Youyang PL v Minter Ellison

[2002] HCATrans 245

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S260 of 2001

B e t w e e n -

YOUYANG PTY LIMITED AS TRUSTEE OF THE BILL HAYWARD DISCRETIONARY TRUST

Applicant

and

THE PERSONS NAMED IN SCHEDULE 1, TRADING AS MINTER ELLISON MORRIS FLETCHER AND LATER AS MINTER ELLISON

Respondents

Application for special leave to appeal

GLEESON CJ
McHUGH J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 21 JUNE 2002, AT 9.32 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR A.S. MARTIN, SC, for the applicant.  (instructed by Carneys Lawyers)

MR T.F. BATHURST, QC:   If the Court pleases, I appear with my learned friend, MR I.M. JACKMAN for the respondent.  (instructed by Mallesons Stephen Jaques)

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Your Honours, this is a case where, it is submitted, the course of justice has, if I may say so with respect gone awry, in our submission, to an extent meriting the attention of this Court.  Your Honours, this is in the end, in our submission, a very simply case which was not adequately dealt with, with respect, in either court.

GUMMOW J:   So, it is a case of misapplication of a trust fund.

MR JACKSON:   Yes.  Your Honours, may I take a moment to get to the heart of the matter, and I need to go to the circumstances for a few minutes.  Your Honours, as is apparent from the primary judge’s reasons, page 4, paragraph 3, we agreed to invest $500,000 in 5,000 shares in a company; par value of one cent, premium of $99.99.  The company’s business was to be speculative.  That appears at page 4 paragraph 4, and in fact in the end the company failed.  Although the business was to be speculative, the making of the investment was not to be without precautions.  In particular, the investors were to be protected in part by the existence of bearer deposit certificates with a prime bank.  The bearer deposit certificate was to entitle its bearer to receive, 10 years later, $500,000, an amount in terms of numbers of dollars equivalent to the original amount, in the money of the then day as it were.  Your Honours will see that page 5, paragraph 4.

Now, your Honours, of course the bearer certificate had to be purchased by the company but what the bank, from whom it was obtained, did with the purchase money was no concern of ours.  Indeed, the bearer deposit certificate could simply be a guarantee by the bank to pay.  Your Honours will see that from the definition of that term, referred to by the primary judge at page 6, paragraph 9.

Now, your Honours, in short, as the trial judge said at page 5 in paragraph 5, our security was that the paying agent was to hold the bearer deposit certificate on its behalf for 10 years and, at the end of that time, we would get $500,000.

GUMMOW J:   He is right, but part of your security was that Minter Ellison were going to hold this fund in the first place on this trust.

MR JACKSON:   Your Honour, I am about to come to that, if I may say so with respect.  What I was going to say, your Honours, was that one sees in summary the relevant terms of the agreement set out at page 8 and if I could just say these were the events that were to take place.  Pursuant to clause 2.1, the $500,000 was to be paid by us to Minter Ellison, and your Honours will see from the terms of clause 2.1, it was:

to be held in trust . . . in accordance with the provisions of this Agreement.

Your Honours, prior to completion and payment out of any of those funds there was – I am sorry, I should say this.  Two events were to occur, one following the other.  Part of the funds was authorised to be expended to buy a bearer deposit certificate, that is clause 3.1 at the bottom of page 8, top of page 9.  Your Honours will see that says, “Prior to completion ‑ ‑ ‑

GUMMOW J:   It is really at 2.3, is it not, Mr Jackson?

MR JACKSON:   I am sorry, yes.  I was simply going straight from ‑ ‑ ‑

GUMMOW J:   I know, but 2.3 lays out the terms of the trust.

MR JACKSON:   That is right, your Honour.  It was to procure the provision of the deposit slip, pay the expenses and commissions and then apply the balance to the working capital.  What is made it really absolutely clear?, your Honour, is that the second payment of the balance was - a condition of the second payment was the production of the bearer deposit certificate.  You will see that in clauses 4.3 at page 10:

At completion . . . will pay to the Company the aggregate of the Subscription Moneys –

and then your Honours will see clause 4.4 and, in particular, clause 4.5, “The Investor will not be obliged to complete the subscription” unless, to put it shortly, “the matters set out in clauses 4.3 and 4.4” have occurred, and they include the delivery of the deposit certificate.

GLEESON CJ:   Now, to what extent, if at all, were the terms of this trust overtaken by the later deed?

MR JACKSON:   In our submission, your Honour, not at all.  May I say that one does need to bear in mind, with respect, there are two separate payments involved.  The first is the money to in effect get the certificate.  The second is the money paid, having got the certificate for the investment, as it were.

