Maguire & Tansey v Makaronis [1997] HCA 23; (1997) 188 CLR 449; (1997) 144 ALR 729; (1997) 71 ALJR 781 (25 June 1997)

HIGH COURT OF AUSTRALIA

BRENNAN CJ,

GAUDRON, McHUGH, GUMMOW AND KIRBY JJ

JOHN DAVID MAGUIRE AND

DAVID MICHAEL TANSEY APPELLANTS

AND

CON MAKARONIS AND

TOULA MAKARONIS RESPONDENTS

ORDER

1. Appeal allowed with costs.

2. Set aside the orders of the Court of Appeal of the Supreme Court of Victoria and in lieu thereof order that the appeal to that Court be allowed with costs and the orders of the trial judge set aside.

3. Remit the matter to the Court of Appeal to make orders in or to the effect of the following (or otherwise by consent of the parties):

(i) the Mortgage (Registered No R116843W) and the Related

Documents be set aside on condition that the respondents

shall have paid to the appellants within 30 days of the

pronouncement of the order of the Court of Appeal the whole

of the moneys, representing principal due and owing under

the Mortgage but unpaid, together with interest calculated by

the Court of Appeal in accordance with this judgment;

(ii) in default of such payment, judgment be entered for the

appellants for possession of the Radford property, being land

comprised in Certificate of Title vol 4808 folio 484;

(iii) the counter-claim be dismissed save that there be judgment

entered against the appellants for $2,500;

(iv) there be liberty to apply to a judge of the Supreme Court of

Victoria; and

(v) the respondents pay the costs of the appellants of the action in

the Supreme Court, including the counter-claim.

25 June 1997

FC 97/020

M8/96

On appeal from the Supreme Court of Victoria

Representation

J E Middleton QC with R M Garratt for the appellants (instructed by Ebsworth & Ebsworth)

G R Ritter QC with H J Langmead for the respondents (instructed by Giasoumi Zervos & Associates)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

John David Maguire and David Michael Tansey v Con Makaronis

and Toula Makaronis

Equity - Fiduciary duties - Solicitor and client relationship - Mortgage by clients in favour of solicitors - Ascertainment of particular fiduciary duties.

Equity - Equitable remedies - Rescission - Relevance of causal connection between breach of fiduciary duty and execution of mortgage - Scope of equity for rescission - Whether clients required to "do equity" by honouring contractual obligation to pay principal and interest secured by mortgage - Rate of interest payable on principal sum outstanding under mortgage.

Legal practitioners - Solicitor and client relationship - Mortgage by clients in favour of solicitors - Fiduciary duties - Equitable remedies.

BRENNAN CJ, GAUDRON, McHUGH AND GUMMOW JJ. The first appellant, Mr J D Maguire, was admitted to practice in 1974 as a barrister and solicitor of the Supreme Court of Victoria. The second appellant, Mr D M Tansey, was so admitted in 1978. At all material times each appellant was a partner in two firms, Lynch & MacDonald, which carried on practice from premises in Collins Street, Melbourne, and Birch Ross & Barlow, which carried on practice, outside the metropolitan area, at Korumburra in Gippsland. During the relevant period in 1989 and 1990, Mr Tansey visited the Korumburra premises every Tuesday but otherwise was fully engaged in the practice at Collins Street.

The respondents, Mr and Mrs Makaronis, were former clients and the present litigation was precipitated by the attempted enforcement by the appellants of security over real property taken by them in the course of that relationship. Before this Court the issues have turned upon fiduciary aspects of that relationship.

The facts

Mr Makaronis was born in Greece in 1934 and settled in Australia in 1961. He left school at eight years of age. Mrs Makaronis was born in Greece in 1941 and settled in Australia in 1963, the year before she married Mr Makaronis. Mrs Makaronis left school when she was 16 years of age. At the trial in the Supreme Court of Victoria, Mr and Mrs Makaronis both gave evidence through an interpreter. The trial judge (Ashley J) found that both misrepresented their actual respective abilities to understand and communicate in English. Ashley J concluded that Mr Makaronis had a limited understanding of English but that he could understand legal concepts associated with property transactions if they were simply explained. His ability to read English was very limited. His Honour was satisfied that Mrs Makaronis was able to read some English and to write English to a limited extent; her spoken English was considerably better than that of her husband and she was able, with greater facility than he, to understand explanations in English of legal documents. On a number of occasions before the transactions giving rise to the litigation, Mr and Mrs Makaronis had bought and sold properties, borrowed moneys and executed mortgages. They had a family trust, the trustee of which was Nezday Pty Ltd ("Nezday").

The primary judge formed a very poor view of Mr and Mrs Makaronis as witnesses. In many instances, he rejected their testimony, finding that each of them made sustained attempts to persuade the Court of a poorer understanding of relevant transactions than was in fact the case and that a good deal of their evidence of those transactions was inaccurate. Largely for these reasons, the trial judge rejected claims made by Mr and Mrs Makaronis other than those of breach of fiduciary duty by the appellants.

On 21 March 1980, Mr and Mrs Makaronis became registered proprietors of property at 85 Radford Road, Reservoir ("the Radford property"), being the land comprised in Certificate of Title vol 4808, folio 484. They also owned property at 96 Summerhill Road, Reservoir ("the Summerhill property"). A contract to sell the Summerhill property for $90,000 was signed in May 1990 but, of the proceeds of sale on subsequent completion, some $80,000 went to pay out a mortgagee. The result was that the Radford property was their major asset, although the title was subject to a registered mortgage to the Commonwealth Savings Bank of Australia (later discharged on 16 August 1990) and to two caveats by Avco Financial Services Ltd (both withdrawn on 16 August 1990). Mr Makaronis also had an interest or entitlement in the Dunlop Olympic Superannuation Fund, apparently established by his employer. In mid-1990, Mr Tansey believed this interest then had a value in the order of $30,000. Mr Makaronis worked with Dunlop as a tyre-builder for 16 years before he resigned in May 1990.

In 1989 Mr and Mrs Makaronis became interested in purchasing the business and freehold of a poultry farm at Loch in Gippsland. After a number of vicissitudes, the purchases were settled on 8 June 1990 with the aid of a short term loan of $250,000 at 24 per cent interest, reducible to 22 per cent on prompt payment. That rate appears high but Ashley J found that it was not out of line with those then charged by banks on short term loans of this nature. The trial judge also found that the business was mismanaged by the respondents and they quickly lost money on the venture, becoming, if they were not already, insolvent. A number of cheques drawn by Nezday were dishonoured and it was wound up by the Supreme Court of Victoria on 16 October 1991, on the application of a supplier to the business. The last of the poultry stocked in the business had been taken away by the Royal Society for the Prevention of Cruelty to Animals in April 1991.

To secure the short term loan, Mr and Mrs Makaronis executed a mortgage in standard form of the Radford property ("the Mortgage") in favour of Mr Maguire and Mr Tansey as mortgagee. The Mortgage recited:

"The Mortgagor hereinafter described being registered as the proprietor of an estate and interest in fee simple in the land described subject to the encumbrances affecting the land including any created by dealings lodged for registration prior to the lodging of this instrument in consideration of the advance hereinafter described lent or agreed to be lent to the mortgagor by the mortgagee for better securing the payment of the moneys hereby secured mortgages to the mortgagee the said estate and interest in the said land ...". (emphasis added)

The Mortgage stated an advance of $250,000 and the due date of repayment as 8 December 1990 with the first interest payment to be made on 8 July 1990. It was registered on 30 November 1990 (Registered No R116843W), after the clearance of the title on 16 August 1990 by the steps we described. The Mortgage was stated to contain covenants contained in a particular Memorandum of Common Provisions retained by the Registrar of Titles ("the Memorandum"). Clause 1(1) and (2) of the Memorandum obliged the mortgagor to pay to the mortgagee at the time or times agreed upon "the moneys hereby secured" and rendered the whole of the moneys secured, at the option of the mortgagee, immediately due and payable if the mortgagor, amongst other things, defaulted in the payment of any moneys payable under the Mortgage. The Mortgage thus created a security interest in the Radford property and contained a broadly drawn covenant to pay. The phrase "moneys hereby secured" was defined in cl 31(1)(e) as meaning:

"the principal moneys secured and each and all sums of money in which the Mortgagor may now or hereafter be indebted or liable or contingently indebted or liable to the Mortgagee in any manner or on any account whatever including interest, whether capitalised as provided in clause 6(2) or not, except such moneys (if any) as the parties in writing agree do not form part of the moneys hereby secured".

Mr Makaronis also provided to the appellants a signed but undated instrument which was addressed to "The Trustees, Dunlop Olympic Superannuation Fund" and stated that in favour of "my Solicitors, MESSRS LYNCH & MACDONALD", "I, CON MAKARONIS HEREBY ASSIGN all my entitlement and interest in any superannuation benefit". Mr and Mrs Makaronis also provided a signed but undated instrument stating that they thereby assigned to Lynch & MacDonald "all moneys received by ourselves", being proceeds of the sale of the Radford property. It is accepted that the fate of the further security provided by these instruments ("the Related Documents") follows that of the Mortgage itself. Accordingly, it is unnecessary to say anything further with particular reference to them.

The only payment made by or on behalf of the respondents in respect of the moneys secured by the Mortgage was $1,967. On 15 October 1990, Birch Ross & Barlow deposited that amount in an account with the Commonwealth Bank of Australia styled "BRB Rf Makaronis Bridging Loan".

On 22 November 1990, Birch Ross & Barlow, identifying themselves as "Solicitors and Agents for John David Maguire and David Michael Tansey" issued to the respondents a notice which identified Mr Maguire and Mr Tansey as mortgagees of the Radford property and stated that Mr and Mrs Makaronis had made default in payment of interest due under the Mortgage. The notice went on to demand immediate repayment of the whole of the moneys secured by the Mortgage.

The litigation

On 1 February 1991, the appellants instituted a proceeding in the Supreme Court of Victoria claiming possession of the Radford property. The respondents countered with a defence and counter-claim seeking, amongst other relief, a declaration that the Mortgage "is void and of no effect" and "[d]amages". In their defence to the counter-claim, the appellants admitted that the Mortgage was executed pursuant to a loan from the appellants to the respondents. At no stage thereafter did the appellants seek leave to withdraw that admission and to replead.

Clause 31(10) of the Memorandum stated:

"A certificate purporting to be signed by the Mortgagee or by any of its solicitors, directors, secretaries, managers or other duly authorised officers stating all or any of the following matters, facts or things -

(a) the moneys hereby secured or the principal moneys secured at any date;

(b) the date of making default in performing or observing any covenant or agreement to be observed by the Mortgagor;

(c) whether such default has continued between specified dates;

(d) anything else relevant to the establishment of any right or remedy of the Mortgagee or of the liability of the Mortgagor;

...

shall be prima facie evidence of such matter, fact or thing stated in such certificate."

In their case at the trial, the appellants tendered a certificate expressed as given on 17 March 1993 and pursuant to cl 31(10) of the Memorandum. The certificate was issued by the Office Manager of Birch Ross & Barlow and Lynch & MacDonald. It recited the advance of $250,000 pursuant to the Mortgage between the appellants and the respondents and certified as currently outstanding pursuant to the Mortgage the sum of $476,586.90, with interest accruing at the rate of $298.83 per day. The certificate thus was drawn and tendered by the appellants on a footing consistent with the above admission.

The relief sought by the respondents upon their counter-claim was put on numerous grounds, including breaches of contract, of a "common law duty of care", and of fiduciary duties owed by the appellants. Allegations were also made of undue influence, "unconscionable conduct", and contravention of s 11 of the Fair Trading Act 1985 (Vic)[1]. There was no claim as such that the Mortgage had been executed by the respondents under any mistake as to the identity of the mortgagee. Rather, the alleged lack of awareness of the respondents as to the significance of the appearance of the appellants as mortgagees on the Mortgage, was an aspect of other claims made by the respondents.

In their defence to the counter-claim, the appellants pleaded (in par 49) that, in so far as it was contended that the Mortgage ought to be set aside, the respondents were not entitled to that relief without first paying to the appellants all amounts of principal advanced under and pursuant thereto. In so doing, the appellants sought to invoke the principle, recently affirmed and applied by this Court in Vadasz v Pioneer Concrete (SA) Pty Ltd[2] that, as the respondents were seeking equitable relief to have the Mortgage set aside, they in turn must do equity and that required the court to look at what was practically just for both parties, not only the respondents.

The primary judge held that the respondents succeeded on their counter-claim but only in respect of the alleged breach of fiduciary duties owed them by the appellants. The appellants' claim for possession was dismissed. Upon the counter-claim his Honour made various orders, including an order that the Mortgage "be set aside" and that the Registrar of Titles (who was not a party to the litigation) remove the registration thereof from Certificate of Title vol 4808, folio 484. In granting relief of this character unconditionally, Ashley J did not advert to the pleading to the contrary by the appellants in par 49 of their defence to the counter-claim. His Honour also ordered the appellants to pay to the respondents "damages" of $2,500. This had been paid by Mr and Mrs Makaronis to Lynch & MacDonald upon an invoice dated 15 June 1990 which stipulated $2,500 as a "procuration fee" representing 1 per cent of an advance of "bridging finance". In this Court, the appellants do not seek to disturb that order.

