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Topic 1 – Introduction and History 1

Introduction

The foundations of equity began in England in the 13th Century in the Court of Chancery. The chancellor was a member of the Church who sought to determine, based on individual merits, whether the common law had produced an unjust or unfair ruling.

The Chancellors role was basically:

To ensure that the “fair and just” application of the law was apply in a Court of Equity To protect a plaintiff from an unconscionable or misapplication of the law in the

Chancellors view. To develop a system of “equity maxims” which would ensure that equity would

uphold the “fair and just” application of the law. To disregard “precedent” and completely ignore the need for consistency and

homogeny in favour of ad hoc decisions based on individual merit.

Thus, equity refers to a body of rules and principles that have developed over a long period of time which are distinct from common law principles developed under the common law judicial system. In fact, until the Judicature Acts of 1873-1875 (UK) was passed – equitable cases were heard in a separate Court from their common law counterparts – the ideology being that a separate Court would provide a distinct and unique application of equity principles on the case.

Once the Judicature Acts of 1873-1875 (UK) was passed, this changed significantly since the number of disputes and legal proceedings rapidly increased requiring the Courts to administer both equitable doctrines and common law rulings concurrently.

Most important to note however, was that this resulted in the amalgamation of common law and equity into the same Courts – equity remains a very unique and distinct body of law which has its own applications and principles and values and goals. There is, and will never be, a symbiotic relationship between common law and equity since the root of their application is entirely different. As you may well know, common law cases rely on prior authorities established throughout time and their relevant application of these principles – equity relies on what is “just and right” and can disregard prior rulings in favour of the “pure application of fair and just equitable principles”.

As stated by Justice Kitto, “equity is the saving supplement and complement of the common law”. In modern times, the boundaries between common law and equity are shifting –the interaction between the two now becoming the very forefront of private law. Equity now tends to “fill the void” that common law simply cannot – and equitable remedies can be applied when common law remedies are not suitable or simply do not provide, what the Court deems to be, sufficient relief.

Maxims of Equity

1 Any reference to ‘MGL’ refers to R, P Meagher, J D Heydon, M J Leeming – Meagher, Gummow and Leahanes Equity Doctrines and Remedies, 4th Edition, LexisNexis Butterworths, Sydney, 2002 – the preeminent book on equity.Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.

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The ‘Maxims of Equity’ are a series of guiding principles developed throughout time which can be applied to assist the determination of a claim. These principles were commented on in Corin v Patton (1990) 169 CLR 540 by Mason CJ and the core maxims are listed below:

Equity is equality Equity will not, by reason of a merely technical defect, suffer a wrong to be without a

remedy Equity looks to the intent rather than the form Where the equities are equal, the first in time shall prevail. He or she who seeks equity must do equity Equity looks on that as done without to be done Equity imputes an intention to fulfil an obligation Where there is equal equity, the law shall prevail. Equity acts in personam Equity does not assist a volunteer Equity follows the law He or she who comes into equity must come with clean hands Delay defeats equities

From these maxims, a long list of important contributions by equity can be established. This list provides some insight in the modern application of equity principles but by no means is a complete and authoritative list:

equity may foresee the creation of a property right at law; equity has a longer list of property rights than does the common law; equity may recognize property rights in situations where the common law would, or

perhaps, could not; equity has developed the important doctrines of contribution, marshalling and

documented a range of equitable securities; equity is more far reactive to mistake, fraud (including unconscientious behaviour)

and breaches of confidence; equity is more lenient than the common law when considering a failure to comply

with the requirements of formality; equity has been regarded as a more adequate function to be able to trace through

substitutions of one asset for another; equity has a highly important role to play in the consideration of the institution of the

trust and with it the fiduciary obligations of trustees; equity has a longer list of remedies than the common law does.

Equity will always prevail

Most importantly perhaps in Australia, is the notion – now upheld by statutory authority – that where the rules of equity and the common law are in conflict or discrepancy – equity will always prevail. An example of such statutory authority is s29 of the Supreme Court Act 1986 (Vic).

Use of the Maxims

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The use of equitable maxims is entirely in the hands of the litigating parties to determine whether there use is beneficial or harmful to the arguments of their respective cases. For example, if a plaintiff has a history of unconscionable or ‘bad faith’ behaviour (and assuming that this evidence is admissible) then a defendant may attempt to defeat the plaintiff’s case by simply arguing that the plaintiff does not come to Court with clean hands.

Most relevant is the use of the maxims is the concept outlined in Black Uhlans Inc v NSW Crime Commission (2002) 12 BPR 22,421 where it was stated by Campbell J that 2 preconditions must apply in order to rely on equitable maxims. The conduct of the plaintiff must:

‘have an immediate and necessary relation to the equity sued for’ and must;‘constitute a depravity in a legal as well as in a moral sense’.

Such requirements, as outlined by Campbell J, underpin the legal justifications for equity in modern law – most particularly in the later point. While common law will examine and accept policy considerations where relevant, it will typically not extend these considerations to what is “morally” correct. The morality of a decision in common law is not considered in any detail yet in equity it is closely examined. Such a difference highlights the equitable origins of the Court of Chancery in upholding what is “just and fair”.

If we turn our attention to the remarks of Gummow J in his paper Change and Continuity: Statute, Equity and Federalism OUP Oxford 1999 pp. 53-54 – it is seen that:

“It is the concern of equity with the standards of probity and good conscience, the adaptability of equitable doctrine to changing circumstances and the discretionary nature of equitable relief which … stand in marked contrast to the more rigid formula applied by the common law and equip it better to meet the needs of the type of liberal democratic society which has evolved in the 20th century.”

The conscience of a Court of Equity extends not to the private morality and bias of a judge but rather to the judge’s application of that morality in consideration of civil and official duties. Thus, it is correct to purport that while modern equity law will strongly consider and uphold conscience where relevant, it may not readily apply it in the face of an established equitable authority. This specific point was commented by Justice Hayne in Bridge v. Campbell Discount Co. Ltd [1961] q QB 445 at 459 where His Honour states:

“[I]dentifying some conduct as unconscionable or unconscientious is a statement of conclusion which would sit as well in the discourse of an ethicist, as it does in reasons for judgment. But in the law, they are not terms that invite, or even permit, recourse to a judge’s idiosyncratic, or characteristic, sense of justice. What sets apart the two fields of discourse of the ethicist and the judge is the need for the judge to articulate what it is that leads him or her to the conclusion that the conduct in question should wear this label.”

It is also possible to look further to High Courts comments in Farah Constructions Pty Ltd v. Say-Dee Pty Ltd (2007) 81 ALJR 1107 at [154] where it upheld previous comments of Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Gummow J in Roxborough v. Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at [74]:

“To the lawyer whose mind has been moulded by civilian influences, the theory may come first, and the source of the theory may be the writings of jurists not the decisions of judges. However, that is not the way in which a system based on case law develops; over time, general principle is derived from judicial decisions upon particular instances, not the other way around.”

Other notable equitable cases worth reading include:

Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102; 130 ALR 570 – High Court Australia

Walsh v Londsdale (1882) 21 Ch D 9 Court of Appeal (UK) ORR v Ford (1989) 167 CLR 316; 84 ALR 146 – High Court of Australia

Topic 2 - Unconscientious and/or Unconscionable Conduct



Introduction

Most scholars new to law often confuse “unconscientious and/or unconscionable conduct” with the previously learnt Trade Practices Act 1974 (Cth) s51 through s53 and relevant statutory concepts relating to misleading and deceptive conduct. While it is true that the statutory authority is often the most quoted in the media and the primary focus of many law journals around Australia – equity can also provides relief from transactional unconscionability in a variety of situations.

Signing a Contract

It is important to ensure that confusion does not occur when studying cases involving incapacity, non est factum (it is not my deed), fraudulent misrepresentation, mistake or duress which are each distinct, and very developed bodies of law in their own right. Each of these doctrines typically always involves a signed written contract that one party is attempting to rescind or terminate entirely and most common law cases deal entirely with this issue. This was best typified by the comments by the High Court in Toll (FGCT) Pty Ltd v. Alphapharm Pty Ltd (2004) 219 CLR 165 at [45]:

‘It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they might be.’

The general attitude of the common law is therefore that when a person signs a document, doing so makes this signature a gift or enters this person into the contract. Consequently, at common law – a person cannot revoke the terms of the contract they have signed and cannot rescind or terminate a completed gift.

Generally, the common law will only seek to reverse transactions when one of the contracting parties has entered the contract under duress, non est factum, unconscionable conduct or undue influence. The primary focus of this section is address the relief that the law of equity provides to parties under undue influence and unconscionable conduct.

Undue Influence



Definition

Undue Influence is a doctrine of equity which provides relief under common law where one contracting party has exerted ‘undue or excess’ confidence, control, domination or influence over another party which has resulted in a transaction that has lead to the transfer of property. The doctrine considers and seeks to balance the motives of the stronger party against those of the weaker and more vulnerable one.

Purpose

Thus, the doctrine focuses on the plaintiff establishing that their will was influenced and dominated by the defendant and this let them to entering into the contract. A plaintiff who cannot establish this requirement, as suggested in the decision of Archer v Archer [2000] NSWCA 314, cannot succeed in satisfying the requirements of undue influence and the Court will not set aside the transaction.

Inter vivos Transactions Only & Inequality of Bargaining Power

The doctrine is only concerned with transactions that occur inter vivos – or during the donor lifetime. The doctrine applies to gifts and to cases where there is a transfer of value to a weaker party. In Johnson v Buttress (1936) 56 CLR 113 Dixon J suggested in obiter that the preferred view is that where the transaction is cast a contract the presumption will still arise but can be rebutted if the transaction is shown to be a proper business dealing. Of course, it is critical in any case that a clear and transparent distinction is made between the setting aside of a transfer of property due to undue influence and the setting aside of a contract merely because it has turn sour for one of the contracting parties.

To consider the Courts view on Undue Influence, we can look to the case of Brusewitz v Brown [1923] NZLR 1106 where at 1109-10 Sir John Salmond said:

“the mere fact that a transaction is based on an inadequate consideration or is otherwise improvident, unreasonable, or unjust is not in itself any ground on which this court can set it aside as invalid ... The law in general leaves every man at liberty to make such bargains as he pleases, and to dispose of his property as he chooses. However improvident, unreasonable, or unjust such bargains or dispositions maybe, they are binding on every party to them unless he can prove affirmatively the existence of one of the recognised invalidating circumstances is unduely influenced.

This general principle, however, is subject to an important exception. Where there is not merely an absence or inadequacy of consideration for the transfer of property, but there also exists between the grantor and the grantee some special relation of confidence, control, domination, influence, or other form of superiority, such as to render reasonable a presumption that the transaction was procured by the grantee through some unconscientious use of his power over the grantor, the law will make that presumption, and will place on the grantee the burden of supporting the transaction by which he so benefits, and of rebutting the presumption of its invalidity. In such cases it is necessary for the grantee to prove that the suspected transaction has not its source in any improper influence over the mind or will of the grantee, or in any fraud, misrepresentation, mistake or concealment of material facts which ought to have been disclosed by the grantee to the grantor in view of the relation between them. Unless the grantee can prove this the transaction will be set aside at the suit of the grantor or his representatives.”



Types of Undue Influence

Undue Influence has been classified into three different classes, as per the obiter in Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 at 952, where the English Court of Appeal suggested the following classes:

1. Class 1 – Actual Undue Influence2. Class 2 – Presumptive Undue Influence3. Class 3 – Influence proved rather than presumed

Class 1 – Actual Undue Influence

Proving Undue Influence

Before a more detailed discussion into each of the later classes is considered, it is first prudent to examine how actual undue influence must generally be proven. In Johnson v Buttress (1936) 56 CLR 113 at 134, Dixon J stated that for undue influence to be proven four elements must be satisfied. These elements are:

1. The inducing party has the capacity to influence the complainant;2. The influence actually occurred;3. The occurrence was definitively undue; and4. The occurrence is directly correlated too, and brought about by, the transaction.

The case of Daniel v Drew [2005] EWCA Civ 507 (6 May 2005) considers actual undue influence in greater detail regarding an elderly woman who was a trustee of a family trust and whose nephew wanted her to resign as the trustee of this trust.

The nephew consequently pressured his aunt to resign and the aunt’s son took the nephew to Court seeking equitable relief.

The Court ruled that there was a substantial body of evidence to satisfy that undue influence had occurred and that the nephew had forced the aunt to resign when she did truly not want to.

Class 2 – Presumptive Undue Influence



What is the presumption?

Class 2 circumstances of undue influence primarily arise where proof of the relationship alone is sufficient to raise a presumption of undue influence. Equity recognises certain relationships which inherently involve a high degree of trust and confidence and such relationships, by their very nature, allow one party to have substantial influence and control over the other weaker party.

These relationships can also carry a pre-existing economic component whereby the stronger party can easily influence the weaker party to engage in economic transactions. Relationships of this nature therefore also carry a fiduciary dimension. It is important to note that although this pre-existing relationship can increase the burden of proof for the defendant; this component is not a critical one if the exertion of undue influence results in a subsequent later transaction.

Recognised Categories that raise the presumption for the plaintiff

If the relationship between the parties falls into one of these pre-existing recognised categories, the effect is that the plaintiff does not have to prove that undue influence occurred to induce the weaker party to enter into the transaction.

Consequently, and as suggested in Johnson v Buttress (1936) 56 CLR 113, this infers that the burden of proof shifts to the defendant to prove that the plaintiff entered into the transaction freely – as opposed to the plaintiff having the prove that defendant induced them into the transaction. Thus, unless the defendant can rebut the presumption of undue influence then the transaction will be set aside by the Court.

The following table illustrates some of the presumed relationships of influence and those which Courts have suggested also carry a fiduciary relationship.

Stronger/Weaker Party Presumed Relationship Fiduciary RelationshipSolicitor-client Yes YesChild-parent No NoParent-child Yes No

Doctor-patient Yes NoSpouse-spouse No No

Religious Leader - worshipper Yes No

Effect of Presumed Relationship



Most notably are the comments of Dixon J in the case of Yerky v Jones (1939) 63 CLR 649, 675 which inferred that presumptive relationships of undue influence are not, by themselves, entirely sufficient to fully explain the transactions or to account for them without suspicion that the relationship of confidence has actually been abused.

In Talbot & Oliver v Shann [2005] WASCA 34 it was established that it is not necessary to prove that either party had knowledge that a presumed relationship existed, rather the most critical aspect is that one in fact did exist.

Spousal

If we consider the spousal relationship for example, in Latham CJ’s decision from Yerky v Jones he states:

“It is true that undue influence maybe more easily proved in the case of husband and wife than in cases where no special relationship exists between the parties, but there is no presumption of such influence from the marital relationship.”

Thus, the spousal relationship does not carry a presumptive relationship of undue influence since the notion exists that each spouse will always wish to benefit the other. The same logic can be applied to the relationship of a child and a parent since it is assumed that a parent will always love their children and want to benefit them. However, the reverse is not presumed and therefore parents are not presumed to subject to undue influence of their children.

Class 3 – Influence proved rather than presumed



Not Presumed – Difference between Presumed and Not Presumed

There are relationships of undue influence which can be proven but are not presumed. It is always the responsibility of the plaintiff to show that the influencing party had a position of power or domination over them and that it was due to this position that the transaction was entered. Evidently, this is the primarily difference between a presumed relationship of undue influence which falls into an established category and one that must be proven.

In Johnson v Butress (1936) 56 CLR 113, 134-5, Dixon J stated that a relationship of influence is

‘where one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part’

Proving the Presumed Relationship Raises the Presumption

If the plaintiff can prove that such a relationship exists, then the presumption of undue influence arises and the defendant must rebut the presumption and convince the Court that transaction was entered into freely by the plaintiff. Of course, there are numerous factors which can increase the presumption that a defendant used a relationship of influence to induce a transaction over a plaintiff. In Union Fidelity Trustee Co Of Australia Ltd v Gibson [1971] VR 573, 576, Gillard J stated some factors which can increase the presumption that a relationship of undue influence exists:

1. Attributes of weaker party:a. Standard of intelligence and education; (Johnson v Buttress (1936) VLR 270;

[1946] ALR 323)b. Fragile character and personality; (Brusewitz v Brown [1923] NZLR 1106)c. Age, experience and lack of business affairs and a fragile state of health.

(Bank of NSW v Rogers (1941) 65 CLR 42)

2. Aspects of stronger-weaker party relationship:a. Length of friendship or association;b. Strength of the character and personalities of the parties;c. The existence of a family relationship;d. The breadth and depth of business dealings between the parties.

In Johnson v Buttress (1936) 56 CLR 113 at 134-5 Dixon J said:

“One occupying such a position falls under a duty in which fiduciary characteristics may be seen. It is his duty to use his position of influence in the interests of no one but the man who was governed by his judgment, gives him his dependence and entrusts him with his welfare. When he takes from that man a substantial gift of property, it is incumbent upon him to show that it cannot be ascribed to the inequality between them which must arise from his special position. He may be taken to possess a particular knowledge not only of the disposition itself but of the circumstances which should affect its validity: he has chosen to accept the benefit which may well proceed from an abuse of the authority conceded to him, or the confidence proposed in him; and the relation between him and the donor are so close as to make it difficult to disentangle the inducements which led to the transaction. These considerations combined with reasons of policy to supply a firm foundation for the presumption against a voluntary disposition in his favour”.



Rebutting the Presumption

No Extraneous ‘Dominance or Control’

Once a presumption of undue influence has been established by a plaintiff – either through an established category, or via evidence submitted to the Court which indicates that a relevant relationship existed – the burden shifts to the defendant to prove that a relationship did not exist. In Johnson v Buttress (1936) 56 CLR 113 at 134-5 Dixon J said:

“the gift was the independent and a well understood act of a man in a position to exercise a free judgement based on information as that of the donee.”

Thus, it is clear that is not enough to show that the weaker party understood and assented to what he was doing or the consequence thereof. In order to rebut the presumption it must established that the intention of the stronger party was one which was free of influence over the weaker party, and that no extraneous ‘dominance or control’ was forced onto the weaker party to enter the transaction.

Key Points to Rebutting the Presumption

As per the commentary in Johnson v Buttress (1936) 56 CLR 113, in order to rebut the presumption, the defendant must prove that:

1. No Advantage - No advantage or benefit was taken over the plaintiff;

2. Independent Transaction - The transaction in question was free and independently understood by the plaintiff and no judgemental imbalance occurred;

3. No Exercise of Undue Influence - No position of influence existed which adversely led the plaintiff into entering the transaction.

External and Independent Evidence

Most commonly, if the stronger party has recommended that the weaker party seek external and independent advice regarding the transaction – this is enough to rebut the presumption as suggested in Gillard JN Union Fidelity Trustee Cost of Australia v Gibson [1971] VR 573 at 577-8.

It is important to note that advice must not only be ‘independent’ but a presumption is established that the independent advice must be of a certain standard including:

1. Knew all the facts - That the person providing the advice has been adequately briefed on all facts (Brusewitz v Brown [1923] NZLR 1106 at 1116)

2. Independent - The person providing the advice is entirely independent of the defendant and not related (Powell v Powell [1900] 1 Ch 243)

3. Sufficient Skill - The person providing the advice is sufficiently skilled and has the appropriate qualifications for the subject matter the advice is being provided for (Inche Noria v Shaik Allie Bin Omar [1929] AC 127)

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The most notable other forms of rebutting the presumption are delay and consent.

Delay

Delay is a traditional form of equitable relief and can rebut the presumption in an undue influence claim if, after the influence has occurred, the plaintiff excessively delays in seeking equitable relief. This occurred in Allcard v Skinner (1887) 36 Ch D 145, where the Court refused an order to return property after an undue influence claim was successfully established because the plaintiff had taken more than six years to lodge a complainant.

Interestingly, modern equitable relief has also ignored delay in circumstances where the parties had not altered their positions and were in no way affected by the delay. This occurred in Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30 where the Coutr ruled in favour of the plaintiff despite their being more than 20 years since the undue influence event occurred.

Consent

If the plaintiff indicates that a wrong done to them is through their own behaviour and not that of another party – despite there being clear evidence of undue influence – then the Court can rule that relief can occur through acquiescence.

Third Parties



Third parties can be involved in undue influence in two ways:

1. Influence over the Plaintiff to benefit Defendant with knowledge - By exercising influence over a plaintiff in order to benefit the defendant with the defendants knowledge; or

2. Influence over the Plaintiff to benefit Defendant without knowledge - By influencing the plaintiff to enter a transaction without the defendant having knowledge of the influence.

A pivotal case to illustrate the first class was Khan v Khan (2004) 62 NSWLR 229. The Supreme Court of NSW ruled that a reluctant vendor, who was advised by a muslim cleric to sell a property because she ‘would be rewarded in the afterlife’, were in an automatic presumed relationship of influence. Since the purchaser knew of the relationship of third party influence and the fact that the vendor would act on the influence so provided, the Court set aside the transaction.

Creditors & Banks as Third Parties

Most cases involving third parties are typically related to creditors – such as banks and financiers – who take a guarantee or some sort of security from a third party in support of the indebtedness of the debtor when that debtor obtains the aforementioned guarantee or security through the use of undue influence over the third party. Effectively the borrower applies undue influence to a guarantor in order to obtain a security which secures or guarantees the debt for the lender. Thus, the lender is the primary beneficiary since they gain security for the loan to the borrower.

Notice

In modern equity law in Australia, the most common case in which the lenders security will be set aside is where the lender has notice that the guarantor’s agreement has been acquired through the use of undue influence. If the use of the undue influence is probable then notice must be obtained by the lender of the relationship between the borrower and the guarantor.

This was seen in Bank of NSW v Rogers (1941) 65 CLR 42 where an uncle procured his niece to provide security for his overdraft. The niece had a close relationship with the uncle and the Court held that the bank must have been aware of this relationship, and therefore had notice. This led the Court to set aside the transaction.

