Vaiela Pty Ltd (as Trustee of the Pollicino Family Trust v Trisley

[2003] NSWSC 873

CITATION:	Vaiela Pty Ltd (as Trustee of the Pollicino Family Trust & Ors v Trisley [2003] NSWSC 873
HEARING DATE(S):	4 - 7 August, 11 - 14 August 2003
JUDGMENT DATE:	2 October 2003
JUDGMENT OF:	Cripps AJ
DECISION:	(i) suit dismissed; (ii) the plaintiffs to pay the defendant's costs.
CATCHWORDS:	fiduciary duty - negligence - misrepresentations - equitable compensation and/or common law entitlement to recovery of expenditure in unsuccessful litigation
LEGISLATION CITED:	Limitation Act 1969 (NSW), s23
CASES CITED:	Burke v LFOT Pty Ltd (2002) 209 CLR 282 Dering v Earl of Winchelsea (1787) 29 ER 1184 Livingstone v Raywards Coal Co (1880) 5 App Cas 25 Maguire & Tansey v Makaronis (1997) 188 CLR 449 O'Halloran v RT Thomas and Family Pty Ltd (1998) 45 NSWLR 262 Pilmer v The Duke Group Ltd (in liquidation) (2001) 207 CLR 165 Port of Melbourne Authority v Anshun (1981) 147 CLR 589 Reichel v Magrath (1889) 14 App Cas 655 Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198 Security and Exchange Commission v Chenery Corporation (1943) 318 US 80 Target Holdings Redfern Holdings [1996] 1 AC 421
PARTIES :	Vaiela Pty Ltd - 1st Plaintiff Francesco Pollicino - 2nd Plaintiff Teresa Maria Pollicino - 3rd Plaintiff Lawrence Paul Trisley - Defendant
FILE NUMBER(S):	SC 20095/97
COUNSEL:	DL Williams - Plaintiffs JT Gleeson SC with A Lo Sordo - Defendant
SOLICITORS:	McCave Terrill Lawyers - Plaintiffs Phillips Fox - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

CRIPPS AJ

Thursday, 2 October, 2003

20095/97 - Vaiela Pty Ltd (as Trustee of the Pollicino Family Trust) and Ors v Trisley

JUDGMENT

1 HIS HONOUR: By statement of claim the plaintiffs Vaiela Pty Ltd, Francesco Pollicino and Teresa Maria Pollicino sue the executors of the estate of the late Lawrence Paul Trisley (who died on 14 October 2001) for breach of fiduciary duty and negligence arising out of advice given and work done for them between 1976 and 1978. The statement of claim includes an allegation that Mr Trisley was also in breach of his contract of retainer, but that claim has been abandoned.

2 In 1976 the defendant was approached by the second named plaintiff (Frank Pollicino) for advice concerning the establishment of a discretionary trust, the trustee of which was to be the first named defendant (Vaiela Pty Ltd). The third named plaintiff (Teresa Pollicino) is the wife of the second named plaintiff.

3 At that time Frank Pollicino and his brother Salvatore Pollicino were owners as tenants in common of 148 Teralba Road Adamstown and Frank Pollicino, Teresa Pollicino and Salvatore Pollicino were the owners as tenant in common of 146 Teralba Road Adamstown. These properties were subsequently transferred to Vaiela Pty Ltd and held in trust for the Frank Pollicino Family Trust.

4 For ease of comprehension and not intending in any disrespect, I shall refer to the three named plaintiffs as “Vaiela”, “Frank” and “Teresa” respectively and to Salvatore Pollicino as “Sam”.

5 Sam, Frank and Teresa each had one share of Vaiela and each was a director. The beneficiaries under the trust were the children of Frank and Teresa. Sam had no children.

6 The defendant was Frank’s solicitor prior to the establishment of the discretionary trust, and, as he said in evidence in other proceedings, he regarded himself at all relevant times from 1976 to 1978 as the solicitor for Sam as well as for Frank, Teresa and Vaiela.

7 Although Sam has not given evidence, and I do not generally regard Frank as being an entirely reliable witness, I accept that until 1986 Frank and Sam had a close relationship. In 1986 they had a falling out. In 1987 Sam went to another solicitor and commenced proceedings against Frank, Teresa and Vaiela, claiming equitable relief. The suit came on for hearing before Windeyer J. Later I shall refer in more detail to the litigation, but for present purposes it is sufficient to note that Windeyer J held that by reason of breaches of fiduciary duty owed by Frank to Sam and by misrepresentations concerning the nature of the transactions referred to above Vaiela held 148 and 146 Teralba Road properties as to one half and one third respectively in trust for Sam and ordered that accounts be taken with respect to the properties, and as well, later acquired properties. An appeal to the Court of Appeal was dismissed.

8 The present proceedings were commenced in 1997, shortly after the litigation odyssey between Sam on the one hand and Frank, Teresa and Vaiela on the other had ended.

9 The proceeding have been conducted upon an assumption that there is an identity of interest between Frank, Teresa and Vaiela all of whom are suing the defendant for breach of fiduciary duty and in negligence and all are claiming the same entitlement to equitable compensation and/or common law damages. As I have said, the effect of Windeyer J’s order was that Vaiela, instead of holding the properties 146 and 148 Teralba Road Adamstown in trust for the Frank Pollicino Trust, held them as to one third and one half respectively in trust for Sam. It has been assumed that all plaintiffs suffered the same loss. Frank and Teresa subsequently became beneficiaries under the Frank Pollicino Family Trust and both claim to have suffered the losses allegedly caused by the defendant. At all events, as I have said, I shall approach this case on the assumption referred to above as the parties have requested. Because the relevant dealings on behalf of the three named plaintiffs were conducted mostly by Frank, I shall refer to him by name as representing all the plaintiffs unless it is necessary separately to identify the other two by name.

