Lawlor v NBF Asset Management Bank [2001] FJLawRp 73; [2001] 1 FLR 289 (17 August 2001)

DECIMA JOYCE LAWLOR & GREGORY ROBERT LAWLOR v NBF ASSET MANAGEMENT BANK

High Court Civil Jurisdiction

8, 17 August 2001

HBC 333/96S

Tort – fiduciary duty – whether there was any joint involvement of Mrs. Lawlor and the Defendant in the affairs of the Stinson Pearce Group of Companies which give may rise to a fiduciary expectation which the Court in equity should uphold - High Court Rules O.3 r.3; Companies Act ss108, 208

Mrs. Lawlor (now deceased) advanced $320,000.00 of her money by way of an unsecured loan to Pacific Mercantile Company Limited, a member of the Stinson Pearce Group of Companies (SPG). Noting SPG was in financial difficulties, Pricewaterhouse proposed a Scheme of Reconstruction under s208 of the Companies Act. Mrs Lawlor gave her consent, which was sanctioned by the Court, and which allowed the Bank to be registered proprietors over real property mortgages over certain of the Soqulu land over which the Bank held a first debenture. The Plaintiff's counsel conceded that the present agreed facts did not disclose a fiduciary relationship between Mrs. Lawlor and the Bank but urged the Court to find an ad hoc fiduciary relationship because of the various facts and matters. The Court found that there was nothing to suggest that Mrs. Lawlor and the Bank were at any stage involved in a joint enterprise having the characteristics of a partnership, or that the Bank ever undertook or agreed to act on behalf of or in the interest of Mrs. Lawlor which required Mrs. Lawlor to place reliance on the Bank or to give rise to the Bank owing an obligation to Mrs. Lawlor. As the Bank did not acquire its powers as a mortgagee until 5 years after Mrs. Lawlor gave her consent to the acquisition of those powers under a moratorium, that consent had by then expired. The Court found that the only arrangement between Mrs. Lawlor and the Bank was one by which she received $60,000 under a moratorium agreement. There was nothing in the schemes of reconstruction of the companies capable of affecting the Bank's statutory powers of sale as a mortgagee of the Soqulu lands. The Court cast doubt on the wisdom of a Plaintiff, acting on advice to advance unsecured funds to a company in financial difficulties, and to cast a duty on the Bank when she did not recover her full advances.

Held – There was doubt about any real legal relationship between the Bank and Mrs. Lawlor, let alone a fiduciary relationship, and the attempt to discover a fiduciary relationship between the Bank and Mrs. Lawlor in order to overcome the inherent weakness of her position as unsecured lender is misguided.

Preliminary issue answered in the negative appears to dispose of Action.

[Note: the Plaintiff abandoned an appeal to the Court of Appeal. The Defendant filed an application for costs which was refused on 2 June 2006.]

Cases referred to in Decision

Glandon Pty Ltd v Strata Consolidated Pty Ltd (1993) 11 ACSR 543
Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Lloyds Bank v Bundy [1975] 1 QB 327
Pilmer v Duke Group Limited (In liq) [2001] HCA 31; 75 A.L.J.R. 1067
Tufton v Sperni [1952] 2 TLF 516
United Dominion Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1

Martin Daubney SC with Grahame E. Leung and Shayne Sorby for the Plaintiffs
Martin Oakes QC with William W. Clarke for the Defendant

17 August, 2001

DECISION

Scott, J

By consent the Court under the provisions of RHC O3 r 3 is asked to consider the two following preliminary questions:

"Upon the facts set out in the Agreed Statement of Facts on Question of Fiduciary Obligation and the documents contained in the Tender Bundle to which the Court has been referred:

1. Did the Defendant owe a fiduciary duty Mrs. E.H.M. Lawlor?

2. If the answer to question 1 is "yes" what was the nature and scope of that duty?"

The Agreed Statement of Facts is as follows. The book references are to the books of Defendant's documents tendered by consent.

"Abbreviations

NBF National Bank of Fiji

SPG Stinson Pearce Group of Companies

PMC Pacific Mercantile Company Limited

BNZ Bank of New Zealand

TEL Taveuni Estates Limited

FNPF Fiji National Provident Fund

SPH Stinson Pearce Holdings.

1. On 11 January, 1980, TEL (then called Soqulu Plantation Limited) granted a debenture to NBF. A full copy of this document was tendered and marked "A".

2. The Plaintiffs are the trustees of the estate of the late Mrs. Lawlor, who died in 1986.

3. As at 1984, Burns Philp had, on behalf of Mrs. Lawlor advanced $320,000.00 of her money by way of an unsecured loan to PMC, a member of the SPG. A diagram depicting the corporate structure of the SPC was tendered and marked "B".