An appeal by the appellants to the Appeal Division was dismissed (Nathan and Smith JJ, Brooking J dissenting) on 17 August 1995[3]. Brooking J pointed out that the Mortgage had a dual character, both creating a security interest in the Radford property and obliging the respondents as a matter of contract to pay the moneys secured. The order setting aside the Mortgage "meant that it disappeared not only as a security interest in the land but also as a contract for the repayment of the loan". His Honour would have varied the orders of Ashley J by making the relief conditional upon payment by the respondents to the appellants of the amount of the advance together with interest thereon at the rate of 9 per cent per annum from 8 June 1990 to the date of repayment of the principal, calculated with half-yearly rests. Brooking J added:

"The evidence in the present case, and the findings of the judge already mentioned, strongly suggest that there is no prospect of the respondents' being able to satisfy the condition as to payment upon which the grant of relief must be made to depend. It is tempting to say that, since the respondents are in a practical sense unable to restore the appellants to the position they were in before the impugned transaction, it should not be undone. I consider that the appropriate course, however, was and is to grant them relief, conditioned in the usual way upon payment, with a direction which will have the result that relief is withheld from them and possession is given to the solicitors unless payment is made by the respondents within a specified time."

The appeal to this Court should be allowed. In reaching that conclusion, it is necessary to begin by further reference to the nature of the short term finance of $250,000 which was advanced to the respondents.

The bridging finance

The respondents pleaded that the appellants had owed them a fiduciary duty not to act in a conflict of interest or for their own benefit and that, at the time of the execution by the respondents of the Mortgage, the appellants had failed to disclose to them that the loan of $250,000 was being made by the appellants personally. In that setting, Mr Maguire and Mr Tansey suggested in the course of their oral evidence that, in fact and to the knowledge of their clients, the moneys were advanced to the clients by "the Commonwealth Bank". It was not made clear whether by this it was meant the Commonwealth Bank of Australia, the Commonwealth Development Bank of Australia or the Commonwealth Savings Bank of Australia. There is reference to all three in the documentary evidence. None is a party to this litigation. However, it is clear that there was an arrangement between one or other of the Commonwealth Bank institutions (hereafter "the Commonwealth Bank") and the appellants whereby bridging finance was provided for their clients. And it is clear that the respondents knew that the Commonwealth Bank was in some way the source of the money advanced to them pursuant to the Mortgage.

Whatever the arrangements between the appellants and the Commonwealth Bank, the very terms of the Mortgage itself, and the other matters to which we have referred, indicate the establishment of a direct relationship of debtor and creditor between the respondents and the appellants, and the securing of this indebtedness to the appellants by the Mortgage which they sought to enforce in their action in the Supreme Court against the respondents. In his examination-in-chief, Mr Tansey was questioned as to the provision of a clear title to the Radford property in support of the bridging finance. There was the following exchange:

"Was it necessary to obtain a clear title in order to obtain bridging finance? -- Yes. It was necessary to clear the title and hand those, the documents, to the Commonwealth Bank at Leongatha, before they, at the time of them advancing funds to us. They wouldn't accept something which had a prior charge over it."

Leongatha is near Korumburra. Later, in answering a question as to the registration of the Mortgage (which did not take place until 30 November 1990), Mr Tansey said:

"The normal practice was for the Commonwealth Bank to hold the documents as security, without registration. This is because it was bridging finance, and if the property sold, it was much easier to hand over the documents at settlement in return for the funds, rather than have to go through a discharge of mortgage and - or even a control order situation, if documents were delayed in the Titles Office."

The trial judge rejected the allegation that the respondents had been enticed to execute the Mortgage by misrepresentations by the appellants that the loan was secured over the goodwill and assets of the poultry business and was not secured over any real estate. His Honour then referred to the contentions of the respondents' counsel, departing from the pleadings, that there were other misrepresentations "as to who the lender was, and as to the nature of the loan". Ashley J continued:

"If it was proper to consider those matters, and I should say that departure from very expansive pleadings, frequently amended, is not to be encouraged, then on the view I have taken of the facts the [respondents] would not be advantaged."

Later, in dealing with the evidence bearing upon the claims in contract and tort, his Honour said that he:

"found that [Mr Tansey] did not draw to the [respondents'] attention the fact that he and Maguire were to be the mortgagees; nor advise the [respondents], in light of this fact, or in light of the fact that a procuration fee was to be charged, that they should obtain independent legal advice. These matters were a focus of Mr Jones' [counsel for the respondents] submissions.

... [I]t was necessary that the [respondents] understood the exact nature of the transaction they were concluding. That demanded that they be informed who the mortgagees were, and why. No such information was provided. I am not prepared to conclude, from the fact that the [respondents] signed the mortgage, that they read or understood the significance of the [appellants'] names appearing as mortgagees."

However, the trial judge went on to dismiss the claims in contract and tort because he did not conclude that the misconduct in question was a cause of loss or damage to the respondents.

Nevertheless, as has been indicated, his Honour went on to set aside the Mortgage as a consequence of finding a breach of fiduciary duty. In effect, the trial judge found that neither of the appellants had, at the time they took the Mortgage from the respondents, any clear understanding of the legal nature and incidents of the relationship with the bank pursuant to which bridging finance was made available to their clients. His Honour concluded that it was likely that when the Mortgage was executed Mr Tansey believed that there was but one loan, from the "Commonwealth Bank" to the respondents, and that the bank required two forms of security, the Mortgage in which the appellants were but "nominees" for the bank, together with a "guarantee" from Birch Ross & Barlow and Lynch & MacDonald. The trial judge relied upon that conclusion concerning Mr Tansey's state of mind as rendering it improbable that Mr Tansey would have drawn the attention of the respondents to any alleged relationship between such a guarantee and the Mortgage.

Contrary to the submissions for the respondents which were pressed upon this Court, there is no firm ground supplied in the findings of the trial judge for the submission that the case now should be approached in an appellate court on the footing that, at odds with the admission on the pleadings and the other matters to which we have referred, the Mortgage secured a direct indebtedness of the appellants to the banking institution which was the source, in a practical sense, of the bridging finance. Rather, the evidence and the conclusions of the trial judge are consistent with the proposition that there was an indebtedness of the respondents to the appellants, and that the financier relied for its security upon an equitable mortgage by the appellants, being the deposit of the securities taken by the appellants from the respondents.

Fiduciary duties

Upon that foundation it is appropriate now to turn to consider the nature of the fiduciary duties owed by the appellants to the respondents and the particular breaches thereof which found the claim of the respondents to relief. In that latter regard, each side put to this Court an argument of some novelty. The respondents sought to uphold the setting aside of the Mortgage, but without the imposition of any term as to the repayment of principal or payment of interest. This would produce the result that the status quo was not restored. The appellants would be left with the bare covenant to pay in cl 1 of the Memorandum, but shorn of the supporting security.

For their part, the appellants submitted that, in respect of their breach of fiduciary duties to the respondents, there was no equity in the respondents for a remedy of rescission in the absence of proof by the respondents of loss by reason of entry into the transaction. In particular, it is said that there could be no loss in the necessary sense because the respondents would have gone ahead with the transaction even if the appellants had not failed in their fiduciary obligations by omitting to disclose their identity and interest as mortgagee.

It is appropriate to begin the evaluation of these submissions with reference to the significance of the fiduciary element in the solicitor-client relationship.

The claims which, from the relationship of solicitor and client, may arise in favour of the client include claims founded in contract, tort, and for breach of fiduciary duty. In so far as the solicitor has held moneys or other property on trust for the client there may be an allegation of breach of trust. Each cause of action may have its own strengths and weaknesses so that the client may fail in one and succeed in another. In particular, periods of limitation may differ. The courts and legislatures have tended to save from the imposition of arbitrary time limits complaints of breach of trust or other fiduciary duty[4]. Thus, in Nocton v Lord Ashburton[5], the framing of the claim against the solicitor in respect of the original mortgage transaction of 1904 as one for breach of fiduciary duty "was probably deliberately done in order to endeavour to get over the difficulty occasioned by the Statute of Limitations as regards any mere case of negligence"[6].

In Hospital Products Ltd v United States Surgical Corporation[7], Gibbs CJ said:

"The archetype of a fiduciary is of course the trustee, but it is recognized by the decisions of the courts that there are other classes of persons who normally stand in a fiduciary relationship to one another - eg, partners, principal and agent, director and company, master and servant, solicitor and client, tenant-for-life and remainderman. There is no reason to suppose that these categories are closed."

The present case is not one in which there is a need to specify criteria by which it may be determined whether parties, not being within the accepted categories referred to by Gibbs CJ, stand in a fiduciary relationship. The solicitor is classically a fiduciary to the client and as such owes certain duties in each particular case[8].

>From various decisions in recent years there appear attempts to throw a fiduciary mantle over commercial and personal relationships and dealings which might not have been thought previously to contain a fiduciary element. In some instances the forensic advantage sought to be gained has been that already referred to - less stringent time limitations. In others, the advantage sought has been the remedial constructive trust with the edge thereby conferred over unsecured creditors in an insolvent administration of the affairs of a defendant. A notable instance of such an attempt, in the end unsuccessful, is the litigation arising from dealings in bullion which was determined by the Privy Council in In re Goldcorp Exchange Ltd[9]. In Hospital Products, the apparent advantage to the plaintiff over counts in contract and deceit of the fiduciary duties said to arise from the exclusive distribution agreement was that specific equitable relief would enable the plaintiff to take over those businesses[10]. In Canson Enterprises Ltd v Boughton & Co[11], the claim to recover pecuniary loss from the solicitors was framed as one for breach of fiduciary duty rather than for breach of contract or in tort (for negligence or deceit) because of the apprehension that on none of those other bases could there be the recovery of a substantial sum[12].

The present case stands apart from those just mentioned because it involves both a fiduciary relationship within a well-recognised category as well as the claim to a well-established remedy. Nevertheless, even here, to say that the appellants stood as fiduciaries to the respondents calls for the ascertainment of the particular obligations owed to the respondents and consideration of what acts and omissions amounted to failure to discharge those obligations[13].

The appellants were retained to act for the respondents on the purchase of the business and freehold of the poultry farm at Loch and in relation to the obtaining of finance to support that purchase. The provision of the bridging finance secured by the Mortgage was at the heart of the solicitor and client relationship.

In Clark Boyce v Mouat[14], the Privy Council referred to the judgment of Lord St Leonards LC in Lewis v Hillman[15] as authority for the proposition:

"The classic case of the [fiduciary] duty arising is where a solicitor acts for a client in a matter in which he has a personal interest. In such a case there is an obligation on the solicitor to disclose his interest and, if he fails so to do, the transaction, however favourable it may be to the client, may be set aside at his instance".

To this several points may be added in elaboration. First, the situation here is to be distinguished from an action in tort to recover damages for a pecuniary loss caused, for example, by fraudulent misrepresentation[16]. Equity intervenes, particularly where the fiduciary is a solicitor, not so much to recoup a loss suffered by the plaintiff as to hold the fiduciary to, and vindicate, the high duty owed the plaintiff[17]. Thus, whilst significant, inadequacy of the consideration or other improvidence of the transaction is not determinative. The approach taken by the Judicial Committee in the passage set out above is consistent with the reasoning underlying a number of decisions of this Court[18]. In CIBC Mortgages Plc v Pitt[19], Lord Browne-Wilkinson referred to the considerations of general public policy which found what he identified as the long-standing principle whereby those in a fiduciary position who enter into transactions with those to whom they owe fiduciary duties labour under a heavy duty to show the righteousness of the transactions. Similar considerations are evident in the formulation by Lord St Leonards LC in Lewis v Hillman that, if a transaction between solicitor and client is to stand, it must be "open and fair, and free from all objection", not merely "fair"[20].

In the present case, the trial judge found that there had been a conflict between the duty of the appellants to the respondents and their personal interests in the transaction, in particular as mortgagee under the Mortgage. The conflict meant that the loyalty of the appellants to their clients had not remained undivided, with the result that they could not properly discharge their duties to their clients[21].

The second matter concerns legislation which establishes a regime for control of the legal profession, including supervision of professional conduct. Where the question is one of professional conduct, the legislation may operate to qualify what otherwise would be the scope of the fiduciary principle. But it by no means necessarily follows that the legislation, upon its proper construction, limits the well-entrenched equitable jurisdiction, in matters of private law, to remedy, at the instance of the client, abuses of what equity regards as the fiduciary duties of solicitors[22].

The trial judge, correctly, concluded that compliance with the requirements of the Solicitors' (Professional Conduct and Practice) Rules 1984 (Vic)[23] would not necessarily satisfy the requirements of the fiduciary obligations of a solicitor to the client. Rule 10(2)(d) forbade a solicitor to act for both lender and borrower in connection with the loan of money unless and until the solicitor obtained written acknowledgment of the parties in or to the effect of Form 1. Rule 10(4) stated:

"A solicitor may obtain a general authority from a client authorizing the solicitor to act for that client and for other parties to any matter or transaction, and such general authority in or to the effect of Form 2 in the Schedule will satisfy the requirements of sub-rule 10(2) insofar as that client is concerned."

Lynch & MacDonald took an instrument signed by Mr and Mrs Makaronis and dated 10 January 1990 headed "Form 2 GENERAL AUTHORITY", which purported to authorise Lynch & MacDonald and Birch Ross & Barlow "to act for another party or parties to any transaction" in respect of which either firm was also acting on their behalf. Rule 10(2)(d) states a prohibition upon a solicitor acting for lender and borrower and goes on to qualify that prohibition. It does not restate, and therefore does not qualify, the fiduciary obligation to avoid a conflicting engagement where it is the solicitor who lends money to the client.

Thirdly, in the circumstances disclosed above, if the appellants were to escape the stigma of an adverse finding of breach of fiduciary duty, with consequent remedies, it was for them to show, by way of defence, informed consent by the respondents to the appellants' acting, in relation to the Mortgage, with a divided loyalty[24]. What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given[25]. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party[26]. On no footing could it be maintained that the appellants had taken the necessary steps of this nature to answer the charge of breach of fiduciary duty. However, it should be noted that, contrary to what appeared to be suggested by the respondents in argument, there was no duty as such on the appellants to obtain an informed consent from the respondents. Rather, the existence of an informed consent would have gone to negate what otherwise was a breach of duty.

