Equity Summary

Topic 1 Introduction and History1
Introduction
The foundations of equity began in England in the 13th Century in the Court of Chancery. The
chancellor was a member of the Church who sought to determine, based on individual merits,
whether the common law had produced an unjust or unfair ruling.
The Chancellors role was basically:
To ensure that the fair and just application of the law was apply in a Court of Equity
To protect a plaintiff from an unconscionable or misapplication of the law in the
Chancellors view.
To develop a system of equity maxims which would ensure that equity would
uphold the fair and just application of the law.
To disregard precedent and completely ignore the need for consistency and
homogeny in favour of ad hoc decisions based on individual merit.
Thus, equity refers to a body of rules and principles that have developed over a long period of
time which are distinct from common law principles developed under the common law
judicial system. In fact, until the Judicature Acts of 1873-1875 (UK) was passed equitable
cases were heard in a separate Court from their common law counterparts the ideology
being that a separate Court would provide a distinct and unique application of equity
principles on the case.
Once the Judicature Acts of 1873-1875 (UK) was passed, this changed significantly since the
number of disputes and legal proceedings rapidly increased requiring the Courts to administer
both equitable doctrines and common law rulings concurrently.
Most important to note however, was that this resulted in the amalgamation of common law
and equity into the same Courts equity remains a very unique and distinct body of law
which has its own applications and principles and values and goals. There is, and will never
be, a symbiotic relationship between common law and equity since the root of their
application is entirely different. As you may well know, common law cases rely on prior
authorities established throughout time and their relevant application of these principles
equity relies on what is just and right and can disregard prior rulings in favour of the pure
application of fair and just equitable principles.
As stated by Justice Kitto, equity is the saving supplement and complement of the common
law. In modern times, the boundaries between common law and equity are shifting the
interaction between the two now becoming the very forefront of private law. Equity now
tends to fill the void that common law simply cannot and equitable remedies can be
applied when common law remedies are not suitable or simply do not provide, what the Court
deems to be, sufficient relief.
1 Any reference to MGL refers to R, P Meagher, J D Heydon, M J Leeming Meagher,
Gummow and Leahanes Equity Doctrines and Remedies, 4th Edition, LexisNexis
Butterworths, Sydney, 2002 the preeminent book on equity.
Notes by All Things Law http://law.timdavis.com.au - A Law Forum to discuss everything about Studying Law - from Law Subjects,
Notes and Questions to Law Clerkships and Jobs.
Maxims of Equity
The Maxims of Equity are a series of guiding principles developed throughout time which
can be applied to assist the determination of a claim. These principles were commented on in
Corin v Patton (1990) 169 CLR 540 by Mason CJ and the core maxims are listed below:
Equity is equality
Equity will not, by reason of a merely technical defect, suffer a wrong to be without a
remedy
Equity looks to the intent rather than the form
Where the equities are equal, the first in time shall prevail.
He or she who seeks equity must do equity
Equity looks on that as done without to be done
Equity imputes an intention to fulfil an obligation
Where there is equal equity, the law shall prevail.
Equity acts in personam
Equity does not assist a volunteer
Equity follows the law
He or she who comes into equity must come with clean hands
Delay defeats equities
From these maxims, a long list of important contributions by equity can be established. This
list provides some insight in the modern application of equity principles but by no means is a
complete and authoritative list:
equity may foresee the creation of a property right at law;

equity has a longer list of property rights than does the common law;
equity may recognize property rights in situations where the common law would, or
perhaps, could not;
equity has developed the important doctrines of contribution, marshalling and
documented a range of equitable securities;
equity is more far reactive to mistake, fraud (including unconscientious behaviour)
and breaches of confidence;
equity is more lenient than the common law when considering a failure to comply
with the requirements of formality;
equity has been regarded as a more adequate function to be able to trace through
substitutions of one asset for another;
equity has a highly important role to play in the consideration of the institution of the
trust and with it the fiduciary obligations of trustees;
equity has a longer list of remedies than the common law does.
Equity will always prevail

Most importantly perhaps in Australia, is the notion now upheld by statutory authority
that where the rules of equity and the common law are in conflict or discrepancy equity will
always prevail. An example of such statutory authority is s29 of the Supreme Court Act 1986
(Vic).
Use of the Maxims

The use of equitable maxims is entirely in the hands of the litigating parties to determine
whether there use is beneficial or harmful to the arguments of their respective cases. For
example, if a plaintiff has a history of unconscionable or bad faith behaviour (and assuming
that this evidence is admissible) then a defendant may attempt to defeat the plaintiffs case by
simply arguing that the plaintiff does not come to Court with clean hands.
Most relevant is the use of the maxims is the concept outlined in Black Uhlans Inc v NSW
Crime Commission (2002) 12 BPR 22,421 where it was stated by Campbell J that 2
preconditions must apply in order to rely on equitable maxims. The conduct of the plaintiff
must:
have an immediate and necessary relation to the equity sued for and must;
constitute a depravity in a legal as well as in a moral sense.
Such requirements, as outlined by Campbell J, underpin the legal justifications for equity in
modern law most particularly in the later point. While common law will examine and
accept policy considerations where relevant, it will typically not extend these considerations
to what is morally correct. The morality of a decision in common law is not considered in
any detail yet in equity it is closely examined. Such a difference highlights the equitable
origins of the Court of Chancery in upholding what is just and fair.
If we turn our attention to the remarks of Gummow J in his paper Change and Continuity:
Statute, Equity and Federalism OUP Oxford 1999 pp. 53-54 it is seen that:
It is the concern of equity with the standards of probity and good conscience, the
adaptability of equitable doctrine to changing circumstances and the discretionary
nature of equitable relief which stand in marked contrast to the more rigid formula
applied by the common law and equip it better to meet the needs of the type of liberal
democratic society which has evolved in the 20th century.
The conscience of a Court of Equity extends not to the private morality and bias of a judge
but rather to the judges application of that morality in consideration of civil and official
duties. Thus, it is correct to purport that while modern equity law will strongly consider and
uphold conscience where relevant, it may not readily apply it in the face of an established
equitable authority. This specific point was commented by Justice Hayne in Bridge v.
Campbell Discount Co. Ltd [1961] q QB 445 at 459 where His Honour states:
[I]dentifying some conduct as unconscionable or unconscientious is a statement of
conclusion which would sit as well in the discourse of an ethicist, as it does in
reasons for judgment. But in the law, they are not terms that invite, or even permit,
recourse to a judges idiosyncratic, or characteristic, sense of justice. What sets
apart the two fields of discourse of the ethicist and the judge is the need for the judge
to articulate what it is that leads him or her to the conclusion that the conduct in
question should wear this label.
It is also possible to look further to High Courts comments in Farah Constructions Pty Ltd v.
Say-Dee Pty Ltd (2007) 81 ALJR 1107 at [154] where it upheld previous comments of
Gummow J in Roxborough v. Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at
[74]:
To the lawyer whose mind has been moulded by civilian influences, the theory may
come first, and the source of the theory may be the writings of jurists not the decisions
of judges. However, that is not the way in which a system based on case law develops;
over time, general principle is derived from judicial decisions upon particular
instances, not the other way around.
Other notable equitable cases worth reading include:
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102; 130 ALR 570 High
Court Australia
Walsh v Londsdale (1882) 21 Ch D 9 Court of Appeal (UK)
ORR v Ford (1989) 167 CLR 316; 84 ALR 146 High Court of Australia
Topic 2 - Unconscientious and/or Unconscionable Conduct

Introduction
Most scholars new to law often confuse unconscientious and/or unconscionable conduct
with the previously learnt Trade Practices Act 1974 (Cth) s51 through s53 and relevant
statutory concepts relating to misleading and deceptive conduct. While it is true that the
statutory authority is often the most quoted in the media and the primary focus of many law
journals around Australia equity can also provides relief from transactional
unconscionability in a variety of situations.
Signing a Contract
It is important to ensure that confusion does not occur when studying cases involving
incapacity, non est factum (it is not my deed), fraudulent misrepresentation, mistake or duress
which are each distinct, and very developed bodies of law in their own right. Each of these
doctrines typically always involves a signed written contract that one party is attempting to
rescind or terminate entirely and most common law cases deal entirely with this issue. This
was best typified by the comments by the High Court in Toll (FGCT) Pty Ltd v. Alphapharm
Pty Ltd (2004) 219 CLR 165 at [45]:
It should not be overlooked that to sign a document known and intended to affect
legal relations is an act which itself ordinarily conveys a representation to a
reasonable reader of the document. The representation is that the person who signs
either has read and approved the contents of the document or is willing to take the
chance of being bound by those contents, as Latham CJ put it, whatever they might
be.
The general attitude of the common law is therefore that when a person signs a document,
doing so makes this signature a gift or enters this person into the contract. Consequently, at
common law a person cannot revoke the terms of the contract they have signed and cannot
rescind or terminate a completed gift.
Generally, the common law will only seek to reverse transactions when one of the contracting
parties has entered the contract under duress, non est factum, unconscionable conduct or
undue influence. The primary focus of this section is address the relief that the law of equity
provides to parties under undue influence and unconscionable conduct.
Undue Influence
Definition
Undue Influence is a doctrine of equity which provides relief under common law where one
contracting party has exerted undue or excess confidence, control, domination or influence
over another party which has resulted in a transaction that has lead to the transfer of property.
The doctrine considers and seeks to balance the motives of the stronger party against those of
the weaker and more vulnerable one.
Purpose
Thus, the doctrine focuses on the plaintiff establishing that their will was influenced and
dominated by the defendant and this let them to entering into the contract. A plaintiff who
cannot establish this requirement, as suggested in the decision of Archer v Archer [2000]
NSWCA 314, cannot succeed in satisfying the requirements of undue influence and the Court
will not set aside the transaction.
Inter vivos Transactions Only & Inequality of Bargaining Power
The doctrine is only concerned with transactions that occur inter vivos or during the donor
lifetime. The doctrine applies to gifts and to cases where there is a transfer of value to a
weaker party. In Johnson v Buttress (1936) 56 CLR 113 Dixon J suggested in obiter that the
preferred view is that where the transaction is cast a contract the presumption will still arise
but can be rebutted if the transaction is shown to be a proper business dealing. Of course, it is
critical in any case that a clear and transparent distinction is made between the setting aside
of a transfer of property due to undue influence and the setting aside of a contract merely
because it has turn sour for one of the contracting parties.
To consider the Courts view on Undue Influence, we can look to the case of Brusewitz v
Brown [1923] NZLR 1106 where at 1109-10 Sir John Salmond said:
the mere fact that a transaction is based on an inadequate consideration or is
otherwise improvident, unreasonable, or unjust is not in itself any ground on which
this court can set it aside as invalid ... The law in general leaves every man at
liberty to make such bargains as he pleases, and to dispose of his property as he
chooses. However improvident, unreasonable, or unjust such bargains or
dispositions maybe, they are binding on every party to them unless he can prove
affirmatively the existence of one of the recognised invalidating circumstances is
unduely influenced.
This general principle, however, is subject to an important exception. Where there is
not merely an absence or inadequacy of consideration for the transfer of property,
but there also exists between the grantor and the grantee some special relation of
confidence, control, domination, influence, or other form of superiority, such as to
render reasonable a presumption that the transaction was procured by the grantee
through some unconscientious use of his power over the grantor, the law will make
that presumption, and will place on the grantee the burden of supporting the
transaction by which he so benefits, and of rebutting the presumption of its
invalidity. In such cases it is necessary for the grantee to prove that the suspected
transaction has not its source in any improper influence over the mind or will of the
grantee, or in any fraud, misrepresentation, mistake or concealment of material facts
which ought to have been disclosed by the grantee to the grantor in view of the
relation between them. Unless the grantee can prove this the transaction will be set
aside at the suit of the grantor or his representatives.
Types of Undue Influence
Undue Influence has been classified into three different classes, as per the obiter in Bank of
Credit and Commerce International SA v Aboody [1990] 1 QB 923 at 952, where the English
Court of Appeal suggested the following classes:
1. Class 1 Actual Undue Influence
2. Class 2 Presumptive Undue Influence
3. Class 3 Influence proved rather than presumed
Class 1 Actual Undue Influence
Proving Undue Influence
Before a more detailed discussion into each of the later classes is considered, it is first
prudent to examine how actual undue influence must generally be proven. In Johnson v
Buttress (1936) 56 CLR 113 at 134, Dixon J stated that for undue influence to be proven
four elements must be satisfied. These elements are:
1.
2.
3.
4.
The inducing party has the capacity to influence the complainant;

The influence actually occurred;
The occurrence was definitively undue; and
The occurrence is directly correlated too, and brought about by, the transaction.
The case of Daniel v Drew [2005] EWCA Civ 507 (6 May 2005) considers actual undue
influence in greater detail regarding an elderly woman who was a trustee of a family trust and
whose nephew wanted her to resign as the trustee of this trust.
The nephew consequently pressured his aunt to resign and the aunts son took the
nephew to Court seeking equitable relief.
The Court ruled that there was a substantial body of evidence to satisfy that undue
influence had occurred and that the nephew had forced the aunt to resign when she
did truly not want to.
Class 2 Presumptive Undue Influence

What is the presumption?
Class 2 circumstances of undue influence primarily arise where proof of the relationship
alone is sufficient to raise a presumption of undue influence. Equity recognises certain
relationships which inherently involve a high degree of trust and confidence and such
relationships, by their very nature, allow one party to have substantial influence and control
over the other weaker party.
These relationships can also carry a pre-existing economic component whereby the stronger
party can easily influence the weaker party to engage in economic transactions. Relationships
of this nature therefore also carry a fiduciary dimension. It is important to note that although
this pre-existing relationship can increase the burden of proof for the defendant; this
component is not a critical one if the exertion of undue influence results in a subsequent later
transaction.
Recognised Categories that raise the presumption for the plaintiff
If the relationship between the parties falls into one of these pre-existing recognised
categories, the effect is that the plaintiff does not have to prove that undue influence occurred
to induce the weaker party to enter into the transaction.
Consequently, and as suggested in Johnson v Buttress (1936) 56 CLR 113, this infers that the
burden of proof shifts to the defendant to prove that the plaintiff entered into the transaction
freely as opposed to the plaintiff having the prove that defendant induced them into the
transaction. Thus, unless the defendant can rebut the presumption of undue influence then the
transaction will be set aside by the Court.
The following table illustrates some of the presumed relationships of influence and those
which Courts have suggested also carry a fiduciary relationship.
Stronger/Weaker Party
Solicitor-client
Child-parent
Parent-child
Doctor-patient
Spouse-spouse
Religious Leader - worshipper
Presumed Relationship
Yes
No
Yes
Yes
No
Yes
Fiduciary Relationship
Yes
No
No
No
No
No
Effect of Presumed Relationship

Most notably are the comments of Dixon J in the case of Yerky v Jones (1939) 63 CLR 649,
675 which inferred that presumptive relationships of undue influence are not, by themselves,
entirely sufficient to fully explain the transactions or to account for them without suspicion
that the relationship of confidence has actually been abused.
In Talbot & Oliver v Shann [2005] WASCA 34 it was established that it is not
necessary to prove that either party had knowledge that a presumed relationship
existed, rather the most critical aspect is that one in fact did exist.
Spousal
If we consider the spousal relationship for example, in Latham CJs decision from Yerky v
Jones he states:
It is true that undue influence maybe more easily proved in the case of husband and
wife than in cases where no special relationship exists between the parties, but there
is no presumption of such influence from the marital relationship.
Thus, the spousal relationship does not carry a presumptive relationship of undue influence
since the notion exists that each spouse will always wish to benefit the other. The same logic
can be applied to the relationship of a child and a parent since it is assumed that a parent will
always love their children and want to benefit them. However, the reverse is not presumed
and therefore parents are not presumed to subject to undue influence of their children.
Class 3 Influence proved rather than presumed

Not Presumed Difference between Presumed and Not Presumed
There are relationships of undue influence which can be proven but are not presumed. It is
always the responsibility of the plaintiff to show that the influencing party had a position of
power or domination over them and that it was due to this position that the transaction was
entered. Evidently, this is the primarily difference between a presumed relationship of undue
influence which falls into an established category and one that must be proven.
In Johnson v Butress (1936) 56 CLR 113, 134-5, Dixon J stated that a relationship of
influence is
where one party occupies or assumes towards another a position naturally involving
an ascendancy or influence over that other, or a dependence or trust on his part
Proving the Presumed Relationship Raises the Presumption
If the plaintiff can prove that such a relationship exists, then the presumption of undue
influence arises and the defendant must rebut the presumption and convince the Court that
transaction was entered into freely by the plaintiff. Of course, there are numerous factors
which can increase the presumption that a defendant used a relationship of influence to
induce a transaction over a plaintiff. In Union Fidelity Trustee Co Of Australia Ltd v Gibson
[1971] VR 573, 576, Gillard J stated some factors which can increase the presumption that a
relationship of undue influence exists:
1. Attributes of weaker party:
a. Standard of intelligence and education; (Johnson v Buttress (1936) VLR 270;
[1946] ALR 323)
b. Fragile character and personality; (Brusewitz v Brown [1923] NZLR 1106)
c. Age, experience and lack of business affairs and a fragile state of health.
(Bank of NSW v Rogers (1941) 65 CLR 42)
2. Aspects of stronger-weaker party relationship:
a. Length of friendship or association;
b. Strength of the character and personalities of the parties;
c. The existence of a family relationship;
d. The breadth and depth of business dealings between the parties.
In Johnson v Buttress (1936) 56 CLR 113 at 134-5 Dixon J said:
One occupying such a position falls under a duty in which fiduciary characteristics
may be seen. It is his duty to use his position of influence in the interests of no one
but the man who was governed by his judgment, gives him his dependence and
entrusts him with his welfare. When he takes from that man a substantial gift of
property, it is incumbent upon him to show that it cannot be ascribed to the
inequality between them which must arise from his special position. He may be
taken to possess a particular knowledge not only of the disposition itself but of the
circumstances which should affect its validity: he has chosen to accept the benefit
which may well proceed from an abuse of the authority conceded to him, or the
confidence proposed in him; and the relation between him and the donor are so close
as to make it difficult to disentangle the inducements which led to the transaction.

These considerations combined with reasons of policy to supply a firm foundation for
the presumption against a voluntary disposition in his favour.
Rebutting the Presumption
No Extraneous Dominance or Control
Once a presumption of undue influence has been established by a plaintiff either through an
established category, or via evidence submitted to the Court which indicates that a relevant
relationship existed the burden shifts to the defendant to prove that a relationship did not
exist. In Johnson v Buttress (1936) 56 CLR 113 at 134-5 Dixon J said:
the gift was the independent and a well understood act of a man in a position to
exercise a free judgement based on information as that of the donee.
Thus, it is clear that is not enough to show that the weaker party understood and assented to
what he was doing or the consequence thereof. In order to rebut the presumption it must
established that the intention of the stronger party was one which was free of influence over
the weaker party, and that no extraneous dominance or control was forced onto the weaker
party to enter the transaction.
Key Points to Rebutting the Presumption
As per the commentary in Johnson v Buttress (1936) 56 CLR 113, in order to rebut the
presumption, the defendant must prove that:
1. No Advantage - No advantage or benefit was taken over the plaintiff;
2. Independent Transaction - The transaction in question was free and independently
understood by the plaintiff and no judgemental imbalance occurred;
3. No Exercise of Undue Influence - No position of influence existed which adversely
led the plaintiff into entering the transaction.
External and Independent Evidence
Most commonly, if the stronger party has recommended that the weaker party seek external
and independent advice regarding the transaction this is enough to rebut the presumption as
suggested in Gillard JN Union Fidelity Trustee Cost of Australia v Gibson [1971] VR 573 at
577-8.
It is important to note that advice must not only be independent but a presumption is
established that the independent advice must be of a certain standard including:
1. Knew all the facts - That the person providing the advice has been adequately briefed
on all facts (Brusewitz v Brown [1923] NZLR 1106 at 1116)
2. Independent - The person providing the advice is entirely independent of the
defendant and not related (Powell v Powell [1900] 1 Ch 243)
3. Sufficient Skill - The person providing the advice is sufficiently skilled and has the
appropriate qualifications for the subject matter the advice is being provided for
(Inche Noria v Shaik Allie Bin Omar [1929] AC 127)
Delay and Consent
The most notable other forms of rebutting the presumption are delay and consent.
Delay
Delay is a traditional form of equitable relief and can rebut the presumption in an undue
influence claim if, after the influence has occurred, the plaintiff excessively delays in seeking
equitable relief. This occurred in Allcard v Skinner (1887) 36 Ch D 145, where the Court
refused an order to return property after an undue influence claim was successfully
established because the plaintiff had taken more than six years to lodge a complainant.
Interestingly, modern equitable relief has also ignored delay in circumstances where the
parties had not altered their positions and were in no way affected by the delay. This occurred
in Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30 where the Coutr ruled in favour of
the plaintiff despite their being more than 20 years since the undue influence event occurred.
Consent
If the plaintiff indicates that a wrong done to them is through their own behaviour and not
that of another party despite there being clear evidence of undue influence then the Court
can rule that relief can occur through acquiescence.
Third Parties
Third parties can be involved in undue influence in two ways:
1. Influence over the Plaintiff to benefit Defendant with knowledge - By exercising
influence over a plaintiff in order to benefit the defendant with the defendants
knowledge; or
2. Influence over the Plaintiff to benefit Defendant without knowledge - By
influencing the plaintiff to enter a transaction without the defendant having
knowledge of the influence.
A pivotal case to illustrate the first class was Khan v Khan (2004) 62 NSWLR 229. The
Supreme Court of NSW ruled that a reluctant vendor, who was advised by a muslim cleric to
sell a property because she would be rewarded in the afterlife, were in an automatic
presumed relationship of influence. Since the purchaser knew of the relationship of third
party influence and the fact that the vendor would act on the influence so provided, the Court
set aside the transaction.
Creditors & Banks as Third Parties
Most cases involving third parties are typically related to creditors such as banks and
financiers who take a guarantee or some sort of security from a third party in support of the
indebtedness of the debtor when that debtor obtains the aforementioned guarantee or security
through the use of undue influence over the third party. Effectively the borrower applies
undue influence to a guarantor in order to obtain a security which secures or guarantees the
debt for the lender. Thus, the lender is the primary beneficiary since they gain security for the
loan to the borrower.
Notice
In modern equity law in Australia, the most common case in which the lenders security will
be set aside is where the lender has notice that the guarantors agreement has been acquired
through the use of undue influence. If the use of the undue influence is probable then notice
must be obtained by the lender of the relationship between the borrower and the guarantor.
This was seen in Bank of NSW v Rogers (1941) 65 CLR 42 where an uncle procured his niece
to provide security for his overdraft. The niece had a close relationship with the uncle and the
Court held that the bank must have been aware of this relationship, and therefore had notice.
This led the Court to set aside the transaction.
Conflicting Representation
Of relevant note, in Bank of Baroda v Shah [1983] 3 All ER 24, the English Court of Appeal
held that the bank was entitled to assume that solicitors for the debtor who represented they
were acting also for a third party, would give the third party proper advice.
Remedies
Recession
The most common sought remedy for undue influence is simply recession of the transaction
in dispute.
The Court will typically return the parties to the same state they were in before the
transaction took place and recession usually always achieves this aim. In some cases, the
plaintiff will want specific restitution of the asset most commonly when they have been
influenced into selling the property against their will and the Court can easily enact this
when the asset has not been sold by the defendant.
Resitutio in integrum restore to original condition
In more difficult cases, restitutio in integrum will occur when the asset or transaction no
longer exists or cannot be reversed. The Court will seek to provide equitable compensation
in replace of the irreplaceable asset or transaction such as in Smith v Glegg [2004] QSC443.
Third Parties
The most complex cases are third party cases where one of the parties is unaware that undue
influence has occurred and they have taken ownership of the property and subsequently sold
it leaving the party who was the subject of undue influence in a difficult position.
While the courts have, as in Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30, ruled in
situations where A influences B to transact with C and C has not yet dispose of the property
that the transaction is set aside and the property is to be restored to B no common law has
been found in relation to circumstances where A influences B to transact with C and C has
disposed of the property - the available remedies to B. This is due to the fact that if C is
unaware of the undue influence placed on B by A, B may receive no equitable compensation
against C since they are effectively an innocent party in the transaction.
Statutory Relief
Trade Practices Act 1974
While these notes are not an exploration of other areas of law except equity it is useful to
note that a number of statutory provisions which can provide relief for undue influence. Most
notably are the provisions contained with s51AA(1) of the Trade Practices Act 1974.
Consumer Credit Code
Additionally there are numerous Fair Trading Acts in each state which each contain unique
provisions dealing with unfair trading and transacting of goods. Additionally, statutory relief
can be found in the uniform Consumer Credit Code under s70 which primarily relates to
unjust transactions.
Contracts Review Act
Where relevant in Australia, the Contracts Review Act may also provide relief where
contracts have been entered into when the Court is satisfied that they are unjust.
Unconscionable Conduct
Unconscionable conduct or unconscionable dealings is an independent but parallel area of
law similar in principles to the doctrine of undue influence. The primary difference, as
outlined by Kitto J in Blomley v Ryan (1956) 99 CLR 362 at 415, is that the doctrine of
unconscionable conduct in equity focus on
whenever one party to a transaction is at a special disadvantage in dealing with the
other party because of illness, ignorance, inexperience, impaired faculties, financial
need or other circumstances affect his ability to conserve his own interests, and the
other party unconscientiously takes advantage of the opportunity thus placed in his
hands
Differences between Undue Influence and Unconscionable Conduct
Essentially, the primary difference is that while the doctrine of undue influence deals with
inappropriate or undue control, domination, assertion or persuasiveness over a party to a
transaction it does not focus heavily on the special disadvantage that influenced party may be
subject too.
Undue Influence does focus on special disadvantage - In effect, undue influence does not
focus on the raw exploitation of a partys special disadvantage where as doctrine of
unconscionable conduct does. While it is clear that there are evident parallels between the
two doctrines and this is often why both doctrines are used together in litigation where
appropriate it will become clear that each does not entirely overlap the other.
Easier to Establish a Claim - In Australia, more claimants use the doctrine of unconscionable
conduct because it is often much easier to establish than a claim under the doctrine of undue
influence. This is due to the fact that it is often easier for a plaintiff to establish that the
a) parties meet on unequal terms; and
b) the stronger party takes advantage of this;
c) in order to obtain a beneficial bargain
than it is to meet the requirements stipulated under a claim of undue influence. Additionally,
it seems apparent from common law that the evidentiary burden of an action under undue
influence is much greater than that of the doctrine of unconscionable conduct. For examples
of cases which have failed under an action of undue influence but succeed under
unconscionable conduct refer to Bridgewater v Leahy (1998) 194 CLR 457 and Westpac
Banking Corp v Cockerill (1998) 152 ALR 267.
Requirements for Unconscionable Conduct