10 Frank’s primary claim in the present case against the defendant is that by reason of his breach of fiduciary duty and negligent conduct he should be held to be accountable to him with the consequence that he is entitled to recover from him, by way of equitable compensation or common law damages, in an amount of $1.77 million. That is to say the defendant should reimburse him for the loss of the value of the properties (including rents) and for expenses incurred by him consequent upon his unsuccessful attempt to resist Sam’s claim. It is submitted on Frank’s behalf that he need only establish that Sam, being fully informed, might nonetheless have transferred his properties to Vaiela to be successful in his claim.

11 His alternative case is that he is entitled to the sum of $770,000 by way of equitable compensation and/or damages on the basis that if Sam had been properly advised he would not have entered into the transactions at all and that he should be reimbursed for the expenses incurred in the litigation referred to above (being approximately $770,000) by reason of the fact that the conduct of the defendant was a contributing cause of Sam transferring his properties to Vaiela.

12 The breaches of common law and fiduciary duties are specified in paragraph 16 of the statement of claim. In essence they are that the defendant:

(i) failed to recognise “a conflict of interest between Frank, Teresa, Vaiela on the one hand and Sam on the other”;

(ii) failed to advise Sam to obtain independent financial and legal advice;

(iii) failed to explain adequately or at all to Sam the fact that under trust arrangements he would no longer have a “legal or practical” interest in 146 or 148 Teralba Road, Adamstown;

(iv) failed to explain to Sam that he would have no legal or beneficial interest in the trust or any of its assets;

(v) failed to utilise an interpreter to ensure that Sam understood the transactions; and

(vi) failed to record the legal and practical transactions between Vaiela, Frank and Teresa and Sam in writing.

13 As I have said, Frank’s primary claim is that, had Sam been advised in accordance with the common law and/or fiduciary obligation allegedly owed by the defendant to Frank, he would nonetheless have entered into the transactions because of his sense of family loyalty and his affection for Frank and that, by reason of Sam being appropriately informed as to the nature of the nature of the transaction, Frank would have been able to resist Sam’s claim before Windeyer J. That, of course, was the case they unsuccessfully sought to establish in the proceedings before Windeyer J and in the Court of Appeal. Frank wishes to maintain a case that, by reason of the defendant’s failure to discharge duties owed to him, he was unsuccessful in the case Sam brought against him with the result that he suffered losses referred to above. I am of the opinion that Frank’s primary case is not justiciable. If successful it would subvert the findings of Windeyer J and the Court of Appeal, (see Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198 and Reichel v McGrath (1889) 14 APP CAS 665). Also because, if I had to determine this matter afresh, as I am encouraged to do by Frank, I record that I am not satisfied that had Sam been given independent advice with respect to the matters referred to above, he would nonetheless have entered into the transactions. He had no children. He could be out voted by Frank and Teresa. And, for no benefit to Sam, he transferred his interest in appreciating real estate for non interest bearing unsecured loans of fixed amounts.

14 In the alternative, I am asked to assess Frank’s entitlement to damages upon the assumption that Sam, properly advised and informed, would not have entered into the transactions. If I understood the argument of Frank correctly, it is that, that being so, there would have been no litigation by Sam to set aside the transactions and/or any inquiries before the Master concerning the relations between Frank and Sam. It is submitted Frank is entitled to recover from the defendant the moneys expended in the litigation (including his unsuccessful appeal to the Court of Appeal) in which he failed to rebut Sam’s claim. I note that all plaintiffs (including, it would seem, Vaiela) are making claims for compensation for irritation and vexation consequent upon their litigation struggle over the years from 1987 to 1997.

15 Before turning in detail to the facts of the case, two further matters should be noted. The first is that, quite independently of the allegations of breach of fiduciary duty and negligence at law with respect to the conduct of the defendant in 1976 to 1978, a further claim is made against the defendant that, in breach of his fiduciary and/or common law duty he failed to furnish Frank with an affidavit prior to Sam’s claim against him coming on for hearing to assist him in his defence. Mr Williams, on behalf of the defendants, concedes that this is a novel claim bearing in mind that the defendant was concerned about a possible breach of confidence Sam might have reposed in him, and, in any event, as the Court of Appeal made clear, the question of waiver could have been determined prior to the proceedings actually commencing in the Court and the defendant could have been called as a witness.

16 The second matter is that in February of this year the defendant by notice of motion sought an order that the whole of the claim be struck out and that the proceedings be dismissed as an abuse of process (Rippon). The notice of motion was listed to be heard on the morning the case was listed for hearing. As I have said, it was submitted that the primary case sought to be made out by Frank, would, if successful, have subverted or undermined the decision of Windeyer J and the Court of Appeal. It was also submitted that Frank’s secondary claim now sought to be made against the defendant could and should have been made in the proceedings brought by Sam against Frank, conformably with the principles derived from Port of Melbourne Authority v Anshun (1981) 147 CLR 589 and for that reason should be struck out. It was submitted that the claims in negligence were statute barred and, by operation of either the doctrine of Laches or pursuant to s23 of the Limitation Act 1969, a claim for breach of fiduciary duty with respect to the advice given between 1976 and 1978 should be dismissed. It was also submitted that the claim against the defendant for failing to provide an affidavit should be struck out.

17 I commenced hearing the notice of motion but later determined that the more appropriate course was to hear the case and make determinations on the issues at the conclusion of all the evidence. I came to this conclusion in part because in the circumstances I would not, in any event, have determined the limitation issue without having all the evidence and also, because, as it seemed to me, it was preferable first to determine all the relevant facts before determining whether there was substance to the abuse of process claim.

