Up-dates to Radan & Stewart, Principles of Australian
Equity & Trusts, 2nd ed, LexisNexis, 2013
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CHAPTER 2
At the end of 2.17 add the following:
In a similar vein, in Stewart v Atco Controls Pty Ltd (in liquidation) [2014] HCA 15 at [31], a
unanimous High Court said:
[W]hile the rules of equity are not rigid or inflexible when faced with novel situations, this does not
mean that courts should proceed on general notions of justice without regard to settled principles. A
principle should be applied when the circumstances of a case fall within it.
At the end of 2.12 add the following:
Irrespective of which of the jurisdictions a case falls into, in Helou v Nguyen [2014] NSWSC
22 at [141]-[144], Lindsay J outlined the manner of equity’s intervention as follows:
Equity may intervene to restrain unconscionable conduct, compel the performance of duties, and
otherwise make orders as the nature of a case may require to prevent a departure from the dictates of
good conscience.
Where circumstances permit, an equity court prefers to allow a defendant an opportunity to conform
to the dictates of conscience. That is why equity lawyers sometimes speak of making orders ‘to
relieve the conscience’ of a wrongdoer, and equity judges make an order that a defendant execute a
conveyance in favour of a plaintiff instead of simply an order that property be vested in the plaintiff.
This is not merely formal obscurantism, but an incident of equity jurisprudence designed to bring
home to parties foundational reasoning for the Court’s intervention and, one hopes, thereby to aid in
the quelling of disputation. That said, if and when circumstances require, coercive orders can be, and
not uncommonly are, made without the courtesy of an opportunity, by an act of choice, to conform to
the requisite standard. Equity retains a hard edge with a tender heart …
[I]n its endeavour to grant remedies calibrated to match appropriate standards of conduct to the facts
of a particular case the Court can, and must, do what is ‘practically just’, accepting that parties may
not be able to be fully, or precisely, restored to the position they were in before the occasion for
equitable intervention arose. Once a court has determined upon the existence of a necessary equity to
attract relief, the moulding of relief may produce a final result which, after balancing competing
interests, may not exactly represent what any party may have wished ...
[A]n exercise of the Court’s jurisdiction requires it to consider whether its remedial response to
unconscionable conduct is a measured one having regard to the availability of other remedies and the
balancing of competing interests to which, in the particular circumstances, weight is to be given.
At the end of 2.41 add the following:
Although it is clear that the doctrine applies to personal property, its application to real
property has not been clearly determined. English law has, since the decision in Sen v
Headley [1991] Ch 425, extended the operation of this doctrine to gifts of land. However,
in Australia, the issue is in some doubt, with the weight of authority suggesting that the
doctrine does not extend to real property: Hobbes v New South Wales Trustee & Guardian
[2014] NSWSC 570 at [55]-[63].
At the end of 2.47 add the following:
Similarly, in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 at
121; 221 ALR 196 at 210, the High Court observed that ‘[e]quity often regards as done that
which ought to be done, but not necessarily that which merely could be done’.
In Parkview Qld Pty Ltd v Commonwealth Bank of Australia at [2013] NSWCA 422 at [122],
Leeming JA said:
As was said in Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 252, the occasions where equity will
treat an agreement to do something (such as the grant of a lease … or the sale of land …) as if it had
been performed ‘rests upon the specific enforceability of the agreement’. If the agreement is not
specifically enforceable, the maxim can have no application.
The justification for the restraint in the application of the maxim is explained by Levenstein
as follows:
This maxim requires great restraint in its application, not least for its potential to otherwise run
roughshod over the requisite certainty and predictability of legal undertakings, especially contractual
matters. That legal entitlement is still superior insofar as it binds the world, and its remedies are
matters of right unlike the discretionary ones available via equity, should not be altered. These
limitations on the potency of equity to interfere with the legal depiction of affairs are sensible in that
they restrain its capacity for unregulated mischief. Instead, its sphere of action is, by virtue of its
circumspection, better able to rectify injustice in the idiographic case without the imposition of
sweeping reforms to the present law. 1
At the end of 2.53 add the following:
If there is a threat of there being a contempt of court, the court can issue an injunction,
including an interlocutory injunction, to restrain the defendant from committing a contempt
of court: Tate v Duncan-Strelec [2013] NSWSC 1446 at [19]. Given the significant
consequences that may flow from a finding of contempt, the standard of proof in a charge of
contempt is that of beyond reasonable doubt: Lade & Co Pty Ltd v Black [2006] 2 Qd R 531
at [65], [101]; Fitness First Australia Pty Ltd v McNicol [2013] QSC 212 at [30].
Finally, it must be noted that a defendant will not be punished for contempt of a court unless
the order alleged to have been breached is clear and unambiguous: Baker v Paul [2013]
NSWCA 426 at [21].
At the end of 2.54 add the following:
Similarly, in Re Dion Investments Pty Ltd [2013] NSWSC 1941 at [34]-[36], in a case
concerning a trust governed by the law of Papua New Guinea, Young AJ held that, on the
basis of the in personam maxim, the Supreme Court of New South Wales had jurisdiction to
1
M Levenstein, Maxims of Equity, A Juridical Critique of the Ethics of Chancery Law, Algora Publishing, New
York, 2014, p 103.
hear an application to vary the terms of the trust because the trustee was based in New South
Wales.
CHAPTER 5
At the end of 5.18 add the following:
However, in Workcover Queensalnd v AMACA Pty Ltd [2013] 2 Qd R 278 the Court of
Appeal, after considering the decision in Equuscorp Pty Ltd v Haxton, came to the opposite
conclusion. Thus, Gotterson JA, at 298, said:
[W]here an assignee of a cause of action, including a cause of action based on a claim for damages in
tort for personal injury, has a genuine commercial interest in taking the assignment and enforcing it
for its own benefit, then the assignment should not be struck down as savouring of maintenance. Put
another way, the existence of a concurrent genuine commercial interest removes the cause of action
from the category of unassignable bare causes of action.
At the end of 5.25 add the following:
Assignment by a liquidator or trustee in bankruptcy
The liquidator of a company can assign a cause of action that had been the right of the
company, even though such an assignment would have been void if assigned by the company.
This includes a cause of action that the company had for breaches of fiduciary obligations: E
C Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183 at [891][916]. A similar set of principles applies in relation to the assignment of a cause of action by
a trustee in the case of a bankruptcy of a human person.
At the end of 5.26 add the following:
An assignment of a contractual right or benefit does not result in the assignee becoming a
party to the contract. Nor does the general law require the other party to the contract to
consent to the assignment: Yara Australia Pty Ltd v Oswal (No 2) 2013] WASCA 187 at [97].
Thus, an assignment of a contractual right is quite distinction from novation. In relation to
thios distinction, in Kakara Estate Ltd v Savvy Vineyards 3552 Ltd [2013] 3 NZLR 297 at
303, the Court of Appeal in New Zealand noted the following:
The essential difference between assignment and novation for the purposes of this case is that under
an assignment, the assignor is not relieved of the burden of a contract as regards the other original
contracting party, and the assignment can take place by agreement between the assignor and the
assignee without the consent of the other contracting party, unless the terms of the original contract
provide otherwise. In contrast to this, a novation is a transaction that creates a new contract that is
substituted for the original contract. In order to create this new contract, the consent of all the parties
to the original contract is required.
At the end of 5.49 add the following:
It must be noted that the assignment of a debt or chose in action pursuant to s 12 can result
from unilateral action by the assignor. Indeed this is the case with respect to assignments in
law or equity generally: Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd (2012)
295 ALR 550 at 576.
At the end of the first sentence of Point 2 in 5.55 insert the following:
In Austino Wentworthville Pty Limited v Metroland Australia Limited [2013] NSWCA 59 at
[62], Barrett JA, speaking for the Court of Appeal, after considering relevant authorities on
this point, summarised the principles as follows:
1. An ‘absolute’ assignment is one that is unconditional and does not attempt to affect part only of the
chose in action.
2 The fact that an assignment otherwise absolute is accompanied by an express proviso for
redemption, an implied right of redemption or the creation of a trust in respect of future proceeds
does not deprive it of its absolute character.
3. An assignment by way of charge is one the effect of which is to give a right of payment out of the
subject matter assigned without outright transfer of that subject matter. Such an assignment occurs
when, for example, there is a transfer of a right to be paid out of a particular fund or of so much of a
debt as is sufficient to satisfy a future indebtedness.
At the end of the first sentence in 5.100 insert the following:
Thus, ‘an agreement for value to immediately assign a legal chose in action that does not
comply with [s 12 of the Conveyancing Act 1919 (NSW) or its equivalents in other
jurisdictions] will, if consideration is executed, constitute an equitable assignment of the
chose in action’: Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd at 575.
CHAPTER 7
At the end of 7.21 add the following:
In relation to postponing conduct by the first equitable interest holder, in Circuit Finance
Australia Limited (Receivers and Managers appointed) (in liquidation) v Panella [2011]
NSWSC 311 at [13], Pembroke J said:
[T]he search is for conduct which is both blameworthy and causative. Mere unfairness in the
outcome is irrelevant unless there is also some tangible conduct by the holder of the first interest
which caused the holder of the later interest to act on a false premise. This is why, in such a case, the
conduct of the holder of the first interest is often described as ‘postponing’ or ‘disentitling’ conduct.
It is not sufficient to point to the eventual outcome and contend that it is unfair. It may well be so by
some moral standard. But the unfairness of the outcome is not a reason for departing from wellestablished legal principle.
At the end of 7.38 add the following:
In United Bank of Kuwait Plc v Sahih [1997] Ch 107 at 119; [1995] 2 All ER 973 at 982-3,
Chadwick J said:
To extend the rule in Dearle v Hall to the advantage of a judgment creditor who has been content to
extend credit without security would be to lose sight of the purpose of the rule. The rule is based upon the
inequity of allowing an assignee, who has taken no steps (by giving notice to the trustees to whom
inquiry might be made) to protect subsequent assignees against the possibility of fraud on the part of the
assignor, from setting up his prior assignment against those who have been deceived. The rule may be
anomalous, in that it appears unnecessary for the subsequent assignee to show that he did make inquiry of
the trustees before parting with his money, but that is no reason for extending it to the advantage of those
who would have no reason to make inquiry. In seeking a charging order, a judgment creditor is
concerned to obtain whatever security he can in respect of credit already given to the debtor; he is not at
all in the same position as one who is deciding whether to give credit against the security which he is
offered.
In 7.78 delete the first sentence and replace with the following:
In cases of joint tenancy, where joint tenants acquire title under a single instrument, but one
of them participated in fraud, the other joints tenants are affected by that fraud - their title is
defeasible: Gerard Cassegrain & Co Pty Limited v Cassegrain (2013) 305 ALR 612 at 6256, 645-6. (This case is currently on appeal to the High Court.)
In 7.81 delete the first sentence and replace with the following:
In Gerard Cassegrain & Co Pty Limited v Cassegrain at 618, Beazley P said:
An example of equitable fraud within the terms of s 42 may be found in Latec Investments Ltd v
Hotel Terrigal Pty Ltd (In Liq) 113 CLR 265 at 273-4 [see 4.44] where there was a collusive sale by
a mortgagee to a subsidiary in breach of the mortgagee’s duty in the exercise of its power of sale.
At the end of 7.92 add the following:
(v) a lessee’s right to a renewal of a lease against the purchaser of the property from the
lessor where the lessee was induced to consent to the transfer to the purchaser by the
purchaser’s undertaking that the right to the renewal would not be affected by the transfer:
Heggies Bulkhaul Ltd v Global Minerals Australia Pty Ltd (2003) 59 NSWLR 312.
CHAPTER 8
At the end of 8.20 add the following:
In Optus Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281 the facts
concerned telecommunications traffic generated by customers of Optus and Telstra that was
allowed to be carried on each other’s networks. When such interconnections occurred one
party had access to information about the other party’s customers. This included information
about the quantity, source, destination, duration, time of occurrence and kind of the
telecommunications traffic, as well as the value of the telecommunications traffic whether in
terms of its aggregate billing value or individual customer billing details and value. This
access arrangement was governed by a contract.
Optus alleged that Telstra had used Optus’s traffic information for marketing, promotional
and related purposes without the knowledge and consent of Optus. Optus alleged that Testra’s
conduct constituted breaches of contractual provisions relating to confidential information,
breaches of the equitable obligation relating to confidential information as well as
unconscionable conduct under s 51AA of the Trade Practices Act 1974 (now s 20 of the
Australian Consumer Law). At first instance the trial judge dismissed the equitable claim on
the ground that the contractual provisions exhaustively dealt with the parties’ rights and
obligations, leaving no room for the claim in equity. The statutory claim was also dismissed.
On appeal the Court of appeal held that, although there was an exhaustive contractual
provision, that did not the equitable obligation of confidence and that on the facts the
equitable claim was established. This meant that Optus was entitled to pursue either its
contractual claim for damages for breach of contract or for an account of profits in equity.
The Court of Appeal, at 287-8, ruled that on the proper construction of the contractual term it
did not exclude equitable obligations and that all that the parties did was to codify what was
to be treated as confidential information for the purposes of the contract. There was no
intention to exclude equitable obligations. The Court, at 290, noted that ‘[t]he notion that no
equitable duty of confidence arises where there is a comparable contractual duty is opposed
to much authority’.
In Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760 at 786-7,
the issue of the co-existence of contractual and equitable obligations of confidence did not
arise for determination by the court. However, Barrett JA, speaking for the Court of Appeal
in New South Wales, said:
There is a question whether an equitable duty of confidence arises against one party and in favour of
another where those parties have given and received contractual promises of confidentiality creating
equal or greater protection of the same subject matter. The Full Court of the Federal Court, in Optus
Networks Pty Ltd v Telstra Corporation Ltd (2010) 265 ALR 281, decided that the two kinds of
obligation could co-exist (reference was there made to an earlier case in which a contractual duty
was described as ‘parasitic upon’ the equitable duty: Australian Medic-Care Co Ltd v Hamilton
Pharmaceuticals Pty Ltd (2009) 261 ALR 501 [at 638]). The contrary view was taken by Gordon J
in Coles Supermarkets Australia Pty Ltd v FKP Ltd [2008] FCA 1915 at [63], citing the observation
of Campbell JA in Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 at [118] that, if there
is a contractual obligation covering the topic, there is no occasion for equity to intervene to impose
its own obligation … The approach preferred by Gordon J and Campbell JA accords with the
residual nature of the equitable duty as recognised by Deane J in Moorgate Tobacco at CLR 437–8;
ALR 208. Deane J referred to ‘the equitable jurisdiction to grant relief against an actual or threatened
abuse of confidential information not involving any tort or any breach of some express or implied
contractual provision, some wider fiduciary duty or some copyright or trade mark right’. [Emphasis
added.] It is also consistent with the notion of equity’s ‘supplementing’ role discussed above in
relation to fiduciary duties.
The view in Streetscape Projects (Australia) Pty Ltd v City of Sydney that, if there is a
contractual term dealing with confidential information, then there is no room for the
imposition of any equitable obligation of confidence was preferred to the decision in Optus
Networks Pty Ltd v Telstra Corporation Ltd by Stevenson J in Gold and Copper Resources
Pty Ltd v Newcrest Operations Ltd [2013] NSWSC 281 at [90]-[97].
Delete 8.29 and replace with the following:
8.29 Before any information can be assessed as to whether it has the necessary quality of
confidence, the information must be specifically identified. In Streetscape Projects
(Australia) Pty Ltd v City of Sydney at 788, Barrett JA observed that the need for specificity
‘comes from the fact that the court must make an assessment of the quality of that
information, that is, whether it is in truth of a confidential nature. An aspect of that inquiry
may turn on whether the whole or some part has become the subject of general disclosure or
notoriety. Precise delineation of the subject matter is accordingly essential’. Thus, the
primary and most essential characteristic of confidential information is that it be information
which has not entered the public domain and become common knowledge: Saltman
Engineering Co Ltd v Campbell Engineering Co at 215. All three types of confidential
information (see 8.4) are subject to this requirement. However, each protects different subject
matter. The discussion will first centre on the concepts of secrecy and the public domain and
then move on to consider the different categories of confidences.
At the end of 8.33 add the following:
Furthermore, in Earl v Nationwide News Pty Ltd [2013] NSWSC 839 at [20]-[25], it was held
that the fact that a newspaper had reported allegations that that a professional rugby league
player had been injected with peptides, did not mean that information concerning the player’s
medical condition and treatment was no longer confidential.
At the end of 8.48 add the following:
In relation to determining whether the commercial information is protected as confidential
information in Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] 4 All ER 781 at 792,
Lord Neuberger P, speaking for a unanimous Supreme Court, made the following
observation:
Particularly in a modern economy, the law has to maintain a realistic and fair balance between (i)
effectively protecting trade secrets (and other intellectual property rights) and (ii) not unreasonably
inhibiting competition in the market place. The importance to the economic prosperity of the country
of research and development in the commercial world is self-evident, and the protection of
intellectual property, including trade secrets, is one of the vital contributions of the law to that end.
On the other hand, the law should not discourage former employees from benefitting society and
advancing themselves by imposing unfair potential difficulties on their honest attempts to compete
with their former employers.
At the end of 8.50 add the following:
In Skids Management Programme Management Ltd v McNiel [2013] 1 NZLR 1 at 19, the
Court of Appeal in New Zealand said:
Information will have the requisite characteristic of confidence if it is the product of thought and work.
The nature of the allegedly confidential material must be considered. There can be various indications of
confidentiality. The degree of thought and work expended to produce the material is to be considered. If
the material is unique or a trade secret this may indicate that it has the quality of confidentiality. If the
material has commercial value that will be an indication that it has the necessary quality of confidence.
The fact that the person who has used the material would otherwise need to have done a lot of work to
create it, and that work has been avoided, can be relevant. So too is the extent to which the owner has
itself considered the material confidential and taken steps to preserve and guard its secrecy, and the steps,
if any, taken by the user if they indicate a perception that the work is confidential.
At the end of 8.51 add the following:
Nor will there be a breach of confidence if an idea is confidential but the recipient of the idea
develops a product that is derived independently of the confidential idea: Wade v British Sky
Broadcasting Ltd [2014] EWHC 634 (Ch) at [123].
At the end of 8.56 add the following:
In Force India Formula One Team Ltd v Aerolan Srl [2013] EWCA Civ 780 at [67], Lewsion
LJ said that ‘[a]n identified piece of confidential information does not cease to be confidential
simply because it is memorable’.
At the end of 8.73 add the following:
In Primary Group (UK) Ltd v The Royal Bank of Scotland Plc [2014] EWHC 1082 (Ch) at
[211], Arnold J concluded that the test set out by Megarry J in Coco v A N Clark (Engineers)
was one that ‘does not depend upon a confidential relationship between the discloser and the
recipient of the information … [and] is objective rather than subjective’.
At the end of 8.75 add the following:
In such cases the obligation of confidence extends to the time after the professional
relationship comes to an end. Thus in Bolkiah v KPMG [1999] 2 AC 222, KPMG
(accountants) acted for the Brunei Investment Agency (BIA). KPMG also acted on behalf of
the company’s chairman in relation to private litigation of his own. Subsequently the
Chairman was dismissed by BIA. The Brunei government then wanted to engage KPMG to
do work on an investigation into the affairs of BIA. The former Chairman sought an
injunction to prevent KPMG from doing the investigation for the Brunei government on the
ground that KPMG possessed certain confidential information about him relating to his
financial affairs that could not be disclosed in the investigation that KPMG were willing to
undertake for the Brunei government. KPMG argued that they had erected a ‘Chinese wall’
within the firm to prevent the information being accessed by the staff in the firm undertaking
the investigation for the Brueni government and that there was thus no real risk that the
information would be disclosed to those investigators.
The House of Lords found in favour of the former Chairman and granted him the injunction.
It was held that KPMG owed a continuing professional duty to the former Chairman as a
former client to preserve the confidentiality of information imparted during the subsistence of
that relationship. That duty was unqualified and required KPMG to keep the information
confidential, not merely to take all reasonable steps to do so, and also not to misuse it.
Because the information that KPMG had about the financial affairs of the former Chairman
was or might be relevant to the proposed investigation, an injunction would be granted
against them unless they could show, on the basis of clear and convincing evidence, that
effective measures had been taken to ensure that no disclosure would occur and that there
was no risk of the information coming into the possession of those conducting the
investigation. Although there was no rule of law that Chinese walls or other arrangements of
a similar kind were insufficient to eliminate the risk, the presumption was that, unless special
measures were taken, information moved within a firm and, to be effective, those measures
had to be an established part of the organisational structure of KPMG, not created ad hoc. In
this case, on the evidence, KPMG had not discharged the heavy burden of showing that there
was no risk that information might unwittingly or inadvertently come into the notice of those
working for the BIA.
At the end of 8.119 add the following:
In QBE Management Services (UK) Ltd v. Dymoke [2012] EWHC 116 (QB) at [71], HaddonCave J said:
Springboard relief is granted where it is shown that the defendant has attempted to make use of
confidential information following the termination of the agreement or relationship under which the
information was disclosed. It is granted for a limited period and is designed to prevent unfair
advantage being taken of the head start the defendant has obtained by having the confidential
information. It imposes a restriction on making approaches or further approaches to customers which
is additional to the restraint on making use of the confidential information itself. In effect it is a
moratorium on attempts at poaching, which is intended to redress the competitive advantage the
defendant has obtained from seeking to make use of the confidential information in the first place.
At the end of 8.126 add the following:
In Flogas Britain Ltd v Calor Gas Ltd [2013] EWHC 3060 (Ch) at [40], Proudman J said:
It is not easy to derive a clear guiding principle on the appropriate measure of [compensation] for
breach of confidence based on the cited case law. However, I adopt the principle … which [regards]
the loss of profits as the important factor, awarding monetary relief to a claimant who has suffered
financial loss as result of a defendant’s breach … After all, it is the loss to the claimant’s business
that should be at issue, and it would be unjust in my view to restrict the claimant to an assessment of
the value of the confidential information.
At the end of 8.127 add the following:
On appeal, in Force India Formula One Team Ltd v Aerolab SRL [2013] EWCA 780 at
[100]-[108], the Court of Appeal upheld Arnold J’s statement of relevant principles.
CHAPTER 9
At the end of 9.12 add the following:
In Hoh v Frosthollow Pty Ltd [2014] VSC 77 at [68], Derham AsJ stated that the views
judges on this issue in the Court of Appeal in Westpac Banking Corporation v The Bell
Group Ltd (In Liq) (No 3) stood in ‘lonely isolation’ to the weight of other binding authority
and held that law on fiduciary duties did not extend to prescriptive duties.
At the end of 9.22 add the following:
Finally, Smith argues that fiduciary law reflects a functional theory of equity in which equity
acts as a safety valve aimed at prohibiting opportunistic conduct by a fiduciary. He defines
opportunism as ‘behaviour that is undesirable but that cannot be cost-effectively captured –
defined, detected, and deterred – by explicit ex ante rulemaking … It often consists of
behavior that is technically legal but is done with a view to securing unintended benefits from
the system, and these benefits are usually smaller than the costs they impose on others’.2 This
means that ‘because the ways to be opportunistic as a fiduciary are very hard to foresee in
any detail and even difficult to tease part from general conditions ex post, fiduciary law is
vague and open-ended around the edges’. Smith justifies this on the basis that ‘some openendedness is a necessity in fiduciary law to handle new situations’ given ‘the strategic nature
of opportunism’ (H E Smith, ‘Why Fiduciary Law Is Equitable’ in A S Gold & P B Miller
(eds), Philosophical Foundations of Fiduciary Law, Oxford University Press, Oxford, 2014 –
forthcoming).
In 9.35 after the sixth sentence insert the following:
For example, in the context of a partnership the extent of the fiduciary duties owed by each
partner to the other is determined by the character of the purpose for which the partnership
exists, the terms of the partnership agreement and the course of dealing pursued by the
partners: Chan v Zacharia at CLR 199; ALR 433. In relation to directors, in Howard v
Commissioner of Taxation [2014] HCA 21 at [34], French CJ and Keane J said:
The scope of the fiduciary duty generally in relation to conflicts of interest must accommodate itself
to the particulars of the underlying relationship which give rise to the duty so that it is consistent
with and conforms to the scope and limits of that relationship. It is to be ‘moulded according to the
nature of the relationship and the facts of the case’: Hospital Products Ltd v United States Surgical
Corporation (1984) 156 CLR 41 at 102. By way of example, company directors are frequently
shareholders. The decisions they take as directors may therefore affect their personal interests. They
do not breach their fiduciary obligations merely because in promoting the interests of the company
they are also promoting their own. On the other hand, a decision taken by directors to advantage
themselves other than as members of the general body of shareholders would constitute an abuse of
fiduciary powers.
In 9.43 after the quotation from Tower v Premier Waste Management Ltd insert the
following:
H E Smith, ‘Why Fiduciary Law Is Equitable’ in A S Gold & P B Miller (eds), Philosophical Foundations of
Fiduciary Law, Oxford University Press, Oxford, 2014 (Forthcoming)
2
In Streeter v Western Areas Exploration Pty Ltd (No 2) (2011) 278 ALR 291 at 357, Murphy
JA outlined the purpose of this rule as follows:
The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that
the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure
that fiduciaries generally conduct themselves ‘at a level higher than that trodden by the crowd’
[Meinhard v Salmon (1928) 164 NE 545, 546 per Chief Justice Cardozo]. The objectives which the
rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal
interest and from accordingly misusing the fiduciary position for personal advantage.
More recently, in Howard v Commissioner of Taxation [2014] HCA 21 at [63]-[64], Hayne
and Crennan JJ said:
[The misuse of fiduciary position sub-rule] is engaged when a company director diverts a business
opportunity of the company to his or her personal advantage. It may be engaged by other
circumstances. A director’s diversion of the company’s business opportunity will also commonly
(perhaps inevitably) engage the director's obligation not to be in a position of conflict. But regardless
of whether the obligation to avoid conflicts is engaged, a critical question presented for consideration
in relation to the obligation not to obtain unauthorised benefits will be whether the director has
obtained a benefit by reason or by use of the relationship between that director and the company.
That question requires careful attention to how and why it is said that the director obtained a benefit
by reason or by use of the relationship … [I]f the opportunity came to the director in the course or as
a result of holding office as a director, it is not to the point to establish that the company could not or
would not have exploited the opportunity.
At the end of 9.45 add the following:
In Howard v Commissioner of Taxation [2014] HCA 21, Howard was one of 6 joint venturers
who planned to purchase a golf course to be leased to substantial tenant and then sold to a
buyer. Howard was a director of Disctronics Ltd. The directors of Disctronics had decided
during the development of the joint venture that Disctronics would try to purchase the golf
course from the joint venturers if it could afford to do so. This plan never eventuated because
the golf course was sold, without Howard’s knowledge, to a company established by two of
the other joint venturers. As the result of an action against these two joint venturers for
equitable compensation for breach of fiduciary obligations, Howard received the sum of
$861,853-35. The issue before the High Court was whether that sum formed part of Howard’s
taxable income. Howard claimed that the sum was held by him on constructive trust for
Disctronics on the basis that his fiduciary obligations as a director of Disctronics meant that
the profit made under the joint venture was not his but rather belonged to Disctronics and that
therefore the profit was taxable in the hands of the Disctronics. The High Court unanimously
held that Howard’s participation in the joint venture was not a breach of any fiduciary
obligations owed to Disctronics and therefore that the money recovered as equitable
compensation against the other joint venturers was taxable in his hands. The essence of the
Court’s decision was summed up by French CJ and Keane J, at [4], where they said:
[Howard’s] obligation to Disctronics, as one of its directors, did not extend beyond taking
appropriate steps to give effect to a decision of the directors to try to bring the company in as the
ultimate purchaser from the joint venture … The company was not and was never intended to be a
member of the joint venture. There was no relevant fiduciary obligation preventing [Howard] from
taking a share of the profits of the joint venture on his own account.
In coming to that conclusion, French CJ and Keane J, at [37], said:
If there is no possible conflict between personal interest and fiduciary duty, and if the gain or benefit
is not obtained by use or by reason of the fiduciary position, the fiduciary is not liable to account for
the gain or benefit. The directors of Disctronics, acting in their personal capacities, conceived of a
profit-making venture in which they would be involved in their personal capacities. Their entry into
the joint venture did not involve the use of any knowledge or opportunity derived from their
positions as directors. Acting as directors, they decided that the company could be benefited by being
brought in as the ultimate purchaser of the golf course. The decision of the directors did not establish
any basis, in principle, to impress their personal interests in the joint venture with fiduciary
obligations to Disctronics in the event that it did not acquire the golf course. There is no suggestion
that that decision involved an exercise of their powers as directors other than in the interests of the
company. It was the investment potential of the acquisition from Disctronics’ perspective that led
them to propose that it purchase the golf course for a price which was not necessarily as good a price
as would have been obtained from an arms-length purchaser.
Hayne and Crennan JJ at [86]-[89], in coming to the same conclusion, said:
Asserting that Disctronics ‘sought’ or ‘desired’ to invest in ‘the project’ (whether by becoming
purchaser of the tenanted golf course or in some other role) does not demonstrate that [Howard’s]
gain or profit was an unauthorised gain or profit which he held on trust for Disctronics. Instead, it is
necessary to ask whether the identified gain or profit was obtained or received by reason or by use of
[Howard’s] position as a director of Disctronics or by reason or by use of any opportunity or
knowledge resulting from that position. It was not.
Unlike Regal (Hastings), [Howard] made no transaction in the course of his management of
Disctronics. He did not obtain or receive the gain or profit by using in any way ‘the position and
knowledge possessed by [him] in virtue of’ his office as director. And he did not obtain or receive
the gain or profit by reason or by use of any opportunity or knowledge resulting from his office as a
director of Disctronics. So much may be taken to have been rightly recognised by [Howard’s]
concession in oral argument that ‘the opportunity did not come to [him] by reason of his office’.
By suing for and recovering equitable compensation from the defaulting venturers [Howard] did not
obtain a gain or profit by reason or by use of his position as a director of Disctronics. The award of
compensation was for the diversion by the defaulting venturers of the joint venturers’ opportunity to
pursue a profitable venture by buying and leasing the golf course … [T]he opportunity thus diverted
was the joint venturers’, not Disctronics’. The compensation awarded was for the defaulting
venturers’ diversion of the joint venturers’ opportunity, not of Disctronics’. [Howard] did not obtain
that (or any other) gain or profit by use of any opportunity or knowledge resulting from his position
as a director of Disctronics.
The obligation not to obtain an unauthorised benefit from the fiduciary relationship was not engaged.
At the end of 9.49 add the following:
In this respect, it can be noted that the trustee of a discretionary trust (see 15.10-15-12) owes
fiduciary duties to the potential beneficiaries of the discretionary trust: Brady Street
Developments Pty Ltd v M E Asset Investments Pty Ltd [2013] NSWSC 1755 at [55].
At the end of 9.50 add the following:
The fiduciary obligations of directors was summarised in Allco Funds Management Limited
(Receivers and Managers Appointed) (In Liquidation) -v- Trust Company (RE Services)
Limited (in its capacity as responsible entity and trustee of the Australian Wholesale
Property Fund) [2014] NSWSC 1251 at [114] by Hammerschlag J as follows:
For over 100 years, it has been the law that directors owe duties of a fiduciary nature to act as best to
promote the interests of the corporation whose affairs they are conducting. It has been a rule of
universal application that no one having such duties to discharge shall be allowed to enter into
engagements in which they have, or can have, a personal interest conflicting or which may conflict
with the interests of those whom they are bound by fiduciary duty to protect. Where a director of a
company is also a director of another company which is proposing to enter into engagements with
the company, he has a personal interest within the rule and owes a duty which conflicts with his duty
to the first company. The rule is so strictly adhered to that no question is allowed to be raised as to
the fairness or unfairness of a contract entered into
However, ‘a fiduciary obligation owed to a company does not automatically transmit
fiduciary obligations owed to its holding company … [A]ny [such] fiduciary relationship …
must arise because of the relationship between those particular parties’: Investa Properties
Pty Ltd v Nankervis (No 2) [2013] FCA 468 at [20].
It should also be noted that, given the many similarities between companies and incorporated
associations, members of governing or management committees are fiduciaries in relation to
their incorporated associations: Pine Rivers, Caboolture and Redcliffe Group Training
Scheme Inc v Group Training Association Queensland & Northern Territory Inc [2013] QCA
358 at [38]-[39].
At the end of 9.57 add the following:
However, a director’s duty to exercise care and diligence are not is not characterised as a
fiduciary duty: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 239;
Collard v The State of Western Australia (No 4) [2013] WASC 455 at [1218]-[1221].
At the end of 9.64 add the following:
The fact that a person who is a legal practitioner enters into a transaction with another person
does not necessarily mean that a fiduciary relationship arises: Schipp v Cameron [1988]
NSWSC 997 at [665]. In this respect, in Spaulding v Adams [2012] TASSC 61 at [91],
Crawford CJ said:
[C]are must be taken to determine whether the sued party was in fact acting as a solicitor, and owed
fiduciary duties, at the relevant time. The mere fact that the defendant’s profession was a solicitor at
the time that he dealt with the plaintiff does not mean that he was acting for, or retained by the
plaintiff, as a solicitor, or that he owed fiduciary duties and must compensate the plaintiff for his
losses, if any, suffered as a result of their dealings with each other.
An appeal, on other grounds, in this case was dismissed in Spaulding v Adams [2013] TASFC
8.
At the end of 9.66 add the following:
Most recently the issue was discussed in Dealer Support Services Pty Ltd v Motor Trades
Association of Australia Ltd [2014] FCA 1065, where Beach J, after a close analysis of the
authorities, concluded that the views set out in Spincode Pty Ltd v Look Software Pty Ltd
were in error. In relation to a solicitor’s fiduciary obligations upon termination of the retainer,
Beach J, at [59]-[60], said:
There is a difference between a solicitor who has been retained in a matter for Client A saying half
way through that he wants to terminate the retainer and to then go and act for Client B in the same
matter. The act of termination is an act of disloyalty. The act of preferring Client B to Client A, who
still desires to retain him, is an act of disloyalty. The state of mind of that solicitor is one of a
disloyal fiduciary. There may also be other cases where a fiduciary obligation survives termination,
particularly in ‘instances in which a fiduciary has sought to circumvent fiduciary doctrine’s
protection’ (Conaglen M, Fiduciary Loyalty (Hart Publishing, 2010 at at 188) including where the
termination is motivated by the desire to obtain or retain a benefit in breach of fiduciary duty. Now
contrast such cases with the situation where the solicitor has been retained for Client A in a matter.
