Williamson v Beere May & Meyer (A Firm) - [2011] WASC 105

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WILLIAMSON -v- BEERE MAY & MEYER (A FIRM) [2011] WASC 105

CORAM: KENNETH MARTIN J

HEARD: 30 MARCH 2011

DELIVERED : 21 APRIL 2011

FILE NO/S: CIV 2309 of 2005

BETWEEN: JANINE MARGARET WILLIAMSON
BRET ANTHONY BAKER
LYNETTE AUDREY BAKER
GARRY NEVILLE MORRIS
PETA DENISE MORRIS
BRIAN NEVILLE MORRIS
AILEEN MARGARET MORRIS
Plaintiffs
AND
BEERE MAY & MEYER (A FIRM)
Defendant

Catchwords:

Proposed amendment to join party - Trustee of Unit Trust - Limitation of actions - Equitable claims - Need for special or exceptional circumstances to allow beneficiary to pursue trustees' cause of action

Legislation:

Nil

Result:

Leave refused

Category: B

Representation:

Counsel:

Plaintiffs: Mr MG Pendlebury
Defendant: Mr SF Popperwell

Solicitors:

Plaintiffs: CS Legal
Defendant: Pynt & Partners

Case(s) referred to in judgment(s):

Darlington Building Society & Abbey National PLC v O'Rourke James Scourfield & McCarthy [1998] EWCA Civ 1664 (delivered 3 November 1998)
Fried v National Australia Bank (2001) 111 FCR 322
Golski v Kirk (1987) 14 FCR 143
Hewitt v Henderson [2006] WASCA 233
Joseph Hayim Hayim v Citibank NA [1987] AC 730
Marshall v London Passenger Transport Board [1936] 3 All ER 83
Mercedes Holdings Pty Ltd v Waters [No 2] (2010) 186 FCR 450
Patterson v Richards [1963] VR 179
Re Dawson (dec'd) (1966) 84 WN (Part 1) NSW 399
Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514

KENNETH MARTIN J:

Nature of application

By a chambers summons filed 4 November 2010, the plaintiffs, pursuant to O 18 r 6, seek orders that:
(1)Makana Pty Ltd, as trustee of the Morbak Unit Trust, be added as a plaintiff herein; and
(2)the writ of summons and all subsequent proceedings be amended by adding the name of Makana Pty Ltd, as trustee of the Morbak Unit Trust, as a plaintiff.
Essentially the application is for leave to re‑amend the plaintiffs' amended writ by the addition of Makana Pty Ltd as second plaintiff under a minute of proposed re‑amended writ of summons which was handed to the court during argument.
The application was accompanied by a revised minute of proposed amended statement of claim which was also handed to the court at the same time on the basis that leave to amend the statement of claim in those terms was sought.
It is apparent from the respective minutes that the situation is somewhat unusual, in that the proposed additional plaintiff (Makana) will not pursue a remedy in its own right. However, proposed amendments seen under par 40 of the proposed amended statement of claim provide new particulars in respect of 'Makana's loss and damage'. Makana's loss and damage is particularised under sub‑pars 40(a) through (h) inclusive. It is apparent that these losses and damages of Makana are sought to be pursued by the existing plaintiffs (or as they would now seek to characterise themselves, the first plaintiffs). Makana as proposed second plaintiff simply consents to the existing plaintiffs claiming Makana's loss and damage.
The significance of this will become more apparent as I explain the respective positions of the parties, including the strong opposition of the defendant to add Makana as second plaintiff to the action or to amend the statement of claim in the fashion currently proposed.
At this early point, I point out that a new par 40(a) ‑ (h), particularising aspects of Makana's claimed loss and damage, is now sought to be added by way of amendment to the pleading - precisely replicates existing subpars 40(b) through (l) inclusive of what has been found under par 40 - as particulars of the existing plaintiffs' own claimed loss and damage under the first statement of claim filed in this action since as long ago as 4 May 2007.
Counsel for the plaintiffs referred to Makana's loss and damage as an exact subset of the existing plaintiffs' par 40 claims for loss and damage. The existing plaintiffs' 2007 claim for loss and damage additionally seeks, by par 40(a), 'Loss in value of units in the Unit Trust'. That claim, for an alleged loss in unit value, presents on its face, as a loss suffered by a unitholder rather than as a loss sustained by the trustee of the unit trust.