Fourthly, the breach of fiduciary duty having been established without satisfactory answer by the appellants, it then became necessary to determine the appropriate remedy. The nature of the case will determine the appropriate remedy available for selection by a plaintiff[27]. Here the range of remedies was exclusively equitable in nature, the obligation which had been broken, that of a fiduciary, having been equitable in nature[28]. Where the breach of duty was in a solicitor acting for a client in a transaction in which the solicitor had a personal interest, the court may order the solicitor "to replace property improperly acquired from the client"[29] and achieve this by an order for rescission, unless it be shown that restitutio in integrum is no longer possible[30].

Rescission and "causation"

This equity to a decree of rescission is immediately generated by the preceding breach of fiduciary duty. Contrary to submissions by the appellants, issues of "causation", by analogy with those found with the recovery of damages in tort or contract, do not emerge in this case. The fiduciary duty forbade, in the circumstances of the case, entry by the appellants into the transaction of which the giving of the Mortgage was a central part. There was no response by the appellants which showed, in the necessary sense, a fully informed consent. Subject to the need for restitution, the Mortgage was liable to be set aside at the suit of the respondents. The breach of the duty was patent at the creation of the very thing which is to be set aside.

Where the subject-matter of the transaction is, for example, the sale of a business, intervening changes may render more complex the decree for rescission. In some circumstances, the purchaser seeking rescission by reason of fraudulent misrepresentations by the vendor, may be entitled to an indemnity for trading losses incurred, both before the purchaser disavowed the transaction and thereafter whilst the business was maintained for the benefit of the vendor; but the indemnity will extend only to that part of the trading losses which were "directly occasioned" by the falsity of the vendor's misrepresentations[31]. To this extent issues of "causation" may arise in cases of rescission for fraudulent misrepresentation. But that is not this case.

Different considerations arise where the plaintiff seeks one or other of the further remedies referred to by the Lord Chancellor in Nocton v Lord Ashburton[32], namely an account of profits, as a personal rather than proprietary remedy[33], or, as another personal remedy, compensation for that which the plaintiff has lost "by [the fiduciary] acting", to use the Lord Chancellor's phrase, in breach of duty. Likewise where what is sought is a proprietary remedy in the nature of a constructive trust. In these instances, there directly arises a need to specify criteria for a sufficient connection (or "causation") between breach of duty and the profit derived, the loss sustained, or the asset held.

Where the plaintiff seeks recovery of a profit, the necessary connection has been identified in this Court by asking whether the profit was obtained "by reason of [the defendant's] fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position"[34]. Particularly where a complex course of dealing is in issue, minds reasonably may differ as to the outcome of the application of these principles. The point is illustrated by the narrow division of opinion in the House of Lords in Phipps v Boardman[35], as to the liability of the appellants, advisers to certain trustees, in respect of their profits on share dealings.

However, what is clear is that the principles by which liability to account for profits is assessed against errant fiduciaries express the policy of the law in holding fiduciaries to their duty. In the joint judgment of this Court in Warman International Ltd v Dwyer[36], after making this point, their Honours continued:

"Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably. So, in Regal (Hastings) Ltd v Gulliver, although the directors acted in good faith and in the interests of the company of which they were directors in taking up shares in a subsidiary which the company could not afford to take up, they were held accountable for the profit made on the sale of the shares. And, in Phipps v Boardman, the solicitor was held accountable for the profit he made, notwithstanding that he acted bona fide and in the interests of the trust and that the opportunity would not have been availed of but for his skill and knowledge."

Where the plaintiff seeks to trace in equity moneys which have been mixed by the errant fiduciary with his or her own moneys, the same interest is sought to be advanced by particular principles. Notably, there is the presumption (or, more accurately, the rule), famously formulated and applied in In re Hallett's Estate[37]. This is that, wherever an act "can be done rightfully, [the fiduciary] is not allowed to say, against the person entitled to the property or the right, that he has done it wrongfully", so that as to any balance remaining in a mixed account, the fiduciary is taken to have drawn from it and to have dissipated first the fiduciary's own moneys.

Recovery is sought in respect of a loss. There, the same principle underlying Hallett should be understood as attending any exposition of the phrase used by Lord Haldane LC in Nocton v Lord Ashburton[38], "by [the fiduciary] acting". It is appropriate to begin with those fiduciaries who are trustees. The obligation of a defaulting trustee is essentially one of effecting restitution to the trust estate. In Target Holdings Ltd v Redferns[39], Lord Browne-Wilkinson said:

"The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries' rights can be protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate"[40].

His Lordship continued[41], with reference to decisions of Lord Eldon (when Master of the Rolls) in Caffrey v Darby[42], Lord Cottenham LC in Clough v Bond[43], Street J in Re Dawson (deceased)[44] and Brightman LJ in Bartlett v Barclays Trust Co (Nos 1 and 2)[45]:

"If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed ... Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred."

Thus, there is no translation into this field of discourse of the doctrine of novus actus interveniens[46].

Until restitution is made, it is presumed that the default continues[47]. In Guerin v The Queen[48], the Crown, in what was held to be breach of a fiduciary duty to the plaintiffs, leased certain land for a term of 75 years and on other unsatisfactory terms. The Supreme Court of Canada evaluated the loss to the plaintiffs by presuming against the Crown that the plaintiffs would have made the most profitable use of the land by letting it for residential development not, as had the Crown, for use by a golf club. Thus, the presumption assisted in indicating the extent of the loss by relieving the plaintiffs from the need to prove that they would have let the land for such development.

In all of these instances, presumptions, some elevated to rules, operate in aid of the underlying policy of the law in holding trustees to their duties and thereby protecting the interests of beneficiaries[49].

Brickenden

It is against this background of principle developed to deal with defaulting trustees that there is to be understood the decision of the Privy Council, dealing with the relationship of solicitor and client, in Brickenden v London Loan & Savings Co[50].

In the present appeal the appellants sought to distinguish Brickenden, or to confine its operation, in response to what they perceived to be reliance upon it by the respondents. The respondents in turn had enlisted Brickenden to meet an apprehended submission by the appellants that the respondents would have gone ahead with the transaction and given the Mortgage even if the appellants had not been in breach of their fiduciary obligations by failing to disclose their identities as the mortgagees under the Mortgage. The respondents countered that such speculation, as to what course might or might not have been taken by them, was not relevant. They relied upon what the Judicial Committee had said in Brickenden.

In Brickenden the Judicial Committee affirmed the decision of the Supreme Court of Canada[51]. This had been that, where Brickenden, solicitor for a finance company, had benefited from a loan made by the company to Biggs (by receiving, out of the proceeds of the loan, payment of certain mortgages taken by Brickenden from Biggs and certain commissions and fees in connection with those mortgages), Brickenden was in breach of fiduciary duty to the company; he was liable to it for the loss suffered through the transaction, being the full amount of the loan and interest less certain deductions. The Privy Council held that, there having been breach by Brickenden of his duty by non-disclosure of material facts of which his client had been entitled to know in connection with the transaction, Brickenden could not[52]:

"be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the [company's] action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the [company], on disclosure, would have taken is not relevant."

The reasoning in Brickenden has been applied by intermediate courts of appeal in Australia[53] and by the New Zealand Court of Appeal[54] in cases where the plaintiff has sought to recover loss caused (in most of these cases) by the plaintiff's solicitor having acted in breach of fiduciary duty.

Once the true issues on this appeal are perceived, it is apparent that it does not provide any occasion for testing the reasoning in Brickenden. The judgments both in the Supreme Court of Canada[55] and in the Appellate Division of the Supreme Court of Ontario[56] demonstrate that the Brickenden litigation was concerned with the recovery of compensation for loss suffered as a result of the solicitor having acted in breach of fiduciary duty and with the application of Nocton v Lord Ashburton. In particular, the case turned upon whether the loss claimed could properly be said, within the meaning of Nocton v Lord Ashburton, to have been sustained "by" the solicitor having acted in breach of duty. That is not this case. As indicated earlier in these reasons, their fiduciary duty forbade the appellants, in the circumstances of this case, to enter into the transaction and the equity for rescission was immediately generated by breach of that fiduciary duty.

It may be added that the scope of the equity for rescission may be determined by the nature and extent of the conduct giving rise to the equity for rescission. Here rescission is not sought by reason of any alleged misrepresentation. The case is not put forward as one where there is an equity for rescission by reason of a misrepresentation by the defendant which was a cause of the plaintiff entering the transaction[57]. The reliance is upon fiduciary duty, in breach of which the appellants took the Mortgage in their favour. The equity of the borrowers, to apply the terms used by Dixon CJ[58], was to have the whole transaction rescinded so as to remit the parties to the original position, and for that reason they must submit to payment of the moneys in question. The situation thus differs from that in Vadasz v Pioneer Concrete (SA) Pty Ltd[59]. There a guarantee had been executed by reason of a particular fraudulent representation. An appropriate order partially set aside the guarantee so as to leave it standing as to so much of the indebtedness which the surety would have been prepared to guarantee independently of the misrepresentation.

In any event, any submission which seeks to enlist the reasoning in Brickenden lacks the necessary foundation in factual findings by the trial judge. In the course of dealing with claims in contract and tort, the trial judge indicated that he was satisfied that, had the identity of the mortgagees been revealed, the Mortgage would "still have been signed by the [respondents]", saying that the moneys "were urgently needed and the terms of the loan were not disadvantageous in the market-place of the day". However, as Smith J pointed out on appeal, the trial judge did not address the question of what would have happened if all the details of the transaction and its ramifications had been explained to the respondents, in particular, "the quite different picture that would have been given to them if they had been told that the solicitors were requiring security".

Several matters appropriately will be taken into account when there falls for consideration, in an action against a fiduciary arising other than out of breach of trust, the criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty. First, breach of trust cases present particular characteristics. Whilst the trustee is the archetype of the fiduciary, the trust has distinct characteristics. In particular, where a trust is created by will or settlement in traditional form, the trustee holds title to property on behalf of beneficiaries or for charitable purposes. If the trust be still subsisting, the objective of an action to recover loss upon breach of trust is the restoration of the trust fund. The right of the beneficiaries is to have the trust fund reconstituted and duly administered[60], rather than to recover a specific sum for the sole use and benefit of any beneficiary. Indeed, no one particular beneficiary may have sustained a present and individual loss. This may be so if the trust is a discretionary trust[61] or no interest vests, either in interest or possession, before the termination of a prior interest.

Further, the particular breach of which complaint is made may be consequent upon failure in observance of one or other of the duties which attend trust administration, such as those to make only authorised investments, and to use due diligence and care in the administration of the trust. Nineteenth century authorities such as Caffrey v Darby[62] and Clough v Bond[63] concerned failure to observe these rules for due administration rather than that disloyalty and conflict between interest and duty which was considered in Nocton v Lord Ashburton[64].

The stringency apparent in some of the nineteenth century breach of trust cases displayed what Lord Lindley MR called "a very hard state of the law, and one which shocked one's sense of humanity and of fairness"[65]. The result was what his Lordship called the deliberate relaxation of the law by s 3 of the Judicial Trustees Act 1896 (UK). This conferred a power of curial relief in respect of breach of trust where the trustee had acted "honestly and reasonably" and "ought fairly to be excused"[66]. There is no such general power of dispensation in respect of loss caused by breach of duty owed by other fiduciaries[67].

Yet the policy of the law to hold the trustee up to the obligation to perform the trust is strongly manifested in cases where loss is occasioned upon breach arising from conflict between duty and interest. What one might call that heightened concern is manifested also, as we have sought to indicate earlier in these reasons, in the treatment of disloyalty by non-trustee fiduciaries. It may be that concern with respect to the apparent rigour of the reasoning in Brickenden reflects what has been seen[68] as a tendency apparent in some recent decisions too readily to classify as fiduciary in nature relationships which might better be seen as purely contractual or as giving rise to tortious liability. Whilst that be so, it is not self-evident that the response should rest in a general denial of the applicability of the reasoning in Brickenden to delinquent fiduciaries, particularly solicitors and other professional advisers.

Doing equity

There remains for consideration the submission by the appellants that the majority of the Appeal Division erred in upholding the granting of the remedy of rescission so as to set aside the Mortgage and amend accordingly the registered title of the Radford property, but without calling upon the respondents first to do equity by honouring their contractual obligations to pay the money and interest secured by the Mortgage.

To an extent, the majority appears to have proceeded on the footing, supported before this Court by the respondents, that the respondents had not taken their advance from the appellants and had not created a relationship of debtor and creditor between them. We have indicated earlier in these reasons that so to conclude would be to depart from the admission on the pleadings and from the documentary and certain of the oral evidence. Moreover, the Mortgage itself, in its terms, both contained covenants by the respondents to pay to the appellants principal and interest, and created the security for that indebtedness. The order made at first instance and upheld by the Full Court that the Mortgage "be set aside" and the registration thereof be removed from the title carries with it the destruction not only of the security but of the covenants therein. As Brooking J pointed out in his dissenting judgment, that result would go beyond the result in such cases as Barron v Willis[69]. There the plaintiff sought and obtained relief which had the effect of declaring void certain deeds only in so far as they deprived her of a power of appointment, this being the matter concerning which she had not properly been advised. That case may be compared with Vadasz v Pioneer Concrete (SA) Pty Ltd[70], a misrepresentation case, to which we have referred.

