Wendt v Northwood

[2004] NSWSC 23

CITATION:	Wendt v Northwood [2004] NSWSC 23
HEARING DATE(S):	22/09/03, 23/09/03, 24/09/03, 10/10/03
JUDGMENT DATE:	29 March 2004
JUDGMENT OF:	Shaw J at 1
DECISION:	1) The plaintiff's claim for equitable damages for breach of fiduciary duty does not succeed;; 2) The plaintiff's claim for improper profit arising from a breach of fiduciary obligations does not succeed;; 3) The plaintiff's claim under s42 of the Fair Trading Act 1987 (NSW) does not succeed;; 4) The plaintiff to pay the defendant's costs.
CATCHWORDS:	fiduciary obligations - solicitor/client relationship - continuing relationships - duty of disclosure - conflict of interest - improper profit - s42 Fair Trading Act, misleading and deceptive conduct
LEGISLATION CITED:	Fair Trading Act 1987 (NSW), ss42, 68 Real Property Act 1900 (NSW), s126
CASES CITED:	Allison v Clayhills (1907) 97 LT 709; Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; Boardman v Phipps [1967] 2 AC 46; Breen v Williams (1998) 186 CLR 71; Briginshaw v Briginshaw (1928) 60 CLR 336; Chan v Zacharia (1984) 154 CLR 178; Clarke Boyce v Mouat (1994) 1 AC 428; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 ; Farrington v Rowe McBride & Partners [1985] 1 NZLR 83; Heydon v NRMA Ltd (2000) 51 NSWLR 1; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Jones v Dunkel (1959) 101 CLR 298; Jordy v Vanderplump (1920) 64 SJ 324 (Ch); Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342; Maguire v Makaronis (1997) 188 CLR 449; McMaster v Byrne [1952] 1 All ER 1362; Morris v Hanley (2003) 173 FLR 83; Nocton v Lord Ashburton [1914] AC 932; Payne v Parker [1976] 1 NSWLR 191; Phelan v Middle States Oil Corp (1955) 220 F 2d 593; Pilmer and Ors v Duke Group Ltd (2001) 207 CLR 165; Prince Jeffri Bolkiah v KPMG (A firm) (1999) 2 WLR 21; Re Demagogue Pty Limited v Ramensky (1992) 110 ALR 608; (1992) 39 FCR 31; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; The Marriage of Griffis (1991) 105 FLR 441; Tyrell v Bank of London and Ors (1862) 10 HLC 26; Warman International Limited & Anor v Dwyer & Ors (1995) 182 CLR 544; Wendt v Northwood [2003] NSWSC 546
PARTIES :	Roy Wendt - Plaintiff Kenneth Edward Northwood - Defendant
FILE NUMBER(S):	SC 20172/2000
COUNSEL:	W. Haffenden with S. Bensen - Plaintiff D. Williams - Defendant
SOLICITORS:	Kenneally & Co Solicitors - Plaintiff Acuiti Legal Solicitors - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

Shaw J

29 March 2004

20172 of 2000


Roy Wendt (Plaintiff)

v

Kenneth Edward Northwood (Defendant)

JUDGMENT

1 Shaw J: On 15 August 2001 the plaintiff commenced an action against the defendant, a solicitor, in deceit and fraud pursuant to s 126 of the Real Property Act 1900 (NSW), negligence, and breach of duty. This has since been altered by the filing of an amended statement of claim on 22 March 2002, on which the plaintiff was granted leave to rely: Wendt v Northwood [2003] NSWSC 546. The plaintiff now seeks damages for breach of fiduciary duty and makes a claim for damages resulting from an alleged breach by the defendant of s42 Fair Trading Act 1987 (NSW).

2 The plaintiff bears the onus to prove these matters on the balance of probabilities. Where a serious allegation of the kind made against the defendant is made, the court must exercise more than the usual caution before making a decision, on the balance of probabilities, that a solicitor has breached his duty in this way: Briginshaw v Briginshaw (1928) 60 CLR 336.

Background

3 The plaintiff was, between 20 January 1993 to 5 June 1998, the registered proprietor of land at 48 New South Head Road, Vaucluse (“the property”).

