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Peter Meredith & Company Ltd v Drake Solicitors Nominee Company Ltd [2001] WSSC 32 (10 December 2001)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA


BETWEEN


PETER MEREDITH & COMPANY LIMITED
a duly incorporated company having its registered office at Apia.
Plaintiff


AND


DRAKE SOLICITORS NOMINEE COMPANY LIMITED
a duly incorporated having its registered office at Apia.
First Defendant


AND


MURRAY DRAKE
of Tiapapata, Solicitor.
Second Defendant


AND


RUBY DRAKE
of Tiapapata, Solicitor
Third Defendant


Counsel: S Leung Wai for plaintiff
R Drake and J Drake for defendants


Hearing: 29 November 2001
Judgment: 10 December 2001


JUDGMENT OF SAPOLU CJ


In these proceedings the Court has to deal with a strike out motion filed on behalf of the defendants. The motion seeks two things: (1) an order to strike out the whole of the plaintiff’s statement of claim; (2) in the alternative, an order to strike out paragraphs 18, 22, 23, 27, 28, 29, 30, 31, 34, 41, 43 and 50 of the statement of claim and paragraphs (a) to (g) of the prayer for relief.


The first part of the motion which is to strike out the whole of the statement of claim is based on the ground that the various causes of action pleaded in the statement of claim are frivolous, vexatious and an abuse of process as: (1) the causes of action are time barred under ss. 6, 18 and 19 of the Limitation Act 1975; (2) the equitable doctrines of acquiescence and estoppel preserved under s.29 of the Act prevent the plaintiff from resiling from conduct which the defendants have acted upon to their detriment; the first defendant is a bare trustee for the benefit of the plaintiff and therefore is entitled to be indemnified completely by the plaintiff. The second part of the motion is also based on the grounds that the challenged paragraphs of the statement of claim are frivolous, vexations and an abuse of process in that: (1) paragraphs 18, 27, 28, 29, 30 and 31 of the statement of claim are time barred under s.6 of the Act; (2) paragraphs 22 and 23 are irrelevant; (3) paragraphs 34, 41 and 43 of the statement of claim are time barred under s.19; (4) paragraphs (b) and (c) of the prayer for relief are time barred under s.18(4); (5) paragraphs (d) and (e) of the prayer for relief are not supported on the merits and the quantum of damages sought is clearly excessive. It is not clear why paragraphs (a), (f) and (g) of the prayer for relief are not mentioned here even though the alternative order sought in the motion includes an order to strike out paragraphs (a) to (g) of the prayer for relief.


For clarity and in order to facilitate understanding of the issues in these proceedings, I will deal with these proceedings in three parts. Part I will deal with the causes of action sought to be struck out, Part II will deal with the alternative motion to strike out the specific paragraphs of the statement of claim and Part III will deal with the paragraphs of the prayer for relief sought to be struck out.


PART I


Preliminary issues


Before I turn to the facts, I wish to refer first to two important preliminary matters of practice and procedure which have arisen in these proceedings. The first relates to an affidavit filed by the second defendant in support of the motion to strike out and the affidavit in reply filed by the managing director of the plaintiff company. Even though paragraph 82 of the affidavit by the second defendant states that the proceedings by the plaintiff are frivolous, vexations and have no prospect of success as they are hopelessly time barred, in effect the second defendant’s affidavit for the most part represents a strong challenge to the causes of action pleaded in the statement of claim on the basis that the facts alleged and elaborated in the second defendant’s affidavit do not support the plaintiff’s causes of action. In other words the affidavit purports to exonerate the defendants on a factual basis from the breaches of the duty of care in contract and tort, breaches of fiduciary duty and breach of trust alleged in the statement of claim. As for the affidavit by the plaintiff’s managing director, it is a denial of some of the allegations in the affidavit of the second affidavit. I am not able to accept that the failure of the plaintiff’s managing director to reply to some of the factual allegations in the affidavit of the second defendant is tantamount to an admission of those allegations as a number of those allegations relate to matters the plaintiff’s managing director could not have known about for instance, some of the dealings between the first defendant and Tufuga Pule Ah Sam. (Ah Sam) In any case, there has been no clear or unequivocal admission of any truly material fact by any of the parties.


The question then is whether an affidavit which as a matter of fact seeks to challenge the allegations of fact in a statement of claim and the legal conclusions alleged to be based on those facts is admissible in support of a strike out motion and likewise whether an affidavit in reply disputing some of the factual allegations in the first affidavit is admissible. I must say I am very cautious about allowing preliminary proceedings on a strike out motion to become a trial on affidavits on contentious matters of fact. Such matters must await the substantive hearing for determination when oral evidence is called and subjected to examination cross-examination and re-examination.


On the use of affidavits in proceedings on a strike out motion, Gault J in delivering the judgment of the New Zealand Court of Appeal in Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641 stated at pp 645-646:


"A considerable number of affidavits were filed in support of the application to strike out dealing with factual matters. These were replied to in a series of affidavits sworn by Mr McLachlan. Mr White submitted that this was an appropriate approach in respect of an application to strike out on the ground that the statement of claim is an abuse of process of the Court. He sought to demonstrate by reference to the affidavits that the claims could not succeed. In this respect it is to be noted that the application does not claim to evoke the inherent jurisdiction of the Court as is often the case with such applications. The Judge’s attitude appears from the following passage in the judgment:


"The glut of affidavits indicated that both sides appeared to read rather much into the dictum in Peerless Bakery Ltd v Watts [1955] NZLR 339, 351, that affidavit evidence is admissible in support of an application to strike out if it is not contradicted or not in itself contradictory of material in the pleadings.


"In the recent judgment in CED Distributors (1988) Ltd v Computer Logic Ltd (CA 345/90 and 5/91, 26 July 1991) it was said:


"There will be occasions when brief affidavit evidence may assist a proper understanding of a pleading, may exhibit a pleaded document or may deal with factual material that is undisputed. This is appropriate for failure to disclose a cause of action will not attempt to resolve genuinely disputed issues of fact or consider evidence inconsistent with the pleading."


"We see no justification for any broader approach to the question of whether pleadings disclose a cause of action merely because it is asserted that thereby the proceeding is an abuse of process."


Further on at p.646 Gault J goes on to say:


"[Lengthy] and contentious affidavits are not to be encouraged and are more likely to lead to an award of costs against an applicant than to the success of the strike out application."


On the basis of what is said in Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641, I will take into account the affidavits by the second defendant and the plaintiff’s managing director insofar as they may assist a proper understanding of a pleading in the statement of claim, or exhibited a document pleaded in the statement of claim, or deal with an undisputed factual material. Perhaps it should be mentioned here that a statement of defence has not been filed as it is not necessary to do so at this stage.