Conflicting Representation

Of relevant note, in Bank of Baroda v Shah [1983] 3 All ER 24, the English Court of Appeal held that the bank was entitled to assume that solicitors for the debtor who represented they were acting also for a third party, would give the third party proper advice.

Remedies



Recession

The most common sought remedy for undue influence is simply recession of the transaction in dispute.

The Court will typically return the parties to the same state they were in before the transaction took place and recession usually always achieves this aim. In some cases, the plaintiff will want specific restitution of the asset – most commonly when they have been influenced into selling the property against their will – and the Court can easily enact this when the asset has not been sold by the defendant.

Resitutio in integrum – ‘restore to original condition’

In more difficult cases, restitutio in integrum will occur when the asset or transaction no longer exists or cannot be ‘reversed’. The Court will seek to provide equitable compensation in replace of the irreplaceable asset or transaction such as in Smith v Glegg [2004] QSC443.

Third Parties

The most complex cases are third party cases where one of the parties is unaware that undue influence has occurred and they have taken ownership of the property and subsequently sold it – leaving the party who was the subject of undue influence in a difficult position.

While the courts have, as in Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30, ruled in situations where A influences B to transact with C and C has not yet dispose of the property – that the transaction is set aside and the property is to be restored to B – no common law has been found in relation to circumstances where A influences B to transact with C and C has disposed of the property - the available remedies to B. This is due to the fact that if C is unaware of the undue influence placed on B by A, B may receive no equitable compensation against C since they are effectively an innocent party in the transaction.

Statutory Relief

Trade Practices Act 1974

While these notes are not an exploration of other areas of law except equity – it is useful to note that a number of statutory provisions which can provide relief for undue influence. Most notably are the provisions contained with s51AA(1) of the Trade Practices Act 1974.

Consumer Credit Code

Additionally there are numerous Fair Trading Acts in each state which each contain unique provisions dealing with unfair trading and transacting of goods. Additionally, statutory relief can be found in the uniform Consumer Credit Code under s70 which primarily relates to unjust transactions.

Contracts Review Act

Where relevant in Australia, the Contracts Review Act may also provide relief where contracts have been entered into when the Court is satisfied that they are unjust.Unconscionable Conduct



Unconscionable conduct or unconscionable dealings is an independent but parallel area of law similar in principles to the doctrine of undue influence. The primary difference, as outlined by Kitto J in Blomley v Ryan (1956) 99 CLR 362 at 415, is that the doctrine of unconscionable conduct in equity focus on

‘whenever one party to a transaction is at a special disadvantage in dealing with the other party because of illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands’

Differences between Undue Influence and Unconscionable Conduct

Essentially, the primary difference is that while the doctrine of undue influence deals with inappropriate or undue ‘control, domination, assertion or persuasiveness’ over a party to a transaction it does not focus heavily on the special disadvantage that influenced party may be subject too.

Undue Influence does focus on special disadvantage - In effect, undue influence does not focus on the raw exploitation of a party’s special disadvantage where as doctrine of unconscionable conduct does. While it is clear that there are evident parallels between the two doctrines – and this is often why both doctrines are used together in litigation where appropriate – it will become clear that each does not entirely overlap the other.

Easier to Establish a Claim - In Australia, more claimants use the doctrine of unconscionable conduct because it is often much easier to establish than a claim under the doctrine of undue influence. This is due to the fact that it is often easier for a plaintiff to establish that the

a) parties meet on unequal terms; andb) the stronger party takes advantage of this; c) in order to obtain a beneficial bargain

than it is to meet the requirements stipulated under a claim of undue influence. Additionally, it seems apparent from common law that the evidentiary burden of an action under undue influence is much greater than that of the doctrine of unconscionable conduct. For examples of cases which have failed under an action of undue influence but succeed under unconscionable conduct – refer to Bridgewater v Leahy (1998) 194 CLR 457 and Westpac Banking Corp v Cockerill (1998) 152 ALR 267.

Requirements for Unconscionable Conduct



Equity will seek to assist a plaintiff through the doctrine of unconscionable conduct when the plaintiff can establish that the

a) Unequal Terms & Special Disadvantage - Defendant and plaintiff have meet on unequal terms which render the plaintiff at a special disadvantage which the defendant is sufficiently aware of; and

b) Takes Advantage - The defendant takes advantage of the special disadvantage;

c) Beneficial Bargain - In order to achieve a beneficial bargain.

If the plaintiff is able to establish these three elements, then the onus will pass to the stronger party to show his conduct to have been fair, just and reasonable as stated in Fry v Lane (1888) 40 Ch D 312 at 322.

Commercial Bank of Australia Ltd v Amadio

The most commented example of unconscionable conduct is in the High Court’s decision of Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. An elderly couple who had a limited understanding of English executed a mortgage in favour of the bank after their son stated he needed it for his successful business. The son’s business was, in fact, in severe debt and the bank was going foreclose the business if they did not receive a guarantee over the sons requested overdraft. The mortgage contained a personal guarantee and the couple mistakenly believed that their liability was limited to $50K when it was in fact unlimited. The bank made the couple sign the document on the same day it learnt from the son that his parents would guarantee the overdraft. The son subsequently defaulted on the overdraft and the bank sought to enforce the mortgage against the couple’s house. The Court ruled to set aside the transaction on the grounds of unconscionable conduct.

Reasoning

In this case, the majority of the High Court held that it was sufficient to attract the operation of the doctrine of unconscionability if instead of actual knowledge of the plaintiffs special disadvantage, the defendant was merely aware of the possibility that the situation might exist, or if facts suggested to a reasonable person that the possibility may exist. If either of these instances occurs, then equity will seek to set aside the transaction if it is established that the defendant has taken unfair advantage of their superior bargaining power by entering into the transaction.

Exploitation of the Elderly Couple

It was evident that not only did the bank know of the sons business but they also did not seek to inform the couple of the true state of the son’s business and nor did they advise the couple to seek independent advice before entering into the transaction. It is evident that strong exploitation of the elderly couple occurred through the banks actions, and no viable defence was presented by the bank which sought to rationally explain its conduct.

Is there a special disadvantage?



The key outcome from the Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 was the High Courts use of ‘special disability’. This was first commented upon in Blomley v Ryan (1956) 99 CLR 362 where the following factors were provided which can help indicate that one party is at a special disadvantage:

a) The age of the weaker party;b) The sex of the weaker party;c) The sickness or mental health of the weaker party;d) The poverty or need of any kind of the weaker party;e) The coherency and alcohol levels of the weaker party;f) The level of educational or business experience of the weaker party;g) The degree to which independent expert advice or assistance is provided to the

weaker party.

Evidently, each of these factors play a key role in determining whether a defendant has taken special advantage over an innocent party. In Commerical Bank of Australia Ltd v Amadio (1983) 151 CLR 447, 462 per Mason J comments, the disadvantage must amount to one which

‘seriously affects the ability of the innocent party to make a judgement as to his own best interests’

The practical application of this statement is illustrated in Louth v Diprose (1992) 175 CLR 621 and Bridgewater v Leahy (1998) 194 CLR 457.

Louth v Diprose

The trial judge found in Louth v Diprose (1992) 175 CLR 621 that a man was under special disability in dealing with a woman because his infatuation with her – which she was aware of – and he bestowed upon her many gifts. The women appealed and the High Court agreed with the trial judge that the woman had engaged in unconscionable conduct.

Bridgewater v Leahy

A man, Bill, left a property to his wife and the remainder to his four daughters. The man had a nephew, Neill, whom he treated like a son and left him the option to purchase large sections of a farm at the substantial discount of $200K. The land was valued at around $700K. Bill was 84 years old and understood very well business transactions. After his death, the daughters wanted to set aside the transaction.

The High Court ruled that it was unconscionable conduct for Neill to get the benefit of the transaction since he was meeting on unequal terms and took special advantage of Bill through his special relationship with his uncle. This advantage allowed him to reap an extraordinary benefit which would not have occurred had there not been such a dependence.

Degree of Knowledge of the Special Disadvantage?



Aware of the Disadvantage

Evidently, a critical facet of any action taken under unconscionable conduct is that the defendant was actually aware, or a reasonable person in the position of the defendant would have been aware, of the plaintiff’s special disadvantage. The law is unclear on how much knowledge a defendant must have of a plaintiff’s special disadvantage and currently this is left for the Court to determine on the basis of the evidence submitted.

Takes Advantage

Clearly, if the defendant has unequivocal and actual knowledge of a plaintiff’s special disadvantage, as in Louth v Diprose (1992) 175 CLR 621, and takes advantage of this disadvantage then they will be liable under the doctrine. However, as seen in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, it was held that actual knowledge was not actually required. The Court specifically ruled that it was enough to establish that the bank new of a possibility of a special disadvantage and that because they knew of this possibility – they should have made reasonable inquiries to determine the extent of it.

Notable cases since the Amadio case include: Koh v Chan (1997) 139 FLR 410 – In this case, the Court ruled that ‘actual

knowledge’ was required and the Court effectively discounted the High Courts ruling. State Bank of NSW v Layoun [2001] NSW Conv R – Constructive knowledge is not

enough to establish a defendant actions as unconscionable.

ACCC v CG Berbatis Holdings Pty Ltd

The High Court’s decision in ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 is a case in point. There, several lessee’s of shops in a shopping centre bought proceedings against the lessor for the recovery of amounts which they claimed had been overpaid. While those proceedings were pending, the lessee of one shop whose lease was due to expire negotiated with the lessor’s agents for a new term. The existing lease conferred no right of renewal. The lessor was under no obligation to renew, and were entitled to negotiate new terms for renewal. In negotiations the lessor stipulated that the lessee discharge the lesssor from all claims the subject of the pending proceedings. At first instance French J held that the lessor had acted unconscionably. That decision was overturned on appeal to the Full Federal Court. The High Court dismissed the lessee’s appeal.

Gleeson CJ said that a person is not in a position of special disadvantage simply because of inequality of bargaining power. He said “many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests”.

Gleeson CJ continued (at [15]) “in the present case, there was neither a special disadvantage on the part of the lessees, nor unconscientious conduct on the part of the lessor. All the people involved in the transaction were business people, concerned to advance or protect their own financial interests. The critical disadvantage from which the lessees suffered was that they had no legal entitlement to a renewal or extension of their lease; and they depended upon the lessor’s willingness to grant such an extension or renewal for their capacity to sell the goodwill of their business for a substantial price. They were thus compelled to approach the lessors, seeking their agreement to such an extension or renewal, against a background of current claims and litigation in which they were involved. They were at a distinct disadvantage, but there was nothing “special” about it.”Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Taking advantage of the special disadvantage?

If presumption is raised, defendant must rebut

If a plaintiff is able to establish that the defendant was aware, or a reasonable person in the defendants position would have been aware, of a plaintiffs special disadvantage and the defendant actually acted on that disadvantage – the onus of proof shifts to the defendant to rebut the presumption show that no advantage was taken or

‘show that the transaction was fair, just and reasonable’ – per Deane J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

Must act on the special disadvantage

Evidently, no action will be available to a plaintiff in an action of unconscionable conduct if the defendant has not acted on the plaintiff’s special disadvantage to their own self advantage. Importantly, the decision in Bridgewater v Leahy (1998) 194 CLR 457 suggests that the bar for acting on a special advantage is extremely low. The mere ‘passive acceptance’ of a benefit by a defendant can be enough to satisfy to a Court that the defendant acted on the special disadvantage of a plaintiff.

Can still be unconscionable even with consideration

Interestingly, a transaction can still be unconscionable even though clear and reasonable consideration has moved from the stronger party to the weaker one. In Amadio, it was evident that the consideration moved from the bank to the son but not to the parents and if we refer back to equitable maxims – it was suggested in the obiter of the Amadio case that equity treats the guarantors as volunteers.

Rebutting the presumption

The most common method of a defendant rebutting the presumption that they were engaged in unconscionable conduct is to clearly show that the plaintiff received external advice, or at the very least, the defendant involved an external independent third party to assist with the transaction. This was the most important element arising out the Amadio case for the defendants – ensuring that unbiased and independent third party advice is obtained by the plaintiff to ensure that they have a full understanding of the transaction being undertaken.

This is the consistent with the authority of Powell v Powell [1900] 1 Ch 243, 246-7 which purports that independent advice must be ‘of an acceptable quality’ and sufficient in the circumstances. Additionally, the authority of Fry v. Lane (1888) 40 Ch D 312 infers that the defendants conduct must ‘fair, just and reasonable’.

Spousal Guarantees



The doctrine of unconscionable conduct is particularly important in relation to spousal guarantees. This first arose in the case of Yerky v Jones (1939) 63 CLR 649 and was later affirmed in the Garcia v National Australia Bank (1998) 194 CLR 395 which stated in the head note that a presumption arises that the lender must rebut if the lender knows that

a) Wife did not Understand - the wife did not understand the purport and affect of the transaction;

b) Transaction is Voluntary - the transaction was voluntary, in the sense that the wife obtained no gain from the contract the performance of which was guaranteed;

c) Husband didn’t inform wife - the creditor is to be taken to have understood that the wife may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explained the purport and affect of the transaction to his wife; and

d) Creditor didn’t explain to wife - the creditor nonetheless did not take steps to explain the transaction to the wife or find out that a stranger had explained it to her.

If the lender cannot rebut the presumption, then doctrine of unconscionable conduct steps in to set aside the transaction.

Rebutting the presumption

The outcome of the Garcia v National Australia Bank (1998) 194 CLR 395 has indicated that if the plaintiff makes the claim that she was a victim of actual undue influence, then the lender is unable to hold the security against her unless they have ensured that she has received unbiased and independent advice.

Lender must rebut

If the plaintiff claims that she did not understand the transaction, then the lender can enforce the security against her if the defendant is able to satisfy to the Court that reasonable steps were taken to ensure that the plaintiff, or a reasonable person in the plaintiffs position, would have understood the transaction.

Successfully rebut

In Radin v Comonwealth Bank of Australia [1998] FCA 1361 – the Court agreed with that bank that it had done enough to rebut the presumption. Most specifically the bank had:

a) Multiple Explanations to Wife - given multiple explanations to the wife regarding the transaction she was engaging in;

b) Requested she obtain independent advice - written to her suggesting that obtain independent legal advice regarding the transaction; and

c) Obtained affidavit - obtained a written affidavit from her stating that she understood the transaction and its effects.



Unsuccessful Rebut

If we contrast this decision with the decision in Armstrong v Commonwealth Bank of Australia [1999] NSWSC 588, the Court ruled in favour of the plaintiff as it was of the opinion that bank had not done enough to rebut the presumption. In this instance, the bank had:

a) No instruction for independent advice - the bank did not advise the wife to seek independent advice until the transaction was almost completed;

b) No steps to ensure understanding - the bank took no steps to determine if the wife had understood this advice or whether she had actually received it; and

c) Advice not related to transaction - the advice which the wife received did not relate to the transaction that the bank was seeking to enforce.

Additionally, commentary from Dixon CJ, McTieman and Kitto JJ in Jenys v Public Curator (Qld) (1953) 90 CLR 113 at 118-19 suggests that merely satisfying each of the elements for an action under unconscionable conduct is not immediately straightforward in equity.

‘The jurisdiction of the court of equity to set aside a gift or other disposition of property as, actually or presumptively, resulting from undue influence, abuse of confidence or other circumstances affecting the conscience of the donee is governed by principles the application of which calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the donor.

Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determined the validity of the disposition. Moreover, equitable relief is discretionary and is subject to discretionary defences.’

Remedies

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Consistent with undue influence, the most common ready for unconscionable conduct is the setting aside of the transaction, either by an order for recession or through a refusal of the specific enforcement of the transaction.

The plaintiff must establish all elements of unconscionable conduct and the defendant must not be able to rebut the presumption. Remedies for unconscionable conduct also run into the difficulties of third parties that are consistent with the problems of undue influence mentioned above.

More complex remedies occur when gifts are made inter vivos and then a will attaches the gives to someone else. This was consistent with the problems faced by the High Court in Bridgewater v Leahy (1998) 194 CLR 457 which ultimately ruled that the transaction was to be set aside and revert the matter back to the Supreme Court to determine the relevant necessities.

Topic 3 – Fiduciary Obligations

IntroductionNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Not free to pursuit self interest and altruistic

A fiduciary obligation is a relationship in which one party is not free to pursue their own separate interests, but rather serve the exclusive interest of some other person or group of persons. The accepted fiduciary relationship is typically one that creates a special relationship of trust and confidence between the parties – with one of the parties being in a special position to exercise power or discretion which will affect the interest of the other party in an economic or legal sense.

In LAC Minterals Ltd v International Corona Resources Ltd – the Court indicates the relationships as ‘relationships of trust and confidence or confidential relations’ where the ‘exercise of a power or discretion will affect the interests of another person in a legal or practical sense’ such that this person is ‘especially vulnerable to abuse by the fiduciary position’.

Definition

In Norberg v Wynrib [1992] 2 SCR 226 at 272 McLachlin J said

‘The foundation and ambit of the fiduciary obligation are conceptually distinct from the foundation and ambit of contract and tort. Sometimes the doctrines may overlap in their application, but that does not destroy their conceptual and functional uniqueness. In negligence and contract the parties are taken to be independent and equal actors, concerned primarily with their own self-interest. Consequently, the law seeks a balance between enforcing obligations by awarding compensation when those obligations are breached, and preserving optimum freedom for those involved in the relationship in question. The essence of a fiduciary relationship, by contrast, is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other.’

Thus, as suggested by the High Court in Youyang Pty Ltd v. Minter Ellison (2003) 212 CLR 484 at 501 [40] in referring to commentary made by McLachlin J of the Canadian Supreme Court in Canson Enterprises Ltd v. Boughton & Co [1991] 3 SCR 534 at 543

‘[T]he essence of a fiduciary relationship is that one party pledges itself to act in the best interest of the other. The fiduciary relationship has trust, not self-interest, at its core, and when breach occurs, the balance favours the person wronged.’

****Extent of the Fiduciary Duty****

General



Common law favours the pursuit of self interest

As such, the common law favours the pursuit of self interest and suggests that contractual obligations would not occur unless both parties are satisfied that their own self interests are satisfied. Lord Ackner suggested this in Walford v. Miles [1992] 2 AC 128 at 138

‘a concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties involved in negotiations …each party is entitled to pursue his own interest, so long as he avoids making misrepresentations.’

To illustrate, it would be ludicrous to contend that a lawyer does not have to act in the best interests of their client. Conversely, it would be equally ludicrous to suggest that a store manager has to disclose to a customer a product which they have a material interest in. The later example is a common facet of everyday life, and such common transactions will always contain a strong element of autonomy and favour the pursuit of individual self interest.

Equity favours autonomy to an objective standard

Equity does not seek to stop these transactions from occurring, since these relationships are not relationships which draw the jurisdiction of fiduciary obligations. The limit, of course, is that store manager must advance the customers interests in accordance with an objective standard. If this standard is breached then the store manager would be liable for the unsatisfactory recommendation passed onto the customer.

The point is that fiduciary duties are imposed entirely to prevent unconscionable conduct and to serve the interests exclusively of some other person. Fiduciary obligations infer that the party owing them cannot pursue their own or separate interests.

Fiduciary Relationship and Contractual Obligations



A fiduciary relationship can co-exist with a contract such that a contractual relationship can regulate the basic rights and liabilities of the parties while the fiduciary relationship must accommodate itself to the terms of the contract such that it is consistent with them. Contractual obligations are always created to represent the express or implied intentions of the parties which make them and such obligations are almost always typically formed to protect each party’s respective autonomy.

In a relationship which is constituted by contract, the nature of the fiduciary obligations owed are determined by the contract as stated in Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41. The subject matter to which the fiduciary obligations extend is referenced to the character of the venture being undertaken and the agreement of the parties as stated in Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384.

Extent of Fiduciary Duties & Contracts

In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, it was explained that the extent and nature of the fiduciary duties owed in any particular case ought to be determined by reference to the contractual relationship underlying the relationship between the parties.

In this case, the Court provided an example such that an agent, in the absence of contractual provision, would breach their fiduciary duties if they competed for another who was in competition with their principle unless the contract under which he is acting allows him to do so. In such a case, the fiduciary obligations are said to have been modified by the contractual agreement such that the contract has adapted the extent and nature of the general duty that would otherwise arise.

Pre-contractual obligations

Australian Courts have had considerable reluctance in imposing fiduciary obligations on pre-contractual negotiations when terms of the contract are being struck at arm’s length. This was consistent with the decision in Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41 Gibbs CJ stated at 70 that

‘the fact that the agreement between the parties was of a purely commercial kind and that they had dealt at arms length and on equal footing has consistently been regarded by this court as important, if not decisive, in indicating that no fiduciary duty arose’

If parties are currently negotiating a contract, a contracting party does not owe either a duty of good faith or fairness to the respective contractual counterparty – this is the common laws representation of the pursuit of self-interest. In Walford v Miles, Lord Ackner stated

“a concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties involved in negotiations …each party is entitled to pursue his own interest, so long as he avoids making misrepresentations”.

Contractual obligations take precedence



As suggested previously, a fiduciary relationship can co-exist with a contract but the contractual obligations will take precedence over the fiduciary ones. Mason J in Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41 at 97 stated:

‘Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be super-imposed upon the contract in such a way as to alter the operation which the contract was intended to have according its true construction.’

However, it is critical to remember that trust and reliance are often mixed with autonomy during contractual negotiations and this can easily lead to abuse.

Joint Venture



In United Dominions Corporation Ltd v. Brian Pty Ltd (1985) 157 CLR 1, it was established that a fiduciary relationship can arise and exist between parties who have not reached, or may never reach, an agreement in joint venture agreements where the terms are not settled and the parties are no longer acting at arm’s length. As stated in this case

‘In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underline most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a simple joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.”