Here, given the undisclosed role of the appellants as mortgagee, the breach of duty went to the identity of the parties having the benefit under the Mortgage both of the security and of the covenants to pay money. To set aside the Mortgage purely in its operation as a security, without conditioning that upon repayment, would be to reform the transaction in an impermissible fashion. It would be to strike down the security interest without ensuring repayment of that which was paid in return for it. The respondents would be left with the fruits of the transaction of which they complain, whereas their equity was to have the whole transaction rescinded and, so far as possible, the parties remitted to their original position[71].

Interest

As we have indicated earlier in these reasons, this is not a case where the effecting of restitution in integrum is made more difficult by intervening changes in the subject-matter of the transaction, for example, business as in Alati v Kruger[72]. Nor is it a case where the subject-matter of the rescission is reconveyance of land at the instance of the vendor who must repay not only the purchase price but, as a condition of relief, pay to the purchaser reasonable interest upon the moneys of which the vendor has had the use.

Brooking J, with whose reasons we are respectfully in general agreement, would have made the grant of relief to the respondents conditional upon payment by them to the appellants of the amount of the advance, together with interest thereon at the rate of 9 per cent per annum from the settlement date of 8 June 1990 to the date of repayment, calculated with half-yearly rests. As we have indicated, the Mortgage stipulated a rate of 24 per cent reducible to 22 per cent for prompt payment and the trial judge held that the terms of the loan "were not disadvantageous in the market-place of the day". Brooking J determined upon the lower rate of 9 per cent as a rate which reflected that obtainable on authorised trustee investments[73]. The trustee rate was taken as that which also is usually allowed upon the setting aside of a conveyance at the suit of the vendor. His Honour indicated that he was adopting this as an appropriate analogy.

However, in our view, there was no occasion for application of any analogy. When a contract of sale is set aside at the suit of a vendor, the vendor is obliged, as we have indicated, to repay to the purchaser that which has been received on or on account of the price and, the purchaser having been kept out of his or her money, relief is conditioned upon the payment of interest. There is no legal right otherwise existing in favour of the purchaser to recover interest. Here, the Mortgage conferred such a right. The question then becomes whether the transaction should be reformed, as a condition of relief, adversely to the parties suffering rescission by reduction in the rate of interest otherwise due and secured to them.

There was a well-developed body of principle in suits in which borrowers sought equitable relief in respect of contracts rendered void by the old usury laws. Equity intervened, but on terms that the plaintiff pay the defendant what was "bona fide due" after disallowing the interest above the permitted statutory rate[74].

In Langman v Handover[75], Rich and Dixon JJ cited a passage in the judgment of Lord Selborne LC in Jervis v Berridge[76]. There, in the course of dealing with a bill in Chancery for delivery up and cancellation of an agreement, the Lord Chancellor said:

"There are, indeed, certain cases where a Defendant has incurred forfeitures or penalties, or where the controversy relates to usurious or other unlawful transactions, in which the whole locus standi in curia of the Plaintiff is dependent on an election, which must be declared by the bill, to forego legal rights for the sake of equitable remedies."

Rich and Dixon JJ went on[77] to consider the decision to the same effect of Chancellor Kent in Fanning v Dunham[78]. There the Chancellor held that, where a borrower seeks relief in equity (such as delivery up and cancellation) in respect of a security on the ground of illegal usury, the plaintiff must, before being entitled to relief, pay or offer to pay the principal and so much of the interest as is lawfully due. There also are authorities which indicate that unconscientious transactions, particularly mortgages of reversionary interests, stipulating an exorbitant, albeit not illegal, rate of interest may be set aside on terms that the plaintiff pay interest at a reduced and reasonable rate[79].

In the present case there is no suggestion that the rate exceeded any legal maximum, or that the terms of the loan were disadvantageous in the market-place of the day. Indeed, there were findings by the trial judge that, whilst the rate appears high, it was not out of line with those then charged by banks on short term loans of this nature. That being so, there is no footing for the imposition of a condition as to payment by the respondents which is disadvantageous to the appellants. To impose such a qualification would be to distort the equity of the respondents on their counter-claim.

It would, however, be contrary to principle for the appellants to profit by being allowed a higher rate of interest than that payable by them to the Commonwealth Bank for the money ultimately advanced to the respondents. The evidence as to the arrangement which existed between the appellants and the Commonwealth Bank is far from satisfactory. And there is no evidence as to the interest actually paid by them with respect to the money which was advanced to the respondents. However, there is evidence that the rate payable by the appellants at the time the Mortgage was executed was 22 per cent, ie 2 per cent less than the penalty rate stipulated in the Mortgage. And it is a matter of common knowledge that interest rates have fallen since. It would, thus, seem likely that to impose a condition on the grant of relief requiring payment of interest at the rate stipulated in the Mortgage would result in a profit to the appellants.

The appellants cannot take advantage of their failure to lead evidence as to the arrangement which they had with the Commonwealth Bank. And it is not appropriate that they be given a further opportunity to lead evidence of that matter. Rather, the appropriate course is to grant relief to the respondents conditional upon the payment of interest by them on the principal sum outstanding under the Mortgage at commercial rates as allowed from time to time by the Supreme Court of Victoria, calculated at half-yearly rests.

Conclusion

The appeal should be allowed with costs. The orders of the Court of Appeal should be set aside. In lieu thereof it should be ordered that the appeal to that Court be allowed with costs and the orders made by the trial judge set aside. The matter should be remitted to the Court of Appeal to make orders in or to the effect of the following terms (or otherwise by consent of the parties):

(i) the Mortgage (Registered No R116843W) and the Related Documents be set aside on condition that the respondents shall have paid to the appellants within 30 days of the pronouncement of the order of the Court of Appeal the whole of the moneys, representing principal due and owing under the Mortgage but unpaid, together with interest calculated by the Court of Appeal in accordance with this judgment;

(ii) in default of such payment, judgment be entered for the appellants for possession of the Radford property, being land comprised in Certificate of Title vol 4808 folio 484;

(iii) the counter-claim be dismissed save that there be judgment entered against the appellants for $2,500;

(iv) there be liberty to apply to a judge of the Supreme Court of Victoria; and

(v) the respondents pay the costs of the appellants of the action in the Supreme Court, including the counter-claim.

KIRBY J. This appeal concerns a case of breach of fiduciary duty. It raises the question whether persons claiming equitable relief must affirmatively prove that their loss was caused by the breach. It also raises the question whether, in rescinding a transaction made in breach of fiduciary duty, a court affording equitable relief must, or should, require restitution although to do so could effectively ensure that the provision of relief will be denied, thereby sanctioning the enforcement of the transaction despite the proved breach.

Solicitors fail to disclose their interest as mortgagees

The facts were complex. However, those central to the issues before this Court are relatively simple. I leave out of account unnecessary complications, issues no longer in contest and findings not relevant to my conclusions.

Mr Con Makaronis and Mrs Toula Makaronis ("the respondents") are Greek Australians, each in their fifties. As found by the primary judge in the trial in the Supreme Court of Victoria[80] (Ashley J) each had certain difficulties with spoken and written English; although Mrs Makaronis was found to have less difficulty and to be more intelligent and shrewd than her husband. During his life in Greece and Australia Mr Makaronis had worked in a number of vocations, including on a poultry farm and for sixteen years, until May 1990, in a factory. The couple's children were growing up. They had acquired an interest in two parcels of real estate at Radford Road and Summerhill Road, Reservoir. In advance of Mr Makaronis' resignation from the factory, the couple began looking around for a rural business in which they could live and work after his retirement. In August 1989 they agreed orally to purchase a freehold property with an egg farm and poultry business belonging to Mr and Mrs Halliburton at Loch in South Gippsland, Victoria. The property and business had been on the market for some time. Mr Halliburton had his own reasons to effect an early sale. He wanted a property settlement with his wife. Mr and Mrs Makaronis immediately applied for finance to support the purchase. They approached the Commonwealth Banking Corporation and the National Australia Bank. Their proposal was to sell their two properties and to contribute about $300,000 of their own moneys to fund the purchase. However, their plans ran into difficulties with the banks. Such problems were compounded by delays in achieving the sale of the properties.

Initially, Mr Halliburton agreed to sell the freehold of his farm to Mr and Mrs Makaronis for $300,000 and the poultry business for $200,000. Mr and Mrs Makaronis at first proposed to retain a solicitor who was Greek-speaking but they did not do so. They executed contracts for the purchase of the farm and business. The contracts contained protective conditions entitling them to avoid completion if finance were not obtained, if each of the contracts was not completed and if an application to the Licensing Committee of the Victorian Egg Marketing Board for a licence under s 17 of the Egg Industry Stabilization Act 1983 (Vic) was not successful. The contracts were drawn up in the office of Mr John Maguire (the first appellant). He was acting for Mr and Mrs Halliburton. A small deposit was paid conditional upon each of the contracts going ahead.

Initially, Mr and Mrs Makaronis met Mr David Tansey, a solicitor (the second appellant) in relation to the raising of finance rather than for legal advice. Mr Tansey was practising in a different office under a different firm name but he was in partnership with Mr Maguire. Eventually, he was retained, as Ashley J found, to act as solicitor for Mr and Mrs Makaronis in the purchase and to assist them, as required, in obtaining the necessary finance. In the original contracts the nominated completion date was 9 December 1989. However, that date came and went, Mr and Mrs Makaronis having failed to achieve the sale of either of their two properties.

In January 1990, following direct contact between Mr and Mrs Makaronis and Mr Halliburton, it was agreed that each of the contracts previously executed would be altered to reduce the purchase price of the farm by $10,000; to alter the settlement date to 1 May 1990, or earlier by agreement; and to render both contracts unconditional. It was this last variation which was critical. It seriously affected the rights of Mr and Mrs Makaronis. It subjected them to a pressure to settle which had previously been absent.

Sometime in January 1990, a meeting took place between Mr and Mrs Makaronis and Mr Tansey. What occurred was sharply contested at the trial. It was not easy for Ashley J to unravel the facts. On this, and on most other matters, his Honour rejected the evidence of Mr and Mrs Makaronis. He had doubts about the evidence of Mr Tansey. Such doubts were not allayed by the production of file notes. Mr Halliburton, who might have thrown some light on the matter and whom the appellants had promised to call as a witness, did not give evidence. The presence at the meeting in January 1990 of a Greek-speaking ex-employee of Mr Tansey was denied by that witness (whose evidence the judge accepted). Unlike Mr Tansey, she was given to keeping proper file notes. Nevertheless, Ashley J ultimately accepted that Mr Tansey had explained the variations thoroughly to Mr and Mrs Makaronis and that they understood the changes to which they were agreeing. In particular, they realised that they could no longer walk away from the contracts and that thereafter they were liable to lose one of the properties in damages if they were sued for non-completion. The deeds of variation were duly executed in February 1990.

Mr and Mrs Makaronis continued the attempt to sell their two properties. Notwithstanding the variation, Mr Halliburton consented to postpone settlement to the end of May 1990. Early in that month, the Summerhill Road property was sold for $90,000. But the Makaronis' equity in it was little more than $10,000. It therefore fell far short of providing the funds with which to persuade a lending institution to afford the financial support which they needed before the looming settlement date.

On 5 June 1990 there was a further variation of the contracts between the parties. This extended the completion date for the purchase of the land to 1 June 1991. But by now, with multiple extensions, unconditional contracts and vendors subject to their own pressures, the need for Mr and Mrs Makaronis to raise funds to effect their purchases was extremely acute. An inquiry to the Commonwealth Development Bank, supported by each of the appellants as respective solicitors for the vendors and purchasers, came to nothing. As found by Ashley J, it was in mid-May 1990 that Mr Tansey mentioned to Mr Makaronis the connection which his firm had with the Leongatha branch of the Commonwealth Banking Corporation ("the Bank") whereby the Bank would provide clients of the firm with short-term bridging finance. It was found to be likely that Mr Tansey told Mr Makaronis that such finance would be provided on terms similar to those which other banks required, including the giving of security, the payment of fees for the necessary documents, the levying of bank charges, stamp duty and a 1% procurement fee charged by Mr Tansey's firm for access to the facility. Although an explanation of the high rate of interest then found to be normal for such bridging finance (22%) and the other costly incidents of the transaction was vehemently denied by Mr and Mrs Makaronis, the trial judge found that these matters had been explained with sufficient simplicity to be understood, particularly by Mrs Makaronis whom the judge specifically found to have good understanding. He found that, shortly before the execution of the necessary documentation, Mr Tansey told Mr and Mrs Makaronis, and they understood, that the amount of bridging finance was to be $250,000 and that a fee quantified at $2,500 (1%) was to be paid to his firm for procuring the finance. Ashley J was also satisfied that Mr Tansey told Mr and Mrs Makaronis that the "Commonwealth Bank" was providing the money and that his firm was obliged to guarantee payment to that Bank.

On 6 June 1990 Mr and Mrs Makaronis executed a mortgage. They did so to gain access to the bridging finance referred to. The mortgage was over their unsold property on Radford Road which was the Makaronis' family home. However, the mortgage was not given to the "Commonwealth Bank" but to Messrs Tansey and Maguire, who were named as mortgagees. Ashley J found that it was neither explained to, nor understood by, Mr and Mrs Makaronis that Mr Tansey and his partner Mr Maguire were the mortgagees. Mr and Mrs Makaronis also executed in favour of Mr Tansey's firm an assignment of the proceeds of the future sale of the Radford Road property and an assignment of Mr Makaronis' anticipated superannuation entitlements. Provided with the resulting funds, settlement of the purchase of the business went ahead on 8 June 1990. Mr and Mrs Makaronis went into possession of the land. They were obliged to pay $4,583.33 a month interest on the bridging loan. Additionally, they were required to pay $3,033 a month interest on the real estate contract.