Equity will seek to assist a plaintiff through the doctrine of unconscionable conduct when the
plaintiff can establish that the
a) Unequal Terms & Special Disadvantage - Defendant and plaintiff have meet on
unequal terms which render the plaintiff at a special disadvantage which the defendant
is sufficiently aware of; and
b) Takes Advantage - The defendant takes advantage of the special disadvantage;
c) Beneficial Bargain - In order to achieve a beneficial bargain.
If the plaintiff is able to establish these three elements, then the onus will pass to the stronger
party to show his conduct to have been fair, just and reasonable as stated in Fry v Lane (1888)
40 Ch D 312 at 322.
Commercial Bank of Australia Ltd v Amadio
The most commented example of unconscionable conduct is in the High Courts decision of
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. An elderly couple who
had a limited understanding of English executed a mortgage in favour of the bank after their
son stated he needed it for his successful business. The sons business was, in fact, in severe
debt and the bank was going foreclose the business if they did not receive a guarantee over
the sons requested overdraft. The mortgage contained a personal guarantee and the couple
mistakenly believed that their liability was limited to $50K when it was in fact unlimited. The
bank made the couple sign the document on the same day it learnt from the son that his
parents would guarantee the overdraft. The son subsequently defaulted on the overdraft and
the bank sought to enforce the mortgage against the couples house. The Court ruled to set
aside the transaction on the grounds of unconscionable conduct.
Reasoning
In this case, the majority of the High Court held that it was sufficient to attract the operation
of the doctrine of unconscionability if instead of actual knowledge of the plaintiffs special
disadvantage, the defendant was merely aware of the possibility that the situation might exist,
or if facts suggested to a reasonable person that the possibility may exist. If either of these
instances occurs, then equity will seek to set aside the transaction if it is established that the
defendant has taken unfair advantage of their superior bargaining power by entering into the
transaction.
Exploitation of the Elderly Couple
It was evident that not only did the bank know of the sons business but they also did not seek
to inform the couple of the true state of the sons business and nor did they advise the couple
to seek independent advice before entering into the transaction. It is evident that strong
exploitation of the elderly couple occurred through the banks actions, and no viable defence
was presented by the bank which sought to rationally explain its conduct.
Is there a special disadvantage?

The key outcome from the Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
was the High Courts use of special disability. This was first commented upon in Blomley v
Ryan (1956) 99 CLR 362 where the following factors were provided which can help indicate
that one party is at a special disadvantage:
a)
b)
c)
d)
e)
f)
g)
The age of the weaker party;

The sex of the weaker party;
The sickness or mental health of the weaker party;
The poverty or need of any kind of the weaker party;
The coherency and alcohol levels of the weaker party;
The level of educational or business experience of the weaker party;
The degree to which independent expert advice or assistance is provided to the
weaker party.
Evidently, each of these factors play a key role in determining whether a defendant has taken
special advantage over an innocent party. In Commerical Bank of Australia Ltd v Amadio
(1983) 151 CLR 447, 462 per Mason J comments, the disadvantage must amount to one
which
seriously affects the ability of the innocent party to make a judgement as to his own
best interests
The practical application of this statement is illustrated in Louth v Diprose (1992) 175 CLR
621 and Bridgewater v Leahy (1998) 194 CLR 457.
Louth v Diprose
The trial judge found in Louth v Diprose (1992) 175 CLR 621 that a man was under special
disability in dealing with a woman because his infatuation with her which she was aware of
and he bestowed upon her many gifts. The women appealed and the High Court agreed with
the trial judge that the woman had engaged in unconscionable conduct.
Bridgewater v Leahy
A man, Bill, left a property to his wife and the remainder to his four daughters. The man had
a nephew, Neill, whom he treated like a son and left him the option to purchase large sections
of a farm at the substantial discount of $200K. The land was valued at around $700K. Bill
was 84 years old and understood very well business transactions. After his death, the
daughters wanted to set aside the transaction.
The High Court ruled that it was unconscionable conduct for Neill to get the benefit of the
transaction since he was meeting on unequal terms and took special advantage of Bill through
his special relationship with his uncle. This advantage allowed him to reap an extraordinary
benefit which would not have occurred had there not been such a dependence.
Degree of Knowledge of the Special Disadvantage?

Aware of the Disadvantage
Evidently, a critical facet of any action taken under unconscionable conduct is that the
defendant was actually aware, or a reasonable person in the position of the defendant would
have been aware, of the plaintiffs special disadvantage. The law is unclear on how much
knowledge a defendant must have of a plaintiffs special disadvantage and currently this is
left for the Court to determine on the basis of the evidence submitted.
Takes Advantage
Clearly, if the defendant has unequivocal and actual knowledge of a plaintiffs special
disadvantage, as in Louth v Diprose (1992) 175 CLR 621, and takes advantage of this
disadvantage then they will be liable under the doctrine. However, as seen in Commercial
Bank of Australia Ltd v Amadio (1983) 151 CLR 447, it was held that actual knowledge was
not actually required. The Court specifically ruled that it was enough to establish that the
bank new of a possibility of a special disadvantage and that because they knew of this
possibility they should have made reasonable inquiries to determine the extent of it.
Notable cases since the Amadio case include:
Koh v Chan (1997) 139 FLR 410 In this case, the Court ruled that actual
knowledge was required and the Court effectively discounted the High Courts ruling.
State Bank of NSW v Layoun [2001] NSW Conv R Constructive knowledge is not
enough to establish a defendant actions as unconscionable.
ACCC v CG Berbatis Holdings Pty Ltd
The High Courts decision in ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 is a
case in point. There, several lessees of shops in a shopping centre bought proceedings
against the lessor for the recovery of amounts which they claimed had been overpaid. While
those proceedings were pending, the lessee of one shop whose lease was due to expire
negotiated with the lessors agents for a new term. The existing lease conferred no right of
renewal. The lessor was under no obligation to renew, and were entitled to negotiate new
terms for renewal. In negotiations the lessor stipulated that the lessee discharge the lesssor
from all claims the subject of the pending proceedings. At first instance French J held that
the lessor had acted unconscionably. That decision was overturned on appeal to the Full
Federal Court. The High Court dismissed the lessees appeal.
Gleeson CJ said that a person is not in a position of special disadvantage simply because of
inequality of bargaining power. He said many, perhaps even most, contracts are made
between parties of unequal bargaining power, and good conscience does not require parties to
contractual negotiations to forfeit their advantages, or neglect their own interests.
Gleeson CJ continued (at [15]) in the present case, there was neither a special disadvantage
on the part of the lessees, nor unconscientious conduct on the part of the lessor. All the
people involved in the transaction were business people, concerned to advance or protect
their own financial interests. The critical disadvantage from which the lessees suffered was
that they had no legal entitlement to a renewal or extension of their lease; and they
depended upon the lessors willingness to grant such an extension or renewal for their
capacity to sell the goodwill of their business for a substantial price. They were thus
compelled to approach the lessors, seeking their agreement to such an extension or renewal,
against a background of current claims and litigation in which they were involved. They
were at a distinct disadvantage, but there was nothing special about it.
Taking advantage of the special disadvantage?
If presumption is raised, defendant must rebut
If a plaintiff is able to establish that the defendant was aware, or a reasonable person in the
defendants position would have been aware, of a plaintiffs special disadvantage and the
defendant actually acted on that disadvantage the onus of proof shifts to the defendant to
rebut the presumption show that no advantage was taken or
show that the transaction was fair, just and reasonable per Deane J in Commercial
Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
Must act on the special disadvantage
Evidently, no action will be available to a plaintiff in an action of unconscionable conduct if
the defendant has not acted on the plaintiffs special disadvantage to their own self advantage.
Importantly, the decision in Bridgewater v Leahy (1998) 194 CLR 457 suggests that the bar
for acting on a special advantage is extremely low. The mere passive acceptance of a benefit
by a defendant can be enough to satisfy to a Court that the defendant acted on the special
disadvantage of a plaintiff.
Can still be unconscionable even with consideration
Interestingly, a transaction can still be unconscionable even though clear and reasonable
consideration has moved from the stronger party to the weaker one. In Amadio, it was evident
that the consideration moved from the bank to the son but not to the parents and if we refer
back to equitable maxims it was suggested in the obiter of the Amadio case that equity
treats the guarantors as volunteers.
Rebutting the presumption
The most common method of a defendant rebutting the presumption that they were engaged
in unconscionable conduct is to clearly show that the plaintiff received external advice, or at
the very least, the defendant involved an external independent third party to assist with the
transaction. This was the most important element arising out the Amadio case for the
defendants ensuring that unbiased and independent third party advice is obtained by the
plaintiff to ensure that they have a full understanding of the transaction being undertaken.
This is the consistent with the authority of Powell v Powell [1900] 1 Ch 243, 246-7 which
purports that independent advice must be of an acceptable quality and sufficient in the
circumstances. Additionally, the authority of Fry v. Lane (1888) 40 Ch D 312 infers that the
defendants conduct must fair, just and reasonable.
Spousal Guarantees
The doctrine of unconscionable conduct is particularly important in relation to spousal
guarantees. This first arose in the case of Yerky v Jones (1939) 63 CLR 649 and was later
affirmed in the Garcia v National Australia Bank (1998) 194 CLR 395 which stated in the
head note that a presumption arises that the lender must rebut if the lender knows that
a) Wife did not Understand - the wife did not understand the purport and affect
of the transaction;
b) Transaction is Voluntary - the transaction was voluntary, in the sense that the
wife obtained no gain from the contract the performance of which was
guaranteed;
c) Husband didnt inform wife - the creditor is to be taken to have understood that
the wife may repose trust and confidence in her husband in matters of business
and therefore to have understood that the husband may not fully and
accurately explained the purport and affect of the transaction to his wife; and
d) Creditor didnt explain to wife - the creditor nonetheless did not take steps to
explain the transaction to the wife or find out that a stranger had explained it
to her.
If the lender cannot rebut the presumption, then doctrine of unconscionable conduct steps in
to set aside the transaction.
Rebutting the presumption
The outcome of the Garcia v National Australia Bank (1998) 194 CLR 395 has indicated that
if the plaintiff makes the claim that she was a victim of actual undue influence, then the
lender is unable to hold the security against her unless they have ensured that she has
received unbiased and independent advice.
Lender must rebut
If the plaintiff claims that she did not understand the transaction, then the lender can enforce
the security against her if the defendant is able to satisfy to the Court that reasonable steps
were taken to ensure that the plaintiff, or a reasonable person in the plaintiffs position, would
have understood the transaction.
Successfully rebut
In Radin v Comonwealth Bank of Australia [1998] FCA 1361 the Court agreed with that
bank that it had done enough to rebut the presumption. Most specifically the bank had:
a) Multiple Explanations to Wife - given multiple explanations to the wife
regarding the transaction she was engaging in;
b) Requested she obtain independent advice - written to her suggesting that

obtain independent legal advice regarding the transaction; and
c) Obtained affidavit - obtained a written affidavit from her stating that she
understood the transaction and its effects.
Unsuccessful Rebut
If we contrast this decision with the decision in Armstrong v Commonwealth Bank of
Australia [1999] NSWSC 588, the Court ruled in favour of the plaintiff as it was of the
opinion that bank had not done enough to rebut the presumption. In this instance, the bank
had:
a) No instruction for independent advice - the bank did not advise the wife to
seek independent advice until the transaction was almost completed;
b) No steps to ensure understanding - the bank took no steps to determine if the
wife had understood this advice or whether she had actually received it; and
c) Advice not related to transaction - the advice which the wife received did not
relate to the transaction that the bank was seeking to enforce.
Additionally, commentary from Dixon CJ, McTieman and Kitto JJ in Jenys v Public Curator
(Qld) (1953) 90 CLR 113 at 118-19 suggests that merely satisfying each of the elements for
an action under unconscionable conduct is not immediately straightforward in equity.
The jurisdiction of the court of equity to set aside a gift or other disposition of
property as, actually or presumptively, resulting from undue influence, abuse of
confidence or other circumstances affecting the conscience of the donee is governed
by principles the application of which calls for a precise examination of the
particular facts, a scrutiny of the exact relations established between the parties and
a consideration of the mental capacities, processes and idiosyncrasies of the donor.
Such cases do not depend upon legal categories susceptible of clear definition and
giving rise to definite issues of fact readily formulated which, when found,
automatically determined the validity of the disposition. Moreover, equitable relief is
discretionary and is subject to discretionary defences.
Remedies
Recession
Consistent with undue influence, the most common ready for unconscionable conduct is the
setting aside of the transaction, either by an order for recession or through a refusal of the
specific enforcement of the transaction.
The plaintiff must establish all elements of unconscionable conduct and the defendant must
not be able to rebut the presumption. Remedies for unconscionable conduct also run into the
difficulties of third parties that are consistent with the problems of undue influence
mentioned above.
More complex remedies occur when gifts are made inter vivos and then a will attaches the
gives to someone else. This was consistent with the problems faced by the High Court in
Bridgewater v Leahy (1998) 194 CLR 457 which ultimately ruled that the transaction was to
be set aside and revert the matter back to the Supreme Court to determine the relevant
necessities.
Topic 3 Fiduciary Obligations

Introduction
Not free to pursuit self interest and altruistic
A fiduciary obligation is a relationship in which one party is not free to pursue their own
separate interests, but rather serve the exclusive interest of some other person or group of
persons. The accepted fiduciary relationship is typically one that creates a special relationship
of trust and confidence between the parties with one of the parties being in a special
position to exercise power or discretion which will affect the interest of the other party in an
economic or legal sense.
In LAC Minterals Ltd v International Corona Resources Ltd the Court indicates the
relationships as relationships of trust and confidence or confidential relations where the
exercise of a power or discretion will affect the interests of another person in a legal or
practical sense such that this person is especially vulnerable to abuse by the fiduciary
position.
Definition
In Norberg v Wynrib [1992] 2 SCR 226 at 272 McLachlin J said
The foundation and ambit of the fiduciary obligation are conceptually distinct from
the foundation and ambit of contract and tort. Sometimes the doctrines may overlap
in their application, but that does not destroy their conceptual and functional
uniqueness. In negligence and contract the parties are taken to be independent and
equal actors, concerned primarily with their own self-interest. Consequently, the law
seeks a balance between enforcing obligations by awarding compensation when those
obligations are breached, and preserving optimum freedom for those involved in the
relationship in question. The essence of a fiduciary relationship, by contrast, is that
one party exercises power on behalf of another and pledges himself or herself to act
in the best interests of the other.
Thus, as suggested by the High Court in Youyang Pty Ltd v. Minter Ellison (2003) 212 CLR
484 at 501 [40] in referring to commentary made by McLachlin J of the Canadian Supreme
Court in Canson Enterprises Ltd v. Boughton & Co [1991] 3 SCR 534 at 543
[T]he essence of a fiduciary relationship is that one party pledges itself to act in the
best interest of the other. The fiduciary relationship has trust, not self-interest, at its
core, and when breach occurs, the balance favours the person wronged.
****Extent of the Fiduciary Duty****

General
Common law favours the pursuit of self interest
As such, the common law favours the pursuit of self interest and suggests that contractual
obligations would not occur unless both parties are satisfied that their own self interests are
satisfied. Lord Ackner suggested this in Walford v. Miles [1992] 2 AC 128 at 138
a concept of a duty to carry on negotiations in good faith is inherently repugnant to
the adversarial position of the parties involved in negotiations each party is entitled
to pursue his own interest, so long as he avoids making misrepresentations.
To illustrate, it would be ludicrous to contend that a lawyer does not have to act in the best
interests of their client. Conversely, it would be equally ludicrous to suggest that a store
manager has to disclose to a customer a product which they have a material interest in. The
later example is a common facet of everyday life, and such common transactions will always
contain a strong element of autonomy and favour the pursuit of individual self interest.
Equity favours autonomy to an objective standard
Equity does not seek to stop these transactions from occurring, since these relationships are
not relationships which draw the jurisdiction of fiduciary obligations. The limit, of course, is
that store manager must advance the customers interests in accordance with an objective
standard. If this standard is breached then the store manager would be liable for the
unsatisfactory recommendation passed onto the customer.
The point is that fiduciary duties are imposed entirely to prevent unconscionable
conduct and to serve the interests exclusively of some other person. Fiduciary
obligations infer that the party owing them cannot pursue their own or separate
interests.
Fiduciary Relationship and Contractual Obligations

A fiduciary relationship can co-exist with a contract such that a contractual relationship can
regulate the basic rights and liabilities of the parties while the fiduciary relationship must
accommodate itself to the terms of the contract such that it is consistent with them.
Contractual obligations are always created to represent the express or implied intentions of
the parties which make them and such obligations are almost always typically formed to
protect each partys respective autonomy.
In a relationship which is constituted by contract, the nature of the fiduciary obligations owed
are determined by the contract as stated in Hospital Products Limited v United States
Surgical Corp (1984) 156 CLR 41. The subject matter to which the fiduciary obligations
extend is referenced to the character of the venture being undertaken and the agreement of the
parties as stated in Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR
384.
Extent of Fiduciary Duties & Contracts
In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, it was explained that the extent and
nature of the fiduciary duties owed in any particular case ought to be determined by reference
to the contractual relationship underlying the relationship between the parties.
In this case, the Court provided an example such that an agent, in the absence of contractual
provision, would breach their fiduciary duties if they competed for another who was in
competition with their principle unless the contract under which he is acting allows him to do
so. In such a case, the fiduciary obligations are said to have been modified by the contractual
agreement such that the contract has adapted the extent and nature of the general duty that
would otherwise arise.
Pre-contractual obligations
Australian Courts have had considerable reluctance in imposing fiduciary obligations on precontractual negotiations when terms of the contract are being struck at arms length. This was
consistent with the decision in Hospital Products Limited v United States Surgical Corp
(1984) 156 CLR 41 Gibbs CJ stated at 70 that
the fact that the agreement between the parties was of a purely commercial kind and
that they had dealt at arms length and on equal footing has consistently been
regarded by this court as important, if not decisive, in indicating that no fiduciary
duty arose
If parties are currently negotiating a contract, a contracting party does not owe either a duty
of good faith or fairness to the respective contractual counterparty this is the common laws
representation of the pursuit of self-interest. In Walford v Miles, Lord Ackner stated
a concept of a duty to carry on negotiations in good faith is inherently repugnant to
the adversarial position of the parties involved in negotiations each party is entitled
to pursue his own interest, so long as he avoids making misrepresentations.
Contractual obligations take precedence

As suggested previously, a fiduciary relationship can co-exist with a contract but the
contractual obligations will take precedence over the fiduciary ones. Mason J in Hospital
Products Limited v United States Surgical Corp (1984) 156 CLR 41 at 97 stated:
Indeed, the existence of a basic contractual relationship has in many situations
provided a foundation for the erection of a fiduciary relationship. In these situations
it is the contractual foundation which is all important because it is the contract that
regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it
is to exist at all, must accommodate itself to the terms of the contract so that it is
consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract
was intended to have according its true construction.
However, it is critical to remember that trust and reliance are often mixed with autonomy
during contractual negotiations and this can easily lead to abuse.
Joint Venture
In United Dominions Corporation Ltd v. Brian Pty Ltd (1985) 157 CLR 1, it was established
that a fiduciary relationship can arise and exist between parties who have not reached, or
may never reach, an agreement in joint venture agreements where the terms are not settled
and the parties are no longer acting at arms length. As stated in this case
In particular, a fiduciary relationship with attendant fiduciary obligations may, and
ordinarily will, exist between prospective partners who have embarked upon the
conduct of the partnership business or venture before the precise terms of any
partnership agreement have been settled. Indeed, in such circumstances, the mutual
confidence and trust which underline most consensual fiduciary relationships are
likely to be more readily apparent than in the case where mutual rights and
obligations have been expressly defined in some formal agreement. Likewise, the
relationship between prospective partners or participants in a proposed partnership
to carry out a simple joint undertaking or endeavour will ordinarily be fiduciary if
the prospective partners have reached an informal arrangement to assume such a
relationship and have proceeded to take steps involved in its establishment or
implementation.
Cannot call off negotiations
To illustrate, a partner cannot call off negotiations in a joint venture deal in order to pursue
their own self interests. If such an action were permissible, it would allow one party to
contemplate and obtain information regarding the other party for the purposes of contractual
negotiation, and then act in their own separate interests and perhaps competing interests.
Arms Length
Before the United Dominions Corporation Ltd v. Brian Pty Ltd case, the accepted view was
that until the joint venture agreement had crystallized, no fiduciary duties were capable of
arising. This was because it was contended that parties were dealing at arms length and were
entitled to advance their own autonomy and therefore owed no fiduciary duties. If the parties
agreement did not eventuate, then the parties, as stated in Keith Henry & Co Pty Ltd v. Stuart
Walker & Co. Pty Ltd (1958) 100 CLR 342
were engaged in ordinary commercial transactions with each other, dealing with
each other, as the saying goes, at arms length.
This was rejected by the High Court in United Dominions Corporation Ltd v. Brian Pty Ltd
who stated
A fiduciary relationship can arise and fiduciary duties can exist between parties who
have not reached, and who may never reach, agreement upon the consensual terms
which are to govern the arrangement between them.
Any agreement or agreements subsequently made between the parties are made to an existing
fiduciary relationship and this will continue until the agreement has matured.
Intending joint ventures owe an obligation not to profit

