Schipp v Cameron
[1998] NSWSC 997
•9 July 1998
NEW SOUTH WALES SUPREME COURT
CITATION: Schipp v Cameron, Harrison & ors [1999] NSWSC 997
CURRENT JURISDICTION: Supreme Court, Equity Division
FILE NUMBER(S): 6425/91
HEARING DATE{S): 5&6.2.98, 6&7.4.98, 22-26.9.98, 29 & 30.9.98, 1,3,7-10,13,17,20-24 & 30.10.98, 3-7, 20&21.11.98, 1& 12.12.98
JUDGMENT DATE: 09/07/1998
PARTIES:
Delcie Joan Schipp (Plaintiff/Cross-Defendant)
Donald Cameron (First Defendant/First Cross-Claimant)
Donald Cameron Real Estate Pty Ltd (Second Defendant)
George Harrison (Third Defendant/Second Cross-Claimant)
Emibarb Pty Ltd (Fourth Defendant)
Pyogrove Pty Ltd (Fifth Defendant)
Aegon Insurance Company (UK) Ltd & ors (Seventh Defendants)
JUDGMENT OF: Einstein J
LOWER COURT JURISDICTION: Not Applicable
LOWER COURT FILE NUMBER(S): Not Applicable
LOWER COURT JUDICIAL OFFICER: Not Applicable
COUNSEL:
M.J. Slattery QC and JM Hennessey (Plaintiff)
Donald Cameron (First Defendant self litigant)
S.J. Archer and M.G. Stubbs (Third & Fourth Defendants)
N.C. Hutley SC and PJ Brereton (Seventh Defendants)
SOLICITORS:
Barker Gosling (Plaintiff)
Hegarty & Elmgreen (Third & Fourth Defendants)
Minter Ellison (Seventh Defendants)
CATCHWORDS:
Catchwords:
EQUITY - Joint Venture Agreement - Loan agreement - Ability to set aside - Unconscionable conduct - Position of special disadvantage or vulnerability arising from lack of experience and reliance - Exploitation of disadvantage - Economic duress - Whether illegitimate pressure exerted by defendants - Undue influence - Presumption of - Whether will of the plaintiff independent and voluntary.
EQUITY - Fiduciary duty - Breach - Joint venture agreement for property development - Duties of intending co-venturers - Whether fiduciary duties owed by joint venturers when agreement reached - Content of fiduciary obligations of participants in a joint venture - Circumstances in which a joint venture will bear sufficient similarity to a partnership to attract fiduciary obligations - Solicitor and client - Whether acting in capacity as a solicitor or entrepreneurial activity - Failure of solicitor to disclose interest - Propriety of acting in transaction for more than one party - Relationships of trust and confidence - Whether fiduciary who acts in breach of duty under a continuing liability to make restitution - Remedies of plaintiff - Equitable compensation for breach of fiduciary duty.
NEGLIGENCE - Duty of care - Breach - Solicitors - Whether retained to act for joint venturers in respect of property transactions - Whether retained to give advice in respect of tax liability and a loan agreement - Whether duty of care owed to third party - Whether any assumption of responsibility arising from knowledge of total dependence - Causation.
TRADE PRACTICES - Misleading and deceptive conduct - Trade Practices Act 1974 (Cth) section 52; Fair Trading Act 1987 (NSW) section 42.
INSURANCE - Professional indemnity insurance - Claims made policy - Proceeding against insurer direct - Whether statutory charge attaches to insurance moneys - Construction of statute - Remedial provision - Beneficial construction of statute - Principles applicable - Law Reform (Miscellaneous Provisions) Act 1946 (NSW), section 6
CONTRACT - Construction - Oral agreement - Agreement later reduced to written document containing different provisions - Implied Terms - Collateral contract - Failure of consideration.
INSURANCE - Professional indemnity insurance - Scope of indemnity - Whether insurer entitled to disclaim liability under policy - Whether loss under the policy includes liability to provide restitution or an account of profits - Whether conduct in connection with the business of a solicitor’s practice - Exclusion for loss brought about by dishonest conduct - Meaning of "dishonest" under the policy - Whether breach of solicitor’s fiduciary duties and duties of care owed to a client amounts to dishonest conduct - Requirement of causal link between dishonest conduct and liability incurred in order to invoke exclusion clause - Whether one or more claims made under policy - Meaning of "claim" - Value of deductible under policy.
ACTS CITED:
Fair Trading Act 1987 (NSW) section 42
Insurance Contracts Act 1984 (Cth) section 11
Law Reform (Miscellaneous Provisions) Act 1946 (NSW) section 6
Law Reform Act 1936 (NZ) section 9
Partnership Act 1892 (NSW) section 1
Trade Practices Act 1974 (Cth) section 52
DECISION:
Further submissions to be brought in.
JUDGMENT:
TABLE OF CONTENTS
Page Paragraph
INTRODUCTION 1 1
STRUCTURE OF THE FURTHER AMENDED STATEMENT OF CLAIM 2 7
16 Mary Street, Thirroul Claim 3 9
Sale of Mary Street and Retention of Proceeds by the
Cameron Harrison Interests 18 44
Purchase of the Kembla Street property 24 70
The duties of care alleged to have been owed by Mr Harrison and
by Mr Cameron and their two companies 27 77
Claim Against the Seventh Defendants 35 96
Claims to Relief 38 111
Fraud or Dishonesty - Disclaimed late in the Hearing 39 112
PRINCIPAL WITNESSES 40 113
Mrs Schipp 42 123
Mr Cameron 42 125
Mr Harrison 43 126
FINDINGS OF FACT 44 129
FURTHER OR COMPLEMENTARY FINDINGS OF FACT 165 595
Matters litigated; dishonesty, fraud, issues as to subjective intent 165 595
The Events in Question - An Overview Examination 186 646
Interrelated bases for granting relief 189 656
UNCONSCIONABLE CONDUCT 198 677
ECONOMIC DURESS 203 688
UNDUE INFLUENCE 205 691
FIDUCIARY OBLIGATIONS 207 695
General Principles 207 695
Negotiations to Enter a Partnership or Joint Venture 208 702
Fiduciary Obligations of a Joint-Venturer 210 706
The Content of the Fiduciary Obligations of Participants in
a Joint Venture 216 725
Solicitor Acting for a Client 218 733
Findings as to Fiduciary Obligations 219 736
Promoter 220
Joint Venturer 220
Trust and Confidence 220
Solicitor 220
RELIEF221 738
Relief for Breach of Fiduciary Obligation 221 739
Equitable Compensation 222 741
Mrs Schipp’s claims to relief for breach of fiduciary duty 222 742
Relief in Relation to Mary Street Transaction 223 743
Relief in Relation to Entry into Kembla Street Transaction 223 745
DUTY OF CARE OWED BY MR HARRISON 227 757
Initial Enquiry-Examination of Terms of Retainer 227
Duty of Care May be Owed to Third Parties 230 766
Proximity in a Relationship of Solicitor-Client 231 768
Proximity, Reliance, Assumption of Responsibility 233 774
Control 234 775
Findings as to Duties of Care 235 780
Breaches of the Duties of Care 238 783
Causation 241 784
Kembla Street 241 786
Mary Street 242 791
MISLEADING AND DECEPTIVE CONDUCT 243 792
Mary Street 243 793
Kembla Street 244
NEGLIGENT MISSTATEMENT CASE 246 796
Mary Street 246
Kembla Street 246
CASE AGAINST THE SEVENTH DEFENDANT 247 801
Facts relating to the claim against the Seventh Defendants 247
Method of Proceeding 252 811
Section 6 of Law Reform (Miscellaneous Provisions) Act 253 812
Continuing Default of a Fiduciary who Acted
under Breach of Duty 255 819
Proper Construction of Section 6 258 830
Nature of Section 6 Charge 268 858
Section 6 Should be Construed Beneficially 275 882
Meaning of the word “loss” 278 895
Liability incurred in connection with Practice as a Solicitor 280 904
Exclusion Clause 284 910
Test for Application of an Exclusion Clause 292 934
Meaning of ‘Claims’ and the value of ‘Deductible’ under the Insurance Policy 295 946
Don Cameron Real Estate and Emibarb 301 970
FURTHER SUBMISSIONS 302 971
THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION - COMMERCIAL LISTEINSTEIN J
9 July 1998
006425/91 DELCIE JOAN SCHIPP v DONALD CAMERON & 6 ORS
JUDGMENT
Introduction
The Plaintiff, Mrs Delcie Joan Schipp, was born in 1935 and married at the age of 21, having left school at the age of 15 to teach music. For most of her adult life, she has been a music teacher. She and her husband, Henry George Schipp, had 4 children, Katrina, Murray, Nerida and Alison. She had a nervous breakdown in 1968. She was divorced from her husband in about 1985 and, following the orders made in the Family Court upon that divorce, she received a settlement payment of $360,000. These proceedings concern her attempts to invest portion of that settlement payment and the circumstances in which she came to know and enter into business arrangements with the First Defendant, Mr Donald Cameron, a Wollongong estate agent, the Third Defendant, Mr George Harrison, a Wollongong solicitor, and with companies associated with them. Donald Cameron Real Estate Pty Limited ('Don Cameron Real Estate' or 'the Cameron Company') is the Second Defendant. Emibarb Pty Limited ('Emibarb' or 'the Harrison Company') is the Fourth Defendant.
It is convenient to use the phrase 'the Cameron Harrison Interests' as shorthand to refer to Mr Cameron and Mr Harrison and Don Cameron Real Estate and Emibarb. This is not to suggest that Mr Cameron had any shareholding in Emibarb or that Mr Harrison had any shareholding in Don Cameron Real Estate.
The proceedings concern two particular business transactions. The first transaction involved a property at 16 Mary Street, Thirroul ('the Mary Street property') which was to be developed by the construction of three town houses or home units. The second transaction involved a property on the corner of Kembla and Market Streets, Wollongong ('the Kembla Street property') which was to be developed by the construction of a three storey building.
The joint venture vehicle acquired for the purchase of the Kembla Street property was the Fifth Defendant, Pyogrove Pty Limited ('Pyogrove').
Mrs Schipp’s claims against the Cameron Harrison Interests in relation to the Mary Street transaction were described in opening by the Plaintiff's counsel as ‘in essence, that in breach of fiduciary duty as co-venturers and in breach of obligations under the Trade Practices Act, misrepresentations were made and non-disclosures were made or were visited upon [Mrs Schipp] at the time that she entered into a joint venture in about February 1988 with those various interests’.
The claim in relation to the Cameron Harrison Interests concerning the Kembla Street property was described in opening by the Plaintiff's counsel as a claim ‘of a similar nature [to the claim made in relation to the Mary Street transaction]’, but as a claim which ‘is cumulative upon the events that occurred in relation to the Mary Street transaction’. The claim in relation to Kembla Street was said in opening to have ‘attached to it continuing non-disclosure of breaches of fiduciary duty in relation to the Mary Street transaction, conduct whereby [Mrs Schipp] was induced by strong means of persuasion to invest . . . the proceeds of the Mary Street transaction . . . into the Kembla Street transaction’.
Structure of the Further Amended Statement of Claim
The Third Further Amended Statement of Claim which includes the above causes of action, but covers a far wider ambit, is divided into 4 sections. The first deals with the claim concerning the Mary Street property. The second deals with the claim concerning the sale of the Mary Street property and the retention of the proceeds of sale by the Cameron Harrison Interests. The third deals with the claim concerning the purchase of the Kembla Street property. The fourth concerns Mrs Schipp's claims against the Third Defendant's underwriters brought after the grant of leave pursuant to s.6(4) of the Law Reform (Miscellaneous Provisions) Act 1946.