4 The defendant was a director of Australian Commercial and General Corporation Pty Limited (“ACG”) from October 1996, indeed it is said that from about 20 August 1997, the defendant was the sole director of ACG. The defendant claims to have been no more than a “shadow” director of ACG, holding shares in trust for the benefit of a Ms E. Howard (a declaration of trust dated 2 October 1996 to this effect was tendered). The defendant was, at all material times, also a director and shareholder of a family company called Maken Pty Ltd (“Maken”). At various instances in 1997 Maken advanced monies to ACG totalling $245,000.

Transactions

5 The plaintiff says that on or about 29 March 1997 he granted to ACG an option to purchase the property, exercisable within 12 months, at a purchase price of $700,000. On 26 August 1997 the plaintiff received an option fee of 1% of the purchase price, being $7,000.

6 The plaintiff argues that on or about 11 November 1997 the defendant gave legal advice, in his capacity as a solicitor to the plaintiff, in relation to a mortgage over the property. The mortgage was executed on the same date.

7 The mortgage in question (3605841B) was a mortgage for $450 000 over the property in favour of Albeit-Maree Woodward, John Cambridge Fraser and Patricia Fraser, and LV Deakin Pty Ltd as tenants in common in unequal shares. This document was dated 11 November 1997 and was signed by the defendant in his capacity as a solicitor, as a witness for the plaintiff. Significantly, all cheques from the mortgagees were made payable to ACG (Exhibit 1 #102).

8 On 19 November 1997, a contract for sale of the property was executed and the plaintiff received a $70,000 deposit, less the $7,000 paid as an option fee. The deposit was released to him, by agreement, on the exchange of the contracts. Also on that date, Maken, the defendant’s family company, advanced $100,000 to ACG secured by an assignment of an option over the property. The defendant deposes to a conversation with Ms Howard in which she offers this security instead of her having ‘trouble associated with a registered mortgage’.

9 File notes made by representatives of the firm Beilby Poulden Costello on 19 November 1997 (who appears to have been advising the plaintiff on these transactions, though the plaintiff denies that the firm was retained by him) record the following (Exhibit 2 # 509):

I attended on Mr Wendt and Ms Howard in Christine’s room this morning to exchange Contracts. I received the cheque for the deposit in the sum of $63,000.00 and handed it directly to Mr Wendt as per his instructions. (There is no agent) Ms Howard then provided a direction that we uplift the certificate of title B/305892 and give it to her.
I asked Barry about this and he was adamant that the title was not to be given to her now but as usual, at settlement.
Barry spoke to Mr Wendt in private and advised him that this is highly irregular and abnormal. The title must not be handed over to her.
Upon return to Christine’s room Ms Howard argued that this was a purely commercial transaction and Mr Wendt as director of the purchaser company was obtaining an advance from Australian & Commercial Pty Ltd (the purchaser company) and using the property as security. Mr Wendt confirmed this.
I suggested that they wait until Barry finishes his meeting. Ms Howard claimed she had to attend the settlement in relation to the mortgage and could not wait.
She then handed the title to Mr Wendt and said that it was his to do as he wishes and they both left the office. Apparently he was also attending the settlement.
Anita

10 A further file note of the same firm, also dated 19 November 1997 states (Exhibit 2 # 510):

I further attended on Mr Wendt today by telephone querying the position regarding the title deed. I gave clear and unequivocal advice to seek the return of this title deed until the appropriate documentation had been prepared and his interests protected.
I expressed great concern that he seemed to know nothing about what his interest in the transaction would be.
Barry Beilby

11 A letter from the firm to the plaintiff dated 20 November 1997 confirms the plaintiff’s receipt of $63,000 on exchange of contracts and noted (Exhibit 2 # 529):

We note that at exchange you provided a direction that we uplift the title deed and give it to Ms Howard, who attended at the exchange on behalf of the Purchaser. We understand that the abovementioned property is the security in relation to a loan from the Purchaser. The writer expressed great concern and suggested that we retain the title deed. He advised that it was highly irregular to hand over the title deed before settlement. You declined to follow his advice and left our offices with Ms Howard.

