Olivieri v Hamilton

[1989] HCATrans 308

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S80 of 1989

B e t w e e n -

ITALIANO OLIVIERI

Applicant

and

WILLIAM JAMES HAMILTON,

MALFEN & SARUMAN PTY LTD

(In Liquidation)

Respondents

Application for special

leave to appeal

MASON CJ

Olivieri

BRENNAN J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 8 DECEMBER 1989, AT 3.18 PM

Copyright in the High Court of Australia

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MR D.B. McGOVERN:  If Your Honours please, I appear on behalf

of the applicant. (instructed by Galluzzo & Golotta)

MR B.A. COLES:  I appear, if Your Honours please, on behalf

of the respondent. (instructed by Barker Gosling)

May I venture to Your Honours at this stage, before

my friend commences, my apologies to Your Honours

for the inconvenience occasioned by my not being

present when the matter was called previously. I assure

Your Honours there was no discourtesy intended to the

Court.

MASON CJ: Well, maybe. Your apology is noted but I do not

accept it, Mr Coles. This is the second occasion today

on which counsel has not been present when a matter

in which he has been briefed has been called on for

hearing. Now, the Court is not accustomed to that

treatment and as far as I am concerned I expect that

it will not occur again.

It is not just a matter of absence of discourtesy,

it is a disruption to the work of the Court and this

Court is entitled to expect that counsel, briefed in matters, will appear when their matters are called on for hearing.

MR COLES: If Your Honour pleases.

MASON CJ: Yes, Mr McGovern?

MR McGOVERN: If Your Honours please. I, at the outset of

my submissions, have to indicate to Your Honours as

a matter of my obligations to the Court that there is

a matter of some difficulty associated with the

submissions that I have to put. The difficulty that I

find myself in in relation to my submissions is simply

this, that in order to make good the point that we

say is of special importance in the case, it would be

necessary to persuade Your Honours to a different view

of the facts or a reagitation of the facts.

Could I encapsulate the way in which we say the

point of special importance arises in this brief fashion?

Your Honours, the facts of the matter were these, that the applicant was a party to an arrangement pursuant to

which it was agreed that a certain quantity of formwork

and ancillary equipment allegedly owned and under the

control of one, Nesci, and associated companies of Nesci,

would be transferred to a company called Itsel upon the

basis that Itsel would thereafter hire the equipment to

a further company, Combined Formwork, and that the

formwork would thereafter be let out on hire to builders

for use on building sites and in construction operations.

The evidence established that the applicant

contributed substantial moneys to the enterprise

amounting to something of the order of over $90,000

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and he took an unregistered and hence unenforceable

bill of sale over the equipment in order to secure

the advances.

Mr Justice Kearney,at first instance and in whose

reasons the Court of Appeal unanimously agreed,

found that the applicant was liable as a constructive

trustee because he had participated in a breach of

trust in denying the title of the true owner of the

equipment and retaining dominion over it.

In the factual context, Your Honours, the situation

was that the applicant did not ever receive or take

into his possession any of the equipment which was

found to have been impressed with the constructive

trust and the other significant evidentiary fact as a

prelude to identifying the point of importance is this,

Your Honours, that the trial judge found that the

applicant, whilst he may have been negligent in and

about his dealings with the fiduciary, the man

Nesci, he was never fixed with actual knowledge or

notice of the facts showing that there was anything

that amounted to a wilful shutting of his eyes to the
true situation. That was certainly the situation or the fact of the matter at the point when he lent the

moneys or advanced the moneys to the company which, in

turn, arranged for the hiring out of the equipment and

when he took the original bill of sale.

What the trial judge ultimately concluded, however,

was that the applicant was fixed with knowledge of the

fiduciary's breach of trust and was therefore himself

liable as a constructive trustee because as a result

of subsequent events the court found that he had

deliberately abstained from inquiry and, in effect, had wilfully shut his eyes to the truth for fear of

learning of the trustee's dishonest breach of fiduciary

duty.

Your Honours, we respectfully submit that these

perhaps trite propositions arise, firstly, that in

circumstances - that there is a distinction to

be drawn between a situation where a person is in

actual receipt of trust property for his own benefit

and the situation that pertains where a person deals

with a fiduciary. In the case of a person dealing with

a fiduciary,as was the case of my client, we respectfully

submit that in order to fix him with responsibility, as

it were, as a constructive trustee he must be cognizant

of the dishonest design or, in some way, exhibit a lack

of probity or honesty in relation to his dealings.

BRENNAN J:  Why are we speaking of constructive trustees? Why

are we not speaking of conversion?

MR McGOVERN: Well, Your Honour, the point of the trial and the

findings of the trial judge related to two issues: one,

the finding that the applicant was liable as a

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constructive trustee and, secondly, that he was liable

in conversion. If I can take Your Honours to identify the way in which the trial judge dealt with the matter

because that view or approach was substantially endorsed

by Mr Justice Samuels who delivered the leading judgment

in the Court of Appeal.