It is convenient to turn to the Third Further Amended Statement of Claim filed on 7 April 1998. Where appropriate, the following description will make plain which paragraphs, pressed during the hearing, were abandoned in final submissions.
16 Mary Street, Thirroul claim
Paragraph 2 alleges that on or about 25 February 1988, an agreement ('the Joint Venture Agreement') was entered into between Mrs Schipp, the Cameron Company and the Harrison Company whereby they agreed to associate themselves in a joint venture for the purpose of acquiring and developing the Mary Street property.
Paragraph 2A alleges the terms of the Joint Venture Agreement. These are alleged to have been :
‘(i) Mrs Schipp would purchase the Mary Street property in her own name and she would defray all expenses of and incidental to the purchase of the Mary Street property but not the development of the said property;
(ii) Mr Cameron and Mr Harrison would be the project managers for the development and sale of three units at the Mary Street property and that in consideration for their efforts in managing the development of the development project and only if the project was so developed, each would be entitled to one third of the profits on sale of the three units so developed on the Mary Street property;
(iii) Mr Cameron and Mr Harrison would undertake all reasonable efforts as project managers to develop the Mary Street property;
(iv) Mrs Schipp would be the legal and beneficial owner of the Mary Street property;
(v) Mrs Schipp would receive the rents and profits from the Mary Street property during the currency of the joint venture and before development occurred;
(vi) Mr Cameron, Mr Harrison and their companies would pay to Mrs Schipp interest at the rate of 14 per cent per annum on the purchase price of the Mary Street property in exchange for the opportunity to share equally in any profits from the development of the Mary Street property and without the need for Messrs Cameron and Harrison to make any capital contribution; and
(vii) Mr Cameron and Mr Harrison would be wholly responsible for the funding of the development of the Mary Street property.’
Paragraph 3 alleges that at all material times in and about the negotiations for and entry into and operation of the Joint Venture Agreement, Mr Cameron acted as agent for the Cameron Company and Mr Harrison acted as agent for the Harrison Company.
Paragraph 4 alleges that Mr Cameron and Mr Harrison prior to commencement of negotiations in relation to the Joint Venture Agreement, undertook to act on behalf of and in Mrs Schipp’s interests in and about the negotiations for, entry into and operation of the Joint Venture Agreement.
Paragraph 5 extends the allegation to allege that each of the Cameron Harrison Interests owed the following fiduciary duties to Mrs Schipp in and about the negotiation for, entry into and operation of the Joint Venture Agreement concerning the subject matter of the Agreement:
"(a) a duty not to permit a conflict, or the significant possibility of a conflict, to occur between the first to fourth defendants’ personal interests and their duty to carry out the task in which they have undertaken to act in the interests of the plaintiff (the ‘no-conflict principle’);
(b) a duty to account to the plaintiff for any benefit or gain obtained or received by the first to fourth defendants by reason of or by use of their fiduciary position (the ‘no-gain principle’);
(c) a duty when the first to fourth defendants were holding money or a piece of property on behalf of the plaintiff to distinguish that property from other similar things which the first to fourth defendants may acquire or hold for themselves, or in which they may be interested, and to give that money or piece of property to the plaintiff when requested together with an account thereof (the ‘accounting principle’);
(d) a duty when dealing as an interested party with the plaintiff in respect of :
(i) any money or property held by them on behalf of the plaintiff, or
(ii) any transaction with the plaintiff where their task as fiduciaries includes the giving of advice or information,
to disclose and furnish to the plaintiff all the relevant knowledge which the first to fourth defendants possess, and to conceal nothing from the plaintiff that might reasonably be regarded as relevant to the decision being made by the plaintiff to engage in the dealing with the first to fourth defendants (the ‘self-dealing principle’).
In final submissions by counsel for Mrs Schipp, the following was put :
“The subject matter of the fiduciary duties of the defendants described in [the Statement of Claim] paragraph 5 in respect of Mary Street comprises all their dealings with the plaintiff in relation to the negotiation for, entry into, and operation of the joint venture agreement. That includes the giving and withholding of any material information to the plaintiff, and being involved with the plaintiff’s decision making processes not only at the time of entry into the joint venture agreement but also at the time of the decision to sell Mary Street and then undertaking the sale process.”
[Vol 3 paras. 5 and 6, pages 9 - 10]
Paragraph 6 alleges that on 17 March 1988, in pursuance of the Joint Venture Agreement, Mrs Schipp executed, as purchaser, an agreement for sale of the Mary Street property which was settled in May 1988.
The retainer agreement as between Mrs Schipp and Mr Harrison is then pleaded in paragraph 7 of the Statement of Claim. Mr Harrison is said to have been retained to act as Mrs Schipp's solicitor in relation to two matters. These are :
(i) The negotiation for, entry into and operation of the Joint Venture Agreement;
(ii) The giving of legal advice to Mrs Schipp and the implementing of her instructions for the acquisition and conveyance to her of the Mary Street property.
Paragraph 8 is an alternative pleading. Here, Mrs Schipp alleges that in and about the negotiation for, entry into and operation of the Joint Venture Agreement and in relation to the conveyance to her of the Mary Street property :
(i) Mr Harrison undertook the exercise of his professional skill as her or a solicitor in tasks which, to Mr Harrison's knowledge, may cause loss to the Plaintiff if carelessly performed, whereby Mr Harrison expressly or implicitly assumed a legal responsibility to Mrs Schipp in the undertaking of those tasks, and in the alternative;
(ii) Mrs Schipp is said to have relied upon the exercise by Mr Harrison of his professional skill as her or a solicitor in the carrying out by Mr Harrison of the tasks, which reliance is said to have at all material times been known to Mr Harrison.
The tasks alleged were :
(a) The drafting and execution of the Joint Venture Agreement.
(b) The conduct of the conveyance of the Mary Street property to Mrs Schipp.
(c) The advising of Mrs Schipp from time to time as to the operation of the Joint Venture Agreement.
[Particulars to para 8]On Mrs Schipp’s case, a number of tasks still remained to be completed from December 1988 to March 1989. These were :
(a) The giving of an account to Mrs Schipp of the operation of the Mary Street Joint Venture.
(b) The distribution to Mrs Schipp of her share of the proceeds of the sale of the Mary Street property.
(c) Amending the Joint Venture Deed to reflect the late January 1989 conversation alleged to have taken place with Mr Harrison and Mr Cameron in which, having shown Mrs Schipp calculations, a conversation is alleged to have taken place as follows :
On Mrs Schipp's case Mr Cameron said in Mr Harrison's presence:
“There’s the interest that you’re being paid at 14% and on the purchase price of $150,000. We’ve also taken into account all of the expenses that you paid and we’ve paid you interest on those as well. You’ll see that we’ve deducted 2/3rds of the rent which you received. We’re sorting the figures out on the basis that you’re contributing the $100,000 to the Kembla Street development and also lending your $40,000 profit in Mary Street to George and I. We’ll take the $40,000 into our businesses. This should sort out your problem with being taxed on your profit.”
Harrison at this meeting, or shortly after it, said :
“We’ll have to re-do the earlier agreement to reflect this arrangement.” Or words to that effect.
The duties of care alleged to have arisen from the circumstances pleaded in Paragraphs 7 and 8 are put as relating “not only to the entry into the Joint Venture Agreement, but also its operation . . . [which] continues through until the completion of the sale of Mary Street and the ultimate return of moneys to the plaintiff”.
[Submissions Vol 3 page 5 para 11]
Paragraph 9 alleges fiduciary duties to have been owed to Mrs Schipp by Mr Harrison and duties of care Mr Harrison owed to Mrs Schipp. Both categories of duties are put as having arisen at all material times in relation to the negotiation for, entry into and operation of the Joint Venture Agreement and in relation to the conveyance to Mrs Schipp of the Mary Street property. The fiduciary duties owed to the Plaintiff are alleged to have arisen from Mr Harrison's position 'as the solicitor of [Mrs Schipp]'.
The following particulars were given of the fiduciary obligations alleged to have been owed by Mr Harrison as a solicitor:
(a) all the fiduciary duties described in paragraph 5 of the Statement of Claim;
(b) a duty when dealing as an interested party with the Plaintiff in respect of :
(i) any money or property held by the Third Defendant on behalf of the Plaintiff, or
(ii) any other transaction relating to the role being undertaken by the Third Defendant as a solicitor,
firstly, to furnish the Plaintiff with all relevant knowledge which the Third Defendant possessed; secondly, to give the best advice that the third defendant could give had he not had, but a third party had, a financial interest in the other side of the transaction; and thirdly, to obtain for the Plaintiff the best terms which the Plaintiff could have obtained from a third party if the solicitor was exercising due diligence in such a transaction. (Note: this is put as a special application of the self-dealing principle by reason of the special duties of solicitors) and;
(c) a duty to give a special degree of loyalty to the client, the Plaintiff, by approaching his task with nothing in mind but the protection of that client’s interests (the ‘solicitor's loyalty principle’).
The duties of care are put as duties to take reasonable care and to avoid a real and foreseeable risk of economic loss being suffered by Mrs Schipp.
In contrast with the allegations as to the general fiduciary duties of the Defendants [see paragraph 14], the subject matter over which the Third Defendant’s fiduciary duties as a solicitor extended was put as a more confined one. It was said to be grounded upon his “doing the legals”, which he did first in drafting the joint venture agreement and conveying the property into the joint venture. His duties as a solicitor in relation to Mary Street then ceased. They were later re-activated at the time of the sale, when instructions for the sale were given by the Plaintiff. They continued through until the completion of the sale of Mary Street, and the final distribution of the proceeds of that sale to the plaintiff.
Particulars were given of the duties of care alleged. These asserted that Mr Harrison was obliged to :
(a) properly advise Mrs Schipp
(i) as to the legal effects of the Joint Venture Agreement,
(ii) as to her entitlements under the Joint Venture Agreement,
(iii) as to whether the written form of the Joint Venture Agreement accurately reflected the terms of the Joint Venture Agreement as Mrs Schipp understood this;
(b) prepare the Joint Venture Agreement in accordance with Mrs Schipp’s instructions;
(c) warn Mrs Schipp of any legal hazards that she might encounter by participating in the Joint Venture Agreement.
Paragraph 10 deals with assertions that the Joint Venture Agreement as executed did not, as intended by Mrs Schipp, embody the terms of the Joint Venture Agreement. In this paragraph, the agreement is alleged to have been executed on 25 February 1988; the agreement is alleged to have been intended by Mrs Schipp and by the Cameron Harrison Interests, to embody the terms of the Joint Venture Agreement. Mrs Schipp alleges that the form of agreement did not in fact embody the terms of the Joint Venture Agreement.
In the alternative to the allegation that Mrs Schipp and the Cameron Harrison Interests executed the agreement in the belief that the form of agreement did embody the terms of the Joint Venture Agreement, Paragraph 10 alleges a Taylor v Johnson claim, namely that Mrs Schipp and Messrs Cameron and Harrison executed the document at a time when Mrs Schipp believed both that the form of agreement embodied the terms of the Joint Venture Agreement and that the Cameron Harrison Interests were executing the form of agreement on the same basis. The Taylor v Johnson allegation is then that at the material time the Cameron Harrison Interests were aware of Mrs Schipp's belief and were aware that she was mistaken as to her belief because, as they were aware, the form of agreement did not in fact embody the terms of the Joint Venture Agreement. [Cf. Taylor v Johnson (1982) 151 CLR 422]
The first undue influence claim is put in Paragraph 10A of the Statement of Claim. The allegation is that at all material times the Cameron Harrison Interests by reason of their commercial experience and the manner in which they advised and assisted Mrs Schipp were in a relationship of undue influence over her. The allegation is that the execution of Mrs Schipp of the form of agreement was occasioned by this relationship of undue influence.
