Pavan v Ratnam

(1996) 23 ACSR 214

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(Judgment by: Mahoney ACJ)

Pavan and Anor
vRatnam - BC9605648

Court:

Judges:
Mahoney ACJMeagher J
Beazley JA

Hearing date: 18 October 1996
Judgment date: 26 November 1996

Sydney

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Judgment by:
Mahoney ACJ

The facts are set forth in the judgment of Beazley JA which I have had the advantage of reading. Her Honour's judgment enables me to go directly to the matters in issue in this appeal.

Mr Ratnam, one of the defendants, had been engaged by Dr Pavan to prepare his income tax returns from about 1981. In 1983, near the end of the year, Mr Ratnam informed Dr Pavan that he Mr Ratnam proposed to develop land in or near Penrith by erecting a building on it, creating strata entitlements in relation to the building, and profiting from that development. They agreed between them that Dr Pavan should buy one of the units in the development for $210,000. The development was to be carried out by a company to be controlled by Mr Ratnam, Nupace Pty Ltd ("Nupace").

In December 1983 Dr Pavan paid Mr Ratnam $60,000 of the $210,000. At that time, Nupace did not own the land to be developed and the development had not commenced. The land was not bought until 24 February 1984. The development was not completed until much later: the strata plan was not registered until 30 April 1986.

In June 1984, Dr Pavan agreed to buy from Nupace the then relevant strata entitlement ("Unit 1"). The contract was made on the form of contract agreement then generally in use (the 1982 edition). It provided for a price of $210,000, a deposit of $60,000 and a "balance" of $150,000. The printed form provided that the deposit be paid to the vendor "... and shall be held as stakeholder until completion ...". No provision was made in respect of a completion date. Presumably, by operation of the general law, the balance of the price would not be payable unless and until a transfer of the unit was tendered to Dr Pavan.

As Beazley JA has indicated, the contract was prepared not by a solicitor but by Mr Ratnam. It did not contain provisions which, in a contract properly drawn for the purpose, would have been specified. But the judge accepted and it is not in contest that the contract that was made was a binding contract. At least, the form of contract was signed on the date to which I have referred June 1984. Subsequently, in or about 14 August 1984 a further agreement or arrangement was made in relation to the transaction. The parties appear to have assumed that the balance of the price for the unit $110,000 was to be paid by Dr Pavan, not when conveyance was tendered but at or about the date of the arrangement. On 14 August 1984 Nupace wrote a letter to Dr Pavan, signed by Mr Ratnam, which recorded that the balance of $110,000 was:

"to be financed by Nupace Pty Ltd as follows:

Period: 7 years Interest 13.5% Rate: Repaymen $2105 per month (which includes principal + interest)".

It is not in question but that the letter represented the agreement or arrangement then made.

From this I infer that the parties intended that there should be, in August 1984, a payment by Dr Pavan to Nupace of the balance payable under the contract $110,000, that that balance should be lent to Dr Pavan by Nupace upon the terms specified in the letter, and that Dr Pavan should thereafter make the repayments specified. In fact this is what occurred. Dr Pavan signed an authority to the manager of his bank at Burwood dated 17 August 1984 whereby he authorised debits to his account each month "until further advised" of $2105, such amounts to be credited to Nupace Pty Ltd at its account at the Westpac Bank, Mt Druitt, "such sum being: repayment of loan". Mr Ellicott QC, for Dr Pavan, has in my opinion correctly submitted that the letter and the authority evidence a transaction to the effect of that to which I have referred. Payments were made in accordance with that authority of at least the balance of the amount provided for in the contract.

Nupace obtained the finance for the development by borrowing from the Westpac Bank. The loan was secured by a mortgage from Nupace to the bank over the land. The development proved financially unsuccessful. That bank appointed a receiver and in November 1988 the land was sold and the proceeds used towards payment of the obligations of Nupace to the bank. Nupace was not able to meet its financial difficulties. Judgment has been given against it in this proceeding but, as counsel have indicated, it is unlikely that it can meet its obligations.

(There are as parties to this proceeding the company controlled by Dr Pavan and Nupace Pty Ltd. Neither has taken an active part in the proceedings before this Court. Nothing has been urged to turn upon the position of those companies or the representation of them. Having regard to the conclusions at which I have arrived, it is not necessary to consider further the position of either company in the litigation).

1. THE BASIS OF DR PAVAN'S CLAIM:

In this appeal, Dr Pavan's claim is against Mr Ratnam. Mr Ellicott QC for Dr Pavan has placed his claim upon four bases: I shall for brevity describe them as the Quistclose basis, the fiduciary basis, the negligence basis and the contract basis.

(a) The Quistclose basis:

Mr Ellicott's submissions have been generally to the effect that the moneys paid by Dr Pavan in the context of the purchase of the unit in the development, namely $210,000 were paid for a special and identified purpose, that having been so paid, there was an obligation upon Mr Ratnam and accordingly, in accordance with the principles referred to by Lord Wilberforce in Quistclose: (1970) AC 567; should have been treated by Mr Ratnam and Nupace as charged in equity with such payments.

