holds the home on a resulting trust.
The defendants say the plaintiffs have no rights to the property except as periodic tenants under arrangements which they have repudiated. The defendants counterclaim for possession of the property, and also for unpaid rent of $1 222 244 and continuing losses.
The defendants say they are ready to proceed to obtain the usual pre-trial directions and have the matter fixed for trial. But, the plaintiffs recently served a proposed amended statement of claim which seeks to add a claim for commission by Mark Feiglin against David Ainsworth his father‑in‑law. Feiglin wants to allege that he had connections and influence over people who could benefit from taxation, financial and investment advice from Ainsworth. He says that in a conversation in 1985 he and Ainsworth made an agreement, never reduced to writing, that if he introduced clients to Ainsworth then he, Ainsworth, would share with Feiglin equally the fees earned from that client. Thus, it is clear the foundation of the alleged legal relations was contractual.
There were no express terms requiring Ainsworth to account to Feiglin or to give him information about the calculation and payment of commission. And there is no case put that such an implication was necessary to enable Feiglin to have the benefit or full realisation of the bargain, or to give the agreement it business efficacy. Rather, Feiglin proposes to plead that “in all the circumstances” Ainsworth owed him fiduciary duties. Those circumstances are that because the commission agreement was unwritten, and because there was no express right to information, he trusted Ainsworth as his father in law to keep him informed and to be honest about client services and fees received, and that Ainsworth knew that Feiglin was vulnerable to loss if he was not given that information and the commission due.
And what are the alleged fiduciary obligations? He says Ainsworth owed fiduciary duties to account to him, and more particularly to inform him whether he had rendered services and fees to clients who Feiglin had introduced, to account to him for the fees earned, and to remit his half share. This duty to inform is thus put as a positive not proscriptive duty.
Feiglin says that in 1986, 1987 and 1990 he introduced clients to Ainsworth, who later remitted to him amounts which he, Ainsworth, claimed were the correctly calculated amounts of commission due. More significantly, he seeks to allege that in about 1990 he introduced to Ainsworth “a third party” (there is no name) with the intention that Ainsworth might provide services to that third party. He says that Ainsworth provided services to that third party and thereafter remitted commission of $12 000 as an equal share of fees. He then seeks to allege:
8(s)Further, 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).
8(t)In breach of the fiduciary duties pleaded … 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.
8(u)In 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.
In the prayers for relief the plaintiffs seek:
D.An 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;
E.An order that Ainsworth pay Mark, upon the taking of the said account, the amount found to be due from Ainsworth to Mark.
It is apparent on the face of the proposed pleading that the claim looms as one where, so the plaintiffs will say, the facts concerning work done and fees earned from the unnamed third party will be information very much within the knowledge of Ainsworth. It is predictable therefore that what lies ahead if leave be granted is an intensive course of fact finding by discovery by one means or another, which may or may not be troublesome. If the plaintiffs are right about the agreement and the substantial fees earned from the third party, then the claim would be “in the region” of $2.5 million. It is apparent, and the plaintiffs’ counsel acknowledged in court that the commission claim is to be used to in an attempt offset the substantial claim against them for rent. Whether it is capable of legally neutralising the repudiatory effect of a non failure of rent is another question.
The defendants in effect say this is all dubious and tactical. They put in evidence some correspondence designed to show that an assertion of a right to commission had been around since late 1995 yet the plaintiff did nothing about it until this proposed amendment. (The writ was filed in June 2010.) The correspondence shows that in October 1995 Feiglin suggested they all “quietly sit down” to resolve the disputation over the house, and he reminded Ainsworth about the profit sharing arrangement. In response Ainsworth denied that Feiglin was instrumental in obtaining business for Ainsworth and said Feiglin’s failure to pay the rent was causing strain. More correspondence from Feiglin said there was supposed to be a fair and equitable business relationship, and as a “partner” he was entitled to a 50% share of the profit earned by Ainsworth. He said he had canvassed all of his associates and was finding deals with dentists, doctors and businessmen. He insisted on a fair accounting of his share of the profit. There is no denial about his failure to pay rent. The correspondence culminates in a suggestion that they all “sit down” with the assistance of others to work out “what you owe us and what we owe you”. There was no explanation in this application why this substantial claim said by Feiglin to be part of a business relationship, did not surface until very recently.
