Griffiths v Duncan McPhail and Co Pty Ltd
[2007] WASC 178
•3 AUGUST 2007
GRIFFITHS & ANOR -v- DUNCAN McPHAIL & CO PTY LTD [2007] WASC 178
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2007] WASC 178 | |
| Case No: | CIV:1353/2006 | 1 AUGUST 2007 | |
| Coram: | MASTER SANDERSON | 3/08/07 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Leave to amend granted | ||
| B | |||
| PDF Version |
| Parties: | GRAHAM ROSS GRIFFITHS GRAYLONA HOLDINGS PTY LTD DUNCAN McPHAIL & CO PTY LTD |
Catchwords: | Practice and procedure Application to strike out statement of claim Adequacy of amended pleading Turns on own facts |
Legislation: | Nil |
Case References: | Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
GRAYLONA HOLDINGS PTY LTD
Second Plaintiff
AND
DUNCAN McPHAIL & CO PTY LTD
Defendant
Catchwords:
Practice and procedure - Application to strike out statement of claim - Adequacy of amended pleading - Turns on own facts
Legislation:
Nil
Result:
Leave to amend granted
(Page 2)
Category: B
Representation:
Counsel:
First Plaintiff : Mr R J Butcher
Second Plaintiff : Mr R J Butcher
Defendant : Mr R A Zilkens
Solicitors:
First Plaintiff : Butcher Paull & Calder
Second Plaintiff : Butcher Paull & Calder
Defendant : Zilkens & Co
Case(s) referred to in judgment(s):
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
(Page 3)
1 MASTER SANDERSON: On 12 March 2007, the defendant issued an application seeking to strike out the plaintiffs' statement of claim. Although there had been discussion between the parties prior to the application being issued, the defendant's complaints had not been resolved. The parties anticipated that argument at a special appointment would be necessary.
2 Subsequently, the plaintiffs decided they should further amend their statement of claim. This has been done on a number of occasions and on 31 July 2007 they filed a substituted minute of amended statement of claim ("the minute"). The defendant objects to the pleading.
3 Before detailing the defendant's objections, I should mention that on 4 July 2007, I refused the plaintiffs leave to amend in terms of an earlier minute. I gave brief oral reasons for refusing that amendment. Essentially, counsel for the defendant maintains that the present minute is materially no different from the earlier minute and the changes do not reflect what I said in my judgment. Be that as it may, I think it is now proper to direct attention squarely at the latest minute as moved by the plaintiffs.
4 The claim has to do with the management of an accounting practice. Until February 2003, the first plaintiff was a director of the defendant. He was also a director and shareholder of the second plaintiff and an employee of the DM & Co No 2 Trust ("the DM & Co Trust"). The second plaintiff was the trustee of the Graham Griffiths Professional Trust. The defendant is the trustee of the DM & Co Trust which operates an accounting practice in South Perth. It is pleaded that at all material times the second plaintiff, in its capacity as trustee of the Graham Griffiths Professional Trust, was the holder of 80 ordinary units and eight special units in the DM & Co Trust. These units represented one-fifth of the issued units in the DM & Co Trust.
5 Paragraphs 5 through to 9 of the minute then detail the first plaintiff's employment by the DM & Co Trust and detail a claim by the first plaintiff for breach of the employment contract. The defendant does not take objection to these paragraphs.
6 Paragraphs 10 onwards of the minute set out the second plaintiff's claim. By par 10, it is pleaded that prior to the adoption of the corporate structure to which I have referred, the first plaintiff was a partner in an accounting practice styled Duncan McPhail & Co. In that capacity, he was entitled to an equal share of the profit and an equal right to manage
(Page 4)
- the partnership. In or about 1984, the partners in Duncan McPhail & Co transferred the accounting practice to the DM & Co Trust. Paragraph 12 then sets out what was said to be an oral agreement between the respective unit holders in the DM & Co Trust. Paragraphs 12(a) to (e) are presumably the express terms of that oral agreement. First, it is alleged that each of the unit holders was to appoint a director of the defendant and the director would have the right to participate in the management of the defendant for as long as their unit holding existed. Second, each unit holder of DM & Co Trust would appoint a unit holder's representative for all unit holder meetings for as long as their unit holding existed. Third, all amounts payable to the trustee directors of DM & Co Trust for their base remuneration over time, superannuation and so on were to be unanimously agreed to by the directors and, failing agreement, as calculated in the prior year of income. Fourth, "Special Income Unit Holder" distributions pursuant to the trust deed would only be made by the trustee to make up any difference between the amount agreed between the trustee directors that they would be paid and the amount actually paid. These distributions would, if required, be made three times during the financial year. Fifthly, any remaining net taxable income not otherwise distributed pursuant to the agreement would be distributed to ordinary unit holders pursuant to a formula which is set out in par 16 of the pleading.
7 Paragraph 13 of the minute pleads as an alternative to the contractual arrangement a common understanding which, in large measure, mirrors the agreement alleged in par 12. There are some differences between the two pleas and it is not easy to see what the significance of those differences might be.
