The Owners - Strata Plan No 67246 v Oaks Hotels & Resorts (NSW) No 1 Pty Ltd & Anor [2013] NSWSC 1866

Supreme Court New South Wales

Medium Neutral Citation: The Owners - Strata Plan No 67246 v Oaks Hotels & Resorts (NSW) No 1 Pty Ltd & Anor [2013] NSWSC 1866 Hearing dates: 22 November 2013 Decision date: 22 November 2013 Jurisdiction: Equity Division Before: Sackar J Decision: See paragraph [23] Catchwords: PROCEDURE - amendment of pleadings - whether proposed amendments disclose an arguable cause of action. Legislation Cited: - Cases Cited: Aluminium Industrie Vaasen v Romalpa Aluminium [1976] 1 WLR 676 Clough v Frog (1974) 4 ALR 615 Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64, (1984) 156 CLR 41 Re Hallett's Estate (1879) 13 Ch D 696 Reid-Newfoundland Company v Anglo-American Telegraph Company Ltd [1912] AC 555 Shallcross v Oldham (1862) 2 J & H 609; 70 ER 1202 Texts Cited: P D Finn, Fiduciary Obligations (1977) Law Book Co Category: Interlocutory applications Parties: The Owners - Strata Plan No 67246 (Plaintiff) Oaks Hotels & Resorts (NSW) No 1 Pty Ltd (First Defendant) Oaks Hotels & Resorts (NSW) No 2 Pty Ltd (Second Defendant) Representation: Counsel: Dr A Greinke (Plaintiff) J Kirk SC and R Yezerski (Defendants) Solicitors: Auyeung Hencent & Day (Plaintiff) Corrs Chambers Westgarth (Defendants) File Number(s): 2013/212796

Judgment 1The plaintiff, The Owners - Strata Plan No 67246 (the plaintiff), filed a notice of motion on 6 November 2013 seeking leave to amend its commercial list statement (and associated relief sought in the relevant paragraphs of its summons) to introduce allegations of breaches of trust and fiduciary duties and the rules in Barnes v Addy. The plaintiff's motion also sought an order requiring the provision, by Oaks Hotels & Resorts (NSW) No 2 Pty Ltd (the second defendant), of particulars in connection with a specific paragraph of its amended commercial list response, but this aspect of the motion was resolved between the parties. 2After hearing argument and determining the motion on 22 November 2013, the parties indicated they did not want reasons for the determination. Subsequently, on 10 December 2013, the plaintiff sent an email to my Associate requesting reasons for my determination. My reasons, which reflect the discussion (as recorded in the transcript) that took place during the hearing of the motion, are set out in this judgment. 3The proceedings concern a property located in Sussex Street, Sydney, known as "Maestri Towers" (Maestri Towers). The plaintiff is the owners corporation of Maestri Towers. In December 2005, the first defendant became the caretaker of Maestri Towers under a deed of assignment whereby it assumed various obligations under a Caretaker Agreement (the Caretaker Agreement) dated 19 February 2002 between the plaintiff and a predecessor caretaker, Oaks Apartment Management Pty Ltd. 4For present purposes, it is unnecessary to set out in any great detail the substantive claims made by the plaintiff against the defendants, or the history of the plaintiff's attempts to amend to its pleadings to seek an account of profits as a remedy. 5The plaintiff's central complaint is that, by carrying on a serviced apartments business in Maestri Towers without the permission of the plaintiff, the first defendant breached the Caretaker Agreement, the second defendant induced such breach of contract, and the defendants committed trespasses to certain parts of Maestri Towers' common property. By its motion, the plaintiff seeks to add (relevantly) in its commercial list statement paragraphs 27A and 27B (the trust claim), paragraph 27C (the equitable duty claim), paragraphs 27D-27F (allegations of breach of trust/fiduciary duties, profits generated, loss incurred and liability) and paragraphs 27G-27H (knowing receipt claims). 6The plaintiff contends that fiduciary duties arose out of the terms of the Caretaker Agreement (by which the first defendant agreed to manage the Maestri Towers building as caretaker), the fact of the first defendant's physical control of the building (by possession of the keys and master keys to the building and the common property) and the obligation on the first defendant to exercise its rights under the Caretaker Agreement for the purposes of giving effect to that agreement and for no other purpose. The plaintiff alleges the trust property is of two types, namely the contractual rights granted by the plaintiff to the first defendant under the Caretaker Agreement and the lots in Maestri Towers over which the first defendant allegedly had possession and control. The first defendant is alleged to have derived profits from the alleged breaches of these fiduciary duties. 