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FEATURE ARTICLE - Advocacy, Issue 95: March 2024

When a Fiduciary Duty will be owed by Company Directors to Shareholders and the Content of the Fiduciary Duty owed by Executors to Beneficiaries

BY Hearsay
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Tuesday 12th March, 2024
When a Fiduciary Duty will be owed by Company Directors to Shareholders and the Content of the Fiduciary Duty owed by Executors to Beneficiaries

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]

  1. 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.
  2. 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.
  3. I am of the opinion, for the following reasons, that the appeal should be dismissed.

The main natural persons of relevance to the litigation

  1. The main natural persons of relevance to the litigation are as follows.
  2. 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.
  3. Peter Wright died on 13 September 1985.
  4. 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.

  1. 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.
  1. 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.

  1. Julian Wright has two children:

(a) Natalie Wright; and

(b) Timothy Wright.

  1. Douglas Salt was an accountant who worked for entities associated with Peter Wright, Michael Wright and Angela Bennett.
  2. Carnegie Fieldhouse was a lawyer who practised in Sydney under the name CR Fieldhouse.
  3. Mr Fieldhouse died in November 2007.

…

The 1987 Sale Agreements

  1. 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.

  1. 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

  1. 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.
  2. 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

  1. During the 1950s and 1960s Peter Wright and Lang Hancock located large deposits of iron ore in the Pilbara region.
  2. 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.

…

Julian Wright’s involvement with WPPL between 1976 and 1983

  1. The trial judge made findings of fact in relation to Julian Wright’s involvement with WPPL between 1976 and 1983 as follows.
  2. 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].
  3. 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].
  4. 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].
  5. 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].
  6. 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].
  7. 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].
  8. 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].

…

Peter Wright’s Will

  1. As I have mentioned, Peter Wright died on 13 September 1985.
  2. By his Will, Peter Wright appointed Michael Wright, Angela Bennett and Julian Wright as the executors and trustees of his Will.
  3. 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.

  1. 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.
  2. 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.

…

[FIDUCIARY DUTY OF DIRECTORS]

  1. 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.
  2. 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.
  3. 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.

…

  1. 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.

[7] Percival v Wright [1902] 2 Ch 421.

  1. 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.

[8] Coleman v Myers [1977] 2 NZLR 225.

  1. 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.

[9] Brunninghausen v Glavanics [1999] NSWCA 199; (1999) 46 NSWLR 538 [40] ‑ [41] (Handley JA; Priestley & Stein JJA agreeing).

  1. 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.

[10] Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654.

  1. 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.
  2. 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.
  3. 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.

  1. 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.

  1. 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].
  2. 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.

  1. 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].
  2. 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.

  1. 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.
  2. 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.
  3. 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].

  1. 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.
  2. 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.
  3. 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.

  1. 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.
  2. 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.
  3. 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’.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.

  1. 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.
  2. 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).
  3. 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.
  4. 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.
  5. 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.
  6. 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.

  1. 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.
  2. I am satisfied that, in the circumstances of the present case, those findings constituted factors that pointed against the alleged fiduciary relationship.
  3. 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.
  4. 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.
  5. 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]

  1. 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.
  2. 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].
  3. 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.
  4. 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.

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

  1. 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].
  2. 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]

[17] John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 [78] ‑ [93] (French CJ, Gummow, Hayne, Heydon & Kiefel JJ).

  1. 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. 
  2. 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].
  3. 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. 

[18] Re Marsden (1884) 26 Ch D 783, 789 ‑ 790 (Kay J).

[19] Commissioner of Stamp Duties (Qld) v Livingston (1964) 112 CLR 12, 17 (Viscount Radcliffe delivering the advice of the Privy Council).

[20] Brooks v Young [2018] SASCFC 81; (2018) 131 SASR 365 [93] (Doyle J; Kelly & Bampton JJ agreeing).

  1. 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]

[21] Johnson v Trotter; Estate of Trotter [2006] NSWSC 67 [22] (White J).

  1. 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].

[22] Re Stewart [2003] 1 NZLR 809 [24] ‑ [25] (Laurenson J).

  1. 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].
  2. 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.

  1. 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.

[23] Clay v Clay [2001] HCA 9; (2001) 202 CLR 410 [50].

  1. The self dealing rule and the fair dealing rule are particular applications of the more general principle that fiduciaries must not put themselves in a position where their duty and interest conflict.  See In re Thompson’s Settlement;[24] People’s Prudential Assurance Co Ltd v Australian Federal Life and General Assurance Co Ltd;[25] Calvo v Sweeney.[26]

[24] In re Thompson’s Settlement [1986] Ch 99, 115 ‑ 116 (Vinelott J).

[25] People’s Prudential Assurance Co Ltd v Australian Federal Life and General Assurance Co Ltd (1935) 35 SR (NSW) 253, 265 (Long Innes CJ in Eq).

[26] Calvo v Sweeney [2009] NSWSC 719 [228] (White J).

  1. A consequence of the fiduciary relationship between an executor and a beneficiary under a will is that the executor is subject to:

(a) the no conflict rule and the no profit rule: see Brine v Carter;[27] Brooks [93]; and

(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].

[27] Brine v Carter [2015] SASC 205 [124] ‑ [135] (Blue J).

[28] Barton v Hassard (1843) 3 Dr & War 461, 462 ‑ 463 (The Lord Chancellor).

[29] Kane v Radley‑Kane [1999] Ch 274, 285 (Sir Richard Scott V‑C).

[30] Re Chomley [2014] VSC 220; (2014) 10 ASTLR 338 [8] (McMillan J).

  1. 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.
  2. 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.

  1. 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.

  1. 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]

[31] McEntire v Crossley Brothers Ltd [1895] AC 457, 463 (Lord Herschell LC).

  1. 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.
  2. 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.
  3. 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)

[32] Official Receiver in Bankruptcy v Schultz [1990] HCA 45; (1990) 170 CLR 306.

  1. 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’.
  2. 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]

[33] Livingston v Commissioner of Stamp Duties (Qld) [1960] HCA 94; (1960) 107 CLR 411.

  1. 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)

  1. 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.

  1. 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’.

  1. The scope of a fiduciary duty must be ‘moulded according to the nature of the relationship and the facts of the case’: Hospital Products (102); Maguire v Makaronis;[34] Clay [46].

[34] Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 463 ‑ 464 (Brennan CJ, Gaudron, McHugh & Gummow JJ).

  1. 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]).

[35] Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461.

[36] Demerara Bauxite Co Ltd v Hubbard [1923] AC 673.

[37] McKenzie v McDonald [1927] VLR 134.

  1. 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.
  2. 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.
  3. 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.

[38] Blackmagic Design Pty Ltd v Overliese [2011] FCAFC 24; (2011) 191 FCR 1 [105] ‑ [106], [108] (Besanko J; Finkelstein & Jacobson JJ agreeing).

[39] Mualim v Dzelme [2021] NSWCA 199 [111] (Gleeson JA; Bathurst CJ & Brereton JA agreeing).

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

  1. 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

  1. 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.