Queensland Insurance (Investments) Ltd v Ragg & Associates International Ltd [2004] FJHC 174; HBC0020R.2002S (23 January 2004)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL ACTION NO. 0020 OF 2002

Between:

QUEENSLAND INSURANCE
(INVESTMENTS) LIMITED
Plaintiff

- and -

RAGG & ASSOCIATES INTERNATIONAL LIMITED
LUKE RAGG
DAVID HUGH RAGG
Defendants

Mr. F. Hanif for the Plaintiff/Respondent
Ms. R. Lal for the Defendant/Applicant

RULING

The plaintiff company is the registered proprietor of a substantial commercial property in downtown Suva which is leased to a number of individual tenants. The first defendant company was one of the tenants and at the material time was engaged by the plaintiff to act as its ‘sole managing agent’ of the entire property for a commission. Its duties in terms of its engagement included the collection of rent for the premises and the payment of VAT for the rent collected.

The second defendant is sued as a Director of the defendant company ‘in control of the day-to-day operations’ at the relevant time and the third defendant is alleged to have ‘acted as a consultant of the First defendant (and) controlled its overall operations’ (whatever that may mean).

The plaintiff company alleges that the defendants were collectively in breach of the sole management agreement in failing to collect and/or pay over rentals; in failing to maintain a separate account for the plaintiff’s rentals; and in failing to pay VAT.

Alternatively, the plaintiff company alleges against the 2nd and 3rd defendants that ‘(they) knew that monies collected from the tenants ...... belonged to the plaintiff and were under a duty to ensure that 1st defendant did not convert monies belonging to the plaintiff for its own use and benefit ......’ If I may say so in the absence of ‘particular facts’ the existence of this latter duty runs contrary to the ‘general proposition’ endorsed by the Privy Council in the leading case in this area namely, Royal Brunei Airlines v. Tan [1995] UKPC 4; (1995) 3 ALL E.R. 97 where their Lordships state (at p.108):

‘As a general proposition, beneficiaries cannot reasonably expect that all the world dealing with their trustees should owe them a duty to take care lest the trustees are behaving dishonestly.’

Be that as it may the defendants acknowledged service on 22nd January 2002 and by Summons dated 30th April 2002 sought the dismissal of the ‘Alternative Cause of Action on the grounds that it discloses no reasonable cause of action’ and further the removal of the 3rd defendant as a party to the proceedings.

On 27th June 2002 pursuant to a court order the plaintiff filed an amended Statement of Claim expanding on the Alternative cause of action. The expanded pleadings included averments that the 1st defendant company was a trustee of the rental monies collected and that the 2nd and 3rd defendants as constructive trustees ‘knowingly assisted’ the 1st defendant company in breaching its fiduciary obligations as a trustee of the rental monies and the plaintiff sought from them an account of the monies collected.

Despite the amended pleadings the defendants continued with their application to dismiss. Submissions were ordered and filed. I am grateful for the assistance provided in the submissions.

The defendants submit that the central issue in the case turns on the nature of the relationship between the 3rd defendant and the plaintiff (sic) and whether it is sufficient to render the 3rd defendant liable as an accessory.

In this latter regard the pleaded relationship between the 1st defendant company and the 3rd defendant is that of: ‘(a) consultant in control of the overall operations of the 1st defendant’. No attempt has been made in the amended pleadings to identify the particular activities the 3rd defendant is alleged to have performed for the defendant company in relation to the rent collected, nor were particulars supplied of the general or precise nature of the 3rd defendant’s duties and powers as a ‘consultant’ of the defendant company. This is particularly unfortunate as the term ‘Consultant’ is capable of encompassing a host of functions some more active than others.

In that somewhat nebulous capacity the plaintiff avers in its amended pleadings that the 3rd defendant became a constructive trustee of the rental monies and ‘knowingly assisted’ the defendant company to breach its fiduciary duties. Again, no particulars are given to explain how? it is that the 3rd defendant came to know about the defendant company’s alleged fraudulent activities or how? he is said to have assisted it in carrying them out.

Defence counsel finally submits that, even if one accepts that the 3rd defendant knew and assisted the defendant company, nevertheless, ‘The issue of importance here from the defendants’ position is the necessary ingredient of dishonesty in accessory liability. There has been no such claim made (against the 3rd defendant) by the present plaintiff in its Statement of Claim. ...... (because) it has no evidence of any dishonest conduct ...... (and) ...... by not claiming the 3rd defendant acted dishonestly, the plaintiff has not established a reasonable cause of action against him.’

Counsel for the plaintiff company accepts that: ‘in order to hold a person(s) responsible for assisting the company in breaches of its trust or fiduciary obligations, the conduct must be dishonest and fraudulent,’ but he nevertheless submits that ‘it is not necessary to use the word ‘fraud’ or ‘dishonesty’ [in the pleadings] if the facts which make the conduct complained of fraudulent are pleaded;’

In this latter regard counsel points to paragraphs 5, 6 & 9 of the Statement of Claim as clearly demonstrating that dishonesty is alleged against the defendant company in ‘(its failure) to keep all rent collected on behalf of the plaintiff in a separate trust account in its books of account and intermingled the plaintiff’s monies with its own’. Furthermore, ‘whether a defendant to a claim of dishonest assistance has acted dishonestly is essentially a question of fact for the Court to determine.’

I accept at once that the pleadings could be more clearly framed and particularised against the 2nd and 3rd defendants but that alone would not justify the dismissal of the claim on the basis that there is no reasonable cause of action if the pleadings can be amended or the necessary particulars supplied.