8 By par 14, it is alleged that by reason of the matters pleaded in par 10 to par 13, the defendant, as trustee of the DM & Co Trust, owed the second plaintiff fiduciary duties . Two duties are pleaded. First, it is said there was a duty to administer the trust fairly and second, it is said that in the administration of the trust the defendant would not prefer the interests of one unit holder over another. (I have assumed that there are two separate duties pleaded, although that is not entirely clear. It may be that what the second plaintiff pleads are two aspects of the one duty. Nothing turns on this distinction.)
9 The defendant has two complaints about the pleading of the fiduciary duty. First, it is said that the material facts pleaded cannot give rise to a fiduciary duty. Second, it is said that the fiduciary duty alleged is so vague and non-specific as to be meaningless.
(Page 5)
10 The place to start in dealing with these two complaints is to look again at the nature of a fiduciary relationship. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Mason J said (at 96 - 97):
"The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations … viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions 'for', 'on behalf of', and 'in the interests of' signify that the fiduciary acts in a 'representative' character in the exercise of his responsibility …"
11 Two points need to be made about the material facts pleaded in par 10 to par 13. First, what is pleaded is a well recognised fiduciary relationship. There must necessarily have been a fiduciary relationship of trustee beneficiary. But here particular duties are said to arise from the nature of the relationship between the trustee and the beneficiary.
12 Second, it is well established that a fiduciary relationship can co-exist with a contract. Mason J made that point in the Hospital Products Ltd case (supra) at 97. It is also possible that the relationship may be fiduciary, but in not all of its aspects. So in this case where there is a commercial arrangement - be it by contract or common understanding - there may be elements of the relationship which are fiduciary in nature and elements which are not. It is a question then of examining the evidence to determine what are the elements of the fiduciary relationship in this case and what duties flow from that relationship.
13 In my view, the plea in par 10 to par 14 is satisfactory. It may not be perfect, but it alerts the defendant to the case it has to meet. All the material facts which are put against the defendant are to be found in the relevant paragraphs. They can be admitted or denied as the defendant sees fit and then, when all the evidence is in, it is for the Judge to
(Page 6)
- determine whether or not the claim of a fiduciary relationship has been made out and, if so, what are the elements of that relationship. I am satisfied these paragraphs can stand.
14 The defendant says that there is an inconsistency between par 13(a) of the minute which incorporates par 12(c), (d) and (e) and particular (b) to par 16. By par 13(a), it is said that after 1984 each of the defendant's directors and the DM & Co Trust unit holders participated in the management of DM & Co Trust and that the income of the DM & Co Trust was calculated and paid out or distributed in the manner referred to in par 12(c), (d) and (e). I have dealt with these three sub-paragraphs above. By par 16, it is alleged that the defendant wrongly reduced the second plaintiff's entitlement in the DM & Co Trust and correspondingly increased the entitlement of other unit holders, in consequence of which the second plaintiff has suffered loss and damage. Particular (b) reads as follows:
"Based on the formula for income distributions used by DM & Co in all prior years for the periods from 1 July 2002 to 30 June 2003, 1 July 2003 to 30 June 2004 and 1 July 2004 to 31 December 2004 Graylona was paid less than its entitlement to a share of the profits earned by the DM & Co Trust."
15 Pursuant to par 12(c), amounts paid to the trustee directors were subject to unanimous agreement by them or, failing agreement, as calculated in the prior year of income. As I understand particular 16(b), it simply says that there was no distribution based on the prior year or years of income. But even if that is incorrect, it is a particular to par 16. There is no complaint that it should be pleaded as a material fact. The defendant does not have to plead to particulars. The mischief, if there is any in the particular, is not likely to cause the defendant any difficulty.
16 Complaint is made by the defendant of the reference in par 13 to "a common understanding". It is said that there are no material facts pleaded which could give rise to such an understanding. It certainly is true that there is little in par 13(a), (b) and (c) which outline how such an understanding was reached. However, in my view, a request for particulars of these paragraphs will suffice. While it may have been prudent pleading practice to put in more material facts as to the circumstances in which this common understanding arose, it is not such a serious omission as to refuse leave to amend in terms of the minute.
(Page 7)
17 Finally, it is said that par 12(d) and the reference to "Special Income Unit Holder" distributions does not make sense. It is a little difficult to see how the need for such distributions would arise. Nonetheless, reference is made to the trust deed and presumably there is reference in the deed to such distributions. So the actual circumstances in which such distributions can and would be made can hardly be in dispute. If the plaintiffs are wrong in their assertion, that will quickly emerge once the terms of the trust deed are considered.
18 Taken in the overall, I am satisfied that this substituted minute of amended statement of claim sufficiently outlines the plaintiffs' case against the defendant to allow it to stand as a pleading. I would therefore give leave to amend in terms of the minute. The orders I will make are as follows:
1. The plaintiffs have leave to amend in terms of the minute.
2. Within 7 days the plaintiffs file and serve a copy of the amended pleading.
3. The plaintiffs pay the defendant's costs thrown away by reason of the amendment in any event.
4. The plaintiffs pay the defendant's costs of the application to strike out, including reserved costs.
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