The second preliminary matter I wish to refer to is the concern expressed by counsel for the plaintiff that these proceedings appeared to take on the complexion of a trial after the somewhat lengthy submissions by counsel for the defendants. It is open to counsel moving to strike out a claim as disclosing no cause of action or is frivolous, vexations and an abuse of process to demonstrate even by extensive argument that a claim is so clearly untenable that it has no possible chance of success on any of those grounds that it should be struck out. Counsel opposing the strike out motion may also demonstrate even by extensive argument that a claim is tenable and should not be struck out. Similarly, counsel in support of a motion to strike out a claim may demonstrate by extensive argument that a claim is plainly time barred and therefore frivolous, vexatious and an abuse of process and should be struck out. Counsel opposing such motion may respond by extensive argument that the claim is not time barred and therefore not frivolous, vexatious and an abuse of process and should not be struck out.


In General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, 130, Barwick CJ stated in relation to a motion to strike out a claim:


"I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiffs claim. Argument, perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed."


That statement was accepted by the New Zealand Court of Appeal in Lucas & Son Ltd v O’Brien [1978] 2 NZLR 289 and in Takaro Properties Ltd v Rowling [1976] 2 NZLR 314 and more recently applied by the High Court in Brintons v Feltex [1990] NZHC 392; [1991] 2 NZLR 677. In E v K [1995] 2 NZLR 239 Morris J in dealing with a strike out application stated:


"[I] would add that although a striking-out application may raise difficult questions of law which entail extensive argument, this does not, of itself, exclude the jurisdiction to strike out: (see Gartside v Sheffield, Young & Ellis [1983] NZCA 37; [1983] NZLR 37, 45 per Richardson J). This observation is specially apposite in this case where, on the legal submissions involved, counsel addressed the Court for over two days, filed extensive written submissions and drew to my attention many decisions of both New Zealand and foreign origin."


In my judgment the approach stated and followed in the strike out proceedings in the cases I have referred to also apply to the present motion to strike the causes of action in the plaintiff’s statement of claim as time barred and therefore frivolous, vexatious and an abuse of process. That brings me to the relevant facts.


Facts


The facts relevant to the motion to strike out the causes of action as time barred and therefore frivolous, vexatious and an abuse of process are as follows. In this connexion I will assume that the facts pleaded in the statement of claim are correct.


The first defendant is a solicitor's nominee company. The second and third defendants are both barristers and solicitors in the partnership of Drake & Co and are the directors of the first defendant. The second and third defendants have had a longstanding solicitor client relationship with the plaintiff and the plaintiff’s managing director from about 1981 to 1997.


One of the objects of the first defendant company is money lending and the holding of securities including mortgages and chattels securities for the benefit of the clients who invest their funds with the first defendant for lending purposes. These securities and any interest which accrue on the clients funds which are lent out are to be held on a bare trust by the first defendant for the benefit of the clients. According to the statement of claim, in February 1986 the plaintiff entrusted with the defendants the sum of $7,000 to be invested on loans through the first defendant. On 14 February 1986 the first defendant lent that sum to one Ah Sam at the interest rate of 24% pa reducible to 22% pa on early payment. The first defendant was to be paid a commission. This loan was secured by a chattel security over a Toyota Hilux double cap pick up vehicle and a mortgage over land. The terms of the loan and what then follows are not very clear from the statement of claim. For that reason, I will now refer to the affidavit of the second defendant to assist a proper understanding of the pleadings in the statement of claim.


According to the second defendant’s affidavit, the total amount of the loan made by the first defendant to Ah Sam on 14 February 1986 was $12,500. Of that total amount, $7,000 came from funds of the plaintiff held by the first defendant. As securities for the loan, a chattels security was taken over a 1983 Toyota Hilux pick up vehicle and a varied statutory mortgage was taken over Ah Sam’s quarter of an acre of freehold land at Siusega. From the variation of statutory mortgage document exhibited to the second defendant’s affidavit, the principal sum and interest which accrued on the loan were to repaid by monthly instalments of $1,250. The first payment was to be paid on 1 April 1986 and then on the first day of every month thereafter. Thus the monthly instalment repayments were due and payable on the first day of every month commencing from 1 April 1986. Ah Sam made the monthly repayments for April, May and June 1986. He then made no further repayments until 1987 when he made two repayments of $800 each in February and March and two repayments of $150 each in May and June. No further repayments were then made until 1989 when the mortgaged land was sold for $8,000 under a sale and purchase agreement. The instalment repayments under the sale and purchase agreement were paid by the purchaser to the first defendant. Whether the full amounts of these repayments were credited to the plaintiff alone or to all the contributories to the total amount of the loan made to Ah Sam is not clear. What is clear is that from 28 February 1989 to 31 October 1990 thirteen different payments from the sale and purchase agreement of the mortgaged land were credited to the plaintiff. Except for the first such payment which was made on 28 February 1989, the other twelve payments were much less than the $1250 Ah Sam had agreed under the loan agreement to pay per month. These payments totalled $3,882.75 which is only about half of the $7,000 that was lent to Ah Sam by the first defendant from the plaintiff’s funds. After 31 October 1989 no further payment was made to the loan. As for the chattels security over the Toyota Hilux double cab pick up vehicle, the vehicle was so badly damaged in an accident that it was uneconomic to have it repaired or to realize its scrap value. Ah Sam had also failed to renew the insurance on the vehicle. Thus no claim could be made against the insurer.


According to the second defendant’s affidavit, Ah Sam left Samoa for the United States sometime in 1989 without any knowledge of the defendants. Despite indications from Ah Sam while in the United States that he would repay the balance of his loan including accrued interest no further repayment has been made. Since 1992 the defendants have had no further contact with Ah Sam. In his affidavit, the second defendant also sets out in detail how he had explained to the plaintiff the nature of the loans made by the first defendant and all the steps he had taken to safeguard the plaintiffs funds lent to Ah Sam and to recover the loan from Ah Sam. The purpose of this as it appears to me, is to negate by factual allegations the various breaches of the duty of care and fiduciary duty as well as breach of trust alleged by the plaintiff as well as the factual allegations on which those alleged breaches are based. I am of the view these matters are relevant and highly relevant at the trial of the claims by the plaintiff and may be pleaded in a statement of defence. But in proceedings on a strike out motion, it will not be appropriate for the Court to make decisions on disputed matters of fact or matters of fact which have not been admitted by the plaintiff but appear to be disputed by the plaintiff from the very nature of its claims and the facts pleaded in the statement of claim on which those claims are based.


Coming back to the statement of claim, it shows in paragraphs 14 and 15 that from 1986 to 2001 statements signed by the third defendant were forwarded to the plaintiff showing payments made on the Ah Sam loan, the accrued interest, the loan balance and the securities. The statements for 1991 do not show that any repayments were made during that year and the loan balance was $9,783.48. I think that must have been so because there were no further repayments from Ah Sam or on his behalf after 31 October 1989. It is further alleged in the statement of claim that the investment statement from the first defendant for the year 1999 did not show the loan securities. I think the reasons for this are explained by the second defendant in his affidavit. It is further alleged by the plaintiff that the defendants did not advise that Ah Sam had defaulted on the loan and that no further payments had been made.


