Feiglin v Ainsworth (No. 2)
[2013] VSC 83
•5 March 2013
| Send for Reporting | ||
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
S CI 2010 03265
| ESTHER CELIA FEIGLIN and MARK FEIGLIN | Plaintiffs |
| v | |
| DAVID SARGON AINSWORTH and ors (according to attached schedule) | Defendants |
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JUDGE: | RANDALL AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 31 January 2012 | |
DATE OF JUDGMENT: | 5 March 2013 | |
CASE MAY BE CITED AS: | Feiglin v Ainsworth (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 83 | |
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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:
In June 2010, the plaintiffs commenced this proceeding claiming rights to their family home in St Kilda East in which they live. The plaintiffs sued Esther Feiglin’s father, David Ainsworth (‘Ainsworth’), and companies which he controlled. The proceeding came on before Mukhtar AsJ on an application by the plaintiffs for leave to amend their statement of claim to introduce an additional cause of action in the form of an action for an account.[1] Mukhtar AsJ set out the substance of the then existing claim and that of the proposed amended claim. I do not need to repeat the substance of each of the claims save to note in relation to the proposed added claim, the plaintiffs alleged that Ainsworth owed fiduciary duties to the second defendant (‘Feiglin’) to account to him and, more particularly, to inform him whether he had rendered services and fees to clients whom Feiglin had introduced to Ainsworth.[2]
[1]Feiglin v Ainsworth [2011] VSC 454.
[2]Feiglin v Ainsworth at [6].
It was contended that the fiduciary obligations arose out of an arrangement between Ainsworth and Feiglin which had commenced in 1986 whereby Feiglin would introduce a third party to Ainsworth with the intention that Ainsworth might provide services to that third party. In the event that Ainsworth provided services, Ainsworth was required to remit to Feiglin an equal share of the fees earned.
The plaintiffs allege that in or about 1991 or 1992, Feiglin introduced a client to Ainsworth pursuant to the arrangements between them and such introduction resulted in Ainsworth being remunerated in the region of $5,000,000.[3]
[3]Further amended statement of claim filed pursuant to the order of Mukhtar AsJ made 19 September 2011, paragraph 8S.
Mukhtar AsJ refused the plaintiffs’ application to amend. His Honour made the following observations:[4]
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.
[4]Feiglin v Ainsworth at [44].
Although the Associate Justice refused leave to amend on that application, his Honour acceded to the submissions on behalf of the plaintiffs that “should it be necessary his clients would plead a fraud by concealment and therefore seek a postponement of the limitation period.”[5] On that basis his Honour gave leave to file and serve an amended statement of claim in 14 days, subject to the observations contained in [46] where his Honour set out:
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 defendant of the 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.
[5]Feiglin v Ainsworth at [45].
Pursuant to the leave, the plaintiffs filed and served a further amended statement of claim on 17 October 2011. The commission claim is set out at paragraph 8L through to 8Y. The prayer was also amended. Paragraphs 8L through to 8N set out a commission agreement entered into in or about 1985 between Ainsworth and Feiglin which in substance provided that in the event Feiglin introduced a person to Ainsworth, to whom Ainsworth provided services and earned fees, those fees would be shared equally with Feiglin. The substance of that pleading has already been put before Mukhtar AsJ.
Paragraph 8O sets out circumstances by which it is contended that Ainsworth owed Feiglin fiduciary duties, which included a duty to account identified at paragraph 8P. Again, the substance of that pleading had already been put before Mukhtar AsJ.
Paragraph 8R is essentially identical in each pleading. That paragraph sets out that there was an introduction in about 1990 resulting in the amount of $12,000 being paid to Feiglin as his equal share of the fees earned.
Paragraph 8S follows fairly much the superseded paragraph 8S and is as follows:
Further, in or about 1991 or 1992, at a time which [Feiglin] cannot, prior to discovery and inspection in this proceeding, specify –
(a)Ainsworth provided for the services of an extended and very valuable kind to the third party; and
(b)Ainsworth earned fees in an amount which [Feiglin] is presently unable to specify but which is in the region of $5,000,000.
The divergence between the two pleadings starts at paragraph 8T. Paragraph 8T in the new pleading pleads a breach of the term of the commission agreement with respect to the failure and neglect to share the fees referred to previously. The superseded statement of claim filed 13 May 2011 at paragraph 8T sets out:
In breach of the fiduciary duties pleaded in paragraphs 8O and 8T hereof, Ainsworth –
(a)failed to inform [Feiglin] that he had performed services for the third party, on this second occasion, and had thereby earned fees;
(b)failed to account to [Feiglin] in respect of fees which he had earned as a result of the provision of services to the third party, on a second occasion, and to account to [Feiglin] in respect of his share of those fees; and
(c)failed to remit to[Feiglin], the commission earned by [Feiglin].
That pleading is, in effect, picked up by 8U of the new pleading with respect to a reliance of breach of the fiduciary duties previously referred to. Effectively, in one guise or another, all the new pleadings were before Mukhtar AsJ.
After setting out some prior transactions, the plaintiffs, at 8S, plead in both the superseded and new pleadings as follows:
Further, in or about 1991 or 1992, at a time which [Feiglin] cannot, prior to discovery and inspection in this proceeding, specify –
(a)Ainsworth provided further services of an extended and very valuable kind to a third party; and
(b)Ainsworth earned further fees in an amount which [Feiglin] is presently unable to specify but which is in the region of $5,000,000.
Paragraph 8U of the new pleadings pleads a breach of the fiduciary duties by failure to inform Feiglin of the services and to account and remit. Paragraph 8V pleads an entitlement to an account.
Paragraph 8W is the first of the new pleadings inserted pursuant to the leave granted by Mukhtar AsJ. It sets out as follows:
In or about May 2007, [Feiglin] 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 those 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 [Feiglin] on a social occasion at a house at 18 Helenslea Road, Caulfield North, Victoria, and which conversation was to the effect alleged.
