|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
High Court of Australia |
FOUCHE v. THE SUPERANNUATION FUND BOARD [1952] HCA 1; (1952) 88 CLR 609
Trusts and Trustees
High Court of Australia
Dixon C.J.(1), McTiernan(1) and Fullagar(1) JJ.
CATCHWORDS
Trusts and Trustees - Superannuation Fund Board - Body corporate having no legal personality except in its capacity as trustee - Investment of trust moneys on mortgage - Certain sums paid out on authority of executive officer of trustee, but without authority of trustee - Certain sums payable in future - Breach of trust ab initio - Rights and liabilities of borrower - Liability of executive officer - Liability of members of board to board - Gross negligence - Chairman of board acting as borrower's solicitor - Right of board to account of fees received - Superannuation Act 1938-1950 (Tas.) (2 Geo. VI., No. 41 - No. 72 of 1950), ss. 4, 5. - Trustee Act 1898-1941 (Tas.) (62 Vict., No. 34 - 5 Geo. VI. No. 17), ss. 5 (1) (vi.), 50 - Public Officers Protection Act 1934 (Tas.) (25 Geo. V., No. 65 - 25 Geo. V., No. 78), s. 4.
HEARING
Melbourne, 1951, October 16-19, 22-24; 1952, February 6. 6:2:1952DECISION
1952, February 6.2. The Superannuation Act 1938-1950 (Tas.), has for its object the provision of pensions and other benefits for members of the public service of Tasmania and their dependants on death or retirement from the service. It provides for the establishment of a fund to be known as the superannuation fund, into which are to be paid (a) the contributions to be made by public servants as provided by the Act, (b) payments to be made by the State as provided by the Act, and (c) all income derived from the investment of the fund. The fund is placed by the Act under the "management and control" of a board called the Superannuation Fund Board, which is to consist of four members. Section 15 of the Act provides that (at p628)
3. "The Board shall be a body corporate, having perpetual succession and a common seal". Section 5 provides that "The Board shall invest the moneys belonging to the Fund from time to time whenever practicable, and any such investment may be in any investments authorised by law for the investment of trust moneys". (at p628)
4. Part II of the Trustee Act 1898, as amended, deals with the investment of trust funds. Section 5 authorizes the investment of trust funds in a number of specified ways. The only authorized investment here material is "first mortgage of real estate in Tasmania". Section 10 provides that a trustee lending money on the security of any property on which he can lawfully lend shall not be chargeable with breach of trust by reason only of the proportion borne by the amount of the loan to the value of the property, if it appears that in making the loan the trustee was acting upon a report as to the value of the property made by two valuators whom he reasonably believed to be competent, instructed and employed independently of any owner of the property, and the amount of the loan does not exceed two-thirds of the value of the property as stated in the report, and the loan was made under the advice of such competent valuators expressed in the report. Section 11 provides that, where a trustee improperly advances trust money on a mortgage security which would at the time of the investment be a proper investment in all respects for a smaller sum than is actually advanced, the security shall be deemed an authorized investment for the smaller sum, and the trustee shall only be liable to make good the sum advanced in excess thereof with interest. (at p629)
5. In 1947 and 1948 the members of the board were Messrs. J.R. Rule, H.V. Biggins, C.J. Wadley and A. White. Rule was president of the board. As such, he received a salary of 250 pounds per annum. The other members received 75 pounds per annum. Rule was a qualified solicitor and a retired member of the public service. Biggins was a schoolmaster. Wadley and White were railway employees. It seems reasonably clear that the other members of the board, were content to leave everything more or less in the hands of Rule, that he acted as an executive officer of the board, and that the decisions of the board were generally made on the recommendation of Rule. (at p629)
6. In 1947 Francois Fouche obtained from the board a loan of 3,500 pounds to enable him to purchase a property known as "Ballarton", situate at Old Beach on the left bank of the Derwent above Hobart and some fourteen miles by road from that city. The purchase price of the land was 5,500 pounds, of which Fouche provided 500 pounds himself. The balance of 1,500 pounds he obtained on loan from one Voss. The title to the land was under the general law. To secure the respective loans Fouche executed a first mortgage of the land to the board, and a second mortgage of the land to Voss. The board's mortgage was executed on 26th September 1947. The personal covenant required repayment of the principal sum on 24th September 1952. Interest was at the rate of 5 per cent, reducible to 4 1/4 per cent. No serious criticism has been made of this investment of the board's funds. It is a later transaction that is attacked. (at p630)