On the facts pleaded in the statement of claim, the plaintiff has claimed against the defendants for breach of duty of care in contract and tort, breach of fiduciary duty and breach of trust. The first limb of the defendants strike out motion is that all these claims are time barred and therefore frivolous, vexatious and an abuse of process and should be struck out. I will now deal in turn with each of the plaintiff’s causes of action and whether any of them is time barred.


Cause of action in contract against first defendant


It is alleged in the statement of claim that in February 1986 the plaintiff entrusted with the defendants funds in the sum of $7,000 to be invested in loans made through the first defendant. It appears that a contract then came into existence between the plaintiff and the first defendant. It is then further alleged in the statement of claim that the implied terms of that contract were that the first defendant would lend the plaintiff’s funds against proper securities and would exercise reasonable care and skill to ensure that the funds would be repaid. As the funds are still unpaid, it is further alleged by the plaintiff that the first defendant has been in breach of contract which has resulted in loss to the plaintiff.


It appears that what the plaintiff is really saying is that the first defendant is in breach of its contract with the plaintiff because the first defendant has breached its duty of care under the contract which is expressed in the claim as the duty to exercise reasonable care and skill to ensure that the plaintiff’s funds which are lent out will be repaid. As a result of that breach, the plaintiff is said to have sustained a loss. That brings me to the question whether the plaintiff’s cause of action is time barred. Section 6(1) of the Limitation Act 1975 provides:


"Except as otherwise provided in this Act, the following actions shall not be "brought after the expiration of 6 years from the date on which the cause of action "accrued, that is to say:


"(a) actions funded on simple contracts and tort"


For limitation purposes, the crucial question is what is the date on which the cause of action accrues for it is from that date the limitation period starts to run. The conventional view has been that a cause of action in contract accrues from the date of breach whereas a cause of action in tort accrues from the date damage occurred. However, the law in this area has not stopped developing so that now a cause of action in contract for breach of the duty to exercise reasonable care accrues from the date damage occurred. This means the date from which a cause of action accrues for breach of the duty of care in contract is now the same as the date from which a cause of action accrues for breach of the duty of care in tort, both causes of action being founded in negligence: Day v Mead [1987] NZCA 74; [1987] 2 NZLR 443, 450 per Cooke P; Mouat v Clark Boyce [1992] 2 NZLR 559, 568 per Cooke P.


In this case counsel for the first defendant submitted that the limitation period against the plaintiff started to run from 1991 when the plaintiff discovered from the investment statements sent to it that Ah Sam was making no further payments to the loan. I think the approach that will be consistent with the law is (a) ascertain first the date the breach of the duty of care in contract occurred, then (b) ascertain the date damage occurred as a result of the breach of that duty. The limitation period will only start to run from the date damage occurred.


Applying that approach to this case, it is difficult indeed to see from the submissions by counsel and the material placed before the Court when the alleged contractual duty of care was breached. Even more difficult is when the plaintiff sustained damage as a result of that breach. However, the principles which govern a strike out motion are clear. The summary jurisdiction to strike out before trial is to be sparingly exercised. It is only to be exercised in a plain and clear case where it is obvious from the material placed before the court that the plaintiff’s case is so clearly untenable that it cannot possibly succeed. These principles have been expressed in different words in other cases but what I have said conveys the gist of the jurisdiction. The rationale is that a litigant should not be easily deprived by summary process of his right to have his case tried in Court – the right to trial – unless it is plain and clear that his case cannot possibly succeed if it goes to trial. On the submissions of counsel and the material placed before the Court, I respectfully do not think it has been demonstrated to the Court’s satisfaction that the plaintiff’s cause of action is plainly and clearly time barred that it should be summarily struck out. Counsel for the first defendant may wish to consider afresh the limitation issue on the basis of the approach I have stated. Further consideration may then be given to the question of whether the limitation issue could and should be pleaded in a statement of defence to be filed for the first defendant. Counsel for the defendants is experienced in this area given previous cases she has been involved with as counsel. She is undoubtedly aware that the limitation defence is ineffective unless pleaded because she successfully raised that issue in the recent case of Public Trustee v James Devoe (2000) (unreported judgment delivered on 8 September 2000). Counsel for the plaintiff on the other hand, may also wish to consider the limitation issue on the basis of what I have stated.


All in all then, the motion to strike out the cause of action in contract against the first defendant is dismissed.


Cause of action in tort against the second and third defendants


It is alleged in the statement of claim that the second and third defendants have been in breach of their duty of care in tort in that they were negligent in the administration of the funds they were entrusted with by the plaintiff for lending purposes. Particulars of negligence (denied by the second defendant in his affidavit) are set out in the statement of claim. I need not refer to those particulars in detail. Essentially they are that the second and third defendants failed to provide for adequate securities for the loan of the plaintiff’s funds to Ah Sam and enforcing those securities in a timely manner when Ah Sam defaulted on the repayments; failure of the second and third defendants to ensure that the principal sum and accrued interest was repaid; and failure to provide legal advice and to notify the plaintiff in a timely manner.


From the statement of claim, the second and third defendants were at all material times solicitors for the plaintiff and its managing director as well as directors of the first defendant. It is not clear from the pleadings whether the second and third defendants are being sued in negligence in their capacity as solicitors for the plaintiff for which they could be separately liable, or as directors of the first defendant for which the first defendant could be vicariously liable. Perhaps counsel for the plaintiff may be wish to clarify this point later. The other matter which requires clarification is the liability of the third defendant. From the statement of claim, it appears that the only involvement of the third defendant in this matter is in relation to the investment statements under her signature which were sent to the plaintiff. If this is all the involvement of the third defendant in this matter, it is difficult to see what duty of care in tort she has breached. It is true that negligence is alleged against the third defendant. But from the material placed before the Court, it is difficult to see any involvement of the third defendant as a solicitor for the plaintiff or as a director of the first defendant at the material times. I move on now to the limitation question.


As stated, a cause of action in tort for breach of duty of care accrues from the date damage occurred and the limitation period starts to run from that date. Again as a helpful approach, (a) ascertain first when the breach of the tortious duty of care occurred, then (b) ascertain when damage occurred as a result of that breach. The limitation period starts to run from the date damage occurred.


The submission by counsel for the second and third defendants is that the limitation period started to run from 1991 when the plaintiff discovered that Ah Sam was not making payments to the loan. It is not possible to see from counsel’s submission when the alleged breach of the duty of care in tort in respect of the second and third defendants occurred or when damage occurred as a result of the alleged breach because the limitation period starts to run in tort from the date damage occurred. Neither is it possible to see with clarity from the material placed before the Court when the alleged breach of the tortious duty of care occurred or when damage resulted from that breach. I have studied the statement of claim and the relevant parts of the second defendant’s affidavit and they do not lead me with the necessary degree of confidence to form a definite view as to when the limitation period started to run in respect of this cause of action or whether this cause of action is time barred. Bearing in mind the principles that govern the exercise of the Court’s jurisdiction to strike out summarily a claim as plainly and clearly having no possible chance of success, which have been referred to in this judgment, I have with some difficulty come to the view that the motion to strike out the cause of action in tort against the second and third defendants should also be dismissed. However, that does not mean the second and third defendants cannot plead the limitation defence in their statement of defence.