There is then set out two paragraphs which are pleaded in an attempt to ameliorate the operation of the Limitation of Actions Act 1958. In effect, this is the substance of the departure from the pleading put before Mukhtar AsJ. At paragraph 8X the following is set out:
The breaches of the commission agreement and fiduciary duties of Ainsworth, as pleaded respectively in paragraphs 8T and 8U hereof, constituted fraud by Ainsworth in the meaning of s 27 of the Limitation of Actions Act.
In paragraph 8Y it is pleaded:
Further to paragraph 8W and 8X hereof, or in the alternative, the right of action of [Feiglin] arising out of the commission agreement was concealed by the fraud of Ainsworth in failing to appraise [Feiglin] 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 prayer has been amended to include the following:
Pursuant to paragraphs 8L to 8Y hereof:
D.An account in equity or an account of profits identifying fees earned by the firstnamed defendant in the case of all persons referred or introduced by the secondnamed plaintiff in respect of services provided to those persons by the firstnamed defendant;
E.An order that the firstnamed defendant pay the secondnamed plaintiff, upon the taking of the said account, the amount found to be due from the firstnamed defendant to the secondnamed plaintiff;
F.Damages consequential upon breach of the commission agreement;
G.A decree of specific performance in the form of orders requiring the firstnamed defendant to carry out the commission agreement by sharing equally with the secondnamed plaintiff fees earned as a result of services provided to persons introduced to him by the secondnamed plaintiff.
…
It is of note that the primary relief set out in paragraphs D and E of the prayer reiterate the claim for an account put before Mukhtar AsJ and that the secondary relief set out in paragraph F is a claim at common law for damages. The tertiary claim set out in paragraph G is for equitable relief.
Notwithstanding the apparent confined limit of the prayer, the plaintiffs gave notice on 25 January 2012 that there would be an application for leave to amend the prayer for relief to include an alternative claim for equitable compensation and “to add a further paragraph to the prayer for relief in the following terms:”
GG.A declaration that fees earned by the first defendant as a result of providing services to persons introduced to him by the second plaintiff, which have not been disclosed to the second plaintiff by the first defendant, are held upon constructive trust for the second plaintiff as to one half thereof, alternatively as to the entirety thereof upon an obligation that the first defendant forthwith pay one‑half thereof to the second plaintiff.[6]
[6]Affidavit of Mark Aaron Feiglin sworn 27 January 2012, paragraph 14.
By summons filed 13 December 2011, the defendants sought an order that there be judgment for the first defendant, together with the costs, on the claims contained in paragraphs 8L to 8Y of the plaintiffs’ further amended statement of claim filed 17 October 2011, together with prayers for relief D to I inclusive.
It is unclear pursuant to which particular provision the summons is brought. However, given that affidavit material has been filed by both the plaintiffs and the defendants in relation to the relief sought, I will treat the same as an application for summary judgment on the basis that the commission claim is barred by operation of the Limitation of Actions Act 1958.
The defendants’ application is supported by the Ainsworth affidavit affirmed 7 December 2011 (‘Ainsworth’s affidavit’).
Paragraph 6 of Ainsworth’s affidavit refers to and produces a request for further and better particulars of the further amended statement of claim together with the response to that request.[7] The particulars of the commission agreement are set out as follows:
The term of the Commission Agreement alleged was partly oral and partly to be implied. In so far as it was oral, it was constituted by conversation between [Feiglin] and Ainsworth in approximately February 1980 (and not in 1985 as pleaded in paragraph 8M of the Further Amended Statement of Claim), and which was to the effect alleged and to the effect that [Feiglin] should endeavour to introduce Ainsworth to business, social or family contacts who [Feiglin] believed could benefit from tax effective planning. Ainsworth informed [Feiglin] that he would share equally with [Feiglin] all commissions derived from any of those contacts.[8]
[7]Exhibit DSA-4 to the affidavit of David Sargon Ainsworth sworn 7 December 2011 (‘Exhibit DSA-‘).
[8]Exhibit DSA-4, paragraph 16.
By a request for particulars dated 2 November 2011, the defendants sought the usual details of every act, fact, matter or thing relied upon as constituting fraud as alleged in paragraph 8X. The response is:
The breaches of the commission agreement and fiduciary duties of Ainsworth, as pleaded in paragraphs 8T and 8U of the further amended statement of claim were fraudulent in that Ainsworth has –
(a) knowingly concealed from [Feiglin], and
(b)knowingly failed to inform [Feiglin] of the services rendered to Gutnick on the second occasion, in the light of knowledge of [Feiglin’s] entitlement to commission as a result of those matters and with the intention of purpose of depriving [Feiglin] of the commission which should have been lawfully paid to him. The particular source of paragraph 8Y were couched in similar terms. The response was to refer to and repeat the particulars set forth with respect to paragraph 8X.
The responses to either paragraph are circular and do no more than what is set out in paragraph 8U. However, the responses reinforce that it is the concealment which is relied upon to constitute the fraud as that expression is used in s 27 of the Limitation of Actions Act.[9]
[9]Section 27 of the Limitation of Actions Act 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 rights of action is concealed by fraud or any such person as aforesaid; or
…
The period of limitation shall not begin to run until the plaintiff has discovered the fraud … or could with reasonable diligence have discovered it: …
To rebut the contention set out in paragraph 8W that the cause of action was discovered in May 2007, Ainsworth has produced a letter dated 2 October 1995 from Feiglin,[10] the response dated 1 November 1995,[11] and a further letter of 5 November 1995 from Feiglin.[12]
[10]Exhibit DSA-5.
[11]Exhibit DSA-6.
[12]Exhibit DSA-7.
Ainsworth also produced further letters from Feiglin dated 20 December 1995,[13] 8 August 1996,[14] and 16 May 1997;[15] a position paper dated 27 February 1998,[16] and a letter from the plaintiffs’ solicitors dated 1 March 1999.[17]
[13]Exhibit DSA-8.
[14]Exhibit DSA-9.
[15]Exhibit DSA-10.
[16]Exhibit DSA-11.
[17]Exhibit DSA-12.