It soon became clear that the outgoings of Mr and Mrs Makaronis far exceeded their income from the poultry farm. Effectively, after settlement, Mr and Mrs Makaronis made only one payment of interest in the sum of $1967 on 15 October 1990. Contrary to their evidence, Ashley J found that they ran the farm inefficiently, would not take advice, did not secure the licence necessary to permit direct sales of eggs to the public, failed to sell the Radford Road property and discovered that the superannuation payment, when received, was smaller than expected.

In default of receipt of the agreed payments, Mr Halliburton gave Mr and Mrs Makaronis notice to pay. There was no compliance and a writ for possession was issued out of the Supreme Court of Victoria. The appellants, as mortgagees, gave notice to pay on 22 November 1990. Again, there was no compliance. A writ was issued on 1 February 1991. Mr and Mrs Makaronis did not dispute that they were in default of payment of moneys under the mortgage to the appellants. Nor did they dispute that such default was continuing. Instead, by a counter-claim, they sought orders for the setting aside of the instrument of mortgage and "loan documents". The latter were identified as the assignment to the appellants of Mr Makaronis' interest in his superannuation and the assignment of the interest of the couple in the proceeds of sale of the Radford Road property. Relief was sought upon the basis of claims at common law for the alleged breach by the solicitors of their contractual obligation under the retainer given by Mr and Mrs Makaronis and for negligence. There were also allegations of undue influence, unconscionable conduct and breach of the Fair Trading Act 1985 (Vic). All of these claims failed. None of them has been agitated in this Court.

However, Mr and Mrs Makaronis also relied upon their solicitor's breach of fiduciary duties owed to them. It was that claim which Ashley J upheld. He ordered that the mortgage given to the appellants and the loan documents be set aside; that the Registrar of Titles (although not joined as a party to the proceedings) remove the registration of the mortgage from the certificate of title in respect of the Radford Road property; and that the solicitors repay to Mr and Mrs Makaronis as "damages" the sum of $2,500, being the procurement fee paid for obtaining the funds which the mortgage secured.

In the Appeal Division of the Supreme Court of Victoria, Nathan and Smith JJ, with Brooking J dissenting, upheld the orders of Ashley J and dismissed the appeal. By special leave, Mr Maguire and Mr Tansey now appeal to this Court.

Decisions in the Supreme Court

The foundation for the orders made by Ashley J was his Honour's finding that the solicitors were in breach of their fiduciary duty to Mr and Mrs Makaronis. Many breaches were asserted at the trial, including deception as to the very nature of the relationship; breaches arising out of accepting the retainer for the vendors as well as for the purchasers; and breaches along the way in failing adequately to safeguard the financial, as well as the legal, interests of Mr and Mrs Makaronis. All of these were rejected and may be ignored. But that left the undoubted fact, as found by Ashley J and not disputed in the appeal, that neither of the appellants had disclosed to Mr and Mrs Makaronis that they were the named mortgagees in the instrument of mortgage and, in the case of Mr Tansey, that such mortgage was being taken from Mr and Mrs Makaronis, his clients, without prior advice that he, their solicitor, was placing himself in a situation where his own interests conflicted, or might conflict, with the interests of the clients. At no stage did Mr Tansey reveal that he stood to, and did in fact, make a profit from the arrangement. Had he disclosed the nature of the transaction he could have afforded the clients the opportunity to secure independent advice, thereby ensuring that the transaction was one which had their "fully informed consent"[81]. He failed to do any of this. Mr Maquire did not repair the defaults.

Various attempts were made at the trial to excuse the failure of the solicitors, and specifically of Mr Tansey, to draw to the attention of the clients, the fact that the mortgage which they were asked to execute named the solicitors as the mortgagees. Thus, it was urged that the arrangement was merely a "paper transaction" which gave effect to the relationship between the solicitors and the Bank which had been fully disclosed to the clients. The funds actually came from the local branch of the Bank and the solicitors were no more than "nominees" of the Bank. Mr Tansey was found to have explained the Makaronis' financial obligations under the mortgage carefully and properly. In such circumstances, so it was argued, the failure to reveal the interest of the solicitors, which Ashley J found Mr and Mrs Makaronis had reasonably not noticed when executing the mortgage, was in the nature of a technicality. It was not a breach of a "true fiduciary obligation"[82].

Arguments of this kind were effectively demolished in the Appeal Division, including by Brooking J. The fiduciary duty cast upon the appellants as solicitors imposed upon them an obligation of full and frank disclosure of all material facts[83]. They had failed to make that disclosure. They had failed, on the basis of full disclosure, to secure the express concurrence of the clients for the involvement of their personal interest[84]. By reason of the arrangements (of which the mortgage was part) under which the funds were procured from the Bank, the solicitors had entered into a relationship with the Bank which was in conflict with their duties to Mr and Mrs Makaronis, the clients of Mr Tansey and of the firm. Brooking J was clearly right when he observed[85]:

"It was in the [Makaronis'] interests that the mortgage should be on terms that were liberal in every respect from the borrowers' point of view. It was in the interests of the solicitors as mortgagees that the terms of the mortgage should favour the lenders in every respect. And if it be said that the solicitors were, on the evidence and on his Honour's findings, mere nominees of the Commonwealth Bank, so as not to be personally interested in the mortgage, then, quite apart from their special position as persons liable to indemnify the bank, the solicitors, as agents for the bank, owed it a duty with regard to the mortgage transaction which conflicted with their duty to the [Makaronis]. The case was in this regard an example of what has been called 'conflict of duty and duty'"[86].

As the starting point for the ascertainment of the respective entitlements and duties of the parties, it should be accepted that the solicitors were in breach of their fiduciary obligation to Mr and Mrs Makaronis. So far as the content of that obligation is concerned, Mr and Mrs Makaronis submitted that, to the considerations which Brooking J mentioned were to be added the failure of the solicitors, in the circumstances, to ensure that they were separately and independently advised before allowing and inducing them to execute a mortgage over their property to their own solicitors without full awareness of the implications of that act, of the arrangements with the Bank that lay behind it, of the vulnerability of their position to be inferred from its necessity and of the lack of wisdom of going ahead. Let all of the foregoing be accepted. The issues that remain, which have concerned this Court, are whether:

1. The breach of fiduciary duty found had no relevant consequences in the facts of this case in that other findings made by Ashley J demonstrated that such breaches of fiduciary duty did not cause the losses which Mr and Mrs Makaronis went on to suffer. According to this argument, the breaches should be viewed as legally insignificant, having no relevant result and requiring no relief at all in the facts of this case ("The causation issue"); and

2. If, notwithstanding this argument, some relief were proper to restore or reinstate Mr and Mrs Makaronis to the position they would have been in but for the appellants' breach of fiduciary duty, general equitable principles would impose upon them the obligation themselves to do equity when seeking its assistance. According to this argument, Mr and Mrs Makaronis would be obliged to bring into court the principal sum which they obtained as a result of the mortgage together with reasonable interest thereon. Otherwise, it was put, they would secure the benefit of an effective gift of $250,000. They would have had the opportunity to venture upon their failed poultry business entirely at the risk of the funds provided by the solicitors. In respect of those funds, it was common ground that the solicitors were obliged, as guarantors, to repay the same, with interest, to the Bank ("The relief issue").

Ashley J and the Appeal Division saw no merit in the causation issue. Upon these arguments all judges in the Supreme Court were unanimous. In applying the reasoning of the Judicial Committee of the Privy Council in Brickenden v London Loan and Savings Co[87], all judges considered that questions about the causation of the Makaronis' losses did not arise. Smith J acknowledged the criticisms of Brickenden[88]. These notwithstanding, his Honour considered that the Brickenden principle should be applied. It was not, therefore, for the Court to speculate what might have happened if the solicitors had fully discharged their duties to Mr and Mrs Makaronis. In the course of dismissing the common law claims, Ashley J had found that Mr and Mrs Makaronis would not have altered their decision to proceed with the transaction even if all necessary disclosures and advice had been given to them. However, in accordance with Brickenden, this did not avail the appellants. So far as the claim resting on the breach of fiduciary duty was concerned, the Court would not concern itself with whether the breach actually caused the losses suffered by the clients. Nathan J expressed the view that this conclusion followed because the law sustaining the integrity of fiduciary relationships rested upon a "higher principle than that of restitutio in integrum". This was that the courts would not permit a fiduciary in breach to prosper from the breach. This was a rule founded both in law and policy.

It was upon the relief question that differences emerged in the Supreme Court. It was amply demonstrated that the point was properly put to Ashley J in the course of the trial. However, his Honour failed to address the argument that any relief by way of rescission of the mortgage (and associated documents) should only be upon terms requiring Mr and Mrs Makaronis to bring into court the sum borrowed by them with reasonable interest. The submission is not mentioned in his reasons. It appears to have been overlooked.

The majority of the Appeal Division (Nathan and Smith JJ) did not consider that any such condition should be imposed. Nathan J explained his reasons on the footing that fiduciaries, such as solicitors, should not be permitted to prosper from their own breaches because their clients cannot make restitution. The duty of the Court, breach of fiduciary obligation being established, was to make orders which achieved practical justice. This requirement imported a flexible rule. If Mr and Mrs Makaronis were required to bring into court the sum borrowed on the mortgage (together with interest) as a condition for gaining relief from the mortgage, the practical result would be that no relief at all would be afforded to them. Thus, the fiduciary in breach would be effectively excused. The breach would be condoned.

Smith J came to a similar conclusion. However, he took into account two considerations which have proved controversial. The first was that the solicitors' acts in breach of their fiduciary duty facilitated the acquisition of the poultry business and thus aided the respondents "in their course of financial destruction"[89]. Smith J concluded that the solicitors knew, or ought reasonably to have foreseen, that the bridging finance would be lost because, properly and impartially analysed, the poultry business would never have been able to generate the income necessary to service the mortgage and the contract payments. They therefore made what happened inevitable. Secondly, Smith J concluded that the Bank would have remedies against Mr and Mrs Makaronis. The Bank could sue them upon a count framed in indebitatus assumpsit for moneys had and received. This was upon the footing that the consideration of $250,000 provided by the appellants to Mr and Mrs Makaronis had wholly failed or "simply on the basis that otherwise there would be an unjust enrichment". Alternatively, the solicitors, having to the knowledge of Mr and Mrs Makaronis acted as their guarantors, would be entitled to pursue them to recover the principal debt. To the extent that the foregoing remedies were available, the simple orders made by Ashley J, setting aside the mortgage instrument, would leave neither the Bank nor the solicitors without remedy for the recovery of the debt of Mr and Mrs Makaronis. Any such remedy would have to await other proceedings.

Brooking J disagreed strongly with both of these approaches. He disputed that the requirement of equity to do what is "practically just between the parties" afforded a wholly undisciplined discretion. He considered that it was necessary to apply the principle that, in general, equity will not set aside a transaction unless restitution is possible[90]. In the way in which the trial had been conducted between the parties, he did not agree that it would have been open to Ashley J to make any findings as to the extraneous entitlements of the Bank or the solicitors to recover the funds paid. In Brooking J's opinion, as a condition to the setting aside of the mortgage, the proper application of settled equitable principles required that Mr and Mrs Makaronis offer to bring into court the sum borrowed and interest at an "appropriate rate". He fixed that rate at 9%. Brooking J rejected as impossible in the circumstances, the severance of the security provisions of the mortgage and the personal covenants contained in it for the re-payment of the debt. Setting the one aside would relieve the respondents of the personal covenant to repay which would not be equitable. The only "effective restitution" which could be ordered would require Mr and Mrs Makaronis to offer to restore the sum borrowed but at a lower rate of interest. It would not serve "practical justice" to relieve the mortgagors entirely of the mortgage, leaving the mortgagees to attempt to recover the sum remaining as a personal debt. Clearly Mr and Mrs Makaronis were insolvent. That would give them a windfall benefit, which was no part of the function of the equitable relief.

Before this Court the arguments advanced in the Supreme Court have been repeated. The solicitors urged the Court to excuse them entirely for the breach of fiduciary duty on the basis that, in the findings made, it had not caused any loss to Mr and Mrs Makaronis. Alternatively, they sought variation of the orders, at the least along lines similar to those favoured by Brooking J. Mr and Mrs Makaronis defended the orders of Ashley J and the reasoning of the majority in the Appeal Division.

Relevant factual findings

The appellants relied upon a number of factual findings made by Ashley J together with inferences which, they submitted, flowed from those findings. Essentially, these were that Mr and Mrs Makaronis had consulted Mr Tansey as a solicitor to act for them in a legal capacity and not specifically to provide financial advice save as that advice was incidental to his functions as their solicitor[91]. It was the appellants' case that Mr and Mrs Makaronis had, by their own actions, put themselves into an impossibly urgent position which demanded that they find finance with which to settle their unconditional promise to purchase the poultry business, at the latest by early June 1990. If they did not, it had been explained to them, they ran the risk of proceedings for breach of that promise. Such proceedings could result in the loss of their hard-won assets without their ever having had the chance to make the poultry business a success, as they thought they could. On Ashley J's findings, the variation of the agreement to delete the original conditions which had protected Mr and Mrs Makaronis was entirely of their own doing. It was agreed for a paltry saving of $10,000. They had been warned of its consequences by Mr Tansey. Yet they had gone ahead notwithstanding.

As I have said, Ashley J found that, if Mr Tansey had recommended against the raising of bridging finance in June 1990 Mr and Mrs Makaronis would nevertheless have insisted upon its proceeding. His Honour was convinced that Mrs Makaronis, particularly, considered herself to be astute in business and that she would not have been dissuaded from a course that she had determined should be followed.