7The plaintiff based its trust and fiduciary duty allegations on two passages in P D Finn, Fiduciary Obligations (1977) Law Book Co, and two old English cases. One of the passages in Professor Finn's book read as follows (at [194]): Where a person has been given possession of or control over another's property for some purpose, but has not at the same time been granted any right to use that property in any way for his own benefit, the courts will readily characterise his position as a fiduciary one. 8The plaintiff referred to Shallcross v Oldham (1862) 2 J & H 609; 70 ER 1202. The master of a ship had the authority of the owners to employ the ship on freight, but not to employ the ship on his own account. Without the owners' consent, he loaded a cargo of his own. The owners made him accountable not only for the freight charge but the profit on his own cargo. 9The plaintiff also referred to Reid-Newfoundland Company v Anglo-American Telegraph Company Ltd [1912] AC 555. That case involved an agreement with a company to erect a telegraph wire along a railway, in which the company agreed not to pass or transmit messages except for the benefit of the telegraph company. These rights became assigned to the Reid company, which obtained control of the operation of the telegraph. The Reid company used the wire for its private business purposes, and was required to account for its profits. The plaintiff submitted that the principle emerging from that case was summarised in Fiduciary Obligations in these terms (at [205]): ... lawful possession of another's property coupled with actual knowledge that that other parts with it subject to conditions imposed upon its user, is sufficient to make the possessor for the time being a trustee of any profits he derives from an unauthorised user. 10The plaintiff also submitted, by reference to Re Hallett's Estate (1879) 13 Ch D 696 and Aluminium Industrie Vaasen v Romalpa Aluminium [1976] 1 WLR 676, that a relationship of trust and confidence applies where a chattel is delivered to a bailee for safekeeping, and that there is no difference in principle to a party entrusted with the caretaking of the common property of a strata building. 11The plaintiff submitted that, under the Caretaker Agreement, the first defendant was entrusted with the control of the common property including keys and master keys for particular purposes and not for the first defendant's commercial benefit. The plaintiff pointed to Item 1(d) in Schedule 2 of the Caretaker Agreement (which specified the duties of the caretaker): 1. GENERAL DUTIES The Caretaker shall by its employees, contractors or agents: ... (d) Keep in its possession the master keys, and a register of such keys, for the services, lots and buildings under the control of the Owners Corporation, or individual Lots insofar as individual owners shall permit, provided however that the possession of those keys shall be surrendered to no other person other than an authorised representative appointed by the Executive Committee of the Owners Corporation or the individual owner concerned but the Caretaker shall allow a lawfully authorised person in the course of his or her duties free access to any part of the Complex so authorised at all reasonable times. 12Although the plaintiff referred to other clauses in the Caretaker Agreement, this quoted clause is the "high point" in the plaintiff's application. The other clauses, in my view, do not assist the plaintiff's application. 13The defendants submitted that there are four major difficulties with the trust allegations in paragraphs 27A and 27B. First, that the "contractual rights" which the plaintiff says constitute the trust property are not identified. Secondly, that by its nature, the alleged trust "property" cannot be the subject of a trust. Thirdly, that the plaintiff has not identified any material facts by which the trust is said to arise (beyond the three matters identified in paragraph [6] above) and the pleaded matters are not sufficient to give rise to a trust. Fourthly, that the use of the phrase "in equity a position akin to a trustee" in the pleading is ambiguous, unparticularised and indeed an entirely novel concept unrecognised in law. 14In order to be granted leave to amend, the proposed amendment must, at least when read with the original pleading, disclose an arguable cause of action or defence (Clough v Frog (1974) 4 ALR 615). I propose to deal with the plaintiff's trust and fiduciary duty allegations together, given the similarity between the questions involved. 15The contractual rights enjoyed by the first defendant under the Caretaker Agreement are rights granted by the plaintiff, and enforceable against the plaintiff. I accept the defendants' submissions that the plaintiff cannot be said to have any interest in those rights because any such interest would be an interest in a chose of action against itself. As pointed out by the defendants, as a matter of law, no person can have a chose in action against himself or herself, and an obligor cannot have a legal or beneficial interest in his or her own obligation. I am not satisfied that the plaintiff has an arguable case that there exists any property the subject of the alleged trust. 