At least some of the correspondence referred to in the previous paragraph was admitted into evidence at the hearing before Mukhtar AsJ on 17 May 2011. The defendants had argued and, it seems to have been accepted by his Honour, that the correspondence demonstrates that Feiglin had been asserting a right to commission since late 1995.[18]
[18][2011] VSC 454 at [10].
Notwithstanding such correspondence being admitted into evidence, the plaintiff submitted that Exhibit DSA‑11 (and incidentally Exhibit DSA‑13 which is a chronology used in connection with negotiations) was prepared “for the purpose of a mediation between Feiglin and Ainsworth as the document itself discloses“.[19] The admission into evidence of that document is objected to on the basis that it is a communication between parties in connection with an attempt to negotiate a settlement of the dispute, within the meaning of s 131 of the Evidence Act 2008. Secondly, the admission into evidence of Exhibit DSA‑13 is objected to on the grounds that it is an attachment to a letter headed ‘without prejudice’. The ‘without prejudice’ letter to which the relevant document is attached is Exhibit MAF‑2 to the affidavit of Feiglin affirmed 25 January 2012. During the course of argument, the plaintiffs objected to the balance of the correspondence referred to in paragraph 26 hereof on the basis that such communications were part of the attempt to negotiate a settlement of the dispute.
[19]Plaintiffs’ submissions dated 30 January 2012, paragraph 4.
During the course of submissions, I ruled that I would have regard to the correspondence exhibited at DSA‑5 through to and including DSA‑10. Irrespective of whether or not any privilege had been waived by admission into evidence before Mukhtar AsJ,[20] the exclusion set out in s 131(2)(g)[21] of the Evidence Act is germane.
[20]Section 131(2)(b) sets out that the exclusion does not apply if: “the substance of the evidence has been disclosed with the express or implied consent of all persons in dispute;”.
[21]Sub-section (2)(g) provides: “ … evidence that has been adduced in the proceeding, or an inference from evidence that has been adduced in the proceeding, is likely to mislead the Court unless evidence of the communication or document is adduced to contradict or to qualify that evidence; … “.
In support of what has been set out in paragraph 8W of the further amended statement of claim, namely that the service as provided and fees earned was discovered by Feiglin in May 2007, Feiglin swore an affidavit filed on 27 January 2012 (‘the Feiglin affidavit’). Paragraph 8 of that affidavit sets out:
I refer to paragraph 8W of the Further Amended Statement of Claim … I say that the contents of that paragraph are true and correct. In May 2007, I found out, from Mr Gutnick himself, that the commission paid was far in excess of $100,000 or $200,000, and was in fact in the region of $5,000,000.
In his letter to Ainsworth dated 2 October 1995,[22] Feiglin relevantly set out:
There is another major issue which we would appreciate if we could resolve, since it has already lingered on for a lengthy period. This matter is the transaction with Yossel Gutnick. Previously when discussing this matter, you told us that there was substantial expenses involved in this transaction which also need to be taken into account. I appreciate this point and understand that these expenses need to be deducted.
…
I believe that you in fact did pay the commissions on the transactions done through my introductions with one major exception. This exception was in the case of Yossel Gutnick. I, with the assistance of others, that I got to help me, convinced Yossel that you were totally trustworthy. He agreed to do the first deal with you and you fairly accounted to me for my share of the profits.
[22]Exhibit DSA-5.
Referring to a further transaction with Gutnick, Feiglin then set out:
From there on you are well aware of what transpired and the size of the transaction. There is no question that without me this transaction would never have happened and there is no reason that as a 50 per cent partner of the net profit, that I should not be given a complete account which would include all of the expenses that you incurred in the transaction. There is also no reason for you not to pay me my share of the profit.
In his letter of reply dated 1 November 1995,[23] Ainsworth relevantly sets out:
I do recall you speaking to me by telephone before you went away that there may be a large transaction coming up but I do not recall any later discussion and certainly did not receive any details from you. If in fact you had considered you had been instrumental in obtaining some business I am sure you would have approached me long ago.
[23]Exhibit DSA-6.
Feiglin’s letter dated 5 November 1995,[24] sets out:
The next point that I wish to respond to is your statement that if I had considered that I was instrumental in this deal, I would have approached you long ago. You are totally correct in this point, and it is for this reason that we did in fact do exactly that and when Esther put our case forward to you after the transaction, you answered her very angrily until she was reduced to tears. I think we would all agree that this was not a fair and reasonable way of handling this situation.
…
… Where you say it has been accounted for, all the small deals as well as the first relatively small deal with our mutual friend were in fact accounted for, it is only when I achieved this much larger transaction that my 50 per cent share of the profit was not accounted for. I did what I had to do in the deal, I delivered and the profit was made. As I said in my previous letter to you, there is no reason why I should not be fairly accounted for and receive my 50 per cent share of the profit.
[24]Exhibit DSA-7.
Feiglin further set out in his letter dated 20 December 1995:[25]
Pursuant to our meeting in Surfers Paradise on the 30th November, in which you put the onus onto me to find out the details of the transaction between yourself and Yossel, even though you have never told me any of the relevant details, I confirm that some of my sources have stated to me that the commission paid to you was in fact approximately $1,200,000. However, so far I have not received information as to whether the $1,200,000 was paid all in cash or shares or any other form.
I note the point that you stated in our meeting that you have shredded all details of the transaction and do not remember the exact figures and that you thought that there would only have been approximately $100,000 worth of commission paid. My sources confirm that this figure would only represent a small percentage of the total commission paid. Furthermore with the amounts involved in the transaction, your fee would obviously be in the range of the figure that I was told.
[25]Exhibit DSA-8.
Feiglin’s letter dated 8 August 1996 also sets out:[26]
I received your letter dated 31 July, 1996 for which I thank you.
In relation to your comment that you have been informed that I was not instrumental in introducing the transaction, I would like to point out the following: …
…
In my last letter to you dated 20 December 1995 I suggested that perhaps this issue can be more easily resolved with the assistance of some astute third party to help bring this to an end. I think this would be more advisable than continually writing to and fro in which sometimes the intervals between letters can be as much as seven months.
[26]Exhibit DSA-9.
