Murphy & Anor v Young

[1994] HCATrans 32

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
              Melbourne     No M69 of 1994

B e t w e e n -

JOHN WILLIAM MURPHY and
  PETER BERNARD ALLEN (in their
  cacacity as Trustees of the
  MERIDIAN INVESTMENT TRUSTS
  Nos 1, 2, 3, 4, 5 and 6

Applicants

and

ROBERT JOHN YOUNG

First Respondent

JAMES DAVID OSWALD BURNS

Second Respondent

PETER GRAHAM FAITHFUL HENDERSON

Third Respondent

PETER SHORT

Fourth Respondent

BURNS PHILP & COMPANY LIMITED

Fifth Respondent

IAN FARLEY HUTCHINSON and his
  partners trading as Freehill
  Hollingdale & Page

Sixth Respondents

Application for special leave
  to appeal

MASON CJ
BRENNAN J
DAWSON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 16 SEPTEMBER 1994, AT 10.47 AM

Copyright in the High Court of Australia

________________________

MR G.A. PALMER, QC:   If the Court please, in that matter, I appear with my learned friend, MR R.J. POWELL, for the applicant.  (instructed by Baker & McKenzie)

MR P. BUCHANAN, QC:   If Your Honours please, I appear with my learned friend, MR M.J. COLBRAN, for the fourth and sixth respondents.  (instructed by Minter Ellison Morris Fletcher and Sly & Weigall)

MR T.F. BATHURST, QC:   If the Court please, I appear with my learned friend, MR R.M. SMITH, for the fifth respondent.  (instructed by Clayton Utz)

MASON CJ:   Yes.  The Registrar has been informed by the first, second and third respondents - or by their solicitors ‑ that they do not intend to appear on the hearing of this application.

BRENNAN J:   Gentleman, before this matter commences, the fourth respondent, Mr Peter Short, is, I imagine, somebody that I know fairly well.  Is he a Brisbane solicitor?

MR BUCHANAN:   No, he is not.  He is Sydney solicitor and while now a sole practitioner, was for many years, indeed most of his professional life, a partner at Freehills.

BRENNAN J:   But a Sydney solicitor?

MR BUCHANAN:   Yes.

MASON CJ:   Yes, Mr Palmer.

MR PALMER:   If the Court pleases.  Your Honours, might I deal first with the question of the new trustees standing to sue the directors of the former trustee for breaching common law and fiduciary duties of care.  May I come directly to the proposition of principle upon which the Full Court’s decision rests, and we say that that proposition is one which, if correct, undercuts some of the most fundamental propositions and principles of trust law. 

The Full Court’s proposition amounts to this, that where directors of a trustee company have breached common law fiduciary duties of care to that company, whereby trust assets held by that company are lost, then the proceeds of an action against the directors to recover those assets or their value, are beneficially owned by the company itself.  And this is always so, even if the trust company has not, itself, paid out of its own pocket the losses incurred by the trust estate, so that if that were the case the action would be one to recompense the trustee company for losses which itself it has incurred in recompensing in turn the trust estate.

Now, Your Honours, if that proposition is correct, then the results are this, that, where trust assets are lost by negligence of a trustee company’s directors, the trustee itself can sue for and retain the value of trust assets and, whether the beneficiaries ultimately get any part of the recovery of the value of the trust assets is simply immaterial.  And we emphasise this is a proposition that the Full Court has put regardless of whether the trustee company has first paid out of its own pocket the estate in recompense from breach of trust committed, or as to whether it even can recompense by paying out of its own pocket.  The Full Court’s proposition was that, in effect, the value of the trust assets recovered from the directors are in all cases converted, in effect, to the trustees own property, and we say that that principle is simply and cannot be correct as a proposition of law.

If I can take Your Honours simply to a couple of examples which demonstrate, in our submission, that it cannot be right, and then come directly to the proposition which the Full Court seemed to rely upon, and my learned friends seem to rely upon, as justifying that proposition to demonstrate that it cannot be right either.