Client A pays the solicitor for his present services but does not pay for any option or first right of
refusal for his future services. Say the matter is concluded. Five years later, Client B comes along
and retains the solicitor in that or a related matter. Assume also that Client A independently has
chosen to engage a different solicitor in any event. Is it suggested that these two situations should be
treated in the same terms of this duty of loyalty? In my view, they should not be. Moreover, if there
was an issue arising in that latter scenario, that would be adequately addressed by the first and third
bases for disqualification in any event. And if it was not covered by those bases, what substance
would there be in seeking to justify nevertheless the solicitor’s disqualification? It would be a
restraint in the absence of a vice ... It would be a restraint in the absence of the client paying for the
privilege of some indefinite restraint when it first engaged the solicitor; any well informed client
would know that they had not paid for that privilege. It would be a restraint that had little to do with
the administration of justice …
More generally, in terms of analysing the extent to which a fiduciary obligation terminates with the
retainer or survives such termination, the context and the nature of the fiduciary obligation are all
important. No doubt equity considers the actual conduct of the parties rather than follows the rules of
contractual formation and termination; termination of the retainer may provide evidence of the
conclusion of the fiduciary relationship, but it is not conclusive. No doubt where the termination is
motivated by the fiduciary’s desire to obtain or retain a benefit in breach of the fiduciary obligation,
then the obligation may survive the termination. For example, where the termination is motivated by
the desire of the fiduciary to self deal, then the relevant obligation would survive termination,
although in such a case one may also be in the territory of the first basis where there has been a
misuse of confidential information … Perhaps indeed the fiduciary relationship as distinct from the
obligation can survive the contractual termination if the relevant relationship of trust and confidence
continues.
At the end of 9.71 add the following:
Finally, it can also be noted that the donee of a power of attorney owes fiduciary duties to the
donor on the basis that the power of attorney creates an agency relationship between the
donee and donor: Grefeld v Grefeld [2012] FamCAFC 71 at [67]. This means that, ‘as
between the donor and donee, authority to use the power of attorney for purposes solely for
the benefit of the donee would have to be unambiguously stated to relieve the donee of a
fiduciary duty to his principal’: Perpetual Trustee Company Ltd v Gibson [2013] NSWSC
276 at [31].
Legislation in some jurisdictions may modify that position. For example, in New South
Wales, s 163(2)(b) stipulates that if the right is ‘expressly conferred’ in the power of attorney,
the attorney may ‘execute an assurance or other document, or do any other act, as a result of
which a benefit would be conferred on the attorney appointed by the instrument’. In the
unanimous decision of the Court of Appeal in Taheri v Vitek [2014] NSWCA 209 at [130],
Leeming JA, said that if there is such an express provision, it will ‘empower an attorney to do
‘anything’ the principal may lawfully authorise an attorney to do, even if there is a benefit to
the attorney and no benefit to the principal’. The right of the attorney in such a case stems
from the statute and is not governed by equitable doctrine relating to fiduciary obligations.
However, in practical terms there appears to be little different between the two.
At the end of 9.75 add the following:
Although the guardian and ward relationship is fiduciary relationship that does not mean that
everything that is done by the guardian is governed by fiduciary duties: Collard v The State of
Western Australia (No 4) [2013] WASC 455 at [1222]. In Tusyn v State of Tasmania (2004)
13 Tas R 51 at 56, Blow J observed that a distinction needs to made ‘between moral duties,
non-fiduciary duties imposed by law, and fiduciary duties’.
At the end of 9.88 add the following:
One of the major reasons a plaintiff may seek to establish the defendant’s liability for breach
of fiduciary obligation in preference to common law liability is ‘the availability of
advantageous equitable remedies and the avoidance of stringent time limits’: Howard v
Commissioner of Taxation [2014] HCA 21 at [35].
At the end of 9.89 add the following:
The fact that a commercial relationship is subject to an express term that imposes a duty of
good faith does not mean that a fiduciary relationship exists. This is because a duty of good
faith permits a party to have regard to his or her own interests whereas a fiduciary cannot:
Fujitsu Services Limited v IBM United Kingdom Limited [2014] EWHC 752 (TCC) at [133].
At the end of 9.96 add the following:
A further case dealing with the issue of fiduciary obligations in the context of arms-length
commercial transactions is the decision of the Court of Appeal in New South Wales in
Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760. In that case,
the City of Sydney council developed a particular form of street-marketing equipment that
enabled one street-pole to carry multiple features such as street lighting, traffic lights, street
signs and electronic message boards. The benefit of the single pole was that it eliminated the
need for multiple poles to be erected in the one place. The council contracted with
Streetscape Projects to grant the latter a licence to sell the poles within Australia, New
Zealand and Spain. Streetscape Projects, without the council’s knowledge, subsequently sold
the technology to various other foreign governments, thereby generating millions of dollars
of profits for itself. An issue before the Court of Appeal was whether the commercial
arrangement between the council and Streetscape Projects was one in which Streetscape
Projects owed any fiduciary obligations to the council. The Court of Appeal unanimously
held that Streetscape Projects did not owe and fiduciary obligations to the council. In coming
to that conclusion, Barrett JA, at 779, made an initial observation as follows:
The adequacy of remedies for breach of contract is therefore, in general, the determinant of whether there
is scope for equity to play a supplementing role by way of the imposition of a fiduciary duty upon a
contracting party; and the mere fact that one party puts faith and trust in the other is not of itself sufficient
to bring equity to centre stage in that way.
His Honour, at 782-3, concluded:
The parties chose to protect their respective positions by entering into a comprehensive written contract.
As was demonstrated by the decision regarding breach of contract (not challenged on appeal), the
[council] succeeded in securing for itself, by means of that contract, full redress for the conduct in which
Streetscape engaged. The case was not one of a bare and rudimentary contract that provided little by way
of safeguards for the [council]. Nor was it a case of unequal bargaining power. Nothing was left to
depend on unspoken assurances of good conduct or solicitude. The only vulnerability to which the City
was subject was, in the words used in John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd [at
CLR [83]; ALR [83]), ‘that which any contracting party has to breach by another’ … [The trial judge] did
not refer to the need … emphasised [in John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd] to
identify some foundation for a finding of fiduciary obligation going beyond the mere vulnerability to
breach of contract that is the lot of every contracting party. The case before the [trial] judge was one of
breach of a detailed commercial contract. The circumstances in which the contract had been made and in
which performance was required did not indicate in any way that remedies for breach of contract would
not be adequate for the vindication of the rights and the protection of the interests involved. There was
simply no need for equity to provide supplementation in the form of fiduciary obligation.
At the end of 9.98 add the following:
In Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341 at [231]-[232],
Foster J said:
[W]hile it seems generally accepted that senior employees with managerial responsibilities will owe
fiduciary duties, it is also generally accepted that the same cannot be said of all employees. In my
judgment, the question is one of degree. Matters relevant to determining whether such a duty exists
in any given employer/employee relationship include the following: How much latitude is the
employee afforded by the employer and how great is the employer’s vulnerability to the potential
misuse of the position of power granted to the employee? Another way of looking at the matter is to
regard a fiduciary duty as being imposed on the employer/employee relationship if the nature of that
relationship demands a standard of loyalty exceeding the duty of fidelity prescribed by the relevant
employment contract.
In 9.118 before the last sentence insert the following:
Similarly, in Collard v The State of Western Australia (No 4) [2013] WASC 455 at [1130][1162], Pritchard J rejected the proposition that the Crown owed fiduciary duties to
Australia’s Aboriginal peoples on the basis that the case law from Canada and other
jurisdictions was inapplicable to the Australia’s legal and constitutional context. His Honour,
at [1163]-[1180], also held that the indicia of fiduciary relationships (see 9.14-9.22) meant
that one could not make a finding that the Crown owed fiduciary obligations to Aboriginal
peoples.
At the end of 9.119 add the following:
However, in Weribone (on behalf of the Mandananji People) v Queensland (2013) 302 ALR
64 at 80, Rares J held that persons negotiating indigenous land use agreements on behalf of
native peoples pursuant to the Native Title Act 1993 (Cth) exercised ‘a fiduciary power that
must be exercised in the interests of and for the benefit of that wide class, [this is,] all persons
who may and actually hold native title in relation to land or waters proposed to be affected’.
At the end of 9.120 add the following:
In Wingecarribee Shire Council v Lehman Brothers Australia Ltd (2012) 301 ALR 1 at 200,
Rares J said that ‘the sufficiency of disclosure can depend on the sophistication and
intelligence of the persons to whom disclosure must be made’.
At the end of 9.124 add the following:
In relation to the consent being granted by shareholders, in Sharma v Sharma [2013] EWCA
Civ at 1287 at [52], Jackson LJ said:
(i) A company director is in breach of his fiduciary … if he exploits for his personal gain (a)
(ii)
opportunities which come to his attention through his role as director or (b) any other
opportunities which he could and should exploit for the benefit of the company.
If the shareholders with full knowledge of the relevant facts consent to the director
(iii)
(iv)
exploiting those opportunities for his own personal gain, then that conduct is not a breach of
the fiduciary or statutory duty.
If the shareholders with full knowledge of the relevant facts acquiesce in the director’s
proposed conduct, then that may constitute consent. However, consent cannot be inferred
from silence unless:
(a) the shareholders know that their consent is required, or
(b) the circumstances are such that it would be unconscionable for the shareholders to
remain silent at the time and object after the event.
For the purposes of propositions (ii) and (iii) full knowledge of the relevant facts does not
entail an understanding of their legal incidents. In other words the shareholders need not
appreciate that the proposed action would be characterised as a breach of fiduciary … duty.
In 9.131 after the quotation from John Alexander’s Clubs Pty Ltd v White City Tennis Club
Ltd insert the following:
In Grimaldi v Chameleon Mining NL (No 2) FCR 405; ALR 127, the Full Court of the
Federal Court said:
An account of profits, rather than a declaration of a constructive trust over part of a business, may be
ordered where the latter would ‘thrust the parties into a continuing business relationship when it was
clear there was no confidence or comity between them’: [Warman International Ltd v Dwyer at CLR
at 554; ALR 206]. This, we would note, is an important but little discussed consideration in those
cases where the imposition of a constructive trust can result in forcing parties into a long term
business relationship which is likely to be undesirable or unworkable.
CHAPTER 10
At the end of 10.3 add the following:
Although related but distinct, the High Court has recognised that the facts of a case may be
such that a plaintiff can establish both undue influence and unconscionability: Bridgewater v
Leahy (1998) 194 CLR 457 at 477-8; 158 ALR 66 at 80. Thus, in Verduci v Golotta [2010]
NSWSC 506, a mortgage was held to be voidable on the grounds of both undue influence and
unconscionability in circumstances where a solicitor’s client borrowed money from the
solicitor’s father. On the other hand, in Lee v Chai [2013] QSC 136, where a man sought to
set aside a gifts of property to his lover, the man’s claims that the gifts were the result of
undue influence or unconscionability were rejected by the court.
At the end of 10.8 add the following:
In Evans v Lloyd [2013] EWHC 1725 (Ch) at [37], Judge Keyser QC said:
[T]he two labels [of actual and presumed undue influence] describe different ways in which undue
influence is exercised and, accordingly, different ways of proving that undue influence has in fact
been exercised. In very general terms, in a case of actual undue influence it is necessary to prove
some overt act by which influence was exercised, whereas in a case of presumed undue influence the
influence will be exercised less directly and its existence is inferred from a consideration of the facts
relating to the transaction under consideration and the relationship of the parties to that transaction.
At the end of 10.11 add the following:
In Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923; [1992] 4 All
ER 955, it was held that in cases of actual undue influence the transaction had to be one in
which there was a manifest disadvantage to the claimant. LJ Slade, at QB 967; All ER 976,
giving the judgment of the Court of Appeal, said:
Leaving aside proof of manifest disadvantage, we think that a person relying on a plea of actual
undue influence must show: (a) that the other party to the transaction (or someone who induced the
transaction for his own benefit) had the capacity to influence the complainant; (b) that the influence
was exercised; (c) that its exercise was undue; (d) that its exercise brought about the transaction.
At the end of 10.27 add the following:
In this respect in Tulloch (Dec’d) v Braybon (No 2) [2010] NSWSC 650 at [51], Brereton J
said:
In my opinion … more than mere confidence and reciprocal influence is required to establish a
‘special relationship of influence’ from the existence of which undue influence will be presumed
unless rebutted; for a relationship to be brought within the doctrine, it must go beyond one of mere
confidence and influence, to one involving dominion or ascendancy by one over the will of the other,
and correlatively dependence and subjection on the part of the other. It is true that some cases
suggest that it is not necessary to establish a relationship of actual dominion by one party over
another and that it is enough to show that the party in whom trust and confidence is reposed is in a
position to exert influence over the party who reposes it. But more is required than the ‘influence’
that any person might have on another by making an (sic) recommendation or giving advice. What is
required, as a minimum, is that one have some element of authority or superiority (which may be
moral or practical as distinct from legal) over the other … It is where the relationship is such that one
party is seen or supposed to be in some way beholden, obliged, or disadvantaged in relation to the
other that such relationships … can be proved, and dominion or ascendancy is at least usually an
important factor.
At the end of 10.34 add the following:
In Hodson v Hodson [2006] EWHC 2878 (Ch) at [27], Patten J said:
It is commonly the case that the donor has a full understanding of the nature of what he or she is
being asked to do but no real ability to resist the demands being made of them. It is lack of
independence which is the key to the intervention of equity.
The rebuttal of the presumption of influence is a question of fact based upon the facts and
circumstances of the case: Baker v Affoo [2014] QSC 46 at [96]. The difficulty in rebutting
the presumption of undue influence will vary from case to case. Thus, in Westmelton (Vic)
Pty Ltd v Archer & Shulman at 312, the Full Court said:
The extent and weight of the burden cast upon the person in whom the confidence was reposed, and
the matters (where the presumption applies) of which the court will require to be satisfied before it
will regard the presumption as having been negatived, must vary enormously with all the
circumstances of the case, and it is pointless as well as unjustified in law to attempt to lay down any
particular requirements for all cases, or indeed any classes of case, because the circumstances and the
requirements will vary infinitely with the infinite variety of human affairs.
At the end of 10.36 add the following:
Finally, advice from a solicitor acting for both parties is not independent advice: Powell v
Powell [1900] 1 Ch 243 at 246-7; Aboody v Ryan [2012] NSWCA 395 at [26]. If legal advice
is given to the weaker party in the presence of the stronger party, this will mean that the
advice is not independent legal advice: Anderson v Anderson [2013] QSC 8 at [62].
At the end of 10.41 add the following:
The fact that the weaker party to the relationship intended to make the gift or that the
proposal to make the gift came from the weaker party is not enough, of itself, to rebut the
presumption of influence: White v Wills [2014] NSWSC 1160 at [94].
At the end of 10.60 add the following:
In this context in Warburton v Whitely (1989) BC8902563, Kirby P said:
The appellants [in this case] attacked the principle [in Yerkey v Jones] on the basis that, however
appropriate to the social circumstances in which it was developed and in which it was expounded by
Dixon J, it is no longer appropriate today to ground such an undiscriminating and absolute rule. It
was suggested that the principle was based upon a stereotyped perception of the dependent position
of wives in relation to their husbands. It gave no equal protection to husbands in an analogous
position of dependence. It derived from the history of the legal disadvantages suffered at law by
married women. It could be explained on the basis of the earlier perceived needs in the law to
provide special protections for wives in relation to their husbands. It perpetuated a stereotype which
was out of harmony with today’s society, preserved the unequal position of women and conflicted
with the development of statute law with which legal and equitable principles should keep in step.
Above all, it was argued that Yerkey is not now necessary because of the later exposition of an
applicable and more general legal principle [of unconscionability] for the undiscriminating
protection of persons (whether husbands, wives or otherwise) in a position of special disability
known to a creditor.
Just to cite Dixon J’s words in Yerkey is to illustrate how inappropriate they are, nowadays, taken as
a rule of general application. They contrast with the very different social circumstances of Australian
society today, when compared to that society fifty years ago when Yerkey was written: ‘Although the
relation of husband to wife is not one of influence, yet the opportunities it gives are such that if the
husband procures his wife to become surety for his debt a creditor who accepts her suretyship
obtained through her husband has been treated as taking it subject to any invalidating conduct on the
part of her husband even if the creditor be not actually privy to such conduct’.
The advance in the status and education of women, the increasing role of women (including wives)
in business and commercial affairs and the variety of personal relationships today all make a
principle, fashioned in terms of a wife’s disadvantageous position vis-a-vis her husband, unsafe
when stated as a general rule of universal application. Even as a statement of a prima facie position,
the statement is now unsound and objectionable in principle. It is also of dubious accuracy in
practice. Doubtless … there are cases, even today, where wives in our society are in a position of
special disability with respect to their husbands and in need of particular protection from the law in
relation to incurring debts. That is not in doubt. What is in issue is the important question of
principle as to whether the law’s protection should be offered on the basis of assumptions about a
dependent relationship as described fifty years ago or grounded in a more discriminating principle
which can be adapted to the facts of the relationship proved. Such a principle would avoid
presuppositions about the relationship only of wives to husbands. It would avoid [as Deane J did in
Commercial Bank of Australia Ltd v Amadio (1983) CLR 447 at 475] a rule which confines the
‘process of reasoning...to cases of the relief of female spouses’. It would examine the facts of each
relationship to determine whether a special disability existed. It could thus adjust the principle of the
law so that it could apply to the greater variety of personal relationships such as exist today in greater
number than fifty years ago. And it would withhold the interference of the law in the economic
activities of individuals based upon no better reason than the existence of marriage and the presumed
dependence of the wife within it.
Despite the advances in the status of women in recent years it should not be assumed that all
commentators are of the opinion that the law should immediately expunge every rule previously
fashioned to distinguish the position of women (and wives) from men (and husbands or persons in
other relationships). Thus some commentators suggest that the conferral of ‘special’ rights upon
women (and wives) enables them to exercise an ‘equal right’ without which they will, effectively, be
denied equal treatment by the law. See eg M Thornton ‘Feminist Jurisprudence: Illusion or Reality’
(1986) 3 Australian Journal of Law and Society at 5. See also S Deery and P Plowman ‘Antidiscrimination in Employment’ in Australian Industrial Relations, 2nd ed (1985) at 437; L Bryson,
‘Women and Management in the Public Sector’ (1987) 46 Australian Journal of Public
Administration at 259; and Women and Credit: Sex Discrimination in Consumer Credit, Report by
the New South Wales Anti-Discrimination Board, 1986 at 85. Other commentators oppose any
‘special treatment’ for women (including wives) as such. They recognise the limitations of the strict
equality in the treatment of women (and wives) on the one hand, and men, (husbands and others) on
the other. But they contend that there are more dangers in special treatment. Thus, WW Williams in
‘The Equality Crisis: Some Reflections on Culture, Courts and Feminism’ 7 Womens Rights Law
Reporter 175 (1981) observes, relevant to special treatment rules that they: ‘...absolve women of
personal responsibility in the name of protection ... [D]o we not acquire a greater right to claim our
share from society if we too share its ultimate jeopardies? ... and do we not, by insisting upon our
differences at these crucial junctures, promote and reinforce a us-them dichotomy that permits the
Rehnquists and the Stewarts to resolve matters of great importance and complexity by the simplistic,
reflexive and assertion that men and women are "simply not similarly situated?’
At the end of 10.63 add the following:
In National Australia Bank Ltd v Savage [2013] NSWSC 1718 at [70], Adamson J said:
[T] he [Yerkey v Jones] equity [is] not based on any presumption of subservience, inferior economic
position or vulnerability to exploitation of married women. Rather, it [is] based on trust and
confidence whereby a wife might leave all business judgments to her husband in circumstances
where she is neither consulted, nor advised, in any substantial way about the legal effect of
documents she signs which concern her financial interests as well as those of her husband.
At the end of 10.64 add the following:
In relation to the relationships to which the Yerkey v Jones principle extends beyond that of
husband and wife, cases such as Wenczel v Commonwealth Bank of Australia [2006] VSC
324 at [135] and Dowdle v Pay Now For Business Pty Ltd [2012] QSC 272 at [101], suggest
that the principle applies to cases of husbands and wives who have separated. However, in
Groves v Groves [2013] 277 at [191], Martin J, expressed ‘doubt about its applicability in
cases of long separation’.
On the other hand, in Capital One Securities Pty Ltd v Soda Kids Holdings Pty Ltd [2014]
VSC 168 at [233], Ginnane J said that ‘[t]he Garcia defence only applies to instruments of
suretyship, which operate to a wife’s or husband’s advantage or which confer a voluntary
benefit on them’. However, on the facts of that case, Ginnane J held that the husband had not
established the elements of the Yerkey v Jones principle as set out in Garcia v National
Australia Bank.
In 10.67 delete the last sentence and replace with the following:
In State Bank of New South Wales Ltd v Chia at 601, Einstein J set out the following
summary of whether or not the transaction was voluntary:
It is not sufficient that the wife has received consideration as would be recognised in the law of
contract. The consideration for the guarantee must be of ‘real benefit’ to the wife. Incidental benefit
which accrues generally to the family of which the wife is a member is not sufficient benefit to
render a transaction which does not otherwise contain a ‘real benefit,’ non-voluntary. Where the wife
expects to reap direct profit from the transaction, the transaction cannot be said to be voluntary.
Neither can it be said to be voluntary where the monies secured by the guarantee are used to
purchase an asset in which the wife is equally interested with her husband. However, where the
interest of the wife is a shareholding in the company through which her husband conducted his
business and in which she has no real involvement, then a guarantee given by the wife over that
company’s debts will be voluntary. But where the wife has an active and substantial interest in the
conduct of, and the fortunes of, the business run by her husband, she will not be a volunteer in
relation to any guarantee over the debts of that business. Where the transaction is not ex facie for the
benefit for the wife, then the onus will lie on the party seeking to enforce the security to show that
the wife was not, relevantly, a volunteer.
In both Westpac Banking Corporation v Diagne [2014] NSWSC 822 at [64] and National
Australia Bank Limited v Wehbeh [2014] VSC 431 at [53]-[55], a wife failed to establish that
she was a volunteer as she had an interest in and worked in the business for which the loans
were raised by the husband.
CHAPTER 11
At the end of 11.5 add the following:
In considering the elements of unconscionability identified by Deane J, the High Court made
an important point when, in Kakavas v Crown Melbourne Limited (2013) 298 ALR 35 at 59,
it said the following:
It does not accord with … [principle] to consider [a plaintiff’s] ‘special disadvantage’ separately, in
isolation from the other circumstances of the impugned transactions which bear upon the principle
[of unconscionability]. The issue as to special disadvantage must be considered as part of the broader
question, which is whether the impugned transactions were procured by [the defendant’s] taking
advantage of an inability on the [plaintiff’s] part to make worthwhile decisions in his own interests,
which inability was sufficiently evident to [the plaintiff] to render [its] conduct exploitative.
At the end of 11.21 add the following:
By way of contrast to Louth v Diprose, in Mackintosh v Johnson [2013] VSCA 10, the Court
of Appeal in Victoria held that a gift of $175,000 and later $480,000 were not unconscionable
transactions. In that case, in a period of seven months, Johnson, then aged 73, had an intimate
relationship with Mackintosh, then aged 45. It was during that time that Johnson made the
payments to Mackintosh. In a unanimous joint judgement the court held that Johnson was not
affected by a special disability at the time he made the payments to Mackintosh. The court, at
[82], said:
The facts of this case are a long way from those in Louth v Diprose. Mr Johnson was a wealthy,
successful businessman who, although infatuated with Ms Mackintosh, was not emotionally
dependent upon her in the way the donor was in Louth v Diprose. He made payments to her which
were well within his means in the hope of an enduring relationship with her. Having regard to his
wealth, the payments were not of a size which permit any inference of emotional dependence, or
inability to make decisions in his own interests. This is a case of mere folly by Mr Johnson.
In Kakavas v Crown Melbourne Limited, the High Court dealt with the case of Kakavas, a
pathological gambler, who between June 2005 and August 2006, lost over $20 million
playing baccarat at a casino. The court found that Kakavas was not at any special
disadvantage with respect to the casino. In coming to that conclusion the High Court, at [25],
observed that ‘[g]ambling transactions are a rare, if not unique, species of economic activity
in a civilised community, in that each party sets out openly to inflict harm on the
counterparty’. The Court, at 41-2, then went on to say:
[T]here is little scope for the intervention of equity to undo the result of transactions undertaken on
the unmistakable footing that no quarter is asked and none is given by either party to the transaction,
at least so long as the transaction has been conducted honestly in accordance with the rules of the
game. It was not suggested that Crown ran a dishonest game. It is necessary to be clear that one is
not concerned here with a casino operator preying upon a widowed pensioner who is invited to cash
her pension cheque at the casino and to gamble with the proceeds. One might sensibly describe that
scenario as a case of victimisation. One could also speak sensibly of a gambler, who presents at a
casino with the cash necessary to play the game, as a victim of the casino, if there are factors in play
other than the occurrence of the outcome that was always on the cards. For example, the gambler
may be evidently intoxicated, or adolescent, or senescent, or simply incompetent. But absent
additional factors of this nature, it is difficult sensibly to describe the accommodation by an operator
of a casino of a patron’s desire to gamble as a case of victimisation. That is especially so in the case
of the high roller who has the means, should he or she enjoy a run of luck, to hurt the casino.
Finally, the Court, at 63 concluded:
[W]e do not accept that [Kakavas’] pathological interest in gambling was a special disadvantage
which made him susceptible to exploitation by [the casino]. He was able to make rational decisions
to refrain from gambling altogether had he chosen to do so. He was certainly able to choose to
refrain from gambling with [the casino].
Delete 11.23 and replace with the following:
11.23 In Kakavas v Crown Melbourne Limited, the High Court made it clear that the
concept of constructive knowledge that is relevant in the context of priority disputes between
owners of competing interests in property is not within the concept of knowledge in relation
to the application of equitable doctrines. Any suggestion that in CBA v Amadio, Mason J
implicitly included constructive knowledge as within the meaning of knowledge in such cases
was rejected by the High Court, at 67, where it said:
Mason J cannot be taken to have supported the importation of the concept of constructive notice into
the operation of the principle he enunciated in Amadio. In this regard, the passage from the reasons
of Mason J … was evidently intended to paraphrase, the statement of Lord Cranworth LC in Owen
and Gutch v Homan. There his Lordship said
it may safely be stated that if the dealings are such as fairly to lead a reasonable man to
believe that fraud must have been used in order to obtain [the advantage], he is bound to
make inquiry, and cannot shelter himself under the plea that he was not called on to ask,
and did not ask, any questions on the subject. In some cases wilful ignorance is not to be
distinguished in its equitable consequences from knowledge: [Owen and Gutch v
Homan.(1853) 10 ER 752 at 767.]
It is apparent from what Mason J said in relation to the transaction under consideration in Amadio
that his Honour was speaking of wilful ignorance, which, for the purposes of relieving against
equitable fraud, is not different from actual knowledge.
At the end of 11.31 add the following:
In this respect, in Kakavas v Crown Melbourne Limited, at 68, the High Court, in the context
of the facts of that case, said:
Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured
by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind.
Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this
purpose. The principle is not engaged by mere inadvertence, or even indifference, to the
circumstances of the other party to an arm’s length commercial transaction. Inadvertence, or
indifference, falls short of the victimisation or exploitation with which the principle is concerned.
Delete 11-38-11.44 and replace with the following:
11.38 The area of unconscionability is one in which statute meets and complements the
judge-made law to dramatic effect. The federal, state and territory legislatures have all
enacted legislation which covers unconscionable conduct and/or related concepts dealing
with what might generally be referred to as unfair conduct. This chapter will only discuss the
unconscionability provisions set out in the Australian Consumer Law (ACL).3 The provisions
3
Examples of other relevant legislation include the Independent Contractors Act 2006 (Cth); the Contracts
Review Act 1980 (NSW); s 106 of the Industrial Relations Act 1996 (NSW). Furthermore, consumer credit
of the ACL are set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth)
(CCA).4 The unconscionability provisions of the ACL are found in ss 20-22A. These sections
were previously enacted as s 51AA, s 51AB and s 51AC of the Trade Practices Act 1974
(Cth) (TPA). Section 131A(1) of the CCA stipulates that the provision of financial services or
products are not subject to the ACL. However, financial services and products are regulated
by ss 12CA, 12CB and 12CC of the Australian Securities and Investments Commission Act
2001 (Cth) (ASIC Act) which mirror the unconscionability provisions of the ACL. In Tonto
Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [290], Allsop P observed
that ‘the context of “unconscionable” in the ASIC Act does not give it a distinct or different
meaning from its equivalent provisions in the [ACL]. All [these] … provisions have similar
purposes in the protection of consumers and the promotion of just and fair markets’.
11.39 The unconscionability provisions of the ACL relate to the actions of persons. Pursuant
to Australian constitutional law, the Commonwealth government’s competence to legislate in
relation to unconscionable conduct is confined to doing so in relation to persons who are
corporations. In relation to persons who are not corporations such legislative competence
rests with the various States and Territories. Although the provisions of the ACL do
effectively cover unconscionable conduct by any person, s 131(1) of the CCA confines the
application of the ACL as a law of the Commonwealth to the activities of corporations. In
relation to unconscionable conduct by persons who are not corporations, the provisions of the
ACL are enforced as a law of the State or Territory where such conduct occurred. This stems
from the fact that all States and Territories have passed legislation adopting the provisions of
the ACL as part of their law. Thus, depending upon the nature of the person engaged in
unconscionable conduct, the provisions of the ACL will be enforced either as a law of the
Commonwealth or as a law of the relevant State or Territory.
11.40 The statutory unconscionability provisions of the ACL relate to the conduct of
persons ‘in trade or commerce’. Section 2 of the ACL defines ‘trade or commerce’ as
meaning ‘(a) trade or commerce within Australia or (b) between Australia and places outside
Australia; and includes any business or professional activity (whether or not carried on for
profit)’.
11.41 In Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603–4; 92
ALR 193 at 197, the majority of the High Court gave the following interpretation to the
meaning of the words ‘in trade or commerce’:
[T]he reference to conduct ‘in trade or commerce’ … can be construed as referring only to conduct which
is itself an aspect or element of activities or transactions which, of their nature, bear a trading or
commercial character. So construed, to borrow and adapt words used by Dixon J … in Bank of NSW v
The Commonwealth (1948) 76 CLR 1, at p 381, the words ‘in trade or commerce’ refer to ‘the central
conception’ of trade or commerce and not to the ‘immense field of activities’ in which [persons] may
engage in the course of, or for the purposes of, carrying on some overall trading or commercial business
… [The words relate to] the conduct of a [person] towards persons, be they consumers or not, with whom
it … has or may have dealings in the course of those activities or transactions which, of their nature, bear
a trading or commercial character … In some areas, the dividing line between what is and what is not
conduct ‘in trade or commerce’ may be less clear and may require the identification of what imports a
trading or commercial character to an activity which is not, without more, of that character.
legislation in all states and territories contain provisions dealing with unjust transactions, ‘unjust’ being defined
to include ‘unconscionable, harsh or oppressive’.
4
Prior to 2010 the Competition and Consumer Act 2010 (Cth) was known as the Trade Practices Act 1974 (Cth).
11.42 The major purpose of unconscionability provisions of the ACL is to provide a greater
and more flexible range of remedies to aggrieved parties than is available pursuant to general
law principles: ACCC v Berbatis Holdings at CLR 83; ALR 173. It is important to note that
the legislative initiatives in this area do not render the equitable doctrine of unconscionable
conduct redundant. While litigants may prefer the remedial flexibility of the various statutes,
they still have the option of pursuing relief under the equitable principles.
11.43 The critical issue, however, with the statutory unconscionability sections in the ACL
is to what extent, if any, the meaning of unconscionable therein is broader than that pursuant
to equitable principles. In relation to s 20, this is a matter of some dispute. However, as will
be detailed below, it is clear that the notion of unconscionable conduct set out in s 21(1) in
relation to goods and services is broader than unconscionable conduct in equity. What is clear
is that ‘[b]efore [s 20 and s 21] will be applicable, there must be some circumstances other
than the mere terms of the contract itself that would render reliance on the terms of the
contract “unfair” or “unreasonable” or “immoral” or “wrong”‘: Hurley v McDonald’s
Australia Ltd [1999] FCA 1728 at [31].
11.44 It should also be noted that s 20(2) of the ACL states that the prohibition set out in s
20(1) does not apply to conduct prohibited by s 21. Thus, if conduct is caught by s 21, no
action can be pursued under s 20.
Delete 11.56-11.68 and replace with the following:
Unconscionable conduct in connection with goods and services — s 21
11.56 Section 21 applies to contracts made between persons for the supply or acquisition of
goods and services. Section 21(1) stipulates as follows:
A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public
company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed
public company);
engage in conduct that is, in all the circumstances, unconscionable.
11.57 The prohibitions set out in s 21(1) apply equally with respect to consumer and
business transactions. This represents an extension of the operation of some of the section’s
provisions as compared to earlier statutory unconscionability provisions. For example, the
provisions of s 21(1)(a) were previously limited to the supply of goods and services to
consumers ordinarily supplied for personal, domestic or household use or consumption.
11.58 Section 21 does not apply to conduct relating to the supply or possible supply of
goods or services to or from a listed public company. Section 2(1) of the ACL states that the
definition of a listed public company is the same as that for the purposes of income tax
legislation set out in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth). In the main
such companies are those listed on any authorised stock exchange. Section 21(1) effectively
states that listed public companies do not receive the protection of the ACL’s unconscionable
conduct provisions.
11.59 On the other hand, the provisions of s 21(2) make it clear that the institution of formal
dispute resolution to proceedings through the courts or arbitration proceedings does not
constitute unconscionable conduct for the purposes of s 21.
