FACTS (pars 4 – 11)

The Plaintiffs are the artist Charles Blackman and his trustee, Robert Dickerson.  The Second Defendant is Peter Gant, an art dealer.  Gant originally supplied three works of art to a Helen Stewart , another art dealer, together with two valuations of the works.  She was the former First Defendant.  Stewart sold the works to a a Robert Blanche, giving him a copy of the valuations.  The evidence is that Blanche relied upon one of the valuations when purchasing the works and used the other for insurance valuation purposes.  When, later, Blanche was advised that the works were not authentic he returned them to Stewart who refunded his money.  Stewart then returned the works to Gant.   The Second Defendant maintains the works are authentic.  The issue before Vickery J was confined to the Second Defendant’s no case application.

ANALYSIS

The Plaintiffs claim, at [12], that the valuations impliedly represent that the works were authentic and consequently a breach of section 9 of the Fair Trading Act.  The Plaintiffs claim loss and damage (see [21] - [24], [27] and [33] – [36]).

No case submission – generally

Vickery J, as is his wont, set out the principles governing consideration of a no case submission, at [2], quoting Kaye in Oakley & Anor v Insurance Manufacturess of Australia:

1. Where a no case submission is made in a trial by jury, the role of the judge is to determine whether, on the view of the evidence most favourable to the party against whom such a submission has been made (“the respondent party”), the jury could (not would) find in favour of the respondent party.
2. The test which is applicable, where a judge is sitting without a jury, is less stringent. In such a case the judge may uphold a no case submission, notwithstanding that the evidence, on the view most favourable to the respondent party, could support a judgment in favour of the respondent party.
3. In such a case the judge may perform an assessment of the quality of the evidence which has been called on behalf of the respondent party. In some cases, such an assessment may involve the judge evaluating the credit of witnesses from whom such evidence has been called.
4. In determining a no case submission, the judge is entitled to draw inferences from the evidence.
5. On a no case submission, the judge cannot draw an inference against the party making the submission (“the moving party”) based upon the absence of evidence from that party.
6. Although the judge, sitting alone, may assess the quality of the evidence in determining a no case submission, nonetheless the test which is to be applied by the judge, at that stage, is different to the test which the judge would apply in determining the ultimate outcome of the case, at the conclusion of a trial. Notwithstanding that the judge, in determining the no case submission, may assess the quality of the evidence, nonetheless the test remains whether, on the evidence so assessed, the judge “could” (not would) find for the respondent party on the evidence so far led. In such a case, the judge would only find against the respondent party if the evidence, so far adduced, is so unsatisfactory or inherently unreliable or equivocal that he were to conclude that he could not be reasonably satisfied of the case made by the respondent party on the evidence thus far adduced.

(my emphasis)

No case application – misrepresentation.

Counsel for the Second Defendant submitted, (see [14 ] – [16]) that the valuations were opinions of market value, not representations of authenticity.  As such the valuations did not constitute a representation under section 9 of the Fair Trading Act.  A valuation is an opinion of worth, not statement of fact, and as such is not a representation or misrepresentation.

His Honour did not accept this submission stating at [18]:

18 However, I am satisfied that there is evidence from which it is open to conclude that the valuations served a dual purpose. True it is that they contained an opinion of value. However it is open to conclude that the valuations also contained an implicit representation of fact that each of the works in contention were authentic works, each having been created by one of the Plaintiffs.

(my emphasis)

No case application – loss and damage.

It was also submitted that the sole recipient of the representation was Blanche.  Blanche is not a Plaintiff.  There was no evidence that he suffered any loss or that the valuations were circulated in the market place.   Vickery J extracted the relevant paragraphs and found that the relief sought included future loss and damage if valuations were used in the future in conjunction with the sale of the works (see [27] – [28]).  That element of the claim justified the claim for permanent injunction regarding the use of the valuations.  In considering sections 149 and 149A of the Fair Trading Act, empowering the grant of injunctive relief, Vickery J stated, at [30]:

30 These sections of the Fair Trading Act are framed in broad terms. On their face they arguably do not depend upon any person being actually mislead by conduct which contravenes section 9 of the Act. Rather, it is the conduct in breach of section 9 which may give rise to a grant of relief under section 149 .. The relief sought by the Plaintiffs in this case under paragraphs 1-3 of the relief claimed, would appear to fall within the ambit of these statutory provisions.

While Vickery J found there was a case to answer regarding the claim for injunctive relief he found there was no case to answer regarding the Plaintiffs’ claim for $25,000 in damages.  Section 159 of the Fair Trading Act requires a causal link between the contravening conduct and the loss and damage claimed, [34].  After analysing the evidence thoroughly (at [37] – [43]) his Honour found while thre was considerable evidence going to authenticity of the works (though he noted no declaration was sought on same in the pleadings - [41]) there was no evidence that valuations or their use had any effect causing the loss claimed.  On that point Vickery J found there was no case to answer the claim for $25,000.

No case application – the election.

The usual rule in making a no case submission is:

1. a judge will not rule on a no case submission unless the applicant states it will not call evidence in the event that submission is unsuccessful [44]. It is however a matter of discretion whether the judge puts the applicant to his election.  The exercise of the discretion depends on “..depends on matters which go to the just and convenient disposition of the litigation and the interests of justice.”
2. a judge will rule on whether to put the the applicant to his election after the submission is made.