GUMMOW J:   It could possibly be relevant to some waiver of breach, I do not know.  It is just not the way it is put anyway.

MR JACKSON:   No.  Your Honour, what was put was this ‑ if I could just say one thing before going to the your Honour, the Chief Justice’s observation.  There were two admitted breaches of trust, your Honours.  You can see those admitted in the pleadings, in the supplementary bundle of documents, page 56.  You will see paragraph 29(a) and (b).  Those are admitted by paragraph 1 of the defence, which is at paragraph 66.  They are admitted breaches of trust.  Now, your Honours, if I could just pause at that point, again before going to what your Honour said, one might have thought, with respect, the case was fairly simple in the sense that two separate sums of money were paid out in two separate breaches of trust.  They were never recovered, nor was the bearer deposit certificate ever obtained.  Nothing to present to the bank in 2003.

Now, your Honours, it was not suggested that we were aware of the failure to obtain the bearer deposit certificate before 2 May 1997, that date having some relevance, as your Honours will see at page 15 of the application book, paragraph 22.  It was then that we heard that there were not deposit certificates.  As you will see in the last sentence of that paragraph, we thought they had gone “bottom up” and that was a fairly accurate prediction.  You will see from paragraph 25 on page 17, same month, a provisional liquidator was appointed.

Now, your Honours, the nature of the case for the respondent appears at page 17 and the next paragraph 26 where it was said that we had:

“suffered no loss in consequence of that breach . . . the loss suffered was a consequence of the failure of the plaintiff to act in 1994 or in early May 1997 ‑ ‑ ‑

GUMMOW J:   I do not understand that.

MR JACKSON:   No, your Honour, with respect it is ‑ ‑ ‑

GUMMOW J:   This is not a case of equitable compensation or equitable damages, like in Nocton v Ashburton.  This is a case of loss of a trust fund.  It is a liquidated claim as it were.

MR JACKSON:   It is payment out of moneys in breach of trust.  Now, your Honours, the situation – if I can come directly to what your Honour the Chief Justice said – is this.  The 1994 event your Honours will see set out at page 13, paragraph 17.  Your Honours will see that in 1994 we were asked to:

execute a Deed Poll authorising ECCCL to withdraw the money deposited with DAL –

with the bank, that is ‑

and to deposit that money with “such other Prime Bank” –

Your Honours, that document appears in the bundle of documents at page 45.  We executed it at the request of the company.  They wanted to change banks because they wanted to get a foreign bank and hope to avoid some tax.  That appears at page 14, paragraph 19, of the original volume.  The deed poll, your Honours will see, in clause 2, authorised ‑ ‑ ‑

McHUGH J:   What page is it, Mr Jackson?

MR JACKSON:   I am sorry.  It is in the supplementary volume.  It starts at page 45.  I am referring to page 46.  There are three relevant clauses.  One was that the deed poll authorised the company to withdraw the money it had deposited with the bank; the bank required that.  We could not have stopped it doing so.  The second thing, your Honours, was that we released the bank, clause 4, and clause 6 was that there was provision for a substitute deposit certificate on the same terms to be obtained from another bank.

GUMMOW J:   They never released Minter Simpson.

MR JACKSON:   No, your Honour.  It has nothing to do with them really.  It might be there would be something between us and the company, but so far as our position against the solicitors were concerned, it does not deal with the topic at all.

Now, your Honours, could I come then to our submissions in relation to the matter.  Your Honours will see at page 18 of the application book, lines 10 to 20, that the trial judge allowed the claim for the present value of the $500,000 payable in the future, but he allowed nothing in respect of the other money, which is the sum of $221,000‑odd, initially paid in the absence of the certificate.  The only basis for adopting that course appears to be at page 18, lines 4 to 11, where it was said:

Therefore, the plaintiff was content to stand by, accepting the statements of ECCCL that the speculative investment was prospering –

Your Honours, we did not know of the breach of trust.

GUMMOW J:   That seems to be a finding of some sort of waiver or equitable release, or acquiescence or something like that.

MR JACKSON:   But, your Honour, how that affects the position as against the solicitors does not, with respect, appear.  It leaves out of account these things, that we did not know of the breach.  It was the respondent’s duty as a trustee not to pay the money at all without the bearer deposit certificate, and that is apparent from clause 4.5.

GUMMOW J:   No need to pay the balance if there was the certificate.

MR JACKSON:   Yes, your Honour.  Your Honour, the $221,000 is the balance.