Feiglin again sets out in his letter dated 16 May 1997:[27]
We received your invoice regarding Waterway Investments Pty Ltd today. As you are aware, we owe you funds and you also owe us funds, and there has been a series of communications between us attempting to find the right formula to resolve these matters.
[27]Exhibit DSA-10.
The correspondence clearly demonstrates that, contrary to what is set out in paragraph 8 of the Feiglin affidavit and at paragraph 8W of the further amended statement of claim, Feiglin was asserting his claim to an account as early as 2 October 1995 and that by May 1997 contended that there should be, in effect a set off, that is “we owe you funds and you also owe us funds.”
The correspondence demonstrates that Feiglin was aware of all the elements of his claim for an account in 1995 and 1996. At that time, he had contended that the commission paid to Ainsworth was approximately $1,200,000. He has deposed that he subsequently learned that it was closer to $5,000,000. Knowing the exact amount of the claim is not an element of the cause of action. Hence, Feiglin seeks an account and not payment of a sum certain.
Mediation privilege
Given my ruling with respect to the correspondence referred to in paragraph 28 hereof, I asked Mr Stuckey whether or not he still pressed the admission of Exhibits DSA‑11 and DSA‑13. Mr Stuckey so pressed and I informed the parties that I would make a ruling as part of the Reasons for Judgment without looking at the material unless appropriate.
In Barrett Property Group Pty Ltd v Dennis Family Homes Pty Ltd (No. 2),[28] Bromberg J considered the application of s 131(2)(g) of the Evidence Act. Bromberg J said:
It is of particular importance in the context of the qualification or exception, such as that contained in s 131(2)(g) to identify the mischief which the provision is concerned to address. Section 131(2)(g) identifies a number of limited qualifications to an exclusionary rule which protects privileged settlement communications from being used at trial. In that context, paragraph (g) should be understood to be dealing with the non‑applicability of the privilege or protection provided by s 131(1) because, unless that is done, the Court is likely to be misled. That suggests that paragraph (g) is addressing the need to ensure the reliance upon the privilege or protection is not the source of or reason for the Court being misled. In other words, the privilege afforded by s 131(1) is not to be abused by allowing a party that has adduced evidence to use the privilege to hide the truth and mislead the Court. That is the mischief to which the paragraph is directed.[29]
[28][2011] FCA 276.
[29]Ibid [47].
Bromberg J further said:
I respectfully agree with the analysis of Emmett J at [185] in Brown[30] and his Honour’s conclusion that s 131(2)(g) is not attracted simply because evidence to which s 131(1) applies, contradicts or qualifies evidence that has already been adduced. I would respectfully add that s 131(2)(g) is only attracted where the exclusionary rule in s 131(1) would operate to allow a party which has adduced evidence, to use the exclusionary rule as an instrument for misleading the Court.[31]
[30]Bromberg J considered Brown v Commissioner of Taxation (2001) 187 ALR 714.
[31]Barrett Property Group Pty Ltd at [55].
A number of similar discussions have been set out in Apotex Pty Ltd v Les Laboratories Servier (No. 5),[32] and in Simply Irresistible Pty Ltd v Couper.[33]
[32][2011] FCA 1282.
[33][2010] VSC 505.
I am satisfied that the evidence sought to be adduced, relying upon the exception in s 131(2)(g), cannot be characterised as simply contradicting the evidence set out in paragraph 8 of the Feiglin affidavit and in the allegations set out in the further amended statement of claim. The platform for the pleading is that the claim or potential claim reposed in Feiglin was concealed from him and he did not know of the same until May 2007. I should note that although paragraph 8 of the Feiglin affidavit refers to discovery of the amount of the commission in May 2007, as if this in some way was a revelation of the cause of action, earlier paragraphs in his affidavit refer to discussions about the commission agreement and payment in 1995 and 1996. However, paragraph 8 of the further amended statement of claim cannot be considered equivocal. Paragraph 8W, after setting out breaches and failure to account, sets out “in or about May 2007, [Feiglin] discovered … “.
Accordingly, without reference to the correspondence, a court is misled or likely to be misled as to the date upon which the alleged concealed cause of action was discovered.
It is common ground that Exhibit DSA‑11 was generated for and produced at a mediation conducted between the parties in early 1998 at a time before proceedings had been commenced in this Court. The mediation had been arranged by the parties and was not convened pursuant to any reference by any court. Section 24A of the Supreme Court Ac 1986t provides for a prohibition against the admission of evidence at the hearing of the proceeding of anything said or done by any person at the mediation.[34]
[34]Section 24A sets out that “where the Court refers a proceeding or any part of a proceeding to mediation other than judicial resolution conference, unless all the parties who attend the mediation otherwise agree in writing, no evidence shall be admitted at the hearing of the proceeding or anything said or done by any person at the mediation”.
It is accepted that s 24A applies only to a reference to mediation by a court. Further, I note that Justice Kyrou went one step further and accepted counsel’s submissions to the effect that the prohibition in s 24A was applicable only to a court referred mediation in the proceeding in which the evidence was sought to be admitted. The prohibition did not extend to a court appointed mediation in another proceeding.[35] His Honour then dealt with the issue by reference to s 131(1) of the Evidence Act.
[35]Simply Irresistible Pty Ltd v Couper at [12].
I am left in a quandary. Prima facie the evidence of what occurred at the mediation is not excluded by s 24A and, in the absence of reliance upon any contractual term, I cannot give the mediation any status other than an engagement by the parties in an attempt to negotiate a settlement of the dispute as referred to in s 131(1). I further note that in the Civil Procedure Act which, of course, was not applicable in 1998, there is an obligation imposed upon the parties to use “reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution”[36] (subject to certain exceptions). It seems incongruous that if parties are encouraged to settle disputes prior to filing proceedings that no protection in the terms of s 24A is specifically provided.
[36]Section 22.
In the circumstances I determined I ought to look at Exhibit DSA-11 to determine if it is caught by the Evidence Act prohibition against admission.