The plaintiff denies receiving this letter, even though the material in evidence clearly suggests otherwise. The plaintiff also denied the substance of the file notes, above: T 160.1-12. However, the plaintiff failed to call Mr. Beilby, or any other member of that firm to rebut the contents of the file notes. This failure gives rise to a Jones v Dunkel (1958) 101 CLR 298 inference and it is for this reasons that I do not accept the plaintiff’s evidence in this respect.

12 On 5 June 1998, the initial mortgage was discharged (5039462P) and a transfer of the property in favour of ACG was registered (5039463M). Though the contract for sale exchanged in November 1997 indicated a settlement date of 21 March 1998, it does not appear to have occurred until this time. A letter from Beilby Poulden Costello dated 14 April 1998 to ACG notes that the matter still had not settled at that time. The plaintiff was paid $180,000 as a result of this transfer. The balance of the purchase price of $450,000 was not paid to the plaintiff.

13 The plaintiff, after signing a transfer without receiving the balance of the purchase price, became, in effect, an unsecured creditor of the now liquidated ACG for the amount of $450,000.

14 After 5 June 1998, a series of transactions seems to have taken place between ACG (with the plaintiff at some point appointed as Secretary of the company), Maken, and several other entities including Woodward & Ors, Molloy & Ors, and Fraser, Fraser & L.V. Deakin Pty Ltd.

15 On 20 November 1997 Ms Howard paid out debts owed by ACG to Maken and the defendant personally. The amount was $245,000 in total. Those payments did not succeed since the cheques were dishonoured. It seems that subsequent payments for the same amount were cleared after being banked on 1 December 1997. Prima facie, therefore, the defendant did receive money raised by the plaintiff in mortgaging his property to third parties and authorising the money to be utilised by ACG.

16 Looking at the transactions in substance, rather than on the surface, the plaintiff had (depending on the possible implied terms of his arrangement with AGC) either a debt owed by ACG to him, an equitable charge over the assets of ACG, or a right of indemnity from ACG with regards to the mortgage to the third parties. In any event he had no proprietary interest in the money raised by the mortgage once it was forwarded to ACG.

17 By 5 June 1998, the mortgage between the plaintiff and the third parties was discharged by ACG and the debt, charge or indemnity between ACG and the plaintiff accordingly extinguished at the same time. The plaintiff therefore suffered no net loss as a result of this mortgage transaction.

18 The defendant was not aware that the money raised on the mortgage would be paid to ACG. I accept that he was not requested to, and therefore could give no advice upon, this aspect of the mortgage transaction.

19 However, the defendant did depose to a conversation between himself and Ms Howard on 27 January 1998 in which he became aware that the money raised by the mortgage transaction was ‘parked’ in ACG and states to her:

Well firstly I understood that the monies payable to me were coming from the funds from the Streatfield Road settlement and secondly it now looks as though Maken and I were repaid from Roy’s funds…

20 Thus, by January 1998 the defendant became aware of the tainted quality of the funds paid to him and Maken by ACG. However, by this time, any duty owed to the plaintiff was extinguished.

21 Nevertheless, there does seem to be some evidence to support a view that the plaintiff maintained a desire to keep money within ACG. The defendant deposed to a conversation between himself and Ms Howard at the time of the transfer from the plaintiff to ACG in June 1998:

I said: “Why is Roy only receiving $180,000?”
Howard said: “Roy is staying on in the property until it is sold and he wants to leave some money in AC&G at the moment.”

22 The plaintiff accepts that the defendant’s retainer did not extend beyond the initial mortgage transaction. However, the plaintiff argues that some aspects of the defendant’s fiduciary duty, which came about as a result of giving advice on the mortgage and signing the solicitor’s certificate, continued to exist for the duration of the later transactions to the extent that the defendant should have disclosed a possible conflict of interest that may arise as a result of the later exercise of the option by ACG. Alternatively it is claimed that the defendant received an undisclosed benefit as a result of the mortgage transaction. These two claims must be considered separately.

23 The defendant does not dispute the existence of a fiduciary relationship at the time of the initial mortgage transaction, but asserts, firstly, that no breach of this fiduciary duty occurred and further, that the obligations imposed did not extend past the time of termination of that retainer. Furthermore, the defendant argues that no loss was suffered by the plaintiff as a result of the transaction upon which he, the defendant, gave advice as a solicitor.