11.60 When a court is faced with whether the provisions of s 21(1) have been breached, it
cannot have regard to any circumstances that were not reasonably foreseeable at the time of
the alleged breach: s 21(3)(a).
11.61 In relation to the meaning of unconscionability for the purposes of s 21(1) it is clear
that it has a broader meaning than understood in equity. However, the precise scope of
unconscionability in this section remains uncertain: Traderight (NSW) Pty Ltd v Bank Of
Queensland Limited [2014] NSWSC 55 at [2068]. Section 21(4), stipulates as follows:
It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable conduct; and
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or
not a particular individual is identified as having been disadvantaged by the conduct or
behaviour; and
(c) in considering whether conduct to which a contract relates is unconscionable, a court’s
consideration of the contract may include consideration of:
(i)
the terms of the contract; and
(ii)
the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
11.62 It is clear from s 21(4)(a) and case law on earlier iterations of s 21, that the s 21
unconscionability is able to develop independently of the equitable understanding of
unconscionability. In Tonto Home Loans Australia Pty Ltd v Tavares at [291], Allsop P said:
Aspects of the content of the word ‘unconscionable’ include the following: the conduct must
demonstrate a high level of moral obloquy on the part of the person said to have acted
unconscionably; the conduct must be irreconcilable with what is right or reasonable; … the concept
of unconscionable in this context is wider than the general law and the provisions are intended to
build on and not be constrained by cases at general law and equity; [s 21 focuses] on the conduct of
the person said to have acted unconscionably. It is neither possible nor desirable to provide a
comprehensive definition. The range of conduct is wide and can include bullying and thuggish
behaviour, undue pressure and unfair tactics, taking advantage of vulnerability or lack of
understanding, trickery or misleading conduct. A finding requires an examination of all the
circumstances.
In W & K Holdings (NSW) Pty Ltd v Lauren Margaret Mayo [2013] NSWSC 1063 at [153],
Sackar J said:
When used in [s 21], the term [unconscionable] requires that the actions of the alleged contravenor
show no regard for conscience, and be irreconcilable with what is right or reasonable, importing a
pejorative moral … [N]ormally, some moral fault or moral responsibility would be involved, rather
than mere negligence. There would ordinarily need to be an intentional act or at least a reckless act.
11.63 The effect of s 21(4)(b) is that s 21(1) section can apply to a system of conduct or a
pattern of behaviour that does not have an identifiable or targeted ‘victim’. What s 21(1) is
aimed at is conduct that offends good conscience. Thus, in Australian Securities &
Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132 at 140, the Full
Court of the Federal Court held that the earlier iterations of s 21 were not confined by
‘limitations from unwritten law, such as the need to identify a specific or particular person’.
11.64 The provisions of s 21(1) are not confined to cases where there is a contract.
However, the effect of s 21(4)(c) is that in cases where there is a contract both its terms and
the manner in which it is carried out can be considered in determining whether there is a
breach of s 21(1). Thus, circumstances beyond those existing at the time of the contract are
can be considered in ascertaining whether the contract is unconscionable for the purposes of s
21(1).
The supply of goods or services
11.65 In relation to the supply of goods or services provision set out in s 21(1)(a), although
the court is not limited in relation to what matters it can take into account in determining
whether that provisions has been breached, s 22(1) states that the court may have regard to
the following matters:
(a) the relative strengths of the bargaining positions of the supplier and the customer; and
(b) whether, as a result of conduct engaged in by the person, the customer was required to comply with
conditions that were not reasonably necessary for the protection of the legitimate interests of the
supplier; and
(c) whether the customer was able to understand any documents relating to the supply or possible supply
of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the
customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of
the supplier in relation to the supply or possible supply of the goods or services; and
(e) the amount for which, and the circumstances under which, the customer could have acquired
identical or equivalent goods or services from a person other than the supplier; and
(f) the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s
conduct in similar transactions between the supplier and other like customers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the customer acted on the reasonable belief that the
supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the customer:
(i)
any intended conduct of the supplier that might affect the interests of the
customer; and
(ii)
any risks to the customer arising from the supplier’s intended conduct (being risks
that the supplier should have foreseen would not be apparent to the customer);
and
(j) if there is a contract between the supplier and the customer for the supply of the goods or services:
(i)
the extent to which the supplier was willing to negotiate the terms and conditions
of the contract with the customer; and
(ii)
the terms and conditions of the contract; and
(iii)
the conduct of the supplier and the customer in complying with the terms and
conditions of the contract; and
(iv)
any conduct that the supplier or the customer engaged in, in connection with their
commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (k), whether the supplier has a contractual right to vary unilaterally a term
or condition of a contract between the supplier and the customer for the supply of the goods or
services; and
(l) the extent to which the supplier and the customer acted in good faith.
Although the courts have made it clear that it is undesirable to attempt a comprehensive
definition of the word ‘unconscionable’ as it appears in s 21(1)(a), the Court of Appeal in
Victoria in Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 176 at 180-6,
made the following observations:
First, it has now been firmly decided that the use of the word in [s 21(1)(a)] is intended to have its
ordinary meaning, and is not to be confined, as [s 20] is confined, to notions of unconsionability that
have developed in courts of equity.
Second, the word ‘unconscionable’ is an epithet, and, in the provision, it is predicated of ‘conduct’.
Care has to be taken when one’s attention is drawn to the circumstances that afflict some people. For
example, it may be said that a party gained ‘an unfair or unconscientious advantage’, or that a
mortgage was ‘unfair, unjust or unreasonable’. Obviously enough, a person’s conduct is to be
distinguished from the consequences that that conduct may have on the lives of other people. As the
High Court recently said, albeit in the context of a claim under [s 20]: ‘the principle which the
appellant invokes is not engaged by the circumstance that a plaintiff’s transaction with a defendant
has resulted in loss to the plaintiff, even loss amounting to hardship’: Kakavas v Crown Melbourne
Ltd (2013) 298 ALR 35 at 40. Well intentioned conduct may have dire consequences for other
people; malign conduct may be without consequence; adventitiously, it may have benign
consequences. Generally speaking, it will be the consequences of one person’s conduct upon others
that attracts the attention of the law. The problems of some vulnerable groups of people have been
exacerbated by another person’s conduct. However, those consequences having, as it were, attracted
the attention of the law, attention then properly shifts back to the nature of the conduct of the
putative defendant. The fact that the circumstances of a person or a group of persons, or the
circumstances of some transaction they entered into, may reasonably be described as ‘unfair’ is the
commencement of the enquiry, not its terminus.
Third, equity’s exploration over the years of the manifold and novel ways in which the strong can
exploit the weak, in trade and commerce or otherwise, will usually be of assistance in assessing
whether it should be said that conduct has been unconscionable.
Fourth, the third observation is borne out by the content of [s 22(1)]. It describes several matters to
which a court or tribunal may have regard in determining whether a person may be said to have
engaged in conduct that is, in all the circumstances, unconscionable. The presence of one or more of
those matters, without more, does not mean that conduct has been unconscionable.
However, even though the concept of unconscionability is not closed and will be apt to describe
exploitative conduct that has yet to be observed, the matters referred to in [s 22(1)] help illuminate
its meaning. As Macaulay AJA said in Body Bronze International Pty Ltd v Fehcorp Pty Ltd (2011)
34 VR 536 at 552:
Not only do these factors assist in comprehending the intended scope and meaning of
unconscionable conduct prohibited by the section, but they also provide a useful,
although non-exhaustive, set of factors by which to test the particular conduct in question.
So, suppliers may be at risk if they simply disregard the ‘relative strengths of the bargaining
positions’ that may in some cases exist between themselves and particular purchasers: [s 22(1)(a)]. A
disproportion in the bargaining positions of a particular supplier and a particular purchaser will not,
of itself, make the conduct of the supplier unconscionable. But, where the scales are weighted
against a purchaser, opportunities for the exploitation of the vulnerable arise more readily and, if
taken advantage of, may well involve conduct that is, ‘in all the circumstances’ unconscionable. Or,
take [s 22(1)(c)]: ‘whether the purchaser was able to understand any documents relating to the supply
or possible supply of the goods or services.’ Contractual documents are in English, but the range of
possible purchasers includes many people who have no grasp of the significance of words that they
are asked to subscribe. There was a time when, whatever equity had to say, the law simply cautioned
the buyer to beware. If nothing else, the matters in [s 22(1)(c)] have made it plain that public policy
and the law is no longer indifferent to the morality of what has taken place between supplier and
purchaser.
Fifth, [s 22(1)] makes clear that qualities of unreasonableness and unfairness in the circumstances it
specifies are not to be regarded as automatically rendering conduct unconscionable, but rather are
matters to which regard is to be had in determining whether conduct is unconscionable. They are
indicia of unconscionability.
Sixth, a court must explain what it understands by the words and phrases in a statutory provision and,
in order to do so, will necessarily use words and phrases different from those contained in the
provision. But, the use of the latter words and phrases is for a strictly limited purpose: they are to
explain the former, not to replace them. As French CJ, Hayne, Crennan, Bell and Gageler JJ said in
Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 293 ALR 257 at 268:
‘This Court has stated on many occasions that the task of statutory construction must begin with a
consideration of the [statutory] text’. And, it must not drift from that text; the statutory text must
anchor the ‘task of construction’. There is much force in the caution given, in Canon Australia Pty
Ltd v Patton (2007) 244 ALR 759 at 761, by Basten JA against substituting what might be thought to
be helpful synonyms for the statutory words. He said:
However, to treat the word ‘unconscionable’ as having some larger meaning, derived
from ordinary language, and then to seek to confine it by such concepts as high moral
obloquy is to risk substituting for the statutory term language of no greater precision in an
attempt to impose limits without which the Court may wander from well-trodden paths
without clear criteria or guidance. That approach should not be adopted unless the statute
clearly so requires.
Seventh, [s 21(1)(a)] … applies to conduct ‘in trade or commerce, in connection with the supply or
possible supply of goods or services’. That context is itself largely governed by existing legal
principle. One is mindful of what Spigelman CJ said in the extract from Attorney-General (NSW) v
World Best Holdings Ltd (2005) 63 NSWLR 557 at 583: ‘If it (the concept of unconscionability)
were to be applied as if it were equivalent to what was ‘fair’ or ‘just’, it could transform commercial
relationships . . . The principle of ‘unconscionability’ would not be a doctrine of occasional
application, when the circumstances are highly unethical, it would be transformed into the first and
easiest port of call when any dispute about a retail lease arises.’ The law of contract and that of
property, and the principles that constitute them, are the very things which make trade and commerce
possible. Without these legal principles, and the existence of institutions such as the courts that are
constrained to apply them, the strong would prevail and the weak would go to the wall. It cannot
have been the legislature’s intention to interfere with arm’s length commercial transactions by
reference to loose notions of unreasonableness and unfairness. The contention favoured by the
appellant [in the case before this court] is that conduct may be found to be unconscionable within [s
21(1)] … if it can be found to be irreconcilable with what was right and reasonable overlooks the
force of the observation of Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 616 that judges in
equity, whose jurisdiction was discretionary, had long since abandoned recourse to undefined
notions of justice and what was fair. The legislature is presumed not to alter basic common law
doctrines and not to interfere with proprietary rights.
Eighth, [s 21(1)] uses the phrase ‘in all the circumstances’. The characterisation demanded by the
provision is one that is to be made ‘in all the circumstances’. Consideration of ‘all the circumstances’
can cast a different complexion on things. A failure to fulfil a contractual promise may visit
unwanted consequences on the innocent party. But, under [s 21(1)], it is the conduct of the contract
breaker that must be shown to be unconscionable. That party may have had sound reasons for
breaking the contract, reasons that involve no wish to exploit any vulnerability in the innocent party.
While these sound reasons will be of no significance in defence of a claim for breach of contract,
they may be highly relevant in a defence to a claim that conduct has been unconscionable. In Body
Bronze International Pty Ltd v Fehcorp Pty Ltd (2011) 34 VR 536 at 556, Macaulay AJA said:
A decision may be taken to break a contract because, upon rational commercial
considerations, the burden of performance may be greater and more onerous than the
liability to be incurred if the conduct amounts to breach. The party committing the breach
may know that it will deliver to the opposite party an opportunity to exercise rights both
under and outside the contract that flow from the breach, and that the opposite party has
the means to exercise and enforce those rights. Those rights may include seeking
injunctive relief to restrain the breach, accepting a repudiation of the contract so as to
terminate executory obligations and seeking damages, or keeping the contract on foot and
merely seeking damages. There may be nothing offensive to conscience in a commercial
participant taking such a commercial decision in given circumstances. Whether or not it
amounts to unconscionable conduct does not simply flow from it being a deliberate
breach; it must be evaluated in ‘all the circumstances’.
Ninth, a distinctive quality of unconscionable conduct as against unreasonable or unfair conduct is
that it is unethical. The characteristic of unreasonableness or unfairness may form the basis (or a
significant part of the basis) of a conclusion that conduct is unconscionable. As Allsop P said, in
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [293], it is necessary to show
at least ‘some degree of moral tainting in the transaction of a kind that permits the opprobrium of
unconscionability to characterise the conduct of the party’.
Tenth, it is a noticeable feature of all the cases, thus far, in which conduct has been held to be
‘unconscionable’ that the conduct has been found to be unethical in some manner or other. For
example, in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013]
FCAFC 90, a case which involved door to door sales of vacuum cleaners, the Court found that a
defendant had practised a ‘deceptive ruse’ to take advantage of an 89 year-old woman living alone.
The ruse involved salesmen cold calling and offering a free maintenance check on existing cleaners.
In Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR
132, the respondent had written to the shareholders of a listed company offering to buy shares at a
price of $0.35 per share. The offer price was at a considerable undervalue and the Court found that
the targeted offerees ‘could reasonably be expected to include persons who are unacquainted with
share values, inexperienced in trading their interests, lacking in commercial experience and some of
whom act inadvertently and are elderly’. The Court, [at 142], found that the defendant had:
... set out to systematically implement a strategy to take advantage of the fact that
amongst the official members there would be a group of inexperienced persons who
would act irrationally from a purely commercial viewpoint and would accept the offer ...
This is not a case of shrewd commercial negotiation between businesses within
acceptable boundaries. The conduct can properly be described as predatory and against
good conscience. This is not a case of obtaining a low price by shrewd negotiation. It is
predatory conduct designed to take advantage of inexperienced offerees. …
Eleventh, the intentional breach or reckless disregard of certain norms or standards amounts to
statutory unconscionability. Those norms or standards must be more than those that happen to be
personal to the court or tribunal charged with the responsibility of deciding whether conduct is
unconscionable. Certainly, they will include norms of honesty and fair dealing and norms which
exclude exploitation and deception. Some such norms and standards may be detected in the
principles of public policy immanent in legislation such as the Competition and Consumer Act 2010
(Cth) and the Australian Consumer Law and Fair Trading Act 2012 (Vic). As the Federal Court said
in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90
at [23]:
The task of the Court is the evaluation of the facts by reference to a normative standard of
conscience. That normative standard is permeated with accepted and acceptable
community values. In some contexts, such values are contestable. Here, however, they
can be seen to be honesty and fairness in the dealing with consumers. The content of
those values is not solely governed by the legislature, but the legislature may illuminate,
elaborate and develop those norms and values by the act of legislating, and thus standard
setting. The existence of State legislation directed to elements of fairness is a fact to be
taken into account. It assists the Court in appreciating some aspects of the publicly
recognised content of fairness, without in any way constricting it. Values, norms and
community expectations can develop and change over time. Customary morality develops
‘silently and unconsciously from one age to another’, shaping law and legal values:
Cardozo, The Nature of the Judicial Process (Newhaven, Yale University Press, 1921) pp
104-105. These laws of the States and the operative provisions of the ACL reinforce the
recognised societal values and expectations that consumers will be dealt with honestly,
fairly and without deception or unfair pressure. These considerations are central to the
evaluation of the facts by reference to the operative norm of required conscionable
conduct.
11.66 In Australian Competition and Consumer Commission v Keshow [2005] FCA 558, the
court ruled that an earlier iteration of s 21(1)(a) had been breached in relation to the sale of
educational materials and household goods to members of an indigenous community in the
Northern Territory. Mansfield J, at [3], summarised the basis upon which he reached his
decision as follows:
The overall picture which the evidence presents is that the respondent is what is sometimes called a
‘humbugger’. … He took advantage of the lack of education and commercial experience of those in the
communities … In many instances, the educational materials were not needed or useful having regard to
the age of the child or children of the consumer. The products he contracted to provide were most
commonly not supplied, or not supplied in their entirety. Whether a contract to provide educational
materials was met was haphazard. The payment arrangements in each instance involved an open-ended
periodic payment authority, procured at the instance of the respondent, and authorising payment on the
day which Centrelink or like benefits were regularly received by the particular complainant or other
community resident. The respondent in a number of instances continued to receive periodic payments
well after the value of the goods to be provided by him (whether or not they had been provided) had been
received. In fact, there is no evidence to show that the respondent maintained adequate records of what
products had been sold to which consumers, whether the products had been provided, as agreed, or what
had been paid for them.
The acquisition of goods or services
11.67 In relation to the acquisition of goods or services provision set out in s 21(1)(b),
although the court is not limited in relation to what matters it can take into account in
determining whether that provisions has been breached, s 22(2) states that the court may have
regard to the following matters:
(a) the relative strengths of the bargaining positions of the acquirer and the supplier; and
(b) whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with
conditions that were not reasonably necessary for the protection of the legitimate interests of the
acquirer; and
(c) whether the supplier was able to understand any documents relating to the acquisition or possible
acquisition of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the
supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of
the acquirer in relation to the acquisition or possible acquisition of the goods or services; and
(e) the amount for which, and the circumstances in which, the supplier could have supplied identical or
equivalent goods or services to a person other than the acquirer; and
(f) the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s
conduct in similar transactions between the acquirer and other like suppliers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the supplier acted on the reasonable belief that the
acquirer would comply with that code; and
(i) the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i)
any intended conduct of the acquirer that might affect the interests of the supplier;
and
(ii)
any risks to the supplier arising from the acquirer’s intended conduct (being risks
that the acquirer should have foreseen would not be apparent to the supplier); and
(j) if there is a contract between the acquirer and the supplier for the acquisition of the goods or
services:
(i)
the extent to which the acquirer was willing to negotiate the terms and conditions
of the contract with the supplier; and
(ii)
the terms and conditions of the contract; and
(iii)
the conduct of the acquirer and the supplier in complying with the terms and
conditions of the contract; and
(iv)
any conduct that the acquirer or the supplier engaged in, in connection with their
commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (j), whether the acquirer has a contractual right to unilaterally a term or
condition of a contract between the acquirer and the supplier for the acquisition of the goods or
services; and
(l) the extent to which the acquirer and the supplier acted in good faith. 5
For a brief discussion of these circumstances see N Y Nahan & E Webb, ‘Unconscionable Conduct in
Consumer and Business Transactions’ in J Malbon & L Nottage (eds), Consumer Law and Policy in Australia
and New Zealand, Federation Press, Sydney, 2013, 170-5.
5
11.68 In Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009]
FCA 682, in a case that applied an earlier iteration of s 21(1)(b) and involved renewals of
retail leases, Gordon J held that a landlord was in breach of the section in circumstances
where the landlord had set an inflated figure for the rent, required a quick response from a
tenant who spoke little or no English and threatened eviction if the terms of the new lease
were not accepted. His Honour also found that the landlord had engaged in misleading or
deceptive conduct in violation of s 18 of the Australian Consumer Law. What is clear from
this decision is that misleading or deceptive conduct can be utilized in ascertaining whether
there has been a breach of s 22.6
Another example of a successful claim pursuant to an earlier iteration of s 21(1)(b) is
Australian Competition and Consumer Commission v Dataline.Net.au Pty Ltd [2006] FCA
1427, in which a wholesale internet provider acted unconscionably in relation to its dealings
with particular internet service providers. The conduct included refusing to permit the
providers to obtain independent legal advice and threats of disconnection if the providers did
not sign further agreements.
For a discussion of this case see E Webb, ‘Unconscionable Conduct in Australian Competition and Consumer
Commission v Dukemaster Pty Ltd - A Recognition of “Acoustic Segregation” in Retail Leasing Transactions?’
(2010) 18 Australian Property Law Journal 48.
6
CHAPTER 12
At the end of the third sentence in 12.12 insert the following:
Unlike contract, promissory estoppel does not look forward. Rather it ‘looks backwards from
the moment when the promise falls due to be performed and asks whether, in the
circumstances which have actually happened, it would be [unconscientious] for the promise
not to be kept’: Waddell v Waddell [2012] NSWCA 214 at [54].
At the end of 12.31 add the following:
However, there can be no promise or representation by mere silence during pre-contractual
negotiations. The relevant principle in this context was set out in Blackley Investments Pty
Ltd v Burnie City Council [2011] TASFC 6 at [46], where Blow J, speaking for the Full
Court, said:
I do not think anything Brennan J said in Waltons Stores should be interpreted as meaning that an
estoppel can arise against a party to a contract who, in the pre-contractual negotiations, has remained
silent about a material fact that he or she had no obligation to disclose.
At the end of 12.32 add the following:
Drummond AJA’s views on promissory estoppel are Closegate Hotel Development (Durham)
Ltd v McLean [2013] EWHC 3237 (Ch) at [57], where Richard Snowden QC, after an
analysis of relevant English cases on the matter, said:
[I]t seems to me that the weight of authority is to the effect that for a plea of promissory estoppel to
succeed, there must have been a clear and unequivocal statement; and that if ambiguous words were
used which could reasonably be interpreted in several ways (one of which would not support the
alleged estoppel) then those words will not found an estoppel unless the representee seeks and
obtains clarification of the statement.
At the end of 12.37 add the following:
On the other hand, in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 at 735
Campbell JA said that the first requirement, insofar as it relates to an expected future legal
relationship, involved an expectation ‘that, at the time of the events alleged to give rise to the
estoppel, the plaintiff expected that a particular legal relationship would in future exist with
the defendant and, at that time, the plaintiff also expected that the defendant would not be
free to withdraw from the expected legal relationship’.
At the end of 12.45 add the following:
In relation to whether, in cases of proprietary estoppel by encouragement (see 12.18-12.19),
the relying party has suffered detriment in reliance on the representation, in Flinn v Flinn at
749, Brooking JA said that ‘it would be remarkable if that [representation] was not, to say the
least, an inducement, and this is all that is necessary’. In Van Dyke v Sidhu [2013] NSWCA
198 at [83]-[84], Barrett JA referred to this as giving rise to a ‘presumption of reliance’ with
the consequence that:
[w]here inducement by the [representation] may be inferred from the [the relying party’s] conduct …
the onus or burden of proof shifts to the [representor] to establish that the [relying party] did not rely
on the [representation]. It [is] therefore for [representor] to rebut that presumption and establish that
the [relying party] did not rely at all on the [representation] in acting or refraining from acting to [its]
detriment.
In relation to rebutting the presumption of reliance, Barrett JA, at [94], cited with approval
Spence’s book, Protecting Reliance7 in which the author states that the presumption will be
rebutted if the representor shows:
(i) that it was impossible for the other party to adopt any course of action or inaction than that which
he did adopt, or (ii) that it is improbable that the other party would have adopted a different course to
that which he did adopt.
However, in Sidhu v Van Dyke (2014) 308 ALR 232 the high Court unanimously rejected the
idea of a presumption of reliance and held that the onus of proof was on the representee to
establish reliance. French CJ, Kiefel, Bell and Keane JJ, at 243, said:
In point of principle, to speak of deploying a presumption of reliance in the context of equitable
estoppel is to fail to recognise that it is the conduct of the representee induced by the representor
which is the very foundation for equitable intervention. Reliance is a fact to be found; it is not to be
imputed on the basis of evidence which falls short of proof of the fact.
At the end of 12.58 add the following:
In Sidhu v Van Dyke at 248, French CJ, Kiefel, Bell and Keane JJ said:
[B]ecause the fundamental purpose of equitable estoppel is to protect the plaintiff from the
detriment which would flow from the defendant's change of position if the defendant were to be
permitted to resile from his or her promise, the relief granted may require the taking of active
steps by the defendant including the performance of the promise and the performance of the
expectation generated by the promise.
At the end of 12.62 add the following:
In Sidhu v Van Dyke (2014) 308 ALR 232 247, French CJ, Kiefel, Bell and Keane JJ, referred
to this statement in Donis v Donis when they said:
This category of equitable estoppel serves to vindicate the expectations of the representee against a
party who seeks unconscionably to resile from an expectation he or she has created.
Their Honours, at 248, then noted that generally this requires the court to grant relief to fulfil
the relying party’s expectation. However, their Honours, at 249, noted that this would not
always be the case when they said:
If the [relying party] had been induced to make a relatively small, readily quantifiable monetary
outlay on the faith of the [representee’s] assurances, then it might not be unconscionable for the
[representee] to resile from his promises to the [relying party] on condition that he reimburse her for
her outlay. But this case is one to which the observations of Nettle JA [at 588-9] in Donis are
apposite:
[H]ere, the detriment suffered is of a kind and extent that involves life-changing
7
. M Spence, Protecting Reliance: The Emergent Doctrine of Equitable Estoppel, Federation Press, Sydney,
1999, p 43.
decisions with irreversible consequences of a profoundly personal nature ... beyond the
measure of money and such that the equity raised by the promisor's conduct can only be
accounted for by substantial fulfilment of the assumption upon which the [relying party’s]
actions were base.
In relation to relief in proprietary estoppel cases in Milling v Hardie [2014] NSWCA 163 at
[55], Macfarlan JA made the following points:
(1) ‘A proprietary estoppel by encouragement may be established where the conduct of the party
estopped did not define the expectation’ (Delaforce v Simpson-Cook at [55]). In a Ramsden v Dyson
type of case such as the present, particular attention needs to be given to determining whether the
plaintiff's expectation was reasonably capable of being derived from the defendant's conduct. If it
was, the corollary will be that the defendant should have realised that his or her conduct could lead
to that expectation being formed.
(2) To determine whether equitable intervention is required, the court needs to consider whether
circumstances have arisen which would render it unconscionable for the defendant to depart from a
promise or representation that he or she has made or to disappoint an expectation that has arisen
reasonably from the defendant's conduct. The court thus looks backwards rather than forwards. The
court may therefore take account of a supervening circumstance, such as a defendant's unexpected
financial reverse, which might justify departure from a promise that has given rise to a proprietary
estoppel. On the other hand, in a contract action supervening events would not relieve the defendant
of contractual obligations unless those events were catered for in the express or implied terms of the
contract or amounted to frustration of the contract.
(3) It follows from these principles that when a proprietary estoppel is sought to be enforced, the
court may consider the extent to which the plaintiff's equity has been diminished by time (Delaforce
v Simpson-Cook at [61]). Thus, whilst a plaintiff's effecting of improvements in reliance upon a
defendant's conduct may be of considerable significance soon after the improvements are made, the
passage of time before the estoppel is sought to be enforced may indicate that the plaintiff has had
the full benefit of those improvements and that they have effectively been amortised.
(4) The court must look at all the circumstances of the case to determine in what way the plaintiff's
equity may be satisfied. This requires consideration of practical matters such as the impact of the
court's orders on third parties. Nevertheless, the court should, prima facie, enforce a reasonable
expectation which the party bound created or encouraged but relief should not be ‘out of all
proportion to the detriment’ suffered by the plaintiff.
At the end of 12.63 add the following:
In making an order against a defendant a court must consider whether the value of the
expectation is disproportionate to the detriment a plaintiff would suffer if no such order was
made. In this respect, in Petronijevic v Milojkovic [2014] NSWSC 1337 at [22], White J said:
There is also a question as to whether either a declaration of a constructive trust, or the provision of
equitable compensation in an amount which would reflect the value of the expectation, is
disproportionate to the detriment the plaintiff would suffer if the defendant is permitted to depart
from the assumption he has induced the plaintiff to make … Relief may be refused entirely, or may
be provided by way of payment of adequate compensation, if the remedy sought is disproportionate
to the detriment.
In Giumelli v Giumelli at CLR 113; ALR 476, the High Court noted that before a constructive
trust is imposed, a court should first determine whether some other remedy that falls short of
imposing a constructive trust is appropriate. In Milling v Hardie the facts concerned, rights to
land and a homestead owned by Mr Milling. In 1992 Milling’s daughter and son-in-law (the
Hardies) moved into the homestead and in the ensuing years undertook various improvements
to it and its grounds. The Hardies paid no rent and Milling paid all relevant rates and taxes.
No representations were made by Milling as to ownership of the property. The Court of
Appeal found that Milling’s invitation to the Hardies to occupy the homestead and consenting
to them undertaking improvements to it justified an expectation that the Hardies would be
able to occupy the property for a substantial period of time. The Court held that the
expenditure on improvements had been amortised over the period that they had been in
occupation and that, in the circumstances, the appropriate relief was to grant the Hardies the
right to occupy the homestead during the lifetime of Mr Milling.
CHAPTER 13
At the end of the first sentence in 13.29 insert the following:
These provisions can also be applied ‘when a purchaser, in breach of his or her obligations
under the contract, has not paid a deposit and the vendor brings an action for recovery’: Ari v
Decevic [2013] NSWSC 1967 at [84].
At the end of 13.33 add the following:
Similarly, in Wilkinson v S & S Gikas Pty Ltd [2006] NSWSC 1314 at [23]-[24], Campbell J
said:
The granting of relief against forfeiture is discretionary. In relation to a lease, the principle that is
generally applied is that the power to re-enter or forfeit for non-payment of rent is regarded as being in
substance security for the rent. Provided the lessor and other persons concerned can be put in the same
position as before the forfeiture or re-entry, the Court will usually grant relief against forfeiture upon
payment of rent costs, interests and other expenses … If those terms are offered, it is only in a rare case
that the Court would refuse relief against forfeiture. The principle on which that is done is that, once the
landlord has got all that the right of re-entry was, in equity’s eyes, security for, it would be
unconscionable for the landlord to insist on its legal right to re-enter. However, such a rare case can
occur if the tenant is unable to pay future rent, or may reasonably be expected to become so … If there is
a sufficiently serious risk that the tenant will not be able to perform its obligations in the future, it may be
that the consequence is that it is not unconscionable for the landlord to insist on its strict legal right.
At the end of 13.34 add the following:
However, in some circumstances concerns about the ability to make future rental payments
may be sufficient to refuse relief against forfeiture. Thus, in Jam Factory Pty Ltd v Sunny
Paradise Pty Ltd [1989] VR 584 at 591, Ormiston J
As to failure to pay rent, this is clearly not an exceptional case. Some idea of what that exception
requires may be gained from a comment which appears in two of the authorities. Rigby LJ said in
Newbolt v Bingham (1895) 72 LT 852, at 854 that he knew of no case where a court of equity had
refused relief because actions had to be brought on previous occasions to recover the rent … Here it
had not been necessary to bring an action for the rent in the past and there had been few complaints
for the latest payment apart from the last two months, was three weeks beyond the due date … The
power to refuse relief is clearly reserved for cases of consistently late defaults which may fairly lead
to an inference that, even if relief be given, there is a reasonable likelihood that the rent will not be
paid in the future, at least for some considerable time after the due date for payment.
On the extent to which the insolvency of the tenant is a basis for refusing relief against
forfeiture, in Riviera Holdings Pty Ltd v Fingal Glen Pty Ltd at [2013] SASC 77 at [51],
Nicholson J said:
I recognise that the appointment of a liquidator on the ground of insolvency, typically, should operate as
a very strong, in some cases conclusive, factor against granting relief on the basis that, ordinarily, it
would be a powerful indicator that a tenant could not be relied upon to pay the rent in the future.
However, anticipated insolvency and even actual insolvency is not, of itself, an automatic bar to relief …
In Hayes v Gunbola (1986) 4 BPR 9247 at 9250-1, Young J noted that it can be in the public interest to
grant relief in such circumstances because the valuable property in the lease will inure to the benefit of
the creditors.
At the end of 13.44 add the following:
However, if the Registrar-General has not made a recording pursuant to s 55, the court can
restrain the landlord from making an application that the Registrar-General do so: Wynsix
Hotels (Oxford St) Pty Ltd v Toomey [2004] NSWSC 236 at [85]-[88]. Thus, in Riviera
Holdings Pty Ltd v Fingal Glen Pty Ltd (in liq) (No 3) [2013] SASC 107 at [48], Nicholson J
restrained the landlord from making an application under the South Australian equivalent of s
55 and reinstated the leases between the parties as at the date the landlord had re-entered the
leased premises, rather than have the parties enter into new leases on terms identical to the
former leases.
CHAPTER 14
At the end of 14.3 add the following:
In Andrews v Australia and New Zealand Banking Group Ltd (2012) 290 ALR 595 at 597-8,
High Court said the following in relation to what constitutes a penalty:
In general terms, a stipulation prima facie imposes a penalty on a party (the first party) if, as a matter of
substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this
collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an
additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or
accessory stipulation is described as being in the nature of a security for and in terrorem of the
satisfaction of the primary stipulation. If compensation can be made to the second party for the
prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are
enforced only to the extent of that compensation.
At the end of 14.16 add the following:
In the light of the High Court decision in Andrews v Australia and New Zealand Banking
Group Ltd, in Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd [2014] VSCA 32 at [43],
the Victorian Court of Appeal said:
[W]here it is sought to secure the performance of a condition and, instead of exacting a promise from
the obligor to perform the condition, the obligee exacts a promise from the obligor to pay a sum of
money (or perhaps to convey property) if the condition not be performed, the promise is properly to
be viewed as a security for the satisfaction of the condition and so, therefore, if the sum of money (or
conveyance) is excessive and unconscionable, may now be treated as penal.
At the end Point (v) in 14.18 insert the following:
This point was further clarified in Dunlop at 98, by Lord Parker of Waddington who observed
that the presumption applied in cases where the losses suffered as a result of the breaches is
not of the same kind. Where the losses from the breaches of the various clauses are of the
same kind, the fact that the extent of the losses vary from breach to breach does not raise the
inference that the clause is a penalty.
