Spaulding v Adams

[2005] TASSC 22

[2005] TASSC 22

CITATION:              Spaulding v Adams [2005] TASSC 22

PARTIES:  SPAULDING, Michael John
  v
  ADAMS, Colin Bertram and
  PAGE SEAGER (a firm)

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  671/2003
DELIVERED ON:  15 April 2005
DELIVERED AT:  Hobart
HEARING DATE:  4 April 2005
DECISION OF:  Master Holt

CATCHWORDS:

Procedure – Tasmania – Practice under the Rules of Court – Pleadings – Striking out.
Supreme Court Rules 2000 (Tas)
Aust Dig Procedure [272]
Equity – Remedies and procedure – Pleading.
Aust Dig Equity [57]

REPRESENTATION:

Counsel:
             Plaintiff:  In person
             Defendants:  P L Jackson
Solicitors:
             Plaintiff:  In person
             Defendants:  Jackson and Tremayne

Judgment  Number:  [2005] TASSC 22
Number of paragraphs:  14

Serial No 22/2005
File No 671/2003

MICHAEL JOHN SPAULDING v COLIN BERTRAM ADAMS
and PAGE SEAGER (a firm)

REASONS FOR DECISION  MASTER S J HOLT
  15 April 2005

1. By his writ filed 19 December 2003 the plaintiff sues the first defendant, a legal practitioner, and the second defendant, his firm.  The defendants have applied for an order that the statement of claim be struck out and the action dismissed on two grounds.  The first ground is that “the statement of claim discloses no reasonable cause of action”.  By consent an order was made that the first ground be separately heard and determined. 

1. Supreme Court Rules 2000, r259, empowers the court to strike out a pleading which “does not disclose a reasonable cause of action”. The phrase “cause of action” however, is not defined by the rules. In Morgan v Banning (1999) 20 WAR 474, Wheeler J said at p484:

“This Court recently had occasion to consider the question of what constituted a ‘cause of action’ for limitation purposes, in order to determine whether an action for a declaration could be considered to be a ‘cause of action’ in Judamia v Western Australia (unreported, Supreme Court, WA, Full Court, Library No 960114, 1 March 1996).  The court found that in that context, difficulty had been occasioned by a confusion between the old forms of action and the concept of a ‘cause of action’.  In order to avoid confusion so far as possible, I propose in what follows to use the expression ‘cause of action’ in order to describe merely a factual situation which will entitle a person to approach the court for relief, and ‘form of action’ to refer to the old categories of action, several of which might be capable of arising out of one factual situation.”

1. In my view the meaning of the phrase “cause of action” in the context of limitation legislation provides guidance as to the meaning that should be assigned to the phrase in the context of pleading.  The essential requirements for a pleading are contained in r227 which is as follows:

“(1)     A pleading is to –

(a)       be as brief as the nature of the case allows; and

(b)contain only a statement of all the material facts in summary form on which the party relies but not the evidence by which those facts are to be proved.

(2) Unless the facts to be pleaded are able to be stated concisely and explicitly in one paragraph, a pleading is to be divided into paragraphs numbered consecutively and each separate allegation is to be contained in a separate paragraph.

(3)Every pleading is to be expressed so as to give reasonably explicit notice to any other party of all grounds of action or all defences on which the party pleading intends to rely at the trial.

(4) A pleading need not allege any matter of fact which the law presumes in favour of the party pleading or as to which the burden of proof lies on the other side unless the matter has first been specifically denied.”

In summary, a pleading contains allegations of fact, but not the evidence by which those facts are proposed to be proved and is to be brief, concise and explicit.

1. Accordingly, for the purposes of r259, I regard the phrase “cause of action” as meaning a bundle of core allegations of fact which if established at trial would entitle the court to grant relief if no defence is established. For pleading purposes the question of whether or not a cause of action exists is answered solely by reference to the pleading in the statement of claim and it does not and cannot involve the court embarking upon any enquiry as to the truth or falsity of the facts alleged. On a strike out application it is not for the plaintiff to show that if he proves the facts alleged he will succeed. It is for the defendant to show that it is obvious that even if the plaintiff proves his allegations he cannot possibly have an entitlement to relief. General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129.