In Baden v. S.G. Development du Commerce S.A. (1992) 4 All E.R. 161 Peter Gibson J. at first instance conveniently enumerates the essential ingredients for a claim of ‘knowing assistance’ as follows (at p.232):

‘(1) The existence of a trust; (2) the existence of a dishonest and fraudulent design on the part of the trustee of the trust; (3) the assistance by the Stranger in that design; and (4) the knowledge of the Stranger ...... it is important not to lose sight of the requirement that taken together these elements must leave the court satisfied that the alleged constructive trustee was a party or privy to dishonesty on the part of the trustee.’

Plainly in this application the defendants complain that elements (3) & (4) are inadequately pleaded and/or particularised.

In Baden’s case (op.cit) Peter Gibson J. also dealt with the ‘knowledge’ required of a constructive trustee in a ‘knowing assistance’ case in the following terms: (at pp.234 & 235)

‘I think it is clear that he must know the 3 elements already mentioned. He must know that there was a trust though ...not all the details. He must know of the dishonest and fraudulent design of the trustee (though) ...... not the whole design ...... Further he must know that his act assisted in the implementation of such design. Further the relevant knowledge must be of facts and not of mere claims or allegations.’

More particularly his lordship after discussing in some detail the five (5) different mental states that might constitute ‘knowledge’ which were propounded by counsel for the plaintiffs, said (at p.248):

‘The knowledge must be actual knowledge or knowledge which it would have obtained but for shutting its eyes to the obvious or wilfully and recklessly refraining from making such inquiries the reasonable (man) would have made ......, the onus being on the plaintiffs to establish that (the defendant) possessed that knowledge.’

In this latter regard the plaintiff’s amended Statement of Claim avers that the ‘3rd defendant at all material times knew that monies collected from the tenants ...... belonged to the plaintiff and that the 1st defendant was a trustee of the monies collected ......’ In other words the 2nd and 3rd defendants are alleged to have had ‘actual knowledge’.

As to element (4) the pleadings aver that the 2nd and 3rd defendants ‘knowingly assisted’ the 1st defendant in breaches of its obligations as a trustee and, alternatively, ‘the 2nd and 3rd defendants knowingly assisted the 1st defendant to breach its fiduciary duties.’ As earlier pointed out no attempt has been made in the amended pleadings to particularise the type, nature and frequency of the ‘assistance’ that the 3rd defendant is alleged to have given to the 1st defendant company other than to describe him as a ‘consultant (who) controlled the overall operations of the First Defendant’.

Most certainly no allegation of ‘dishonesty’ or ‘lack of probity ‘ has been specifically made against the 2nd and 3rd defendants albeit that plaintiff’s counsel suggests that that is an inevitable inference from the defendant company’s alleged dealings with the plaintiff’s rental monies. The question is can that be imputed to the 2nd and more particularly the 3rd defendant?

The leading authority on ‘accessory liability’ is the decision of the Privy Council in Royal Brunei Airlines v. Tan (op.cit) where their lordships summarised the principle in the following passage (at p.109):

‘...... their Lordship’s overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly although this will usually be so where the third party who is assisting him is acting dishonestly ......’

Quite plainly from the foregoing it is neither necessary or sufficient to make an ‘accessory’ liable for a breach of trust, that the trustee was acting dishonestly or fraudulently. The relevant ‘dishonesty’ must be personal to the accessory and must be judged according to his personal state of knowledge taken together with the nature and quality of his personal action(s) and/or omissions.

As was said by May L.J. in Lipkin Gorman v. Karpnale Ltd. (1992) 4 ALL E.R. 409 at (p.417):

‘Where an element in the alleged fraud or dishonesty relied on is the other party’s knowledge of a given fact or state of affairs this must be explicitly pleaded.’

In similar vein Or. 18 r.11(4) of the High Court Rules clearly states:

‘Where a party alleges as a fact that a person had knowledge ...... of some fact, matter or thing, then ...... the Court may, ...... order that party to serve on any other party –

(a) where he alleges knowledge, particulars of the facts on which he relies,’

The usual form of such ‘particulars’ would be ‘specific facts, documents or overt acts’ on which the plaintiff intends to rely in support of the allegation that the 2nd and 3rd defendants had knowledge. Plainly the plaintiff’s bare assertion that the 3rd defendant is ‘a consultant in charge of overall operations’ is quite inadequate to enable the 3rd defendant to plead to the averment that he ‘knowingly assisted’ in the numerous breaches alleged against the defendant company.

In my view such particulars are also required to raise the plaintiff’s claim beyond a suggestion of mere carelessness, imprudence, negligence and unconscionability which all fall short of the ‘dishonesty’ required to be established in a claim of ‘knowing assistance’ [see: Royal Brunei Airlines case (op.cit) at pp.106 to 108].

I am not unmindful of the oblique reference in paras. 17 & 18 of the amended Statement of Claim to the various matters referred to in the earlier para.9, but a close consideration of the seven (7) items mentioned therein is to my mind more apposite to a claim of ‘knowing receipt’ than one of ‘knowing assistance’ which is what is specifically alleged against the 2nd and 3rd defendants.

In light of the foregoing the plaintiff is ordered to provide, file and serve on the defendants within 14 days of the date hereof:

(1) Particulars of the ‘knowledge’ alleged in paragraphs 16, 17 and 18 of the amended Statement of Claim;

(2) Particulars of the ‘assistance’ alleged in paragraphs 17 and 18 of the amended Statement of Claim;

(3) Such particulars to be contained within a reamended Statement of Claim and be clearly identified and separately itemised in respect of each of the 2nd and 3rd defendants respectively.

In the event that the above order is not complied with within the time given, the defendant’s Summons to dismiss of the 30th April 2002 is granted in terms.

(D.V. Fatiaki)
Chief Justice

At Suva,
23rd January, 2004.