Cannot call off negotiations

To illustrate, a partner cannot call off negotiations in a joint venture deal in order to pursue their own self interests. If such an action were permissible, it would allow one party to contemplate and obtain information regarding the other party for the purposes of contractual negotiation, and then act in their own separate interests – and perhaps competing – interests.

Arms Length

Before the United Dominions Corporation Ltd v. Brian Pty Ltd case, the accepted view was that until the joint venture agreement had crystallized, no fiduciary duties were capable of arising. This was because it was contended that parties were dealing at arm’s length and were entitled to advance their own autonomy and therefore owed no fiduciary duties. If the parties agreement did not eventuate, then the parties, as stated in Keith Henry & Co Pty Ltd v. Stuart Walker & Co. Pty Ltd (1958) 100 CLR 342

“were engaged in ordinary commercial transactions with each other, dealing with each other, as the saying goes, at arm’s length.”

This was rejected by the High Court in United Dominions Corporation Ltd v. Brian Pty Ltd who stated

“A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them.”

Any agreement or agreements subsequently made between the parties are made to an existing fiduciary relationship and this will continue until the agreement has matured.

Intending joint ventures owe an obligation not to profit

However, fiduciary duties are less likely to be reached if the negotiating parties are dealing at arm’s length as stated in Gibson Motorsport Pty Ltd v Forbes (2006) 149 FCR 569 where the parties never established a joint venture agreement and yet substantial wealth was created.Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Partnerships

A partner will always owe fiduciary duties to their firm since the firm is not a separate legal entity. In addition, a partner will also owe fiduciary duties to other parties, and they are not free to pursue separate interests but must purse interests of the partnership in a horizontal fiduciary relationship.

The notion of horizontal fiduciary relations is based on the associative – that is, the parties in a fiduciary relationship must purse interests which do not contain elements of autonomy but are rather joint to the association. This was expressed in New Ltd v. Australian Rugby Football League Ltd (1996) 64 FCR 410.

“A horizontal relationship is more likely to involve an undertaking, actual or imputed, that the parties act only for their mutual advantage.”

This was upheld in Chan v Zacharia (1984) 154 CLR 178.

Companies and Directors

A company director must be prohibited from engaging in conduct that would put them in a position of inherent difficultly such that his obligations to advance the interests of the company where in conflict with his own interests as per Cook v Deeks [1916] 1 AC 554. In R v Byrnes (1995) 183 CLR 501, the High Court stated that a company director can be a director of more than one company but not where the fiduciary duties owed to each conflict.

Thus, a director can also not advance his own interests over the interests of the company to which they are a fiduciary. And so in the famous case of Legal (Hastings) Ltd v. Gulliver [1967] 2 AC 134 Lord Russell of Killowen said:

“The rule of equity which insists on those who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fide … the liability arises from the mere fact of a profit having … been made”.

In this case, the directors made a profit on the sale of the shares in a subsidiary company. The appellant company, through its new owners, then sought an account of those profits from the previous directors. In the Court of Appeal the claim was dismissed as the directors were deemed to be acting as bona fide and in the best interests of the appellant company. The House of Lords held this was wrong as stated above.

Breach obligations

A director will breach, in accordance with Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41, his obligation if he obtains for himself an opportunity to profit which is sought by his company or if he benefits personally from an opportunity. In Regal (Hastings)Ltd v Gulliver (1942) p1967] 2 AC 134, the House of Lords held that the directors were accountable to Regal for profits made on the sale of shares stating

‘the directors standing in a fiduciary relationship to Regal in regard to the exercise of their powers as directors, and having obtained their shares by reason and only by reason of the fact that they were directors of Regal and in the course of the execution of that, are account for the profits which they made of them’



Regal Hastings was applied in Canadian Aero Services Ltd v O’Malley [1974] SCR 592, where the Court stated

‘an imprecise ethical standard ... which prohibits an ‘executive’ – here defined to include either a direct or an officer ‘ from appropriating to himself a business opportunity which in fairness should belong to the corporation.’

Relationships of Fiduciary Obligations

The law does not recognise all relationships as fiduciary ones – evidently, there are some relationships which should attract higher obligations than others and this does not infer that Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


even these relationships will be fiduciary in nature. Typically, fiduciary obligation can arise in two different ways:

1. A presumed fiduciary relationship a. This first class are fiduciary relationships which are automatically assumed to

exist and have been acknowledge in law as fiduciary relationships over time. A presumed relationship automatically creates fiduciary obligations and requires the defendant to rebut the presumption

2. A proven fiduciary relationship.a. This second class are relationships which can be proven as one party places

trust and confidence in the other for some economic interest. A proven fiduciary relationship requires the plaintiff to prove that such a relationship existed, or should have existed, due to the trust and confidence bestowed on the defendant.

Presumed Fiduciary Relationships

The following table sets out the presumed fiduciary relationships in equity:

Relationship Automatically Assumed Authority(without full citation)

Solicitor-client Yes Prince Jefri Volkiah v KPMGAgent-principal Yes Mckenzie v McDonaldPartner-partner Yes Chan v Zacharia

Company director-company Yes Hospital Products Limited v United States Surgical Corporation

Trustee-beneficiary Yes Boardman v PhippsBank manager-client No, can be proven -

Joint venturers No, can be proven Refer to United Dominions Corporation v Brian Pty Ltd

Doctor-patient No, can be proven Refer to Breen v WilliamsParent-child No, can be proven

It is prima facie evident that all these relationships do carry a high element of trust and confidence which can have a substantial degree of influence – both legal and economic – over a principal’s affairs.

Such relationships can be horizontal or vertical relationships such that in the former – each party exhibits trust and confidence in each other – while in the later – only one party displays trust and confidence. This classification was first established in New Ltd v. Australian Rugby Football League Ltd (1996) 64 FCR 410 at 539 where it was stated

‘In the absence of a single test of a fiduciary relationship, it is useful to distinguish between two kinds of relationships: G M D Bean, Fiduciary Obligations and Joint Ventures (1995), p 117. The first has been described by Dr Bean as a “vertical” relationship, such as principal and agent or employer and employee. The second is a “collaborative” or “horizontal” relationship, such as a partnership or joint venture. The criteria to be applied in determining whether the relationships are fiduciary in character will not necessarily differ in each case. However, the significance of a particular criterion may vary, depending upon whether the relationship is “vertical” or “horizontal”. For example, although the notion of mutual trust and confidence can



be applied to certain vertical relationships which are clearly fiduciary in character, it is perhaps more readily applied to collaborative undertakings. Similarly, it may be easier to apply the notion of a party undertaking to act solely in the interests of another where the relationship between them is vertical. A horizontal relationship is more likely to involve an undertaking, actual or imputed, that the parties act only for their mutual advantage.’

Proven Fiduciary Relationships

As stated previously, if the relationship is not to be automatically assumed then the plaintiff must establish that:

1. The plaintiff has placed the defendant in a position of trust and confidence; and

2. The defendant has adversely affected a plaintiff’s interest.

Both these elements must be satisfied by a plaintiff before an action can be taken under equity. The Courts have refused to recognise fiduciary obligations were the second element is not in existence. Most specifically, in SB v State of NSW [2004] VSC 514 the damage by the defendant was physical and did not adversely affect the plaintiff’s economic interest despite the defendant being in a position of trust and confidence.

As stated in Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41, the categories of relationships are not closed.

Proving a fiduciary obligation exists

The Key Fiduciary Factors



Inherent to all fiduciary litigation are a number of specific characteristics recognised by Mason J at 96-97 in Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41 including:

1. A relationship of trust and confidence; a. It is almost always typical that a principal places trust and confidence in the

person owing a fiduciary obligation. It is important to note that the mere presence of trust and confidence does not automatically create the presumption that a fiduciary obligation is owed.

i. i.e. A customer may rely on a store manager in trust and confidence to recommend the best product, but this does not automatically prove that a fiduciary duty is owed.

2. Act in the best interests; a. The duty of a fiduciary is to always act in the best interests of the principal and

put the principal’s interests ahead of their own. There are exceptions to this as seen in English v Dedham Vale Properties Ltd [1987] 1 All ER 382 but these are limited in scope.

3. The ability to affect the principals interests; a. The inherent nature of the fiduciary relationship is the power to affect a

principal’s interest. Typically the word ‘interest’ is categorised to encompass anything of an economic or property nature. If the nature of the fiduciary relationship is such, that one party can easily affect the other party’s interest – this provides a strong evidentiary burden to satisfying this element.

4. The susceptibility of the principal; a. Typically, the principal is always in a more vulnerable position than the

fiduciary. This is because the principal is entrusting the fiduciary to act in their best interests and therefore make the appropriate decisions. Additionally, the fiduciary typically has a direct influence over economic or property interests of the principal and can significantly influence the decision making surrounding these interests.

b. The more susceptible and reliable a principal is on the advice of another party – (typically) the more evidence which can be presented to elicit a fiduciary relationship.

The Nature & Scope of Fiduciary Obligations – Profit and Conflicts

General



The utmost duty to disclosure any conflicts and profits by a fiduciary underpins the very fabric of the fiduciary relationship of confidence and trust as explained in Breen v Williams (1996) 186 CLR 71.

A fiduciaries role is to act with utmost altruism and disinterest towards the scope of any interests of the principal which are currently carried on or planned to be carried on.

Consequently, as stated in Hughes Aircraft v. Airservices (1997) 146 ALR 1

“A man of integrity can be a defaulting fiduciary without ceasing to be honest”

Similarly, while some commenter’s believe this statement to be too narrow, a statement in Legal (Hastings) Ltd v. Gulliver [1967] 2 AC 134 by Lord Russel indicates how altruistic a fiduciary must be, and gives definitive insight into the importance that a fiduciary must place on confidence and trust such that

“The rule of equity which insists on those who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fide … the liability arises from the mere fact of a profit having … been made”.

Profits & Conflicts Rule (next page)

A fiduciary is unable to pursue any business opportunity if it is considered to be within the scope of the business that the principal is currently in or planning to be in. As we have seen, a fiduciary must act disinterred and avoid a conflict between their interests and the interests of the principal at all costs.

So in effect, a fiduciary must abstain from the pursuit of any interest which may conflict with those of the fiduciary.

Obligations outside this scope are free from obligation

All interests outside this scope can be considered freely and are not encompassed within the scope of a fiduciary obligation. To more accurately determine the scope of the fiduciary relationship, the Courts will typically examine the extent of the relationship underlying the fiduciary obligations. In NZ Netherlands Society ‘Organje’ Inc v Kuys [1973] 2 All ER 1222 it was established that a fiduciary position must be examined from the part of the fiduciaries activities within the scope of the obligations and the part of the fiduciaries activities outside the scope.

Consequently it is useful to consider the primary two considerations which the Courts will use to determine whether a fiduciary has breached their obligations. It is evident in considering both of these elements that there is a substantial overlap between each – but clear segregation for illustrative purposes is still achievable.

1. Conflict - Whether the fiduciary is in a position of inherent conflict of interest a. If a fiduciary relationship is deemed to exist - the Court will typically

examine whether or not the fiduciary engaged in conduct which was conflicting to the interests of the principal.



b. Most typically, a conflict will arise where the fiduciaries personal interests union with those of the principals -The fiduciary may be tempted to place their personal interests in favour of those of the principals which could cause significantly loss to the principal or, alternatively, a significant gain for the fiduciary.

c. In McKenzie v McDonald [1927] VLR 134 a real estate agent was acting for a vendor – a recognised fiduciary relationship of principal and agent – and purchased the property off the vendor at a price which was undervalued in exchange for his property which he overvalued. The agents fiduciary obligations were clearly breached which resulted in a loss to the principal which he had to compensate for.

2. Profit - Whether the fiduciary has profited from such a position a. Where the fiduciary has made a profit - from a transaction resulting from

the nature of their position as a fiduciary - they are in breach of their fiduciary obligations.

b. Strip Profits from Fiduciary - Equity’s remedy to such a situation is to strip the profits from the fiduciary and redirect them back to the principal.

c. For a plaintiff to take a successful action - against a fiduciary for unauthorised profit they must:

i. Show that a fiduciary relationship existed; andii. That the profit which was made by the fiduciary was inside the scope

of the relationship.

d. Boardman v Phipps [1967] 2 AC 46, in which a solicitor and others acted for the trustees of a deceased estate and inappropriately purchased shares on behalf of the trustees which raised a profit. The plaintiffs were the trustees and claimed they had been inadequately informed and wanted an account for profits. The Court ruled in favour of the plaintiffs and found that while the defendants acted honestly they were in a fiduciary position and did not adequately disclose the nature of the transaction.

Defences to Breaches of Fiduciary Obligations

Informed Consent



The most common defence to a breach of fiduciary obligations is the defence of informed consent. If a fiduciary wishes to enter a transaction or use information which would otherwise amount to a breach of their fiduciary position – to avoid liability, they must make a full disclosure to the person to which the duty is owed of all relevant facts and that person must consent to the fiduciary proposal. In no other manner can a fiduciary more effectively avoid liability than to ensure that this occurs.

Defence Successful

In Queensland Mines Ltd v Hudson (1978) 18 ALR 1 the defendant had sought mining leases that a company was interested in at his own expense and risk. The company had originally been established for another purpose and the defendant eventually reported the status of these mining leases to the company board. The board did not want to proceed with the acquisition of any of them. The defendant later engaged in the leases for a substantial profit. The Court ruled that the defendant had adequately informed the company board and did not breach his fiduciary position. Additionally, the Court suggested the defendant conduct may have been outside of the scope of his fiduciary obligations anyway.

Defence not Successful

In Boardman v Phipps [1967] 2 AC 46 adequate consent was contended by the defendants, but one of the trustees had dementia and merely informing them was deemed inadequate. The Court suggested that signed consent and full and independent understanding was required on behalf of this trustee to ensure that the fiduciary obligations were satisfied. The defendants had not done this and therefore could not use this defence.

Remedies for Breach of Fiduciary Obligations

The most common remedies for breach of a fiduciary depend on whether the breach relates to a personal or proprietary breach. Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Personal

Personal remedies are remedies which are directed at the fiduciary and which the fiduciary is solely responsible in fulfilling. A personal remedy is typically correlated to a debt that the fiduciary must compensate in the principals favour for their breach of fiduciary duties. Most personal remedies include one or more of the following:

An injunction; An account for profits; Equitable compensation.

Proprietary

Proprietary remedies are remedies that are directed towards a particular property rather than a debt. This is most relevant in insolvency matters – since a personal remedy is a remedy that is treated as a debt and is therefore available to all other creditors. However, a proprietary remedy is a remedy that is raised in the principals favour and therefore gives them a higher standing than other creditors.

Important in any consideration of a proprietary remedy is the value of the property as opposed to its cash derivative. For example, if the value of the property has decreased then it may be more favourable for a principal to take a cash sum at the valuation price of the asset than reclaim the property.

Topic 4 – Accessorial (Third Party) Liability in Equity

Property Rights



They must be both capable of assignment to third parties and capable of binding third parties without their consent.

A property right must be capable of transfer and of being exigible against a person without that persons consent.

Cannot be destroyed - A property right cannot be destroyed simply because the thing over which the right exists comes into the possession of some other third party. Parties are not free to create in objects they own property rights which will bind third parties, even though as a matter of personal obligation parties are free to agree as they wish.

Equity regards a party (X) as being under an equitable obligation to another party (Y) in relation to an item of property, equity regards Y as having enforceable personal rights against X in relation to that item of property. Y has rights to enforce the obligation against X.

Innocent (bona fide) Purchaser for Value

There is no general defence of good faith purchase due to the principle of nemo dat quod non habet or – no one gives what he does not have. If legal title is passed to a bona fide purchaser for value without notice, equity will refuse to intervene to preserve the prior legal interest.

Property rights recognised at the common law typically survive any dispositions by non-owners, even those where the recipient is a bona fide purchase for value.

The general rule is that persons deal with property or exercise acts of ownership of such property at their own risk.

Legal vs. Equitable

A purchaser who retains the legal interest in the property will always defeat the equitable title in a dispute. If a purchaser only takes an equitable interest then the nemo dat rule will apply which infers that the prior equitable interest will remaining binding.

Prior equitable vs subsequent legal

If the legal interest holder took their title for value and without notice of the equitable interest, and the legal interest holder didn’t have notice of the earlier interest – then the equitable interest is defeated – per Pilcher v Rawlins (1872) LR 7 Ch 259.

Prior legal vs Later equitable interest

A legal interest is stronger than an equitable one, the legal interest will win.

Prior equitable interest vs later equitable interest

Where two equitable interests are in competition, then as per Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 – the first interest will win.

‘If the merits are equal, priority in time of creation is considered to give the better equity’

Types of Claims against TrusteesNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


There are primarily two types of claims that can be taken against a person who is appointed as a trustee.

Proprietary

In a proprietary claim, the plaintiff asserts that a particular item of property owned or in possession of the defendant, is held by the defendant on trust for the plaintiff. The identification of such property in the hands of the defendant is a primary condition for such a claim.

The plaintiff MUST be able to show that an item of property owned by the defendant is held by the defendant on trust for the plaintiff.

An example

Suppose a trustee, in breach, uses $1000 of the trust money and $1000 of his own money to purchase an antique car. If the car is now worth $3000, then the plaintiff is able to claim a 50% share in the antique car – thus taking advantage of the gain in value.

Personal

It is possible that the plaintiff can assert personal claims against the trustee for the loss and illegal breach of the trust assets.

Using the previous example - the $1000 illegally misappropriated from the trust – if it is possible to trace where the trust monies which have been misappropriated – then the plaintiff can assert a lien over the antique car to ensure that the trustee pays $1000 back to the trust.

The plaintiff would effectively claim a security interest over the asset which was been illegally acquired through the use of trust funds.

Use of a Lein

Importantly, a lien is a proprietary right and not an ownership interest. The function of such a device is merely to secure performance of the personal obligation from the trustee to pay compensation for a breach of the trust.

Remedy

Whether using proprietary or personal claims against the breach, it is seen that equity will restore the equitable property rights.

Third Parties

Equitable property rights remain even when the res – that is, the subject matter of any equitable property right – falls into the hands of some third party. Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


It is only once the res falls into the hands of a bona fide purchaser of legal title for value without notice of the prior equitable dispute, that the earlier equitable property interest will be destroyed.

In Montagu’s Settlement Trust [1987] Ch 264 at 276 it was stated by Sir Megarry V-C when speaking of the first limb of Barnes v Addy

“the core of the question……. is what suffices to constitute a recipient of trust property a constructive trustee of it. I can leave on one side the equitable doctrine of tracing: if the recipient of trust property still has the property or its traceable proceeds in his possession, he is liable to restore it unless he is a purchaser without notice”.

Nature of the Third Party Liability – Personal, not proprietary

A person who knowingly receives trust property or knowingly assists in the breach of fiduciary duty is liable as a constructive trustee. However, it is critical to remember that third party liable is not proprietary in nature, it is personal.

In Giumelli v Giumelli (1999) 161 ALR 473 the High Court stated,

‘The trust institution usually involves both the holding of property by the trustee and a personal liability to account in a suit for breach of trust for the discharge of the trustees duties. However , some constructive trusts create or recognise no proprietary interest. Rather, there is the imposition of a personal liability to account in the same manner as that of an express trustee . An example of a constructive trust in this sense is the imposition of personal liability upon one “who dishonestly procures or assists in a breach of trust or fiduciary obligation” by a trustee or other fiduciary”

The important point from this statement is the emphasis on the ‘to account as a constructive trustee’. This is a reference to the trustee personal liability to account, rather than any associated obligation to hold property as a constructive trustee.

Tracing into the Hands of the Trustee vs. Personal Claim

Third party liability must be distinguished from any associated rules which apply when a principal seeks to trace his or her property into the hands of the defendant. If a principal is attempting to trace their property, this can only realistically be done by asserting a continuing equitable title over the property. The principal is unable to trace the property into the defendant’s hands, if the defendant is a bona fide purchaser of the legal estate for value without notice.

However, the equitable personal claim should be seen as distinct. A defendant can be liable even when they never received property from the defaulting fiduciary. A claim for liability as a knowing recipient can still succeed even though the defendant no longer holds the property or its traceable earnings Re Montagu’s Settlement Trusts [1992] 4 All ER.

In either case, the principal is not required to trace assets in order to assert a continuing proprietary interest. The principals remedy is monetary and the defendant must account. Barnes v Addy


Barnes v Addy (1874) LR 9 Ch App 244

Barnes v Addy is the primary authority for the basis of third party personal liability as described above. The case has been considered to have two limbs – which are subsequently discussed after the case overview below.


The Limbs of Barnes v Addy

The first and second limbs of Barnes v Addy are not proprietary claims - they are personal claims against persons other than the trustees. The two respective limbs are:

1. Knowing Receipt Claim - The stranger receives and becomes chargeable with trust property; or

2. Knowing Assistance - The stranger assists with knowledge in a dishonest and fraudulent nature. The assistance must be of some significance: a de minmus – minimal effort - involvement will not suffice.

The application of the limbs has been applied broadly in a number of circumstances including:

Bank liability for a receipt – Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group [1998] 3 VR 16

Solicitor not liable for assistance – Twinsectra Ltd v Yardley [2002] 2 AC 164

Spouses of Fiduciaries liable for receipt – Lord v Spinelly (1991) 4 WAR 158


Barnes v Addy (1874) LR 9 Ch App 244

Barnes v Addy is the primary authority for the basis of third party personal liability as described above. The case has been considered to have two limbs – which are subsequently discussed after the case overview below.

Beneficiary Trust (Trustee)

Third Party


First Limb (refer Knowing Receipt next page)

Lord Selborne recognised that liability can be imposed upon those persons who make themselves trustees de son tort – of his own wrong – or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust – or trust beneficiary.

Typically, liability arising from trusteeship de son tort occurs when a person, never expressly appointed as a trustee, acts as a trustee and then commits of a breach of trust against the cestui que trust. Such action is liable for the breach in the same manner as if the trustee had been expressly appointed. The property has actually ‘passed through’ the third parties hands. If the trust assets can be identified then it is possible for the cestui que trust to simply assert of property right. That is, they have taken ‘receipt’ of the property.