1. Reducing the plaintiff’s statement of claim to what I perceive to be its core elements it is as follows:

hThe legal practitioner was the legal owner of a one-eighth share as a tenant in common in an unsubdivided parcel of land at Old Beach in Tasmania comprised in Certificate of Title Volume 4270 Folio 50.  (I interpose that according to the defence the legal practitioner also had the benefit of an agreement with his co-owners that he had to their exclusion a right to occupy and develop that portion of the land identified on a sketch plan as Lot 7.)

hOn 10 March 1986 the legal practitioner and his firm agreed to act for the plaintiff and the plaintiff’s wife in the purchase by them from the legal practitioner of Lot 7. 

hThe interest of the legal practitioner as vendor was in conflict with his duty to the plaintiff and the plaintiff’s wife as their solicitor in the transaction.

hWhilst still acting as the solicitor for the plaintiff and the plaintiff’s wife the legal practitioner entered into a formal written contract with them whereby he sold to them for the price of $45,000 property described as “all the vendor’s property known as Lot 7 on CT Vol 4270 Fol 50 and his interest therein” [emphasis added].

hIndependently advised the plaintiff would not have proceeded with a transaction in which he was obliged to accept upon settlement the legal practitioners equity in Lot 7 rather than legal title to Lot 7 if legal title had not issued by the time settlement was due.

hThe plaintiff paid the $45,000 in about December 1986 when no legal title to Lot 7 was available.  Legal title to Lot 7 as a separate parcel of land did not transfer to the plaintiff and the plaintiff’s wife until March 1989. 

hThe plaintiff sold his fishing vessel to raise funds to pay the purchase price. 

In his claim for relief the plaintiff claims equitable compensation for breach of fiduciary duty.

1. Counsel for the defendants confined his submission that the statement of claim does not disclose a reasonable cause of action to the proposition that without loss equity cannot compensate and no loss is disclosed because on the face of the pleading the plaintiff and his wife got what the plaintiff paid for, namely, the legal practitioner’s equity in Lot 7 and eventually legal title to Lot 7.

1. I reject the submission because firstly it is open on the pleading to interpret the claim as being for compensation for the loss of an asset, namely, the plaintiff’s fishing boat.  Secondly, it was not argued that as a matter of equity where a principal or beneficiary loses an asset as a result of a breach by a fiduciary of his duty, even in situations extending beyond express trusteeship, equity where the asset in specie cannot be restored may not restore its value (with any appropriate adjustments).

1. As to whether the pleading encompasses a claim that the fishing boat was lost I refer to the statement of claim par15 which is as follows:

“But for the first defendant’s breach of fiduciary duty, the plaintiff

a         would not have entered into a contract for the purchase of Lot 7;

b         would have refused to complete any such conveyance;

c         would have terminated the contract;

dwould not have sold his fishing vessel so as to obtain the funds to pay the first defendant.”

1. As to the relevant principles of equity they are discussed in Meagher Gummow & Lehane’s Equity Doctrines & Remedies 4^th ed.  Included in the discussion is a reference to two cases to which I refer.  The first is the case of re Dawson (deceased) (1966) 84 WN (Pt1) NSW 399.  That case concerned an express trust where the trustee had improperly paid away trust money.  I repeat the passage from the judgment of Street J (as he then was) at pp404 – 406 referred to by the authors of the text.  It is as follows:

“The obligation of a defaulting trustee is essentially one of effecting a restitution to the estate  The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage.  In Caffrey v Darby (1801) 6 Ves Jun 488; 31 ER 1159, trustees were charged with neglect in failing to recover possession of part of the trust assets. The assets were lost and it was argued by the trustees that the loss was not attributable to their neglect. The Master of the Rolls, in stating his reasons, asked ‘will they be relieved from that by the circumstance that the loss has ultimately happened by something that is not a direct and immediate consequence of their negligence?’ His answer to this question was that, even supposing that ‘they could not look to the possibility’ of the actual event which occasioned the loss, yet if they have already been guilty of negligence they must be responsible for any loss in any way to that property; for whatever may be the immediate cause the property would not have been in a situation to sustain that loss if it had not been for their negligence. If they had taken possession of the property it would not have been in his possession. If the loss had happened by fire, lightning, or any other accident, that would not be an excuse for them, if guilty of previous negligence. That was their fault.