7. Ballarton is a property of some sixty-five acres, and there stood upon it a substantial building of a residential character. Before and at the time when he purchased it Fouche seems to have entertained the project of erecting on the land a large modern tourist hotel, and to that end he caused certain sketch plans to be prepared by an architect named Dorney. These plans, in the words of the learned Chief Justice, "envisaged the incorporation of the existing homestead in the new hotel". On 12th December 1947 Fouche obtained from the licensing court a provisional certificate for a licence for a hotel to be erected on the land in accordance with these plans. In March 1948 he approached Rule, whom he had met in connection with the transaction already mentioned, with a request for a loan of 50,000 pounds to enable him to finance the building of the hotel. The matter was brought before the board by Rule at meetings held on 5th and 19th May 1948, and on the latter date a resolution was passed unanimously by the board approving of further advances to Fouche of 41,500 pounds - a sum which, with the 3,500 pounds already advanced, would make a total of 45,000 pounds. The times at which, and the conditions on which, the further advances were to be made, and the security which was to be taken for this repayment appear to have been left to Rule. What the board approved was simply a loan of 41,500 pounds for five years at 4 1/4 per cent. (at p630)
8. Rule proceeded to prepare an instrument which has been referred to as a deed of further charge. Voss was made a party to this deed as consenting to the postponement of his second mortgage to the board's "further charge". The deed was executed by Fouche and Voss on 25th May 1948. It does not appear to have been sealed by the board, but no point was made of this either at the trial or on the hearing of the appeals. It may be mentioned in passing that, in and about the preparation and execution of the deed, Rule was engaged by Fouche as his solicitor, and charged Fouche a fee of 175 pounds, for which sum Fouche gave him a promissory note. The gross impropriety and illegality of this is obvious. (at p630)
9. The deed described itself as supplemental to the mortgage of 26th September 1947. The mortgagor covenanted to repay the sum of 41,500 pounds, which was to be advanced, on the 25th May 1953 and to pay interest at the rate of 5 per cent reducible to 4 1/4 per cent. He further convenanted that he would "without avoidable delay cause the existing dwellinghouse on the land to be enlarged and converted into a modern tourist hotel in accordance with the plans and specifications therefor submitted to and approved by the mortgagee". Certain very inadequate provisions follow with regard to the licence and the conduct of the business of the hotel. The deed then proceeded to prescribe the conditions on which the sum of 41,500 pounds was to be advanced to Fouche. It was provided that that sum was to be payable to Fouche by progress payments representing four-fifths of the amount certified by an architect (approved by the mortgagee and appointed at the cost of the mortgagor) to be the value of the work and materials applied towards the completion of the hotel since the payment of the last previous advance, and that the final balance of the said sum should be payable on the like certificate that the hotel had been satisfactorily completed in accordance with the plans and specifications approved by the mortgagee. The deed finally provided that "if the test by boring now proposed to be carried out by the mortgagor on the said land fails to establish the fact that an adequate supply of water is obtainable therefrom, the mortgagee may withhold payment of so much of the said sum as it may think necessary until the mortgagee is satisfied that an adequate water supply is available successfully to carry on the business of the said hotel". (at p631)
10. On 11th June 1948 a sum of 2,500 pounds was paid, on the authority of Rule, to Fouche without any architect's certificate. Thereafter sums totalling 6,000 pounds were paid on six "certificates" given by Dorney. In December 1948 Dorney was no longer able to attend to the business, and another architect, named Haslock, took his place. At a meeting of the board held on 21st January 1949 it was resolved "that Mr. E. J. Haslock be appointed architect in place of Mr. Dorney". On "certificates" signed by Haslock further sums totalling 13,000 pounds were paid to Fouche, the last being a sum of 1,000 pounds on 31st May 1949. (at p631)
11. In the meantime the Auditor-General had, not unnaturally, become interested in the matter. The nicer features of the whole transaction have not so far been expressly pointed out, but, even on the facts barely narrated above, the Auditor-General might well be pardoned for viewing the whole matter with grave suspicion, as indeed he seems to have done. He raised certain pertinent questions, and the matter was discussed in Parliament and received publicity in the local press. Moved by these events, all the members of the board resigned on 10th June 1949, but not before Rule had caused an additional sum of 400 pounds to be paid to Fouche, although he must have known that, on the certificates given to date, Fouche had been overpaid. The total amount paid to Fouche was thus 21,900 pounds. On the resignation of the former members of the board, new members were in due course appointed, and the whole position was considered by the re-constituted board. On 12th August 1949 the new board wrote a letter to Fouche in which it said that it had "resolved to make no further progress payments to you in connexion with your mortgage to the Board". It added:- "The Board requires immediate repayment of all moneys advanced together with interest to date of repayment". By a further letter of 16th August 1949 it informed Fouche's solicitor that it had been advised that "the investment of 45,000 pounds in your client's property at Old Beach" was a breach of trust, and that it proposed to institute appropriate proceedings in the Supreme Court. It added that it regarded Fouche as having committed breaches of contract in that he had not adhered to the original "plans and specifications", and had not expended the moneys advanced "in accordance with the terms of the mortgage". It accordingly, it said, "elected to rescind the mortgage". (at p632)