The relationship between the plaintiff and the defendant

24 To succeed on this action the plaintiff must identify the acts or omissions of the defendant that establishes a particular breach of an alleged fiduciary duty if an appropriate remedy is to be granted by the Court. In a recent article by Justice Meagher and Adrian Maroya (“Crypto-Fiduciary Duties” (2003) 26(2) UNSW LJ 348) the authors said (at 351):

It is often overlooked that a fiduciary agent typically might owe the principal a number of duties, and that these several duties may be characterised in different ways. First, there are fiduciary duties stricto sensu (insofar as they are capable of adequate definition). Second, there are less-distinct duties not strictly ‘fiduciary’ in character, but perhaps ‘equitable’ duties nonetheless in that the circumstances triggering their breach might result in an incidental breach of a fiduciary duty. Third, the fiduciary’s relationship might generate duties that are not ‘fiduciary’ in character whatsoever – duties owed, say, in tort.
Quite obviously, what emerges from this is that not every breach of duty by a fiduciary will be a breach of fiduciary, or even a merely equitable duty; that a person should occupy a position of fiduciary responsibility is not enough, of itself, to infuse all that person’s actions with a ‘fiduciary’ flavour. Accordingly, the material facts said to give rise to a fiduciary relationship must be carefully examined, so that the quality and extent of the duties might properly be understood.

25 The plaintiff cannot succeed merely because the defendant, at some point, acted in a fiduciary capacity towards the plaintiff and, at some point, obtained a benefit. The Court can only be satisfied of a need for equitable intervention if the alleged benefit came about as a result of the relationship, such that it was obtained either out of a conflict of interest between a fiduciary and his principal or such that the benefit is properly characterised as an improper profit.

26 The basis of the plaintiff’s claim is that in November 1997 the defendant acted for the plaintiff, at least in a limited capacity, as his legal adviser on the mortgage transactions. The plaintiff was entitled to expect that advice to be independent and impartial. The plaintiff was certainly entitled to receive disclosure of any benefit that the defendant would receive as a result of the transaction, or more importantly, the defendant should not have acted for a principal in circumstances where a conflict of interest could possibly arise.

27 However, I am satisfied that the particular advice offered by the defendant was confined to a mortgage over the property. The defendant signed a solicitor’s certificate in respect of that advice on the mortgage. That certificate was ‘FOR USE IN CERTIFICATION OF THE SOLICITOR’S EXPLANATION TO A BORROWER’. Mr Wendt signed an acknowledgment that:

before [he] signed the loan and security documents bearing my signature Mr KENNETH EDWARD NORTHWOOD (solicitor) advised me concerning the documents.

28 Thus a position of trust and confidence was created in relation to the mortgage transaction and it was undeniable that the defendant was acting as a solicitor in relation to the plaintiff’s interests as mortgagor.

29 The mortgage on which the defendant acted, as a solicitor, for the plaintiff, was a mortgage between the plaintiff and Woodward, the Frasers and LV Deakin Pty Ltd although, as I noted above, all cheques were made payable to ACG. Despite some inconsistency in his evidence, I am satisfied that the plaintiff knew that this transaction was a mortgage funded by third parties for the benefit of ACG. I am also satisfied that the defendant acted as an advisor on this transaction and I believe his assertion that he was unaware, at the time of giving advice to the plaintiff on the mortgage, that the monies were going to ACG.

30 I am not, however, satisfied that a breach of any fiduciary obligation, owed by the defendant to the plaintiff, occurred as a result of their relationship which arose from their dealings in respect of this mortgage transaction.

31 Even in circumstances where a breach has occurred, in this instance, no loss is occasioned by this transaction. In my opinion the loss suffered by the plaintiff came about because he released the certificate of title to Ms Howard and allowed the property to be transferred to ACG without receiving the full purchase price. The mortgage transaction has little to do with this loss. The mortgage transaction involved the plaintiff using his property to leverage borrowing for ACG, a debt subsequently discharged by ACG on 5 June 1998, immediately prior to their registration as owners of the property. Thus, before June 1998, the plaintiff had not suffered any loss. It is only after the transfer of the property that the plaintiff could be seen to have been detrimentally affected by the option agreement and the resulting sale.