Cause of action in equity for breach of fiduciary duty against the first, second and third defendants


It is alleged in the statement of claim that the first defendant as a solicitor's nominee company owed a fiduciary duty to the plaintiff. It is also alleged that the second and third defendants owed a fiduciary duty to the plaintiff which arises from their solicitor/client relationship and is one based on confidence and trust. It is then alleged that all three defendants are in breach of their respective fiduciary duties to the plaintiff by their failure to take steps and procedures to ensure that the plaintiff’s funds lent to Ah Sam were repaid.


It should be said that in an action for breach of a fiduciary duty, which is a duty that arises in equity, the particular fiduciary duty alleged to have been breached should be clearly set out in the claim. Likewise the nature of the breach. It should also be clear that the duty of care in contract and tort which is a duty not to cause damage by negligence is not the same as a fiduciary duty which is a duty of loyalty. The duty of care in contract and tort is also a common law duty and exists at common law; the fiduciary duty of loyalty is an equitable duty and exists in equity. It should follow from this that not all duties of a solicitor in a solicitor/client relationship are of a fiduciary nature even if such a relationship is described as a fiduciary relationship. Thus not every breach of duty by a fiduciary (for instance a solicitor) is a breach of a fiduciary duty.


A modern judicial explanation of what is involved in a fiduciary duty is given by Millet LJ in Bristol and West Building Society v Mothew [1998] Ch1 cited by counsel for the defendants, where his Lordship states at p.18.


"A fiduciary is someone who has undertaken to act for on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith, he must not make a profit out of his trust, he must not place himself in a position where his duty and his interest may conflict, he may not act for his own benefit or the benefit of a third person without the informed consent of his principals. This is not intended as an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p.2, he is not subject to fiduciary obligations because he is a fiduciary, it is because he is subject to them that he is a fiduciary."


Further on in his judgment at p.18, Millet LJ goes on to say:


"The nature of the obligation determines the nature of the breach. The various obligations of a fiduciary merely reflect different aspects of his core duties of loyalty and fidelity. Breach of fiduciary obligation, therefore, connotes disloyalty or infidelity. Mere incompetence is not enough. A servant who loyally does his incompetence best for his master is not unfaithful and is not guilty of a breach of fiduciary duty.


"In the present case it is clear that, if the defendant had been acting for the society alone, his admitted negligence would not have exposed him to a charge of breach of fiduciary duty."


Earlier on at p.16 of his judgment, Millet LJ says:


"It is similarly inappropriate to apply the expression [fiduciary duty] to the obligation of a trustee or other fiduciary to use proper skill and care in the discharge of his duties."


In Girardet v Grease & Co (1987) 11 B.C.L.R (2d) 361, 362 Southin J says:


"The word ‘fiduciary’ is flung around now as if it applied to all breaches of duty by solicitors, directors of companies and so forth.... That a lawyer can commit a breach of the special duty [of a fiduciary].....by entering into a contract with the client without full disclosure... and so forth is clear. But to say that simple carelessness in giving advice is such a breach is a perversion of words."


In Nimmo v Westpac Banking Corporation [1993] 3 NZLR 219, Blanchard J states at p.237:


"I have held that Westpac was negligent but the fact that a fiduciary acts negligently, whether contractually or tortiously, does not in itself place the fiduciary in breach of any of its duties fiduciary qua fiduciary. It has breached its duty of care. That gives rise to an action at common law, not to an action for breach of fiduciary duty."


As for academic writings on the subject, I need only refer to two. In a paper entitled Good Faith and Non-Disclosure – The Fiduciary Principle by Professor PD Finn, published in Essays on Torts (1989) ed PD Finn, the learned author says at pp 165 – 166:


"A quite different appreciation of the fiduciary principle – and the one consonant with our own law – gives it a more particular, less embracing focus. It sees its object as being no more than to secure a loyal service of the beneficiary’s interests and this is done by proscribing disloyalty in that service. The fiduciary is not to use his position or the power or opportunity it gives him to serve an interest other than his beneficiary’s – be this his own or a third party’s. Translated into legal doctrine this produces two overlapping proscriptions. A fiduciary –


"(a) cannot use his position to his own or to a third party’s advantage; or


"(b) cannot in any matter within the scope of his service have a personal interest or an inconsistent engagement with a third party – unless this is freely and informedly consented to by his beneficiary or is authorised by law.


"Loyalty is thus exacted. But no more than loyalty. On this view not every instance of non-disclosure by a solicitor, an agent, a doctor or whoever will be actionable as a breach of fiduciary duty. If no issue of disloyalty is involved the non-disclosure will only be actionable if at all through those primary bodies of law which constitute, or govern the ordinary incidents of, the relationship in question – negligence, breach of contract etc. This view at least ensures that the law of tort and contract in particular would not be displaced from their now accepted roles in many relationships which are coincidentally, fiduciary."


Finally in Snell’s Equity (2000) 30th ed, cited by counsel for the defendants it is stated at paragraph 6 – 05 p. 112:


"Not all duties of a fiduciary are properly categorised as fiduciary duties: only those duties which are an aspect of the fiduciary’s duty of loyalty are properly so categorized. Thus a trustee who acts loyally but in competently is not in breach of his fiduciary duties although he may be in breach of his duty to exercise reasonable care. (Bristol & West Building Society v Mathew [1998] Ch1, 16-22; R v Clester Legal Aid Office, ex parte Floods [1998] 1 WLR 1496, 1500), and a breach of a duty to account owed by a fiduciary but deriving from a contractual obligation does not amount to a breach of fiduciary duty unless it is intentional (Coulthard v Disco Mix "Club [1999] 2 A11 ER 457 at 476-478)".


Applying these principles of fiduciary law to the present cause of action, it is clear that the relevant pleadings do not disclose a cause of action for breach of fiduciary duty against any of the defendants. Counsel for the defendants submitted that what is actually being alleged is breach of a duty of care or negligence on the part of the defendants rather than a breach of a duty of loyalty or fiduciary duty. In other words the relevant pleadings disclose no cause of action for breach of fiduciary duty. I agree with counsel for the defendants. The problem is that the strike out motion is based on the ground the plaintiffs claims are time barred, not on the ground they disclose no cause of action. In the circumstances, leave is reserved to the defendants to move to strike out the claim for breach of fiduciary duty as disclosing no cause of action. For this reason, it is not necessary to consider the limitation question at least at this stage. The plaintiff, on the other hand is at liberty to oppose such motion if it wishes to do so. The second and third defendants to file and serve within eleven days a motion to strike out the present claim as disclosing no cause of action.