Paragraph 11 alleges a number of representations by Mr Cameron, by the Cameron company by its agent Mr Cameron, by Mr Harrison and by Mr Harrison's company by him as its agent. The alleged representations are as set out in sub-paragraphs (ii) to (vii) - see Judgment Paragraph 10.
Paragraph 12 then alleges breaches of fiduciary duties by the Cameron Harrison Interests and breaches by Mr Harrison of duties of care.
These are put as failures to disclose the following matters :
(i) That the Cameron Harrison Interests intended
(a) to take a profit from the Mary Street property irrespective of whether the property was developed; and
(b) to use Mrs Schipp's money through the form of agreement to earn for themselves a capital profit on resale.
(ii) That they had no intention of developing or, alternatively, that they had strong suspicions they were unlikely ever to develop the Mary Street property past the point of obtaining development application and building application plans. [No longer pressed - see Plaintiff's Written Submissions Vol. 3 Page 2].
(iii) That the form of the Joint Venture Agreement created a trust of Mrs Schipp's interest in the Mary Street property for the benefit of the Cameron and Harrison companies which trust was not conditional upon development of the Mary Street property.
(iv) That at all material times the intention of the Cameron Harrison Interests was to take one-third each of the rents and profits from the Mary Street property prior to development.
This is said to have been a ‘failure to advise, warn or draft with a view to protecting [Mrs Schipp’s] pre-development rental entitlements . . . a manifestation of the breach identified in . . . para. 12(iii)’. [Written submissions Vol 3 page 4 para 6 - said to have been ‘a less significant breach’].
(v) That the form of agreement did not secure Mrs Schipp's rights to rents and profits before a development would take place. [In final submissions, Mrs Schipp’s counsel did not press any breach of duty of care causing loss to Mrs Schipp in relation to this allegation].
(vi) That there was no mechanism in the form of agreement for the payment of 14 per cent per annum interest on the purchase price on the property. [In final submissions, Mrs Schipp’s counsel did not press any breach of duty of care causing loss to Mrs Schipp in relation to this allegation].
(vii) That by the form of agreement, the property itself was to be used as security for funding the development and that the Cameron Harrison Interests would not themselves be responsible for funding the development from their own resources.
Mrs Schipp’s case was that ‘the form of the Joint Venture Agreement did not conform with her understanding of it in two principal ways: first, she was not a full beneficial owner of the Mary Street property; and secondly, the agreement did not provide that the Second and Fourth Defendants’ entitlements were conditional upon development of the Mary Street property’.
[Submissions Vol 3 page 3 para 5].
Paragraphs 12 (i), (iii) and (iv) of the Second Further Amended Statement of Claim are also alleged to have constituted breaches of fiduciary obligation.
[Submissions Vol 3 page 4 para 8].The Plaintiff’s written submissions [Vol 3 pages 10-12 paras 7-11] put the case as to breaches of fiduciary duty in the following terms :
‘The breaches of fiduciary duty relied upon by the plaintiff in the pleadings in relation to Mary Street (FASC paras 12, 35 and 44) are principally breaches of the self-dealing principle. All the allegations of non-disclosure of information fall into this category. The other general category of breach of fiduciary duty described in these paragraphs relates to the central allegation of the plaintiff in relation to Mary Street; the creation of the Joint Venture Agreement giving the first to fourth defendants an entitlement to profits and an interest in the property to which, on the plaintiff’s understanding of the agreement, they were not entitled. The drafting of the Joint Venture Agreement with these characteristics, and without disclosing them to the plaintiff, was a breach of the self-dealing principle and the no-conflict principle. The conduct of the first to fourth defendants later at the time of the sale in taking that profit was in breach of the no-gain and accounting principles.
There is one other characteristic of the allegations of breach of fiduciary duty in relation to Mary Street that requires special comment beyond the above analysis. The allegation is made that there was a failure on the part of the defendants to disclose their prior breaches of fiduciary duty. As is discussed below in the second part of this section, in cases where fiduciaries may be said to have no relevant knowledge (in this case, of their own prior breaches of fiduciary duty) because of their own negligence, the fiduciaries’ unconscientiousness should be judged as equally culpable and liable to account (Meagher Gummow & Lehane, Equity - Doctrines & Remedies, 1992, Butterworths, 3rd Edition at 532).’
The third defendant’s role as a solicitor in relation to Mary Street continued through until he accounted to the plaintiff for the proceeds of the sale. The precise tasks that the Third Defendant was undertaking are identified in [paras 8, 48A and 48AB and in the particulars to those paras]. Those continuing tasks also define the ambit of the third defendant’s corresponding fiduciary duties. He also was subject during that period in undertaking those tasks to all the fiduciary duties described in FASC para 9. Specifically, the money he was holding from the proceeds of Mary Street was held by reason of the role he had as a solicitor. The negotiations for the plaintiff to invest in Kembla Street specifically involved those very moneys. The non-disclosures and breaches of fiduciary duty pleaded in FASC paras 44 and 51 were breaches of the self-dealing principle and the solicitor’s loyalty principle in relation to those moneys, and occurred in circumstances where there was also a continuing breach by the first to fourth defendants of the accounting, no conflict, and no-gain principles. The breach of the accounting principle directly led to the plaintiff’s investment in Kembla Street.
The first to fourth defendants’ general fiduciary duties (FASC para 5) continued through in relation to the joint venture negotiations for the Kembla Street transaction. (FASC para 48). The subject matter of these duties was all the information held by the defendants, and their conduct in relation to the entry into the Kembla Street joint venture.
The third defendant was also acting in relation to Kembla Street in the role of a solicitor for the plaintiff and for the joint venturers through Pyogrove, as is fully described in the particulars provided to paras 48A and 48AB of the FASC. In these roles the third defendant owed fiduciary duties to the plaintiff herself under the no-conflict and self-dealing principles. Specifically, these tasks related to advising the plaintiff in relation to her commitment to AGC and the second joint venture agreement, and acting for all the joint venturers in undertaking the conveyancing on its behalf. These tasks activated the no-conflict and self-dealing principles because of the third defendant’s interest as a vendor in the transaction. The various non-disclosures alleged in FASC para 51 were breaches of the self-dealing principle. The entry into the transaction was a breach of the no-conflicts principle.’
Paragraph 13 then alleges that in and about the negotiation for and execution of the form of agreement, the agreement was unjust in the circumstances relating to it at the time it was executed for a number of reasons. The reasons alleged are as follows:
There was a material inequality in the bargaining power as between Mrs Schipp on the one hand and the Cameron and Harrison companies on the other hand in that Mrs Schipp had extremely limited commercial real estate experience and no legal experience whereas the Cameron company was an established and experienced real estate agent and the Harrison company was managed or operated by a qualified solicitor.
The provisions of the agreement were not the subject of any negotiation but were presented as a package to Mrs Schipp for her acceptance or rejection.
It was not reasonably practicable for Mrs Schipp to negotiate for the alteration of, or to reject any of the provisions of the contract, by reason of her lack of experience and resources and because the form of agreement was presented to her on the same day that she was expected to sign it and she had no opportunity to take it away or consider its terms.
The economic circumstances and educational background of Mrs Schipp relative to the Cameron Harrison Interests were such that Mrs Schipp could not have been expected by the Cameron Harrison Interests to know whether or not the form of agreement was commercially advantageous from her point of view. The allegation is that the Cameron Harrison Interests were aware of Mrs Schipp's lack of knowledge in this regard.
The legal language used in and form of the agreement was such that it was not readily intelligible to Mrs Schipp.
Mrs Schipp obtained no independent legal or other expert commercial advice prior to execution of the form of agreement. Further, Mr Cameron and his company, to the knowledge of Mr Harrison and his company, induced Mrs Schipp not to seek advice from her accountant. The Cameron Harrison Interests are also alleged to have encouraged Mrs Schipp to obtain legal advice concerning the Joint Venture Agreement from Mr Harrison.
Undue influence, unfair pressure and unfair tactics are said to have been exerted on and used against Mrs Schipp by Mr Cameron's company and by Mr Harrison's company as parties to the form of agreement and by Mr Cameron and Mr Harrison as persons acting or appearing or purporting to act on behalf of their companies as parties to the contract, to the knowledge of each of the Cameron Harrison Interests, in that :
(a) Mrs Schipp was denied or induced not to seek independent legal or accounting advice;
(b) The Cameron Harrison Interests were aware of Mrs Schipp's lack of commercial experience;
(c) Mr Cameron and his company to the knowledge of Mr Harrison and his company represented that the Joint Venture Agreement was advantageous to the Plaintiff and in her best interests;
(d) None of Messrs Cameron or Harrison or their companies advised Mrs Schipp that Mr Harrison was in a position of conflict of interest with Mrs Schipp, or that Mr Cameron was in a position of conflict of interest. Mr Cameron's conflict of interest is said to have been a conflict arising through the earning by him of fees from the sale of the Mary Street property.
(e) The Cameron Harrison Interests were aware that the terms of the Joint Venture Agreement were not adequate to protect Mrs Schipp's interests in any legal contest between herself and the Cameron and Harrison companies in relation to the enforcement Mrs Schipp's understanding of the Joint Venture Agreement as represented by the Cameron Harrison Interests to Mrs Schipp.
It is then alleged that by reason of these circumstances, the commercial setting of the form of agreement and the purpose and effect of the agreement, were such as to permit the Cameron company and the Harrison company and through them Mr Cameron and Mr Harrison to make a substantial capital gain in relation to the sale of the Mary Street property without any real intention on their part to develop it for their mutual benefit, or in the alternative, with a strong suspicion, undisclosed to Mrs Schipp that it would not be developed.
The representational case is pleaded in Paragraphs 14 to 18. The case is put in the alternative. The representations described in Paragraph 11 and the conduct described in Paragraph 12 are said in Paragraph 14 to have been representations and conduct by or on behalf of the Cameron Harrison Interests with the purpose on their part of inducing Mrs Schipp to enter into the form of agreement.
Paragraph 15 pleads that the representations and conduct did induce Mrs Schipp to execute the form of agreement on 25 February 1988.
Paragraphs 16 and 17 allege that the representations and conduct were made in trade and commerce by the Cameron Harrison Interests and that the representations and conduct, were false, misleading and deceptive in contravention of section 52 of the Trade Practices Act and section 42 of the Fair Trading Act. In the alternative, it is put that the Cameron Harrison Interests had no reasonable grounds for the making of such representations.
The misleading and deceptive conduct case relies upon the following alleged conduct:
(a) Representation as to Ownership of Land
The allegation is that the Cameron Harrison Interests represented that Mrs Schipp would be the legal and beneficial owner of the Mary Street property.
Conduct said to have been Misleading and Deceptive
Joint Venture Deeds 1 and 2 are said to have created a trust. Mrs Schipp is said to have been unaware of the fact that she was not the legal and beneficial owner of Mary Street until she consulted with Mr Baird. The misleading nature of the representations is said to have caused Mr Baird to give the advice about Joint Venture Deed 1 which he gave.
[Paragraph 2.4 Plaintiff's Written Submissions Vol. 3](b)Representation as to Project Management being a Condition of Profit Share
The allegation is that the Cameron Harrison Interests represented that Mr Cameron and Mr Harrison would be project managers for the development of three units and that once the project was developed, each would be entitled to one third of the profits on the sale of the units so developed.