The defendants oppose leave being granted on two independent grounds. They contend:
(a)Even accepting for the purpose of this application the truth of the plaintiffs new allegations, the claim for an account became statute barred at the latest six years after 1992 at which time it is alleged Ainsworth earned the $5 million fee and was bound to account to Feiglin. As there are no other facts to be investigated on that question, the Court should not refrain from deciding the limitations point now.
(b)Anyway, there is no factual or legal link between the proposed claim and the pre‑existing claim. There is no reason why the commission claim cannot be heard as a claim separate to this proceeding, rather than retard the advanced progress of the case, which is ready for pre trial directions and a trial fixture. The commission claim was asserted in 1995, not pursued, and now appears at a late stage in this litigation. It has the signs of a stratagem to tactically create a commercial pressure point, which is not a proper purpose.
For the reasons that follow, if there was not a limitations point, I would not refuse leave to amend on the second ground. But I do think the proposed claim is statute barred under s 5(2) of the Limitations of Action Act. That applies a six year limitation to all actions of account to be construed as meaning an account at law or equity, whether based on a legal or equitable liability to account. According to the proposed pleading, the matter giving rise to an action for account arose in 1991 or 1992 when Ainsworth is alleged to have earned the $5 million fee. To couch the claim as a breach of fiduciary duty (for which there is no statutory limitation period) cannot be used to avoid the application of the six year limitation either directly or by analogy under s 5(8) of the Act. The limitation period will apply unless Feiglin is going to contend as part of his case that there has been fraudulent concealment of facts affecting the accrual of the cause of action.
It is necessary to first say something about the elements of the pre‑existing claim.
The pre-existing claim
The claim and opposing claim is complex. I shall avoid detail and break up the elements of the case briefly as follows:
(a)Between 1986 and 1991 the plaintiffs were joint owners of 32 Meadow Street in St Kilda East
(b)The property was mortgaged to the ANZ Bank.
(c)Come 1990, the Feiglins were in financial trouble. They could not service the mortgage and were at risk of losing their home to the bank.
(d)Ainsworth was asked for help by his daughter. In late 1990 he agreed he would lend them $375 000 and gift them $200 000. Adding their own funds of $25 000, that would enable the Feiglins to discharge the mortgage by a payment of $600 000.
(e)In exchange, the Feiglins would transfer the property to the second defendant Westerway to be held on trust for them and their children.
(f)They would live in the property and pay all outgoings and other costs;
(g)The Feiglins would indemnify Ainsworth for the interest and charges on the loan of $375 000, but upon repayment of that sum, the trustee would then transfer the property back to the Feiglins.
None of this was in writing. It is alleged that the gift and loan were made and the property was transferred to a company, Westerway[1], as trustee of the Westerway Trust. It is then said that “the parties determined” that the Feiglins’ obligation to indemnify Ainsworth for the interest on $375 000 could be met by a payment of rent and to that end the Feiglins entered into a lease of the property commencing in January 1991 for a term of ten years and the rent was calculated by reference to the interest and charges on the loan. They say they have lived in the property and have paid all outgoings and charges.
[1]The schedule of parties says Ainsworth Melbourne Properties Pty Ltd but the pleadings say only Westerway.
It is then alleged that in December 1999 the third defendant, Midmonsec Pty Ltd, was appointed as new trustee and became registered proprietor of the land. Then, by another deed made in June 2000, Midmonsec as new trustee stood possessed of the property in trust for the fourth defendant Midland.
The Feiglins’ case is that acting on the faith of the agreement they transferred the property over, yet they say that Ainsworth has now denied that he is obliged to procure the trustee company to transfer the property back to them. They seek a declaration that the trustee companies hold the property subject to the interest of the Feiglins and a declaration that upon payment of the loan of $375 000 they are entitled to a transfer.
What is the defence? The countervailing case pleaded by the Ainsworth interests bears little resemblance to the case put by the plaintiffs. Ainsworth says that in 1990 it was his wife Jacqueline Ainsworth who agreed that she would purchase the property for $600 000. He says there was a “common expectation” that Westerway would arrange for a mortgage loan to enable Mrs Ainsworth to buy the property and the plaintiffs would purchase the property back from Mrs Ainsworth in about 12 months, but in the meantime they would pay rent and the Ainsworth’s holding expenses. He says that the sale was completed by Westerway as trustee of the Westerway Trust to allow the plaintiffs to seek to reduce or avoid the stamp duty they would have to pay on their re‑purchase of the property.