18 I expressed the tentative view, however, (and being the one to which I now adhere) that it was not open to Frank in these proceedings to undermine or controvert the essential findings made by Windeyer J which were confirmed in the Court of Appeal. These findings were that Frank had a fiduciary duty to Sam, he breached his duty; that he compounded his inequitable conduct by misrepresentations and that, relevantly, his conduct was “the cause of”, “contributed to” or “materially resulted in” Sam entering into transactions he would not have entered into had there been no breaches of duty or misrepresentations by Frank. That is to say, I do not think it is open to Frank in these proceedings to advance what has been described as his primary claim - viz. that had the defendant not been in breach of what is claimed to be his fiduciary duty to him, Sam would, nonetheless, have entered into the transaction which was set aside by Windeyer J.

19 Having now heard all the evidence, it is probably unnecessary for me to express an opinion as to whether the secondary claim of Frank should be dismissed conformably with the Anshun doctrine. I was not referred to any Australian authority where a claim was struck out pursuant to the Anshun doctrine on the ground that a plaintiff should have joined a third party in litigation in which he was the defendant and I was not satisfied that it was unreasonable for Frank not to have raised the conduct of the defendant as a concurrent cause of Sam entering into the impugned transaction – although, if there were such a case, probably this would have been it.

20 As will be seen, I have rejected both Frank’s claims. It would seem to me, however, that even if Frank established an entitlement to equitable compensation and/or common law damages, he would not be entitled to the expenses incurred by him as claimed. But, because I have concluded that Frank’s claim should be dismissed, it is unnecessary for me to pursue this matter further.

21 In order to understand why Frank should not be permitted to raise his primary claim against the defendant, and why I do not accept his secondary claim, it is necessary to outline the background to the litigation.

22 I have already referred to the transactions involving all the parties to these proceedings (and, as well, Sam) which took place in 1976 to 1978. The defendant was Frank’s solicitor, but as he said, he regarded himself as being the solicitor for Sam as well. As I have said, at that time Sam had a one third interest in 146 Teralba Road and a half interest in 148 Teralba Road. Frank sought the defendant’s advice as to how he could minimise what would otherwise be his financial obligations to the tax commissioner, reduce the amount of death duty that would be otherwise owing by his estate when he died and to ensure that he was able to obtain and maintain unemployment benefits. The defendant, on Frank’s instructions, caused a shelf company (Vaiela) to be purchased and shares in it issued to Frank, Teresa and Sam. Frank, Teresa and Sam became directors and Vaiela became the trustee of the Frank Pollicino Trust, the beneficiaries of which were the children of Frank and Teresa. The transfer of the Teralba Road properties to Vaiela was for full consideration being unsecured non-interest bearing loans by Sam, Frank and Teresa at valuation.

23 In 1986 Sam and Frank fell out. In 1987 Sam commenced proceedings against Frank, Teresa and Vaiela. He made a number of allegations of misrepresentations by Frank. In particular, he alleged that he had been in partnership with Frank, and that Frank, in order to induce him to agree to his interest in the partnership business being assumed by Vaiela, represented that he and Sam would be equally entitled to a beneficial interest in all the company shares and that he and Sam would have control of the company. Sam alleged that Frank explained that the purpose of the trust was to allow him, Frank, to divert his income to children and that he represented to Sam that the transaction Sam was encouraged to enter into would not involve any change in the equal entitlement of Sam and Frank in the partnership business previously conducted by them.

24 In the 1987 statement of claim it was alleged that Frank was in breach of his fiduciary obligations to Sam and that he made fraudulent representations with the result that Sam signed the transfers of his land to Vaiela.

25 The litigation came on for hearing before Windeyer J in 1997. Sam’s primary case against Frank was that a partnership had existed between them, the assets of which included the Teralba Road properties, and that Vaiela, in effect, held those assets, in part, in trust for Sam. Sam’s case was rejected by Windeyer J who found, as a fact, that there had been no partnership. However, Windeyer J found that fiduciary relationship existed between Sam on the one hand and Frank and Teresa on the other and that there had been a breach of fiduciary duties with the consequence that Vaiela held land in trust for Sam. The learned trial Judge found that the effect of the transaction had not been explained to Sam, either by Frank or the defendant in these proceedings.

26 The learned trial Judge also found that Frank misrepresented the nature of the transaction to Sam. In particular, he found Frank had represented that Sam was to be one of the beneficiaries of the trust (which was untrue) and that Sam did not understand he was substituting his interest in appreciating real estate for non interest bearing unsecured loans of fixed amount. The defendant was not a party to the proceedings before Windeyer J and neither party called him (or Sam) as a witness in these proceedings.

27 Frank appealed to the Court of Appeal. On appeal it was argued that no fiduciary relationship existed between Frank and Teresa on the one hand and Sam on the other. However, it was conceded before the Court that in the event that the Court of Appeal were to hold that the conclusions of the learned trial Judge were correct and that a fiduciary relationship did exist in relation to the transactions concerning the properties, there had been established breach of fiduciary duty in relation to those transactions.

28 On the hearing of the appeal the appellants sought to adduce evidence from the defendant concerning the advice he gave to Sam during the period 1976 – 1978. As I have already mentioned, the defendant would not provide an affidavit to Frank concerning the advice he had given to Sam. He believed that to do so would amount to a breach of his obligation of confidentiality.

29 The Court of Appeal heard the evidence from the defendant and the evidence is now before me. The defendant has not given evidence because, as I have already mentioned, he died two years ago.