McHUGH J:  But if you go down on the conversion point, it

does not matter whether you are a constructive

trustee or not.

MR McGOVERN:  Your Honour, I think, with respect, that is a

highlighting of one of the difficulties that I have

in the case. If I cannot persuade Your Honours that

there was no liability in conversion, then that is the

end of the matter, certainly.

What we say in relation to that, if I can just

divert myself or deflect myself for a moment, is this

that again in a situation where a person is not in

actual possession of property, one must find something
in the circumstances which amount to an exercise of,
in effect, de facto possession, we say, over the property
or some sufficient degree of control necessary to enable
it to be said that the person who is the true owner
of the property is deprived of access to or the

possession of the property.

MASON CJ:  But there is authority against you on that point,

is there not?

McHUGH J:  Is not OAKI.EY V LYSTER: CRAIG V MARSH against you

on that point?

MR McGOVERN:  Well, Your Honours, the question of whether or not

what occurred in the facts of the present case would

fall within that principle.

McHUGH J: That only means, at its highest, the case raises

a question of fact.

MR McGOVERN:  We would respectfully submit.that whether a

set of facts could ever constitute in law a conversion

would be capable of being construed as a question of

law.

McHUGH J:	But not a special leave point, surely.
MR McGOVERN:	Your Honour, the special leave point, if I could

return to the shifting sands of my first argument, if

I can put it that way, is that where His Honour drew

the distinction at the bottom of page 21 of the

application book, His Honour says that:

the test to be applied does not yet seem

to be finally settled -

that is a reference to the constructive trustee point and,

in particular, the point upon which I place my greatest

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reliance, that is, that in circumstances where a person

has not been adjudged or found to have been guilty of
actual knowledge of dishonest activity by the fiduciary,

the question is to what extent he must be fixed with

knowledge in order to constitute him a- cen~tructive

trustee. What we would be - - -

BRENNAN J: Trustee of what?

MR McGOVERN:  Of the property itself that has been impressed

with the trust and the profits that arise therefrom.

BRENNAN J:  And he is vested with the property of which he

is trustee?

MR McGOVERN: Well, Your Honour, we say that the doctrine

of constructive trust appears to work in a twofold

fashion and the one that seems to have, in effect,

been applied in the circumstances of the present case

was in a remedial fashion as a quasi unjust enrichment

doctrine as opposed to a traditional trust.

McHUGH J:  I know~-.~ .. concentrate- on· the

trust point but, I mean, does not the evidence

establish that your client asserted a title inconsistent

with that of the true owner by procuring the execution
and registration of a fresh bill of sale to evidence
his claim to be the owner of the goods and then he

refused inspection to liquidate it. What better

evidence could you have of conversion than that?

MR McGOVERN:  Your Honour, we say that a careful distinction

must respectfully be drawn between the activities of

the corporate entities and the activities of the

individual, he being a person who was never in

possession of the goods.

McHUGH J:  I know, but he got his solicitor to procure and

execute a fresh bill of sale so that it would assert

his title to the goods and then when the liquidator

wanted to inspect he refused to allow him to inspect

the goods. Well, if that is not conversion, what is?

MR McGOVERN:  Yes. Well, Your Honour, the only possible

argument that one can advance in answer to what

Your Honour has just put to me is to say that one

has to draw a distinction between the fact that there

was a company which was controlling or had control of

the particular equipment and that the individual must

be looked at separately. The weakness, I readily accept,

is this that, of course, parties can act in concert

and be guilty of conversion in that regard and I accept

the difficulty that is inherent, in my submission, that

here was a man who was a director of the companies in

question.

Your Honours, could I, in an attempt not to weary Your Honours greatly or unduly, merely hand up for the

sake of completeness some short submissions which we

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have attempted to draw together the threads of the
argument that I sought to put, if Your Honours please.
I have provided a copy for my learned friend, if

Your Honours please.

MASON CJ:	Thank you.
MR McGOVERN:	I think, if I may just respectfully indicate

to the Court, I do not believe that I can put my case
really much higher than as is contained within those
submissions but if I can be of further assistance to

Your Honours I am, of course, prepared to be of that

assistance.

BRENNAN J:  I do not know whether you wish to say anything

about it but I frankly do not understand what is meant

by "constructive trustee" in this context. It does

not convey anything to me.

MR McGOVERN:  Well, if Your Honour went to page 21 of the

application book and the focus of attention is, of

course, upon the decision of Mr Justice Kearney

because the decision of the Court of Appeal was,

in substance, embracing that judgment. His Honour,

at the top of page 21, says that:

The first defendant as a director of

the second defendant -

and that was a reference to the brother, Antonia Nesci,

beine a director of the company, Combined Formwork -

and having knowledge of the trust -

the trust was said to have arisen in this way, that

Bruno Nesci, prior to his death in January 1986, had

obtained access to certain formwork and other equipment

which properly was owned or the right to possession of

which reposed with a company, Malfen and Saruman.