The defendants’ case is that the plaintiff could not obtain mortgage funding so that Ainsworth was obliged to finance the acquisition to enable Westerway to buy the home. They say that the residential tenancy agreement was then made under which the plaintiffs agreed to lease the property from Westerway for an annual rent of $64 000 for a ten year term. They say the plaintiffs have not paid one cent of rent or not provided sufficient funds to pay the interest accruing on the purchase moneys and have never been willing or able to carry out the expectation they would purchase the property.
Would the amendment cause procedural inconvenience or disorder?
I can tell already this will be a facts intensive case, and I sense, one which will depend on assessments of personal credibility. There is much that is not in writing. True it is, as Mr Stuckey urges, the commission claim is not in any way affiliated legally with the existing claim because it does not touch and concern the question of the agreement or arrangement under which the property was purchased, and the subsequent trust dealings. But it matters not that the claims are different in kind. It is a matter of procedural convenience, and the desirability of avoiding a multiplicity of proceedings, and the desirability of bringing finality especially in bitter family disputes. Those factors prevail in a case of this sort. Any additional delay can be minimised by the Court’s management of the litigation.
I accept that it is certainly strange, and unexplained, and productive of some scepticism that the proposed claim has not been made before in this case as part of the principal claim. It may have been thought to be time barred. Even so, one would have expected that debate at the outset (that is, before the claim for rent came in), especially as it vastly exceeds the $375 000 loan which the Feiglins acknowledge they are bound to pay Ainsworth as condition of the declaration they seek. But it would be wrong to therefore reach a conclusion on its merits or conclude that the claim is now being belatedly made for an improper purpose. To my mind, the real question is not a procedural one but a substantive one. That is, whether the proposed claim is so belated that it is statute barred, and, whether the conception of a breach of fiduciary duty in the circumstances as pleaded can be used to side step the statute of limitations.
The action for an account
The proposed amendment invites much scrutiny. The claim for an account is put on the basis that it is due as a matter of fiduciary obligation. But if Ainsworth is an accounting party, that is because of the contractual relations which give rise to the obligation to pay over half of the fees earned. Fiduciary obligations arise because a person undertakes or agrees to act for or on behalf of another person or in the interests of another person, that is, to serve exclusively and in the best the interests of that other person.[2]A fiduciary duty can co-exist with a contract, but it must accommodate itself to the contract and be consistent with and conform to the contract. [3] A positive duty to account, in equity, is alleged yet equity imposes on the fiduciary a proscriptive obligation, expressed in the main as being not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict.[4]
[2]The Hospital Products case (1984) 156 CLR 41, and Pilmer v Duke Group (2001) 207 CLR 165 at 197.
[3]The Hospital Products case (1984) 156 CLR 41 at 97.
[4]Breen v Williams (1995) 186 CLR 71 at 113.
Ainsworth is a finance and tax advisor, for which he may take on clients and earn fees and in doing that he is entitled to act in his own interests or certainly not exclusively for Feiglin’s benefit. He promised under the contract, it is said, to give Feiglin half of the fees. That would make him an accounting party. The question will be whether that therefore makes him a fiduciary or whether the duty to account is really a contractual one.
Ainsworth is not alleged to be Feiglin’s agent, which is a paradigm example of a fiduciary relationship. It seems to me to be the other way around, for Feiglin was going about spotting clients and introducing them to Ainsworth and then stepping away. Nor is vulnerability the touchstone of a fiduciary relationship even though it may be a characteristic. Even so, there is only “vulnerability” in the loosest of senses, in that Feiglin would be dependent on his father in law’s honesty to tell him if an introduction lead to an engagement, and the amount of fees earned. The prospect of an unfulfilled expectation does not therefore create a positive fiduciary obligation.
I say all this at the outset because it will come into play on the analysis concerning the application of the statute of limitations point. To understand the operation of the statute, there are three legal matters to describe briefly.