At the end Point (vi) in 14.18 insert the following:
Thus, in Paciocco v Australia and New Zealand Banking Group Limited [2014] [2014] FCA
35 at [40], Rares J said:
In assessing whether a stipulation is a penalty, the difficulty in establishing the quantum of the loss
that might be suffered by reason of the breach (or failure of the primary stipulation) is relevant. A
stipulated payment is more likely to be regarded as a bargain between the parties pre-estimating loss
or compensation, and not as a penalty, when the consequences of the breach (or failure of the
primary stipulation) upon which the payment is due are difficult or impossible to estimate.
CHAPTER 15
At the end of 15.3 add the following:
In relation to the legal and beneficial ownership of property, in Ayerst v C & K
(Construction) Ltd [1976] AC 167 at 177; [1975] 2 All ER 537 at 541, Lord Diplock said:
The archetype is the trust. The ‘legal ownership’ of the trust property is in the trustee, but he holds it
not for his own benefit but for the benefit of the cestui que trust or beneficiaries. Upon the creation
of a trust in the strict sense as it was developed by equity the full ownership in the trust property was
split into two constituent elements, which became vested in different persons: the ‘legal ownership’
in the trustee, what came to be called the ‘beneficial ownership’ in the cestui que trust.
Thus, ‘[a] trust is not a legal person which has rights and is owed duties. The rights are held
by the trustee. The duties are owed to the trustee’: Agricultural Land Management Ltd v
Jackson (No 2) [2014] WASC 102 at [302].
At the end of the second sentence in 15.36 insert the following:
In Vidyagauri Hiralal v Nitin Hiralal [2013] NSWSC 984 at [155]-[160], Slattery J
summarised the principles differentiating executors from fiduciaries as follows:
A person acts as executor while performing executorial duties but as soon as all of those duties are
performed he or she may become a trustee.
The personal representative may change from executor to trustee in a number of common situations.
For example, when the same person is appointed as an executor and all that remains outstanding in
the administration of the estate is the transfer of the assets to the beneficiaries, then the executor
holds as a trustee.
Executorial duties which have to be finalised before transformation from an executor to a trustee
typically include getting in all the estate and paying all debts of the estate. But an executor may
become a trustee even though some of the estate assets are affected by a mortgage, or that the estate
is still burdened by a contingent liability resulting from a guarantee.
Executorial duties may be dormant for a while and then revive. A new asset of the deceased may be
discovered after the estate was thought to be fully distributed. A will establishing a trust for the term
of life of a person and providing what should happen to the remainder on his or her death may mean
the personal representative acts as a trustee during the life of the beneficiary and returns to being an
executor after the beneficiary’s death. But some have said the personal representative acts as an
executor throughout the whole period.
How does the Court establish that all executorial functions have been performed? The Court will
take into account all the circumstances. The length of time since the death of the testator, when no
executorial duties have needed to be performed is relevant. So is the personal representative’s
subjective understanding of his or her role. Preparing and filing of the final accounts in respect of the
estate is also relevant but not decisive.
It has been suggested that a personal representative’s duties as an executor and as a trustee may also
overlap. The transformation from an executor to a trustee may occur at different times in relation to
different estate assets. If a will expressly creates a trust, the executor, from the time of the death of
the testator, is subject to both the duties as executor and fiduciary duties in respect of the trust,
despite the fact that he or she is not in fact a trustee at all.
At the end of the second sentence in 15.55 insert the following:
In Westgem Investments Pty Ltd (Receivers and Managers) (Administrator Appointed) v
Saracen Project Management Pty Ltd (No 2) [2012] WASC 358 at [47]-[49], Corboy J
described Quistclose trusts as follows:
A Quistclose trust typically involves a loan of money to be used by the borrower solely for the
purpose of making a payment to a particular person or class of persons (although the reasoning in
Quistclose Investments has since been applied to transfers of money other than by way of loan). The
borrower does not receive and hold the money absolutely prior to payment to the third party and is it
obliged in equity to return the money to the lender if the purpose of the loan cannot be fulfilled for
any reason. Consequently, a debt will only be created between the lender and the borrower once the
trust has been discharged … The issue that ordinarily arises [in Quistclose trust cases] is whether a
loan of money creates only a debt (in which case the borrower acquires absolute ownership of the
money transferred) or whether an equitable obligation is ‘engrafted onto’ the contractual obligation
(in which case, the borrower does not acquire beneficial or sole beneficial ownership of the money).
At the end of 15.58 add the following:
In relation to loans, there is nothing in principle to preclude a Quistclose trust arising, not
upon the failure of the purpose of the loan, but rather, upon the fulfilment of the purpose of
the loan: Coolbrew Pty Ltd v Westpac Banking Corporation [2014] NSWSC 1108 at [49].
For example, if A lends money to B so that the funds can act as security for B’s liability to C,
a Quistclose in favour of A trust in relation to the loan funds would arise when B discharges
its liability to C, provided that there was the intention to create the trust at the time of A’s
loan to B.
At the end of 15.60 add the following:
The intention to give rise to a Quistclose must be present before or no later than the time that
the finds are received by the borrower. However, after consideration of the Lord Millet’s
speech in Twinsectra Ltd v Yardley [2002] 2 AC 164; [2002] 2 All ER 377 (see 15.64), in
Eleftheriou v Costi [2013] EWHC 2168 (Ch) at [66], HHJ Simon Baker QC said:
Lord Millet’s concluding words appear to me to leave open the possibility that a [Quistclose] trust
may arise after the payment of money. However, before holding that such a trust had arisen, the
party alleging the trust would have to satisfy the court that the three certainties of a trust were
established and that the recipient appreciated (or objectively ought to have appreciated) that new
terms applied to the money received and still held.
At the end of 15.62 add the following:
In Compass Resources Ltd v Sherman at [67]-[71], Beech J summed up as follows on the
question of intention:
In my opinion, the test of the necessary intention is … [i]s it intended that the moneys not become part of
the general assets of the [borrower] and be used only for the particular purpose? It is not sufficient, in
order to establish a trust, to show that the parties intended that the moneys be used only for a particular
purpose. Not every contractual obligation to use loan funds for a specified purpose gives rise to a trust of
the moneys lent …
In determining the question of intention the court will have regard to the language employed by the
parties, including in the particular clause in question, the nature of the transaction, and the circumstances
surrounding the relationship
Whether there is expressed a requirement that the funds be kept separate from other moneys of the
borrower is a significant consideration in determining the question of intention: Walker v Corboy [(1990)
19 NSWLR 382 at 397-8] the ‘most powerful indicium’; Re Australian Elizabethan Theatre Trust
[(1991) 30 FCR 491 at 505-6] ‘of considerable significance’; Jessup v Queensland Housing Commission
[[2002] 2 Qd R 270 at [12]]; Salvo v New Tel Ltd [2005] NSWCA 281 at [38]] ‘indicative but not
conclusive’ (at [65]); McManus RE Pty Ltd v Ward [(2009) 74 NSWLR 662 at [25]] ‘often decisive’.
The search is for an intention (or not) that moneys paid to the borrower not become part of the
borrower’s assets. In that light, it seems to me to make sense that an intention (or not) that the funds be
kept separate and not mixed with the borrower’s general funds is of considerable significance.
At the end of 15.64 add the following:
Norris J’s statement was cited with approval on appeal in Raymond Bieber v Teathers Ltd
[2012] EWCA Civ 1466 at [14]. Patten LJ, speaking on behalf of the Court of Appeal, then
added the following:
I would only add by way of emphasis that in deciding whether particular arrangements involve the
creation of a trust and with it the retention by the paying party of beneficial control of the monies,
proper account needs to be taken of the structure of the arrangements and the contractual
mechanisms involved … [P]ayments are routinely made in advance for particular goods and services
but do not constitute trust monies in the recipient’s hands. It is therefore necessary to be satisfied not
merely that the money when paid was not at the free disposal of the payee but that, objectively
examined, the contractual or other arrangements properly construed were intended to provide for the
preservation of the payer’s rights and the control of the use of the money through the medium of a
trust. Critically this involves the court being satisfied that the intention of the parties was that the
monies transferred by the investors should not become the absolute property of [payee] (subject only
to a contractual restraint on their disposal) but should continue to belong beneficially to the [payer]
unless and until the conditions attached to their release were complied with.
At the end of 15.68 add the following:
A potential problem with this analysis stems from the statement by Lord Wilberforce in
Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 at 329; [1967] 1 All ER 1 at
18, where his Lordship said that ‘the equitable, or beneficial interest [in property], cannot
remain in the air’, with the clear implication that there must be a person who holds the
beneficial interest.
At the end of 15.77 add the following:
In Stewart v Atco Controls Pty Ltd (in liquidation) [2014] HCA 15 at [16], the High Court
observed that, in the context a vendor’s lien for unpaid purchase money as well as a
purchaser’s lien, ‘the lien is for money “justly due”‘.
At the end of 15.83 add the following:
Re Gardiner (decd’d) was one of the few modern cases in which a condition was found. In
that case property was left to Ivor ‘subject to [Ivor] paying the sum of £1000 within two years
of my death to my son Albert’. The payment to Albert was not made within the two year
period. Helsham J held that as the condition had not been satisfied, Ivor forfeited the gift and
the property went to the testator’s next-of-kin on intestacy.
At the end of 15.84 add the following:
In Evans v Evans [2011] NSWCA 92 at [117], Campbell JA said the following in relation to
personal equitable obligations:
[Personal equitable obligations] are fairly common within families, though most frequently found
when the gift in question is one by will. Though it is always a matter of construction of the particular
gift in question, it is possible for there to be a gift of property, where the donee’s action in accepting
the gift gives rise to an equitable personal obligation to make a particular payment or payments, or to
cause or permit some particular state of affairs to exist or cause or permit some particular act to be
done. Such an equitable personal obligation does not impose a trust on the property, and does not
create a condition, breach of which results in the gift ceasing or reverting to the donor, but still
creates an obligation on the donee that is enforceable in equity. Such an obligation might also be one
that is suspended for a time, or (depending on the circumstances) permanently, through
CHAPTER 16
At the end of 16.23 add the following:
After the decision in Byrnes v Kendle, in Legal Services Board v Gillespie-Jones [2013] HCA
35 at [119], Bell, Gaegler and Keane JJ said:
Whether or not parties intend to create in a third party an interest that is appropriate to be created by
a trust relationship falls in each case to be determined by reference to the outward manifestation of
the intentions of the parties within the totality of the circumstances. Those circumstances centrally
include the nature of the relationship between the parties together with such rights or obligations
pertaining to that relationship as might arise under statute or at common law. ‘The contractual
relationship provides one of the most common bases for the establishment or implication and for the
definition of a trust’: Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (2000) 202 CLR
588 at 603, quoting Gosper v Sawyer (1985) 160 CLR 548 at 568-9; a relationship established or
regulated by statute can provide another basis. Such trust relationship as may arise to give effect to
the inferred intention of the parties must mould to statutory rights and obligations of the parties. A
trust relationship is not to be recognised or enforced, and is therefore not to be inferred, if and to the
extent the trust relationship would give rise to rights or obligations inconsistent with those conferred
or imposed by statute.
At the end of 16.24 add the following:
In Raftland Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia (2008)
238 CLR 516 at 563; 246 ALR 406 at 443, Kirby J made the following observation in
relation to whether a transaction was a sham:
[T]he primary value of sham analysis is that, where justified, it may rescue the decision-maker from
being led by the nose into the artificial task of defining the legal rights and obligations of the parties
by reference to their proved documents and related conduct alone, where extrinsic evidence
demonstrates that they constitute a sham and were not intended to be effective or have their
‘apparent, or any, legal consequences’: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004)
218 CLR 471 at 486. For a court to call a transaction a sham is not just an assertion of the essential
realism of the judicial process, and proof that judicial decision-making is not to be trifled with. It
also represents a principled liberation of the court from constraints imposed by taking documents and
conduct solely at face value. In this sense, it is yet another instance of the tendency of contemporary
Australian law to favour substance over form.
In Coshott v Prentice [2014] FCAFC 88 at [64], the Full Court of the Federal Court said:
[T]he element of deliberate deception lies at the heart of the legal concept of a sham. The seriousness
of the allegation of a sham thus mandates that the Court act with much care and caution before
finding that it is established, as the appellants contend. More fundamentally, it is this element of
intentional deceit which justifies the Court taking the exceptional step of determining the legal effect
of a document, such as a contract or trust instrument, on the basis of the parties’ subjective
intentions, including by reference to extrinsic material, as opposed to the objective meaning of the
document.
In Lewis v Condon (2013) 85 NSWLR 99 at 112-4; 304 ALR 410 at 422-5, Leeming JA
made the following observations:
[For a transaction to be a sham] it is essential that there be an intention that the true transaction is
different from that which would ordinarily be attributed to the transaction on the face of the
documents … Basic to the legal notion of sham is that it is a confined and exceptional aspect of the
process of giving legal meaning to a document … The sham doctrine is thus one of those relatively
rare doctrines in the law where legal meaning is given to a document by reference to a subjective
intention. Other examples are a plea of non est factum at law and a claim for rectification in equity
… In all these areas, strong evidence is required in order to displace the orthodox approach to
construction …
Because a finding of sham requires a finding of an intent to deceive … a cautious approach [is
required]. Thus there is a ‘strong and natural presumption against holding a provision or a document
a sham’: National Westminster Bank plc v Jones [2001] BCLC 98 at [59]. ‘A court will only look
behind a transaction’s ostensible validity if there is a good reason to do so, and “good reason” is a
high threshold, since a premium is placed on commercial certainty’: Official Assignee v Wilson
[2008] 3 NZLR 45 at [52]. Lockhart J referred to ‘a strong finding, and one which cannot be made if
another inference is at least equally open’ in Sharrment Pty Ltd v Official Trustee in Bankruptcy
(1998) 18 FCR 449 at 461 …
[However], there is no reason in principle why there may not be an intention genuinely held and
documented to create a trust, but on quite different terms from that documented. In such a case, there
is a valid intention to create a trust, whose terms are not as documented but instead accord with the
subjective, shamming intention …
[A] transaction will not be a sham merely because it was entered into with an improper motive …
The proposition that not every transaction entered into for a legally improper motive is a sham must
also be correct in principle. There is a clear distinction between a settlement of property in favour of
(say) a spouse intended to operate in its terms, but made with the intent of defrauding creditors, and a
sham declaration of trust in favour of a spouse never intended to give rise to the ordinary incidents of
a trust. Both are entered into for an improper purpose, but the legal meaning of the former accords
with the language of the declaration (although it is apt to be set aside pursuant to statute), while the
legal meaning of the latter is that there is no trust at all. The limited notion of what constitutes a
sham does not swallow up the large class of other transactions entered into for a purpose regarded as
improper by the law.
In short, every case of shamming intent involves a finding of intentional deception as to the effect of
a document, but not every case of improper purpose is a sham.
In the light of these principles the Court of Appeal held that there was no sham in relation to
the creation of a discretionary trust in 2001 as a vehicle to purchase property which was
financed by Lewis who was one of the objects of the trust. The assets of the trust were held
for such of the beneficiaries at the distribution date as the trustee should determine in its
absolute discretion. The settlor of the trust was Fraser, who was Lewis’s accountant. The
trustee was Appinville Pty Ltd and was formally controlled by Fraser. Lewis’s purpose in
arranging for the creation of the discretionary trust was to deceive her former husband and
the Family Court and to avoid tax. On the basis of the facts of this case, Leeming JA, at
NSWLR 115-6; 425-5, concluded as follows:
In my view … the primary judge was correct to reject [the] claim that there was a shamming intent in
2001 …
Accepting as I do … that the whole of the purchase price came, directly or indirectly, from funds
controlled [Lewis], and that her purpose was … to deceive [her former husband] and the Family
Court. But in order for there to be a sham, it was necessary that there be an intention that the
discretionary trust deed created by Mr Fraser not bear its apparent legal consequence. In my opinion,
the conversation and [Lewis’s] state of mind to [in 2001] … were entirely consistent with the
discretionary trust which made [Lewis] the Appointor and ‘first corpus beneficiary’ operating
according to its terms.
To test that proposition, let it be assumed that [Lewis’s] ‘complicated court case’ in fact had
concluded by Christmas 2001, as she (optimistically) hoped at the time. [Lewis] could then have
asked Mr Fraser to cause Appinville to accelerate the distribution date and to distribute the Property
to her. If … the whole of the purchase price and outgoings and mortgage repayments had been met
by her, it would be open to him with no breach of trust, to form the view that that was an appropriate
exercise of Appinville’s power as trustee. If [Mr Fraser] proved unwilling to do so, [Lewis] was free
to replace Appinville as trustee. It is perfectly regular for a settlor or a third party to contribute to the
purchase price of property which is to be held on trust; to the extent that [Lewis] did so, that does not
in my view compel a conclusion of sham.
To put the matter another way, the creation of a genuine discretionary trust was entirely consistent
with [Lewis’s] objectives as stated by her in the conversation with Mr Fraser. [Lewis] wanted to
conceal her interest in the Property, presumably from her husband and the Family Court. But she
also wished to be able to resume full beneficial entitlement to the Property when the need for secrecy
was over. The creation of the discretionary trust enabled her to achieve both objectives. The Property
was placed in the name of Appinville. Yet [Lewis] could effectively bring the trust to an end
whenever she chose, thereby regaining the beneficial (and indeed, if she wanted, legal) title to the
Property.
At the end of 16.24 add the following:
For example, in New South Wales, s43 of the Succession Act 2006 (NSW) stipulates that a
disposition in a will (i) to an unincorporated association that is not a charity; or (ii) on trust
for the purposes of an unincorporated association that is not a charity; or (iii) on trust for
present and future members of an unincorporated association that is not a charity, has the
effect of a disposition for the augmentation of the association’s funds. Such property must be
paid into the association’s general fund, or transferred to the association or sold and the funds
transferred to the association. It does not matter that a list of the association’s members as at
the testator’s death cannot be compiled or that that members of the association must not
divide the assets of the association beneficially amongst themselves.
CHAPTER 17
At the end of the first sentence in 17.9 insert the following:
In the Australian Capital Territory and New South Wales, the relevant statutory provision is
slightly varied in that court order may confer upon trustees the relevant power ‘subject to
such provisions and conditions, including adjustment of the respective rights of the
beneficiaries as the Court may think fit’ (emphasis added to indicate the additional words).
At the end of the first sentence in 17.15 insert the following:
In Re Dion Investments Pty Ltd [2013] NSWSC 1941 at [56]-[63], Young AJ disagreed with
Campbell J’s analysis of s 81 when he said the following:
I disagree with great respect that ‘transaction’ in section 81 extends to amendment of the trust deed.
It seems to me that this is quite inconsistent with the bulk of authorities
The semantic significance of the word ‘transaction’ was a mere throwaway line. The cases tend to
show that in pension scheme cases a more ‘robust’ view is taken of section 81 than in perhaps other
cases … Perhaps New South Wales judges have been more robust in their application in s 81
because there is no power to vary a trust in NSW as there is in England, Victoria, and South
Australia.
Indeed the very fact that NSW has not adopted the variation of trust legislation enacted elsewhere is
itself a good reason for the Court to leave the matter to Parliament rather than re-interpret s 81.
The view of Campbell J that the extra words in the NSW Act mean that one can cast aside …
Chapman v Chapman is actually contrary to the decision of Myers AJ in Ku-ring-gai Municipal
Council v Attorney General (1953) 19 LGR (NSW) 105 affirmed on appeal: (1954) 55 SR (NSW) 65
…
[I]n my view I cannot make an order under section 81 giving the trustees or other persons entitled
power to vary the trust deed by ‘modernising’ it in the way in which the taxation advisors have
suggested. However I can approve advantageous dealings which incidentally affect beneficiary
rights.
On appeal, in Re Dion Investments Pty Ltd [2014] NSWCA 367, the Court of Appeal upheld
his Honour’s reasoning. Barrett JA, at [92]-[100], said the following:
Although ‘transaction’ is a very wide expression, power for a trustee to effect a particular
‘transaction’ may be supplied by the court only if, in the management or administration of any
property vested in the trustee, the ‘transaction’ is, in the court's opinion, ‘expedient’ - that is,
according to Dixon J in Riddle v Riddle [(1952) 85 CLR 202 at 214], expedient "in the interests of
the beneficiaries" or, according to Williams J [at 222], ‘advantageous’, ‘desirable’ or ‘suitable to the
circumstances of the case’ but, in every case, with expediency tied to management or administration
of trust property …
Variation of the terms of a trust (including by way of conferral of some new power on the trustee) is
not something within the ordinary and natural province of a trustee. It is not something that it is
‘expedient’ that a trustee should do; nor, fundamentally, is it something that is done ‘in the
management or administration of’ trust property. A trustee’s function is to take the trusts as it finds
them and to administer them as they stand. The trustee is not concerned to question the terms of the
trust or seek to improve them. I venture to say that, even where the trust instrument itself gives the
trustee a power of variation, exercise of that power is not something that occurs ‘in the management
or administration of’ trust property. It occurs in order that the scheme of fiduciary administration of
the property may somehow be reshaped …
[T]he … decisions that have proceeded on the basis that variation of the terms of a trust is, of itself, a
‘transaction’ within the contemplation of s 81(1) rest on an unsound foundation. The court is not
empowered by the section to grant power to the trustee to amend the trust instrument or the terms of
the trust. It may only grant specific powers related to the management and administration of the trust
property, being powers that co-exist with (and, to the extent of any inconsistency, override) those
conferred by the trust instrument or by law.
On the other hand, as noted by Barrett JA in Re Dion Investments Pty Ltd at [92], the Court of
Appeal in Queensland, in Re Arthur Brady Family Trust; Re Trekmore Trading Trusts [2014]
QSC 244 at [42]-[43], it was held that the approach in Stein v Sybmore Holdings was
applicable because of the broader set of circumstances in which the court can make an order
under pursuant to s 94 of the Trusts Act 1973 (Qld).
At the end of the first sentence in 17.21 insert the following:
However, as noted above, in Re Dion Investments Pty Ltd [2014] NSWCA 367 at [95]-[100],
Barrett JA in the Court of Appeal, after a consideration of the authorities, concluded that
‘transaction’ did not extend to an amendment to a trust deed. On the other hand, his Honour,
at [110], stated that a court could approve the court to confer particular and limited power
concerning the method by which the trustee could account for income and gains if the ability
to use that method of accounting can be shown to be expedient, by reason of tax efficiencies,
to the aspect of the management or administration of the trust property that involves
allocation of income to beneficiaries.
At the end of 17.24 add the following:
In the light of this and other cases, in In the Matter of Alan Synman Family Trust [2013] VSC
364 at [43]-[45], Ginnane J said:
An order [pursuant to s 63A] approving an arrangement enables the sui juris parties to proceed to
effect the variation … The court order does not make the variation, it merely provides a consent to
the arrangement by and on behalf of those who cannot otherwise give consent. It may be that an
arrangement involves a risk from the point of view of infants and unborn persons. That is not
necessarily decisive against approval. The arrangement and its benefits and disadvantages must be
considered overall. So considering the matter it may be concluded that the risk to infants and unborn
persons ‘is a risk that an adult would be prepared to take’ and which the Court is prepared to take on
behalf of those persons: In re Cohen’s Will Trust [1959] 1 WLR 865 at 868. It seems implicit but
should be noted that the concept of benefit is not confined to benefit of a financial nature … [I]t can
also be an educational and social benefit … [I]n Re Christmas’ Settlement Trusts [1986] 1 Qd 372 at
376-7 … McPherson J … expressed the view that ‘the mere hope of avoiding possible future family
friction would ordinarily not suffice, at least in the case of relatives as remote as cousins living
apart’. Nevertheless the possibility of family dissension may be an appropriate consideration in the
circumstances of a particular case.
At the end of 17.49 add the following:
The word ‘creditors is not limited to person to whom debts are currently owed – ‘an
“impending” liability to a future creditor is enough’: B v U [2012] NSWSC 1416 at [21].
At the end of 17.50 add the following:
To establish prejudice, all that is required is: (i) that the debtor is putting an asset beyond a
creditor’s reach, or (ii) that there would be more assets available for the benefit of creditors if
the transfer were to be avoided: Ingram v Y Twelve Pty Ltd at [115].
The onus of proof to prove the intent to defraud as required by S 172(1) is with the party
seeking to set aside the alienation of property. The intent to defraud ‘need not be the sole, nor
predominant, intent. It may exist concurrently with a genuine and good faith intention to
dispose of property’: Deputy Commissioner of Taxation v Haritos at [2014] VSC 279 at
[223]. In Huynh v Helleh Holdings Pty Ltd (2001) NSWSC 1162 at [18] it was held that that
person also has the onus of proof in establishing a lack of the good faith and valuable
consideration that is required to prevent the alienation from being set aside pursuant to s
172(3). However, in cases such as Wentworth v Rogers, at [64]-[68] and Deputy
Commissioner of Taxation v Haritos at [231], it has been held that the onus of proof with
respect to s 172(3) rests with the person seeking the protection of that sub-section, that is, the
recipient of the property that has been alienated.
At the end of 17.51 add the following:
A conveyance intended to defeat the rights of a spouse in matrimonial proceedings is within
the scope of the s 172: Poulos v Eberstaller [2013] NSWSC 1849 at [41].
At the end of 17.76 add the following:
Thus, in Hickin v Carroll (No 2) [2014] NSWSC 1059 at [126]-[137], a gift in a will to
children on condition that they convert to Roman Catholicism within three months of the
testator’s death was upheld. The court held that there was no public policy reason to strike
down the gift in New South Wales, especially so as anti-discrimination legislation in that
state does not prohibit discrimination on religious grounds.
At the end of 17.102 add the following:
Under the general law ‘a disposition of property is required to vest in interest within [the]
period, whatever may be the time of its vesting in possession’: Re Estate Late Chow ChoPoon [2013] NSWSC 844 at [55]. It can be noted that an estate is said to be vested in
possession when it gives a present right to the immediate possession of property; while an
estate which gives a present right to the future possession of property is said to be vested in
interest: Re Estate Late Chow Cho-Poon at [53].
CHAPTER 18
At the end of 18.1 add the following:
Although charitable trusts are for purposes and not for persons, the purposes are commonly
carried out by what is usually referred to as a charitable institution. However, it is better to
see that institution as the instrument for carrying out of a charitable purpose: Stratton v
Simpson (1970) 125 CLR 139 at 144. One must clearly distinguish between a gift made for
charitable purposes and one to an institution. The latter will stand or fall as an express private
trust. If this gift is for a charitable purpose and the institution is bound to carry out the
charitable purpose, the gift will succeed, not as a gift to the institution as such, but as one to
the institution as an organisation subject to a charitable purpose.
At the end of 18.10 add the following:
It is important to appreciate that the word ‘charitable’ in the present context has a technical
mean that does not necessarily overlap with the meaning of ordinary meaning of ‘charitable’.
As was recently pointed out by Perram J in The Hunger Project Australia v Commissioner of
Taxation [2013] FCA 693 at [100], ‘[t]he non-technical or eleemosynary meaning of what
constitutes a charitable purpose is both broader and narrower than the corresponding
technical legal meaning [as delineated in Pemsel’s case]. Earlier in his judgment, Perram J, at
[53], said the following in relation to the word ‘eleemosynary’:
According to the Oxford English Dictionary (‘the OED’) the word eleemosynary, which is largely
used to frighten law students, made its debut in English in around 1640 and is derived from the
medieval Latin word eleēmosynārius which means ‘alms’. The OED defines eleemosynary to mean:
‘Of or pertaining to alms or almsgiving; charitable’. Its utilisation by trust lawyers as a replacement
for the word ‘charitable’ was made necessary because the effect of the law of charities is that the
word ‘charitable’ in law bears little resemblance to the concept it bears in ordinary English. It might
perhaps have promoted clarity for lawyers to have used the word ‘eleemosynary’ to refer to the
technical sense of the concept and to have left the word ‘charitable’ with its ordinary meaning but it
is too late now to rescue the language from this misfortune.
Delete 18.29 and replace with the following:
18.29 The decision in Aid/Watch Incorporated v Commissioner of Taxation of the
Commonwealth of Australia was cited with approval in In re Greenpeace [2014] NZSC 105
where the majority of the New Zealand Supreme Court rejected a standalone political
purposes doctrine as the basis of excluding of political activity from the scope of charitable
purposes. The majority (Elias CJ, McGrath and Glazebrook JJ) at [62], said:
[I]t is difficult to see that all advocacy for legislative change should be excluded from being
recognised as charitable. Promotion of law reform of the type often undertaken by law commissions
which aims to keep laws fit for modern purposes may well be properly seen as charitable if
undertaken by private organisations even though such reform inevitably entails promotion of
legislation. Such advocacy may well constitute in itself a public good which is analogous to other
good works within the sense the law considers charitable.
The majority, at [69]-[70] continued as follows:
A conclusion that a purpose is ‘political’ or ‘advocacy’ obscures proper focus on whether a purpose
is charitable within the sense used by law. It is difficult to construct any adequate or principled
theory to support blanket exclusion. A political purpose or advocacy exclusion would be an
impediment to charitable status for organisations which, although campaigning for charitable ends,
do not themselves directly undertake tangible good works of the type recognised as charitable.
As well, a strict exclusion risks rigidity in an area of law which should be responsive to the way
society works. It is likely to hinder the responsiveness of this area of law to the changing
circumstances of society. Just as the law of charities recognised the public benefit of philanthropy in
easing the burden on parishes of alleviating poverty, keeping utilities in repair, and educating the
poor in post-Reformation Elizabethan England, the circumstances of the modern outsourced and
perhaps contracting state may throw up new need for philanthropy which is properly to be treated as
charitable. So, for example, charity has been found in purposes which support the machinery or
harmony of civil society, such as is illustrated by the decisions in England and Australia holding law
reporting to be a charitable purpose …
Finally, the majority, at [72]-[74], concluded:
The better approach is not a doctrine of exclusion of ‘political’ purpose but acceptance that an object
which entails advocacy for change in the law is ‘simply one facet of whether a purpose advances the
public benefit in a way that is within the spirit and intendment of the statute of Elizabeth I’:
The reason for the failure of many trusts involving a change in the law is that the
particular change could not be proved to be for the public benefit, or that it was not within
the spirit and intendment of the statute, or both; not that all changes in the law are outside
the pale: L A Sheridan ‘Charitable Causes, Political Causes and Involvement’ (1980) 2
The Philanthropist 5 at 16.
Advancement of causes will often, perhaps most often, be non-charitable. That is for the reasons
given in the authorities – it is not possible to say whether the views promoted are of benefit in the
way the law recognises as charitable. Matters of opinion may be impossible to characterise as of
public benefit either in achievement or in the promotion itself … Furthermore, the ends promoted
may be outside the scope of the cases which have built on the spirit of the preamble, so that there is
no sound analogy on which the law might be developed within the sense of what has been recognised
to be charitable …
It may be accepted that the circumstances in which advocacy of particular views is shown to be
charitable will not be common, but that does not justify a rule that all nonancillary advocacy is
properly characterised as non-charitable. As Professor Sheridan observed in 1972, in relation to
promotion of legislation, the true rule is that advocacy is ‘charitable in some circumstances and not
in others’: L A Sheridan ‘Charitable Causes, Political Causes and Involvement’ (1980) 2 The
Philanthropist 5 at 12.
At the end of 18.53 add the following:
In June 2013, the Commonwealth parliament passed the Charities Act 2013, which came into
effect on 1 January 2014. This legislation represents the culmination of the process, discussed
above, of reforming the definition of charity. In essence the Act’s definition of charity
generally puts into statutory form the general law definition of charity as developed by the
cases and as categorised in Pemsel’s case.
The provisions of the Charities Act 2013 only apply to the law of charity for Commonwealth
legislative purposes. Existing general law principles as to the meaning of charity will apply
for state and territory legislative purposes. For example, concessions that charities may have
in relation to land tax under state land tax legislation will depend upon whether the entity is
engaged in a charitable purpose pursuant to the definition of charity as categorised in
Pemsel’s case. The Charities Act 2013 does not apply in such a case.
On the other hand, extensions to the meaning of charitable purposes that have been made in
some states and territories include purposes that are not charitable within the terms of the
Charities Act 2013. These purposes are, therefore, not charitable for Commonwealth
legislative purposes.
The harmonisation of state and territory laws with the Charities Act 2013 will require states
and territories to enact legislation to achieve that outcome.
The Definition of Charity
Section 5 of the Act defines ‘charity’ as an entity that is a not-for-profit entity in which all of
its purposes are: (i) charitable purposes that are for the public benefit or (ii) incidental or
ancillary to, and in furtherance or in aid of, the entity’s charitable purposes that are for the
public benefit. None of the entity’s purposes can be a disqualifying purpose. Finally, an
individual, a political party or a governmental entity cannot also be a charity.
Section 10(1) of the Act stipulates that the requirement of public benefit (the meaning of
which is discussed below) mentioned above does not apply to an entity if:
(a) the entity is an association of individuals that has an open and non-discriminatory
membership; and
(b) the entity is established for the purpose of assisting individuals affected by a particular
disadvantage or discrimination, or by a need that is not being met; and
(c) the entity is made up of, and controlled by, individuals who are affected by the
disadvantage, discrimination or need; and
(d) all of the entity’s criteria for membership relate to its purpose; and
(e) the entity’s membership is open to any individual who satisfies the criteria.
Section 10(2) of the Act stipulates that the requirement of public benefit does not apply to an
entity if the entity is a closed or contemplative religious order that regularly undertakes
prayerful intervention at the request of members of the general public.
The key elements of the definition are:
(i)
(ii)
(iii)
(iv)
(v)
entity
charitable purpose
public benefit
disqualifying purpose
governmental entity.
(i) Entity
Section 3 of the Act states that the definition of ‘entity’ in the Australian Charities and Notfor-profits Commission Act 2012 (Cth). Section 205.5(1) of that Act states that entity means
any of the following: (a) an individual; (b) a body corporate; (c) a body politic; (d) any other
unincorporated association or body of person; (e) a trust. In relation to a trust, the trustee or
trustees of the trust is taken to be the entity: s 205.5(3).
(ii) Charitable Purpose
The meaning of charitable purpose is outlined in s 12(1) of the Act. Further elaboration of
what the purposes set out in s 12(1)(a), a 12(1)(c), s 12(1)(e) and s 12(1)(h) include is set out
in ss 14, 15, 16 and 17 of the Act.