32 Despite the plaintiff’s denials, I accept that he was legally represented on this option/sale transaction by Beilby Poulden Costello and that he clearly declined to follow this firm’s advice in respect of that transaction.

33 There is no question that the defendant was not acting as a legal representative, and therefore a fiduciary agent, at June 1998. The real issue in this case is whether the defendant was under any fiduciary obligation to prevent the detriment to the plaintiff suffered at this time.

Issues to be resolved

34 There are four issues in these proceedings. The first is whether the defendant should have disclosed his involvement in ACG when giving advice to the plaintiff on the mortgage transaction.

35 The second is whether it was improper of the defendant to receive money raised by the plaintiff through the mortgage transaction.

36 The third is whether any fiduciary duty owed by the defendant to disclose personal interests (that conflict with those of the client) extended past the termination of the retainer and was breached.

37 The fourth is whether any remedy under the Fair Trading Act 1987 should be granted.

The fiduciary obligation of solicitors

38 A solicitor-client relationship may involve fiduciary duties but it remains a professional relationship established by a retainer and, with some exceptions, is terminated by the execution of the requirements of the retainer. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Mason J noted the following at 97:

That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

39 A high obligation is placed upon a solicitor acting in circumstances in which he or she stands to receive a benefit out of the relationship. This obligation extends to include the notion that there should be a disclosure of ‘everything known’ by the solicitor relating to the proposal: Tyrrell v Bank of London and Ors (1862) 10 HLC 26 at 74 per Lord Westbury LC.

40 I accept that Mr Northwood presented himself to the plaintiff as a solicitor experienced in conveyancing and mortgage transactions. Mr Wendt, though an intelligent person, was not a person of sophistication in commercial affairs, conveyancing or mortgage transactions. He was therefore in a position of inequality compared to a person experienced as a competent solicitor. Mr Beilby, although not called to give evidence in these proceedings, expressed the view in file notes that Mr Wendt, ‘seemed to know nothing about what his interest in the [option] transaction would be’.

41 The defendant accepts that a solicitor-client relationship gave rise to certain fiduciary duties owed to the plaintiff. However, echoing the sentiments of Justice Meagher extracted above, in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1 at 45; [185] it was said:

…to say a man is a fiduciary only begins the analysis.

42 Beach emphasises the need for a solicitor to avoid conflicts of interest within the scope of a particular retainer, having regard to the requirement of ‘undivided loyalty’ to the principal. It is widely held that a solicitor’s certificate should be regarded as proof of independent and impartial advice and involves serious obligations upon the solicitor so acting. Reference has been made to material published by the Law Society of South Australia to this effect:

It is fundamental that a solicitor's advice to a client be independent from the interests of others and those of the solicitor. Special problems arise when a solicitor is engaged to give independent advice in a transaction to a party who is at a disadvantage. A request or requirement that a solicitor give a certificate of independent advice is a warning that these problems may be present. (John White, “The Certificate of Independent Advice” Law Society of South Australia Bulletin 20(9) October 1998 pp 18-21).

43 I accept the proposition that the defendant’s ‘awareness’ of a need for the plaintiff to receive independent advice would have been heightened by the very nature of the mortgage itself. However, I am satisfied that the evidence of the defendant in this respect should be accepted, and that the plaintiff received competent advice that informed him about the nature of the mortgage transaction.

44 I decline to find that there was a breach of any obligation by the defendant on this transaction. The fact that he was a shadow director for a company that had an option to purchase the property that was being mortgaged was not a relevant matter that required disclosure to the plaintiff. Neither ACG, Maken, or the defendant were a party to the mortgage transaction and nor did they stand to benefit in anyway from the transaction itself. A conflict of interest did not arise.

Continuing obligations of a fiduciary

45 It is said for the defendant that there has been no conduct on the part of Mr Northwood, or no knowledge possessed by him at the relevant time, which gave rise to duties more extensive than the retainer.

46 Mr Wendt alleges that the defendant said to him, in the context of transferring mortgage documents:

Don’t worry I am acting as your solicitor and this is the normal procedure. I will be making sure your interests are protected.

47 However, I accept the defendant’s contention that this statement was never made by the defendant to the plaintiff. Certain inconsistencies arising between the plaintiff’s evidence and other documentary evidence tendered indicates that the plaintiff’s version of what occurred at the defendant’s office on 11 November 1997 was, at least, confused and is, to a certain extent, unreliable.