However, fiduciary duties are less likely to be reached if the negotiating parties are dealing at
arms length as stated in Gibson Motorsport Pty Ltd v Forbes (2006) 149 FCR 569 where the
parties never established a joint venture agreement and yet substantial wealth was created.
Partnerships
A partner will always owe fiduciary duties to their firm since the firm is not a separate legal
entity. In addition, a partner will also owe fiduciary duties to other parties, and they are not
free to pursue separate interests but must purse interests of the partnership in a horizontal
fiduciary relationship.
The notion of horizontal fiduciary relations is based on the associative that is, the parties in
a fiduciary relationship must purse interests which do not contain elements of autonomy but
are rather joint to the association. This was expressed in New Ltd v. Australian Rugby
Football League Ltd (1996) 64 FCR 410.
A horizontal relationship is more likely to involve an undertaking, actual or imputed,
that the parties act only for their mutual advantage.
This was upheld in Chan v Zacharia (1984) 154 CLR 178.
Companies and Directors
A company director must be prohibited from engaging in conduct that would put them in a
position of inherent difficultly such that his obligations to advance the interests of the
company where in conflict with his own interests as per Cook v Deeks [1916] 1 AC 554. In R
v Byrnes (1995) 183 CLR 501, the High Court stated that a company director can be a
director of more than one company but not where the fiduciary duties owed to each conflict.
Thus, a director can also not advance his own interests over the interests of the company to
which they are a fiduciary. And so in the famous case of Legal (Hastings) Ltd v. Gulliver
[1967] 2 AC 134 Lord Russell of Killowen said:
The rule of equity which insists on those who by use of a fiduciary position make a
profit, being liable to account for that profit, in no way depends on fraud, or absence
of bona fide the liability arises from the mere fact of a profit having been
made.
In this case, the directors made a profit on the sale of the shares in a subsidiary company. The
appellant company, through its new owners, then sought an account of those profits from the
previous directors. In the Court of Appeal the claim was dismissed as the directors were
deemed to be acting as bona fide and in the best interests of the appellant company. The
House of Lords held this was wrong as stated above.
Breach obligations
A director will breach, in accordance with Hospital Products Limited v United States
Surgical Corp (1984) 156 CLR 41, his obligation if he obtains for himself an opportunity to
profit which is sought by his company or if he benefits personally from an opportunity. In
Regal (Hastings)Ltd v Gulliver (1942) p1967] 2 AC 134, the House of Lords held that the
directors were accountable to Regal for profits made on the sale of shares stating
the directors standing in a fiduciary relationship to Regal in regard to the exercise of

their powers as directors, and having obtained their shares by reason and only by
reason of the fact that they were directors of Regal and in the course of the execution
of that, are account for the profits which they made of them
Regal Hastings was applied in Canadian Aero Services Ltd v OMalley [1974] SCR 592,
where the Court stated
an imprecise ethical standard ... which prohibits an executive here defined to
include either a direct or an officer from appropriating to himself a business
opportunity which in fairness should belong to the corporation.
Relationships of Fiduciary Obligations

The law does not recognise all relationships as fiduciary ones evidently, there are some
relationships which should attract higher obligations than others and this does not infer that
even these relationships will be fiduciary in nature. Typically, fiduciary obligation can arise in
two different ways:
1. A presumed fiduciary relationship
a. This first class are fiduciary relationships which are automatically assumed to
exist and have been acknowledge in law as fiduciary relationships over time.
A presumed relationship automatically creates fiduciary obligations and
requires the defendant to rebut the presumption
2. A proven fiduciary relationship.
a. This second class are relationships which can be proven as one party places
trust and confidence in the other for some economic interest. A proven
fiduciary relationship requires the plaintiff to prove that such a relationship
existed, or should have existed, due to the trust and confidence bestowed on
the defendant.
Presumed Fiduciary Relationships
The following table sets out the presumed fiduciary relationships in equity:
Relationship
Automatically Assumed
Solicitor-client
Agent-principal
Partner-partner
Yes
Yes
Yes
Company director-company
Yes
Trustee-beneficiary
Bank manager-client
Yes
No, can be proven
Joint venturers
No, can be proven
Doctor-patient
Parent-child
No, can be proven

No, can be proven
Authority
(without full citation)
Prince Jefri Volkiah v KPMG
Mckenzie v McDonald
Chan v Zacharia
Hospital Products Limited v United
States Surgical Corporation
Boardman v Phipps
Refer to United Dominions
Corporation v Brian Pty Ltd
Refer to Breen v Williams
It is prima facie evident that all these relationships do carry a high element of trust and
confidence which can have a substantial degree of influence both legal and economic
over a principals affairs.
Such relationships can be horizontal or vertical relationships such that in the former each
party exhibits trust and confidence in each other while in the later only one party displays
trust and confidence. This classification was first established in New Ltd v. Australian Rugby
Football League Ltd (1996) 64 FCR 410 at 539 where it was stated
In the absence of a single test of a fiduciary relationship, it is useful to distinguish
between two kinds of relationships: G M D Bean, Fiduciary Obligations and Joint
Ventures (1995), p 117. The first has been described by Dr Bean as a vertical
relationship, such as principal and agent or employer and employee. The second is a
collaborative or horizontal relationship, such as a partnership or joint venture.

The criteria to be applied in determining whether the relationships are fiduciary in
character will not necessarily differ in each case. However, the significance of a
particular criterion may vary, depending upon whether the relationship is vertical
or horizontal. For example, although the notion of mutual trust and confidence can
be applied to certain vertical relationships which are clearly fiduciary in character, it
is perhaps more readily applied to collaborative undertakings. Similarly, it may be
easier to apply the notion of a party undertaking to act solely in the interests of
another where the relationship between them is vertical. A horizontal relationship is
more likely to involve an undertaking, actual or imputed, that the parties act only for
their mutual advantage.
Proven Fiduciary Relationships
As stated previously, if the relationship is not to be automatically assumed then the plaintiff
must establish that:
1. The plaintiff has placed the defendant in a position of trust and confidence; and
2. The defendant has adversely affected a plaintiffs interest.
Both these elements must be satisfied by a plaintiff before an action can be taken under
equity. The Courts have refused to recognise fiduciary obligations were the second element is
not in existence. Most specifically, in SB v State of NSW [2004] VSC 514 the damage by the
defendant was physical and did not adversely affect the plaintiffs economic interest despite
the defendant being in a position of trust and confidence.
As stated in Hospital Products Limited v United States Surgical Corp (1984) 156 CLR 41, the
categories of relationships are not closed.
Proving a fiduciary obligation exists

The Key Fiduciary Factors
Inherent to all fiduciary litigation are a number of specific characteristics recognised by
Mason J at 96-97 in Hospital Products Limited v United States Surgical Corp (1984) 156
CLR 41 including:
1. A relationship of trust and confidence;
a. It is almost always typical that a principal places trust and confidence in the
person owing a fiduciary obligation. It is important to note that the mere
presence of trust and confidence does not automatically create the presumption
that a fiduciary obligation is owed.
i. i.e. A customer may rely on a store manager in trust and confidence to
recommend the best product, but this does not automatically prove that
a fiduciary duty is owed.
2. Act in the best interests;
a. The duty of a fiduciary is to always act in the best interests of the principal and
put the principals interests ahead of their own. There are exceptions to this as
seen in English v Dedham Vale Properties Ltd [1987] 1 All ER 382 but these
are limited in scope.
3. The ability to affect the principals interests;
a. The inherent nature of the fiduciary relationship is the power to affect a
principals interest. Typically the word interest is categorised to encompass
anything of an economic or property nature. If the nature of the fiduciary
relationship is such, that one party can easily affect the other partys interest
this provides a strong evidentiary burden to satisfying this element.
4. The susceptibility of the principal;
a. Typically, the principal is always in a more vulnerable position than the
fiduciary. This is because the principal is entrusting the fiduciary to act in their
best interests and therefore make the appropriate decisions. Additionally, the
fiduciary typically has a direct influence over economic or property interests
of the principal and can significantly influence the decision making
surrounding these interests.
b. The more susceptible and reliable a principal is on the advice of another party
(typically) the more evidence which can be presented to elicit a fiduciary
relationship.
The Nature & Scope of Fiduciary Obligations Profit and Conflicts

General
The utmost duty to disclosure any conflicts and profits by a fiduciary underpins the very
fabric of the fiduciary relationship of confidence and trust as explained in Breen v Williams
(1996) 186 CLR 71.
A fiduciaries role is to act with utmost altruism and disinterest towards the scope of any
interests of the principal which are currently carried on or planned to be carried on.
Consequently, as stated in Hughes Aircraft v. Airservices (1997) 146 ALR 1
A man of integrity can be a defaulting fiduciary without ceasing to be honest
Similarly, while some commenters believe this statement to be too narrow, a statement in
Legal (Hastings) Ltd v. Gulliver [1967] 2 AC 134 by Lord Russel indicates how altruistic a
fiduciary must be, and gives definitive insight into the importance that a fiduciary must place
on confidence and trust such that
The rule of equity which insists on those who by use of a fiduciary position make a
profit, being liable to account for that profit, in no way depends on fraud, or absence
of bona fide the liability arises from the mere fact of a profit having been
made.
Profits & Conflicts Rule (next page)
A fiduciary is unable to pursue any business opportunity if it is considered to be within the
scope of the business that the principal is currently in or planning to be in. As we have seen, a
fiduciary must act disinterred and avoid a conflict between their interests and the interests of
the principal at all costs.
So in effect, a fiduciary must abstain from the pursuit of any interest which may conflict with
those of the fiduciary.
Obligations outside this scope are free from obligation
All interests outside this scope can be considered freely and are not encompassed within the
scope of a fiduciary obligation. To more accurately determine the scope of the fiduciary
relationship, the Courts will typically examine the extent of the relationship underlying the
fiduciary obligations. In NZ Netherlands Society Organje Inc v Kuys [1973] 2 All ER 1222
it was established that a fiduciary position must be examined from the part of the fiduciaries
activities within the scope of the obligations and the part of the fiduciaries activities outside
the scope.
Consequently it is useful to consider the primary two considerations which the Courts will
use to determine whether a fiduciary has breached their obligations. It is evident in
considering both of these elements that there is a substantial overlap between each but clear
segregation for illustrative purposes is still achievable.
1. Conflict - Whether the fiduciary is in a position of inherent conflict of interest

a. If a fiduciary relationship is deemed to exist - the Court will typically
examine whether or not the fiduciary engaged in conduct which was
conflicting to the interests of the principal.
b. Most typically, a conflict will arise where the fiduciaries personal interests
union with those of the principals -The fiduciary may be tempted to place
their personal interests in favour of those of the principals which could cause
significantly loss to the principal or, alternatively, a significant gain for the
fiduciary.
c. In McKenzie v McDonald [1927] VLR 134 a real estate agent was acting for a
vendor a recognised fiduciary relationship of principal and agent and
purchased the property off the vendor at a price which was undervalued in
exchange for his property which he overvalued. The agents fiduciary
obligations were clearly breached which resulted in a loss to the principal
which he had to compensate for.
2. Profit -Whether the fiduciary has profited from such a position
a. Where the fiduciary has made a profit - from a transaction resulting from
the nature of their position as a fiduciary - they are in breach of their fiduciary
obligations.
b. Strip Profits from Fiduciary - Equitys remedy to such a situation is to strip
the profits from the fiduciary and redirect them back to the principal.
c. For a plaintiff to take a successful action - against a fiduciary for
unauthorised profit they must:
i. Show that a fiduciary relationship existed; and
ii. That the profit which was made by the fiduciary was inside the scope
of the relationship.
d. Boardman v Phipps [1967] 2 AC 46, in which a solicitor and others acted for
the trustees of a deceased estate and inappropriately purchased shares on
behalf of the trustees which raised a profit. The plaintiffs were the trustees and
claimed they had been inadequately informed and wanted an account for
profits. The Court ruled in favour of the plaintiffs and found that while the
defendants acted honestly they were in a fiduciary position and did not
adequately disclose the nature of the transaction.
Defences to Breaches of Fiduciary Obligations

Informed Consent
The most common defence to a breach of fiduciary obligations is the defence of informed
consent. If a fiduciary wishes to enter a transaction or use information which would otherwise
amount to a breach of their fiduciary position to avoid liability, they must make a full
disclosure to the person to which the duty is owed of all relevant facts and that person must
consent to the fiduciary proposal. In no other manner can a fiduciary more effectively avoid
liability than to ensure that this occurs.
Defence Successful
In Queensland Mines Ltd v Hudson (1978) 18 ALR 1 the defendant had sought mining leases
that a company was interested in at his own expense and risk. The company had originally
been established for another purpose and the defendant eventually reported the status of these
mining leases to the company board. The board did not want to proceed with the acquisition
of any of them. The defendant later engaged in the leases for a substantial profit. The Court
ruled that the defendant had adequately informed the company board and did not breach his
fiduciary position. Additionally, the Court suggested the defendant conduct may have been
outside of the scope of his fiduciary obligations anyway.
Defence not Successful
In Boardman v Phipps [1967] 2 AC 46 adequate consent was contended by the defendants,
but one of the trustees had dementia and merely informing them was deemed inadequate. The
Court suggested that signed consent and full and independent understanding was required on
behalf of this trustee to ensure that the fiduciary obligations were satisfied. The defendants
had not done this and therefore could not use this defence.
Remedies for Breach of Fiduciary Obligations

The most common remedies for breach of a fiduciary depend on whether the breach relates to
a personal or proprietary breach.
Personal
Personal remedies are remedies which are directed at the fiduciary and which the fiduciary is
solely responsible in fulfilling. A personal remedy is typically correlated to a debt that the
fiduciary must compensate in the principals favour for their breach of fiduciary duties. Most
personal remedies include one or more of the following:
An injunction;
An account for profits;
Equitable compensation.
Proprietary
Proprietary remedies are remedies that are directed towards a particular property rather than a
debt. This is most relevant in insolvency matters since a personal remedy is a remedy that is
treated as a debt and is therefore available to all other creditors. However, a proprietary
remedy is a remedy that is raised in the principals favour and therefore gives them a higher
standing than other creditors.
Important in any consideration of a proprietary remedy is the value of the property as
opposed to its cash derivative. For example, if the value of the property has decreased then it
may be more favourable for a principal to take a cash sum at the valuation price of the asset
than reclaim the property.
Topic 4 Accessorial (Third Party) Liability in Equity

Property Rights
They must be both capable of assignment to third parties and capable of binding third parties
without their consent.
A property right must be capable of transfer and of being exigible against a person
without that persons consent.
Cannot be destroyed - A property right cannot be destroyed simply because the thing over
which the right exists comes into the possession of some other third party. Parties are not free
to create in objects they own property rights which will bind third parties, even though as a
matter of personal obligation parties are free to agree as they wish.
Equity regards a party (X) as being under an equitable obligation to another party (Y) in
relation to an item of property, equity regards Y as having enforceable personal rights against
X in relation to that item of property. Y has rights to enforce the obligation against X.
Innocent (bona fide) Purchaser for Value
There is no general defence of good faith purchase due to the principle of nemo dat quod non
habet or no one gives what he does not have. If legal title is passed to a bona fide purchaser
for value without notice, equity will refuse to intervene to preserve the prior legal interest.
Property rights recognised at the common law typically survive any dispositions by nonowners, even those where the recipient is a bona fide purchase for value.
The general rule is that persons deal with property or exercise acts of ownership of
such property at their own risk.
Legal vs. Equitable

A purchaser who retains the legal interest in the property will always defeat the equitable title
in a dispute. If a purchaser only takes an equitable interest then the nemo dat rule will apply
which infers that the prior equitable interest will remaining binding.
Prior equitable vs subsequent legal
If the legal interest holder took their title for value and without notice of the equitable
interest, and the legal interest holder didnt have notice of the earlier interest then the
equitable interest is defeated per Pilcher v Rawlins (1872) LR 7 Ch 259.
Prior legal vs Later equitable interest
A legal interest is stronger than an equitable one, the legal interest will win.
Prior equitable interest vs later equitable interest
Where two equitable interests are in competition, then as per Latec Investments Ltd v Hotel
Terrigal Pty Ltd (1965) 113 CLR 265 the first interest will win.
If the merits are equal, priority in time of creation is considered to give the better
equity
Types of Claims against Trustees
There are primarily two types of claims that can be taken against a person who is appointed
as a trustee.
Proprietary
In a proprietary claim, the plaintiff asserts that a particular item of property owned or in
possession of the defendant, is held by the defendant on trust for the plaintiff. The
identification of such property in the hands of the defendant is a primary condition for such a
claim.
The plaintiff MUST be able to show that an item of property owned by the defendant is held
by the defendant on trust for the plaintiff.
An example
Suppose a trustee, in breach, uses $1000 of the trust money and $1000 of his own money to
purchase an antique car. If the car is now worth $3000, then the plaintiff is able to claim a
50% share in the antique car thus taking advantage of the gain in value.
Personal
It is possible that the plaintiff can assert personal claims against the trustee for the loss and
illegal breach of the trust assets.
Using the previous example - the $1000 illegally misappropriated from the trust if it
is possible to trace where the trust monies which have been misappropriated then
the plaintiff can assert a lien over the antique car to ensure that the trustee pays $1000
back to the trust.
The plaintiff would effectively claim a security interest over the asset which was been
illegally acquired through the use of trust funds.
Use of a Lein
Importantly, a lien is a proprietary right and not an ownership interest. The function of such a
device is merely to secure performance of the personal obligation from the trustee to pay
compensation for a breach of the trust.
Remedy
Whether using proprietary or personal claims against the breach, it is seen that equity will
restore the equitable property rights.
Third Parties
Equitable property rights remain even when the res that is, the subject matter of any
equitable property right falls into the hands of some third party.
It is only once the res falls into the hands of a bona fide purchaser of legal title for
value without notice of the prior equitable dispute, that the earlier equitable property
interest will be destroyed.
In Montagus Settlement Trust [1987] Ch 264 at 276 it was stated by Sir Megarry V-C when
speaking of the first limb of Barnes v Addy
the core of the question. is what suffices to constitute a recipient of trust
property a constructive trustee of it. I can leave on one side the equitable doctrine of
tracing: if the recipient of trust property still has the property or its traceable
proceeds in his possession, he is liable to restore it unless he is a purchaser without
notice.
Nature of the Third Party Liability Personal, not proprietary
A person who knowingly receives trust property or knowingly assists in the breach of
fiduciary duty is liable as a constructive trustee. However, it is critical to remember that
third party liable is not proprietary in nature, it is personal.
In Giumelli v Giumelli (1999) 161 ALR 473 the High Court stated,
The trust institution usually involves both the holding of property by the trustee and a
personal liability to account in a suit for breach of trust for the discharge of the
trustees duties. However, some constructive trusts create or recognise no proprietary
interest. Rather, there is the imposition of a personal liability to account in the same
manner as that of an express trustee. An example of a constructive trust in this sense
is the imposition of personal liability upon one who dishonestly procures or assists
in a breach of trust or fiduciary obligation by a trustee or other fiduciary
The important point from this statement is the emphasis on the to account as a constructive
trustee. This is a reference to the trustee personal liability to account, rather than any
associated obligation to hold property as a constructive trustee.
Tracing into the Hands of the Trustee vs. Personal Claim
Third party liability must be distinguished from any associated rules which apply when a
principal seeks to trace his or her property into the hands of the defendant. If a principal is
attempting to trace their property, this can only realistically be done by asserting a
continuing equitable title over the property. The principal is unable to trace the
property into the defendants hands, if the defendant is a bona fide purchaser of the
legal estate for value without notice.
However, the equitable personal claim should be seen as distinct. A defendant can be liable
even when they never received property from the defaulting fiduciary. A claim for liability as
a knowing recipient can still succeed even though the defendant no longer holds the property
or its traceable earnings Re Montagus Settlement Trusts [1992] 4 All ER.
In either case, the principal is not required to trace assets in order to assert a continuing
proprietary interest. The principals remedy is monetary and the defendant must account.
Barnes v Addy
Barnes v Addy (1874) LR 9 Ch App 244
Barnes v Addy is the primary authority for the basis of third party personal liability as
described above. The case has been considered to have two limbs which are subsequently
discussed after the case overview below.
Case
The case involved a trustee, acting under a power in the trust deed, who appointed a third
party trustee of some of the trust property. Two solicitors whom advised both the trustee and
the beneficiaries thought that this was improvident and advised against it. The funds
entrusted to the third party were lost and then an action was brought against the solicitors.
Court Ruled: The solicitors were not responsible as strangers were not to be liable as
constructive trustees simply because they acted as agents of trustees in transactions within
their legal powers unless they received and became chargeable with some part of the trust
property, or unless they assisted with the knowledge in a dishonest and fraudulent manner on
part of the trustees.
The Limbs of Barnes v Addy
The first and second limbs of Barnes v Addy are not proprietary claims - they are personal
claims against persons other than the trustees. The two respective limbs are:
1. Knowing Receipt Claim - The stranger receives and becomes chargeable with trust
property; or
2. Knowing Assistance - The stranger assists with knowledge in a dishonest and
fraudulent nature. The assistance must be of some significance: a de minmus
minimal effort - involvement will not suffice.
The application of the limbs has been applied broadly in a number of circumstances
including:
Bank liability for a receipt Koorootang Nominees Pty Ltd v Australia & New
Zealand Banking Group [1998] 3 VR 16
Solicitor not liable for assistance Twinsectra Ltd v Yardley [2002] 2 AC 164
Spouses of Fiduciaries liable for receipt Lord v Spinelly (1991) 4 WAR 158
Beneficiary
Trust (Trustee)
Third Party
First Limb (refer Knowing Receipt next page)