Section 12(1) stipulates that ‘charitable purpose’ means any of the following:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
the purpose of advancing health ;
the purpose of advancing education;
the purpose of advancing social or public welfare;
the purpose of advancing religion;
the purpose of advancing culture;
the purpose of promoting reconciliation, mutual respect and tolerance between groups
of individuals that are in Australia;
the purpose of promoting or protecting human rights (‘human rights’ having, pursuant
to s 3(1) the meaning given by the Human Rights (Parliamentary Scrutiny) Act
2011);
the purpose of advancing the security or safety of Australia or the Australian public;
the purpose of preventing or relieving the suffering of animals;
the purpose of advancing the natural environment;
any other purpose beneficial to the general public that may reasonably be regarded as
analogous to, or within the spirit of, any of the purposes mentioned in
paragraphs (a) to (j);
the purpose of promoting or opposing a change to any matter established by law,
policy or practice in the Commonwealth, a State, a Territory or another country,
if:
(i)
in the case of promoting a change—the change is in furtherance or in
aid of one or more of the purposes mentioned in paragraphs (a) to (k);
or
(ii)
in the case of opposing a change—the change is in opposition to, or in
hindrance of, one or more of the purposes mentioned in those
paragraphs.
In relation to those purposes engaged in ‘advancing’ the purpose, s 3(1) states that
‘advancing’ includes protecting, maintaining, supporting, researching and improving.
Section 12(2) of the Act stipulates that a purpose of promoting or opposing a change to any
matter established by law, policy or practice in the Commonwealth, a State, a Territory or
another country can only be a charitable purpose under s 12(1)(i). Finally, s 12(3) states that
it does not matter whether a purpose is directed to something in Australia or overseas.
In relation to the purpose of advancing health set out in s 12(1)(a), s14 states that it includes
the purpose of preventing and relieving sickness, disease or human suffering.
In relation to the purpose of advancing social or public welfare set out in s 12(1)(c), s15 states
that it includes the purposes of
1. relieving the poverty, distress or disadvantage of individuals or families;
2. caring for and supporting: (a) the aged or (b) individuals with disabilities;
3. caring for, supporting and protecting children and young individuals (and, in
particular, providing child care services);
4. the purpose of assisting the rebuilding, repairing or securing of assets after a disaster
if: (a) the disaster developed rapidly and: (i) resulted in the death, serious injury or
other physical suffering of a large number of individuals; or (ii) caused distress to
a large number of individuals and resulted in widespread damage to property or
the natural environment; and (b) the rebuilding, repairing or securing is in
furtherance or in aid of the purposes of one or more exempt entities (within the
meaning of the Income Tax Assessment Act 1997); and (c) the purpose of assisting
is directed to providing benefits that are commercial or private only to an
incidental and ancillary extent, if at all; and (d) the assets are assets of entities
that: (i) are not government entities; or (ii) would be charities were they not
government entities.
In relation to the purpose of advancing culture set out in s 12(1)(e), s16 states that it includes
the purposes of:
1. promoting or fostering culture;
2. caring for, preserving and protecting Australian heritage.
In relation to the purpose of advancing the security or safety of Australia or the Australian
public set out in s 12(1)(h), s17 states that it includes the purpose of promoting the efficiency
of the Australian Defence Force.
Under the general law of charity, Pemsel’s case sets out four categories of charitable purpose,
namely:
(a)
(b)
(c)
(d)
for the purpose of the relief of poverty;
for the purpose of the advancement of education;
for the purpose of the advancement of religion; and
for any purpose that is beneficial to the community.
Whereas there are three specific categories of charitable purposes in Pemsel’s case, there are
eleven specific categories in s 12(1). These eleven categories include the first three Pemsel’s
case categories. The additional specific categories set out in s 12(1) include some of the
purposes that come within the further category in Pemsel’s case, eg the purpose of preventing
or relieving the suffering of animals set out in s 12(1)(i). The purposes covered by s 12(1)(k)
equates to the fourth Pemsel’s case category.
(iii) Public Benefit
Section 6 (1) states that a purpose will be fore the public benefit if:
(a) the achievement of the purpose would be of public benefit; and
(b) the purpose is directed to a benefit that is available to the members of:
(i) the general public; or
(ii) a sufficient section of the general public.
The requirements of s 6(1)(b) do not apply if the purpose is the purpose of relieving the
necessitous circumstances of one or more individuals who are in Australia: s 8.
Whether something is for the achievement of public benefit must have regard to (i) benefits
(tangible or intangible) as well as, (ii) detriment to the general public or a section of the
public: s 6(2).
In relation to whether there is sufficient section of the public for the purposes of s 6(2)(b)(ii)
one must have regard to all relevant matters including the numbers of persons constituting the
section of the public and the numbers of that section to whom that purpose is relevant: s 6(4).
Section 7 stipulates that there is a rebuttable presumption that the requirement of public
benefit set out in s 6(1) if the entity’s purpose is any of the following:
(a) the purpose of preventing and relieving sickness, disease or human suffering;
(a) the purpose of advancing education;
(b) the purpose of relieving the poverty, distress or disadvantage of individuals or
families;
(c) the purpose of caring for and supporting:
(i) the aged; or
(ii) individuals with disabilities;
(d) the purpose of advancing religion.
The effect of s 7 is the presumption does not apply to all the charitable purposes set out in s
12(1). In some cases the purposes in s 7 are identical to the purposes mentioned in s 12(1), eg
the purpose of advancing education. In other cases the purposes mentioned in s 7 come within
a purpose mentioned in s 12(1). For example the purpose of relieving the poverty, distress or
disadvantage of individuals or families in s 7(c) is within the purpose of advancing social or
public welfare mentioned in s 12(1)(c). The practical consequence of this is that presumption
of public benefit set out in s 7 will apply to some, but not, all purposes that fall within s
21(1)(c).
In relation to entities that have purposes relating to indigenous peoples, there are separate
provisions in s 9 of the Act in relation to the issue of public benefit.
If an entity’s purpose is directed to the benefit of indigenous individuals only and the purpose
is not for the public benefit as set out in the Act only because of the relationships between the
Indigenous individuals to whose benefit the purpose is directed, that purpose will be treated
for the benefit of the public if the entity receives, holds or manages an amount, or non-cash
benefit (within the meaning of the Income Tax Assessment Act 1997), that relates to:
(a) native title (within the meaning of the Native Title Act 1993); or
(b) traditional indigenous rights of ownership, occupation, use or enjoyment of land.
Section 3(1) states that ‘indigenous individual’ means an individual who is: (a) a member of
the Aboriginal race of Australia; or (b) a descendant of an indigenous inhabitant of the Torres
Strait Islands.
(iv) Disqualifying Purpose
As noted above, an entity cannot be a charity if it has a disqualifying purpose.
Section 11 of the Act stipulates that a disqualifying purpose means:
(a) the purpose of engaging in, or promoting, activities that are unlawful or contrary to
public policy; or
(b) the purpose of promoting or opposing a political party or a candidate for political
office.
In relation to s 11(a) public policy includes the rule of law, the constitutional system of
government of the Commonwealth, the safety of the general public and national security.
However, activities are not contrary to public policy merely because they are contrary to
government policy.
In relation to s 11(b), it can be noted that the purpose of promoting or opposing a change to
any matter established by law, policy or practice in the Commonwealth, a State, a Territory or
another country may be a charitable purpose pursuant to s 12(1). The effect of s 11(b) is that
a disqualifying purpose does include the purpose of distributing information, or advancing
debate, about the policies of political parties or candidates for political office (such as by
assessing, critiquing, comparing or ranking those policies).
(v) Governmental entity
As noted above an entity that is a governmental entity cannot be a charity.
Section 4(1) of the Act states that ‘government entity’ means:
(a) a government entity (within the meaning of the A New Tax System (Australian
Business Number) Act 1999); or
(b) an entity: (i) established under a law by a State or a Territory; and (ii) of a kind
prescribed by legislative instrument by the responsible Minister; or
(c) a foreign government agency (within the meaning of the Income Tax Assessment Act
1997).
At the end of 18.69 add the following:
Wilson and Deane JJ, at CLR 174; ALR 106, in coming to a similar definition, said:
One of the more important indicia of ‘a religion’ is that the particular collection of ideas and /or
practices involves belief in the supernatural, that is to say, belief that reality extends beyond that
which is capable of perception by the senses. If that be absent, it is unlikely that one has ‘a religion’.
Another is that the ideas relate to man’s nature and place in the universe and his relation to things
supernatural. A third is that the ideas are accepted by adherents as requiring or encouraging them to
observe particular standards or codes of conduct or to participate in specific practices having
supernatural significance. A fourth is that, however loosely knit and varying in beliefs and practices
adherents may be, they constitute an identifiable group or identifiable groups. A fifth, and perhaps
more controversial, indicium is that the adherents themselves see the collection of ideas and/or
practices as constituting a religion.
Their Honours stressed that none of these indicia was necessarily determinative. Rather they
were more in the nature of aids in assessing whether, in any given case a particular collection
of ideas and/or practices amounted to a religion.
The views of Wilson and Deane JJ were followed in R (on the application of Hodkin) v
Registrar of Births, Deaths and Marriages [2014] AC 610 at 627; [2014] 1 All ER 737 at
752, an English case concerning Scientology, where Lord Toulson, speaking for a unanimous
Supreme Court, said:
I would describe religion … as a spiritual or non-secular belief system, held by a group of adherents,
which claims to explain mankind’s place in the universe and relationship with the infinite, and to
teach its adherents how they are to live their lives in conformity with the spiritual understanding
associated with the belief system. By spiritual or non-secular I mean a belief system which goes
beyond that which can be perceived by the senses or ascertained by the application of science. I
prefer not to use the word ‘supernatural’ to express this element, because it is a loaded word which
can carry a variety of connotations. Such a belief system may or may not involve belief in a supreme
being, but it does involve a belief that there is more to be understood about mankind’s nature and
relationship to the universe than can be gained from the senses or from science.
Earlier in his judgment, Lord Toulson, at AC 626; All ER 751 had said:
Unless there is some compelling contextual reason for holding otherwise, religion should not be
confined to religions which recognise a supreme deity. First and foremost, to do so would be a form
of religious discrimination unacceptable in today’s society. It would exclude Buddhism, along with
other faiths such as Jainism, Taoism, Theosophy and part of Hinduism … Further, to confine religion
to a religion which involves belief in a ‘supreme deity’ leads into difficult theological territory. On
the evidence of Mrs Wilks, Scientologists do believe in a supreme deity of a kind, but of an abstract
and impersonal nature. Ideas about the nature of God are the stuff of theological debate.
The decision in Hodkin is of importance in that it signifies the dissipation of theistic
definitions of religion.
At the end of the first sentence in 18.86 insert the following:
In Re Greenpeace of New Zealand Inc [2013] 1 NSZLR 339 at 355, White J said the
following in relation to the fourth category:
In particular, the purpose must be for the public benefit and charitable in the sense of coming within
the spirit and intendment of the preamble … The public benefit requirement focuses on whether the
purpose is beneficial to the community or a sufficient section of the public. The requirement to be
charitable within the spirit and intendment to the preamble focuses on analogies or the presumption
of charitable status. Even in the absence of an analogy, objects beneficial to the public are prima
facie within the spirit and intendment of the preamble and, in the absence of any ground for holding
that they are outside its spirit and intendment, are therefore charitable in law.
At the end of 18.102 add the following:
Similarly in Re Salvana; State Trustees Ltd v Attorney-General (Vic) [2013] VSC 117 a trust
to set up ‘a park or reservation or sanctuary for the preservation and conservation of native
Australian flora and fauna’ was held to be for a charitable purpose within the fourth category
of Pemsel’s case. However, in this case McMillan J also held that the trust was one fore the
advancement of education. In this respect her Honour, at [28], said:
I consider that members of the public will stand to gain a better appreciation of natural ecosystems
by observing the natural environment of a park, reservation or sanctuary. The preservation and
conservation of native flora and fauna, in areas set aside for that purpose and open to the public at
large, constitute an educative purpose, since they promote the enhancement of public learning and
knowledge.
At the end of 18.98 add the following:
Thus, in Attorney-General for the United Kingdom v Wellington Newspapers Ltd [1988] 1
NZLR 129 at 178, McMullin J said:
By public interest is meant something more than that which catches one’s curiosity or merely raises
the interest of the gossip. It is something which may be of real concern to the public.
At the end of 18.124 add the following:
In Hunter Region SLSA Helicopter Rescue Service Ltd v Attorney-General of New South
Wales [2013] NSWSC 1749 at [37], White J said:
In my view, s 9 can be applied proleptically. Section 9 is remedial and beneficial legislation and not
to be narrowly construed. A construction of s 9 that the court could not make an order altering the
original purposes of a charitable trust until those purposes have ceased to provide a suitable and
effective method of using the trust property, even though it will then be too late to do anything about
it, should not be adopted if an alternative construction is reasonably available. Section 9(1) does not
purport to state exhaustively the circumstances in which the court can alter the original purposes of
the charitable trust. The section says that the circumstances in which those original purposes can be
altered ‘include’ circumstances in which the original purposes have ceased to provide a suitable and
effective method of using the trust property having regard to the spirit of the trust. As the power can
be exercised in those circumstances, it is only logical that it can also be exercised if it is shown that
the original purposes will cease to provide a suitable and effective method of using the trust property
having regard to the spirit of the trust.
At the end of 18.127 add the following:
In Maxwell James Anthony Connery v Williams Business College Limited [2014] NSWSC
154, an issue before the court was whether the following provision in a will exhibited a
general charitable intention:
I give and bequeath my policy policy [sic] [policy number] from Westpac Income Plan to be used as
a grant for students with financial difficulties enabling them to do the course to be overseen by
Wilfred Hauser and Margaret McEwan.
Slattery J, at [55]-[62], in concluding that it did, said the following:
Little is required to establish a general charitable purpose. As a general principle, Courts will lean in
favour of charity, and upon the failure of a specific gift, Courts will be ready to infer a general
intention on the part of the will maker to provide a gift to charity; ‘little is required in the language
of the will for a court to treat a wider purpose as the object of trust’: Attorney General (NSW) v Barr
[1991] NSWCA 4 at [3] per Kirby P … As Barr’s case suggests there are at least four factors
regularly examined in a will or other instrument in examining the support for the inference of a
general charitable intention. These are set out in Barr; but as Kirby P explained at [5]-[6] the matter
is still one of general impression:
Depending upon the circumstances, the following considerations have been identified as
sometimes supporting an inference of a general charitable intention on the part of the
will-maker:
(a)
(b)
(c)
(d)
if the failed gift is expressed in a way which suggests a charitable
intention;
if the failed gift is made in association with a number of other gifts,
undoubtedly charitable, which succeed;
if the whole estate is left to a charity which fails; and
if admissible circumstances support the conclusion that the will-maker
did not intend to benefit the relatives.
In the end, the court’s function involves judgment, assessment and impression upon
reading the will. The decision is not wholly susceptible to reasoned exposition …
Clause 7 clearly indicates a general purpose of charity. First its language echoes charitable concepts:
the policy was to be used ‘as a grant for students’ [emphasis added]. Secondly, the relief of poverty
is clearly implied by the description of the students of those ‘with financial difficulties’; and, a
purpose may qualify for the relief of poverty even though the persons who may benefit may not be
completely destitute: Re Coulthurst’s Will Trust; Coutts & Co v Coulthurst [1951] Ch 661 at 666.
Thirdly, the advancement of education is inferred from the testator’s use in clause 7 of the words
‘enabling them to do the course’ and describing them as ‘students’. This is a matter of assessment
and impression upon reading the Will, but a powerful factor in this case is the testator’s
identification and blending of the two heads of charitable purpose, the relief of poverty and the
advancement of education …
Moreover, the Charitable Trusts Act, s 10 ... provides as follows:
Requirement for general charitable intention of donor
10(1) This Part does not affect the requirement that trust property can not be applied cy
pres unless it is given with a general charitable intention.
(2) However, a general charitable intention is to be presumed unless there is evidence to
the contrary in the instrument establishing the charitable trust."
The [section] 10 presumption is not concerned with whether the intention is charitable, but whether
it is general as distinct from particular: Public Trustee v Attorney General of NSW (1997) 42
NSWLR 600 at 609 … At common law there is no presumption in favour of a general as opposed to
a particular charitable intention. But [section] 10 alters the common law in this respect.
At the end of 18.134 add the following:
In relation this type of case, in Re Coulson [2014] VSC 353 at [43], McMillan J said:
[W]hen it comes to charities, a simple dissolution and reincorporation may not result in the charity
ceasing to exist. Incorporation in a particular jurisdiction or in a particular manner is merely the
machinery by which the charity operates. If the charity organisation continues its work through a
new body corporate, it may not have ceased to exist. This will depend on the objects and purposes,
and arrangements upon dissolution, of the two organisations. This principle recognises that a
charitable organisation may have conducted its charitable work continuously, yet made changes to its
legal form depending on the vicissitudes of government regulatory policy or the benefits of
incorporation in different jurisdictions. In such situations the charity organisation has not truly
ceased to exist.
CHAPTER 19
At the end of the first sentence in 19.16 insert the following:
In Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 at 312; [1967] 1 All ER 1 at
8, Lord Upjohn said:
Where A transfers … the legal estate in property to B otherwise than for valuable consideration it is
a question of the intention of A in making the transfer whether B was to take beneficially or on trust
and, if the latter, on what trusts. If, as a matter of construction of the document transferring the legal
estate, it is possible to discern A’s intentions, that is an end of the matter and no extraneous evidence
is admissible to correct and qualify his intentions so ascertained. But if … the document is silent,
then there is said to arise a resulting trust in favour of A. But this is only a presumption and is easily
rebutted. All the relevant facts and circumstances can be considered in order to ascertain A’s
intentions with a view to rebutting this presumption.
In this case Vandervell who wanted to establish a chair of pharmacology at the Royal College
of Surgeons with a gift of shares to the value of £150,000 to the college. The transfer was
subject to an option to buy them back in favour of Vandervell Trustees Ltd. One of the issues
before the House of Lords was whether Vanderwell retained any beneficial interest in the
shares. The House of Lords held that Vandevell had not divested himself of the entirety of his
beneficial interest in the shares. The terms on which the Vandervell Trustees Ltd were to hold
the option had not been set out with the consequence that the shares were held on resulting
trust for him. Vandervell had failed to declare how the trust company would hold the option
and because of this it held the option on resulting trust for him and he had therefore retained a
beneficial interest in the shares.
At the end of the first sentence in 19.29 insert the following:
Thus, in Weige v Cupton Pty Ltd [2012] NSWCA 414 at [45], Ward JA observed that
‘[a]bsent agreement between the parties, the beneficial interest arising under such a resulting
trust is not changed by later contributions to the property’.
At the end of the first sentence in 19.44 insert the following:
Similarly sentiments have been expressed by the Supreme Court of Canada in Nishi v Rascal
Trucking Ltd [2013] SCC 33 at [2], where the court said:
The presumption [of resulting trust] can be rebutted by evidence that at the time of the contribution,
the person making the contribution intended to make a gift to the person taking title. While rebutting
the presumption requires evidence of the intention of the person who advanced the funds at the time
of the advance, after the fact evidence can be admitted so long as the trier of fact is careful to
consider the possibility of self-serving changes in intention over time.
At the end of 19.76 add the following:
Because the rebuttal of the presumption of advancement leads to the enforcement of a
resulting trust there is no requirement of writing pursuant to the provisions of s 23C(1) of the
Conveyancing Act 1919 (NSW) and it equivalents in other Australian jurisdictions. 8 This
means that oral evidence is admissible to rebut the presumption of advancement and to affirm
the operation of the presumption of a resulting trust: Nelson v Nelson at CLR 547-8; ALR
140; Brown v New South Wales Trustee and Guardian [2012] NSWCA 431 at [71].
At the end of 19.85 add the following:
Similar sentiments are to be found in the Canadian Supreme Court decision of Nishi v Rascal
Trucking Ltd at [28], where the Court said:
[T]he purchase money resulting trust provides certainty and predictability because it relies on a clear
rule for determining who holds the beneficial interest in a property. Absent strong dissenting
opinions in this Court, contrary decisions in provincial appellate courts or significant negative
academic commentary that would justify disturbing such a settled area of the law, there is no reason
to abandon the purchase money resulting trust.
8
Civil Law (Property) Act 2006 (ACT) s 201(1); Law of Property Act 2000 (NT) s 10(1); Property Law Act
1974 (Qld) s 11(1); Law of Property Act 1936 (SA) s 29(1); Conveyancing and Law of Property Act 1884 (Tas)
s 60(2); Property Law Act 1958 (Vic) s 53(1); Property Law Act 1969 (WA) s 34(1).
CHAPTER 20
At the end of 20.24 add the following:
In relation to the exercise of the power to remove a trustee, in Baldwin v Greenland [2007] 1
Qd R 117 at 130, Jerrard JA, speaking for the Court of Appeal, said:
The jurisdiction, both statutory and inherent, is a supervisory and a protective one. It is always
appropriate and necessary for a court asked to exercise it to have regard to the testator’s wishes as to
the identity of an executor or trustee. The testator’s choice may be based on loyalty, or on respect, or
on necessity, or on the profession of the chosen person, or on other matters the testator knew about
the chosen person; the reason for the choice might never be clear to a court. The overriding
assumption must be that the testator thought the person chosen was worthy of trust, even when well
aware when making a choice of existing hostility (from family members) toward the chosen executor
or trustee, or of other grounds for doubt about the wisdom of the choice. The … overriding object of
the power remains the due and proper administration of estates.
At the end of the first sentence in 20.27 insert the following:
In National Westminster Bank Plc v Lucas [2014] EWHC 653 (Ch) at [83], Sales J said:
There are many contexts in which trustees … have to make judgments which involve striking a
balance between different competing interests and which may thus adversely affect some persons
claiming under the trust … It is to be expected that in such cases there will often be an element of
friction between the trustee … and those disappointed by their decisions. This is not in itself a good
ground to remove the trustee … from their office.
Delete 20.28 and replace with the following:
20.28 A trustee’s breach of the conflict of duty and interest rule will not necessarily lead to
the removal of the trustee. In Wales v Wales [2013] VSC 569 at [43], McMillan J said:
The authorities demonstrate that a trustee will not necessarily be removed because of a position of
conflict between duty and interest; but in some cases it may be sufficient. Proof of actual misconduct
is not required for the removal of a trustee. Each case depends on the facts and it is a matter of what
is best for the welfare of the trust estate as a whole.
His Honour, at [49], then cited with approval the decision in Hunter v Hunter [1938] NZLR
520 at 530, where Myers CJ said:
As I understand the principle, it is sufficient if the evidence shows, (i) that there is a conflict between
interest and duty; (ii) that the trustees have failed to recognise this conflict and to take steps to ensure
that their interest should not prevail as against their duty, and have disregarded the interests of the
infant cestui que trust; and (iii) that a state of hostility exists between the trustees and the immediate
possessor of the trust estate which is calculated to work against the true interests of the estate. In my
opinion, that is the position in this case irrespective of any other grounds, though there are here other
grounds found by the learned trial judge which make all the more necessary the removal of the
trustees from their office.
In cases where the trustee has been negligent, the trustee will only be removed if the
negligence endangered the trust property or showed a lack of honesty, capacity or fidelity:
Letterstedt v Broers (1884) 9 App Cas 371 at 385–6.
At the end of 20.32 add the following:
However, not all rights vested in a trustee pass from a trustee who is replaced by a new
trustee. For example, for the same reason that rights to pursue relief for breaches of the
Australian Consumer Law (such as s 18 which deals with misleading or deceptive conduct)
cannot be assigned (see 5.21), such rights to do not pass to newly appointed trustees:
Rosebridge Nominees Pty Ltd v Commonwealth Bank of Australia (No 6) [2014] WASC 203
at [22]-[24].
At the end of 20.34 add the following:
Furthermore, ‘[t]rustees who retire or are removed from office before exercising rights of
indemnity do not lose them. Retirement or removal does not prejudice those rights’: Harpur v
Levy [2013] VSCA 209 at [112]. Finally, ‘[a] trustee entering into a contractual obligation in
the performance of the trust may limit its liability in respect of that obligation to the extent of
its right of indemnity from the trust assets. Whether it has done so will depend upon the
proper construction of the language by which it has sought to do so’: TFML Ltd v
MacarthurCook Fund Management Ltd [2013] NSWCA 291 at [69].
At the end of 20.39 add the following:
In Wales v Wales (No 2) [2014] VSC 33 at [17]-[22], McMillan J said:
Trustees are entitled as of right to indemnity out of the trust for expenses properly incurred: Re
Beddoe [1893] 1 Ch 547, 558. In litigation the general rule is that trustees are entitled to their costs
out of the estate unless they have been guilty of some misconduct: Turner v Hancock (1882) 20 Ch
D 303; McGregor v McGregor [No 2] [1919] NZLR 286. Mere obstinacy in pursuing a claim, even
though the trustee may lack bona fides, may amount to misconduct on the part of the trustee: Re
Knox’s Trusts [1895] 2 Ch 483; McGregor v McGregor [No 2] [1919] NZLR 286.
In the context of defending litigation, in Re Beddoe a trustee was not allowed indemnity out of the
trust where the defence was unreasonable and the trustee had not sought leave from the Court to
defend it.
In Re Beddoe [at 557], Lindley LJ said:
a trustee who, without the sanction of the Court, commences an action or defends an
action unsuccessfully, does so at his own risk as regards the costs, even if he acts on
counsel’s opinion; and when the trustee seeks to obtain such costs out of his trust estate,
he ought not to be allowed to charge them against his cestui que trust unless under very
exceptional circumstances. If, indeed, the Judge comes to the conclusion that he would
have authorized the action or defence had he been applied to, he might, in the exercise of
his discretion, allow the costs incurred by the trustee out of the estate; but I cannot
imagine any other circumstances under which the costs of an unauthorized and
unsuccessful action brought or defended by a trustee could be properly thrown on the
estate.
In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar the Diocesan
Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at 87
the High Court approved of the principles in Re Beddoe, stating:
That warning that trustees who become involved, or wish to become involved, in
litigation should seek the court’s sanction is the significant, and in later years influential,
aspect of In re Beddoe.
Considering the operation of s 63 of the Trustee Act 1925 (NSW), the High Court, [at 93-4], went on
to say:
provision is made for a trustee to obtain judicial advice about the prosecution or defence
of litigation in recognition of both the fact that the office of trustee is ordinarily a
gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and
expenses properly incurred in performance of the trustee’s duties. Obtaining judicial
advice resolves doubt about whether it is proper for a trustee to incur the costs and
expenses of prosecuting or defending litigation. No less importantly, however, resolving
those doubts means that the interests of the trust will be protected; ...
A necessary consequence of the provisions of s 63 of the Act is that a trustee who is sued
should take no step in defence of the suit without first obtaining judicial advice about
whether it is proper to defend the proceedings.
In Dimos v Skaftouros (2004) 9 VR 584 at 617 Dodds-Streeton JA referred to the decision of the
High Court in National Trustees Executors & Agency Company of Australasia Ltd v Barnes (1941)
64 CLR 268 and affirmed that a trustee is entitled to indemnity out of the trust for all proper
expenses, which may include the defence of an application to remove the trustee. But although a
trustee who fails in litigation might be indemnified for costs, the question is whether the expenses
were properly incurred. Hence a trustee may not be entitled to indemnity where resistance to
removal was unjustified. Dodds-Streeton JA, [at 618-9], accordingly found that, in the
circumstances, the trial judge’s order that the trustee pay the costs of the proceeding personally was
consistent with a proper exercise of discretion.
The central question [in this case], then, is whether the costs expended by the plaintiffs in defending
the application for their removal were improperly incurred. relevant to the determination of that
question is whether it was reasonable to defend the application.
At the end of the first sentence in 20.44 insert the following:
The lien or charge ‘confers a beneficial interest in the trust assets and this interest takes
priority over any claims of the beneficiaries’: Franknelly Nominees Pty Ltd v Abrugiato
[2013] WASCA 285 at [208].
At the end of the first sentence in 20.52 insert the following:
However, it does not extend to claiming from persons who own or control a corporate
beneficiary: Chief Commissioner of State Revenue v CCM Holdings Trust Pty Ltd [2014]
NSWCA 42 at [74]-[76].
At the end of 20.52 add the following:
In Hardoon v Belilios, Hardoon was the registered owner and trustee of certain share in a
bank. Belilios was the beneficiary of the trust of the shares. When the bank went into
liquidation the liquidator demanded certain payments from Hardoon. Hardoon paid these
‘calls’ made upon him in his capacity as the legal owner of the shares Belilios, being sui
juris, was held liable to indemnify Hardoon. Lord Lindley said:
[T]he right of the trustee to indemnity by him against liabilities incurred by the trustee by his
retention of the trust property has never been limited to the trust property; it extends further, and
imposes upon the cestui que trust a personal obligation enforceable in equity to indemnify the
trustee.
His Lordship noted that if the trustee seeks indemnity respect of transactions in which the
trustee should not have engaged in or which were not within the scope of the trust, the
indemnity is only available if the beneficiary authorised or ratified such transactions.
It may be noted, as was pointed out in Hardoon v Velilios, that a nobody can be made a
beneficiary against their will and that any attempt to do so can be negated by a disclaimer.
However, once a person has accepted the beneficial ownership of property they are locked
into, in this case, the obligation to indemnify a trustee.
In J W Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd [1985] VR 891, a
corporate trustee of a unit trust in relation to a construction business was wound up. The
trustee had properly incurred liabilities while conducting a building business for the unit
holders. The trust assets were insufficient to indemnify the trustee. The liquidator of the
trustee sought a personal indemnity from the unit holders. It was held that he was entitled to
do so.
However, in this case, one of the unit holders was in liquidation and another had successfully
disclaimed her interest as a beneficiary. It was held that this did not mean that the other unit
holders had to meet the shortfall. The unit holders were only liable in proportion to their
beneficial interests. In such a case the loss was one to be carried by the trustee.
At the end of 20.60 add the following:
Courts have held that the statutory provisions are there for the protection of trustees and
should not be subjected to narrow construction: Re Perpetual Investment Management
Limited [2011] NSWSC 1333 at [46]. The role of the court in these cases is to determine what
it perceives should be done in the best interests of the trust estate; Application by Mary Joy
Cottee; Estate of Gwenyth Shirley Smith [2013] NSWSC 47 at [35]; Re Estate Late Chow
Cho-Poon [2013] NSWSC 844 at [45].
In relation to application for judicial advice, in In the Application of NSW Trustee &
Guardian [2014] NSWSC 423 at [25]-[26], Kunc J noted the following:
In applying to the court for judicial advice, the trustee is not abrogating or delegating its obligation
to apply its own judgment in deciding whether to do (or not do) something in execution of the trust.
The trustee must actively and honestly bring its mind to bear on any particular problem confronting
it. Where necessary, it is entitled to do so with the benefit of such legal or other advice (for example,
accounting, actuarial or valuation) as the trustee thinks appropriate. The trustee should then
determine a course of action subject, again if it thinks appropriate, to obtaining judicial advice about
that course of action. While I express no concluded view (because it was not the subject of argument
before me), in my opinion there is much to be said for the proposition that a trustee has failed in its
duty if it does no more than identify a problem as difficult and then approach the court without
having formed its own view as to how it will resolve the problem …
The analysis in the preceding paragraph is reflected in the basic principle that, in the exercise of its
undoubted discretion as to whether or not to give the advice, the court will not give advice about
hypothetical matters. Because trustees generally apply for judicial advice to obtain the benefit or
protection of s 63(2) of the [Trustee] Act [1925 (NSW)], it is implicit in a judicial advice application
that the trustee intends to act in the way the application identifies, assuming favourable advice is
given. To put the matter beyond doubt, it is good practice for the trustee, in its affidavit
accompanying the application, to depose that that is what it has in fact resolved to do.
Application for judicial advice should normally be accompanied by an opinion of counsel on
the question issue put to the court for advice as such an opinion will be a significant matter
taken into account by the court in determining whether or not to given the advice that has
been sought: Re Estate Late Chow Cho-Poon [2013] NSWSC 844 at [108]-[120]; In the
Application of NSW Trustee & Guardian at [27]-[28].
At the end of 20.61 add the following:
In relation to the issue of whether a trustee should commence litigation, in in Re Beddoe
(1893) 1 Ch 547 at 557, Lindley LJ said:
A trustee who without the sanction of the Court commences an action or defends an action
unsuccessfully does so at his own risk as regards the costs even if he acts on counsel’s opinion
and when the trustee seeks to obtain such costs out of his trust estate he ought not to be allowed
to change them against the cestui que trust unless under very special circumstances.
However, the lack of a Re Beddoe order does not mean that a trustee cannot later seek an
indemnity or reimbursement of costs if the litigation is successfully prosecuted: Northey v
Juul [2014] NSWSC 464 at [102].
On the other hand, ‘a trustee who is sued should take no step in defence of the suit without
first obtaining judicial advice as to whether it is proper to defend the proceedings’:
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan
Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR
66 at 94; 249 ALR 250 at 271.
At the end of the first sentence in 20.62 insert the following:
Thus, in Arida v Arida (No 2) [2014] NSWSC 579 at [29], Slattery J said:
In a judicial advice application the Court is essentially engaged in solely determining what is done in
the best interests of the trust estate and not in determining the rights of adversarial parties. The
proper remedy for a beneficiary who wishes to resolve contested issues concerning an estate is to
take proceedings for the administration of the trust and as to the rights of the trustees and the
beneficiaries: Harrison v Mills [1976] 1 NSWLR 42 at 46.
At the end of 20.64 add the following:
In Re Estate Late Chow Cho-Poon [2013] NSWSC 844 at [185]-[200], Lindsay J noted the
following eight points that emerged from the High Court’s decision in Macedonian Orthodox
Community Church St Petka Inc v His Eminence Petar in relation to the operation of the
statutory power to seek advice and directions from the court as set out in s 63 of the Trustee
Act 1925 (NSW):
First, the jurisdiction or power conferred by s 63 is not constrained by implications or limitations not
found in the express words of the section. There is nothing express or implied in s 63 that limits its
application to ‘non-adversarial’ proceedings, or proceedings other than those in which a trustee is
being sued for breach of trust, or proceedings other than those in which one remedy sought is the
removal of a trustee from office.