4. For some time prior to mid-1984, the SPG had been in serious financial difficulties.

5. In April 1984, BNZ prepared and circulated an "Information Memorandum" to all lenders to the SPG. (Book 6/10, p 1206)

6. On about 13 July, 1984, a statutory demand under the Companies Act was served on PMC on behalf of Mrs. Lawlor seeking payment of the moneys owing to her by 31 July 1984. This is noted in a memo of Mr. Plowman of NBF dated 13 July, 1984 (Book 4/10, p 782).

7. On 20 July 1984, NBF and BNZ, as proposed providers of additional funds to the SPG, wrote to all lenders to SPG, including Mrs. Lawlor, seeking consent to a moratorium on proceeding against the SPG on the terms set out in the letter ("the moratorium letter"). Annexure "A" to the moratorium letter acknowledged that the debt owed to Mrs. Lawlor was $333,333.00. Mrs. Lawlor was the only personal unsecured depositor. (Book 4/10, p. 767)

8. Paragraph 11 of the moratorium letter states:

It is agreed that Mrs. E.H.M. Lawlor, as the only personal unsecured depositor, is to receive monthly capital repayments of FJD5000, commencing 23/8/84 from the Stinson Pearce Group during the twelve months of the moratorium. At the end of the twelve month period the position of the Stinson Pearce Group will be reviewed and a fresh assessment made as to the quantum of any future payments. In the event of repayments not being made as stated, and not withstanding the conditions contained in Clause 1 herein it is understood Mrs. Lawlor will be free to take whatever steps against Pacific Mercantile Co. Ltd she considers appropriate. Further, should the moratorium be terminated within the twelve month period, this repayment arrangement is not to be taken as conferring on Mrs. Lawlor any priority or rights in respect to any amount owing to her on termination of the moratorium.

9. On 24 July, 1984, NBF and BNZ wrote again to Mrs. Lawlor, seeking her agreement to the moratorium letter. (Book 4/10, p 744)

10. Mrs. Lawlor consented to the moratorium proposal on these terms. Mrs. Lawlor was advised and represented by Tikaram & Associates in relation to the moratorium, and that firm monitored the payments to her under the terms of the moratorium. Mrs. Lawlor was also advised and represented by Tikaram & Associates in relation to the schemes of arrangement referred to below.

11. On 2 August 1984, BNZ wrote to NBF advising that all lenders had agreed to the terms of the moratorium letter, and enclosing the moratorium letter for execution by NBF. (Book 4/19, p 743)

12. Mrs. Lawlor was paid a total of $60,000.00 (i.e. twelve payments of $5,000.00) by PMC in accordance with the moratorium letter.

13. On 20 November 1984, a meeting of the lenders to the SPG, convened by Price Waterhouse, was held at which interalia, a "corporate plan" for the SPG was tabled and discussed. (Book 4/10, pp 723-734) The plan included a suggestion that the debt to Mrs. Lawlor be paid in full, but this was objected to by Westpac in a letter dated 10 January 1985. (Book 3/10, p 700) NBF was represented at the meeting by its Chief Manager, and Mrs. Lawlor was represented by Mr. Adrian Anderson, accountant. (Book 4/10, pp 714-719)

14. On 10 May, 1995, on the application of PMC, Kermode J ordered PMC to convene a meeting of creditors to consider and, if thought fit, approve a proposed Scheme of Reconstruction under s208 of the Companies Act. Order 2(b) made special provision for service of the proposed scheme on Mrs. Lawlor's representatives, which was done. A similar application was made with respect to a proposed Scheme of Reconstruction for SPH. For documents relating to the PMC Scheme of Arrangement, refer Book 9/10. For documents relating to the SPH Scheme of Arrangement, refer Book 7/10.

15. To obtain NBF's support for the proposed Scheme, TEL and BNZ agreed that TEL would grant NBF registered real property mortgages over certain of the Soqulu land over which NBF held a first debenture, and NBF agreed to allow BNZ to take registered real property mortgages over certain other land over which NBF held a first debenture. The terms of that agreement were set out in a Deed between NBF and BNZ dated 4 June 1985. (Book 3/10, pp 536-538)

16. On 18 June, 1985 NBF wrote to Mrs. Lawlor seeking her consent as a moratorium lender to NBF and BNZ taking these securities. (Book 3/10, p 526) Consent on behalf of Mrs. Lawlor was signed on 28 June 1985. (Book 3/10, p. 499)

17. On 20 June 1985, pursuant to petitions filed on 13 June, 1985, the Court sanctioned the Schemes of Arrangement. (Book 9/10, p 2146; Book 7/10, p 1494).