Lord Selborne recognised that liability can be imposed upon those persons who make
themselves trustees de son tort of his own wrong or actually participating in any
fraudulent conduct of the trustee to the injury of the cestui que trust or trust beneficiary.
Typically, liability arising from trusteeship de son tort occurs when a person, never expressly
appointed as a trustee, acts as a trustee and then commits of a breach of trust against the
cestui que trust. Such action is liable for the breach in the same manner as if the trustee had
been expressly appointed. The property has actually passed through the third parties
hands. If the trust assets can be identified then it is possible for the cestui que trust to
simply assert of property right. That is, they have taken receipt of the property.
Liability is primary since the trustee de son tort is the actual person who commits the breach
of trust.
Professor Harpum says2:
The issue of primary liability is most likely to arise where an agent acquires trust
property quite lawfully in the course of his business, but then outsteps his agency and
deals with the trust property uninstructed by the trustees and on his own initiative.
Whether or not this has happened is a question of fact. The state of mind of the
trustee [trustee de son tort] or his motive for acting as he did are irrelevant. Once he
has assumed the character of a trustee, his liability for breach of trust is necessarily
strict.
Second Limb (refer Knowing Assistance next page)
The second element of Lord Selbournes statement regards a person who actually
participates in the fraudulent conduct of the trustee to the injury of the cestui que trust.
It is most likely that Lord Selbornes argument is actually referring to the deceit by the person
who actually participates in the fraudulent conduct of another whether it is this person, a
trustee or some other party.
Professor Harpum (at page 11 of Frontiers of Liability) refers to two decisions in the 1840s
of Lord Langdale MR recognising that a stranger to the trust might be liable for knowingly
inducing or assisting the commission of a breach of trust. The most important aspect was that
he was aware of the breach:
If the agent of a trustee . knowing that a breach of trust has been committed,
interferes and assists in that breach of trust, he is personally answerable (Attorney
General v The Corporation of Leicester (1884) 7 Beav 176 at 179; see also Fyler v
Fyler (1841) 3 Beav 550).
2 The Frontiers of Liability, Oxford University Press, 1994 at p 10:
Key outcomes of Farah Constructions

Knowing Receipt
1. Knowing receipt is not based in restitution; it requires that the recipient had notice that the
property was trust property.
2. Notice for the purposes of knowing receipt is still unclear but it probably includes
constructive notice of the trust.
Knowing Assistance
3. In knowing assistance claims, the TRUSTEE/FIDUCIARY must have committed a
fraudulent breach of trust/fiduciary duty.
4. The third party must have KNOWINGLY assisted in that breach. Knowledge includes the
first four "knowledge tests" in Baden, i.e. actual knowledge; wilful blindness; wilful
recklessnes in failing to make inquiries; knowledge of circumstances that would indicate a
breach to a reasonable and honest person.
Clarifications in comparison to Barnes v Addy
Basically the British courts (and the NSW COA) had started saying two things:
1. Breach by trustee in Knowing Assistance claims didn't need to be fraudulent; instead, the
third party had to have acted dishonestly in assisting the breach. Farah clarified WHO was
acting fraudulently in knowing assistance cases. The NSW COA said knowing receipt was a
doctrine based in restitution; i.e that the third party became liable simply by receiving the
trust property - no knowledge necessary. Farah said that this is not in fact the case and that
the third party has to know that it is trust property in order to be liable.
2. So the law in Australia is that the TRUSTEE has to be in fraudulent breach, and the third
party just has to know about the breach when they assist.
Knowing Receipt (first limb)
To maintain a knowing receipt claim, the defendant must have acquired trust property,
or property the subject of the fiduciary duty, for the defendants own benefit. In
effect, the claim is for the loss to the trust or for loss of property to which a fiduciary
obligation attaches.
Farah Constructions Outcome

In Farah Constructions v Say-Dee, the High Court stated that knowing receipt is not based on
restitution, and rather it requires that the recipient had notice that the property was trust
property. The notice for the purposes of knowing receipt was not adequately commented in
during the case, however there is a large degree of interpretation which suggests that it
probably includes constructive notice of the trust per the decision in Consul Development Pty
Ltd v DPC Estates Pty Ltd.
In Selangor United Rubber Estates Ltd v Cradock [No.3] [1968] 2 All ER 1073 at 1098
Ungoed-Thomas J held that actual or constructive knowledge is suffice to establish liability
for knowing assistance. His Lordship stated:
The knowledge required to hold a stranger liable as a constructive trustee in a
dishonest and fraudulent design, is knowledge of circumstances which would indicate
to an honest, reasonable man that such a design was being committed or would put
him on enquiry, which the strange failed to make, whether it was being committed.
If a defendant, who is not an authorised trustee, acquires a trust property for his or her own
benefit, and then, or later, while they have the property knows or is made aware that the
property is trust property they are liable to restore its value to the beneficiary in knowing
receipt.
Making Defendant liable
In order to make the defendant liable the plaintiff must show that the defendant, according to
the Farah Constructions v Say-Dee, that
1. Received Beneficially - The defendant has received trust property beneficially and not
merely as some representative agent for another.
2. Property belonged to the trust - The defendant knew the property belong to the trust;
and
3. Knowledge of the circumstances - The defendant knew of the circumstances which
allowed them to become owners of the trust property. (KNOWING OR NOTICE)
The trust property which the defendant acquires may be either in its original form, or property
identified as trust property under tracing rules.
Property Rights Under Receipt

In Personam personal right
Liability as a constructive trustee for knowing receipt differs from a tracing claim in that it is
claim in personam and recovery is accordingly for the full amount received by the defendant.
The claim is not confined to the property remaining in the third partys hands. It is equitys
equivalent to the common law action for money had and received: El Ajou v Dollar Land
Holdings PLC [1993] 3 All ER 717 at 736 per Millett J
Bona Fide Legal Title
If trust property is acquired by a bona fide purchaser of the legal title for value without
notice, the bona fide purchaser takes a better title than the transferor has to give and the
property ceases to be trust property.
An acquisition in such circumstances could not give rise to a liability knowing receipt. To be
liable for knowing receipt, the defendant must have treated the acquired trust property as his
or her own. That is to say, the defendant must have asserted rights of ownership over the
relevant property. This infers, that if the defendant receives monies in his or her own
capacity, then the defendant cannot be liable in knowing receipt.
In Personam - Beneficiary can sue
A bona fide purchaser of the legal title for value without notice who receives the property
from the third party does not have to return the property if they obtain legal title. However,
because the right is personal the beneficiary can sue the third party accessory for the full
value of the loss. Equity will strip the profits from the third party and return them to the
beneficiary.
Information is not Trust Property
In Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 - the High Court
concluded that information is not trust property for the purposes of a knowing receipt claim,
whether the information is confidential or not as per para [120].
Knowing Assistance
The requirement is that the acts of the defendant must actually assist the breach of duty. To
become liable for assisting a breach of duty a defendant must have rendered some level
of awareness which the conduct involved breaches a fiduciary duty which was owed.
The requirements are that the acts of the defendant must assist the breach of duty:
1. Degree of Awareness - The assistance must be provided with a degree of awareness
that the conduct involved breaches of fiduciary duty.
2. Dishonest and Fraudulent Design - The assistance must relate to a dishonest and
fraudulent design on the part of the trustee or fiduciary.
As suggested in Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 at para
[160].
In knowing assistance claims, the trustee/fiduciary must have committed a fraudulent breach
of trust/fiduciary duty. The third party must have knowingly assisted in that breach. 3. In
knowing assistance claims, the trustee/fiduciary must have committed a fraudulent breach of
trust/fiduciary duty. The third party must have knowingly assisted in that breach.
Knowledge includes the first four "knowledge tests" in Baden, i.e. actual knowledge; wilful
blindness; wilful recklessnes in failing to make inquiries; knowledge of circumstances that
would indicate a breach to a reasonable and honest person.
What is knowing ? What is knowledge? (refer next page)
The required knowledge or notice does not need to be present at the time the trust property
was acquired, nor at the time when the defendant started to treat it as their own. If the notice
or knowledge is present whilst they continue to treat it as their own then this satisfies the
requirement. There is no liability in a defendant if the knowledge or notice occurs after the
defendant has parted with the trust property. They key point is that once the defendant is
provided notice they must return it otherwise they are liable.
An attempt to abandon any notice requirement for the first limb and substitute for it strict
liability and restitution based on unjust enrichment was rejected by the High Court in SayDee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 at para [130] to [158].
Third Party Assistance
The High Court in Farah Constructions accepted that a third party might be treated as a
participant in a breach of trust where the third party had knowingly induced or immediately
procured breaches of duty by a trustee but where the trustee had acted with no improper
purpose.
Omissions
But the defendants assistance might arise by omission failing to stop the trustees breach
when the defendant could have done so such as in situations where the defendant had a
responsibility to act. An omission may give rise to assistance where the defendant is the
trusts solicitor, accountant or banker.
An example is the solicitor in Boardman v Phipps and the directors in Regal Hastings v
Gulliver. The maintaining of the fraudulent breach of trust requirement gives the Court room
to measure the quality of the trustees or fiduciarys breach.
In Farah Constructions, the High Court said that even if, contrary to the conclusions found,
the disclosures made by Mr. Elias did not constitute full disclosure, that dereliction of duty
was insufficient to merit the description dishonest and fraudulent - see [186]
Knowing or Notice
Third Party must have knowledge
In Baden v Societe Generale [1993] 1 WLR 509 at 575-576, Gibson J stated that their give
different classifications to knowledge:
1. Actual knowledge.
2. Wilfully shutting ones eyes to the obvious.
3. Wilfully and recklessly failing to make such enquiries as a honest and reasonable man
would make.
4. Knowledge of circumstances which would indicate the facts to an honest and
reasonable man.
5. Knowledge of circumstances which would put an honest and reasonable man on
enquiry.
In Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, the High Court
found that significant knowledge was required of the standard of Level 4 of the
Trustee must have Dishonest Fraudulent Breach
In Farah Constructions, the High Court said at [173] that
as a matter of ordinary understanding, and as reflected in the criminal law in
Australia (Macleod v The Queen (2003) 214 CLR 230 at 242 [36] [37]. A person
may have acted dishonestly, judged by the standards of ordinary common decent
people, without subjectively appreciating that the act in question was dishonest by
those standards
In Farah Constructions the High Court repeated a statement of Hoffman LJ in El Ajou v
Dollar Land Holdings PLC [1994] 2 All ER 685 at 703-704 that Hoffman LJ knew of
no authority for the proposition that in the absence of any duty on the part of the
principal to investigate, information which was received by an agent otherwise than
as agent can be imputed to the principal simply on the ground that the agent owed to
his principal a duty to disclose it. Even if Mr. Elias owed a duty to his family to
disclose his conduct, they had no duty to investigate it.
That is to say, there were no circumstances in which Mr. Elias wife and children had a duty
to enquire or investigate the manner in which their father came to recommend the acquisition
of units in 15 Dean Street.
The High Court endorsed Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132
CLR 373 where
Knowledge of a dishonest and fraudulent design by a trustee did not extend to
constructive knowledge and that, apart from actual knowledge of the breach of trust,
or a wilful shutting of the eyes to the obvious, a stranger to the trust would only liable
as a constructive trustee if he had knowledge of the circumstances telling of a breach
of fiduciary duty.
Third Party Assistors

It will come to be appreciated in Australia, that third party assistors will only become liable
by omission under the second limb of Barnes & Addy where they owe some duty to the
beneficiary of the trust or the fiduciary duty. Such a duty would provide a reason for
establishing knowledge on the part of the assistor even when they do no more than receive
money into a bank account or grant a discharge of mortgage.
Topic 5 Misrepresentation and Mistake

Common law position Rescind if fraudulent misrepresentation
At common law, a person who was induced to enter into a contract (other than making a gift)
can rescind the contract if the misrepresentation is fraudulent. This derives from Derry v
Peek (1889) 14 App. Cas 337 at 374 where it was stated
First, in order to sustain an action of deceit, there must be proof of fraud, and
nothing short of that will suffice. Secondly, fraud is proved when it is shown that a
false representation has been made (1) knowingly, or (2) without belief in its truth, or
(3) recklessly, careless whether it be true or false
The common law of misrepresentation requirements causation the fraudulent statement
must be a cause, not the absolute cause inducing entry into the contract and the influence of
the statement on the plaintiff is assessed objectively. In regards to the remoteness of damage,
the fraudulent defendant is bound to make amends for all damages which are directly
attributable from the fraudulent inducement.
Restitutio in integrum
Damages, in tort, are restitutio in integrum that is they restore the plaintiff back to their
original position and dont concern awards of exemplary or aggravated damages.
This was made clear in Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465 where it
was upheld that an action for damages in negligence would occur in innocent
misrepresentation if a duty of care was present.
Recission
Common law provides a proprietary response when a transfer of title to property under a
contract has been induced by the fraudulent misrepresentation of a contractual counterparty.
It permits rescission of the contract and the re-vesting of title in the plaintiff in the property
transferred. In this regard, the right to rescind has both personal and proprietary effect.
Personal
The personal consequences permit the victim to avoid the contract at their option unless the
power to rescind is exercised and the contract will then remain in place. The relevant
performances on either side must be according to the terms.
Proprietary
The proprietary consequences of the power are that property transferred under the contract
will vest in the transferee, although the title vested will be a conditional title. If successful
exercise of the power occurs, then the title in the property transferred by the power holder
will re-vest in the power holder.
The property transferred to the power holder becomes vested in their contractual
counterparty. Re-vesting of property transferred to the power holder under the contract avoids
the problem of multiplication of ownership. By re-vesting title on both parties, this ensures
that resitutio integrum occurs.
Requirements to Rescind
In order to rescind a contract, three requirements must be fulfilled and exercised. These
include:
1. Elect to rescind - The power holder must elect to rescind the contract while the power
remains extant and must give notice of the election to the contractual counterparty.
2. Not affirmed the contract - The power holder must not have affirmed the contract with
knowledge of the fraud.
3. Position to make Restitution - Third, the power holder must be in a position to make
restitution of any benefits he or she received under the contract.
In Specie
The common law requires in specie restitution of the property transferred under a contract.
Restitution in equity is a in specie remedy and involves non-monetary justice. The court
subjects the unjustly enriched party to an equitable duty to return the property to the innocent
party. This remedy may involve subrogation in suretyship or insurance, accounting in
partnerships, rescission or reformation of a contract, or constructive trust.
Example If Party X was induced to transfer title in a painting in exchange for title in house
from Y. If Y induced X to enter into the contract through fraud, a condition of common
law title in the painting would pass to X when the parties intended it to pass, usually
on delivery.
But such a title would be subjected to common law power to re-vest in favour of X.
Once X exercised the power, the common law title in the painting would re-vest in X.
Indisputably Proprietary
The common law power to rescind is absolutely proprietary in nature. Until it is exercised,
the power can be removed by a bona fide purchaser of title to the property transferred under
the contract for value and without notice of the power.
Until the common law power is removed by a bona fide purchaser or lost through the power
holders delay or affirmation of the contract, the power remains regardless of the hands into
which the property might come.
This is the specific outcome of nemo dat quod non habet - no one gives what they do not
have.
In Vagrand Pty Ltd v Fielding (1993) 41 FCR 550 at 552:
[T]he assets come to the liquidator with their history and inherent characteristics.
Although the liquidator takes the assets on behalf of the creditors, third parties retain
any rights which ensure to them as a result of that history or those characteristics.
Cases
Car & Universal Finance Co Ltd v Caldwell [1965] 1 QB 525
Caldwell was the owner of a car which he sold to a fraudster and the cheque provided by the
fraudster was worthless. When the cheque bounced, Caldwell successfully rescinded the
contract. The fraudster sold the car to Motobella Ltd, who sold it to G & C Finance Ltd
who then sold it to a dealer, who sold it to Car & Universal Finance in good faith and for
value.
Lord Denning ruled that Caldwells act of rescinding the contract provided re-vesting title to
him:
The contract of sale to these rogues was avoided and Caldwell then became the
owner of the car again. It was only after he avoided it (so that it was once again his
property), that these rogues purported to sell it to Motobella and Motobella purported
to sell it to C & G Finance. Those sales were ineffective to pass the property because
it had already re-vested in Caldwell.
Re Eastgate; Ex parte Ward [1905] 1 KB 465
A purchaser fraudulently induced a vendor to sell him furniture on credit. The purchaser then
engaged in bankruptcy by absconding and left behind the furniture in a rented house. The
vendor then entered the house and repossessed the furniture. The fraudster was then made
bankrupt and this was dated to the day on which he absconded. The fraudsters property
vested in his trustee from that date. The trustee sued the vendor in conversion contending that
the vendors exercise of recession was invalid as it had been lost by the fraudster as an act of
bankruptcy.
The Court held that the right to rescind was exigible, not only against the debtor but also
against the trustee in bankruptcy. The vendor had not engaged in conversion of the furniture
when he exercised his right to self help by repossessing the furniture. Court stated at 467
the trustee acquired the interest of the bankrupt in the property subject to the rights
of third parties. One of those rights in this case was the right of the vendors of the
goods to disaffirm the contract and to retake possession of the goods.
Equitys concurrent jurisdiction with common law

If a contract is voidable at law because of fraudulent misrepresentation, then equity has
always exercised a concurrent jurisdiction with the common law in relation to the remedies
provided.
If the power holders exercise of the right to rescind is ineffective because in specie restitution
isnt available at exercise, equity will step-in and treat the power holders exercise as valid and
re-vest rights in equity at that time.
Restitutio in integrum
Full personal and proprietary rights can be used at the time of the subsequent equity action.
This is due to equity taking a less substantial view of the requirements of restitution in
integrum, and the common law lacking the means of providing a remedy where one or other
party benefits from the possession of property. For example, where a shareholder receives
dividends on their shares before they successfully exercise their right to rescind.
Recession
The proprietary consequences of recession in equity are to make the parties to the contract
trustees of the re-vested titles for their contractual counter-party. This is also known as a
resulting trust.
The primary difference between recession at common law and in equity where stated in Alati
v Kruger (1955) 94 CLR 216 by Dixon CJ, Webb, Kitto and Taylor JJ.
The difference between the legal and the equitable rules on the subject simply was
that equity, having means which the common law lacked to ascertain and provide for
the adjustments necessary to be made between the parties in cases where a simple
handing back of property or repayment of money would not put them in as good a
position as before they entered into their transaction, was able to see the possibility of
, and therefore to concede the right of a defrauded party to rescind, in a much wider
variety of cases than those which the common law could recognize as admitting of
rescission. Of course, a rescission which the common law courts would not accept as
valid cannot of its own force revesting legal title to property which had passed, but if
a court of equity would treat it as effectual the equitable title to such property revests
upon the rescission.
Bars to recession
Bona fide purchaser, affirmation and lapse of time all remain relevant as bars to rescission as
they did in fraudulent misrepresentations.
Misrepresentation in Equity
Misrepresentation is only a ground for recession of a contract if the representation was
intended to induce the contract and subsequently did actually induce the contract as per
Hewson v Sydney Stock Exchange Ltd [1968] 2 NSWR 224.
The misrepresentation must
Have acted as an inducement such that the plaintiff was consequently caused to enter
into a contract they otherwise would not have.
Inducement
Inducement will be inferred from the fact of entry into a contract unless the defendant is able
to prove that the plaintiff knew that the representation was false or that they did not rely on it
as per Simons v Zartom Investments Pty Ltd [1975] 2 NSWLR 30.
If the plaintiff is able to show the misrepresentation acted as an inducement, it will not matter
for instance, that the plaintiff carried out their inspection of the property which is the subject
of the contract.
If the plaintiff had already decided to act before any misrepresentation was made, recession is
still possible provided that the representation had the effect of inducing the plaintiff to
continue with the decision. This was seen in Australian Steel & Mining Corp Pty Ltd v
Corben [1974] 2 NSWLR 202.
Representation and Contracts
The right to rescission is not loss if a representation becomes a warranty and the fact that a
contract is completed does not preclude a court from rescinding the contract as per Dean v
Gibson [1958] VR 563.
Innocent misrepresentation Common law provides no remedy, Equity does
The common law provides no remedy for non-fraudulent misrepresentations which induce
entry into a contract. This is a fundamental aspect of misrepresentation that is unique to the
doctrine of misrepresentation in equity and sits in its exclusive jurisdiction.
In equity, recession is a remedy which is available for misrepresentation as per Redgrave v
Hurd (1881) LR 20 Ch D 1. In Derry v Peek (1889) 14 App Cas 337 the Court stated
Where rescission [on the ground of misrepresentation of a material fact] is claimed it
is only necessary to prove that there was misrepresentation; then, however, honestly it
may have been made, however free from blaming the person who made it, the
contract, having been obtained by misrepresentation, cannot stand.
This infers that equity will grant recession where a material misrepresentation of fact had
induced the entry into a contract.
Bars to recession
Bona fide purchaser, affirmation and lapse of time all remain relevant as bars to rescission as
they did in fraudulent misrepresentations.
Rescission and Restitution vs. Common Law
Rescission and Restitution
Rescission and restitution occur in response to the successful exercise of the plaintiffs right to
avoid the contract under which he agreed to take the property the subject matter of the
contract.
The remedies of rescission and restitution provide that each side must give back that which
has been transferred under the contract. It is not the remedies purpose to compensate the
shareholder for loss or punish the wrongdoer for committing the wrong.
Rescission dissolves the contract ab initio or invalid from the outset releasing both parties
from their obligations to perform and precludes any contractual damages. However,
rescission does not stop an action in fraud.
Fraudulent Misrepresentation
The making of a fraudulent misrepresentation that causes loss is actionable in the tort of
deceit, entirely separate from the claim to rescind and re-vest. A claim for compensatory
damages in deceit arises in response to the wrong and is distinct from any remedies which are
provided by rescission and restitution.
Common Law
Under the common law, a person can rescind the contract, re-vest title and give and receive
restitution in addition to claiming common law damages in deceit. This person can also
affirm the contract giving up the right to rescind and revest and sue only in deceit.
In the later case, the person can only seek compensatory damages which are inherent to
deceit. The measure of damages will typically be the difference between the price paid for the
property transferred and its true value a basic right of any person who enters into a contract
to transfer personal property induced by fraud.
The use of fraud in equity
Equitys jurisdiction over fraud is described in the following terms by Story as per
upon closer observation they [i.e. the doctrines of equity concerning fraud] will
be perceived to be founded in an anxious desire of the law to apply the principle of
preventative justice so as to shut out the inducements to perpetrate a wrong, rather
than to rely on mere remedial justice after a wrong has been committed. By
disarming the parties of all legal sanction and protection for their acts, they suppress
the temptations and encouragements which might otherwise be found too strong for
their virtue.
Such a statement infers that equity is entire prophylactic or preventative. A notion upheld by
Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932 at 954 where a solicitor
had a relationship with their client a fiduciary relationship.
In equity, fiduciary relationships and the transactions which stem from them must be open
and fair, and free from all objects as per Maguire v Makaronis (1997) 188 CLR 449. The
utmost form of altruism.
Future of Equitable Fraud
In MGL, the authors state that
the truth appears to be that all these cases [in which the label equitable fraud has
been applied] are fairly settled instances of appeals to the conscience of the court, the
settlement being the product of an empirical process over the centuries. The door
may now appear shut to fresh appeals but the terms in which fraud is seen to appear
in various cases will provide sufficient lee-ways for further development.
Such a statement upholds stare decisis et quieta non movere that is, to stand by and adhere
to decisions and not disturb what is settled. Such a principle upholds the notion that Courts
should adhere to precedent and should not seek to stray from it.
Inducement
The inducement of a plaintiff into a contract, or some act which causes the plaintiff to act to
their detriment, must attract more attention to the inequality and capacities of the parties. In
MGL, the authors comment that
the touchstone is whether the pressure (unlawful or lawful) amounts to conduct
which is unconscionable; but that, as stated in [12-090] below, is no more than
saying that it is fraudulent in the equitable sense.
Part Performance
The doctrine of part performance enables a court of equity to decree specific performance of
a contract for sale of land which at law is rendered unenforceable by s4 of the Statute of
Fraud and s53(1) of the Property Law Act 1958 (Vic).
Equity will intervene only when acts of the plaintiff, which the defendant knew of or
permitted, rendered the contract fraudulent if the defendant relied on statute. The defendant,
who had the benefit of the plaintiffs part performance, is not permitted to resist the
performance of his obligations to the plaintiff.
Mistake in Equity
Equity can rescind a completed contract which the parties have entered under mutual,
common or otherwise unilateral mistake. Generally, it is common that all have
1. An induced mistake such that an error was induced by a defendants
misrepresentation
2. A self-directed mistake an error which has occurred but is not caused by any action
of the defendant.
Typically, equity will seek to intervene if the mistake was due to defective data by the
plaintiffs which caused the defendants misrepresentation. Equity, will not intervene if the
contracting parties are ad idem that is, they are of the same mind and they reach a general
consensus with that same mind.
Mistake is equity is concerned only with circumstances whereby the plaintiff is subjectively
mistaken to the agreement made and if objectively construed, there is conduct suggestive of
contractual formation and the defendant is not at fault. Equity will seek to set aside such
transactions as it is arguably against public interest to allow them to proceed.
Unilateral Mistake
A mistake made by only one party to a contract a unilateral mistake which the other party
knew about and induced. If one party acknowledges that the under of one party was correct,
this is case of mistake as per Goldsbrough Mort & Co Ltd v Quinn (1910).
Mutual Mistake
A mistake where both parties to a contract erred, and each party makes a mistake different
from the other but each believes themselves to be correct. For example, A thinks they are
selling B a 1930 Ferrari for $X but A is actually selling a Rolls Royce and B actually thinks
they are purchasing a Bugati.
Mutual mistake arises when there is no meeting of the minds and since the parties have
differing intentions their offer and acceptance are actually entirely distinct. This infers that
no contract actually occurs as per Sharp v Thomson (1915) 20 CLR 137.
Equity will typically seek to set arise such transaction and provide restitution of any benefits
conferred under the contract. If the contract was objectively constructed, then the parties in
the example above, then equity would not intervene.
Common Mistake
Transfers made under a recognized contract can be the subject of restitutio in integrum
because a common mistake provides that the parties were under a common misapprehension
either as to facts or as to their relative rights.
This is only the case if the respective misapprehension was fundamental and the party
seeking equitys intervention was not at fault Solle v Butcher [1950] 1 KB 671. A contract
with common mistake would be void at law but not void ab initio or invalid from the outset
- as per Bell v Lever Bros Ltd [1932] AC 161.
In Futuro
In McCrae v Commonwealth Disposals Commr [1951] 84 CLR 377 the High Court stated
that common mistake does not operate to make the contract void ab initio. Instead, the
contract will be invalid in futuro in the future from the point of discovery of the common
mistake. Equity will restore the parties transfer which were wrongly made if there was a
contract between them.
There is no jurisdiction whereby equity will rescind for common mistake transactions
otherwise operative at law.
Mistaken Payments
Equity can return payments which have been mistakenly made, in addition to other assets
paid and transferred by mistake where the transfer occurred outside a contractual formation.
Testamentary Gifts
In equity, most testamentary gifts which are made in mistake are required to be repaid by the
beneficiary of the mistaken gift. In Re Diplocks Estate [1948] Ch 465 the House of Lords
affirmed the existence of the equitable principle of strict liability whereby those to whom a
deceased estate is conferred by mistake are personally liable to repay the persons rightfully
entitled to the deceaseds property. They rejected the fact that a defendant was required to act
in unconscientious manner.
The Re Diplocks Estate [1948] Ch 465 claim involved a pre-existing fiduciary obligation
between a beneficiary and executor this was different to the case of Barnes and Addy which
required a demonstration of notice or knowledge on behalf of the recipient before an in
personam cause of action is available.
Topic 6 Equitable Estoppel