12. Fouche thereupon commenced his action against the board, which was the first of the two actions which came before Morris C.J. By his statement of claim he claimed the sum of 3,100 pounds as the balance of "progress payments presently due and payable by the defendant to the plaintiff". He also sought to enforce the board's covenant to advance to him a total sum of 41,500 pounds in accordance with the terms of the deed of further charge. The board delivered a defence and counterclaim, and also commenced an action of its own, naming as defendants, in addition to Fouche, the individual members of the board who had authorized the transaction in question with Fouche, viz. Rule, Biggins, Wadley and White. By its counterclaim the board sought declarations that the advances made to Fouche were "ultra vires" and in breach of trust, and that Fouche had received them with notice of the breach of trust, an order for the replacement of the sums advanced, all necessary accounts and inquiries and an order for the realization of the security. In its action it sought the same relief against all five defendants, including an order that they should "replace" all moneys actually advanced to Fouche other than the original sum of 3,500 pounds. It need only be added that the four ex-members of the board, who were defendants in the board's action, issued a third party notice, by which they claimed to be indemnified by Fouche in respect of any liability which might be held to rest upon them. (at p632)
13. On the hearing of the actions a very considerable amount of evidence and argument was devoted to two contentions of the board which, as will be seen, we do not find it necessary to consider. The first was that the board was entitled at common law to "rescind", and had "rescinded", its contract with Fouche, so far as that contract bound it to advance further sums to Fouche. This contention was, of course, advanced in answer to Fouche's claim to enforce that contract. It rested on certain alleged breaches by Fouche of his part of the contract, which breaches were said to go to the root of the contract. These breaches consisted of departures from the original plans of the hotel. Modified plans had been prepared by Haslock when he succeeded Dorney as architect for the building, and his Honour found that these new plans would involve a total expenditure of some 20,000 pounds more than the original plans. He, however, like ourselves, did not find it necessary to consider the legal consequences of this departure, which was said by Fouche to have been sanctioned by Rule. The second contention of the board was based on the clause in the deed of further charge relating to water supply. This also, of course, was directed to Fouche's claim to enforce the contract to advance further sums. As to this, his Honour found and declared that the board was entitled not to be satisfied, and was not satisfied, that an adequate water supply was available upon the land. His Honour dealt with what we regard as the main issues in the actions by declaring that the investment of the sums advanced to Fouche (apart from the original 3,500 pounds) and the covenant to advance further sums constituted breaches of trust, and that Fouche had received the sums advanced to him with notice that their payment was a breach of trust. He ordered Fouche to repay to the board on or before 29th November 1950 the sum of 21,900 pounds with interest at 4 1/4 per cent, and he ordered that, in default of payment, the mortgage security be realized, and that the board be paid out of the proceeds the amount due to it. He held that the claim against the four ex-members of the board failed, but he declared that Rule was not entitled to retain as against the board any sum paid to him by Fouche by way of costs. There are appeals to this Court by every party to the actions. (at p633)
14. Before considering the position generally it is necessary to examine a little further the nature and incidents of the transaction which is impeached. Even from what has so far been said it would appear that the investment was of a hazardous and speculative nature. Even if the hotel were duly erected without delay or mischance, the value of the security would depend entirely on the success and prospects of the business to be carried on. The learned Chief Justice accepted the evidence of two expert witnesses, Messrs. Edney Moore and Waldron. The former said that there was no known market for such a building situated in country surroundings in a place like Old Beach. Both said that the value of a hotel as a hotel cannot be considered except in connection with the business being conducted in it. The fate of two luxurious country hotels in New South Wales, which was cited in evidence, aptly illustrates the precarious character of such investments. But there were features about the transaction in this case which make it appear in a very much worse light than the ordinary case of an investment on mortgage of property of dubious value. No serious inquiries were made about matters which were obviously important, the most elementary precautions were neglected, and very special risks which were obvious seem to have been ignored. On this part of the case we are in complete agreement with the Chief Justice. If he erred at all, it was not on the side of severity. No serious inquiry was made about Fouche's means or his prospects of being able to finance the building of the hotel, which, according to the original estimate, was to cost 80,000 pounds. Fouche appears in fact to have had no substantial means. Rule was content with the vaguest assurances about what Fouche could or might do, and the rest of the board, if they thought about the matter at all, were content with whatever Rule told them. The deed of further charge refers to plans and specifications, but there were no specifications in existence. There was not in existence at any time any contract with any builder: there appears to have been some sort of loose arrangement between Fouche and a man named Barker, but even in this no price was mentioned. (at p634)