Cause of action for alleged breach of trust against first, second and third defendants


It is alleged by the plaintiff that the first defendant at all material times held the chattel and mortgage securities for the loan to Ah Sam on trust for the plaintiff. There is no difficulty in accepting this allegation especially as the arrangements between the plaintiff and first defendant clearly suggest that the first defendant is to hold the plaintiff’s funds on a bare trust for lending purposes which means the first defendant would be a trustee of those funds for the plaintiff as beneficiary. The statement of claim then goes on to allege that the second and third defendants were also trustees under the same trust for the plaintiff as they were the solicitors for the plaintiff and directors for the first defendant. Counsel for the plaintiff did not explain how the second and third defendants could be described as trustees in such circumstances when it is the first defendant, an incorporated company, that was holding the funds in trust for the plaintiff. However, the strike out motion did not touch on this aspect of this cause of action so perhaps that is why counsel for the plaintiff did not address this issue. But it certainly has to be addressed in the substantive hearing if this cause of action goes that far.


The plaintiff then says in his statement of claim that the defendants entered into a number of arrangements and promises with Ah Sam without the knowledge and consent of the plaintiff. By letter of 12 January 2001 the defendants by the law firm of Drake & Co advised the plaintiff that "every effort to collect funds including realization of securities and crediting of sale proceeds was made". It is then further alleged that the statements forwarded to the plaintiff do not show any payments from the sale of the securities being credited to the account of the plaintiff. It is then claimed that the defendants have failed to account to the plaintiff for the sale proceeds and therefore have committed a fraudulent breach of trust and breach of their duties as trustees and fiduciaries.


In his affidavit the second defendant sets out the payments from the sale of the mortgage land security which have been credited to the plaintiff’s ledger. The inference from the plaintiff’s pleadings is that it was not aware of these payments as they were not accounted for in the statements forwarded to the plaintiff. There are also conflicts between the second defendant’s recollection and that of the plaintiff’s managing director as to whether the plaintiff was advised of the steps taken to realize the land security and the actual realization of that mortgage security. I am not required by law to resolve these factual conflicts in a strike out motion. But as a matter of law, I have to assume for the purpose of such motion that the facts pleaded in the statement of claim are correct.


Now a trustee has a duty to render accounts to a beneficiary under a trust and the beneficiary can bring an action in equity for account against a trustee. The circumstances of the case at hand will determine what is to be accounted for. In Tillott v Wilson [1891] UKLawRpCh 164; [1892] 1 Ch 86, Chitty J said p.88:


"[A] trustee is bound to give his cestui que trust proper information as to the investment of the trust estate, and where the trust estate is invested on mortgage, it is not sufficient for the trustee merely to say, ‘I have invested the trust money on a mortgage’, but he must produce the mortgage deeds, so that the cestui que trust may thereby ascertain that the trustee’s statement is correct, and that the trust estate is so invested. The general rule, then, is what I have stated, that the trustee must give information to his cestui que trust as to the investment of the estate".


In Principles Of The Law of Trusts (1990) 2nd ed by HAJ Ford and WA Lee, which is the only edition of that book available to the Court, the learned authors state at p.420:


"It is the further duty of the trustee to render accounts to the beneficiaries, to have her or his accounts ready, and to be candid in any disclosures to beneficiaries."


The present cause of action is for fraudulent breach of trust and breach of duties as trustees and as fiduciaries. It is based on the allegation that the defendants have failed to account to the plaintiff for the proceeds of the sale of the mortgage security. If that is the basis for alleging fraudulent breach of trust, would it not have achieved the plaintiff’s purpose if an action for an account was brought. I merely raise this point for counsel’s consideration.


I also query the wording of this cause of action whether what is really meant is equitable fraud or common law fraud. I presume it is equitable fraud because what is claimed is a breach of trust. I also query whether there is here any real difference between the alleged duties of the defendants as trustees and their alleged duties as fiduciaries. The trustees given the alleged facts, would also be fiduciaries vis-à-vis the plaintiff. The trustees duty to account to the plaintiff would appear to be co-extensive with their fiduciary duty to make full disclosure. However, the point was not argued and I do not wish to give any definite view on it.


Further, it is alleged that the plaintiff has suffered loss as a result of the breach by the defendants of their alleged duties. There must of course be a nexus between the alleged breaches of duties and the loss claimed to have resulted from those breaches. This raises a question of causation; what is the nexus between the breach and the loss. Again I merely raise this point for counsel’s consideration as loss is alleged to have resulted from breach and in case this cause of action goes further.


That finally brings me to the question whether this cause of action is time barred. Counsel for the plaintiff submitted that this cause of action is barred by s.19(2) of the Act. This is based on the affidavit of the second defendant which in effect says that the defendants were at all material times acting properly without breach of any of the duties alleged by the plaintiff. In other words counsel for the defendants submitted there was no fraudulent breach on the facts. With respect, I would agree that the pleadings on their face do not disclose a common law fraud or deceit, but they do allege breach of fiduciary duty which is equitable fraud: Nocturn v Lord Ashburton [1914] UKLawRpAC 31; [1914] AC 932. I am not required at this stage to decide whether there was such fraud in fact. I am only required at this stage to decide whether the cause of action as pleaded is time barred, and, if so, strike it out. That requires of myself to consider s.19(1) and (2) which provide:


"(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action:


"(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or


"(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.


"(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of 6 years from the date on which the right of action accrued."


It is clear that s.19(2) is subject to s.19(1). This must mean s.19(2) will not apply to claims which fall under s.19(1). The plaintiff’s allegations in support of the cause of action for fraudulent breach of trust are arguably within s.19(1) which provides no limitation period. It is not plain and clear that that cause of action cannot possibly fall within s.19(1). Whether it will succeed on the merits is a different matter which is not necessary to decide at this stage of proceedings. The motion to strike out the present cause of action is therefore also dismissed.


Cause of action for alleged fraud and breach of fiduciary duty against defendants


Under this cause of action, it is alleged by the plaintiff that the defendants acted fraudulently and in breach of their fiduciary duties by representing to the plaintiff that the securities taken over the loan to Ah Sam were adequate or proper to cover the principal sum and interest when the defendants ought to have known that was untrue. Perhaps the plaintiff should have been more clear as to what is the nature of the fiduciary duty alleged to have been breached and on what factual basis is the third defendant to be liable. However, I am not here dealing with a motion to strike out on the basis that the claim does not disclose a cause of action. The defendant’s motion is to strike out all cause of action as being time barred.


It was submitted by counsel for the defendants that the plaintiff’s pleadings make no mention of the fiduciary duty of loyalty or how such a duty was breached in order to arrive at the conclusion there has been a breach of fiduciary duty. It was further submitted for the defendants that the pleadings are more in step with an allegation of negligence against the defendants rather than breach of fiduciary duty. That being so the proper cause of action should have been in negligence for which the limitation period is 6 years. The points raised by counsel for the defendants are clear to me. But as I have said there is no motion before the Court to strike out this claim as disclosing no cause of action. Furthermore an action in negligence will be in torts or contract for breach of duty of care and the limitation period for such an action starts to run from the date damage occurred as a result of a breach of the duty of care. But I have already referred to the difficulties in ascertaining from the material placed before the Court the date damage occurred. I have also pointed out that in the exercise of its summary jurisdiction, the Court will exercise its jurisdiction sparingly and will not strike out a claim unless it is so plain and clear that the claim is untenable that it cannot possibly succeed. All this apply to the pre-trial stage of proceedings. It does not reflect any decision to be made by the Court on the merits or demerits of the claim at the trial when witnesses are called examined, cross-examined and re-examined.


