Youyang v Minter Ellison Morris Fletcher

Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484; 196 ALR 482; 77 ALJR 985

The High Court applied the “but for” test to a Breach of Trust where the Trustees failed to comply with their strict duty to comply with the terms of the trust, the Trustees having disbursed trust monies to a third party in breach of the terms of the Trust Instrument.

The High Court {(2003) ALJR 895 at 904} stated:

“The beneficiary of the trust submits that it would not have suffered the loss of $500,000 but for the breaches of trust by the trustees. These submissions should be accepted”.

The High Court in Youyang also expressly doubted the view propounded in the English Courts {Bristol and West Building Society v Mothew [1998] Ch 1 at 17 per Millet LJ} and New Zealand Courts {Bank of New Zealand v New Zealand Guaridian Trust Co Ltd [1999] 1 NZLR at 681-682 per Gault J} that the “but for” test be rejected in a case where a Trustee (or Fiduciary) breaches the Trustee’s duty of care.

The High Court stated:

“There must be a real question whether the unique foundation and goals of equity, which has the institution of the trust at its heart, warrant any assimilation even in this limited way with the measure of compensatory damages in tort and contract. It may be thought strange to decide that the precepts that trustees are to be kept by the courts of equity up to their duty has an application limited to the observance by trustees of some only of their duties to beneficiaries in dealing with trust funds.”

Therefore it would appear that the position in Australian Courts is that the “but for” test should be applied to all breaches of trust (as well as all breaches of fiduciary duty) in relation to any loss for which equitable compensation is claimed from the Trustee (Fiduciary). That is the “but for” test should be applied for a Trustee (Fiduciary) in respect of loss suffered by the person to whom the fiduciary duty was breached, irrespective of whether the duty breached was the strict duty to comply with the terms of the trust, or the duty of honesty, or the duty of care.

In Re Dawson (decd)  [1966] 2 NSWR 211 at 215 Street J stated:

“The principles embodied in {the Caffey v Darby (1801) 6 Ves Jun 488 [31 ER 1159]} approach 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 weather the loss would have happened if there had been nor breach (ie “but for” the breach)”

This approach is to be contrasted to causation in the tort of negligence where the plaintiff must prove that he would not have suffered the injury “but for” the conduct of the defendant AND that there was no superseding cause (novus actus interveniens), AND, finally that it was reasonably foreseeable that the defendant’s conduct would have led to the plaintiff’s injury {See March v E & MH Stramare Pty Ltd [1991] HCA 12 ; (1991) 171 CLR 506)

In the case of equitable compensation for the loss arising from the breach of any duty by a Trustee (or fiduciary), only the “but for” test need to be satisfied by the plaintiff to establish the defendant’s liability. {See Caffey v Darbey (1801) 6 Ves June 488 [31 ER 1159]; Re Dawson (decd) [1966] 2 NSWR 211; Beach Petroleum NL v Kennedy (1999) 48 NSWR 1); Hill v Rose [1990] VR 129}

The main distinction between common law damages and equitable compensation are highlighted in the following cases:

“The remedy, like any equitable remedy, is necessarily to be fashioned to meet the needs of the case. The method of calculation of monetary compensation will vary according to the nature of the fiduciary obligation whose breach is to be redressed. It might be appropriate to compensate the plaintiff’s loss by reference to the the defendant’s gain.. Compensation may be awarded however, in an appropriate case whether or nor the defendant has made any direct pecuniary gain {Hill v Rose [1990] VR 129 at 143}”.

“The obligation imposed by courts of equity upon defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. It follows that the obligation is not limited or influenced by common law principles governing remoteness of damage, foreseeability or causation. The question for consideration is not whether the loss was caused or flowed from the breach. Rather, as Street J put it in Re Dawson (decd) [1966] 2 NSWR 211 at 215: ” .. the inquiry in each case would appear to be whether the loss would have happened if there had been no breach {Hill v Rose [1990] VR 129 at 144}”

Arden J stated in Murad v Al-Saraj [2005] WTLR 1573 at [74]:

“It may be asked why equity imposes stringent liability of this nature…Equity imposes stringent liability on a fiduciary as a deterrent… Trust law recognises what in company law in now sometimes called the “agency” problem. There is a separation of beneficial ownership and control and the shareholders (who may be numerous and only have small numbers of shares) or beneficial owners cannot easily monitor the actions of those who manage their business or property on a day-to-day basis. Therefore, in the interests of efficiency and to provide an incentive to fiduciaries to resist temptation to misconduct themselves, the law imposes exacting standards on fiduciaries and an extensive liability to account … I accept that any rule that makes a wrongdoer liable for all the consequences of his wrongful conduct or for action which did not cause the injured party any loss needs to be justified by some special policy. But the authorities just cited show that in the field of fiduciaries there are policy reasons which have for a long time been accepted by the courts”.

Therefore once a breach of fiduciary duty is shown it is no defence to a principal’s clam for compensation that had the breach not occurred, the principal may have acted in the same fashion with the same consequences.

Stantow J in Australian Securitities and Investments Commission v Adler (No.3) (2002) 20 ACLC 576 at 707 stated:

“The principal effect of applying the stringent test adopted in equity is that once the court has determined that a breach has occurred, then the liability of the fiduciary to pay sufficient compensation to put back to the situation it would have been had the breach not been committed. Once the court has determined that the breach was a cause of the loss, though there be other immediate causes operative as well, there is no room for speculation as to whether the loss might have occurred even without the wrongdoing, or whether it might have been avoided under certain contingencies”

 

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