In a recent decision of the Supreme Court of the United Kingdom – in Paul v Royal Wolverhampton NHS Trust; Polmear v Royal Cornwall Hospitals NHS Trust; Purchase v Ahmed [2024] UKSC 1 (11 January 2024), by a majority of six members of the court, with one dissentient – it was concluded that, in respect of psychiatric injury sustained by a close family member of the patient – in consequence of witnessing the death or medical crisis involving their the patient from a condition which the medical service or doctor negligently failed to diagnose or treat – no tortious duty of care was owed. It need be accepted that the primary reasoning of the court turned on UK common law, which differs from Australian common law as to the prerequisites for recovery at common law apropos of such third party injury, but the ultimate decision of the court transcended such reasoning. The court concluded that while doctors and hospitals owe an actionable duty of care to protect the patient’s health, as a matter of policy they do not owe a duty of care to the patient’s close family members apropos of the risk of them suffering psychiatric illness from witnessing the patient’s death or medical crisis. The reasons of the majority were delivered by Lord Leggatt and Lady Rose (with whom Lords Briggs, Sales, Richards and Carloway agreed). They wrote:
1. Introduction
1. We all die and, when we do, the fact or manner of our deaths may cause harm to other people. Often such harm is readily foreseeable. We all know that the death of someone’s child, or of their partner, or of a young child’s parent, will cause grief and suffering and can have prolonged and profound effects on physical and mental health. Death may also have damaging, even ruinous, financial consequences for family members or others who were dependent economically on the deceased.
2. Under the common law the rule was that “in a civil court, the death of a human being could not be complained of as an injury” by another person: Baker v Bolton (1808) 1 Camp 493 (Lord Ellenborough); Admiralty Comrs v SS Amerika [1917] AC 38. This is still the general rule. The same rule applies where the victim does not die but is severely injured. Essentially, the common law does not recognise one person as having any legally compensable interest in the physical well-being of another. The law affords compensation to the victim but not to others who suffer harm in consequence of the victim’s injuries or death, however severely affected they may be: see eg D v East Berkshire Community Health NHS Trust [2005] UKHL 23, [2005] 2 AC 373, paras 102-105.
3. There is a statutory exception, introduced by the Fatal Accidents Act 1846 (9 & 19 Vict c 93) and now contained in the Fatal Accidents Act 1976, which gives certain dependants of a person whose death is caused by a wrongful act, neglect or default the right to sue and recover damages from the person who (if death had not ensued) would have been liable to the deceased. Originally such damages were only recoverable to compensate dependants for financial loss resulting from the death. Since 1991, when a new provision was added to the 1976 Act, a spouse or partner or parents (if the child was an unmarried minor) of the deceased can recover damages for bereavement whether or not they were dependent on the deceased; but these damages are limited to a fixed sum (currently £15,120). No remedy under that Act is otherwise available for physical or psychological harm caused to relatives or others by the death.
4. There is a further limited category of cases, recognised by the common law, in which damages may be recovered for personal injury consequent on the death or injury of another person. In these cases, it is not the death or injury of that person itself or the defendant’s responsibility for it which gives rise to the claim but the fact that the claimant has witnessed the wrongful death or injury (or threat of such death or injury) to someone they love. The scope of this category of cases is the subject of these appeals, and we will need to consider it in detail. But it certainly includes cases where the claimant suffers personal injury (typically, but not limited to, psychiatric illness) as a result of witnessing an accident in which a close relative is killed or injured (or put in peril of death or injury) as a result of the defendant’s negligent act or omission.
5. The key issue raised by these appeals is whether this exceptional category of case includes – or can and should be extended to include – cases where the claimant’s injury is caused by witnessing the death or injury of a close relative, not in an accident, but from a medical condition which the defendant has negligently failed to diagnose and treat.
6. Each of the three cases under appeal involves such a claim. In two of the cases (Paul and Polmear), the claimants were present when their father (in the case of Paul) or their young daughter (in the case of Polmear) died in shocking circumstances. In the third case (Purchase), the claimant came upon her daughter in such circumstances a few minutes after her death. In each case it is the claimants’ case that the death was caused by the negligence of the defendant doctor or health authority in failing to diagnose and treat a life-threatening medical condition from which the deceased was suffering. The claimants contend that the defendant is not only responsible for the death of the person whose life was lost but is also liable to compensate them for psychiatric illness caused by their experience of witnessing the death (or its immediate aftermath).
7. In each case the defendant has applied to strike out the claim on the ground that as a matter of law it cannot succeed. The question on these appeals is whether that is so or not.
“Essentially, the common law does not recognise one person as having any legally compensable interest in the physical well-being of another.”
2. The facts
8. We will summarise shortly the material facts alleged by the claimants in their particulars of claim in each case. No facts have yet been proved by evidence in court. But for the purpose of deciding whether the claims are capable in law of succeeding it is necessary to assume that the facts alleged, in so far as they are not admitted, will be proved to be true.
Paul
9. On 26 January 2014, while out shopping with his two daughters, aged 9 and 12, Mr Paul suffered a cardiac arrest and collapsed in the street. His daughters saw him fall backwards and hit his head on the pavement. They tried to call their mother on their mobile phones and to call an ambulance, which was eventually called by a passer-by. When their mother arrived, the daughters were taken to a nearby church. They heard their mother screaming their father’s name. They came out and saw an ambulance crew put a foil blanket over their father and paramedics performing chest compressions on him. Mr Paul was taken by ambulance to hospital but was declared dead on arrival.
10. In this action Mr Paul’s daughters are each claiming damages for psychiatric illness allegedly caused by witnessing these events.
11. It is agreed that Mr Paul’s heart attack and death were caused by occlusion of a coronary artery due to atherosclerosis. Some 14 months earlier, on 9 November 2012, he had been admitted to the defendant’s hospital complaining of chest and jaw pain. He was treated for acute coronary symptoms and discharged on 12 November 2012. The claimants allege that the defendant was negligent in failing to arrange coronary angiography during Mr Paul’s admission to hospital and that, had this been performed, it would have revealed significant coronary artery disease which would have been successfully treated by coronary revascularisation, in which case he would not have collapsed and died when he did.
Polmear
12. In August and September 2014 Esmee Polmear, then aged six, was seen by her GP with a history of strange episodes during which she could not breathe, appeared pale and turned blue after a few minutes. She was referred to a paediatrician at the defendant’s hospital who saw her on 1 December 2014. In January 2015 some tests were carried out, but the consultant paediatrician wrongly concluded that Esmee’s symptoms were likely to be related to exertion and failed to diagnose that they were caused by pulmonary veno-occlusive disease. The defendant admits that Esmee’s condition should have been diagnosed by mid-January 2015.
13. On 1 July 2015 Esmee died from effects of this disease in distressing circumstances. Her parents, who are the claimants in this case, were present when she died. Because she had felt unwell her father had agreed to meet Esmee at the beach where she was supposed to be taking part on a school trip, to take her back to school if required. When he arrived, he found Esmee with a teacher and another pupil looking tired, pale and breathless. Esmee wanted to sit down but was encouraged to try to walk back to the school. At one point she stopped and vomited. She had to keep stopping to rest and her father then had to carry her. Her father left Esmee at the door of the school but shortly afterwards was called back and found her lying on the floor with a member of staff administering first aid. He took over and tried to give Esmee mouth-to-mouth resuscitation. She was not breathing. Esmee’s mother ran to the school and saw her lying on the floor with members of staff attempting resuscitation which she could see was not working. Paramedics arrived and also tried unsuccessfully to revive Esmee. Both parents went with Esmee in an ambulance to hospital where she was declared dead.
14. Esmee’s parents are each claiming damages for post-traumatic stress disorder and major depression developed as a result of their experiences on 1 July 2015. It is their case that with proper diagnosis and management Esmee would not have collapsed and died on that day.
Purchase
15. Evelyn Purchase died on 7 April 2013 at the age of 20 from severe pneumonia. Three days before, having been unwell for several weeks and having made two previous visits to her GP, Evelyn attended the out-of-hours clinic with her mother. She was examined by the defendant, Dr Ahmed. Evelyn had difficulty walking into the clinic as a result of weakness, dizziness and difficulty in breathing, which was rapid, shallow and noisy. Dr Ahmed failed to diagnose her condition and sent her home with a prescription for antibiotics and an antidepressant.
16. Evelyn’s condition did not improve and on 6 April 2013 she was also complaining of heart palpitations. That evening her mother attended a pre-planned event in London with her younger daughter. She returned home at 4.50 am on 7 April 2013 and found Evelyn lying motionless on her bed with the house telephone in her hand, staring at the ceiling and not moving. Her skin was slightly warm and she looked alive but was not moving or blinking. The younger daughter called 999 and the family were advised to give Evelyn cardiopulmonary resuscitation. When the mother opened Evelyn’s mouth to attempt mouth-to-mouth resuscitation, blood and bodily fluids spilled out of the mouth and nose. When paramedics arrived, their attempts at resuscitation were also unsuccessful and Evelyn was declared dead.
17. Evelyn’s mother realised that she had a missed call and a voice message from Evelyn on her mobile phone. The voice message was the sound of Evelyn’s dying breaths which continued for four minutes and 37 seconds. The call was timed at 4.40 am and ended approximately five minutes before her mother got home and saw Evelyn.
18. As a result of these events, Evelyn’s mother has developed post-traumatic stress disorder and severe chronic anxiety and depression for which she is claiming damages. It is her case that her daughter’s death was caused by the defendant’s negligent failure to diagnose and treat Evelyn’s symptoms when he examined her on 4 April 2013.
3. The proceedings
19. In the case of Paul the claims of Mr Paul’s daughters for damages for psychiatric injury were struck out by Master Cook ([2019] EWHC 2893 (QB), [2020] PIQR P5), but an appeal to the judge (Chamberlain J) was allowed: [2020] EWHC 1415 (QB), [2020] PIQR P19. Following Chamberlain J’s decision in Paul, Master Cook refused the defendant’s application to strike out the parents’ claim in Polmear: [2021] EWHC 196 (QB). In Purchase the mother’s claim, brought in the county court, was struck out shortly before Chamberlain J’s judgment in Paul was handed down.
20. The Court of Appeal heard and decided appeals in all three cases together: [2022] EWCA Civ 12, [2023] QB 149. They regarded themselves as bound by an earlier Court of Appeal decision in Taylor v A Novo (UK) Ltd[2013] EWCA Civ 194, [2014] QB 150 to conclude that the claims for damages for psychiatric injury made in these cases cannot succeed. However, both Sir Geoffrey Vos MR, who gave the leading judgment, and Underhill LJ, who gave a short concurring judgment, expressed reservations about whether the earlier case was correctly decided and indicated that, if the point had been free from authority, they would probably have reached a different outcome. Nicola Davies LJ agreed with both judgments. The Court of Appeal itself granted permission to the claimants to appeal to the Supreme Court to enable this court to consider the important issues that arise in these cases.
4. The issues
21. Under the common law a doctor responsible for providing medical care to a patient owes a duty to the patient to exercise reasonable skill and care to protect the patient’s life and health. If the patient suffers physical or psychiatric injury of a kind which the exercise of such care should have prevented, the doctor is liable to pay damages to compensate the patient for the injury. If the patient dies, such a claim can be pursued by the patient’s personal representative(s) for the benefit of his or her estate.
22. It is not in dispute that such claims can be made in these cases. The claims in issue, however, are not claims made on behalf of the person who died for the harm suffered by that person. They are claims brought by close relatives of that person for harm which those relatives have suffered as a result of witnessing the person’s death (or its immediate aftermath). The critical question on which the validity of the claims depends is whether a doctor, in providing medical services to a patient, not only owes a duty to the patient to take care to protect the patient from harm but also owes a duty to close members of the patient’s family to take care to protect them against the risk of injury that they might suffer from the experience of witnessing the death or injury of their relative from an illness caused by the doctor’s negligence. (We should make it clear that nothing turns for this purpose on whether the negligence consists in an act or an omission).
23. There are two ways of approaching this question. One is by considering the basic legal principles which determine the scope of the duty of care owed by a doctor and the persons to whom this duty is owed. The other approach is to examine the cases in which courts have previously decided whether damages could be recovered by claimants who suffered injury in connection with the death or injury of another person. Historically, the leading cases have involved accidents (mostly road traffic accidents). The question then is whether the rules which have been developed in those cases either apply already or can by a permissible incremental development of the common law be extended to apply to claims of the present kind arising in the field of medical negligence.
24. In arguing these appeals counsel for the claimants focused on the latter approach. Although invited to address the existence of a duty of care in terms of the general principles which apply to doctors, they submitted that it is unnecessary to do so because the relevant requirements for claims of the present kind have been established by case law. That can indeed be said – and has not been disputed on these appeals – as regards claims arising from accidents, using that term in its ordinary sense to refer to an unexpected and unintended event which causes injury (or a risk of injury) to a victim by violent external means. But a critical question raised by these appeals is whether or not the rules developed in relation to accidents apply where, as a result of negligence of a doctor, a person dies or manifests injury from an illness which proper treatment would have prevented. We do not think that this question can be answered satisfactorily without considering the general principles that determine when a doctor owes a duty of care to someone other than their patient.
25. As it reflects the way in which the appeals were presented, we will start by examining the case law directly concerned with claims for damages for personal injury suffered in connection with the death, injury or imperilment of another person. We will then test our provisional conclusions by reference to the general principles which determine when a doctor who assumes responsibility for providing medical services to a patient owes a duty of care to prevent harm to a third party.
…
8. Applying general principles
124. As foreshadowed at the beginning of this judgment, we turn to test these conclusions by examining the general principles which govern the existence and scope of the duties of care owed by medical practitioners.
The need to establish an independent duty
125. In Alcock [1992] 1 AC 310, 411A-B, Lord Oliver said that, although it is convenient to describe a claimant whose injury arises from witnessing the event of injury to another person as a “secondary” victim:
“that description must not be permitted to obscure the absolute essentiality of establishing a duty owed by the defendant directly to him – a duty which depends not only upon the reasonable foreseeability of damage of the type which has in fact occurred to the particular plaintiff but also upon the proximity or directness of the relationship between the plaintiff and the defendant.”
The “absolute essentiality” in the present cases of establishing such a duty owed by the defendants directly to the claimants is not in dispute.
126. At the start of the oral argument on these appeals, Mr Robert Weir KC (whose submissions on this point were adopted by counsel for the other claimants) submitted that it is nevertheless neither necessary nor relevant to analyse the present claims by reference to the general principles which determine when a duty of care is owed by a doctor (or other professional person). He submitted that, in any case where the claimant is a secondary victim, the question whether the necessary proximity between the claimant and the defendant exists is governed by the rules established by the Alcock line of authority. He cited a passage from the speech of Lord Rodger of Earlsferry in D v East Berkshire Community Health NHS Trust [2005] UKHL 23, [2005] 2 AC 373, para 107, describing claims by secondary victims who suffer “nervous shock” as “a particular chapter of the law” and a “distinct line of authority”. Lord Rodger suggested that “medical mishaps” fall within this category, giving Walters as an example.
“… reasonable foreseeability of harm, although necessary, is not by itself enough to give rise to a duty of care. There must also exist the necessary “proximity” in the relationship between the parties …”.
127. Those observations of Lord Rodger were made in passing in a case which was not concerned with a “medical mishap” and where the correctness of the decision in Walters was not questioned, as it has been in these appeals. The key question which we have to decide is whether the rules that determine when the necessary proximity exists to give rise to a duty of care owed to a secondary victim in an accident case (or analogous rules) apply in cases of medical negligence where there is no accident. That question was not considered, let alone answered, in Alcock or other cases in that line of authority. Nor for that matter was it considered in Walters where (as noted above) the issue was not raised. In these circumstances to assert, as counsel for the claimants have, that the question whether the defendants owed a duty directly to the claimants in the present cases is governed by the rules established by the Alcock line of authority begs the central question raised on these appeals by assuming an answer to the very point in dispute.
128. It is also inconsistent with the point that Lord Oliver was making in the passage quoted at para 125 above. He was at pains to emphasise that, to justify a remedy, it is not sufficient to establish (1) a breach of a duty of care owed by the defendant to a primary victim and (2) an appropriate relationship between the primary victim and the claimant. Not only is this insufficient, but it is also unnecessary. Lord Oliver made it clear that there may in fact be no primary victim (see para 105 above). He said nothing to suggest that, for the purpose of establishing a duty of care owed by the defendant directly to the claimant, the general principles of the law of negligence that determine when the relationship between the parties is such as to give rise to a duty of care can be ignored or bypassed. Where the context is a medical crisis and the defendant is a medical practitioner, we think it essential to consider whether a duty of care is owed by reference to the general principles applicable to this type of case.
Proximity
129. As Lord Oliver emphasised, reasonable foreseeability of harm, although necessary, is not by itself enough to give rise to a duty of care. There must also exist the necessary “proximity” in the relationship between the parties to make it just to impose such a duty. The classic description of this requirement is that of Lord Atkin in Donoghue v Stevenson [1932] AC 562, 580:
“You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be – persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.”
The question is one of interpersonal justice. As Lord Nicholls of Birkenhead explained in Stovin v Wise [1996] AC 923, 932:
“Proximity is convenient shorthand for a relationship between two parties which makes it fair and reasonable [that] one should owe the other a duty of care.”
130. The need to show not only reasonable foreseeability of harm but proximity sufficient to give rise to a duty of care applies whatever the nature of the harm suffered by the claimant – whether it be financial loss, damage to property or personal injury: see eg Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211, 235-236. Donoghue v Stevenson itself, for example, was a case of alleged personal injury caused by consuming a defective product. The House of Lords did not decide that the manufacturer of a product owes a duty of care to a person who suffers personal injury from consuming or using the product whenever such injury is reasonably foreseeable. Rather, they held that the necessary proximity in the relationship between the parties exists, not in every such case, but where the product is sold in a form which shows that it is intended to reach and be used by the ultimate consumer without alteration or the reasonable possibility of intermediate examination: see Lord Atkin at [1932] AC 562, 599; and Grant v Australian Knitting Mills Ltd [1936] AC 85.
131. The relevant relationship between the manufacturer of a product and the ultimate consumer arises only at the point of use. Similarly, two road users one of whom injures the other by careless driving may have been complete strangers before the accident in which the injury is inflicted. Sometimes, however, proximity is established by a pre-existing relationship between the parties. A concept used to explain how such a relationship may give rise to a duty of care is that of assumption of responsibility. The core of this idea is that a person (A) who provides a service to another person (B) who reasonably relies on A’s expertise in performing the service assumes a responsibility to B to perform the service with reasonable care and skill.
132. It is this principle which underlies the relationship of proximity between an architect or building contractor and their employer, between a lawyer or accountant and their client, and between a doctor or other medical practitioner and their patient. By providing a service, whether under a contract for reward between the doctor and the patient or – as in the case of a patient entitled to treatment under the National Health Service – where the doctor is paid by the state, the service-provider assumes a responsibility towards the person to whom the service is provided, which gives rise to a duty of care.
133. The scope of the duty will vary with the circumstances and will depend, critically, on the purpose for which the service is provided. The recent decision of this court in Meadows v Khan[2021] UKSC 21, [2022] AC 852 illustrates the importance of this consideration in determining the scope of the duty of care owed by a doctor to a patient. The Supreme Court held that, where the purpose for which a doctor was consulted concerned a particular risk in a pregnancy (of giving birth to a child with haemophilia), the doctor was not liable for the consequence of an unrelated risk (that the child would suffer from autism). Consideration of the purpose for which services are provided is equally important in determining whether or when a duty of care is owed by a doctor to someone other than their patient.