15. What purported to be a "valuation" was obtained from a man named Tregear, but this document, though specious, will not bear a moment's examination. After observing, in effect, that the hotel should be quite a nice hotel when completed, the document concludes: "I am of opinion that it will cost at least 80,000 pounds to complete the buildings according to the plan, and I value the property when completed at 68,000 pounds . . . and consider the property a good security for a loan of two-thirds of this amount, namely 45,000 pounds". It is explained that, for purposes of valuation, the estimated cost must be discounted by 20 per cent, for abnormal building costs, and the author adds that he has not taken into consideration "the undoubted increased value that will be attached to the hotel when it is in operation with the licence attached". This is a "valuation" of a completed hotel based on cost. For the purposes for which it was intended it was not really a valuation at all. It could not possibly justify the transaction which followed. It is obviously true, as expert witnesses said, that cost in such cases is no guide to value. It is also obviously true that a hotel cannot be valued apart from the business carried on in it. The witness Edney Moore, who was also invited by Rule to make a "valuation" excused himself on the ground that the "job was too big", but he said in evidence: "It was impossible to make a valuation. I couldn't make a valuation" Mr. Waldron, the chief valuer for the Commonwealth, was of the same opinion. No "valuation" other than Tregear's was obtained. (at p635)
16. The position with regard to the vital matter of water supply was, to say the least, extremely dubious. An opinion was indeed obtained from the Government Geologist that sufficient artesian water could be got, but this opinion related not to Ballarton but to an adjoining property. The provision in the deed as to water was, of course, worthless as a protection to the board. (at p635)
17. Other matters might be mentioned. For instance, the provision in the deed for architect's certificates gave no real protection to the board. These, as the witness Adrian Akhurst, who had had long experience as manager of a trustee company, said, ought to have been based on added value. But it is unnecessary to pursue the matter further. It is perfectly obvious that the whole transaction amounted to a gross breach of trust. It was, of course, as the Chief Justice observed, not altogether impossible that the proposed hotel might prosper, but, regarded as a trustee investment, the proposition was an absurdity. (at p635)
18. The manner in which advances were made under the deed was not less open to censure than the transaction itself. Indeed it is the most damning feature of the whole case, revealing, as it does, a reckless disregard of the interests of the board and the safety of the fund. For the fact is that no certificate complying with the requirements of the deed was ever given, although a total sum of 21,900 pounds was paid out of the fund to Fouche. Nineteen "certificates" in all were obtained by Fouche, six being given by Dorney and thirteen by Haslock. The last four were given after the resignation of the old board, and were not honoured. It has already been mentioned that the first payment of 2,500 pounds to Fouche was made without anything that even purported to be a certificate. Of the certificates given by Dorney, one (on which a payment of 1,000 pounds was made on 12th November 1948) is undated and merely says "I certify that 1,250 pounds is due on job at Ballarton, Old Beach". The remaining five are on a printed form. They read: "I hereby certify that Mr. F. Fouche is entitled to receive" a named sum "on account of contract to works to hotel at Old Beach in accordance with terms of agreement". The words "in accordance with terms of agreement" are part of the printed form. In fact Dorney never inquired about, and did not know, the terms of the "agreement". This, of course, accounts for the fact that the certificates did not certify what the agreement required to be certified. Haslock, like Dorney, did not know the terms of the agreement, and did not bother about such a trifle. His first certificate was given on 24th December 1948. The material part of it said merely: "We hereby issue our first certificate in favour of F. Fouche Esq. on the above project". The second did not differ in substance. The next five said: "we issue a certificate in your favour on the above project based on your statement covering labour and materials". The eighth "advised having checked the current account for materials used and services supplied as submitted by you" and stated that these were found to be in accordance with the work done and to warrant a progress payment of 3,750 pounds. This certificate was given six days after the previous certificate, which had been for 1,250 pounds. The ninth (the last which was honoured) said: "We advise having checked on the cost of labour and general expenses regarding the above to date. We find these warrant a progress payment to date of 1,250 pounds". On each of these certificates Fouche received a sum equal to four fifths of the amount to which the certificate said that he was entitled. They were thus treated as meaning something that none of them could possibly mean. But the important point is that none of them certified what the deed required to be certified. (at p636)
