Peter Meredith & Company Ltd v Drake Solicitors Nominee Company Ltd [2002] WSSC 44 (16 April 2002)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

CP No. 107/2001

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 company 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 for first, second and third defendants

Hearing: 21 March 2002
Judgment: 16 April 2002

JUDGMENT OF SAPOLU CJ

Following my judgment delivered on 10 December 2001 on a motion by the first, second and third defendants to strike out the plaintiff’s statement of claim on the ground that its causes of action and certain paragraphs of the claim and the prayer for relief were time barred, the plaintiff filed an amended statement of claim. In turn, the defendants have filed another motion to strike out the amended statement of claim on a number of grounds set out not only in the motion but in the written submissions by counsel for the defendants. Before I turn to that motion, I will set out the relevant background facts pleaded in the amended statement of claim. I will have to assume that the plaintiff can prove those facts for the purpose of the strike out motion.

Background facts

The plaintiff is a company; the first defendant which operates out of the premises of the law firm of Drake & Co is a solicitors nominee company; the second and third defendants are the partners of the law firm of Drake & Co and were the solicitors for the plaintiff; they are also the directors of the first defendant. In the beginning of February 1986, the plaintiff gave $7,000 to the defendants to be invested through the first defendant one of whose activities is to lend out money on securities. On 14 February, the first defendant gave out a loan of $12,500 to one Tufuga Pule Ah Sam (‘the debtor”). Part of that loan was financed with the $7,000 invested by the plaintiff. Interest was charged on the loan. The first defendant charged a 10% commission on the interest and 3% on repayments of the principal. It is alleged the plaintiff was not advised of the loan to the debtor and gave no authority for it. It is not clear whether the first defendant was required under the loan arrangements with the plaintiff to advise the plaintiff or obtain his authority before the loan was given out to the debtor.

As securities for the loan, the first defendant obtained from the debtor a chattels security over his pick-up vehicle and a mortgage over his quarter acre of land. It is alleged these securities were inadequate; but whether the securities were inadequate at the time the loan was made is not clear. It is also alleged that no valuation of the land was obtained. In terms of a written arrangement made between the plaintiff and the first defendant any security for loans from the plaintiff’s funds was to be held on a bare trust for the plaintiff. The securities for the loan to the debtor were thus held by the first defendant on a bare trust for the plaintiff.

Statements on the loan were issued by the first defendant to the plaintiff under the signature of the third defendant. It is not clear at what intervals those statements were issued. Apparently they showed that in 1987 the loan repayments were in arrears. In 1989 the land that was the subject of the mortgage was sold due to the debtor defaulting on the loan repayments. The vehicle which was the subject of the chattels security was written off in an accident but the debtor had not kept up with the payments of the insurance premiums. Thus insurance could not be claimed on the vehicle.

Statements issued by the first defendant to the plaintiff showed no further payments had been made by the debtor for the loan and the total amount outstanding was $9,783.48 inclusive of accrued interest. This must be the outstanding amount on the plaintiff’s own funds because the loan was $12,500 and only $7,000 of that loan was financed with the plaintiff’s funds. The statements for 1999 continued to show the same outstanding balance of $9,783.48 but the chattels security and the mortgage were no longer shown. It is not clear when the securities ceased to appear in the statements sent to the plaintiff because in 1989 the mortgaged land was sold and the vehicle was written off in an accident.

On 27 February 2001, it is alleged the plaintiff sent various letters to the second defendant and the law firm of Drake & Co. The purpose of these letters was to seek clarification as to why the loan to the debtor and accrued interest were not being paid. Clarification was also sought on the status of the securities. However, the written responses from the defendants were not satisfactory.

Causes of action

On the basis of the facts as set out, the plaintiff has pleaded four alternative causes of action. The first cause of action alleges negligence against all three defendants. In relation to the first defendant, it is alleged that it is an implied term of the plaintiff’s investment that the first defendant will lend out the plaintiff’s funds against proper and adequate securities. It is further alleged that it is an implied term of the plaintiff’s investment that the first defendant will exercise reasonable care and skill to ensure that the loan to the debtor will be repaid together with any accrued interest. As the loan has not been fully repaid, the first defendant is in breach of its duty of care in contract and as a result the plaintiff has suffered loss and damages.