48 In my view it is regrettable that the defendant engaged in conduct which led to a possible confusion of his roles in relation to being a company director and acting as a solicitor in relation to the mortgage of the property upon which ACG had an option to purchase. However, I do not think that the law currently provides for a continuing obligation on a solicitor to disclose conflicts of interest arising after the termination of the solicitor-client relationship.

49 A solicitor’s retainer may be implied from conduct and is defined by what legal services the solicitor agreed to provide: Beech Petroleum at 48. I accept the submission of the defendant that the retainer constitutes the primary source of the solicitor’s obligation: Clarke Boyce v Mouat (1994) 1 AC 428; see also Heydon v NRMA Ltd (2000) 51 NSWLR 1 at 118.

50 The practise of law as a solicitor obviously requires honesty and candour and the placing of the client’s interests at the forefront of the solicitor's dealing. It has been said by Gaudron and McHugh JJ in Breen v Williams (1998) 186 CLR 71 at 113 that the fiduciary obligation in Australian law is proscriptive rather then prescriptive: see also Morris v Hanley (2003) 173 FLR 83 at [42] per Hamilton J.

51 However, I entirely accept the observation of the Court of Appeal in Beach Petroleum to the effect that a fiduciary including a solicitor ‘is not an insurer’ (at 94).

Confidence

52 I have mentioned that there are some exceptions to the basic principle that fiduciary duties owed by solicitors to a client end with the termination of the retainer.

53 In my opinion there can only be few exceptions to the general principle that a fiduciary duty ends with the termination of the fiduciary relationship. However, relating to fiduciary duties is flexible, and capable of being adapted to new situations. In the circumstances of this case I do not think it appropriate or necessary to find that there is any continuing fiduciary obligation ‘other than to keep the client’s confidence’ (see Prince Jeffri Bolkiah v KPMG (A firm) (1999) 2 WLR 21 which is cited in Beach at 48).

54 Confidence, in this respect, is the ‘personal ascendency’ acquired by a solicitor over a client, which may continue in existence even after the termination of the professional relationship: McMaster v Byrne [1952] 1 All ER 1362 at 1368 per Lord Cohen (for the Privy Council on an appeal from the Court of Appeal for Ontario and citing Parker J in Allison v Clayhills (1907) 97 LT 709 at 712). McMaster has been applied in this country by Mullane J in The Marriage of Griffis (1991) 105 FLR 441. In my opinion, the personal ascendancy of a solicitor over a client arises due to the particular vulnerability of the client and through the undertaking of the solicitor to act, and only act, in the interests of the principal:

The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense…
It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that a fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed… ( Hospital Products at 96 per Mason J)

55 However, I do not think that the defendant ever acquired a personal ascendancy over the plaintiff of the kind envisaged by these authorities, that is, I do not think the relationship between the plaintiff and the defendant extended their relationship past a traditional professional relationship of solicitor and client. The narrow extent of their relationship in that the defendant was only advising the plaintiff on the mortgage transaction and had no responsibility for the eventual loss of the plaintiff is relevant.

56 I do not think that the defendant can be held liable for a benefit received by the unforeseeable actions of Ms Howard in her role as the motivating animus of ACG. I accept that the defendant had no knowledge of, nor responsibility for, the payment by Ms Howard of the debts owed by ACG to Maken. An explanation for the actions of Ms Howard was not offered. I must draw the inference that the evidence of Ms Howard (or that of Mr Beilby) would not have assisted the plaintiff in his case: Jones v Dunkel (1959) 101 CLR 298. I note the arguments on both sides in respect of ‘which camp’ Ms Howard was in. I accept the defendant’s submissions that the enquiry in this respect concerns the parties’ present as opposed to past relationship: Payne v Parker [1976] 1 NSWLR 191 at 201 per Glass JA. The fact that Ms Howard sat next to the plaintiff’s solicitor during the cross-examination of the defendant is a strong indication as to what ‘camp’ she was in: T206.

57 In these circumstances, whilst I have found there was a fiduciary relationship between the plaintiff and the defendant in respect of the mortgage transaction, I do not find that there was any continuing duty, or any breach of such a duty if it did exist.