19. It has been necessary to deal with the facts of the case at considerable length, but, when once the facts are understood, the case may be disposed of comparatively shortly. Such difficulties as it presents do not arise from any doubt as to the commission of very serious breaches of trust. The execution of the deed, with the obligations which it imposed on the board, was a breach of trust. And every payment under it was a breach of trust and a misapplication of the board's funds in a sense which will be considered later. Such difficulties as the case presents relate to the remedies to be applied in a somewhat peculiar situation. The case seems to us to be very plainly a case in which a trustee would be held liable for any loss resulting from the investment, but it is not the ordinary case in which a security has been realized for less than the amount invested. And the trustee is a corporation which has no assets worth mentioning apart from the funds which it holds in trust. Up to a point, however, the position seems reasonably clear, and we think that most of the difficulties disappear when the nature of the breach of trust is properly understood. (at p636)
20. As to the nature of the breach of trust, we agree with the learned Chief Justice of Tasmania. It is no mere case of a trustee advancing too much on a proper security. The case is not touched either by s. 10 or by s. 11 of the Trustee Act 1898. The investment was of such a kind that it ought never to have been made at all for any amount large or small. The case is like Re Whiteley; Whiteley v. Learoyd (1886) 33 Ch D 347; 12 App Cas 727 , but is a much more glaring case. There the hazard attached to the carrying on of an existing business on the land. Here there is a twofold hazard attaching to the erection of a building and the carrying on of a business in the building after erection. Considering that the full amount of 3,500 pounds for which the land was a proper security had already been advanced on it, it is perhaps open to argument, and Mr. Baker did indeed argue, that the investment was not made on "first mortgage of real estate" within the meaning of the Trustee Act. But we do not think that this technical question is of importance. What is important is that the investment was, in itself and by reason of its inherent nature, and not merely because of the investment of an excessive amount, a breach of trust. The words of Lindley L.J. in In re Whiteley (1886) 33 ChD 347 apply with redoubled force to this case. Speaking of the investment there in question he said:- "A security of so hazardous a nature as this, though in one sense and to some extent a real security, is not a proper security for trust money; it is not in truth a real security for any sum beyond the value of the land as land. The security for more than this value is the solvency of the borrower, and the trade carried on by him" (1886) 33 ChD, at pp 356, 357 . In Royds v. Royds [1851] EngR 461; (1851) 14 Beav 54 (51 ER 207) , although the security was found to be ample in point of value, the whole case proceeded on the footing that the investment was in breach of trust because of the hazardous nature of the security. The importance of the fact that the vice of the investment lay in its inherent nature is this. It follows that there was a breach of trust ab initio, and that at any moment early or late after the execution of the deed, equity would be both able and bound, at the suit of any competent plaintiff, to do everything necessary both to prevent the breach of trust from being carried out or further carried out, and to redress the position and restore the trust fund. (at p637)
21. It will be convenient to deal first with the claims of Fouche, which present no difficulty. These are, in substance, two in number. Each is based on a common law right said to arise from the contract between Fouche and the board, but the first is a claim for a common law remedy, and the second is a claim for an equitable remedy. The first is a claim for 3,100 pounds, claimed as the balance of progress payments on certificates given by Haslock as architect. The certificates relied upon were all given after the members of the "old" board had resigned, and are dated respectively 29th June, 26th July, 26th July and 11th August 1949. The total amount "certified" is 7,000 pounds. Four-fifths of this is 5,600 pounds, after giving credit for the sum of 2,500 pounds, which was paid without any certificate, the balance claimed is 3,100 pounds. There are, in our opinion, two answers to this claim. The first has effect at law, and the second in equity. The first is that none of the certificates on which reliance is placed complies with the requirements of the deed of further charge. The four certificates in question are no better than their predecessors, which have already been considered. The deed requires certificates as to "the value of the work and materials applied towards the completion of the hotel since the payment of the last previous advance". Of the four certificates in question, the first says that "labour and general expenses on the project" for the period from 31st May to 28th June "warrant a payment as follows". The second says that Fouche's "accounts submitted for materials and services provided on the project" have been "checked", and that it is found that these "warrant a progress payment to date as follows". The third, which was given on the same date as the second, says: "On inspection we find that labour and general expenses on the project for the period 28th June to 25th July warrant a progress payment as follows". The fourth (dated 11th August 1949) is based on "statements submitted regarding the initial works performed on the project during the period July 1947 to June 1948" and says that "after investigating the position, it seems apparent that a progress payment is warranted for the period". It is clear that none of these certificates complies with the requirements of the deed. (at p638)