Exhibit DSA-11 is a position paper produced on behalf of the second plaintiff. It relevantly sets out:
…
In or about 1980 an agreement was entered into between Mr Feiglin and Mr Ainsworth. There were terms of the agreement, amongst others, that Mr Feiglin would find and refer business people who would utilise Mr Ainsworth’s taxation planning arrangements and in return Mr Feiglin would receive 50% (one half) of the fees the Ainsworth group received from business people referred to him by Mr Feiglin. …
In or about 1994 Mr Feiglin arranged that Joseph Gutnick (“Gutnick”) would utilise Mr Ainsworth’s tax planning arrangements. A small initial transaction took place in respect of which Mr Ainsworth received a fee and forwarded half thereof to Mr Feiglin.
Subsequent Gutnick undertook a substantial transaction with Mr Ainsworth in respect of which the Ainsworth group received a fee, understood by Mr Feiglin to be in the vicinity of $2.2 million. Despite numerous requests from Mr Feiglin in this regard, Mr Ainsworth has refused to account to Mr Feiglin in respect of that transaction. However, there are references to that transaction in correspondence which has passed between the parties including the following:
(a)In a letter dated 1 November 1995, Mr Ainsworth admits that Mr Feiglin spoke to him by telephone about, “A large transaction coming up”. This refers to a transaction with Gutnick.
(b)By letter dated 31st July 1996, Mr Ainsworth referred to an offer to Mr Feiglin of $100,000 which is in respect of the large transaction with Gutnick.
(c)Mr Feiglin seeks an accounting from Mr Ainsworth of all transactions with business people introduced by Mr Feiglin to Mr Ainsworth.
The position paper is dated 27 February 1998.
Exhibit DSA-13 is a copy of a Gutnick deal chronology produced by or on behalf of Ainsworth. The entries include:
Nov ‘95 12. Meeting in Surfers Paradise in which D.S.A. tells M.F. that the onus is on M.F. to find out how much was made on the deals. D.S.A. says he has shredded all of the details and cannot remember how much he made on those transactions.
Dec ‘95 13. M.F. writes to D.S.A. stating that “my sources say $1,200,000 had been made in the Gutnick deal so far”.
July ‘96 14. D.S.A. responded that “I had offered you $100,000 for your efforts and regret that you chose not to accept.” D.S.A. then told M.F. the $100,000 offered was based only $200,000 profit being made but he was not prepared to share information or proof with anyone.
April 98 15. Arbitration in Sydney before Graham Segal.
21 June 2004 16. M.F. discusses the matter with Joseph Gutnick who advised M.F. that apart from the other deals that he did with D.S.A. he paid millions of dollars in commission to D.S.A. just for Great Central Mines deal alone. In addition he says D.S.A. is still trying to charge him an extra $150,000 in commission which was never agreed to.
Each of Exhibits DSA-11 and DSA-13 demonstrate that the elements of the plaintiff’s statement of claim were collated or capable of being collated by February 1998 if not on the earlier date of December 1995.
Exhibits DSA-11 and DSA-13 are consistent with the correspondence exhibited at DSA-5 through to and including DSA-10. I determine that the documents at Exhibits DSA-11 and DSA‑13 are also admissible as, without reference to that correspondence, a court is misled or likely to be misled as to the date upon which the alleged concealed cause of action was discovered.
The Plaintiffs’ Submissions
The plaintiffs’ submissions are in effect in two parts. The first part is that “a claim contract in which the contractual duties of the defendant, Ainsworth, were overlaid by fiduciary duties…”[37] The second submission of substance is that s 27 of the Limitation of Actions Act is engaged by what is set out in paragraphs 8W to 8Y inclusive of the plaintiffs’ further amended statement of claim. The contention is that the period of limitation is postponed so as to commence in May 2007 on the basis that:
(a)his action is based upon the fraud of Ainsworth, alternative his right of action was concealed by Ainsworth’s fraud, and
(b)it was not until May 2007 that Feiglin discovered the fraud or could with reasonable diligence have discovered it.[38]
[37]Plaintiff’s submissions, paragraph 7.
[38]Plaintiff’s submissions, paragraph 9.
The plaintiffs’ submission is that:
…there is a strongly arguable case, and that it is not fanciful to propose, that a fiduciary relationship existed between Feiglin and Ainsworth concurrently with the contractual relationship which existed between them, and that Ainsworth owed fiduciary duties to Feiglin which co-existed with his right to further his own interests. … the relationship between the two bore some features of a relationship of a partnership or joint venture or that between bailor and bailee, in which it is well recognised that a bailee stands in a fiduciary relationship with his bailor when the bailor entrusts to the bailee goods to be held or dealt with by him for the benefit of the bailor or for certain limited purposes stipulated by the bailor. Alternatively, Feiglin contends that the fees from the second Gutnick transaction, are held by him upon trust, either direct or constructive, to hold those fees as to 50% thereof on behalf of Feiglin. Ainsworth had an obligation to hold those proceeds so as to account to Feiglin in respect of them, and to remit 50% thereof to Feiglin, and was not free to act in his own interest in relation thereto… All the profits made by Ainsworth in the utilisation of funds held by him on behalf of Feiglin are held subject to a constructive trust for Feiglin. The vulnerability experienced by Feiglin arises out of the lack of any formal contract between them, understandable in the light of their relationship, and, in particular, the lack of any provisions in the agreement protecting Feiglin, such as the right to inspect accounts on an obligation on the part of Ainsworth to provide an account, so as to achieve enforcement, in the interests of Feiglin, of the term of the Commission Agreement that Ainsworth would remit Feiglin’s share of the commission fees to him.
It is axiomatic that no limitation period applies to a claim for breach of fiduciary duties. Similarly, no period of limitation applies to an action by a beneficiary under a trust to recover from the trust’s property or the proceeds thereof, in the possession of the trustee, or previously received by the trustee and converted to his use…[39]
[39]Plaintiff’s submissions, paragraph 7.