Liability is primary since the trustee de son tort is the actual person who commits the breach of trust.

Professor Harpum says2:

“The issue of primary liability is most likely to arise where an agent acquires trust property quite lawfully in the course of his business, but then outsteps his agency and deals with the trust property uninstructed by the trustees and on his own initiative. Whether or not this has happened is a question of fact. The state of mind of the trustee [trustee de son tort] or his motive for acting as he did are irrelevant. Once he has assumed the character of a trustee, his liability for breach of trust is necessarily strict.”

Second Limb (refer Knowing Assistance next page)

The second element of Lord Selbourne’s statement regards a person who actually participates in the fraudulent conduct of the trustee to the injury of the cestui que trust.

It is most likely that Lord Selbornes argument is actually referring to the deceit by the person who actually participates in the fraudulent conduct of another – whether it is this person, a trustee or some other party.

Professor Harpum (at page 11 of Frontiers of Liability) refers to two decisions in the 1840’s of Lord Langdale MR recognising that a stranger to the trust might be liable for knowingly inducing or assisting the commission of a breach of trust. The most important aspect was that he was aware of the breach:

“If the agent of a trustee …. knowing that a breach of trust has been committed, interferes and assists in that breach of trust, he is personally answerable” (Attorney General v The Corporation of Leicester (1884) 7 Beav 176 at 179; see also Fyler v Fyler (1841) 3 Beav 550).

Key outcomes of Farah Constructions

Knowing Receipt

2 The Frontiers of Liability, Oxford University Press, 1994 at p 10:Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


1. Knowing receipt is not based in restitution; it requires that the recipient had notice that the property was trust property.

2. Notice for the purposes of knowing receipt is still unclear but it probably includes constructive notice of the trust.

Knowing Assistance

3. In knowing assistance claims, the TRUSTEE/FIDUCIARY must have committed a fraudulent breach of trust/fiduciary duty.

4. The third party must have KNOWINGLY assisted in that breach. Knowledge includes the first four "knowledge tests" in Baden, i.e. actual knowledge; wilful blindness; wilful recklessnes in failing to make inquiries; knowledge of circumstances that would indicate a breach to a reasonable and honest person.

Clarifications in comparison to Barnes v Addy

Basically the British courts (and the NSW COA) had started saying two things:

1. Breach by trustee in Knowing Assistance claims didn't need to be fraudulent; instead, the third party had to have acted dishonestly in assisting the breach. Farah clarified WHO was acting fraudulently in knowing assistance cases. The NSW COA said knowing receipt was a doctrine based in restitution; i.e that the third party became liable simply by receiving the trust property - no knowledge necessary. Farah said that this is not in fact the case and that the third party has to know that it is trust property in order to be liable.

2. So the law in Australia is that the TRUSTEE has to be in fraudulent breach, and the third party just has to know about the breach when they assist.

Knowing Receipt (first limb)

To maintain a knowing receipt claim, the defendant must have acquired trust property, or property the subject of the fiduciary duty, for the defendant’s own benefit. In



effect, the claim is for the loss to the trust or for loss of property to which a fiduciary obligation attaches.

Farah Constructions Outcome

In Farah Constructions v Say-Dee, the High Court stated that knowing receipt is not based on restitution, and rather it requires that the recipient had notice that the property was trust property. The ‘notice’ for the purposes of knowing receipt was not adequately commented in during the case, however there is a large degree of interpretation which suggests that it probably includes constructive notice of the trust per the decision in Consul Development Pty Ltd v DPC Estates Pty Ltd.

In Selangor United Rubber Estates Ltd v Cradock [No.3] [1968] 2 All ER 1073 at 1098 Ungoed-Thomas J held that actual or constructive knowledge is suffice to establish liability for knowing assistance. His Lordship stated:

“The knowledge required to hold a stranger liable as a constructive trustee in a dishonest and fraudulent design, is knowledge of circumstances which would indicate to an honest, reasonable man that such a design was being committed or would put him on enquiry, which the strange failed to make, whether it was being committed.

If a defendant, who is not an authorised trustee, acquires a trust property for his or her own benefit, and then, or later, while they have the property knows or is made aware that the property is trust property – they are liable to restore its value to the beneficiary in knowing receipt.

Making Defendant liable

In order to make the defendant liable the plaintiff must show that the defendant, according to the Farah Constructions v Say-Dee, that

1. Received Beneficially - The defendant has received trust property beneficially and not merely as some representative agent for another.

2. Property belonged to the trust - The defendant knew the property belong to the trust; and

3. Knowledge of the circumstances - The defendant knew of the circumstances which allowed them to become owners of the trust property. (KNOWING OR NOTICE)

The trust property which the defendant acquires may be either in its original form, or property identified as trust property under tracing rules.

Property Rights Under Receipt

In Personam – personal right



Liability as a constructive trustee for knowing receipt differs from a tracing claim in that it is claim in personam and recovery is accordingly for the full amount received by the defendant.

The claim is not confined to the property remaining in the third party’s hands. It is equity’s equivalent to the common law action for money had and received: El Ajou v Dollar Land Holdings PLC [1993] 3 All ER 717 at 736 per Millett J

Bona Fide Legal Title

If trust property is acquired by a bona fide purchaser of the legal title for value without notice, the bona fide purchaser takes a better title than the transferor has to give and the property ceases to be trust property.

An acquisition in such circumstances could not give rise to a liability knowing receipt. To be liable for knowing receipt, the defendant must have treated the acquired trust property as his or her own. That is to say, the defendant must have asserted rights of ownership over the relevant property. This infers, that if the defendant receives monies in his or her own capacity, then the defendant cannot be liable in knowing receipt.

In Personam - Beneficiary can sue

A bona fide purchaser of the legal title for value without notice who receives the property from the third party does not have to return the property if they obtain legal title. However, because the right is personal – the beneficiary can sue the third party accessory for the full value of the loss. Equity will strip the profits from the third party and return them to the beneficiary.

Information is not Trust Property

In Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 - the High Court concluded that information is not trust property for the purposes of a knowing receipt claim, whether the information is confidential or not as per para [120].

Knowing Assistance



The requirement is that the acts of the defendant must actually ‘assist’ the breach of duty. To become liable for “assisting” a breach of duty – a defendant must have rendered some level of awareness which the conduct involved breaches a fiduciary duty which was owed.

The requirements are that the acts of the defendant must ‘assist’ the breach of duty:

1. Degree of Awareness - The assistance must be provided with a degree of awareness that the conduct involved breaches of fiduciary duty.

2. Dishonest and Fraudulent Design - The assistance must relate to a dishonest and fraudulent design on the part of the trustee or fiduciary.

As suggested in Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 at para [160].

In knowing assistance claims, the trustee/fiduciary must have committed a fraudulent breach of trust/fiduciary duty. The third party must have knowingly assisted in that breach. 3. In knowing assistance claims, the trustee/fiduciary must have committed a fraudulent breach of trust/fiduciary duty. The third party must have knowingly assisted in that breach.

Knowledge includes the first four "knowledge tests" in Baden, i.e. actual knowledge; wilful blindness; wilful recklessnes in failing to make inquiries; knowledge of circumstances that would indicate a breach to a reasonable and honest person.

What is “knowing” ? What is knowledge? (refer next page)

The required knowledge or notice does not need to be present at the time the trust property was acquired, nor at the time when the defendant started to treat it as their own. If the notice or knowledge is present whilst they continue to treat it as their own – then this satisfies the requirement. There is no liability in a defendant if the knowledge or notice occurs after the defendant has parted with the trust property. They key point is that once the defendant is provided notice – they must return it otherwise they are liable.

An attempt to abandon any notice requirement for the first limb and substitute for it strict liability and restitution based on unjust enrichment was rejected by the High Court in Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 at para [130] to [158].

Third Party Assistance

The High Court in Farah Constructions accepted that a third party might be treated as a participant in a breach of trust where the third party had knowingly induced or immediately procured breaches of duty by a trustee but where the trustee had acted with no improper purpose.

Omissions

But the defendant’s assistance might arise by omission – failing to stop the trustees breach when the defendant could have done so – such as in situations where the defendant had a responsibility to act. An omission may give rise to assistance where the defendant is the trusts’ solicitor, accountant or banker.



An example is the solicitor in Boardman v Phipps and the directors in Regal Hastings v Gulliver. The maintaining of the fraudulent breach of trust requirement gives the Court room to measure the quality of the trustee’s or fiduciary’s breach.

In Farah Constructions, the High Court said that even if, contrary to the conclusions found, the disclosures made by Mr. Elias did not constitute full disclosure, that dereliction of duty was insufficient to merit the description ‘dishonest and fraudulent’ - see [186]

Knowing or NoticeNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Third Party must have knowledge

In Baden v Societe Generale [1993] 1 WLR 509 at 575-576, Gibson J stated that their give different classifications to knowledge:

1. Actual knowledge.2. Wilfully shutting one’s eyes to the obvious.3. Wilfully and recklessly failing to make such enquiries as a honest and reasonable man

would make.4. Knowledge of circumstances which would indicate the facts to an honest and

reasonable man.5. Knowledge of circumstances which would put an honest and reasonable man on

enquiry.

In Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, the High Court found that ‘significant’ knowledge was required of the standard of Level 4 of the

Trustee must have Dishonest Fraudulent Breach

In Farah Constructions, the High Court said at [173] that

as a matter of ordinary understanding, and as reflected in the criminal law in Australia (Macleod v The Queen (2003) 214 CLR 230 at 242 [36] – [37]. A person may have acted dishonestly, judged by the standards of ordinary common decent people, without subjectively appreciating that the act in question was dishonest by those standards”

In Farah Constructions the High Court repeated a statement of Hoffman LJ in El Ajou v Dollar Land Holdings PLC [1994] 2 All ER 685 at 703-704 that Hoffman LJ knew of

“no authority for the proposition that in the absence of any duty on the part of the principal to investigate, information which was received by an agent otherwise than as agent can be imputed to the principal simply on the ground that the agent owed to his principal a duty to disclose it. Even if Mr. Elias owed a duty to his family to disclose his conduct, they had no duty to investigate it”.

That is to say, there were no circumstances in which Mr. Elias’ wife and children had a duty to enquire or investigate the manner in which their father came to recommend the acquisition of units in 15 Dean Street.

The High Court endorsed Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 where –

‘Knowledge of a dishonest and fraudulent design by a trustee did not extend to constructive knowledge and that, apart from actual knowledge of the breach of trust, or a wilful shutting of the eyes to the obvious, a stranger to the trust would only liable as a constructive trustee if he had knowledge of the circumstances telling of a breach of fiduciary duty.’

Third Party AssistorsNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


It will come to be appreciated in Australia, that third party assistors will only become liable by omission under the second limb of Barnes & Addy where they owe some duty to the beneficiary of the trust or the fiduciary duty. Such a duty would provide a reason for establishing knowledge on the part of the assistor even when they do no more than receive money into a bank account or grant a discharge of mortgage.

Topic 5 – Misrepresentation and MistakeNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Common law position – Rescind if fraudulent misrepresentation

At common law, a person who was induced to enter into a contract (other than making a gift) can rescind the contract if the misrepresentation is fraudulent. This derives from Derry v Peek (1889) 14 App. Cas 337 at 374 where it was stated

“First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false…”

The common law of misrepresentation requirements causation – the fraudulent statement must be a cause, not the absolute cause inducing entry into the contract – and the influence of the statement on the plaintiff is assessed objectively. In regards to the remoteness of damage, the fraudulent defendant is bound to make amends for all damages which are directly attributable from the fraudulent inducement.

Restitutio in integrum

Damages, in tort, are restitutio in integrum – that is – they restore the plaintiff back to their original position and don’t concern awards of exemplary or aggravated damages.

This was made clear in Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465 where it was upheld that an action for damages in negligence would occur in innocent misrepresentation if a duty of care was present.

Recission

Common law provides a proprietary response when a transfer of title to property under a contract has been induced by the fraudulent misrepresentation of a contractual counterparty. It permits rescission of the contract and the re-vesting of title in the plaintiff in the property transferred. In this regard, the right to rescind has both personal and proprietary effect.

Personal

The personal consequences permit the victim to avoid the contract at their option unless the power to rescind is exercised and the contract will then remain in place. The relevant performances on either side must be according to the terms.

Proprietary

The proprietary consequences of the power are that property transferred under the contract will vest in the transferee, although the title vested will be a conditional title. If successful exercise of the power occurs, then the title in the property transferred by the power holder will re-vest in the power holder.

The property transferred to the power holder becomes vested in their contractual counterparty. Re-vesting of property transferred to the power holder under the contract avoids the problem of multiplication of ownership. By re-vesting title on both parties, this ensures that resitutio integrum occurs. Requirements to RescindNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


In order to rescind a contract, three requirements must be fulfilled and exercised. These include:

1. Elect to rescind - The power holder must elect to rescind the contract while the power remains extant and must give notice of the election to the contractual counterparty.

2. Not affirmed the contract - The power holder must not have affirmed the contract with knowledge of the fraud.

3. Position to make Restitution - Third, the power holder must be in a position to make restitution of any benefits he or she received under the contract.

In Specie

The common law requires in specie restitution of the property transferred under a contract. Restitution in equity is a in specie remedy and involves non-monetary justice. The court subjects the unjustly enriched party to an equitable duty to return the property to the innocent party. This remedy may involve subrogation in suretyship or insurance, accounting in partnerships, rescission or reformation of a contract, or constructive trust.

Example -

If Party X was induced to transfer title in a painting in exchange for title in house from Y. If Y induced X to enter into the contract through fraud, a condition of common law title in the painting would pass to X when the parties intended it to pass, usually on delivery.

But such a title would be subjected to common law power to re-vest in favour of X. Once X exercised the power, the common law title in the painting would re-vest in X.

Indisputably Proprietary

The common law power to rescind is absolutely proprietary in nature. Until it is exercised, the power can be removed by a bona fide purchaser of title to the property transferred under the contract for value and without notice of the power.

Until the common law power is removed by a bona fide purchaser or lost through the power holders delay or affirmation of the contract, the power remains – regardless of the hands into which the property might come.

This is the specific outcome of ‘nemo dat quod non habet’ - no one gives what they do not have.

In Vagrand Pty Ltd v Fielding (1993) 41 FCR 550 at 552:

‘[T]he assets come to the liquidator with their history and inherent characteristics. Although the liquidator takes the assets on behalf of the creditors, third parties retain any rights which ensure to them as a result of that history or those characteristics.’

CasesNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Car & Universal Finance Co Ltd v Caldwell [1965] 1 QB 525

Caldwell was the owner of a car which he sold to a fraudster and the cheque provided by the fraudster was worthless. When the cheque bounced, Caldwell successfully rescinded the contract. The fraudster sold the car to Motobella Ltd, who sold it to G & C Finance Ltd – who then sold it to a dealer, who sold it to Car & Universal Finance in good faith and for value.

Lord Denning ruled that Caldwells act of rescinding the contract provided re-vesting title to him:

‘The contract of sale to these rogues was avoided and Caldwell then became the owner of the car again. It was only after he avoided it (so that it was once again his property), that these rogues purported to sell it to Motobella and Motobella purported to sell it to C & G Finance. Those sales were ineffective to pass the property because it had already re-vested in Caldwell.’

Re Eastgate; Ex parte Ward [1905] 1 KB 465

A purchaser fraudulently induced a vendor to sell him furniture on credit. The purchaser then engaged in bankruptcy by absconding and left behind the furniture in a rented house. The vendor then entered the house and repossessed the furniture. The fraudster was then made bankrupt and this was dated to the day on which he absconded. The fraudster’s property vested in his trustee from that date. The trustee sued the vendor in conversion contending that the vendors exercise of recession was invalid as it had been lost by the fraudster as an act of bankruptcy.

The Court held that the right to rescind was exigible, not only against the debtor but also against the trustee in bankruptcy. The vendor had not engaged in conversion of the furniture when he exercised his right to self help by repossessing the furniture. Court stated at 467

‘the trustee acquired the interest of the bankrupt in the property subject to the rights of third parties. One of those rights in this case was the right of the vendors of the goods to disaffirm the contract and to retake possession of the goods.’

Equity’s concurrent jurisdiction with common law Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


If a contract is voidable at law because of fraudulent misrepresentation, then equity has always exercised a concurrent jurisdiction with the common law in relation to the remedies provided.

If the power holders exercise of the right to rescind is ineffective because in specie restitution isn’t available at exercise, equity will step-in and treat the power holders exercise as valid and re-vest rights in equity at that time.

Restitutio in integrum

Full personal and proprietary rights can be used at the time of the subsequent equity action. This is due to equity taking a less substantial view of the requirements of restitution in integrum, and the common law lacking the means of providing a remedy where one or other party benefits from the possession of property. For example, where a shareholder receives dividends on their shares before they successfully exercise their right to rescind.

Recession

The proprietary consequences of recession in equity are to make the parties to the contract trustees of the re-vested titles for their contractual counter-party. This is also known as a resulting trust.

The primary difference between recession at common law and in equity where stated in Alati v Kruger (1955) 94 CLR 216 by Dixon CJ, Webb, Kitto and Taylor JJ.

‘The difference between the legal and the equitable rules on the subject simply was that equity, having means which the common law lacked to ascertain and provide for the adjustments necessary to be made between the parties in cases where a simple handing back of property or repayment of money would not put them in as good a position as before they entered into their transaction, was able to see the possibility of , and therefore to concede the right of a defrauded party to rescind, in a much wider variety of cases than those which the common law could recognize as admitting of rescission. Of course, a rescission which the common law courts would not accept as valid cannot of its own force revesting legal title to property which had passed, but if a court of equity would treat it as effectual the equitable title to such property revests upon the rescission.’

Bars to recession

Bona fide purchaser, affirmation and lapse of time all remain relevant as bars to rescission as they did in fraudulent misrepresentations.

Misrepresentation in EquityNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Misrepresentation is only a ground for recession of a contract if the representation was intended to induce the contract and subsequently did actually induce the contract as per Hewson v Sydney Stock Exchange Ltd [1968] 2 NSWR 224.

The misrepresentation must

Have acted as an inducement such that the plaintiff was consequently caused to enter into a contract they otherwise would not have.

Inducement

Inducement will be inferred from the fact of entry into a contract unless the defendant is able to prove that the plaintiff knew that the representation was false or that they did not rely on it as per Simons v Zartom Investments Pty Ltd [1975] 2 NSWLR 30.

If the plaintiff is able to show the misrepresentation acted as an inducement, it will not matter for instance, that the plaintiff carried out their inspection of the property which is the subject of the contract.

If the plaintiff had already decided to act before any misrepresentation was made, recession is still possible provided that the representation had the effect of inducing the plaintiff to continue with the decision. This was seen in Australian Steel & Mining Corp Pty Ltd v Corben [1974] 2 NSWLR 202.

Representation and Contracts

The right to rescission is not loss if a representation becomes a warranty and the fact that a contract is completed does not preclude a court from rescinding the contract as per Dean v Gibson [1958] VR 563.

Innocent misrepresentation – Common law provides no remedy, Equity does

The common law provides no remedy for non-fraudulent misrepresentations which induce entry into a contract. This is a fundamental aspect of misrepresentation that is unique to the doctrine of misrepresentation in equity and sits in its exclusive jurisdiction.

In equity, recession is a remedy which is available for misrepresentation as per Redgrave v Hurd (1881) LR 20 Ch D 1. In Derry v Peek (1889) 14 App Cas 337 the Court stated

‘Where rescission [on the ground of misrepresentation of a material fact] is claimed it is only necessary to prove that there was misrepresentation; then, however, honestly it may have been made, however free from blaming the person who made it, the contract, having been obtained by misrepresentation, cannot stand.’

This infers that equity will grant recession where a material misrepresentation of fact had induced the entry into a contract.

Bars to recessionNotes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


Bona fide purchaser, affirmation and lapse of time all remain relevant as bars to rescission as they did in fraudulent misrepresentations.

Rescission and Restitution vs. Common Law

Rescission and Restitution

Rescission and restitution occur in response to the successful exercise of the plaintiffs right to avoid the contract under which he agreed to take the property the subject matter of the contract.

The remedies of rescission and restitution provide that each side must give back that which has been transferred under the contract. It is not the remedies purpose to compensate the shareholder for loss or punish the wrongdoer for committing the wrong.

Rescission dissolves the contract ab initio – or invalid from the outset – releasing both parties from their obligations to perform and precludes any contractual damages. However, rescission does not stop an action in fraud.

Fraudulent Misrepresentation

The making of a fraudulent misrepresentation that causes loss is actionable in the tort of deceit, entirely separate from the claim to rescind and re-vest. A claim for compensatory damages in deceit arises in response to the wrong and is distinct from any remedies which are provided by rescission and restitution.

Common Law

Under the common law, a person can rescind the contract, re-vest title and give and receive restitution in addition to claiming common law damages in deceit. This person can also affirm the contract – giving up the right to rescind and revest – and sue only in deceit.

In the later case, the person can only seek compensatory damages which are inherent to deceit. The measure of damages will typically be the difference between the price paid for the property transferred and its true value – a basic right of any person who enters into a contract to transfer personal property induced by fraud.

The use of fraud in equity

Equity’s jurisdiction over fraud is described in the following terms by Story as per

“…upon closer observation they [i.e. the doctrines of equity concerning fraud] will be perceived to be founded in an anxious desire of the law to apply the principle of preventative justice so as to shut out the inducements to perpetrate a wrong, rather than to rely on mere remedial justice after a wrong has been committed. By disarming the parties of all legal sanction and protection for their acts, they suppress the temptations and encouragements which might otherwise be found too strong for their virtue”.



Such a statement infers that equity is entire prophylactic or preventative. A notion upheld by Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932 at 954 where a solicitor had a relationship with their client – a fiduciary relationship.

