Maquire v Makaronis

Maquire & Tansey v Makaronis [1997] HCA 23; (1997) 188 CLR 449; (1997) 144 ALR 729; (1997) 71 ALJR 781


Where a fiduciary (including a Trustee) enters into a transaction with the person to whom he owes the fiduciary duty (eg a beneficiary), and the fiduciary is unable to prove that the transaction has been entered into with “fully informed consent” of the beneficiary of the fiduciary duty, the transaction is voidable at the instance of the beneficiary. This is the case even if the beneficiary would still have acted as he or she did if the fiduciary (Trustee) had made a full disclosure of the relevant facts {Maquire v Makaroins (1997) 188 CLR at 467-468 and at 472}.

For example if Members of an Employer-Sponsored  Superannuation Truest (Fund) enter into a transaction to leave one fund and join another fund at the instigation of the Trustees without the Members’ “fully informed consent” because the Trustees withheld  important information in relation to benefit entitlements, since the Trustees had a conflict of interests in their role as senior executives of the Employer-Sponsor, then the election made by these Members would be voidable at the instance of these beneficiaries (Members of the Fund).

The High Court stated:

“A third variant may be traced to a decision of Street J in the New South Wales Supreme Court in Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966} 2 NSWR 211. In that opinion, which made no reference to Brickenden, Street J accepted, as the touchstone in repairing the proved default of a trustee, that of effecting restitution to the estate. His Honour, after citing authority, concluded that “[t]he principles … do not appear to involve any inquiry as to whether the loss was caused by or flowed from the breach. Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach {Re Dawson [1966] 2 NSWR 211 at 215.}”. This “but for” test resonates with observations in this Court both before {Mills v Mills [1938] HCA 4; (1983) 60 CLR 150 at 186 and after Re Dawson {Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285}”.

The “Brickenden” principle stated by Lord Thankerton for the Privy Council in Brickenden v London Loan & Savings Co [1934] 3 DLR 465 at 469. As in this case, that case involved a situation where a solicitor had breached his fiduciary duty to a client by failing to reveal his interest in certain mortgages. Lord Thankerton expressed the applicable rule thus:

” When a party, holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent’s action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.”

Kerby J stated:

“In my view, the rule in Brickenden can quite comfortably co-exist with the exposition of principle by Street J in Dawson. Facts will not be “material” if the relevant loss would have happened if there had been no breach. Both Lord Thankerton in Brickenden and Street J in Dawson were simply saying that, once a breach of fiduciary duty is shown, the inquiry is not a simple one as to what caused subsequent losses. Equity must strive to repair the breach of fiduciary duty lest the fiduciary in default could be exonerated too easily, the beneficiary suffer a double disadvantage: the courts being seen to wink at wrong-doing.

A further, practical, reason for adhering to the rule of “strictness” in Brickenden (breach of fiduciary duty being shown) is that it remains open to a court, in fashioning the remedies which it is apt for equity to provide, to consider most, if not all, of the matters which would otherwise be urged as a reason for excluding relief altogether on the ground of the alleged absence of a causal connection between the breach and the loss. The reason why equity may maintain a strict rule in relation to the events which follow a breach of fiduciary duty, whereas the common law developed principles of causation, remoteness and foreseeability to avoid unjust results, was explained by Cooke P in Day v Mead [1987] 2 NZLR 443. The passage from his Honour’s reasons was approved by the majority of the Supreme Court of Canada in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 585, 589. Cooke P said [1987] 2 NZLR 443 at 451.

” Compensation or damages in equity were traditionally said to aim at restoration or restitution, whereas common law tort damages are intended to compensate for harm done; but in many cases, the present being one, that is a difference without a distinction. There is, however, the more significant historical difference that Courts of equity were regarded as having wider discretions than common law Courts. Equitable relief was said to be always discretionary. Its grant or refusal was influenced by ideas expressed in sundry maxims. He who seeks equity must do equity. He who seeks equity must come with clean hands. Delay defeats equity. These are merely examples. Further, relief could be granted on terms or conditions.”

The wide variety of remedies available to a court of equity following proof of a breach of fiduciary duty permit the court to exercise very large powers to fashion orders apt to a full consideration of all the facts, as they are found. These include an order of rescission; the finding of a constructive trus]; the application of tracing principles; the imposition of an account for profits; the award of equitable compensation, particularly where rescission is impossible; injunctive relief and so on. Controversially, it has been suggested that a way to avoid burdening the fiduciary in default with the consequences of the beneficiary’s own unreasonable conduct is the application of an equitable principle of apportionment. The importation of notions resting on the statutory principles of contributory negligence has been criticised strongly and repeatedly {Handley JA quoted in Meagher, Gummow and Lehane, Equity, Doctrines and Remedies (3rd ed) (1992) at par 2304}. I shall say no more of it for it was not argued in this case”.

In the case the High Court affirmed that interest would be payable in accordance with “commercial rates as allowed from time to time by the Supreme Court of Victoria“.

“Rather, the appropriate course is to grant relief to the respondents conditional upon the payment of interest by them on the principal sum outstanding under the Mortgage at commercial rates as allowed from time to time by the Supreme Court of Victoria, calculated at half-yearly rests”.


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