30 The purpose of seeking the leave of the Court of Appeal to admit the defendant’s evidence was to persuade the Court that Sam was not telling the truth concerning the extent of his knowledge of the transactions. It was submitted that the Court of Appeal should reverse the findings of Windeyer J and determine that there had been no fiduciary relationship between the parties or any breach, or, failing that, the judgment of Windeyer J should be set aside and the matter remitted to him for determination after having heard the evidence of the defendant.

31 The defendant’s evidence was not received in the Court of Appeal for the very good reason, as explained by Simos AJA, that it was available to have been advanced before Windeyer J and no good reason was advanced why he was not called. As Simos AJA pointed out, Frank, Teresa and Sam gave evidence before Windeyer J and hence any question of legal professional privilege would have been waived and the defendant could have given evidence concerning what information he imparted to Sam.

32 Moreover, Simos AJA was of the opinion that it would have been open to Frank to have made an interlocutory application to the Court for determination as to the defendant’s position with respect to his obligations to Sam prior to the commencement of the hearing or to serve a subpoena on him to give evidence at the hearing and no evidence was adduced to explain why the defendant had not been called. In evidence the defendant said that he would, of course, have answered any questions the Court required him to answer.

33 Simos AJA (with whom the other members of the Court agreed) was by no means persuaded that the evidence sought to be admitted by the Court of Appeal would have altered the outcome of the proceedings before Windeyer J. However, his Honour had assumed it might but dismissed the application for the reasons referred to above.

34 As I have said, the effect of the transactions with respect to the two properties was that Sam’s interest in them was transferred to Vaiela as trustee for the Frank Pollicino Family Trust, the beneficiaries of which were Frank and Teresa’s children. Sam was not a beneficiary, he had no children and he had transferred an appreciating asset for an unsecured non interest bearing loan.

35 The transcript of the evidence given by the defendant before the Court of Appeal was tendered before me. No submission is made by either party that I should not accept the evidence of the defendant. The defendant said that initially he was a solicitor for Frank but that in 1976 or 1977 he became a solicitor for Sam as well as Frank in order to give effect to the establishment of the discretionary trust referred to above. He prepared the trust deed and the transfer. Most of the conversations were with Frank but he had conference with Sam and Frank prior to the execution of the trust deed. When asked what explanation was given to the three of them (i.e. Sam, Frank and Teresa) when they were all present he said:

“It was the transfer of the properties to trust in an effort to cap their assets for estate planning purposes to minimise death duties.”

36 He said he did not advise Sam to get independent advice and gave no advice to Frank that Sam had not been advised to get independent advice concerning the transaction. In my opinion it strains credulity in the circumstance of this case to conclude that Frank did not know that Sam had not been independently advised.

37 In evidence the defendant said:

“I explained to both of them that Sam could set up a family trust in the same way as Frank and Teresa were, but the whole purpose of the exercise was to cap assets. I said they could form a unit trust in which Sam’s family trust and Frank’s family trust could be unit holders. I advised them that if they did that Sam could not be a beneficiary of his own trust and it would treble establishment costs and management administration of the trust for the three and, therefore, you could just have one trust.”

38 He said he explained that under the proposed arrangements “it would be at the discretion of the trustees as to who receives the incoming capital” and that he told Sam he could not be one of the beneficiaries of his own trust property. He said he told Sam that this was so because if he became a beneficiary his interest could be “clawed back”. This was a reference, I assume, to the relevant death duty legislation at the time.

39 Later, in answer to a question from Mahony P as to Sam’s reaction to the information he received, he said he did not remember Sam’s exact words but said that:

“after Frank said something to him in Italian he gave me the impression he accepted the proposition, or the advice that was given”.

The advice was that he was to transfer his property to Vaiela and not to form an individual trust for Sam.

40 The defendant did not speak Italian and it is clear that Sam’s English was not good.

41 The defendant said that immediately after the trust deed was signed he advised Frank it would be necessary to transfer the properties from themselves to the trustees at full market value but he did not speak to Sam at all in respect of obtaining valuations and the like.

42 After he received the valuations, he said he prepared a contract and transfer for one of the properties and Frank, Teresa and Sam attended his office for signing. No further explanation was provided at the meeting. He was asked by Frank’s counsel:

“Q: When you asked them to sign these documents (the contract and the transfer) did you tell them, describe to them in any way what the documents were?
A: I would have yes – these are documents to transfer the property to the trust.”

43 In answer to a question from the bench, the defendant said that he was receiving instructions from Frank but that he also considered he was acting on Sam’s behalf and he said:

“I thought they were brothers and working together. I took instructions in that fashion.”

44 Later he gave evidence that, after the falling out in 1986, Sam saw him and told him that he had had an argument with Frank and that he wanted his “one third of the company”. The defendant said Sam was told that he did not have a one third interest in the company and that he should arrange for Frank, Teresa and the accountant to come to his office where they could have a discussion.

45 The defendant said that when told of this Sam was angry. He then met with Frank, Teresa and Sam when Sam stated that he understood that the company was formed to take over “the partnership between he (sic) and Frank”. The defendant said this was the first time he had heard of a partnership and when the claim was made Frank denied it. Sam said he had been tricked when the defendant told him he was not a one third owner of the company but a shareholder of a company which was a trustee of a trust of which he was not a beneficiary. He said that throughout the conversation Sam was maintaining he was entitled to one third of everything.

46 The defendant said that mostly Sam spoke in Italian to Frank and that he (the defendant) had difficulty in understanding him when he attempted to speak in English.

47 Further, he said that believed Sam understood what had been said because he believed, I infer, that Frank properly translated what the defendant said. The defendant said Frank paid all the bills and none were sent to Sam. He said:

“I assumed that he (Sam) was aware of what he was doing.”