First, an action for account is available at common law and in equity but the former is near obsolete. The history is well explained in Meagher Gummow and Lehane’s, Equity Doctrines and Remedies.[5] See also Tito v Waddell (No 2).[6] It is sufficient to say for present purposes that at common law the primary question was whether the defendant was an accounting party. If so, there followed what according to legal writers was a Byzantine procedure (in all but the simplest of cases) before auditors to determine an amount payable, and then an action in debt for the amount due. The courts of equity had a superior and much more convenient procedure for an equitable action for accounts which was available where the plaintiff was relying on an equitable right and where an account was necessary to give effect to such rights. But equity was also willing to lend that remedy where appropriate where the plaintiff was relying on a common law right, so much so that by the eighteenth century the common law action for an account had come to be superseded by equitable proceedings for an account. One category in which equity would order accounts as of right was where the right relied upon by the plaintiff was legal, but the parties stood in a quasi fiduciary relationship or a relationship of confidence such as exists between agent and principal. [7] Another common example is a claim in passing off or breach of trade marks where an infringing party is called to account for profits made. These are instances where the defendant is an accounting party.
[5]Chapter 25, p 869.
[6][1977] Ch 106 at 250.
[7]At [25-020]
Secondly, when it comes to proceedings for an equitable remedy, then outside the application of any statute of limitation, equity might withhold a remedy for unreasonable delay under the principle of laches which is connected to the idea of abandonment. That can be put to one side here.
Thirdly, and more to the point here, a statute of limitation may apply expressly or by implication to equitable rights or the proceedings in question: see generally Spry, Equitable Remedies,[8] Meagher et al, Equity Doctrines and Remedies[9] and Handford, Limitation of Actions, The Laws of Australia.[10] In that situation equity is bound by the statute and has no discretion. Where the statute of limitations bars a legal right, and a court of equity is being asked to lend its auxiliary or concurrent jurisdiction to give a remedy in aid of that (barred) legal right, it acts in obedience to the statute. That is because equity follows the law and faithful to the ethos of equity, it would be regarded as unjust that a party can circumvent the operation of a statute by proceeding, or fashioning a proceeding in equity. All this was established in Knox v Gye[11] where it was said:
For where the remedy in equity is correspondent to the remedy at law, and the latter is subject to a limit in point of time by the Statute of Limitations, a court of equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. This is the meaning of the common phrase that a court of equity acts by analogy to the Statute of Limitation, the meaning being that where the suit in equity corresponds with an action at law which is included in the words of the statute , a court of equity adopts the enactment of the statute as its own rule or procedure…Where a court of equity frames its remedy upon the basis of the common law, and supplements the common law by extending the remedy to parties who cannot have an action at common law, there the court of equity acts in analogy to the statute; that is, it adopts the statute as the role of procedure regulating the remedy it affords.
[8](8 th edition) at p 416 ff
[9](4th ed) Ch 34
[10](2nd ed) [5.10.270] ff
[11](1872) LR 5 HL 656.
The situation is not substantially different where the claim is brought in equity’s exclusive jurisdiction, such as a breach of trust or fiduciary duty. If the statute of limitation applies expressly or by implication, then equitable intervention is not possible. But if it does not, then equity will also follow the law where the rights are similar, unless special circumstances show an injustice in doing so. This is said to be the true basis of acting by analogy. The principle is stated this way[12]
… The court may decide that the material equitable right is so similar to legal rights to which a limitation period is applicable that that limitation period should be applied to it also. In this latter case the limitation period is said to be applied by analogy, and the principles that govern cases of this kind are that if there is a sufficiently close similarity between the exclusive equitable right in question and the legal rights to which the statutory provision applies a court of equity will ordinarily act upon it by analogy but that it will so act only if there is nothing in the particular circumstances of the case that renders it unjust to do so. What is regarded by courts of equity as a sufficiently close similarity for this purpose involves a question of degree, and reference must be made to the relevant authorities. The basis of these principles is that, in the absence of special circumstances rendering this position unjust, the relevant equitable rules should accord with similar legal rules.
[12]Spry, Equitable Remedies at p 420
Special circumstances in this particular context would be shown by fraud on the part of the defendant in concealing from the plaintiff facts concerning the presence of the cause of action. This coincides with s 27 of the Limitation of Actions Act which allows for a postponement of a limitation period the right of action is concealed by the fraud of the defendant.