This is the very issue which was ventilated before Mukhtar AsJ in His Honour’s Judgment of 19 September 2011 in determining whether or not s 5(2) of the Limitation of Actions Act applied directly or by analogy. His Honour concluded that the claim was statute barred and thus refused the application for leave to amend. Contrary to what is set out in submissions, there is no new pleading relying upon the breach of fiduciary duty and, in particular, any action by a beneficiary under a trust to recover from the trust property or the proceeds thereof in the possession of the trustee. The claim for breach of fiduciary duty to which it is contended no limitation period applies, was before Mukhtar AsJ. The claim sought to be introduced by prayer GG to impose a constructive trust was also, in effect, considered by Mukhtar AsJ. It is clear from the scheme of the pleading that the constructive trust referred to in prayer GG in a remedial constructive trust.
Whilst I recognise that His Honour’s order was an interlocutary order and a party is not thereby barred from bringing a fresh interlocutary application, I decline to consider those paragraphs further for two reasons. The first is that, other than putting the claim in a slightly different way, no fresh material is adduced in support of the application. I refer to the observations of Charles JA in DA Christie Pty Ltd v Baker[40] where His Honour dealing with an application for relief under s 23A of the Limitation of Actions Act with respect to an injury said:
The making of a second application on the basis of fresh evidence (if that be possible) of fraud could plainly not constitute an abuse. However a second application on facts and submissions identical to those previously rejected, would almost certainly be rejected on discretionary grounds, accompanied, one would expect, by an order for indemnity costs. A second application made on such basis would also usually amount to an abuse of process.
[40][1966] 2 VR 582 at 611-612.
The President of the Court of Appeal in Phillip Morris Ltd v Attorney-General for the State of Victoria[41] distinguishes Christie’s case. The President seemed to endorse a statement by McLellan CJ in EQ in Brimaud v Honeysett Instant Print Pty Ltd that:
…the overriding principle governing the approach of the court to interlocutary applications is that the court should do whatever the interests of justice require in the particular circumstances of the case.[42]
[41][2006] 14VR 538.
[42]Ibid at [61].
I determined that the interests of justice in this particular interlocutary application do not require me to entertain re-considering whether or not the Limitation of Actions Act is applicable to these particular courses of action reliant upon breach of fiduciary duty and a claim for an action by a beneficiary under a trust in circumstances where those issues have effectively already been agitated and in circumstances where, despite what is set out in the submissions, it is not altogether clear that that is what is actually pleaded as the trust is raised in the prayer and not the pleading itself. The second reason to decline to further entertain the submission is that I would, in any event, concur with what is set out by Mukhtar AsJ in relation to the application of s 5(2) or the imposition of a six year limitation by an analogy in any event.
The plaintiffs submit:
The fraud in question is that referred to in paragraph 8Y of pleading, and was constituted by Ainsworth’s failure to apprise Feiglin that he had provided the relevant services to Mr Gutnick and received, consideration or payment for those services, a sum in the region of $5,000,000.[43]
[43]Plaintiffs’ submissions, paragraph 10.
I can understand how the fraud (if it is properly made out) is constituted by the failure to apprise but I struggle to follow the logic of what is set out in paragraph 8X. In isolation, a breach of commission agreement would not constitute fraud. In isolation, a breach of fiduciary duty arising out of the commission agreement or the circumstances pertaining to the commission agreement does not lead to fraud unless something more is pleaded. In effect, the pleading relies upon what is set out in paragraph 8U, namely the failure to inform. The pleading in paragraph 8X does no more than what is set out in paragraph 8Y.
In the submissions on behalf of the plaintiffs it was set out in the response to a contention that the fraud could with reasonable diligence, have been discovered by Feiglin that:
(a)It is clear that Ainsworth himself would not disclose it and it was a reasonable assumption that he would continue to refuse to disclose the true amount, and
(b)Ainsworth had shredded the documents evidencing the transaction, and, presumably, those evidencing the payment of commission, and
(c) When approached on earlier occasions, Gutnick had refused to disclose the amount paid, and presumably maintained that refusal until, having changed his mind about the matter, he disclosed it to Feiglin in May 2007.[44]
[44]Plaintiffs’ submissions, paragraph 12. The reference to shredding of documents, although not set out in the further amended statement of claim, can be found at Exhibit DSA-8.
The plaintiffs do not plead any dishonesty or moral turpitude on behalf of Ainsworth. It might be that the shredding of documents evidencing the transaction or the payment of commission might be sufficient to constitute fraud in the circumstances. However, I doubt that the new failure to inform that the commission has been earned is sufficient to constitute fraud or even fraudulent concealment. I note that in Yamamori (Hongkong) Ltd v CTGP Pty Ltd[45] Angel J of the Supreme Court of the Northern Territory, observed without deciding the point:
Counsel submitted that upon receipt of the moneys into its trust account, the first defendant was obliged to issue a receipt to the remitter, and that its failure to issue a receipt constituted “non-disclosure” such as to amount to equitable fraud. Such, it was submitted, was fraudulent concealment for the purposes of s 42 of the Limitation Act.[46]
I was referred to the English line of decisions … I was also referred to the decision of Mahon J in Inca Ltd v Autoscrip (New Zealand) Ltd … where the English authorities are discussed and criticised. There is an additional decision on McLelland J in Hamilton v Kaljo (1989) 17 NSW LR 381, where after review of the authorities, he concluded (at 386) that there must be some form of dishonesty or moral turpitude shown in order to rely on the New South Wales equivalent to s 42. As presently advised, I am unable to see how the first defendant’s failure to issue a receipt, without more, enables the plaintiff to employ s 42 of the Limitation Act.
[45][1992] 109 FLR 249.
[46]The equivalent to s 27.
In Hamilton v Kaljo, McLelland J set out:[47]
[47]At 386.
It has been submitted on behalf of the plaintiff that the expression fraudulently concealed” does not necessarily import dishonesty, and I have been referred to Hallsbury’s Laws of England … where in relation to the expression “right of action is concealed by the fraud of any person” in s 26 of the Limitation Act … it is said:
“fraud” does not necessarily imply moral turpitude; it is enough if the conduct of the defendant or his agent is so unconscionable that it would be inequitable to allow him to rely on the limitation period.