Ashley J specifically dismissed the claim for damages for breach of the contract of retainer on the footing that such breach was not the cause of the loss and damage suffered by Mr and Mrs Makaronis. He expressed himself satisfied that "had the identity of the mortgagees been revealed, the mortgage would still have been signed by the defendants". He explained this finding thus:

"The moneys were urgently needed and the terms of the loan were not disadvantageous in the market-place of the day. Taking the matter a little further, and assuming (without deciding) that it was a breach of retainer or of common law duty not to advise the defendants to seek independent legal advice before signing the mortgage, I would not conclude that those assumed breaches were a cause of loss and damage to the defendants. There was no evidence, direct or inferential, that would enable me to conclude that the defendants, if advised to do so, would have consulted another solicitor about the matter; or, if they had done so, that such a solicitor would have advised against signing the mortgage; or, if such advice had been given, that the defendants would have acted upon it. And, in any event, the defendants must have obtained bridging finance - if not from the source actually accessed, then from another source on similar terms."

Later, his Honour went on:

"All the evidence suggests that the defendants were anxious to proceed, and believed that they had funds and a potential income stream adequate to permit them to do so."

Although these findings were made in the context of other claims of the respondents, the appellants argued that they were findings of fact which were equally available to the elucidation of the consequences of the finding of a breach of fiduciary duty. If Mr and Mrs Makaronis would have suffered the losses complained of in any event, because they would have been indifferent to, or would have ignored, advice and independent warnings, it was submitted that it was neither rational nor just to burden the solicitors with the consequences of their headstrong financial dealings. Mr and Mrs Makaronis should be denied relief entirely, including equitable relief. If they were provided with relief, it should be conditional upon their repaying the sum advanced by the solicitors from the funds provided by the Bank and guaranteed by the solicitors, as Mr and Mrs Makaronis knew and had agreed.

The causation issue - relevant authority

To support the decisions below on the causation issue, Mr and Mrs Makaronis relied on the principle stated by Lord Thankerton for the Privy Council in Brickenden v London Loan & Savings Co[92]. As in this case, that case involved a situation where a solicitor had breached his fiduciary duty to a client by failing to reveal his interest in certain mortgages. Lord Thankerton expressed the applicable rule thus[93]:

" When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant."

The appellants challenged this principle as too widely stated and too absolute in its expression. It may be true as O W Holmes observed in a letter to Sir Frederick Pollock that "the average lawyer wants the absolute"[94]. But this rule was said to be neither rational nor justified by equitable principle. No party to legal process should be held liable for consequences of which it was not the cause. In this sense, equity should accept, by analogy, the principle which had been developed by the common law in working out the recovery of damages in contract and tort. Although a breach of fiduciary duty was serious, not least when it occurred on the part of a solicitor who owed special duties to the court as one of its officers[95], it was unjust to burden a solicitor, as fiduciary, with consequences which a rational analysis of the evidence demonstrated had been caused by other considerations having nothing but a temporal connection with the breach.

I leave aside in this analysis the debate concerning whether, for the purposes of the law in Australia, the rules of common law and equity have merged so that they now mingle and can readily draw, by analogy, upon each other. Support for this theory is found in the decisions of Commonwealth courts of the highest authority in England[96], Canada[97] and New Zealand[98]. I am content to proceed in this appeal on the basis that decisions of this Court have assumed that the fundamental doctrines of equity have not lost their identity as a coherent body of law[99].

Approaching the matter in that way the question is this: Should the sixty-year-old rule pronounced by Lord Thankerton continue to be accepted by this Court as part of the body of equitable principle applicable in Australia? Or should a different rule be fashioned, and if so what?

In recent years, the rule in Brickenden has become the subject of judicial and academic commentary and qualification. A useful analysis of the case and a summary of the criticism of Lord Thankerton's dictum can be found in the note by Mr J D Heydon, "Causal Relationships between a Fiduciary's Default and the Principal's Loss"[100]. The rule is criticised as originating in obiter dicta; as suffering from decades of "forensic oblivion"; as being stated with a width unnecessary to the proper resolution of the case; as unsupported by previous authority; as propounded in obscure terms; and as producing the potential to occasion positive injustice[101]:

"[I]t is one thing to strip a fiduciary of profit without much inquiry; it is another to hold him accountable for all loss without inquiry into relative causes."

Nevertheless, the author acknowledges that, especially lately, the decision has been followed in Australia by federal[102] and State[103] courts. It has received approval from Australian judges speaking and writing extracurially[104]. Recent dicta in this Court also suggest that the Brickenden test should be accepted[105]. It has been applied by the Supreme Court of Canada in a recent decision[106]. In New Zealand it has been applied repeatedly in recent decisions[107]. Cooke P (as Lord Cooke then was) described it as a rule which is "one of strictness, and, indeed, severity"[108]. The rule has been ascribed to the policy decision that fiduciaries should be held to strict standards and not simply limited to the disgorgement of personal gain[109]. This view of fiduciary duties, and the strict consequences of their breach, also finds an echo in opinions expressed in this Court on connected matters[110].

Nevertheless, in response to criticisms of this kind, or simply in resolving particular cases in just and practical ways, courts have offered various alternative principles to mollify the absoluteness of the rule in Brickenden:

(a) Some decisions, particularly in Canada, have suggested that the rule is no more than an evidentiary principle. Where a breach of fiduciary duty is proved, the consequence is that a court of equity will presume that all adverse events which follow are the result of the fiduciary's breach. Courts will not "speculate" about other possible causes or what might have been. But the rule can be displaced by evidence to the contrary. In such circumstances a heavy onus lies on the fiduciary to prove that events which followed the breach were causally unrelated to it such that they should fairly and justly be laid at the door of others rather than the defaulting fiduciary[111];

(b) Other, more recent authority in Australia has sought to draw a distinction between a case of a breach of a "true fiduciary obligation" and one which lacks "the stench of dishonesty - if not of deceit then of constructive fraud"[112]. This was a distinction made by Ipp J (with the concurrence of Malcolm CJ and Seaman J) in Permanent Building Society (In Liq) v Wheeler[113]. It was a distinction founded upon a suggested difference between "breaches of fiduciary obligations" and "honest but careless dealings"[114]; and

(c) A third variant may be traced to a decision of Street J in the New South Wales Supreme Court in Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd[115]. In that opinion, which made no reference to Brickenden, Street J accepted, as the touchstone in repairing the proved default of a trustee, that of effecting restitution to the estate. His Honour, after citing authority, concluded that "[t]he principles ... do not appear to involve any inquiry as to whether the loss was caused by or flowed from the breach. Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach"[116]. This "but for" test resonates with observations in this Court both before[117] and after[118] Re Dawson. The approach taken in Re Dawson has been cited with approval in Canada[119]. It appears lately to have attracted the approbation of the House of Lords[120]. Writing extracurially, Sir Anthony Mason has gone even further than Re Dawson. He has suggested that a fiduciary will not be liable for losses that do not flow from the breach[121].

Fiduciaries' liability and the causation issue - the rule

Although there are some distinctions between this case and the facts in Brickenden I am not persuaded that the essential holding is inapplicable. I do not believe that this is the way Brickenden has been understood and applied, including in this country.

I acknowledge the force of the criticisms of Brickenden. On the other hand, a purely causative approach, which relieved a defaulting fiduciary of liability unless it were positively shown that such liability was caused by the breach of fiduciary duty would have several disadvantages. It would involve courts in the embarrassing and difficult task of untangling the multiple causes of losses which have followed an undoubted breach. Such a task would be specially difficult where further transactions and new interests had intervened. It would present the risk, although such breaches were proved, of effectively sanctioning or at least ignoring the breach by affording no relief to the beneficiary. It would undermine the Brickenden rule which has the advantage of simplicity and the prophylactic consequence of discouraging fiduciary default. Such default is inherent in the temptations to which people in the position of fiduciaries are commonly exposed. It is a rule which helps to fulfil the purposes of equity, which are somewhat different from those of the common law. These include, relevantly, ensuring the strict loyalty and good faith to beneficiaries, the dutiful enforcement of obligations; the deterrence of breaches by fiduciaries of their powers, and, where such occurs, the ready restitution and reinstatement of the beneficiary to the fullest extent possible[122].

The rule in Brickenden has survived a long time. It has been frequently applied, especially in recent years. It contains within its formulation words which adequately meet the need for there to be some connection to the breach so as to exclude events which are too remote. Thus it must be shown that any facts not disclosed by the fiduciary were "material". What is forbidden is "speculation". In my view, the rule in Brickenden can quite comfortably co-exist with the exposition of principle by Street J in Dawson. Facts will not be "material" if the relevant loss would have happened if there had been no breach. Both Lord Thankerton in Brickenden and Street J in Dawson were simply saying that, once a breach of fiduciary duty is shown, the inquiry is not a simple one as to what caused subsequent losses. Equity must strive to repair the breach of fiduciary duty lest the fiduciary in default could be exonerated too easily, the beneficiary suffer a double disadvantage: the courts being seen to wink at wrong-doing.

A further, practical, reason for adhering to the rule of "strictness" in Brickenden (breach of fiduciary duty being shown) is that it remains open to a court, in fashioning the remedies which it is apt for equity to provide, to consider most, if not all, of the matters which would otherwise be urged as a reason for excluding relief altogether on the ground of the alleged absence of a causal connection between the breach and the loss. The reason why equity may maintain a strict rule in relation to the events which follow a breach of fiduciary duty, whereas the common law developed principles of causation, remoteness and foreseeability to avoid unjust results, was explained by Cooke P in Day v Mead[123]. The passage from his Honour's reasons was approved by the majority of the Supreme Court of Canada in Canson Enterprises Ltd v Boughton & Co[124]. Cooke P said[125]:

" Compensation or damages in equity were traditionally said to aim at restoration or restitution, whereas common law tort damages are intended to compensate for harm done; but in many cases, the present being one, that is a difference without a distinction. There is, however, the more significant historical difference that Courts of equity were regarded as having wider discretions than common law Courts. Equitable relief was said to be always discretionary. Its grant or refusal was influenced by ideas expressed in sundry maxims. He who seeks equity must do equity. He who seeks equity must come with clean hands. Delay defeats equity. These are merely examples. Further, relief could be granted on terms or conditions."

The wide variety of remedies available to a court of equity following proof of a breach of fiduciary duty permit the court to exercise very large powers to fashion orders apt to a full consideration of all the facts, as they are found. These include an order of rescission; the finding of a constructive trust[126]; the application of tracing principles; the imposition of an account for profits; the award of equitable compensation, particularly where rescission is impossible[127]; injunctive relief and so on. Controversially, it has been suggested that a way to avoid burdening the fiduciary in default with the consequences of the beneficiary's own unreasonable conduct is the application of an equitable principle of apportionment[128]. The importation of notions resting on the statutory principles of contributory negligence has been criticised strongly and repeatedly[129]. I shall say no more of it for it was not argued in this case.

The foregoing arguments suffice to show that adhering to Brickenden does not present the spectre, suggested for the appellants, that fiduciaries will be unfairly burdened with consequences that have no logical connection with their breach and which should properly be ascribed to other causes. If a breach occurs which has no real consequences, the pre-condition of the Brickenden formulation, in the case of a breach constituted by non-disclosure of material facts, will not be made out. The facts in question will not be classified as "material". Other remedies may lie against the fiduciary. But they will not include relief from the transaction. Where, however, the facts are "material", in the sense that, but for their existence the events which followed would not have occurred, a court exercising equitable jurisdiction is not concerned at the first stage of its inquiry to sort out issues of causation. But clearly, it will be relevant to the exercise of the discretion to provide relief at all, and if so, to determine the form of that relief, to take into account the actual impact of the fiduciary's default. Only in that way will the objects of the relief, principally restitution, be secured.

The primary judge and the Appeal Division were therefore right, in my opinion, to apply the rule in Brickenden. On the facts found, the non-disclosed interest of the solicitors in the mortgage was certainly material. The disastrous events which occurred would not have happened but for the breach. It resulted in the execution of a mortgage instrument which was flawed. The considerations urged to exempt the appellants from any liability are clearly relevant to the determination of the relief that is then appropriate. But they are not sufficient to take the case out of the provision of any relief at all. This is so fundamentally because, as the judges in the Supreme Court recognised, the rule in Brickenden upholds equitable purposes other than the mere adjustment of the position as between the fiduciary and the beneficiary.

The relief issue - terms for "practical justice"

In approaching the considerations which govern the provision of relief in this case, it is as well to remember a number of the rules which apply where the fiduciary in breach is a solicitor and the beneficiary is a client.

It is incontrovertibly established that the relationship of solicitor and client is a fiduciary one[130]. The relationship imposes on the solicitor the duty not to make a private profit at the client's expense unless otherwise expressly provided and agreed. It also requires that the solicitor will not allow himself or herself to be put in a position where the solicitor's interest and the duty to the client conflict[131]. These rules have been explained as based not so much on morality as on the estimation by courts of the susceptibility of human nature to temptation. They rest on the special duties of fidelity and loyalty owed by fiduciaries generally to beneficiaries[132] and the particular duties owed by solicitors as officers of the court[133]. Such duties are not lost by delegation. Still less are they lost by sharing the duties between solicitors operating in different branches of the same firm[134]. Not only must the duties be discharged by the fiduciary. They must be manifestly and undoubtedly discharged[135]. The fact that a fiduciary has acted without fraud, innocently, or has made no improper personal benefit will not, of itself, excuse the fiduciary from an established breach of fiduciary duty[136]. If the fiduciary fails to fulfil the duty to make full disclosure of personal interests where that is required, equity will provide a remedy where the default is a material one[137].