Interlocutory background facts from pleadings and submissions

What follows is a necessarily truncated and incomplete interlocutory summary of some background facts I have taken largely from the parties' existing pleadings, or in lesser respects, from their written and oral submissions. It is provided to give context to the arguments and reasons. It does not constitute, in any final or evidentiary sense, findings of facts for the purpose of any eventual trial.
The Morbak Unit Trust, of which Makana Pty Ltd is the corporate trustee, was created by a deed of trust dated 20 July 1988. The next day, four family trusts, of which the existing plaintiffs are the trustees, were also created. According to the statement of claim filed in May 2007, the existing plaintiffs hold all seven issued units in the Morbak Unit Trust as trustees of the four distinct family trusts. Additionally, the existing plaintiffs have been, and remain, directors of Makana Pty Ltd.
It appears that Makana Pty Ltd had a private receiver and manager appointed over its assets and undertaking by the National Australia Bank on, or about, 19 December 2001.
The core events which underlie this professional negligence suit currently brought against the defendant solicitors (commenced by the writ issued on 4 November 2005) now go back some 12 years, to 1999. They concern Makana's acquisition of two businesses and a piece of land at Dunsborough in the South West of Western Australia, under contracts for the sale for the acquisition of the land and businesses from vendor parties. There appears to have been a conceptual plan to develop a component of the acquired land by building chalet‑type units in a proposed housing development. I shall refer to these 1999 land and business acquisition arrangements for the two businesses and the Dunsborough land as the 'Dunsborough acquisition'.
Contractual arrangements underlying the Dunsborough acquisition as between the Vendors and Makana appear to have been entered by agreement or agreements at, or about, 18 August 1999. The purchase price for the businesses and the land amounted to $2 million. A deposit of $20,000 was paid. The remaining component of the purchase price for the Dunsborough acquisition was to be borrowed. Not only did Makana need to borrow a significant component of the purchase price, but it also wished to borrow further moneys in order to develop the land under the proposed housing development. Funds needed to be borrowed from the Vendors under vendor finance arrangements.
There appears to have been a communication made in August or September 1999 to the Vendors advising that a 'subject to finance' condition had been met by the National Australia Bank agreeing to advance funds in order to facilitate the Dunsborough acquisition.
Considerable tensions then appear to have arisen during November 1999 when it is alleged that the National Australia Bank, having initially agreed to lend overall amounts in the vicinity of $3.2 to $3.7 million, varied and tightened the lending criteria. Whilst not entirely clear, the contention appears to be that the Bank remained prepared to fund a substantial component of the acquisition price, but had become less amenable towards additional funding for the post acquisition chalet housing development. The Bank also appears to have been seeking further security for its advances, including third party mortgage security over other land and the personal guarantees of some or all of the existing plaintiffs.
Expressed neutrally, it was in November 1999 that the defendant firm of solicitors was retained to advise on the then unsettled purchase side of the transaction. What entity or entities precisely retained the defendant is the subject of intense dispute on the face of the pleadings. In par 21 of the statement of claim, the existing plaintiffs contend that they each engaged the defendant firm personally, as well as 'in their capacities as directors of Makana'. A direct plea that Makana retained the defendant firm to advise it, has not been made. Possibly, par 21's reference to conduct of Makana's 'directors' was intended to carry that implication. It would appear, for its part the defendant accepts that Mr Jonathon Meyer, one of its partners, was retained to advise Makana in November 1999. But there is a firm denial as to a retainer of the defendant by any other party.
In all events it would appear that some legal advice was provided in November 1999 by the defendant firm through Mr Meyer and it is his advice at this time that forms the essential basis for the damages and equitable compensation grievances the existing plaintiffs have raised.
A number of different securities or guarantees from Makana and from at least three of the seven existing plaintiffs were provided to the Bank in November 1999. Furthermore, secured vendor finance in the amount of $500,000 for a period of 12 months was obtained in order to facilitate the Dunsborough acquisition being settled. The Dunsborough acquisition finally did settle, upon an advance of $2.17 million loaned to Makana from the National Australia Bank. Settlement was effected on 19 November 1999.
The May 2007 statement of claim is not fully explicit about this, but the two acquired businesses appear to have proved unprofitable subsequent to their November 1999 acquisition (par 37(2) of the 2007 statement of claim). The reason(s) for the unprofitability is not explained.
At November 2000, the vendor finance loan, in the amount of $500,000 could not be repaid when it fell due. Demands followed.
The National Australia Bank was originally made first defendant to the action when the writ was issued in 2005. In about 2006, the Bank was removed after a settlement was reached with it. A resolution also appears to have been reached with the Vendors.
The existing plaintiffs' amended writ of October 2006 excised the Bank as first defendant, leaving the solicitors as sole defendant. It is not clear when the Receiver and Manager appointed by the Bank to Makana was removed.
The 2007 statement of claim looks to have been prepared on the causative assumption that Makana's Dunsborough acquisitions were always doomed to be failures, particularly after the Bank, in November 1999, tightened its lending criteria and demanded extra security and personal guarantees. Another premise of the statement of claim appears to be that had the defendant solicitors provided legal advice to a requisite standard of care, Makana would not have proceeded with the Dunsborough acquisition. A further, related causative premise is that the existing plaintiffs and Makana would have accepted and then affirmatively acted upon the different hypothetical legal advice. The (alleged) consequent causative ramification of receiving and acting upon different legal advice in November 1999, appears to be that the very considerable financial losses ultimately sustained by Makana and by some or all of the existing plaintiffs personally (by reference to a loss of their third party security properties, or the calling of their personal guarantees) would have been avoided. This is, presumably, because it will be argued Makana would not have completed on the Dunsborough acquisition transaction. So then, the existing plaintiffs and Makana would not have been exposed to losses associated with the acquired businesses turning out to be unprofitable, to defaults on Makana's loans and to an ensuing forced realisation of security properties and guarantees that had been given to secure the loans - the security realisation being in the disadvantageous circumstance of mortgagor distress.