Coming back to the limitation question, counsel for the defendants submitted on the basis of the affidavit of the second defendant which contains 84 paragraphs plus a number of exhibits that the present cause of action is not a valid cause of action as on the facts alleged in the second defendants affidavit there was no fraud, breach of fiduciary duty or even a breach of the duty of care. With respect to counsel for the defendants, I have already referred to Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641, 645-646 where the New Zealand Court of Appeal stated in relation to strike out proceedings that only brief affidavit evidence may be received to assist a proper understanding of a pleading, or exhibit a pleaded document, or deal with a factual material that is undisputed. Lengthy and contentious affidavits are not to be encouraged. I would add that if the strike out motion is grounded on the action being time barred, then the Court is not required to deal with the question raised for the defendants of whether the claim fails to disclose a cause of action if there is no motion before the Court to that effect. Such a motion needs to be filed. I have only touched on those matters in this judgment for the purpose of clarity and in case these proceedings go further to a substantive hearing.


I have therefore decided to also dismiss the motion to strike out the present claim as time barred, but the defendants may file and serve within eleven days a motion to strike out for no cause of action.


I turn now to two other matters raised by counsel for the defendants for striking out the statement of claim. These are acquiescence and bare trust. I deal first with acquiescence. Section 29 of the Act provides:


"Nothing in this Act shall affect any equitable jurisdiction to refuse relief on the ground of acquiescence or otherwise."


Equitable remedies are discretionary, not automatic. Thus even if the plaintiff’s claims founded in equitable fraud, breach of fiduciary duty and breach of trust are established at the trial, that does not mean the equitable remedies sought will automatically follow. Equitable remedies are discretionary. One of the grounds which may bar the granting of equitable relief is acquiescence.


Counsel for the defendants submitted on the basis of the affidavit by the second defendant that the plaintiff acquiesced in the alleged breaches of fiduciary duty and trust as well as in the alleged fraud assuming there were such breaches as well as fraud. I am of the respectful view acquiescence should be pleaded as a defence rather then it being raised at this pre-trial stage as a ground for striking out the plaintiff’s claims as time barred. The Court will then deal with the defence of acquiescence raised in the second defendant’s affidavit in a thorough and considered manner when all the evidence is placed before the Court at the trial and the Court is in a position to make decisions on questions of credibility. I therefore do not consider that in this case acquiescence as raised in the second defendants affidavit is a ground for concluding that the plaintiff’s claims are time barred.


The second matter raised by counsel for the defendants in support of its motion to strike out the plaintiff’s claims as time is bare trust. It was submitted that the relationship between the plaintiff and the first defendant was that of a bare trust. The first defendant being a bare trustee and the plaintiff being the beneficiary. I think the reason for describing the relationship between the plaintiff and the first defendant as a bare trust is mainly because that is how the relationship is described in the "general authority and indemnity" document that was signed by the parties.


Without intending any discourtesy to Mr Drake who is appearing in his first case as counsel before this Court, I have decided not to reach any conclusion on the meaning of what is a bare trust in these interlocutory proceedings given the conflicting authorities on the issue. Counsel referred to the judgment of Hall V.C. in Christie v Ovington (1875) 1 Ch D279 where it was held that a bare trustee is


"a trustee to whose office no duties were originally attached, or who, although such duties were originally attached to his office, would on the requisition of his cestui que trust, be compellable in equity to convey the estate to them, or by their direction."


However, that definition was criticized by Jessel MR in Morgan v Swansea Urban Sanitary Authority [1878] UKLawRpCh 245; (1878) 9 Ch D 582 who took the view that the concept of a trustee necessarily connotes active duties. While the Court in Re Docwra [1885] UKLawRpCh 115; (1885) 29 Ch D 693 and Re Cunningham and Frayling [1891] UKLawRpCh 72; [1891] 2 Ch 567 preferred the view of Hall V.C., the Court in Re Blandy Jenkins Estate [1917] 1 Ch 46 supported the view of Jessel MR. These conflicting authorities were not cited. As a result the Court did not have the benefit of submissions from counsel on the said conflict. Without coming to any definite view as to which line of authorities is to be preferred, the view of Jessel MR in Morgan’s case, if correct, will be a complete answer to the submission by counsel for the plaintiff that if a bare trustee is a trustee without duties to perform, then the first defendant in this case would not be a bare trustee as it had duties to lend out the plaintiffs funds entrusted to the defendants and to recover those funds and accrued interest. However, as I have said the Court did not have the benefit of submissions from counsel on the aforesaid conflicting decisions. The point is novel as far as Samoan law is concerned and it would not be appropriate to come to any definite conclusion on the matter in these interlocutory proceedings without full arguments.


Be that as it may, the relationship between the plaintiff and the first defendant was clearly one of trust with the plaintiff as beneficiary having an indefeasible beneficial ownership of the funds held by the first defendant as trustee. On the authority of Hardoon v Belilios [1901] AC 118, Mr Drake submitted that as the relationship between the first defendant and the plaintiff was a bare trust with the first defendant as bare trustee holding a legal interest in the funds and the plaintiff holding the absolute beneficial interest in the same, the first defendant is therefore entitled to a personal indemnity by the plaintiff. In Hardoon the relevant facts were that the plaintiff trustee was the registered holder of some not fully paid up shares in a banking company. The defendant beneficiary was the beneficial owner of the shares. When the banking company went into liquidation, the liquidator made calls on the shareholders to pay up the unpaid portions of their shares. When the plaintiff trustee asked the defendant beneficiary to indemnify him for the unpaid value of the shares, the latter refused. Thus the plaintiff commenced Court proceedings against the defendant. In delivering the judgment of the Privy Council in that case, Lord Lindley stated at p. 123:


"It appears from the evidence as it stands that the defendant became the sole beneficial owner of these shares, the legal title to which was vested in the plaintiff. Assuming this to be established, their Lordships are at a loss to understand what more was required to create the relation of trustee and cestui que trust between the plaintiff and the defendant... All that is necessary to establish the relation of trustee and cestui que trust is to prove that the legal title was in the plaintiff and the equitable title in the defendant."


His Lordship then went on to say:


"The next step is to consider on what principle an absolute beneficial owner of trust property can throw upon his trustee the burdens incidental to its ownership. The plainest principles of justice require that the cestui que trust who gets all the benefit of the property should bear its burden unless he can show some good reason why his trustee should bear them himself. The obligation is equitable and not legal, and the legal decisions negativing it, unless there is some contract or custom imposing the obligation, are wholly irrelevant and the beside the mark...[Where] the only cestui que trust is a person sui juris, the right of the trustee to indemnity by him against liabilities incurred by the trustee by his retention of the trust property has never been limited to the trust property; it extends further, and imposes upon the cestui que trust a personal obligation enforceable in equity to indemnify his trustee. This is no new principle, but is as old as trusts themselves."