Where, however, the fiduciary's breach comprises non-disclosure, equity can be seen at what has been described as its "flexible pragmatic best (or worst) in dealing with fiduciaries"[138]. The general rule is that non-disclosure will vitiate the transaction affected, however fair that transaction might have been in all other respects[139]. To achieve the multiple objectives of equity in respect of breaches of fiduciary duties, a rule of strictness is applied. Otherwise, the simple rule will be eroded that fiduciaries must make sure that the beneficiary is fully informed of the real state of things[140] and secure a "fully informed consent" for any conduct which involves (relevantly) a private profit or a possibility of conflict of interest and duty[141]. Ordinarily, once the breach is established, it is the duty of the defaulting fiduciary to effect, so far as possible, a restitution or restoration of the beneficiary to the position which would have obtained if the fiduciary's duties had been fulfilled. The elasticity of equitable remedies comes to the aid of a fiduciary whose default is judged to be technical rather than deliberate and fraudulent and whose failures cannot really be said to have produced all of the losses which follow, in point of time, the non-disclosure. The purpose of equity's relief is not punishment. So far as possible, it is to restore the status quo ante[142]. For this reason, the remedies will be fashioned according to the exigencies of the particular case so as to do what is "practically just" as between the parties[143]. The fiduciary must not be "robbed"; nor must the beneficiary be unjustly enriched[144]. Given the ample discretion afforded to primary judges and the advantages conventionally attributed to them in conducting a trial, appellate courts will exercise restraint in disturbing such orders unless it is shown that the judge has made an error of a kind that authorises appellate intervention to correct discretionary decisions.

In the present case, there can be no doubt that the Appeal Division was authorised to disturb the orders made by Ashley J. This is because his Honour did not address the defence that, as a matter of law or discretion, he should withhold relief from Mr and Mrs Makaronis until they offered to refund the benefit they had secured as a result of the mortgage flawed by their solicitors' non-disclosure. But has it been shown that the orders which were confirmed were wrong?

The relief issue - requirement of restitution

The obligation to offer, or the imposition of a condition to exact, the benefits obtained under a contract which is set aside in the provision of equitable relief may either be seen as an aspect of the achievement of the equitable objective of restitutio in integrum[145] or as the inevitable application of the discretion to provide (or withhold) relief, importing notions of equal justice, as between the parties[146]. Whatever the rationale, and whether or not it is a species of the equitable maxim that those who seek equity must do equity, the ordering as a condition of rescission of a contract flawed by breach of fiduciary duty, that the party seeking relief should restore to the other what was secured under the contract, is neither new nor surprising. It is ancient and very common. Where the contract impugned involved the payment of money, the beneficiary seeking relief from a contract is ordinarily required, as a term of such relief, to repay the moneys actually advanced, together with reasonable interest[147]. If such condition is not, or cannot be, offered, the court may refuse relief altogether[148]. Alternatively, other and different relief may be fashioned to do "practical justice".

With respect, I consider that the conclusion reached by Smith J in the Appeal Division was affected by a consideration of matters which were not available, or which were irrelevant to the provision of relief, in the way in which the trial was conducted. In particular, the conclusion of his Honour that there was a loan agreement between the Bank and Mr and Mrs Makaronis to supplement the mortgage between those parties and the solicitors, was not in issue at the trial. It was not pleaded. Nor was it particularised under the counter-claim. The Bank was not a party to the proceedings. Although evidence was tendered to show that the solicitors explained that the source of funds was the Bank, express evidence to establish any direct agreement with the Bank was not called. This was unsurprising in the state of the pleadings. The existence of such a debt is inconsistent with the form of the mortgage. If it had been raised, and exploration of the issue permitted despite the pleadings, it would have been open to the solicitors and the Bank to call evidence to answer the assertion. It has not been shown that the existence of such a debt was agreed, still less were the terms of any such agreement proved. Accordingly, the consideration of the suggested debt ought not to have affected the conclusion of the Appeal Division about the provision of relief.

So far as Smith J's suggestion that the Bank could, in any case, recover the fund paid via the solicitors on a claim for moneys had and received on the basis that the consideration for the payment had wholly failed or on the basis that there would be an unjust enrichment, I am likewise unconvinced. The Bank received a guarantee which (in the absence of contrary evidence) would lead to the inference that its position is wholly protected as against the solicitors. The solicitors obtained from Mr and Mrs Makaronis the security and promises they bargained for. In so far as they were the Bank's "nominees", as the primary judge thought, they certainly received consideration which did not, therefore, wholly fail. I would refrain from exploring the possible application of the "unifying legal concept" of unjust enrichment[149] because this, too, was simply not litigated. As a matter of practicalities, the Bank is hardly likely to pursue Mr and Mrs Makaronis. This is because it holds a valid guarantee from the solicitors for the entirety of the advance and the agreed interest. In order to recover their debt, the solicitors relied on the instrument of mortgage with its security provisions and personal covenants which the orders below wholly set aside. Such orders therefore effectively released Mr and Mrs Makaronis, who are insolvent. The prospect of the solicitors' recovering anything from them, absent access to the security, is chimerical. Everyone appreciated that the real subject-matter of the litigation was the control of the sole remaining asset which survived the Makaronis' disastrous poultry farm venture. This was expressed most clearly by Nathan J[150]. Understandably, he and Smith J were concerned that a requirement that Mr and Mrs Makaronis, as a condition of relief, bring into court their last remaining asset, namely their home, would effectively confirm the mortgage. It would restore the security to the solicitors. This would be so despite the breach of fiduciary duty found. This result was unacceptable to the majority, hence Nathan J's conclusion[151]:

"The burden of the breach must be carried by the solicitor in default not the hapless client."

Although I acknowledge the dilemma which was presented in this case concerning the provision of relief and would reject the appellants' suggestion of an absolute rule that a party seeking relief in circumstances such as the present must offer full restitution as a condition, the outcome of the orders under appeal does not represent "practical justice" as between the parties. The findings of the primary judge make it absolutely clear that Mr and Mrs Makaronis were determined to embark upon their business venture. By their own foolish conduct, without advice, they put themselves in a position of serious disadvantage by agreeing to the first deed of variation. They were then locked into the urgent necessity to raise a substantial sum of capital. They eventually obtained that capital through the solicitors. They did so at what was found to have been the then current market price for bridging finance. Even if they had been informed that the solicitors were the mortgagees and had been afforded independent advice, the primary judge decided that they were determined to proceed with the venture come what may. He was in the best position to evaluate this matter. The probabilities favour the conclusions which he reached. Following the variation, as Mr Tansey had warned Mr and Mrs Makaronis, their unconditional contract and agreed time for settlement exposed them to a liability to the vendors after a very short time conducting the poultry business in which they had such misplaced confidence.

To allow Mr and Mrs Makaronis to have had that chance, substantially at the expense of the solicitors, does not amount to "practical justice". Although the precise terms of the guarantee by the solicitors to the Bank were not in evidence, it seems reasonable to assume that it was in the form of an indemnity for the obligations which Mr and Mrs Makaronis accepted to the solicitors under the terms of the mortgage. Even if the solicitors then had access to the Radford Road property, it does not take much imagination to appreciate that its value of about $250,000, with or without appreciation, would fall far short of the accumulated debt of Mr and Mrs Makaronis under the mortgage and, by inference, of the solicitors as guarantors to the Bank. On 17 March 1993 the total capital and interest outstanding was calculated at $476,586.90. By now it would be considerably more. Requiring Mr and Mrs Makaronis to bring the sum actually advanced on the mortgage ($250,000) together with reasonable, but lower, interest would relieve them of the greater debt to the solicitors, owing under the terms of the personal guarantees in the mortgage. By inference, such relief would still leave the solicitors with a guarantee to the Bank of the Makaronis' debt in terms of the mortgage. In this way, each party would be left bearing a just part of the total indebtedness incurred.

By the burden which would then fall on the solicitors they, and other fiduciaries, would be reminded of the duty of fiduciaries, and specifically of solicitors; the fiduciary obligation would be upheld; and the ordinary requirements of restitution would be observed. Mr and Mrs Makaronis could secure release from the much greater debt as provided in the mortgage instrument. But only on condition that they restore the actual sum borrowed and a reasonable rate of interest. The fact that this would be difficult for them, given the large accumulation of interest even at a reduced rate, does not warrant providing to them a windfall benefit. Such a benefit would neither be practical nor just.

Orders

For the purpose of my orders, I am content to accept the approach favoured by the other members of this Court, although I was initially attracted to the practical solution offered in the Appeal Division by withholding the "mercantile rate" of interest[152]. Brooking J found, on inquiry of a Senior Master of the Supreme Court of Victoria, that the average rate of interest on trustee investments for the period from the date of the making of the advance, with half-yearly rests, was 9%. However, that rate might distort the interest properly payable as a requirement for relief, given the nature and purpose of the borrowing. I am not prepared to dissent from the conclusion that it would distort the equity of Mr and Mrs Makaronis to impose a condition so disadvantageous to the appellants. This litigation has already consumed nearly three weeks before the courts. To bring it to a close, I consider that orders can, and should, now be made.

I therefore agree in the orders proposed by Brennan CJ, Gaudron, McHugh and Gummow JJ.

[1] Section 11 reads:

"(1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing in the succeeding provisions of this Part shall be taken as limiting by implication the generality of sub-section (1)."

[2] [1995] HCA 14; (1995) 184 CLR 102 at 115-116.

[3] On 7 June 1995 the Appeal Division was replaced by the Court of Appeal of the Supreme Court of Victoria which was established by the Constitution (Court of Appeal) Act 1994 (Vic).

[4] Nelson v Rye [1996] 1 WLR 1378 at 1389; [1996] 2 All ER 186 at 197-198.

[5] [1914] AC 932.

[6] [1914] AC 932 at 957 per Viscount Haldane LC. The reference to "negligence" is to an action in contract for negligent performance of the solicitor's retainer.

[7] [1984] HCA 64; (1984) 156 CLR 41 at 68.

[8] Clarke Boyce v Mouat [1994] 1 AC 428 at 437.

[9] [1994] UKPC 3; [1995] 1 AC 74.

[10] A category of case referred to by Professor Goode, "The Recovery of a Director's Improper Gains: Proprietary Remedies for Infringement of Non-Proprietary Rights", in McKendrick (ed), Commercial Aspects of Trusts and Fiduciary Obligations, (1992) 137 at 140-141.

[11] [1991] 3 SCR 534.

[12] See the judgment of La Forest J [1991] 3 SCR 534 at 565.

[13] Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 73, 102; In re Goldcorp Exchange Ltd [1994] UKPC 3; [1995] 1 AC 74 at 98; Breen v Williams (1996) 186 CLR 71 at 82-83.

[14] [1994] 1 AC 428 at 437. See also Sims v Craig Bell & Bond [1991] 3 NZLR 535 at 543-545, 546, 547; Witten-Hannah v Davis [1995] 2 NZLR 141 at 147.

[15] [1852] EngR 392; (1852) 3 HLC 607 at 630 [10 ER 239 at 249].

[16] Dobbs, Law of Remedies, 2nd ed (1993), vol 2, SS9.3(2).

[17] Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557-558.

[18] Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113 at 134-135; Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 at 405; Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 394; Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 475; Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557; cf National Westminster Bank Plc v Morgan [1985] UKHL 2; [1985] AC 686 at 704; CIBC Mortgages Plc v Pitt [1993] UKHL 7; [1994] 1 AC 200 at 207-209.

[19] [1993] UKHL 7; [1994] 1 AC 200 at 209.

[20] Lewis v Hillman [1852] EngR 392; (1852) 3 HLC 607 at 630 [10 ER 239 at 249].

[21] See the formulation by Richardson J in Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 90.

[22] See Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 91-92.

[23] Made under the power conferred by s 88 of the Legal Profession Practice Act 1958 (Vic).

[24] Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 at 398; Parkinson (ed), The Principles of Equity, (1996) at 357.

[25] Life Association of Scotland v Siddal [1861] EngR 300; (1861) 3 De G F & J 58 at 73 [45 ER 800 at 806]; In re Pauling's Settlement Trusts [1962] 1 WLR 86 at 108; [1961] 3 All ER 713 at 730; Spellson v George (1992) 26 NSWLR 666 at 669-670, 673-675, 680.

[26] Commonwealth Bank v Smith [1991] FCA 375; (1991) 42 FCR 390 at 393.

[27] Spence v Crawford [1939] 3 All ER 271 at 288.

[28] The distinction between an action at law on rescission by a party and a suit in equity for rescission is explained in Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 at 223-224, a passage adopted in O'Sullivan v Management Agency Ltd [1985] QB 428 at 457. See also Dobbs, Law of Remedies, 2nd ed (1993), vol 1, SS4.8, where the United States authorities to the same effect are discussed.

[29] Nocton v Lord Ashburton [1914] AC 932 at 956-957.

[30] McKenzie v McDonald [1927] VLR 134 at 146.

[31] See McAllister v Richmond Brewing Co (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 191-192; Munchies v Belperio (1988) 58 FCR 274 at 282-286.

[32] [1914] AC 932 at 956-957.

[33] Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 556-558.

[34] Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557.

[35] [1966] UKHL 2; [1967] 2 AC 46.

[36] [1995] HCA 18; (1995) 182 CLR 544 at 558 (citations omitted).

[37] (1879) 13 Ch D 696 at 727. See also the authorities collected by Kearney J in Hagan v Waterhouse (1991) 34 NSWLR 308 at 341.

[38] [1914] AC 932 at 956-957.

[39] [1995] UKHL 10; [1996] 1 AC 421 at 434.