16In my view, the defendants' third submission presents the primary barrier to the grant of leave to amend. I cannot detect anything in the terms or effect of the Caretaker Agreement which could give rise to a fiduciary relationship. The High Court in Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64, (1984) 156 CLR 41 considered the relevance of the terms of a contract to the existence of a fiduciary relationship, and the relationship between (and co-existence of) contractual and fiduciary relationships. Gibbs CJ said (at 70): ... the fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm's length and on an equal footing has consistently been regarded by this Court as important, if not decisive, in indicating that no fiduciary duty arose ... 17Mason J said (in selected passages at 97-100): That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. ... ... a promise or a contractual term may be so precise in its regulation of what a party can do that there is no relevant area of discretion remaining and therefore no scope for the creation of a fiduciary duty ... ... ... But it is altogether too simplistic, if not superficial, to suggest that commercial transactions stand outside the fiduciary regime as though in some way commercial transactions do not lend themselves to the creation of a relationship in which one person comes under an obligation to act in the interests of another. The fact that in the great majority of commercial transactions the parties stand at arm's length does not enable us to make a generalization that is universally true in relation to every commercial transaction. In truth, every such transaction must be examined on its merits with a view to ascertaining whether it manifests the characteristics of a fiduciary relationship. 18Having read through the Caretaker Agreement, and having asked the plaintiff to identify each of the provisions it relies on as establishing a trust relationship or giving rise to a fiduciary relationship, I am unpersuaded that it is arguable that the Caretaker Agreement, in its terms or effect, does either. 19In support of this view, clause 20 of the Caretaker Agreement provides: Relationship 20. Nothing contained in this Agreement or inferred from it, of itself or with other circumstances, shall constitute a relationship of partnership or employer and employee or principal and agent between the parties. It is the express intention of the parties that any such relationship is denied. 20Each and every relationship that is expressly disclaimed by clause 20 is recognised in law as a relationship importing fiduciary duties (see Hospital Products Ltd v United States Surgical Corporation at 68 per Gibbs CJ and at 96 per Mason J). Although the clause does not in express terms disavow a trust relationship, it purports to deny the existence of other "lesser" relationships involving fiduciary duties and other characteristics common to those found in a trust relationship. It is therefore difficult to see how a fiduciary relationship, or a trust relationship (being the "archetype of a fiduciary" (Gibbs CJ at 68)), can accommodate itself to the terms of the Caretaker Agreement. 21Furthermore, the English cases on which the plaintiff relies are, in my view, distinguishable from this case. The defendants submitted (correctly in my view) that there was no transfer of possession or any interest of any of the plaintiff's property to the first defendant. There are two lots in Maestri Towers, namely lots 104 and 211, which the first defendant occupies and from which it operated. Those lots, referred to by the parties as the "Caretaker Lots", were the first defendant's property, not the plaintiff's property, and they were the first defendant's property not by virtue of the Caretaker Agreement. As to the remainder of the building and the common property, it is true that the Caretaker Agreement provided for the possession by the first defendant of the keys and master keys to the building and the common property. However, the provision of keys alone does not give rise to a transfer in possession of the common property and building; the requisite intention must exist, and it is not, in my view, reasonably arguable that such an intention emerges from the Caretaker Agreement. 22Accordingly, I was not satisfied that it was reasonably arguable that the parties were in a trust relationship or other relationship of a fiduciary character. 23It follows, from that conclusion, that the paragraphs in the plaintiff's proposed amended pleading alleging breaches of trust and/or fiduciary duty, and the paragraphs seeking remedies as a result of such breaches, and the paragraphs making up the "knowing receipt" claim against the second defendant, must fail. The proposed amendments were therefore not allowed.