Duties owed by doctors to non-patients
134. There are circumstances in which the duty of care owed by a medical practitioner may extend beyond the health of their patient to include other people. For example, some commentators suggest that a doctor who negligently sent home a patient with a highly infectious disease would owe a duty of care to members of the patient’s household who contract the disease as a result: see Clerk & Lindsell on Torts, 24th ed (2023), para 9-10; Michael Jones, Medical Negligence, 6th ed (2021), paras 2-159 – 2-160. In the case cited for this proposition, however, the claim failed because on the facts the defendant local authority was found not to be vicariously liable for the conduct of the doctor: see Evans v Liverpool Corporation [1906] 1 KB 160. It is likewise arguable that a doctor who negligently fails to diagnose or treat a sexually transmitted disease may owe a duty of care to the sexual partner of a patient who, in consequence, contracts the disease. Such a claim succeeded in the Australian case of BT v Oei [1999] NSWSC 1082 where the sexual partner of a patient contracted HIV. The duty of care to the patient’s partner recognised in that case, however, was limited to a duty (owed also to the patient) to warn him of his HIV status and advise him that he had a statutory responsibility to warn prospective sexual partners of his condition. The court found that, had the patient been given such advice, he would have informed the claimant who would then have taken steps to avoid contracting HIV.
“ … a line must be drawn somewhere to keep the liability of negligent actors for such secondary harm within reasonable bounds.”
135. We express no view on the difficult questions raised by such cases, save to observe that, in relation to infectious disease, doctors are considered to have a responsibility to protect public health which is wider than their duty to protect the health of their patient and is reflected, for example, in statutory obligations which already existed when Evans v Liverpool Corporation was decided.
Family members who witness a patient’s medical crisis
136. Here the question is whether a doctor who owes a duty of care to a patient also owes a duty to members of the patient’s close family to take care to protect them against the risk of illness from the experience of witnessing the medical crisis of their relative arising from the doctor’s negligence.
137. It cannot be said that a doctor who treats a patient thereby enters into a doctor-patient relationship with any member of the patient’s family and thereby assumes responsibility for their health. As regards other factors relevant to whether the necessary relationship of proximity exists, the extent of the control which a doctor may be seen as having over the risk of injury to members of the patient’s family and the directness of the causal link between the doctor’s negligence and the materialisation of that risk will depend upon the particular facts of the case. In a case such as Paul, it may be happenstance whether, if the patient’s untreated coronary artery disease leads at some unpredictable future time to a cardiac arrest, this happens to occur in the presence of close family members or elsewhere, such as at the person’s workplace. By contrast, on the facts of Walters, the harm suffered by the claimant was a far more direct and obviously foreseeable consequence of the defendant’s negligence. The same might be said about the facts of Purchase.
138. Common to all cases of this kind, however, is a fundamental question about the nature of the doctor’s role and the purposes for which medical care is provided to a patient. We are not able to accept that the responsibilities of a medical practitioner, and the purposes for which care is provided, extend to protecting members of the patient’s close family from exposure to the traumatic experience of witnessing the death or manifestation of disease or injury in their relative. To impose such a responsibility on hospitals and doctors would go beyond what, in the current state of our society, is reasonably regarded as the nature and scope of their role.
139. There is no doubt that witnessing the death from disease of a close family member can have a powerful psychological impact additional to the grief and deep distress caused by the fact of the death. Whether that impact is damaging or may even help the grieving process must depend on many factors, including the vulnerability and circumstances of the individual who witnesses the event and the place, time and other circumstances in which the death occurs. The experience of seeing a person die or discovering their dead body is rarer today than it once was. Most deaths in the United Kingdom now occur in hospitals or other institutions such as care homes. But although social attitudes and expectations may be changing, we would not accept that our society has yet reached a point where the experience of witnessing the death of a close family member from disease is something from which a person can reasonably expect to be shielded by the medical profession. That is so whether the death is slow or sudden, occurs in a hospital, at home or somewhere else, and whether it be peaceful or painful for the dying person. We do not mean in any way to minimise the psychological effects which such an experience may have on the person’s parent, child or partner when we express our view that, in the perception of the ordinary reasonable person, such an experience is not an insult to health from which we expect doctors to take care to protect us but a vicissitude of life which is part of the human condition.
9. Conclusions
140. We return to the point with which we began this judgment, that the general policy of the law is opposed to granting remedies to third parties for the effects of injuries to other people. What therefore principally requires justification is not the narrowness of the category of cases in which a claimant who suffers personal injury which is secondary to the death or injury of another person can recover damages but the fact that it exists at all. Lord Oliver made this point in Alcock, when he said, at p 410H:
“What is more difficult to account for [than the general rule] is why, when the law in general declines to extend the area of compensation to those whose injury arises only from the circumstances of their relationship to the primary victim, an exception has arisen in those cases in which the event of injury to the primary victim has been actually witnessed by the plaintiff and the injury claimed is established as stemming from that fact.”
Lord Oliver regarded the existence of this exception as “now too well established to be called in question” and so do we.
141. Unless the exception defined by the Alcock line of authority is to become the general rule, however, a line must be drawn somewhere to keep the liability of negligent actors for such secondary harm within reasonable bounds. Wherever the line is drawn, some people who suffer what may be serious illness in connection with the death or injury of another person will be left uncompensated. The mother who learns in a telephone call that her child has been killed in a road accident may suffer an illness no less severe than a mother who was present at the scene and saw the accident. But there is a rough and ready logic in limiting recovery by secondary victims to individuals who were present at the scene, witnessed the accident and have a close tie of love and affection with the primary victim. These limitations are justified, not by any theory that illness induced by direct perception is more inherently worthy of compensation than illness induced by other means; but rather by the need to restrict the class of eligible claimants to those who are most closely and directly connected to the accident which the defendant has negligently caused and to apply restrictions which are reasonably straightforward, certain and comprehensible to the ordinary person.
142. We have not been asked on these appeals to alter or abrogate the limits on the recovery of damages by secondary victims in accident cases established by the decision of the House of Lords in Alcock. Instead, this court is asked to recognise as analogous a category of cases in which illness is sustained by a secondary victim as a result of witnessing a death or manifestation of injury which is not caused by an external, traumatic event in the nature of an accident but is the result of a pre-existing injury or disease. For the reasons given, we do not consider that such cases are analogous. That conclusion is reinforced by our opinion that the persons whom doctors ought reasonably to have in contemplation when directing their minds to the care of a patient do not include members of the patient’s close family who might be psychologically affected by witnessing the effects of a disease which the doctor ought to have diagnosed and treated. Hence there does not exist the proximity in the relationship between the parties necessary to give rise to a duty of care.
Result
143. No one could read or hear about the events which Saffron and Mya Paul, Lynette and Mark Polmear and Tara Purchase experienced without being moved by the terrible distress caused to them by the sudden deaths of, respectively, Parminder Singh Paul, Esmee Polmear and Evelyn Purchase and the shocking circumstances in which those deaths occurred. The thought that these tragic events could have been avoided if the hospital or doctor had exercised due care must, as in every case of wrongful death, add further to the agony and perhaps anger that they feel. The law cannot, however, impose duties and liabilities on the basis of sympathy, however strongly felt. For the reasons we have sought to explain, the claims for compensation made in these cases do not satisfy the legal requirements for the recovery of damages by secondary victims who suffer injury as a result of the death of another person. The appeals must therefore be dismissed.
(emphasis added)
In Lorebray Pty Ltd v Liddy [2022] NSWSC 1633 – 29 November 2022 – Henry J addressed the circumstances in which a trust beneficiary may pursue a claim against a third party upon a cause of action in respect of injury to the interests of the trust:
[1] This is an application by some of the beneficiaries of the McNamee Property Trust (MPT) to be joined as plaintiffs to enable them to continue to prosecute proceedings that were commenced by the trustee of the MPT, Lorebray Pty Ltd (Lorebray), against another beneficiary, that Lorebray no longer wants to pursue.
Background
[2] The MPT was established by deed dated 23 September 1991. The primary beneficiaries are the late John Boden McNamee, his wife, Margaret (Peg) McNamee, their seven adult children: Peter McNamee, Stephen McNamee, John McNamee and Philippa Hardy (together the Applicants), William (Bill) McNamee, Sally Collignon and Christine Liddy (the defendant in these proceedings), their grandchildren and the respective spouses of their children and grandchildren.
…
[6] In these proceedings, Lorebray sues Ms Liddy to recover $1,650,030 plus interest and costs. Lorebray claims that, in the period from 2013 to 2015, Ms Liddy received the amount of $1,650,030 by way of loans from Lorebray that were payable on demand, which she has refused to repay despite demand being made.
[7] By her defence and cross-claim filed on 13 July 2020, Ms Liddy says that the monies received were paid to her as a gift or trust distributions and denies any liability to repay them.
…
[19] On 6 September 2021, the Applicants filed a notice of motion (the subject of the hearing before me on 22 July 2022) (Notice of Motion) seeking orders for leave to be granted to the Applicants to continue these proceedings on behalf of Lorebray and represent it for the purposes of the proceedings and, to the extent necessary, for leave to amend the Statement of Claim, with effect from the date of commencement of the proceedings, so as to plead their standing to continue this proceeding on behalf of Lorebray.
…
The Applicants’ motion
[22] At the hearing of the Notice of Motion, the Applicants propounded orders in the following terms:
(1) Pursuant to r 6.27, the Applicants are to be joined as plaintiffs.
(2) Each of the Applicants have leave, to the extent that is necessary, to continue to prosecute these proceedings as the second to fifth plaintiffs.
(3) Costs.
[23] In addition, the Applicants have proffered the following undertaking to the Court:
The Applicants, and each of them, hereby undertake to the Court not to seek contribution from the first plaintiff:-
(a) in respect of any costs which they are ordered to pay to the defendant and which are incurred by her after the date of grant of leave by this Court; and
(b) in respect of such costs as they cannot recover from the defendant pursuant to any order for costs against her. [NB: this would be for any reason whatsoever]
Note: This undertaking is given on the basis that it does not prevent the Applicants obtaining indemnification for the party and party (ie the ordinary) costs incurred by them from monies paid by the defendant pursuant to any judgment or order, or any agreement to resolve the proceedings.
[24] The Applicants contend that the relief they seek should be granted as it is apparent that Lorebray does not wish to continue to prosecute the proceedings and the claims against Ms Liddy have merit, relying on the special and exceptional circumstances jurisdiction, the principles of which are set out in Re Canberra Babington Pty Ltd[2021] NSWSC 552 at [27] –[29] (Canberra Babington). They submit that the undertaking that they have proffered is sufficient to deal with any prejudice that Lorebray may suffer as a consequence of it remaining a party to the proceedings, which they say should be as the first plaintiff to deal with any doubt that may arise from the operation of r 6.28 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which relevantly provides that the date of commencement of the proceedings in relation to a person joined as a party is taken to be the date on which the order is made or such later date as the Court may specify in the order.
…
Consideration and determination
[30] A beneficiary under a trust has no cause of action against a third party in relation to injury to trust property unless they can establish special or exceptional circumstances. Special or exceptional circumstances relevantly include a failure by a trustee, excusable or inexcusable, to sue on an available cause of action that a trustee has against a third party, in performance of the duties owed by the trustee to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate: Canberra Babington at [27]; see also Chahwan v Euphoric Pty Ltd trading as Clay & Michael[2009] NSWSC 805 at [16] –[17] (Chahwan v Euphoric ); Ramage v Waclaw(1988) 12 NSWLR 84 at 91(Ramage v Waclaw ); Alexander v Perpetual Trustees WA Ltd (2003) 216 CLR 109; [2004] HCA 7 at [55].
[31] To invoke the special or exceptional circumstances jurisdiction, a beneficiary must establish not only that the trustee is unable or unwilling to commence or maintain proceedings on a cause of action against the third party, but also that the proposed action has merit, in the sense that there is, at least, a serious question to be tried as to the claims that the beneficiaries wish to pursue. That requires the pleadings to disclose a good cause of action and for there to be material capable of supporting the claims alleged, not that the proposed claims will succeed or are particularly strong, although the merit requirement will not be satisfied if there are defences available that are bound to succeed. If the Court concludes that the claims are not ‘meritorious’, the requirement for special or exceptional circumstances will not be met: Canberra Babington at [28] and [29]; Chahwan v Euphoric at [19] and [30] ; Dean v Antunes[2016] NSWSC 1845 at [98].
[32] While traditionally limited to a claim in equity, the exceptional circumstances jurisdiction extends to common law claims: TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim[2016] NSWCA 68 at [54]. It typically involves beneficiaries taking action as plaintiffs and joining the trustee as a defendant to the proceedings, or otherwise conducting the proceedings in the trustee’s name: Ramage v Waclaw at 91; Bhagat v Australian Securities Commission(1995) 16 ACSR 536 at 542; Lamru Pty Ltd v Kation Pty Ltd(1998) 44 NSWLR 432 at 438; and Canberra Babington at [27].
[33] There is some conflict in the authorities as to whether leave is required before an applicant beneficiary is entitled to bring a proceeding in special or exceptional circumstances. In Treadtel International Pty Ltd v Cocco[2016] NSWCA 360, Barrett AJA (Gleeson and Leeming JJA agreeing) observed there were conflicting authorities on whether a prior grant of leave to bring derivative proceedings was required, and stated (at [74]) that:
I suspect that there is no hard and fast rule and that much depends on context. The need for a safeguard by way of screening by the court as a prelude to a derivative suit by a beneficiary upon a cause of action maintainable by the trustee is understandable where certain conditions prevail – for example, where there are several beneficiaries one of whom purports to act for the estate as a whole; where there is a question about the benefit that the estate will derive from pursuit of the proceedings; or where it is necessary to discover whether the trustee’s decision not to proceed has some sound basis. In straightforward cases, there will be no need for such a safeguard. (citations omitted)
[34] Recent authorities favour the view that leave is not required, although the principles of whether to grant leave may be relevant when considering whether to grant leave to amend a pleading to introduce a claim by a beneficiary on a cause of action of the trustee, noting that any pleading relying on exceptional circumstances should include an allegation to the effect that the trustee will not bring the proceedings: Re Wil Brown Management Pty Ltd[2022] NSWSC 207 at [99]; Chahwan v Euphoric at [33] and [39] .
…
[50] I accept that authority does not compel persons in the position of the Applicants always to indemnity [sic] a trust or estate as a condition of bringing an action in a trustee’s or an estate’s name:Cong v Shen[2019] NSWSC 1675 at [88] –[95]. It also seems practically unlikely that Ms Liddy (as a beneficiary of the MPT and a shareholder of McMardi, which is a shareholder of Lorebray) would seek to recover her costs from Lorebray, rather than from the Applicants, if she succeeds in defending the claim.
…
[53] The Applicants’ proffered undertaking should go some way to ameliorating Lorebray’s costs risk going forward but, in my view, in the absence of the Applicants proffering an indemnity, the undertaking does not fully deal with Lorebray’s exposure in respect of future legal costs and the possibility that it may need to rely on its right of indemnity at general law out of the MPT assets in respect of those costs, which could impact other beneficiaries, such as Ms Liddy and those who will not be parties to these proceedings.
[54] If the Applicants are to be granted leave to continue the proceedings, the orders should seek to minimise future disputation by ensuring that, as between the Applicants and Lorebray, the Applicants are responsible for the future legal costs associated with continuing the proceedings.
…
[57] Accordingly, I will grant the relief sought by the Applicants subject to a condition relating to an indemnity.
More recently, in the decision in Katsoulas v Kritikakis; Katsoulas v Apostolatos [2024] NSWSC 67 (7 February 2024), Leeming JA held that a residuary beneficiary under a will [Tony, the only son of the deceased] had standing to claim against:
(a) a friend of the deceased [Lakis] – Anthony;
(b) attorneys for the deceased being also the executors under the deceased’s will [Zoi and George, the children of Anthony].
The deceased was elderly and infirm.
As to standing, Lemming JA said:
Procedural issues
No attention was paid to the technical and procedural hurdles to Tony propounding the claims he maintains the executors should have brought against Lakis [the deceased]. There is no difficulty in the parties having adopted that course. However, I should explain why that is so.
It will have been seen that all of Tony’s claims against Anthony are claims that Anthony breached duties owed at law or in equity by him to Lakis. They are claims that vest in the executors. Had the administration of the estate proceeded such that the executors became trustees (see for example Pagels v McDonald [1936] HCA 15; (1936) 54 CLR 519 at 526; [1936] HCA 15), then Tony’s claim against Anthony as residuary beneficiary would correspond with his entitlement to proceed directly against Anthony in accordance with the exception to the general rule that the trustee is the proper plaintiff, as noted in Ramage v Waclaw(1988) 12 NSWLR 84 at 91-93, that a beneficiary may sue directly, so long as the trustee is joined, where there are “special circumstances” which include but are not confined to collusion between the trustee and the third party. Those propositions were endorsed by the High Court in Alexander v Perpetual Trustees WA Ltd(2004) 216 CLR 109; [2004] HCA 7 at [55]– [56]. Irrespective of whether Zoi and George are executors or trustees, the modern power under UCPR r 7.10(2)(b) to appoint a representative of Lakis’ estate for the purposes of proceedings in which Zoi and George have an interest which is adverse to that of the estate is available and appropriate.
Constructively, if as Tony contends Anthony is found to have taken hundreds of thousands of dollars from the deceased in the years prior to his death without authority, then it is common ground that Zoi and George are inappropriate executors to recover such funds from their father, large amounts of which are shown to have been received by them and spent on things like cars, repayments of loans taken by Zoi and George on an investment property, improvements to property owned by them, and personal expenses such as mobile phones and credit card bills. This was confirmed at the outset of the hearing when I raised the point (T11.7-14). Because at all times the defendants have accepted that probate should be revoked if as Tony contends there has been a substantial unauthorised dissipation of Lakis’ money, and because Tony is the sole residuary beneficiary, the difficulties of timing to which Hammerschlag J referred in Ivanovski v Perdacher[2009] NSWSC 913 at [49]– [50] do not arise. It might perhaps have been preferable for me to regularise this at the outset by a formal order, although neither side invited me to do so. I return to this at the conclusion of these reasons.
I have already remarked that in a case which turned on the bank transactions alleged to have been effected by the defendants, no subpoena was issued to the bank, although Tony’s solicitors complained for years about the non-production or unsatisfactory production of financial records. Nor was any subpoena addressed to the nursing home, so as to provide relatively objective evidence of Lakis’ mental state or the times when he was visited by the parties. The plaintiff did not establish by documentary evidence when he visited his father at St Basil’s. The defendants’ case was also remarkable insofar as there was not a skerrick of documentary evidence from Lakis authorising the transfer of hundreds of thousands of dollars of his money to themselves.
….
Tony’s claim was successful, with consequential relief being granted.
….
In Al Muderis v Nine Network Australia Pty Ltd (No 2) [2024] FCA 136 (No 2) – delivered 20 February 2024 – Abraham J dealt with an application by the respondents in a Federal Court proceeding to set aside subpoenas issued by the applicant in defamation proceedings. There was an earlier order by Bromwich J upholding the claim in respect of the documents sought – or of the same category – on account of journalist privilege pursuant to s 126A of the Evidence Act 1995 (Cth). Abraham J concluded the subpoenas issued by the applicant were an abuse of process, and thereby ought be ordered set aside:
[1] This is an interlocutory application brought by the respondents on 31 October 2023 seeking orders to set aside two subpoenas issued on 9 October 2023 to persons said by the applicant to be confidential sources of Charlotte Grieve, a journalist who is a respondent in this case. In addition, the respondents objected to the grant of leave to issue five further subpoenas which were filed by the applicant on 8 December 2023, also directed to persons each said by the applicant to be a confidential source. The documents sought by each subpoena are relevantly in the same terms. Each subpoena is directed to a health professional, none of whom are witnesses in the substantive proceedings.
