New South Wales Supreme Court CITATION : Levy v Bablis [2007] NSWSC 565 HEARING DATE(S) : 29/05/07 JUDGMENT OF : Gzell J EX TEMPORE JUDGMENT DATE : 29 May 2007 DECISION : Secret commission allegation and proscriptive duty particular struck out with liberty to replead. CATCHWORDS : PROCEDURE - Pleadings and Particulars - Whether an allegation of intention to take a separate commission constituting a breach of fiduciary duty with no other relationship to the claim for damages should be struck out - Whether the particularisation of a fiduciary duty as including a proscriptive duty of disclosure should be struck out Webster v Lampard (1993) 177 CLR 598 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 CASES CITED : P & V Industries Pty Limited & Ors v Porto (2006) 14 VR 1 United Dominions Corporation Ltd v Brian Pty Ltd (1984) 157 CLR 1 Directors, etc of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 Bell v Lever Bros Ltd [1932] AC 161 PARTIES : Julian Emmanuel Levy - Plaintiff Peter Bablis - Defendant FILE NUMBER(S) : SC 6289/06 COUNSEL : Mr J Clifton - Plaintiff Mr M Condon - Defendant SOLICITORS : Ziman and Ziman Solicitors - Plaintiff Dibbs Abbott Stillman Lawyers - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J TUESDAY 29 MAY 2007 6289/06 JULIAN EMMANUEL LEVY v PETER BABLIS EX TEMPORE JUDGMENT 1 Before the Court is an application by the defendant to strike out the whole or portions of a statement of claim on the ground that it is embarrassing or vexatious. In the alternative, an order that further particulars be given is sought. 2 One of the complaints relates to a pleading of a secret commission. The statement of claim alleges that the defendant, a chiropractor, while treating the plaintiff as a patient, made representations to the patient about an investment opportunity, leading the plaintiff to invest moneys through the defendant. It is alleged that the plaintiff invested $1 million in tranches and that the $1 million has been lost. Damages and interest are claimed. 3 At paragraph 49 of the statement of claim, a secret commission is alleged in these terms: "In providing the third investment scheme advice, and in making the third investment scheme offer, the defendant breached his fiduciary duty to the plaintiff. Particulars (a) the defendant sought to profit by way of commission out of the plaintiff's participation in the investment scheme, which intended profit he did not disclose to the plaintiff; (b) there was a conflict between the defendant's obligation to advise the plaintiff as to proper treatment of his medical issues and/or to provide the plaintiff with proper financial advice and the defendant's interest in having the plaintiff participate in the investment scheme for the defendant's profit; (c) the defendant did not convey all of the risks associated with the investment scheme to the plaintiff." 4 There are, in paragraph 67, allegations of misleading and deceptive conduct with respect to the investments. In paragraph 65 a breach of fiduciary duty is alleged as a result of what is pleaded in paragraph 49. Paragraph 65 is in these terms: "By reason of the breach of fiduciary duty pleaded in paragraph 49 hereof, the plaintiff has suffered: (a) a loss of the $500,000 advanced on 17 June 2005; (b) a loss of the $500,000 advanced on 2 December 2005." 5 It is submitted on behalf of the plaintiff that the pleading in paragraph 49 is merely an allegation of the fact of the taking of a secret commission grounding a breach of fiduciary duty. It is submitted there is no claim in paragraph 65 or elsewhere in the pleading to recovery by way of damages of the secret commission. 6 That, in my view, is not made clear on the pleading as it presently stands, and I am of the view that paragraph 49 should be struck out, and any other paragraph of the pleading alleging a secret commission should be struck out, but that liberty be granted to the plaintiff to replead within 14 days. 7 Reference was made to the principles that summary termination of proceedings should not be ordered except in the clearest case. Reference was made to Webster v Lampard (1993) 177 CLR 598 and to the familiar statements in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. It has been said on another occasion that summary termination of proceedings should not take place unless the pleading cannot be saved by legitimate amendment. 