Alexander v Mills [1998] FCA 339 | Case summary

REASONS FOR JUDGMENT HIS HONOUR: Valoutin Pty Ltd (Valoutin) (the first applicant) and Paul Henry Harpur (the second applicant) ask the Court to declare as having been lawfully rescinded by them respectively a contract of sale by which Valoutin agreed to purchase from Deborah Lea Furst (the first respondent) the property at 750 Orrong Road Toorak and an agreement pursuant to which Mr Harpur guaranteed the obligations of Valoutin under the contract of sale. Valoutin also seeks the return of the deposit paid under the contract. The applicants allege that Ms Furst did not have good title to the property. They say that as soon as Valoutin discovered the deficiency in title it lawfully rescinded the contract of sale. As an alternative claim the applicants allege that immediately before the contract was entered into and the guarantee given, Ms Furst, by her solicitor, falsely represented that neither her father, Mr Abraham Goldberg, who was a bankrupt, nor her father's bankrupt estate had any interest in or involvement with the property and this entitled them to rescind their respective agreements. In order to understand how these allegations come to be made it is necessary to set out the circumstances by which Ms Furst came to be registered as the proprietor of the Orrong Road property. For many years up to and including 1987 Mr Goldberg was a wealthy and successful businessman. He controlled three well known groups of trading companies - the Bradmill group, the Entrad group and the Linter Group. He also controlled a number of private companies and trusts: the trusts were established for the benefit of Mr Goldberg and members of his immediate family including his wife Janette, and his two daughters Ms Furst and Ms Fay Effron. The Goldberg group, that is the public companies and the private companies and trusts, employed their own accountants as well as retaining external accountants. One of the accountants employed by the group was Mr John Durlacher. In 1984 Mr Durlacher was appointed to the position of financial controller of the group and in that position assumed responsibility for maintaining the books and records of the private companies and trusts. Mr Durlacher was assisted in that task by another accountant, Mr Alex Wu. Two of the group companies, Gibraltar Factors Ltd (Gibraltar Factors) and Pochette Investments Ltd (Pochette), acted as the treasury companies for the group. That is to say, Gibraltar Factors and Pochette were the only companies in the group that maintained a bank or chequeing account and all money paid to or by a group company or trust was paid to or received by Gibraltar Factors or Pochette on behalf of that company or trust. Gibraltar Factors was the treasury company for the public companies and Pochette was the treasury company and for the private companies and trusts although, on occasion, Gibraltar Factors would also act as the treasury company for the private group. One of the trusts in the private group was the D L Furst Family Trust which was established by a deed dated 29 June 1977. The principal beneficiaries of the trust were the children of Ms Furst but the trust deed empowered the trustee to distribute both the income and the capital to other persons including Ms Furst. Mr Goldberg controlled the trust. By the terms of the trust deed the power to remove and appoint the trustee was reserved to the appointor (as defined) and certain important powers of the trustee (it is not necessary to specify them) could only be exercised with the consent of the guardian (as defined). The trust deed defined both the guardian and the appointor to be Mr Goldberg during his lifetime and upon his death Jeanette Goldberg during her lifetime and upon her death Ms Furst. The trustee was Sellheim Nominees Pty Ltd. The directors of Sellheim were Mr and Mrs Goldberg, Mr Durlacher and Mr Roy Travers. Mr Travers was a solicitor and partner in a Sydney law firm, Simons & Baffsky. That firm regularly provided legal advice to Mr Goldberg. Notwithstanding that there was a board of directors in which was vested the power to manage the affairs of Sellheim, for all practical purposes all decisions of the trustee were made by or at the direction of Mr Goldberg. In September 1987 the Orrong Road property came up for sale. Mr Goldberg wished to purchase the property for his daughter Ms Furst although not on the basis that it would be owned by her. His intention was that his daughter should have the use and enjoyment of the property but that she would neither own the property nor have the power to dispose of it for a period of ten years after Mr Goldberg's death. Mr Stanley Tremback, a solicitor who carried on practice under the name Tremback Naughton, was instructed, either by Mr Durlacher or Ms Furst's husband, Zev Furst, to act on the purchase. Mr Tremback was informed that the purchaser would be Pochette Nominees Pty Ltd a private company that he knew was controlled by Mr Goldberg. A contract of sale was drawn up and executed on 30 September 1987. The purchaser was described as "Pochette Nominees Pty Ltd and/or Nominee" and the contract contained provisions for the nomination of a substitute purchaser. The purchase price was $3.950.000 payable by deposit of $395,000 on 15 October 1987 with the balance of the price payable on 29 November 1987. The contract records that $100,000, being a part of the deposit, had already been paid to the vendor. During October 1987 Tremback Naughton received various instructions concerning the identity of the ultimate purchaser of the property. First Mr Durlacher told Mr Tremback that the purchaser would be Sellheim as trustee for the D L Furst Family Trust. This caused Mr Tremback to write to the vendor's solicitors nominating Sellheim as trustee for the D L Furst Family Trust as the substitute purchaser and requesting the vendor's solicitors to prepare a substitute contract for execution by the vendor and the substitute purchaser. Then Mr Durlacher told Mr Mark Naughton, a solicitor who was assisting Mr Tremback on the purchase, that Mr Goldberg himself and not Sellheim was to be the purchaser of the property. A short time later Mr Durlacher told Mr Tremback that Mr Goldberg would not purchase the property in his own name but that the purchaser would be Sellheim on trust for Mr Goldberg. By that time a substitute contract nominating Sellheim as the purchaser had been prepared by the vendor's solicitors. To comply with his instructions Mr Tremback amended the description of the purchaser by the addition of the words "as trustee for Abraham Goldberg". The contract was then executed by Sellheim and on 16 November 1987 it was forwarded to the vendor's solicitors for execution by the vendor. On the same day a deed of trust that had been prepared by Mr Tremback was executed by Sellheim and Mr Goldberg. The deed recites that Mr Goldberg had appointed Sellheim to act as trustee on his behalf to complete the contract for the purchase of the Orrong Road property and to take a transfer of the property. It also recites that Mr Goldberg had provided and would provide all of the purchase money for the property and that he had agreed to indemnify Sellheim in respect of all liabilities arising out of the purchase or ownership of the property. The deed of trust contains covenants to a like effect. The deed of trust also contains an acknowledgment that Sellheim holds the property as trustee for and on behalf of Mr Goldberg. It is important to mention at this point that on 30 October 1987 Mr Goldberg had executed a will that had been prepared by Simons & Baffsky. The will provided Ms Furst with the right of exclusive occupancy of the Orrong Road property for a period of 10 years from the death of Mr Goldberg and bequeathed the property to her if she survived him for that period. What happened next is a matter of real controversy between the parties. Ms Furst contends that sometime between mid November 1987 and 1 December 1987, being the day on which settlement of the purchase took place, it was decided that Sellheim would hold the Orrong Road property on trust for the D L Furst Family Trust and this decision was implemented. On the other hand, Valoutin and Mr Harpur say that when the purchase was completed Sellheim took legal title to the property and held the beneficial interest upon trust for Mr Goldberg in accordance with the deed of trust. In support of her case Ms Furst relies on the evidence of Mr Durlacher and upon certain accounting records maintained by Sellheim. The admission into evidence of those records was opposed by the applicants. At the request of the parties I deferred hearing submissions on the admissibility of those records until final addresses. Before I give my ruling I will deal with the evidence of Mr Durlacher. Mr Durlacher said that sometimes between mid November and 1 December 1987, but before the settlement of the purchase, he was instructed by Mr Goldberg that, as a result of advice he had received from Simons & Baffsky, Mr Goldberg had decided that Sellheim should acquire the property on trust for the D L Furst Family Trust, that the directors of Sellheim should retire and that the accountants Mr N L Rochman and Mr John Rezak should be appointed in their place, that Mr Rochman and Mr Rezak should each take a transfer of one of the two issued shares in Sellheim (the shares were then held by Mr and Mrs Goldberg) and that the deed that had established the D L Furst Family Trust should be amended to remove Mrs Goldberg and Ms Furst from the definitions of appointor and guardian. Mr Durlacher said that he discussed this proposal with Mr Bouris (a solicitor with Simons & Baffsky) or Mr Travers and it was agreed that Mr Durlacher would arrange for the change of directors and shareholders and that Simons & Baffsky would attend to the amendment of the trust deed. Mr Durlacher did prepare the documents that were required for the resignation of the old directors of Sellheim and for the appointment of Mr Rochman and Mr Rezak in their place. The return notifying the change of directors was lodged with the National Companies and Securities Commission on 29 December 1987. Mr Durlacher also prepared the transfers to assign the shares in Sellheim from Mr and Mrs Goldberg to Messrs Rochman and Rezak. Those transfers were signed and stamp duty was paid on them on 21 December 1987. The applicants say that the evidence of Mr Durlacher that he was instructed by Mr Goldberg that the Orrong Road property was to be held on trust for the D L Furst Family Trust should be rejected. They point to the following facts which are said to be inconsistent with the proposition that any person other than Mr Goldberg was intended to be the beneficial owner of the property. First, Mr Tremback was not informed of any change in the beneficial ownership of the property. Second, Mr Tremback was not told that the deed of trust that had been executed by Sellheim and Mr Goldberg on 16 November 1987 was no longer relevant and he was not requested to prepare a substitute deed. Third, the deed of trust establishing the D L Furst Family Trust was not amended by changing the definitions of appointor and guardian. Fourth, Mr Goldberg's will, the terms of which assumed that Mr Goldberg was the beneficial purchaser of the property, was not altered or revoked. Finally, the applicants rely on the failure by Ms Furst to call Mr Goldberg to give evidence of the instructions given to Mr Durlacher. I entertain no doubt that the evidence given by Mr Durlacher concerning the instructions given to him by Mr Goldberg should be accepted. Mr Durlacher appeared to me to be an honest and forthright witness. He was able to recall the relevant discussions and other discussions bearing on the same topic in sufficient detail to lead me to conclude that his recollection of them is accurate. It is true that there were a number of conversations in which Mr Durlacher was apparently involved which he could not recall in any detail. But this is hardly surprising when it is remembered that most of the events about which he gave evidence occurred more than ten years ago. Further, the steps taken by Mr Durlacher in December 1987, namely procuring the change of the directors and shareholders of Sellheim, are strong confirmation of his evidence. It is evident that those changes were brought about to ensure as far as possible that Ms Furst would not be in control of the trustee or the D L Furst Family Trust upon the death of Mr Goldberg. I can see no reason for the changes if the trust was not to become the beneficial owner of the Orrong Road property and none was suggested. Of course it was also necessary to alter the trust deed to remove Ms Furst as an appointor and guardian to achieve Mr Goldberg's object that she should not control the trust. I regard the failure of Simons & Baffsky to amend the trust deed as nothing more than an oversight on their part. Mr Durlacher did not give a written instruction to Simons & Baffsky and that may account for the oversight. I do not regard the failure to notify Mr Tremback of the change in the beneficial ownership of the property as requiring the rejection of the evidence of Mr Durlacher. It is true that prudence would have dictated that someone, presumably Mr Durlacher, request Mr Tremback to prepare an agreement which recorded the fact that Sellheim was purchasing the property on behalf of the D L Furst Family Trust. But lack of prudence is not a sufficient reason to reject the evidence of Mr Durlacher. Nor is the apparent failure by Mr Goldberg to revoke his will a reason to reject that evidence. The effect of the new arrangements was that the relevant provisions of Mr Goldberg's will would no longer be operative. Thus, there was no need for the will to be revoked or altered. It is now necessary to consider the admissibility of the accounting records. There are two accounting records in question. The first is the balance sheet of the D L Furst Family Trust as at 30 June 1988. The second is the annual report of the directors of Sellheim for the year ended 30 June 1988 and, in particular, the balance sheet (with notes) that forms part of the annual report. Ms Furst seeks to rely on entries in each of those accounting records to show that the D L Furst Family Trust was the beneficial owner of and had paid the purchase price for the Orrong Road property. The trust balance sheet contains an entry that asserts that during the financial year that ended on 30 June 1988 the trust acquired the Orrong Road property at a cost of $4,170,430. This sum exceeds the purchase price and includes the costs and expenses of the purchase as Mr Durlacher explained in his evidence. The balance sheet that forms part of the annual report confirms that Sellheim purchased the Orrong Road property with money which it borrowed in its capacity as trustee of the D L Furst Family Trust. The balance sheet contains an entry recording as an asset a receivable of $1,197,189 and a liability for the same amount. In the notes that form part of the accounts the receivable is described as a right of indemnity for liabilities incurred on behalf of the D L Furst Family Trust and the debt of $1,197,189 is described as a liability incurred on behalf of the trust. For reasons that will become apparent later the liability