[2] Each subpoena originally sought production of:
(1) “All documents evidencing communications with Charlotte Grieve” (category 1);
(2) “All documents evidencing communications with [39 named persons] relating to Dr Munjed Al Muderis or osseointegration, from May 2022 to date” (category 2); and
(3) “All documents evidencing communications with the firm Thomson Geer Lawyers, or any employee of that firm, in which you provide documents relating to Dr Munjed Al Muderis or any of the persons listed in [category 2]” (category 3).
[3] Category 3 has since been abandoned. The applicant also narrowed category 2 to communications with a smaller number of identified persons. I approach these applications on that basis.
[4] I note in this context that on 22 December 2023, Judicial Registrar Birchall, having heard argument in respect to a subpoena directed to Mitchell Grant (a witness in the substantive proceedings) in the same terms as those considered in these applications, made orders narrowing the scope of category 2 from 38 names to a more limited number.
[5] In support of its application, the respondents read the affidavits of Sophie Meixner affirmed on 31 October 2023 and John-Paul Cashen sworn on 23 January 2024, and particular paragraphs in the affidavits of Charlotte Grieve sworn 28 July 2023 and 6 November 2023.
[6] The applicant read the affidavit of Nicholas Pullen sworn on 30 January 2024.
[7] Given the terms of the subpoena and arguments advanced, it is relevant to these applications to note that on 19 December 2023 the respondents’ claim for journalist privilege under s 126K(1) of the Evidence Act 1995 (Cth) (Evidence Act) was upheld in respect to 13 confidential sources (which had been challenged), and the applicant’s claim under s 126K(2) in relation to disclosure of those sources was dismissed: Al Muderis v Nine Network Australia Pty Ltd[2023] FCA 1623 (Al Muderis) per Bromwich J. I note that although that argument was not heard until November 2023, the fact of the applicant’s challenge to the claim for journalist privilege had been known from at least since the commencement of the substantive proceeding in September 2023. On the applicant’s case on these applications, the subpoenas are directed to confidential sources (CS#) 1, 2, 4, 6, 7, 11 and 14 referred to in Al Muderis.
[8] For the reasons below, the subpoenas issued on 9 October 2023 are set aside and leave to issue the five subpoenas filed on 8 December 2023 is refused.
…
[18] The respondents submitted that the subpoenas seek to go behind discovery, and that their purpose is directed to identifying the confidential sources in circumvention of Bromwich J’s orders in Al Muderis. The respondents submitted that if that is the purpose of the subpoenas, each should be set aside as an abuse of process, referring to Jensen v Nationwide News Pty Ltd (No 6)[2018] WASC 415 (Jensen (No 6)) and Hancock Prospecting Pty Ltd v Hancock[2013] WASC 290 (Hancock). It was contended that Jensen (No 6) is not distinguishable on the facts, and that the applicant’s submission that it is plainly wrong should be rejected. It was submitted that the reasoning of Quinlan CJ in Jensen (No 6) is sound and consistent with other authority, citing, inter alia, Hancock and Kizon v Palmer [1997] FCA 622; (1997) 77 FCR 261 (Kizon). The respondents submitted that the reasoning in these cases reflects the general principle that a subpoena should be set aside to prevent an abuse of the processes of the Court to prevent injustice. The respondents noted that the Court has a general power to control and supervise proceedings, including the power to take appropriate action to prevent injustice, and that the overriding principle governing the approach of the Court to interlocutory applications is that the Court should do whatever the interests of justice require in the circumstances of the case: citing, inter alia, P Dawson Nominees Pty Ltd v Australian Securities and Investments Commission (No 2)[2009] FCA 413; (2009) 255 ALR 466 ; Pivotel Satellite Pty Ltd v Optus Mobile Pty Ltd[2010] FCA 121 ; AEI Insurance Group Pty Ltd v Martin[2023] FCA 914 . The respondents submitted that the applicant is seeking to use the subpoena process to obtain information that Bromwich J determined he should not have in these proceedings, and to that end, is asking the Court to make an order undermining another order made in these proceedings.
…
[21] In response, the applicant submitted that the subpoenas are not seeking to go behind discovery. He made the submission that each subpoena calls for documents which have apparent relevance. If they result in the production of documents which demonstrate deficiencies in the respondent’s discovery, that is nothing more than a by-product of the category’s legitimate forensic purpose, not an abuse of process.
[22] The applicant also submitted that the matter before Bromwich J concerned an objection by the respondents to being compelled themselves to disclose the names of confidential sources. It was contended that is a very different question from whether the s 126K privilege could be the basis for an objection to the production of any otherwise relevant documents in the hands of the recipients who, on the applicant’s case, are the confidential sources. The applicant submitted that on the plain wording of s 126K, nothing permits anyone other than the journalist or his or her employer to object to the production of documents on the grounds that it would disclose the identity of a source. Moreover, the terms of s 126K do not provide any basis for the journalist or his or her employer to object to a disclosure requirement addressed to a third party. This, it was submitted, is consistent with the position under the common law newspaper rule: citing Wran v Australian Broadcasting Commission[1984] 3 NSWLR 241 (Wran) at 259. While it was acknowledged that “[a]n applicant cannot simply cast subpoenas out at random on the mere suspicion that the recipients might be sources”, the applicant made the submission that he has a “non-speculative basis” for supposing that the recipients hold relevant documents.
[23] The applicant submitted that Hancock does not assist the respondents and that Jensen (No 6) is distinguishable. He made the submission that applying Jensen(No 6) in the context of s 126K would be plainly wrong, as it would expand the scope of the privilege in a way not justified by the text of s 126K(1). The applicant submitted that if Parliament had intended that journalists should be able to object to disclosure requirements addressed to third parties, or that sources themselves should be able to object, this would have been made explicit in the statutory text. The fact that the legislation does not provide for such obvious procedural possibilities, it was submitted, should be seen not as an oversight, but as a deliberate policy choice. This was said to be supported by the fact that s 126K was enacted against the background of the common law newspaper rule which did not prevent the plaintiff from issuing a subpoena to third parties to ascertain information about sources: Wran at 259. The applicant made the submission that this makes it all the more likely that any Parliamentary intention that the statutory privilege operate differently from the common law rule in this sense would have been made explicit in the text.
[24] The applicant submitted that although it is true that s 126K(1) reflects a general public policy in favour of the protection of journalists’ confidential sources, that must be balanced against the equally important public interest in the administration of justice and litigants’ right to have their causes of action determined on the basis of available relevant evidence: citing John Fairfax & Sons Ltd v Cojuangco [1988] HCA 54; (1988) 165 CLR 346 at 354 ; Madafferi v The Age Company Ltd[2015] VSC 687; (2015) 50 VR 492 at [49] –[51] . Where the journalist themselves has disclosed so much information that the source’s identity is ascertainable, the weight that can properly be given to the public interest in the protection of confidential sources, it was submitted, is reduced.
…
Abuse of process
[50] I turn now to the question of whether the issue of the subpoenas is an abuse of process, given that was the primary submission advanced by the respondents. In summary, the respondents make this submission on the bases that the subpoenas are inconsistent with the orders of Bromwich J and therefore bring the administration of justice into disrepute; that the subpoenas are oppressive given the circumstances of the recipients; and that it would be an abuse to issue the subpoenas if inspection would not be allowed because of Bromwich J’s ruling.
[51] As explained above, the applicant’s submissions demonstrate that these subpoenas are squarely directed to revealing the identity of certain confidential sources (and based on that, any communications as to what they told Ms Grieve). That is plainly the purpose of both category 1 and category 2, given the submissions advanced by the applicant. Each category is directed to establishing the very facts which Bromwich J refused (on the applicant’s application) to allow to be disclosed by Ms Grieve. In that circumstance, the respondents submitted that each of the subpoenas is an abuse of the Court’s process (and should either be struck out, or leave to issue should be refused, as applicable).
[52] The power of a Court to protect its own processes by preventing an abuse of process is well established. Quinlan CJ accurately summarised those principles in Jensen (No 6). The applicant does not dispute that a subpoena can be set aside or that leave to issue can be refused if issuing the subpoena would be an abuse of the Court’s process. Rather, the applicant’s argument is that this case does not fall within that concept.
[53] The varied circumstances in which the use of the Court’s processes will amount to an abuse do not lend themselves to exhaustive statement: UBS AG v Tyne[2018] HCA 45; (2018) 265 CLR 77 (UBS AG) at [1]. The reason why that is so is explained in Batistatos v Roads and Traffic Authority of New South Wales[2006] HCA 27; (2006) 226 CLR 256 (Batistatos) where Gleeson CJ, Gummow, Hayne and Crennan JJ refer at [14]–[15] to Ridgeway v R [1995] HCA 66; (1995) 184 CLR 19 (Ridgeway) at 74–75, and Rogers v R [1994] HCA 42; (1994) 181 CLR 251 (Rogers) at 286.
[54] As Gaudron J explained in Ridgeway at 75 (citations omitted):
…the courts have resisted, and even warned against, laying down hard and fast definitions in that regard. That is necessarily so. Abuse of process cannot be restricted to “defined and closed categories” because notions of justice and injustice, as well as other considerations that bear on public confidence in the administration of justice, must reflect contemporary values and, as well, take account of the circumstances of the case.
[55] This passage was recently cited with approval by Kiefel CJ, Gageler and Jagot JJ in GLJ v The Trustees of the Roman Catholic Church for the Diocese of Lismore[2023] HCA 32; (2023) 97 ALJR 857 (GLJ) at [26] and [47]. Accordingly, the majority in GLJ determined whether the proceedings there in issue were an abuse of process by considering that concept in the context of the understanding of a fair trial in respect to child abuse in current times (the abuse allegation there relating to events over fifty years before).
[56] In Rogers, McHugh J observed that an abuse of process will usually fall into one of three categories: (1) the Court’s procedures are invoked for an illegitimate purpose; (2) the use of the Court’s procedures is unjustifiably oppressive to one of the parties; or (3) the use of the Court’s procedures would bring the administration of justice into disrepute: Rogers at 286; Batistatos at [15]; PNJ v R[2009] HCA 6; (2009) 252 ALR 612 at [3] . In UBS AG, the Court described that either of two conditions enlivens the power: where the use of the Court’s procedures occasions unjustifiable oppression to a party, or where the use serves to bring the administration of justice into disrepute: UBS AG at [1].
[57] In that context, it is appropriate to turn to Jensen (No 6), where Quinlan CJ considered a subpoena issued in very similar circumstances as here.
[58] The protection provisions for journalists contained in s 20G and ss 20I to 20M of the Evidence Act 1906 (WA) (Shield Laws) (WA Evidence Act) considered in Jensen (No 6)are to the same effect as s 126K of the Evidence Act. The parties accepted there was no relevant difference.
[59] In Jensen (No 6), the journalist’s communications with his three confidential sources were discovered and produced in redacted form to remove identifying information. Prior to trial, the plaintiff applied to inspect the documents in unredacted form: Jensen v Nationwide News Pty Ltd (No 5)[2018] WASC 360 (Jenson (No 5)) at [5]. That application was refused. In Jensen (No 5) Tottle J concluded at [114(e)]:
The likely effect of the identifying evidence, including the likelihood of harm, and the nature and extent of harm that would be caused to the informant or any other person: The most likely and in my view most significant, effect of the identifying evidence is that it would discourage members of the community from providing information on a confidential basis to journalists in general. Thus, in my view, disclosure would undermine the public interest in the communication of facts and opinions by the public to news media. I am also persuaded that the identifying evidence would have a negative or damaging effect on each of the sources. An inference to that effect arises from the evidence that the second defendant gave promises not to disclose the identity of the sources and such promises would be unnecessary if the sources were not concerned about potential negative effects on them if their identities were known. The drawing of that inference is strengthened by the second defendant’s evidence that while he could not say with any certainty exactly what would happen if the identities of his sources were revealed, “it is likely that they would each lose trust within their respective fields”. Finally, I accept that disclosure of the identities of the sources would damage the second defendant’s reputation as a journalist. I consider that potential sources would be concerned about disclosing information to him on a confidential basis in the future if a direction was given and that this would make it more difficult for him to effectively report on matters of public interest.
[60] Tottle J further concluded at [135] (citations ommited):
Having concluded that the defendants should not be compelled at trial to disclose the identities of sources A, B and C, for the court to order at an interlocutory stage that the plaintiff be allowed to inspect unredacted documents that would have the effect of disclosing the identifying information to the plaintiff, would undermine the protection afforded to the identifying evidence by the [Shield Laws’] protection provisions and would amount to an abuse of process…
[61] Following Tottle J’s ruling, the plaintiff then issued a subpoena to Telstra for records which included incoming and outgoing text messages and calls from the journalist’s telephone number: Jensen (No 6) at [10]–[12]. The defendants sought to set aside the subpoena primarily on the basis that revealing confidential sources would circumvent the decision in Jensen (No 5) and undermine the important protections provided by the Shield Laws: Jensen (No 6) at [13]. Quinlan CJ, having recited the plaintiff’s submission at to the basis of the subpoena, concluded at [23] of Jenson (No 6):
In my view, many of the purposes identified by the plaintiff as being legitimate forensic purposes for the issue of the subpoena may properly be regarded as secondary to the purpose of principal significance, namely the identification of Source A and Source C. That purpose (and the desire to thwart it) is, of course, the motivating force behind the defendants’ application.
[62] The Court observed, having considered the legal principles in relation to establishing an abuse of process at [27]–[41], that even if the subpoena was not an abuse, there is a separate question of whether the Court, in its discretion, should allow the inspection of the documents: Jensen (No 6) at [42].
[63] The respondents in these proceedings accurately summarised Quinlan CJ’s conclusions as follows:
(1) to allow the plaintiff to access the telephone records of the journalist under subpoena so as to identify a confidential source is capable of being characterised as an abuse of process: Jensen (No 6) at [58]–[75];
(2) had the only purpose of the subpoena been to reveal the identity of confidential sources, a very real question would have arisen as to whether the subpoena should be set aside as an abuse of process: Jensen (No 6) at [76];
(3) the subpoena had other genuine legitimate forensic purposes beyond the purpose of identifying confidential sources and, for that reason, it would not be set aside as an abuse of process: Jensen (No 6) at [77]–[79];
(4) however, it was an appropriate exercise of discretion not to permit the plaintiff to inspect the documents produced. His Honour agreed with Tottle J’s finding that the plaintiff’s case is not impaired to a material extent by not knowing the identity of the sources. The matters of public interest identified by Tottle J in the non-disclosure of the identity of the sources outweighed any legitimate forensic purpose in the plaintiff inspecting the documents: Jensen (No 6) at [80]–[88].
[64] That said, it is helpful to consider some of the reasoning underpinning the conclusions in more detail.
[65] The applicant in this case submitted that Jenson (No 6) is not analogous to the present circumstances, because Quinlan CJ was influenced by the fact that even though Telstra was a third party, the documents sought were the journalist’s own telephone records. It may be accepted that in discussing why access to the second defendant’s telephone records to identify Source A could be characterised as an abuse of process, Quinlan CJ referred to the fact that it was the journalist’s own records which were sought, notwithstanding that the subpoena was issued to Telstra: Jenson (No 6) at [67]–[68], [75]. However, the reasoning was not so confined. Quinlan CJ, referring particularly to [135] and [114(e)] of Jensen (No 5), recited above, concluded at [73] of Jenson (No 6):
Having regard to these findings, in my view, to allow the plaintiff to obtain precisely the same identifying evidence as that which was refused by Tottle J, by the alternative means of the second defendant’s telephone records with Telstra, has the real potential to bring the administration of justice into disrepute. In my view to so allow would be likely to give rise to the perception that Tottle J’s orders can, in substance, be undermined.
[66] Quinlan CJ referred to UBS AG at [59] (Kiefel CJ, Bell and Keane JJ) and [151] (Gordon J) to illustrate the relevance of perception in the assessment of abuse of process: Jenson (No 6)at [73].
[67] Further, at [74] of Jenson (No 6), Quinlan CJ rejected the plaintiff’s submission that the defendants’ argument would require an enormous extension of the newspaper rule and the statutory provisions and would be creating new law contrary to the face of the text and obvious policy of the WA Evidence Act. His Honour’s conclusion at [75] was that it was a “short step” to say the records should be the subject of protection in circumstances where Tottle J had already found that to compel inspection from the journalist would amount to an abuse of process.
[68] The plaintiff in Jensen (No 6) relied, inter alia, on Wran in submitting that it is not an abuse of process to subpoena a third party to reveal a confidential source of a journalist. Quinlan CJ addressed this argument at [55]–[62]:
55 I accept, in accordance with the approach of Hunt J in Wran, that the newspaper rule, properly understood, could not operate so as to prevent a subpoena being issued to obtain documents from a third party that would reveal a confidential source, notwithstanding that the rule might prevent pre-trial disclosure of the source by the news media defendant.
56 In my view, however, it is significant that in Wran, Hunt J was dealing only with the newspaper rule which, as his Honour identified in the passage reproduced above, was a rule of practice of limited application and did not create a privilege on the part of a journalist or media organisation. At the time that Wran was decided there was, relevantly, no other principle of law reflecting a public interest in the protection of journalists’ confidential sources.
57 There has since been a substantial shift in the law created by the Shield Laws.
58 It is now the case that, subject to the Court making a contrary direction under s 20J, s 20I of the Evidence Act prevents a journalist or a person for whom the journalist was working from being compellable to give evidence that would disclose the identity of an informant, where the journalist has promised the informant not to disclose the informant’s identity. Those statutory provisions do create a form of privilege; a privilege that is intended to reflect important public interests.
59 The purpose of, and the public interest reflected in, s 20I is, in my view, evident from the terms of the legislation itself. It is the public interest in the communication of facts and opinions by the public to news media. While it is not necessary, in my view, to go to the second reading speech to discern that public interest, as both parties referred to it, I note that the second reading speech expressly refers to:
… the public interest of preserving appropriate confidentiality while recognising that journalists play a vital role in ensuring the free flow of facts and information to the public.
60 The direct protection provided by s 20I, of course, applies only to journalists or the persons for whom a journalist was working. It is not a protection that, in terms, applies to other persons. Nor, indeed, is it a protection that, in terms, applies outside of the actual giving of evidence.
61 The direct application of the Shield Laws to a journalist (or their employer) giving evidence, does not, however, exhaust the relevance of the public interest served by those laws in other legal contexts.
62 For example, the need to ensure that the protection they afford (at the evidence stage) is not undermined by procedural steps in proceedings may be such that, in the exercise of the courts’ procedures requiring the production of documents, a court will give effect to the public interest reflected in the Shield Laws in advance of the giving of any evidence. This is not an extension of the Shield Laws themselves, but rather the exercise by the court of its own processes, in such a way as to prevent injustice.
[69] Quinlan CJ then referred at [63] to Hancock, which is recited below at [76].
[70] The applicant here submitted that the basis on which Quinlan CJ distinguished Wran is plainly wrong. I do not agree that his Honour’s reasoning is respect to Wran is incorrect. Wran was decided at the time of the newspaper rule. Hunt J concluded that rule was no more than a rule of practice, whereby the media (defendant) in a defamation proceeding would not be compelled to disclose the sources of information prior to trial (at the discovery phase). It was not a rule of law. It also did not apply at trial, with the common law not recognising journalist privilege. As Quinlan CJ correctly observed, since Wran, there has been a substantial shift in that position because of the Shield Laws; that is also the case here with the enactment of s 126K. At [28]–[29] of Al Muderis, Bromwich J described s 126K as follows:
28 The enactment of s 126K was necessarily a legislative rejection of the paramountcy at common law of party to litigation having access to the identity of journalists’ sources when that is shown to be relevant and necessary to make effective the pursuit of that suit, as found in Cojuangco in the context of interpreting and endorsing Granada. Instead, the regime enacted by s 126K gives paramountcy to the confidentiality of a source by way of the creation of a statutory privilege from compulsory disclosure of a source’s identity or of information to enable it to be ascertained, arising from a proven promise to maintain as confidential the identity of a source. If the privilege is established, it can only be displaced at the discretion of a court if the party seeking disclosure establishes a superior public interest in that disclosure taking place sufficient to outweigh both any likely adverse effect on a source or anyone else in the case at hand, and the public interest in the media communicating facts and opinions to the public and in the ability of the media to access sources of facts.
