The plaintiff borrowed money from a third party, which was secured by a mortgage over the plaintiff’s property. In relation to the transaction, a solicitor (the defendant) was retained to act for the plaintiff.
As transpired, the plaintiff transferred the proceeds of the loan to a company. The company was free to use the proceeds and later decided to apply the proceeds to repaying a debt it owed to a company of the solicitor.
The plaintiff alleged that the solicitor had knowingly profited from his retainer and thereby breached his fiduciary duty to him.
Shaw J held at paragraph 25 that
The plaintiff cannot succeed merely because the defendant, at some point, acted in a fiduciary capacity towards the plaintiff and, at some point, obtained a benefit.
The alleged benefit [must have] came about as a result of the relationship, such that it was obtained either out of a conflict of interest between a fiduciary and his principal or such that the benefit is properly characterised as an improper profit.
When is there a conflict of interest?
His Honour was satisfied from the evidence that at the time he acted for the plaintiff, the solicitor had no knowledge that the proceeds from the mortgage transaction was to be given to the company and furthermore, to be applied by the company to repay debts owing to his own company.
Citing the decision of the High Court in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Shaw J held that the solicitor will only be in breach of his fiduciary duty if, at the time he was acting for his client, there was a “real sensible possibility of conflict” between his interests and the interests of his client.
The test is whether “a reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict”.
He held that at the time the solicitor was retained to act for the plaintiff, he was not aware that there was an agreement for the plaintiff to transfer the proceeds of the mortgage transaction to the company. Furthermore, at that point in time, the company had not yet decided to apply the proceeds to repaying the solicitor’s company. Accordingly, a reasonable man would not find that there was a ‘real or substantial possibility’ that a conflict will arise between the interests of the plaintiff and the solicitor’s own interests. In the result, the solicitor was not found liable for breaching any fiduciary duties that were owing to the plaintiff.