Can I give Your Honours these examples.  Assume ‑ and the facts I ask Your Honours to assume are fairly close to the present case ‑ that a trustee company’s directors lose trust assets by their negligence ‑ ‑ ‑

DAWSON J:   You say the directors, but it is really the trustee company that loses the assets.

MR PALMER:   Well, the trustee company directors cause by their actions and inactions the trustee to lose the assets ‑ to take steps which produce loss to the trust assets.  And the trustee company goes into liquidation and it has no beneficial assets of its own.  The trust assets lost, let us say for argument’s sake, are to the value of $10,000, but the trustee company has non‑beneficiary creditors ‑ its general creditors - whose claims total, for argument’s sake, $90,000.  The liquidator sues and recovers $10,000 from the directors, being the value of the trusts assets lost.  If the Full Court is right, the result is that the beneficiaries get 10 cents in the dollar out of the value of trust assets recovered, and the non‑beneficiary creditors get 90 cents in the dollar out of the value of trust assets recovered. 

They, in other words, the non‑beneficiary creditors, get a windfall by reason of the fact that the directors have lost assets which they themselves would never have otherwise had recourse to.  That produces an anomalous, in our submission, quite extraordinary result, and cannot be right, but that is the proposition advanced by the Full Court below.

Take another illustration, using the same example.  Assume the liquidator has no funds of the company itself to prosecute a claim against the directors.  If the beneficiaries of the trust put up the funds for the liquidator to prosecute these proceedings against the directors for recovery of the trust assets lost, their value, they will foot 100 per cent, as it were, of the litigation bill, and yet, in the example I have given Your Honours, participate in only 10 per cent of the resulting recovery.  Now, if the beneficiaries do not fund essentially for the benefit of the non‑beneficiary creditors, the directors escape scot‑free for the breaches of duty which have produced loss to the trust assets. 

Take a third example.  Assume that trustee company is replaced by a new trustee, but the former trustee does not go into liquidation.  If the Full Court is right, then the new trustee cannot sue the directors for loss of the trust asset, because that right of action is beneficially owned by the former trustee.  The trustee company itself, the former trustee, will obviously not sue its own directors, because its own directors are still in control of that trustee company.  So, the situation there is that the delinquent directors are immune from the consequences of their own wrong doing, in procuring the loss of the trust assets.

Now, Your Honours, the point made by the directors is this: the rights of the trustee company to sue its directors for breach of a duty of care, causing loss to trust assets, is a right to be compensated for a liability which the trustee company has incurred as trustee, as a result of the directors’ misconduct.  Therefore, it is a personal asset of the company itself.  I quote from the submissions put by BPC in particular.  That is not correct and cannot be so for these reasons.

Firstly, the way the proposition is put is that the right is to be compensated for a liability; not compensated for a loss, but compensated for a liability.  Liability, of course, is not necessarily the same thing as loss.  If the trustee company is to be compensated, then it must have lost something.  It must have lost its own assets.  In the example of this case; the examples that I have given Your Honour, and on the facts of the present case, the trustee company is, of course, insolvent, and has no assets of its own with which to make good the trust estate. 

If it has no assets of its own to make good the trust estate, it may be liable, but it will certainly not suffer any loss, because no assets of its own go to make good the estate.  So, how can the trustee company gain ‑ ‑ ‑

BRENNAN J:   It suffers no loss though it should be liable to the trust estate.

MR PALMER:   No, it is liable, in the sense that a judgment may be given against it for breach of trust, but it suffers no loss by reason of that liability, simply because it has no assets at all to satisfy that judgment.  If it has nothing to lose it suffers no loss; that is the point I make.  So, in other words, liability is not commensurate in all cases with loss. You do not compensate the trustee for its liability by this right of action, except where that liability is going to result in an actual loss to the trust company, and that can only happen if the trust company’s own assets are used to satisfy its liability to the trust estate.