In relation to the second and third defendants, it is alleged in the first cause of action that they were negligent in the administration of the plaintiff’s investment. There is some ambiguity here. It is not clear whether the plaintiff’s funds were entrusted to the first defendant as a company with a separate legal entity, or to the second and third defendants as the solicitors for the plaintiff, or to all three defendants. If the plaintiff’s funds were entrusted to the second and third defendants as the plaintiff now seems to say, then any contractual relationship in respect of the funds must have been between the plaintiff and the second and third defendants; the first defendant will be a stranger to that contract. However, the plaintiff is also saying that the first defendant has been in breach of implied contractual terms resulting in loss and damages to the plaintiff, which suggests a contract between the plaintiff and the first defendant. If the plaintiff entrusted his funds with the second and third defendants for investment, as pleaded under the present cause of action, then where does the first defendant come in with a contractual duty of care to the plaintiff? A contract between the plaintiff and the first defendant must be shown. This is not clear from the pleadings.

Be that as it may, the particulars of negligence against the second and third defendants allege that the second and third defendants failed to take reasonable steps and procedures to ensure adequate securities for the loan and repayment of the loan; the second and third defendants failed to provide legal advice with due care and skill regarding the plaintiff’s investment; the second and third defendants failed to notify the plaintiff in a timely manner when the debtor defaulted on the loan; and they failed to provide satisfactory responses to the plaintiff’s inquiries.

The second cause of action alleges breach of fiduciary duty against all three defendants. It is said the first defendant is owned and operated by the second and third defendants and that the second and third defendants as solicitors for the plaintiff owed a fiduciary duty to the plaintiff. It is also said that the second and third defendants were trustees for the plaintiff as they admitted in the trial of the first strike out motion. This is not correct. What was submitted on behalf of the defendants in that trial was that the relationship between the plaintiff and the first defendant was that of a bare trust with the first defendant being a bare trustee and the plaintiff being the beneficiary of the trust; nothing was said about the second and third defendants being trustees for the plaintiff.

It is then alleged that the defendants (which must be taken to include all three defendants) were in breach of their respective fiduciary duties of failing to take steps to properly secure and administer the loan by failing to comply with the rules and procedures for the operation and administration of nominee company lending; by placing themselves in a conflict of interest situation; by failing to disclose relevant facts to the plaintiff; and by generally failing to observe the duty of care required of solicitors in relation to their clients. I would have thought a solicitor’s duty of care to his client is different from his fiduciary duty to his client and therefore does not form part of a cause of action for breach of fiduciary duty.

Further particulars, labelled as general failures, are then pleaded for the alleged breaches by the defendants of their respective fiduciary duties. With respect to counsel for the plaintiff, I must say that some of the matters pleaded as “general failures” may relate to the cause of action in negligence for the alleged breaches of the common law duties of care in contract and tort, but are not material to the cause of action for the alleged breaches of fiduciary duty in equity. Further particulars are also given of the defendants alleged non-compliance with procedures for nominee company lending, the alleged conflict of interest and the alleged failure to disclose “material facts” to the plaintiff.

The third cause of action then alleges against the defendants breaches of duty as trustees and as fiduciaries towards the plaintiff as a result of which the plaintiff has suffered loss. It is further alleged that the first defendant held the loan securities on trust for the plaintiff, and that the second and third defendants as solicitors for the plaintiff and as the directors of the first defendant were trustees for the plaintiff under the said trust. The defendants were therefore at all material times trustees for the plaintiff under the said trust.

The fourth cause of action against the defendants again alleges breaches of duty as trustees and fiduciaries towards the plaintiff resulting in loss and damages to the plaintiff.

Even though I have not expressly referred to all the numerous particulars pleaded in support of the plaintiff’s various causes of action for breach of fiduciary duty, some of those particulars are only relevant to the action for breach of the duty of care in negligence.

Motion to strike out

The defendants have moved to strike out the amended statement of claim on the general ground that it discloses no cause of action. The principal ground given for saying that the amended claim discloses no cause of action is that time is an essential element of each of the plaintiff’s four causes of action but the pleadings in the amended claim do not disclose when each cause of action occurred. I will deal only with the principal ground of the defendants motion that time is an essential element of each cause of action in this judgment. I need further submissions from counsel on the other issues raised by the defendants in their submissions but were not spelled out in the strike out motion. Those other issues are: (1) whether the second and third defendants are being sued in relation to the second, third and fourth causes of action as directors of the first defendant company or as solicitors for the plaintiff or both; and (2) what are the essential elements of the causes of action for breach of fiduciary duty as pleaded in the amended claim. I will hear further submissions on those issues on Tuesday, 23 April at 12 noon before delivering judgment on the remaining issues raised in the strike-out motion and written submissions of counsel.