29 The aspects of Cojuangco which treated confidentiality of journalists’ sources, acknowledged by the High Court as a vital ingredient in investigative journalism, as falling short of being a source of immunity from disclosure, were therefore substantially departed from by the enactment of s 126K. As the text of s 126K reproduced above at [27] reveals, the key change was creating the journalist privilege from compulsion to disclose the identity of a source that was found not to exist in Cojuangco, subject to proving a promise not to do so and qualified by an exception to the application of that privilege. As noted above at [28], the exception is that of a court being able exercise a discretion to order disclosure when satisfied that the public interest in doing so outweighs both any likely adverse effect of the disclosure on source or any other person and the general public interest in the communication of facts and opinions to the public by the news media, and the ability of the news media to access sources of facts. The bar for the application of the exception is therefore inherently substantial and onerous. Merely being able to run a somewhat better case if the identity of a confidential source is required to be revealed will generally not suffice. The facts and circumstances in a given case may also serve to elevate the public interest in disclosure not taking place.
[71] The passage at 259 of Wran relied on by the applicant must be viewed in that context. Hunt J said at 259 of Wran that “there is nothing to prevent a plaintiff seeking to obtain that information from another source and thereby to avoid (or evade) the privilege claimed by the defendant. The issue of the subpoena for that purpose cannot be said to be an abuse of the court’s process”. Further, as referred to above, the concept of abuse of process “must reflect contemporary values and, as well, take account of the circumstances of the case”: Ridgeway at 75. Here, “contemporary values” includes the enactment of such provisions as s 126K, creating journalist privilege. As Bromwich J observed at [25] of Al Muderis:
The very privilege denied any existence by the common law… was brought into existence in Ch 3, Pt 3.10, Div IA (now Div 1C) of the Evidence Act in 2011, subject to a discretionary exception exercisable upon a superior public interest in disclosure being established.
[72] Importantly, what exists in this case are Court orders, after full argument, that the privilege applies in relation to the confidential sources and that the applicant has not displaced it. The very documents refused by Bromwich J are sought by these subpoenas. That is a circumstance far removed from Wran.
[73] I note also that the applicant submitted that Jensen (No 6)was distinguishable on the basis that the plaintiff in that case did not know who the sources were, which was the information they were seeking by the subpoenas. It was submitted that, by contrast, the applicant already knows the identity of the seven sources who are the recipients (or potential recipients) of these subpoenas. That submission is addressed above at [29]–[32]. However, unlike Jensen (No 6), as explained above at [33], the subpoenas are also directed to the unredacted version of documents refused by Bromwich J’s orders. Each case must be determined on its own facts.
[74] In Jensen (No 6), Quinlan CJ concluded that the issue of the subpoenas did not amount to an abuse of process because his Honour was satisfied other legitimate forensic purposes had been identified. In that context, his Honour (at [78]) referred to the fact that the power to control abuses of process is to be exercised sparingly and in exceptional circumstances, where there is no other way to protect the interests of justice. Nonetheless, there was an insufficient basis to permit inspection in respect to documents which would identify the confidential sources. Quinlan CJ considered, at [80]–[82] of Jensen (No 6), that the private and public interests involved in this matter are best addressed in the context of the Court’s discretion as to whether, and to what extent, to allow inspection of the documents produced under subpoena. His Honour considered at [84]–[87] the limited relevance of the identity of the source to be weighed with the matters of public interest, in particular that disclosure of identity would undermine the public interest in the communication of facts and opinions by the public to news media. His Honour concluded that matters of public interest outweigh any legitimate forensic purpose in the plaintiff inspecting those documents.
[75] In Jensen (No 6), Quinlan CJ at [30]–[39] and [63]–[64] also referred to the earlier case of Hancock, where Pritchard J concluded that the subpoena issued to the journalist was oppressive and an abuse of process because it would permit the plaintiff to obtain access to identifying information in circumstances where the journalist could not be compelled to disclose that information in evidence. Pritchard J concluded at [168]:
To require the production of the documents sought under the subpoena would permit [the applicant] to obtain access to identifying information in circumstances where neither [the journalist] nor any officer of [the newspaper publisher] could be compelled to give evidence of that kind … In my view, to permit the subpoena to be used in that way would constitute an abuse of process because it would wholly undermine the protection afforded to the identifying evidence under s 20I of the Evidence Act .
[76] In relation to Hancock, Quinlan CJ said at [63] of Jenson (No 6):
… Her Honour recognised that Parliament did not include a provision similar to provisions in New South Wales expressly extending the application of the Shield Laws to subpoenas. Nevertheless, her Honour concluded that:
[T]he enactment of the Shield Laws means that the confidentiality of information provided to journalists by informants is no longer (if it ever was) a matter of purely private interests, but is now recognised as a strong public interest, which may outweigh other public interests which apply in relation to the production of documents for the purposes of litigation.
[77] Although Hancock is factually distinguishable, it nevertheless recognised that such conduct is capable of amounting to an abuse of process. As evident from the passage just recited, this was in a context where s 20I does not apply to the issue of a subpoena to a journalist, in contrast to s 126K which has extended application by virtue of s 131A of the Evidence Act. Hancock was also decided in circumstances where there was no court order in relation to s 20I, with the conclusion based on the existence of the provision.
[78] The conclusion as to the issue of a subpoena amounting to an abuse of process in the circumstances of the type considered in Jensen (No 6) and Hancock is not novel. The respondents also referred to Kizon where Beaumont J was faced with circumstances where a subpoena had been issued for the production of documents which the Full Court had concluded was prohibited by way of discovery by the Telecommunications (Interception) Act 1979 (Cth). The statutory prohibition did not apply to the issue of a subpoena. Beaumont J concluded that issue of the subpoena for those same documents was an abuse of process, on the basis that it was an indirect attempt to obtain discovery by another route. His Honour said that “it is a principle of general application that it is not permissible to do indirectly what is prohibited directly”: Kizon at 271.
[79] I return now to the facts of this case.
[80] The applicant’s submission which focuses on the application of s 126K (and the decision in Wran) fails to grapple with the basis of these applications, namely the issue of the subpoenas being an abuse of the Court’s processes. These are not applications under s 126K, although the provision is plainly relevant in the consideration of the applications. Nor, contrary to the applicant’s submission, does a conclusion that the subpoenas are an abuse of process involve an extension of the application of s 126K. Rather, such a conclusion is “the exercise by the court of its own processes, in such a way as to prevent injustice”: Jenson (No 6)at [62]. The focus must be on the circumstances in which these subpoenas were issued or sought to be issued, which are described above.
[81] The orders of Bromwich J upheld journalist privilege in relation to the 13 confidential sources the subject of challenge and rejected the applicant’s application that those identities (and unredacted documents) be disclosed. Those orders were made after full argument by the parties as to the application of s 126K. The observation of Gaudron J in Ridgeway at 75 regarding an abuse of process bears repeating, that “notions of justice and injustice, as well as other considerations that bear on public confidence in the administration of justice, must reflect contemporary values and, as well, take account of the circumstances of the case”. The existence of s 126K is significant in reflecting the change in environment in how the justice system treats and respects the confidentiality of sources who have provided information to a journalist on that basis. Section 126K “gives paramountcy to the confidentiality of a source by way of the creation of a statutory privilege from compulsory disclosure of a source’s identity or of information to enable it to be ascertained, arising from a proven promise to maintain as confidential the identity of a source”: Al Muderis at [28]. These subpoenas are directed to persons who are not witnesses in these proceedings. Ms Grieve gave evidence in the s 126K hearing of the adverse effect the confidential sources said disclosure of their name would have on them. In respect to each of the recipients (based on the applicant’s case as to their identity) his Honour found that the fears of disclosure were held and constituted an adverse effect of disclosure on them: Al Muderis at [188], [190], [197], [199], [201], [205], [210]. These subpoenas, by orders as to their issue, seek information (including the production of documents) prohibited to be given by Ms Grieve pursuant to the orders of Bromwich J. This is in a context where it is not suggested that there is any relevant change of circumstances.
[82] On the applicant’s case, the subpoenas circumvent the orders of Bromwich J in respect to seven persons. They do indirectly what the applicant was unsuccessful in obtaining before Bromwich J. That s 126K only applies to journalists and their employers does not assist the applicant. The issue of the subpoenas seeks to do indirectly what is prohibited by an order of this Court. It is inconsistent with, and undermines, the orders made by Bromwich J. The use of the subpoenas in the circumstances of this case serves to bring the administration of justice into disrepute.
[83] That the applicant submits he seeks broader documents recording communications between, on his case, a confidential source and Ms Grieve (being documents of the recipient over and above those passing directly between them, and between the recipients and the identified patients), does not detract from that conclusion. Their existence is entirely speculative. Even if such documents existed, these subpoenas are still directed to obtaining communications which will identify the confidential sources, inconsistent with (and undermining the effect of) the orders of Bromwich J. I note, in any event, that the speculative nature of the existence of other documents is only highlighted by the illustrations given by the applicant during his submission as to what such documents might contain. Given that the current effect of Bromwich J’s ruling is that Ms Grieve cannot be cross-examined to identify a confidential source (that is, journalist privilege can be claimed), the applicant was unable to articulate how such material, if it existed, could properly be used.
[84] In the circumstances in which these subpoenas are issued, they are also oppressive. The recipients are not witnesses in the proceedings. As explained above, the recipients have expressed through Ms Grieve adverse consequences they fear from disclosure, which were accepted by Bromwich J (as demonstrating the adverse effects of the fears and that they are genuinely held). In the context of the purpose of s 126K, the findings of his Honour as to the public interest in non-disclosure (including that the public interest in non-disclosure of the sources is “overwhelming”: Al Muderi at [309]), and his Honour’s orders upholding the privilege, to require these persons (on the applicant’s case) to out themselves as confidential sources, is burdensome and injurious: see for example Hamilton v Oades[1989] HCA 21; (1989) 166 CLR 486 at 502 . The issue of subpoenas that are oppressive would also bring the administration of justice into disrepute. At the broader level is the impact on the flow of information to journalists where, given the purpose behind s 126K, and with the privilege being upheld by Court order, an applicant can subpoena persons to circumvent those orders.
[85] Given my conclusion it is unnecessary to consider the further basis advanced by the respondents that the subpoenas are oppressive if leave to inspect would likely be refused. That said, since the documents sought are those the subject of Bromwich J’s ruling, those documents were before his Honour in redacted form. Given the redactions only relate to identifying material, his Honour undertook the weighing process and found firmly against non-disclosure. It follows that leave to inspect would be refused. The existence of any other documents in either category is speculative.
[86] Given the circumstances in this case, the issue of these subpoenas is an abuse of the Court’s process. There is no other way to protect the interests of justice but to strike out the subpoenas issued and to refuse to grant leave to the remaining subpoenas: cf Jensen (No 6) at [78].
Conclusion
[87] For the reasons above, the subpoenas issued on 9 October 2023 are set aside and leave to issue the five subpoenas filed on 8 December 2023 is refused.
(emphasis added)
In the recent decision of Henry J in Jordan v Goldspring (No 3) [2024] NSWSC 11 (29 January 2024), executors of an estate were found to be in contempt of Court for failing to comply with earlier orders. Although the executors were not removed, they were ordered to pay, without recourse to the estate, 50% of the costs of the application. Henry J said:
I was, however, satisfied that the Applicants had established, beyond reasonable doubt, that the Executors were in breach of Orders 1 and 4 of Hallen J’s Orders, as the Rapson Spreadsheet and the documents produced failed to:
(a) include a full account of transactions relating to the Macquarie Share Account, as referred to in sub-paragraph 11(d) of the Statements of Charge relating to Hallen J’s Orders: Judgment at [140]–[147]; or
(b) produce documents in relation to the line items referred to in the Rapson Spreadsheet as the 62 “Manual Journal” line entries, including in relation to the Six Profit Distributions (Manual Journal Entries), as referred to in at sub-paragraphs 11(i) and (j) of the Statements of Charge relating to Hallen J’s Orders: Judgment at [155]–[163].
I was satisfied that the Applicants had established the elements of civil contempt by the Executors in relation to the breaches as they had not been remedied and were continuing, the Executors were on notice and had knowledge of Hallen J’s Orders, they were the result of deliberate acts and they were not casual, accidental or unintentional, and found that the Executors had committed civil contempt of Court by failing to comply with Hallen J’s Orders by failing to include a full account in relation to the Macquarie Share Account or to produce documents in relation to the line items referred to in the Rapson Spreadsheet as “Manual Journal” entries, which include the Six Profit Distributions: Judgment at [168]–[171].
I deferred making any orders when the Judgment was delivered to enable the parties to consider the reasons. I indicated that I would hear from them on the question of punishment (if any) as sought in Order 2 of the Amended Motion and on the issue of costs and invited them to agree a timetable to deal with those matters and next steps in relation to the Amended Motion: Judgment at [173]–[175].
…..
Costs
Contempt proceedings are conducted in the civil jurisdiction of the Court and attract the applicable rules in relation to costs, including that costs follow the event: Mahaffy v Mahaffy [2018] NSWCA 42 at [274] (Mahaffy).
The Court has a broad discretion under the CPA and the UCPR to determine on what basis and to what extent costs should be awarded. This discretion is to be exercised judicially having regard to the circumstances of the case: CPA, s 98(1); Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22] (Gaudron and Gummow JJ), [65] (McHugh J) and [134] (Kirby J).
The usual rule is that costs follow the event, unless it appears that some other order should be made: UCPR, r 42.1.
The event may be characterised in more than one way. Generally, the event refers to the event of the claim or counterclaim and is understood as the practical result of a particular claim. Where there is a mixed outcome in the proceedings, and it is appropriate to entertain the process of apportioning costs as between different issues in the proceedings, in general such an exercise will be carried out on a relatively broad brush basis, and largely as a matter of impression and evaluation by the court: Mahaffy at [275], and the cases there cited.
There is no rule of law that mandates that costs be awarded on an indemnity basis against those found to be in contempt of Court: Mahaffy at [274], referring to McIntyre v Perkes at 428 (Samuels JA, with whom Mahoney JA agreed). However, the authorities to which reference was made by both sets of parties indicate that indemnity costs are commonly awarded where no penalty by fine or other means is imposed: Blacktown City Council v Nitopi at [220]; Canterbury City Council v Mihalopoulos (No 3) at [46]; McIntyre v Perkes at 426–7; Khoury v Kirwan (No 6) at [18]–[22]; see also G E Dal Pont, Law of Costs (2021, 5th ed, LexisNexis Australia) at [16.72].
In Australian Securities and Investments Commission v Sigalla (No 4) (2011) 80 NSWLR 113; [2011] NSWSC 62, at [49], White J noted that indemnity costs are commonly awarded in civil contempt cases as an important sanction to mark the Court’s condemnation of the breach of its orders (at [49]).
In my view, it is appropriate to make an order for costs on an indemnity basis in favour of the Applicants to mark the Court’s condemnation of the Executors’ breach of the Court’s orders in circumstances where no punishment or penalty has been imposed and there is no evidence that the Executors have made an attempt to comply with the aspects of Hallen J’s Orders that were found to have given rise to findings of civil contempt.
However, I also consider that some allowance should be made to recognise the mixed outcome in this case. This is in circumstances where the Applicants succeeded on only three of the 12 contempt charges brought against the Executors, the Applicants have not succeeded on their revocation application and some of the charges brought by the Applicants were found to be bad in form, unclear and involved ambiguity and imprecision (Judgment at [125], [130], [141] and [149]).
Adopting a broad brush and impressionistic approach and bearing in mind the matters in [95] above, I consider that 50% is an appropriate allowance and will order the Executors to pay 50% of the Applicants’ costs on an indemnity basis.
The remaining issue concerns the Applicants’ claim in relation to the Executors’ costs and indemnification from the deceased’s estate. Having regard to the prima facie position under UCPR, r 42.25(1), the matters raised by the Applicants (as outlined at [38]–[40] above), the statement by the Executors they do not intend to obtain indemnification and the orders made require the Executors to remedy their defaults, I am satisfied that the Court should exercise its discretion and make orders which provide for the Executors to pay costs without indemnification from the deceased’s estate and will so order.
…..
As said by Judge Rackemann in Hearsay 90 (December 2022) in ‘How to Infuriate a Judge’:
Disobeying court orders or directions
Where a proceeding has been the subject of orders or directions, including by way of case management, it is infuriating for a judge to see, on the next occasion the matter is before the court, that the previous orders or directions have been flouted, without the matter having been brought back before the court to seek excusal, together with such further orders as may be appropriate in the circumstances. To fail to comply with a court order or direction, without seeking excusal is tantamount to assuming the power to grant yourself an extension of, or excusal from, compliance with the order. Agreeing with your opponent that there ought be an extension of time does not excuse the non-compliance or effect an extension. That is a matter for the court. Particularly where a proceeding is subject to case management, the judge might not be prepared to accept the timetable that the parties agree between themselves.
It should be remembered that a failure to comply with an order of the court, without lawful excuse, is a contempt of court.2 Even where the order is directed to your client, the contempt may, depending on the circumstances, be one to which you, as the legal practitioner responsible for the conduct of the litigation on behalf of the client, is a party.
Care should be taken when advising parties in this respect. Orders of the Court are not widow dressing and costs consequences or worse may flow from disregard of the same. If non-compliance is likely an extension of time should be sought from the Court.
In Baigori v Workers’ Compensation Regulator [2024] ICQ 2 (28 February 2024) – a decision of the Industrial Court of Queensland – Justice Davis, President, concluded that a contractor providing courier services to a sole principal – including provision of his own truck which was paid for and depreciated by him – was a “worker” within the meaning of the Workers’ Compensation and Rehabilitation Act 2003 (Qld). His Honour’s decision is instructive both as to the modern law of statutory construction and its application and also the circumstances in which a contractor conducting their own business, and using their own equipment, will be a “worker” within the “deeming” definitional framework of the Workers’ Compensation and Rehabilitation Act 2003 (Qld). President Davis wrote:
[1] Horacio Augusto Baigorri appeals the decision of the Queensland Industrial Relations Commission which upheld a decision by Workers’ Compensation Regulator (the Regulator) to deny him compensation under the Workers Compensation and Rehabilitation Act 2003 (WCR Act).
[2] The appeal is brought under s 561 of the WCR Act. It is an appeal by way of rehearing as that term is generally understood and is not limited by s 557 of the Industrial Relations Act 2016 to errors of law or jurisdiction. Here, the facts are not in dispute and the decision of the QIRC primarily turned on the construction of provisions of the WCR Act.
The facts
[3] Allied Express Transport Pty Ltd (Allied) operates a carrier transport business.
[4] Mr Baigorri was for a number of years employed by a company called Technofibre. He sustained an injury while working and, upon his return to work, learned that Technofibre had relocated its business to Western Australia. Mr Baigorri declined an offer of employment in Western Australia.
[5] By late 2014 Mr Baigorri was looking for other employment. For various personal reasons, he thought he would turn to courier driving. He made enquiries of a company other than Allied but that came to nothing. He did though, acquire a van and some other equipment for use as a courier.