His Honour did not put the applicant to his election because of the serious allegations being made; that an art dealer represented that fakes were authentic and sold fakes.  This is particularly serious for a dealer continuing to operate in the art market. In the circumstances the Second Defendant should have the opportunity to put on evidence against the case put against him.  Curiously his Honour regarded the publicity associated with the case as a factor, stating (at [46]), “I cannot ignore the measure of publicity that this case has attracted.”

ISSUE

No case applications are, not surprisingly,  infrequently made.  In a matter where the facts are actively contested the prospect of being put to an election rightly warrants a conservative approach.  If an application is contemplated it is critical to carefully analyse the Plaintiff’s evidence against the pleadings.  In this case the  Second Defendant was partially successful because the Plaintiff’s evidence focused on authenticity claims rather than evidence of actual loss.  As Vickery J made clear, one does not equate with the other.

Strike out application (paragraphs 4 – 5,  8 & 10).

Features of a strike out application are:

• the rule applies to the adequacy of the pleadings only;
• the facts are not under any consideration.  In fact the facts are assumed to be true;
• the test as to when to strike out has been variously described but the most common formulation is that the statement of claim does not admit of reasonable argument;
• that it is an interlocutory order from which appeal can’t be taken without leave; and
• where a court determines that a claim should proceed it will hesitate in striking out that portion of the claim whose legal basis may be doubtful or problematical.

Summary judgment application (paragraphs 6 – 10).

Features of this form of application are:

• there is an analysis of the facts outside the pleadings;
• that it is essentially a summary trial;
• the test is that the proceeding has no reasonable prospects of success;
• it is easier to obtain summary judgment than strike out because the applicant in the former need only show that there is no dispute of material fact ; and
• an order granting summary judgment is final and appellable as of right.  Where summary judgment is granted for less than the totality of the claim it is arguable that those orders may be interlocutory (see paragraph 9).

Barnes v Addy

Finkelstein J, in his refreshingly crisp prose, summarised the core requirement of a Barnes v Addy claim,  knowledge, at paragraph 15 as:

For a knowing receipt claim under Barnes v Addy, there are three elements: (1) receipt by the defendant of (2) trust property with (3) knowledge of the facts that (a) the property was trust property and (b) receipt was pursuant to a breach of fiduciary duty or misapplication of the property: Spangaro v Corporate Investment Australia Funds Management Ltd (2003) 47 ACSR 285 at [54]-[60] and especially [55]. The banks attack both the second and third elements. The second element of course depends on whether there was a trust over the loaned shares in the first place. The applicant’s claim for the existence of a trust is founded in various causes of action: (1) an equity of redemption based on the allegation that the investors mortgaged rather than sold their securities to Opes; (2) a claim for rescission based on the argument that the investors entered into the securities lending agreements with Opes under the unilateral mistake that they were mortgaging rather than selling the shares; (3) breach of express trust, on the basis that Opes made representations reflecting an intent by Opes to hold the shares on trust for the investors; (4) estoppel, based on the allegation that Opes made representations that the investors remained the beneficial owners of the shares and the investors relied on those representations to their detriment; and (5) breach of fiduciary duty, based on the allegation that Opes had a conflict of interest arising from its on-lending relationship with the banks (pursuant to which it wished to place the investors’ shares in jeopardy) giving rise to a fiduciary duty to disclose to the investors the true nature of the share lending transaction.

At paragraph 27 Finkelstein J states that in pleading knowledge for the purpose of a Barnes v Addy claim it is sufficient to:

to plead and prove knowledge of facts that would put an honest and reasonable person on notice (but not merely inquiry) of a real and not remote risk that the transfer was in breach of trust or fiduciary duty or involved the misapplication of trust property..

As to what constitutes knowledge Finkelstein J said, at paragraph 28:

..In my view, it would be simpler to adopt a uniform approach to Barnes v Addy scienter based on the standard categories of mens rea (in descending order): (1) intent; (2) actual knowledge; (3) recklessness (which I would define in these circumstances as a conscious disregard of a substantial and unjustifiable risk that the property was subject to a trust and was received pursuant to a breach of trust or of fiduciary duty or a misapplication of trust property); (4) negligence (here, a failure to perceive a substantial and unjustifiable risk that the property was so received); and (5) strict liability. Categories (1) and (2) are self-explanatory and clearly sufficient to establish liability; it is also now clear, after Say-Dee, that strict liability (ie an unconscionability or unjust enrichment approach) is not applicable. There is a bit more difficulty with categories (3) and (4), but I think it is also safe to say that negligence is out. In Say-Dee, the High Court suggested (at [175]-[178]) that the fifth Baden category (knowledge of facts sufficient to put an honest and reasonable person on inquiry) would not suffice to establish Barnes v Addy liability in Australia. To my mind, the rejection of a duty of inquiry is effectively the rejection of a negligence standard.

In this case the applicants did not plead facts giving rise to an inference of recklessness in the Barnes v Addy claims.

I am forever grateful to read that his Honour describes the law of constructive trusts as being in a mess!  I have 5 turgid tomes on equity evidencing that fact.