22. The second answer to Fouche's first claim is that a court administering law and equity concurrently, as does the Supreme Court of Tasmania, could not, in the circumstances of this case, adjudge that a plaintiff recover money from a defendant who would be guilty of a breach of trust in paying it. The answer to Fouche's second claim is that it seeks the aid of equity to enforce a contract made in breach of trust and to compel future breaches of trust. There were also claims for damages, but those cannot be sustained. These propositions are perhaps not self-evident. They should be explained. (at p638)
23. In the kind of case with which a court of equity would commonly be called upon to deal, A, a trustee, contracts to lend a sum of money to B. He intends to lend it out of the trust fund in his charge, and is on the point of lending trust moneys. A beneficiary, or the Attorney-General, seeks an injunction to prevent the breach of trust. An injunction must, of course, go. But the granting of the injunction will not affect any rights which B may have against A at law. B may well have rights against A personally, but he could have no right against A in respect of the trust fund - no right against the trust fund. So here Fouche, if he had been dealing with an ordinary trustee, although the promise was intended by A to be performed by a use of the trust fund, might well have had a remedy against A personally for breach of contract although he could not compel A to use the trust fund in performance of his contract. But Fouche was not here dealing with an ordinary trustee. He was dealing with a corporation, which not merely had no assets other than assets held on trust, but which could not, as a corporation, make a contract to lend money except out of trust funds in its hands. If the contract is in breach of trust, it cannot be enforced against the corporation as trustee: it cannot be enforced against the trust fund. And it cannot be enforced against the trustee personally, because the trustee is a corporation which has no legal personality except in its capacity as a trustee. From this point of view, which is, in our opinion, the correct point of view, it does not matter whether the deed or anything done under it was, in the strict sense, ultra vires the corporate trustee or not. It could not possibly be held binding on the corporate trustee. (at p639)
24. In our opinion, Morris C.J. rightly dismissed Fouche's claims. The judgment of the Court in Fouche's action, however, merely adjudges that the plaintiff recover nothing on his claim. We think it should be varied so as to make it quite clear that the claim for equitable relief is dismissed also. (at p639)
25. The claims made by the board must now be considered. Because the case is, in our opinion, plainly one in which a trustee must be held liable to make good any loss resulting from his breach of trust, and because it is equally clear that the corporate trustee cannot make good any loss except out of its own trust fund, it is desirable, if not indeed necessary, to consider first the question of the personal liability of the individual corporators. On this point we find ourselves, with respect, in disagreement with the learned Chief Justice of Tasmania. (at p639)
26. So far as Rule is concerned, we regard it as clear that he is personally liable to make good any loss that may be sustained by the superannuation fund by reason of the "investment" in question. The question of his responsibility does not depend merely on his position as a "corporator". He was in substance, if not in name, an executive officer of the corporation. No payment made to Fouche had the express and individual authority of the board as such. Each payment was made by cheque signed by Rule and the secretary of the board (who was not made a defendant in the board's action). Rule must be taken to have had the authority of the board to make payments to Fouche, but only to make payments on production of certificates complying with the requirements of the deed. It has been seen that no certificate was ever given complying with the deed. Rule, therefore, is simply in the position of having paid away moneys of the board without authority. (at p640)
27. Apart from this, however, we are of opinion that all the former members of the board are personally liable to make good any loss incurred. We do not think it necessary to consider either the question whether the transaction was, in the strict sense, ultra vires the board, or the question whether the individual corporators were, in any sense or for any purpose, to be regarded as trustees. Nor do we think it relevant to inquire whether they owed any and what duty to the contributors to the fund, whom the learned Chief Justice regarded as beneficiaries under the trust. We do not think, indeed, that the contributors are beneficiaries in the proper sense: they have, of course, an interest in the trust fund which would probably give them standing in a court of equity, but they have not such a beneficial interest in the fund as has an ordinary cestui que trust. The trust is not a trust for persons but for statutory purposes. But, while conceding the correctness of much of what the Chief Justice has said as matter of general principle, we can see no escape from the view that the individual members of the board owed a duty to the corporation which they constituted and whose property and affairs they controlled and managed. Nor can we doubt that this duty is enforceable in equity. The board being plaintiff, and the duty being owed to the board, the case is not like Wilson v. Lord Bury (1880) 5 QBD 518 . On the other hand it finds a very close analogy in Joint Stock Discount Co. v. Brown (1869) LR 8 Eq 381 . The learned Chief Justice seems to have thought that, if the members of the board owed any duty to anybody, it could only be enforced by action for damages - presumably at common law - and he said that the pleadings contained no claim for damages, and that no damage had been proved. But, whatever the position might be at law, the plaintiff board is seeking an equitable remedy, and, the administration of a trust fund being involved, it is clear that there is ample jurisdiction in equity to give appropriate relief if a breach of duty is proved. (at p641)