18. On 23 July 1985, the moratorium expired.

19. On 26 July, 1985, NBF took an assignment of the first registered mortgages held over the Soqulu Land in consideration of the payment to FNPF of $1,394,093.61.

20. On 23 July, 1990, NBF was granted the registered real property mortgage contemplated by the deed dated 4 June, 1985 over the Soqulu Land by TEL.

21. Apart from the $60,000.00 referred to in paragraph 12, Mrs. Lawlor's estate has been paid:

a. $7,287.13 from the PMC Scheme Fund on 28 March, 1994

b. $50,000 in June 1998, consequent upon claim made on the liquidator of Burns Philp Trustee Co. Ltd, being the proceeds of a government bond lodged by Burns Philp in relation to Mrs. Lawlor's deposit."

Both Senior Counsel also filed written submissions together with copies of the authorities cited.

I am much obliged to both Senior Counsel for the cooperative, practical and sensible way in which the issues and submissions were placed before me.

Certain relationships between persons are presumed by the Courts to be fiduciary. According to Snell's Equity 30th Edition paragraph 6-05:

"A fiduciary relationship arises where one person has undertaken to act for another in a particular manner in circumstances giving rise to a relationship of trust and confidence. The distinguishing feature of such a relationship is the fiduciary's duty of loyalty. Thus he must act in good faith, he must not profit from his position and he must not place himself in a position where his duty and his interest may conflict."

Examples of presumed fiduciary relationships include trustee and beneficiary, agent and principal, solicitor and client, director and company and partners. Not all fiduciary relationships however fall into these presumed categories and as pointed out in Tufton v Sperni [1952] 2 TLF 516 and Lloyds Bank v Bundy [1975] 1 QB 327 what may be termed ad hoc fiduciary duties may arise from the special nature of a particular relationship.

Mr. Daubney conceded that the present agreed facts do not disclose a relationship between Mrs. Lawlor and the Bank giving rise to a presumption that it was fiduciary but he submitted that this Court should find that it was an ad hoc fiduciary relationship because of the various facts and matters upon which he relied.

Mr. Daubney stressed that Mrs. Lawlor was the only personal unsecured lender to the SPG and that her unique position was recognised not only by the Bank in 1984 when the moratorium was agreed but also in 1985 by the Court when the reconstruction schemes were approved.

Mr. Daubney also relied on the June 1985 request by the Bank to Mrs. Lawlor seeking her agreement to the Bank taking mortgages over certain lands in Soqulu over which it already held a first debenture. Mr. Daubney suggested that the Bank, in seeking Mrs. Lawlors consent recognised "Mrs. Lawlors interest at the time that it was bettering its own security position". He argued that since one of the effects of the PMC scheme of reconstruction was to transfer all PMC liabilities (including the Lawlor debt) to SPH and that SPH was owed a substantial sum by related companies engaged in the development and sale of the Soqulu land there were "objective grounds" for an expectation by Mrs. Lawlor that the amount owed to her by PMC would be repaid from the proceeds of those sales. By managing to achieve the position of first registered mortgagee of those lands the Bank acquired the ability "effectively to control dealings in and development of the Soqulu land". In those circumstances it was suggested that it would be inequitable and unconscionable to permit the Bank when dealing with those lands to disregard Mrs. Lawlor's interests or to act in a manner contrary to them.

In Pilmer v Duke Group Limited (In liq) [2001] HCA 31; 75 ALJR 1067 Kirby J at paragraph 134 et seq. Very usefully set out a number of propositions concerning the existence or otherwise of fiduciary obligations. He explained that:

"where a suggestion is made that fiduciary obligations arise in a new relationship or out of particular facts it is essential that Judges perform their functions by analogy from settled principles. They are not entitled to distort those principles. Nor may they superimpose an equitable classification on facts simply because to do so would afford better or larger remedies to a Plaintiff who appears to have suffered some wrong".

"Specifically it is not sufficient to impose fiduciary obligations on an alleged wrong-doer simply to point to the vulnerability of the person claiming to have been wronged. Many people who are in an arms length relationship with each other (if they have any real relationship at all) experience a serious disproportion of power in their dealings ..... to call forth fiduciary obligations much more than vulnerability is required." (emphasis added)

In support of his submission that the relevant facts of this case point to the existence of a fiduciary relationship Mr. Daubney referred to United Dominion Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, 10 as authority for the proposition that a joint venture involving a relationship of mutual confidence and trust gives rise to fiduciary duties.

He also referred to Glandon Pty Ltd v Strata Consolidated Pty Ltd (1993) 11 ACSR 543, 557 in support of the proposition advanced by Professor P.D. Finn in Equity Fiduciaries and Trusts that:

"the critical matter in the end is the role that the alleged fiduciary has or should be taken to have in the relationship. It must so implicate that party in the other's affairs or so align him with the protection or advancement of that other's interests that foundation exists for "the fiduciary expectation". Such a role may generate an actual expectation that the other's interests are being served".