In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, the High Court suggested
that while equitable estoppel includes both the doctrines of proprietary and promissory
estoppel, they are primary regarded as a singular doctrine. The ratio decidendi of case was
that it spoke not in terms of representations, but of assumptions or expectations
The High Court stated that a remedy of specific performance was inappropriate because the
parties were antagonistic hostile towards each other from the litigation. Since equity will
not act in vain compensation was awarded for the detriment suffered by the plaintiffs.
Definition
Equity will provide relief to any party that has acted to their detriment on the basis of some
assumed state of affairs in relation to which the other party to the transaction has played some
part in the adoption of the assumption such that it would be unfair or unjust if the other party
were left free to ignore the assumption per Waltons Stores (Interstate) Ltd v Maher (1988)
164 CLR 387.
Primary Elements of Equitable Estoppel
Equity will seek to intervene in a transaction and provide relief for the plaintiff where it
would be unconscionable for the defendant to ignore any associated assumption not just a
representation that the plaintiff has relied upon. To establish equitable estoppel the
plaintiff must prove, as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at
404:
1. Assumed Legal Relationship - That the plaintiff assumed a particular legal
relationship existed, or would come to exist, between the plaintiff and the defendant;
2. Defendant induced - The defendant subsequently induced the plaintiff to adopt that
assumption or expectation;
3. Plaintiff acted - The plaintiff acted or did not act on the faith of the assumption or
expectation;
4. Defendant knew of the action - The defendant knew of the plaintiffs action or intended
the plaintiff to act in a particular way;
5. Plaintiff suffered - The plaintiffs actions or inactions caused them to suffer a detriment
if the assumption was not fulfilled; and
6. Defendant did not attempt to avoid - The defendant failed to act to avoid the detriment
by fulfilling the expectation that the plaintiff assumed.
Source & Enforcement
Equitable estoppel distinct from common law estoppel is a foundation of legal obligation.
It is enforceable as a separate cause of action and a party is entitled to equitable relief to
ensure that some detriment suffered in reliance on an assumption has a cause of action
available rather than a mere defence to a claim made by some other party.
Inducement
The element of inducement can arise from positive representations, expressed or implied
through conduct or words. It can also occur by omission where the defendant relies on the
plaintiffs assumption which if the plaintiff does not fulfil will cause them detriment and the
defendant knew that the assumption was incorrect or false.
For estoppel to be relied, the assumption must be clearly evident and precise and identifiable
in stature as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
The 4 types of behaviour that could give rise to an assumption are (per Deane J, Cth v
Verwayen):
Making a representation (express)

Acts in accordance with a particular state of affairs (implied)
Enters into an agreement on the basis of the assumption (implied)
Silence (implied)
Certain and Unambiguous

Regardless of the way the assumption is induced, it must be induced in such a way that it is
certain and unambiguous in the mind of the plaintiff. But this does not mean that a degree of
imprecision is unacceptable.
E.g. Australian Crime Commission v Gray, Ipp JA found that whilst the exact amount
of monetary compensation required to fulfil a promise to the appellants that they
would suffer no financial disadvantage by entering into witness protection was
difficult to determine and discretionary, the promise itself was as a whole
unambiguous and clear.
Ipp JA also stated that there may be circumstances where reliance on ambiguous
representation or a representation having an unclear or uncertain meaning could give
rise to an unconscionable result. That is unconscionability may not be negated by
ambiguity and equity would intervene if there is unconscionability.
Silence
Silence will support an equitable estoppel only if it would be inequitable to assert a legal
relationship different from the one which, to the knowledge of the silent party, the other party
assumed or expected (Walton Stores, Brennan J). The principle of silence has important
implications for pre-contractual negotiations.
Defendants knowledge
If the behaviour of the defendant had no influence on the plaintiff or the induced assumption
did not affect the manner in which the parties proceeded to handle their affairs, then the court
will not estoppe the other party.
Therefore it is important to find a causal like between the assumption and the relying
partys subsequent conduct.
Giumelli v Giumelli
Facts
A son worked on an orchard which was established in a partnership with his parents and
2 brothers. Three promises were made to the son over the course of 7 years to encourage
him to continue work on the orchard and to prevent him from quitting the partnership
and pursuing other avenues of employment.
The first promise was that the son would receive part of the farm in return for working
without wages and for the improvements he was making to his parents property.
The 2nd promise was that the son would be given ownership of the house, surrounding
land and nearby orchard if he built the house and worked on developing the land.
The 3rd promise was that the property would be subdivided so that the house and orchard
he worked on would be conveyed to the son.
Held
In the case of the 2nd promise, reliance is established by the expenditure of the sons
money and labour on building the house, while in the 3rd promise, reliance is established
by the sons rejection of alternative job offers, his return to the property and his work in
establishing the new orchard.
The inducement by the defendant must be a reasonable one
In addition, note that this element will only be satisfied when the reliance is reasonable in all
the circumstances of the case. That is, the inducement must be sufficiently clear for reliance
upon it to be reasonable.
Confusing or inconclusive messages sent from A to B may induce a particular response from
B, but it may be difficult for him to show that reliance upon those messages was reasonable
(NSW v RT & YE Falls Investment). But note Ipp JA in ACC v Gray (above) where he noted
that equity will be keen to prevent any unconscionable consequences.
Relied on the Assumption

In order to establish estoppel, the plaintiff must show that the estoppel was relied upon as per
Valbirn Pty Ltd v Powprop Pty Ltd [1991] 1 Qd R 295. A claim will fail if the plaintiff knew
that the representation was not true or the person making the representation didnt have the
authority to make it as per State Rail Authority of New South Wales v Heath Outdoor Pty Ltd
(1986) 7 NSWLR 170.
Knowledge of Reliance - It is more likely that the courts will regard a party as
unconscionable in denying the assumed state of affairs if he or she had knowledge
that the other party has relied upon them.
o Not critical - However the requirement of knowledge does not seem to be
particularly strong despite its clear presence in Walton Stores. This is because
neither subsequent cases nor many commentaries seem to place a great deal of
emphasis upon it. Compare for example Mason CJ in Walton Stores and Cth v
Verwayen where he placed less emphasis later.
o Knowledge more critical if silence - Knowledge is perhaps more important
when the induced assumption arises from silence. This is because knowledge
is presumed when a party commits a positive act.
o Departure from Reliance - Therefore knowledge is likely to be a persuasive
factor in showing evidence that departure from the assumption would be
unconscionable rather than an essential element of the assumption. Per Deane
J in Cth v Verwayen, the question of unconscionability must ultimately be
resolved not by reference to some preconceived formula framed to serve as a
universal yardstick, but by reference to all the circumstances of the case.
There must be some detriment to the plaintiff

In order to establish equitable estoppel, the plaintiff must show in accordance with
Commonwealth v Verwayen (1990) 170 CLR 394 - that
1. Detriment occurred from departure - The detriment which occurred to them was more
likely to occur if the representing party departed from the assumption; and
2. Detriment due to reliance - That the detriment will occur on the plaintiffs if they act,
or do not act, in reliance on the assumption.
Most importantly, detriment is not entirely confined to financial loss and its ambit can extend
beyond this. It can merely consist of the loss of an opportunity to protect or advances a
persons position as seen in Territory Insurance Office v Adlington (1992) 2 NTLR 55.
Detriment includes:
Loss opportunity (Giumelli v Giumelli) contra disappointed expectation without
more (Bredel v Moore Business)
Financial hardship or embarrassment as a result of the debt accumulating or[if]

money had been spent in other ways and that the respondents were unable to pay at
any rate without difficulty or inconvenienceifthey would have conducted their
affairs differently (King CJ, Je Maintiendrai v Quaglia).
Purchasers loss of a deposit due to lost of a real chance to raise the finance
necessary to acquire property due to an assumed anticipatory breach of k by the
vendors (Foran v White)
Australian courts generally take a broad view to detriment (Cth v Clark; Cth v Verwayen)
Unconscionable
To establish equitable estoppel, the plaintiff must be able to establish that it would otherwise
be unconscionable for one party to depart from an assumption which the other party has
relied upon as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
Typically, these factors depend - as discussed in Commonwealth v Verwayen (1990) 170 CLR
394 the following
1. The extent to which the defendant induced the plaintiff;
2. The reasonableness of the other parties reliance; and
3. The extent of the detriment that would be suffered through a reliance.
If two parties are negotiating a contract and are aware that either may still withdraw from
negotiations before a contract is made out, it is not unconscionable to take such action Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.
Relief Provided
Estoppel in equity will not entitle the party raising it to the full benefit of the assumption
which they have relied upon as per Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR
387. This was made clear by Brennan J in this case at 423 where he stated that equity is not
said
to compel the party bound to fulfil the assumption or expectation; it is to avoid the
detriment which, if the assumption or expectation goes unfulfilled, will be suffered by
the party who has been induced to act or to abstain from acting thereon
The Court will typically look to doing the minimum necessary to avoid a detriment
occasioned by reliance on the assumption, and it can require the party estopped to make good
on the assumption tendered.
This was affirmed in Commonwealth of Australia v Verwayen, where the High Court stated
that the remedy for equitable estoppel is to provide the minimum necessary relief to avoid
further detriment.
Post Waltons Estoppel
Since the case of Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 equitable
estoppel now
1. Incorporates both proprietary and promissory estoppel
2. Can be used to create a cause of action as per proprietary estoppel
3. Can prevent the promise suffering detriment from having relied upon an assumption
in circumstances where it would be otherwise unjust to permit the representor from
retracting from the promise;
4. Extends to assumptions where a legal relationship exists or will exist

5. Highlights the remedy is the key facet to prevent unconscionable conduct.
The Minimum Equity
In The Commonwealth of Australia v. Verwayen (1990) 170 CLR 394 the minimum equity
might have been thought to have involved no more than the costs thrown away by reason of
the amended pleading.
But on the facts of Verwayen, the minimum equity required precluding the Commonwealth
from amending its pleadings at all.
Brennan J set out the general position. He said:
The ordinary principles of equitable estoppel which might apply to a promise of this
kind were discussed in Waltons Stores v Maher. The judgments of a majority of the
Court in Waltons Stores v Maher held that equitable estoppel yields a remedy in order
to prevent unconscionable conduct on the part of the party who, having made a
promise to another who acts on it to his detriment, seeks to resile from the promise.
The remedy is to effect what Scarman LJ called "the minimum equity to do justice" in
Crabb v Arun District Council: see Waltons Stores v Maher, per Mason CJ and
Wilson J; per Brennan J. The remedy is not designed to enforce the promise although,
in some situations (of which Waltons Stores v Maher affords an example), the
minimum equity will not be satisfied by anything short of enforcing the promise.
In Commonwealth of Australia v Clark [1994] 2 VR 333, Marks J stated that he preferred not
to use minimum equity and rather
that which is necessary to prevent unconscionable conduct and do justice between
the parties
Ormiston J also stated in this case that detriment is tied to reliance, and that plaintiff must
demonstrate detriment is more likely than not to occur if the defendant is permitted
to resile from the promise and that the detriment will derive from proven acts of
reliance
Promissory Estoppel
While the Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 unified promissory
estoppel and proprietary estoppel the facts of promissory estoppel are considered here.
Promissory estoppel applied to parties in a pre-existing contractual relationship, where one of
them represented they would not rely on their strict contractual rights. This is most
specifically represented as to future conduct or intention.
Principle
The principle of promissory estoppel was that if a party has, by his words or conduct, made
an assurance of promise to another which was intended to affect the legal relations between
them and to be acted on accordingly, and if the other party has taken him at his word and
acted on it, the promsior cannot then revert to previous legal relations as if no assurance had
been made (per Combe v Combe refining Denning MRs formulation in High Trees).
Promissory estoppel
1. Is Defensive it cannot be used to create a cause of action
2. Prevents Departure prevents the departure from a representation made by a
party in a contractual relationship where the representing party has acted on
the representation that was made knowing the represented would suffered
detriment if a departure occurred (per Legione v Hateley (1983) 152 CLR 406)
3. Pre-contractual representations Extends to representations which are made
during pre-contractual formations, particularly in circumstances where the
promisor had induced the promise to confer contractual rights through an
assurance that they would be used in a particular manner but they dont
actually exercise rights in that manner (per Legione v Hateley (1983) 152 CLR
406)
Elements
Equity will seek to intervene in a transaction and provide relief for the plaintiff where it
would be unconscionable for the defendant to ignore any associated assumption. To establish
equitable estoppel the plaintiff must prove, as per Waltons Stores (Interstate) Ltd v Maher
(1988) 164 CLR 387 at 404:
1. Assumed Legal Relationship - That the plaintiff assumed a particular legal
relationship existed, or would come to exist, between the plaintiff and the defendant;
2. Defendant induced - The defendant subsequently induced the plaintiff to adopt that
assumption or expectation;
3. Plaintiff acted - The plaintiff acted or did not act on the faith of the assumption or
expectation;
4. Defendant knew of the action - The defendant knew of the plaintiffs action or intended
the plaintiff to act in a particular way;
5. Plaintiff suffered - The plaintiffs actions or inactions caused them to suffer a detriment
if the assumption was not fulfilled; and
6. Defendant did not attempt to avoid - The defendant failed to act to avoid the detriment
by fulfilling the expectation that the plaintiff assumed.
The formulation of Brennan J speaks not in terms of representations, but of
assumptions or expectations. His Honour commented that
..... the requirement that a party should not be estopped on an ambiguity does not
mean that the precise terms of the assumption or representation which founds the
claimed estoppel must be entirely and unequivocally clear: an estoppel can arise even
though the precise terms of the assumption or representation may be difficult to
ascertain, so long as it is clear that there was an assumption, and the scope of the
assumption, though its full extent may be uncertain, is at least sufficient that it can be
said that the defendant's conduct would involve a departure from it.
Equity Forced to Act
Thus, the High Court in Walton Stores had to force equity into action because of the conduct
of Walton. Previously, promissory estoppel had not operated as a cause of action, as the
Courts were concerned that the enforcement of voluntary promises would impinge on the law
of contract.
The decision from Waltons explained how the Courts can operate within the expanded
doctrine of estoppel which will operate in general to enforce voluntary promises as there is a
necessary element of unconscionability that must be satisfied before a remedy will be
granted. A necessary part of the claim in estoppel is that the promisee acted in reliance, and
that to resile from that promise would be unconscionable.
Proprietary Estoppel
While the Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 unified promissory
estoppel and proprietary estoppel the facts of proprietary estoppel are considered here.
Proprietary estoppel create a cause of action as well as a defence distinct to promissory
estoppel where the owner of the property induced another to believe that he or she has or
will have an interest in property.
Proprietary Estoppel
1. Relies on Assumption - A person typically relies on an assumption made by
another, and this other person gains or will gain an interest in this persons
property, such that the assumption alters the first persons position and leads to a
detriment.
2. Has Separate cause of action The plaintiff does not have to prove a separate
cause of action like in promissory estoppel once the elements of proprietary
estoppel are satisfied and an independent cause of action arises for the plaintiff.
Elements
The elements of proprietary estoppel , per Brennan J in Walton Stores
1. An expectation has been created or encouraged by an owner of land;
2. The second party has expended money on the land in accordance with the
expectation;
3. The owners knows of the expenditure and does not resist; and
4. The second party will suffer a detriment if the expectation is not fulfilled.
Proprietary estoppel on the other hand operates to restrict the legal rights of landowners if
they have encouraged the belief in another that he has some entitlement over the property and
that believe was acted upon. Proprietary estoppel only dealt with real property law and could
act as a sword as well as a shield. The two main methods that an assumption of interest could
arise were:
Estoppel by encouragement e.g. Dillwyn v Llewelyn father tried to transfer land to

son, the transfer had failed in effect, but the father had approved and encouraged the
son to build on the land. Held, son had an equitable right to compel the transfer.
Estoppel by acquiescence e.g. Ramesden v Dyson per Cranworth LJ (see previous

week)
There is not much difference between the 2 except that one method is more passive.
Remedies
The primary remedies that Court can impose are
1. Monetary a monetary remedy of the same value or to a proportion of the property

Jackson v Crosby (1979) 21 SASR 280
2. Right of Access and Right of Way Crabb v Arun District Council [1976] 1 CH 179
3. Discounted property purchasing property at a discount - Cameron v Murdoch (1986)
63 ALR 575
Common Law Estoppel
Estoppel by judgement or res judicata is a principle which is concerned with the
merger of a cause of action into a judgement.
Issue estoppel is concerned with matters of fact or law necessarily decided by an
earlier judgement in relation to which the parties or their privies were subject.
Anshun estoppel stops a party from raising an issue which was not but which could
and should have been litigated in an earlier proceeding.
These three common law estoppels are concerned with public interest and stopping issues as
relevant.
Estoppel by Convention Not based on representation of fact
Estoppel by convention is a form of estoppel that is not founded on a representation of fact,
but rather on the conduct of relations between parties on the basis of an agreed or assumed
state of fact which both parties will be estopped from denying.
In common law estoppel, it is necessary for a plaintiff to establish:
1. Plaintiff adopted an assumption - that the plaintiff has adopted an assumption as to
the terms of its legal relationship with the defendant;
2. Defendant adopted same assumption - that the defendant has adopted the same
assumption;
3. Relationship based on that assumption - that both parties have conducted their
relationship on the basis of that mutual assumption;
4. Each party knew - that each party knew or intended that the other act on that basis;
and
5. Departure will occasion detriment - that departure from the assumption will occasion
detriment to the plaintiff.
Such estoppel is focused entirely on the basis of the parties relationship. It operates when
both parties have adopted the same assumptions in respective to the matters at hand, and
typically rejects any departure from the strict legal position involved.
Difference between Contract and Conventional Estoppel (refer representation below)
In Amalgamated Investment & Property Co Ltd (In liq) v Texas Commerce International
Bank Ltd [1982] QB 84 Lord Denning stated that to the effect that parties to a contract by
their course of dealing put a particular interpretation on its terms, on the faith of which each
to the knowledge of the other acted and conducted their mutual affairs, they are bound by that
interpretation just as much as if they had recorded it as a variation of the contract.
His Lordship then explained that such parties had by their course of dealing adopted a
conventional basis for the governance of their relations and were bound by it because,
having regard to the dealings between the parties, it would be unjust to allow either to insist
on the strict interpretation of the original terms. It is not necessary that the parties, in adopting
their assumption, have adverted to the express terms of the contract. His Lordship stated at
121
There is no need to inquire whether their particular interpretation is correct or not
or whether they were mistaken or not or whether they had in mind the original
terms or not. Suffice it that they have, by their course of dealing, put their own
interpretation on their contract, and cannot be allowed to go back on it.
This infers that if an intention exists to vary the original terms to support a contractual
variation, no advertence to the original terms is necessary to find a conventional estoppel.
Estoppel by Fact and Future Intention Jordan v Money
A representation of fact can be a representation of fact and law or just law. In Foran v Wight
(1989) 168 CLR 385 at 435 Deane J said:
the distinction between a representation of fact and a representation of law is, in the
context of the principles constituting the doctrine of estoppel by conduct, essentially
illusory unless one subscribes and I do not - to the view that law has no factual
existence at all.
Additionally, a representation must be of existing fact rather than any future intention. The
existing fact/future intention requirement arose in Jorden v Money, where it was decided that
estoppel cannot arise from a representation of future intention: a statement of fact is required.
In Commonwealth v Scituate Savings Bank (1884) 137 Mass 301 at 302
it would cut up the doctrine of consideration by the roots if a promisee could make a
gratuitous promise binding by subsequently acting in reliance of it
In light of this and in combination with the concept in Jorden v Money representations of
future intention are entirely governed by the law of contract equity is limited to
representations of fact.
This was re-iterated in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 where
a promisee can be expected to appreciate that, to render a promise binding, it must form part
of a binding contract. The Court stated
if there is any basis at all for holding that common law estoppel arises where there
is a mistaken assumption as to future events, that basis must lie in reversing Jordan v
Money and in accepting the powerful dissent of Lord St. Leonards in that case. The
repeated acceptance of Jordan v Money over the years by courts of the highest
authority makes this a formidable exercise. This brings us to the doctrine of
promissory estoppel..it certainly extends to representations (or promises) as to
future conduct.
Once estoppel by representation was created it was a permanent feature between the parties.
Differences between Common Law and Equitable Estoppel