28. With regard to the nature of the duty, we are of opinion that it does not differ materially from the duty which rests on trustees in relation to investments. The duty is not so onerous as it once was. In modern times it is regarded as defined by Speight v. Gaunt (1883) 9 App Cas 1 and In re Whiteley; Whiteley v. Learoyd (1886) 33 Ch D 347; 12 App Cas 727 . It is a duty of reasonable care - the care which an ordinary prudent man of business would take. In Charitable Corporation v. Sutton [1742] EngR 111; (1742) 2 Atk 400 (26 ER 642) a bill was filed for relief against individuals in respect of alleged breaches of trust by an incorporated trustee. Lord Hardwicke throughout treats the individual defendants as in effect occupying the position of trustees, and he says: "If upon inquiry before the Master, there should appear to be a supine negligence in all of them . . . I will never determine that they are not all guilty" (1742) 2 Atk, at p 406 (26 ER, at p 645) . It would be strange if the position were otherwise. (at p641)
29. One cannot help feeling a degree of sympathy for the members of the board other than Rule - firstly because they had no qualifications for the task of investing trust funds, and secondly because, in consequence, they relied very largely on Rule's judgment. But the standard to be applied is the standard of the reasonably prudent man of business, and it is nothing to the point that they were not men of business at all. Having regard to all the facts and circumstances set out in an earlier part of this judgment, we can see no escape from the view that all four defendants were guilty of gross negligence in assenting to the investment which is attacked, and that all are liable to make good any loss resulting therefrom. (at p641)
30. It was argued that the ex-members of the board, or at least Messrs. Biggins, Wadley and White, ought to be relieved from liability under s. 50 of the Trustee Act. This is not, in our opinion, a case for the application of that section at all. It may be assumed that all acted honestly, but it is impossible to say that they acted reasonably. Judged by the only possible standard, it is difficult to imagine anything more unreasonable than their conduct. (at p641)
31. It was said that no order could or should be made, because it was not proved that any loss had been or would be incurred, and that the only evidence as to the value of the land with the uncompleted building on it was that it was worth 55,000 pounds, which would indicate that there would be no loss. But, in the light of what was said by Messrs. Waldron and Edney Moore, this evidence as to value carries no weight. The evidence as a whole suggests a sufficiently strong probability of loss to justify making a declaration of liability against Messrs. Rule, Biggins, Wadley and White. In any case, it is unthinkable that a further sum of 20,000 pounds odd should be paid to Fouche out of a fund held on trust for public purposes, and this means that something in the nature of a "winding up" must take place. It is, therefore, convenient and proper that the position of everybody concerned should be defined in these proceedings. (at p642)
32. The ex-members of the board relied on s. 4 of the Public Officers Protection Act 1934 (Tas.), which provides that no proceeding shall be brought against any person for or in respect of any act done by such person in pursuance or in execution, or intended execution, of any Act or of any public duty or authority or in respect of any alleged neglect or default in the execution of any such Act, duty or authority unless notice of the intended proceeding has been served on such person one month before the proceeding is commenced. No notice before action was given in the present case. The point was raised as a preliminary point of law, and was dealt with by Morris C.J. in chambers some six months before the action came to trial. The order of Morris C.J. was adverse to the defendants and there was no appeal from it. This, however, by reason of the provisions of r. 20 of section III of the Appeal Rules of this Court, does not preclude the defendants from raising it on appeal to this Court against the final judgment in the action. We do not find it necessary to say more on this point than that, in our opinion, the order of the learned Chief Justice was right for the first reason given by him. The proceeding is a suit in equity by a statutory corporation against former members of the corporation. The duty alleged to have been broken is not a public duty but a duty owed to the corporation itself. (at p642)