Conduct said to have been Misleading and Deceptive
All parties are said to have proceeded upon the assumption that Messrs Cameron and Harrison would project manage the building of the town houses or units upon the property. None of the parties is said to have contemplated what would occur if the development did not proceed. Mrs Schipp's case is that in these circumstances the conduct of drafting and presenting to her an open-ended joint venture deed which did not make clear that the profit was conditional upon the project management role, was misleading and deceptive. The effect of the conduct is said to have continued up to the point in time when Mr Baird gave advice to Mrs Schipp about Joint Venture Deed 1.[Paragraph 2.11 Plaintiff's Written Submissions Vol. 3]
(c) Representation as to the Funding of the Mary Street DevelopmentThe allegation is that the Cameron Harrison Interests represented that they would be wholly responsible for the funding of the development of Mary Street.
Conduct said to have been Misleading and Deceptive
In the event that Joint Venture Deed 1 is found to have been the final Joint Venture Deed, Mrs Schipp's case is that the inclusion of paragraph 9(b) of the Joint Venture Deed which provides that the land would be used as security for any further development finance, constitutes misleading and deceptive conduct.The Plaintiff concedes that on its own, the representation probably did not occasion any loss to Mrs Schipp because the Mary Street development was sold before development occurred.
[Paragraph 2.15 Plaintiff's Written Submissions Vol. 3]
Paragraph 18 alleges that Mr Cameron and Mr Harrison aided and abetted the contravention by their respective companies of the Trade Practices Act and the Fair Trading Act and were directly or indirectly knowingly concerned in or parties to these contraventions.
A duty to take reasonable care case is pleaded in Paragraphs 19, 20 and following. Here the alternative case that the Cameron Harrison Interests were each under a duty to take reasonable care in making the representations described in Paragraph 11 and in engaging in the conduct described in Paragraph 12 are put. The duty is said to have been a duty to take reasonable care to make accurate statements when making material representations. The representations are said to have been made and the conduct is said to have been carried out negligently and in breach of the duty to take reasonable care.
A further breach of the terms of the Joint Venture Agreement is said to have been constituted by conduct described later in the Statement of Claim in Paragraph 38 thereof. Paragraph 38 of the Statement of Claim contains allegations in relation to the conduct of Mr Cameron and Mr Harrison after the sale of Mary Street where they are said to have refused to give Mrs Schipp her share of the proceeds of the sale of Mary Street; to have refused to pay her interest on such money; to have disclosed for the first time and represented to Mrs Schipp that she might have to pay tax upon her part of the proceeds of the sale of Mary Street; to have said to Mrs Schipp that if she insisted on being paid by interest by Mr Cameron and Mr Harrison she would have to pay $20,000 in tax which would be her choice; to have failed to disclose to Mrs Schipp readily where the proceeds of sale were held; and to have represented that Mrs Schipp's liability to pay tax could be eliminated by her further investment in the Kembla Street property.
Mrs Schipp's claims in respect of breaches of agreement and/or entry into the agreement and/or the breaches of duty pleaded in Paragraph 12, are put in Paragraph 21 where she is said, by reason of these matters, to have suffered loss and damage, and where the Cameron Harrison Interests are said to have been unjustly enriched at Mrs Schipp's expense.
The Plaintiff's claims in relation to the entry of the Joint Venture Agreement as against the Cameron Harrison Interests are put in Paragraph 22 of the Statement of Claim where Mrs Schipp seeks :
(i) damages for breach of the joint venture agreement;
(ii) equitable compensation and restitution;
(iii) an account of all the transactions involving and profits made by the First, Second, Third and Fourth Defendants from the Joint Venture Agreement.
Sale of Mary Street and Retention of Proceeds by the Cameron Harrison Interests
The bracket of the Statement of Claim dealing with the sale of Mary Street and the retention of the proceeds of sale is dealt with in Paragraphs 23 to 46 inclusive.
Paragraph 23 alleges that between July and September 1988, Mr Cameron acting on behalf of himself and his company and Mr Harrison and his company represented to Mrs Schipp :
That the professional suite of units, the subject of the Mary Street development, would be too small and could not be sold for the price originally planned.
That the Mary Street property should be auctioned.
That the development as planned by the Cameron Harrison Interests was not viable and should not be carried out.
Paragraph 24 alleges that Mrs Schipp did not wish to dispose of or auction the Mary Street property.
Paragraph 25 is an allegation as to an overbearing by Mr Cameron and Mr Harrison of Mrs Schipp's will and resistance to a sale of the Mary Street property. Mr Cameron and Mr Harrison for themselves, and on behalf of their respective companies, are here said to have overborne Mrs Schipp's will and resistance to a sale of the Mary Street property and to have caused Mrs Schipp to execute an authorisation for the auction sale of the property.
Paragraph 26 alleges that after the execution of the authorisation for the auction sale, Mrs Schipp permitted the Cameron Harrison Interests to cause the Mary Street property to be sold by auction on or about 15 October 1988.
The execution by Mrs Schipp of the authorisation for the auction sale of Mary Street and Mrs Schipp having permitted the Cameron Harrison Interests to cause the Mary Street property to be sold by auction are said in Paragraph 27 to have occurred while Mrs Schipp continued in a relationship of undue influence by Mr Cameron and Mr Harrison. This paragraph alleges that the overbearing of Mrs Schipp's will was occasioned by the existence of this relationship of undue influence.
Paragraph 28 alleges that the overbearing of Mrs Schipp's will in the matter of her having been caused to execute the authorisation for auction sale of Mary Street and in the matter of her having permitted the Cameron Harrison Interests to cause Mary Street to be sold by auction was caused by the duress and pressure of Messrs Cameron and Harrison.
Representations by implication are relied upon in paragraph 29 of the Statement of Claim. Here the alleged earlier expressed representations as to the size of the professional suite units, as to the inability to sell those units for the price originally planned, as to the importance of Mary Street being auctioned and as to the non-viability of the development, are said by implication to have involved the making of the following further representations by the Cameron Harrison Interests, namely :
That the Cameron Harrison Interests at all material times had genuine intentions of developing Mary Street in the joint interests of themselves and Mrs Schipp.
That the Cameron Harrison Interests had genuinely decided that the project was not viable.
That in the event that the project was not viable, it was a commercial necessity for it to be sold and that Mrs Schipp had no choice other than to sell it.
Paragraphs 30 and 31 deal with the representations by implication having been, as it is alleged, made in trade and commerce and having been false, misleading and deceptive in contravention of s.52 of the Trade Practices Act and s.42 of the Fair Trading Act.
The alternative case of a duty to take reasonable care in the making of these representations in the Cameron Harrison Interests is put in paragraph 32 of the Statement of Claim. Paragraph 33 then pleads that the Cameron Harrison Interests made the representations which are said to have been implicit, negligently and in breach of their duty of care.
The subject of continuing fiduciary duties is raised in paragraph 34 of the Statement of Claim. Here the allegation is that while the representations which had been implicitly made were acted upon, the Cameron Harrison Interests continued under the fiduciary duties earlier pleaded in paragraph 5 of the Statement of Claim and Mr Harrison continued in the relationship of solicitor for or in relation to Mrs Schipp and was under a fiduciary duty to her and a duty to take reasonable care as her solicitor as described earlier in paragraphs 7, 8 and 9 of the Statement of Claim.
The breaches of fiduciary duty become the subject of paragraph 35 of the Statement of Claim. Here the Cameron Harrison Interests are alleged, in having induced her to sell Mary Street, to have breached their fiduciary duties to the Plaintiff in that they are said to have failed to disclose, or to warn, or to suggest a number of matters to Mrs Schipp; to have failed to cause her to obtain independent advice; and to have caused her to form a particular belief. The Cameron Harrison Interests are said to have failed to have disclosed:
(i) their conflicts of interest in relation to the sale transaction;
(ii)that one of their purposes in inducing Mrs Schipp to auction the Mary Street property was ultimately to cause her to invest the proceeds of sale thereof in the Kembla Street property, then owned by or on behalf of Mr Harrison. [No longer pressed - See Plaintiff's Written Submissions Vol. 3 Page 2].
(iii)their prior breaches of fiduciary duty;
(iv)that they intended to retain the proceeds of sale of the Mary Street property.
The Cameron Harrison Interests are also said to have failed to cause Mrs Schipp to seek independent legal advice.
The Cameron Harrison Interests are also said to have failed to warn Mrs Schipp of the legal and financial consequences of the sale of the property before it was sold; to have failed to suggest to Mrs Schipp that she obtain independent commercial or accountancy advice before authorising the execution of the authority to auction.
The Cameron Harrison Interests are also said to have caused Mrs Schipp to believe that notwithstanding the terms of the Joint Venture Agreement they were entitled to have a say in the sale of Mary Street at that time and were entitled to one-third of any profit on the sale irrespective of the fact that the development had not taken place.
Paragraph 36 pleads that as a result of the giving of the authority for the auction sale Mrs Schipp suffered loss and damage.
Paragraph 37 then pleads that in or about mid-November 1988 after the auction sale of the Mary Street property Mrs Schipp wished to have returned to her a sum of money representing what she believed to be her share of the profits from the sale.
Paragraph 38 then deals with allegations as to the conduct of Mr Cameron and Mr Harrison after the sale of Mary Street. Messrs Cameron and Harrison are alleged to have:
(i)refused to give Mrs Schipp her share of the proceeds of sale; [relied upon only as a breach of fiduciary duty]
(ii)refused to pay Mrs Schipp interest on the money; [relied upon only as a breach of fiduciary duty]
(iii)disclosed for the first time, and represented to Mrs Schipp, that she might have to pay tax upon her part of the proceeds of sale;
(iv)said to Mrs Schipp that if she insisted on being paid interest by Mr Cameron and Mr Harrison then she would have to pay $20,000 in tax and that that would be her choice; [relied upon only as a breach of fiduciary duty]
(v)not having readily disclosed to Mrs Schipp where the proceeds of sale were held;
(vi)represented that Mrs Schipp's liability to pay tax could be eliminated by her further investment in the Kembla Street property.
A further allegation as to an overbearing of Mrs Schipp's will is made in paragraph 39. The point in time at which this overbearing of Mrs Schipp's will is put in paragraph 39 is on or about 9 January 1989. Paragraph 39 asserts that by this stage Mrs Schipp wished to extract herself from all financial dealings with the Cameron Harrison Interests and to have the value of her investment in the Mary Street property returned to her. The allegation is that on 9 January 1989 Mr Cameron and Mr Harrison overbore Mrs Schipp's will and caused her not further to seek the return of her investment. The allegation is also that by reason of the conduct of Mr Cameron and Mr Harrison pleaded in paragraph 38, Mrs Schipp was induced to leave her investment with Mr Cameron and Mr Harrison and their respective companies. In Volume 3 of the written submissions, Mrs Schipp’s counsel stated that these allegations were to be understood as an overbearing of Mrs Schipp’s will, not in an intentional dishonest sense, but as occurring in the context of a relationship of actual or presumptive undue influence.
The conduct of Mr Cameron and Mr Harrison pleaded in paragraph 38 of the Statement of Claim is alleged in paragraphs 40 and 41 to have been conduct in trade and commerce and to have been negligent, misleading and deceptive in contravention of s.52 of the Trade Practices Act and s.42 of the Fair Trading Act.
Paragraph 42 of the Statement of Claim pleads the causal nexus in asserting that by reason of Mr Cameron and Mr Harrison's conduct pleaded in paragraph 38, Mrs Schipp was and continued to be caused not to retrieve from the Cameron Harrison Interests the profit on her investment in the Mary Street property after its sale and to have been induced to agree to lend the profit on her investment to Mr Cameron and Mr Harrison whereby she alleges that she suffered loss and damage.