Secondly, only one jurisdictional bar to s 63 exists: an applicant must point to the existence of a
question respecting the management or administration of trust property or a question respecting the
interpretation of a trust instrument.
Thirdly, there is nothing express or implied in the text of s 63 that makes some discretionary factors
always more significant or controlling than others. There are no implied limitations on discretionary
factors arising under s 63. The Court’s discretion is confined only by the subject matter, scope and
purpose of the legislation.
Thus: (a) the fact that a court may rely on a written statement of the trustee, or use other material
‘instead of evidence’ by reason of s 63(3), gives rise to discretionary considerations of substantial
weight where the question for advice is in form or substance an application which will determine or
affect questions that could also be resolved in ordinary adversarial litigation; and (b) the Court may
properly decline judicial advice if, for example, a contested construction suit, constituted by the
disputing parties and resolved by a judge acting on evidence, appears to be more apt to the resolution
of a question concerning the interpretation of a trust instrument; but (c) the discretion of the Court to
consider applications brought under s 63 is not yoked to a general first principle that, where there is a
contest or where there are adversaries, it is not appropriate to give advice.
Fourthly, the procedure for which s 63 provides is ‘summary’ in the sense that it permits a trustee to
obtain the opinion, advice or direction of the Court without commencement of a suit for the general
administration of a trust.
Fifthly, s 63 operates as an exception to the Court’s ordinary function of deciding disputes between
competing litigants. It affords a facility for giving advice to a trustee that is ‘private’ in the sense that
a primary function of the section is to give personal protection to the trustee; others permitted to
participate in a s 63 application, because they may be affected by advice given to a trustee, are not
strictly speaking ‘parties’ to the proceedings or in a position of parity with the trustee.
Sixthly, the operation of s 63 will tend to vary with the type of trust involved. Every s 63 application
depends on its own facts and is essentially a matter for the discretion of the judge who hears it. The
merits of any particular decision made under s 63 must depend on the particular circumstances of the
case in which the decision was made.
Seventhly, s 63 makes provision for a trustee to obtain judicial advice about the prosecution or
defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous
office, and the fact that a trustee is entitled to an indemnity for all costs and expenses properly
incurred in performance of the trustee’s duties. Obtaining judicial advice resolves doubt about
whether it is proper for a trustee to incur the costs and expenses of litigation.
Eighthly, certain propositions enumerated in the judgment of the Court of Appeal under review in
the High Court - reported in [2007] NSWCA 150 at [63] - should not be regarded, as propositions, as
expressing the governing law in Australian courts.
Semble, the propositions disclaimed by the High Court are propositions to the effect that:
(a) the proper province of judicial advice is guidance for the future;
(b) section 63 is intended to empower advice to be given to those who have the stewardship of
property for the benefit of others;
(c) section 63 does not empower advice in connection with litigation that concerns merely whether
the trustee has, in the past, committed breaches of trust even if the litigation (to establish the alleged
breach of trust) necessarily involves the proper construction of a trust instrument;
(d) section 63 does not empower advice in connection with litigation that involves merely allegations
of past misconduct on the part of the trustee that, if established, will entail personal liability for
breach of trust or statutory wrongdoing (and where the trust property will, in no way, be protected or
enhanced by defence of the claim); and
(e) the provision to a trustee of an indemnity from trust assets should not be provided in advance
under colour of private judicial advice.
Care needs to be taken in elaboration of the High Court’s disclaimer of these propositions because its
disclaimer was generic and not entirely unqualified. The object of the disclaimer appears, in part, to
have been to caution against the imposition of a gloss, of any description, on the text of s 63. Care
needs to be taken not to elevate any disclaimer of a particular proposition into a counter-proposition
likewise suffering from the character of a gloss on the governing legislation.
Not unnaturally, the High Court’s observations have been taken as an encouragement to trustees to
make a s 63 application whenever confronted by an element of doubt about steps to be taken in the
due administration of a trust; as an encouragement to courts of first instance to exercise s 63
jurisdiction liberally; and as an encouragement to them not to withhold judicial advice by adoption of
a restricted view of the operation of s 63 …
The High Court’s judgment has served the beneficial purpose of opening to view the breadth and
flexibility of the jurisdiction of this Court to aid the due administration of trusts by proceedings for
relief falling short of a general administration order.
However, if the jurisdiction of the Court to aid the due administration of trusts is to be exercised
fairly, efficiently and beneficially, care needs to be taken to ensure that an application to the Court is
not made unnecessarily, prematurely or without due engagement of persons who may have an
interest in the outcome of a s 63 application.
That is so for at least two reasons. First, s 63 reflects a compromise between a procedure for
affording private advice to trustees and the need for affected persons to be given a hearing in some
cases. Secondly, even if (as s 63 contemplates) the rights of a person potentially affected by a
provision of judicial advice will not necessarily be affected without notice of the advice or of
pending s 63 proceedings, the ability of the Court to provide well measured advice may be affected
to the extent that it is not given the benefit of a full appreciation of what competing interests might
say if allowed an opportunity to inform the Court of a perspective different from that presented by a
trustee appearing ex parte.
There is, an element of forensic judgement required of a trustee in deciding to make an application
for judicial advice and in the preparation of materials to be placed before the Court. And there is,
likewise, an element of judgement required on the part of the Court upon a consideration whether
judicial advice should be given without notice to interested parties. Nice questions of case
management may arise in order to minimise the risk of proceedings becoming unmanageable.
At the end of 20.77 add the following:
In relation to carrying out the terms of the trust, in Erzurumlu v Kellog Superannuation Pty
Limited [2013] NSWSC 1115 at [53], Ball J said:
The Trustee has a duty to apply the trust assets in accordance with the Trust Deed. In performing that
duty, it is required to inform itself properly of the relevant facts. It is also required to act in good
faith, on a real and genuine consideration of the material before it and for sound reasons, although it
is not obliged to give reasons for its decision. If, for any reason, the Trustee has failed to discharge
its duties in considering the member’s claim, the appropriate order is to refer the matter back to the
Trustee. The court generally does not itself seek to execute the trust.
At the end of 20.79 add the following:
In Byrnes v Kendle at CLR 270-1; ALR 225-6, Gummow and Hayne JJ said the following in
relation to the duty to account:
The references to accounting by [a] … trustee indicate the several senses in which the term ‘duty to
account’ may be used, namely, (i) a duty to keep records, (ii) a duty to report to the beneficiaries or
to the court concerning the administration of the trust, and (iii) a duty to pay amounts the trustee is
obliged to pay to the beneficiaries. With respect to (i) and (ii), and as a matter of first principle, a
trustee should gain no advantage by failure to keep proper records and the court will resolve doubts
against a trustee who fails to do so.
At the end of 20.93 add the following:
In Mandie v Memart Nominees Pty Ltd [2014] VSC 290, the court was concerned with an
application by certain beneficiaries of a discretionary trust who had been given details of the
trust deed, accounts and records of past trust distributions, to have disclosed to them
information gathered by the trustee about the personal circumstances of the beneficiaries and
the identity of persons from whom that information was obtained. Macaulay J, at [94], after
an analysis of various authorities on the issue, set out the following summary of principles:
It would be dangerous to suggest that the foregoing review of the authorities reveals any particular
series of ‘rules’ concerning the circumstances in which documents or information should be
disclosed by trustees to beneficiaries of a trust. But, at least in the context of deciding whether or not
documents or information should be divulged when there is a contention that such information or
documents may reveal the deliberations, reasons or motives of trustees in arriving at a decision
committed to their absolute and uncontrolled discretion, I consider that my approach should be
guided by the following principles or considerations:
(a) Subject to various limitations, broadly speaking a trustee has a duty to provide beneficiaries with
accurate information concerning the administration of the trust and to permit examination of
documents that relate to the trust and its administration.
(b) The source of the trustee’s duty, and the beneficiaries’ correlative right, has in the past been
explained by reference to proprietary rights enjoyed by the beneficiaries, or the categorization of
documents as either trust or non-trust documents. But, in recent times, it has been viewed as an
aspect or manifestation of the court’s jurisdiction to supervise and, where appropriate to intervene in,
the administration of trusts.
(c) The duty and the correlative right extends beyond the provision of information in documentary
form to information of a non-documentary kind.
(d) Generally, beneficiaries cannot pursue disclosure of the reasons why a trustee exercised an
absolute discretion, whether in writing or otherwise, outside of an action brought by the beneficiaries
for breach of trust or mala fides when issues of relevance can appropriately be determined.
(e) The protection afforded to trustees against having to disclose their reasons extends to protecting
the disclosure of evidence of the trustees’ deliberations and the material upon which the trustees’
reasons were or might have been based – that is, at the least, material that is so integrated with the
trustee’s reasoning process that its disclosure may reveal that reasoning process.
(f) A trustee’s immunity from giving reasons for the exercise of a discretion is founded upon (1) the
irrelevance of those reasons because, absent a breach of trust, a court will simply not interfere; (2)
the essentially confidential nature of the trustee’s task, serving the interests of the beneficiaries as a
whole; and (3) the avoidance of making the task of a discretionary trustee intolerable.
(g) An exception to that principle of immunity exists where a trustee has volunteered the reasons for
exercising the discretion and thereby waived the immunity.
(h) In any conflict between the application of the two principles, that is, between a beneficiary’s
entitlement to inspect trust documents and to obtain information about the administration of the trust,
and the trustees’ immunity for giving reasons for the exercise of a discretion, the principle of the
trustees’ immunity is generally to prevail.
(i) Even in an action brought against the trustee alleging breach of trust in the exercise of discretion –
and assuming the trustee has not waived the immunity - the trustee’s reasons are only examinable to
ascertain whether the discretion has been exercised (ie. honestly, for a proper purpose and on fair
consideration), not how it was exercised.
His Honour concluded that, given that there was no suggestion of any lack of good faith in
the decision of the trustees not to make a distribution to the said beneficiaries, the trustee was
no obliged to give reasons for the exercise in its absolute discretion which resulted in no
distribution to the said beneficiaries. However, his Honour, at [109], went on to say that
[If the beneficiaries had] commenced an action alleging, on a proper basis, some want of good faith
or some other impugning feature of the exercise of discretion, such as pursuit of an improper purpose
or failure to give fair consideration to the issue … the authorities reveal, the reasoning and the
material used in that consideration may then be examined, but even then only for the limited purpose
of ascertaining whether the discretion was lawfully exercised and not how it was exercised.
Given the uncertainty about the scope and nature of the beneficiary’s entitlement to receive
trust information, trust documents have been drafted to include terms limiting or excluding
the right. The validity of such information control clauses was recognised in Tierney v King
(1983) 2 Qd R 580, although decisions in some foreign jurisdictions have held otherwise.9
At the end of 20.137 add the following:
In Amir Ashrafinia v Mohammad Reza Ashrafinia [2013] NSWSC 1442 at [330], in the
court’s power to make an order for the administration of a trust where trustees cannot act
unanimously, Slattery J said:
Such an order may be made where trustees cannot pull together, where an estate’s administration
gives rise to recurring difficulties, or doubt is thrown on the bona fides or discretion of one or more
of the trustees: McLean v Burns Philp Trustee Pty [1985] 2 NSWLR 623. But the Court will not
make such an order where the whole fund will be spent in costs or where there would not be likely to
be any benefit to the beneficiaries: Meredith v Davis [1985] 2 NSWLR 623. Nor will the Court move
in and distribute or wind up the Trust where the trustee has a discretion - the trustee will be permitted
to exercise that discretion and the Court will not do that for the trustee: Tempest v Lord Camoys
(1882) 21 Ch D 571. Both of these factors are present here and caution against making a general
administration order in this case. But authority does support a general administration order being
made where, as here, the affairs of the Trust are in great confusion, or there have been significant
breaches of Trust: McLean [v Burns Philp Trustee Pty] at 636.]
At the end of 20.143 add the following:
A trustee ‘who seeks professional advice and follows that advice will often be excused even
if the advice is wrong’: Amir Ashrafinia v Mohammad Reza Ashrafinia [2013] NSWSC 1442
at [239]. If trustees, relying on professional advice, act honestly and reasonably they will be
excused from any breach of trust that they may have committed: Investa Properties Ltd v
Westpac Property Funds management Ltd (2001) 187 ALR 462 at 472.
At the end of 20.147 add the following:
In relation to the principles set out in Karger v Paul, in Finch v Telstra Super Pty Ltd (2010)
242 CLR 254 at 280; 271 ALR 236 at 254, the High Court said:
See E Bishop, ‘Limiting the nature and scope of a beneficiary’s entitlement to receive trust information’
(2014) 88 Australian law Journal 416, pp 421-7.
9
There is no doubt that under Karger v Paul principles, particularly as they have been applied to
superannuation funds, the decision of a trustee may be reviewable for want of ‘properly informed
consideration’. If the consider- ation is not properly informed, it is not genuine. The duty of trustees
properly to inform themselves is more intense in superannuation trusts in the form of the Deed than
in trusts of the Karger v Paul type.
Delete 20.150-20.171 and replace with the following:
The exercise of a trustee’s discretion and the rule in Hastings-Bass
20.150 The rule in Re Hastings-Bass [1975] Ch 25; [1974] 2 All ER 193, is concerned with
situations where a trustee or other fiduciary has undertaken a transaction with unintended
consequences (usually unwanted or unexpected tax consequences). The rule permits a court
to set aside the transaction where it can be shown that the trustee’s error was based on the
trustee taking into account irrelevant considerations or failing to take into account relevant
considerations. Following a period of time in which the scope of the rule was a matter of
considerable uncertainty, the judgment of the Supreme Court of the United Kingdom in
Futter v The Commissioners of Her Majesty’s Revenue and Customs [2013] UKSC 26 has
considerably clarified the circumstances that must arise before the rule applies. The judgment
of the court, delivered by Lord Walker, was concerned with the separate cases of Futter v The
Commissioners of Her Majesty’s Revenue and Customs and Pitt v The Commissioners of Her
Majesty’s Revenue and Customs.
20.151 An important limitation on the operation of the rule in Hastings-Bass is that it only
applies in cases where the trustee was acting within the scope of his or her powers. Lord
Walker, at [43], said:
The rule, properly understood, depends on breach of duty in the performance of something that is
within the scope of the trustees’ powers, not in the trustees doing something that they had no power
to do at all.
20.152 Furthermore, Lord Walker, at [60], emphasised ‘the very important distinction
between an error by trustees in going beyond the scope of a power … and an error in failing
to give proper consideration to relevant matters in making a decision which is within the
scope of the relevant power’. Where the action of the trustee is outside the scope of his or her
powers, the act is void, and this is so whether or not the trustee has or has not sought and then
acted on the basis of professional advice.
Where the rule in Hastings-Bass applies
20.153 Lord Walker, at [6], observed that the rule in Hastings-Bass ‘does not necessarily
require the decision-maker to be under a positive misapprehension: mere absence of thought
may be sufficient’. For the rule to apply:
(i) the trustee must have committed a breach of fiduciary duty; and
(ii) the breach of duty must be sufficiently serious warrant judicial intervention.
In relation to the latter point, it will not be sufficient to show that the trustee’s deliberations
were merely short of the highest possible standards or that the court would have acted in a
different way.
20.154 Lord Walker, at [73], summed up the requirement of the rule when he said:
[F]or the rule to apply the inadequate deliberation on the part of the trustees must be sufficiently
serious as to amount to a breach of fiduciary duty. Breach of duty is essential (in the full sense of that
word) because it is only a breach of duty on the part of the trustees that entitles the court to intervene
… It is not enough to show that the trustees’ deliberations have fallen short of the highest possible
standards, or that the court would, on a surrender of discretion by the trustees, have acted in a
different way. Apart from exceptional circumstances (such as an impasse reached by honest and
reasonable trustees) only breach of fiduciary duty justifies judicial intervention.
Failure to make a decision
20.155 The rule is not applicable to situations where the trustees have failed to exercise a
discretion. In Breadner v Granville-Grossman [2000] 4 All ER 705, Park J refused to apply
the rule in circumstances where trustees had failed to exercise a power of appointment before
it expired. Park J found that part of the underlying reason for the rule was to remedy
unconscientiousness and there was nothing unconscientious in the situation of the property
falling to beneficiaries in default of the exercise of the discretionary power.
The beneficiary’s rights to seek relief
20.156 Where a trustee seeks, and subsequently follows, competent legal advice that turns out
to be wrong, a beneficiary will not be able to invoke the rule. In this respect, Lord Walker, at
[80], said:
[I]t would be contrary to principle and authority to impose a form of strict liability on trustees who
conscientiously obtain and follow, in making a decision which is within the scope of their powers,
apparently competent professional advice which turns out to be wrong.
The trustee’s rights to seek relief
20.157 On the question of the extent to which a trustee can invoke the rule in Hastings-Bass,
Lord Walker, at [69], made the following observation:
It is a striking feature of the development of the Hastings-Bass rule that it has led to trustees
asserting and relying on their own failings, or those of their advisers, in seeking the assistance of the
court … There may be cases in which there is for practical purposes no other suitable person to bring
the matter before the court, but … in general it would be inappropriate for trustees to take the
initiative in commencing proceedings of this nature. They should not regard them as uncontroversial
proceedings in which they can confidently expect to recover their costs out of the trust fund.
The nature of relief
20.158 In earlier cases there had been debate over whether the rule in Hastings-Bass required
the court to be satisfied that a trustee would have acted differently had he or she properly
exercised his or her decision-making function, or whether it was enough to find that the
trustee might have acted differently. In addressing the nature of relief that may be granted
pursuant to the rule in Hastings-Bass: Lord Walker, at [92], rejected the relevance of this
issue when he said:
[A]s a matter of principle there must be a high degree of flexibility in the range of the court’s
possible responses … [R]elief can be granted on terms. In some cases the court may wish to know
what further disposition the trustees would be minded to make, if relief is granted, and to require an
undertaking to that effect. To lay down a rigid rule of either ‘would not’ or ‘might not’ would inhibit
the court in seeking the best practical solution in the application of the Hastings-Bass rule in a
variety of different factual situations.
20.159 Where the rule applies, the act of the trustee is voidable. Lord Walker, at [93], said:
Counsel on both sides readily admitted that they had hesitated over this point, but in the end they
were all in agreement that Lloyd LJ [in the Court of Appeal in these cases reported as Pitt v Holt
[[2012] Ch 132 at 171] was right in holding that,
if an exercise by trustees of a discretionary power is within the terms of the power, but
the trustees have in some way breached their duties in respect of that exercise, then
(unless it is a case of a fraud on the power) the trustees’ act is not void but it may be
voidable at the instance of a beneficiary who is adversely affected.
In my judgment that is plainly right … The issue has been clouded, in the past, by the difficult case
of Cloutte v Storey [1911] 1 Ch 18, a case on appointments that are fraudulent in the equitable sense,
that is made for a positively improper purpose. Here we are concerned not with equitable fraud, nor
with dispositions which exceed the scope of the power, or infringe the general law (such as the rule
against perpetuity). We are in an area in which the court has an equitable jurisdiction of a
discretionary nature, although the discretion is not at large, but must be exercised in accordance with
well-settled principles.
20.160 The relief granted pursuant to the rule in Hastings-Bass can be applied to part of a
decision or to its entirety: In Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 at
555.
The rule in Hastings-Bass and third parties
20.161 It has been argued that the rule in Hastings-Bass should not be used to overturn
contracts and other agreements with third parties. Nolan and Conaglen10 have argued that the
rule should only apply to the dispositive powers of trustees (the powers to dispose of the
proprietary interests of the trust) and not to the trustee’s administrative powers (to make
contracts with third parties in pursuance of the management and administration of trust
property). They argue that the trustee is a juristic person and, as such, should be bound by
contract. The contract arises from the status of the trustee as a legal person and not from the
trust. On that basis agreements with third parties should not be affected by the rule, at least to
the extent that such agreements should not be rendered void ab initio.
Liability of professional advisors
20.162 As Lord Walker, at [41], pointed out, a consequence of the Supreme Court’s decision
in these two cases is that, where a beneficiary suffers unpalatable fiscal consequences as a
result of a trustee’s actions in circumstances where the trustee has received and acted upon
incorrect professional advice, ‘there may be an indirect remedy in the form of a claim against
one or more advisers for damages for breach of professional duties of care’. Prior to the
decision in these two cases, Lord Neuberger of Abbotsbury, writing extra-judicially on the
rule in Hastings-Bass, had observed that, as a result of decisions to that date, it appeared that
‘Doctor Equity [could] administer a magical morning after pill to trustees suffering from
post-transaction remorse’.11 It is clear that the Supreme Court decision has clipped Doctor
R Nolan & M Conaglen, ‘Hastings-Bass and Third Parties’ (2006) Cambridge Law Journal 400.
Lord Neuberger of Abbotsbury, ‘Aspects of the Law of Mistake: Re Hastings-Bass’ (2009) 15(4) Trusts and
Trustees 189, p 192.
10
11
Equity’s wings in this area. Lord Walker, at [38], referred, with approval, to Abacus Trust Co
(Isle of Man) v Barr [2003] Ch 409 at [13]; [2003] 1 All ER 763 at 768, where Lightman J
said:
It is also important to have in mind that equity does not afford a trustee or a beneficiary a free pass to
rescind a decision which subsequently proves unpalatable or unfortunate and substitute another.
Relief is only available if the necessary conditions for its grant are satisfied.
Relief under the rule in Hastings-Bass or liability for breach of trust?
20.163 It is important to appreciate that the rule in Hastings-Bass is concerned with the
process of decision making, or what Lord Walker, at [91], labelled as ‘the failure of trustees
to perform their decision-making function’, and not with the outcome of the decision. In this
respect, Lord Walker, at [78], said:
It is undoubtedly correct that trustees may be liable for breach of trust even though they have acted
in accordance with skilled professional advice. Such advice cannot protect trustees from potential
liability for a loss to the trust fund resulting from a decision that is, judged objectively, beyond the
trustees’ powers and detrimental to the trust (though professional advice may lead to their obtaining
relief under section 61 of the Trustee Act 1925). An example … is Dunn v Flood (1885) 28 Ch D
586, in which trustees had sold by auction 73 plots of freehold land at Reading, subject to special
conditions which the court held to be severely depreciatory … The Court of Appeal … refused to
force a doubtful title on a reluctant purchaser. The fact that the trustees had consulted respectable
solicitors was no excuse. It was not a reasonable exercise of discretion. But the trustee’s breach of
duty was not in the manner of their decision-making (as to which we know nothing other than that
they consulted respectable solicitors) but the loss to the trust property that their unreasonable
decision appeared to have caused.
The Futter and Pitt cases
20.164 Futter v The Commissioners of Her Majesty’s Revenue and Customs involved the
exercise by the trustees of powers of advancement under two discretionary trusts. The
intention was to advance ‘stockpiled gains’ from offshore trusts to United Kingdom residents
in such a way as to avoid incurring a charge to capital gains tax (CGT). The trustees had
previously received legal advice to the effect that the losses incurred for CGT purposes by the
recipient beneficiary could be offset against the stockpiled gains. The advice was incorrect.
The Supreme Court ruled that the trustees’ reliance on professional advice was entirely
proper, and although they had failed to take into account the prospective charge to CGT on
the advancements, they did so in reliance on the advice obtained. As a result, the
advancements were not voidable because they were within the powers of the trustees.
20.165 Pitt v The Commissioners of Her Majesty’s Revenue and Customs concerned Mr Pitt
who had received a lump sum in relation to serious head injuries following a car accident
which had, upon professional advice, been put into a discretionary trust. It later became
apparent that this transfer of funds had unintended adverse inheritance tax consequences that
could have been avoided had the trust been drafted correctly. Mrs Pitt who, following Mr
Pitt’s car accident, had been appointed his receiver under the Mental Health Act 1983 and,
following his death, became his legal personal representative, sought a declaration from the
court that the settlement into the discretionary trust should be set aside. It was clear on the
facts that Mrs Pitt did not have in mind, and thus did not take into account, the prospect of the
inheritance tax consequences. However, it was equally clear that she did seek proper
professional advice and acted upon it. Thus, having sought professional advice that was
believed to be correct, it could not be said that the she had acted in breach of fiduciary duties.
It followed that the settlement into the discretionary trust was not voidable.
Relief on the ground of mistake
20.166 Although relief based upon the rule in Hastings-Bass was denied in Pitt v The
Commissioners of Her Majesty’s Revenue and Customs, Mrs Pitt succeeded on the basis that
a mistake had been made and that it would, therefore, be unconscionable for the settlement
into the discretionary trust to stand. In relation to mistake, Lord Walker, at [6], said:
The court’s wider jurisdiction to rescind a transaction on the ground of mistake is not limited to
transactions entered into by fiduciaries, and does generally require there to have been something that
can be identified as an operative mistake.
20.167 In relation to the circumstances where mistake will operative in cases of this kind,
Lord Walker, at [122], said:
I can see no reason why a mistake of law which is basic to the transaction (but is not a mistake as to
the transaction’s legal character or nature) should not also be included, even though such cases
would probably be rare … I would provisionally conclude that the true requirement is simply for
there to be a causative mistake of sufficient gravity; and, as additional guidance to judges in finding
and evaluating the facts of any particular case, that the test will normally be satisfied only when there
is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or
law which is basic to the transaction.
Lord Walker, at [132], noted that ‘consequences (including tax consequences) are relevant to
the gravity of a mistake, whether or not they are … basic to the transaction’.
20.168 In considering whether there is a mistake, one must be careful to distinguish between
mistake and mere ignorance or inadvertence. Lord Walker, at [105], said:
Forgetfulness, inadvertence or ignorance is not, as such, a mistake, but it can lead to a false belief or
assumption which the law will recognise as a mistake. The Court of Appeal of Victoria has held that
mistake certainly comprehends ‘a mistaken belief arising from inadvertence to or ignorance of a
specific fact or legal requirement’: Ormiston JA in Hookway v Racing Victoria Ltd (2005) 13 VR
444 [at] 451. That case was on the borderline between voluntary disposition and contract. It
concerned prize money for a horse race which was paid to the wrong owner because the official in
charge of prize money was ignorant of a recent change in the rules of racing (permitting an appeal
against disqualification after a drugs test). He made a mistake as to the real winner.
20.169 In relation to determining the existence of mistake of sufficient gravity, Lord Walker,
at [125]-[128], said:
The evaluation of what is or would be unconscionable must be objective … The gravity of the
mistake must be assessed by a close examination of the facts … including the circumstances of the
mistake and its consequences for the person who made the vitiated disposition. Other findings of fact
may also have to be made in relation to change of position or other matters relevant to the exercise of
the court’s discretion … The injustice … of leaving a mistaken disposition uncorrected must be
evaluated objectively, but with an intense focus … on the facts of the particular case … The court
cannot decide the issue of what is unconscionable by an elaborate set of rules. It must consider in the
round the existence of a distinct mistake (as compared with total ignorance or disappointed
expectations), its degree of centrality to the transaction in question and the seriousness of its
consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to
leave the mistake uncorrected. The court may and must form a judgment about the justice of the
case.
20.170 On the facts of Pitt v The Commissioners of Her Majesty’s Revenue and Customs the
Supreme Court was of the view that the gravity of the mistake and its consequences was
sufficient to warrant setting aside the transactions.
The Rule in Hastings-Bass in Australia
20.171 Earlier Australian authorities suggest a reticence to review a trustee’s discretionary
decisions and employ the rule in Hastings-Bass. In Karger v Paul, McGarvie J refused to
overturn the decision of trustees to transfer the entire capital of the trust to the deceased’s
husband, who died thereafter. The decision was challenged by a residuary beneficiary who
was deprived of any entitlements by their decision. McGarvie J, at 163–4, said:
As part of the process of, and solely for the purpose of, ascertaining whether there has been any such
failure, it is relevant to look at evidence of the inquiries which were made by the trustees, the
information they had and the reasons for, and manner of, their exercising their discretion. However, it
is not open to the Court to look at those things for the independent purpose of impugning the exercise
of discretion on the grounds that their inquiries, information or reasons or the manner of exercise of
the discretion, fell short of what was appropriate and sufficient. Nor is it open to the Court to look at
the factual situation established by the evidence, for the independent purpose of impugning the
exercise of the discretion on the grounds the trustees were wrong in their appreciation of the facts or
made an unwise or unjustified exercise of discretion in the circumstances. The issues which are
examinable by the Court are limited to whether there has been a failure to exercise the discretion in
good faith, upon real and genuine consideration and in accordance with the purposes for which the
discretion was conferred. In short, the Court examines whether the discretion was exercised but does
not examine how it was exercised.
20.172 In Asea Brown Boveri Superannuation Fund No 1 Pty Ltd v Asea Brown Boveri Pty
Ltd [1999] 1 VR 144 at 157, Beach J doubted that the rule would be applied in Australia:
I know of no principle of law which permits a trustee to come to the court and say — ‘Some time
ago I made a decision concerning the trust fund of which I am a trustee in the mistaken belief that a
certain state of affairs existed at that time. Had I then known what I now know I would not have
made the decision I did but a totally different one. Because of my mistaken assumption I now ask the
court to declare my earlier decision to be invalid.’
20.173 The rule has been applied on occasion in Australia. In Sinclair v Moss [2006] VSC
130, payments had been made to a discretionary beneficiary but the trustees’ discretion had
miscarried, as they had not properly taken into account the beneficiary’s outside income, as
required by the trust. Byrne J found that the decision should be overturned. As a result,
twelve years of distribution (totalling over $500,000) were recalled from the beneficiary’s
estate. In BMD v KWD [2008] WASC 196, McKechnie J noted the rule but refused to
overturn the decision of the Public Trustee to settle a dispute regarding the sale of land owned
by a person under guardianship. In Re CWK Nominees Pty Ltd [2012] NSWSC 665 at [58],
Ward J noted the rule but affirmed McGarvie J’s statement in Karger v Paul that the court
will not review the exercise of discretion if it has been in good faith upon genuine
consideration and in accordance with the purposes for which the discretion is conferred and
not some ulterior purpose.
CHAPTER 21
At the end of 21.48 add the following:
The rationale for the rule in Saunders v Vautier is the view that any restriction placed upon
such a beneficiary is inconsistent with the nature of the interest and should be disregarded:
Krstic v State Trustees Ltd [2012] VSC 344 at [14].
At the end of 21.63 add the following:
In Attorney General for new South Wales v Homeland Community Ltd [2013] NSWSC 1748
at [63], Windeyer AJ said:
A beneficiary or beneficiaries, not being the only beneficiaries, and thus not entitled to the whole of
the trust fund may call for transfer of their relevant proportionate share or shares unless the trust
property consists of real estate. If the trust property consists of real estate then the rule does not
apply: Re Horsnaill [1909] 1 Ch 631; Manfred v Maddrell (1950) 51 SR (NSW) 95.
Similarly, in Beck v Henley [2014] NSWCA 2011 at [38], Leeming JA noted that [i]t has
been traditional to proceed on the basis that where land is held on trust, the power on the part
of some but not all beneficiaries is unavailable.’ However, his Honour left open the question
of whether this view is still universally correct.
Furthermore, the exercise of the rule by some, but not all, beneficiaries is not available in the
context of ‘indivisible personal property, such as a racehorse or a painting’: Beck v Henley at
[38].
On the other hand, the rule can apply to personal property such as shares or government
securities: Mamfred v Maddrell (1951) 51 SR (NSW) 95 at 97; Beck v Henley at [41].
Delete 21.85-21.87 and replace with the following
21.85 In Rinehart v Welker [2012] NSWCA 95 at [139] Bathurst CJ observed that an
exclusion clause in a trust instrument that ‘would in effect render the trustee immune from any
liability for breach of trust, whenever or however occurring … would in effect destroy the
trust’. Such clauses are not enforceable. However, this does not mean that a trust instrument
cannot, to some extent, exclude a trustee from liability for breaches of trust.
The extent to which trust instruments may exclude a trustee from liability was summarised in
Plan B Trustees Ltd v Parker [2013] WASC 216 at [232], where Edelman J noted that ‘[it] is
not possible to exclude liability for actual fraud or dishonesty, which has been described as
part of the irreducible core of the trust obligation’. In Wilden Pty Ltd v Green (2009) 38
WAR 429 at 467, McLure JA (Newnes AJA agreeing) held that ‘[a]ctual fraud in this context
means dishonesty or bad faith’ and that ‘[b]ad faith connotes conscious wrongdoing that is
knowingly or recklessly inconsistent with the interests of the beneficiaries’. In Themis
Holdings Pty Ltd v Canehire Pty Ltd [2014] QSC 38 at [217], Philippides J cited with
approval the following statement by Millett LJ in Armitage v Nurse [1998] Ch 241 at 251;
[1997] 2 All ER 705 at 711:
[Actual fraud] connotes at the minimum an intention on the part of the trustee to pursue a particular
course of action, either knowing that it is contrary to the interests of the beneficiaries or being
recklessly indifferent whether it is contrary to their interests or not.
Nor is it permissible to exclude liability for wilful misconduct: Spread Trustee Co Ltd v
Hutcheson [2012] 2 AC 194 at 223; [2012] 1 All ER 251 at 269.
However, a trustee’s liability for negligence, including gross negligence can be excluded:
Spread Trustee Co Ltd v Hutcheson at AC 235, 252-3; All ER 281, 297-8. Furthermore,
liability for equitable fraud can also be excluded: Wilden Pty Ltd v Green at 467.
21.86 In Armitage v Nurse at Ch 254; All ER 713, Millett LJ summarised the extent to
which a trust instrument can exclude the liability of a trustee as follows:
[T]here is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable
by them which is fundamental to the concept of a trust. If the beneficiaries have no rights
enforceable against the trustees there are no trusts. But I do not accept the further submission that
these core obligations include the duties of skill and care, prudence and diligence. The duty of the
trustees to perform the trusts honestly and in good faith for the benefit of the beneficiaries is the
minimum necessary to give substance to the trusts, but in my opinion it is sufficient.