Mr Ellicott's submissions in this regard give rise, inter alia, to three questions: whether the parties intended the moneys to be dealt with as Mr Ellicott has contended; whether, if they did, the moneys or part of them would be so charged; and (if they would) whether that enables Dr Pavan to claim relevant relief against Mr Ratnam. Mr Einfeld QC, for Mr Ratnam, has contended in effect that Dr Pavan's claim fails in respect of each of these matters.

Mr Einfeld QC has, in addition, submitted that it is not open to Dr Pavan before this Court to rely upon the Quistclose basis of claim. He submits that that basis was not pleaded, it was not dealt with in evidence, it was not argued before the judge, and it was not dealt with by the learned trial judge in his judgment. Mr Einfeld QC submits that, had the matter been raised at the trial, he may well have adduced further evidence to deal with it: indeed, he has suggested that questions would have been asked of Dr Pavan to establish that he knew of matters which would have rendered that basis of claim inapplicable.

In my opinion this basis of claim is not available before this Court. It is a separate and distinct basis of claim and does not fall within the other bases pleaded. In my opinion, it is not within the fiduciary basis and the pleading would not lead the defendants to anticipate a claim so based. Upon well established principles, this basis of claim is not now open: see generally Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; Coulton v Holcombe (1986) 162 CLR 1.

Were the matter available before this Court, it would, generally for the reasons to which I shall refer in relation to the fiduciary claim, not succeed.

(b) The fiduciary basis:

Mr Ellicott QC has submitted: that Mr Ratnam owed fiduciary duties to Dr Pavan in relation to the matters here in question; that what occurred involved breaches of those duties; and that relief can and should be granted against him in relation to the payments made by Dr Pavan in respect of the unit. It was submitted for Dr Pavan that what occurred between him and Mr Ratnam gave rise to fiduciary obligations. Reliance was placed upon the principles established by Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96, 142; reference was made to the decision of the Canadian Supreme Court in Hodgkinson v Simms (1994) 117 DLR (4th) 161 and the cases there referred to.

The circumstances in which fiduciary duties will arise cannot, in my opinion, be described by a simple (or even a complex) formula of words. The tests or criteria which are proposed for the purpose are both indeterminate and expanding. Mr Ellicott QC, in his helpful submissions, referred to the phrases which for this purpose have conventionally been used: reference has been made to trust and confidence being reposed by one party in the other, to the vulnerability of one party to harm by the other and to the description, in Hodgkinson v Simms, adopted by La Forest J at 173: "... the special elements of trust, loyalty and confidentiality that obtain in a fiduciary relationship give rise to a corresponding duty of loyalty." But such descriptions, individually or collectively, do not provide an exhaustive statement of the circumstances in which fiduciary duties may be held to exist. These criteria provide assistance in determining whether fiduciary duties should be held to be owed by one party to the other but it would, I think, be wrong to conclude that there are no cases in which fiduciary duties exist which fall outside circumstances or relationships so described.

In determining whether fiduciary duties exist, it is in my opinion of assistance to consider the matter by reference to the effects which the imposition of fiduciary duties produce. Stated generally, the effect of the imposition of fiduciary duties is twofold: that a person subject to the duties may not allow himself to be in a position in which his duty to the other and his interest to himself is in conflict; and he must not profit from his position. These are of course to be understood in a wide and not a narrow sense but, as was suggested by the House of Lords in Boardman v Phipps [1967] 2 AC 46, these are essentially the restrictions which the law imposes upon fiduciaries.

In determining whether fiduciary obligations should be held to exist, it is of assistance to consider whether the case is one in which it would be inequitable to allow the fiduciary to occupy a position of such conflict or to derive benefit from it, or (whether there be a position of conflict or not) to profit from the position in which he has been placed vis-a-vis the other party. And it is of assistance, in determining whether a breach of fiduciary duty has occurred, to consider whether the fiduciary has been in a position of conflict or derived a benefit from it or has derived a profit from his position.

I agree with Beazley JA that, however the matter be formulated, the relationship between Dr Pavan and Mr Ratnam was not one which placed the latter in a fiduciary position vis-a-vis the former.

The evidence given by Dr Pavan and Mr Ratnam as to the relationship between them differed significantly. It was not, I think, submitted that, whatever be the finding of fact which could be made within the parameters of the evidence given by them, a fiduciary relationship must be held to exist. The competing contentions of the parties were, I think, to the effect that, if Mr Ratnam's evidence was accepted generally, no such relationship existed.

Mr Ellicott QC's submissions were put in various forms and I do not purport to detail each of them. But in this regard essentially they suggested: that

Young J did not accept the evidence of either party; that this Court can and should make its own findings of fact; and that the findings to be made required the finding that a fiduciary relationship existed. The learned trial judge, after referring to the evidence, held no such relationship to exist. The effect of the contentions was, I think, that the judge had given no indication of what findings he had in fact made and that accordingly his conclusion that a fiduciary relationship existed was of no assistance in this Court in determining whether the facts were such as to give rise to such a relationship. The submissions suggested that it was necessary or at least would have been of assistance if the findings of fact had been appropriately stated and that, absent such findings, it could not be assumed that, the judge having found the fiduciary relationship to exist, he must be inferred to have made such findings of fact as warranted the conclusion that that relationship existed.