33. It remains only to consider the relief actually given by the Chief Justice on the board's counterclaim and in its own action. The main point argued in this connexion was that Fouche, who covenanted by the deed to repay the principal sums advanced to him on 25th May 1953, could not be ordered to repay such sums before that date. We think that the real answer to this argument is that, for reasons already given, the deed is not binding on the board. From this it follows that, even if the money could not be recovered at law before 26th May 1953, there is nothing in the deed that can stand in the way of the board when it seeks the aid of equity to redress the breach of trust and, as an incident of the redress, to recover moneys wrongfully paid away. It is not indeed clear that the moneys could not be recovered at law forthwith because they were paid away on certificates produced by Fouche which did not comply with the terms of the deed, and it might well be suggested that an action for money had and received would lie. It is unnecessary, however, to consider this question, for it is in equity that relief is sought, and the position in equity seems clear enough. It is impossible for Fouche to maintain that, in respect of the moneys paid to him, he stands in the position of a bona fide purchaser for value without notice. In order to refute that suggestion it is quite enough to say that he knew that the moneys were being paid to him out of a trust fund, and he knew all the facts which made the transaction a breach of trust. Even if this were not enough, as we think it is, there is the added fact that he must be taken to have known that all the moneys paid to him were paid to him without performance of a condition prescribed by his agreement with the board, for he never produced a single certificate which complied with the terms of that agreement. In respect of moneys so obtained under such circumstances, he cannot maintain that he occupies any such position at law as can enable him to defeat or delay the equities of the board. (at p643)
34. In reaching the above conclusion we have not overlooked that part of Mr. Burbury's careful argument in which he submitted, with extensive citation of authority, that Fouche could not be brought within any of the categories of persons, other than trustees, who have been held liable in respect of breaches of trust. We do not, however, regard the principles and authorities cited as apposite to the position of Fouche in the present case. Here nobody is seeking to make Fouche liable for any loss occasioned by the breach of trust which has been committed. Fouche is unquestionably under an obligation to repay to the board with interest all the moneys received by him from the board, and nobody seeks to impose any further obligation upon him. The only question is whether the board can rely only on the personal covenant in the deed of further charge or whether it can claim an order for immediate repayment as an incident of equitable relief. For reasons given, we are of opinion that equity has ample power not only to prevent the commission of further breaches of trust under the contract to commit them, but to undo the whole indefensible transaction, and, as incidental thereto, to make any necessary order for the immediate payment of moneys by Fouche. (at p643)
35. In the view which we take it is not necessary at this stage to deal with the third party claim by the former members of the board to be indemnified by Fouche. Those defendants are jointly and severally liable to make good any loss incurred by the investment, but the amount of that loss will not be ascertained until the property has been realized and the extent to which Fouche can meet his personal liability is known or capable of estimation. Liberty to apply should be reserved specifically as to the third party claim, as well as generally. We think that the orders in favour of the board should be made only in the board's action and should not be duplicated on the counterclaim in Fouche's action. (at p644)
36. It is clear that Rule must account to the board for any moneys received by him from Fouche by way of costs. He is liable to account to the board for any moneys so received by him from any mortgagor to the board, but relief was only sought in respect of his transaction with Fouche. As to this, the order made by the Chief Justice should stand. If it is desired to make any specific application in respect of the promissory note or any moneys paid by Fouche in redemption of it, this may be done under the general liberty, which will be reserved, to apply to the Supreme Court. (at p644)
37. Although we propose to vary it slightly, we think that the order made by the learned Chief Justice in the board's action, apart from its exoneration of the defendants other than Fouche, was substantially correct. Although we have regarded the deed of further charge as not binding on the board in equity and consequentially unenforceable against it at law, we are of opinion that moneys which were actually advanced under it became charged on the land, the legal ownership of which was already vested in the board by virtue of the earlier mortgage deed. We did not understand this to be disputed. (at p644)
ORDER
The orders of this Court will be as follows:-
1. In the action Fouche v. Superannuation Fund Board -counterclaim the defendant is entitled to the declarations hereinafter set forth" and all the words following except the order as to costs. In lieu thereof adjudge that on his claims for payment of moneys and for damages the plaintiff do recover nothing against the defendant. Order that the claims of the plaintiff for a declaration and specific performance do stand dismissed and that no order be made on the counterclaim. Otherwise appeal of Fouche dismissed with costs. On appeal of board no order except that the costs thereof be paid by Fouche.
Order of Supreme Court varied by deleting the words "And that on the
2. In the action Superannuation Fund Board v. Fouche and others -Supreme Court as follows: -
Appeal of board allowed. Appeals of defendants dismissed. Vary Order of
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/cth/HCA/1952/1.html