Paragraph 43 deals with an allegation that the previously alleged fiduciary relationships continued. The allegation is that in relation to the making of representations and inducements to Mrs Schipp not to retrieve her investment on the profit of her investment after the sale of the Mary Street property, the Cameron Harrison Interests continued to be fiduciaries of and to be in the fiduciary relationships with Mrs Schipp earlier described in paragraphs 5, 7,8 and 9 of the Statement of Claim.
Further allegations as to breaches of fiduciary duty are pleaded in paragraph 44 of the Statement of Claim. Here Mrs Schipp alleges that the breaches of fiduciary duty by the Cameron Harrison Interests were constituted by their failure to disclose the following matters to Mrs Schipp :
(i)her rights to have her investment profits returned to her;
(ii)her rights to have interest paid on her investment profits;
(iii)that part of the purpose of [the Cameron Harrison Interests] in making the representations described in paragraph 38 was a scheme to cause Mrs Schipp to invest the proceeds of sale of the Mary Street property into the Kembla Street property. [No longer pressed - See Plaintiff's Written Submissions Vol. 3 Page 2].
(iv)the Cameron Harrison Interests' knowledge of the breaches of fiduciary duty occasioned by them as described in paragraphs 12 and 35.
Paragraph 45 pleads Mrs Schipp's loss and damage said to have arisen as a result of the earlier described conduct of the Cameron Harrison Interests.
On Mrs Schipp’s case, all that resulted ‘from the breaches of continuing duties of care during [the period covering the sale of Mary Street and the retention of the proceeds of sale] is the liquidation of the Mary Street asset, [but for which] the investment in Kembla Street would not have occurred’.
[Submissions Vol 3 page 5 para 12]
Mrs Schipp's claims in relation to the Mary Street property and the retention of the moneys form the subject of paragraph 46 of the Statement of Claim. These claims are as follows :
'(i) damages;
(ii) equitable compensation and restitution;
(iii) an account of all the transactions involving and profits made by the first, second, third and fourth defendants with the plaintiff's entitlement;
(iv) interest;
(v) such further or other order as the case may require.'
Purchase of the Kembla Street property
Paragraph 47 of the Statement of Claim pleads that the Kembla Street property was purchased by Mr Harrison for approximately $42,000 in 1980 and in about January 1989 was encumbered by a mortgage in the sum of $300,000 to a financial institution.
The earlier described fiduciary duties and relationships are alleged to have continued between January and March 1989. Paragraph 48 alleges that during these months the Cameron Harrison Interests continued under the fiduciary duties and relationships described in paragraphs 5 to 9 of the Statement of Claim.
In paragraph 48A of the Second Further Amended Statement of Claim, Mrs Schipp pleads that in or about December 1988 to March 1989, Mr Harrison continued to carry out some of the tasks described in paragraph 8(i) of the Statement of Claim as modified as a result of the circumstances described in paragraphs 34(ii) and 43 whereby :
(i)Mr Harrison continued to expressly or implicitly assume a legal responsibility to Mrs Schipp in the carrying out of such tasks; and
(ii)Mrs Schipp continued, to the knowledge of Mr Harrison, to rely upon the exercise by Mr Harrison of his professional skill as her or a solicitor in the carrying out of such tasks.
In paragraph 48AB Mrs Schipp pleads that in or about December 1988 to March 1989, in relation to the purchase of the Kembla Street property and the investment by Mrs Schipp in Pyogrove:
(i)Mr Harrison undertook the exercise of his professional skill as her or a solicitor in tasks which, to his knowledge, may cause loss to Mrs Schipp if carelessly performed, whereby Mr Harrison is said to have expressly or implicitly assumed a legal responsibility to Mrs Schipp in the undertaking of those tasks, and in the alternative;
(ii)Mrs Schipp alleges that she relied upon the exercise by Mr Harrison of his professional skill as her or a solicitor in the carrying out by him of the tasks, which reliance is said to have at all material times been known to Mr Harrison.
The tasks alleged were :
Acting as her solicitor
(a)Dealing with Mrs Schipp in relation to the contents of the AGC loan documentation and guarantee.
(b)Supervising Mrs Schipp’s execution of the AGC loan documentation and guarantee.
(c)Foreshadowing the need for and advising Mrs Schipp in relation to the redoing of the Mary Street Joint Venture Agreement.
Acting as a solicitor
(d) Acting for Pyogrove on the purchase of the Kembla Street property.
(e) Arranging finance for Pyogrove to fund the Kembla Street purchase.
(f) Acting for the individual joint venturers in the Kembla Street property on the purchase of Kembla Street.
(g) Arranging finance to fund the Kembla Street purchase.
[Particulars to para 48AB]Paragraph 48B of the Statement of Claim puts Mr Harrison's relevant duties in relation to the making of Mrs Schipp's decision to invest in the Kembla Street property as fiduciary duties owed to her by him as her solicitor and as duties to take reasonable care in so acting for her.
The particular duties of care alleged to have been owed to Mrs Schipp by Mr Harrison were to give her full legal advice with the commercial knowledge of the transaction available to him about the legal implications of the transaction she was entering and the guarantee she was giving such as would warn her as to foreseeable loss.
More specifically :
(a)to give her legal advice about the legal hazards of committing herself to the Kembla Street transaction;
(b)in arranging for finance for Pyogrove to provide her with reliable information as to :
(i)the nature and implications of the loan documentation she was entering into;
(ii)the nature of the guarantee that she was being asked to sign;
(c) in advising her in relation to the redrafting of the Joint Venture Agreement.
[Statement of Claim paras 48B(ii), 48A and 48AB; Plaintiff's written submissions Vol 2 page 34 para 5 and Vol 3 page 6 para 17]The duties of care alleged to have been owed by Mr Harrison and by Mr Cameron and their two companies
The particular duties of care alleged to have been owed by Mr Harrison, by Mr Cameron and their two companies were ‘to take reasonable care in relation to the making of representations’.
[Statement of Claim para 57; Plaintiff's written submissions Vol 3 para 20 page 6]
The representations made by Mr Harrison and Mr Cameron on behalf of themselves and their companies are pleaded in para 49 as set out below.
In final submissions, the breaches of duties of care were put as falling -
"into two classes. The first class involves breaches in relation to the duty to advise in relation to the AGC documentation . . . . These breaches resulted in the plaintiff’s commitment to AGC and the particular legal expenses she has suffered as a result". [Vol 3 page 6 para 18],
“The second class relates to breaches in the course of advising her about the AGC documentation and acting in the role of solicitor for Pyogrove. To the extent that the third defendant had actual knowledge of legal hazards, especially increasing liabilities to AGC, that might be encountered should construction finance not be obtained, his duty to advise concerning AGC included a duty to warn of such legal hazards. This duty to warn existed quite apart from any fiduciary duty that might also be owed by him. The matters about which he should have warned the plaintiff include any matters that may have led to the plaintiff, once she had given her personal guarantee to AGC, becoming exposed to legal liability under that guarantee. [Specifically FASC paras 51 (iv), (v), (vi) and (vii)] The breach of the duties in this second class led to the plaintiff making the investment that she ultimately did in Pyogrove.”
[Volume 3 page 6 para 19]
Paragraph 49 of the Statement of Claim is the representational case in relation to the Kembla Street property. Here it is alleged that Mr Cameron and Mr Harrison on behalf of themselves and their respective companies represented to Mrs Schipp :
(i)that the Kembla Street property was then worth $600,000;
(ii)that the Cameron Harrison Interests had development plans for the Kembla Street property which were reasonable and viable;
(iii)that the Kembla Street property was in a prime position and that development plans would result in very up-market offices which would be in demand so that the investment would be a safe one for Mrs Schipp;
(iv)that Mrs Schipp's best course was to invest the $40,000 share of the profits from the sale of the Mary Street property into the Kembla Street property;
(v)that the further investment of $100,000 in the property would be a wise investment by Mrs Schipp and a suitable form of superannuation;
(vi)that the development of the Kembla Street property could safely be financed by selling parts of the property under the plan;
(vii)that the Kembla Street property would cost approximately $1.2 million to build;
(viii)that the Cameron Harrison Interests had a valuation of the Kembla Street property which indicated that it was worth $600,000 in January 1989.
Inducement to invest in the Kembla Street property is alleged in paragraph 50 of the Statement of Claim. The allegation is that the representations pleaded in paragraph 49 were made by the Cameron Harrison Interests for the purpose of inducing Mrs Schipp to invest in the Kembla Street property and in circumstances such that the Cameron Harrison Interests had reason to believe that Mrs Schipp would so invest.
Failures to disclose matters prior to the making of Mrs Schipp's investment in the Kembla Street property are pleaded in paragraph 51. Here, the Cameron Harrison Interests are alleged to have failed to disclose to Mrs Schipp prior to the making of her investment in the Kembla Street property the following matters :
'(i) the risks to her of such investment;
(ii) the history of the property described in paragraph 47;
(iii) the prior beaches of fiduciary duty by Mr Cameron, Don Cameron Real Estate, Mr Harrison and Emibarb described in paragraphs 12, 35 and 44 hereof;
(iv) that despite efforts to do so, Mr Cameron had been unable to obtain any pre-commencement commitment by lessees to the Kembla Street property;
(v) that there was no construction contract in existence for development of the Kembla Street property at $1.2 million or any other figure and there were no firm plans for execution of such a contract at a price which was likely to make the investment a profitable one for Mrs Schipp;
(vi) that applications for finance for development of the Kembla Street property had previously been rejected and there was no reasonable grounds for believing that such an application would succeed in the short term;
(vii) that there were reasonable grounds for believing that the Kembla Street property could not be developed viably at that time;
(viii) that Mr Harrison and Emibarb were being placed under financial pressure by the Commonwealth Bank to liquidate the Kembla Street property to reduce debt to that financial institution;
(ix) that Mr Harrison was the legal adviser to the Cameron Harrison Interests and was seeking to develop the Kembla Street property for his own benefit and was not protecting Mrs Schipp's separate legal interests;
(x) that there was a conflict between Mr Harrison's fiduciary obligations to Mrs Schipp as aforesaid and his financial position described in sub-paragraph (viii) hereof.'
Paragraph 52 pleads reliance and inducement. Mrs Schipp here alleges that by reason of the representations described in paragraph 49 and the non-disclosure of matters described in paragraph 51, she invested money in a company, Pyogrove Pty Limited, and entered into obligations with AGC (Advances) Limited in relation to the development of the Kembla Street property. It is common ground that Pyogrove was the investment vehicle formed for the specific purpose of acquiring the Kembla Street property and that Mrs Schipp by her company Jabele Holdings Pty Ltd, Mr Cameron by his company, Mr Harrison by his company and Mr Zander by his company obtained interests in the investment vehicle Pyogrove. The circumstances in which Jabele Holdings, a shelf company was acquired in 1989 for the purpose of being used as Mrs Schipp’s investment vehicle, are described below.
Paragraph 53 pleads that the failure to disclose the matters described in paragraph 51 were representations and conduct by the Cameron Harrison Interests that such matters did not exist.
Paragraphs 54 and 55 plead that the representations pleaded in paragraph 49 were made in trade and commerce and were misleading and deceptive and made in contravention of sections 52 and 51A of the Trade Practices Act and section 42 of the Fair Trading Act. Paragraph 55 also pleads that the representations described in paragraph 53 were misleading and deceptive and made in contravention of this legislation.
The misleading and deceptive conduct case relies upon the following alleged conduct:
(a) Representation as to Value of Kembla Street
The allegation is that the Cameron Harrison Interests represented that the Kembla Street property was then worth $600,000 and that the Cameron Harrison Interests had a valuation indicating that the land was worth $600,000.