GUMMOW J:   Yes.

MR JACKSON:   Now, in the Court of Appeal Justice Hodgson, at page 55, was perfectly correct, in our submission, in saying as he did in paragraphs – your Honours, it is a passage that goes from paragraph 34 through to paragraph 38.  Perhaps it is encapsulated, your Honours, at paragraph 35:

But for the respondent’s breach, the investment would not have been made at all –

That is dealt with in paragraphs 34 to 38 and, in our submission, correctly so. 

Your Honours will see particularly, at paragraph 36, a reference to Justice Handley’s finding as to Mr Hayward, the controller of the trust, his state of mind.  Could I say that what occurred was this.  The primary judge, at page 16, lines 40 to 50, had held that he was not satisfied that if we had learned – which we did not in fact learn – that the document obtained was not a bearer deposit certificate, that we would have sort to redeem the shares.  In other words, he was not satisfied, we would have sort to redeem if we had known the true situation.  That is all that he found.  Justice Handley went considerably further.  You will see at page 48, paragraphs 13 and 14, and then your Honours at page 50, paragraph 17, the last sentence.  His Honour translated that to a finding that as at the time of entry into the transaction we would not have been concerned, and would still have entered into the investment.

Now, your Honours, there is really, with respect, absolutely nothing to support that.  It went far beyond the evidence.  In relation to the $221,000, which is the money to be paid after getting the deposit certificate, Justice Handley’s reasons appear to be simply those in that same paragraph, at page 50, paragraph 17, where he said, and the sentence about line 14:

The breach of trust committed when paying $221,558 to ECCCL was consequential on the earlier breach and was not an independent breach in its own right.

Well, your Honours, sequential it may have been but two separate payments were made, two separate stages, pursuant to two separate provisions for different purposes, and two separate breaches were admitted.

GLEESON CJ:   Mr Jackson, what do you say about paragraph 30 of Justice Hodgson’s judgment on page 54?

MR JACKSON:   Your Honour, his Honour there is dealing with the terms of the deed poll.  What it leaves out ‑ and I was going to come to that, your Honours,  The position in relation to that is that we had no right to the funds in any event.  Our right was to the bearer certificate.  We had never received the bearer certificate.  If we had received the bearer certificate then there would have been no loss.  But we did not.  Your Honours, that could not, in our submission, breach the chain of causation or the events that took place for the deed poll, could not breach the chain of causation of the loss caused by the trustee’s breach because the assumption made in paragraph 30, and also by Justice Handley, that we had – our consenting to the movement of the money affected us.  We had no right to the money.  Our only right was to have a certificate which would be worth $500,000 in 10 years time.

So, in our submission, it could not breach the chain of causation of the loss caused by the trustee’s breach.  Even, your Honours, at the worst for us, assuming all that against us, the situation which would still obtain is what about the other money?

GLEESON CJ:   Justice Hodgson, as I understand it, would have found in your favour in respect of what I will call the “real investment”.

MR JACKSON:   Yes.

GLEESON CJ:   The risk money, if I can put it that way.

MR JACKSON:   Yes.  Your Honours, I have nothing else to say, I would be repetitive.  May I simply make this submission.  Our submission is it is a very simple case where for one reason or another the interests of justice have not been served in the courts below.

GLEESON CJ:   Mr Bathurst.

MR BATHURST:   If the Court pleases.  It is important, in our submission, in considering whether special leave should be granted, to have regard to the following matters.  There was, in the court below, no dispute between the parties as to the correct legal principles to be applied.

GUMMOW J:   I know.  That is because they were bound of course by O’Halloran and Beach.  In refusing leave in Beach I can remind you we said we were not necessarily endorsing a reasoning in it.

MR BATHURST:   I accept that with respect.

GUMMOW J:   Secondly, and in any event, this is really a case, I thought was as plain as a pikestaff, of a claim to – page 49 of the supplementary book.  It is not a case for equitable compensation at all.

MR BATHURST:   It was accepted, with respect ‑ ‑ ‑

GUMMOW J:   It is paragraph 1.

MR BATHURST:   It was accepted, with respect, in argument below, at least in the Court of Appeal, though not clearly before the trial judge, that it was a case for equitable compensation.  If your Honours could go to the supplementary bundle at page 80, there is recorded the applicant’s submissions in the court below.  Paragraph 34:

The liability of a defaulting trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed.

There is reliance there of what was said by Lord Browne‑Wilkinson in Target.  That was the basis the case was run below, in our submission, and it is apparent at least from the written submissions filed in support of this application that that was the basis that the case was going to at least up to this time be put.