is the balance of the money borrowed by Sellheim to purchase the property. If the entries in the trust balance sheet and the entries in the company balance sheet are received into evidence they will certainly assist Ms Furst in establishing that the Orrong Road property was purchased on behalf of the D L Furst Family Trust. Can these accounts be admitted into evidence for the purposes of establishing the truth of the matters stated therein? Ordinarily a written statement, including a statement contained in the records of a business, is inadmissible if such statement is tendered as proof of its truth because it is hearsay. The person who made the written statement must be called to give evidence about the facts recorded in that statement provided he or she has personal knowledge of the facts sought to be established. The leading case concerning the admissibility of business records is Myers v Director of Public Prosecutions [1965]AC 1009 where a motor manufacturer's records were held to be inadmissible as evidence of the numbers on cylinder blocks placed on the engines of cars by workmen. The inconvenience and injustice caused by the hearsay rule in relation to business records has been substantially modified by statute. Here two statutes are relied upon to secure the admissibility of the trust balance sheet and the annual report namely the Corporations Law and the Evidence Act 1995 (Cth). Section 1305 of the Corporations Law provides that a book kept by a corporation under a requirement of the Corporations Law or under a previous law corresponding to a provision of the Corporations Lawis admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book. The Corporations Law came into operation on 1 January 1991. Accordingly it is necessary to show that the trust balance sheet and the annual report (although here we are only concerned with the balance sheet that forms part of the annual report) were required to be kept under a provision of the Companies (Victoria) Code that corresponds with a provision of the Corporations Law to make those document admissible under s 1305. The Code is a relevant previous law to the Corporations Law: see s 58 of the Corporations Law. In all relevant respects each provision of the Code to which I shall now turn to determine whether either the trust balance sheet or the annual report is a document that was required to be kept by Sellheim corresponds with a provision of the Corporations Law. Thus, it is only necessary to determine whether it was a requirement of the Code that those documents be kept by Sellheim. The Code drew a distinction between "accounting records" and "accounts". Accounting records were defined in s 5(1) to include "invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes, vouchers and other documents of prime entry." This definition includes within it original documents that record or evidence a transaction as well as books of account which detail that transaction such as a cash receipts journal or a cash payments journal: see Van Reesema v Flavel (1989) 7 ACLC 972 at 977 and on appeal (1992) 7 ACSR 225 at 229. "Accounts" were defined in s 266 to mean "profit and loss accounts and balance sheets" (with reports and notes). The obligation to keep accounting records was found in s 276(1). That section required a company to "keep such accounting records as correctly record and explain the transactions of the company (including any transactions as trustee) and the financial position of the company." Thus, if a company entered into a transaction as trustee it was required to maintain records that recorded and explained that transaction. But the obligation to maintain accounting records, including records of trust transactions, did not oblige a company to prepare a balance sheet for the trust of which it was the trustee. Further the obligation to prepare a profit and loss account, which is to be found in s 269(1) and the obligation to prepare a balance sheet, which is to be found in s 269(2), did not oblige a company to prepare such accounts for a trust of which it was a trustee. This obligation may be imposed by law because a trustee is required to maintain all appropriate financial accounts to show what the trustee has received, what the trustee has expended and what gains have occurred and what losses have been incurred: see generally Ford & Lee, "Principles of the Law of Trusts" (2nd ed) para 929. In some states of the United States of America a trustee is obliged to furnish annual accounts to a beneficiary: see for example the Surrogate's Court Act (New York) s 245. It follows that the trust balance sheet is not a book which can be admitted into evidence under s 1305. What is the position with regard to the annual report? There is a controversy in the cases whether the annual report of a company is admissible under the section. What is made admissible is a book "kept" by a corporation pursuant to a requirement of the Corporations Law or a previous corresponding law and there is disagreement whether this condition is satisfied in the case of an annual report. In Residues Treatment and Trading Company Ltd & Anor v Southern Resources Ltd & Ors (1989) 7 ACLC 608 Perry J considered the admissibility of an annual report under s 550 of the Companies Code: s 550 is in similar terms to s 1305. His Honour took a narrow view of the meaning of the word "kept". He held that the requirement that a document be "kept" would only be satisfied if the Code required the document to be maintained in a systematic or periodic fashion. His Honour also held that neither an annual report nor a company's accounts, that is its balance sheet and profit and loss account, are documents that are required to be "kept" by a company in that sense of the word. The decision of Perry J in Residues Treatment was not followed in Duke Group Ltd (in liq) v Pilmer & Ors (unreported, Supreme Court of South Australia, 4 November 1994). In Duke Group Mullighan J held that there was no good reason to attribute a restricted meaning to the word "kept" in s 1305. His Honour held that the word should be given its plain ordinary English meaning of "to have the charge or custody of". His Honour then considered a number of provisions of the Code to determine whether an annual report of a company was a document that was required to be "kept" by it in accordance with the plain meaning of that word. Reference was made to sections which could not be complied with unless an annual report remained in the custody of a company. Those sections included s 274(1) which imposed upon a company the obligation to send a copy of all accounts to persons entitled to receive notice of a general meeting, s 244(2) which entitled a member of a company, in specified circumstances, to be given a copy of the last annual accounts of a company and s 275 which imposed an obligation on a company to lodge with the National Companies and Securities Commission certain documents including its annual accounts. Reference might also be made to s 544(3) in accordance with which a company was required to take all reasonable precautions for guarding against damage to, destruction of or falsification of any book required by the Code to be prepared by the company being an obligation that would plainly attach to its annual accounts. In deciding which of these decisions is to be preferred it must be remembered that since the last century the narrow traditional common law view of the admissibility of business records has been the subject of statutory modification to facilitate the admission of those records in almost every common law jurisdiction. This is because the common law rules were recognised as an inhibition to the proper administration of justice in both the civil and criminal courts. Thus there is no warrant for giving a provision such as s 1305 a narrow construction especially when the admissibility of a document under the section is only on a prima facie basis and will often give way to other conflicting evidence. In my view there is no reason why the word "kept" should be given the restrictive meaning preferred by Perry J. I agree with Mullighan J that the word should be given its ordinary meaning which includes "to maintain" and "to retain". Further, it seems to me that s 1305 assumes that the accounts of a company, that is its annual profit and loss account and its balance sheet, are documents that will be kept by the company. Section 1305 makes admissible a "book" that is kept by a company and "book" is defined to include the accounts of a company. A profit and loss account and a balance sheet (with notes) are the only documents that constitute the accounts of a company. It remains to consider whether the trust balance sheet is admissible under the Evidence Act. Section 69 of the Evidence Act makes admissible a document that contains an asserted fact if that document forms part of the records kept by a person for the purposes of a business provided the asserted fact was made by a person who had or might reasonably be supposed to have had knowledge of the asserted fact or was made on the basis of information supplied by such a person. Thus, to receive the trust balance sheet (or more precisely the relevant asserted facts found in the trust balance sheet) into evidence under s 69 two conditions must be satisfied, viz. (a) that it is a record of a business and (b) that it was prepared by a person who had or was supplied with information by a person who had or was likely to have had personal knowledge of the asserted facts contained in it. The first condition will be satisfied if the activities of a trustee in the performance of the duties of his office can be characterised as a business. In considering this question the word "business" should be construed liberally: Re Marra Developments Ltd & the Companies Act [1979] 2 NSWLR 193 at 204, Trade Practices Commission v TNT Management Pty Ltd (1954) 56 ALR 647 at 650. The Evidence Act defines "business" to include "a profession, calling, occupation, trade or undertaking" and also "a business that is not engaged in or carried on for profit". The definition appears to be wide enough to cover any systematic information gathering activity: Cross on Evidence (Aust ed) vol 1 para 35225. Under similar legislation an unincorporated trade association has been held to be a business for the purposes of admitting its records (Trade Practices Commission v TNT Management Pty Ltd (1984) 56 ALR 647) as has the running of an athletic carnival (Mather and Deegan v Morgan [1971] Tas SR 192). In Canada documents prepared by a trustee in bankruptcy in relation to the performance of his statutory obligations have been held to be the records of a business: see In Re Brown; Gordon v Rosenberg (1967) 11 CBR(NS) 17. In my view the activities of a trustee in the performance of his trust is a business for the purposes of the Evidence Act. Is the second condition satisfied? The trust balance sheet was prepared by Mr Durlacher or by Mr Wu under the supervision of Mr Durlacher. The principal asserted fact that it is sought to establish from the trust balance sheet is that the D L Furst Family Trust acquired the Orrong Road property at a cost of $4,170,430. In truth this asserted fact has two components, (a) that the trust acquired the property and (b) that the cost was $4,170,430. However, neither Mr Durlacher nor Mr Wu had personal knowledge of either component of the asserted fact. The source of the information that led to the inclusion of the asserted fact in the trust balance sheet was Mr Goldberg. The evidence of Mr Durlacher, which I have accepted to be accurate, was that in November 1987, before the completion of the purchase, he was told by Mr Goldberg that as a result of advice received from either Mr Bouris or Mr Travers, Mr Goldberg had decided that Sellheim would purchase the property on trust for the D L Furst Family Trust. Mr Durlacher explained that one of the treasury companies, most likely Pochette, paid the whole of the purchase price. He went on to say that as a result of the instruction he received from Mr Goldberg the purchase price was treated in the books of account of the treasury company as having been paid on behalf of Sellheim as trustee for the D L Furst Family Trust. In other words, it was recorded as a loan made to that trust. Mr Goldberg was in effective control of the treasury companies in much the same way as he was in effective control of all the private companies and trusts. He was therefore able to direct that the payment be made and be treated as having been made on behalf of Sellheim as trustee for the D L Furst Family Trust. It follows that Mr Durlacher was informed of each component of the asserted fact by a person who might be supposed to have had personal knowledge of that fact. Accordingly, the trust balance sheet is admissible under s 69 of the Evidence Act. I should point out that the trust balance sheet does not record a debt of $4,170,430 as owing to the treasury company. Mr Durlacher said that he had been instructed by Mr Goldberg to ensure, by appropriately recorded transactions, that the D L Furst Family Trust was free of debt. A number of transactions are recorded in the trust balance sheet as having occurred in the year ended 30 June 1988 as a result of which the trust received sufficient funds to discharge most of the debt due to the treasury company. By the end of the financial year the debts of the trust totalled $1,197,187 and comprised $500,000 owing to Ms Furst and $697,187 owing to Pochette Investments Pty Ltd. Mr Durlacher said that he was unable to eliminate all of the debts of the trust by 30 June 1988 but that he did so in the following year. It is not necessary to explain how the total debt was discharged save to indicate that it was as a result of transactions that took place between the trust on the one hand and entities in the private group and members of Mr Goldberg's family on the other. Does the admission into evidence of the trust balance sheet and the company balance sheet establish that the D L Furst Family Trust paid both the deposit and the balance of the purchase price for the Orrong Road property? To answer this question it is necessary to return to the provisions of the contract of sale. I have previously mentioned that the original contract provided for the price to be paid by a deposit of $395,000 on 15 October 1987 and the balance on 29 November 1987. The contract also recorded that part of the deposit, namely $100,000, had been paid when the contract was made. The evidence does not show when the balance of the deposit was paid and I will assume that payment was made on or about the due date for its payment, namely 15 October 1987. The substitute contract was exchanged on 23 November 1987. Although by then the whole of the deposit had been paid, the substitute contract still made provision for its payment in the same terms as had the original contract. Either it was not thought necessary to record the fact that the deposit had been paid or the point was overlooked when the substitute contract was drawn up and signed. Sellheim had signed the substitute contract in anticipation of exchange on about 16 November 1987. It is more likely than not that at that time the intention of both Sellheim and Mr Goldberg was that the property should be purchased on his behalf. That