Conduct said to have been Misleading and Deceptive
The allegation is that the true value of the land was well below $600,000.
[Paragraphs 2.19, 2.20 Plaintiff's Written Submissions Vol. 3](b)Representation that the Development Plans for Kembla Street would cost approximately $1.2m to build
The allegation is that the Cameron Harrison Interests represented that the Kembla Street property would cost approximately $1.2m to build.
Conduct said to have been Misleading and Deceptive
The allegation is that the representation was incorrect and constituted a substantial discounting of an estimate by Mr Skelcher, based on Cordell's cost figures of a $1.8m building cost. The case put is that it was misleading and deceptive to adopt and discount Mr Skelcher's estimate. Also that at the time of the making of the representation, Mr Cameron and Mr Harrison were aware that the project had not progressed to a stage where a proper assessment of building costs could be made.
[Paragraphs 2.24, 2.25 Plaintiff's Written Submissions, Vol. 3]
(c)Representations that Development Plans for Kembla Street were Reasonable and Viable
The allegation is that the Cameron Harrison Interests represented that they had development plans for the Kembla Street property which were reasonable and viable.
Conduct said to have been Misleading and Deceptive
The allegation is that there were a number of hurdles to the project proceeding which were not communicated to Mrs Schipp. When seen in the context of the positive representations about the Kembla Street development alleged to have been made to Mrs Schipp, the case is that the omission to mention these hurdles was likely to mislead her into believing that the development was viable. The case is that the Cameron Harrison Interests failed to alert Mrs Schipp to the true situation which in reality was that "the joint venturers were not investing in a viable project but were buying an opportunity to explore the merits of developing Kembla Street".
The case for Mrs Schipp put the following as undisclosed suggested hurdles to the development proceeding:
(i)The experience of the Cameron Harrison Interes ts which had been that it was not possible in 1988 to obtain pre-leasing commitments in the absence of some form of development activity being under way. The Commonwealth Bank had also required pre-leasing commitments as a condition to the provision of finance. No such pre-leasing commitments were obtained by the time Pyogrove agreed to purchase Kembla Street.
(ii)The need for the provision of adequate security by the parties to support the obtaining of finance needed to develop the property. The case for Mrs Schipp was that the question of whether the parties would be capable of providing sufficient security was not explored or discussed at any time before she invested in Kembla Street.
(iii)Detailed plans, specifications and full tender prices had not been obtained and were not available at the time of the discussions leading to the decision to invest in Kembla Street. Nor had the importance of obtaining such plans, specifications and tender prices been discussed with Mrs Schipp.
[Paragraphs 2.28 - 2.33 Plaintiff's Written Submissions Vol. 3]
(d)Representation that the Investment in Kembla Street was Wise and a Suitable Form of Superannuation
The allegation is that the Cameron Harrison Interests represented that Mrs Schipp's investment of $100,000 in Kembla Street would be a wise investment and a suitable form of superannuation.
Conduct said to have been Misleading and Deceptive
The case put is that there was insufficient evidence available to determine whether the investment was a wise one or a good one or a suitable form of investment. Further, that without accurate cost projections, any pre-leasing commitments, any definite security arrangements for development finance or any detailed analysis of the viability of the venture, there was no basis for any such statements.
[Paragraphs 2.37 Plaintiff's Written Submissions Vol. 3]
Paragraph 56 pleads that the matters described in paragraphs 49, 51, 51, 52 and 53 were also contraventions of section 59(1) of the Trade Practices Act and section 54(1) of the Fair Trading Act.
Breaches of duty to take reasonable care and of fiduciary duties to Mrs Schipp are pleaded in paragraph 57. The allegation here is that at all material times the matters described in paragraphs 49 to 53 constituted breaches by the Cameron Harrison Interests of their duties to take reasonable care and of their fiduciary duties to Mrs Schipp described in paragraphs 48 and 48B.
Mrs Schipp is alleged to have been induced to act, and the Cameron Harrison Interests are alleged to have been unjustly enriched, by reason of the representations and conduct of the Cameron Harrison Interests. These allegations are to be found in paragraph 58 of the Statement of Claim where Mrs Schipp is alleged by reason of the representations to have :
(i) invested the sum of $100,000 in Pyogrove;
(ii) invested the proceeds of the profit on the sale of Mary Street in Pyogrove;
(iii) on January 1989, to have executed an agreement to take a loan from AGC;
(iv)on 31 January 1989, to have executed a Deed of Loan and Guarantee with AGC.
Paragraph 58 then alleges that Mrs Schipp suffered loss and damage and the Cameron Harrison Interests had been unjustly enriched at Mrs Schipp's expense by reason of these matters.
Paragraph 59 pleads that Mrs Schipp at all material times was in a position of special disadvantage. The precise allegation is that at all material times in relation to the execution by Mrs Schipp of the Deed of Loan and Guarantee, Mrs Schipp was in a position of special disadvantage with respect to the Cameron Harrison Interests and with respect to Pyogrove.
Paragraph 60 pleads how it is that the situation of special disadvantage is said to have arisen. The allegation is that Mrs Schipp's situation of special disadvantage arose in part from the circumstances earlier pleaded and in part from a number of matters then set out which are also said to have caused the Deed of Loan and Guarantee and the arrangements whereby the investments described in paragraph 58 were made by Mrs Schipp to be unjust in the circumstances at the time they were made.
The particular matters relied upon are as follows :
'(i) there was material inequality in bargaining power between Mrs Schipp and Pyogrove in relation to the investment;
(ii) there was no negotiation concerning Mrs Schipp's interests at or before the time that the agreement was made between Mrs Schipp and Pyogrove;
(iii) it was not reasonably practicable for Mrs Schipp to negotiate for the alteration of or to reject any of the provisions of the contract whereby she invested in Pyogrove;
(iv) the relative economic circumstances and educational background of Mrs Schipp were such that she was known to the Cameron Harrison Interests and to Pyogrove not to be in a position to be able to protect herself and her best commercial interests with respect to the Cameron Harrison Interests and Pyogrove;
(v) the deed of loan and guarantee was not readily intelligible to Mrs Schipp;
(vi) to the knowledge of the Cameron Harrison Interests and Pyogrove Mrs Schipp did not have any independent legal or other commercial advice before entering into the agreement for the investment in Pyogrove and the deed of loan and guarantee and she was not encouraged by any of the Cameron Harrison Interests or Pyogrove to obtain such advice;
(vii) the provisions of the agreement whereby the investment in Pyogrove took place and the provisions of the deed of loan and guarantee and their legal and practical effect were not accurately explained to Mrs Schipp by any person and in particular it was not explained to her that the document she was signing would place any of her personal assets at risk;
(viii) undue influence, unfair pressure or unfair tactics were exerted on or used against Mrs Schipp by the Cameron Harrison Interests in relation to the investment by Mrs Schipp in Pyogrove;
(ix) the commercial setting, purpose and effect of the contract for investment of the funds in Pyogrove was such that the Cameron Harrison Interests were aware that Pyogrove had no practical means at the time of such investment of developing the property in the manner described to Mrs Schipp.'
Paragraph 61 pleads that at all material times Pyogrove was controlled by Mr Cameron and Mr Harrison and their respective companies.
Paragraph 62 is an allegation of unconscionable conduct in contravention of s.51AB of the Trade Practices Act. The allegation is that at all material times the conduct of the Cameron Harrison Interests and Pyogrove whereby the investment of money in Pyogrove by Mrs Schipp took place was unconscionable conduct constituting such a contravention of the section.
Paragraph 64 alleges that by reason of the matters earlier pleaded the Deed of Loan and Guarantee entered into by Mrs Schipp and AGC is liable to be set aside and Mrs Schipp's agreement to invest moneys in Pyogrove is liable to be set aside.
Claim Against the Seventh Defendants
The claim against Mr Harrison's underwriters is a discrete section of the pleading. The claims are set out in paragraphs 64 to 69 of the Third Further Amended Statement of Claim.
Schedule A to the Statement of Claim lists the fourteen insurers against whom the Plaintiff presses these claims.
Paragraph 66 alleges that, by contract of insurance during the period 30 June 1991 to 30 June 1992 and providing cover through to the date of the filing of the notice of motion in these proceedings, "the Insurers agreed to indemnify [Mr Harrison] . . . against all loss to [him] whensoever occurring, arising from any claim or claims first made against [Mr Harrison] during the period of insurance in respect of any description of civil liability whatsoever incurred in connection with the business of practising as a solicitor."
Paragraph 67 alleges that the Insurers' appointed agent in NSW, said to be Lawcover Ltd, were notified of the making of the claim against Mr Harrison by the Plaintiff during the currency of the insurance policy.
Paragraph 68 alleges that Lawcover has wrongly refused to indemnify Mr Harrison in relation to the Plaintiff's claim.
The amount in respect of which the Plaintiff alleges that the insurers are liable to indemnify Mr Harrison is particularised in paragraph 69(a). The allegation is that the Plaintiff is entitled to recover damages and costs as a result of Mr Harrison's conduct in the proceedings and that the Insurers are liable to indemnify Mr Harrison for that amount. [Paragraph 69(b)]
Paragraph 69(c) alleges that the Plaintiff is entitled to a charge on all insurance moneys "that are, or may become, payable" by the Insurers to Mr Harrison in respect of Mr Harrison's liability to the Plaintiff.
Paragraph 69 (d) alleges that the Plaintiff is entitled to enforce that change by way of action against the Insurers. That entitlement of the Plaintiff is a right provided by section
6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), subject to leave being granted pursuant to section 6(4). Leave to join the Seventh Defendants as a party to the proceedings was granted by Young J: Schipp v Cameron (Unreported, Young J, Supreme Court of NSW, 4 May 1995).
Seventh Defendants' Defence
The Seventh Defendants’ Defence to the Further Amended Statement of Claim was filed on 12 November 1997.
The Seventh Defendants admit the existence of a contract of insurance between Mr Harrison and themselves pursuant to which the Seventh Defendants agreed to indemnify Mr Harrison in the terms pleaded in paragraph 66 of the Further Amended Statement of Claim. [Paragraphs 4(a) and 4(b)] Paragraph 4(c) alleges that the period of insurance was from 1 July 1991 to 30 June 1992.
The Seventh Defendants deny that Mr Harrison is liable to the Plaintiff and that the Seventh Defendants have wrongfully refused to indemnify Mr Harrison in relation his liability, if any, to the Plaintiff. [Paragraph 5]
The Seventh Defendants plead, in Paragraph 6(a), that if, contrary to their contentions, Mr Harrison is liable to the Plaintiff, his liability was not incurred in connection with the business of practising as a solicitor. Paragraph 6(b) alleges that any liability of Mr Harrison to account to the Plaintiff for profits and to pay interest on such an account of profits, or to pay restitutionary damages and interest on such damages, or to pay the Plaintiff the principal of loans made by her to Mr Harrison and interest on such loans, is not a loss for the purposes of the contract of insurance.
The Seventh Defendants allege that any liability of Mr Harrison to the Plaintiff was brought about by his dishonest or fraudulent acts or omissions and assert that the general exclusion in clause 5(e)(v) of the policy, which provides that the Insurers were not liable to indemnify in respect of any liability brought about by dishonest or fraudulent acts or omission on the part of Mr Harrison, applies. [Paragraph 6(c)]
Paragraph 6(d) alleges that if Mr Harrison is liable to the Plaintiff, the Seventh Defendants' obligation to indemnify Mr Harrison is subject to a $100,000 deductible. In this paragraph of their Defence, the Seventh Defendants' sought to rely on clause 5(a) of the insurance policy. During the course of final submissions, however, the Seventh Defendant submitted that the relevant clause in the insurance policy in relation to the amount of the excess was not clause 5(a). Rather, it was conceded that the relevant clause was clause 5(b) which provides for an excess of $3000 in relation to each claim including claimants costs made by Mr Harrison. It follows that Paragraph 6(d) of the Seventh Defendants' Defence is now to be regarded as alleging that a deductible of $3000 applies, as opposed to a deductible of $100,000.