Loss suffered by plaintiff

58 I have not found a breach to have occurred here, but even in circumstances where a breach had occurred, the plaintiff did not suffer any loss as a result of any such breach.

59 Equitable compensation is available in circumstances where a breach by a solicitor of his or her fiduciary obligation results in loss to the client: Nocton v Lord Ashburton [1914] AC 932. However, for this Court to grant such a remedy the loss must be causally connected to the alleged breach: Maguire v Makaronis (1997) 198 CLR 449 at 473.

60 The loss suffered by the plaintiff related to his transfer of the property in favour of ACG. It arose from the giving away of the certificate of title to Ms Howard (against his solicitor, Beilby’s advice) before receiving consideration in accordance with the agreement. The defendant’s fiduciary obligations arose in respect of the mortgage agreement, which was executed several months after the option agreement and discharged prior to the transfer. Even if the plaintiff had not entered into the mortgage agreement, he was likely to suffer the same loss on the execution of the option. Accordingly, the duty owed has no connection to the loss. Further, as there was no loss suffered by the plaintiff, as a result of the mortgage agreement, equitable damages are unavailable.

Improper Profit

61 Where a fiduciary has received an improper benefit, he or she may be ordered to repay that improper benefit: Warman International Limited & Anor v Dwyer & Ors (1995) 182 CLR 544 at 556-562 per Mason CJ, Brennan, Deane, Dawson and Gaudron JJ. A person who is under such a fiduciary obligation must account to the person to whom the obligation is owed for any improper benefit or gain, which has been obtained or received:

(a) in circumstances where a conflict or significant possibility of conflict existed between his or her fiduciary duty and his or her personal interest in the pursuit or possible receipt of such a benefit or gain; or

(b) by reason of his or her fiduciary position or of opportunity or knowledge resulting from it: Chan v Zacharia (1984) 154 CLR 178 at 199.

Deane J, in Chan v Zacharia enunciated the rule (at 199):

Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain; or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it.

Relevant to the facts in this case, he further states that:

In other cases, however, there may be no breach of fiduciary duty unless and until there is an actual failure by the fiduciary to account for the relevant benefit or gain: eg, the receipt of an unsolicited personal payment from a third party as a consequence of what was an honest and conscientious performance of a fiduciary duty.

62 It is not necessary for the plaintiff to have suffered injury or loss to succeed in a claim of this nature: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 394.

63 The onus rests on the fiduciary to prove the propriety of the gain arising from the fiduciary position: Jordy v Vanderplump (1920) 64 SJ 324 (Ch). Consequently any such benefit or gain is held by the fiduciary as constructive trustee: Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 at 350.

64 The defendant in this case denies any knowledge of the payment of the mortgage monies, being $450 000, to ACG, until well after giving the plaintiff advice on the mortgage. I accept that this was the case. However, it is no defence to a claim of breach of fiduciary duty for improper gain for the fiduciary to say that he or she has acted honestly or in good faith: Boardman v Phipps [1967] 2 AC 46; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144-5; Chan v Zacharia (1984) 154 CLR 178 at 199.

65 The benefit obtained by the defendant was indirect. The money borrowed on the mortgage, upon which he gave advice, was forwarded to ACG which then used it to pay the defendant back money it was owed by ACG. However, it has been held that it does not matter that the benefit to the fiduciary was indirect. As was the case in Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 89 per Richardson J:

A solicitor must not without the informed consent of his client stand to make any profit or receive any benefit other than his professional remuneration from the transaction which he is retained to carry through. It is no defence that his interest is indirect – as where a transaction is between his client and a company in which he or a member of his family has a significant shareholding or where he otherwise has an indirect financial interest in the transaction.

66 As I have accepted above, the defendant in this case was not aware that the conflict, if it can be called that, would arise. The question to what extent the fiduciary must predict the likelihood of conflict was discussed by Lord Upjohn in Boardman v Phipps [1967] 2 AC 46 at 124 (dissenting):

It is perhaps stated most highly against trustees or directors in the celebrated speech of Lord Cranworth L.C. in Aberdeen Railway v. Blaikie , 1 Macq. 461, 471 where he said:

”And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.”

The phrase "possibly may conflict" requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.