[40] His Lordship referred to Nocton v Lord Ashburton [1914] AC 932 at 952, 958. As is implicit in the above remarks, the Court of Chancery awarded compensation in these cases in the exercise of its inherent jurisdiction and independently of the jurisdiction received by Lord Cairns' Act (Chancery Amendment Act 1858 (UK)) to award damages in lieu of or in addition to injunctions or decrees for specific performance, where what was at stake were legal not equitable rights: see Underhill and Hayton, Law Relating to Trusts and Trustees, 15th ed (1995) at 827 and Perell, The Fusion of Law and Equity, (1990) at 75-83.

[41] [1995] UKHL 10; [1996] 1 AC 421 at 434.

[42] (1801) 6 Ves Jun 488 [31 ER 1159].

[43] [1838] EngR 949; (1838) 3 My & Cr 490 [40 ER 1016].

[44] [1966] 2 NSWR 211.

[45] [1980] Ch 515.

[46] See Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 at 426-427.

[47] Bartlett v Barclays Trust Co (No 2) [1980] Ch 515 at 543.

[48] [1984] 2 SCR 335.

[49] Note, "Liability of Trustee in the Absence of Causal Relation between Wrongdoing and Loss", (1936) 50 Harvard Law Review 317 at 320; see also Scott on Trusts, 4th ed (1988), vol 3, SSSS205-208, 212.

[50] [1934] 3 DLR 465.

[51] London Loan & Savings Co of Canada v Brickenden [1933] SCR 257.

[52] [1934] 3 DLR 465 at 469.

[53] Commonwealth Bank v Smith [1991] FCA 375; (1991) 42 FCR 390 at 394; Gemstone Corporation v Grasso (1994) 62 SASR 239 at 243, 252.

[54] Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 93; Sims v Craig Bell & Bond [1991] 3 NZLR 535 at 545-546; Witten-Hannah v Davis [1995] 2 NZLR 141 at 148, 157; Haira v Burbery Mortgage Finance & Savings [1995] 3 NZLR 396 at 407-408.

[55] London Loan & Savings Co of Canada v Brickenden [1933] SCR 257 at 258.

[56] Biggs v London Loan Co (1932) 41 OWN 48 at 49.

[57] Nicholas v Thompson [1924] VLR 554 at 564-566; Wilcher v Steain [1962] NSWR 1136 at 1140; Australian Steel & Mining Pty Ltd v Corben [1974] 2 NSWLR 202 at 207-208.

[58] Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55; (1958) 101 CLR 428 at 452.

[59] [1995] HCA 14; (1995) 184 CLR 102.

[60] Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] 1 AC 421 at 435.

[61] cf Gartside v Inland Revenue Commissioners [1967] UKHL 6; [1968] AC 553 at 605-606.

[62] (1801) 6 Ves Jun 488 [31 ER 1159].

[63] [1838] EngR 949; (1838) 3 My & Cr 490 [40 ER 1016].

[64] See Breen v Williams (1996) 186 CLR 71 at 137; Bristol and West Building Society v Mothew [1996] EWCA Civ 533; [1997] 2 WLR 436 at 448-449; [1992] UKHL 1; [1996] 4 All ER 698 at 710-711 and cf as to company directors, Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285 at 289-290; Permanent Building Society v Wheeler (1994) 11 WAR 187 at 237-238.

[65] Perrins v Bellamy [1899] 1 Ch 797 at 800.

[66] Now represented in Victoria by s 67 of the Trustee Act 1958 (Vic). In s 3(1) thereof, "Trust" is defined so as to extend to implied and constructive trusts and to the duties incident to the office of a personal representative. See also Trustee Act 1925 (NSW), s 85; Trusts Act 1973 (Q), s 76; Trustee Act 1936 (SA), s 56; Trustees Act 1962 (WA), s 75; Trustee Act 1898 (Tas), s 50.

[67] But see s 1318 of the Corporations Law.

[68] Breen v Williams (1996) 186 CLR 71 at 83, 94-95, 110-114, 136-137; Bristol and West Building Society v Mothew [1996] EWCA Civ 533; [1997] 2 WLR 436 at 447-448; [1992] UKHL 1; [1996] 4 All ER 698 at 710; McCamus, "Prometheus Unbound: Fiduciary Obligation in the Supreme Court of Canada", (1997) 28 Canadian Business Law Journal 107 at 128-136.

[69] [1900] 2 Ch 121, affd [1902] AC 271.

[70] [1995] HCA 14; (1995) 184 CLR 102.

[71] Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55; (1958) 101 CLR 428 at 452.

[72] [1955] HCA 64; (1955) 94 CLR 216.

[73] It is this rate for which a trustee who, by breach of trust, has occasioned loss to the trust estate is liable when making good the loss: Hagan v Waterhouse (1991) 34 NSWLR 308 at 391-393.

[74] Nelson v Nelson (1995) 184 CLR 538 at 562; Earl of Aylesford v Morris (1873) 8 Ch App 484 at 490.

[75] [1929] HCA 42; (1929) 43 CLR 334 at 356.

[76] (1873) 8 Ch App 351 at 358.

[77] [1929] HCA 42; (1929) 43 CLR 334 at 357.

[78] (1821) 5 Johns Ch 122; 9 Am Dec 283. See also Pomeroy, Equity Jurisprudence, 5th ed (1941), vol 2, SS391.

[79] Maloney v The Trustees Executors and Agency Company Limited (1898) 24 VLR 297 at 301-303; Earl of Aylesford v Morris (1873) 8 Ch App 484 at 490-491.

[80] Digested as Maguire v Makaronis [1995] ANZ Conv R 457.

[81] Mouat v Clark Boyce [1991] ANZ Conv R 578 at 589.

[82] cf Permanent Building Society (In Liq) v Wheeler (1994) 11 WAR 187 at 246, 248.

[83] Maguire v Makaronis [1995] V Conv R 54-533 at 66,319 per Brooking J citing New Zealand Netherlands Society "Oranje" Inc v Kuys [1973] 1 WLR 1126; [1973] 2 All ER 1222; cf Ford and Lee, Principles of the Law of Trusts, 3rd ed (1996) at 18130, 22150.

[84] cf Gray v Dalgety & Co Ltd [1914] HCA 81; (1914) 19 CLR 356 at 365, 373. See also Gray v Dalgety & Co Ltd [1916] HCA 35; (1916) 21 CLR 509 at 535.

[85] [1995] V Conv R 54-533 at 66,318-66,319.

[86] Finn, Fiduciary Obligations, (1977), Ch 22.

[87] [1934] 3 DLR 465 at 469.

[88] Maguire v Makaronis [1995] V Conv R 54-533 at 66,344-66,345.

[89] Maguire v Makaronis [1995] V Conv R 54-533 at 66,351.

[90] Maguire v Makaronis [1995] V Conv R 54-533 at 66,323-66,324.

[91] Hawkins v Clayton [1988] HCA 15; (1988) 164 CLR 539 at 578-579; Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 652-657.

[92] [1934] 3 DLR 465.

[93] [1934] 3 DLR 465 at 469.

[94] The Holmes-Pollock Letters cited by Gummow J, "Compensation for Breach of Fiduciary Duty", in Youdan (ed), Equity, Fiduciaries and Trusts (1989) 57 at 58.

[95] Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 89.

[96] United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 at 924.

[97] Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 584, 588.

[98] Day v Mead [1987] 2 NZLR 443 at 451.

[99] See Gummow J, "Compensation for Breach of Fiduciary Duty", in Youdan (ed), Equity, Fiduciaries and Trusts (1989) 57 at 85 referring to Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447; Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406; Calverley v Green [1984] HCA 81; (1984) 155 CLR 242; United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1; Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 and AMEV-UDC Finance Ltd v Austin [1986] HCA 63; (1986) 162 CLR 170.

[100] (1994) 110 Law Quarterly Review 328. See also Parkinson, The Principles of Equity, (1996) at 795-797.

[101] (1994) 110 Law Quarterly Review 328 at 332.

[102] Commonwealth Bank v Smith [1991] FCA 375; (1991) 102 ALR 453 at 478-479; Wan v McDonald [1992] FCA 4; (1992) 105 ALR 473 at 501-2; Stewart v Layton [1992] FCA 618; (1992) 111 ALR 687 at 713.

[103] Hill v Rose [1990] VR 129 at 142; Gemstone Corporation v Grasso (1994) 62 SASR 239 at 243, 245, 253.

[104] Handley, "Reduction of Damages Awards", in Finn (ed), Essays on Damages (1992) 113 at 127; Meagher, Gummow and Lehane, Equity, Doctrines and Remedies, 3rd ed (1992) at par 2304.

[105] Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408 at 426-427.

[106] Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534. See also Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1.

[107] Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 93, 99; Mouat v Clark Boyce [1991] ANZ Conv R 578 at 583, 590-591; Estate Realties Ltd v Wignall [1991] 3 NZLR 482.

[108] cf Estate Realties Ltd v Wignall [1991] 3 NZLR 482 at 493; Gathergood v Blundell & Brown Ltd [1991] 1 NZLR 405.

[109] Mouat v Clark Boyce [1991] ANZ Conv R 578 at 590.

[110] See for example Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 393 per Gibbs J; Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 at 198-199 per Deane J.

[111] See for example Commerce Capital Trust Co v Berk (1989) 57 DLR (4th) 759 at 764. Care must be observed in the application of Canadian authority in this field of discourse given the different history and development of equitable principles in that country and in the United States. See Breen v Williams (1996) 186 CLR 71 at 110-113, 137 discussed in Swanton and McDonald, "Patients' right of access to medical records - a 'test case'", (1997) 71 Australian Law Journal 332.

[112] Girardet v Crease & Co (1987) 11 PCLR (2nd) 361.

[113] (1994) 11 WAR 187 at 246.

[114] (1993) 11 WAR 187 at 247.

[115] [1966] 2 NSWR 211.

[116] [1966] 2 NSWR 211 at 215.

[117] Mills v Mills [1938] HCA 4; (1938) 60 CLR 150 at 186.

[118] Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285; cf Gummow J, "Compensation for Breach of Fiduciary Duty", in Youdan (ed), Equity, Fiduciaries and Trusts, (1989) 57 at 90.

[119] Guerin v The Queen (1984) 13 DLR (4th) 321 at 365; cf Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 552 per McLachlin J dissenting.

[120] Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] 1 AC 421 at 438-439; Swindle v Harrison, unreported, Court of Appeal (UK), 25 March 1997 at 12, 22-23, 29, digested Times LR, 17 April 1997 at 197.

[121] Mason, "The Place of Equity and Equitable Remedies in the Contemporary Common Law World", (1994) 110 Law Quarterly Review 238 at 244. See also Dal Pont and Chalmers, Equity and Trusts in Australia and New Zealand, (1996) at 627.

[122] Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 547-548 per McLachlin J dissenting, citing Ex parte Adamson; In re Collie (1878) 8 Ch D 807 at 819. In Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] 1 AC 421 at 438-439 Lord Browne-Wilkinson approved as good law McLachlin J's minority judgment. See also Swindle v Harrison unreported, Court of Appeal (UK), 25 March 1997 at 12, 22-23, 29, digested Times LR, 17 April 1997 at 197.

[123] [1987] 2 NZLR 443.

[124] [1991] 3 SCR 534 at 585, 589.

[125] [1987] 2 NZLR 443 at 451.

[126] Gummow J, "Compensation for Breach of Fiduciary Duty", in Youdan (ed), Equity, Fiduciaries and Trusts (1989) 57 at 61.

[127] Heydon, "Causal Relationships between a Fiduciary's Default and the Principal's Loss", (1994) 110 Law Quarterly Review 328 at 335.

[128] Day v Mead [1987] 2 NZLR 443 at 451 cited in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 585.

[129] Handley JA quoted in Meagher, Gummow and Lehane, Equity, Doctrines and Remedies (3rd ed) (1992) at par 2304; cf Gummow J, "Compensation for Breach of Fiduciary Duty", in Youdan (ed), Equity, Fiduciaries and Trusts (1989) 57 at 82.

[130] Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 89.

[131] Bray v Ford [1896] AC 44 at 51.

[132] Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 91.

[133] Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 89.

[134] cf Re Bannister; Ex parte Hartstein (1975) 5 ACTR 100.

[135] Spector v Ageda [1973] Ch 30 at 47 per Megarry J.

[136] Nocton v Lord Ashburton [1914] AC 932 at 964-965.

[137] Nocton v Lord Ashburton [1914] AC 932.

[138] Underhill's Law of Trusts and Trustees, 13th ed (1979) at 10, cited Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 at 94.

[139] Blair v Martin [1929] NZLR 225 applied in Estate Realties Ltd v Wignall [1991] 3 NZLR 482 at 491.

[140] Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 14.

[141] Mouat v Clark Boyce [1991] ANZ Conv R 578 at 589.

[142] Spence v Crawford [1939] 3 All ER 271 at 288; Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 at 223-224; Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102 at 111-112.

[143] See for example Soulos v Korkontzilas (1995) 126 DLR (4th) 637 at 639-641.

[144] Brown v Smitt [1924] HCA 11; (1924) 34 CLR 160.

[145] Federal Commissioner of Taxation v Jaques [1956] HCA 40; (1956) 95 CLR 223.

[146] Automobile and General Finance Co Ltd v Hoskins Investments Ltd (1934) 34 SR (NSW) 375 at 391.

[147] See for example Hay v Rafferty (1899) 2 F (Ct Sess) (5th) 302 at 308.

[148] Pavey & Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 at 256.

[149] Maguire v Makaronis (1995) V Conv R 54-533 at 66,352.

[150] Maguire v Makaronis (1995) V Conv R 54-533 at 66,327.

[151] Maguire v Makaronis (1995) V Conv R 54-533 at 66,328.

[152] Ford and Lee, Principles of the Law of Trusts, 3rd ed (1996) at 17140.