Then further at p.125, His Lordship stated:


"When a trustee seeks indemnity from his cestui que trust against liabilities arising from the mere fact of ownership, there is neither principle nor authority for saying that the trustee need prove any request from his cestui que trust to incur such liability. In the case supposed the trust involves such liabilities, and the trustee, whilst he remains such, cannot get rid of them. He is subject to them as legal owner; but in equity they fall on the equitable owner unless there are good reasons why they should not."


It is thus clear that a beneficiary of a trust has a personal obligation enforceable in equity to indemnify his trustee against liabilities incurred within the scope of the trust unless there are good reasons to negative that obligation. In other words the trustee has a right of indemnity against a beneficiary for liabilities incurred by him within the scope of the trust unless there are good reasons to show that the right cannot be enforced.


Now it would appear that in the present case if the first defendant as trustee wishes to bring an action against the plaintiff as beneficiary he may do so in a counterclaim. But I find it difficult to see how the question of a trustee’s indemnity arising out of a bare trust can assist the first defendant’s motion to strike out the plaintiff’s claims for alleged fraud, negligence in contract and tort, breach of trust, and breach of fiduciary duty. The plaintiff is suing the first defendant for the losses the plaintiff claims to have suffered as a consequence of the alleged breaches of the duty of care in contract and tort, breach of fiduciary duty and breach of trust in the management of the trust property which are the funds entrusted by the plaintiff to the first defendant for lending purposes. So how can the first defendant ask the plaintiff to indemnify it for such losses alleged by the plaintiff to have been caused to it by the first defendant’s negligence, breach of fiduciary duty and breach of trust in the management of the trust property. In addition, Hardoon was dealing with quite a different factual situation from that in the present case where the plaintiff beneficiary is suing the defendants as trustees instead of the trustees as in Hardoon seeking an indemnity from the beneficiary. The first defendant’s submission on this point cannot succeed. If the first defendant still wishes to claim an indemnity against the plaintiff then a counterclaim be filed setting out the basis for such claim.


With respect, the submissions based on the question of indemnity cannot assist the first defendant’s strike out motion.


PART II


Alternative strike out motion


The alternative motion by the defendants is that if the causes of action or claims by the plaintiff are not struck out, then paragraphs 18, 27, 28, 29, 30, 31, 34, 41 and 43 of the statement of claim should be struck out as time barred under ss.6, 18(4) and 19; paragraphs 22 and 23 of the statement of claim should be struck out as irrelevant; paragraphs (b) and (c) of the prayer for relief are time barred under s.18(4); and paragraphs 9d) and (e) of the prayer for relief should be struck out as unsupported on the merits and the quantums of damages sought are excessive.


Having considered the submissions by counsel for the plaintiff, I am of the respectful view that I have already dealt with paragraphs 18, 27, 28, 29, 30, 31, 34, 41 and 43 of the statement of claim which all relate to the claims for negligence in contract and tort, breach of fiduciary duty and breach of trust, and whether they are time barred. That was done when I dealt with the motion to strike out those claims as time barred. It is therefore not necessary to deal again with the aforesaid paragraphs of the statement of claim under the alternative motion. This part of the strike out motion is also dismissed.


I therefore move on to that part of the alternative motion which is to strike out paragraphs 22 and 23 as being irrelevant to any of the causes of action. Paragraphs 22 and 23 alleges:


22."THAT the plaintiff through its managing director by letter of 17 July 2001 to Drake & "Co authorised the transfer of all its files and other files to its new Solicitors.


23."THAT despite the said written authority by the plaintiff, various written requests by the "solicitors of the plaintiff and the duty of a holding solicitor to act on an authority to "release client files without undue delay the files were not released until 10 August 2001.


I accept the submissions by counsel for the defendants that paragraphs 22 and 23 are irrelevant to any of the causes of action for negligence in contract or tort, breach of fiduciary duty or breach of trust. Those paragraphs of the statement of claim are therefore struck out.


PART III


Paragraphs (b), (c), (d), (e) of prayer for relief


I will deal first with that part of the motion to strike out paragraphs (b) and (c) of the prayer for relief and then with paragraphs (d) and (e) of the same.


Paragraphs (b) and (c) of the prayer for relief seeks judgment for unpaid interest of $97,751.64 accrued as at 14 February 2001 and accrued interest as at 15 February 2001 to date of judgment respectively. It appears these accrued interests are claimed as part of the loss the plaintiff has alleged to have suffered under the various causes of action pleaded in the statement of claim. Counsel for the defendants submitted the claims for accrued interest are time barred under ss.6 and 18(4). I will deal first with s.18 which provides:


"No action to recover arrears of interest payable in respect of any sum of money secured by a mortgage or other charge or payable in respect of proceeds of the sale of land, or to recover damages in respect of such arrears shall be brought after expiration of 6 years from the date on which the interest became due."


I am of the respectful view s.18(4) does not apply to the claims for interest in the prayer for relief for these reasons. Section 18(4), as far as relevant, speaks of an action to recover arrears of interest payable in respect of any sum of money secured by a mortgage or payable in respect of proceeds of the sale of land. The plaintiff’s action is not an action to recover interest arrears in respect of a mortgage or proceeds of the sale of land. It is not a claim for interest as such. It is an action against the first, second and third defendants seeking damages for alleged breaches of the duty of care in contract and tort, and for breaches of fiduciary duty and trust. The interest is claimed as part of that loss. In addition, the plaintiff not being a party to the mortgage between the first defendant and Ah Sam could not have brought an action pursuant to the mortgage for interest on the secured sum or for interest on proceeds of the sale of the mortgage security. A mortgage after all is created by contract. As a general principle of contract law a person not a party to a contract may not sue on that contract. Thus the present claim for interest in the prayer for relief does not fall within the ambit of s.18(4). Section 18(4) does not apply to these strike out proceedings.


As for the submission that paragraphs (b) and (c) of the prayer for relief being barred by s.6(1), I have already dealt with that in relation to the causes of action. If the cause of action is time barred then the relief sought in respect of that cause of action will necessarily suffer the same fate as the cause of action – it too will also be time barred. But if the cause of action is not time barred then so is the relief that is sought. It is also not claimed that only part of the interest claimed is time barred. The whole interest claimed is said to be time barred. However, it appears clear that the claim is not really a claim for interest as such. It is a claim for loss said to have resulted from the breaches claimed in the causes of action. The prayer for accrued interest is really for part of the total loss the plaintiff says he has suffered for breaches of the duty of care in contract and tort, and for breaches of fiduciary duty and trust. So the submission that paragraphs (b) and (c) of the prayer for relief cannot succeed.