intention did not change until sometime between 16 November 1987 and 1 December 1987. There is a possibility that the change of intention occurred before 23 November 1987 when the substitute contract was exchanged. However, Mr Durlacher was not able to identify when he was instructed that the property was to be purchased on behalf of the trust and there is no evidence from which it could be inferred that he received those instructions before the substitute contract was exchanged. Thus, so far as the deposit is concerned the evidence, apart from the trust balance sheet, shows that the treasury company decided (no doubt through Mr Goldberg) that the deposit that it had paid under the original contract was to be treated as having been paid on behalf of Mr Goldberg when the substitute contract was exchanged. Ms Furst contends that the asserted fact in the trust balance sheet is evidence that establishes that the trust provided the deposit. It will be recalled that the relevant entry is to the effect that the trust paid an amount for the property that would include the deposit. But because the evidence contradicts the assertion that when the substitute contract was executed the decision had been taken that the property would be purchased on behalf of the D L Furst Family Trust it is necessary to reject as accurate the trust balance sheet to the extent that it asserts the contrary position. The deposit was paid by the treasury company on behalf of Pochette Nominees when the original contract was entered into and was treated as having been paid on behalf of Mr Goldberg when the substitute contract was executed. While I reject the reliability of the trust balance sheet in so far as it asserts that the trust paid the deposit there is nothing in the evidence that requires me to reject the prima facie effect of the relevant entry in the balance sheet that the DL Furst Family Trust paid the balance of the purchase price. In arriving at this conclusion I have taken into account but rejected the attack made by Mr Kaye QC, who appeared for the applicants, on the accuracy and reliability of the trust balance sheet. It was submitted that entries in the books of account of the trust and the books of account of the other trusts and companies in the Goldberg group were not always designed to reflect genuine transactions, were often made well after a particular transaction had occurred and were written to reflect what was intended at the time of writing the entry to be the nature of the transaction. So, for example, a payment might be made by a treasury company and it would be some months before it was decided on whose behalf the payment would be recorded as having been made and for what purpose it was made. It is quite clear that this was a common practice at least within the private companies and trusts controlled by Mr Goldberg. It follows that caution must be shown in accepting as accurate entries in the books of account of the private companies and trusts. However the general criticism that is made of the manner in which the books of account were maintained is not true of the entry concerning the payment for the Orrong Road property. The decision that the property was to be purchased on behalf of and paid for out of the assets of the D L Furst Family Trust was taken before the settlement of the purchase. The relevant entry in the trust balance sheet cannot be described as an ex post facto allocation made at the direction of Mr Goldberg to record a transaction as having occurred that was different from the transaction that actually occurred at least in so far as the balance of the purchase price is concerned. When the substitute contract was exchanged Sellheim obtained an immediate proprietary interest in the property; i.e. it became the equitable owner of the property: Lysaght v Edwards [1876] 2 Ch D 499 at 506; KLDE Pty Ltd v Commissioner of Stamp Duties (1984) 155 CLR 288 at 297; Ziel Nominees Pty Ltd v VACC Insurance Co Ltd (1975) 180 CLR 173 at 175. (I have not overlooked the fact that there is still a debate whether the equitable interest of a purchaser under a contract of sale arises when the contract is made or when the contract is completed as by the payment of the purchase price; see the authorities referred to by Mason J in Chang v The Registrar of Titles (1976) 137 CLR 177 at 184. But the better view is the position that I have stated.) However, Sellheim did not hold its proprietary interest on its own account. The deed of trust provided that Sellheim had entered into the contract for Mr Goldberg and that it held that interest on trust for him and that deed governed the relationship between the parties when the substitute contract was exchanged. I have considered the possibility that when Sellheim entered into the substitute contract there arose a resulting trust of the interest in the property in favour of the D L Furst Family Trust in accordance with the principles discussed in cases such as Dyer v Dyer (1788) 30 ER 42; Napier v Public Trustee (Western Australia) (1980) 32 ALR 153 and Charles Marshall Pty Ltd v Grinsley (1956) 95 CLR 353 namely that where property is vested in someone other than the person who provided the purchase price (here the deposit) a resulting trust will be presumed in favour of that person. For such a trust to arise it would need to be established that the deposit that was paid by the treasury company was paid on behalf of the D L Furst Family Trust. But as I have pointed out the facts do not permit that finding to be made. It is convenient now to determine on whose behalf Sellheim held the Orrong Road property when it took legal title to it on settlement. All parties accepted that Sellheim held the property as a trustee but they did not agree on the identity of the beneficiary. For the applicants it was said that Sellheim held the property on trust for Mr Goldberg as had been provided in the substitute contract and in the deed of trust. Ms Furst contends that even if the property was purchased on trust for Mr Goldberg at least from the time of settlement it was held on trust for the D L Furst Family Trust. As will become apparent the resolution of this issue will be important when considering whether the applicants have made out their case. One possible answer is that Sellheim held the Orrong Road property on trust for both Mr Goldberg and the D L Furst Family Trust. The facts establish that each of them provided a portion of the purchase price. If that was the only evidence to be taken into account then, in accordance with well established principles of equity, it would be necessary to hold that Sellheim held the property upon a resulting trust in favour of Mr Goldberg and the D L Furst Family Trust in the proportions in which they contributed the purchase money: Calverley v Green (1984) 155 CLR 242 at 246-247 per Gibbs CJ. But to accept that Sellheim held the property on trust for both Mr Goldberg and the D L Furst Family Trust would involve ignoring the effect of the entry in the trust balance sheet, namely that the D L Furst Family Trust paid the balance of the purchase price for the property. That entry cannot be ignored. It is evidence from which it can be inferred that Mr Goldberg intended to divest himself of his beneficial interest under the trust that had come into existence when the substitute contract was executed. So also are the entries in the company balance sheet which confirm that the trust and not Mr Goldberg provided the balance of the purchase price. There are a number of ways by which Mr Goldberg could achieve his object of divesting himself of his beneficial interest. The first is by the release or surrender of that interest and the second is by an assignment of that interest. There is also the possibility that the trust in favour of Mr Goldberg was revoked by the trustee. In addition, a beneficiary may disclaim an interest under a trust but the disclaimer must take place before the benefit conferred by the trust has been accepted: Underhill's, "Law ofTrusts and Trustees" (13th ed) at 438. As Mr Goldberg was a party to the creation of the trust (he signed the deed of trust) the possibility of a disclaimer does not arise. There is an obvious difficulty in holding that Mr Goldberg assigned his beneficial interest to the D L Furst Family Trust. Evidence would be required to establish that Mr Goldberg and Sellheim, on behalf of the D L Furst Family Trust, had entered into an agreement to assign that interest. Here the evidence suggests that no person turned his mind to the question how Mr Goldberg would divest himself of his beneficial interest. The parties merely proceeded on the assumption that Mr Goldberg would no longer hold any interest in the property after settlement. While it would be difficult to conclude that Mr Goldberg had assigned his interest in the property to the trust, it is possible to infer that the trust was revoked or that Mr Goldberg had surrendered his interest in the trust to the trustee. I will deal with this later. It is important to mention in this context that if Mr Goldberg had surrendered his interest in the trust or even assigned that interest to the D L Furst Family Trust the transaction was for consideration. The reason is that from the time the treasury company treated the whole of the purchase price as having been paid on behalf of the D L Furst Family Trust (that is when it treated the purchase price as having been lent to the trust) it no longer treated any part of the purchase price (that is the deposit) as having been paid on behalf of or lent to Mr Goldberg. Thus, the deposit that had been paid by Mr Goldberg was, in effect, repaid to him. If contemporaneous accounting entries had been made those entries would record an advance by the treasury company to Mr Goldberg of the amount of the deposit followed by an entry recording a repayment of that amount or a reversal of the advance. The reason for pointing out that if there was a surrender or an assignment by Mr Goldberg of his beneficial interest in the trust it was for consideration is s 54(1) of the Property Law Act 1958 (Vic). By that sub-section no interest in land can be created or disposed of except by writing and a disposition of an equitable interest in land must also be in writing. The application of this sub-section to an assignment of a beneficial interest under a trust is clear enough; in the absence of writing it would not be effective. It is not clear whether s 53(1) has application to the surrender of a beneficial interest in a trust. In Crichton v Crichton (1930) 43 CLR 536 at 562 Dixon J was of the tentative view that it did not. In the United States, in those jurisdictions that have adopted the statute of frauds, it is clear that a surrender must be in writing for the reason that a surrender is regarded as the equivalent of an assignment by a beneficiary to his trustee of his beneficial interest in the trust estate: Scott on Trusts (3rd ed) vol 4 para 343.1. However, s 53(1) cannot be relied upon to render ineffective a disposition of an equitable interest in land where there has been part performance of the agreement or arrangement pursuant to which the disposition was made: see s 55(d) In Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 Mahon J applied the doctrine of part performance to an oral assignment of an interest held under a contract of sale. In that case the act of part performance was the payment by the assignee to the assignor of the deposit that had been paid by the assignor. If Mr Goldberg did not assign his interest in the trust can it be said that Sellheim terminated the trust thereby putting an end to Mr Goldberg's beneficial interest in the property? In considering this question it is necessary briefly to mention the circumstances in which a trust may be terminated. If the creation of a trust is induced by fraud, duress, undue influence or mistake it can be revoked by the settlor: Scott on Trusts, supra, vol 4 para 330. Generally speaking, in the absence of such vitiating factors a trust can only be terminated before the expiration of the period of the trust if the trust instrument contains a power of revocation (expressly or by implication) or if all of the beneficiaries consent to its revocation: Saunders v Vautier (1841) 49 ER 282. However, where a trust is created for consideration and the consideration fails the trust may be rescinded. This was decided in Hutchinson & Anor v Ross & Ors (1933) 262 NY 381 a decision of the Court of Appeals of New York. There a trust was created at least partly in consideration of the revocation of a prior marriage contract. The revocation of the marriage contract proved to be ineffective. Accordingly, it was held that the trust could be revoked by the settlor. Rose v Rose (1986) 7 NSWLR 679 is a somewhat similar case. There a husband and wife jointly owned a parcel of real property. The husband purchased the wife's interest. In order to avoid the payment of stamp duty on the transfer to him of his wife's interest, the husband proposed that his wife execute a transfer of the land to him, that he execute a declaration of trust in favour of his wife in the Australian Capital Territory (where stamp duty is not payable) and that the wife assign her beneficial interest in the land to him. All of the documents to bring about these transactions were executed but for reasons which are not material the transfer by the wife to the husband was not effective. The wife nevertheless claimed the benefit of the declaration of trust in her favour. Hodgson J held that the execution of the deed of trust in favour of the wife "was subject to something like a condition subsequent to the effect that the equitable interest created by it was to come to an end unless an assignment back of it took place": Rose v Rose supra at 685. What his Honour referred to as "something like a condition subsequent", which was plainly not a true condition subsequent, may properly be characterised as the consideration for the creation of the trust. As that consideration had failed the trust was revocable. Here, the deed of trust did require Mr Goldberg to provide consideration. He undertook to pay the whole of the purchase price that Sellheim became obligated to pay when it entered into the substitute contract. Mr Goldberg failed to pay the balance of the purchase price. In that event Sellheim was entitled to terminate the trust. Did it do so? The evidence points to the conclusion that this is precisely what Sellheim did. Sellheim ceased to treat Mr Goldberg as having any interest in the property and, from the time of settlement, treated the D L Furst Family Trust as the beneficial owner of the property. This is consistent only with the conclusion that Sellheim regarded the trust in favour of Mr Goldberg as at an end. And it is clear enough that this was done with the concurrence of Mr Goldberg. I should say that if I had been unable to reach the conclusion that Sellheim had the power to and did terminate the trust I would have decided that Mr Goldberg had surrendered his interest in the trust. The evidence is clear that Mr Goldberg gave his approval to Sellheim holding the property on trust for the D L Furst Family Trust. There is nothing to suggest that the beneficial ownership by the D L Furst Family Trust was to be a fiction. More importantly, there is