Now, if the trustee company, in other words, sues after it has paid out to the trust estate ‑ the trustee company sues its directors, after it has itself paid out to the trust estate the value of trust assets lost, and it has paid the trust estate out of its own pocket, then in truth, of course, it is reimbursing itself, or compensating itself, by the action against the directors, and that action against the directors obviously is a personal asset of the trustee company.  But, as in this case, if the trustee company has not paid out to the trust estate, and cannot because it is utterly insolvent, then it is not recouping itself and gaining a personal asset for itself to restore a personal asset lost, it is simply gaining beneficially an asset, being the fruits of this action which it otherwise never could have had beneficially.

BRENNAN J:   Mr Palmer, could I interrupt you for moment?  I would be advantaged if I could follow precisely how these problems arose for determination.  There was an amended statement of claim, and then there were some questions stated for determination, is that right?

MR PALMER:   Yes.

BRENNAN J:   Well now, were there some paragraphs then that were the subject of the answers to the special case?  What paragraphs of the statement of claim were we concerned with?

MR PALMER:   The paragraphs of the statement of claim, a good example of them, is paragraphs 56 and following, which are ‑ ‑ ‑

BRENNAN J:   Is it a case of an example, or is it a question of the precise allegations that are made in the several paragraphs?

MR PALMER:   It is more a case of principle of which paragraph 56 to probably 59, I think, is a typical and fairly safe example, in the sense that the Full Court below was expressing itself as a matter of principle.

BRENNAN J:   Well, I read the paragraphs as raising very different principles, so I am at a loss to follow how we can take an example, as it were.  What was the principle which was being addressed by the Full Court.

MR PALMER:   The question being addressed by the Full Court is typified by question 7.  If Your Honour turns to page 128 of the application book.  Question 7 was broken into two parts.  I may say that subparagraph (a) was inserted at the instigation of the defendants.  We regarded paragraph (b) as the real and ultimate question, but the question assumes that a duty of care was owed at law by the directors of the company to BPTC, as pleaded, and if Your Honours go back to the pleading, which is page 41 of the application book, paragraph 56, the pleading was that the directors owed to BPTC, being the trustee of the trusts, “a duty of care” “under the common law” in the exercise of their powers and in the performance of their office, and so on, to exercise due care and skill, so as to avoid the trust assets being lost.

In other words, the pleading was directed to the directors acting in such a way in relation to the trustee company itself that the assets of the trust held by the trustee company were not lost by negligence, and so on.  Question 7 assumed that such a duty existed.  Question 7(a) asked a question which, with respect, is a confusing question and a question which succeeded in distracting the Full Court from the real question; the real question being 7(b), do we have standing ‑ do the new trustees have standing to sue for damages for that breach?  In other words, was the right of action, which the paragraph - the question supposes exists, a trust asset or not a trust asset?
BRENNAN J:   Well now, is that the issue?

MR PALMER:   That is the issue, and the Full Court ‑ ‑ ‑

BRENNAN J:   And that is the only problem that we are being asked to grant special leave about?

MR PALMER:   Yes.  Well, there is a secondary question, based upon section 229(a), which is another compartment.

MASON CJ:   Yes, that is a separate matter.

BRENNAN J:   Paragraph 54, for example, we are not concerned with that?

MR PALMER:   No.  That was a Barnes v Addey - that was a claim in the alternative.  So, the Full Court approached the question as a matter of general principle.  Was such a right of action a trust asset?  And the Full Court held it was not a trust asset, it was a personal asset of the trustee company itself, available for distribution amongst the trustee company’s own creditors.

So they decided the whole complex of question ‑ question 7 gives us an example ‑ upon the fundamental principle that I have just exposed to Your Honours.  Now, we say that that cannot be right by reference to the results that I have given, and to briefly refer to the process of reasoning whereby the court reached its conclusion, we have dealt with that in paragraphs 14 to 17 of our written submissions, and in brief, the error of the Full Court, in our respectful submission, arose from a confusion as to the question of standing, and the question of characterisation of beneficial ownership of the right of action, once standing was established.

Essentially, in our respectful submission, the Full Court erred because it confused the question of standing of a trustee company to sue its directors, in the eyes of a common law court, with the question of characterisation of the beneficial ownership of that right of action in the eye of a court of equity.  The Full Court proceeded by five steps of reasoning, that we have set out in paragraph 14 ‑ ‑ ‑

BRENNAN J:   How do the beneficiaries of a common law cause of action sue the defendant?