He said that understanding derived from what he believed was a family venture with “the intention of capping their estates” i.e. that the unsecured interest free loans would be included in their estates irrespective of the value of the properties at the date of death. However, he said he did not recall explaining this to Sam but he did recall some discussion “concerning Sam’s future entitlement to a pension”.

48 In cross-examination by counsel for Sam he agreed that he had difficulty in communicating with Sam because of his lack of good English and referred again to the fact that Frank translated from English into Italian and that he, the defendant, did not understand Italian. He said he understood the transfer of the properties extinguished Sam’s interest in it altogether including any rents he could have obtained from them and that he was not a beneficiary and had only one third say in who was to become a beneficiary. (Subsequently Frank and Teresa became beneficiaries.)

49 He said that at the time he did not think the transactions were detrimental to Sam’s interests and when asked:

“As far as things were OK for death duty purposes you didn’t turn your mind to any detriment Sam might suffer whilst he was alive from this transaction?”

and he answered:
“I suppose not.”

50 He was then asked:

“Q: Did you understand there to be a conflict of interest in acting for Sam and Frank and Teresa on these transactions?”
A: Not at the time.”

Later he said:

“To be honest, I didn’t turn my mind to it at the time.”

51 He admitted that with hindsight he should have recognised a conflict or potential conflict of interest between Sam on the one hand and Frank and Teresa on the other and conceded he did not think it was necessary to advise Sam to get independent advice because it never occurred to him.

52 In the light of the evidence given by the defendant to the Court of Appeal it is not surprising, in my respectful opinion, that Simos AJA was by no means convinced that the evidence of the defendant would have had the effect of persuading Windeyer J that Sam knew more of the transaction than he was prepared to admit. I should add that if it were necessary for me to do so, I would reach the same conclusion.

53 In the present proceedings Sam was not called. In an affidavit sworn by Frank he said he had a conversation with Sam in which he said:

“We have just been to see Paul Trisley, the solicitor, about setting up a family trust so we can protect the family financially in case one of us has another accident and dies. If you and I have an accident or can’t work we wouldn’t be able to get the pension because we own property. If we sold the property to the trust then we would be able to get a pension because the trust owns the property. Also we might not have to pay as much tax if the trust owns the property. We would have to sell the flats to the trust and the solicitor will find out the value of the units.”

54 Later he said:

“The trust is controlled by us because we will be the directors. We will do anything we like with the properties and when the trust makes money we can choose who can get the money. This way we can pay some of the money to the children so we can save tax. It also means that when any one of us dies we do not have to pay death duties like we had to when Teresa’s father died.”

55 Sam allegedly said:

“It would be good if we did not have to pay death duties.”

56 Frank’s affidavit continued:

“’Yes, I think it is a good idea because we will be able to save taxes and save paying any death duty. We should ask Paul Trisley to prepare the trust for us. When he prepares the papers we will have to see him to sign them. What do you think?’
Sam said: ‘Alright, do it.’”

57 Frank also deposed to a further meeting with the defendant in the course of which he was told by the defendant that he need not worry about his children selling the properties because:

“You would control the properties by virtue of you being the directors of the trustee company. You would control what happens to the properties and who would get the income you derive from the building. You would decide where it goes and amongst who of your children would get it. Look it’s like an apple tree. You and your wife would control the apple tree. You can prune the tree whenever you like. You can pick as much or as little fruit from the tree as you like and you can give the apples or the fruit to whoever you like. Also if you wanted you could grow another apple tree.”

58 Frank alleged that the defendant said:

“Have you discussed this matter with your brother?” -

and Frank replied:

“It is OK to go ahead with the trust.”

He said the defendant then said:

“That is good because the three of you will have to agree to sell the property to the trust. The three of you will be directors of the trustee company and decisions will have to be made by the majority between you three. Having three directors is better than having only two directors because you can always decide on what to do based on a majority vote between the three of you. Where you only have two directors there is a potential for a deadlock between the two directors. Anyway go home and have another think about this, discuss it with your brother and let me know if you would like me to prepare the trust documents.”

59 Frank said he spoke to Sam and said:

“Teresa and I saw Paul Trisley today. We asked him about how the trust would work. He explained the trust as being like an apple tree. The trust is the apple tree and we look after the apple tree. We can do whatever we like with the tree and the fruit produced by the tree. We can pick the fruit and give it to the children or take the fruit ourselves or leave the fruit and let it grow and pick it later. The trust would be owned by my children and a charity if there are no children still alive. We would be employed by the trust and paid by the trust. This means that if any one of us has an accident we would be covered as employees by insurance. I want to ask Paul Trisley to prepare the trust. D you agree?”

He said Sam said:

“Yes, that sounds good but I want to leave my money in trust so I can receive unemployment benefits or a pension in the future.”

60 Frank said he told the defendant that he had discussed the matter with Teresa and Sam and instructed him to proceed.

61 Windeyer J found that Frank misrepresented the nature of the transaction he was encouraging Sam to enter into. The tender of the judgment by Windeyer J does not establish the truth of the facts found in the judgment. However, in my opinion, the judgment is admissible for the purpose of determining whether the finding that has been asked in the present case, namely that I should conclude that Sam would have continued with the transaction quite independently of anything his brother told him and/or of any advice he might otherwise have received, would be to subvert or undermine the conclusion arrived at by Windeyer J and later the Court of Appeal. Windeyer J’s findings were summarised by Simos AJA in the Court of Appeal as follows:

“Not only was Sam not fully informed which would have been a difficult task having regard to his limited understanding of English and of business and of legal affairs, but, as the learned trial Judge found, the first appellant (Frank) actually misrepresented to the respondent (Sam) the effect of the relevant transactions thereby compounding his breach of fiduciary duty .” (emphasis mine)

62 For this Court to make a finding that Sam would, if fully informed, have proceeded with the transaction had he been independently advised with the consequence that Frank would not have been required to cause Sam’s interest in the property to be returned to him would, in my opinion, be to subvert the conclusions reached by Windeyer J and the Court of Appeal.