Caffrey v Darby is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been if no breach had been committed.  Considerations of causation, foreseeability and remoteness do not readily enter into the matter.  To the same effect is the case of Clough v Bond (1838) 3 My & Cr 490; 40 ER 1016. It was argued before Lord Cottenham LC that ‘the principle of the court is to charge persons in the situation of trustees as parties to a breach of trust, wherever they have acted irregularly, and the irregularity, however well intended, has in the result enabled their co-trustees to commit a breach of trust, or has been, however remotely, the origin of the loss.’

…

The principles embodied in this approach do not appear to involve any inquiry as to whether the loss was caused by or flowed from the breach.  Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach.

…

The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries, is of a more absolute nature than the common-law obligation to pay damages for tort or breach of contract. It is on this fundamental ground that I regard the principles in Tomkinson’s case [1961] AC 1007 as distinguishable. Moreover the distinction between common-law damages and relief against a defaulting trustee is strikingly demonstrated by reference to the actual form of relief granted in equity in respect of breaches of trust. The form of relief is couched in terms appropriate to require the defaulting trustee to restore to the estate the assets of which he deprived it. Increases in market values between the date of breach and the date of recoupment are for the trustee’s account: the effect of such increases would, at common law, be excluded from the computation of damages but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it not withstanding that market values may have increased in the meantime. The obligation to restore to the estate the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation. In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before.” [emphasis added]

1. The second case I refer to from the text is O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262, a case concerning a company director’s breach of fiduciary duty. The authors refer to that case as an example in support of the proposition that the principles concerning the approach to causation and loss as set out in Dawson can arguably be applied to fiduciary situations extending beyond express trusteeship. In that case, Meagher JA summed up the position at p281 where he said:

“On the point which, however, cannot be disregarded - Mr O’Halloran’s liability in equity to make restitution to R T Thomas & Family Pty Limited - what the Chief Justice says, must, with respect, be entirely correct. By committing many and serious breaches of the fiduciary duties he owed R T Thomas & Family Pty Limited, he deprived that company of its ability to deal with one of its main assets, viz, its shares in Jeffries. In such a situation, no Court exercising equitable jurisdiction would debate whether the loss arose from the wrongful transfer, the retention or non-retention of share certificates, the failure to record the transaction, continuing attempts to sell the shares, or anything else. The company had a valuable asset, O’Halloran neutralized it. Equity will see to it that the value of the asset is restored.”

1. In my view, this is enough to dispose of the submission made on behalf of the defendants concerning the complaint that no recognisable loss is disclosed by the pleading.  That being the only basis upon which it was put to me on the hearing of the application that the statement of claim should be struck out and the action dismissed there will be no order in favour of the defendants at this stage.

1. Nothing in these reasons, which are confined to the limited basis upon which the submission was made, should be taken as implying that the pleading in the statement of claim is in a general sense sound.  The document when viewed as a whole may be far from clear.  In addition, perhaps, some key facts which ought to have been pleaded have been omitted.  The pleading does not disclose the date and basic content of the contract by which the fishing boat was sold nor the fact of and date of settlement of that sale.  Also, perhaps when particulars of the plaintiff’s loss are delivered there will be nothing in them about the fishing boat and if that turns out to be the case then obviously the pleading in its present form cannot be permitted to stand if objection is taken to it.

1. Finally, there was a secondary matter raised by counsel for the defendants which I can deal with briefly.  The claim for relief in the plaintiff’s statement of claim includes a claim for “equitable compensation in the nature of exemplary damages”.  Counsel submitted that such compensation is unavailable where the fiduciary relationship arises out of a contract between the parties.  He referred to Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298. Certainly counsel’s submission accords with the majority judgments in that case, but it is not a decision binding this court. The dissenting judgment of Mason P self-evidently demonstrates that the contrary position is arguable. I should only strike out the claim on the pleadings if it is clear and obvious that it cannot succeed. The position is yet to be settled in Tasmania and I am unpersuaded that the outcome of the claim for a punitive monetary award can be predicted now regardless of what might emerge at trial with such certainty and clarity as to justify summary dismissal.

1. I find against the defendants on the first ground specified in the application.  However, as the balance of the application is yet to be heard there will be no orders made at this time, other than for the purpose of dealing with the costs.