MR PALMER:   They do not.  The new trustee will - sue the directors, or ‑ ‑ ‑?

BRENNAN J:   Are you saying that there is a common law cause of action as between BPTC and the directors?

MR PALMER:   Yes.

BRENNAN J:   Do you say that that is own beneficially?

MR PALMER:   Yes.

BRENNAN J:   How, I ask you, do the beneficiaries sue the defendant to enforce a common law cause of action?

MR PALMER:   They do not. Only the person who, in the eye of the common law law court, has legal ownership of the assets lost has standing to sue the defendant for loss of those assets, but when he gets them ‑ ‑ ‑

DAWSON J:   So that is BPTC?

MR PALMER:   That is BPTC.

DAWSON J:   Sues the directors?

MR PALMER:   Yes, sues the directors.

DAWSON J:   Recovers and?

MR PALMER:   And holds the proceeds on trust for the beneficiaries.

MASON CJ:   How do you get to that step?

MR PALMER:   Well, assume before it is removed, before it is replaced, the trustee says, “I am the legal owner of these assets and you owed me a duty, as the owner of them, not to lose them by negligence.  You did that and they are lost.  I therefore get the value of those assets”.  That is all the common law court wants to know.  The common law court does not look behind the legal title of the owner of the assets.  Mr Justice Brooking himself said that. 

MASON CJ:   Yes.

MR PALMER:   But once he gets the proceeds of that suit, of course, if the assets are not beneficially owned by him, then he cannot beneficially own the proceeds of recovery for their loss.  So once he gets them ‑ ‑ ‑

DAWSON J:   That seems to involve a logical glide, because what the trustee company is being recompensed for is the breach of duty on the part of the directors to the companies.  It may be that you measure the amount of damage by reference to the loss of assets, but the damage is a different thing or the damages.

MR PALMER:   Your Honour, that goes back to one of the first propositions I advanced to the Court, that is, what Your Honour puts may be so where the trustee company itself has suffered loss, but where it has no assets of its own to suffer loss whereby ‑ ‑ ‑

DAWSON J:   It does not make any difference.  You are still getting damages for breach of the duty to it, albeit the damages may be measured by reference to loss of some assets.

MR PALMER:   Certainly, Your Honours, but in our respectful submission, the question is, what does it do with the proceeds of that action where itself it has not paid out of its own pocket recompense to the trust estate.  The damage to the trustee company is said to be its liability to recompense the trust estate ‑ ‑ ‑

DAWSON J:   What it does with the damages is, in the circumstances, pay its debts.

MR PALMER:   Well, Your Honour ‑ and pay the debt in full.  That is the point that we make.  If the obligation is then to pay on in full the proceeds of recovery, then it is because that proceed of recovery is held upon trust.  But if the obligation to pay the debt is simply one to pay the trust estate pro rata in accordance with all other general creditors of the company, then, as the Full Court held, the proceeds are not held on trust.

MASON CJ:   I do not understand at the moment what is the principle that you are invoking to stamp the damages that are recovered from the directors, who are guilty of a breach of the duty of care, as property that is held in trust for the beneficiaries?

MR PALMER:   The principle that we invoke is this; that where ‑ ‑ ‑

MASON CJ:   I can see that there may be a lot of common sense in coming to that conclusion, and your examples, perhaps, point that way.  But what is the principle that brings about this result?

MR PALMER:   The principle is that where the trustee recovers the loss of a trust asset, and has not yet itself suffered damage by diminution of its own assets, then it holds the proceeds of that recovery as a trust asset itself, because the trust asset has, in effect, been converted into the right of action for its recovery.  It is exactly the same as if, for example, there was a priceless Ming vase held by the company on trust, which has been converted by directors ‑ or stolen by a director ‑ in breach of his fiduciary duty to the company, let us say.  Surely, if the trustee company exercises a common law right to get that property back to which it holds legal title, simply by the fact that it has had to resort to a court of law to get it back, does not convert that Ming vase from a trust asset to a general asset of the company.