nothing to suggest that Mr Goldberg was to retain any interest in the property. It would be hard to avoid the conclusion that Mr Goldberg had surrendered his interest in the trust in those circumstances if that trust had not been terminated by Sellheim. I can now return to the narrative. By early 1989 it had became apparent, if it was not apparent before then, that the public companies in the Goldberg group were in serious financial difficulty. Lindsay Maxted, a well known accountant specialising in insolvency, was retained to investigate the affairs of the public companies. He reported that the public companies had a deficiency of assets over liabilities in the order of $300 million: later it was discovered that the position was far worse. The public companies were paying interest on borrowings at the rate of approximately $250 million per annum and they were only earning around $170 million per annum. Capital assets were being sold to meet operating costs. Further, Mr Goldberg had personally guaranteed the repayment of many of the group's debts. His contingent liability under those guarantees amounted to hundreds of millions of dollars. There seems little doubt that by early 1989 Mr Goldberg was not in a position where he could meet his liability under those guarantees if called upon to do so. Thus it would have come as no surprise when some of the lenders to the group, namely Brierley Investments Ltd, The Citizens and Graziers Life Assurance Co Ltd and Niello Pty Ltd, called on Mr Goldberg to pay them approximately $24 million under a guarantee given in their favour that he was unable to make that payment. The lenders then took proceedings against Mr Goldberg in the Supreme Court of New South Wales. On 22 February 1990 they obtained judgment against him for $23,884,230. On 13 March 1990 the lenders served a bankruptcy notice on Mr Goldberg. Then on 30 March 1990 the lenders presented a petition for a sequestration order against the estate of Mr Goldberg. The order was made on 17 July 1990. A short time after the presentation of the petition Mr Goldberg instructed Messrs Rochman and Rezak, who had by then been appointed as the directors of Sellheim, to take steps to terminate D L Furst Family Trust and to transfer the Orrong Road property to Ms Furst. Messrs Rochman and Rezac in their capacity as directors of Sellheim met on 9 April 1990 and resolved to appoint 10 April 1990 as the vesting day for the D L Furst Family Trust. The effect of that resolution was that the trust would terminate on 10 April 1990. Messrs Rochman and Rezac also resolved that all of the assets of the trust be held for Ms Furst. The only asset was the Orrong Road property. Messrs Rochman and Rezac then transferred the property to Ms Furst. A memorandum of that transfer was noted on the certificate of title on 3 May 1990. Here it will be convenient to mention an argument that was put on behalf of Ms Furst to the effect that if her father had not been divested of his beneficial interest in the property his interest was defeated when Ms Furst became the registered proprietor of it. This was said to be the consequence of ss 42 and 43 of the Transfer of Land Act 1958 (Vic). Section 42 provides that after registration, the registered proprietor of land holds that land free from all encumbrances, liens, estates or interests not notified on the certificate of title subject to certain specified exceptions. Section 43 provides that "except in the case of fraud ... no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be affected by notice, direct or constructive, of any trust or unregistered interest". These sections result in what has come to be known as an "immediate indefeasibility of title" in the registered proprietor of Torrens land. In Frazer v Walker [1967] 1 AC 569 Lord Wilberforce explained (at 580-581) that indefeasibility of title: "does not involve that the registered proprietor is protected against any claim whatsoever ... there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claim in personam. These are matters not to be overlooked when a total description of his rights is required. But as registered proprietor, and while he remains such, no adverse claim (except as specifically admitted) may be brought against him". In other words, registration under the Transfer of Land Act gives to the registered proprietor an immediate indefeasible title subject only to those interests which are specifically mentioned in s 42(1)(a) and (b) and s 42(2) unless that registration was procured by fraud: see also Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188 at 191. The argument raised by Ms Furst, assuming it to require determination, depends upon acceptance of the proposition that indefeasibility of title operates in favour of a volunteer. There is authority for the view that the indefeasibility provisions will protect a volunteer in respect of prior equities of which the volunteer has no notice. This was decided by the Court of Appeal in New South Wales in Bogdanovic v Koteff (1988) 12 NSWLR 472. It should be noticed that in that case the Court of Appeal declined to express any opinion on whether the protection that registration provides would operate in favour of a volunteer who had notice of a prior equity. Having reached the conclusion that Mr Goldberg had no equitable interest in the Orrong Road property at the time Ms Furst became the registered proprietor it is unnecessary for me to consider the applicability or correctness of Bogdanovic. However, because this case may go further, I think that it is appropriate for me to express my opinion on the point. Before the decision in Bogdanovic it was generally accepted that the indefeasibility provisions did not protect a volunteer: see In re the Land Tax Act; Ex parte Finlay (1884) 10 VLR (E) 68; Crow v Campbell (1884) 10 VLR (E) 186; Biggs v McEllister (1880) 14 SALR 86; on appeal 8 AC 314; Hogg, "Australian Torrens System" at 823-3; Wiseman, "The Transfer of Land" (2nd ed) at 316; Baalman's, "Commentary on the Torrens System in New South Wales" at 149-150. The issue received detailed consideration in King v Smail [1958] VR 272. There Adam J confirmed the view that s 42 only protects a purchaser for value. The reason given was that, although s 42 does not distinguish between a purchaser and a volunteer, other sections in the Transfer of Land Act, in particular ss 43, 44(2), 52 and 110, drew such a distinction and that distinction, especially as it was made in s 43, justified the conclusion that s 42 was intended to confer benefits only on a purchaser. The position with regard to s 43, namely that it only confers a benefit on a purchaser for value was confirmed by Kitto J in IAC (Finance) Pty Ltd v Courtenay (1962-1963) 110 CLR 550 at 572. His Honour said in relation to s 43 of the Real Property Act 1900 (NSW): "A provision that a person is not to be affected by notice of prior interests has no application to him so long as he remains unregistered. For the same reason, it has no application even to one who has become registered, if he acquired his estate or interest as a volunteer. It is only a person having a legal estate or legal interest acquired for value whose position is prejudiced by his having received, before paying his money, direct or constructive notice of an outstanding equitable interest. This is so even under the Real Property Act [NSW] for a registered interest is not (as was suggested in the course of the appellant's argument some special kind of statutory interest - it is a legal interest, acquired by a statutory conveyancing procedure and protected from competition to the extent provided for by the Act, but having, subject to the Act, the nature and incidents provided by the general law. So all the provision does which I have quoted from s 43 is to protect against notice of any trust or unregistered interest a legal estate acquired for value". When it is accepted, as it must be, that section 43 does not relieve a volunteer from equities which affected his transferor it is difficult to see why s 42 should be held to give that protection. Such a view would be inconsistent with the structure and text of the Transfer of Land Act. It should also be noted that King v Smail was followed by Coldrey J in Rasmussen v Rasmussen [1995] 1 VR 613 in preference to Bogdanovic. In my view King v Smail correctly states the law. I return to the narrative shortly before Ms Furst took her transfer of the Orrong Road property. In early February 1990 Mr Tremback was advised by Birner Morley Pty Ltd, estate agents, that it had been retained by Sellheim to sell the property by auction to be held on 7 March 1990. Mr Tremback was requested to prepare the appropriate form of contract. However, on 12 February 1990 Zev Furst advised Mr Tremback that Sellheim proposed to borrow $1.2 million on the security of the property. The lender was a client of Herbert Geer & Rundle, solicitors. The terms of the proposed loan were set out in a letter of 1 March 1990 from Herbert Geer & Rundle. The only provision that is of relevance is that the lender required Mr and Ms Furst to guarantee the repayment of the loan. This fact is additional confirmation of the conclusion that Mr Goldberg held no interest in the property by this time. During March 1990 Mr Tremback and Herbert Geer & Rundle attended to the finalisation of the loan documents. But on 30 March 1990 Mr Furst advised Mr Tremback to delay settlement of the loan. Shortly thereafter he instructed Mr Tremback that the loan would not proceed. As a consequence it was necessary to pay $34,119.89 to Herbert Geer & Rundle presumably for the costs and expenses incurred by its client. It was also necessary to pay $12,000 to the mortgage broker who had arranged the loan. The mortgage broker was paid by a cheque drawn on the account of Ms Furst and Herbert Geer & Rundle was paid by bank cheque. The source of the funds for that cheque is not known. The fact that Ms Furst paid the broker also confirms that Mr Goldberg had no interest in the property. On 23 May 1990 Mr Rodney Morley, a director of Birner Morley, requested Mr Tremback to prepare documentation for a proposed public tender of the property to be conducted by Birner Morley in conjunction with R T Edgar Pty Ltd another estate agent. The documents were prepared but no sale took place. In June 1990 Ms Furst entered into two agreements the direct relevance of which diminished during the course of the hearing but which should still be mentioned. The first was a loan agreement by which Ms Furst agreed to borrow $5,017,425 from CK Securities Pty Ltd (CK Securities). CK Securities entered into the agreement as trustee for Accountable Ltd (Accountable). The evidence does not disclose whether the loan moneys were provided. The second agreement was a mortgage over the Orrong Road property in favour of CK Securities to secure the repayment of the loan. Accountable is a foreign company. Its controllers are unknown. CK Securities is a company that was controlled by members of a firm of solicitors, Cooper Korbl. That firm had agreed that its company would act on behalf of Accountable at the request of John Gainsford an accountant who carried on practice in Israel. The firm did so without any enquiry about the identity of the persons who stood behind or controlled Accountable. Mr Kaye says that this is very suspicious all the more so for the reason that similar arrangements were entered into between Ms Effron (Ms Furst's sister) and CK Securities in respect of a property that had been transferred to Ms Effron on the termination of the Goldberg Family (House) Trust on the same day that the Orrong Road property was transferred to Ms Furst. Mr Kaye is probably correct when he says that these transactions excite suspicion. But what is to be inferred from them? Could it be said that Mr Goldberg controlled Accountable and was seeking to ensure that the two properties did not pass to his trustee in bankruptcy? Or were Ms Furst and her sister seeking to protect themselves from a claim by the trustee of Mr Goldberg's estate? Or is it the case that these transactions are genuine and bona fide? Whatever the true position is, and that is a matter of pure conjecture, it is not possible to infer from these transactions that Mr Goldberg retained an equitable interest in the Orrong Road property. The possibility of the Orrong Road property being sold arose again in 1991. Ms Furst instructed Birner Morley to put the property up for sale by auction to be held on 30 May 1991. Mr Tremback was instructed to prepare the necessary contract. By 28 May 1991 two offers had been received from persons interested in purchasing the property prior to auction. One of the offers was from Valoutin. Mr Tremback was advised of the details of the offer. He was asked to prepare a draft contract that incorporated its terms. He was also requested to meet with Mr Harpur on 30 May 1990 to discuss the draft contract. Mr Harpur was a solicitor who carried on practice under the name Harpur & Co. Valoutin was one of a number of companies that Mr Harpur controlled. Mr Tremback was told that Mr Harpur was one of the directors of Valoutin and that the other director was a Mr Casper. The meeting between Mr Tremback and Mr Harpur was held at the offices of R T Edgar. Mr Morley and Mr Dyason, a director of R T Edgar, were in attendance. The meeting lasted for about three hours. Mr Tremback produced the contract that he had drafted and because it had not previously been seen by Mr Harpur he went over it in some detail. Mr Harpur suggested a number of changes to the contract and where agreement was reached hand written alterations were made to the draft. For example, the draft contract contained a warranty by the vendor that all builder's fees in respect of the renovation works carried out at the property had been paid. This had been one of the terms of Valoutin's offer. Mr Harpur asked that this warranty be extended to cover all fees and costs payable in respect of the renovation works and the fees and costs payable in respect of the preparation and sealing of a plan of subdivision. The contract was amended to satisfy this request. Other changes were made but it is not necessary to describe them. One of the special conditions in the draft contract was an acknowledgment on the part of the purchaser that no representation affecting the sale had been made and the only representations upon which the purchaser could rely were those contained in the contract. Mr Harpur noticed this condition but made no comment about it. There is one aspect about what occurred at the meeting where the evidence is in sharp conflict. At this stage I will not resolve that conflict. I will merely set out the competing versions of what was said. Mr Harpur says that during the meeting the fact that the vendor was the daughter of Mr Goldberg was discussed. It is not clear whether Mr Harpur knew of their relationship before the meeting, but it is apparent that if he did not know before the meeting then he became aware of that fact during the course of it. It is also not clear whether Mr Harpur knew that Mr Goldberg was a bankrupt but it is likely that he did. According to Mr Harpur he enquired of Mr Tremback whether Mr Goldberg's estate had any interest in the property and he was told that it did not. Mr Harpur has