Concerning the impugned legal advice of November 1999 provided by the defendant solicitors, the May 2007 statement of claim contends that the defendant, through a partner solicitor (Meyer), should have advised under its retainer, or in accordance with a duty of reasonable care, that Makana and the existing plaintiffs were as a matter of law entitled, in November 1999, to walk away from and so, not to complete on the Dunsborough acquisition (by reason of alleged non‑fulfilment of the purchasers subject to finance criteria). In addition, the statement of claim presents a number of alternative arguments. First, the plaintiffs would have been consensually permitted by the Vendors to walk away from the Dunsborough acquisition, had the defendant solicitors ever requested such a release, in the wake of the tighter revised lending parameters imposed by the National Australia Bank in November 1999. In the next further alternative, the existing plaintiffs suggest that they should have been advised affirmatively by Meyer that Makana should have not completed the Dunsborough acquisition and forfeited its deposit of $20,000 to the Vendors - and that a loss of that deposit amount would then have been the outer limit of Makana's and the existing plaintiffs' losses - rather than exposing the plaintiffs to the far greater financial losses ultimately sustained in default circumstances encountered some 12 months later (roughly) when Makana could not repay the $500,000 vendor finance - with the consequence that the secured lenders enforced their securities - resulting in forced sales of the security properties to repay loans, including by the sale of distressed businesses and some third party security properties and guarantees towards realisations upon the loans in default.
I was told in submissions by counsel for the plaintiffs that the balance sheet for the Makana Unit Trust had, in effect, been healthy prior to the Dunsborough acquisition transaction. Apparently, the Morbak Unit Trust had owned a local caravan park around this time. Losses following upon the enforcement of securities associated with the Dunsborough acquisition resulted in a heavy depletion of the assets of the Morbak Unit Trust.
As one further consequence, it is put that the worth of the units held by each unitholder in the Morbak Unit Trust substantially diminished in value. A claim by a unitholder for diminution in value of units held in a unit trust is, of course, a different claim in character to a claim to recoup capital or trading losses actually incurred by the Morbak Unit Trust as a trading trustee in the aftermath of an ill‑fated Dunsborough acquisition and the subsequent (unprofitable) running of two acquired businesses in November 1999.
The defence (filed on 11 July 2007) denies the existence of a contractual relationship or the owing of duties of care to any party, other than to Makana. That defence also contends explicitly that most components of the par 40 loss and damage pursued against it by the existing plaintiffs under the 2007 statement of claim, in point of principle, are the losses and damage, even if proved, of Makana. Accordingly, the defendant contends that losses and damage of that trustee cannot lawfully be pursued by the existing plaintiffs, personally.
It is a central feature of these proceedings, commenced by writ in November 2005 by the existing plaintiffs, that Makana has not (until now) ever been sought to be made a co‑plaintiff, let alone made a party to the action. That is the case notwithstanding that the July 2007 defence clearly did point out, now almost four years ago, a potential conceptual difficulty with the existing plaintiffs seeking to pursue loss and damage which, assuming numerous other causative hurdles I have mentioned were surmounted in the litigation, could not be lawfully claimable by them alone.
The timing of the writ, issued against the National Australia Bank and the defendant on 4 November 2005, was no doubt stimulated by reference to what was then the usual six year period of limitation, imposed under the Limitation Act 1935 (WA) in respect of contractual and tortious claims. (The replacement Limitation Act 2005 taking effect only as from 15 November 2005.) From the perspective of a potential contract claim against the defendant, such a cause of action would accrue as at the date of any alleged breach (i.e. presumably in November 1999). On the other hand, damage being the essence of a cause of action in tort, tortious causes of action alleging financial loss would look to have accrued (arguably) at times subsequent to November 1999, at potential dates including, when the acquired businesses had proven to be unprofitable, when the Vendors called up their 12 month $500,000 loan (November 2000) and sought to enforce their securities, or when the National Australia Bank sought to enforce its position upon loans in default, including by the appointment of a receiver and manager in December 2001. Factual questions concerning precisely when and how financial damage came to be suffered may arise for determination at a trial.
No limitation of action defences look to be pleaded under the 2007 defence, against the existing plaintiffs, in respect of any causes of action advanced under the May 2007 statement of claim.
There is another dimension to this dispute that extends to invoke the court's equitable jurisdiction. The existing plaintiffs contend that the defendants breached a fiduciary duty owed to them as the basis for their claim for relief by equitable compensation. The May 2007 statement of claim, as I have mentioned, contends that the defendant, through its partner Meyer, was engaged in November 1999 to advise on the purchaser side of the Dunsborough acquisition. However, it is also alleged that the defendant firm, in 1999, acted at the same time on the other side of that transaction by advising the Vendors. It is pleaded that another partner in the defendant firm (Mr Ray) was advising the Vendors in November 1999 about the Dunsborough acquisition transaction. The defendant pleads that it had obtained the fully informed consent of its sole client (just Makana, so it contends) to Mr Ray so acting. It has not been made clear when the plaintiffs learned that Mr Ray was acting for the Vendors in the transaction.
The conflict of interest issue is said to give rise to a breach of solicitors' fiduciary duties owed to the existing plaintiffs (on their case). The May 2007 statement of claim looks to contend that the causative result of the alleged breach of fiduciary duty generates all the same consequences as I have earlier referred - for alleged common law transgressions - namely, completion on an ill‑fated Dunsborough acquisition and the carrying on of two unprofitable businesses.
The curial approach towards assessing causative outcomes may be different as between common law and equitable causes of action, see Re Dawson (dec'd) (1966) 84 WN (Part 1) NSW 399.
Accordingly, prior to the present application to join Makana being made in late 2010, the existing plaintiffs (without Makana) had been seeking, on the basis of common law and equitable causes of action, to personally pursue financial loss and damage said to have been sustained as a result of entering and completing on the Dunsborough acquisition and then carrying on of two businesses - circumstances which it is put should never have come to pass.