8 In this case, while striking out paragraph 49 of the statement of claim, I have granted liberty to replead to enable the plaintiff to save the allegation by legitimate amendment if that can be done. 9 The second issue that gives rise to the application to strike out is the particularisation of a breach of fiduciary duty as a proscriptive one. 10 In paragraph 22 of the statement of claim it is alleged that, in response to information provided by the plaintiff, the defendant advised the plaintiff of an investment opportunity (the first investment scheme advice). In paragraph 23 it is alleged that the defendant asked the plaintiff if he would participate in the investment scheme (the first investment scheme offer). In paragraph 24 it is alleged that the first investment scheme advice and the first investment scheme offer were communicated to the plaintiff as being a course of action that would address the money-related stress of the plaintiff, that had been diagnosed by the defendant, and would thereby treat the plaintiff's physical pain for which the plaintiff was seeking treatment from the defendant. 11 Paragraph 25 is in these terms: "The defendant was thereby under a fiduciary duty to the plaintiff in respect of the first investment scheme advice and the first investment scheme offer." 12 Particulars were sought of this paragraph, seeking specification of the facts and circumstances the plaintiff said gave rise to a fiduciary duty owed by the defendant and the content and scope of the fiduciary duty the plaintiff alleged was owed to him by the defendant in respect of the first investment scheme advice and the first investment scheme offer. 13 In answer to that request, the plaintiff provided particulars, including paragraph 21(b)(v): "the defendant should (sic) advise the plaintiff not to advance funds other than under a written agreement and with security over Real Property." 14 That particular raised a proscriptive obligation on the part of the defendant as one of the fiduciary obligations owed by him to the plaintiff. 15 In P & V Industries Pty Limited & Ors v Porto (2006) 14 VR 1, Hollingworth J considering an order of a Master striking out a paragraph of a pleading, which alleged that Porto was required to advise of property development dealings other than for the plaintiffs in which he had been involved, and where the dealings occurred while he was a director, or after that time where the dealing was initiated during that period. 16 The basis upon which her Honour upheld the striking out of that paragraph was that in Australia fiduciary duties are limited to negative restraints, and do not extend to proscriptive obligations. Her Honour said at [24]: "It is true that there are cases which refer to a fiduciary as having an "obligation" to make disclosure. However, in each instance, advance disclosure functions only as the means of obtaining the consent of the beneficiary, thereby avoiding a breach of the two fundamental rules governing proscriptive fiduciary relationships." At [43], her Honour concluded: "The law in Australia, as outlined in Breen, is that fiduciary duties are limited to imposing constraints on conduct which the fiduciary has in fact embarked upon and not by imposing a positive obligation of disclosure of the kind assumed by a duty to disclose." 17 Reference was made to United Dominions Corporation Ltd v Brian Pty Ltd (1984) 157 CLR 1 at 6, where Gibbs CJ referred to English authority in Directors, etc of Central Railway Co of Venezuela v Kisch (1867) LR 2 HL 99 at 113 where it was said: "It cannot be too frequently or too strongly impressed upon those who, having projected any undertaking, are desirous of obtaining the co-operation of persons who have no other information on the subject than that which they choose to convey, that the utmost candour and honesty ought to characterise their published statements." and to an observation of Lord Atkin in Bell v Lever Bros Ltd [1932] AC 161 at 227: "Ordinarily the failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract. The principle of caveat emptor applies outside contracts of sale. There are certain contracts expressed by the law to be contracts of the utmost good faith, where material facts must be disclosed; if not, the contract is voidable. Apart from special fiduciary relationships, contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made, so of an intending partner." 18 It was submitted that it is arguable that the observations of her Honour in Porto are incorrect, and there are circumstances in which a proscriptive obligation to disclose is part of a fiduciary duty. In my view the passages cited by Gibbs CJ fall into the context of those cases to which her Honour in Porto made reference at [24]. I adopt her Honour's conclusion in [43]. 19 I strike out paragraph 21(b)(v) of the answers to particulars, with liberty to the plaintiff to re-particularise within 14 days, if he should be so advised. The ruling applies to analogous answers to particulars. 20 I order the plaintiff to pay the defendant's costs of today's proceedings. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.