The distinction between CL and equitable estoppel is summarised by Priestley JA in Silovi
Pty Ltd v Barbaro (after considering Walton Stores):
Common law and equitable estoppel are separate categories, although they have many
ideas in common.
Common law estoppel operates upon a representation of existing fact, and when
certain conditions are fulfilled, establishes a state of affairs by which legal relations
between the parties can be decided. This type of estoppel does not itself create a right
against the party estopped. The right flows from the courts decision on the state of
affairs established by estoppel (Jorden v Money).
Equitable estoppel operations upon representations or promises as to future conduct,

including promises about legal relations. When certain conditions are fulfilled, this
kind of estoppel is itself equity, a source of legal obligation.
In Commonwealth of Australia v Verwayen, the High Court stated that the common
law estoppel remains separate and distinct from equitable estoppel and that the
purpose of all estoppel is to avoid further detriment. They also confirmed that the
remedy for equitable estoppel is to provide the minimum necessary relief to avoid
further detriment.
Therefore
CL estoppel is like a rule of evidence i.e. a device used to establish facts that the court
will used to judge the legal rights of the parties before it (Low v Bourverie, Bowen
LJ).
CL estoppel is a shield and not a sword. It was a defence and could not be sued as a
cause of action because it did not confer substantive rights.
Equitable estoppel however (since Walton Stores) is both a shield and a sword as it
confers substantive rights. That is, per Mason CJ and Wilson J in Walton Stores, a
plaintiff may rely on estoppel if he has an independent cause of action.
Therefore equitable estoppel will be relevant to pre-contractual negotiations as its role

is to establish the state of affairs from which an action will arise.
Example of CL and equitable estoppel in a landlord-tenant situation:
CL estoppel will occur if you signed a lease on the basis that the landlord said that the
premises are in good repair and modern, but the premises are in a poor condition. This
is because the landlords representation is an existing fact i.e. I already did it
Equitable estoppel occurs when you sign a lease on the basis that the landlord said
that he will install equipment and upgrade the premises, and the landlord fails to fulfil
his promise. This is because the landlords statement is one of future intention i.e. I
will do this
Topic 7 Confidential Information
The equitable action of breach of confidence is used to protect valuable or personal
confidential information from misuse and exploitation by others. Apart from contractual
obligations, obligations of confidentially are recognised and enforced in the exclusive
jurisdiction of equity as stated by Deane J in Moorgate Tobacco Co Ltd v Philip Morris Ltd
(No 2) (1984) 156 CLR 414. The basic proposition of the doctrine was stated by Lord Green
MR in Saltman Engineering v Campbell Engineering
if a defendant is proved to have used confidential information, directly or indirectly
obtained from a plaintiff without the consent, express or implied of the plaintiff, he
will be guilt of an infringement of the plaintiffs rights
Typically, possessors of confidential information are subject to fiduciary duties which prevent
them for misusing information or knowledge for their own advantage. However, equity is not
confined to pre-existing fiduciary relationships and no such relationship is required for equity
to concern itself with confidential information. It is noted that information is not considered
property, and this is an important point to consider in this doctrine.
Equities Purpose
Equity seeks to restrain the publication of unauthorised or confidential information
improperly obtained by holding the alleged confidant of the information accountable for
any profits acquired from the improper use of the information per Coco v A N Clark
(Engineers) Ltd [1968] FSR 415.
In Moorgate Tobacco Co v Philip Morris Deane J stated that equitys jurisdiction
lies in the notion of an obligation of conscience arising from the circumstance in or
through which the information was communicated or obtained. Relief under the
justification is not available, however, unless it appears that the info in question has
the necessary quality of confidence about it and that it is significant, not necessarily
in the sense of commercially valuable, but in the sense that the prevention of its
confidentiality or secrecy is of substantial concern to the plaintiff.
***Elements of a cause of action***
In Coco v AN Clark (Engineers) Ltd [1969] RPC 41, Mergarry J stated
In my judgement, three elements are normally required if, apart from contract, a case
of breach of confidence is to succeed. First, the information itself, in the words of
Lord Greene MR in the Saltman case on page 215, must have the necessary quality
of confidence about it. Secondly, that information must have been imparted in
circumstances importing an obligation of confidence. Thirdly, there must be an
unauthorised use of that information to the detriment of the party communicating it
Thus, the three equitable requirements are
1. The information must have a necessary quality of confidence about it

2. The information must have been imparted in circumstances importing an
obligation confidence
3. There must have been an unauthorised use of that information to the detriment
of the party communicating it.
The obligation of Confidence is there a necessary quality of confidence about it
What is confidential information?
It is impossible to provide a strict definition of the phrase confidential information as the
duty of confidence can arise in a myriad of situations (Gummow J, Corrs Pave Whiting &
Byrne v Collector of Customs). The phrase is viewed
as any information that can be subject to an obligation of confidentiality and the
better approach to such cases is to consider the sorts of relationships that give rise to
the obligations of confidence.
Equity imposes an obligation of confidence upon the receiver of information if the following
four conditions are satisfied:
1. The information must be specific; and
2. The information must be confidential; and
3. It must have been communicated in circumstances which indicate that is, in fact,
confidential; and
4. Its use must be unauthorised by the confider.
1. Information must be specific
The information which is alleged by the plaintiff must actually be able to be specified. This
relates to the information vs. Ideas argument. A plaintiff must be able to specify information
because typically they are
1. Seeking an injunction to restrain use of the information and if the information cant be
specified then it is not possible for the Court have sufficiency certain
2. The defendant is entitled to know the particulars of the case to be answered, since the
information alleged may not be considered confidential particularly, if it was
already in the public domain as per Ocular Sciences Ltd v Aspect Vision Care Ltd
[1997] RPC 293.
This infers that the information must be
Well developed and capable of exploitation - Ideas can be considered to be

confidential information if it is well developed and capable of exploitation or
realisation (Fraser v Thames TV). Bare ideas that are obvious and undeveloped will
not be protected (De Maudsley v Palumbo - an idea for a nightclub)
Lack of detail is not sufficient - Claims that lack detail or seek to protect information
that is common knowledge will fail (Amway Corporation v Eurway International).
Global claims that fail to particularise specific pieces of confidential information will
also fail (OBrien v Komesaroff).
2. The Information must be Confidential

If information is not confidential, then evidently, it cannot be protected. This is fundamental
aspect of the doctrine and perhaps the most important in litigation. In Smith Kline & French
Laboratories (Aust) Ltd v Secretary of the Department of Community Services & Health
(1990) 22 FCR 73, Gummow J approved the statement from Commonwealth v John Fairfax
& Sons such that
a court of equity will restrain the publication of confidential information improperly
or surreptitiously obtained or of information imparted in confidence which ought not
be divulged
Currently, the Courts treat information obtained clandestinely and information imparted in
confidence as the same thing when perhaps they should not be.
Public Information
Information which is public property and public knowledge cannot be protected Saltman
Engineering Co Ltd v Campbell Engineering Co Ltd (1948) RPC 203, 215. This means that
such information looses its confidentiality aspects.
Examples
Information published on a non-confidential basis cannot be treated as confidential That is information is only confidential if it is not public knowledge or published (AG
(UK) v Heinemann Publishers aka Spycatcher Case). It is not clear if the confider
needs to have acquiesced the publication in order for information to lose its
confidential character, although there is no compelling reason for this to be a
requirement.
The publication of a patent The publication of a patent will be fatal to a claim of

confidence under trade secrets, if there is no ancillary secret surrounding the patent
(O Mustad & Sons v S Allock & Co).
Patents in other jurisdictions - Publication of patent specifications in other

jurisdictions can destroy duties of confidence if there is regular reference to the
foreign patent specifications by people within the jurisdiction (Franchi v Franchi).
But if the patent specifications do not cover the entire trade secret, duties of
confidence survive to the unpublished part (Castrol Australia v Emtech; Seager v
Copydex).
Material subject to personal confidence - Publication of material subject to personal

confidence will destroy duties of confidence e.g. Lennon v News Group Newspapers
John Lennon could not prevent his ex-wife from publishing secrets of his marriage,
because he had himself published information on the topic.
Publications that are transitory Such publications are unlikely to be remembered

will not destroy duties of confidence e.g. Kwok v Thang where a Chinese pop star
restrained the publication of an embarrassing video on the internet even after a verbal
account had been published in a newspaper and G v Day where the publication of the
televisions presenters identity did not destroy confidentiality.
Published widely by a person - A key issue is if the defendant can rely on their won
breaches of confidence to argue that the info is no longer secretive. Information will
lose is confidentiality if it is published by a defendant, particularly if published widely
(AG v Observer Ltd). This does mean there will be no remedies by the defendants
breach. It just means an injunction would be futile. The plaintiff is still entitled to
compensation or an account of profits.
Government Information - Governments confidence will only be protected when it

can be shown to be in public interest due to the fact that there is significant
importance in the publics right to discuss, review and criticise the govt (Cth v John
Fairfax, Mason J). Semi-government authorities and statutory corporations are
generally treated as being part of govt for the purposes of the law of breach of
confidence and subject to the same balancing test of public interest (Mason CJ, Esso
Resources v Plowman).
Reverse Engineering Information obtained through reverse engineering is not

confidential to the plaintiff because the information is from the defendants own
endeavours and the product is in the public domain once it is released Saltman
Engineering Co Ltd (1948) 65 RPC 203
3. The information must have been communicated in circumstances which indicate it

is confidential
The duty to respect confidence only exists where the recipient of the information conferred
knows that restrictions have been placed upon the use of the information.
Its an objective test - If the circumstances are such that a reasonable man standing in
the shoes of the recipient of the information would have realised that the information
was given to him in confidence, this will give rise to a duty of confidence (Megarry J,
Coco v AN Clark).
o Information that is expressly communicated to the defendant in confidence
will give rise to a duty of confidence (Stephens v Avery, Brown Wilkinson
VC). However, express communication of confidentiality is not necessary.
Typically any duty of confidence is inferred from the relationship which exists, or existed,
between the parties. For example,
Duty of confidence can be inferred by the relationship between the parties:
Personal relationship e.g. married or de-facto (Argyll v Argyll).
Fiduciary relationships (Boardman v Phipps)
Parties engaged in joint enterprises (Coco v AN Clark)
Employer-employee, depending on the duties of the employment (Hivac Ltd v Park
Royal Scientific Instruments)
Photographs taken of a celebrity wedding when a couple had given exclusive rights to
another magazine Douglas v Hello! Ltd (No 3) [2003] 3 All ER 996.
The supplier of the information cannot unilaterally impose an obligation of confidence in

respect of the information.
4. Use of the information must be unauthorised

The information must have been used in a manner that is completely unauthorised. The
breach by the defendant requires them to have used the information in a manner which has
caused detriment to the plaintiff.
Equity does not require the plaintiff to show that the defendant intended to make use of the
information - only that they did. They key element is
Did the plaintiff place a restriction on the defendants use of the information such
that there was an express obligation not to use the information against their wishes
Fractionated Cane Technology Ltd v Ruiz Avila [1988] 1 Qd R 51.
An action under equity for breach of confidential information does not require the plaintiff to
demonstrate it will suffer detriment from unauthorised use of that information per the
decision in National Roads and Motorists Associated Ltd v Geeson (2001) 40 ACSR 1.
However, it may necessary to demonstrate detriment in the case of governmental information
as was seen in Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39.
Defendants own accord
If the defendant acquires any confidential information on their own accord, or through their
own investigations of independent discovery or through a public source then the this does
not constitute unauthorised use.
Without Consent
The duty of confidence will be breached if the information is used without the consent of the
confider or if there is an unconscious use of the information (Seager v Copydex per Denning
MR).
This may involving considering whether or not an unfair advantage had been taken of the
information (Smith Kline and French Laboratories).
It will also involve a consideration of the extent and limits of confidentiality that can be
imposed on an individual in regard to particular pieces of confidential information in his
possession (National Roads and Motorists Association v Geeson).This test looks beyond the
simple purpose for which the information is obtained.
i.e. in Smith Kline and French Laboratories, it was reasonable to expect that the
information for the application for the extension of a drug patent would be used by
the government to determine applications by other drug companies in the interest
of public health.
A breach can be inferred if the plaintiff suffers detriment (Cth v John Fairfax, Mason CJ at 51
CLR)
Trade Secrets
Trade Secrets - Trade secrets are confidential commercial information or ideas. Information
will be more readily classed as a trade secret if it is detailed in nature and acquired with effort
(Robb v Green).
If the information is the product of a special relationship with the plaintiffs clients, it
is more likely to be protected (Westminister Chemical NZ v McKinley & Tasman
Machinery)
In Ansell Rubber v Allied Rubber Industries, Gowans J said that the factors to be
considered to determine if the given information is a trade secret are:
The extent to which information is known outside the business
The extent to which it is known by employees and other involved in the
business
The extent to the measures taken by him to guard the secrecy of the info
The value of the info to him and his competitors
The amount of effort or money expended by him in developing the info
The ease or difficulty with which the info could be properly acquired or
duplicated by others
Specific examples of trade secrets that have been protected are:

o Designs for
Machinery (Ansell Rubber)
Clothing (Peter Pan Manufacturing v Corsets Silhouette)
Tools (Seager v Copydex)
o Chemical formulae (Weston v Hemmons)
o Results of experiments (Smith Kline and French Laboratories v Dept of Community
Services and Health)
o Recipes (Crowder v Hilton)
o Ideas for entertainment that are well developed e.g. TV shows (see above)
Note that confidentiality of the information can be evanescent (fleeting), and it may not
matter that thousands of people are also aware of it (Exchange Telegraph v Central News
plaintiff sold sports results to subscribers and even though the live audience at the events
would have known the result, the plaintiff was entitled to prevent the unauthorised resale of
information).
Springboard Doctrine
A person who receives information in confidence is not allowed to use this information to
springboard activities which would be otherwise detrimental to the party who provided the
information. The effect of this doctrine continues even when all the features have been
published or can be ascertained by actual inspection by any member of the public as per
Terrapin Ltd v Builders Supply Co (Hayes) Ltd [1967] RPC 375.
The plaintiff remains protected from the defendants use of information which the plaintiff has
provided if the defendant attempts to springboard from this information to create a
competing offering. After the period of advantage expires the defendant is free to do what
they want.
Damages are assessed accordingly as per the general equitable principles for confidential
information.
Third Party Liability
Typically, information can be shared between a person and their confidant who then shares
this information with a third party. If the third party attempts to use the information in an
unauthorised manner, the third party can be liable for breach of confidence even there is no
direct relationship between the plaintiff and the third party.
Notice by the confidant to the third party is required in order to bind the third party with the
liability as per Attorney-General (UK) v Observer Ltd [1990] 1 AC 109 and is also seen in
Saltman Engineering Co Ltd v Campbell Engineering Co Ltd.
In Douglas v Hello! Ltd [2003] All ER 996 the magazine purchase photographs from a
paparazzo who knew that the celebrity couple had given an exclusive contract to another
magazine and also knew the extensive security measures that the couple had gone too. This
was sufficient notice to hold them accountable.
Defences
Public Interest
The duty will not be breached if the disclosure of the information is in the public interest as
per Lion Loaboratories v Evans, Woodward v Hutchins and Castrol Australia Pty Ltd v
Emtech Associates Pty Ltd (1980) 33 ALR 31.
However, a recognised public interest will not automatically trump the public interest in
preserving confidence (A v Hayden). There needs to be a weighing up of the benefits.
The mere fact that confidential information might be of use to a party to civil litigation is not
enough to say that there is a public interest. This is especially when the obligation of
confidence arises out of a contractual provision (AG Australia Holdings v Burton).
There is a difference between public interest and what the public may be interested in
(Sullivan v Sclanders).
Information concerning matters of iniquity in the sense of a crime, civil wrong or serious
misdeed of public importance will be treated in Australia as lacking the necessary quality of
confidence required for protection, so that the need for a defence of public interest will not
arise Cross Pavey Whiting & Byrne v Collector of Customs (1987) 74 ALR 428.
Government Information
In the case of government information, a distinct must be drawn between information
concerning the past workings of a government (this should be disclosed to the public) and the
information that would prejudice national security or government decision making and
foreign relations (this should not be)
Cth v John Fairfax
Facts - Information was collected about Australians relationship with South-east Asia and
East Timor. There was also information about Australian federal agents in Asia. Could
government prevent the sale of the collected information?
Held - Government could not prevent the sale of the collected info if they are about the
general workings of the government. In addition the information was already published and
readily available to the public.
Forced Disclosure
By a court for the discovery process (Campbell v Tameside Metropolitan Borough Council)
or by statute.
Delay
Laches (AG (UK) v Heinemann)
Clean Hands
If the confider did not chose to protect the info then there should be no relief (Hubbard v
Vosper).
The impropriety must relate to the relief sough (Talbot v General Television Corp)
Change of position
If a party innocently receives and uses confidential information, believing that he has the
right to use the information and makes significant investment or acts to his detriment by
materially altering his circumstances b/c of the information, the party can plead a change of
position as a defence. This defence has been approved for the mistaken payment of money
(ANZ Banking v Westpac Banking)
A court of equity should be able to ensure that a remedy is available avoid any injustice on
the defendant if they have obtained and used confidential information innocently. For
example, a Court of equity could easily award an account of profits and make appropriate
allowances for the time, effort and cost that the defendant has put into making a profit.
Evidently, if the defendants actions have been the primary financial gain and not the misuse
of the information the Court will award an account of profits differently.
Equitable defences are not punitive Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298
and they are not designed to unjustly enrich a plaintiff as per Warman International Td v
Dwyer (1995) 182 CLR 544.
Remedies
The primary remedy for breach of an equitable obligation of confidence is an injunction to
stop the breach occurring. In Smith Kline & French Laboraties (Australia) Ltd v Secretary,
Department of Community Services and Health (1991) 28 FCR 291 an injunction was sought
to stop the breach of confidential information being released. The remedy is always at the
discretion of the Court, and the Court can withhold damages if it is deemed that damages are
not appropriate.
Constructive Trusts
Courts in Australia and the United Kingdom have not yet awarded constructive trusts but in
Canada they have been awarded. A Candian case of LAC Minerals Ltd v International
Corona Resources Ltd (1989) 61 DLR 14 awarded a constructive trust after the plaintiff
shared information which suggested that their testing on a parcel of land revealed significant
gold deposits and the defendant acquired the land and attempted to setup a mine.
Such cases have not yet been explored in Australia.
Injunctions
Granted to prevent the defendant from making unauthorised use of the confidential
information in the future (Maggbury Pty Ltd v Hafele Australia).
Injunctions may be appropriate where compensation would be inadequate (Foster v
Mountford & Rigby) or when the breach was committed innocently (Seager v Copydex).
Subject to the springboard doctrine, injunctions will not be granted where information has
moved into the public domain (Spycatcher Cases) or if the action is unlikely to be repeated.
Springboard Doctrine
Equity will not allow a confidee to be in a better position for having breached the confidence
by getting a head start on the competitors (Lord Denning MR Seager v Copydex). Therefore
in these circumstances, equity will grant an injunction even when the information has moved
into the public domain (Dart Industries Inc v David Bryar; Terrapin v Builders Supply Co).
Delivery Up
Court can order the defendant to deliver up property in the defendants possession that has
been created, compiled or manufactured as a result of a breach of confidence (Ansell Rubber).
Account of Profits
The quantum amount is assessed according to the profit (rev less exp) that the defendant
made by using the information (Peter Pan v Corsets Silhouette)
This can be a difficult remedy when trying to isolate the relevant profits from the defendants
income that were incurred from the breach.
Account of profits will be subject to laches and delay cant let defendant work to detriment
(Dowson & Mason v Potter).
This is probably more appropriate if the plaintiff is a manufacturer of a good based on the
info.
Monetary Compensation
The purpose of compensation is to restore the plaintiff to the position it would have been in
but for the breach. The precise quantum will vary depending upon whether the plaintiff would
have used the info itself (get value of the information) or allowed others to use it in return for
the payment of royalties (get value of the royalties) (Dowson & Mason v Potter).
Monetary compensation is most appropriate in cases were the originator of an idea aims to
exploit it by selling it outright rather than by receiving royalties from its use by others
(Seager v Copydex; Talbot).g
Fiduciary Obligations and Obligations of Confidence