Materials on the application

The existing plaintiffs' application is supported by two affidavits sworn by Timothy Wayne Kennedy, an employed solicitor of CS Legal. Mr Kennedy's first affidavit was sworn on 4 November 2010. Essentially, it annexes copies of various trust instruments including the Morbak Unit Trust Deed of 20 July 1988. Mr Kennedy's affidavit asserts at par 4, that:
The plaintiffs in these proceedings are the seven (7) unit holders of the Morbak Unit Trust ('Unit Trust') which was constituted by deed of trust dated 20 July 1988 who were also all the directors of Makana at all material times.

The existing plaintiffs' present solicitors, CS Legal, took over conduct of the matter (or as Mr Kennedy's affidavit says at par 11, 'this file') in or around October 2009. Mr Kennedy relates that the plaintiffs' previous solicitor had had the conduct of the matter from about April 2001 until about August 2009 (par 12) (the writ issuing on 4 November 2005). Mr Kennedy observes at par 13:
I have been unable to identify any reason why Makana is not made a plaintiff in these proceedings.
Mr Kennedy also relates that distinct negligence proceedings have now been commenced against the former solicitor by Makana on 31 August 2010, as Supreme Court action CIV 2309 of 2010. Those proceedings are pending. They are being case managed in my CMC List in conjunction with this present action.
Appended to Mr Kennedy's affidavit (par 17) (as TWK 5) is an emailed response of the defendant's solicitors of 2 September 2010, opposing the proposed joinder of Makana as a party. The communication contains this paragraph:
As to the joinder of Makana as a party to the claim against Beere May & Meyer; the application will be opposed. I note your clients do not propose that Makana would agitate a claim against Beere May & Meyer, rather, they say that Makana should be joined as an interested party to ensure that it is bound by the result of that action. You cite a Federal Court authority, Fried v NAB [2001] FCA 907 in support of that position. But, I do not think that assists. The decision in Friedconcerns the joinder of trustees to actions commenced by beneficiaries to enforce a trustee's claim against a third party in circumstances where the trustee refuses to institute proceedings to enforce the claim. That is not the case here; clearly Makana has never disclaimed a right to sue Beere May & Meyer and indeed the very fact that it is now suing Damira Banaszak for failing to bring a claim disclaims an intention to abandon its rights to its beneficiaries. Further, it is not a case of making sure Makana is bound by the result in order that it is then precluded from bringing claims in the future. Accordingly, there is no good reason why Makana should be joined.
The paragraph encapsulates one of two fundamental grounds of opposition raised against the application to join Makana to the action as a co‑plaintiff. The other fundamental ground is centred upon an assertion of limitation of action rights now vested in the defendant as against Makana, in circumstances I will explain.
Mr Kennedy filed a second affidavit in support of the application to join Makana, on 7 December 2010. Essentially, that affidavit appends the statement of claim and a defence filed in the action CIV 2356 of 2010 in the CMC List in this court by Makana against its former solicitor. Annexure TWK 7 to that affidavit contains the current defence filed in that action. One matter raised by that defence concerns the scope of the alleged retainer of the former solicitor. The defence at par 6.1 admits that in or about April 2001, Makana and the persons pleaded in par 2 of the statement of claim (Morris') retained Ms Damira Banaszak to act on their behalf in relation to 'the Land, Lot 1, the Businesses, the NAB Loan, the NAB Securities, the Vendor Finance, the Vendor's Debenture, the Vendor's Mortgages and the Vendor's Guarantee' (as each of those terms is defined in the statement of claim). Defence par 6.2 then explains:
Her retainer by Makana came to an end on 19 December 2001 when a receiver and manager was appointed to Makana, alternatively when expressly advised by the receiver and manager of Makana that she did not act for Makana.
Particulars
Telephone discussion Geoffrey Totterdell and Yalanta Zarzycki on 17 December 2002.
Here, the defendant did not file any evidentiary materials of its own in opposition to the plaintiffs' joinder application. However, each side filed elaborate written submissions in amplification of their respective positions. Indeed, each party has filed substituted outlines of submissions. The applicants' substituted outline of 9 February 2011 was responded to by the defendant's substituted outline of submissions of 28 February 2011.
From the applicants' substituted outline, I observe that the existing plaintiffs now say, as to the non‑joinder of Makana, that:
9.For reasons not fully known by the plaintiffs (fn 5), Makana was not initially included as a plaintiff in the action by the former solicitor for the plaintiffs (either as a plaintiff claimant or in any other sense).
Footnote 5 reads:
[5.It may be due to the fact that Makana was at one stage in receivership that Makana was not initially made a plaintiff (see par 6.2 of the defence filed by the plaintiffs' former solicitors in action CIV 2356 of 2010).]
As to ramifications of the limitation of actions arising from the proposed joinder of Makana and the allied indorsement and pleading amendments, I note that at par 10 the existing plaintiffs say:
By virtue of the expiry of the limitation period for such causes of action, it appears to be the case that, since before the plaintiffs' present solicitors took over conduct of this action from Banaszak, Makana has been time barred from commencing separate proceedings to pursue its own claim in respect of losses sustained by the Unit Trust (fn 6).
However, fn 6 to the written submissions is in these terms:
[6.At least in respect of claims other than in equity, and perhaps also in respect of claims in equity.]
An interrelationship between fresh claims now sought to be pursued by the existing plaintiffs with the proposed addition of Makana as additional plaintiff can be discerned from pars 11 and 12 of the plaintiffs' substituted submissions:
11.Ordinarily, addition of a plaintiff ought not be permitted in respect of a cause of action which that intending party wishes to pursue but is clearly barred by limitation legislation from pursuing. See Bainbridge v Lawton [2002] WASC 293. This 'rule of practice' was invoked where 'the claim could not succeed' and, in the circumstances, the addition of that party 'would serve no useful purpose' (see reference to the observations of Wheeler J as she then was in Bainbridge v Lawton at [9]).
12.However, in this instance, the joinder of Makana is not being sought in order that it may pursue those claims. Rather, the intended causes of action are those that the existing plaintiffs can bring as a result of Makana having failed or otherwise been unwilling to do so.
In support of their joinder application, the existing plaintiffs raise and rely upon a series of case authorities regarding the (limited) rights of trust beneficiaries (and hence, in the case of a unit trust, the unitholders of a unit trust) to bring individual proceedings grounded upon choses in action of the trustee, where the trustee has not brought proceedings. This line of authority is summarised in the 7th edition of Jacob's Law of Trusts in Australia by Heydon and Leeming (7th ed, 2006), at [2303]. I set out this extract:
The general rule is, 'As long as the trustee is ready and willing to take the proper proceedings against the third person, the beneficiaries cannot maintain a suit against him'. But where a trustee refuses to institute proceedings against a debtor or to recover trust property, the beneficiary may wish to institute proceedings, either in the beneficiary's own name or in the name of the trustee. The rule here is that where relief is sought in the equitable jurisdiction of the Supreme Court against a third party, a beneficiary may sue in his or her own name, joining as defendants the trustee and any other beneficiaries, but only where there are 'special circumstances' (referring at fn 14 to Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109 at [55] approving Ramage v Waclaw (1988) 12 NSWLR 84; see also Bridgewater v Leahy (1998) 194 CLR 457 at [80]; Pearson v Commissioner of Taxation (2002) 116 FCR 357 at [13] ‑ [15]).
The learned authors continue at [2303]:
Finn J has persuasively reasoned that, provided the 'exceptional' or 'special' circumstances requirement is met, the same holds for claims at common law, in a judicature system designed to avoid multiplicity of suits. If the circumstances are not exceptional or special, the beneficiary's remedy is to sue the trustee for the execution of the trust and then to apply for the appointment of a receiver, and for leave to sue in the name of the trustee or of the receiver.
The applicants also rely on what they contend are wider observations by Gray J in Fried v National Australia Bank (2001) 111 FCR 322 [189] and [190] towards what is contended to be a more relaxed threshold for beneficiaries to bring suit. My analysis of Gray J's observations (at the commencement of [189]) is that his Honour was dealing only there with circumstances in which the obligation owed to the trustee was a 'debt', 'an obligation under a contract', or 'a covenant in a deed'. Otherwise, it would still be necessary for 'exceptional or special circumstances to exist', before a beneficiary of a trust has the right to sue or enforce an obligation owed to the trustee.
The present situation involving a claim for damages for alleged breach of terms of a solicitor's retainer, alleged breach of common law duties of care and further or alternatively, a claim of breach of fiduciary duty supporting equitable compensation, does not in my opinion fit any of the limited scenarios as identified by Gray J in Fried as falling outside an orthodox requirement to demonstrate exceptional or special circumstances. I also mention recent observations by Perram J in the Federal Court of Australia in Mercedes Holdings Pty Ltd v Waters [No 2] (2010) 186 FCR 450 [105] and [106], which recognise (as regards common law claims) the orthodox threshold and the need therefore to show exceptional or special circumstances in order for a beneficiary to bring suit. In that case however, the principle was not applicable, see [107].
Here, the proposed role for Makana as would be co‑plaintiff, but with Makana's loss and damage (as trustee of the Morbak Unit Trust) still not being pursued by Makana, with that loss being only pursued derivatively by the existing plaintiffs is unusual to say the least. It is further rationalised at pars 18 to 20 of Mr Kennedy's first affidavit:
18.This application for joinder of Makana is not being made in order that Makana may pursue any claim on its own, that, but for the expiry of limitation periods, it may have been able to bring against the Defendant.
19.The joinder of Makana as a necessary and proper party to these proceedings is being made in order to:
19.1allow the plaintiffs to be able to pursue their claim for damages, in respect of diminution of value of units in the Unit Trust;
19.2avoid costs and delay; and
19.3avoid the risk of divergent results on essentially the same facts.
20.I am instructed by the directors of Makana that Makana consents to being joined as a plaintiff in these proceedings.
On 10 December 2010, Makana Pty Ltd filed a formal consent to be added as a plaintiff under the hand of Mr Garry Morris and Mr Brian Morris, a director and director/secretary respectively.
The defendant's written submissions do not challenge the special or exceptional circumstances line of case authority concerning suits brought by beneficiaries of trusts, apart from pointing to a limited context in which Gray J's observations in Fried v NAB [189] were made (referring to Ford and Lee, Principles of Trust [4.6010]).
The first of the two fundamental opposition contentions raised by the defendant is that the existing plaintiffs have not yet pointed to any arguable exceptional or special circumstances in order to sustain their derivative pursuit of Makana's loss and damage, as is now sought be allowed in 2011. The objection is expressed this way (par 7 of the defendant's written submissions):
It is not that Makana declined in any voluntary sense to pursue the defendant for those losses; as it is put in the claim against its former solicitor in CIV 2356 of 2010, there was a negligent failure on the solicitor's part to bring forward Makana's claims against the defendants in this action.
It is further argued by the defendant, that:
Makana's position is not in any way the product of a conscious decision to not prosecute a claim or being otherwise unwilling to do so.
The defendant invokes observations of Lord Templeman in Joseph Hayim Hayim v Citibank NA [1987] AC 730 (to support its position), (748) in these terms:
The authorities demonstrate that a beneficiary has no cause of action against a third party save in exceptional circumstances which embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owed by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.
The time barring of all actions by limitation for Makana in 2011 is the second fundamental plank of the defendant's opposition. It submits that to allow a joinder of Makana in 2011 as a co‑plaintiff with proposed amendments would see the existing plaintiffs derivatively claim Makana's loss and damage and that outcome would essentially sanction in 2011 a pursuit of wholly new causes of action by the existing plaintiffs. Terminology used by Perram J in Mercedes Holdings v Waters [No 2], regarding a derivative action 'to assert the trustees' rights' [108], is relied upon.
The defendant cited a line of limitation of actions case authorities, contending that the foreshadowed joinder and amendments, alleging breach of duties owed to Makana and pursuing Makana's loss and damage under a derivative action, brought by the existing plaintiffs, raises a wholly new and distinct cause of action. The defendant invoked a decision of the Court of Appeal of England and Wales in Darlington Building Society & Abbey National PLC v O'Rourke James Scourfield & McCarthy [1998] EWCA Civ 1664 (delivered 3 November 1998), where Sir Ian Glidewell delivering the judgment for the court, observed:
In my view where an amendment pleads a duty which differs from that pleaded in the original statement of claim it will, or certainly will usually, raise a new cause of action. If there is no allegation of a different duty but different facts are alleged to constitute a breach of the duty it is more difficult to decide whether a new cause of action is pleaded.
A proposed pleading of a new duty (owed to Makana), then said to be breached, raises some obvious (six year expiry) limitation of action considerations. The defendant says (par 10 written submissions) that allowing the existing plaintiffs to add Makana and pursuing an amended derivative claim for Makana's losses by the existing plaintiffs introduces 'a new departure, a new head of claim or a new cause of action' (Marshall v London Passenger Transport Board [1936] 3 All ER 83. Introducing such a claim for the losses suffered by Makana (Patterson v Richards [1963] VR 179) expands the legal consequences of the claims for loss well beyond what was seen in the 2007 statement of claim, so it is put.
Upon the limitation of action plank of objection, the defendant says that the proposed amendments are a very long way from merely particularising facts already raised under the current (2007) claims: referring to further case authorities gathered in Golski v Kirk (1987) 14 FCR 143, particularly per Kelly J (151), per Beaumont J (154) and (156) and Ryan J (158).
The defendant also contends that, as a matter of discretion, all the amendments should be refused. It points to very long delays in prosecuting the action, it having been commenced on 4 November 2005, then proceeding essentially at snail's pace - with a statement of claim only appearing in May 2007 - leaving the action in early 2011 still a considerable distance away from being ready for a trial with the proposed amendments re‑opening pleadings and exacerbating the delays already encountered.