given four slightly different versions of this conversation. First there are the particulars to the statement of claim where the substance of the conversation is set out. The particulars read: "During the course of that meeting (that is the meeting on 30 May) referred (sic) was made by Tremback to the fact that Furst was Goldberg's daughter. Harpur asked Tremback whether there was any potential involvement of the Goldberg estate. Tremback said words to the effect that the property was not connected to the Goldberg estate. Harpur said he did not want any possible dispute about who had an interest in the property. Tremback said words to the effect that he understood but it was not a problem." Then, in an affidavit sworn on 7 December 1992, Mr Harpur deposed: "I asked Mr Tremback whether the Goldberg estate had any involvement in the property. Mr Tremback replied 'no - its not connected to the Goldberg estate. Debbie's his daughter, but she isn't bankrupted (sic)'. I said 'OK - just understand I don't want any possible dispute about who has an interest in the property' to which Mr Tremback 'It's not a problem'." In a later affidavit sworn by Mr Harpur on 26 April 1993 the relevant conversation is described in the following way: "I enquired of Mr Tremback whether Mr Goldberg or the official trustee of the bankrupt estate of Mr Goldberg had any interest in or involvement in the property. Mr Tremback replied: 'No - it is not connected to the Goldberg estate. Debbie is his daughter but she isn't bankrupt.' I said: 'Okay - just understand I don't want any possible dispute about who has an interest in the property.'" At the hearing Mr Harpur gave the following evidence-in-chief about the conversation: Q What did you say? A I asked him whether the Goldberg estate had any interest in the property. That's my memory of what I asked him. Q And what did Mr Tremback say? A He said: 'No'. He was it wasn't connected and he said that Deborah was Abraham Goldberg's daughter, but she wasn't bankrupt. Q Right. And did you say anything in response to that? A I did say something in response. I just said that I didn't want any dispute about the property. Q Now was that matter discussed again during the meeting? A It came up in another context completely. It came up much later in the meeting when we were dealing with the clauses that related to the - what things needed to be covered to ensure I didn't get disputes with builders or, in those days, there was often a problem with trade unions. You'd get a situation where someone who looked like a builder - some contractor would not be paid and the client would be seeking not to pay him. And what would happen is that the union would come along and block the jobs that you couldn't get anyone else to complete it or anything. Now the last thing I wanted was when I started work and started developing the property, the last thing I wanted was for a union to come flying along and say 'Right, Mr Harpur, all these unpaid accounts, we want you to pay them. Don't worry about the law on this, if you don't pay them you won't build anything.' And that what I didn't want to happen. So in that context I said 'Now I just don't want to be tied up in any sort of argument over this property'. And at that stage, including - I asked again about the - whether the Goldberg estate had any relevance to the matter, I can't remember the exact words. I was told that I - again words to the effect that it had nothing to do with the Goldberg estate. Q When you say 'I was told', by whom were you so told. A By Stan Tremback." For his part Mr Tremback denies having made any statement to the effect that Mr Goldberg or Mr Goldberg's estate had no interest in or involvement with the property. He said that at the meeting Mr Harpur did not ask whether Mr Goldberg or Mr Goldberg's estate had any interest in the property. The two estate agents who were present at the meeting were called to give evidence. Each of them had previously sworn affidavits setting out their recollection of what was said at the meeting. In his first affidavit Mr Morley deposed that he could not recall any discussion between Mr Harpur and Mr Tremback concerning the involvement of Mr Goldberg's estate in the property. In a later affidavit Mr Morley deposed that in his earlier affidavit he had intended to say that no such discussion had taken place. He confirmed this in his oral evidence. The evidence of Mr Dyason, that is both the evidence given by affidavit and his oral evidence, was to the effect that he could not recall whether the discussion had taken place but tended to the view that it had not. Subsequently, when the terms were finalised, the contract was signed by Mr Tremback as the attorney of Ms Furst and by Mr Harpur on behalf of Valoutin. Mr Harpur also signed a guarantee by which he guaranteed the performance by Valoutin of its obligations under the contract. The relevant provisions of the contract are as follows. The purchase price was $4.1 million payable by a deposit of $1 million of which $10,000 was payable on the signing of the contract and the balance was payable by 29 November 1991. The residue of the purchase price was payable on 30 May 1993. Valoutin agreed to authorise R T Edgar to sell a property that it owned in Mathoura Road Toorak for a price of not less than $850,000 with settlement to occur before 29 November 1991. The net proceeds from the sale of the Mathoura Road property were to be applied to reduce the balance of the deposit that was payable under the contract. Valoutin was entitled to possession of the Orrong Road property upon acceptance of title and payment of the full deposit. The purchaser delivered requisitions on title on 12 June. One requisition (requisition 2(c)) enquired whether any person either in law or equity had a claim or interest in the Orrong Road property. The requisitions were answered on 24 June 1991 and the answer to requisition 2(c) was: "Not to the vendor's knowledge". It was part of the applicants' case that this answer was untrue. Around June Mr Harpur became concerned that Valoutin may not be able to meet its obligations under the contract. On 27 June 1991 Harpur & Co wrote to Tremback Naughton as follows: "I wish to advise that our client Mr Paul Harpur has been unable to persuade the Directors of Valoutin Pty Ltd to enter into the Contract for the purchase of the above property. Our client Mr Harpur very much regrets that he has been unable to persuade the Directors to enter into the Contract but unfortunately that is the position at this time." The clear meaning of the letter was that Valoutin was not bound to the contract because it had not been made with the authority of its directors. This was a deception. Mr Harpur controlled Valoutin and had the authority to enter into the contract on its behalf. Moreover, by his own admission, Mr Harpur did not doubt that a binding contract had been made. Immediately after the receipt of this letter Mr Tremback conducted a search of the public records of Valoutin and discovered that its directors were Roy Stafford Casper and Finlay Edmond Davis. Mr Davis is a solicitor and a friend of Mr Harper. Notwithstanding that Mr Harper knew that there was a binding contract in existence he was able to take advantage of the doubt that he had created to negotiate more favourable terms of the contract. The following are the variations that were agreed. Valoutin was given the option of paying the deposit on 30 May 1992. If it exercised that option the amount of the deposit and the amount of the purchase price would be increased by $25,000. The balance of the purchase price would be payable by an instalment of $3,095,000 to be paid on 30 May 1993 with the balance of purchase price namely $5,000 to be paid on 30 May 1997. There was a right of earlier payment at a discount. It was also agreed that the directors of Valoutin would acknowledge the authority of Mr Harpur to enter into the contract and that the contract would be executed under the common seal of Valoutin in the presence of its directors and then exchanged. The contract was exchanged in accordance with this agreement and a deed that recorded the variations was executed. One result of the variations was that the contract became a terms contract and regulated by the provisions of the Sale of Land Act 1962 (Vic). Mr Tremback formed the opinion that s 6(4) of the Sale of Land Act now required the vendor to discharge the mortgage in favour of CK Securities to ensure that the contract could not be avoided by Valoutin. He wrote to Arnold Bloch Leibler, who were now acting on behalf of CK Securities, with the request that CK Securities discharge the mortgage and take an assignment of the vendor's rights under the contract as a substitute security for the $5 million loan. This was agreed and on about 11 October 1991 the mortgage was discharged and the contract assigned to CK Securities as trustee for Accountable. Mr Harpur was given notice of the assignment. By this time Valoutin had sold the Mathoura Road property and the settlement of that sale was due to take place on 14 October 1991. I have already mentioned that the contract provided that the net proceeds of the sale of the Mathoura Road property were to be paid to Ms Furst on account of the deposit. The contract also provided that if Ms Furst received at least $500,000 from the sale of the Mathoura Road property Valoutin would be entitled to occupy the Orrong Road property as a licensee. On the settlement of the Mathoura Road property Ms Furst did receive $500,000 out of the proceeds of sale. Accordingly, Valoutin was given possession of the Orrong Road property and Mr Harpur and his family moved into the property at that time. The balance of the deposit payable under the contract of sale was $490,000. This was due to be paid on 29 November 1991 or at Valoutin's option on 30 May 1992 in which case the deposit would be increased to $515,000. Valoutin elected to pay the deposit on 30 May 1992. The next important event occurred in March 1992. Mr Davis read a newspaper article concerning the collapse of the Goldberg group and Mr Goldberg's subsequent bankruptcy. Over dinner one night he discussed this article with Mr Harpur and suggested to him the possibility that the trustee of Mr Goldberg's estate might have a claim over the Orrong Road property. Mr Harpur advised Mr Davis that Ms Furst had assigned her interest under the contract to CK Securities on trust for Accountable and it was agreed that searches of those companies would be undertaken to ascertain who "stood behind" or "controlled" them. By 15 May 1992 Mr Harpur's enquiries had revealed that Accountable was incorporated in the United Kingdom and had little capital and was earning a small income. Mr Harpur formed the view that Accountable was a "UK non-resident company" that received favourable treatment under the United Kingdom tax laws. He suspected that Mr Goldberg was in control of both Accountable and CK Securities. Then on 26 May 1992 Mr Harpur received a telephone call from Mr Christopher Price of KPMG Peat Marwick. Mr Price told Mr Harpur that he had been retained by the trustee of Mr Goldberg's estate, that the trustee believed that the Orrong Road property formed part of the estate and that the trustee would be making a claim for the property or for the money that was payable under the contract with Valoutin. Later that day Mr Harpur received a letter from the trustee seeking answers to specific questions in relation to the purchase of the property by Valoutin. Valoutin was due to pay the balance of the deposit on 30 May 1992. For some weeks during the latter part of May Mr Tremback had made many unsuccessful attempts to speak to Mr Harpur about the payment of the balance of the deposit. Mr Harpur had been avoiding these calls. At that time Valoutin did not have the funds to make the payment. Mr Tremback suspected this to be the case and on 27 May 1992 wrote to Mr Harpur asking whether this was the reason why Mr Harper was avoiding him. Mr Tremback wrote that if settlement did not take place on 1 June 1992 (30 May being a Saturday) the contract would be rescinded. On the morning of 28 May 1992 Mr Harpur met with Mr Tremback. Mr Harpur told Mr Tremback that Valoutin could only pay $200,000 of the $515,000 due under the contract. Mr Tremback asked Mr Harpur to write a letter explaining why payment in full could not be made and setting out a proposal for payment. Mr Harper also raised with Mr Tremback the letter he had received from the trustee. He produced that letter to Mr Tremback. Mr Tremback informed Mr Harper that the trustee had made similar enquiries of him and he told Mr Harpur to be open in his answers to the questions he had been asked. Mr Tremback mentioned that he was sceptical about the trustee's claim. There is a dispute whether Mr Tremback also informed Mr Harpur that he, Mr Tremback, was of the view that neither Mr Goldberg nor the trustee had any interest in the property. Mr Harpur asserts this is what he was told by Mr Tremback and Mr Tremback denies making the statement. I am inclined to the view that Mr Tremback did not make the statement attributed to him. Such a statement would be inconsistent with his statement that he was sceptical about the trustee's claim. However, what is not in dispute is that during the course of the meeting Mr Harpur made no reference to the representation alleged to have been made by Mr Tremback in May of the previous year. If the representation had been made I find it very surprising that Mr Harpur did not mention of it. Even before his conversation with Mr Price, Mr Harpur had suspected that Mr Goldberg had some interest in the property, perhaps through Accountable. When Mr Price informed Mr Harpur that the trustee claimed the property to be part of Mr Goldberg's estate the representation, if made, would be demonstrably untrue. If Mr Tremback had given an assurance to Mr Harpur during the course of the meeting that the trustee had no interest in the property that assurance would not satisfy an experienced solicitor or indeed an experienced businessman that the trustee's claim was not a good one. Mr Harpur did not know the facts upon which the trustee was relying to assert his interest. He did not ask about nor was he told of any facts that would show that the trustee had no interest. There is one other aspect of Mr Harpur's account of the meeting which is troubling. He swore in his affidavit that he told Mr Tremback that he would not make any further payments under the contract unless he received a written assurance from the trustee that Mr Goldberg's estate had no interest in the property. I doubt whether this is so. Later on Mr Harpur did require such an assurance. But he did so on the advice of Mr Davis and Mr Davis did not give that advice until Valoutin was in a position to pay the balance of the deposit. Further, in an answer to a question by me Mr Harpur conceded that he had not asked for this assurance before he wrote the letter which Mr Tremback had requested. Immediately following the meeting Mr Harpur wrote a "without prejudice" letter to Mr Tremback in which he explained why Valoutin did not have the funds to pay the balance of the deposit. The letter proposed that Valoutin would pay $200,000 in lieu of the amount due and that it would pay the balance