MASON CJ:   Yes, but by prefacing the statement with the word “surely”, you are re‑echoing what I said to you.  I can understand the common sense of it all.  But is there any authority to support this principle?

MR PALMER:   It is fundamental principle, in our submission, that once a trust asset, as it were, always a trust asset, as long as the asset can be followed by tracing or by a process of conversion from one form to another, and the principle is that a right of action by a trustee against its directors can only be a personal asset if it is to recompense the trustee company for a personal loss.  And if that personal loss has not been suffered and is incapable of being suffered, then the proceeds of the right of action must be trust assets.

MASON CJ:   Well, one would have expected some discussion of this in the authorities, but I gather there is not.

MR PALMER:   There is, and an illustration is given in the House of Lords decision in Rae v Meek, which is referred to by Mr Justice Gobbo at page ‑ I see I am exceeding time, or dangerously close to it ‑ at page 97, and there His Honour sets out very briefly the circumstances of the case.  There is an argument as to whether a “trustee was entitled to sue a third party for breach of” trust; whether the:

duty was owed to the trustee in its personal capacity and not for the benefit of the estate ‑

and so on.

MASON CJ:   Yes, but that is a less than absolute statement, is it not?  It is a statement that drifts off into the thinness of the air. 

MR PALMER:   Their Lordships say, going to line 25 on page 97:

The alleged duty, if it existed at all, was to the trustees, and not to the beneficiaries.

That is because the trustee, of course, had entered into a direct common law relationship of duty of care with the third party.

MASON CJ:   But then they go on to say:

There may be cases where, if the trustees failed to call to account those who were under liability in respect of acts injurious to the trust estate, the beneficiaries might compel them to do so ‑

BRENNAN J:   Well, that is the problem, is it not.

MASON CJ:   Yes, that is right.

BRENNAN J:   Was there any compelling to do so in this case?  Did you ever require BPTC to sue their directors?

MR PALMER:   Require them?

BRENNAN J:   Require them to sue the directors and join them in default of their agreeing.

MR PALMER:   No, Your Honour, we did not, because it was pointless to do so.  The liquidator had no funds; could not sue; it was a waste of time.  But the Full Court has said we would not have got anything by that because the proceeds of recovery would have been for the liquidator’s general assets, not ours.  So, if we had said, “Liquidator, you sue”, we would not have got anywhere, according to the Full Court.

BRENNAN J:   You say that you cannot enforce a common law cause of action, except by the plaintiff against

the defendant in the common law court.  But yet you say, in this case, it does not matter that there is no plaintiff, the beneficiaries, who will ultimately take it, can sue themselves.

MR PALMER:   No, I am sorry.  I have not put it clearly.  BPTC could have, while it was legal owner of the assets, sued, because it had title in the eyes of the common law court.  It could have sued in the common law court.  But the benefit of the right of action would have been a trust asset.  Now, when BPTC was replaced by the new trustees, all the trust assets were, of course, vested in the new trustees under a vesting order.  Therefore, the right of action held on trust by BPTC against its directors was vested in the present new trustees, and they are now the plaintiffs, having exactly the same right of action that BPTC itself would have had while trustee.  They have succeeded, and it is not the beneficiaries suing, it is ‑ ‑ ‑

DAWSON J:   So that you, by some process of principle, you convert not only the damages that will be received into the trust assets, but you also trace it right back to the cause of action ?

MR PALMER:   Yes, exactly.

MASON CJ:   Well now, you have exhausted your time, have you not?

MR PALMER:   Yes I have, Your Honour.

MASON CJ:   Yes. very well.

MR PALMER:   I will have to rely, however, on our written submissions in the second compartment.

MASON CJ:   Yes.  Yes, Mr Buchanan.

MR BUCHANAN:   Your Honours, the common law and fiduciary duties, which are alleged by the applicants are, of course - they have a familiar ring, but the familiarity, we would say, is misleading.  Of course, the directors of a company, including a trustee company, owe duties of care to the company in which they hold office for the consequences of any default on their part that brings about loss to the company, and the loss might be, either damage to or destruction of the assets of the company itself, or the loss might be exposing the company to a liability to some third party.