Turning then to the Victorian statute of limitations, s 5(2) states that “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.” It does not say “an action in account in law or equity” but it does not need to because the word “action” is defined in s 3(1) as including any proceeding in a court of law. But section 5(8) makes reference to equitable relief where it says:
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
Section 5(2) says what it says. Despite s 5(8), I think the plain effect of s 5(2) and the definition of “action” means that all actions for an account, which can be brought at law or equity, and based on either a legal or equitable liability to account are barred six years after accrual of a cause of action. [13] Such a view was taken unanimously by the Court of Appeal of Western Australia in Wheatley v Bower[14] for legislation in that State which is not materially different. That case involved a claim for accounts for debts allegedly due under a dissolved partnership, a paradigm example of a fiduciary relationship. The Court in Wheatley was asked to maintain the distinction between the common law and equitable remedy of account and to decide, as did Megarry VC in Tito v Waddell (No 2),[15] that a claim for equitable relief against a person in a fiduciary position has no limitation period which is applicable directly or by analogy. That is, the argument was that the six year limitation for “an action for an account” (as that expression also appears in s 5(2) of the Victorian Act) refers only to the obsolete action for an account at common law.
[13]See Meagher Gummow and Lehane’s, Equity Doctrines and Remedies (4th ed) at [34-030].
[14][2001] WASCA 293 at [123]
[15][1977] Ch 106 at 250.
The Court of Appeal Wheatley v Bower[16] rejected this argument. It viewed the wide definition of “action” in the legislation, which as I say was in effect the same as s 5(2) of the Victorian Act, as embracing an action at law or equity and as distinguishing the legislation with which the English authorities were concerned. The Court took the view, as would I, that if a statute says plainly that any proceeding in a court of law for an account shall not be brought in respect of a matter which arose more than six years before the commencement of the action, that means a proceeding in equity or at law. I would add, that does not undermine the “equitable relief” exclusion in s 5(8). Section s 5(2) and s 5(8) can be reconciled by seeing the former as revealing an intention to deal explicitly with any action for an account.
[16][2001] WASCA 293 at [123]
There is an additional ground to fortify the outcome that a claim for an account in equity is not free of a limitation period. A sound authoritative basis exists to conclude that a simple duty to account (which this is) is not a fiduciary duty even when it is owed by a person in a fiduciary position.[17]
[17]See Handford, Limitation of Actions at [5.10.730].
The first decision to consider is the English Court of Appeal in Paragon Finance plc v DB Thakerar and Co.[18] This was an action by mortgage lenders against their solicitors arising out of a series of mortgage frauds. The lender sought to introduce new causes of action alleging a fraudulent breach of trust, and an intentional breach of fiduciary duty. More than six years had elapsed since the last relevant transaction on which they had already brought a case alleging breach of contract and negligence, but the lender contended that no period of limitation applied to either equitable cause of action.
[18][1999] 1 All ER 400.
A good part of the case concerns the distinction between an institutional constructive trustee or a remedial constructive trustee, which is conceptually part of the analysis. The first situation covers those cases where a defendant, though 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. The second situation covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction and is equity’s technique to require someone to hold on trust property which in all conscience belongs to another. In that sense the person committing the wrong is accountable in equity, or liable to account as constructive trustee. The significance of that distinction is that a breach of constructive trust case may have no time limits. But a case of wrongdoing with a claim for the imposition of a remedial constructive trust is different and although it is equitable in context, courts of equity may be called upon to apply a statute of limitation directly or by analogy according to an analysis of the nature of the wrongdoing.
The significance of the constructive trust analysis is that in Paragon, the same analysis came into play for the alleged breach of fiduciary duty. It is not enough for a plaintiff to assert “I am alleging a breach of fiduciary duty, and such a case there is no limitation period.” In Paragon, as in this case, the pleaded breach of fiduciary duty concerned the information which the defendants possessed but kept concealed from the plaintiff. To this, Millett LJ stated: “The plaintiffs’ case cannot sensibly be described as based on breach of fiduciary duty. Their case is that they were swindled.”[19]
[19]At 415b.
Paragon stands for two legal outcomes. First, a claim for an account in equity, absent any trust, has no equitable element. It is based on legal, not equitable rights. Where the liability to account was contractually based, equity acts in obedience to the statute of limitations. Even if there was no contractual relationship between the parties, and the liability was exclusively equitable, the Court acts by analogy with the statute. Secondly, the fact that someone was a fiduciary does not make his failure to account a breach of fiduciary duty or make him liable to pay equitable compensation, for:
… His liability to account arose from his receipt of money in circumstances which made him an accounting party. It did not arise from any breach of duty, fiduciary or otherwise. The defendant was merely an accounting party that failed to render an account.[20]
[20]At 416e-f
The outcome, as I would apply it in this case, is that the Ainsworth’s alleged liability to account to Feiglin arose by reason of their agreement. Ainsworth was, by reason of that agreement, an accounting party. His failure to account to Feiglin for the $5 million fee earned in 1992 meant he was subject to an obligation to account be it at law or equity. For that remedy, s 5(2) prescribes a six year limitation period. But if there is any doubt about it, a court of equity would apply by analogy the six year rule in any event.