of the deposit together with interest at the rate of ten per cent per annum when the residue of the purchase price was due for payment. The letter concluded with the following sentence: "Would you kindly advise whether your client is prepared to agree to this variation of the above arrangements". Two days later, on a Saturday, Mr Harpur wrote to Mr Tremback referring to the letter that Mr Harpur had received from the trustee and to the assignment by Ms Furst to CK Securities of her interest under the contract. The letter then continued: "As a consequence of these events and the actions of your client we have substantial concerns about your client's ability to make title to the above property and the transactions with Accountable Ltd. In order to satisfy our client's concerns and enable it to make the next instalment payment we will require a letter from the Official Receiver confirming that he has no claim whatsoever against the above title and either prove that Accountable Ltd is an Australian resident or in the event that it is not an Australian resident, proof that your client or Accountable Ltd have obtained the necessary approvals to enable the transaction to be completed by our client without it having any exposure to criminal prosecution." There are two comments that should be made about this paragraph. First, the two requirements imposed by Mr Harpur, even if properly made, were unlikely to be satisfied by the vendor and Mr Harpur knew this to be the case. Secondly, and more importantly, the letter was written with a view to facilitating a rescission of the contract by Valoutin on the basis that the vendor could not make good title to the land sold and yet again no mention was made of the alleged representation by Mr Tremback. If the representation had been made this letter was an occasion where it would be expected that reference would have been made to it. By letter dated 1 June 1992 Mr Tremback rejected the request to provide a letter from the Treasurer saying it was "pure nonsense". He asserted that the position of Accountable was irrelevant because the assignment to CK Securities was an assignment to a resident company. He then put an offer that Ms Furst would accept $200,000 on the basis that she reserved her rights under the contract for the non payment of the balance of the deposit. No doubt realising that this offer would inevitably be rejected, on 3 June 1992 Mr Tremback put another offer to Mr Harpur namely that Valoutin should immediately pay $200,000 on account of the deposit and pay the balance of the deposit with interest at the rate of ten per cent per annum on 30 November 1992. The letter containing this offer gave Valoutin until 4 pm on 4 June 1992 to accept it. On 4 June 1992 Mr Harpur spoke with Mr Tremback. He told Mr Tremback that he wished to examine the offer and Valoutin's ability to meet it. He asked that the service of any notice of default be deferred for one week. The next communication between the two solicitors occurred on 18 June 1992 when Mr Harpur sent a letter by facsimile transmission to Mr Tremback advising that Valoutin would tender the balance of the deposit at 2 pm that afternoon in exchange for a release of all claims against the land by the trustee and proof of approvals to the assignment to CK Securities under the Foreign Takeovers Act and the Banking Foreign Exchange Regulations. The letter made no mention of the offer that Mr Harpur had said he wished to consider. Thus the letter constituted a rejection of that offer. Later on 18 June 1992 Mr Harpur and Mr Davis attended at Mr Tremback's office to tender the balance of the deposit by three bank cheques. They were told by Mr Tremback to go to Arnold Bloch Leibler, who acted for the assignee, CK Securities, and tender the deposit to that firm. Mr Davis then went unannounced to the offices of Arnold Bloch Leibler. He asked to see Mr Paul Chiappi, who he knew to be one of the solicitors acting on behalf of CK Securities. Mr Chiappi was out of the office. Mr Davis then asked to see Mr Phillip Chester who also acted on behalf of C K Securities but Mr Chester was in conference with another client. Finally, Mr Davis asked to see Mr Chiappi's secretary. When they met Mr Davis asked the secretary to provide him with the release and the proof of approvals that he had asked for in his letter of 18 June or an undertaking from Arnold Bloch Leibler to the same effect in exchange for the settlement cheques. The secretary was unable to produce the documents so Mr Davis left taking the settlement cheques with him. Later that same day a notice of default was served upon Valoutin. The notice provided that unless the deposit was paid to the vendor within fourteen days the contract would be rescinded. Valoutin did not comply with the notice and on 8 July 1992 Mr Tremback wrote to Mr Harpur advising him that the contract was now rescinded and demanding possession of the property. On 10 July 1992 Mr Davis telephoned Mr Tremback. There are conflicting versions of what was said during the course of this conversation. According to Mr Tremback he was told that Mr Davis could not obtain instructions from Mr Harpur who was then on holidays in Queensland and he needed a little time "to sort things out". Mr Tremback says he was also told that Mr Davis was carrying out an investigation into who owned the property. The evidence of Mr Tremback is supported by a file note of the conversation he made at the time. According to Mr Davis, Mr Tremback said that he had known the Fursts for many years and Mr Goldberg had no interest in the property. This comment is not recorded in Mr Tremback's file note and Mr Davis did not produce one. In cross-examination Mr Davis said that the topic of the letter from the trustee had been raised (again there is no mention of this in Mr Tremback's file note) and it was in that context that Mr Tremback said that there was no need for any concern. I am left with a degree of uncertainty about what was in fact said during this discussion. The possibility that Mr Tremback asserted that Mr Goldberg had no interest in the property, perhaps in an effort to have Valoutin complete the contract, is of significance because it attributes to him the same statement that Mr Harpur says was made in May 1991. But it is unlikely that Mr Tremback made the statement on this occasion. First, he knew little if anything about the circumstances in which the D L Furst Family Trust came to be the beneficial owner of the property. It is not suggested that he obtained any instructions from Mr Goldberg or Mr Durlacher that would have enabled Mr Tremback to express any opinion on the point. It would be unusual to say the least for a solicitor to assert the truth of a state of affairs about which he knew nothing. Second, Mr Tremback had little experience of bankruptcy law and it would be surprising if he would express an opinion about the rights of the trustee in bankruptcy in those circumstances. Third, Mr Tremback was aware that the trustee in bankruptcy had claimed an interest in the property and it would be surprising for Mr Tremback, in effect, to say that the trustee's claim was baseless when he did not know the facts upon which the claim was based. Finally, there is Mr Tremback's letter of 1 June 1992 where he answered Mr Harpur's allegation that the vendor could not make good title to the Orrong Road property. In that letter Mr Tremback had written: "If (and we do not admit or agree that) the Official Receiver is entitled to a claim, it is entitled to claim settlement proceeds and hence your concerns as to a claim (which presumably relate to title) are unfounded and with all due respect, not justifiable at law." Whether or not it was correct to say that the trustee in bankruptcy was only entitled to the settlement proceeds the fact is that by this letter Mr Tremback recognised the possibility that the trustee in bankruptcy had a claim over the property. It is not credible that Mr Tremback would take a fundamentally different position about the validity of the trustee's claim a few days later. In the result I do not accept that Mr Tremback made the statement attributed to him by Mr Davis. It is possible, and indeed likely, that Mr Tremback did express scepticism about the validity of the trustee's claim to recover the property and thus defeat the purchaser's rights under the contract. But the view that I have formed is that any statement Mr Tremback did make did not go beyond what he had written in his letter of 1 June. The next relevant event occurred on 17 July 1992. On that day, on the ex parte application of the Official Receiver as trustee of the estate of Mr Goldberg, the Federal Court made the following orders, among others:

That until further order the firstnamed respondent, Deborah Lea Furst, by herself her servants and agents be and she is hereby restrained from transferring encumbering charging or dealing with the [Orrong Road] property or any interest therein; 2. That until further order the firstnamed respondent Deborah Lea Furst, by herself her servants and agents be and she is hereby restrained from assigning encumbering charging or dealing with any of her right title and interest in the terms contract dated 30 May 1991 for the sale of the said property to [Valoutin]; 3. That until further order the firstnamed respondent, Deborah Lea Furst, by herself her servants and agents be and she is hereby restrained from receiving any moneys payable by [Valoutin] pursuant to the said contract; 4. That until further order [Valoutin] by itself its servants and agents be and it is hereby restrained from transferring encumbering charging or dealing with the said property or any interest therein; 5. That until further order [Valoutin] by itself its servants and agents be and it is hereby restrained from paying any moneys payable by it pursuant to the said contract to the firstnamed respondent or to the fourthnamed respondent [CK Securities] or to any person on behalf of either of those respondents; Shortly thereafter Mr Davis and Mr Harpur read the papers that were filed in support of the application. Mr Davis then wrote to Mr Tremback saying that those papers confirmed that the vendor was not able to make good title to the Orrong Road property. The narrative ends with a letter of 28 July 1992 written by Mr Davis to Mr Tremback. Here, for the first time, it is alleged that Mr Tremback had made a false representation that induced the vendor to enter into the contract. This is what Mr Davis wrote: "I am instructed that prior to our respective clients entering into the contract of sale in respect of the property, you on behalf of the vendor, Ms D L Furst, represented to my client, Valoutin Pty Ltd (Valoutin), that Mr Abraham Goldberg had nothing to do with and did not hold any interest in the property. As is now clear, the representation referred to above was false. In the circumstances, Valoutin is entitled to rescind the contract of sale on the basis of your misrepresentation. Moreover, Valoutin is entitled to an independent cause of action against you in, inter alia misrepresentation at common law and pursuant to the provisions of the Fair Trading Act 1985 (Vic)." So far I have left unresolved whether Mr Tremback made the representation attributed to him. Speaking strictly I can dispose of the case without ever doing so. In the first place, for the reasons already discussed and for reasons that I will turn to shortly, if the representation was made it was not untrue: neither Mr Goldberg nor his bankrupt estate had any interest in the property. In the second place if Mr Goldberg or his bankrupt estate did have an interest in the property Valoutin could avoid the contract of sale and recover the deposit paid whether or not the representation was made. The reason is that, in that circumstance, Ms Furst would not be able to transfer to Valoutin an unencumbered interest in the Orrong Road property and in accordance with established principles the contract could be avoided by Valoutin and it would be entitled to have the deposit returned to it. It is true that if a false representation was made Valoutin could also recover damages for the loss of its bargain whereas it could not do so merely for the failure by Ms Furst to transfer a good title: see Bain v Fothergill (1874) 7HL 158. But in this case no damages are sought presumably because none were suffered. Nevertheless, there are good reasons why I should resolve the matter. A large part of the hearing was taken up by this issue. If an appellate court takes a different view of the applicable legal principles leaving the case to be resolved on the claim for misrepresentation and I have not determined the issue of fact there would need to be a rehearing and that would impose considerable financial hardship on all of the parties. The Court should be astute to avoid that result whenever possible. I should begin by saying that I have not found it easy to deal with a situation where two professional men have given conflicting accounts of what was said during the course of their meeting. Having listened to the evidence and having read the transcript of it on more than one occasion I am satisfied that Mr Tremback did not say to Mr Harpur that Mr Goldberg had no interest in or involvement with the Orrong Road property and that he did not say that the trustee of Mr Goldberg's estate had no interest in the property. There are a number of factors that have led me to this conclusion which I will now set out. First and foremost I found Mr Tremback to be a credible witness. It is true that Mr Tremback was not subjected to a rigorous cross-examination to test his credit. The reason for this was that counsel for the applicants were required to call Mr Tremback as part of the applicants' case. Nevertheless, my observation of Mr Tremback while he was giving his evidence left me with a favourable impression of him. Of course he had an interest to deny that he had made a false representation to Mr Harpur. When this proceeding was commenced Mr Tremback was named as a respondent and he was sued for fraud. The claim against him was only discontinued shortly before the hearing commenced. Thus I approach his evidence with some caution. Even so, it appeared to me that Mr Tremback was an honest witness whose evidence should be accepted. Secondly, I regard it as most unlikely that Mr Tremback made the statements attributed to him. While Mr Tremback knew Mr Goldberg he had never acted on Mr Goldberg's behalf. Mr Tremback knew little if anything about the affairs of Mr Goldberg and thus was not in a position to proffer a view about whether Mr Goldberg or his bankrupt estate had an interest in the property. Further, the occasion did not arise for Mr Tremback to take instructions on this issue from Mr Goldberg. I find it hard to believe that Tremback, a solicitor, would warrant that Mr Goldberg had no interest in the property and would warrant that Mr Goldberg's bankrupt estate had no interest in the property when Mr Tremback knew nothing about Mr Goldberg's dealings with the property since its acquisition in 1987. Next, there is the evidence of the two estate agents that confirm Mr Tremback's recollection of the conversation. I accept that the evidence of these agents is only of limited assistance. Mr Dyason could not positively say that