This part of the strike out motion is therefore also dismissed.


That brings me to that part of the alternative motion which is to strike out paragraphs (d) and (e) of the prayer for relief on the grounds they are not supported by the merits of the claims and that the amounts sought are excessive. I say at once that the motion to strike out paragraphs (d) and (e) on the ground that the damages they claim are excessive is not appropriate and is dismissed. As to the other ground that paragraphs (d) and (e) are not supported on the merits, I deal with paragraph (d) first and then with paragraph (e).


Paragraph (d) of the prayer for relief seeks exemplary damages of $100,000. It is not clear from the pleadings why exemplary damages is being sought. But a claim for exemplary damages and the facts on which it is based should be pleaded with sufficient particularity to enable the defendants to prepare a proper reply. A mere inclusion of exemplary damages as a separate item of damages in the prayer for relief is not enough. Here I am referring only to a claim for exemplary damages in tort. In The Law of Torts in New Zealand (1997) 2nd ed by Todd et al, it is stated at pp 1234 – 1235:


"[There] are statements in more recent cases which indicate that an intention to claim exemplary damages should be signalled and that the facts justifying an award should be fully pleaded. The law relating to exemplary damages has advanced to such an extent in recent years, and the approach to litigation, has changed so significantly, that the statements in Taylor v Beere can no longer be regarded as a sound rule.


"In Television New Zealand Ltd v Quinn [1996] 3 NZLR 24, 30, Lord Cooke made it clear that a plaintiff must signal its intention to claim exemplary damages, and why. The general rule of modern pleading is that a plaintiff is required to state its case with sufficient particularity for the defendant to be able to formulate a proper reply. A claim for exemplary damages is analogous to fraud, and therefore ought to be pleaded with great particularity; a bald averment of flagrant disregard for the plaintiff’s rights is insufficient. Full particulars of the conduct relied on, and its egregious nature, should be supplied. The amount sought in respect of exemplary damages should also be particularised; the defendant is entitled to know its potential liability in respect of the claim."


I turn now to the availability of exemplary damages in contract and in equity for breach of fiduciary of duty. I deal first with contract. The orthodox view as held by the English House of Lords in Addis v Gramophone [1909] AC 488 is that exemplary damages may not be granted in an action for breach of contract. That view was adopted in the High Court of Australia by Griffiths CJ in Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78, 79. Whether that view should still hold good today, particularly in an action in contract for breach of the duty of care, was not argued in this case. But in Tak & Co Inc v AEL Corporation Ltd (1995) 5 NZBLC 99, 357, Hammond J awarded exemplary damages for fraud committed by the defendant in carrying out a contract of supply. Similarly in Francis v Canadian Imperial Bank of Commerce (1995) 2 OR (3d) 75, the Court of Appeal of Ontario awarded exemplary damages for dismissal of an employee under a contract of employment. Thus it is arguable whether exemplary damages could now be awarded in an action in contract. But as the issue was not argued, I prefer to leave it open. I have only referred to this issue as the defendants are moving to strike out exemplary damages from the prayer for relief and it is not clear from the statement of claim whether the exemplary damages sought in the prayer for relief relates to the claim in tort alone or whether it relates to all claims including the claims in contract, breach of fiduciary duty and breach of trust. If the plaintiff’s intention is to also seek exemplary damages in contract, then such claim should also be pleaded with sufficient particularity and the quantum particularised in order to enable the defendants to prepare a proper reply. Eleven days are also allowed to the plaintiff to file and serve an amended statement of claim setting out with sufficient particularity the basis of any claim for exemplary damages in contract. The plaintiffs shall have until 14 January 2002 to move to strike out if they wish to do so.


As for a claim for exemplary damages for breach of fiduciary duty and trust, I have not been able to find any judicial authority which holds that exemplary damages may or may not be awarded in equity for breach of fiduciary duty or breach of trust. However, the view is expressed in Equitable Damages (1994) by PM McDermott at p.104 that the Court also has inherent jurisdiction to award punitive damages in equity in an appropriate case. The author then cites, inter alia, an article The Availability of Compensatory and Exemplary Damages in Equity Victoria University of Wellington Law Review, vol 21, (1991), p.391 by PW Michalik. That article is not available to the Court. But if the plaintiff’s intention is to seek exemplary damages in equity for breach of fiduciary duty and breach of trust, then an amended statement of claim should be filed and served within eleven days setting out the basis for such claim with sufficient particularity. The defendants have until 14 January 2002 to move to strike out if they wish to do so. Legal submissions with relevant authorities are required from counsel on both sides as this is a novel issue.


If the plaintiff fails to file and serve an amended statement of claim seeking exemplary damages in contract, tort or equity as required, then paragraph (d) of the prayer for relief would be struck out without the defendants having to do any thing further.


As for the claim for general damages in paragraph (e) of the prayer for relief, counsel for the defendants submitted the statement of claim does not disclose any grounds for the claim for general damages. I am not satisfied on the submissions that this is a case where general damages should not be awarded if the claims or any of them should succeed. I am also not entirely clear as to the real basis of the defendants motion to strike out paragraph (e) of the prayer for relief. I will therefore adjourn this part of the strike out motion to 14 January 2002 for a new hearing date unless by that time counsel have reached agreement on what to do.


Conclusions


Stated briefly, the following are the conclusions I have reached:


(1) the motion to strike out the cause of action in contract against the first defendant as time barred is dismissed;


(2) the motion to strike out the cause of action in tort against the second and the third defendants as time barred is also dismissed;


(3) the motion to strike the cause of action for breach of fiduciary duty against the first, second and third defendants as time barred is adjourned to 14 January 2001 for the defendants to file and serve a motion within eleven days to strike out this part of the plaintiff’s claim as disclosing no cause of action;


(4) the motion to strike out the cause of action for breach of trust against the first, second and third defendants as being time is also dismissed;


(5) the motion to strike out the cause of action for breach of fiduciary duty against the first, second and third defendants as time barred is also dismissed, but the defendants may file and serve within eleven days a motion to strike out for no cause of action;


(6) the alternative motion to strike out paragraphs 18, 27, 28, 29, 30, 31, 34, 41 and 43 of the statement of claim is also dismissed;


(7) the alternative motion to strike paragraphs 22 and 24 of the statement of claim as being irrelevant is granted;


(8) the alternative motion to strike out paragraphs (b) and (c) of the prayer for relief is also dismissed;


(9) the alternative motion to strike out paragraph (d) of the prayer for relief is adjourned to 14 January 2002 for the plaintiff to file and serve an amended statement of claim within eleven days setting out with sufficient particularity the basis of the claim for exemplary damages;


(10) the alternative motion to strike out paragraph (e) of the prayer for relief is also adjourned to 14 January 2002 to set a date for rehearing.


(11) proceedings are adjourned to 14 January 2002 for re-mention.


Costs


Costs reserved.


CHIEF JUSTICE

Solicitors:
Leung Wai Law Firm for plaintiff
Drake & Co. for defendant

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