67 The High Court has held that that the “possibility” of conflict needs to be understood in the manner described by Lord Upjohn, that is, in the sense of a “real sensible possibility” of conflict: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103 per Mason J. Mason J quoted with approval the judgment of Judge Hand in Phelan v Middle States Oil Corp (1955) 220 F 2d 593:

[I]f the doctrine be inexorably applied and without regard to the particular circumstances of the situation, every transaction will be condemned once it be shown that the fiduciary had such a hope or expectation, however unlikely to be realized it may be, and however trifling an inducement it will be, if it is realized. … We have found no decisions that have applied this rule inflexibly to every occasion in which the fiduciary has been shown to have had a personal interest that might in fact have conflicted with his loyalty. On the contrary in a number of situations courts have held that the rule does not apply, not only when the putative interest, though in itself strong enough to be an inducement, was too remote, but also when, though not too remote, it was too feeble an inducement to be a determining motive.

I believe that the defendant, in this case, had no such hope or expectation, as he was unaware of the agreement between the plaintiff and Ms Howard to forward the mortgage monies to ACG once the transaction was completed.

68 In Pilmer and Ors v Duke Group Ltd (2001) 207 CLR 165 the court found at [82] that the dealings in question “fell short of demonstrating the real or substantial possibility of conflict spoken of in the authorities.” They went on to say at [83]:

The conflicting duty or interests must be identified. Conflict is not shown by simply pointing to the fact that there had been past dealings between the appellants and interests associated with the Kia Ora directors. The fact that dealings are completed will ordinarily demonstrate that any interest or duty associated with those dealings is at an end and no continuing duty or interest was identified here. Nor is it sufficient to say generally that there was a hope or expectation of future dealings. That will often be so. Most professional advisers would hope that the proper performance of the task at hand will lead the client to retain them again. No real or substantial possibility of conflict was demonstrated.

In my opinion, a similar situation arises here.

69 Here the defendant owed the plaintiff a fiduciary obligation when acting in respect of the mortgage transaction. However, there was no conflict between the defendant’s personal interests, and those of the plaintiff, in respect of that mortgage transaction. I believe that the payment made to the defendant by ACG, although regrettably taken from the mortgage funds, did not arise from any breach of duty on the part of the defendant. The repayment was not an object of the loan, and the defendant did not know that the money was going to ACG; there was no real or substantial possibility that the conflict would arise. The mortgage was a discrete transaction, which was too remote from the benefit obtained by the defendant through the repayment of a loan owed to him by ACG. Accordingly I find that there was no improper profit.

s 42 Fair Trading Act

70 The plaintiff claims that the defendant has acted in breach of s42 of the Fair Trading Act which provides:

(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing in this Part shall be taken as limiting by implication the generality of subsection (1).

71 A statutory cause of action lies for loss or damage suffered by a person as a result of a breach of s 42 pursuant to s 68 of the Act.

72 In Re Demagogue Pty Limited v Ramensky (1992) 110 ALR 608; (1992) 39 FCR 31, Black CJ said at [3]:

Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of "mere silence" or of a duty of disclosure can divert attention from that primary question. Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.

73 I accept the analysis of his Honour. Whether a failure to make a disclosure is or is not misleading or deceptive will depend on the facts and circumstances of a particular case.

74 In this case, the plaintiff has suffered no loss as a result of the actions of the defendant. The mortgage transaction upon which the defendant gave advice has been discharged. The plaintiff was not required to make any payment to fulfil or discharge that mortgage. The ‘silence’ of the defendant with respect to the money owed to him by ACG was due to the fact that he was unaware that ACG had anything to do with the mortgage transaction upon which he was advising, which, technically, they did not. I agree with the defendant’s assertion that no misrepresentation has been established.

75 The plaintiff does not succeed in his claim under s42 of the Fair Trading Act 1987 (NSW).

Orders

76 The plaintiff’s claim for equitable damages for breach of fiduciary duty does not succeed.

77 The plaintiff’s claim for improper profit arising from a breach of fiduciary obligations does not succeed.

78 The plaintiff’s claim under s42 of the Fair Trading Act 1987 (NSW) does not succeed.

79 The plaintiff is to pay the defendant’s costs of the proceedings.

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Last Modified: 03/30/2004