The Seventh Defendants' allege, in Paragraph 7, that if, contrary to their contentions, Mr Harrison is liable to the Plaintiff, and the Insurers are liable to indemnify Mr Harrison in respect of that liability, no charge under section 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) attaches to moneys payable in respect of that liability because the event or events giving rise to the liability occurred prior to 1 July 1991, that is prior to the commencement of the period covered by the policy of insurance.
Claims to Relief
The fiduciary duties and duties of care which a solicitor owes to a client constitute, it seems to me, duties the failure to adhere to which may well, depending on the precise circumstances, allow the relevant conduct to be characterised as dishonest.
I have held that Mr Harrison acted as Mrs Schipp’s solicitor, or a solicitor, in respect of a number of matters earlier spelled out. I have further held that by virtue of Mr Harrison’s position as a solicitor, he owed to Mrs Schipp fiduciary obligations and duties of care which he breached, and breached flagrantly, in the furtherance of his own interests. In the light of these findings and notwithstanding the fact that Mr Harrison also breached fiduciary obligations springing from relationships independent of fiduciary duties springing from his position as a solicitor, it seems to me that Mr Harrison’s relevant conduct was dishonest and that the exclusion in clause 5(e)(v) of the policy was activated.
Test for Application of an Exclusion Clause
Clause 5(e)(v) excludes the obligation of the Seventh Defendant to indemnify Mr Harrison if the liability in respect of which he is making a claim was ‘brought about by’ his dishonest acts or omissions.
The Plaintiff submitted that even if Mr Harrison’s conduct was dishonest, there was no causal connection between any actions or omissions of his which may be construed as dishonest and the bases upon which, so the Plaintiff alleges, Mr Harrison is liable to Mrs Schipp.
The principles applicable in determining whether or not purported dishonest conduct attracted the operation of an exclusion clause were considered by Mahoney JA in Comino v Manettas at 77,870:
“The phrase looks to what actually brought about the liability, in negligence, tort, or otherwise to [the client]. The ingredients of that liability involved only the failure of [the solicitor] to clarify his instructions. Once that failure occurred and the transaction was carried to completion on the basis of his mistake as to his instructions, the liability to [the client] arose. The defaults relied on by Law Cover, viz., the attestation default and the certification default, played a part in the arising of that liability. In that sense, the liability was not ‘brought about by’ those defaults.”
In that case, a solicitor negligently failed to clarify his instructions. He did so mistakenly and there was no suggestion that his failure involved dishonesty of any kind. The solicitor was required to pay damages for negligence. The solicitor had also dishonestly attested and certified certain documentation. Had he not done this, the transaction giving rise to the damage might not have proceeded. Mahoney JA held that the liability in these circumstances was not “brought about by” the dishonest acts of the solicitor and thus the exclusion clause did not apply.
The passage from Comino was considered with approval by Phillips J in H & G Nominees v Fava [1997] 2 VR 368 at 421. His Honour stated that:
“I mention [Comino] because it lends support to the need to find, not just that the impugned conduct was ‘dishonest’ but also the relevant causal link between that dishonesty and the liability in respect of which indemnity is being sought - and, for the reasons I have already given, that causal link is missing here even if the arguments of the third party be otherwise accepted.”
[See also Chittick v Maxwell (1993) 118 ALR 728 at 748; Underwriters at Lloyds v Ellis per Powell JA at 34]
The question as to the causal link between dishonest conduct and the liability of an insured required to attract the operation of an exclusion clause in terms of Clause 5(e)(v) was addressed recently by Hunter J in McCann v Switzerland General Insurance (supra). His Honour stated (at 260):
“... in the operation of the dishonesty exclusion it is necessary for the excess insurers’ to prove that the proximate cause of [a firm of solicitor's] liability to [a trust] was [a particular partner's] dishonest conduct. this by reason of the necessity to satisfy the requirement that the liability be ‘brought about’ by [the partner’s] dishonest conduct. It may have been otherwise had the insurers chosen to use a wider expression, such as, ‘arising out of’ or ‘arising from’ such dishonest conduct or ‘directly or indirectly brought about by’ such conduct. As it stands, the expression ‘brought about’ is synonymous with ‘caused’ and, insurance law, that calls for the identification of the proximate cause.”
His Honour further stated (at 259) that:
“’the proximate cause of a loss is the cause which is most proximate in efficiency, the “real”, “effective” or “dominant” cause (which) supposes a causal connection closer than a mere unbroken chain of causation between cause and effect (that) although the proximate cause need not be the sole cause of the loss, its causal contribution must be predominant among the operative causes - its effect must be much greater than merely “not negligible”. It must be what might colloquially be called the “most causative” of the operative causes’.” [Citations omitted]
In requiring that the dishonest conduct of the insured be the proximate cause of the relevant liability in order for the dishonesty exclusion to be invoked, I do not understand Hunter J to have adopted an approach to causation which is materially different from that established in Comino and the subsequent cases.
What is required then, in order that the exclusion in clause 5(e)(v) be enlivened, is a finding not only that certain conduct of Mr Harrison was dishonest, but also that it was that dishonest conduct, and not some other acts or omissions of Mr Harrison or Mr Cameron, which brought about the liability to Mrs Schipp.
It is not, however, necessary to attract the exclusion clause that the cause of action be framed in fraud or dishonesty. The question is whether the liability of the insured which is claimed was based upon an act or omission which can be characterised as dishonest. That this is the case is evident from the approach of Powell JA at Underwriters of Lloyds v Ellis in which his Honour distinguished between the claims made in those proceedings against the insured which were based upon the issuing of a false certificate and in relation to which the insured was not entitled to any indemnity of his costs incurred in defending such claims (if they were in fact made out), and those claims which were not based upon the issuing of a false certificate, and in relation to which the insured was entitled to an indemnity in respect of his costs in defending that claim.
The Plaintiff had initially sought findings that certain of Mr Harrison’s conduct should be characterised as dishonest or fraudulent. The Second Further Amended Statement of Claim pleaded that the First to Fourth Defendants:
1 “... failed to disclose to the plaintiff that they had no intention of developing or alternatively that they had strong suspicions they were unlikely ever to develop the Mary Street property past the point of obtaining development application and building application plans” [Paragraph 12 (ii)];
2 “... failed to disclose to the plaintiff that one of their purposes in inducing the plaintiff to auction the Mary Street property was ultimately to cause her to invest the proceeds of sale thereof in a property then owned by or on behalf of the third defendant at the corner of Market and Kembla Streets, Wollongong (“the Kembla Street property”) [Paragraph 35(ii)];
3 “... failed to disclose to the plaintiff that part of the purpose of the first, second, third and fourth defendants in making the representations described in paragraph 38 hereof was a scheme to cause the plaintiff to invest the proceeds of sale of the Mary Street property into the Kembla Street property” [Paragraph 44(iii)].
The paragraphs in which those findings were sought were disclaimed after the commencement of the hearing [see Judgment paragraph 112]. As I have said, the Plaintiff’s decision not to pursue a finding of actual dishonesty as a ground of relief does not remove the issue still raised by the Seventh Defendant which goes to whether Mr Harrison’s liability to Mrs Schipp was based upon his dishonest acts or omissions attracting the operation of the exclusion clause. In my view, that liability was based upon Mr Harrison’s dishonest acts and omissions such that the exclusion clause is enlivened, and I so find.
Meaning of "claims" and the value of the deductible under the Insurance Policy
Clause 2 of the Certificate of Insurance provides cover against all loss arising from 'any claim or claims first made against the Assured during the period of Insurance". Clause 2 of the Master Policy limits the amount for which the Assured is indemnified in respect of each claim made against him or her to $1,100,000. Each claim made under the Certificate of Insurance which the Isurers agree to indemnify is subject to a Deductible in the terms set out in Clause 5(a)-(d).
In relation to these proceedings, the amount of the deductible in relation to each claim is governed by Clause 5(b), set out above. Clause 5(b)(i) provides for a deductible of "$3,000 each claim including claimants costs". This is qualified where a "claim arises out of a borrowing or lending transaction and the Assured has acted for both the borrower and the lender in that transaction." In that case, the Excess is $6,000.
The Insurers initially submitted that the relevant clause in relation to the amount of the deductible was Clause 5(a), that is that each claim against Mr Harrison which the Insurers agreed to indemnify was subject to a $100,000 deductible. In final submissions, however, the Insurers conceded that Clause 5(b) of the policy had become relevant and the amount of the deductible was not, as they had previously submitted, $100,000 in respect of each claim.
The Seventh Defendants submitted that the Plaintiff had brought three separate claims against Mr Harrison and that the deductible provided for in clause 5(b) should apply in relation to each of those claims. The three claims which the Seventh Defendants submit the Plaintiff brought against Mr Harrison are:
(i) a claim in respect of the Mary Street venture;
(ii) a claim in respect of the purchase of the Kembla Street property; and
(iii) a claim for repayment of the loan made by the Plaintiff to Mr Harrison.
The Insurers' submission requires the Court to determine the meaning of the word 'claim' in the insurance policy and to determine whether Mr Harrison's loss resulting from my finding that Mr Harrison is liable to Mrs Schipp arises from one or more claims.
In Corporate Pension Planning Pty Ltd v NRG Victory Australia Ltd (unreported, Supreme Court of NSW, 8 April 1998), Young J considered the meaning of the word "claims" in the context of a contract between underwriters of life insurance policies and a company which organised groups to take out bulk term life insurance in respect of which policy that company then acted as trustee. His Honour examined a number of authorities as to the meaning of the word "claims". He stated (at 13-14) that:
"Counsel referred me to a series of cases and dictionaries in which the word 'claim' was used in insurance law. In Transport Industries Insurance Co Ltd v NSW Medical Defence Union Ltd (1986) 4 ANZ Insurance Cases 60-736, the Court of Appeal examined the word 'claims', said it was ambiguous and that it was of limited utility to examine the meaning ascribed to the word 'claims' in other insurance policies for other and different purposes (per Kirby P at 74,411). In ANZ Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyds Report 241 at 245 [sic], McNair J said that the word 'claims' in the policy there under consideration could mean either the right to make a claim or the assertion of that right. This was said by the NSW Court of Appeal to be an instructive approach.
The prime dictionary meaning of the word 'claim' is to demand or assert a right to something. Usually, the mere occurrence of something which gave rise to an action is not in itself a claim, the claim is the demand which again is not the same thing as a cause of action: West Wake Price & Co v Ching [1957] 1 WLR 45, 55. A claim usually means an assertion of a cause of action: Schordich-Churchwood v Cordle [1959] 1 WLR 351, 353. However, often the word 'claim' will mean contingent claims so that when one is dealing with executors who are to distribute without notice of claims, the executor has to allow liabilities of which he or she knows where a person has the right to make a claim as well as those actually sent in: Markwell's case (1872) 21 WR 135. Another illustration is given by Keates v Lewis Merthyr Consolidated Colleries Ltd [1911] AC 641, where a court had power to adjust claims between employer and employee and was held able to include in the adjustment claims which the employee could have made but had not in fact put forward.
No analysis of previous cases is likely to provide any conclusive answer as to what the word 'claims' means in the instant document."