Millett LJ, at Ch 256; All ER 715, went on to hold that there is no authority for the proposition
‘that it is contrary to public policy to exclude liability for gross negligence by an appropriate
clause clearly worded to have that effect’. In a subsequent Court of Appeal decision in
Walker v Stones [2001] QB 902 at 939; [2000] 4 All ER 412 at 443, this statement was
somewhat qualified by Sir Christopher Slade who held that although a trustee may hold an
honest belief that he was acting in the best interests of the beneficiaries, a trustee could not
rely on an exclusion clause if the belief was ‘so unreasonable that, by any objective standard,
no reasonable solicitor-trustee could have thought that what he did or agreed to do was for the
benefit of the beneficiaries’.
21.87 In construing exclusion clauses in trust instruments a strict approach is taken by the
courts: McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 at 641; Spread
Trustee Co Ltd v Hutcheson at AC 235; All ER 281. Thus, in Walker v Stones at QB 941; All
ER at 445-6, it was held that courts should construe such clauses ‘no more widely than their
language on a fair reading requires’. Furthermore, a clause which seeks to prevent
beneficiaries from taking any proceedings against the trustee will be void for attempting to
oust the jurisdiction of the court: Permanent Trustee Co v Dougal (1931) 34 SR (NSW) 83.
However, a clause which merely discourages disputing the validity of the trust will not offend
that rule: Leerac Pty Ltd v Fay [2008] NSWSC 1082 at [21].
Court’s Statutory Power to excuse a breach of trust
Section 85 of the Trustee Act 1925 (NSW) permits a court to excuse a trustee from liability
for a breach of trust if the trustee has acted honestly and reasonably and ought fairly to be
excused. The onus of proof to establish that the trustee acted honestly and reasonably rests
upon the trustee: Santander UK Plc v R A Legal Solicitors [2014] EWCA Civ 183 at [20]. In
relation to the element of whether the trustee ought fairly to be excused, in Santander UK Plc
v R A Legal Solicitors at [33], Briggs LJ said:
This requires that regard be had to the effect of the grant of relief not only upon the trustee,
but also upon the beneficiaries. Furthermore, section [85] makes it clear that even if the
trustee ought fairly to be excused, the court still retains the discretionary power to grant
relief from liability, in whole or in part, or to refuse it.
Thus, although a trustee may have acted honestly and reasonably the court will refuse relief
if, for example, to do so would unduly prejudice the beneficiaries: Hagan v Waterhouse
(1991) 34 NSWLR 308 at 398. Furthermore, a court will refuse to excuse the breach if
general equitable defences such as delay on the part of the trustee are established.
Honest in this context means that the trustee must have acted in good faith and in the best
interest of the trust. Most cases seeking this statutory relief are fought over whether the
trustee’s conduct was reasonable. Gross negligence or carelessness or breach of fiduciary
obligations will preclude a finding that the trustee acted reasonably. It can also be noted that
the nature of the trustee will be a relevant factor. Professional trustees will be held to a higher
standard than non-professional trustees.
CHAPTER 22
At the end of the first sentence in 22.9 insert the following:
A proper contradictor is required ‘to ensure that persons whose rights or obligations which
are the subject of the suit are bound by it, and also to ensure that the court is provided with all
relevant materials’: QBE Insurance (Australia) Ltd v Lois Nominees Pty Ltd [2012] WASCA
186 at [169].
At the end of 22.10 add the following:
In the United Kingdom ‘[i]t has been repeatedly said that the court will be cautious before it
makes a declaration by consent’: Pavilion Property Trustees Ltd v Permira Advisers LLP
[2014] EWHC 145 (Ch) at [9]. Thus, in Animatrix Ltd v O’Kelly [2008] EWCA Civ 1415 at
[53], the Court of Appeal said:
It is clear that the rule that declarations should not be granted by consent is one of practice and that it
is not an immutable rule. Declarations can be granted by consent where that is necessary to do justice
in the case.
At the end of 22.27 add the following:
In relation to the locus standi requirement, it does not mean that an applicant must have rights
that can be enforced against the other party. As was noted by Newnes JA in QBE Insurance
(Australia) Ltd v Lois Nominees Pty Ltd [2012] WASCA 186 at [169], ‘[r]eciprocity is not a
requirement. It is sufficient that the declaration is of practical importance to the [applicant];
that [he or she has] a real commercial interest in obtaining it’.
At the end of 22.36 add the following:
In Bank St Petersburg v Arkhangelsky [2014] EWHC 574 (Ch) at [13], Hildyard J, in refusing
to grant a declaration that the defendant had breached a Mareva order, said:
I can see no real utility in making a declaration, even if the alleged breaches could be established;
and I can see possible injustice to the Defendants if there is any possibility … of the grant of such a
declaration being treated as if it were a finding of contempt. It was and remains open to the
Claimants to establish contempt and seek committal: I see no reason for or utility in the half-way
house they propose.
In 22.41 delete the first sentence and replace with the following:
In Mansell v The State of Western Australia [2013] WASC 202 at [12], McKechnie J said:
A court is reluctant to make declarations which impinge directly on a criminal matter. Once criminal
proceedings have begun, they should be allowed to follow their ordinary course unless it appears that
for some special reason it is necessary in the interests of justice to make a declaratory order.
CHAPTER 23
In 23.41 at the end of the fourth sentence insert the following:
In relation to employment contracts, in Geys v Société Générale, London Barnch [2013] 1
AC 523 at 567-8, Sumption JSC explained the reasoning behind this approach as follows:
Historically, there have been three main reasons for this. The first is that the relationship of employer
and employee was traditionally regarded as a highly personal one. In an age of large corporate
enterprises many of whose employees perform routine jobs, the personal character which was once
typical of employment relationships has lost much of its former importance. But employment is none
the less a relationship based on mutual trust and confidence, a factor which has assumed growing
importance in the way that the law has developed over the past 30 years. Second, the difficult and
litigious history of industrial relations in the United Kingdom in the late 19th and early 20th
centuries reinforced the sensitivity which the common law had always had about any intervention by
a court which might force the parties to continue in a relationship which has been described as ‘at
once inter-dependent and oppositional’: The Oxford History of the Laws of England, vol xiii (2010),
p 623 … This makes it more difficult to justify intervening in a way that forces an employer to
employ someone if the law is to maintain the ordinary principle that remedies should operate
mutually or not at all. Third, legal thinking in this area has always been influenced by a concern for
the productive use of resources, including labour. This … is reflected in the abiding concern of the
common law to ensure the terminability of contracts of employment, without prejudice to the
subsequent regulation of the financial consequences by an award of damages. The harsher
consequences of this approach for individuals have been mitigated in the last half century by a
parallel scheme of statutory protection of employment, operating within defined limits and
administered by specialised statutory tribunals with limited jurisdiction over purely contractual
disputes. But the statutory protection of employment overlays the common law without necessarily
altering it. Indeed, it makes the development of a more stringent standard of employment protection
at common law unnecessary and perhaps inappropriate.
At the end of 23.42 add the following:
In the light of cases such as C H Giles & Co Ltd v Morris and Turner v Australasian Coal &
Shale Employees Federation, in Quinn v Overland [2010] FCA 799 at [100]-[101], Bromberg
J said:
The circumstances of each particular case need to be examined. There ought not to be and there is no
longer a fixed rule against specific performance of an employment contract.
Furthermore, the appropriateness of specific performance as a remedy is strengthened by a growing
acceptance at common law of the right of an employee to perform work. That recognition has arisen
out of changed social attitudes. There is now a greater recognition than ever that employment is
important to an employee not simply because it provides economic sustenance. Workplaces are a hub
of important human exchanges which are vital to the wellbeing of individual workers. Work provides
employees with purpose, dignity, pride, enjoyment, social acceptance and many social connections.
As well, the performance of work allows for skill enhancement and advances career opportunities.
These non pecuniary attributes of work are important and their denial can be devastating to the
legitimate interests of any worker, either skilled or unskilled.
At the end of 23.54 add the following:
However, that is not to say that the constant court supervision principle is necessarily likely
to preclude an order for specific performance of a building contract. In Canberra Hire Pty
Ltd v Koppers Wood Products Pty Ltd [2013] ACTSC 162 at [440], Refshauge J said:
The approach, however, to this issue has more recently moderated, especially in relation to building
contracts, but not so much where other contracts are involved. As Nader ACJ explained in Skywest
Airlines Pty Ltd v Northern Territory of Australia (1987) 45 NTR 29 at 50:
[T]he nature of building contracts in general is such that the work completed remains in
existence to be inspected. The question whether a condition of a contract has been
complied with is, in such a case, easier for a court to decide than in the case of aerial
medical work, which once done, no longer exists. Its transient nature so distinguishes it
from building work in a most significant way that the plaintiff’s submission in that
respect fails.
At the end of 23.55 add the following:
In assessing hardship the court ‘must take account of all the circumstances known to exist at
the time when an order is made, as well as of circumstances likely to occur subsequently,
when called on to decide whether the effect of the order for specific performance will be to
cause disproportionate hardship so as to give rise to injustice … [T]here is no reason in
principle why a source of hardship should be ignored merely because it did not exist at the
time when the contract was entered into’: Evans v Robocorp Pty Ltd [2014] QSC 26 at [15].
At the end of 23.77 add the following:
In M J Leonard Pty Ltd v Bristrol Custodians Limited (in liquidation) [2013] NSWSC 1734
at [41], Windeyer AJ said:
The rationale of the doctrine of part performance is that it is unconscionable for a defendant to rely
on the Statute of Frauds 1677 … where a plaintiff has partly performed the agreement alleged. It is a
doctrine to bind the conscience of the defendant, who is setting up the statute as a defence. Acts of a
defendant may go towards deciding whether there is in existence a contract evidenced by the
defendant’s acts in pursuance of the alleged contract.
CHAPTER 24
At the end of 24.13 add the following:
As with the remedy of specific performance (see 23.16), the inadequacy of damages in
relation to an injunction application may be inadequate if ‘damages are difficult to assess, or
if they involve a speculative ascertainment of the value of a loss of a chance’: Covanta
Energy Ltd v Merseyside Waste Disposal Authority [2013] EWHC 2922 (TCC) at [40].
A final point to note on the question of the adequacy of damages principle is the effect of a
clause in a contract that excludes or limits the measure of damages to be paid or is an
enforceable liquidated damages clause. Does it mean that damages are adequate and that
injunctive relief should be denied? In AB v CD [2014] EWCA Civ 229 the Court of Appeal
answered this question in the negative. In that case the respondent granted the appellant a
licence to market certain intellectual property rights. The contract also contained a limitation
of liability clause. The appellant sought an interim injunction ‘requiring the [Respondent] to
continue in all respects to perform its obligations under the Licensing Agreement … and
restraining the [Respondent] from terminating or suspending the … Agreement pending the
Award in the arbitration’. In ruling that, in the circumstances of the case, the injunction
should be granted, Laws LJ, at [33], was of the view that ‘[w]here a party to a contract
stipulates that if he breaches his obligations his liability will be limited or the damages he
must pay will be capped, that is a circumstance which in justice tends to favour the grant of
an injunction to prohibit the breach in the first place’. Underhill LJ, at [27], explained the
rationale behind this approach as follows:
The primary obligation of a party is to perform the contract. The requirement to pay damages in the
event of a breach is a secondary obligation, and an agreement to restrict the recoverability of
damages in the event of a breach cannot be treated as an agreement to excuse performance of that
primary obligation. I [reject the proposition that where] … the only losses suffered which would
sound in damages were of a kind which were excluded by the contract, no injunction would lie and
the contract-breaker would be able to walk away from his obligations with impunity. That does not
seem to me to be just. The rule – if ‘rule’ is the right word – that an injunction should not be granted
where damages would be an adequate remedy should be applied in a way which reflects the
substantial justice of the situation.
At the end of 24.29 add the following:
Hoffmann J’s approach is reflected in Australian cases such as Bradto Pty Ltd v State of
Victoria (2006) 15 VR 65 at 73 and Brunswick Family Dental Pty Ltd v Dr Enegd [2014]
VSC 325 at [5].
At the end of 24.30 add the following:
If the plaintiff learns of relevant material facts after the ex parte order is obtained and the
defendant is unaware of those facts, the plaintiff is obliged to disclose the facts to the court or
consent to the discharge of the order: JSC BTA Bank v Ablyazov [2014] EWCA Civ 602 at
[71].
In Papas v Grave [2013] NSWCA 308 at [71], Emmett JA said:
A party asking, ex parte, for an injunction is under a duty to bring to the notice of the court all facts
material to the determination of the entitlement of that party to the injunction, including facts adverse
to that party. It is no excuse for that party to say that it was not aware of the importance of the facts.
Utmost good faith is required of a party seeking to induce the court to act in the absence of another
party. Thus, a party seeking ex parte relief will fail in its obligation to the court unless it bring
forward all the material facts that the absent party would presumably have brought forward in
opposing the application. The moving party must state its case fully and fairly and disclose the
entirety of the facts relevant to the case. The party moving the court must give the court a faithful
statement of its case.
In International Finance Trust Company Limited v New South Wales Crime Commission
(2009) 240 CLR 319 at 383-4; 261 ALR 220 at 262, Heydon J made the following
observations in relation to the granting of an ex parte injunction: (i) as a general rule an ex
parte injunction will only be granted for a very short period of time, during which time the
defendant should be notified and thereby given an opportunity to oppose any extension of it;
(ii) it may be that it is granted until further order, but with the defendant at liberty to apply to
have it set aside; (iii) an ex parte injunction will only be granted if giving notice of the
application for the injunction would enable the defendant to take steps to defeat the purposes
of the application, or there has been literally no time to give notice.
If there has not been a proper disclosure by aplaintiff when seeking an ex parte interlocutory
injunction and it is subsequently dissolved, the plaintiff is, neverthelees, entitled to make a
fresh application for an interlocutory injunction: Thomas A Edison Ltd v Bullock (1912) 15
CLR 679 at 681-3; United Airport Parking Pty Ltd v TMA Tech Pty Ltd [2014] VSC 343 at
[40].
At the end of 24.31 add the following:
In such cases the court needs to consider more carefully the strength of the plaintiff’s case for
final relief in its deliberation as to whether to grant the interlocutory injunction: Kolback
Securities Limited v Epoch Mining NL (1987) 8 NSWLR 533 at 536; National Mutual
Holdings Pty Ltd v Sentry Corporation (1989) 22 FCR 209 at 231; NWL Limited v Woods
[1979] 3 All ER 614 at 626.
At the end of 24.37 add the following:
In weighing up the balance of convenience, the court may, in the appropriate case, take into
account the effect of its decision on the interests of third parties: Patrick Stevedores
Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 at 41-2; Bridge
Property Investments Pty Ltd v Garland Lot 3 Pty Ltd [2014] NSWCA 82 at [51]-[52].
At the end of 24.43 add the following:
However, more recently, in the ‘high degree of assurance test’ was applied in Parmalat
Australia Pty Ltd v VIP Plastic Packaging Pty Ltd (2013) 210 FCR 1 at 12, where Collier J
said:
While there is merit in the proposition that the Court should not approach consideration of
interlocutory injunctive relief differently depending on whether the relief sought is restraining or
mandatory, on balance I am persuaded that the obligations imposed on a respondent following an
order of the Court granting mandatory interlocutory relief do necessitate some higher degree of
assurance to the Court that final relief will be granted. This is particularly so in circumstances where
the mandatory orders lend themselves to a greater likelihood of ongoing Court supervision, and the
practical effect of the orders is, in effect, to finally determine the rights of the parties.
Her Honour subsequently reaffirmed her view in United Motor Search Pty Ltd v Hanson
Construction Materials Pty Ltd [2013] FCA 1104 at [37].
On the other hand, in JTA Le Roux Pty Ltd as trustee for the FLR Family Trust v Lawson (No
2) [2013] WASC 373, Edelman J was of the view that the alternative approach was now the
dominant view in Australian law. Edelman J, at [17], said:
Although the test for a mandatory interlocutory injunction is no different from a prohibitory
interlocutory injunction, an important question in assessing the balance of convenience is the risk of
injustice to the party to whom the injunction issues. This risk is usually, but not always, high in cases
involving mandatory interlocutory injunctions
His Honour, at [23], concluded:
In some, perhaps many, cases where an interlocutory mandatory order is sought, considerations
involving the balance of convenience will include the extent to which the order intrudes upon the
liberty of the respondent. Another relevant consideration may be whether a defendant who has raised
a triable issue will be deprived, by a mandatory order, of a full hearing of the issue if the effect of
that mandatory order is final determination of the proceedings. But these matters can, and should, be
assessed as part of the balance of convenience.
At the end of 24.48 add the following:
However, there appears to be no reported cases in which a court has held that such
exceptional circumstances existed: Financial Integrity Group Pty Ltd v Farmer and Bravium
Pty Ltd (No 2) at [18]-[19].
At the end of 24.52 add the following:
In relation to the issue of foreseeability of losses that can be recovered, in Nader v Ronca
[2013] NSWSC 542 at [53], Kunc J, said:
European Bank [v Evans] is authority for the proposition that [this involves] … an inquiry as to
whether a loss of the kind actually sustained could have been foreseen. The inquiry is not as to
whether the actual loss suffered was foreseen at the time the undertaking was given.
In Omar v Darul-Iman (WA) Inc [2013] WASC 311 at [54], Pritchard J summed up the
relevant principles in relation to the assessment of damages as follows:
The Court has a wide discretion in the assessment of damages or compensation under an
undertaking. The court will determine the damages or compensation which is just, having regard to
all of the circumstances of the case. However, the party seeking to enforce the undertaking is entitled
to recover only damages of a kind which could have been foreseen when the injunction was granted,
and damages which he or she has sustained by reason of the grant of the injunction. That party will
bear the onus of showing that the damage sustained would not have been sustained but for the
injunction. The Court’s wide discretion in the assessment of compensation includes the discretion
not to enforce the undertaking at all, if special circumstances exist. Those special circumstances may
include the conduct of the parties who are the beneficiaries of the undertaking if that conduct would
render it inequitable to enforce the undertaking.
Finally, it can be noted that the measure of damages awarded in enforcement of the
undertaking will, in the appropriate case, compensation for upset, stress, loss of reputation,
general loss of business opportunities, and general business and other disruption including
adverse effects of the inappropriate policing of the injunction on the injunctees’: Hone v
Abbey Forwarding Ltd [2014] EWCA Civ 711 at [150].
At the end of 24.62 add the following:
In Network Ten Pty Limited v Seven Network (Operations) Limited [2014] NSWSC 274 at
[15], Brereton J said that ‘this branch of the law has always been informed by the principle
that it is contrary to the public interest that a person be prevented from working’.
At the end of 24.83 add the following:
‘[S]trong reasons are required to outweigh the prima facie entitlement to an injunction’ where
there is a clearly drafted exclusive jurisdiction clause: AES Ust-Kamenogorsk Hydropower
Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] 1 WLR 1889 at [25]. In this
respect, in Donohue v Armco, Lord Bingham of Cornhill said:
The authorities show that the English court may well decline to grant an injunction … where the
interests of parties other than the parties bound by the exclusive jurisdiction clause are involved or
grounds of claim not the subject of the clause are part of the relevant dispute so that there is a risk of
parallel proceedings and inconsistent decisions.
CHAPTER 25
At the end of 25.15 add the following:
These requirements also apply to any application to vary a Mareva order so as to include
assets not covered by the original order: Deputy Commissioner of Taxation v Haritos [2013]
VSC 12 at [16].
At the end of the first sentence on 25.21 insert the following:
On the other hand, the court can take into account ‘the prior conduct of a respondent, the
value of the actual or prospective judgment and the assets or income available to the
respondent to satisfy that judgment’: Commissioner of Taxation v Growth Investment Fund
SA [2014] FCA 780 at [17].
At the end of 25.23 add the following:
In X v Y [2013] WASC 339 at [35], this point was reiterated by Pritchard J as follows:
The interests of justice may support the granting of a freezing order to prevent the dissipation of
assets in the hearing of an action even though the risk of dissipation is less probable than not. As for
the evidence to establish the risk of dissipation, it is rarely the case that there is any direct evidence
to establish a danger of dissipation of assets. It is more often the case that the Court
At the end of 25.26 add the following:
Furthermore, a court can issue a Mareva order in relation to proceedings which the plaintiff
has commenced in a foreign jurisdiction which, if successful, he or she intends to have
registered and then enforced in an Australian jurisdiction: BCBC Singapore Pte Ltd v PT
Bayan Resources TBK (No 3) [2013] WASC 239 at [31]-[44].
At the end of the second dot point in 25.33 add the following:


A Mareva order will not extend to assets to meet the defendant’s reasonable legal
expenses in relation to the proceedings on the basis that the defendant’s capacity to
contest the proceedings should not be prejudiced: Deputy Commissioner of Taxation v
Bollands [2012] FCA 1050 at [22]; In the matter of Colorado Products Pty Limited
(in prov liq) [2013] NSWSC 611 at [18].
A freezing order can be made by the court in relation to assets within its jurisdiction in
relation to proceedings in a foreign jurisdiction: PT Bayan Resources TBK v BCBC
Singapore Pte Ltd [2014] WASCA 178 at [150]-[165], [213].
CHAPTER 26
At the end of 26.5 add the following:
Furthermore, no element of penalty is involved in assessing the quantum of compensation:
Wingecarribee Shire Council v Lehman Brothers Australia Ltd (2012) 301 ALR 1 at 260.
Thus, an award of equitable compensation is restitutionary in nature: Herrod v Johnston
[2013] 2 Qd R 102 at 120.
At the end of 26.7 add the following:
Thus, in Links Golf Tasmania Pty Ltd v Sattler (No 3) [2012] FCA 1418 at [14], Jessup J
said:
It is to be done with the full benefit of hindsight. Thus, if the fiduciary has diverted to his or her own
advantage some property of the beneficiary which subsequently becomes more valuable, the
compensation should be paid at the later, higher, value. Conversely, if the fiduciary has so acted to
impede the ability of the beneficiary to deal with his or her property, and the value of the property
subsequently falls, the amount of compensation will reflect the original value of the property on the
basis that the beneficiary might otherwise have disposed of it at that value.
At the end of 26.12 add the following:
Similarly, in V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418 at 42930, the Full Court of the Federal Court said:
The object of the equitable remedy of compensation or damages is restitution of what the victim has
lost. The question is whether the loss would have occurred but for the breach. Whilst the monetary
sum awarded to the victim is normally computed by reference to the detriment actually suffered by
the victim, it may occasionally be computed by reference to the profit that has been made by the
errant fiduciary. Nevertheless, the primary purpose of equitable compensation or damages is
compensatory. No element of penalty is involved.
The obligation imposed by equity to pay damages or compensation is not fettered by the usual
notions that serve to diminish the quantum of an award of damages at common law. The obligation
imposed by equity upon an errant fiduciary is of a more absolute nature than the common law
obligation to pay damages for tort or breach of contract. Thus, the obligation is not limited or
influenced by common law principles governing remoteness or damage, foreseeability nor causation.
However, while foreseeability is not a concern in assessing equitable compensation or damages, the
only losses that are made good are those that, on a common sense view of causation, are caused by
the breach of duty.
At the end of 26.16 add the following:
In this respect, in ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 at
[1090], the Full Court said:
What constitutes an adequate or sufficient connection is not predetermined or formulaic. Each case
requires a precise focus on both the nature of the obligations and the nature of the breach. Any
question of ‘direct’ or ‘immediate cause’ is a red herring. The required focus is the nature of the
obligations and the nature of the breach because different obligations and breaches may raise
different criteria that supply the necessary connection.
In Parker, Re Purcom No 34 Pty Ltd (in liq) (No 2) [2010] 624 at [23], in a passage
subsequently approved by Rares J in Wingecarribee Shire Council v Lehman Brothers
Australia Ltd (2012) 301 ALR 1 at 261, Gordon J observed that ‘[t]he necessary enquiry is
whether the loss would have happened had there been no breach, not whether the loss was
caused by or flowed from the breach’.
At the end of 26.18 add the following:
In ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65 at [1097], the Full
Court pointed out that a plaintiff in such a case does not have to show that it would not have
proceeded with the transaction if the disclosure had been made.
At the end of 26.49 add the following:
However, on the principle of mitigation, in Primewest (Mandurah) Pty Ltd v Ryom Pty Ltd
[2012] WASC 443 at [245], Edelman J said:
Although there have been statements in some Australian courts that principles concerning mitigation
of loss can apply to these claims for damages, much may depend upon the nature of the claim for
damages in lieu of specific performance. A decree of specific performance is an order which is made
to ‘ensure or encourage the performance of contracts rather than the payment of damages for
breach’. Where the award of damages in lieu of specific performance is sought to provide a money
substitute for the performance, rather than compensation for consequential loss, it may be that
restrictions upon availability of the money award will require exceptional circumstances which are
more limited than those concerned with mitigation.
Nevertheless, in assessing the quantum of equitable damages the court will, where necessary,
depart from the usual application of common law principles in assessing damages. This point
is well illustrated by the decision in Wroth v Tyler [1973] 1 All ER 897. In that case a vendor
refused to complete a sale of a house. The purchaser was awarded damages in lieu of an order
for specific performance. At the date of the vendor’s breach the house was valued at £7,500.
At the date of hearing its value was £11,500. The court awarded damages by reference to the
value of the house at the date of hearing, rather than at the date of the breach. In coming to this
decision, Megarry J, at 921-2, said:
No doubt in exercising the jurisdiction conferred by the 1858 Act a court with equitable jurisdiction
will remember that equity follows the law, and will in general apply the common law rules for the
assessment of damages; but this is subject to the overriding statutory requirement that damages shall
be ‘in substitution for’ the injunction or specific performance … In my judgment, therefore, if under
Lord Cairns’ Act damages are awarded in substitution for specific performance, the court has
jurisdiction to award such damages as will put the plaintiffs into as good a position as if the contract
had been performed, even if to do so means awarding damages assessed by reference to a period
subsequent to the date of the breach. This seems to me to be consonant with the nature of specific
performance, which is a continuing remedy, designed to secure, inter alia, that the purchaser receives
in fact what is his in equity as soon as the contract is made, subject to the vendor’s right to the
money, and so on. On the one hand, a decree may be sought before any breach of contract has
occurred, and so before any action lies for common law damages; and on the other hand the right to a
decree may continue long after the breach has occurred. On the facts of this case, the damages that
may be awarded are not limited to the £1,500 that is appropriate to the date of the breach, but extend
to the £5,500 that is appropriate at the present day, when they are being awarded in substitution for
specific performance.
The decision in Wroth v Tyler does not mean that damages in such cases will always be
determined by reference to the date of the hearing. In Blackley Investments Pty Ltd v Burnie
City Council (No 3) [2013] TASSC 14 at [14], Holt AsJ noted that ‘the rule that equitable
damages in lieu of specific performance are to be assessed at the date of the order is not
inflexible. The circumstances of a particular case may justify a departure’. His Honour, at
[16], went on to note the following:
A purchaser of land, awarded damages in lieu of specific performance, may prove that he or she
would have put the land to a profitable use if the court had ordered specific performance. The
damages awarded are to be a true substitute for performance and so must, so far as is possible, put
the plaintiff in the same position as would have been the case had there been specific performance. It
follows that a plaintiff who has lost the chance of making a profit from the land in addition to its
market value is entitled to be compensated for the value of the chance which has been lost.
An appeal to the Full Court from his Honour’s decision in relation to the computation of the
damages on the facts of the case was successful. However, no dispute with his Honour’s
statement of principles was raised before the Full Court: Blackley Investments Pty Ltd v
Burnie City Council (No 3) [2013] TASFC 12.
At the end of 26.63 add the following:
More recently the approach of the courts as exemplified in cases such as Watson v
Promosport Ltd has been severely criticised in an important decision of the United Kingdom
Supreme Court in Lawrence v Fen Tigers Ltd [2014] 2 WLR 433. In this case all the judges
in the Supreme Court signalled that the principles in Shelfer v City of London Electrical
Lighting Co were no longer an adequate statement of the approach to be taken by the court in
determining when to exercise its discretion to award damages in lieu of an injunction. Lord
Sumption, at 472, observed that ‘the Shelfer principle was based mainly on the court’s
objection to sanctioning a wrong by allowing the defendant to pay for the right to go on doing
it. This seems an unduly moralistic approach to disputes, and if taken at face value would
justify the grant of an injunction in all cases, which is plainly not the law’.
In the leading judgment in the Supreme Court, Lord Neuberger, at 463-5, said:
It seems to me that (i) an almost mechanical application of A L Smith LJ’s four tests, and (ii) an
approach which involves damages being awarded only in ‘very exceptional circumstances’, are each
simply wrong in principle, and give rise to a serious risk of going wrong in practice … The court’s
power to award damages in lieu of an injunction involves a classic exercise of discretion, which
should not, as a matter of principle, be fettered … [A]s a matter of practical fairness, each case is
likely to be so fact-sensitive that any firm guidance is likely to do more harm than good …
[However] this does not prevent the courts from laying down rules as to what factors can, and
cannot, be taken into account by a judge when deciding whether to exercise his discretion to award
damages in lieu. Indeed, it is appropriate to give as much guidance as possible so as to ensure that,
while the discretion is not fettered, its manner of exercise is as predictable as possible I would accept
that the prima facie position is that an injunction should be granted, so the legal burden is on the
defendant to show why it should not …
[I]t is right to emphasise that, when a judge is called on to decide whether to award damages in lieu
of an injunction, I do not think that there should be any inclination either way (subject to the legal
burden discussed above): the outcome should depend on all the evidence and arguments …
Where does that leave A L Smith LJ’s four tests? While the application of any such series of tests
cannot be mechanical, I would adopt a modified version of the view expressed by Romer LJ in
Fishenden 153 LT 128, 141. First, the application of the four tests must not be such as ‘to be a fetter
on the exercise of the court’s discretion’. Secondly, it would, in the absence of additional relevant
circumstances pointing the other way, normally be right to refuse an injunction if those four tests
were satisfied. Thirdly, the fact that those tests are not all satisfied does not mean that an injunction
should be granted.
Lords Mance and Carnwath, in broad terms, agreed with Lord Neuberger’s views.
Lord Neuberger’s judgment effectively states that ‘the Shelfer formula is to be applied as no
more than the working rule which A L Smith LJ conceived it to be, albeit satisfaction of the
four tests will normally lead to a refusal of an injunction in the absence of other
circumstances’: Prophet Plc v Huggett [2014] EWHC 615 (Ch) at [27].
Lord Sumption, at 472-3 (Lord Clarke agreeing at 475, went somewhat further when he said:
In my view, the decision in Shelfer is out of date, and it is unfortunate that it has been followed so
recently and so slavishly. It was devised for a time in which England was much less crowded, when
comparatively few people owned property, when conservation was only beginning to be a public
issue, and when there was no general system of statutory development control. The whole
jurisprudence in this area will need one day to be reviewed in this court. There is much to be said for
the view that damages are ordinarily an adequate remedy for nuisance and that an injunction should
not usually be granted in a case where it is likely that conflicting interests are engaged other than the
parties’ interests. In particular, it may well be that an injunction should as a matter of principle not
be granted in a case where a use of land to which objection is taken requires and has received
planning permission. However, at this stage, in the absence of argument on these points, I can do no
more than identify them as calling for consideration in a case in which they arise.
At the end of 26.73 add the following:
Thus, in One Step (Support) Ltd v Morris-Garner [2014] EWHC 2213 (QB) at [106], Phillips
J, in ordering damages on a Wrotham Park basis for breach of a contractual restraint of trade
provision, said:
In my judgment this is a prime example of a case in which Wrotham Park damages should be and
are available. The defendants have breached straightforward restrictive covenants in circumstances
where it will be difficult for One Step to identify the financial loss it has suffered by reason of the
defendants’ wrongful competition, not least because there was a degree of secrecy in the
establishment of Positive Living's business which has not been fully reversed by the disclosure
process. In my judgment it would be just for One Step to have the option of recovering damages in
the amount which might reasonably have been demanded in 2007 for releasing the defendants from
their covenants, not least because the covenants provided that the restraint was subject to consent,
not to be unreasonably withheld.
At the end of 26.74 add the following:
His Honour’s decision and reasoning was upheld by the Court of Appeal in Force India
Formula One Team Ltd v Aerolab SRL [2013] EWCA Civ 780 at [100]-[108].
CHAPTER 28
At the end of 28.15 add the following:
However, as was observed by the Chancellor in FHR European Ventures LLP v Mankarious
[2014] Ch 1 at 28; [2013] 3 All ER 29 at 54-5, ‘[a]lthough it may said at the most general
level that the constructive trust is a feature of equity to prevent or remedy unconscionable
conduct, there is no generally accepted set of principles governing the existence of a
constructive trust across all the different areas of the law where it is to be found’.
At the end of the first sentence in 28.30 insert the following:
The doubt stems from the fact that, as was observed by Kourakis J in Rasch Nominees Pty
Ltd v Bartholomaeus (2012) 114 SASR 448 at 493, ‘[t]he interest of a purchaser under a
contract of sale is neither the same as an interest of a mortgagee or the equivalent of
beneficial ownership in the land. It is, in effect, an equitable interest to call for the
conveyance and is accordingly strictly commensurate with the purchaser’s ability to obtain
specific performance or other equitable protection’.
At the end of 28.102 add the following:
The debate in England over the authority of Tyrrell v Bank of London and Lister v Stubbs was
finally resolved in FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC
45. In this case the United Kingdom Supreme overruled these earlier English cases and held
that bribes and secret commissions received by a fiduciary (in this case an agent) were held on
constructive trust for the principal. In such cases it was held that the following rule, set out by
Lord Neuberger at [7], applied:
[W]here an agent acquires a benefit in breach of his fiduciary duty, the … agent's duty to account for
the bribe or secret commission represents a personal remedy for the principal against the agent.
However, … at least in some cases where an agent acquires a benefit which came to his notice as a
result of his fiduciary position, or pursuant to an opportunity which results from his fiduciary
position, the equitable rule (‘the Rule’) is that he is to be treated as having acquired the benefit on
behalf of his principal, so that it is beneficially owned by the principal. In such cases, the principal
has a proprietary remedy in addition to his personal remedy against the agent, and the principal can
elect between the two remedies.