GUMMOW J:   I am not sure that what Lord Browne‑Wilkinson is saying there is in any way consistent with what I was putting to you.

MR BATHURST:   It was a case where solicitors wrongly paid away money and your Honour, with respect, will recall he rejected what was described as “argument A”, namely that the traditional principles of reimbursement applied.  That is what we submit was accepted, in the acceptance of what he said down below.

The second point we would seek to make is that the structure of the agreement, as my learned friend pointed out to your Honours, was that the deposit certificate was to be paid prior to completion.  What clause 4.5 of the agreement did ‑ 4.5 appears on page 10 of the book ‑ was in effect to give an investor a right if he wanted to not to proceed with the investment if the deposit certificate was not paid.  It was accepted again in the court below that clause 4.5 did not operate, as it were, automatically but rather gave the applicant a right of election in that regard.  That appears at page 48 of the book, paragraph 12:

The plaintiff executed the deed poll without obtaining independent advice, without making any enquiries, and without attempting to withdraw its investment.  Although cl 4.5 of the subscription agreement entitled it to a full refund if the firm failed to comply on completion with the requirements of the subscription agreement, Mr Martin accepted that there was no automatic right to a refund and an election was necessary.  The plaintiff made no attempt to “redeem” . . . in 1993 –

or in any other time.  Now, it is in that context, in our respectful submission, that the finding made by Justice Handley, with which Justice Young apparently agreed, that if Mr Hayward had been told about the form of the relevant certificate, he would not have proceeded with the investment in any event.  That finding appears at paragraph 17, page ‑ ‑ ‑

GUMMOW J:   Why is that an answer to a breach of trust?

MR BATHURST:   I am sorry?

GUMMOW J:   Why is that an answer to a breach of trust?

MR BATHURST:   Because, in our respectful submission, having regard to what was said in Target if, as a matter of fact, the investment would have proceeded anyway, as found by his Honour, with a certificate on those terms, then there was no loss occasioned upon the breach, even if one applies the equitable principles.

GUMMOW J:   If that is what Target means perhaps we should look at it.

MR BATHURST:   We submit that is what Target means and we submit that is the effect of what was said in O’Halloran and Beach.  I accept what your Honour has said about that.

GUMMOW J:   We might have to look at that too.  There is a judgment of Justice McHugh in a case called Bennett v Minister for Community Welfare, which is never really referred to in these Australian judgments.

MR BATHURST:   It was not referred to.  In fairness to their Honours, they were not referred to it in either the trial or the court below.

GUMMOW J:   We pointed it out in Beach here.  It does not seem to have fallen on a septic ground.

MR BATHURST:   The trial judge’s finding, we accept, was slightly different having regard, we say, to the concession in relation to 4.5 in relation to exercising the right, as it were, to cancel the subscription, was to the same effect.  Can I hand to your Honours an extract from the transcript in the court below which we submit provides justification for Justice Handley’s findings.  If your Honours could go to the third page of the extract, page 18, there is a question at line 10.  He was being asked about the deed poll:

Q.You then read, did you, that a shareholder, Youyang, was further requesting and authorising Dresdner to release that money to the company, ECCCL, and permitted Dresdner to release such moneys to ECCCL without Dresdner being in any way responsible to concern itself with the company’s application of the released moneys –

and he said he recognised that.

Q.Fourthly, clause 4, you were absolutely and unconditionally releasing and discharging Dresdner, correct?

R.

A.Yes.

Q.And you invite further matters in recital A and in 6 you agree that the company may substitute a deposit certificate issued by a prime bank which as to date and sum is identical to the Dresdner certificate for which it was substituted?

A.Yes.

Q.You understood exactly what that involved?

A.I did.

Q.When you decided to execute this, you did not see yourself running any risk that you had not been ready to prepare to run when you made your initial investment?

A.Yes.

Q.Did you notice, Mr Hayward, that there was nobody, no entity other than ECCCL, which would be supervising the way in which ECCCL might have reinvested the money you were releasing to it?

A.I understood so.

GUMMOW J:   But there was no disclosure to its client involving the solicitors’ breach.

MR BATHURST:   There was no disclosure to the client, or to the beneficiary.  There may be an issue as to whether the solicitors were acting for the applicant.  But, in our submission, the effect of ‑ ‑ ‑

GUMMOW J:   But you rely on it.