[6] Allied advertised for drivers and Mr Baigorri responded. Mr Baigorri signed a contract with Allied. By that point, he had not done any work as a courier.
[7] The general structure of the contractual arrangements is;
(a) Mr Baigorri is a “contract carrier” (Recital B);
(b) Allied contracts with its customers to arrange for a contract carrier to courier their goods (Recital A);
(c) Mr Baigorri is an “independent contractor” (clause 8.1);
(d) Allied will allocate the performance of its contracts of carriage with its clients to Mr Baigorri (and no doubt others) (clause 3.1(a));
(e) Mr Baigorri is to provide and maintain a vehicle for his use as a contract carrier (clauses 3.2–3.7); and
(f) Allied will pay prescribed rates of remuneration to Mr Baigorri as a contract carrier (clause 4.1).
[8] The clear intention of the contract is that Mr Baigorri will only perform work for Allied, at least with the vehicle he supplies, in order to fulfil his obligations under the contract. In particular;
(a) he must wear an Allied uniform (clause 2.1); and
(b) the vehicle may be painted, signed and fitted with decals “in Allied Express’s colours” and at Allied’s discretion (clauses 3.20 and 4.6).
[9] Mr Baigorri, as a contract carrier, is in many ways under the direction and control of Allied;
(i) he must wear an Allied uniform (clause 2.1) and other nominated clothing (clause 2.4);
(ii) he must perform the work himself rather than through any employee, unless consent is obtained from Allied (clause 3.8);
(iii) he must provide nominated paperwork, together with “any other document(s) reasonably requested by Allied Express” (clauses 3.1 and 3.25);
(iv) Allied may fit signs to Mr Baigorri’s vehicle (clauses 3.20 and 4.6). That is at Allied’s “discretion” (clauses 4.4(d) and 4.5);
(v) Allied may paint and otherwise decorate the outside of Mr Baigorri’s van as its sees fit (clause 4.6);
(vi) the allocation of contracts of carriage is in the discretion of Allied (clause 3.1); and
(vii) either party may terminate the contract at will; Allied may do so on only 7 days’ notice (clause 11.2).
[10] Various provisions concern personal insurance:
(a)Mr Baigorri must maintain a personal accident and sickness policy in a sum not less than $100,000 (clause 5.1(c));
(b)Mr Baigorri must maintain a worker’s compensation insurance policy covering him and any employees (clause 5.2(c) and clause 3.8).
[11] From the time Mr Baigorri commenced couriering for Allied he only delivered parcels for Allied. Over the period from commencement with Allied, Mr Baigorri’s activities demonstrated various incidents of conducting a business, as was explained by the QIRC in these terms:
[107] Mr Baigorri’s evidence was that:
the Mercedes Vito van was his vehicle and it was being used in his business;
he claimed, as a business expense on his tax returns, the cost of maintenance and repairs for the vehicle;
he claimed depreciation on the vehicles he used over time;
he received a fuel tax credit from the ATO because his vehicles was being used in his business;
he had an accountant acting for the business who presented the paper work to the ATO;
Allied gave him a tax invoice in respect of the work he performed;
he claimed all relevant business expenses and depreciation;
for the 2021 financial year:
in addition to ordinary business income, he declared fuel tax credits, the sale of a truck and the rent of a truck as business income; and
he claimed business expenses, including, but not limited to motor vehicle expenses, advertising, insurance and mobile phone;
he used an ABN in respect of the work he did pursuant to the contract with Allied, and, over the period of that work, he collected GST on sales and claimed GST credits on purchases;
he bought a second truck ‘… to upgrade the business’; and
for a period of time in 2020, took out workers’ compensation insurance under the Act because he was ‘… going to — hire my friend and it didn’t work out because he got a job.” (footnotes omitted)
[12] None of those findings by the QIRC are contested on appeal.
[13] Part of the arrangement with Allied was for Mr Baigorri to collect parcels from Allied’s warehouse at Rocklea.
[14] On 9 February 2021, Mr Baigorri was at the warehouse sorting through stacked items to locate those which he was to deliver. Items fell on him, injuring his left shoulder and lower back.
[15] Mr Baigorri made claim for workers’ compensation as a result of his injuries. The application has some history, but in summary;
(i) on 4 June 2021, WorkCover rejected the claim, finding that he was not a “worker”;
(ii) on 23 November 2021, the Regulator confirmed WorkCover’s decision;
(iii) on 22 June 2023, the QIRC dismissed Mr Baigorri’s appeal from the decision of the Regulator; and
(iv) Mr Baigorri appealed the QIRC’s decision to this Court.
Relevant statutory provisions
[16] The WCR Act sets up a scheme to provide compensation for “workers” who are injured at work. The scheme pivots on the definition of “worker”. Section 11 of the WCR Act defines “worker” as:
11 Who is a worker
(1) A worker is a person who—
(a) works under a contract; and
(b) in relation to the work, is an employee for the purpose of assessment for PAYG withholding under the Taxation Administration Act 1953 (Cwlth), schedule 1, part 2–5.
(2) Also, schedule 2, part 1 sets out who is a worker in particular circumstances.
(3) However, schedule 2, part 2 sets out who is not a worker in particular circumstances.
(4) Only an individual can be a worker for this Act.
[17] The term “contract” is not defined. The term “contract of service” is defined in an inclusive, but not exhaustive way, and is as follows:
contract of service includes an apprenticeship contract or traineeship contract under the Vocational Education, Training and Employment Act 2000.
[18] The term “contract of service” is well known to the law. It arises for consideration not only in industrial disputes but also in copyright cases. It is usually distinguished from a contract for services. A satisfactory consideration of the meaning of “contract of service” was given in University of London Press Ltd v University Tutorial Press Ltd where it was explained:
… The meaning of the words ‘contract of service’ has been considered on several occasions, and it has been found difficult, if not impossible to frame a satisfactory definition for them. In Simmons v Heath Laundry Co, in which the meaning of these words in the Workmen’s Compensation Act, 1906, was discussed, Fletcher Moulton L.J. pointed out that a contract of service was not the same thing as a contract for service, and that the existence of direct control by the employer, the degree of independence on the part of the person who renders services, the place where the service is rendered, are all matters to be considered in determining whether there is a contract of service. As Buckley L.J. indicated in the same case, a contract of service involves the existence of a servant, and imports that there exists in the person serving an obligation to obey the orders of the person served. A servant is a person who is subject to the commands of his master as to the manner in which he shall do his work.
[19] The term “contractor” is defined in the WCR Act in these terms:
“contractor means a person who has contracted with someone else for the performance of work or provision of a service.”
[20] By s 11(2) of the WRC Act, the pool of persons who are “workers” is extended to include the persons described in Part 1 of Schedule 2. By s 11(3) the pool is restricted by eliminating the persons described in Part 2. Part 1 of Schedule 2 provides:
Part 1 Persons who are workers
1A person who works a farm as a sharefarmer is a worker if—
(a) the sharefarmer does not provide and use in the sharefarming operations farm machinery driven or drawn by mechanical power; and
(b) the sharefarmer is entitled to not more than 1/3 of the proceeds of the sharefarming operations under the sharefarming agreement with the owner of the farm.
2A salesperson, canvasser, collector or other person (salesperson) paid entirely or partly by commission is a worker, if the commission is not received for or in connection with work incident to a trade or business regularly carried on by the salesperson, individually or by way of a partnership.
3Acontractor, other than a contractor mentioned in part 2, section 4 of this schedule, is a worker if—
(a) the contractor makes a contract with someone else for the performance of work that is not incident to a trade or business regularly carried on by the contractor, individually or by way of a partnership ; and
(b) the contractor—
(i) does not sublet the contract; or
(ii) does not employ a worker; or
(iii) if the contractor employs a worker, performs part of the work personally.
4A person who is party to a contract of service with another person who lends or lets on hire the person’s services to someone else is a worker.
5A person who is party to a contract of service with a labour hire agency or a group training organisation that arranges for the person to do work for someone else under an arrangement made between the agency or organisation and the other person is a worker.
6A person who is party to a contract of service with a holding company whose services are let on hire by the holding company to another person is a worker.
7A person (an intern), other than a person mentioned in chapter 1, part 4, division 3, subdivision 1, 2, 3 or 4, is a worker if the person—
(a) is performing work for a business or undertaking without payment of wages to gain practical experience in the type of work performed by the business or undertaking, or to seek to obtain a qualification; and
(b) would be a worker if the work performed by the person were for the payment of wages. (emphasis added)
[21] Part 2 of Schedule 2 provides:
Part 2 Persons who are not workers
1A person is not a worker if the person performs work under a contract of service with—
(a) a corporation of which the person is a director; or
(b) a trust of which the person is a trustee; or
(c) a partnership of which the person is a member; or
(d) the Commonwealth or a Commonwealth authority.
2A person who performs work under a contract of service as a professional sportsperson is not a worker while the person is—
(a) participating in a sporting or athletic activity as a contestant; or
(b) training or preparing for participation in a sporting or athletic activity as a contestant; or
(c) performing promotional activities offered to the person because of the person’s standing as a sportsperson; or
(d) engaging on any daily or other periodic journey in connection with the participation, training, preparation or performance.
3A member of the crew of a fishing ship is not a worker if—
(a) the member’s entitlement to remuneration is contingent upon the working of the ship producing gross earnings or profits; and
(b) the remuneration is wholly or mainly a share of the gross earnings or profits.
4A person who, in performing work under a contract, other than a contract of service, supplies and uses a motor vehicle for driving tuition is not a worker.
5A person participating in an approved program or work for unemployment payment under the Social Security Act 1991 (Cwlth), section 601 or 606 is not a worker.
6A person is not a worker if—
(a) the person works for another person under a contract; and
(b) a personal services business determination is in effect for the person performing the work under the Income Tax Assessment Act 1997 (Cwlth), section 87–60.
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Consideration
[31] Over the last quarter of a century or so, the High Court has, in a number of cases, considered the appropriate approach of Australian courts to statutory construction. 18
[32] In R v A2; R v Magennis; R v Vaziri19 the High Court authoritatively summarised and stated these principles as follows:
32 “32 The method to be applied in construing a statute to ascertain the intended meaning of the words used is well settled. It commences with a consideration of the words of the provision itself, but it does not end there. A literal approach to construction, which requires the courts to obey the ordinary meaning or usage of the words of a provision, even if the result is improbable, has long been eschewed by this Court. It is now accepted that even words having an apparently clear ordinary or grammatical meaning may be ascribed a different legal meaning after the process of construction is complete. This is because consideration of the context for the provision may point to factors that tend against the ordinary usage of the words of the provision.
33 Consideration of the context for the provision is undertaken at the first stage of the process of construction. Context is to be understood in its widest sense. It includes surrounding statutory provisions, what may be drawn from other aspects of the statute and the statute as a whole. It extends to the mischief which it may be seen that the statute is intended to remedy. “Mischief” is an old expression. It may be understood to refer to a state of affairs which to date the law has not addressed. It is in that sense a defect in the law which is now sought to be remedied. The mischief may point most clearly to what it is that the statute seeks to achieve.
34 This is not to suggest that a very general purpose of a statute will necessarily provide much context for a particular provision or that the words of the provision should be lost sight of in the process of construction. These considerations were emphasised in the decisions of this Court upon which the Court of Criminal Appeal placed some weight.
35 The joint judgment in Alcan (NT) Alumina Pty Ltd v Cmr of Territory Revenue rejected an approach which paid no regard to the words of the provision and sought to apply the general purpose of the statute, to raise revenue, to derive a very different meaning from that which could be drawn from the terms of the provision. The general purpose said nothing meaningful about the provision, the text of which clearly enough conveyed its intended operation. Similarly, in Saeed v Minister for Immigration and Citizenship the court below was held to have failed to consider the actual terms of the section. A general purpose of the statute, to address shortcomings identified in an earlier decision of this Court, was not as useful as the intention revealed by the terms of the statute itself. In Baini v R , it was necessary to reiterate that the question of whether there had been a ‘substantial miscarriage of justice’ within the meaning of the relevant provision required consideration of the text of the provision, not resort to paraphrases of the statutory language in extrinsic materials, other cases and different legislation.
36 These cases serve to remind that the text of a statute is important, for it contains the words being construed, and that a very general purpose may not detract from the meaning of those words. As always with statutory construction, much depends upon the terms of the particular statute and what may be drawn from the context for and purpose of the provision.
37 None of these cases suggest a return to a literal approach to construction. They do not suggest that the text should not be read in context and by reference to the mischief to which the provision is directed. They do not deny the possibility, adverted to in CIC Insurance Ltd v Bankstown Football Club Ltd , that in a particular case, ‘if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance’. When a literal meaning of words in a statute does not conform to the evident purpose or policy of the particular provision, it is entirely appropriate for the courts to depart from the literal meaning. A construction which promotes the purpose of a statute is to be preferred.” 20 (footnotes omitted)
[33] In summary, the task of construing a statutory provision involves discerning the meaning of the actual text against the statute as a whole and in the context of purpose, statutory history and any relevant extrinsic materials.
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[40] It is well established that the term of a worker’s employment is derived from the contract of employment, industrial instruments, statutes and ministerial directions. Here, the question is whether Mr Baigorri falls within a particular statutory definition to bring him within a statutory scheme. Those issues will be determined upon a proper construction of the relevant statutory provisions, not a consideration of common law notions of the distinction between an employee and an independent contractor.
[41] I disagree with the QIRC’s determination that, in order for element 1 to be fulfilled, Mr Baigorri had to have the status of “contractor” before entering into the contract with Allied to perform the courier work.
[42] Section 11 and Schedule 2 of the WCR Act, like their predecessors, are concerned with the status of a potential employee and a potential employer while the work is being performed. It is while the work is being performed that a compensable injury could occur.
[43] Section 11 and Schedule 2 draw a distinction between a “worker” and “contractor”. By s 11, a person who contracts with the employee is a “worker”, provided PAYG is payable. That person is a “worker” upon being employed, regardless of whether the person was previously employed and was previously a “worker”. The question is whether the person has the status of “worker” once employed, i.e. when they perform “works under a contract”.
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[47] If a person contracts with another for the performance of work, they are a “contractor” by definition and they are also a “worker” if, in relation to that contract, the work which is to be undertaken “is not incident to a trade or business regularly carried on by the contractor, individually or by way of a partnership”.
…
[49] In summary, Mr Baigorri contracted to do courier work for Allied. As to his relationship with Allied, he was thereby “a contractor” regardless of whether he previously had been a “contractor” with any other entity.
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[64] In construing s 3 of Part 1 of Schedule 2, the starting point is the making of a contract with another party “for the performance of work”. That contract is entered into at a particular point in time and is the act which potentially constitutes a contractor as a “worker”. At that point in time, the person does not become a “worker” if the work that he has contracted to perform is “incidental to a trade or business regularly carried on by the contractor”. In other words, if there is an existing business for “the performance of work” and the person enters into a contract with someone for “the performance of work” incidental to the business, then the person does not become a “worker”.
[65] In the present case, there was no existing business. Any “business” of Mr Baigorri was constituted by performance of the “contract with [Allied] for the performance of work”. He had no business before he made a contract with Allied for the performance of courier work.
[66] The fact that Mr Baigorri is described in his contract with Allied as an independent contractor is of no relevance. Schedule 2 of the WCR Act does not draw a distinction between an “independent contractor” and a “worker”. It defines a “worker” and then provides when a “contractor” becomes a “worker”. The critical issue is not whether Mr Baigorri was a contractor but whether as a contractor, he was also a “worker”. If the preconditions are fulfilled, Mr Baigorri is a “worker” no matter what the contract provides.
[67] It is also beside the point that Mr Baigorri agreed by his contract with Allied to insure himself. The issue is whether a statutory benefit enures to him. If he satisfies the preconditions, it does, whether or not there were other covenants in the contract dealing with workers’ compensation.
[68] The fact that the “contract … for the performance of work” may lead to the establishment of a “business” does not disqualify a contractor from qualifying as a worker. In fact that is clearly contemplated by the legislation. The repeated performance of work for reward under contracts for services, especially where the contractor employs a worker, will often be a “business”. Yet, s 3(b)(iii) of Part 1 of Schedule 2 contemplates that, even in those circumstances, and where the contractor himself has employees, the contractor may be a “worker” provided that he performs part of the work himself.
[69] That construction is consistent with the general policy of the provisions and with what decided cases there are. The general policy of the provisions is to look past the particular legal structure of the arrangements, which might constitute a “contract for services” and include the person as a “worker” where if, in substance, the contract is one of service. That is so the statute provides where the work is not incident to a business “regularly carried on by the contractor”.
Conclusions
[70] Mr Baigorri does not qualify as a “worker” by force of s 11(1) of the WCR Act.
[71] Mr Baigorri qualifies as a “worker” by force of s 3 of Part 1 of Schedule 2 of the WCR Act because:
(a) He made a contract with Allied for the performance of work.
(b) The contract was not a contract of service but a contract for services.
(c) He was thereby a “contractor”.
(d) He did not conduct a business beyond the “contract for the performance of work” with Allied.
(e) The work to be performed pursuant to the contract with Allied was not incident to a business regularly carried on by him.
(f) Therefore, he was a “worker” within the meaning of the WCR Act.
18K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 ; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 ; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 ; Alcan (NT) Aluminia Pty Ltd v Cmr of Territory Revenue (2009) 239 CLR 27 ; SZTAL v Minister for Immigration & Border Protection (2017) 262 CLR 362 ; SAS Trustee Corporation v Miles (2018) 265 CLR 137 ; and Unions NSW v New South Wales (2019) 264 CLR 595 .
The decision of Court of Appeal of the Supreme Court of Western Australia in Wright v Lemon [2024] WASCA 19 (1 March 2024) is the latest decision in yet another long running litigation saga involving families of magnate pioneers in the Australian mining industry. This decision is of interest to lawyers, relevantly, because of the Court’s consideration of the circumstances in which a director of a company owes a duty of care to shareholders (cf the company), and content of the fiduciary duty owed by executors to testamentary beneficiaries, in particular as to operation of “the fair dealing rule”. The decision is lengthy so only the relevant excerpts are included below.
Buss P – Vaughan JA as to the matters below, and also Hall JA agreeing – wrote:
[BACKGOUND FACTS]
The appellant (Julian Wright) appeals against the dismissal by Le Miere J after trial of numerous causes of action he alleged against the respondents. The causes of action included claims for deceit, common law fraud, breach of fiduciary duty and equitable fraud in connection with a sale of shares in a corporation and a sale of an interest in a deceased estate.
Julian Wright relies upon 16 grounds of appeal. The respondents rely upon a notice of contention which contains 25 grounds. The approach of each of Julian and the respondents in the appeal has been to challenge, with minimal discernment, substantially all (in the case of Julian) and all (in the case of the respondents) material adverse findings made by the trial judge. His Honour’s reasons comprised 206 pages. On appeal, Julian’s written case, the respondents’ written answer, Julian’s reply to the respondents’ notice of contention and the related schedules and chronologies exceeded in total 600 pages. The hearing of the appeal occupied 5 days and, on a number of those days, the court sat earlier and later than usual.
I am of the opinion, for the following reasons, that the appeal should be dismissed.
The main natural persons of relevance to the litigation
The main natural persons of relevance to the litigation are as follows.
Ernest Archibald Maynard Wright (known as Peter Wright) and Langley George Hancock (known as Lang Hancock) developed and promoted the iron ore industry in the Pilbara region of Western Australia.
Peter Wright died on 13 September 1985.
Peter Wright had three children:
(a) Michael Wright (who died on 26 April 2012);
(b) Angela Bennett, who was the second defendant in the primary proceedings and is the second respondent in the appeal; and
(c) Julian Wright, who was the plaintiff in the primary proceedings and is the appellant in the appeal.