In equity, fiduciary relationships and the transactions which stem from them must be ‘open and fair, and free from all objects’ as per – Maguire v Makaronis (1997) 188 CLR 449. The utmost form of altruism.

Future of Equitable Fraud

In MGL, the authors state that

“the truth appears to be that all these cases [in which the label equitable fraud has been applied] are fairly settled instances of appeals to the conscience of the court, the settlement being the product of an empirical process over the centuries. The door may now appear shut to fresh appeals but the terms in which fraud is seen to appear in various cases will provide sufficient lee-ways for further development”.

Such a statement upholds stare decisis et quieta non movere – that is, ‘to stand by and adhere to decisions and not disturb what is settled.’ Such a principle upholds the notion that Courts should adhere to precedent – and should not seek to stray from it.

Inducement

The inducement of a plaintiff into a contract, or some act which causes the plaintiff to act to their detriment, must attract more attention to the inequality and capacities of the parties. In MGL, the authors comment that

“the touchstone is whether the pressure (unlawful or lawful) amounts to conduct which is unconscionable; but that, as stated in [12-090] below, is no more than saying that it is fraudulent in the equitable sense”.

Part Performance

The doctrine of part performance enables a court of equity to decree specific performance of a contract for sale of land which at law is rendered unenforceable by s4 of the Statute of Fraud and s53(1) of the Property Law Act 1958 (Vic).

Equity will intervene only when acts of the plaintiff, which the defendant knew of or permitted, rendered the contract fraudulent if the defendant relied on statute. The defendant, who had the benefit of the plaintiffs part performance, is not permitted to resist the performance of his obligations to the plaintiff.



Mistake in Equity

Equity can rescind a completed contract which the parties have entered under mutual, common or otherwise unilateral mistake. Generally, it is common that all have

1. An induced mistake – such that an error was induced by a defendants misrepresentation

2. A self-directed mistake – an error which has occurred but is not caused by any action of the defendant.

Typically, equity will seek to intervene if the mistake was due to ‘defective data’ by the plaintiffs which caused the defendants misrepresentation. Equity, will not intervene if the contracting parties are ad idem – that is, ‘they are of the same mind and they reach a general consensus with that same mind.’

Mistake is equity is concerned only with circumstances whereby the plaintiff is subjectively mistaken to the agreement made and if objectively construed, there is conduct suggestive of contractual formation and the defendant is not at fault. Equity will seek to set aside such transactions as it is arguably against public interest to allow them to proceed.

Unilateral Mistake

A mistake made by only one party to a contract – a unilateral mistake – which the other party knew about and induced. If one party acknowledges that the under of one party was correct, this is case of mistake as per Goldsbrough Mort & Co Ltd v Quinn (1910).

Mutual Mistake

A mistake where both parties to a contract erred, and each party makes a mistake different from the other but each believes themselves to be correct. For example, A thinks they are selling B a 1930 Ferrari for $X – but A is actually selling a Rolls Royce and B actually thinks they are purchasing a Bugati.

Mutual mistake arises when there is no ‘meeting of the minds’ and since the parties have differing intentions – their offer and acceptance are actually entirely distinct. This infers that no contract actually occurs as per Sharp v Thomson (1915) 20 CLR 137.

Equity will typically seek to set arise such transaction and provide restitution of any benefits conferred under the contract. If the contract was objectively constructed, then the parties in the example above, then equity would not intervene.

Common Mistake

Transfers made under a recognized contract can be the subject of restitutio in integrum because a common mistake provides that the parties were under a common misapprehension either as to facts or as to their relative rights.

This is only the case if the respective misapprehension was fundamental and the party seeking equity’s intervention was not at fault – Solle v Butcher [1950] 1 KB 671. A contract with common mistake would be void at law but not void ab initio – or invalid from the outset - as per Bell v Lever Bros Ltd [1932] AC 161.Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


In Futuro

In McCrae v Commonwealth Disposals Commr [1951] 84 CLR 377 – the High Court stated that common mistake does not operate to make the contract void ab initio. Instead, the contract will be invalid in futuro – in the future – from the point of discovery of the common mistake. Equity will restore the parties transfer which were wrongly made if there was a contract between them.

There is no jurisdiction whereby equity will rescind for common mistake transactions otherwise operative at law.

Mistaken Payments

Equity can return payments which have been mistakenly made, in addition to other assets paid and transferred by mistake where the transfer occurred outside a contractual formation.

Testamentary Gifts

In equity, most testamentary gifts which are made in mistake are required to be repaid by the beneficiary of the mistaken gift. In Re Diplocks Estate [1948] Ch 465 – the House of Lords affirmed the existence of the equitable principle of strict liability whereby those to whom a deceased estate is conferred by mistake are personally liable to repay the persons rightfully entitled to the deceased’s property. They rejected the fact that a defendant was required to act in unconscientious manner.

The Re Diplocks Estate [1948] Ch 465 – claim involved a pre-existing fiduciary obligation between a beneficiary and executor – this was different to the case of Barnes and Addy which required a demonstration of notice or knowledge on behalf of the recipient before an in personam cause of action is available.



Topic 6 – Equitable Estoppel

In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, the High Court suggested that while equitable estoppel includes both the doctrines of proprietary and promissory estoppel, they are primary regarded as a singular doctrine. The ratio decidendi of case was that it spoke not in terms of representations, but of assumptions or expectations

The High Court stated that a remedy of specific performance was inappropriate because the parties were antagonistic – hostile – towards each other from the litigation. Since equity will not act in vain – compensation was awarded for the detriment suffered by the plaintiffs.

Definition

Equity will provide relief to any party that has acted to their detriment on the basis of some assumed state of affairs in relation to which the other party to the transaction has played some part in the adoption of the assumption such that it would be unfair or unjust if the other party were left free to ignore the assumption per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

Primary Elements of Equitable Estoppel

Equity will seek to intervene in a transaction and provide relief for the plaintiff where it would be unconscionable for the defendant to ignore any associated assumption – not just a representation – that the plaintiff has relied upon. To establish equitable estoppel the plaintiff must prove, as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404:

1. Assumed Legal Relationship - That the plaintiff assumed a particular legal relationship existed, or would come to exist, between the plaintiff and the defendant;

2. Defendant induced - The defendant subsequently induced the plaintiff to adopt that assumption or expectation;

3. Plaintiff acted - The plaintiff acted or did not act on the faith of the assumption or expectation;

4. Defendant knew of the action - The defendant knew of the plaintiffs action or intended the plaintiff to act in a particular way;

5. Plaintiff suffered - The plaintiffs actions or inactions caused them to suffer a detriment if the assumption was not fulfilled; and

6. Defendant did not attempt to avoid - The defendant failed to act to avoid the detriment by fulfilling the expectation that the plaintiff assumed.

Source & Enforcement

Equitable estoppel – distinct from common law estoppel – is a foundation of legal obligation. It is enforceable as a separate cause of action and a party is entitled to equitable relief to ensure that some detriment suffered in reliance on an assumption has a cause of action available rather than a mere defence to a claim made by some other party.



Inducement

The element of inducement can arise from positive representations, expressed or implied through conduct or words. It can also occur by omission where the defendant relies on the plaintiffs assumption which if the plaintiff does not fulfil will cause them detriment and the defendant knew that the assumption was incorrect or false.

For estoppel to be relied, the assumption must be clearly evident and precise and identifiable in stature as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

The 4 types of behaviour that could give rise to an assumption are (per Deane J, Cth v Verwayen):

Making a representation (express) Acts in accordance with a particular state of affairs (implied) Enters into an agreement on the basis of the assumption (implied) Silence (implied)

Certain and Unambiguous

Regardless of the way the assumption is induced, it must be induced in such a way that it is certain and unambiguous in the mind of the plaintiff. But this does not mean that a degree of imprecision is unacceptable.

E.g. Australian Crime Commission v Gray, Ipp JA found that whilst the exact amount of monetary compensation required to fulfil a promise to the appellants that they would suffer ‘no financial disadvantage’ by entering into witness protection was difficult to determine and discretionary, the promise itself was as a whole unambiguous and clear.

Ipp JA also stated that ‘there may be circumstances where reliance on ambiguous representation or a representation having an unclear or uncertain meaning could give rise to an unconscionable result.’ That is unconscionability may not be negated by ambiguity and equity would intervene if there is unconscionability.

Silence

Silence will support an equitable estoppel only if it would be inequitable to assert a legal relationship different from the one which, to the knowledge of the silent party, the other party assumed or expected (Walton Stores, Brennan J). The principle of silence has important implications for pre-contractual negotiations.



Defendants knowledge

If the behaviour of the defendant had no influence on the plaintiff or the induced assumption did not affect the manner in which the parties proceeded to handle their affairs, then the court will not estoppe the other party.

Therefore it is important to find a causal like between the assumption and the relying party’s subsequent conduct.

Giumelli v GiumelliFacts

A son worked on an orchard which was established in a partnership with his parents and 2 brothers. Three promises were made to the son over the course of 7 years to encourage him to continue work on the orchard and to prevent him from quitting the partnership and pursuing other avenues of employment.

The first promise was that the son would receive part of the farm in return for working without wages and for the improvements he was making to his parent’s property.

The 2nd promise was that the son would be given ownership of the house, surrounding land and nearby orchard if he built the house and worked on developing the land.

The 3rd promise was that the property would be subdivided so that the house and orchard he worked on would be conveyed to the son.

Held In the case of the 2nd promise, reliance is established by the expenditure of the son’s

money and labour on building the house, while in the 3rd promise, reliance is established by the son’s rejection of alternative job offers, his return to the property and his work in establishing the new orchard.

The inducement by the defendant must be a reasonable one

In addition, note that this element will only be satisfied when the reliance is reasonable in all the circumstances of the case. That is, the inducement must be sufficiently clear for reliance upon it to be reasonable.

Confusing or inconclusive messages sent from A to B may induce a particular response from B, but it may be difficult for him to show that reliance upon those messages was reasonable (NSW v RT & YE Falls Investment). But note Ipp JA in ACC v Gray (above) where he noted that equity will be keen to prevent any unconscionable consequences.



Relied on the Assumption

In order to establish estoppel, the plaintiff must show that the estoppel was relied upon as per Valbirn Pty Ltd v Powprop Pty Ltd [1991] 1 Qd R 295. A claim will fail if the plaintiff knew that the representation was not true or the person making the representation didn’t have the authority to make it as per State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170.

Knowledge of Reliance - It is more likely that the courts will regard a party as unconscionable in denying the assumed state of affairs if he or she had knowledge that the other party has relied upon them.

o Not critical - However the requirement of knowledge does not seem to be particularly strong despite its clear presence in Walton Stores. This is because neither subsequent cases nor many commentaries seem to place a great deal of emphasis upon it. Compare for example Mason CJ in Walton Stores and Cth v Verwayen where he placed less emphasis later.

o Knowledge more critical if silence - Knowledge is perhaps more important when the induced assumption arises from silence. This is because knowledge is presumed when a party commits a positive act.

o Departure from Reliance - Therefore knowledge is likely to be a persuasive factor in showing evidence that departure from the assumption would be unconscionable rather than an essential element of the assumption. Per Deane J in Cth v Verwayen, the question of unconscionability must ultimately ‘be resolved not by reference to some preconceived formula framed to serve as a universal yardstick, but by reference to all the circumstances of the case.’

There must be some detriment to the plaintiff

In order to establish equitable estoppel, the plaintiff must show – in accordance with Commonwealth v Verwayen (1990) 170 CLR 394 - that

1. Detriment occurred from departure - The detriment which occurred to them was more likely to occur if the representing party departed from the assumption; and

2. Detriment due to reliance - That the detriment will occur on the plaintiffs if they act, or do not act, in reliance on the assumption.

Most importantly, detriment is not entirely confined to financial loss and its ambit can extend beyond this. It can merely consist of the loss of an opportunity to protect or advances a persons position as seen in Territory Insurance Office v Adlington (1992) 2 NTLR 55.

Detriment includes: Loss opportunity (Giumelli v Giumelli) contra disappointed expectation without

more (Bredel v Moore Business)

‘Financial hardship or embarrassment as a result of the debt accumulating or…[if] money had been spent in other ways and that the respondents were unable to pay at any rate without difficulty or inconvenience…if…they would have conducted their affairs differently’ (King CJ, Je Maintiendrai v Quaglia).

Purchaser’s loss of a deposit due to lost of a ‘real chance’ to raise the finance necessary to acquire property due to an assumed anticipatory breach of k by the vendors (Foran v White)



Australian courts generally take a broad view to detriment (Cth v Clark; Cth v Verwayen)Unconscionable

To establish equitable estoppel, the plaintiff must be able to establish that it would otherwise be unconscionable for one party to depart from an assumption which the other party has relied upon as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

Typically, these factors depend - as discussed in Commonwealth v Verwayen (1990) 170 CLR 394 – the following

1. The extent to which the defendant induced the plaintiff;2. The reasonableness of the other parties reliance; and3. The extent of the detriment that would be suffered through a reliance.

If two parties are negotiating a contract and are aware that either may still withdraw from negotiations before a contract is made out, it is not unconscionable to take such action - Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

Relief Provided

Estoppel in equity will not entitle the party raising it to the full benefit of the assumption which they have relied upon as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. This was made clear by Brennan J in this case at 423 where he stated that equity is not said

‘to compel the party bound to fulfil the assumption or expectation; it is to avoid the detriment which, if the assumption or expectation goes unfulfilled, will be suffered by the party who has been induced to act or to abstain from acting thereon’

The Court will typically look to doing the minimum necessary to avoid a detriment occasioned by reliance on the assumption, and it can require the party estopped to make good on the assumption tendered.

This was affirmed in Commonwealth of Australia v Verwayen, where the High Court stated that the remedy for equitable estoppel is to provide the minimum necessary relief to avoid further detriment.

Post Waltons Estoppel

Since the case of Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 – equitable estoppel now

1. Incorporates both proprietary and promissory estoppel2. Can be used to create a cause of action as per proprietary estoppel3. Can prevent the promise suffering detriment from having relied upon an assumption

in circumstances where it would be otherwise unjust to permit the representor from retracting from the promise;

4. Extends to assumptions where a legal relationship exists or will exist5. Highlights the remedy is the key facet to prevent unconscionable conduct.



The Minimum Equity

In The Commonwealth of Australia v. Verwayen (1990) 170 CLR 394 the minimum equity might have been thought to have involved no more than the costs thrown away by reason of the amended pleading.

But on the facts of Verwayen, the minimum equity required precluding the Commonwealth from amending its pleadings at all.

Brennan J set out the general position. He said:

‘The ordinary principles of equitable estoppel which might apply to a promise of this kind were discussed in Waltons Stores v Maher. The judgments of a majority of the Court in Waltons Stores v Maher held that equitable estoppel yields a remedy in order to prevent unconscionable conduct on the part of the party who, having made a promise to another who acts on it to his detriment, seeks to resile from the promise. The remedy is to effect what Scarman LJ called "the minimum equity to do justice" in Crabb v Arun District Council: see Waltons Stores v Maher, per Mason CJ and Wilson J; per Brennan J. The remedy is not designed to enforce the promise although, in some situations (of which Waltons Stores v Maher affords an example), the minimum equity will not be satisfied by anything short of enforcing the promise.’

In Commonwealth of Australia v Clark [1994] 2 VR 333, Marks J stated that he preferred not to use ‘minimum equity’ and rather

‘that which is necessary to prevent unconscionable conduct and do justice between the parties’

Ormiston J also stated in this case that detriment is tied to reliance, and that plaintiff must

‘demonstrate detriment is more likely than not to occur if the defendant is permitted to resile from the promise and that the detriment will derive from proven acts of reliance’



Promissory Estoppel

While the Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 – unified promissory estoppel and proprietary estoppel – the facts of promissory estoppel are considered here.

Promissory estoppel applied to parties in a pre-existing contractual relationship, where one of them represented they would not rely on their strict contractual rights. This is most specifically represented as to future conduct or intention.

PrincipleThe principle of promissory estoppel was that if a party has, by his words or conduct, made an assurance of promise to another which was intended to affect the legal relations between them and to be acted on accordingly, and if the other party has taken him at his word and acted on it, the promsior cannot then revert to previous legal relations as if no assurance had been made (per Combe v Combe refining Denning MR’s formulation in High Trees).

Promissory estoppel

1. Is Defensive – it cannot be used to create a cause of action

2. Prevents Departure – prevents the departure from a representation made by a party in a contractual relationship where the representing party has acted on the representation that was made knowing the represented would suffered detriment if a departure occurred (per Legione v Hateley (1983) 152 CLR 406)

3. Pre-contractual representations – Extends to representations which are made during pre-contractual formations, particularly in circumstances where the promisor had induced the promise to confer contractual rights through an assurance that they would be used in a particular manner – but they don’t actually exercise rights in that manner (per Legione v Hateley (1983) 152 CLR 406)

ElementsEquity will seek to intervene in a transaction and provide relief for the plaintiff where it would be unconscionable for the defendant to ignore any associated assumption. To establish equitable estoppel the plaintiff must prove, as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 404:

1. Assumed Legal Relationship - That the plaintiff assumed a particular legal relationship existed, or would come to exist, between the plaintiff and the defendant;

2. Defendant induced - The defendant subsequently induced the plaintiff to adopt that assumption or expectation;

3. Plaintiff acted - The plaintiff acted or did not act on the faith of the assumption or expectation;

4. Defendant knew of the action - The defendant knew of the plaintiffs action or intended the plaintiff to act in a particular way;

5. Plaintiff suffered - The plaintiffs actions or inactions caused them to suffer a detriment if the assumption was not fulfilled; and



6. Defendant did not attempt to avoid - The defendant failed to act to avoid the detriment by fulfilling the expectation that the plaintiff assumed.

The formulation of Brennan J speaks not in terms of representations, but of assumptions or expectations. His Honour commented that

..... the requirement that a party should not be estopped on an ambiguity does not mean that the precise terms of the assumption or representation which founds the claimed estoppel must be entirely and unequivocally clear: an estoppel can arise even though the precise terms of the assumption or representation may be difficult to ascertain, so long as it is clear that there was an assumption, and the scope of the assumption, though its full extent may be uncertain, is at least sufficient that it can be said that the defendant's conduct would involve a departure from it.

Equity Forced to Act

Thus, the High Court in Walton Stores had to force equity into action because of the conduct of Walton. Previously, promissory estoppel had not operated as a cause of action, as the Courts were concerned that the enforcement of voluntary promises would impinge on the law of contract.

The decision from Waltons explained how the Courts can operate within the expanded doctrine of estoppel which will operate in general to enforce voluntary promises as there is a necessary element of unconscionability that must be satisfied before a remedy will be granted. A necessary part of the claim in estoppel is that the promisee acted in reliance, and that to resile from that promise would be ‘unconscionable’.



Proprietary Estoppel

While the Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 – unified promissory estoppel and proprietary estoppel – the facts of proprietary estoppel are considered here.

Proprietary estoppel create a cause of action as well as a defence – distinct to promissory estoppel – where the owner of the property induced another to believe that he or she has or will have an interest in property.

Proprietary Estoppel

1. Relies on Assumption - A person typically relies on an assumption made by another, and this other person gains or will gain an interest in this person’s property, such that the assumption alters the first person’s position and leads to a detriment.

2. Has Separate cause of action – The plaintiff does not have to prove a separate cause of action – like in promissory estoppel – once the elements of proprietary estoppel are satisfied and an independent cause of action arises for the plaintiff.

Elements

The elements of proprietary estoppel , per Brennan J in Walton Stores

1. An expectation has been created or encouraged by an owner of land;2. The second party has expended money on the land in accordance with the

expectation;3. The owners knows of the expenditure and does not resist; and4. The second party will suffer a detriment if the expectation is not fulfilled.

Proprietary estoppel on the other hand operates to restrict the legal rights of landowners if they have encouraged the belief in another that he has some entitlement over the property and that believe was acted upon. Proprietary estoppel only dealt with real property law and could act as a sword as well as a shield. The two main methods that an assumption of interest could arise were:

Estoppel by encouragement e.g. Dillwyn v Llewelyn – father tried to transfer land to son, the transfer had failed in effect, but the father had approved and encouraged the son to build on the land. Held, son had an equitable right to compel the transfer.

Estoppel by acquiescence e.g. Ramesden v Dyson per Cranworth LJ (see previous week)

There is not much difference between the 2 except that one method is more passive.

Remedies

The primary remedies that Court can impose are

1. Monetary – a monetary remedy of the same value or to a proportion of the property – Jackson v Crosby (1979) 21 SASR 280

2. Right of Access and Right of Way – Crabb v Arun District Council [1976] 1 CH 179



3. Discounted property – purchasing property at a discount - Cameron v Murdoch (1986) 63 ALR 575

Common Law Estoppel Estoppel by judgement or res judicata is a principle which is concerned with the

merger of a cause of action into a judgement. Issue estoppel is concerned with matters of fact or law necessarily decided by an

earlier judgement in relation to which the parties or their privies were subject. Anshun estoppel stops a party from raising an issue which was not – but which could

and should have been – litigated in an earlier proceeding.

These three common law estoppels are concerned with public interest and stopping issues as relevant.

Estoppel by Convention – Not based on representation of fact

Estoppel by convention is a form of estoppel that is not founded on a representation of fact, but rather on the conduct of relations between parties on the basis of an agreed or assumed state of fact – which both parties will be estopped from denying.

In common law estoppel, it is necessary for a plaintiff to establish:

1. Plaintiff adopted an assumption - that the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;

2. Defendant adopted same assumption - that the defendant has adopted the same assumption;

3. Relationship based on that assumption - that both parties have conducted their relationship on the basis of that mutual assumption;

4. Each party knew - that each party knew or intended that the other act on that basis; and

5. Departure will occasion detriment - that departure from the assumption will occasion detriment to the plaintiff.

Such estoppel is focused entirely on the basis of the parties relationship. It operates when both parties have adopted the same assumptions in respective to the matters at hand, and typically rejects any departure from the strict legal position involved.