MR BATHURST:   Yes.  The effect of the extract from the transcript is, as found by Justice Handley, had the solicitors in fact told the applicant not ‑ the true position, that the money was going to Dresdner but on terms different to providing the deposit certificate, but on terms that ECCCL had control, it would not have made the slightest difference.

GUMMOW J:   There is no finding that if he had known his solicitors had broken their trust that he would have been in quiescent state.

MR BATHURST:   No, the finding goes no further than I have referred your Honours to.  I should also refer your Honours to the next page of the transcript, at page 36, lines 40 to 55, where the applicant moves away from the position ‑ we say he took the page before ‑ when he is confronted squarely with the issue.

It was in light of those findings, in our submission, the Court of Appeal held a loss would have occurred irrespective of the breach.  The ratio was that had Minter Ellison indicated the true position, or indeed something worse, namely that ECCCL had the money, the transaction would have gone ahead in any event and the loss would have been incurred. 

Now, we submit the position is even clearer when one goes to 1994.  The $256,000, which was the sum of the deposit certificate which was expected to produce $500,000, had been lodged with Dresdner albeit not on the basis required by the subscription agreement.  However, as a matter of fact, because of the attitude taken by Dresdner, it could not be released without the consent of the applicant.  There are concurrent findings of fact that the applicant consented to its release to ECCCL.  They appear in page 13 of the book, paragraph 17 of the judgment of Justice Brownie,

page 14, paragraph 19 to the same effect, page 46, paragraph 5 of the judgment of Justice Handley and page 48, paragraph 12 in that judgment.

Now, it was that consensual release of the $500,000 – or the $256,000, which caused the loss of that fund.  The loss was not caused in any way by breach of trust but by the applicant consenting to Dresdner giving it back to ECCCL to invest in the manner indicated.  In those circumstances, we would submit, that it cannot be said in relation to those firstly that the trust fund – sorry, I withdraw that.  It cannot be said in relation to those moneys that there was any loss caused by the applicant’s breach of trust, and that led the majority of the court – that was the conclusion reached by all members of the Court of Appeal.  We submit in relation to that there was no error in that approach.  If the Court pleases.

GLEESON CJ:   Mr Jackson.

MR JACKSON:   Thank you, your Honour.  First of all, in relation to the form of relief claimed, may I take your Honours to two references.  First of all in the bundle of documents, page 80, you will see also paragraphs 34 and 35.  It is clearly contemplated that what is sought, particularly at paragraph 35, is money “to restore to the trust estate what has been lost”.  Your Honours, if one goes to page 18 of the application book at paragraph 28, your Honours will see:

The plaintiff contends that it is entitled to have the trust fund replenished . . . the amount of the original investment of $500,000 –

GUMMOW J:   I am sorry, what reference was that, Mr Jackson?

MR JACKSON:   Page 18, paragraph 28, your Honour.  Now, your Honours, if one goes then to the second point of our learned friends in relation to clause 4.5, clause 4.5 is set out at page 10, of course, of the application book and it is right to say that it does give an investor an election not to complete the agreement.  But, of course, two things about that.  The first is that the obligation of the solicitors, as your Honours will have seen from clause 2.1, was that they were to hold the money in trust in accordance with the provisions of the agreement and, in consequence, they were to ensure that the terms of the agreement were complied with.  Your Honours, the second thing about ‑ ‑ ‑

GUMMOW J:   And to the extent they did not do so, the money was held on trust for you.

MR JACKSON:   Yes, your Honour.  It was held on trust for us not ‑ ‑ ‑

GUMMOW J:   With a power or duty to do these things and in so far as otherwise, that it does not happen, it is held in trust for you.

MR JACKSON:   Yes, your Honour.  If one is speaking about election, it is very difficult to make an election if one is not aware of the circumstances.  We did not know of any error.  Your Honours, the third feature is this.  Our learned friend referred to an extract from the transcript.  If one goes to page 18 one sees a little further down the page at about line 46 where he said:

A.Yes, but I did have, there is there – I did understand that I had a deposit certificate which in fact would release to me, when presented, my original subscription and this would be, this would be substituted by another one in exactly the same way.

Then, Your Honours, the next page extracted, page 36, line 41, he said it would have made a difference if he had been told that the deposit was in the name of ECCCL, and to the same effect at page 37, the last page, lines 10 to 20.

Your Honours, the last thing I wanted to say was this:  the 1994 events, we had no entitlement not to consent to the release of the money.  Your Honours, those are our submissions.

GLEESON CJ:   In this matter there will be a grant of special leave to appeal.

At 10.03 AM THE MATTER WAS CONCLUDED