As I understood him, Mr. Daubney invited me to view the joint involvement of Mrs. Lawlor and the Bank in the affairs of the SPG as a joint venture giving rise to a fiduciary expectation which the Court in equity should uphold.

Mr. Oakes did not dispute that Mrs. Lawlor and the Bank both had a relationship with PMC but he pointed out that during different phases of their involvement in the attempt to rescue the SPG their relationship both with the SPG and with each other altered. It began with them both occupying the position of creditors of PMC; they then had a contractual relationship with each other from August 1994 to July 1995 during the term of the moratorium agreement. That was followed by a statutory relationship sui generis arising from the reconstruction schemes sanctioned by the Court under Section 108 of the Companies Act. When the moratorium expired they reverted to a position of several creditors of the company.

Mr. Oakes rejected the suggestion that any of these relationships were fiduciary for the simple reason that in none of them was it the function and purpose of the Bank to act in Mrs. Lawlor's interests.

This test of the existence of a fiduciary relationship is extracted from Professor Finn's paper in which he advances "a rather simple technique" to determine whether a particular relationship attracts fiduciary incidents. When the purpose of the relationship is to serve the parties joint interests (as in a partnership) it will be fiduciary. Where the purpose of the relationship is to serve the interests of one only (for example a beneficiary) it will also be fiduciary. But where the relationship exist to further the parties several interests no fiduciary duties arise.

It will have been noticed that Professor Finn's approach is consistent with but not the same as that of Snell and it is a feature and difficulty of identifying fiduciary duties that:

"the law has not formulated any precise or comprehensive definition of the criteria adopted for imposing such obligations." but:

"as a matter of practicality ... it is reasonable for Courts to have regard to features commonly found in cases where fiduciary obligations have been upheld." (Pilmer – supra p. 1095).

In Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96, 103 Mason J described the "critical" feature of fiduciary relationships as being:

"that the fiduciary undertakes or agrees to act for or on behalf or in the interest of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense" and:

"the fiduciary's duty may be more accurately expressed by saying that he is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect." (emphasis added)

Later, in the same case, Dawson J observed at page 147 that:

"a fiduciary relationship exists when one party is in a position of reliance upon the other because of the nature of their relationship and not because of a wrong assessment of character or reliability. That is to say the relationship must be of a kind which of its nature requires one party to place reliance upon the other; it is not sufficient that he in fact does so in the particular circumstances." and:

"Moreover a fiduciary relationship does not arise where one of the parties to a contract has failed to protect himself adequately by accepting terms which are insufficient to safeguard his interests. Where a relationship is such that by appropriate contractual provision or other legal means the parties could adequately have protected themselves but have failed to do so there is no basis without more for the imposition of fiduciary obligations in order to overcome the short comings in the arrangement between them." (emphasis added)

From the agreed facts of this case I can find nothing to suggest that Mrs. Lawlor and the Bank were at any stage involved in a joint enterprise having the characteristics of a partnership such as that considered in United Dominion Corporations Ltd (supra). I can find nothing to suggest that the Bank ever undertook or agreed to act on behalf of or in the interest of Mrs. Lawlor. I can find nothing in the nature of the relationship between them to require Mrs. Lawlor to place reliance on the Bank and neither can I find anything giving rise by the Bank to an obligation to Mrs. Lawlor.

The only arrangement between Mrs. Lawlor and the Bank which I can discover was the arrangement by which she received $60,000 under the moratorium agreement. There is nothing in the schemes of reconstruction of the companies capable of affecting the Bank's statutory powers of sale as a mortgagee of the Soqulu lands. As pointed out by Mr. Oakes the Bank's right to upgrade its security was contained in the debenture which was taken about 4 years before Mrs. Lawlors loan. In fact the Bank did not acquire its powers as a mortgagee until 5 years after Mrs. Lawlor gave her consent to the acquisition of those powers, consent required under the moratorium agreement which of course had by then expired. By that time I doubt whether there was any real legal relationship between the Bank and Mrs. Lawlor at all, let alone a fiduciary relationship. In my view they just happened both to be owed money by the company.

Throughout this saga Mrs. Lawlor acted on advice. Whether that advice was as good as it might have been is not for me to say. Making a substantial unsecured loan to a company in severe financial difficulties does not however strike me as being especially wise. But the attempt here to discover a fiduciary relationship between the Bank and Mrs. Lawlor in order to overcome the inherent weakness of her position seems to me to be misguided.

I would answer the first question "no".

Negative answer to preliminary questions for determination disposes of Action.

Marie Chan