David Lemon in his capacity as executor of Michael Wright’s estate was the first defendant in the primary proceedings and is the first respondent in the appeal.
Michael Wright had children including, relevantly:
(a) Leonie Baldock, who was the third defendant in the primary proceedings and is the third respondent in the appeal; and
(b) Alexandra Burt, who was the fourth defendant in the primary proceedings and is the fourth respondent in the appeal.
Julian Wright has two children:
(a) Natalie Wright; and
(b) Timothy Wright.
Douglas Salt was an accountant who worked for entities associated with Peter Wright, Michael Wright and Angela Bennett.
Carnegie Fieldhouse was a lawyer who practised in Sydney under the name CR Fieldhouse.
Mr Fieldhouse died in November 2007.
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The 1987 Sale Agreements
On 17 January 1987, Julian Wright executed identical agreements with each of Michael Wright and Angela Bennett (collectively the 1987 Sale Agreements). Pursuant to each agreement:
(a) Julian agreed to sell to Michael or Angela (as the case may be) one half of Julian’s shares in WPPL and one half of his interest in all other shares he owned apart from shares in specified companies;
(b) Julian also agreed with Michael or Angela (as the case may be) to procure, without further cost to Michael or Angela (as the case may be) the sale of one half of Julian’s interest in Peter Wright’s residuary estate; and
(c) Julian also agreed to cooperate with Michael or Angela (as the case may be) in obtaining probate of Peter Wright’s Will.
The causes of action litigated in the primary proceedings arose from the execution and completion of the 1987 Sale Agreements.
WPPL and its shareholding before January 1987
WPPL was incorporated in 1956. Peter Wright was a director of WPPL and held a life governor’s share in the company until his death on 13 September 1985.
Michael Wright became a director of WPPL before 1976. Angela Bennett and Julian Wright became directors of WPPL in August 1976. At all material times before January 1987, Michael, Angela and Julian each held, in essence, one third of the issued share capital of WPPL. Julian sold his shareholding in WPPL to Michael and Angela in January 1987 pursuant to the 1987 Sale Agreements.
The Hancock and Wright partnership
During the 1950s and 1960s Peter Wright and Lang Hancock located large deposits of iron ore in the Pilbara region.
During the 1950s WPPL and HPPL began carrying on business in partnership under the name ‘Hancock and Wright’. A formal partnership agreement was not made until 1978. The Hancock and Wright partnership acquired control of numerous temporary reserves or tenements in the Pilbara region. The partnership was also referred to as the Hanwright partnership.
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Julian Wright’s involvement with WPPL between 1976 and 1983
The trial judge made findings of fact in relation to Julian Wright’s involvement with WPPL between 1976 and 1983 as follows.
Julian Wright has a Bachelor of Commerce from the University of Western Australia and a Master of Business Administration from Northwestern University in Chicago [95].
In 1976, Julian Wright became a director of WPPL [97]. He worked for WPPL, as head of advertising at the Sunday Independent newspaper, between 1976 and July 1983 [98] ‑ [99].
Between 1976 and July 1983 Julian Wright regularly attended WPPL board meetings. At those meetings the directors did not discuss WPPL’s mining business. They discussed WPPL’s other businesses. Peter Wright told his children that he had agreed with Lang Hancock that the children would not be involved in the mining business [100].
Julian Wright knew, while he was employed by WPPL, that WPPL held mining tenements and received royalties from Hamersley Iron in respect of iron ore mined at Mount Tom Price. Peter Wright told Julian that WPPL received those royalties. Julian also noticed that those royalties were recorded in WPPL’s annual financial statements which he received each year [101].
In 1982, Julian Wright told Peter Wright that he did not want to be involved in WPPL’s business. Instead, he wanted to pursue a career in investment finance [102].
In a memorandum dated 12 November 1982 Julian Wright recorded that he had agreed with Peter Wright that he would continue to work at the Sunday Independent newspaper, as advertising manager and deputy chief executive, until June 1983 and that Peter Wright had indicated that he would either grow closer or further away from the family and that Julian hoped that he would grow closer [102].
In late 1982 or early 1983 Peter Wright made a loan of $30,000 to Julian Wright to cover a ‘paper loss’ that Julian had incurred in trading some bank bills. Although Peter made the loan to Julian, at a family meeting Peter was angry and critical of Julian. It was apparent from a note sent by Michael Wright to Peter on 1 March 1983 and a note sent by Angela Bennett to Peter on 14 February 1983 that Michael and Angela’s relationship with Julian had deteriorated and that Angela and Michael had a low opinion of Julian [103].
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Peter Wright’s Will
As I have mentioned, Peter Wright died on 13 September 1985.
By his Will, Peter Wright appointed Michael Wright, Angela Bennett and Julian Wright as the executors and trustees of his Will.
By clause 3 of his Will, Peter Wright bequeathed his shares in WPPL as follows:
(a) as to one third, to Michael Wright;
(b) as to one third, to Angela Bennett; and
(c) as to one third, to Michael and Angela upon trust for Julian Wright’s children in equal shares.
By clause 4 of his Will, Peter Wright conferred upon Michael Wright and Angela Bennett a power to apply any net income derived from the shares in WPPL held by them upon trust for Julian Wright’s children for the benefit of the children and to accumulate any balance of the net income for the children’s benefit until the vesting day.
By clause 5 of his Will, Peter Wright devised and bequeathed the residue of his estate to Michael Wright, Angela Bennett and Julian Wright in equal shares.
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[FIDUCIARY DUTY OF DIRECTORS]
Grounds 1 and 2 of Julian Wright’s appeal relate to the trial judge’s conclusion that Michael Wright and Angela Bennett, as directors of WPPL, owed no fiduciary duty to Julian in respect of the acquisition of Julian’s shares in WPPL.
Ground 1 alleges that his Honour erred in ‘mixed fact and law’ in concluding that Michael Wright and Angela Bennett, as directors of WPPL, owed no fiduciary duty to Julian Wright in respect of the acquisition of Julian’s shares in WPPL and in making the findings which supported that conclusion.
Ground 2 alleges that his Honour should have found that Michael Wright and Angela Bennett, as directors of WPPL, owed Julian Wright a fiduciary duty in respect of the purchase by them of Julian’s shares in WPPL:
(a) not to allow their interest in acquiring Julian’s shares in WPPL to conflict with their duty to act in the best interests of WPPL and the shareholders of WPPL, including Julian;
(b) not to profit from their position as directors of WPPL in their dealings with a person to whom they owed a fiduciary duty, and that Michael and Angela breached that duty when dealing with Julian to purchase his WPPL shares, and in purchasing them, by:
(c) placing themselves in a position where their interests and duties conflicted;
(d) not obtaining informed consent from Julian, and not making full disclosure to him of the information they had learned as directors of WPPL that was material to the value of WPPL’s shares, in particular the extent and value of WPPL’s tenement and royalty assets and the partnership assets that WPPL might obtain from the severance of the Hanwright partnership; and
(e) purchasing Julian’s shares at an undervalue, and obtaining a profit at Julian’s expense.
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A director of a company owes fiduciary duties to the company. However, as a general rule, a director does not owe any fiduciary duties to a shareholder. See Percival v Wright.[7] In Percival, Swinfen‑Eady J held that directors who had purchased shares in their company from shareholders did not owe a fiduciary duty to the vendors to disclose pending negotiations for the sale of the company’s assets and undertaking.
In Coleman v Myers,[8] the first and second respondents, a son and his father, were the managing director and chairman of a proprietary company. Many of the shareholders, individually or through trusts, were relatives. The Court of Appeal of New Zealand upheld the decision of the primary judge that, in the particular circumstances of the case, the first and second respondents owed a fiduciary duty to the shareholders and that the first and second respondents breached the duty by permitting a conflict of interest to arise in relation to a takeover bid by the first respondent for the company and then failing to ensure that the shareholders were equipped to make an informed decision about the bid. The fiduciary duty did not arise merely because the first and second respondents were directors of the company. They owed a fiduciary duty to, relevantly, the appellants, who were minority shareholders and not directors, because of a number of factors, including the family character of the company; the high degree of insider knowledge which the first and second respondents had and did not disclose to the minority shareholders; and the manner in which the first and second respondents formulated and implemented the takeover bid in the context of the trust and confidence necessarily reposed in the first and second respondents by the minority shareholders.
In Brunninghausen v Glavanics,[9] Handley JA (Priestley and Stein JJA agreeing) explained the rationale for the general rule as follows:
A director occupies a fiduciary position in the company and owes fiduciary duties to it. The general principle established for well over 100 years is that a director’s fiduciary duties in relation to the company’s affairs are owed to the company. This reflects the distinction between the company and its members established in Salomon v Salomon & Co[1897] AC 22. It is reinforced by the rule in Foss v Harbottle (1843) 2 Hare 461 which denies shareholders standing to sue directors and others for wrongs done to the company. The breach of a fiduciary duty owed by a director to the company attracts an accounting, or an award of compensation or damages in favour of the company alone, the losses of individual shareholders being derivative not personal: see Prudential Assurance Co Ltd v Newman Industries Ltd (No 2)[1982] Ch 204 at 223-224; Gould v Vaggelas (1985) 157 CLR 215 at 220, 245, 253; Stein v Blake[1998] 1 All ER 724.
If fiduciary duties owed by directors to their companies were also owed to the shareholders, directors would be liable to harassing actions brought by minority shareholders. Since in that event each shareholder would have a personal right, directors would also be exposed to a multiplicity of actions. There are therefore good reasons behind the established rule that in general a director’s fiduciary duties are owed only to the company.
It is apparent, however, from the decisions of the Court of Appeal of New South Wales in Brunninghausen and Crawley v Short,[10] that in special circumstances a director may owe fiduciary duties to a shareholder.
In Brunninghausen the salient facts were these. The appellant and the respondent were brothers‑in‑law. The appellant formed a company which carried on the business of importing ski equipment. The respondent assisted the appellant and, for that assistance, was issued with 1,000 fully paid shares in the company. The appellant held the other 5,000 issued shares. Differences and disputes emerged between the appellant and the respondent. The wives of the appellant and the respondent were sisters. The mother‑in‑law of the appellant and the respondent intervened in an effort to restore family harmony. The appellant and the respondent were influenced by respect for her wishes. The appellant and the respondent began negotiations for the sale of the respondent’s shares to the appellant. While the appellant and the respondent were negotiating, a third party approached the appellant with a view to purchasing the company’s business. The appellant began negotiations with the third party without disclosing the third party’s approach or the negotiations to the respondent. The appellant sold the assets and undertaking of the company to the third party as well as shares in two other companies he controlled. The respondent sued the appellant and claimed, amongst other things, equitable compensation for breach of fiduciary duty.
The primary judge in Brunninghausen found for the respondent on his claim against the appellant and that decision was upheld by the Court of Appeal.
Handley JA said that if the appellant owed the respondent a fiduciary duty it must arise from ‘the bare facts of the relationship’. His Honour added [54]:
These include the position of [the appellant] as the sole effective director, the existence of only one other shareholder, their close family association, the intervention of the mother-in-law to secure a family reconciliation, and the exclusive advantage or opportunity which [the appellant’s] position conferred on him to receive any offers to purchase the company’s business from third parties.
His Honour explained the facts and circumstances which gave rise to the existence of the fiduciary duty as follows [97] ‑ [100]:
[The respondent] did not bargain for his shares and the division of powers between the directors and the shareholders in the company was not the product of negotiations with [the appellant]. [The respondent’s] continuing directorship was an empty shell which the judge rightly disregarded. He was effectively a disenfranchised, minority shareholder, locked into the company. Any attempt to insist on his rights as a director would have led to his removal, if necessary by a court ordered meeting of members with a quorum of one: see Re El Sombrero Ltd[1958] Ch 900. The company had never been an incorporated partnership in any sense and his removal as a director would not have created a basis for winding up on the just and equitable ground.
[The respondent] therefore was almost totally powerless. He had no legal right as a shareholder to inspect the company’s books of account or financial records. He was entitled to copies of the annual accounts but realistically chose not to exercise it. Those alone would not provide any real guide to the value of his shares. He had no effective right to be informed of the negotiations for the sale of the company’s business.
[The appellant], as the sole effective director, occupied a position of advantage in relation to [the respondent]. He could, if he saw fit, disclose information about the pending negotiations for the sale of the business but could not be compelled to do so. This gave him the capacity to affect the interests of [the respondent] ‘in a practical sense’, and in the context of the negotiations with him ‘a special opportunity’ to exercise that capacity to the detriment of [the respondent] who was ‘at the mercy’ of [the appellant] and ‘vulnerable to abuse’ by [the appellant] ‘of his position’: Hospital Products (at 96-97), per Mason J.
After 1983 [the appellant] did not undertake in any factual sense to act in the interests of [the respondent], or in the joint interests of [the respondent] and himself. However he continued to occupy an office with the advantages referred to.
Handley JA held that it was open to the Court of Appeal to decide that ‘the office of director in a proprietary company is, at least for some purposes, a fiduciary one in relation to the shareholders’ [100].
His Honour said that the sale of the respondent’s shares to the appellant ‘required a reconciliation of their competing interests in the transaction’ [105]. However, a sale to a third party in which both the appellant and the respondent participated involved no such conflict and ‘would have enabled both [of them] to receive full value for their shares without any conflict of interest necessarily arising between them’ [105]. His Honour then observed [106]:
A fiduciary duty owed by directors to the shareholders where there are negotiations for a take‑over or an acquisition of the company’s undertaking would require the directors to loyally promote the joint interests of all shareholders. A conflict could only arise if they sought to prefer their personal interests to the joint interest. That is the very conduct which would be proscribed by the duty.
Handley JA was of the opinion that the decision of Swinfen‑Eady J in Percival was not an obstacle to the recognition of such a duty [107].
In Crawley, Young JA (Allsop P and Macfarlan JA relevantly agreeing) accepted that, in general, a director of a company owes fiduciary duties to the company and not to each shareholder [100]. However, his Honour said, based on the decision in Brunninghausen, that ‘particular factual circumstances may give rise to a fiduciary relationship between a director and an individual shareholder’ [101]. Young JA noted that the primary judge ‘acknowledged that there were cases where a director who was also a shareholder could owe a duty to another shareholder, but considered that Brunninghausen told against it when the same acts constituted a breach of the fiduciary duty to the company’ [119]. His Honour said that the primary judge’s view in that respect involved ‘too narrow a reading of Brunninghausen and [was] out of line with other authorities’ [120]. Young JA elaborated [121] ‑ [122]:
There will be a variety of situations where a shareholder or director/shareholder holds a special position where he or she may owe duties to another shareholder.
Without being an exhaustive list, this will occur where: one shareholder undertakes to act on behalf of another shareholder; where one shareholder is in a position to have special knowledge and knows that another shareholder is relying on her to use that knowledge for the advantage of another shareholder as well as herself; and where the company is in reality a partnership in corporate guise, nowadays termed a quasi partnership.
In the present case, Julian Wright alleged that Michael Wright and Angela Bennett, as directors of WPPL, owed fiduciary duties to Julian, as a shareholder, in acquiring his shares in WPPL, to make full, frank and accurate disclosure of all matters material to the proposed acquisition of Julian’s shares in WPPL and to pay full value for those shares, which was the fair value of the shares calculated in accordance with WPPL’s articles of association.
His Honour held that Michael Wright and Angela Bennett did not owe the alleged fiduciary duties to Julian Wright in respect of Michael and Angela’s acquisition of Julian’s shares in WPPL.
The trial judge made numerous findings which underpinned his conclusion that there was no fiduciary duty. In particular:
(a) Julian Wright did not place trust or confidence in Michael Wright or Angela Bennett for the purpose of negotiating the sale of his shares in WPPL to Michael and Angela or more generally his interests in WPPL. Julian did not trust Michael and had told him so. Michael had told Julian that he did not trust him [699].
(b) Julian was not precluded from informing himself, as he saw fit, in relation to any aspect of WPPL’s business, any assets of WPPL or the Hanwright partnership. Indeed, Julian had asserted the right and had taken the opportunity to inform himself. His Honour made detailed reference to the following facts and circumstances which supported that conclusion [705]:
(i) Julian was sent, and he received and retained, the letter of 1 November 1985 from Lang Hancock;
(ii) Julian, together with Michael, Angela and Mr Salt, attended the meeting with Lang Hancock on 28 November 1985 at which Lang Hancock provided information about the various mining assets held by WPPL through the Hanwright partnership;
(iii) Julian, together with Lang Hancock, Michael, Angela and Mr Salt, received a detailed memorandum dated 3 January 1986 from Mr Dalby which commented on the minutes of the meeting with Lang Hancock on 28 November 1985;
(iv) Julian knew that Lang Hancock was the person who was likely to have the most knowledge about the mining tenements held by the Hanwright partnership, and that Julian could seek to meet with Lang Hancock at any time. Indeed, after the meeting on 28 November 1985, Julian arranged a further one-on-one meeting with Lang Hancock about two weeks after that meeting;
(v) Julian had access to WPPL’s books and records and was provided with WPPL’s financial accounts;
(vi) Julian attended, and was otherwise informed of, meetings of the directors of WPPL, and Julian took the opportunity to request information at those meetings;
(vii) Julian was advised to, and did, exercise his rights in relation to WPPL by demanding information about activities of the company;
(viii) Julian attended regularly at WPPL’s offices and looked at WPPL’s documents;
(ix) Julian arranged meetings, and communicated directly, with Mr Fieldhouse;
(x) Mr Salt provided Julian with information if he requested it; and
(xi) Julian made his own enquiries in relation to the treatment of WPPL’s assets by WPPL’s accountants and he had a private meeting with WPPL’s auditors, Ernst & Whinney, in July 1986 at which WPPL’s financial performance and value were discussed.
(c) Michael and Angela did not conceal from Julian the extent, nature and value of WPPL’s mineral assets [710].
(d) Factors affecting the value of WPPL were equally apparent and available to each of Michael, Angela and Julian [711].
(e) Julian formed his own view as to the value of WPPL. Michael and Angela did not have ‘special knowledge’ of some concealed anterior or other matters or of an impending advantage to WPPL [712].
(f) There was a ‘knowledge disequilibrium’ between Michael and, to a lesser extent, Angela, on the one hand, and Julian, on the other, in that Michael and, to a lesser extent, Angela had a superior knowledge and understanding of WPPL’s mining interests and royalties. However, Michael and Angela did not have ‘insider information’ about WPPL’s assets, plans, finances or opportunities that was not available to Julian and that could have given them an unfair advantage [715].
(g) Julian was not dependent upon Michael and Angela to provide him with information or explain to him the nature, quality and value of WPPL’s mining interests and royalties. There was no impediment to Julian obtaining further information, or conducting his own enquiries, with respect to the value of any of the assets of WPPL or the Hanwright partnership if he wished to do so. For example, Julian could have sought a valuation of his shareholding or of the interests held by WPPL. Julian was advised by his solicitors to do so, but he elected not to follow that advice and elected not to make any relevant enquiries [716].
(h) Mr Fieldhouse advised Julian to take independent legal advice (and Julian took independent legal advice) in respect of the 1987 Sale Agreements. Negotiations with respect to those agreements were conducted by solicitors on Julian’s behalf. Julian sought and obtained various amendments to drafts of the agreements before they were finalised and executed [718].
(i) Julian’s solicitors advised Julian to undertake further enquiries in connection with the subject matter of the 1987 Sale Agreements. Julian declined to undertake those further enquiries. In late 1985 or early 1986 Julian sought tax and accounting advice in order to inform himself better as to ‘the risks in relation to the option and the consequences both of selling his shares and of the option being exercised’ [719].