Limitation of action as regards Makana's equitable cause of action for breach of fiduciary duty

Notwithstanding some of the applicants' submissions and how they presently frame the pleading in other proceedings brought against Makana's former solicitor, Ms Banaszak, there is, in my assessment, as regards the existing plaintiffs' equitable cause of action and remedy raised against the defendant, an unresolved and problematic issue concerning whether or not an equitable cause of action directly pursued by Makana against the defendant for alleged breach of fiduciary duty is, as of now, time barred. Such a barring could only be by analogy to the time limits imposed against common law actions under the Limitation Act 1935.
At the very least an issue arises as to whether the limitation of action arguments towards a barring of the equitable claims of Makana raise questions of such factual or legal complexity as to render them inappropriate for a summary determination. I say that because, during the course of argument, it seemed that the existing plaintiffs' position was that they had indeed made a concession in respect of a barring in 2011 of Makana's common law causes of action against the defendant. The same concession was not made regarding Makana's cause of action seeking equitable compensation grounded upon the alleged breach of fiduciary duty by the defendant. To that end, the applicants' substituted outline of submissions reads (pars 17 and 18):
17.If it is sufficiently arguable that the proposed new claims are not statute barred (fn 12), then the court should grant leave to add Makana.
18.Any limitation defence in respect of the amendment occasioned with the joinder and amendment of the writ and statement of claim is preserved (referring to Bainbridge v Lawton, supra, at [11].
At first blush those submissions could be read as referring to a derivative cause of action, now proposed to be brought by the existing plaintiffs. However, the course of oral argument as between counsel has convinced me, particularly by reference to the plaintiffs' earlier written submission at par 10 and fn 6, that the existing plaintiffs in fact make no limitation concession at all concerning Makana's ability or right at this time to commence and pursue directly an equitable cause of action against the defendant.
Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514, counsels that decisions concerning a possible expiry of limitation periods should only be reached at the interlocutory level in the clearest of cases. In the present case, Makana's direct potential equitable cause of action for breach of fiduciary duty could only be the subject of potential time barring in 2011 by a limitation period imported and applied by analogy from the common law; see observations by Buss JA in Hewitt v Henderson [2006] WASCA 233 [16] ‑ [25]. Issues arise (which are far from straightforward) as to when the accrual of the equitable cause of action occurs, and also, how an assessment as to the precise commencement of time to bring action is made, see generally, Skead, Limitation Act 2005 (WA) and Equitable Actions (2009) 11 UNDLR 1 at 7 ‑ 9. Moreover, there is another issue as to the overall fairness, in context, of applying an imported (by analogy) limitation provision. In Hewitt v Henderson at [25] Buss JA observed:
In my opinion, the authorities which I have reviewed support the proposition that equity will not apply a limitation period by analogy where there are circumstances which make the application of the statute unconscionable. The learned Judge was therefore correct in deciding not to disallow the amendments on the basis asserted by the appellant.
(my emphasis)
A high level of caution is therefore necessary in dealing with an application which is very much analogous in consequence to a summary dismissal strike out application in the present case: Hewitt v Henderson [29].