The question of what is sufficient to constitute “fraud” for the purpose has been discussed in several modern English cases … In the last-mentioned case Megarry v-C was driven to say: “…Indeed, as the authorities stand, it can be said that in the ordinary use of language not only does ‘fraud’ not mean ‘fraud’ but also ‘concealed’ does not mean ‘concealed’, since any unconscionable failure to reveal is enough.” If this is indeed how the English authorities stand (and it seems to me that the proposition is based rather on dicta than decision) I do not consider that they should be applied for the purpose of construing the New South Wales Act. The English authorities are discussed and criticised, and the matter examined historically by Mahon J in Inca Ltd v Autoscrip (New Zealand)… in the context of the expression “concealed by … fraud”… where His Honour concluded (at 711) that:
… the limitation defence will be barred for the appropriate period either where there is a dishonest concealment of the course of action, equivalent to common law fraud, or where there is a non-disclosure occurring in such circumstances as to amount to equitable fraud. In either case the concealment must be wilful. (Emphasis added).
For my own part, I would regard it as a misuse of language, and unsound, to apply the statutory expression “fraudulently” in s 55 to any conduct which did not involve some form of dishonesty or moral turpitude. I see no reason to think that the expression does not carry the same limited connotation as the expression “fraud” where used in the Real Property Act 1900… and equivalent legislation as to which see, e.g. Assets Co Ltd v Mere Roihi … and Bahr v Nicolay [No 02] …
Three Victorian cases are consistent with McLellan J’s observations and reference to the Assets Co Ltd case.
In Pyramid Building Society(in liq) v Scorpion Hotels Pty Ltd,[48] Hayne JA (as his Honour was then) said:
The expressions “reckless indifference” and “wilful blindness” are useful shorthand expressions to describe some kinds of cases of fraud. … But as what was said in the Assets Co Ltd case, “the mere fact that a person might have found out fraud if further enquiries had been made does not of itself prove fraud. The enquiry is an enquiry for actual dishonesty, not for want of due care.”
[48][1998] 1 VR 188 at 194.
In Russo v Bendigo Bank Ltd,[49] the Court of Appeal held that the trial judge did not err in holding that the clerk was not guilty of fraud within the meaning of s 42 of the Transfer of Land Act “… although her attestation of the mortgagor’s signature was false, there was no dishonesty or moral turpitude on her part, in the sense of a wilful and conscious disregard and violation of the rights of other persons.”
[49][1999] 3 VR 376.
It might be that the destruction of documentation is sufficient to illustrate dishonesty or moral turpitude if it were properly pleaded. I do not need to reach a concluded view as I am satisfied that the fraud or fraudulent concealment was ascertained more than six years before the issue of this proceeding.
In Di Sante v Comando Nominees Pty Ltd,[50] Warren J (as the Chief Justice then was) had dealt with an application by the defendant to have the plaintiff’s proceeding against it based in negligence dismissed pursuant to o 23.01 of the rules on the ground that the claim is statute barred. At [51] her Honour said:
In New South Wales equivalent provisions to s 27 of the Victorian Statute contained in s 55 of the Limitation Act 1969. In considering the New South Wales provisions in Hamilton v Caljo … McLellan J considered (at 386) that the postponement of the limitation bar in matters where fraud, deceit or concealment are alleged require proof of some form of dishonesty or moral turpitude. Hamilton was considered by the New South Wales Court of Appeal in Seymour v Seymour … . There, Mahoney A-CJ, with whom … agreed, held that the New South Wales provision required a consciousness of wrong doing:
In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who “closes his eyes to wrong” or is so lacking in conscience that he is not conscious of his own lack of property standards).
A similar view was expressed in Grahame Allen & Sons Pty Ltd v Water Resources Commission …
There is no allegation at this point made by the plaintiff against ANZ of a consciousness of wrongdoing. I agree with the approach of the New South Wales and Queensland authorities. It may be that the plaintiff will ultimately allege at trial that the bank fell into the latter category described by Mahoney ACJ in Seymour v Seymour as the party who closes its eyes to wrong. However, in my view these are matters that I cannot properly determine at this point. … Rather, they are matters of such a serious nature that they ought to be determined at trial.
[50][2000] VSC 211.
Discovery of the fraud
In October 1995,[51] elements sufficient to found a cause of action are identified by Feiglin in the passages of the letter referred to in paragraph 31 and 32. Sufficient facts are identified so that a complete cause of action could be pleaded. That is, the commission agreement introduction by Feiglin, the earning of fees and “there is no reason that as a 50% partner of the net profit, that I should not be given a complete account … “
[51]Exhibit DSA-5.
In Feiglin’s letter of 5 November 1995, the second passage set out at paragraph 34 hereof again illustrates that Feiglin had identified all the elements required to prosecute a proceeding for an account.
The same observations apply to Feiglin’s letter of 20 December 1995,[52] save that Feiglin by then identified that the commission paid to Ainsworth was $1,200,000.
[52]Exhibit DSA-8.
Feiglin’s letter of 8 August 1996,[53] maintains the entitlement and also suggests that the issue might be resolved with the assistance of some astute third party.
[53]Exhibit DSA-9.
By Feiglin’s letter of 16 May 1997,[54] he maintains that he is owed funds.
[54]Exhibit DSA-10.
On one view, the correspondence in 1995 and 1996 illustrates that Feiglin had sufficient information to bring suit for an account. After all, an account is sought in circumstances where the Court is required to determine what is ultimately due.
In any event, the claim is formally put by 27 February 1998. The position paper dated 27 February 1998,[55] concludes:
Mr Feiglin’s claim is as follows:
1.Fifty per cent (one half) of the fees received by the Ainsworth group as a result all transactions with Gutnick, including but not limited to the transaction referred to herein.
2.Fifty per cent (one half) of all fees received by the Ainsworth group by people introduced to Mr Ainsworth by Mr Feiglin and in respect of which Mr Feiglin has not received his share of those fees.
3.Interest, per Heter-isker, on all moneys outstanding to Mr Feiglin from the date on which they became due and payable to the date on which they are actually paid, to be calculated at a commercial rate.