The duties which are postulated by the applicants are derived from the office which is held by the directors.  However, the duties for which they really contend are something new.  They are described as duties owed by the directors of a trustee company to the company, in its capacity as a trustee of particular property, and that is not the old duty known to the law, which the directors owe to their own company. 

The new duty is said not to be a duty owed generally to the company, but one owed to it by virtue of its character as a trustee, and it is said that the duty is itself a trust asset, and passes to any successor trustee and is held by the company only while it remains trustee.  Can we give this example ‑ ‑ ‑

MASON CJ:   I must say, I see considerable difficulties in formulating a duty in that way, but even granted that there are difficulties formulating the duty in that way, it seems to me there is still a very real question as to whether or not the judgment of the Full Court is right, even if one looks at it on the footing that there is a general duty of care owed to the company as such, because, if there is a general duty of care owed to the company as such, it seems to me that the company may then be entitled to recover damages that reflect the loss of the trust assets and, if those damages are recovered by the trustee, then there seems to be a real question as to whether or not those damages should be regarded as damages held by the trustee in trust.

MR BUCHANAN:   That may be so, Your Honour, but it is not the question which is raised by the proceedings at the point they have reached.  What Your Honour puts to me is, yes, describe the duty in the way you have, as the old duty known to the law, and it produces the result, if it is successfully prosecuted, that is the cause of action based on it, of compensation coming to the company which is measured by the loss to the trust.  The question then becomes, who of the creditors, including the beneficiaries, is entitled to that compensation, or that sum of money, which is really a question of priority as between creditors, very like the problem which had to be dealt with by section 117 of the Bankruptcy Act, where a company is insured against a liability to a particular class of persons; incurs such a liability; goes into liquidation; cannot satisfy its obligation, and the person who is to benefit from the insurance policy can, by virtue of section 117, have recourse to it, in priority to other creditors.

It is a like problem really that is raised here.  But once the duty itself is characterised as a duty owed to the company, for a loss to the company, then we would say there is no principle at all that says that, because the measure of it was somebody else’s loss, in this case, the beneficiaries, that thereby they acquire any interest superior to any other person in the proceeds based on a cause of action on that duty.

MASON CJ:   That seems a very strange result.

MR BUCHANAN:   With respect not.  What we would say is a fundamental problem with the position ‑ ‑ ‑

MASON CJ:   Let us assume there are no competing creditors; do you then say that the trustee holds the damages free from any trust or equitable obligation?

MR BUCHANAN:   No, not at all.  He holds it free from any trust or equitable obligation, but the beneficiaries, by suing him, obtain it, without competing with anybody.  They do not get it because it is held on trust, and so they get it in specie.  What they do is achieve precisely the same result by suing the trustee, and the trustee says, “Well, I can satisfy the liability because I have got it.  Here it is.  I have recovered it over there and, accordingly, since I am liable to you, I have to pay you.” 

BRENNAN J:   Do you raise any question about the constitution of the action?

MR BUCHANAN:   There is only this problem, I think, Your Honour, that it comes to this Court now as a consequence of stating questions arising out of pleadings, where of course there is no evidence at all, and one of the problems is ‑ and it is one with which the Full Court wrestled ‑ that the way in which it would seem the plaintiffs now want to put their case is not raised directly, fairly and squarely, by their own pleadings.  So that what the Full Court had to do was struggle with the questions and try to turn them into something which resolved what the applicants were contending for, and there are always difficulties about any case that comes to the High Court, we would have thought, structured in that way.

BRENNAN J:   Well, I understand that.  But if one looks at the paragraphs of the statement of claim, is it not clear enough that what is sought to be raised is this: if the company has a common law cause of action against the directors, can the beneficiaries in this action enforce that common law cause of action, standing, for this purpose I take it, in the shoes of BPTC?

MR BUCHANAN:   No, not standing in the shoes of BPTC, standing in their own shoes as successive trustee.

DAWSON J:   It is not the beneficiaries, it is the new trustee company who inherited the right of action because it was held in trust?