I do not think that this accurately records the inferences to be drawn from the terms of his Honour's judgment. I think the inference may properly be drawn from what his Honour said that he did not accept that Dr Pavan had, in his dealing with Mr Ratnam, placed trust and confidence in him in the conventional sense. His conclusion was, in my opinion, that Dr Pavan had done what he did in the transaction acting upon his own judgment, as part of his investments in property and with a view, inter alia, to minimising the burden upon him of income tax. Although the precise facts found by the judge cannot be inferred with certainty, I would understand what he said to be such that by his findings of fact he negatived the conventional factual situations giving rise to a fiduciary relationship.

However this be, on a detailed examination of the facts, my conclusion is that the relationship between the parties was not a fiduciary one. His Honour, in his judgment, summarised the position as Mr Ratnam had claimed it to be. I shall not repeat what his Honour said in this regard. But the decision to invest in the proposed development was one which was made by Dr Pavan: it was not one which was pressed upon him by Mr Ratnam. He considered the financial details of it and sought the necessary finance from his bank. When the finance was not available on terms of interest suitable to him, he initiated the discussion with Mr Ratnam which involved, inter alia, Dr Pavan referring to the fact that Mr Ratnam (presumably because the loan had been raised overseas in foreign currency) having an overall rate of interest less than Dr Pavan would have paid to his bank. Dr Pavan used this as a basis for persuading Mr Ratnam to make available to him the finance for the purchase of the unit in the manner to which I have referred. Why the moneys were paid then rather than on tender of a conveyance of the unit does not appear: it may be speculated that there were reasons relevant to Dr Pavan's taxation position and his desire to incur expenditure at an early rather than a late date and/or to achieve a position in which he paid interest upon the moneys borrowed to purchase the unit. But, on ultimate analysis, the transaction was one negotiated between the parties. Subject to two matters, it represents a commercial transaction.

First, Mr Ratnam had acted as an accountant for Dr Pavan in preparing his income tax return. Dr Pavan claimed he was his adviser; Mr Ratnam said he was not. The inference from the judge's judgment is, I think, that he concluded that Mr Ratnam's evidence was correct. However that be, my conclusion upon an examination of the evidence is that there was not the position of adviser and client between them such as would give rise to fiduciary obligations: cf Daley v Sydney Stock Exchange Ltd (1986) 371 CLR 371 at 377 per Gibbs CJ.

Second, there was an aspect of the relationship between them in which, in a literal sense, Dr Pavan placed trust and confidence in Mr Ratnam. As I have indicated, when the deposit of $60,000 was paid and when the contract for sale of the unit was signed, the development in question had hardly been commenced. The contract itself was not specific in relation to the development; a properly drawn contract would have detailed what was involved and the obligations of the respective parties. In a sense, Dr Pavan trusted to Mr Ratnam the formulation of the development and the manner in which it was to be carried forward. In fact, at a subsequent date, there was variation in the development and accordingly a variation in the unit which Dr Pavan agreed to take. In a practical sense Dr Pavan left to Mr Ratnam the carrying out of the development, the building of the building, the relationships with the builder, and matters of that kind. There is no evidence that he concerned himself in any substantial way with these matters.

Trust and confidence imposed in this way may, in appropriate circumstances, give rise to fiduciary obligations. Those obligations would relate at least primarily to what was to be done in the formulation of and the carrying out of the development. The precise nature and extent of those obligations need not be pursued. It may be that, such obligations existing, it would have been incumbent on Mr Ratnam to have regard to Dr Pavan's interests in which he did.

However, in my opinion, that is not a matter which is relevant for present purposes. Even if obligations of such a nature existed, it would not be sufficient to ground the relief sought by Dr Pavan in this case. Dr Pavan's case is and depends upon a finding that by virtue of the way in which the agreement or arrangement for purchase of the unit in the development came about, Mr Ratnam had obligations of a fiduciary nature to Dr Pavan in relation to the $210,000 paid as the price for the unit purchased. The kind of trust and confidence to which I have referred, if it existed, did not go to matters of that kind. It is not suggested that the reason why the development failed financially was relevant to what is here in question. I am satisfied that the investment which Dr Pavan made was not made in such circumstances as to give rise to fiduciary obligations on the part of Mr Ratnam in relation to the moneys so paid.

For this purpose I have not sought to distinguish between moneys, being the deposit of $60,000, which should have been held by Nupace in trust or as a stakeholder and the balance of the price. On the argument as it has been advanced under this head of claim, such an issue does not arise.

(c) The negligence basis:

The claim in negligence and contract may be dealt with together. The pleading in negligence in the statement of claim presents a case different from but with similarities to the fiduciary claim. I agree with Beazley JA that no claim has been made out upon this basis.

For these reasons I agree with the orders proposed by Beazley JA.