In West Wake Price & Co v Ching [1957] 1 WLR 45 at 55, Devlin J said the following as to the meaning of the word 'claim' in the context of an professional indemnity policy taken out by a firm of accountants:
"I think the primary meaning of the word 'claim' - whether used in a popular sense or in a strictly legal sense - is such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based."
His Honour further stated, at 57:
"If the word ['claim'] is to be used with any precision, it must be defined in relation to the object claimed. The grounds of the claim or the causes of action which support it can give it colour and character, but cannot give it its entity. ¼ if you identify a claim as something to be paid (and that is how it is referred to in the Q.C. clause), it must be something capable of separate payment: you cannot pay a cause of action. It follows, I think, that if there is only one object claimed by one person, then there is only one claim, however many may be the grounds or the causes of action which can be raised in support of it: likewise, where several claims are each dependent on the same cause of action (as, for example, where one cause of action leads to alternative claims for an injunction, damages or an account or other different forms of relief), there remains only one cause of action, however many claims give rise to it."
In Haydon v Lo & Lo [1997] 1 WLR 198, Lord Lloyd of Berwick, delivering judgment for their Lordships, said the following in relation to the meaning of the word "claim" in a professional indemnity policy held by a firm of solicitors (at 204-206):
"Their Lordships agree with Mr Kentridge that it is the underlying facts which are determinative, and that the formulation of the claim by the third party cannot be decisive of the insurers liability, whether for the purpose of calculating the deductible, or for any other purpose.... But it does not follow that there was a separate claim whenever a separate cause of action arose, nor that there were, as a consequence 43 claims.
Although the nature of the demand cannot be decisive, it at least provides a useful starting point in a claims made policy, such as this was. There is nothing here to displace that first impression ... that there was only one claim made by the Tang estate against Lo & Lo - namely a claim for restitution of loss caused by a dishonest employee of the firm."
The Insurers submitted that the decision of the Privy Council in Haydon v Lo & Lo could be distinguished from the present proceedings. In that case, the Privy Council held that 43 acts of theft by an employee from one client could be said to give rise to a single claim for restitution against the employer. I would not accept this submission. In Haydon v Lo & Lo, the four different methods which the employee used to steal from the client did not prevent the Privy Council from finding as it did. It does not seem to me that the facts in the present proceedings are sufficiently different from those in Haydon.
The meaning of the word “claim” is ultimately a question of the construction of the policy. Previous decisions as to the meaning of the word claims in the context of different policies provide only limited assistance, as Young J acknowledged in Corporate Pensions Planning v NRG Victory Australia. However, the decision in Haydon v Lo & Lo is particularly persuasive because in that case the Privy Council was required to construe a solicitor's professional indemnity policy which contained an 'insuring clause' in terms almost identical to that in the policy under consideration in these proceedings.
I now turn to consider the meaning of the word “claim” in the policy and in particular in clause 5(b) of the Certificate of Insurance.
The word “claim” in the Certificate is used in two senses. In some cases, it is used to mean a claim by the insured, Mr Harrison, against his insurers. It is used in this sense in clause 4(f). For the most part, however, the word 'claim' is used in the sense of a claim against the insured by a third party. It is clear that this is the sense in which the word is used in clause 2 which refers to "any claim or claims first made against the Assured". The Schedule to the policy specifies that the sum insured is $1,100,000 for each claim. In my view, it may be inferred that the word “claim” is used there in the same context as in clause 2. The word “claim” is similarly used in clause 4(a)(i) which prohibits the insured from admitting "liability for, or settl[ing], any claim falling within the Insuring Clauses hereof" and in Clause 4(b) which requires notice to be given in writing "of any claim the subject of the Insuring Clauses hereof made during the Period of Insurance against the Assured".
The question then is which of the two meanings the word “claim” has in Clause 5(b). It seems to me that it refers to a claim against the insured, rather than a claim by the insured against his insurers. This interpretation is supported by the context in which the word appears in Clause 5(b). Each reference to the amount of the deductible in particular circumstances enumerated in clause 5(b) is stated to include “claimants costs”: see definition of “deductible” in Clause 1(h). “Claimants costs” are not defined in the Certificate of Insurance but it is clear that they are the costs incurred by a third party who makes a claim against the insured. They are not the costs incurred by the insured in defending or settling that claim because such costs are covered by the term “Related Costs” and defined in Clause 1(f).
The Insurers submitted that the structure of the Statement of Claim indicated that the proceedings brought by the Plaintiff constituted relevantly three separate claims against Mr Harrison. The Insurers submitted that the Statement of Claim was divided into discrete categories and dealt separately with entry into the joint venture agreement in respect of Mary Street, the sale of the Mary Street property and the retention of the proceeds of sale, the repayment of the loan by Mrs Schipp to Mr Harrison and the purchase of the Kembla Street property. For the purposes of determining the number of claims, Mr Harrison’s liability in respect of the discrete transactions involving acquisition and sale should be regarded as one claim. If it were otherwise, the assessment of the number of claims would regard the Plaintiff as recovering twice in respect of the same loss. The Insurers further submitted that the Amended Statement of Claim asserted that discrete issues were raised and discrete relief sought in respect of the various acts or omissions of Mr Harrison which the Plaintiff alleged were wrongful. The Insurers also sought to rely upon descriptions of the Plaintiff's case by her solicitors and counsel to support the submission that Mrs Harrison's loss arises out of three separate claims made against him by the Plaintiff. [Seventh Defendants' Submissions paragraphs 2.5.14-2.5.19]
It is clear from the authorities that the way in which a claim is framed by one or other of the parties will not determine the extent of the insurer's liability. Equally, the fact that the Plaintiff’s case is based upon a upon number of causes of action will not be conclusive of the fact that more than one claim has been made under the policy. The distinction between a claim for insurance purposes and a cause of action was drawn by Stocker LJ in Thorman v New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd’s Rep 7 at 16. His Lordship said:
“Plainly a claim can only be enforced by legal proceedings where the appropriate cause of action is pleaded and proved, but the cause of action is not, itself, a claim but the necessary vehicle for its legal enforcement …”
The number of claims made under the policy is dependent upon the underlying facts which give rise to the claim or claims. In Haydon v Lo & Lo, Lord Lloyd of Berwick stated (at 204);
“ … it is the underlying facts which are determinative of how many claims have been made under a policy, and that the formulation of the claim by the third party cannot be decisive of an insurer’s liability, whether for the purpose of calculating the deductible, or for any other purpose.”
[ cf Thorman v New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd’s Rep 7 at 16; Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd's Rep 241 at 255 per McNair J.]
I would, therefore, reject the Insurers submission that the way in which the case was framed and pleaded in the Statement of Claim by the Plaintiff requires a holding that Mr Harrison's loss arose from three separate claims.
It was also submitted by the Plaintiff that an alternative approach to the assessment of the number of claims within the policy was by reference to the ability to isolate damages in respect of each claim. This was the approach to the issue said to have been adopted by Sir John Donaldson MR in Thorman (supra). In that case, on the Plaintiff’s submission, the Master of the Rolls considered that, in circumstances where more than one claim exists, delineation of the number of claims made under the policy may be achieved by determining when each “new and unrelated assertion of damages” occurs: Thorman at 11. The Master of the Rolls sought to demonstrate such analysis by way of the following example (at 11-12):
“An architect has separate contracts with separate building owners. The architect makes the same negligent mistake in relation to each. The claims have a factor in common, namely the same negligent mistake, and to this extent are related, but clearly they are separate claims. Bringing the claims a little closer together, let us suppose that the architect has a single contract in relation to two separate houses to be built on quite separate sites in different parts of the country. If one claim is in respect of a failure to specify windows of the requisite quality and the other is in respect of failure to supervise the laying of foundations, I think once again the claims would be separate. But it would be otherwise if the complaint was the same in relation to both houses. Then take the present example of a single contract for professional services in relation to a number of houses in a single development. A single complaint that they suffered from a wide range of unrelated defects and a demand for compensation would, I think, be regarded as a single claim. But if the defects manifested themselves seriatim and each gave rise to a separate complaint, what then ? They might be regarded as separate claims. Alternatively later complaints could be regarded as enlargements of the original complaint that the architect had been professionally negligent in his execution of his contract. It would, I think, very much depend on the facts.” [Emphasis added]
It seems to me that the approach proposed by Sir John Donaldson MR is not, in substance, different from the approach followed by Stocker LJ in that case and by the Privy Council in Haydon which looked to the underlying facts of the case as determinative of the number of claims made under a particular policy.
The question, then, is whether the underlying facts of the case can be said to give rise to three claims against Mr Harrison, as the Insurers submitted, or just one, as the Plaintiff submitted. The Plaintiff submitted that Mr Harrison embarked upon "a course of conduct" in his capacity as a solicitor which caused Mrs Schipp to become involved in the Mary Street joint venture and continued through the sale of Mary Street, the loan made to Mr Harrison and the purchase of Kembla Street. [Plaintiff's Submission Volume 2 paragraph 2.4(c)] As a result of this conduct, Mrs Schipp was persistently deprived of the money she initially invested in the Mary Street property. Mr Harrison's conduct has resulted in Mrs Schipp making a single demand for relief which although a number of different causes of action are alleged should be characterised as one claim under the policy. I accept the Plaintiff's submission.
In my view, had the Insurers been liable to indemnify Mr Harrison, they would only have been liable to provide cover for loss to which the policy would respond incurred by Mr Harrison in respect of the claim made by Mrs Schipp insofar as that loss exceeded $3000 and was less than $1,100,000.
DON CAMERON REAL ESTATE AND EMIBARB
The matter was litigated upon the basis that Mr Cameron controlled Don Cameron Real Estate and Mr Harrison controlled Emibarb. No attempt was made in the hearing to separate the interests of Don Cameron Real Estate from those of Mr Cameron or to separate the interests of Emibarb from those of Mr Harrison. In consequence depending upon context, findings against the individuals are findings against the companies. and vice versa. I will invite the parties to address on such issues as knowing participation by the companies in the breaches of fiduciary obligation by the individuals which may still require to be dealt with.
FURTHER SUBMISSIONS
There remains outstanding, Mr Cameron and Mr Harrison’s Cross-Claim and the question of the precise relief to be granted. On 7 April 1998, I raised with counsel, the question of whether it would be appropriate, having delivered a judgment on the principal factual issues, on the relevant principles and on the application of those principles to the facts found, for the proceedings to be listed for submissions as to the precise relief to be granted, on which occasion previous submissions could be supplemented by reference to the judgment.
It seems to me that in the circumstances, although the evidence and submissions were directed to questions of relief, it is appropriate to give the parties an opportunity to make further submissions on the evidence as to the precise relief to be granted with the benefit of these reasons. I invite those submissions, including so far as necessary for their purpose submissions as to any further findings of fact or bases for relief, and upon Mr Cameron and Mr Harrison’s Cross-Claim.
I direct that by 4pm on Thursday 23 July 1998, the Plaintiff furnish to my Associate and serve upon the Defendants submissions as to:
(a)any further findings of fact sought;
(b)any further bases on which the Plaintiff relies seeking relevant relief;
(c)the precise relief sought by the Plaintiff;
(d)the Cross-Claim.
I direct that by 4pm on Thursday 6 August 1998, the Defendants furnish to my Associate and serve upon the Plaintiff submissions as to:
(a)any further findings of fact sought;
(b)the precise relief sought by the Plaintiff;
(c)the Cross-Claim.
I stand the matter over into my list on Friday 7 August at 9.15am for mention. Naturally, to the extent possible, the parties should endeavour to bring in any agreed short minutes.
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