Malfen and Saruman went into liquidation and unknown

to the applicant, Bruno Nesci brought into the

enterprise, if I can put it in that broad sense, the

equipment which belonged to Malfen and Saruman and

His Honour found that after Bruno Nesci's demise,

Antonia Nesci whose brother who at all material times

was either a director or subsequently an employee of

Malfen and Saruman, was a person who had knowledge of

what was termed to be a breach of trust. There was a

constructive trust, His Honour found, as - - -

BRENNAN J: A breach of trust consisting in?

MR McGOVERN:  As I would apprehend it, the obligation that

Bruno Nesci owed as a fiduciary or as a director of

Malfen and Saruman gave rise to a responsibility

as a trustee.

BRENNAN J:  To do what?

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MR McGOVERN:  Not to deal with the property of Malfen and

Saruman Pty Ltd otherwise than in accordance with

his obligations as a director of that company.

That appears to have been the way in which the matter

was put to His Honour at first instance and that

caused His Honour to continue to make these findings,
about the middle of page 21 of the application book,

th~t -

the fourth defendant -

my client - His Honour said -

the question is whether the participation

in the transaction of June 1985 -

that transaction being the payment of moneys and the

taking of security by way of bill of sale -

and the subsequent taking of possession by the

first defendant -

that was the new formwork company, if I can put it

that way, Combined Formwork -

and dealing by the first and third defendants

with the Comicon equipment -

that was the equipment that was not belonging to the

company -

was with knowledge. Although the test to be

applied does not yet seem to be finally

settled, the presently accepted view as

to participation or assisting by a stranger

in a trustee's dishonest and fraudulent

design is that the knowledge required is to
be actual or a calculated abstention from

inquiry and does not include constructive

notice.

And that is where His Honour refers to the discussion

in CONSUL DEVELOPMENTS PTY LIMITED and, in particular,

the reference to the US SURGICAL LABORATORIES case.

The facts of the CONSUL DEVELOPMENTS case, in

brief compass, if I can indicate to Your Honours:
there was a company which was effectively owned and
controlled by a solicitor named Walton and there was

a managing director of that company named Grey. A

clerk in the employ of the solicitor, Walton, himself

had an investment company which was interested in

acquiring properties akin to the same sort of activities

that the solicitor, Walton, was engaged in through his

company. When the clerk ascertained that Mr Walton was

not interested in acquiring certain properties he

arranged with the managing director of the solicitor's

company to acquire those properties for himself and

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there was an argument about whether or not, in effect,

the clerk, as a stranger to what was said to be a trust,

could be responsible for a disgorgement of profits

that were made out of the ultimate purchase and sale

of the buildings or the property. Their Honours in the

High Court, the then Chief Justice and Mr Justice Stephen

said that a stranger to a trust could not be constituted

merely because he acts as an agent for a trustee unless

he assisted with knowledge in a dishonest and fraudulent

design.

The reference that His Honour in the present

case, Mr Justice Kearney, makes to the US SURGICAL
LABORATORY case, if I can just very briefly indicate
to Your Honours, is this: that in the CONSUL case

as Their Honours in the Court of Appeal in the US

SURGICAL LABORATORIES case observed; in the

CONSUL case two Justices approved the decision

in the- CARL ZEISS case, namely that in order to

be found liable as a constructive trustee it would be

necessary to establish actual knowledge rather than

an innocent albeit negligent failure to make a proper

inquiry. And Their Honours in the US SURGICAL LABORATORY

case say:

It is a nice question. Whether, therefore

it would be proper to refuse to follow the
decision in CONSUL or to yield it less scope

than the two members of the High Court

thought proper to allow it.

So, when His Honour, Mr Justice Kearney, dealt with

that aspect of the case he was, as we understand it,

making a finding that the fourth defendant, as he then
was, the present applicant, was responsible as a

constructive trustee in relation to the property in question and in relation to any profits arising out of that property if it could be established that he had participated in the activities, being the breach

by the fiduciary of his obligations with actual

knowledge.

Your Honours, I do not believe that I can be of

any greater a~sistance to Your Honours in relation to

the submissions I wish to make.

MASON CJ:  Yes. Thank you, Mr McGovern. The Court need not

trouble you, Mr Coles.

MR COLES: If Your Honour pleases.

MASON CJ: Counsel for the applicant very properly concedes that findings of facts adverse to the applicant are an obstacle

to his success in the proposed appeal and that the

challenge to the finding that he is liable as a

constructive trustee is not of significance if the

finding of conversion is to stand.

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In view of these concessions, properly made, we

consider that the present case is not a suitable vehicle for the determination of any question of

general principle. The application for special

leave is therefore refused.

MR COLES:	Your Honour, we ask for costs?
MASON CJ:	You do not oppose that, Mr McGovern?
MR McGOVERN:	No, Your Honour.

MASON CJ: The application is refused with costs.

AT 3.40 PM THE MATTER WAS ADJOURNED SINE DIE

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