Difference between Contract and Conventional Estoppel (refer representation below)

In Amalgamated Investment & Property Co Ltd (In liq) v Texas Commerce International Bank Ltd [1982] QB 84 – Lord Denning stated that to the effect that parties to a contract by their course of dealing put a particular interpretation on its terms, on the faith of which each to the knowledge of the other acted and conducted their mutual affairs, they are bound by that interpretation just as much as if they had recorded it as a variation of the contract.

His Lordship then explained that such parties had by their course of dealing adopted a conventional basis for the governance of their relations and were bound by it – because, having regard to the dealings between the parties, it would be unjust to allow either to insist on the strict interpretation of the original terms. It is not necessary that the parties, in adopting their assumption, have adverted to the express terms of the contract. His Lordship stated at 121



‘There is no need to inquire whether their particular interpretation is correct or not – or whether they were mistaken or not – or whether they had in mind the original terms or not. Suffice it that they have, by their course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it.’

This infers that if an intention exists to vary the original terms to support a contractual variation, no advertence to the original terms is necessary to find a conventional estoppel.Estoppel by Fact and Future Intention – Jordan v Money

A representation of fact can be a representation of fact and law or just law. In Foran v Wight (1989) 168 CLR 385 at 435 Deane J said:

‘the distinction between a representation of fact and a representation of law is, in the context of the principles constituting the doctrine of estoppel by conduct, essentially illusory unless one subscribes – and I do not - to the view that law has no factual existence at all.’

Additionally, a representation must be of existing fact rather than any future intention. The existing fact/future intention requirement arose in Jorden v Money, where it was decided that estoppel cannot arise from a representation of future intention: a statement of fact is required.

In Commonwealth v Scituate Savings Bank (1884) 137 Mass 301 at 302 –

‘it would cut up the doctrine of consideration by the roots if a promisee could make a gratuitous promise binding by subsequently acting in reliance of it’

In light of this and in combination with the concept in Jorden v Money – representations of future intention are entirely governed by the law of contract – equity is limited to representations of fact.

This was re-iterated in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 where a promisee can be expected to appreciate that, to render a promise binding, it must form part of a binding contract. The Court stated

“if there is any basis at all for holding that common law estoppel arises where there is a mistaken assumption as to future events, that basis must lie in reversing Jordan v Money and in accepting the powerful dissent of Lord St. Leonard’s in that case. The repeated acceptance of Jordan v Money over the years by courts of the highest authority makes this a formidable exercise. This brings us to the doctrine of promissory estoppel…..it certainly extends to representations (or promises) as to future conduct.”

Once estoppel by representation was created it was a permanent feature between the parties.



Differences between Common Law and Equitable Estoppel

The distinction between CL and equitable estoppel is summarised by Priestley JA in Silovi Pty Ltd v Barbaro (after considering Walton Stores):

Common law and equitable estoppel are separate categories, although they have many ideas in common.

Common law estoppel operates upon a representation of existing fact, and when certain conditions are fulfilled, establishes a state of affairs by which legal relations between the parties can be decided. This type of estoppel does not itself create a right against the party estopped. The right flows from the court’s decision on the state of affairs established by estoppel (Jorden v Money).

Equitable estoppel operations upon representations or promises as to future conduct, including promises about legal relations. When certain conditions are fulfilled, this kind of estoppel is itself equity, a source of legal obligation.

In Commonwealth of Australia v Verwayen, the High Court stated that the common law estoppel remains separate and distinct from equitable estoppel and that the purpose of all estoppel is to avoid further detriment. They also confirmed that the remedy for equitable estoppel is to provide the minimum necessary relief to avoid further detriment.

Therefore

CL estoppel is like a rule of evidence i.e. a device used to establish facts that the court will used to judge the legal rights of the parties before it (Low v Bourverie, Bowen LJ).

CL estoppel is a ‘shield’ and not a ‘sword.’ It was a defence and could not be sued as a cause of action because it did not confer substantive rights.

Equitable estoppel however (since Walton Stores) is both a ‘shield’ and a ‘sword’ as it confers substantive rights. That is, per Mason CJ and Wilson J in Walton Stores, ‘a plaintiff may rely on estoppel if he has an independent cause of action.’

Therefore equitable estoppel will be relevant to pre-contractual negotiations as its role is to establish the state of affairs from which an action will arise.

Example of CL and equitable estoppel in a landlord-tenant situation:

CL estoppel will occur if you signed a lease on the basis that the landlord said that the premises are in good repair and modern, but the premises are in a poor condition. This is because the landlord’s representation is an existing fact i.e. ‘I already did it’

Equitable estoppel occurs when you sign a lease on the basis that the landlord said that he will install equipment and upgrade the premises, and the landlord fails to fulfil his promise. This is because the landlord’s statement is one of future intention i.e. ‘I will do this’



Topic 7 – Confidential Information

The equitable action of breach of confidence is used to protect valuable or personal confidential information from misuse and exploitation by others. Apart from contractual obligations, obligations of confidentially are recognised and enforced in the exclusive jurisdiction of equity as stated by Deane J in Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414. The basic proposition of the doctrine was stated by Lord Green MR in Saltman Engineering v Campbell Engineering

‘if a defendant is proved to have used confidential information, directly or indirectly obtained from a plaintiff without the consent, express or implied of the plaintiff, he will be guilt of an infringement of the plaintiffs rights’

Typically, possessors of confidential information are subject to fiduciary duties which prevent them for misusing information or knowledge for their own advantage. However, equity is not confined to pre-existing fiduciary relationships and no such relationship is required for equity to concern itself with confidential information. It is noted that information is not considered property, and this is an important point to consider in this doctrine.

Equities Purpose

Equity seeks to restrain the publication of unauthorised or confidential information – improperly obtained – by holding the alleged confidant of the information accountable for any profits acquired from the improper use of the information per Coco v A N Clark (Engineers) Ltd [1968] FSR 415.

In Moorgate Tobacco Co v Philip Morris – Deane J stated that equity’s jurisdiction

‘lies in the notion of an obligation of conscience arising from the circumstance in or through which the information was communicated or obtained. Relief under the justification is not available, however, unless it appears that the info in question has the ‘necessary quality of confidence about it’ and that it is significant, not necessarily in the sense of commercially valuable, but in the sense that the prevention of its confidentiality or secrecy is of substantial concern to the plaintiff.’

***Elements of a cause of action***

In Coco v AN Clark (Engineers) Ltd [1969] RPC 41, Mergarry J stated

‘In my judgement, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene MR in the Saltman case on page 215, must “have the necessary quality of confidence about it”. Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it’

Thus, the three equitable requirements are

1. The information must have a ‘necessary quality of confidence about it’2. The information must have been imparted in circumstances importing an

obligation confidence



3. There must have been an unauthorised use of that information to the detriment of the party communicating it.

The obligation of Confidence – is there a ‘necessary quality of confidence about it’

What is confidential information?

It is impossible to provide a strict definition of the phrase ‘confidential information’ as the duty of confidence can arise in a myriad of situations (Gummow J, Corrs Pave Whiting & Byrne v Collector of Customs). The phrase is viewed

‘as any information that can be subject to an obligation of confidentiality and the better approach to such cases is to consider the sorts of relationships that give rise to the obligations of confidence.’

Equity imposes an obligation of confidence upon the receiver of information if the following four conditions are satisfied:

1. The information must be specific; and 2. The information must be confidential; and 3. It must have been communicated in circumstances which indicate that is, in fact,

confidential; and4. Its use must be unauthorised by the confider.

1. Information must be specific

The information which is alleged by the plaintiff must actually be able to be specified. This relates to the ‘information vs. Ideas’ argument. A plaintiff must be able to specify information because typically they are

1. Seeking an injunction to restrain use of the information and if the information cant be specified – then it is not possible for the Court have sufficiency certain

2. The defendant is entitled to know the particulars of the case to be answered, since the information alleged may not be considered confidential – particularly, if it was already in the public domain as per – Ocular Sciences Ltd v Aspect Vision Care Ltd [1997] RPC 293.

This infers that the information must be

Well developed and capable of exploitation - Ideas can be considered to be ‘confidential information’ if it is well developed and capable of exploitation or realisation (Fraser v Thames TV). Bare ideas that are obvious and undeveloped will not be protected (De Maudsley v Palumbo - an idea for a nightclub)

Lack of detail is not sufficient - Claims that lack detail or seek to protect information that is common knowledge will fail (Amway Corporation v Eurway International). Global claims that fail to particularise specific pieces of confidential information will also fail (O’Brien v Komesaroff).



2. The Information must be Confidential

If information is not confidential, then evidently, it cannot be protected. This is fundamental aspect of the doctrine and perhaps the most important in litigation. In Smith Kline & French Laboratories (Aust) Ltd v Secretary of the Department of Community Services & Health (1990) 22 FCR 73, Gummow J approved the statement from Commonwealth v John Fairfax & Sons such that

‘a court of equity will restrain the publication of confidential information improperly or surreptitiously obtained or of information imparted in confidence which ought not be divulged’

Currently, the Courts treat information obtained clandestinely and information imparted in confidence – as the same thing – when perhaps they should not be.

Public Information

Information which is ‘public property and public knowledge’ cannot be protected – Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) RPC 203, 215. This means that such information ‘looses’ its ‘confidentiality’ aspects.

Examples

Information published on a non-confidential basis cannot be treated as confidential - That is information is only confidential if it is not public knowledge or published (AG (UK) v Heinemann Publishers aka Spycatcher Case). It is not clear if the confider needs to have acquiesced the publication in order for information to lose its confidential character, although there is no compelling reason for this to be a requirement.

The publication of a patent – The publication of a patent will be fatal to a claim of confidence under trade secrets, if there is no ancillary secret surrounding the patent (O Mustad & Sons v S Allock & Co).

Patents in other jurisdictions - Publication of patent specifications in other jurisdictions can destroy duties of confidence if there is regular reference to the foreign patent specifications by people within the jurisdiction (Franchi v Franchi). But if the patent specifications do not cover the entire trade secret, duties of confidence survive to the unpublished part (Castrol Australia v Emtech; Seager v Copydex).

Material subject to personal confidence - Publication of material subject to personal confidence will destroy duties of confidence e.g. Lennon v News Group Newspapers – John Lennon could not prevent his ex-wife from publishing secrets of his marriage, because he had himself published information on the topic.

Publications that are transitory – Such publications are unlikely to be remembered will not destroy duties of confidence e.g. Kwok v Thang where a Chinese pop star restrained the publication of an embarrassing video on the internet even after a verbal account had been published in a newspaper and G v Day where the publication of the televisions presenter’s identity did not destroy confidentiality.



Published widely by a person - A key issue is if the defendant can rely on their won breaches of confidence to argue that the info is no longer secretive. Information will lose is confidentiality if it is published by a defendant, particularly if published widely (AG v Observer Ltd). This does mean there will be no remedies by the defendant’s breach. It just means an injunction would be futile. The plaintiff is still entitled to compensation or an account of profits.

Government Information - Governments confidence will only be protected when it can be shown to be in public interest due to the fact that there is significant importance in the public’s right to discuss, review and criticise the govt (Cth v John Fairfax, Mason J). Semi-government authorities and statutory corporations are generally treated as being part of govt for the purposes of the law of breach of confidence and subject to the same balancing test of public interest (Mason CJ, Esso Resources v Plowman).

Reverse Engineering – Information obtained through reverse engineering is not confidential to the plaintiff because the information is from the defendants own endeavours and the product is in the public domain once it is released – Saltman Engineering Co Ltd (1948) 65 RPC 203

3. The information must have been communicated in circumstances which indicate it is confidential

The duty to respect confidence only exists where the recipient of the information conferred knows that restrictions have been placed upon the use of the information.

Its an objective test - If the circumstances are such that a reasonable man standing in the shoes of the recipient of the information would have realised that the information was given to him in confidence, this will give rise to a duty of confidence (Megarry J, Coco v AN Clark).

o Information that is expressly communicated to the defendant in confidence will give rise to a duty of confidence (Stephens v Avery, Brown Wilkinson VC). However, express communication of confidentiality is not necessary.

Typically any duty of confidence is inferred from the relationship which exists, or existed, between the parties. For example,

Duty of confidence can be inferred by the relationship between the parties: Personal relationship e.g. married or de-facto (Argyll v Argyll). Fiduciary relationships (Boardman v Phipps) Parties engaged in joint enterprises (Coco v AN Clark) Employer-employee, depending on the duties of the employment (Hivac Ltd v Park

Royal Scientific Instruments) Photographs taken of a celebrity wedding when a couple had given exclusive rights to

another magazine – Douglas v Hello! Ltd (No 3) [2003] 3 All ER 996.

The supplier of the information cannot unilaterally impose an obligation of confidence in respect of the information.



4. Use of the information must be unauthorised

The information must have been used in a manner that is completely unauthorised. The breach by the defendant requires them to have used the information in a manner which has caused detriment to the plaintiff.

Equity does not require the plaintiff to show that the defendant intended to make use of the information - only that they did. They key element is

Did the plaintiff place a restriction on the defendants use of the information such that there was an express obligation not to use the information against their wishes – Fractionated Cane Technology Ltd v Ruiz Avila [1988] 1 Qd R 51.

An action under equity for breach of confidential information does not require the plaintiff to demonstrate it will suffer detriment from unauthorised use of that information per the decision in National Roads and Motorists Associated Ltd v Geeson (2001) 40 ACSR 1.

However, it may necessary to demonstrate detriment in the case of governmental information as was seen in Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39.

Defendants own accord

If the defendant acquires any confidential information on their own accord, or through their own investigations of independent discovery or through a public source – then the this does not constitute unauthorised use.

Without Consent

The duty of confidence will be breached if the information is used without the consent of the confider or if there is an unconscious use of the information (Seager v Copydex per Denning MR).

This may involving considering whether or not an unfair advantage had been taken of the information (Smith Kline and French Laboratories).

It will also involve a consideration of the extent and limits of confidentiality that can be imposed on an individual in regard to particular pieces of confidential information in his possession (National Roads and Motorists Association v Geeson).This test looks beyond the simple purpose for which the information is obtained.

i.e. in Smith Kline and French Laboratories, it was reasonable to expect that the information for the application for the extension of a drug patent would be used by the government to determine applications by other drug companies in the interest of public health.

A breach can be inferred if the plaintiff suffers detriment (Cth v John Fairfax, Mason CJ at 51 CLR)



Trade Secrets

Trade Secrets - Trade secrets are confidential commercial information or ideas. Information will be more readily classed as a trade secret if it is detailed in nature and acquired with effort (Robb v Green).

If the information is the product of a special relationship with the plaintiff’s clients, it is more likely to be protected (Westminister Chemical NZ v McKinley & Tasman Machinery)

In Ansell Rubber v Allied Rubber Industries, Gowans J said that the factors to be considered to determine if the given information is a trade secret are:

The extent to which information is known outside the business The extent to which it is known by employees and other involved in the

business The extent to the measures taken by him to guard the secrecy of the info The value of the info to him and his competitors The amount of effort or money expended by him in developing the info The ease or difficulty with which the info could be properly acquired or

duplicated by others

Specific examples of trade secrets that have been protected are:o Designs for

Machinery (Ansell Rubber) Clothing (Peter Pan Manufacturing v Corsets Silhouette) Tools (Seager v Copydex)

o Chemical formulae (Weston v Hemmons)o Results of experiments (Smith Kline and French Laboratories v Dept of Community

Services and Health)o Recipes (Crowder v Hilton)o Ideas for entertainment that are well developed e.g. TV shows (see above)

Note that confidentiality of the information can be evanescent (fleeting), and it may not matter that thousands of people are also aware of it (Exchange Telegraph v Central News – plaintiff sold sports results to subscribers and even though the live audience at the events would have known the result, the plaintiff was entitled to prevent the unauthorised resale of information).

Springboard Doctrine

A person who receives information in confidence is not allowed to use this information to ‘springboard’ activities which would be otherwise detrimental to the party who provided the information. The effect of this doctrine continues ‘even when all the features have been published or can be ascertained by actual inspection by any member of the public’ as per Terrapin Ltd v Builders’ Supply Co (Hayes) Ltd [1967] RPC 375.

The plaintiff remains protected from the defendants use of information which the plaintiff has provided – if the defendant attempts to ‘springboard’ from this information to create a competing offering. After the ‘period of advantage’ expires – the defendant is free to do what they want.



Damages are assessed accordingly as per the general equitable principles for confidential information.

Third Party Liability

Typically, information can be shared between a person and their confidant – who then shares this information with a third party. If the third party attempts to use the information in an unauthorised manner, the third party can be liable for breach of confidence – even there is no “direct” relationship between the plaintiff and the third party.

Notice by the confidant to the third party is required in order to bind the third party with the liability as per Attorney-General (UK) v Observer Ltd [1990] 1 AC 109 and is also seen in Saltman Engineering Co Ltd v Campbell Engineering Co Ltd.

In Douglas v Hello! Ltd [2003] All ER 996 – the magazine purchase photographs from a paparazzo who knew that the celebrity couple had given an exclusive contract to another magazine and also knew the extensive security measures that the couple had gone too. This was sufficient notice to hold them accountable.

Defences

Public Interest

The duty will not be breached if the disclosure of the information is in the public interest as per Lion Loaboratories v Evans, Woodward v Hutchins and Castrol Australia Pty Ltd v Emtech Associates Pty Ltd (1980) 33 ALR 31.

However, a recognised public interest will not automatically trump the public interest in preserving confidence (A v Hayden). There needs to be a weighing up of the benefits.

The mere fact that confidential information might be of use to a party to civil litigation is not enough to say that there is a public interest. This is especially when the obligation of confidence arises out of a contractual provision (AG Australia Holdings v Burton).

There is a difference between public interest and what the public may be interested in (Sullivan v Sclanders).

Information concerning matters of ‘iniquity in the sense of a crime, civil wrong or serious misdeed of public importance’ will be treated in Australia as lacking the necessary quality of confidence required for protection, so that the need for a defence of public interest will not arise – Cross Pavey Whiting & Byrne v Collector of Customs (1987) 74 ALR 428.

Government Information

In the case of government information, a distinct must be drawn between information concerning the past workings of a government (this should be disclosed to the public) and the information that would prejudice national security or government decision making and foreign relations (this should not be)

Cth v John Fairfax



Facts - Information was collected about Australians relationship with South-east Asia and East Timor. There was also information about Australian federal agents in Asia. Could government prevent the sale of the collected information? Held - Government could not prevent the sale of the collected info if they are about the general workings of the government. In addition the information was already published and readily available to the public.Forced Disclosure

By a court for the discovery process (Campbell v Tameside Metropolitan Borough Council) or by statute.

Delay

Laches (AG (UK) v Heinemann)

Clean Hands

If the confider did not chose to protect the info then there should be no relief (Hubbard v Vosper).

The impropriety must relate to the relief sough (Talbot v General Television Corp)

Change of position

If a party innocently receives and uses confidential information, believing that he has the right to use the information and makes significant investment or acts to his detriment by materially altering his circumstances b/c of the information, the party can plead a change of position as a defence. This defence has been approved for the mistaken payment of money (ANZ Banking v Westpac Banking)

A court of equity should be able to ensure that a remedy is available avoid any injustice on the defendant if they have obtained and used confidential information innocently. For example, a Court of equity could easily award an account of profits and make appropriate allowances for the time, effort and cost that the defendant has put into making a profit. Evidently, if the defendants actions have been the primary financial gain and not the misuse of the information – the Court will award an account of profits differently.

Equitable defences are not punitive – Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 and they are not designed to unjustly enrich a plaintiff as per Warman International Td v Dwyer (1995) 182 CLR 544.



Remedies

The primary remedy for breach of an equitable obligation of confidence is an injunction to stop the breach occurring. In Smith Kline & French Laboraties (Australia) Ltd v Secretary, Department of Community Services and Health (1991) 28 FCR 291 an injunction was sought to stop the breach of confidential information being released. The remedy is always at the discretion of the Court, and the Court can withhold damages if it is deemed that damages are not appropriate.

Constructive Trusts

Courts in Australia and the United Kingdom have not yet awarded constructive trusts but in Canada they have been awarded. A Candian case of LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR 14 – awarded a constructive trust after the plaintiff shared information which suggested that their testing on a parcel of land revealed significant gold deposits and the defendant acquired the land and attempted to setup a mine.

Such cases have not yet been explored in Australia.

Injunctions

Granted to prevent the defendant from making unauthorised use of the confidential information in the future (Maggbury Pty Ltd v Hafele Australia).

Injunctions may be appropriate where compensation would be inadequate (Foster v Mountford & Rigby) or when the breach was committed innocently (Seager v Copydex).Subject to the springboard doctrine, injunctions will not be granted where information has moved into the public domain (Spycatcher Cases) or if the action is unlikely to be repeated.

Springboard Doctrine

Equity will not allow a confidee to be in a better position for having breached the confidence by getting a ‘head start’ on the competitors (Lord Denning MR Seager v Copydex). Therefore in these circumstances, equity will grant an injunction even when the information has moved into the public domain (Dart Industries Inc v David Bryar; Terrapin v Builder’s Supply Co).

Delivery Up

Court can order the defendant to deliver up property in the defendant’s possession that has been created, compiled or manufactured as a result of a breach of confidence (Ansell Rubber).

Account of Profits

The quantum amount is assessed according to the profit (rev less exp) that the defendant made by using the information (Peter Pan v Corsets Silhouette)

This can be a difficult remedy when trying to isolate the relevant profits from the defendant’s income that were incurred from the breach.

Account of profits will be subject to laches and delay – can’t let defendant work to detriment (Dowson & Mason v Potter).



This is probably more appropriate if the plaintiff is a manufacturer of a good based on the info.