Resolution

The existing plaintiffs' application for leave to re‑amend the November 2005 writ (and its indorsement) adding Makana Pty Ltd (as the trustee of the Morbak Unit Trust) as a second plaintiff, in circumstances where Makana will claim no relief in its own right against the defendant solicitors (and has not resiled from that course) in circumstances where Makana may itself (arguably) still bring that claim directly, should presently be refused.
If the plaintiffs in due course were to seek leave to otherwise amend the writ, by adding Makana as an additional plaintiff on the distinct basis of Makana directly asserting equitable relief against the defendant for alleged breach of fiduciary duty, then as a matter of principle, I would see it as difficult then to resist leave on the altered basis. Limitation of action issues raised by the defendant are less clear or straightforward, applying Wardley Australia Ltd v The State of WA (533) per Mason CJ, Dawson, Gaudron and McHugh JJ, when assessed against Makana's direct equitable claim, alleging breach of fiduciary duty against the defendant solicitors.
The correlative application for leave to amend the May 2007 statement of claim, in terms of the revised minute of amended statement of claim (provided to the court during the course of argument on 30 March 2011), must also be refused on the present formulation. The basis for a present refusal of that leave is essentially fivefold, namely:
(a)The present minute of proposed amended statement of claim is infected by the conceptual problems earlier identified for proposed joining of Makana as an additional plaintiff to the writ in that, whilst distinct loss and damage of Makana (as trustee of the Morbak Unit Trust) is identified within proposed amendments, Makana itself does not pursue that loss and damage, albeit Makana would still appear to be capable of arguably doing just that at this time.
(b)An asserted purpose of seeking to bind Makana to the outcome of this litigation, or of obtaining Makana's authorisation, consent or ratification to claims advanced by the existing plaintiffs (for them to derivatively pursue the loss and damage of Makana) are more than capable of being delivered just by the addition of Makana as a defendant to the action. Such considerations do not by themselves justify elevating Makana to be a co‑plaintiff, if the trustee is not directly seeking relief. The issue would be different were Makana advancing its own direct claim as a co‑plaintiff seeking equitable compensation based upon alleged breach of fiduciary duty against the defendant.
(c)The present formulation of proposed amendments to the statement of claim impliedly (from the written and oral submissions made in support of the application) seeks to invoke, on behalf of the existing plaintiffs, a line of case authorities sustaining rights of beneficiaries of a trust (or unit holders of a trust in the case of a unit trust) to bring a claim for the loss and damage sustained by the trust. However, that is a claim that may be advanced only in special or exceptional circumstances, such as where a trustee is shown to be unwilling or inhibited from itself bringing the claim. Yet, the proposed statement of claim is wholly silent in identifying any material facts relied upon to sustain such a contention by the existing plaintiffs.
In my assessment, the existing plaintiffs need to explicitly plead a basis upon which they contend that they ought be allowed to derivatively pursue (over and above bringing personal claims, or claims on behalf of family trusts of which they are trustees, or alternatively their own claims as unit holders) financial loss and damage sustained by the Morbak Unit Trust.
To the extent that the existing plaintiffs rely upon special or exceptional circumstances, such as the unwillingness or inability of Makana as trustee to commence proceedings against the defendant solicitors, these are matters that need to be explicitly exposed by being pleaded as the relevant material facts relied upon. That presently has not been attempted. Once carried out, issue can then be properly joined over those facts, if necessary, for the purposes of their resolution.
(d)If the existing plaintiffs revise their proposed amendments to the 2007 statement of claim in order to squarely raise a basis upon which the existing plaintiffs would seek to assert a derivative claim on behalf of the Morbak Unit Trust (for the loss and damage sustained by that Trust), then that dispute, on my assessment, raises matters of fact and law, which, on the case authorities, must be resolved within the context of a trial rather than summarily, at interlocutory level.
(e)Accrued limitation of action rights now vested in the defendant cannot be removed by the court's allowance of amendments in the character I have identified. However, a resolution of limitation of action issues surrounding Makana's equitable causes of action (recognising the accepted barring of common law claims by Makana) does not present as being so clear or straightforward as to justify their interlocutory determination.
In these premises, I would decline the existing plaintiffs' present application for leave to amend the writ and for leave to bring in the minuted amended statement of claim under terms presently submitted. However, that conclusion, for reasons I have explained, will not inhibit the plaintiffs bringing further application (properly formulated) to add Makana as a co‑plaintiff on a basis of it pursuing in its own right an equitable claim against the defendant for breach of fiduciary duty.
Issues as to whether an arguable basis may also be established for the existing plaintiffs to advance a derivative claim (for Makana's loss and damage), in circumstances where Makana may at trial fail in, or be inhibited from, bringing the claim, also, in my view, must be resolved within the more appropriate framework of trial, rather than summarily at interlocutory level.
The defendant should have its taxed costs of this contested application as it has been successful in resisting the minutes of the plaintiffs as presently formulated. However, the plaintiffs (with Makana) may well return to fight another day.