MR BUCHANAN:   Yes.  But that is not actually alleged in the pleadings, but that really is the point.  They say it is.  That right of action, which BPTC had against its own directors ‑ ‑ ‑

DAWSON J:   If the proceeds of the action can be held in trust, why cannot the right of action which gives rise to the proceeds be also held in trust?

MR BUCHANAN:   There is no problem about the concept of causes of action being held in trust.  The problem, though, is that this cause of action, properly described, is one in respect of a duty owed to the company.  Not to the company as trustee, but owed to the company to take care not to ‑ ‑ ‑

DAWSON J:   But if the only assets the company had were trust assets and therefore the damages which would be recovered would represent the trust assets, why should not the right of action be held in trust?

MR BUCHANAN:   I would have thought it would be very rare that a trustee company has nothing but trust assets.  It will have some of its own assets with which to conduct the trust, I would suppose, but we would say that the confusion, or error, is demonstrated by my learned friend’s example of the Ming vase.  The director who steals it, or converts it, can be sued by the company and that right of action in respect of the conversion of the Ming vase will come to any successive trustee.  But when that man is sued, he is not sued as a director who incurred a liability because he was a director owed to the company in that capacity ‑ ‑ ‑

MASON CJ:   He is sued as a thief.

MR BUCHANAN:   He is sued as a thief.

MASON CJ:   All these examples are only confusing the issue.  It seems to me one of the difficulties is that the true issue was not clearly defined at an early stage in this case and now, as a result, we are beset with all these complications.

MR BUCHANAN:   With respect, that is so.

BRENNAN J:   Can it not be put into an order that makes it susceptible for clear expression so that the various steps in the argument can be examined?

MASON CJ:   Because it is an important matter, as between the parties.

MR BUCHANAN:   I agree with that, Your Honour.  I do not say it is not an important matter, but we would say when the available principles are examined, the answer is one to which one is logically driven.

BRENNAN J:   One has got one basic principle that seems to be common ground, namely, the directors owe a duty to a company.  That seems to be common ground.  The next question is, if there is a breach of that duty, is the cause of action assignable or transferable from one in whom it is vested to a successive trustee?

MR BUCHANAN:   Yes, that is one way of expressing it.

BRENNAN J:  That is one way of putting it, but it is not the only way of putting it.

MR BUCHANAN:   No, it is not.

BRENNAN J:   So we do not know whether that is really the question, or not?

MR BUCHANAN:   I think that is so, Your Honour, yes.

BRENNAN J:  So another way of putting it, perhaps, is that if you compel the first plaintiff to sue the defendants, does the first plaintiff hold the proceeds of the action in trust for the beneficiaries?  That is another way of putting it, is it not?

MR BUCHANAN:   With respect, I would have thought that is really a different question.

BRENNAN J:   Precisely.  So how on earth can this matter really reach a conclusion unless the parties identify for themselves what the issues are and set about having a judicial determination of them?

MR BUCHANAN:   Or we would say this, Your Honour, that the case that will raise the question, the real question, is one where beneficiaries do fund suit by a liquidator, he recovers compensation and then there emerges a question as to who is entitled to it.  Not this case ‑ ‑ ‑

MASON CJ:   May be, but I must say, in cases of this kind where there has been a failure as a result of which there is a loss of money by a large number of people, it is distressing to find that the resolution of a fundamental question is befogged by complexities of this kind, and I take up what Justice Brennan has said.  One would have thought in a case like this that the parties would endeavour to co‑operate in formulating questions which would be dispositive of the real problems in the case. 

MR BUCHANAN:   I do not think it can be said of any of the parties in this litigation that any of them were at pains to befog the issue, or obscure it, if there ‑ ‑ ‑

MASON CJ:   No, I am not suggesting there was any deliberate obfuscation.

MR BUCHANAN:   Yes.  If lack of clarity is the result, it is despite the efforts of the parties.  But we would say there are problems with the pleadings, there are problems with the questions and the detailed

examination to which they have been subjected now by a third court simply highlights them and makes them more obvious and, in many ways, that among them we would have thought this was not an appropriate vehicle for the determination of the underlying issue by this Court.