To similar effect was a decision of Jules Sher QC (sitting as a deputy High Court judge) in Coulthard v Discomix Club Limited.[21] That was a case of a management and agency agreement where the principal complaint involved allegations of under accounting. There were various claims for breach of fiduciary duty, all of which added up to a general claim that the defendant had under accounted for moneys due under agreements. The relief sought was an account. In that case, as in this one, the basis for the duty to account was founded on simple contract.
[21][2000] 1 WLR 707.
Coulthard makes an important point: just because the defendant was in a fiduciary position does not mean that all duties owed by him to the plaintiff were fiduciary and any breach of them was a breach of fiduciary duty. The simple duty to account, central though it is, is not a fiduciary duty. It is a contractual duty and the statute of limitations cannot be sidestepped by describing it as a claim in breach of a fiduciary duty. But the judge went on to consider another question whether “true” breaches of fiduciary duty were governed by the statute of limitations. By true breaches of fiduciary duty, that means allegations of deliberate and dishonest under accounting. Those allegations were based upon the same factual allegations as a common law claim of fraud and were seen by the Court as no more than the equitable counterparts of the claims at common law. In that situation, a court of equity would be exercising a concurrent jurisdiction with the common law and accordingly the statute of limitations would have applied. The Court concluded that it would be “a blot on our jurisprudence” if the same facts that give rise to a time bar in the common law courts were not applicable in a court of equity.
Coulthard stands as authority for the proposition that a claim for under accounting, and by extension failure to account, is based upon a duty to account under the contract. That claim is barred after six years from the accrual of the cause of action.
Subsequent cases have considered Paragon Finance in the context of a statute of limitation concerning the distinction between the institutionalised constructive trust and the remedial constructive trust: see Dubai Aluminium Co Limited v Salaam[22] and the Victorian Court of Appeal decision in Nolan v Nolan.[23] The outcome is that a remedial constructive trustee does not fall within the meaning of the word “trust” under s 21 of the Limitation of Actions Act which renders inapplicable the limitation for an action by a beneficiary under a trust for a fraudulent breach of trust or for recovery of trust property from the trustee.
[22][2002] 3 WLR 1913 at [140] following.
[23][2004] VSCA 109 at [61].
It is by application of those principles and authorities that I would refuse to grant leave to amend the statement of claim. The proposed commission claim arises out of a matter that occurred more than six years before the commencement of this action. It was 18 years ago. Further if there was to be any doubt about the construction of s 5(2) of the Limitation of Actions Act, I would hold that the proposed action for account is not truly based on a breach of fiduciary duty but based upon an obligation to account under the contract as alleged. The six year limitation would apply by analogy in any event.
At the end of Dr Bleechmore’s submission, he informed the Court that he had instructions that should it be necessary his clients would plead a fraud by concealment and therefore seek a postponement of the limitation period. In the ordinary case, such an allegation would positively be made in a reply. A defence has not been filed because of the opposition to leave being granted to amend. I think that to now require the defendants to plead the statute and to then await the plea of a postponement in reply is going to add to delay in this case.
Faithful to the Civil Procedure Act, I think the course that is productive of least delay and expense is to give the plaintiffs leave to file a proposed amended pleading in the expectation that, in the light of these reasons, they ought (if they can) positively plead a concealment by the defendants of facts giving rise to an obligation to account. Such an allegation if available is not really a prolepsis; it could I think be part of the narrative of facts leading up to any allegation for under accounting. The defendants could then (unless there is to be another attack) join issue in an amended defence and this matter can then proceed to trial.
Accordingly on the application I would order that:
1.The application for leave to amend is refused, but the plaintiffs have leave to file and serve an amended statement of claim in 14 days.
2.The amended defence be filed within 14 days thereafter.
3.The plaintiffs pay the defendants’ costs of this application.
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