In describing the liability of the agent in such circumstances, Lord Neuberger, at [33] said:
The position … that the Rule applies to all unauthorised benefits which an agent receives, is
consistent with the fundamental principles of the law of agency. The agent owes a duty of undivided
loyalty to the principal, unless the latter has given his informed consent to some less demanding
standard of duty. The principal is thus entitled to the entire benefit of the agent's acts in the course of
his agency. This principle is wholly unaffected by the fact that the agent may have exceeded his
authority. The principal is entitled to the benefit of the agent's unauthorised acts in the course of his
agency … The agent's duty is accordingly to deliver up to his principal the benefit which he has
obtained, and not simply to pay compensation for having obtained it in excess of his authority. The
only way that legal effect can be given to an obligation to deliver up specific property to the
principal is by treating the principal as specifically entitled to it.
Lord Neuberger, at [35], justified this approach on the basis that is gave ‘clarity and
simplicity’ to the law which he viewed as being ‘highly desirable qualities’ and, at [45],
noted, that is brought English law into harmony with the approach to this issue taken by other
common law jurisdictions, such as Australia, Canada, New Zealand, Singapore and the
United States of America.
Furthermore, Lord Neuberger, at [41], noted that
It would be curious … if a principal whose agent wrongly receives a bribe or secret commission is
worse off than a principal whose agent obtains a benefit in far less opprobrious circumstances, eg the
benefit obtained by the trustees' agents in [Phipps v] Boardman. Yet that is the effect if the Rule
does not apply to bribes or secret commissions.
Lord Neuberger, at [42], went on to say:
Wider policy considerations also support the [view] that bribes and secret commissions received by
an agent should be treated as the property of his principal, rather than merely giving rise to a claim
for equitable compensation. As Lord Templeman said giving the decision of the Privy Council in
Attorney General for Hong Kong v Reid [at AC 324], ‘[b]ribery is an evil practice which threatens
the foundations of any civilised society’. Secret commissions are also objectionable as they
inevitably tend to undermine trust in the commercial world. That has always been true, but concern
about bribery and corruption generally has never been greater than it is now … Accordingly, one
would expect the law to be particularly stringent in relation to a claim against an agent who has
received a bribe or secret commission.
In response to an argument that applying the Rule in relation to bribes and secret
commissions would tend to prejudice the agent’s unsecured creditors because it would reduce
the estate of the agent if he or she became insolvent, Lord Neuberger, at [43], said:
While the point has considerable force in some contexts, it appears to us to have limited force in the
context of a bribe or secret commission. In the first place, the proceeds of a bribe or secret
commission consists of property which should not be in the agent's estate at all … Secondly, … at
any rate in many cases, the bribe or commission will very often have reduced the benefit from the
relevant transaction which the principal will have obtained, and therefore can fairly be said to be his
property.
The practical consequences of the approach taken the Supreme Court in FHR European
Ventures LLP v Cedar Capital Partners LLC was stated by Lord Neuberger, at [1], as follows:
If the bribe or commission is held on trust, the principal has a proprietary claim to it, whereas if the
principal merely has a claim for equitable compensation, the claim is not proprietary. The distinction
is significant for two main reasons. First, if the agent becomes insolvent, a proprietary claim would
effectively give the principal priority over the agent's unsecured creditors, whereas the principal
would rank pari passu, ie equally, with other unsecured creditors if he only has a claim for
compensation. Secondly, if the principal has a proprietary claim to the bribe or commission, he can
trace and follow it in equity, whereas (unless we develop the law of equitable tracing beyond its
current boundaries) a principal with a right only to equitable compensation would have no such
equitable right to trace or follow.
In 28.110 delete the last two sentences and replace with the following:
In Williams v Central Bank of Nigeria [2014] 2 All ER 489 at 495, Lord Sumption referred to
trustees de son tort as ‘de facto trustees’ who are ‘true trustees, and if the assets are not
applied in accordance with the trust, equity will enforce the obligations that they have
assumed by virtue of their status exactly as if they had been appointed by deed’.
His Lordship, at 495, then went on to observe that cases involving the first and second limbs
of Barnes v Addy as ones of ‘ancillary liability’ in which ‘[t]he intervention of equity …
does not reflect any pre-existing obligation but comes about solely because of the
misapplication of the assets. It is purely remedial’. The rationale for equity’s intervention in
these cases was explained by the High Court in Zhu v Treasurer of the State of New South
Wales (2004) 218 CLR 530 at 571; 211 ALR 159 at 190, as follows:
Intervention against a third party who obtains trust property from a trustee in breach of trust is based
on the need to protect the proprietary interests of the beneficiaries. Intervention against a third party
who obtains some other advantage as a result of a trustee’s breach of trust is based on the need to
ensure that the trust receives property which, if it were to be acquired at all, should have been
acquired for the trust. Intervention against persons who knowingly assist other fiduciaries to breach
their duty is based on the need to deter conduct that directly undermines the ‘high standard’ required
of fiduciaries, and on the inequitable character of permitting those persons to retain benefits resulting
from their conduct.
At the end of 28.111 add the following:
A person ‘acting as a mere agent of a trustee, within the authority afforded to him or her as
agent, does not by so doing become a trustee de son tort’: Parkview Qld Pty Ltd v
Commonwealth Bank of Australia at [2013] NSWCA 422 at [102].
At the end of 28.117 add the following:
In relation to the property required of the first limb of Barnes v Addy, in E C Dawson
Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183 at [648]-[651],
Beech J said:
Information, even confidential information, is not property for the purposes of the first limb of
Barnes v Addy. Nor is property acquired by using information obtained from the fiduciary. Only
proprietary benefits can constitute ‘trust property’ for the purposes of the first limb of Barnes v Addy.
Intangibles, including a chose in action, can be property for this purpose. A mining licence held by a
company to which fiduciary obligations are owed is property for the purposes of the first limb of
Barnes v Addy.
At the end of 28.142 add the following:
Liability when the fiduciary and recipient are controlled by the same person
In Grimaldi v Chameleon Mining NL (No 2) at FCR 415; ALR 137, the Full Court of the
Federal Court said:
[W]here the advantage of the fiduciary’s/trustee’s wrongdoing accrues to a third party (whether as a
knowing recipient or an assistant) and the third party is the alter ego/’nominee’ (usually corporate) of
the fiduciary, its liabilities will be joint and severable with the fiduciary’s … [W]here the third party
is not the fiduciary’s alter ego, the fiduciary and the third party will ordinarily be severally liable for
the profits each makes in consequence of the breach of fiduciary duty of breach of trust in which it
participated/was a recipient. Each is not responsible for the other’s profits.
As is clear from the above passage, this statement of principles applies with equal force to
case of third parties knowingly assisting in a breach of trust under the second limb of Barnes
v Addy: see 28.159.
At the end of 28.144 add the following:
The requirement that the defendant have knowledge of the dishonest and fraudulent design
does not require the defendant to know every detail of the dishonest and fraudulent design:
Nicholson v Morgan (No 3) [2013] WASC 110 at [80]. In Yeshiva Properties No 1 Pty Ltd v
Marshall (2005) 219 ALR 112 at 118, Bryson JA observed that ‘the test is complied with if
the known facts would communicate to a reasonable person a general understanding’ that
there was a dishonest and fraudulent design. Furthermore, the defendant must know that his
or her actions assisted in the implementation of the design: Baden v Societe Generale pour
Favoriser le Developpment du Commerce et de L’Industrie en Franc SA at 235.
At the end of 28.145 add the following:
In Novoship (UK) Ltd v Nikitin [2014] EWCA Civ 908 at [71]-[93], the Court of Appeal,
after a detailed consideration of relevant authorities concluded that ‘the remedy of an account
of profits is available against one who dishonestly assists a fiduciary to breach his fiduciary
obligations, even if that breach does not involve a misapplication of trust property’. The
Court, at [119], added that that remedy of account is discretionary and that ‘[o]ne ground on
which the court may withhold the remedy is that an account of profits would be
disproportionate in relation to the particular form and extent of wrongdoing’.
At the end of 28.158 add the following:
However, in the Court of Appeal in New South Wales in the case of Hasler v Singtel Optus
Pty Ltd (2014) 311 ALR 494, this approach was emphatically rejected by Gleeson and
Leeming JJA. Gleeson JA, at 496-7, said:
In so far as Bell concluded that the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd
(Farah) changed the meaning of the phrase ‘dishonest and fraudulent design’ to include all breaches
of fiduciary duty more serious than a trivial breach or a breach of the kind that would be excusable
under statute, I respectfully disagree … [N]othing in Farah should be taken as diluting the quality of
[a fiduciary’s] breach which is required to answer the description of a ‘dishonest and fraudulent
design’. Nothing falling short of dishonest conduct by the fiduciary is sufficient to engage the second
limb of Barnes [v Addy].
Leeming JA, at 519, noted that the knowing assistance cases require the breach to be both
fraudulent and dishonest. Although, fraud encompasses a breach of fiduciary obligations, that
of itself is not enough because the breach must also be dishonest, which Leeming JA, at 159,
briefly described as ‘a transgression of ordinary standards of honest behaviour’.
Barrett JA, at 496, felt that the detailed argument of Leeming JA on this matter was
compelling, but, because he did not need to come to any definite conclusion on it for the
purposes of deciding the case before the court, his Honour preferred to ‘let the matter rest for
the time being’.
At the end of 28.160 add the following:
On appeal, in Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760
at 791, the Court of Appeal held that both the issue of any duty of confidence as well as ‘the
question of liability of Mr Obeid for knowing involvement in any breach of such duty by
Streetscape’ had to be remitted for retrial.
At the end of 28.210 add the following:
In Craig v Silberbrook [2013] NSWSC 1687 at [109], Sackar J said:
[T]he principles governing the imposition of a Baumgartner constructive trust … emphasise that
whilst there is no need for the parties to possess an intention to create a trust, the parties’ intention
remains relevant in that it must be shown that ‘the benefit of money or other property contributed by
one party [was] on the basis and for the purposes of the [joint] relationship or endeavour’:
Muschinski v Dodds at 620. Therefore the plaintiffs must demonstrate both the existence of a joint
relationship or endeavour, and that the parties made contributions on the basis and for the purpose of
that joint relationship or endeavour.
At the end of 28.215 add the following:
On the other hand, in Soto v Soto [2013] WASC 211 at [54]-[56], the court found the
existence of a joint endeavour in circumstances where a brother agreed to take over the
responsibility for mortgage payments over a property owned by his sister in return for a half
share of the property. After ruling that there was no enforceable contract created by this
arrangement the court held that there was a joint endeavour between the brother and sister
that had subsequently collapsed without attributable fault and applied Deane J’s statement of
principle in Muschinski v Dodds to resolve the squabbling siblings’ claims to the property.
At the end of 28.226 add the following:
Similarly, in Nolan v Nolan [2014] QSC 218 at [88], Ann Lyons J said:
In particular, the court can take into consideration the pooling of financial resources, the contribution
of labour and the contributions to family welfare by way of domestic assistance, home making and
parenting. Where the contributions are not financial, it is clear that a ‘precise accounting’ is not
required. There is no doubt that a constructive trust is a flexible solution which depends on the
circumstances of the case as to its manner of execution.
CHAPTER 29
At the end of 29.1 add the following:
In Helou v Nguyen [2014] NSWSC 22 at [103], Lindsay J described tracing in the following
terms:
The complexity that can attend the process of tracing money should not obscure the purpose, and
nature, of the exercise. It involves a demonstration, by an application of logic and experience to
evidence, of what has in fact happened to identified property, with changes of form, over time. It is a
process of identification to ascertain whether property can be traced from one form to another,
culminating in a finding that property in its current form can properly be regarded as a substitute for
the claimant’s original form of property.
At the end of 29.29 add the following:
The position with respect to purchases of property with mixed funds was summed up as
follows in V-Flow Pty Ltd v Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418 at 430-1
where the Full Court of the Federal Court said:
[W]here a fiduciary appropriates the business of his principal, it may be inappropriate and
inequitable to compel the fiduciary to account for the whole of the profit of his conduct of the
business, or his exploitation of the principal’s goodwill, over an indefinite period of time. In such a
case, it may be appropriate to allow the fiduciary a proportion of the profits, depending upon the
particular circumstances. In particular, where it appears that a significant proportion of an increase in
profits has been generated by the skill, efforts, property and resources of the errant fiduciary, the
capital that has been introduced and the risks that the fiduciary has taken, the circumstances might be
such that it would be appropriate to allow the fiduciary a proportion of the profits. In such a case, the
relevant proportion of the increased profits will not be the product or consequence of the principal’s
property, but the product of the fiduciary’s skill, efforts, property and resources. The stringent rule
requiring a fiduciary to account for profits should not be carried to extremes, and the liability of the
fiduciary to account should not be transformed into a vehicle for the unjust enrichment of the
principal. However, it is for the errant fiduciary to establish that it would be inequitable to order an
account of the entire profits.
The Full Court, at 433, went on to say:
Where property is acquired in breach of fiduciary duty, with trust money mixed with personal
money, it may be appropriate, in some cases, to restrict the profit or gain for which an account is to
be given to a proportionate part of the total profit or gain, based on the quantum of the trust money
used compared with the quantum of personal money used. However, it will not be an appropriate
case for the application of that principle where the fiduciary does not use his own money but, having
used trust money to provide the deposit or part of the purchase price, so as to acquire an equitable
interest in the property, provides the balance of the purchase price by way of a loan secured by
mortgage on the property: Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440.
At the end of 29.36 add the following:
However, the pari passu approach will not always apply in these situations. In Re French
Caledonian Travel (2003) 59 NSWLR 361 at 420-1, Campbell J gave the following example
of where the pari passu approach would be inappropriate:
If, for instance, there was a time when a trust account was completely depleted, beneficiaries whose
money went into that trust account before the day of depletion could not have any equitable right at
all to the sum which stands in the account at the date of trial. If the account in which the mixing
occurred at any time reached a particularly low level, it may be that those people whose money was
paid into the account before that low level was reached ought be accorded a smaller dividend on the
amount of their claim than people whose money was paid in after that low level was reached.
Furthermore, as Campbell J, at 421, noted, ‘[s]ometimes … there might be facts which
showed that claimants fall into particular classes such that one class has a higher
priority for the charge it can establish than does the other class’. Such cases would
depend upon there being evidence before the court showing that some claimants had a
better claim to the funds than others, thereby justifying a tracing claim other than on
the basis of applying the pari passu approach. If there is doubt as to whether enquiries
should be made to determine the existence of such evidence, the court can be
approached to seek appropriate directions. His Honour, at 422, indicated that such
directions are unlikely to be given in a case where there is no evidence that the various
claimants are to be treated other than equally and where the available fund is
comparatively small and likely to be substantially spent if further enquiries were to be
made. In such a case the pari passu approach would be adopted.
Delete 29.37 and replace with the following:
29.37 A variation to the pari passu method is the ‘rolling charge’ or North American’
methodology. In Barlow Clowes International Ltd v Vaughan [1992] 4 All ER 22 at 44,
Leggatt LJ described this method as follows:
[A]s between beneficiaries to whom money in an account belongs, they should share loss in
proportion to their interest in the account immediately before each withdrawal. The fairness of that
course is obvious.
The following example illustrates the difference between the pari passu and rolling charge
methods. Trust funds are paid into a trustee’s personal account from separate funds held on
trust for A, B and C. The first deposit is $120 from A’s account, followed by $60 from B’s
account. The trustee then withdraws and dissipates $90 from the account. This is followed by
a deposit into the account of $60 from C’s account. The trustee then withdraws and dissipates
$90 from the account. After all these transactions there is a balance of $60 in the account.
On the pari passu approach A would be entitled to $30, B to $15 and C to $15.
On the rolling charge approach the first withdrawal by the trustee of $90 would be seen as
coming from A and B’s funds, with the $90 balance at that time being apportioned pari
passu. Thus, A would have been entitled to $60 and B to $30 at that time. To this was then
added $60 of C’s money. Thus, the proportions of the account at that time between A, B and
C were 2:1:2 respectively. Thus, following the second withdrawal of $90, the balance of $60
would be divided as follows: $24 to A, $12, to B and $24 to C.
Although the rolling charge method is arguably fairer than the pari passu approach, it is
rarely invoked because it is often very expensive and difficult to apply, especially in cases
involving many deposits of funds from many depositors. In such cases courts have tended to
apply the pari passu method: Barlow Clowes International Ltd v Vaughan [1992] 4 All ER
22 at 28; Russell-Cooke Trust Co v Prentis [2003] 2 All ER 478 at 495; The Charity
Commission for England and Wales v Framjee [2014] EWHC 2507 (Ch) at [63]-[64].
However, in simple cases the rolling charge method should displace the pari passu method:
The Charity Commission for England and Wales v Framjee at [50].
CHAPTER 30
At the end of 30.4 add the following:
Accordingly, courts will be very careful before ordering rectification: Russell v RCR
Tomlinson Ltd [2012] WASC 405 at [61].
However, as was noted by Sackar J in W & K Holdings (NSW) Pty Ltd v Lauren Margaret
Mayo [2013] NSWSC 1063 at [66], ‘the requirement for “convincing proof” does not alter
the civil standard of proof on the balance of probabilities’. In this respect, in Thomas Bates &
Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 All ER 1077 at 1090, Brightman LJ said:
The standard of proof required in an action of rectification to establish the common intention of the
parties is, in my view, the civil standard of balance of probability. But as the alleged common
intention ex hypothesi contradicts the written instrument, convincing proof is required in order to
counteract the cogent evidence of the parties’ intention displayed by the instrument itself. It is not, I
think, the standard of proof which is high, so differing from the normal civil standard, but the
evidential requirement needed to counteract the inherent probability that the written instrument truly
represents the parties’ intention because it is a document signed by the parties.
At the end of 30.7 add the following:
On the issue of when a case is one of construction as opposed to rectification, in W & K
Holdings (NSW) Pty Ltd v Lauren Margaret Mayo at [50]-[51], Sackar J said:
Although there is clearly a conceptual similarity, and perhaps an overlap, between correction by
construction and the doctrine of rectification, there is a difference in their respective scopes of
application … [A] common view is that the dividing line between cases where correction by
construction is available and where only correction by rectification is available, is to be drawn on the
basis of whether the party seeking the correction is seeking to rely on prior negotiations between the
parties, the actual or subjective intentions of the parties or parol evidence or on whether the ‘error’
calling for correction is so obvious simply from the face of the document … That would appear to be
consistent with Mason J’s comments in Codelfa Construction Pty Ltd v State Rail Authority (NSW)
(1982) 149 CLR 337 at 352:
The object of the parole evidence rule is to exclude them, the prior oral agreement of the
parties being inadmissible in aid of construction, though admissible in an action for
rectification.
The difference between the scope of operation of correction by construction and correction by
rectification is perhaps more important in Australian than English contract law, given the narrower
Australian view as to the permissibility of extrinsic material for the purposes of construction
(Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [52]; … Western
Export Services Inc v Jireh International Pty Ltd (2011) 282 ALR 604; cf Charterbrook Ltd v
Persimmon Homes Ltd [2009] 1 AC 1101 and Investors Compensation Scheme Ltd v West Bromwich
Building Society [1998] 1 WLR 896).
On the other hand, an entire agreement clause will not preclude the granting of the remedy of
rectification. In Westpac Banking Corporation v Newey [2013] NSWSC 847 at [42],
Pembroke J said:
I do not think that the presence of such a clause is determinative of either the construction issue or
the rectification issue. It is not a bar to rectification although in certain cases it may be a factor. I
doubt that an entire agreement clause does more than indicate that the parties intended, as they
usually do, that their agreement is to be found in the language they have chosen, and not outside of
it. But that is not an answer to a rectification claim - which involves a search for an underlying
intention that is not accurately reflected in the chosen words.
At the end of 30.11 add the following:
In Daventry District Council v Daventry & District Housing Ltd [2012] 1 WLR 1333 at [85][89], Etherton LJ (Lord Neuberger MR agreeing) set out the policy justifications for the
objective approach as follows:
By way of reinforcement of those points, it may be helpful to consider the policy considerations
justifying the intervention of equity by rectification for mutual mistake of a contract binding on the
parties at common law. There are primarily four factual situations to consider. The first one is where
the parties subjectively and objectively (that is to say in their communications passing between
them—or ‘crossing the line’) are in agreement but the formal documentation as executed fails to give
effect to that prior agreement. The documentation should be rectified to bring it into line
(retrospectively) with their prior accord. Subject to such matters as delay and prejudice to any third
party interests, there is no good reason not to do so.
The second scenario is where the parties never subjectively had the same intention, but the
communications crossing the line show that objectively there was a common continuing intention at
all relevant times prior to the execution of the final documentation, and the formal documentation
reflected those prior communications. In that situation, whether or not rectified, one or other of the
parties will be bound by a contract which they did not subjectively intend to enter into. It is right that
the claimant should not be entitled to rectification to bring the documentation into line with a
subjective intention and belief that was never communicated to the defendant and to which the
defendant never agreed.
The third scenario is where there was objectively a prior accord, but one of the parties then
subjectively changed their mind, but objectively did not bring that change of mind to the attention of
the other party. It is right that, if the documentation gives effect to the objective prior accord, the
formal documentation should not be rectified to reflect the changed but uncommunicated subjective
intention; and if the documentation as executed reflects the changed but uncommunicated subjective
intention, it should be rectified to give effect to the objective prior accord. To do otherwise would be
to force on one of the parties a contract which they never intended to make on the basis of an
uncommunicated intention and belief.
The fourth scenario is where there was objectively a prior accord (whether or not a subjective
common intention), and one of the parties then objectively changed their mind, that is to say
objectively made apparent to the other party that they intended to enter into the transaction on
different terms. Leaving aside rectification for unilateral mistake (the requirements for which are
quite different), it is right that, if the documentation as executed gives effect to the objectively
indicated change of mind, a claim for rectification to give effect to the earlier prior accord should be
refused. Once again, to do otherwise would force on the defendant a contract which they never
intended to make on the basis of the claimant’s uncommunicated subjective intention to enter into a
contract on the basis of the original accord notwithstanding the defendant’s objectively
communicated change of mind.
That analysis shows why it is good policy to favour objective accord or objective change of accord
over subjective belief and intention in cases of rectification for mutual mistake.
At the end of 30.12 add the following:
In Ryledar Pty Ltd v Euphoric Pty Ltd at 658-68, after an analysis of relevant authorities,
Campbell JA concluded that an outward expression of common intention is required, but that
it can be satisfied in various ways, including direct or indirect statements by the parties, a
process of conscious and deliberate inference, or in particular contexts, the existence of
specific practices and conventions.
At the end of 30.16 add the following:
This approach was endorsed by the New South Wales Court of Appeal in Ryledar Pty Ltd v
Euphoric Pty Ltd at 631–3, and by the Court of Appeal in Western Australia in Tipperary
Developments Pty Ltd v Western Australia (2009) 38 WAR 488 at 548; 258 ALR 124 at 184.
In W & K Holdings (NSW) Pty Ltd v Lauren Margaret Mayo at [98], Sackar J said:
There needs to be evidence not only of the effect which the parties intended to achieve, but also of
the precise method by which the parties intend that effect to be achieved, in order to enable the court
to have an evidentiary basis for formulating the terms of the order for rectification.
At the end of the first sentence in 30.17 insert the following:
Thus, in Franknelly Nominees Pty Ltd v Abrugiato at [179], Buss JA, speaking for a
unanimous Court of Appeal, said:
[R]ectification will not be available where the parties are merely mistaken as to the consequences of,
or the advantages to be gained by, a contract or transaction recorded in an instrument. That is, equity
will not grant rectification where a mistake by the parties relates only to the expected consequences
or advantages of a contract or transaction, and not to the expression in the instrument of what the
parties actually agreed or intended.
At the end of 30.24 add the following:
In Day v Day [2013] 3 All ER 661 at 668, the Chancellor, after referring to the principles in
Re Butlin’s Settlement Trusts, said:
What is relevant in such a case is the subjective intention of the settlor. It is not a legal requirement for
rectification of a voluntary settlement that there is any outward expression or objective communication of
the settlor’s intention … Although … there is no legal requirement of an outward expression or objective
communication of the settlor’s intention in such a case, it will plainly be difficult as a matter of evidence
to discharge the burden of proving that there was a mistake in the absence of an outward expression of
intention.
In these cases it is the intention of the settlor alone that is relevant: Day v Day at 668, 675.
Furthermore, an outward expression of intention is not necessary: Day v Day at 668, 674.
Delete 30.25 and replace with the following:
30.25 In relation to emergence of the remedy of account, in Testel Australia Pty Ltd v KRG
Electrics Pty Ltd [2013] SASC 91 at [93]-[94], Blue J said:
The Court of Chancery developed the remedy of an account of profits in its exclusive jurisdiction in
respect of equitable causes of action such as breach of fiduciary duty, breach of confidence and
infringement of intellectual property rights ... The common law courts did not give a remedy of an
account of profits in respect of common law causes of action and they did not recognise equitable
causes of action. Conversely, the Court of Chancery did not grant the remedy of an account of profits
(as opposed to specific performance or injunction) in its auxiliary jurisdiction.
However, in a footnote within the above passage, Blue J note the following:
The common law courts did recognise an action of account where there was a pre-existing
relationship between the parties which required the defendant to account to the plaintiff (eg a preexisting obligation to account by a bailiff, receiver, rent collector, agent or trustee). If the obligation
was to account for profits (as opposed to gross receipts), the appropriate remedy was to order that the
defendant account for those profits. However, that is quite different to a remedy being granted for a
simple breach of contract measured by reference to the profit made by the defendant where there was
no pre-existing relationship between the parties involving an obligation by the defendant to account
to the plaintiff for such profits.
The essence of the remedy of an account of profits is the recovery of net gains that a
defendant has made pursuant to a breach of duty owed to the plaintiff. In ascertaining amount
of profit to be accounted for, ‘there is nothing wrong with the court estimating the profit by
drawing inferences, provided that there is some evidence of actual profit’: V-Flow Pty Ltd v
Holyoake Industries (Vic) Pty Ltd (2013) 296 ALR 418 at 430. The remedy stems from ‘the
principle that no one should be permitted to gain from his own wrongdoing’: AttorneyGeneral v Guardian Newspapers Limited (No 2) [1990] 1 AC 109 at 262; [1988] 3 All ER
545 at 644. The purpose of the remedy is not to punish the defendant, but rather to prevent
the unjust enrichment of the defendant: Dart Industries Inc v Decor Corporation Pty Ltd
(1993) 179 CLR 101 at 114–15; 116 ALR 385 at 390. Thus, the remedy is not compensatory
in nature. In this respect, in Nicholls v Michael Wilson & Partners Limited (2010) 243 FLR
177 at 211–2, Young JA said:
There is a vital difference between an order for account of profits and an order for the payment of
equitable compensation. In the former case, the plaintiff adopts what the defendant did, virtually as
its agent and asks the agent to pay over the profits the agent made. In the latter case, the defendant is
treated as a wrongdoer and is liable to pay what the plaintiff lost by its wrongdoing.
At the end of 30.38 add the following:
The court’s power to appoint a receiver is not unfettered. The power of appointment ‘is an
extraordinary and drastic remedy, to be exercised with utmost care and caution and only
where the court is satisfied there is imminent danger of loss if it is not exercised’: Bond
Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445 at 458.
Furthermore, ‘[a] receiver should not be appointed if it has the effect of preventing the
defendant from carrying out ordinary transactions in the course of business’: BAT Industries
Plc v Windward Prospects Ltd [2013] EWHC 3612 (Comm) at [46]. Finally, the applicant for
the appointment of a receiver is usually required to give an undertaking as to damages as ‘the
price to be paid’ for the order: Commonwealth v ABC2 Group Pty Ltd [2008] NSWSC 1383
at [28].
At the end of 30.39 add the following:
In Wood v Gorbunova [2013] EWHC 1935 (Ch) at [25], the court noted that the receiver’s
duty is ‘to act impartially in accordance with the directions of the court in administering the
property to which the receivership extends’.
CHAPTER 31
At the end of 31.13 add the following:
In Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181 at [73], Meagher JA said:
The doctrine of laches is directed to … [the] question [of] whether, as between the parties, it would
be practically unjust to give relief which otherwise would be just. In answering that question,
account is taken of the length of any delay, the nature of acts done during the period of that delay,
whether the plaintiff had sufficient knowledge to justify the commencement of proceedings, whether
there has been prejudice to the defendant or others and the nature of the relief claimed.
Delete 31.16 and replace with the following:
31.16 In relation to the second and third elements of laches set out in Crawley v Short, it is
clear that, for the laches principle to apply, the delay must be unreasonable and, in all the
circumstances, it must render the grant of equitable relief against the defendant
unconscientious: Re Loftus (dec’d) [2006] 4 All ER 1110 at 1124. In Amir Ashrafinia v
Mohammad Reza Ashrafinia [2013] NSWSC 1442 at [303], Slattery J said:
Among the circumstances relevant to determining whether there was unreasonable delay are the
length of the delay, the nature of the acts done during the period of delay and that nature of the right
to be enforced.
It is often said that mere delay - that is, delay that has had no adverse consequences for the
defendant or any third party - is not enough to establish laches: Lamshed v Lamshed (1963)
109 CLR 440 at 453. This is so, even in cases of long periods of delay. Thus: (i) in
Burroughes v Abott [1922] 1 Ch 86, the court granted rectification of an instrument after a
delay of twelve years; (ii) in Weld v Petre [1929] 1 Ch 33, a mortgagor’s redemption suit was
held not time-barred despite a delay of twenty-six years; (iii) in Fitzgerald v Masters (1956)
95 CLR 420, the High Court granted specific performance twenty-six years after the cause of
action arose; and (iv) in Gillespie v Gillespie [2013] QCA 99, the transfer of a house by a
father to his children was set aside on grounds of undue influence following a delay of nearly
nine years.
At the end of 31.19 add the following:
On the other hand, where ‘injunctive relief is informed by, or founded upon, the protection of
the public by enforcement of the Trade Practices Act or Australian Consumer Law, delay,
even serious delay otherwise sufficient in equity to disentitle the applicant to relief, may not
have that effect, in that the court will be slower to give effect to delay or like considerations,
given the wider public interest, beyond mere private rights’: Knott Investments Pty Ltd v
Winnebago Industries Inc (2013) 299 ALR 74 at 88.
At the end of the first sentence in 31.26 insert the following:
In Salvation Army (South Australia Property Trust) v Graham Rundle [2008] NSWCA 347 at
[91], McColl JA observed that ‘[e]quity developed the doctrine of analogy to apply the
common law limitation period to an analogous proceeding in equity in order to prevent
plaintiffs at law from avoiding a limitation statute by disguising their claims as equitable’.
At the end of 31.26 add the following:
In Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181 at [70]-[72], Meagher JA said:
The authorities … , and in particular R v McNeil (1922) 31 CLR 76, show that in purely equitable
proceedings, where there is a corresponding remedy at law in respect of the same matter and that
remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a
ground which justifies its not doing so because reliance by the defendant on the statute would in the
circumstances be unconscionable. They do not support the proposition that equity retains any
broader discretion whether to apply the bar …
The distinction, referred to by Isaacs J in R v McNeil, between equity applying its own doctrine of
laches and adopting, in analogous cases, the measure of time fixed by statute unless there is a
‘greater equity’, is one of substance. The circumstances in which such an equity arises include where
fraudulent conduct of the defendant has denied the plaintiff the opportunity to sue within the
statutory period. That equity is satisfied by preventing the defendant from taking advantage of the
plaintiff’s omission to do so.
At the end of 31.27 add the following:
Thus, the defence of laches may arise before the expiration of any limitation period that
would apply by use of the statute by analogy: Amir Ashrafinia v Mohammad Reza Ashrafinia
[2013] NSWSC 1442 at [316].
At the end of 31.30 add the following:
In applying the statute by analogy, it is not enough that there is sufficient similarity between
the equitable claim and the relevant statutory claim that is dealt with in the legislation; ‘the
Court must be satisfied that in all the circumstances it is just to apply the statutory time limit’:
Amir Ashrafinia v Mohammad Reza Ashrafinia [2013] NSWSC 1442 at [314]; Salvation
Army (South Australia Property Trust) v Graham Rundle [2008] NSWCA 347 at [86]. If
there are circumstances that make the application of the statute by analogous
unconscientious, then the court will not do so: Agricultural Land Management Ltd v Jackson
(No 2) [2014] WASC 102 at [212].
At the end of 31.31 add the following:
On the other hand, in Spaulding v Adams [2013] TASFC 8 at [37]-[48], the Court of Appeal
ruled that, had the plaintiff’s claim for breach of fiduciary duty been established, his claim for
equitable compensation would have been barred by the application by analogy of Tasmania’s
limitations legislation relating to a claim for breach of contract. Similarly, it may well be the
case that the equitable claim for compensation in relation to a trustee’s failure to exercise care
and skill is analogous to the common law tort of negligence: Agricultural Land Management
Ltd v Jackson (No 2) [2014] WASC 102 at [210].
At the end of 31.34 add the following:
Finally, in H P Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53 at 82, Emmett JA observed
that ‘[i]t is not, of itself, an objection to the availability of equitable set-off that either or both
of the legal demands is made pursuant to a statute that creates new obligations and rights that
give rise to debts or liabilities in unliquidated damages. The question is whether the statute
excludes what otherwise would be the operation of equitable set-off upon those statutory
debts and liabilities’.
At the end of 31.40 add the following:
In Ozden and Ozden v Commonwealth Bank of Australia [2014] VSCA 127 at [82]-[84], the
Court of Appeal applied the impeachment test and made no reference to the English approach
set out in Geldof Metaalconstructie NV v Simon Carves Ltd.
At the end of 31.41 add the following:
In H P Mercantile Pty Ltd v Dierickx at 81-2, Emmett JA gave the following examples of
equitable set-offs:
[W]here a mortgage is granted to a solicitor as security for costs and the mortgagor client has a
cross-claim against the solicitor asserting that the costs would not have been incurred had the
solicitor conducted himself with integrity, skill and attention, there will be a clear case of equitable
set-off. Similarly, a court of equity may recognise a set-off of an unliquidated claim for damages for
breach of a building contract against claims for money due under the contract. Again, where a lender
promises to provide further advances for a development project and the borrower is unable to
complete the development project and repay the advances actually made, equity would allow a setoff of the borrower’s damages caused by the lender’s failure to make the further advances before the
lender would be permitted to enforce its security against the borrower.