MASON CJ:   That may be so, but is there any possibility of this matter being reconsidered, so that proper questions can be defined that raise the issues that have been reflected in the exchange between counsel and the bench here today, and get a ruling on questions of that kind?

MR BUCHANAN:   That can be done.  It can be done by the applicants and the parties approaching the Full Court.

MASON CJ:   Subject to anything Mr Bathurst might say, that does seem to be a sensible suggestion.  Mr Bathurst, do you want to say anything about that?  And, of course, Mr Palmer, we will give you the opportunity as well. 

MR BATHURST:   Only this, if Your Honour pleases.  This is the sixth version of the statement of claim.

MASON CJ:   I often heard that you never got a good statement of claim unless it had been amended about seven or eight times.  Sir Garfield Barwick used to say that.

MR BATHURST:   The statement of claim does not plead any assignment of the right of action brought by BPTC, either as a matter of law or by virtue of the vesting order which was made.  The statement of claim rests solely on the proposition that the standing to sue arises by virtue of the fact that the applicants are successive trustees.  If the matter is to go back to the Full Court it cannot, in our respectful submission, go back on these pleadings, because at the end of the day, no matter how the matter is formulated, one is driven back, as Mr Palmer was, to paragraph 56 and similar examples which say because we are the successor trustee, because the trust assets were lost as a result of director’s default, we have got standing to sue.  That is the difficulty that we perceive with that course, if Your Honour pleases.  I do not want to say anything more in relation to that aspect.

MASON CJ:   No,I follow that.  Mr Palmer, what do you say?  You can see the difficulties that have emerged?  And those difficulties do seem to suggest, very strongly, that the case is not in a state that we could conveniently take up. 

MR PALMER:   We, with respect, would agree with that but there is this difficulty.  The Full Court has gone on, as it were, to enunciate a statement of general principle.  We cannot, as we presently perceive it, go back to the Full Court and say, “Reconsider that”.  The Full Court could properly say, “We have spoken in law.  No matter how you plead it, a cause of action by a trustee company against its directors is for the general benefit of all of its creditors.  That is our statement of law and you are stuck with it.  The High Court has not done anything about it.”

MASON CJ:   Is it possible for you to go back to the Full Court, not with a view to persuading the Full Court to change its mind, but to put to the Full Court questions differently formulated so that we could get answers to questions that do throw up the issues as we seem to think now they should be framed?

DAWSON J:   That may need an amendment to the statement of claim, but that would mean that then the action was in a form in which it could come to this Court and we could deal with it.

MR PALMER:   We certainly would if we could, to try and cut through this Gordian knot, but we are apprehensive that at least unless Your Honours say something, in Your Honours’ dealing with this application ‑ ‑ ‑

MASON CJ:   You will be more apprehensive of our saying that this case is not a suitable vehicle for the determination of any question of general principle.  That is the worst thing that could happen to you.

MR PALMER:   Yes.

BRENNAN J:   And the Gordian knot might yield to a little work by a scalpel.

MR PALMER:   I certainly hope so, Your Honour.  But what we are concerned about is simply to be met by the

Full Court with the simple statement, “I am sorry, but we have already decided the matter of principle, which is of general ‑ ‑ ‑

DAWSON J:   But that would not matter.  If you had a statement of claim in the right court and it came to a similar conclusion, nevertheless there would be something then for this Court to consider, which is not now there for it to consider.

MR PALMER:   We are conscious of the difficulty, we always have been and if the questions can be properly formulated and we are not precluded, as it were, by the Full Court having delivered itself of what is conceived to be a statement of general principle, we would certainly welcome that opportunity.

MASON CJ:   Very well.  It seems in the circumstances the appropriate thing to do is to stand this application over to a date to be fixed and the parties ‑ you in particular, Mr Palmer, can explore the possibility of reforming the proceedings with a view to framing a question or questions, and securing an answer or answers to those questions that throw up a real issue for the determination of this Court. 

AT 11.36 AM THE MATTER WAS ADJOURNED
TO A DATE TO BE FIXED