Mr Tremback did not make the representation. Mr Morling was rather more emphatic, although his evidence did change a little over a period of time. It is also true to say that neither agent had any real interest in much of what was said during the course of the discussions about the contract and were not likely to be paying much attention to what was said. Even so, I think that at least one of the agents would have recalled the discussion if it had taken place. Then, there are a number of aspects of the conduct and evidence of Mr Harpur that I find unsatisfactory and which tell against acceptance of his account of the conversation. It is clear that Mr Harpur is a person who is prepared to act in a deceptive manner to advantage his position. Here I refer to the letter written by Mr Harpur for the purpose of having Mr Tremback believe that Mr Harpur did not have the authority to bind Valoutin to the contract. Turning to the various accounts of the conversation given by Mr Harpur it will be noticed that there is an important change in what was alleged against Mr Tremback. In the first three accounts of the conversation (each given before the trial) it was said that Mr Tremback made the representation on only one occasion during the meeting on 20 May 1991. However, when giving his evidence at the trial Mr Harpur said that Mr Tremback had repeated the representation during the course of the discussions about the extension of the warranty provided in the contract of sale. I have no doubt that Mr Harpur said this to undermine a submission that Mr Harpur was astute to ensure that all warranties and representations that had been made to him were recorded in the contract and that the absence of a warranty along the lines of the alleged representation is evidence from which it could be inferred that the representation had not been made. If the representation had been repeated when the warranty was being discussed Mr Harpur might be forgiven for not insisting that it be included in the contract. I regard this part of the evidence as an indication that Mr Harpur was prepared to give untruthful evidence if it served his cause. Further, the failure by Mr Harpur to ask for the representation to be incorporated into the contract as a warranty tends to suggest that the representation was not made. There will of course be many occasions where such a conclusion would not be open. But it is open in this case in my opinion. Mr Harpur and Mr Tremback spent many hours on 30 May 1991 going over the draft contract to ensure that it contained all of the terms, conditions and warranties that each party thought it was in that party's interest to include. Further, Mr Harpur noticed that the contract contained a "no warranty" clause. I do not believe that Mr Harpur would rely on any oral representation to enter into the contract in those circumstances. Rather I think the position to be that if a representation had been made Mr Harpur would have insisted on it being incorporated into the contract. Finally, there is the fact that if the representation had been made there were a number of occasions when it would be expected that Mr Harpur would have complained about its falsity and yet no such complaint was made. I have already mentioned the two most likely occasions. The first was when Mr Price telephoned Mr Harpur and informed him that the trustee in bankruptcy was claiming an interest in the Orrong Road property. No reasonable explanation was given why Mr Harpur did not point out to Mr Tremback that he had made a representation to a contrary effect and that representation now appeared to be a false one. The second occasion was when Mr Harpur wrote his letter of 30 May 1992 in preparation for avoiding the contract. At the time Mr Harpur did not have the funds to pay the deposit. He was laying the foundation for an argument that Valoutin was entitled to terminate the contract. If the representation had been made this was the time to complain about it. Yet again no complaint was made. Taking all of these matters into account I am left with the firm view that Mr Tremback did not make the representation he has been accused of making. As I have said it gives me no pleasure to reject the evidence of a long standing member of the legal profession. But on the state of the evidence as it is before me, reject it I must. In summary, the position reached thus far is as follows. Mr Goldberg ceased to have any equitable interest in the Orrong Road property on the completion of its purchase by Sellheim on 1 December 1987. It follows that when Mr Goldberg became a bankrupt on 17 July 1990 his trustee in bankruptcy acquired no interest in the property. Further, Mr Tremback did not represent to Mr Harpur in order to induce Valoutin to enter into the contract to purchase the property and in order to induce Mr Harpur to enter into the guarantee that neither Mr Goldberg nor his bankrupt estate had any interest in or involvement with the property. If, contrary to this last mentioned conclusion, such a representation was made, whether orally or in the answers to requisitions, it was true in substance. Now, it is necessary to consider one other basis upon which the applicants rely to support the contention that Ms Furst did not have good title to the Orrong Road property when it was sold to Valoutin. The argument is that if Mr Goldberg did dispose of his equitable interest in the property in 1987, a finding that I have made, that disposition is voidable at the instance of his trustee in bankruptcy under either s 120 or s 121 of the Bankruptcy Act 1966 (Cth). Section 120 of the Bankruptcy Act relevantly provides that a settlement of property is void as against a trustee in bankruptcy if the settlor became a bankrupt and the settlement took place within five years before the commencement of the bankruptcy unless the party claiming under the settlement can prove (and the onus is on him) that the settlor was able to pay his debts without recourse to the settled property. By s 121 a fraudulent conveyance made to avoid the debts of others is void as against the trustee in bankruptcy. It may be assumed that in 1987 Mr Goldberg was unable to pay his debts although this is far from clear on the evidence. Even if that assumption is made the equitable interest obtained by Valoutin when it entered into the contract is not impeachable by the trustee in bankruptcy. This follows from two propositions each of which finds support in the High Court. The first is that when each of ss 120 and 121 uses the word "void" in relation to the transaction dealt with by each section in truth that that transaction is voidable only. Hence, the disponee from the person who becomes a bankrupt obtains a defeasible title to the assigned property. The second proposition is that unless the trustee in bankruptcy exercises his right to avoid the settlement or disposition (as the case requires) before the disponee passes title to it by sale, the person dealing with the disponee obtains a good title. The reason is that when the sale is made it is not wrongful; if defeasance occurs subsequently it cannot relate back so as to make the sale by the disponee unlawful: see generally Brady v Stapleton (1952) 88 CLR 322; see also Baker & Ors v Official Trustee in Bankruptcy (unreported, Full Court, Federal Court, 3 August 1995). In this case the trustee in bankruptcy took no step to avoid any disposition by Mr Goldberg of his equitable interest in the Orrong Road property before Ms Furst entered into the contract of sale with Valoutin. In that event neither s 120 nor s 121 could confer on the trustee in bankruptcy any proprietary right over the Orrong Road property although, of course, the trustee would be entitled to recover the proceeds of the sale, if in traceable form, if s 120 or s 121 had application to the facts of the case. Ordinarily, on the basis of the conclusions reached so far, the applicants' claims should be dismissed. But the position is not so straightforward. The applicants still maintain that Valoutin was entitled to avoid the contract of sale. The basis for this contention is that the title of Ms Furst was sufficiently doubtful that it could not be forced upon Valoutin. The applicants also contend that Valoutin was not required to wait until the time fixed for the completion of the contract, namely 30 May 1997, to avoid the contract but that it was entitled to take that step as soon as it discovered the doubtful nature of Ms Furst's title. In the consideration of the applicants' contentions it is necessary to keep distinct two different concepts: the rights of a purchaser when his vendor does not have title to the land sold when the contract is made and the rights of a purchaser when his vendor has a doubtful title to the land sold when the contract is made. It will be seen that those rights are different and the differences have important consequences to the outcome of this case. The principal obligation of a vendor of land is to make good title, that is an indefeasible title, to the land on completion: Brickles v Snell [1916] 2 AC 599. The vendor need not have good title when the contract of sale is made; however when the time for completion arises he must be able to convey or transfer the property to the purchaser or compel a conveyance or transfer of it by some other person: Bell v Scott (1922) 30 CLR 387 at 392. The proposition that a vendor need not have good title when the contract is made is subject to the rule laid down in Forrer v Nash (1865) 55 ER 858, namely that "when a person sells property which he is neither able to convey himself nor has the power to compel a conveyance of it from any other person, the purchaser, as soon as he finds that to be the case, may say, "I will have nothing to do with it." The purchaser is not bound to wait to see whether the vendor can induce some third person (who has the power) to join in making a good title to the property sold.": Forrer at 860 per Romilly MR. To this rule there must be added the qualification that this right of repudiation (the meaning of which will be discussed shortly) must be exercised, if at all, as soon as the defect in title is discovered by the purchaser. If the purchaser still treats the contract as subsisting then he will have lost the right to repudiate it: Halkett v Earl of Dudley [1907] 1 Ch 590 at 597; Bell v Scott (1921 21 SR(NSW) 706 at 711 (subsequently affirmed by the High Court at 30 CLR 387); Haynes v Hirst (1927) 27 SR(NSW) 480 at 485-486. The effect of this is not that the purchaser becomes bound to accept a defective title but that the purchaser must allow the vendor to remedy the defect before settlement; that is the vendor's obligation is to have good title only at completion: Walker v Public Trustee [1938] 38 SR(NSW) 662 at 668; Bell v Scott SR(NSW) at 711; Haynes v Hirst supra at 485; Manning v Turner [1957] 1 WLR 91. There is an outstanding controversy concerning the nature of the purchaser's right to repudiate the contract. In Halkett v Early of Dudley [1907] 1 Ch 590 at 596-597 Parker J expressed the view that it only applied as a bar to relief by way of specific performance at the vendor's instance. His Lordship said: "I do not see why, in principle, he should not be able to recover damages for a breach of contract if the purchaser failed to complete at the date fixed for completion. If this be so, the right of repudiation in question must be distinguished from the common law right of rescission, and arises out of that want of mutuality which, unless waived, is generally fatal to relief by way of specific performance." See also Procter v Pugh [1921] 2 Ch 256. Mr Williams in his work on Vendor and Purchaser (3rd ed) vol 1 at 155-158 was very critical of the proposition that a vendor who has good title by completion can recover damages from a purchaser who has justifiably repudiated the contract before that day. He wrote that if, in reliance on the rule in Forrer v Nash, a purchaser repudiates the contract "the entire contract and every part of it is avoided." These competing views were considered by Harman J in Harold Elliott and H Elliott (Builders) Ltd v Pierson [1948] Ch 452. His Lordship expressed a preference for the views of Parker J in Halkett and declared at 456 that "the field remains in possession of the judiciary." The rejection of the views expressed by Mr Williams was short lived. In 1980 the issue received the attention of Sir Robert Megarry VC in Pips (Leisure Productions) Ltd v Walton [1980] 43 P&CR 415. In that case Megarry VC referred to the opinion of Parker J and said at 424: "I find some difficulty in the concept of a right of rescission which operates in equity but not at law as relieving the purchaser from specific performance, but leaving him exposed to an action for damages if the vendor obtains a proper title before the last day for completion. The contracts for the sale of land differ from most other contracts for sale in that they contemplate a period between contract and completion which will suffice, inter alia, for the investigation of title. If the day after the contract is made the vendor tells the purchaser that he, the vendor, has not title, but that he has hopes of getting title in time for completion, so that until he has got it he cannot deduce title, I cannot see much justice in telling the purchaser that he can rescind the contract forthwith so as to escape from specific performance, but that if he does so he will remain at risk of damages in case the vendor succeeds in obtaining a title in time ... The vendor is often said to be under a duty to disclose any latent defects in his title; and on this footing it would be strange if, having failed to disclose a complete but latent absence of any title at all, he were to be held able to recover damages if he obtains a title by the time for completion ... But however it is put, I would, despite some hesitation, in view of the state of the authorities, hold that upon discovering that a vendor has no title or power to convey what he has contracted to convey, the purchase may thereupon treat the contract as at an end, both at law and in equity." This position accords with decisions both in Australia and in New Zealand and should be regarded as the preferred view: see in Australia Dowling v Moore (1908) 9 SR(NSW) 31 and in New Zealand McDonald v Marson (1913) 33 NZLR 248 and Pearce v Stevens & Ors (1904) 24 NZLR 357. The ability of a purchaser to repudiate a contract of sale before completion is limited to the circumstance where the vendor does not have title or has a clearly defective title to the land sold: Bell v Scott, supra, at 395; Facey & Ors v Rawsthorne & Anor (1925) 35 CLR 566 at 583. If the vendor's title is a doubtful one the purchaser will only be able to repudiate the contract if the vendor cannot show good title at the time fixed for completion: Williams on Vendor and Purchaser, supra, at 520; Mitchell v Colgan [1922] VLR 372. In some cases the vendor will be under an obligation to make good title or show that he does not have a doubtful title before completion. Here I have in mind contracts of sale where possession is to be given to the purchaser before completion; that is before payment in full of the purchase price. Generally, in such a case, the vendor must show good title when possession is to be given for otherwise