(j) Julian was not vulnerable to abuse by Michael or Angela, in the requisite sense, of their positions as directors of WPPL, for the purpose of the 1987 Sale Agreements [720]. Julian was not forced to sell his shares at a price nominated by Michael and Angela. The articles of association of WPPL provided a means by which Julian could sell his shares for ‘fair value’ [721].
(k) Michael and Angela did not undertake or purport to act on Julian’s behalf in connection with the 1987 Sale Agreements. There was conflict between Michael, Angela and Julian. Between October 1985 and January 1987 there was no goodwill between them. Julian lacked confidence in Michael’s integrity. Julian thought that the manner in which he was being treated by Michael and Angela put him in a position of ‘hardship’. Julian did not depend on Michael and Angela for information. He did not repose trust and confidence in them. In the circumstances of the arm’s length negotiations between the parties in 1986 and 1987, it was ‘difficult to see’ how Julian was ‘entitled to expect’ that Michael or Angela ‘would subordinate their own interests and afford paramountcy to those of Julian, according him that selfless loyalty that a fiduciary owes to a beneficiary’ [722] ‑ [724].
All of those findings were open to be made on the evidence at the trial. There was no material error by his Honour in the fact‑finding process he adopted. Julian Wright’s challenge to those findings is, in substance, an assertion that alternative findings were open and should have been made. Julian has not established that the findings his Honour actually made were wrong.
As to ground 1(a), the evidence at the trial did not establish that Michael Wright and Angela Bennett had concealed from Julian Wright the extent, nature and value of WPPL’s mineral assets. In particular, the evidence did not establish that documents relating to WPPL’s mineral assets were secret or concealed from Julian. Mr Salt gave evidence to the effect that he never concealed information from Julian; none of Michael, Angela and Mr Fieldhouse ever asked him to conceal information from Julian; and his approach to dealing with Julian between the date of Peter Wright’s death and January 1987 was the same as his approach to dealing with Michael and Angela (ts 1494 ‑ 1495). Julian gave evidence to the effect that he could not categorically state that he was not given relevant information (ts 1182 ‑ 1183). Nothing on the face of the relevant documents indicated that they were secret or that they should be concealed from Julian.
The trial judge found that after Peter Wright’s death, Michael Wright ‘took over Peter’s office and assumed the role of [chief executive officer] of WPPL’ [153]. His Honour then made these findings [154]:
Michael and Angela gained information and knowledge about WPPL’s mining and non-mining interests. Michael and Angela established a ‘Where are we now’ committee and a Minerals Committee which operated separately from WPPL’s Board of Directors. Michael wrote an agenda for the ‘Where are we going?/What are we doing?’ committee meeting of 23 May 1986. Michael said that neither he nor Angela knew enough about the mineral activities of WPPL or Hancock and Wright, and that he had had briefings in relation to activities and locations and it was his intention to visit those locations during the June to July school holidays. Julian was not invited to the ‘Where are we now?’ committee meetings or meetings of the Minerals Committee and at the time he was not aware of their existence.
So, his Honour found that Julian Wright was not invited to the ‘Where are we now?’ Committee meetings or to meetings of the Minerals Committee and that at the time he was not aware of their existence.
However, Julian Wright’s reliance upon the ‘secret committees’ established by Michael Wright and Angela Bennett does not materially advance his case on grounds 1 and 2.
The minutes of a meeting of the directors of WPPL held on 27 May 1986, that was attended by Michael Wright, Angela Bennett, Julian Wright, Mr Dalby and Mr Salt, recorded, amongst other things, that a set ‘financial format’ for reporting would be adopted; it was agreed that Mr Salt and Julian would discuss the position in relation to financial information and see if anything further was required; and Julian undertook to provide in written form to the board of directors his views on ‘Where the Company was and where it should go’.
The Minerals Committee met on only two occasions before the completion of the 1987 Sale Agreements. One meeting occurred on 28 May 1986 and the other on 24 July 1986. The fact that meetings of the Minerals Committee continued after Julian Wright ceased to be a director and after the execution and completion of the 1987 Sale Agreements points against the committee being set up to conceal information from Julian and indicates that the committee was designed to collect information to assist those involved in the management of WPPL. Julian had access to records of the meetings of the Minerals Committee that were held before the completion of the 1987 Sale Agreements by virtue of his unfettered access to WPPL’s records. In any event, it is not apparent that any matters were discussed or that any information was revealed at those meetings that was withheld from or unknown to Julian. Also, there is no evidence that any matters or information of that kind would have had any material impact upon Julian’s valuation of his shares in WPPL or of the assets of WPPL.
As to ground 1(b), the trial judge did not solely consider whether Michael Wright and Angela Bennett had ‘special knowledge’ of some concealed anterior or other matter, including ‘an impending advantage to the company which would appreciate the value of its shares’ or ‘an event that would significantly affect the value of the company or its shares’. His Honour specifically assessed whether Michael and Angela had any insider information about WPPL’s assets, plans, finances or opportunities that was not available to Julian Wright and that could give them an unfair advantage. His Honour noted correctly that, unlike cases such as Brunninghausen and Coleman v Myers, Michael and Angela did not know about a proposed takeover or third party acquisition or other event that would significantly affect the value of WPPL or its shares [715]. The case law does not establish that a director of a proprietary company owes a fiduciary duty to shareholders generally or to a particular shareholder merely because the director participates in the control and management of the company. His Honour proceeded, correctly, on the basis that, in general and in the present case, ‘special circumstances’ must exist before a fiduciary duty of that kind arises.
As to ground 1(c), his Honour’s conclusion that Julian Wright formed his own view as to the value of WPPL was based upon evidence that in February 1986 Julian considered that WPPL’s value was between $75 million and $120 million. His Honour observed that the valuations of WPPL that were adduced in evidence revealed that Julian’s view as to WPPL’s value at that time was ‘broadly correct’ [712]. There was a proper basis in the evidence for his Honour to find that Julian had formed his own view as to WPPL’s value as at February 1986 and that Julian’s view at that time was ‘broadly correct’. It is apparent that Julian had sufficient information to enable him to assess WPPL’s value with a reasonable degree of accuracy. His valuation was based upon information relating to WPPL’s royalty entitlement that Mr Salt gave to Julian. At the material time, the royalty entitlement was WPPL’s most valuable asset. Julian had financial information that was presented to meetings of the board of WPPL that he attended. Julian made enquiries of WPPL’s accountants as to the treatment of WPPL’s assets in its financial statements. In July 1986, Julian had a private meeting with WPPL’s auditors at which WPPL’s financial performance and value were discussed. In the early 1970s Julian graduated with a Bachelor of Commerce from the University of Western Australia and a Master of Business Administration from Northwestern University in Chicago. He then worked in the finance industry in Chicago until he returned to Perth in June 1976. Upon returning to Perth, Julian proceeded to acquire significant experience in managing the operations of large businesses. Julian’s qualifications and experience would have facilitated his understanding of WPPL’s value as at February 1986. His Honour’s finding that Julian had formed his own view as to WPPL’s value as at February 1986 and that Julian’s view at that time was ‘broadly correct’ was not erroneous.
As to ground 1(d) generally, I am satisfied that the trial judge did not make any material error, as alleged by Julian Wright, in deciding that the factors affecting the value of WPPL were equally apparent and available to each of Michael Wright, Angela Bennett and Julian.
As to ground 1(d)(i), I am satisfied that his Honour did not make any material error, as alleged by Julian Wright, in concluding that Julian was not impeded from obtaining further information, or conducting his own enquiries, concerning the value of any of the assets of WPPL or the Hanwright partnership, if he had wanted to do so.
The trial judge made numerous findings which underpinned that conclusion. In particular [711]:
(a) Julian Wright could have sought relevant information from Lang Hancock, who Julian knew had a great deal of relevant information.
(b) Julian could have sought such information from Mr Madan (a geologist employed by the Hanwright partnership).
(c) Julian could have sought a valuation of his shareholding in WPPL or of the interests held by WPPL.
(d) Julian was advised by his solicitors to obtain a valuation, but Julian chose not to follow that advice and decided not to make any relevant enquiries.
All of those findings were open to be made on the evidence at the trial. There was no material error by his Honour in the fact‑finding process he adopted. Julian Wright’s challenge to those findings is, in substance, an assertion that alternative findings were open and should have been made. Julian has not established that the findings his Honour actually made were wrong.
At the trial, Julian Wright accepted that he knew Lang Hancock was likely to have the most knowledge of any living person about the mining tenements held by the Hanwright partnership (ts 1234). Also, Julian accepted that he could easily have spoken to Lang Hancock ‘at any time’ (ts 1427). Counsel for the respondents put to Julian in cross‑examination that Julian could have asked questions of a geologist and that he was aware that the Hanwright partnership employed a geologist (that is, Mr Madan) (ts 1325). Mr Madan gave evidence at the trial that he had met Julian (but only once and only very briefly) (ts 950). Mr Madan worked at WPPL’s offices. Julian attended regularly at WPPL’s offices in the period leading up to the execution of the 1987 Sale Agreements (ts 1484 ‑ 1485; exhibit 749).
As to ground 1(d)(ii), I am of the opinion, generally for the reasons I have given at [342] ‑ [356] above, that his Honour did not make any material error, as alleged by Julian Wright, in concluding that Julian did not depend upon Michael Wright and Angela Bennett to provide him with information or explain to him the nature, quality and value of WPPL’s mining interests and royalties. Julian had access to relevant information. He did not depend or rely upon Michael and Angela for information.
As to ground 1(d)(iii), I am of the opinion, generally for the reasons I have given at [342] ‑ [356] above, that his Honour did not make any material error, as alleged by Julian Wright, in concluding that Michael Wright and Angela Bennett did not have insider information about WPPL’s assets, plans, finances or opportunities that was not available to Julian and that could give them an unfair advantage.
His Honour’s conclusions, which Julian Wright challenged in ground 1(d)(i), (ii) and (iii), were open to be made on the evidence at the trial. There was no material error by his Honour in the fact‑finding process he adopted. Julian’s challenge to those conclusions is, in substance, an assertion that alternative conclusions were open and should have been made. Julian has not established that the conclusions his Honour actually made were wrong.
As to ground 1(e), there was a proper basis in the evidence for his Honour to find that:
(a) Julian Wright did not trust or have confidence in Michael Wright or Angela Bennett;
(b) Julian asserted the right and took the opportunity to inform himself, as he saw fit, in relation to WPPL’s business, WPPL’s assets and the Hanwright partnership;
(c) Julian was not vulnerable to abuse by Michael or Angela, in the requisite sense, of their positions as directors of WPPL, for the purpose of the 1987 Sale Agreements;
(d) Michael and Angela did not undertake or purport to act on Julian’s behalf in connection with the 1987 Sale Agreements; and
(e) in 1986 and 1987 there were arm’s length negotiations between the parties in connection with the 1987 Sale Agreements, including the terms on which Julian was willing to sell his shares in WPPL.
As I have mentioned at [343] above, Julian has not established that those findings and other related findings were wrong.
There is no doubt that, on the authority of Brunninghausen and Crawley v Short and having regard to the principles I have referred to at [328] ‑ [339] above, the findings impugned in ground 1(e) were relevant in deciding whether, in the circumstances of the present case, Michael Wright and Angela Bennett owed the alleged fiduciary duties to Julian Wright in respect of Michael and Angela’s acquisition of Julian’s shares in WPPL.
I am satisfied that, in the circumstances of the present case, those findings constituted factors that pointed against the alleged fiduciary relationship.
As to ground 1(f), Julian Wright’s reliance upon the ‘secret committees’ established by Michael Wright and Angela Bennett does not materially advance his case.
As I have mentioned, there was no material error by his Honour in the fact‑finding process he adopted. Julian Wright has not established that his Honour’s findings of fact were wrong. Further and in any event, points of significance include that Julian did not, relevantly, place trust or confidence in Michael Wright or Angela Bennett; Julian formed his own view as to the value of WPPL at the material time; Julian’s view as to WPPL’s value at the material time was ‘broadly correct’; factors affecting the value of WPPL were equally apparent and available to each of Michael, Angela and Julian; Michael and Angela did not have ‘special knowledge’ of some concealed anterior or other matters or of an impending advantage to WPPL; Michael and Angela did not have ‘insider information’ about WPPL’s assets, plans, finances or opportunities that was not available to Julian and that could have given them an unfair advantage; Julian was not dependent upon Michael and Angela to provide him with information or explain to him the nature, quality and value of WPPL’s mining interests and royalties; and Julian was not impeded from obtaining further information, or conducting his own enquiries, concerning the value of any of the assets of WPPL or the Hanwright partnership, if he had wanted to do so.
Further and in any event, Julian Wright has not established that there were any matters or information of which Michael Wright and Angela Bennett were aware by virtue of their position as directors of WPPL, but of which Julian was unaware, that would have had any material impact upon Julian’s valuation of his shares in WPPL or of the assets of WPPL.
…
[FIDUCIARY DUTY OF EXECUTORS]
Grounds 3, 4 and 5 of Julian Wright’s appeal relate to the trial judge’s conclusion that Michael Wright and Angela Bennett did not breach their fiduciary duty as executors of Peter Wright’s estate when purchasing Julian’s shares in WPPL.
Ground 3 alleges that the trial judge erred in ‘mixed fact and law’ in holding that Michael Wright and Angela Bennett, as executors of Peter Wright’s estate, had not breached the fiduciary duty they owed as executors when purchasing Julian Wright’s shares in WPPL, had not dealt with Julian’s shares in WPPL as executors of Peter’s estate, had not acquired any special knowledge of or about Julian’s shares in WPPL in their capacity as executors of Peter’s estate, and that their fiduciary duty did not apply or extend to making full disclosure of information in connection with property that was not property of the estate. Those alleged errors are elaborated upon in grounds 3(a), 3(b) and 3(c). Ground 3(a) alleges that his Honour erred in law in holding that an executor is under no obligation to disclose information obtained by the executor in his or her capacity as executor and owes no fiduciary duty in respect of dealings with the property the subject of that information. Ground 3(b) alleges that his Honour erred in fact given other findings that his Honour had made. Ground 3(c) alleges that his Honour erred in ‘mixed fact and law’ in finding that the sale and purchase of Julian’s interest in Peter’s estate was effected on 17 January 1987 [613] and that his Honour should have found that the relevant date was 23 February 1987 [614].
Ground 4 alleges that his Honour erred in ‘mixed fact and law’ in finding that the sale and purchase of Julian Wright’s shares in WPPL was not relevantly part of the same transaction by which Julian sold, or agreed to procure the sale of, his interest in Peter Wright’s estate to Michael Wright and Angela Bennett and in holding that Michael and Angela had not breached their fiduciary duty as executors in acquiring Julian’s shares in WPPL without making full disclosure about the value of those shares.
Ground 5 alleges that his Honour should have found that Michael Wright and Angela Bennett breached their fiduciary duty to Julian Wright as executors of Peter Wright’s estate by:
(a) obtaining information in their capacity as executors which they did not disclose to Julian before the completion of the 1987 Sale Agreements on 23 February 1987 and which they used to their benefit when dealing with him; and
(b) procuring Julian’s entry into the 1987 Sale Agreements and his consent to WPPL providing assistance to Michael and Angela to acquire the funds for purchase, in dealings with him as and while executors of Peter’s estate, without making full disclosure of information relevant to the value of property they sought to and did acquire, and thereby:
(c) placing themselves in a position where their interests and duties conflicted;
(d) not securing informed consent from Julian; and
(e) purchasing Julian’s shares at an undervalue, and obtaining a profit at Julian’s expense.
Julian Wright’s case at trial on this aspect of his claim was that Michael Wright and Angela Bennett, as executors of Peter Wright’s estate, owed Julian a fiduciary duty, when purchasing Julian’s shares in WPPL (those shares not being assets of Peter’s estate), to make full, frank and accurate disclosure to Julian of material matters pertaining to the value of Julian’s shares in WPPL, including WPPL’s partial ownership of Rhodes Ridge and rights to future royalties from mines that were to be developed.
Julian Wright asserted at the trial that Michael Wright and Angela Bennett, as executors of Peter Wright’s estate, were obliged to disclose those matters because Michael and Angela’s acquisition of Julian’s shares in WPPL was part of a single transaction in which, amongst other things, Julian agreed to relinquish his rights in respect of Peter’s estate.
Julian Wright alleged at the trial that Michael Wright and Angela Bennett had breached their fiduciary duty, as executors of Peter Wright’s estate, by failing to disclose material matters pertaining to the value of Julian’s shares in WPPL.
Julian Wright’s pleading at the trial alleged that Michael Wright and Angela Bennett’s fiduciary duties, as executors of Peter Wright’s estate, obliged Michael and Angela not to acquire Julian’s shares in WPPL for less than their true value. However, at the trial, Julian withdrew any pleaded allegation that Michael and Angela breached their fiduciary duty, as executors of Peter’s estate, by failing to pay full value for his shares in WPPL.
The trial judge dismissed the aspect of Julian Wright’s claim that Michael Wright and Angela Bennett, as executors of Peter Wright’s estate, owed Julian a fiduciary duty, when purchasing Julian’s shares in WPPL (those shares not being assets of Peter’s estate), to make full, frank and accurate disclosure to Julian of matters pertaining to the value of Julian’s shares in WPPL.
His Honour had found that Michael Wright and Angela Bennett, as executors of Peter Wright’s estate, had breached their fiduciary duty, in purchasing Julian Wright’s interest in Peter’s estate, by failing to inform Julian of Peter’s estate’s entitlement to royalties and to a share of any award in the Concentrator Royalty Arbitration and by failing to pay fair value for Julian’s interest in Peter’s estate [617]. There was a possibility of conflict between Michael and Angela’s interests in purchasing Julian’s interest in Peter’s estate, on the one hand, and their fiduciary duty, as executors of Peter’s estate, on the other. Liability for that breach of duty could have been avoided by disclosure and fully informed consent. However, the obtaining of Julian’s informed consent to that conflict did not require Michael and Angela to disclose matters pertaining to the value of Julian’s shares in WPPL because those shares were not assets of Peter’s estate.
The trial judge’s findings in relation to the aspect of Julian Wright’s case that Michael Wright and Angela Bennett, as executors of Peter Wright’s estate, owed Julian a fiduciary duty, when purchasing Julian’s shares in WPPL (those shares not being assets of Peter’s estate), to make full, frank and accurate disclosure to Julian of matters pertaining to the value of Julian’s shares in WPPL, were, relevantly, as follows:
(a) His Honour found that Michael and Angela’s fiduciary duties did not extend ‘to making full disclosure in connection with property that was not property of the estate’ [618].
(b) His Honour said that the fair dealing rule does not apply ‘where the property involved in the transaction was not the subject of the fiduciary relationship, because there is no non‑fiduciary duty in conflict with the fiduciary’s interest in the transaction’ [619].
(c) His Honour elaborated [626] ‑ [628]:
The WPPL shares which Michael and Angela purchased from Julian were not part of Peter’s estate, and were not the subject of the fiduciary relationship arising from Michael and Angela’s position as executors of Peter’s estate. Michael and Angela did not deal with Julian’s WPPL shares as executors of Peter’s estate. Michael and Angela did not acquire any special knowledge of or about Julian’s WPPL shares in their capacity of executors.
Julian agreed to sell his interest in Peter’s estate to Michael and Angela, or to procure such a sale, in the same instruments by which he agreed to sell his WPPL shares to Michael and Angela ‑ the 1987 Sale Agreements. However, in the relevant sense, the purchase and sale of Julian’s WPPL shares was not part of the same transaction by which Julian sold, or agreed to procure the sale of, his interest in Peter’s estate to Michael and Angela. The price for the purchase and sale of Julian’s WPPL shares was negotiated and agreed separately from the sale and purchase of Julian’s interest in Peter’s estate.