63 Mr Williams characterised the duties allegedly owed by the defendant to Frank as follows:

“Mr Trisley (the defendant) owed a duty to all of the people he was representing … Part of that duty was to make sure, to the extent that there was a conflict of interest, in what he was proposing to do, the appropriate steps were taken to remove the problem and to make sure they all got the advice they were supposed to get and it was in Frank and Teresa’s interest to ensure that Sam was properly advised so he could not come along and seek to vitiate the transaction.”

64 In Reichel the House of Lords held that a defence not barred by res judicata estoppel could nonetheless be struck out as an abuse of process because:

“It would be a scandal to the administration of justice if the same question having been disposed of by one case, the litigant were to be permitted by changing the form of the proceedings to set up the same case again … There must be an inherent jurisdiction in every Court of Justice to prevent such an abuse of its procedure.”

65 It must be steadily borne in mind that Sam has never attempted to make a case against the defendant for breach of fiduciary obligation. Had he done so by, for example, adding the defendant as another defendant in the case he brought against Frank, it may have been that the court would have held that the defendant’s conduct was a contributing cause to the loss suffered by Sam. But that is not this case. The case that is sought to be made by Frank is that because the defendant was his solicitor and, at the same time, the solicitor for Sam, the defendant had a fiduciary obligation to Frank to ensure that Sam had independent legal advice leaving him fully informed and that failure to do that rendered the solicitor liable for whatever adverse consequences might thereafter ensue. It was on that basis, as I would understand Mr Williams’ submissions that Frank’s case was pitched consequent on breach of duty, as being either that Sam might have gone ahead with the transaction or he might not have gone ahead with the transaction and the defendant was responsible for whatever loss was the greater. As I have said Frank’s primary case is that Sam would have proceeded with the transaction – that being a possibility, it was submitted, arising from family loyalty and to be given credence by the circumstance that the brothers Frank and Sam appeared to be close in 1986. However, for reasons referred to above, I am of the opinion that the primary case sought to be made out is not justiciable in this court.

66 The alternative claim is that the defendant had a common law and equitable obligation to Frank which were breached by him and that, as a consequence, Sam entered into the subject transaction and he would not have done so, or at least, might not have done so, had the defendant’s duty been fully discharged. As I have said, it was submitted that, conformably with the Anshun doctrine, this was a claim that should have been made in the earlier proceedings and for that reason, and conformably with the doctrine, cannot be raised in these proceedings. For reasons which I have already given, I have not summarily dismissed this claim on the Anshun basis. However, and, assuming it is established that the conduct of the defendant in breach of his fiduciary obligations contributed to the decision of Sam to transfer his property to Vaiela, a further question arises whether a court would countenance the giving of equitable compensation to a misrepresenting wrongdoer when that compensation is calculated by reference to the costs incurred by the wrongdoer unsuccessfully attempting to resist the legitimate claim of his victim.

67 It may amount to negligence in law for a solicitor acting for both parties to a transaction to fail to advise either that, unless the other were independently advised, the transaction may be vulnerable to attack on the ground that that party may later claim that he or she were not fully informed of the nature of the transaction.

68 But that is hardly this case. I would infer that Frank knew perfectly well that Sam received no independent advice or, at the very least, I am not satisfied that Frank was ignorant of that circumstance. In my opinion, this is an inference open to be drawn from the evidence of the defendant. This is not a case where the defendant is alleged to have preferred his own personal interests which were in conflict with his duty to his client. At its highest this case is concerned with the possible conflict of duty owed to two clients. The defendant did not withhold from Frank any circumstance of which he was ignorant. So far as the defendant was concerned, he accepted what Frank told him Sam understood about the matter.

69 Mr Williams has submitted that cases in the books draw no distinction between the obligations of a fiduciary solicitor who has a personal interest in conflict with that of his client and the remedies available thereafter and a solicitor having no personal interest in conflict but who owes a duty to both clients in circumstances where there may be a conflict of interest. That, in my opinion, is an oversimplification of the law on this subject. Otherwise than not telling Frank something he already knew, viz. that Sam was not being independently advised, it has not been established, in my opinion, that the defendant withheld any information from Frank that he was in law obliged to give him in discharge of his equitable obligation.

70 In Pilmer v Duke Group Ltd (in liquidation) (2001) 207 CLR 165 the High Court confirmed the understanding that obligations of a fiduciary are proscriptive and not prescriptive. Pilmer stands as authority for the proposition that there are not imposed upon fiduciaries a quasi tortious duty to act solely in the best interests of their principles.

71 In Pilmer the Court referred with approval to the observations of Frankfurter J in Securities and Exchange Commission v Chenery Corporation (1943) 318 US 80, as follows:

“But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?”

72 The defendant was a fiduciary to Frank. But, as Frankfurter J pointed out, that only begins the analysis. Did he have a fiduciary obligation to inform Frank that which they obviously knew perfectly well, viz. that Sam had received no independent advice? In my opinion the answer must be in the negative. Did he have a further fiduciary obligation to inform Frank that Sam’s contribution to the assets of Vaiela could be vulnerable to attack bearing in mind that Sam had not been independently advised? And if that fiduciary obligation existed, what were the consequences of the defendant’s deviations from duty? The detriment alleged is that he spent moneys because he elected, unsuccessfully, to attempt to defend Sam’s case against him. As at 1978 Frank’s ambitions appeared to have been achieved subject only to Sam discovering in due course that he had been hoodwinked.