the purchaser will be at risk of eviction. In other words, an agreement to give possession means to give possession with a complete title previously shown: Tilley v Thomas [1867] 3 Ch App 61; Miller v Kavanagh [1932] VLR 391; Moss v Perpetual Trustees & Agency Co of New Zealand Ltd [1923] NZLR 264. The reason for referring to the obligation of a vendor where possession is to be given before settlement is that in the present case Ms Furst was required by the contract to give possession to Valoutin on 30 May 1992 in exchange for the payment of the balance of the deposit. Hence it was on that day that Ms Furst was required to show good title to the Orrong Road property. In this connection I have already decided that Ms Furst did have good title to the property. But in arriving at that decision it was necessary for me to resolve complex issues of law and disputed matters of fact. The question arises whether the fact that Ms Furst's title was resolved as a result of such an exercise is sufficient for Valoutin to say that Ms Furst's title was of such doubt as would permit it to avoid the contract in any event. It was the court of chancery that developed the rule that a purchaser was not required to accept a title that was doubtful; it did so in actions for specific performance brought by the vendor: see Pyrke v Waddingham (1852) 68 ER 813. The rule was that a court of equity would not compel a purchaser to accept a doubtful title although at law the court was obliged to decide whether the title was good: Boyman v Gutch (1831) 131 ER 147. In its initial formulation the rule was applied if the doubt about title arose in respect of a general point of law or if the doubt arose upon the construction of a particular instrument or if the doubt arose by reason of extrinsic circumstances which neither the court nor the purchaser had the means of satisfactorily investigating: see generally Pyrke at 816-7 but compare Mullings v Trinder (1870) 10 Eq 449 at 455 where Romilly MR expressed the view that where the validity of title depended upon extrinsic circumstances and the vendor was unable to prove his title that was a case of a defective and not a doubtful title. Later it came to be accepted that in the case of doubt on a point of general law it was the duty of the court to determine what the law was as much in proceedings between vendor and purchaser as in every other proceeding: Alexander v Mills (1870) 6 Ch App 124 at 131-132; Smith v Colbourne (1914) 2 Ch 533 at 541, 544-545. This duty was extended to doubt arising on the construction of a particular instrument by Johnson v Clarke [1928] Ch 847. Of course the court will not in every case determine questions of law upon which the validity of a title depends. There may well be exceptional circumstances where to do so would involve a significant risk to the purchaser such as would make it inequitable for the court to enforce a contract by specific performance and thus have the purchaser "buy a law suit": see eg In Re Roe and Eddie's Contract [1933] VLR 427 at 430; Wilson & Anor v Thomas [1958] 1 WLR 422 at 429. The position with regard to a title the validity of which depends upon extrinsic circumstances may be different. In MEPC Ltd v Christian-Edwards & Ors [1981] AC 205 this issue was considered by the House of Lords. The leading speech was delivered by Lord Russell. After referring to Johnson v Clarke, supra, and Smith v Colbourne, supra, his Lordship said at 220: "These two cases were concerned with a decision of the court on a question of law. But in my opinion their principle is to be applied also when the question whether a sufficiently good title has been shown depends on a conclusion or inference as to fact: and this appears from the statements of the law in Fry on Specific Performance, 6th ed (1921), paras 889, 890 and 891 and the authorities there cited. So that a mere possibility that a claimant to an encumbrance, not bound by the decision of the court in proceedings to which he was not a party, will involve the purchaser in future litigation will not, in an appropriate case, deter the court from determining that the title is good against the purchaser on a view of the facts before it. In my opinion if the facts and circumstances of the case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title shown." Two reasons have been given for the principle that a court of equity would not order specific performance to compel a purchaser to take a doubtful title to land. The first is applicable to a case of doubtful title however arising. It is that on a vendor and purchaser summons, where the issue most usually arises, or in proceedings commenced by writ, the court is not usually in a position to make a determination that binds the third party who might be interested in the land: see Cooper v Denne (1792) 34 ER 754. Hence the reference in the cases to the court's reluctance to make an order that will result in the purchaser buying a law suit; the law suit is the suit or potential suit with the third party. The second reason is applicable when the doubt depends upon extrinsic circumstances. It is the duty of the vendor to make good title to the land sold. In many circumstances it would be unfair and burdensome to a purchaser to cast on him the burden and expense of seeking evidence to deal with the question of his vendor's title. Most usually that evidence will be from persons who are strangers to the purchaser and there is no good reason why the matter should be litigated at the purchaser's expense and to his disadvantage: Wilson v Thomas, supra, at 431. An incident of this second reason is that there will be cases where the court cannot be confident that it has before it all the facts that are relevant to a proper adjudication of the validity of the vendor's title. It does not follow from the fact that a court will not order specific performance in the case of a doubtful title that the vendor is unable to enforce his contract at law. As long ago as 1791 it was said that a court of law must decide whether a title is good without regard to the equitable doctrine relating to doubtful title: see Cooper v Denne, supra; Boyman v Gutch (1831) 131 ER 147. This principle was affirmed in In re Scott and Alvarez's Contract [1895] 2 Ch 603 by a strong Court of Appeal comprising Lindley, Lopes and Rigby LLJ all of whom were of the view that the fact that the discretionary remedy of specific performance is refused does not affect the legal rights of the parties to the contract: see also Williams on Vendor and Purchaser, supra, vol 2 at 1036-1037. The result in such a case therefore is that the purchaser will not be entitled to recover his deposit and may be liable to make good any damages suffered by the vendor: see Nottingham Patent Brick and Tile Co v Butler (1886) 16 QBD 778. The obvious harshness of this rule has been modified by statute in many jurisdictions. In Victoria the relevant provision is s 49(2) of the Property Law Act 1958 (Vic) which confers a discretion on the court to order the return of a deposit even where the vendor has exercised his right to forfeit the deposit: see Zsadony v Pizer [1955] VLR 496 at 503; see also Kadissi v Jankovic [1987] VR 255 at 259 where cases to a contrary effect are mentioned. The present case is not a suit in equity; it is an action at law for the recovery of the deposit paid under the contract. In the action Valoutin does not ask for an order under s 49(2) of the Property Law Act so that the circumstances in which the court will exercise its discretion need not be considered. Being an action at law the rights of the parties must be ascertained by the applicable principles of law and they do not entitle Valoutin to rely upon the principles relating to doubtful title. Even if this had been a suit in equity I would not have held that Ms Furst's title to the Orrong Road property was sufficiently doubtful that Valoutin should not be compelled to accept it. I have already mentioned that one of the reasons why courts of equity developed the rule about doubtful title was that the court had no means of binding an adverse claimant if the court's opinion about the title turned out to be wrong. In this proceeding that problem would not have been encountered. When the proceeding was commenced the only possible adverse claimant, Mr Goldberg's trustee in bankruptcy, was made a respondent to the proceeding. As Higgins J recognised in Toohey v Gunther (1928) 41 CLR 181 at 208 that would overcome the principal reason for the rule by providing the foundation for the court to determine the true position and bind all interested parties to that determination. The fact that the claim against the trustee was discontinued before the hearing commenced cannot deny to the Court the duty to determine the matter. The second reason for the rule, namely that it would impose an unfair burden on the purchaser to find and adduce evidence to deal with the vendor's title, is also not applicable in this case. Here the purchaser, as one of the applicants, undertook that very task in the course of its attack on the title of Ms Furst and in support of its case for misrepresentation. It would be a most unsatisfactory state of affairs when the Court has found that Ms Furst did have a good title that Valoutin could shelter behind a submission that the title was nevertheless a doubtful one. The Court was required to resolve the validity of Ms Furst's title and, having found that she had a good title, that is an end of that matter in respect of all claims between the parties. In any case, I consider it most unlikely that there are other facts that might bear upon the validity of Ms Furst's title that are not presently before the Court. In that event I would have considered it to be the duty of the Court to resolve the matter one way or another even if the trustee in bankruptcy had not been a party to the proceeding. There is no reason in this case, exceptional or otherwise, that would entitle the Court to avoid that duty in my opinion. In the result the applicants' claims must be dismissed with costs. There remains to be considered the cross-claims that are brought by Ms Furst. She sues Valoutin for damages for breach of contract and seeks an order against Mr Harpur under the guarantee given by him for damages in the like amount. Ms Furst also seeks to recover damages for trespass against Valoutin and Mr Harpur for their wrongful occupation of the Orrong Road property since 8 July 1992 when she demanded possession of the property and possession was not given up. Both the claim for damages for breach of contract and the claim under the guarantee must succeed as a consequence of my finding that Valoutin was not entitled to avoid the contract. Indeed the contrary position was not argued. The only fact that I need to mention to understand how Ms Furst is able to maintain these claims in view of the fact that she had assigned her interest under the contract, including her rights under the guarantee, to CK Securities is that on 6 March 1996 CK Securities reassigned those rights to Ms Furst including any claim for damages for breach of contract and any claim for indemnity under the guarantee. The parties are in agreement that I should only enter judgment for damages to be assessed in the expectation that they will be able to reach agreement on the quantum of those damages. I will make that order reserving liberty to the parties to apply on notice for directions as to the assessment of those damages if agreement cannot be reached. This leaves the claim for damages for trespass. Two defences are raised to this claim. The first is that when Ms Furst gave notice of the assignment of her interest under the contract on 14 October 1991 that notice advised, mistakenly, that Ms Furst had "assigned the whole of her right, title and interest in and to the (contract of sale) and the (Orrong Road property) to CK Securities." The mistake is to be found in the description of the assignment. It was not an absolute assignment of her interest under the contract and her interest in the Orrong Road property but was an assignment by way of security only. Nevertheless, the applicants contend that because the notice of assignment misstated the nature of the assignment Ms Furst is prevented from suing for trespass. The argument is put this way: "How can you trespass against somebody who has told you that they do not own the land?" The answer to this argument is simple enough. Trespass is an injury to a possessory right and the proper plaintiff in an action of trespass is the person who is entitled to possession: Wallis v Hands [1893] 2 Ch 75. Further, apart from an estoppel, and none was alleged, even if the notice had informed the applicants that the person entitled to possession was CK Securities, that would not prevent Ms Furst from maintaining her claim. The second ground of defence is that Valoutin and Mr Harpur remained in possession of the Orrong Road property after July 1992 in accordance with an agreement, said to arise by way of implication, giving them permission to do so. The agreement is said to have come about because on 13 July 1992 Mr Davis wrote to Mr Tremback suggesting that the parties meet with a view to resolving the matters in dispute between them and that "as a show of bona fides ... if at such a meeting all matters in dispute are not able to be resolved to the satisfaction of both parties, then Mr Harpur and his family shall vacate (the Orrong Road property) remove all their chattels and deliver up the keys to the property to you personally by 5 p.m. on Monday 17 August, 1992" and Ms Furst did not object to this course. It is true that in certain circumstances an agreement between two parties may come about as a consequence of their conduct even in the absence of there being a specifically identifiable offer and a specifically identifiable acceptance of that offer: Gollin & Company Ltd v Karenlee Nominees Pty Ltd (1983)153 CLR 455: but compare Toyota Motor Corporation Australia Ltd & Anor v Ken Morgan Motors Pty Ltd & Ors (1994) 2 VR 106 esp at 178-179. But there is no agreement in this case. While Ms Furst did not repeat her request for possession after 8 July 1992 nothing that she said or did amounted to a concurrence that Valoutin and Mr Harpur could remain in the Orrong Road property. Her failure to respond to the letter of 13 July 1992 could hardly result in an agreement that Valoutin and Mr Harpur were entitled to remain in possession of the Orrong Road property indefinitely. In the result I will order that Ms Furst recover damages for trespass such damages to be assessed. As with the claim for damages for breach of contract the parties have requested that the quantification of these damages should not be undertaken by the Court at the present time because the parties are confident they will be able to reach agreement on the appropriate amount. If agreement is not reached the parties are at liberty to apply to the Court for further directions. Ms Furst is also entitled to have her costs of the cross-claim. I certify that this and the preceding fifty (50) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Alexander v Mills

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Judgment (10 paragraphs)

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Legislation Cited (7)

Cases Cited (17)