The sale and purchase of Julian’s WPPL shares did not form part of the consideration for the sale and purchase of Julian’s interest in Peter’s estate. Julian’s case is to the contrary. Julian’s case is that the parties negotiated and reached agreement on the basis that Julian’s interest in Peter’s estate had no value. That is reflected in cl 1(b) of the 1987 Sale Agreements by which Julian agreed to procure the sale of his interest in Peter’s estate to Michael and Angela ‘without further cost’ to Michael and Angela. Julian’s case that Michael and Angela breached the fiduciary duty they owed to Julian as executors of Peter’s estate is premised on Michael and Angela having paid no consideration for acquiring Julian’s interest in Peter’s estate.
His Honour therefore concluded that Michael Wright and Angela Bennett did not breach their fiduciary duties as executors of Peter Wright’s estate in acquiring Julian Wright’s interest in Peter’s estate by failing to make full disclosure to Julian about the value of Julian’s shares in WPPL [629].
The critical feature of a fiduciary relationship is that the fiduciary undertakes to act for or on behalf of or in the interests of another in a particular matter, in circumstances giving rise to a relationship of trust and confidence, and the undertaking to act will involve the fiduciary exercising powers or discretions that will affect the interests of the other person in a legal or practical sense. There are numerous accepted categories of fiduciary relationship. However, the categories are not closed. Fiduciary relationships may arise in a variety of circumstances. The duties of the fiduciary will vary depending upon the circumstances giving rise to the relationship. It will often be a question of fact whether, in a particular case, the circumstances of the relationship between the parties give rise to a fiduciary relationship. See Hospital Products (87 ‑ 88, 95 ‑ 97, 101); John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd.[17]
The classic fiduciary relationship is, of course, that of trustee and beneficiary. However, the courts have recognised other relationships as fiduciary in nature, including that of executor and beneficiary under a will.
An executor is usually appointed to be an executor and also a trustee under a will. However, the office of trustee does not take effect until the executor has completed the duties of administration. The executor then holds the assets of the estate as trustee for the beneficiaries. See Heydon JD and Leeming MJ, Jacobs’ Law of Trusts in Australia (8th ed, 2016) at [2 ‑ 40].
An executor owes fiduciary duties to a beneficiary despite the beneficiary having no proprietary interest in any of the assets of the testator’s estate until the administration of the estate has been completed. See Re Marsden;[18]Commissioner of Stamp Duties (Qld) v Livingston;[19]Brooks v Young.[20] It is not essential that there be trust property for a fiduciary relationship to exist.
[20]Brooks v Young [2018] SASCFC 81; (2018) 131 SASR 365 [93] (Doyle J; Kelly & Bampton JJ agreeing).
Where the executors are also beneficiaries of the will, each party as an executor owes a fiduciary duty to each other party as a beneficiary. See Johnson v Trotter; Estate of Trotter.[21]
The fundamental obligation of an executor is fidelity to the terms of the will. An executor’s duties include getting in the testator’s assets, paying the testator’s debts and distributing the assets in accordance with the will. An executor must administer the will honestly and in good faith for the benefit of or in the best interests of the beneficiaries. See Re Stewart;[22]Brooks[92].
The basis for the existence of a fiduciary relationship between an executor and a beneficiary is the executor undertaking to act for or on behalf of or in the interests of the beneficiary (in circumstances giving rise to a relationship of trust and confidence) in the exercise of the powers or discretions conferred on the executor under or in connection with the will and in the performance of the duties imposed on the executor to give effect to the dispositions made by the testator in the will. See Brooks[198] ‑ [199].
The self dealing rule and the fair dealing rule are referred to in Jacobs’ Law of Trusts in Australia (8th ed, 2016) as follows [17 ‑ 43]:
The purchase of trust property by the trustee requires particular attention. Except with the consent of the court, or pursuant to an express power contained in the trust instrument or with the assent of all beneficiaries, a trustee must not purchase the trust property (as distinct from purchasing a beneficiary’s interest) either directly or from the co‑trustee or co‑trustees. If this happens, the transaction may be set aside by the court without any evidence being adduced that the transaction was unfair or that the trustee took any improper advantage of his or her position as trustee, even if the terms were fair and generous (Randall v Errington (1805) 10 Ves 423; 32 ER 909; A‑G v Lord Dudley (1815) Coop G 146; 35 ER 510; Aberdeen Town Council v Aberdeen University (1877) 2 App Cas 544; Farnell v Cox (1898) 19 LR (NSW) Eq 103; Williams v Scott [1900] AC 499; (1900) 17 WN (NSW) 104; Souter v Souter [1923] NZLR 1078). These are rules about ‘self‑dealing’; the purchase of a beneficiary’s interest is dealt with by rules about ‘fair‑dealing’ (Tito v Waddell (No 2) [1977] Ch 106 at 240‑1; [1977] 3 All ER 129 at 241; Clay v Clay (2001) 202 CLR 410; 178 ALR 193 at [50]‑[53]. See B McPherson, ‘Self‑Dealing Trustees’ in A J Oakley (ed), Trends in Contemporary Trust Law, p 134. The self‑dealing rule applies to personal representatives: Kane v Radley‑Kane [1999] Ch 274; [1998] 3 All ER 753). The court will not permit a trustee to have an interest adverse to and inconsistent with the duty to the beneficiaries, unless, of course, authorised by the trust instrument.
In Clay v Clay,[23] Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ noted that the self dealing rule is expressed in more stringent terms than the fair dealing rule. Their Honours continued [50]:
The ‘fair-dealing rule’ provides that a transaction whereby the beneficial interest of a beneficiary is purchased by the trustee is not voidable ex debito justitiae, but may be set aside, unless the trustee can show that no advantage has been taken of the position of trustee, that full disclosure has been made to the beneficiary, and that the transaction is fair and honest. Where the trustee meets these burdens, the result is that the interest acquired by the trustee is placed beyond any claim by the beneficiary or those claiming under the beneficiary.
(b) the self dealing rule: see Barton v Hassard;[28]Kane v Radley‑Kane;[29]Re Chomley;[30] Williams, Mortimer and Sunnucks, Executors, Administrators and Probate (22nd ed, 2023) at [48 ‑ 45].
In the present case, the trial judge found at [307] that Peter Wright’s estate had not been administered when Michael Wright, Angela Bennett and Julian Wright entered into the 1987 Sale Agreements [307]. The 1987 Sale Agreements were executed on 17 January 1987.
His Honour found at [613] that ‘the sale and purchase of Julian’s interest in Peter’s estate was effected by the execution of the 1987 Sale Agreements on 17 January 1987’. His Honour then said that ‘[f]rom that time Julian’s interest in the estate was transferred to Michael and Angela’ and that ‘[f]rom that time Julian had no interest in Peter’s estate, he had no right or interest as a residuary beneficiary’ [613]. His Honour then said [614]:
Julian says that in any event the parties remained in a fiduciary relationship with respect to Peter’s estate after the execution of the 1987 Sale Agreements because the agreements were subject to Michael and Angela obtaining finance before the date for completion failing which they would automatically terminate. Assuming that is correct, it has no material effect. The time for completion was extended and the agreements were completed on 23 February 1987. From that time Julian ceased to have any interest in Peter’s estate and Michael and Angela ceased to be in a fiduciary relationship with Julian in relation to Peter’s estate.
The relevant provisions of each of the 1987 Sale Agreements, for present purposes, are these:
(a) By clause 1(a), in consideration of the purchase price ‘to be paid’ by Julian Wright to Michael Wright or Angela Bennett (as the case may be) on or before 31 January 1987 (the Completion Date), which date was subsequently extended by agreement to 23 February 1987, Julian ‘hereby agrees to sell’ and Michael or Julian (as the case may be) ‘hereby agrees to purchase’, in essence, Julian’s shares in WPPL.
(b) By clause 1(b), Julian ‘hereby agrees to procure’ the sale and Michael or Angela (as the case may be) ‘hereby agrees to purchase’, in essence, the interest in Peter Wright’s estate to which Julian ‘was, is or may at any time hereafter become entitled’.
(c) Clause 5 provides for Julian’s shares in WPPL to be transferred to Michael or Angela (as the case may be) on the Completion Date.
(d) Clause 8 contains an acknowledgment by the parties that Michael or Angela (as the case may be) intends to borrow the purchase price for Julian’s shares in WPPL from a bank or other financial institution and that WPPL will provide financial assistance to Michael or Angela for that purpose;
(e) Clause 9(g) provides that the 1987 Sale Agreement is subject to and conditional upon Michael or Angela (as the case may be) being able to borrow the purchase price on or before the Completion Date in accordance with clause 8 and upon terms and conditions satisfactory to Michael or Angela.
Subject to any applicable statute, the time at which property passes under a contract for sale and purchase depends upon the intention of the parties. If the parties have entered into a written contract the requisite intention is ascertained objectively upon a proper construction of the written contract having regard to any admissible extrinsic evidence. See McEntire v Crossley Brothers Ltd.[31]
In the present case, the 1987 Sale Agreements did not make express provision for when property was to pass. In my opinion, on a proper construction of the 1987 Sale Agreements, property in Julian Wright’s interest in Peter Wright’s estate did not pass upon the execution of the 1987 Sale Agreements on 17 January 1987. The trial judge was in error in making a finding to the effect that property passed upon execution. It is plain from the provisions of the 1987 Sale Agreements to which I have referred (in particular, the arrangements embodied in cl 1 and cl 5 for completion on the Completion Date) that the intention of the parties, objectively ascertained, was that property in Julian’s interest in Peter’s estate (and property in Julian’s shares in WPPL) would not pass until completion was effected.
In the present case, a question arises as to whether the fair dealing rule applies to an executor before the administration of the estate has been completed. That question requires a consideration of the nature of the rights of a beneficiary (in particular, a beneficiary entitled to the residuary estate) before the administration has been completed.
In Official Receiver in Bankruptcy v Schultz,[32] Mason CJ, Brennan, Deane, Dawson and Gaudron JJ noted that, on the authority of the Privy Council’s decision in Livingston, neither legal ownership nor equitable ownership in any property of a testator’s estate vests in a beneficiary when the testator dies (312). Their Honours explained (312):
The reason for this is that, prior to administration of the deceased estate, there is no specific property capable of constituting the subject property of any trust in favour of the beneficiary. It could not be said at that stage what part or parts of the testator’s property would need to be realized for the purposes of administration. So it was held [by the Privy Council in Livingston] that the beneficiary does not have a proprietary interest in each of the assets which are the subject of the devise or bequest such that he or she can say ‘this is mine’ or ‘this belongs to me’. Although Livingston was concerned with a residuary estate, the observations it contains apply with equal force in the case of a specific bequest or devise. (footnote omitted)
Mason CJ, Brennan, Deane, Dawson and Gaudron JJ also noted (312 ‑ 313) the observations of Viscount Radcliffe, who delivered the advice of the Privy Council in Livingston, that an executor holds the whole of the property of the testator ‘for the purpose of carrying out the functions and duties of administration, not for his own benefit’ and that ‘[w]hat equity did not do was to [recognise] or create for residuary legatees a beneficial interest in the assets in the executor’s hands during the course of administration’.
Their Honours then said (313) that it was significant that in Livingston the Privy Council approved the view of the law expressed by Fullagar, Kitto and Menzies JJ in the High Court’s decision in Livingston v Commissioner of Stamp Duties (Qld).[33]
Mason CJ, Brennan, Deane, Dawson and Gaudron JJ summarised the views of Fullagar, Kitto and Menzies JJ (and also the view of Dixon CJ who was in the minority) as follows (313):
Fullagar J considered that the residuary beneficiary had an equitable interest in the entire mass of the testator’s estate and that it may be that she had an equitable interest in every part of that mass, an interest which could be described as a proprietary interest or ‘property’, though there was a problem in justifying the accuracy of these descriptions as precise descriptions of the nature of the interest. Kitto J acknowledged that the residuary beneficiary in an unadministered estate was not the legal or beneficial owner of the assets in that estate. However, his Honour described the interest of the residuary beneficiary in assets of such an estate as consisting of rights ‘with respect to, or “in”, or ad each specific asset for the time being in the estate’. Menzies J, agreeing with Fullagar J, in speaking of the residuary beneficiaries’ chose in action, concluded that they had ‘no separate or separable property in the specific items or assets of which the estate is made up’, in the words of this Court in Smith v Layh. And Dixon CJ, who was in the minority, spoke of the residuary beneficiary being entitled at her husband’s death to ‘an equitable interest in the Queensland property forming part of his estate’, that interest being incapable of definition in terms appropriate to legal estates or chattels real. (footnotes omitted)
Their Honours then elaborated upon the nature of a beneficiary’s rights in an unadministered estate (313 ‑ 314):
The right which any beneficiary has in an unadministered estate springs from the duty of the executor to administer the estate, to preserve the assets and to deal with them in the proper manner. Each beneficiary has an interest in seeing that the whole of the assets are treated in accordance with the executor’s duties. In that sense, the beneficiaries as a class may be said to have an interest in the entire estate. But it does not follow that each piece of property which goes to make up the estate is held on a particular trust for the beneficiary named as its intended recipient upon completion of administration: Horton v Jones ((1935) 53 CLR 475, at p 486). Whether or not the estate is held on a trust for the beneficiaries as a class in the usual sense in which the word ‘trust’ is used, so as to confer a specific proprietary interest, as distinct from a general, non-specific interest, upon all beneficiaries, is not something which arises for consideration in this case.
Mason CJ, Brennan, Deane, Dawson and Gaudron JJ explained the rights acquired by the beneficiary in that case (Mrs Schultz) upon the death of the testator (Mrs Pereira) as follows (314):
(a) Mrs Schultz acquired upon Mrs Pereira’s death a right to have the estate administered in accordance with the executors’ duties;
(b) although not the legal or equitable owner of the assets which were devised and bequeathed to her under the will, Mrs Schultz had, by virtue of the chose in action created by the devise and bequest, ‘an expectation that the assets would pass to her upon completion of the administration, subject to their being [realised] to meet any outstanding liabilities and to defray the costs of administration, and an interest in respect of those assets’;
(c) that interest was ‘derived from and dependent upon the chose in action’.
In my opinion, the fair dealing rule applies to an executor who purchases the interest of a beneficiary under the will, including a purchase made before the administration of the estate has been completed. I am of that opinion for the following reasons. First, the duties applicable to a fiduciary (including an executor) include the ‘no conflict’ rule and the ‘no profit’ rule. Secondly, the fair dealing rule, in the context of a trustee, is merely a particular application of the more general principle that fiduciaries must not put themselves in a position where their duty and interest conflict. Thirdly, on the authority of Schultz, a beneficiary under an unadministered estate has, at least, an expectation that the assets devised or bequeathed to the beneficiary under the will will pass to the beneficiary upon completion of the administration, subject to the assets being realised, to discharge outstanding liabilities and pay the costs of the administration, and ‘an interest in respect of those assets’ (314). Fourthly, the fair dealing rule has, in substance, been applied not only to trustees, but also to company directors (see, for example, Aberdeen Railway Co v Blaikie Bros[35]), solicitors (see, for example, Demerara Bauxite Co Ltd v Hubbard[36]) and agents (see, for example, McKenzie v McDonald[37]).
The purchase by an executor of a beneficiary’s interest in the testator’s estate (being property the subject of the fiduciary relationship) is therefore subject to the fair dealing rule. The fair dealing rule provides that a transaction under which an executor purchases the interest of a beneficiary in the estate may be set aside unless the executor can show that no advantage was taken of the position of executor, that full disclosure was made to the beneficiary and that the transaction was fair and honest.
Julian Wright’s submissions in the appeal in support of grounds 3, 4 and 5 proceed on the basis that, in order to negate the breach of fiduciary duty found by the trial judge (namely, the possibility of conflict between Michael Wright and Angela Bennett’s interest, on the one hand, and their duties as executors, on the other, in acquiring Julian’s interest in Peter Wright’s estate), Michael and Angela were obliged to disclose material information known to them with respect to property (namely, Julian’s shares in WPPL) that was not an asset of Peter’s estate.
However, it is well established that fiduciary duties are proscriptive. They are not prescriptive. A breach of fiduciary duty occurs when the fiduciary places himself or herself in a position of conflict. Disclosure and fully informed consent is a defence to a breach or a means of avoiding a breach. Disclosure is not a duty. See Blackmagic Design Pty Ltd v Overliese;[38]Mualim v Dzelme.[39] Consequently, the defence of disclosure and fully informed consent does not arise where the impugned conduct of a fiduciary does not constitute a breach of duty. Julian Wright’s case at the trial did not include the contention that the acquisition by Michael Wright and Angela Bennett of Julian’s shares in WPPL was of itself a breach of any fiduciary duty owed by Michael and Angela, as executors of Peter Wright’s estate, to Julian, as a beneficiary of that estate.
In any event, Julian Wright’s reliance, in the context of grounds 3, 4 and 5, upon three items of information regarding his shares in WPPL, which he alleges were not disclosed to him, does not materially advance his case.
First, Julian Wright asserts that an unspecified class of ‘information’ obtained from Michael Wright and Angela Bennett’s participation in the Concentrator Royalty Arbitration was not disclosed to him. The ‘information’ in question is not adequately particularised and consequently precludes a proper assessment of the allegation. In any event, Julian was also a claimant with Michael and Angela in the Concentrator Royalty Arbitration. Julian was a party in the appeal before the Privy Council. See exhibit 3003. He knew that the Concentrator Royalty Arbitration arose out of a Hanwright ‘royalty’ case. See ts 1283; exhibit 318. In November 1985, Lang Hancock informed Julian that Hamersley had made an offer of compromise in relation to the Concentrator Royalty Arbitration at 47.5%. See exhibit 317. By declining to give a confidentiality undertaking, Julian in effect confirmed that he did not expect to receive or have made available to him confidential information that was disclosed during the arbitration proceedings. See exhibit 790. In the circumstances, Julian cannot complain about the unspecified class of ‘information’ not having been disclosed to him.
Secondly, Julian Wright asserts that Mr Fieldhouse knew that Julian’s shares in WPPL were worth more than the sale price. However, on the assumption that Mr Fieldhouse’s alleged knowledge should be imputed to Michael Wright and Angela Bennett, Julian’s knowledge at the material time of the value of his shares in WPPL (including, in particular, that his shares were worth more than the sale price) was not materially different from Mr Fieldhouse’s knowledge. See [384(i)] above.
Thirdly, Julian Wright asserts that the Keall Brinsden memorandum of 20 March 1987 was not disclosed to him. However, the memorandum postdates the date of completion of the 1987 Sale Agreements. The memorandum (in particular, whether Julian received the memorandum) cannot support any asserted breach of fiduciary duty or any asserted non‑disclosure in relation to the execution of the 1987 Sale Agreements.
In my opinion, the trial judge’s findings at [626] that:
(a) the shares in WPPL that Michael Wright and Angela Bennett purchased from Julian Wright were not part of Peter Wright’s estate;
(b) the shares were not subject to the fiduciary relationship arising from Michael and Angela’s position as executors of Peter’s estate;
(c) Michael and Angela did not deal with the shares as executors of Peter’s estate; and
(d) Michael and Angela did not acquire any special knowledge of or about the shares in their capacity as executors, were open to be made on the evidence at the trial.
Julian Wright has not established that those findings were wrong. Also, Julian has not established that his Honour misstated the relevant legal principles or misapplied those principles to the facts as found.
…
Conclusion
The appeal should be dismissed.
(Some footnotes deleted)
The relevant extracts are taken from the report of the case in Jade for which Hearsay expresses thanks.