73 As I have said, I accept that at law the defendant had an obligation to ensure that Frank (assuming he was acting honestly) was aware that because, as Frank knew, Sam was not independently advised, it might be in the future that he would seek to set aside the transaction. However, I do not think that in law or in equity he had an obligation to Frank guaranteeing him that if Sam sought to agitate the question of Frank’s misrepresentations and breaches of duty he might nonetheless be able to deny Sam the remedy otherwise appropriate.

74 Ordinarily, a person in Frank’s position would be entitled at law to expect a solicitor to ensure, so far as it could be done, that a transaction such as the subject transaction could not be impugned later (assuming the conduct of his client was lawful and not deceitful). It was clear that Sam did not understand English very well and that it was possible he may later seek to impugn the transaction. But, in my opinion, it would be quite another thing to hold that as a solicitor he had an obligation to protect Frank from the consequences of his misrepresentations and breach of duty. The loyalty of the defendant did not extend to that. And, as events turned out, in 1978 at least, Frank got precisely what he wanted – at least for the time being. Later he lost it because of the exposure of his misrepresentations and breach of duty to Sam.

75 Mr Williams has submitted that the duty, breaches and consequences of the breaches alleged against the defendant in these proceedings are quite distinct from the duty, breach and consequences alleged by Sam against Frank in the earlier proceedings. Nonetheless, to succeed in his claim before this court Mr Williams has to persuade me that there is some connection between what it is alleged the defendant did not do and the loss as allegedly suffered by Frank - being the costs of unsuccessfully litigating a legitimate claim brought by Sam in the Supreme Court and later unsuccessfully appealing to the Court of Appeal and in the litigation before the Master in Equity. However the term is expressed, i.e. as “causation”, “contributed to”, “materially related to” – it seems to me that there must be an established connection between what was done, assuming it to be in breach of a fiduciary obligation, and the later consequences for which equitable compensation is sought.

76 Mr Williams, as I would understand it, submits that a “cause” of Sam entering into the transaction which was subsequently set aside was the breach of fiduciary duty and misrepresentations by Frank. He submits, however, that another “cause” was the failure of the defendant to ensure that Sam received independent advice and fully understood the implications of the transaction.

77 The evidence of the defendant to which I have already referred makes it clear that at the time he saw no conflict but, with hindsight, recognised there was the potential for conflict. I am also prepared to assume that, had Sam been independently advised, it is probable he would not have continued with the transaction because, as I have already said, there was little advantage to him in its implementation. I accept that had Sam commenced proceedings against the defendant, or joined him in the proceedings against Frank, he would, on the information before me, have made out a case for breach of fiduciary duty in that he was being disadvantaged by the transaction because he was not independently advised. But, as I have said, this case is not concerned with Sam’s relationship with the defendant otherwise than whether the failure of the defendant to tell Frank that Sam’s failure to be independently advised amounted to a breach of fiduciary obligation to him. But, even if the defendant had been joined, the remedy granted by Windeyer J to Sam would have been the same, i.e. that the transaction would have been set aside.

78 It was Frank’s case before Windeyer J, and later in the Court of Appeal, that Sam was fully aware of the implications of the transaction. He could have been joined as a defendant and have argued that he had no reason to suppose that Sam had any misunderstanding about what he was doing, but if that were not correct, then that was the fault of the defendant. It is for this reason that, although rejecting the application of Anshun to this claim, I thought there were arguments favouring it.

79 But however that may be, I have allowed the matter to be litigated and have come to the conclusion that the defendant did not have a fiduciary obligation to Frank of the kind asserted by him. I have also come to the conclusion that, if there was such a duty then breach of it in the present circumstances does not entitle Frank to the losses he claimed, i.e. recoupment for expenses incurred in the unsuccessful litigation. The defendant being ignorant of Frank’s misrepresentations, may have owed Frank a duty of care to advise him of the consequences of Sam’s lack of independent advice. But, in my opinion, the loss claimed would not be a loss recognised by common law principles consequent upon breach of duty of care. That is because his “losses” (as claimed) were the moneys expended by him attempting to resist Sam’s lawful claim. Frank was the cause of these losses.

80 Mr Williams, on behalf of Frank has accepted, for the purpose of this argument, that a “cause” of Sam entering into the transaction which was subsequently set aside was the breach of fiduciary duty and misrepresentations by Frank. He submits, however, that another “cause” was the failure of the defendant to ensure that Sam got independent advice and fully understood the implications of the transactions. As I have said, that argument may have had some attraction were Sam to have sued the defendant as well as Frank and a finding made that Frank’s misrepresentations were swamped by undefended legal advice. But, as I have said, I do not think the defendant owed the fiduciary obligation identified by Mr Williams to Frank. Furthermore, as I have said, although there may have been a breach of the common law duty of care, the losses claimed by Frank were not the result of anything the defendant did. They were the result of Frank’s later conduct.

81 I have been referred to a number of cases by Mr Williams in support of his submission that the consequences of breach of fiduciary duty by a solicitor are the same whether the solicitor prefers his own interests over that of the client or whether he prefers the interests of one client over another client. However, when considering the question of causation insofar as it relates to compensation it is relevant to have regard to O’Halloran v RT Thomas and Family Pty Ltd (1998) 45 NSWLR 262 and to Target Holdings v Redferns [1996] 1 AC 421.