The equitable obligations imposed by fiduciary law and confidentiality are closely related and
deserve comment. As suggested previously, confidential information in equity requires the
satisfication of four main elements. The degree of confidence and the nature of the
relationship between between a confidee and a confidant are typically the most important in
any equitable case for breach of confidence.
Evidently, a fiduciary has a number obligations they owe to a person who confides in them in
their official capacity as a fiduciary. The similarities between obligations imposed under
fiduciary law and those imposed under confidentiality are quite closely related.
Similarities between the two include:
1. Breach of obligations can be unintentional and there is no element of mens rea
required in either of the doctrines.
2. Third parties with the knowledge of obligations can bear liability for participation in a
breach in both instances.
3. Obligations forbid an oblige making any associated unauthorised payments. The rules
under fiduciaries deny any fiduciary from making any unauthorised profits, and any
associated obligation of confidence forbids the unauthorised use of information which
may result in a profit being realised.
Differences between the two include:
1. The duties can protect different interests
a. Fiduciary obligations protect economic interests while obligations of
confidentiality protect both economic and personal interests. This was stated
in Duchess of Argyll v Duke of Argyll [1965] Ch 302.
2. The obligation of confidence is an easily destroyed obligation in comparison to
that of an obligation of a fiduciary
a. The information passed in confidence can be easily imparted upon another
without any malice intent.
3. The manner in which the parties breach the obligations is quite different
a. Fiduciary obligations - are breached when the fiduciary makes an
unauthorised profit through the use of their position or by allowing a profit to
continue.
b. Confidential obligations - are breached entirely through the unauthorised use
of information which has been imparted in confidence. This infers that the
information doesnt have to be shown to be used for profit or from malice
intent rather, a plaintiff just has to show that it was unauthorised.
4. No public interest defence exists for a breach of duty
a. The defences available under each action are different in that no public interest
defence exists for a breach of fiduciary duties. The fiduciary defence relating
to full disclosure and informed consent in the context of a breach of
confidence indicates the information used was done in manner which is

unauthorised.
Privacy and Confidentiality A New Doctrine?
Currently in Australia, there is no way a breach of privacy action can be taken under the
doctrine of a breach of confidence. While in the United Kingdom they have expanded their
equitable doctrines to cover breach of privacy no such extension of the doctrine has yet
occurred in Australia. Apart from contractual obligations, obligations of confidentially are
recognised and enforced in the exclusive jurisdiction of equity as stated by Deane J in
Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414. Damages were
historically not available as of right in equitys exclusive jurisdiction as in Nocton v Lord
Ashburton [1914] AC 932. In, 1958, Lord Cairns Act was introduced to provide the equity
Court with express power to award damages in cases where it had jurisdiction to award an
injunction or specific performance and is now incorporated as per Supreme Court Act 1986
(Vic) s 38.
In Duchess of Argyll v Duke of Argyll [1965] Ch 302, a spouse was able to prevent the other
disclosing information which related to their private life and time together in matrimony.
Similarly, in Giller v Procopets [2004] VSC 113, a defendant released a video that was made
with the plaintiff regarding sexual acts which the plaintiff alleged was a breach of
confidential information. However, information that is private cannot satisfy the
requirements for confidentiality such that acts which occur in public, but in every
conceivable manner are considered private, are still regarded as public.
In Giller v Procopets, Gillard J rejected the claim of invasion of privacy referring to the
English decision of Kaye v Robertson [2003] UKHL 53 and Wainwright [1991] FSR 62. His
Honour stated that equitable compensation is not available for mere distress or humiliation
and commented that the equitable remedy is restitutionary, in the sense that it is intended to
restore the plaintiff to the position he or she would have been in if the equitable duty had not
been breached. In the 2008 Appeal, the Court held otherwise.
The leading judgement was tendered Neave JA who referred numerous English decision,
including Campbell v Mirror Group Newspapers Ltd [2004] 2 AC 457, Douglas v Hello! Ltd
[2006] QB 125 and De Taranto v Cornelius [2001] EWCA Civ 1511, and concluded that
damages for mental distress could be awarded for breach of confidence. The Court
considered whether punitive or aggravated damages should be awarded. Of note, punitive
damages seek to punish the defendant for conduct which is particularly outrageous and
typically have no place in equity as equity does not punish. The Court found that punitive
damages were not available for breach of confidence but Neave JA (Maxwell P concurred)
was prepared to award Ms Giller aggravated damages for breach of confidence as they were
compensatory as opposed to exemplary damages which seek to punish. The Court was not
prepared to extend its arm to consider whether a tort of invasion of privacy or a tort of
intentional infliction of mental harm were necessary.
In Victorian Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479 the
Courts denied any existence of a right to privacy. Gummow and Hayne JJ stated their view
that Victoria Park does not stand in the path of the development of ... a cause of action [for
invasion of privacy]. Kirby J also agreed in that It may be that more was read into the
decision in Victoria Park than the actual holding required. Callinan J concluded the narrow
majority decision as being a product of a different time, which his Honour described as
both conservative and having the appearance of an anachronism. His Honour concluded
that the decision in Victoria Park clearly had no application in a case of invasion of privacy.
Similarly, in ABC v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 the High Court
discussed whether privacy interests are protected under the obligation of confidence but did
not rule in anyway. Callinan J supportted the recognition of a right to privacy in so much as
for the benefit of individuals as opposed to corporations:
It seems to me that, having regard to current conditions in this country, and
developments of the law in other common law jurisdictions, the time is right for
consideration whether a tort of invasion of privacy should be recognised in this
country, or whether the legislatures should be left to determine whether provisions for
a remedy for it should be made
Thus, it seems that the High Court in this case did suggest that such a doctrine could be
created in the future.
Giller v Procopets the road to an Australian tort of privacy?3

30 January 2009
In Giller v Procopets [2008] VSCA 236 (10 December 2008), the Victorian Court of Appeal
considered whether the defendants disclosure to third parties of a videotape that depicted
sexual activity between the plaintiff and the defendant constituted breach of confidence,
intentional infliction of emotional harm or an invasion of privacy.
The Court of Appeal held that Giller was entitled to compensation for the mental distress and
embarrassment caused by the videotapes. The Court followed English decisions awarding
damages resulting from a breach of confidence.
The decision suggests that Australian courts are reluctant to create a tort of invasion of
privacy, instead choosing to expand the operation of existing torts, such as breach of
confidence, to encompass misuse of private information where humiliation, embarrassment
and distress has resulted.
The facts
The plaintiff, Ms Giller, was involved in a de facto relationship with the defendant, Mr
Procopets. Despite formally separating, Giller and Procopets continued their sexual
relationship. Procopets began videotaping sexual episodes between himself and Giller. Giller
was unaware that this had occurred on the first five occasions, but acquiesced to the latter
five.
As their relationship deteriorated, Procopets approached various people (including family,
friends and her employer) and either attempted to show, or actually showed them, the video
tapes. The trial judge (Gillard J) found that Procopets had engaged in this behaviour with the
intention of hurting and distressing Giller.
Giller alleged three causes of action as a result of Procopets' use of the video tapes breach
of confidence, intentional infliction of emotional distress and invasion of privacy.
First instance
At first instance, the trial judge held that Giller's claim for damages could not succeed as she
had not established that she suffered a recognisable psychiatric injury. Any remedy for a
breach of confidence was an equitable remedy, and s 38 of the Victorian Supreme Court Act
required an application for an injunction to also be made in order to claim damages. As
Giller had not applied for any such injunction, His Honour held that her claim in damages
could not succeed. His Honour also rejected Giller's claim for invasion of privacy.
Giller appealed to the Court of Appeal (Maxwell P, Ashley JA and Neave JA). The Court
upheld Gillers appeal on the basis of her claim in breach of confidence. A discussion of their
Honours' findings follows.
3 http://www.minterellison.com/public/connect/Internet/Home/Legal+Insights/Articles/AD+Giller+v+Procopets
An injunction is not required

In considering Gillerif a cause of action is such as to give the court jurisdiction to grant an
injunction, then the power to award damages is also available. Neave JA (who delivered the
lead judgment) held that there is nothing in s 38, or in the statutory history, to suggest that the
power was intended to be exercisable only where an application for injunction had actually
been mades claim under s 38 of the Supreme Court Act 1986 (Vic), the court held that , and
the fact that Giller had not sought an injunction to restrain Procopets from showing or
distributing the video did not deprive the Court of its power to award damages to her.
Breach of Confidence
The court upheld Giller's claim for breach of confidence and, citing with approval a recent
line of English authority, held that, in an action for breach of confidence, damages can be
awarded to a plaintiff for mental distress falling short of a recognisable psychiatric injury
caused by that breach of confidence.
Neave JA (with whom the other members of the Court concurred) found that Giller had
established that the relationship was a confidential one, that Giller did not authorise Procopets
to show or distribute the video tape, that the unauthorised distribution was a breach of that
confidence, and accordingly, that Giller was entitled to damages for the distress caused by the
breach.
Neave JA's conclusion was based on the view that an inability to order equitable
compensation to a claimant who has suffered distress would mean that a claimant whose
confidence was breached before an injunction could be obtained would have no effective
remedy.
Intentional infliction of emotional distress
Maxwell P was the only judge to positively uphold Gillers claim for intentional infliction of
emotional distress. In His Honours view, compensatory damages for mental distress falling
short of a psychiatric injury should be recoverable in a case of intentional conduct such as
this, and that such a claim was cognisable in law should succeed in this case.
His Honour proposed that the focus of a courts inquiry should no longer be on whether a
clinician would attach a particular diagnostic label to the plaintiffs condition, but on the
nature and extent of the mental distress actually suffered by the plaintiff as a consequence of
the defendants conduct.
Neave and Ashley JJA declined to uphold Giller's claim for damages for infliction of
emotional distress. Neave JA considered that as damages had been awarded for breach of
confidence, it was not necessary to determine whether or not damages could be awarded for
intentional infliction of distress where a plaintiff had suffered mere mental distress. She
observed that over the past decade, legislatures across Australia have imposed limits on the
availability and amount of damages recoverable in negligence for physical and psychiatric
injury, and that it seemed anomalous to her to expand the possibility of recovering damages
for hurt feelings, even when intentionally caused, at a time when recovery of damages has
been legislatively limited.
Ashley JA was of the view that as the law presently stands, in cases of intentional infliction of
emotional distress, damages for mental distress falling short of psychiatric injury are not
available.
No tort of invasion of privacy
The court unanimously rejected Giller's claim for invasion of privacy. Neave JA stated that a
generalised tort of invasion of privacy is not yet recognised in Australia, and that it was not
necessary for the court to determine whether to develop such a cause of action since Giller
had been awarded compensation for distress on other grounds.
Ashley JA suggested that, due to the difficulties associated with developing such a tort, a
better approach may be the development and adoption of recognised forms of action to meet
new situations and circumstances.
The significance of the decision
This decision, together with the earlier High Court decision in ABC v Lenah Game Meats,
suggests that there is little appetite on the part of Australian courts to be at the forefront of the
creation of a tort of invasion of privacy. Instead, the courts appear to be expanding the
operation of existing torts, such as breach of confidence, to encompass misuse of private
information where humiliation, embarrassment and distress has resulted. The decision does,
however, suggest that the courts are willing to protect individuals' privacy where there has
been a misuse of their private information. This potentially has consequences for media
organisations that knowingly publish confidential information about individuals.
The second key aspect of this case is the Court's acceptance of the fact that a plaintiff need
not be suffering from a psychiatric injury to recover damages in an action for breach of
confidence, in that mere mental distress is sufficient for a damages award. This removes a
major obstacle for plaintiffs claiming for breach of confidence, given that, in many cases, a
plaintiff will only be suffering from distress, hurt and embarrassment, rather than any
recognisable psychiatric injury.
Topic 8 Equitable Defences

There a number of equitable defences which are available to defendants for equitable
tendered taken against them. The defences generally considered in equity include:
a) a specific defence of informed consent to a breach of fiduciary duty (refer to fiduciary
duties for more detail on this)
b) a defence based on the equitable doctrines of acquiescence and laches. These are the
two defences that we will consider in most detail.
c) the unclean hands defence.
d) the equitable defence of set-off.
e) a defence to an equitable proprietary claim is that of bona fide purchase of the legal
title for value without notice of the earlier equitable interest.
Laches and acquiescence
Laches is an equitable defence which is raised when a plaintiff has been unreasonable in
his or her delay or negligence in issuing of a proceeding per Orr v Ford (1989) 167
CLR 316. Unreasonableness is the entire basis for this defence because delay alone is not
regarded as sufficient enough to defeat an equitable claim.
A defendant is able to resist and equitable claim on these grounds if it is possible for them
to demonstrate that the plaintiff unreasonably delayed the prosecution of their case
while possessing all the material facts which could have led to a successful
commencement of proceedings as suggested in Baburin v Baburin (No 2) [1991] 2 Qd R
240. This infers that if a plaintiff unduly waits in instigating proceedings to vindicate an
equitable right a defendant can argue that
equity aids the vigilant and not the indolent, and that delay defeats equity.
If a plaintiff establishes a prima facie case in regards an equitable claims, then the defence of
laches must be presented by the defendant and is considered on the facts upon which equity
can proceed as per Fysh v Page (1956) 96 CLR 233. The defence is not available if it is
barred by statute in some way.
Laches Two Circumstances

When the defences of laches is relied upon, two circumstances are of critical importance
1. Length of the delay laches
2. The nature of the acts knowing rights and standing by them
MGL states that the doctrine is one which
is a defence which requires that a defendent can successfully resist an equitable
(although not a legal) claim made against him if he can demonstrate that the plaintiff,
by delaying the institution or prosecution of his case, has either (a) acquiesced in the
defendents conduct or (b) caused the defendent to alter his position in reasonable
reliance on the plaintiffs acceptance of the status quo, or otherwise permitted a
situation to arise which it would be unjust to disturb. Mere delay, of itself, is not
enough to constitute either laches or acquiescence.
The doctrine requires the identification of the time at which the plaintiff had notice or
knowledge of his claim. This most specifically relates to acquiescence.
Acquiescence
The expressions of laches and acquiescence have been used interchangeably and perhaps
mean the same thing as suggested in Boyns v Lackey (1958) SR (NSW) 395. The term relates
to a person who seeks redress in equity in standing by the continuance of their claim.
Consequently, acquiescence depends entirely on the plaintiff having the knowledge in
relation to their rights and in relation to those rights which the facts depend on as per
Hourigan v Trustees Executors and Agency Co Ltd (1934) 51 CLR 619.
In MGL at 36-010, it is stated
the term acquiescence is used to denote a plaintiffs behaviour in refraining from
seeking redress once he knows his rights have been violated, and to denote his
acceptance of the fact
Thus, acquiescence with knowledge of a violation of the plaintiffs equitable rights can be
described simply as a waiver. Thus, it is delay that will prejudice the defendant
refreshing memory, loss of evidence, unreliable witnesses and public interest will all affect a
plaintiffs rights.
Laches and Acquiescence
Laches refers to inexcusable delay, and acquiescence is confined to circumstances in which
the plaintiff, knowing his rights, has stood by and allowed them to be violated. The prejudice
with acquiescence involves the plaintiff allowing the defendent to think that no claim will be
made. Thus, the reason why the two are linked is that delay is also evidence of acquiescence
and there may be acquiescene without delay, and delay without acquiescene.
In Allcard v Skinner (1887) 36 Ch D 145, Lindley LJ stated
whether the plaintiffs conduct amounts in point of law to acquiescence or laches, or
whether it amounts to an election not to avoid a voidable transaction, or whether it
amounts to a ratification or a confirmation of her gifts, are questions of mere words
which it is needless to discuss.
Unclean Hands
One of the equitable maxims discussed in the first topic was that of unclean hands as per
he who comes into equity must come with clean hands
MGL makes this comment by stating at 3-110, that when a when a plaintiff whose conduct
has been improper in a transaction seeks relief in equity that relief will be refused. For
example, a plaintiff will not be entitled to a decree of specific performance if the contract he
is seeking to enforce was procured by his misrepresentation (fraudulent or innocent), even if
the defendant has not availed himself of his right to rescind the contract.
For the defence of unclean to operate, the complainant
must have an immediate and necessary relation to the equity sued for
If the relationship to the cause of action being relied on by a plaintiff is indirect, then the
relationship is irrelevant. Absolute necessity and a direct relationship is required by a plaintiff
to impose the relationship otherwise no equitable relief will be granted.
Equitable Set Off
At law, a set off involves the set-off in cases involving mutual debts where a defendant has a
defence because they have a separate and distinct claim against the plaintiff. To establish this
in equity, a right of equitable set-off is not satisfied by simply showing cross-demands by
each party. A set-off recognised in equity is a defendants claim that goes to the root of the
plaintiffs title to sue and stops a plaintiffs right to relief.
Equitable set-off has been established when a plaintiff claims money under a contract to build
a structure and the defendant seeks damages for a breach of the same contract in relation to
delay or defective work as was seen in D Galambos & Son Pty Ltd v McIntyre (1974) 5
ACTR 10. Such claims can be set-off if the claims are closely related and the time and
subject-matter relating to the claims are similar.
Generally, for equitable set-off to succeed the Court will have primary regard for the
relationship of the two-claims taking into account their subject-matter and the time of the
two claims and the overall conduct of the parties such that it would be unjust for a plaintiff to
continue with their claim. This was commented on in AWA Ltd v Exicom Australia Pty Ltd
(1990) 19 NSWLR 705.
For example, claims relating to a failure to perform a contract or defective performance of a
contract which require that work must be done again or the value of the work done or goods
supplied are typical examples of claims which can be set-off under equity. In Rawson v
Samuel (1841) Cr & Ph 161; 41 ER 451, Lord Cottenham LC required that the
debt relied on by the defendant be so closely related as to subject-matter that the
claim sought to be set-off impeached the other in the sense that it made it positively
unjust that there should be recovery without deduction
This has been the accepted view in Australia as seen in many cases including the most recent
case of Clairview Developments Pty Ltd v Law Mortgages Gold Coast Pty Ltd [2007] QCA
141.
Difference between Common Law and Equitable Set-Off
At common law, set-off does not diminish the plaintiffs claim until the judgement for the
proceedings is provided where the set-off has been pleaded, and in equity typically this is not
the case. In equity, the defendant must show that there is some equitable right enforceable
against the plaintiff for a set-off to be valid and the mere existence of a cross-claim is
insufficient even if they arise out of the same subject matter.
Topic 9 Equitable Damages and Remedies

Equitable Damages
Equitable damages were never awarded under equity as equity was never seen to be used to
award damages against a party. Since 1858, with the creation of Lord Cairns Act a Court
of equity could award damages in addition to any equitable remedies associated with
injunctions and specific performance. In Australia, Lord Cairns Act has been placed into
statute in all states most notable s38 of the Supreme Court Act 1986 (Vic).
Equitable and common law damages the difference?
Equitable damages and common law damages are different in a number of ways. These
include:
1. Equitable damages are allowed to be awarded for future loses most notably in the
circumstances where a wrong has been continuing as per Jaggard v Sawyer [1995] 2
All ER 189.
a. In Jaggard v Sawyer the Court held that damages should be awarded instead
of granting an injunction to restrain a continuing breach of covenant or
trespass.
2. Equitable damages can be awarded to support equitable rights which the common law
does not recognise such as equitable interests in land as seen in Gas & Fuel
Corporation of Victoria v Barba [1976] VR 755
a. In Gas & Fuel Corporation of Victoria v Barba the plaintiff had obtained an
equitable interest in an easement and the Court provided an injunction to
enforce the interest. Damages were also provided under the statutory authority
provided by Lord Carn.
3. Equitable damages are able to be rewarded in circumstances where injuries are
threatened against a party whereas common law damages cam only be awarded once
the damage has already occured see Bankstown City Council v Alamado Holdings
Pty Ltd [2005] Aust Tort Reports 81-803.
4. Equity does not punish Until Giller v Procopets [2008] VSCA 236 (the video tape
case which caused mental stress to the victim) the law that punitive and exemplary
damages were a creature of the common law and had no place in equity. Only
aggravated or compensatory damages were awarded in this case. Equity doesnt
punish it strips gains from faulting fiduciaries and thus it seems that the Court can
now award compensatory damages for high handed and intentional breaches of
equitable duties.
a. In this case, it was upheld that punitive or exemplary damages could not be
conferred. In Harris v Digital Pulse Pty Ltd, Mason P dissented and stated that
equity should punish and that
there was no reason in principle why exemplary damages could not be

awarded in equity for breach of a fiduciary duty where the fiduciarys
behaviour was deserving of punishment
This is not accepted however, and punitive damages are not award in
equity regardless of the argument at this stage.
Scope of Jurisdiction
Equitable damages are only awarded where the court has power to award an injunction or
specific performance. For example, where a contract is voided because it is illegal the Court
has no power to award specific performance and cannot award damages.
Equitable damages are only available when the plaintiff can establish that they are entitled to
specific performance or an injunction once the proceedings commence. The Court can then
award damages relevant to the action undertaken by the plaintiff as appropriate.
In Ferguson v Wilson (1866) 2 Ch App 7 the plaintiff sought specific performance of a
resolution passed by the board regarding an allocation of shares. The Court did not award
specific performance as there were no shares to allocate the time of the suit and Lord Cairns
Act did not provide jurisdiction for specific performance.
Awarding Damages
Typically, in exercising its the discretion the Court will look to a number of facts to
determine whether to award damages. These include:
1. The specific relief sought; and
2. The damages sought in relation to the relief; or
3. The damages in lieu of that relief.
Calculation of Damages
Equitable damages apply to both in lieu and additional damages. They are awarded in
addition to specific relief when the remedy is insufficient to compensate the plaintiff and
this is consistent with the equitable maxims.
In Oakacre Ltd v Claire Cleaners Holdings Ltd [1982]1 Ch 197 the Court held that a
defendants unruly delay in relation to performance of a contract entitled the plaintiff to
additional damages. The plaintiff originally wanted specific performance, but this was
achieved by the time the proceeding was heard, so the Court awarded additional damages
under Lord Cairns Act.
In Lieu Damages
The authority for damages in lieu is the Shelfer v London Electric Lighting Company [1895]
1 Ch 287 where it was establish that damage in lieu will only be provided in lieu of an
injunction where:
1.
2.
3.
4.
The injury to the plaintiffs legal right is small;

The injury is one which is capable of being estimated in money;
The injury is one which can be compensated by a small money payment;
The injury is one in which it would be oppressive to the defendant to grant an
injunction.
In order for the Court to exercise its discretion, it stated that the it will assess
1.
2.
3.
4.
The triviality of the plaintiffs injury;

The plaintiffs prior indication that he would accept monetary relief;
Vexatious and oppressive cases; and
Whether the plaintiffs behaviour was such that it would be unjust to award any more
than equitable damages.
At the date of judgement

At common law, damages are assessed as at the time of the breach. However, in equity
damages can be assessed at the date of judgement.
Damages assessed at the date of judgement are applied in cases where equitable damages are
awarded in substitution for specific relief they are considered as an alternative to specific
performance or an injunction at the date when that remedy would have been granted.
For example, in Mills v Ruthol Pty Ltd (2004) 61 NSWLR 1 at 14 a claim originated from
specific performance of land and the damages were assessed at the date of judgement to
account for changes in market prices.
Equitable Compensation
As stated, traditionally equity had no power to award damages in the manner that they are
awarded at common law. Since Lord Cairns Act, the power to award damages has been
adopted into s.38 of the Supreme Court Act 1986 (Vic).
Equitable compensation is by no means limited by common law concepts such as those
relating to remoteness of damage, foreseeability or causation as per Gemstone Corp of
Australia Ltd v Grasso (1994) 62 SASR 239. The aim of the remedy is to restore the plaintiff
to the position he or she would have occupied had there been no breach of duty.
Personal remedy only one remedy is available plaintiff must choose
Equitable compensation is a personal remedy. It is a loss-based remedy which is available
regardless of whether or not the defendant has made a gain from the breach. Where an
account of profits and equitable compensation are available the plaintiff cannot claim both
and must choose one or the other.
In Tang Man Sit (Decd) (personal representative) v Capacious Investments Ltd [1996] 1 All
ER 193 Tang Man Sit was in a joint venture with Capacious and was to assign 16 houses to
them but didnt do so and instead rented them out and received the rent. The Court stated that
the plaintiff was entitled to account of profits or damages the plaintiff must choose.
Trustees, Fiduciarys & Third Parties
The conduct of the defaulting trustee or fiduciary may be relevant to the quantum of the
award. The Court can grant a trustee or fiduciary in breach of an allowance for his or her
efforts.
Equitable compensation can be sought against third parties in circumstances where those
third parties assist with knowledge in a dishonest and fraudulent manner on the part of the
fiduciary or trustee as per Barnes v Addy (1874) LR 9 Ch App 244.
Equitable Compensation & Common Law
Equitable compensation and damages at common both aim to repair any losses which are
suffered by the plaintiff and the two remedies differ in relevant circumstances. These include:
1. Common law limits damages through factors such as contributory negligence and
mitigation which are not applicable in equitable compensation.
2. Common law damages typically are available as of right equitable compensation is
entirely discretionary.
3. The quantum of damages under equitable compensation is assessed from the time of
judgement incorporating all retrospective elements whereas common law damages
are assessed from the date of breach.
4. Different remedies can produce different results in equity and the plaintiff is entitled
to select the most appropriate remedy this is not the case under common law.
5. Under equity, the causation element seems to be entirely related to the but for
standard whereas in equity, it is the reasonable person standard.
Equitable Compensation, Assessment & Causation
Equitable compensation is assessed relevant to the breach which has occurred. Typically, the
assessment of the breach will attempt to restore the plaintiff to the position they were in
before the breach had occurred or resitutio integrum.
Causation has been often fraught with difficultly in Equity. In Stewart v Layton (1992) 111
ALR 687 the question that was posed was what the position the plaintiff would have been
in but for the defendants breach of the particular duty. In this case, a solicitor acted for a
vendor and a purchaser and was in a conflict of interest regarding a disclosure to him. It was
the solicitors fault but for his breach, the vendor would not have been comprised from the
information provided to the solicitor by the purchaser who didnt have finances to purchase
the property.
Account of Profits Personal Remedy