Monetary Compensation

The purpose of compensation is to restore the plaintiff to the position it would have been in but for the breach. The precise quantum will vary depending upon whether the plaintiff would have used the info itself (get value of the information) or allowed others to use it in return for the payment of royalties (get value of the royalties) (Dowson & Mason v Potter).

Monetary compensation is most appropriate in cases were the originator of an idea aims to exploit it by selling it outright rather than by receiving royalties from its use by others (Seager v Copydex; Talbot).g



Fiduciary Obligations and Obligations of Confidence

The equitable obligations imposed by fiduciary law and confidentiality are closely related and deserve comment. As suggested previously, confidential information in equity requires the satisfication of four main elements. The ‘degree’ of confidence and the nature of the relationship between between a confidee and a confidant are typically the most important in any equitable case for breach of confidence.

Evidently, a fiduciary has a number obligations they owe to a person who confides in them in their official capacity as a fiduciary. The similarities between obligations imposed under fiduciary law and those imposed under confidentiality are quite closely related.

Similarities between the two include:

1. Breach of obligations can be unintentional and there is no element of mens rea required in either of the doctrines.

2. Third parties with the knowledge of obligations can bear liability for participation in a breach in both instances.

3. Obligations forbid an oblige making any associated unauthorised payments. The rules under fiduciaries deny any fiduciary from making any unauthorised profits, and any associated obligation of confidence forbids the unauthorised use of information which may result in a profit being realised.

Differences between the two include:

1. The duties can protect different interests – a. Fiduciary obligations protect economic interests while obligations of

confidentiality protect both economic and personal interests. This was stated in Duchess of Argyll v Duke of Argyll [1965] Ch 302.

2. The obligation of confidence is an easily destroyed obligation in comparison to that of an obligation of a fiduciary –

a. The information passed in confidence can be easily imparted upon another without any malice intent.

3. The manner in which the parties breach the obligations is quite different – a. Fiduciary obligations - are breached when the fiduciary makes an

unauthorised profit through the use of their position or by allowing a profit to continue.

b. Confidential obligations - are breached entirely through the unauthorised use of information which has been imparted in confidence. This infers that the information doesn’t have to be shown to be used for profit or from malice intent – rather, a plaintiff just has to show that it was unauthorised.

4. No public interest defence exists for a breach of duty –a. The defences available under each action are different in that no public interest

defence exists for a breach of fiduciary duties. The fiduciary defence relating to full disclosure and informed consent in the context of a breach of confidence indicates the information used was done in manner which is unauthorised.



Privacy and Confidentiality – A New Doctrine?

Currently in Australia, there is no way a breach of privacy action can be taken under the doctrine of a breach of confidence. While in the United Kingdom they have expanded their equitable doctrines to cover breach of privacy – no such extension of the doctrine has yet occurred in Australia. Apart from contractual obligations, obligations of confidentially are recognised and enforced in the exclusive jurisdiction of equity as stated by Deane J in Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414. Damages were historically not available as of right in equity’s exclusive jurisdiction as in Nocton v Lord Ashburton [1914] AC 932. In, 1958, Lord Cairns Act was introduced to provide the equity Court with express power to award damages in cases where it had jurisdiction to award an injunction or specific performance and is now incorporated as per Supreme Court Act 1986 (Vic) s 38.

In Duchess of Argyll v Duke of Argyll [1965] Ch 302, a spouse was able to prevent the other disclosing information which related to their private life and time together in matrimony. Similarly, in Giller v Procopets [2004] VSC 113, a defendant released a video that was made with the plaintiff regarding sexual acts which the plaintiff alleged was a breach of confidential information. However, information that is ‘private’ cannot satisfy the requirements for confidentiality – such that acts which occur in public, but in every conceivable manner are considered private, are still regarded as public.

In Giller v Procopets, Gillard J rejected the claim of invasion of privacy referring to the English decision of Kaye v Robertson [2003] UKHL 53 and Wainwright [1991] FSR 62. His Honour stated that equitable compensation is not available for mere distress or humiliation and commented that the equitable remedy is restitutionary, in the sense that it is intended to restore the plaintiff to the position he or she would have been in if the equitable duty had not been breached. In the 2008 Appeal, the Court held otherwise.

The leading judgement was tendered Neave JA who referred numerous English decision, including Campbell v Mirror Group Newspapers Ltd [2004] 2 AC 457, Douglas v Hello! Ltd [2006] QB 125 and De Taranto v Cornelius [2001] EWCA Civ 1511, and concluded that damages for mental distress could be awarded for breach of confidence. The Court considered whether punitive or aggravated damages should be awarded. Of note, punitive damages seek to punish the defendant for conduct which is particularly outrageous and typically have no place in equity as equity does not punish. The Court found that punitive damages were not available for breach of confidence but Neave JA (Maxwell P concurred) was prepared to award Ms Giller aggravated damages for breach of confidence as they were compensatory as opposed to exemplary damages which seek to punish. The Court was not prepared to extend its arm to consider whether a tort of invasion of privacy or a tort of intentional infliction of mental harm were necessary.

In Victorian Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479 – the Courts denied any existence of a right to privacy. Gummow and Hayne JJ stated their view that ‘Victoria Park does not stand in the path of the development of ... a cause of action [for invasion of privacy].’ Kirby J also agreed in that ‘It may be that more was read into the decision in Victoria Park than the actual holding required.’ Callinan J concluded the ‘narrow majority’ decision as being ‘a product of a different time’, which his Honour described as both ‘conservative’ and having ‘the appearance of an anachronism’. His Honour concluded that the decision in Victoria Park clearly had no application in a case of invasion of privacy.



Similarly, in ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 – the High Court discussed whether privacy interests are protected under the obligation of confidence but did not rule in anyway. Callinan J supportted the recognition of a right to privacy in so much as for the benefit of individuals as opposed to corporations:

It seems to me that, having regard to current conditions in this country, and developments of the law in other common law jurisdictions, the time is right for consideration whether a tort of invasion of privacy should be recognised in this country, or whether the legislatures should be left to determine whether provisions for a remedy for it should be made

Thus, it seems that the High Court in this case did suggest that such a doctrine could be created in the future.



Giller v Procopets the road to an Australian tort of privacy?3

30 January 2009

In Giller v Procopets [2008] VSCA 236 (10 December 2008), the Victorian Court of Appeal considered whether the defendant’s disclosure to third parties of a videotape that depicted sexual activity between the plaintiff and the defendant constituted breach of confidence, intentional infliction of emotional harm or an invasion of privacy.

The Court of Appeal held that Giller was entitled to compensation for the mental distress and embarrassment caused by the videotapes. The Court followed English decisions awarding damages resulting from a breach of confidence.

The decision suggests that Australian courts are reluctant to create a tort of invasion of privacy, instead choosing to expand the operation of existing torts, such as breach of confidence, to encompass misuse of private information where humiliation, embarrassment and distress has resulted.

The facts

The plaintiff, Ms Giller, was involved in a de facto relationship with the defendant, Mr Procopets. Despite formally separating, Giller and Procopets continued their sexual relationship. Procopets began videotaping sexual episodes between himself and Giller. Giller was unaware that this had occurred on the first five occasions, but acquiesced to the latter five.

As their relationship deteriorated, Procopets approached various people (including family, friends and her employer) and either attempted to show, or actually showed them, the video tapes. The trial judge (Gillard J) found that Procopets had engaged in this behaviour with the intention of hurting and distressing Giller.

Giller alleged three causes of action as a result of Procopets' use of the video tapes – breach of confidence, intentional infliction of emotional distress and invasion of privacy.

First instance

At first instance, the trial judge held that Giller's claim for damages could not succeed as she had not established that she suffered a recognisable psychiatric injury. Any remedy for a breach of confidence was an equitable remedy, and s 38 of the Victorian Supreme Court Act required an application for an injunction to also be made in order to claim damages. As Giller had not applied for any such injunction, His Honour held that her claim in damages could not succeed. His Honour also rejected Giller's claim for invasion of privacy.

Giller appealed to the Court of Appeal (Maxwell P, Ashley JA and Neave JA). The Court upheld Giller’s appeal on the basis of her claim in breach of confidence. A discussion of their Honours' findings follows.

An injunction is not required

In considering Giller’if a cause of action is such as to give the court jurisdiction to grant an 3 http://www.minterellison.com/public/connect/Internet/Home/Legal+Insights/Articles/A-D+Giller+v+Procopets Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


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injunction, then the power to award damages is also available. Neave JA (who delivered the lead judgment) held that there is nothing in s 38, or in the statutory history, to suggest that the power was intended to be exercisable only where an application for injunction had actually been mades claim under s 38 of the Supreme Court Act 1986 (Vic), the court held that , and the fact that Giller had not sought an injunction to restrain Procopets from showing or distributing the video did not deprive the Court of its power to award damages to her.

Breach of Confidence

The court upheld Giller's claim for breach of confidence and, citing with approval a recent line of English authority, held that, in an action for breach of confidence, damages can be awarded to a plaintiff for mental distress falling short of a recognisable psychiatric injury caused by that breach of confidence.

Neave JA (with whom the other members of the Court concurred) found that Giller had established that the relationship was a confidential one, that Giller did not authorise Procopets to show or distribute the video tape, that the unauthorised distribution was a breach of that confidence, and accordingly, that Giller was entitled to damages for the distress caused by the breach.

Neave JA's conclusion was based on the view that an inability to order equitable compensation to a claimant who has suffered distress would mean that a claimant whose confidence was breached before an injunction could be obtained would have no effective remedy.

Intentional infliction of emotional distress

Maxwell P was the only judge to positively uphold Giller’s claim for intentional infliction of emotional distress. In His Honour’s view, compensatory damages for mental distress falling short of a psychiatric injury should be recoverable in a case of intentional conduct such as this, and that such a claim was cognisable in law should succeed in this case.

His Honour proposed that the focus of a court’s inquiry should no longer be on whether a clinician would attach a particular diagnostic label to the plaintiff’s condition, but on the nature and extent of the mental distress actually suffered by the plaintiff as a consequence of the defendant’s conduct.

Neave and Ashley JJA declined to uphold Giller's claim for damages for infliction of emotional distress. Neave JA considered that as damages had been awarded for breach of confidence, it was not necessary to determine whether or not damages could be awarded for intentional infliction of distress where a plaintiff had suffered mere mental distress. She observed that over the past decade, legislatures across Australia have imposed limits on the availability and amount of damages recoverable in negligence for physical and psychiatric injury, and that it seemed anomalous to her to expand the possibility of recovering damages for hurt feelings, even when intentionally caused, at a time when recovery of damages has been legislatively limited.

Ashley JA was of the view that as the law presently stands, in cases of intentional infliction of emotional distress, damages for mental distress falling short of psychiatric injury are not available.



No tort of invasion of privacy

The court unanimously rejected Giller's claim for invasion of privacy. Neave JA stated that a generalised tort of invasion of privacy is not yet recognised in Australia, and that it was not necessary for the court to determine whether to develop such a cause of action since Giller had been awarded compensation for distress on other grounds.

Ashley JA suggested that, due to the difficulties associated with developing such a tort, a better approach may be the development and adoption of recognised forms of action to meet new situations and circumstances.

The significance of the decision

This decision, together with the earlier High Court decision in ABC v Lenah Game Meats, suggests that there is little appetite on the part of Australian courts to be at the forefront of the creation of a tort of invasion of privacy. Instead, the courts appear to be expanding the operation of existing torts, such as breach of confidence, to encompass misuse of private information where humiliation, embarrassment and distress has resulted. The decision does, however, suggest that the courts are willing to protect individuals' privacy where there has been a misuse of their private information. This potentially has consequences for media organisations that knowingly publish confidential information about individuals.

The second key aspect of this case is the Court's acceptance of the fact that a plaintiff need not be suffering from a psychiatric injury to recover damages in an action for breach of confidence, in that mere mental distress is sufficient for a damages award. This removes a major obstacle for plaintiffs claiming for breach of confidence, given that, in many cases, a plaintiff will only be suffering from distress, hurt and embarrassment, rather than any recognisable psychiatric injury.



Topic 8 – Equitable Defences

There a number of equitable defences which are available to defendants for equitable tendered taken against them. The defences generally considered in equity include:

a) a specific defence of informed consent to a breach of fiduciary duty (refer to fiduciary duties for more detail on this)

b) a defence based on the equitable doctrines of acquiescence and laches. These are the two defences that we will consider in most detail.

c) the unclean hands defence.

d) the equitable defence of set-off.

e) a defence to an equitable proprietary claim is that of bona fide purchase of the legal title for value without notice of the earlier equitable interest.

Laches and acquiescence

Laches is an equitable defence which is raised when a plaintiff has been unreasonable in his or her delay or “negligence” in issuing of a proceeding per Orr v Ford (1989) 167 CLR 316. Unreasonableness is the entire basis for this defence because delay alone is not regarded as sufficient enough to defeat an equitable claim.

A defendant is able to resist and equitable claim on these grounds if it is possible for them to demonstrate that the plaintiff unreasonably delayed the prosecution of their case while possessing all the material facts which could have led to a successful commencement of proceedings as suggested in Baburin v Baburin (No 2) [1991] 2 Qd R 240. This infers that if a plaintiff ‘unduly’ waits in instigating proceedings to vindicate an equitable right – a defendant can argue that

‘equity aids the vigilant and not the indolent, and that delay defeats equity.’

If a plaintiff establishes a prima facie case in regards an equitable claims, then the defence of laches must be presented by the defendant and is considered on the facts upon which equity can proceed as per Fysh v Page (1956) 96 CLR 233. The defence is not available if it is barred by statute in some way.



Laches Two Circumstances

When the defences of laches is relied upon, two circumstances are of critical importance

1. Length of the delay – ‘laches’2. The nature of the acts – ‘knowing rights and standing by them’

MGL states that the doctrine is one which

‘is a defence which requires that a defendent can successfully resist an equitable (although not a legal) claim made against him if he can demonstrate that the plaintiff, by delaying the institution or prosecution of his case, has either (a) acquiesced in the defendent’s conduct or (b) caused the defendent to alter his position in reasonable reliance on the plaintiff’s acceptance of the status quo, or otherwise permitted a situation to arise which it would be unjust to disturb. Mere delay, of itself, is not enough to constitute either laches or acquiescence.’

The doctrine requires the identification of the time at which the plaintiff had notice or knowledge of his claim. This most specifically relates to acquiescence.

Acquiescence

The expressions of ‘laches’ and ‘acquiescence’ have been used interchangeably and perhaps mean the same thing as suggested in Boyns v Lackey (1958) SR (NSW) 395. The term relates to a person who seeks redress in equity in standing by the continuance of their claim. Consequently, acquiescence depends entirely on the plaintiff having the knowledge in relation to their rights and in relation to those rights which the facts depend on as per Hourigan v Trustees Executors and Agency Co Ltd (1934) 51 CLR 619.

In MGL at 36-010, it is stated

‘the term acquiescence is used … to denote a plaintiff’s behaviour in refraining from seeking redress once he knows his rights have been violated, … and to denote his acceptance of the fact…’

Thus, acquiescence with knowledge of a violation of the plaintiffs equitable rights can be described – simply – as a waiver. Thus, it is delay that will prejudice the defendant – refreshing memory, loss of evidence, unreliable witnesses and public interest will all affect a plaintiffs rights.

Laches and Acquiescence

Laches refers to inexcusable delay, and acquiescence is confined to circumstances in which the plaintiff, knowing his rights, has stood by and allowed them to be violated. The prejudice with acquiescence involves the plaintiff allowing the defendent to think that no claim will be made. Thus, the reason why the two are linked is that delay is also evidence of acquiescence – and there may be acquiescene without delay, and delay without acquiescene.

In Allcard v Skinner (1887) 36 Ch D 145, Lindley LJ stated



“whether the plaintiff’s conduct amounts in point of law to acquiescence or laches, or whether it amounts to an election not to avoid a voidable transaction, or whether it amounts to a ratification or a confirmation of her gifts, are questions of mere words which it is needless to discuss”.

Unclean Hands

One of the equitable maxims discussed in the first topic was that of ‘unclean hands’ as per

“he who comes into equity must come with clean hands”

MGL makes this comment by stating at 3-110, that when a when a plaintiff whose conduct has been improper in a transaction seeks relief in equity that relief will be refused. For example, a plaintiff will not be entitled to a decree of specific performance if the contract he is seeking to enforce was procured by his misrepresentation (fraudulent or innocent), even if the defendant has not availed himself of his right to rescind the contract.

For the defence of unclean to operate, the complainant

‘must have an immediate and necessary relation to the equity sued for’

If the relationship to the cause of action being relied on by a plaintiff is indirect, then the relationship is irrelevant. Absolute necessity and a direct relationship is required by a plaintiff to impose the relationship otherwise no equitable relief will be granted.

Equitable Set Off

At law, a set off involves the set-off in cases involving mutual debts where a defendant has a defence because they have a separate and distinct claim against the plaintiff. To establish this in equity, a right of equitable set-off is not satisfied by simply showing cross-demands by each party. A set-off recognised in equity is a defendants claim that goes to the root of the plaintiffs title to sue and stops a plaintiffs right to relief.

Equitable set-off has been established when a plaintiff claims money under a contract to build a structure and the defendant seeks damages for a breach of the same contract in relation to delay or defective work as was seen in D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10. Such claims can be set-off if the claims are closely related and the time and subject-matter relating to the claims are similar.

Generally, for equitable set-off to succeed the Court will have primary regard for the relationship of the two-claims – taking into account their subject-matter and the time of the two claims and the overall conduct of the parties such that it would be unjust for a plaintiff to continue with their claim. This was commented on in AWA Ltd v Exicom Australia Pty Ltd (1990) 19 NSWLR 705.

For example, claims relating to a failure to perform a contract or defective performance of a contract which require that work must be done again or the value of the work done or goods supplied are typical examples of claims which can be set-off under equity. In Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451, Lord Cottenham LC required that the

‘debt relied on by the defendant be so closely related as to subject-matter that the claim sought to be set-off impeached the other in the sense that it made it positively unjust that there should be recovery without deduction’



This has been the accepted view in Australia as seen in many cases including the most recent case of Clairview Developments Pty Ltd v Law Mortgages Gold Coast Pty Ltd [2007] QCA 141.

Difference between Common Law and Equitable Set-Off

At common law, set-off does not diminish the plaintiffs claim until the judgement for the proceedings is provided where the set-off has been pleaded, and in equity typically this is not the case. In equity, the defendant must show that there is some equitable right enforceable against the plaintiff for a set-off to be valid and the mere existence of a cross-claim is insufficient even if they arise out of the same subject matter.



Topic 9 – Equitable Damages and Remedies

Equitable Damages

Equitable damages were never awarded under equity – as equity was never seen to be used to award ‘damages’ against a party. Since 1858, with the creation of Lord Cairns Act – a Court of equity could award damages in addition to any equitable remedies associated with injunctions and specific performance. In Australia, Lord Cairns Act has been placed into statute in all states – most notable s38 of the Supreme Court Act 1986 (Vic).

Equitable and common law damages – the difference?

Equitable damages and common law damages are different in a number of ways. These include:

1. Equitable damages are allowed to be awarded for future loses – most notably in the circumstances where a wrong has been continuing as per Jaggard v Sawyer [1995] 2 All ER 189.

a. In Jaggard v Sawyer – the Court held that damages should be awarded instead of granting an injunction to restrain a continuing breach of covenant or trespass.

2. Equitable damages can be awarded to support equitable rights which the common law does not recognise – such as equitable interests in land as seen in Gas & Fuel Corporation of Victoria v Barba [1976] VR 755

a. In Gas & Fuel Corporation of Victoria v Barba – the plaintiff had obtained an equitable interest in an easement and the Court provided an injunction to enforce the interest. Damages were also provided under the statutory authority provided by Lord Carn.

3. Equitable damages are able to be rewarded in circumstances where injuries are threatened against a party whereas common law damages cam only be awarded once the damage has already occured – see Bankstown City Council v Alamado Holdings Pty Ltd [2005] Aust Tort Reports 81-803.

4. Equity does not punish – Until Giller v Procopets [2008] VSCA 236 (the video tape case which caused mental stress to the victim) – the law that punitive and exemplary damages were a creature of the common law and had no place in equity. Only aggravated or compensatory damages were awarded in this case. Equity doesn’t punish – it strips gains from faulting fiduciaries – and thus it seems that the Court can now award compensatory damages for high handed and intentional breaches of equitable duties.

a. In this case, it was upheld that punitive or exemplary damages could not be conferred. In Harris v Digital Pulse Pty Ltd, Mason P dissented and stated that equity should punish and that

‘there was no reason in principle why exemplary damages could not be awarded in equity for breach of a fiduciary duty where the fiduciary’s behaviour was deserving of punishment’



This is not accepted however, and punitive damages are not award in equity regardless of the argument at this stage.

Scope of Jurisdiction

Equitable damages are only awarded where the court has power to award an injunction or specific performance. For example, where a contract is voided because it is illegal – the Court has no power to award specific performance and cannot award damages.

Equitable damages are only available when the plaintiff can establish that they are entitled to specific performance or an injunction once the proceedings commence. The Court can then award damages relevant to the action undertaken by the plaintiff as appropriate.

In Ferguson v Wilson (1866) 2 Ch App 7 – the plaintiff sought specific performance of a resolution passed by the board regarding an allocation of shares. The Court did not award specific performance as there were no shares to allocate the time of the suit and Lord Cairns’ Act did not provide jurisdiction for specific performance.

Awarding Damages

Typically, in exercising it’s the discretion – the Court will look to a number of facts to determine whether to award damages. These include:

1. The specific relief sought; and2. The damages sought in relation to the relief; or3. The damages in lieu of that relief.



Calculation of Damages

Equitable damages apply to both in lieu and additional damages. They are awarded in addition to specific relief when the remedy is insufficient to compensate the plaintiff – and this is consistent with the equitable maxims.