82 In Target Lord Brown-Wilkinson said:

“’In common law there are two principles fundamental to the award of damages. First the defendant’s wrongful act must cause the damage complained of. Second that the plaintiff must be put in ‘the same position as he would have been had he not sustained the wrong for which he is now getting his compensation or reparation’ ( Livingstone v Rawyards Coal Co (1880) at App Cas 25 at 39 per Lord Blackburn) Although it will appear in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by such wrong. He is not responsible for damage caused his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same.”

Later His Lordship said:

“Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests. To make good a loss in fact suffered by beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach.”

83 I accept that, had Sam sued the defendant, he could not have set up the wrongdoing of Frank as being the real cause of Sam’s loss. But that would not have entitled Sam to a remedy by way of equitable compensation because Sam’s remedy would have been what in fact Windeyer J ordered, viz. that the properties be held in trust for Sam. But, as I have said, I am not dealing with a hypothetical case brought by Sam. Frank is seeking monetary compensation – being recoupment from the defendant of the expenses and “losses” incurred by him in unsuccessfully attempting to repel the case brought against him by Sam.

84 The central point in this case is whether, either in law or in equity, the defendant is liable to recoup Frank for the consequences of his own deliberate wrongdoing. (As I have said, even if the liability were held to exist, the defendant would not be responsible for all the costs and expenses outlaid by Frank in unsuccessfully attempting to defend the case Sam brought against him.)

85 In my opinion Burke v LFOT Pty Ltd (2002) 209 CLR 282 has relevance to this case. In that case a defendant guilty of misrepresentation sought to recover equitable contribution from the purchaser’s solicitor because he did not properly advise the purchaser to inquire about the solvency and financial standing of tenants and of the vendor. Gaudron A/CJ and Haines J said:

“Culpability, as a factor bearing on the right to equitable contribution, clearly explains the requirement for there to be contribution between co-trustees, co-trustees must be in pari delecto . So, too, it explains the rule that a person who has been guilty of fraud, illegality, wilful misconduct or gross negligence is not entitled to contributions from his partners.”

86 In Dering v Earl of Winchelsea (1787) 29 ER 1184it was said:

“If a contribution were demanded from a ship and cargo for goods thrown overboard to save the ship, if the plaintiff had actually bored a hole in the ship, he would in that case be certainly the author of the loss and would not be entitled to any contribution.”

87 Frank is not seeking equitable contribution from the defendant – he is seeking total recoupment. Had he sought equitable contribution, the remedy, in my opinion, would have been denied him on the basis of his own misconduct. A fortiori therefore, he should not be recouped for money expended by him unsuccessfully defending Sam’s claim. In LFOT the judgment referred to the misleading conduct of the plaintiff as being the positive inducement to the purchaser to purchase whereas the purchaser’s solicitor’s failure to advise that further inquiries should be made merely had the consequence that the vendors’ misleading conduct remained undetected (and that, I think, is this case). In those circumstances McHugh J (at 309) thought it not inequitable that the vendor be solely liable to reimburse the purchaser even though the purchaser might have discovered the misleading and deceptive nature of the representations but for the omissions of the solicitor, Mr Burke. His Honour said:

“It would be inequitable, however, if Burke, who gained nothing from the transaction and was misled by LFOT, should now have to pay LFOT the sum of …”

88 In my opinion, Frank’s claim must fail both at law and in equity. At law because, assuming a breach of a duty of care by the defendant to Frank, the effective cause of Frank’s “loss” was his own breach of duty and misrepresentation. In my opinion the same result would follow even if, contrary to my earlier finding, the defendant had an equitable obligation to Frank in the manner contended for. It would be inequitable for the defendant who gained nothing from the transaction and who, as I infer, was misled by Frank to now be required to pay Frank’s expenses incurred at his election in endeavouring unsuccessfully to defeat Sam’s legitimate claim.

89 I have also referred to the claim of Frank that the defendant was in breach of fiduciary duties owed by him to Frank and/or breach of duty of care at law because he failed to furnish Frank with an affidavit concerning Sam’s understanding of the transactions on the ground that to so might have been in breach of the confidence he owed to Sam. It is to be recalled that the purpose of calling the defendant in the Court of Appeal to give evidence was to persuade the court that Sam was fully informed about the transaction, and as a foundation for an application to enter a verdict in favour of the appellants, or, in the alternative, that the case be ordered to go back for a new trial. Mr Williams has, as I have already mentioned, conceded that this is a novel cause of action. In my opinion it must fail for a number of reasons. First, because the defendant did not owe Frank a duty of care in equity or at law obliging him to furnish him with an affidavit to assist Frank in his claim against Sam. Second, because, even if there were a duty, the assumption I would make is that the defendant would have said before Windeyer J what he said in the Court of Appeal and that would not have had the consequence that Sam would have lost his case. But, if I were to assume that the evidence of the defendant would have had the result that Sam would not have lost his case, the question might then be asked rhetorically: what then was the defendant’s negligence or breach of duty if the explanation he would have given would have been good enough to overcome the misrepresentations of Frank because Sam had a full understanding of what he was doing? But however that might be, the evidence given by the defendant to the Court of Appeal would not have negatived the consequences of the breach of duty and misrepresentations by Frank. But even if there were a failure to discharge duties, the failure had no compensatory consequences. As Simos AJA pointed out, the question as to whether confidence had been waived could have been determined before the case commenced, and, in any event, the defendant could have been called to give evidence in the proceedings.

90 It is unnecessary for me to deal with the submission of the defendant that the claims of Frank are barred by the Statute of Limitation and/or the equitable doctrine of laches.

91 In my opinion the suit must be dismissed. The formal order of the Court is:

(i) suit dismissed;

(ii) the plaintiffs to pay the defendant’s costs.

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Last Modified: 10/09/2003