The accounts of profits is a personal remedy in equity and is one of the most important
remedies in equitys exclusive jurisdiction. Typically, the purpose of the account of profits is
to make the defendant account for profits that should have gone to the plaintiff. Equitys
attitude is that which is done ought to have been done and therefore the account of profits
becomes a suitable remedy this also infers that all profit made by a defendant must be put
back in the plaintiffs hands.
Accounts of profits are usually in support of equitable rights and they can include
1. Breaches of Trust Boardman v Phipps [1967] 2 AC
2. Relationship of confidence (i.e. principal and agent) - Asset Risk Management Ltd v
Hyndes [1999] NSWCA 201
3. Partnership dissolving - Fry v Oddy [1999] 1 VR 557
4. Fiduciary Relationship - Magafas v Carantinos [2007] NSWSC 416
5. Intellectual Property - Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR
25
When a plaintiff seeks to remedy of an account, they must prove that the plaintiff is entitled
to a sum from the defendant. Whether the account was made with or without intention,
honestly or dishonestly is disregarded in equitys eyes it is merely whether it not it occurred
as per
Boardman v Phipps [1967] 2 AC. Thus, if profit is made and accounted for all profit made
by a defendant is placed back into the hands of the plaintiff minus any allowances to the
defendant (see next page).
Not to punish the defendant
Importantly, equity never seeks to punish it has never been equities function to punish. Any
profit made, which should have been the plaintiffs, is simply redirected to the plaintiff from
the defendants conduct. The defendant will not suffer a loss under an account of profits,
rather the defendant must redirect those profits made to the plaintiff. Compensation can be
claimed by the plaintiff but this is not a concern of an account of profits.
As stated before, a plaintiff cannot be enriched from both a compensation and account of
profits remedy they must choose either one or the other. This was made clear in the Tang
Man Sit (Decd) (personal representative) v Capacious Investments Ltd [1996] 1 All ER 193.
Importantly, the plaintiff does not have choose before the judgement is provided inferring
that a plaintiff can choose that remedy which provides the most appropriate economic returns
or greatest advantage.
Causation
Most commonly, account of profits are taken in circumstances involving breach of
confidence, trust or some fiduciary duty that was owed to the plaintiff. A defendant is not able
to argue or contend that not all of the profit should be redirected to the plaintiff because some
of the profit would have been made by the defendant regardless of whether or not the breach
occurred.
This was shown clearly in Murad v Al-Saraj [2005] EWCA Civ 959 where is was argued that
the defendant was entitled to some of the profits despite having breached its fiduciary duty.
The Court ruled that the entire profit was to be stripped and that an account of profits would
only allow monies for the defendants skill and time etc.
Profits ACTUALLY made
Accounts of profit in equity are limited entirely to real profit that is, profits which are
tangibly identifiable because otherwise the Court would be punishing the defendant by
imposing unrealised profit which may or may not be realised.
In Dart Industries Inc v The Decor Corporation Pty Ltd (1993) 179 CLR 101, the High Court
stated this principle and commented that equity would also prevent the defendant from being
unjustly enriched.
Allowances to the defendant for time and skill put in
To ensure that equity does not punish a defendant, equity will allow a discretion for the
defendants time, skill and effort in making a profit. If the defendant is honest in his account
of profits then equity typically provides more allowance than it would have otherwise as
per Murad v Al-Saraj [2005] EWCA Civ 959. However, the reverse is not true a fraudulent
defendant will still be provided an allowance although, arguably, the Court will not be as
generous.
Most notably, in Victoria University of Technology v Wilson (2006) 68 IPR 597 it was
established that if the profit was entirely the result of the defendants work it is permissible
for the Court to order a proportion of the profit to go to the defendant. Of note, the Court
stated that this was an allowance and did not violate the account of profits principle in that
wrongdoers cannot profit from a breach of a duty.
Unruly Delay
In circumstances of delay on the plaintiffs behalf, a plaintiff can be excluded from an action
of seeking profits. In Electrolux Ltd v Electrix Ltd (1953) 70 RPC 158, the plaintiff took ten
years to file a claim and the Court denied the plaintiff from seeking redress due to the length
of time it took the plaintiff to claim.
Breach of Contract
In Australia, account of profits are not available in response to a breach of contract as per
Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157.
Equitable Estoppel
There are no known cases where an account of profits as a remedy as been sought in a
equitable estoppel case since the plaintiffs usually are attempting to enforce the
representation that was made to them.
Proprietary Remedies and Account of Profit

The remedy of account of profits is typically always taken against the person who committed
the wrong. It cannot attach to property or even create an interest in property in relation to an
account of profits. This infers that no priority is given to plaintiffs in the event that a
defendant is insolvent.
This is usually why constructive trusts and equitable charges are provided for plaintiffs in this
regard and not an account of profits. It is noted that Courts can secure an equitable charge as
an account of profits as per Warman International Ltd v Dwyer (1995) 182 CLR 554.
Specific Performance
Specific performance is an equitable remedy given in equitys concurrent jurisdiction. That is,
equity provides a remedy which is similar in nature to that of the common law.
The remedy compels the execution in specie of a contract which requires some definite thing
to be done before the transaction is complete and the parties rights are settled and defined in
the manner intended - JC Williamson Ltd v Lukey (1931) 45 CLR 282.
Executory Contracts - not Executed Contracts
Typically, specific performance is limited in scope to the enforcing of an executory contract
as oppose to an executed contract. There difference is highlighted by MGL at 20-020
1. Executory Contract - a contract which requires the execution of an instrument, or
doing some act which would put the parties in the position relative to each other
which the contract contemplates such that there is an agreement to transfer interest in
property.
1. i.e. The contract to sell requires the execution of the transfer.
2. A contract to sell goods requires the doing of an act delivery which causes
property pass.
2. Executed Contract a contract which does not require the execution of an instrument,
or the doing of some act, for the purpose of placing the parties in the position
contemplated the contract itself already does this.
1. i.e. in JC Williamson, the plaintiff was accorded the right to sell sweets in the
defendants theatre. The contract provided this right so equity did not need
too.
Granting the Remedy
For a Court to grant the equitable remedy of specific performance it must firstly be satisfied
that the following exists
1. A binding contact; and
2. That the plaintiff is ready, willing and able to perform the obligations specified in the
contract; and
3. The inadequacy of a remedy at law which cannot be applied in the circumstances.
If the Court is satisfied that these three elements are satisfied, then it can grant the remedy to
enforce an enforceable contract, an oral contract with part performance or a contract which is
proved by relying on estoppel.
In Turner v Bladin (1951) 82 CLR 463 the Court stated
a vendor who seeks specific performance of a contract to pay purchase money by

instalments can obtain an order for payment of the instalments which are overdue
with liberty to apply in respect of future instalments as they become payable.
Specific Performance Not Provided

Specific performance will not be provided when the relief which can be granted involves the
performance by one party of services to the other or requires their continual co-operation.
This is obvious, since it would impose equitable obligations on parties that do not wish to
continue to work together.
Undue Hardship
Equity will not force specific enforcement if it were to impose unjust hardship or destitution
on a defendant as per Dowsett v Reid (1912) 15 CLR 695. This was also the case in Patel v
Ali [1984] Ch 283 were extreme unforeseen hardship was taken into account by the Court.
Other Examples
Some other examples where the Court will not enforce specific enforcement include
1. Where performance of the contract is futile or impossible; or
2. Where obligations to be enforced are illegal; or
3. Where the defendant can point to the conduct of the plaintiff which contravenes
equitable maxims.
Injunctions
What are they?
An injunction can be described as an order, made by a court exercising equitable jurisdiction,
restraining the person to whom it is directed from performing a specified act, or, in certain
exceptional cases, requiring him to perform a specified act. They are prohibitory or
mandatory injunctions, respectively.
If an injunction is issued, a person must refrain from doing the act specified in the injunction
which would otherwise infringe or assist in restoring another persons rights, interests or
property as per Australian Securities and Investment Commission v Edensor Nominees Pty
Ltd (2001) 204 CLR 559.
Why are they sought?
Injunctions are sought because a plaintiff is demonstrating an actual infringement of their
rights and they want the defendant to stop, or because they require the defendant to actually
do particular acts.
Mandatory Injunctions
Mandatory injunctions require a party to perform certain acts and this act must be a positive
act rather than forcing a party not to do something as per Redland Bricks Ltd v Morris
[1970] AC 652. They are typically classified in two ways
1. Restorative in Nature this type of mandatory injunction attempts to require a
defendant to undo a wrongful act which they earlier committed.
2. Compelling in Nature this type of mandatory injunction compels the defendant to
carry out a positive obligation.
Suffer grave damage
Such injunctions are always at the discretion of the Court as emphasised heavily in Redland
Bricks Ltd v Morris [1970] AC 652. The plaintiff is required to demonstrate that they will
suffer grave damage if an injunction is not granted, and the Court must be satisfied that the
injunction will substantially lower the risk of the defendant performing the act which would
damage the plaintiffs interests as per Redland Bricks Ltd v Morris [1970] AC 652.
Interlocutory Injunctions
The object of an interlocutory injunctions is to protect the plaintiff against any injury for
which they could not be adequately compensated for in damage if the defendants act were to
continue prior to the commencement of the proceedings as was seen in the ABC v Lenah
Game Meats Pty Ltd (2001) 208 CLR 199 case where if the film had of been released
regarding showing the exportation of possum meat, it would have caused the plaintiff serious
financial harm.
The Court will not typically grant an interlocutory injunction unless the plaintiff can provide
a cause of action which is known at law. They are most typically sought in very short notice
without the defendant being present in Court. In the ABC v Lenah Game Meats Pty Ltd, the
Court stated that the following tests must be satisfied in order to gain interlocutory relief by
way of an injunction
1. That there is a serious question to be tried, or that the plaintiff has made out a
prima facie case for relief; and
a. In this regard, the court must consider the balance between the damage the
plaintiff is likely to suffer before the hearing of the proceeding against the
damage to the defendant if the injunction is granted per NWL Ltd v Woods
[1979] 3 All ER 614.
2. The plaintiff will suffer irreparable injury unless an injunction is granted; and
3. The balance of convenience favours granting an injunction
The High Court stated in this case that the test was whether
the plaintiff can demonstrate either a reasonably arguable case on both the facts and
the law, or that there is a serious question to be tried.
Prima Facie Case
If a plaintiff has made out a prima facie case, then the Court will determine whether the
granting of an interlocutory injunction should be granted. It will consider the factors listed
above and balance the injury of the plaintiff to that of the defendant.
The Court will not consider this until a prima facie case is established as per Shercliff v
Engadine Acceptance Corp Pty Ltd [1978] 1 NSWLR 729.
Injunctions are Not Granted for Public Rights

Injunctions are not typically granted to enforce public rights. However, in Cooney v Ku-RingGai Municipal Council (1963) 114 CLR 582 the council wanted to stop the defendant from
using a building in a particular manner relevant to statute provided under the Local
Government Act. The injunction was granted such that Menies J commented
it appears that some person bound by what may be described as a munipial law
imposed a restriction or prohibition upon the use of land in a portion of munipial
area of the public benefit or advantage has broken, and will, unless restrained,
continue to break that law for his or her own advantage and to the possible
disadvantages of member of the public living in that locality.
In Australian Conservation Foundation Inc v Commonwealth (1980) 146 CLR 493, the AFC
wanted an injunction to force the government to obey the Environmental Act despite having
suffered no damage or private right infringement. The High Court ruled that
a private citizen, who has no interest other than that which any member of the public
has in upholding the law, has no standing to sue to prevent the violation of a public
right or to enforce a public duty and that; in this respect there is no difference
between the making of a declaration and the grant of an injunction ... a mere
intellectual interest or emotional concern was not a sufficient interest for that
purpose, nor was a belief, however strongly felt, that a particular law should be
observed
Mareva Orders
A Mareva injunction restrains a defendant from disposing of its assets in an effort to render
any future judgment ordered against it ineffective. The future judgment may relate to an
equitable or legal cause of action. It is an action and order in personam against the
conscience of the defendant, who exhibits a real danger of moving assets to another
jurisdiction or otherwise disposing of them before trial.
In the Mareva case - Mareva Compania Naviera SA v International Bulk Carriers SA [1975]
to Lloyds Rep 509 - Lord Denning MR treated the relief granted as injunctive in nature and
as going in aid of a legal right, the legal right identified was that of the plaintiff to be paid a
debt owing, even before the establishment of that right by obtaining a judgment. The
jurisdiction to grant a Mareva order arises from the desire of the court to avoid having its
processes frustrated.
Purpose
The fundamental purpose of a mavera order is to stop a defendant from disposing of assets
prior to the commencement of proceedings. A mareva order in some sense can be referred to
as an asset preservation order as it was in Cardile v LED Builders Pty Ltd (1999) 198 CLR
380.
The plaintiff must establish that there is a real danger of the defendant absconding or assets
being removed from a jurisdiction or any associated danger that a plaintiff will not obtain the
relevant awards in a judgement if a mareva award is not provided as per Mareva Compania
Naviera SA v International Bulkcarriers SA (The Mareva) [1980] 1 All ER 213.
Granting of a Mareva Order
From the case of Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 cited by
the High Court with approval in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 a
plaintiff is required to establish
1. A prima facie cause of action against the defendant; and
2. A real and present danger that the defendant will attempt to move or alter interest in
the assets outside a jurisdiction or dispose of them prior to the judgement being
provided.
Mareva orders are usually made ex parte or in the presence of a judge and only one party
both parties are not required to be present in Court.
Jurisdiction
The jurisdiction to grant a mareva order arises from the desire of the Court to avoid having a
process frustrated as per Jackson v Sterling Industries Ltd (1987) 162 CLR 612.
Typically, a Court will impose a mareva order to force a defendant to disclose their assets or
restrain them from dealing with assets which were previously within a jurisdiction but were
subsequently moved before the injunction was granted by the Court into another jurisdiction
as per Cardile v LED Builders Pty Ltd (1999) 198 CLR 380.
Third Parties
Mareva orders can be made against third parties where the plaintiff is able to show that the
third party has a right or interest in the assets and this right is required to be preserved prior to
the final judgement of the Court as per Winter v Marac Australia Ltd (1986) 6 NSWLR 11.
Limits on Mareva Orders
A mareva injunction does not provide the plaintiff with any proprietary rights in assets and
nor does it provide a plaintiff with a greater preference over other creditors of the defendant
as stated in J Bekhor & Co Ltd v Bilton [1981] QB 923.
Examples
1. Claims involving debts - Barclay-Johnson v Yuill [1980] 3 All ER 190
2. Restraining a defendant from moving assets - Australian Iron & Steel Pty Ltd v Buck
[1982] 2 NSWLR 889
Anton Piller Order

Anton Piller orders are similar to mareva injunctions. They are a set of orders which are
typically done on an ex parte interlocutory nature requiring the defendant to allow the
plaintiff or their agents to inspect property or premises of the defendant as per Anton Piller
KG v Manufacturing Processes Ltd [1976] Ch 55.
The plaintiff must prove, according to Long v Specifier Publications Pty Ltd (1998) NSWLR
545, that
a high risk exists that, if forewarned, the defendant would destroy, or hide, the
evidence, or cause it to be removed from the jurisdiction of the Court
An Anton Piller order is a compulsory order for the discovery of information by the plaintiff
relating to the defendants actions and the plaintiffs cause of action. Before an Anton Piller
can be granted the plaintiff must according to Anton Piller KG v Manufacturing Processes
Ltd [1976] Ch 55 satisfy three conditions:
1. there must be a strong prima facie case;
2. the damage which the plaintiff has or will suffer must be significant; and
3. there must be clear evidence that the defendant has possession of damaging
documents and there is a real possibility that that material might be destroyed
before any inter partes application could be brought.
Most typically, Anton Piller orders are carried out by specialist legal service providers who
act as an impartial third party when searching defendants property and ensuring that
infringing material can be ascertained and reviewed.
Stopping a Anton Piller Order
An Anton Piller order can be set aside by a defendant is there were no grounds for making
such an order as the plaintiff did not disclose the full facts when applying for the order.
If an Anton Piller order is set aside then the defendant will not have to comply with any such
order and if any relevant documentation has been previously seized it must be returned to
the defendant as per Chappell v United Kingdom [1989] FSR 617 case.
Constructive Trust
Courts in Australia and the United Kingdom have not yet awarded constructive trusts but in
Canada they have been awarded. A Canadian case of LAC Minerals Ltd v International
Corona Resources Ltd (1989) 61 DLR 14 awarded a constructive trust after the plaintiff
shared information which suggested that their testing on a parcel of land revealed significant
gold deposits and the defendant acquired the land and attempted to setup a mine.
When awarded as a proprietary form of relief, the constructive trust serves to confer priority
on the insolvency of the person upon whom constructive trusteeship is imposed. The court
will not impose or declare a constructive trust if, in the circumstances, another form of
equitable relief will satisfy the demands of justice, as exemplified in Guimelli.
In Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, Lord Millet stated
The first covers those cases already mentioned, where the defendant, though not
expressly appointed as trustee, has assumed the duties of a trustee by a lawful
transaction which was independent of and preceded the breach of trust and is not
impeached by the plaintiff. The second covers those cases where the trust obligation
arises as a direct consequence of the unlawful transaction which is impeached by
the plaintiff.
A constructive trust arises by operation of law whenever the circumstances are such
that it would be unconscionable for the owner of property (usually but not
necessarily the legal estate) to assert his own beneficial interest in the property and
deny the beneficial interest of another. In the first class of case, however, the
constructive trustee really is a trustee. He does not receive the trust property in his
own right but by a transaction by which both parties intend to create a trust from the
outset and which is not impugned by the plaintiff. His possession of the property is
coloured from the first by the trust and confidence by means of which he obtained it,
and his subsequent appropriation of the property to his own use is a breach of that
trust. Well-known examples of such a constructive trust are McCormick v Grogan
(1869) LR 4 HL 82 (a case of a secret trust) and Rochefoucald v Boustead [1897] 1
Ch 196 (where the defendant agreed to buy property for the plaintiff but the trust was
imperfectly recorded). Pallant v Morgan [1952] 2 All ER 951, [1953] Ch 43 (where
the defendant sought to keep for himself property which the plaintiff trusted him to
buy for both parties) is another. In these cases the plaintiff does not impugn the
transaction by which the defendant obtained control of the property. He alleges that
the circumstances in which the defendant obtained control make it unconscionable
for him thereafter to assert a beneficial interest in the property.
The second class of case is different. It arises when the defendant is implicated in a
fraud. Equity has always given relief against fraud by making any person
sufficiently implicated in the fraud accountable in equity. In such a case he is

traditionally though I think unfortunately described as a constructive trustee and said
to be 'liable to account as constructive trustee'. Such a person is not in fact a trustee
at all, even though he may be liable to account as if he were. He never assumes the
position of a trustee, and if he receives the trust property at all it is adversely to the
plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case
the expressions 'constructive trust' and 'constructive trustee' are misleading, for there
is no trust and usually no possibility of a proprietary remedy; they are 'nothing more
than a formula for equitable relief': Selangor United Rubber Estates Ltd v Cradock
(No 3) [1968] 2 All ER 1073 at 1097, [1968] 1 WLR 1555 at 1582 per UngoedThomas J.
Recession
Rescission concerns a party to a contract treating the contract as no longer binding on him or
her because of some vitiating factor. It is most clearly seen with the misrepresentation cases.
Where a contract is voidable at law for fraudulent misrepresentation or duress, the party
wronged will be entitled to avail itself equitys means of adjustment. Equity here is acting
in its concurrent jurisdiction.
Rescission in equitys exclusive jurisdiction is a means of setting aside a contract or other
transaction or disposition vitiated by some wrong recognized by equity, such as innocent
misrepresentation, undue influence, unconscionable conduct, mistake or breach of fiduciary
duty.

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Topic 1 Introduction and History1

equity may foresee the creation of a property right at law;

Equity will always prevail

Use of the Maxims

Topic 2 - Unconscientious and/or Unconscionable Conduct

The inducing party has the capacity to influence the complainant;

Class 2 Presumptive Undue Influence

Effect of Presumed Relationship

Class 3 Influence proved rather than presumed

as to make it difficult to disentangle the inducements which led to the transaction.

Requirements for Unconscionable Conduct

Is there a special disadvantage?

The age of the weaker party;

Degree of Knowledge of the Special Disadvantage?

b) Requested she obtain independent advice - written to her suggesting that

Topic 3 Fiduciary Obligations

****Extent of the Fiduciary Duty****

Fiduciary Relationship and Contractual Obligations

Contractual obligations take precedence

Intending joint ventures owe an obligation not to profit

the directors standing in a fiduciary relationship to Regal in regard to the exercise of

Relationships of Fiduciary Obligations

No, can be proven

No, can be proven

collaborative or horizontal relationship, such as a partnership or joint venture.

Proving a fiduciary obligation exists

The Nature & Scope of Fiduciary Obligations Profit and Conflicts

1. Conflict - Whether the fiduciary is in a position of inherent conflict of interest

Defences to Breaches of Fiduciary Obligations

Remedies for Breach of Fiduciary Obligations

Topic 4 Accessorial (Third Party) Liability in Equity

Legal vs. Equitable

First Limb (refer Knowing Receipt next page)

Key outcomes of Farah Constructions

Knowing Receipt (first limb)

Farah Constructions Outcome

Property Rights Under Receipt

Third Party Assistors

Topic 5 Misrepresentation and Mistake

Equitys concurrent jurisdiction with common law

Topic 6 Equitable Estoppel

Making a representation (express)

Certain and Unambiguous

Relied on the Assumption

There must be some detriment to the plaintiff

Financial hardship or embarrassment as a result of the debt accumulating or[if]

4. Extends to assumptions where a legal relationship exists or will exist

Estoppel by encouragement e.g. Dillwyn v Llewelyn father tried to transfer land to

Estoppel by acquiescence e.g. Ramesden v Dyson per Cranworth LJ (see previous

1. Monetary a monetary remedy of the same value or to a proportion of the property

Differences between Common Law and Equitable Estoppel

Equitable estoppel operations upon representations or promises as to future conduct,

Therefore equitable estoppel will be relevant to pre-contractual negotiations as its role

Example of CL and equitable estoppel in a landlord-tenant situation:

1. The information must have a necessary quality of confidence about it

Well developed and capable of exploitation - Ideas can be considered to be

2. The Information must be Confidential

The publication of a patent The publication of a patent will be fatal to a claim of

Patents in other jurisdictions - Publication of patent specifications in other

Material subject to personal confidence - Publication of material subject to personal

Publications that are transitory Such publications are unlikely to be remembered

Government Information - Governments confidence will only be protected when it

Reverse Engineering Information obtained through reverse engineering is not

Extent of the Fiduciary Duty