It appears that the defendants’ present motion is a follow on from their motion to strike out the original statement of claim on the ground that the causes of action there pleaded were time barred under the Limitation Act 1975. In support of the defendants submission that the time a cause of action occurred is an essential element of the cause of action, counsel referred to rule 15(1) of the Supreme Court (Civil Procedure) Rules 1980 which provides:

“A statement of claim shall specify particulars of the claim which the plaintiff seeks to establish, including such particulars of time, place, names of persons, dates of instruments, and other circumstances as may suffice to ensure that the Court and the opposite party are fully and fairly informed of the cause of action.”

In my view rule 15(1) is only a procedural rule which requires that certain particulars including time shall be specified in relation to a claim so as to fully and fairly inform the Court and the opposite party of the cause of action. It does not make time an element of a cause of action. Rule 15(1) deals only with a matter of practice and procedure; it does not deal with what should be the elements of a cause of action. That is to be found under the substantive law. Under that law, when a breach of a duty of care or a fiduciary duty occurs is not an essential element of a cause of action in negligence, or for breach of a fiduciary duty, or for a breach of trust.

Counsel for the defendants also referred to Letang v Cooper [1964] EWCA Civ 5; [1965] 1 QB 232 where Diplock LJ said at p.242 that a “cause of action” is simply a factual situation the existence of which entitles a person to obtain a remedy from the Court against another person. She also referred to Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1976] 1 NZLR 741 where Somers J said at p.748 that a “cause of action” means the act on the part of the defendant which gives the plaintiff the cause for complaint or every fact which would be necessary for the plaintiff to prove to support his right to the judgment of the Court. I must say that none of these meanings given to the words “cause of action” suggests that time or when a cause of action occurs is an essential element of a cause of action. I, therefore, do not accept the principal ground given by the defendants for saying that time is an essential element of a cause of action.

Counsel for the defendants also complained that the way the plaintiff has pleaded its causes of action by not disclosing when the material events occurred has handicapped the defendants in filing a motion to strike the amended claim as being frivolous, vexatious and an abuse of process on the ground that all causes of action are out of time in terms of the Limitation Act 1975. It is clear that s.6 of the Act provides a limitation period of 6 years for bringing an action on contract or tort. Thus the Act will apply to the plaintiff’s first cause of action against the first defendant for alleged breaches of the duty of care in contract and against the second and third defendants for alleged breaches of the duty of care which appears to be in tort. However, the Act does not provide a limitation period for bringing an action for breach of fiduciary duty which is a duty that exists in the exclusive jurisdiction of equity. The Act also provides no limitation period for an action against a trustee for an alleged fraudulent breach of trust. It follows from this that whilst a motion to strike out may lie against an action for negligence in contract or tort as being out of time, no such motion may be brought in respect of an action for breach of fiduciary duty or for fraudulent breach of trust for the Act does not provide a limitation period for such actions. However, the equitable defences of acquiescence, laches and delay would still be available to the defendants in an action for breach of fiduciary duty or trust under s.29 of the Act which preserves the Courts equitable jurisdiction to refuse relief.

In respect of the cause of action for breach of the common law duty of care in contract or tort to which the Limitation Act 1975 applies, there seems to be two alternatives open to the defendants. This is explained in Ronex Properties Ltd v John Laing Construction Ltd [1982] 3 All ER 961 where Donaldson LJ said at p.966:

“Where it is thought to be clear that there is a defence under the Limitation Act, the defendant can either plead that defence and seek the trial of a preliminary issue or, in a very clear case, he can seek to strike out the claim on the ground that it is frivolous, vexatious and an abuse of the process of the Court. But in no circumstances can he seek to strike out on the ground that no cause of action is disclosed.”

In the defendants’ first motion to strike out the original statement of claim, it was alleged that the claim was frivolous, vexatious and an abuse of process on the ground that all causes of action were time barred. One of the grounds for the Court not granting that motion was that it was not very clear from the statement of claim when the causes of action in negligence accrued and started to run. As a consequence, it was not possible to say whether the limitation periods had expired. In respect of the amended statement of claim, it is again not very clear when the cause of action in negligence against the defendants accrued. So the defendants may not, again, move to strike out the amended claim in negligence on the ground that it is frivolous, vexatious and an abuse of process as being time barred. If the defendants, however, think it is clear that they have a limitation defence, then they should plead that defence and seek its trial as a preliminary issue.

For the reasons given, the principal ground of the strike out motion is dismissed.

CHIEF JUSTICE

Solicitors:
Leung Wai Law Firm for plaintiff
Drake & Co., for first, second and third defendants