In Oakacre Ltd v Claire Cleaners Holdings Ltd [1982]1 Ch 197 – the Court held that a defendants unruly delay in relation to performance of a contract entitled the plaintiff to additional damages. The plaintiff originally wanted specific performance, but this was achieved by the time the proceeding was heard, so the Court awarded additional damages under Lord Cairns’ Act.

In Lieu Damages

The authority for damages in lieu is the Shelfer v London Electric Lighting Company [1895] 1 Ch 287 where it was establish that damage in lieu will only be provided in lieu of an injunction where:

1. The injury to the plaintiffs legal right is small;2. The injury is one which is capable of being estimated in money;3. The injury is one which can be compensated by a small money payment;4. The injury is one in which it would be oppressive to the defendant to grant an

injunction.

In order for the Court to exercise its discretion, it stated that the it will assess

1. The triviality of the plaintiffs injury;2. The plaintiffs prior indication that he would accept monetary relief;3. Vexatious and oppressive cases; and4. Whether the plaintiffs behaviour was such that it would be unjust to award any more

than equitable damages.

At the date of judgement

At common law, damages are assessed as at the time of the breach. However, in equity damages can be assessed at the date of judgement.

Damages assessed at the date of judgement are applied in cases where equitable damages are awarded in substitution for specific relief – they are considered as an alternative to specific performance or an injunction at the date when that remedy would have been granted.

For example, in Mills v Ruthol Pty Ltd (2004) 61 NSWLR 1 at 14 – a claim originated from specific performance of land and the damages were assessed at the date of judgement to account for changes in market prices.



Equitable Compensation

As stated, traditionally equity had no power to award damages in the manner that they are awarded at common law. Since Lord Cairns Act, the power to award damages has been adopted into s.38 of the Supreme Court Act 1986 (Vic).

Equitable compensation is by no means limited by common law concepts such as those relating to remoteness of damage, foreseeability or causation as per Gemstone Corp of Australia Ltd v Grasso (1994) 62 SASR 239. The aim of the remedy is to restore the plaintiff to the position he or she would have occupied had there been no breach of duty.

Personal remedy – only one remedy is available – plaintiff must choose

Equitable compensation is a personal remedy. It is a loss-based remedy which is available regardless of whether or not the defendant has made a gain from the breach. Where an account of profits and equitable compensation are available – the plaintiff cannot claim both and must choose one or the other.

In Tang Man Sit (Dec’d) (personal representative) v Capacious Investments Ltd [1996] 1 All ER 193 – Tang Man Sit was in a joint venture with Capacious and was to assign 16 houses to them but didn’t do so and instead rented them out and received the rent. The Court stated that the plaintiff was entitled to account of profits or damages – the plaintiff must choose.

Trustees, Fiduciary’s & Third Parties

The conduct of the defaulting trustee or fiduciary may be relevant to the quantum of the award. The Court can grant a trustee or fiduciary in breach of an allowance for his or her efforts.

Equitable compensation can be sought against third parties in circumstances where those third parties assist with knowledge in a dishonest and fraudulent manner on the part of the fiduciary or trustee as per Barnes v Addy (1874) LR 9 Ch App 244.

Equitable Compensation & Common Law

Equitable compensation and damages at common both aim to repair any losses which are suffered by the plaintiff and the two remedies differ in relevant circumstances. These include:

1. Common law limits damages through factors such as contributory negligence and mitigation which are not applicable in equitable compensation.

2. Common law damages typically are available as of right – equitable compensation is entirely discretionary.

3. The quantum of damages under equitable compensation is assessed from the time of judgement – incorporating all retrospective elements – whereas common law damages are assessed from the date of breach.

4. Different remedies can produce different results in equity and the plaintiff is entitled to select the most appropriate remedy – this is not the case under common law.

5. Under equity, the causation element seems to be entirely related to the ‘but for’ standard – whereas in equity, it is the ‘reasonable person’ standard.



Equitable Compensation, Assessment & Causation

Equitable compensation is assessed relevant to the breach which has occurred. Typically, the assessment of the breach will attempt to restore the plaintiff to the position they were in before the breach had occurred – or resitutio integrum.

Causation has been often fraught with difficultly in Equity. In Stewart v Layton (1992) 111 ALR 687 – the question that was posed was what the position the plaintiff would have been in ‘but for’ the defendants breach of the particular duty. In this case, a solicitor acted for a vendor and a purchaser and was in a conflict of interest regarding a disclosure to him. It was the solicitors fault – ‘but for’ his breach, the vendor would not have been comprised from the information provided to the solicitor by the purchaser who didn’t have finances to purchase the property.



Account of Profits – Personal Remedy

The accounts of profits is a personal remedy in equity and is one of the most important remedies in equity’s exclusive jurisdiction. Typically, the purpose of the account of profits is to make the defendant account for profits that should have gone to the plaintiff. Equity’s attitude is that which is done ‘ought to have been done’ – and therefore the account of profits becomes a suitable remedy – this also infers that all profit made by a defendant must be put back in the plaintiffs hands.

Accounts of profits are usually in support of equitable rights and they can include

1. Breaches of Trust – Boardman v Phipps [1967] 2 AC2. Relationship of confidence (i.e. principal and agent) - Asset Risk Management Ltd v

Hyndes [1999] NSWCA 2013. Partnership dissolving - Fry v Oddy [1999] 1 VR 5574. Fiduciary Relationship - Magafas v Carantinos [2007] NSWSC 4165. Intellectual Property - Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR

25

When a plaintiff seeks to remedy of an account, they must prove that the plaintiff is entitled to a sum from the defendant. Whether the account was made with or without intention, honestly or dishonestly is disregarded in equity’s eyes – it is merely whether it not it occurred as per

Boardman v Phipps [1967] 2 AC. Thus, if profit is made and accounted for – all profit made by a defendant is placed back into the hands of the plaintiff minus any allowances to the defendant (see next page).

Not to punish the defendant

Importantly, equity never seeks to punish – it has never been equities function to punish. Any profit made, which should have been the plaintiffs, is simply redirected to the plaintiff from the defendants conduct. The defendant will not suffer a ‘loss’ under an account of profits, rather the defendant must redirect those profits made to the plaintiff. Compensation can be claimed by the plaintiff – but this is not a concern of an account of profits.

As stated before, a plaintiff cannot be enriched from both a compensation and account of profits remedy – they must choose either one or the other. This was made clear in the Tang Man Sit (Dec’d) (personal representative) v Capacious Investments Ltd [1996] 1 All ER 193. Importantly, the plaintiff does not have choose before the judgement is provided – inferring that a plaintiff can choose that remedy which provides the most appropriate economic returns or greatest advantage.

Causation

Most commonly, account of profits are taken in circumstances involving breach of confidence, trust or some fiduciary duty that was owed to the plaintiff. A defendant is not able to argue or contend that not all of the profit should be redirected to the plaintiff because some of the profit would have been made by the defendant regardless of whether or not the breach occurred. Notes by All Things Law – http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects, Notes and Questions to Law Clerkships and Jobs.


This was shown clearly in Murad v Al-Saraj [2005] EWCA Civ 959 where is was argued that the defendant was entitled to some of the profits despite having breached its fiduciary duty. The Court ruled that the entire profit was to be stripped and that an account of profits would only allow monies for the defendants skill and time etc.

Profits ACTUALLY made

Accounts of profit in equity are limited entirely to real profit – that is, profits which are tangibly identifiable because otherwise – the Court would be punishing the defendant by imposing unrealised profit which may or may not be realised.

In Dart Industries Inc v The Decor Corporation Pty Ltd (1993) 179 CLR 101, the High Court stated this principle and commented that equity would also prevent the defendant from being unjustly enriched.

Allowances to the defendant for time and skill put in

To ensure that equity does not punish a defendant, equity will allow a discretion for the defendants time, skill and effort in making a profit. If the defendant is honest in his account of profits – then equity typically provides more allowance than it would have otherwise as per Murad v Al-Saraj [2005] EWCA Civ 959. However, the reverse is not true – a fraudulent defendant will still be provided an allowance although, arguably, the Court will not be as generous.

Most notably, in Victoria University of Technology v Wilson (2006) 68 IPR 597 it was established that if the profit was entirely the result of the defendants work – it is permissible for the Court to order a proportion of the profit to go to the defendant. Of note, the Court stated that this was an ‘allowance’ and did not violate the account of profits principle in that wrongdoers cannot profit from a breach of a duty.

Unruly Delay

In circumstances of delay on the plaintiffs behalf, a plaintiff can be excluded from an action of seeking profits. In Electrolux Ltd v Electrix Ltd (1953) 70 RPC 158, the plaintiff took ten years to file a claim and the Court denied the plaintiff from seeking redress due to the length of time it took the plaintiff to claim.

Breach of Contract

In Australia, account of profits are not available in response to a breach of contract as per Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157.

Equitable Estoppel

There are no known cases where an account of profits as a remedy as been sought in a equitable estoppel case since the plaintiffs usually are attempting to enforce the representation that was made to them.



Proprietary Remedies and Account of Profit

The remedy of account of profits is typically always taken against the person who committed the wrong. It cannot attach to property or even create an interest in property in relation to an account of profits. This infers that no priority is given to plaintiffs in the event that a defendant is insolvent.

This is usually why constructive trusts and equitable charges are provided for plaintiffs in this regard and not an account of profits. It is noted that Courts can secure an equitable charge as an account of profits as per Warman International Ltd v Dwyer (1995) 182 CLR 554.



Specific Performance

Specific performance is an equitable remedy given in equitys concurrent jurisdiction. That is, equity provides a remedy which is similar in nature to that of the common law.

The remedy compels the execution in specie of a contract which requires some definite thing to be done before the transaction is complete and the parties rights are settled and defined in the manner intended - JC Williamson Ltd v Lukey (1931) 45 CLR 282.

Executory Contracts - not Executed Contracts

Typically, specific performance is limited in scope to the enforcing of an executory contract as oppose to an executed contract. There difference is highlighted by MGL at 20-020

1. Executory Contract - a contract which requires the execution of an instrument, or doing some act – which would put the parties in the position relative to each other which the contract contemplates such that there is an agreement to transfer interest in property.

1. i.e. The contract to sell requires the execution of the transfer. 2. A contract to sell goods requires the doing of an act – delivery – which causes

property pass.

2. Executed Contract – a contract which does not require the execution of an instrument, or the doing of some act, for the purpose of placing the parties in the position contemplated – the contract itself already does this.

1. i.e. in JC Williamson, the plaintiff was accorded the right to sell sweets in the defendants theatre. The contract provided this right – so equity did not need too.

Granting the Remedy

For a Court to grant the equitable remedy of specific performance – it must firstly be satisfied that the following exists

1. A binding contact; and2. That the plaintiff is ready, willing and able to perform the obligations specified in the

contract; and3. The inadequacy of a remedy at law which cannot be applied in the circumstances.

If the Court is satisfied that these three elements are satisfied, then it can grant the remedy to enforce an enforceable contract, an oral contract with part performance or a contract which is proved by relying on estoppel.

In Turner v Bladin (1951) 82 CLR 463 – the Court stated

‘a vendor who seeks specific performance of a contract to pay purchase money by instalments can obtain an order for payment of the instalments which are overdue with liberty to apply in respect of future instalments as they become payable.’



Specific Performance Not Provided

Specific performance will not be provided when the relief which can be granted involves the performance by one party of services to the other or requires their continual co-operation. This is obvious, since it would impose equitable obligations on parties that do not wish to continue to work together.

Undue Hardship

Equity will not force specific enforcement if it were to impose unjust hardship or destitution on a defendant as per Dowsett v Reid (1912) 15 CLR 695. This was also the case in Patel v Ali [1984] Ch 283 were extreme unforeseen hardship was taken into account by the Court.

Other Examples

Some other examples where the Court will not enforce specific enforcement include

1. Where performance of the contract is futile or impossible; or2. Where obligations to be enforced are illegal; or3. Where the defendant can point to the conduct of the plaintiff which contravenes

equitable maxims.



Injunctions

What are they?

An injunction can be described as an order, made by a court exercising equitable jurisdiction, restraining the person to whom it is directed from performing a specified act, or, in certain exceptional cases, requiring him to perform a specified act. They are prohibitory or mandatory injunctions, respectively.

If an injunction is issued, a person must refrain from doing the act specified in the injunction which would otherwise infringe or assist in restoring another persons rights, interests or property as per Australian Securities and Investment Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 559.

Why are they sought?

Injunctions are sought because a plaintiff is demonstrating an actual infringement of their rights and they want the defendant to stop, or because they require the defendant to actually do particular acts.

Mandatory Injunctions

Mandatory injunctions require a party to perform certain acts and this act must be a positive act rather than forcing a party ‘not to do something’ as per Redland Bricks Ltd v Morris [1970] AC 652. They are typically classified in two ways

1. Restorative in Nature – this type of mandatory injunction attempts to require a defendant to undo a wrongful act which they earlier committed.

2. Compelling in Nature – this type of mandatory injunction compels the defendant to carry out a positive obligation.

Suffer ‘grave’ damage

Such injunctions are always at the discretion of the Court – as emphasised heavily in Redland Bricks Ltd v Morris [1970] AC 652. The plaintiff is required to demonstrate that they will suffer ‘grave’ damage if an injunction is not granted, and the Court must be satisfied that the injunction will ‘substantially lower the risk’ of the defendant performing the act which would damage the plaintiffs interests as per Redland Bricks Ltd v Morris [1970] AC 652.



Interlocutory Injunctions

The object of an interlocutory injunctions is to protect the plaintiff against any injury for which they could not be adequately compensated for in damage if the defendants act were to continue prior to the commencement of the proceedings as was seen in the ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 case – where if the film had of been released regarding showing the exportation of possum meat, it would have caused the plaintiff serious financial harm.

The Court will not typically grant an interlocutory injunction unless the plaintiff can provide a cause of action which is known at law. They are most typically sought in very short notice without the defendant being present in Court. In the ABC v Lenah Game Meats Pty Ltd, the Court stated that the following tests must be satisfied in order to gain interlocutory relief by way of an injunction

1. ‘That there is a serious question to be tried, or that the plaintiff has made out a prima facie case for relief; and

a. In this regard, the court must consider the balance between the damage the plaintiff is likely to suffer before the hearing of the proceeding against the damage to the defendant if the injunction is granted per NWL Ltd v Woods [1979] 3 All ER 614.

2. The plaintiff will suffer irreparable injury unless an injunction is granted; and

3. The balance of convenience favours granting an injunction ‘

The High Court stated in this case that the test was whether

‘the plaintiff can demonstrate either a reasonably arguable case on both the facts and the law, or that there is a serious question to be tried.’

Prima Facie Case

If a plaintiff has made out a prima facie case, then the Court will determine whether the granting of an interlocutory injunction should be granted. It will consider the factors listed above and balance the injury of the plaintiff to that of the defendant.

The Court will not consider this until a prima facie case is established as per Shercliff v Engadine Acceptance Corp Pty Ltd [1978] 1 NSWLR 729.



Injunctions are Not Granted for Public Rights

Injunctions are not typically granted to enforce public rights. However, in Cooney v Ku-Ring-Gai Municipal Council (1963) 114 CLR 582 – the council wanted to stop the defendant from using a building in a particular manner relevant to statute provided under the Local Government Act. The injunction was granted such that Menies J commented

‘it appears that some person bound by what may be described as a munipial law imposed a restriction or prohibition upon the use of land in a portion of munipial area of the public benefit or advantage has broken, and will, unless restrained, continue to break that law for his or her own advantage and to the possible disadvantages of member of the public living in that locality.’

In Australian Conservation Foundation Inc v Commonwealth (1980) 146 CLR 493, the AFC wanted an injunction to force the government to obey the Environmental Act despite having suffered no damage or private right infringement. The High Court ruled that

‘a private citizen, who has no interest other than that which any member of the public has in upholding the law, has no standing to sue to prevent the violation of a public right or to enforce a public duty and that; in this respect there is no difference between the making of a declaration and the grant of an injunction ... a mere intellectual interest or emotional concern was not a sufficient interest for that purpose, nor was a belief, however strongly felt, that a particular law should be observed’



Mareva Orders

A Mareva injunction restrains a defendant from disposing of its assets in an effort to render any future judgment ordered against it ineffective. The future judgment may relate to an equitable or legal cause of action. It is an action and order in personam against the conscience of the defendant, who exhibits a ‘real danger’ of moving assets to another jurisdiction or otherwise disposing of them before trial.

In the Mareva case - Mareva Compania Naviera SA v International Bulk Carriers SA [1975] to Lloyd’s Rep 509 - Lord Denning MR treated the relief granted as injunctive in nature and as going in aid of a legal right, the legal right identified was that of the plaintiff to be paid a debt owing, even before the establishment of that right by obtaining a judgment. The jurisdiction to grant a Mareva order arises from the desire of the court to avoid having its processes frustrated.

Purpose

The fundamental purpose of a mavera order is to stop a defendant from disposing of assets prior to the commencement of proceedings. A mareva order in some sense can be referred to as an ‘asset preservation order’ as it was in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.

The plaintiff must establish that there is a ‘real danger’ of the defendant absconding or assets being removed from a jurisdiction or any associated danger that a plaintiff will not obtain the relevant awards in a judgement if a mareva award is not provided as per Mareva Compania Naviera SA v International Bulkcarriers SA (The Mareva) [1980] 1 All ER 213.

Granting of a Mareva Order

From the case of Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 – cited by the High Court with approval in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 – a plaintiff is required to establish

1. A prima facie cause of action against the defendant; and2. A ‘real and present danger’ that the defendant will attempt to move or alter interest in

the assets outside a jurisdiction or dispose of them prior to the judgement being provided.

Mareva orders are usually made ex parte – or in the presence of a judge and only one party – both parties are not required to be present in Court.

Jurisdiction

The jurisdiction to grant a mareva order arises from the desire of the Court to avoid having a process frustrated as per Jackson v Sterling Industries Ltd (1987) 162 CLR 612.

Typically, a Court will impose a mareva order to force a defendant to disclose their assets or restrain them from dealing with assets which were previously within a jurisdiction but were subsequently moved before the injunction was granted by the Court into another jurisdiction as per Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.



Third Parties

Mareva orders can be made against third parties where the plaintiff is able to show that the third party has a right or interest in the assets and this right is required to be preserved prior to the final judgement of the Court as per Winter v Marac Australia Ltd (1986) 6 NSWLR 11.Limits on Mareva Orders

A mareva injunction does not provide the plaintiff with any proprietary rights in assets and nor does it provide a plaintiff with a greater preference over other creditors of the defendant as stated in J Bekhor & Co Ltd v Bilton [1981] QB 923.

Examples

1. Claims involving debts - Barclay-Johnson v Yuill [1980] 3 All ER 1902. Restraining a defendant from moving assets - Australian Iron & Steel Pty Ltd v Buck

[1982] 2 NSWLR 889



Anton Piller Order

Anton Piller orders are similar to mareva injunctions. They are a set of orders which are typically done on an ex parte interlocutory nature requiring the defendant to allow the plaintiff or their agents to inspect property or premises of the defendant as per Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55.

The plaintiff must prove, according to Long v Specifier Publications Pty Ltd (1998) NSWLR 545, that

‘a high risk exists that, if forewarned, the defendant would destroy, or hide, the evidence, or cause it to be removed from the jurisdiction of the Court

An Anton Piller order is a compulsory order for the discovery of information by the plaintiff relating to the defendants actions and the plaintiffs cause of action. Before an Anton Piller can be granted the plaintiff must – according to Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55– satisfy three conditions:

1. there must be a strong prima facie case;

2. the damage which the plaintiff has or will suffer must be significant; and

3. there must be clear evidence that the defendant has possession of damaging documents and there is a real possibility that that material might be destroyed before any inter partes application could be brought.

Most typically, Anton Piller orders are carried out by specialist legal service providers who act as an impartial third party when searching defendants property and ensuring that infringing material can be ascertained and reviewed.

Stopping a Anton Piller Order

An Anton Piller order can be set aside by a defendant is there were no grounds for making such an order as the plaintiff did not disclose the full facts when applying for the order.

If an Anton Piller order is set aside then the defendant will not have to comply with any such order and if any relevant documentation has been previously seized – it must be returned to the defendant as per Chappell v United Kingdom [1989] FSR 617 case.



Constructive Trust

Courts in Australia and the United Kingdom have not yet awarded constructive trusts but in Canada they have been awarded. A Canadian case of LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR 14 – awarded a constructive trust after the plaintiff shared information which suggested that their testing on a parcel of land revealed significant gold deposits and the defendant acquired the land and attempted to setup a mine.

When awarded as a proprietary form of relief, the constructive trust serves to confer priority on the insolvency of the person upon whom constructive trusteeship is imposed. The court will not impose or declare a constructive trust if, in the circumstances, another form of equitable relief will satisfy the demands of justice, as exemplified in Guimelli.

In Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, Lord Millet stated

The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well-known examples of such a constructive trust are McCormick v Grogan (1869) LR 4 HL 82 (a case of a secret trust) and Rochefoucald v Boustead [1897] 1 Ch 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.

The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be 'liable to account as constructive trustee'. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions 'constructive trust' and 'constructive trustee' are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are 'nothing more



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than a formula for equitable relief': Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073 at 1097, [1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J.

Recession

Rescission concerns a party to a contract treating the contract as no longer binding on him or her because of some vitiating factor. It is most clearly seen with the misrepresentation cases.

Where a contract is voidable at law for fraudulent misrepresentation or duress, the party wronged will be entitled to avail itself equity’s “means of “adjustment”. Equity here is acting in its concurrent jurisdiction.

Rescission in equity’s exclusive jurisdiction is a means of setting aside a contract or other transaction or disposition vitiated by some wrong recognized by equity, such as innocent misrepresentation, undue influence, unconscionable conduct, mistake or breach of fiduciary duty.



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web view(1983) 151 clr 447. an elderly couple who had a limited understanding of english executed a...

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