[55]Exhibit DSA-11.
The plaintiffs submit that there was a fraud –
(a)the implication by Ainsworth that the fees received were in the region of $200,000; and
(b)the failure to disclose that the fees were actually in the region of $5,000,000.
It is pleaded that that discovery occurred in May 2007 as a result of conversation between Feiglin and the third party (Yossel Gutnick) on a social occasion at a house.[56]
[56]Further amended statement of claim, paragraph 8W.
I reject the plaintiff’s submission. In Skrijel v Mengler,[57] Eames J dealt with s 27 of the Limitation of Actions Act in the context of an application to join a defendant based on an action for misfeasance in public office and conspiracy. His Honour had to determine whether the right of action was concealed by fraud of the defendant. At [26] Eames J disagreed with the Master’s observations that:
It is, in my view, at the very least arguable that dishonest concealment of the means by which the cause of action may be proved constitutes concealment of the cause of action within the meaning of these words as used in s 27.
[57][1998] VSC 71.
At [48] his Honour set out:
In C v Mirror Group Newspapers [1997] 1 WLR 131 the Court of Appeal considered s 32(1)(b) of the Limitation Act 1980, which provided for the postponement of the limitation period where “any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant”, a more favourable position for a plaintiff than s 27(b) of the Victorian Act. The Court of Appeal referred with approval to a decision of the Court of Appeal (Civil Division) … The action in Johnson was a claim for damages for false imprisonment which had been brought after six years from the accrual of the cause of action. The plaintiff had contended that the police concealed material from him which demonstrated that they did not have reasonable grounds to suspect the relevant offence had been committed at the time of his arrest. In that case Rose LJ stated:
For my part I accept the submission that, in construing the section, there is no middle ground between facts and evidence … Facts which improve prospects of success are not, as it seems to me, facts relevant to the right of action … I accept that the construction proposed … is a narrow one, but unless it is correct it is difficult to see what purpose is served by the special provisions with regard to personal injury actions which are contained in s 33 of the Act.
At [49] his Honour further dealt with the English authorities. His Honour said:
In commenting on that passage Neill LJ in CV Mirror Group … , at 137, that it was clear that Rose LJ “accepted what in this court has been described as the statement of claim test, that is, knowledge of the facts which should be pleaded in the statement of claim”. In quoting from the decision of Johnson, Neill LJ next referred to the statement of Russell LJ in which his Lordship stated:
In order to give relief to the plaintiff any new fact must be relevant to the plaintiff’s “right of action” and is to be contrasted with the facts relevant, for example, to “the plaintiff’s action” or “his case” or “his right to damages”. The right of action in this case was complete at the moment of arrest. No other ingredient was necessary to complete the right of action. Accordingly whilst I acknowledge that new facts might make the plaintiff’s case stronger or his right to damages more readily capable of proof they do not in my view bite upon the “right of action” itself. They do not affect the “right of action” which was already complete, and consequently in my judgment are not relevant to it.
There is no room for doubt that the statement of claim test referred to by Neil LJ is satisfied by the position paper, if not before, where it sets out the relief sought by Feiglin. That is, one half of the fees received by the Ainsworth Group as a result of all transactions with Mr Gutnick and others together with interest thereon. That relief is duplicated in the further amended statement of claim where Prayer D and account in equity or an account of profits identifying fees earned by the first defendant in the case of all persons referred or introduced by the second named plaintiff in respect of services provided to those persons by the first named defendant. Feiglin then seeks consequential orders for payments together with damages. It matters nought whether the claim for the account refers to commissions earned of $1 (hypothetically), or $1,200,000 as identified in Feiglin’s letter of 20 December 1995, or $5,000,000 as referred to in the further amended statement of claim. Theoretically, the plaintiffs do not need to specify any amount to formulate a claim for the account or damages for breaching the commission agreement.
In determining whether the application for summary judgment ought to be granted, I am mindful of two observations.
The first is Fancourt Mercantile Credit Ltd:
The power to order summary judgment or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. [58]
[58][1983] 154 CLR 87 at [99].
The second observation is that of the President of this Cause in Phillip Morris Ltd v The Attorney-General for the State of Victoria[59] where the President referred to a judgment of Hayton AJ in Manning[60] as follows:
… But the risk of evils must be balanced against all the circumstances of the case relevant to whether it is fair and just that leave should be granted, and in particular whether a trial which is just and fair for all parties can be held. It must be remembered that the present context concerns the issue of whether an applicant for an extension of a limitation period will ever be able to have the case considered on the merits: failure in the application will prevent any judicial examination of the applicant’s substantive claim, which may in turn have catastrophic consequences for the applicant and the applicant’s family.
[59](2006) 14 VR 538 at [57].
[60]Nominal Defendant v Manning [2000] NSWCA 80.
Notwithstanding those two observations, I determine that the plaintiffs have no real prospect of success in prosecuting the commission claim when the right of action was complete in or about 1991 or 1992, was formulated in 1998 and could have been distilled from the correspondence in 1995 and 1996. In those circumstances the contention that the cause of action only crystallised in May 2007 upon being informed of the amount of $5,000,000 is nothing more than fanciful.
There will be judgment for the defendants on the defendants’ summons filed 13 December 2011.
Subject to submissions by the parties, if at all necessary, I propose to make orders as follows:
(1)Leave to amend the prayer as per the notice on 25 January 2012 is refused.
(2) There be judgment for the first defendant, together with costs on the claims contained in paragraphs 8L to 8Y of the plaintiff’s further amended statement of claim filed 17 October 2011.
(3)The plaintiffs pay the defendants’ costs often incidental to the summons filed 13 December 2011 only insofar as such costs are not accounted for in order 2 hereof.
SCHEDULE OF PARTIES
ESTHER CELIA FEIGLIN
First Named Plaintiff
MARK FEIGLIN
Second Named Plaintiff
DAVID SARGON AINSWORTH
First Named Defendant
AINSWORTH MELBOURNE PROPERTIES PTY LTD
Second Named Defendant
MIDMONSEC PTY LTD
Third Named Defendant
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