Federal Court of Australia|1995-11-15|Before: Finn J

Australian Securities Commission v As Nominees Limited, Ample Funds Limited, As Securities Pty Limited and Peter Grenfell Windsor [1995] FCA 1663 (15 November 1995)

AUSTRALIAN SECURITIES COMMISSION v AS NOMINEES LIMITED, AMPLE FUNDS LIMITED,

AS SECURITIES PTY LIMITED AND PETER GRENFELL WINDSOR

Corporations - Winding-up - just and equitable ground - Australian Securities Commission as applicant - petition based on public interest - trust and management companies - maintaining appropriate standards of conduct in the superannuation industry - investor protection - persistent breaches of trust, of fiduciary duty and of the Corporations Law - companies not insolvent.

Corporations - Receivers and Managers - Corporations Law s1323 - ASC investigation completed - no necessity for fraud - serious and persistent breaches of trust, of fiduciary duty and of the Corporations Law - investor protection - undertakings by respondent companies in lieu of an order inappropriate.

Corporations - Management and Administration - trust companies - director's duty of care in such companies - effect on of trustee's duty of caution.

Corporations - Management and Administration - Corporations Law s60 - deemed director - person according to whose direction or instruction the directors are accustomed to act - directions or instructions need not be formal or all-encompassing.

Corporations - trust companies - whether directors owe a duty of care to trust beneficiaries - whether directors as such are in a fiduciary relationship with trust beneficiaries.

Corporations - Management and Administration - duty to keep both minutes of board meetings and correct accounting records - Corporations Law ss258 and 289 - trust companies - significant trust decisions and investments not recorded.

Trusts and Trustees - Powers, Duties, Rights and Liabilities - duty of care and caution - prudent business person test - trust companies - higher standard for professional, corporate trustee.

Trusts and Trustees - Powers, Duties, Rights and Liabilities - related trusts - duty to consider the separate interests of each trust - inter- trust dealings.

Trusts and Trustees - Powers, Duties, Rights and Liabilities - trust funds of separate trusts - duty to bank separately - common bank account - use of trust funds for non-trust purposes.

Trusts and Trustees - superannuation trusts - investments - negative gearing - non-performing loans - loans without any or adequate or timely security - borrowing at up to twice Reserve Bank lending rates - imprudent investments.

Trusts and Trustees - breach of trust - partial decision making - acting in interests of a third party.

Trusts and Trustees - trust company - keeping of records - no

records kept of significant trustee decisions and investments.

Equity - fiduciary relationship - existence of - between trustees

of related trust invested in and the beneficiaries of the investing trust - between trust manager and trust beneficiaries - between directors of a trust company and trust beneficiaries.

Equity - fiduciary relationship - breach of fiduciary duty - transactions between related parties - loans to fiduciary - purchase of trust property - profit from a position of trust - conflict of duties - director of trust company acting as solicitor for third party in trust dealings - directors of group companies.

Equity - Barnes v Addy - liability for knowing assistance in a breach of fiduciary duty or trust - accessorial liability - directors of trust company and company's breaches of trust - for improvident investments - for reckless investments - manager procuring a breach of trust or fiduciary duty.

Contract - Vendor and Purchaser - sham agreement - contract subject to failed conditions precedent treated by vendor as effective - trust company as vendor - profit on sale booked to trusts, and trust and management fees charged - no effective contract found.

Evidence - Commonwealth Evidence Act 1995 - failure of a party and of a senior corporate officer to give evidence in civil proceedings - no explanation - drawing of Jones v Dunkell inferences unaffected by silence of the Evidence Act on this matter.

Corporations Law, s60(1)

Corporations Law, s232

Corporations Law, s258

Corporations Law, s266

Corporations Law, s289

Corporations Law, s461(k)

Corporations Law, s1323

Superannuation Industry (Supervision) Act 1993, ss3, 10

Superannuation Industry (Supervision) Act 1993, ss52(8),(9)

Superannuation Industry (Supervision) Act 1993, s97

Superannuation Industry (Supervision) Act 1993, s133

Australian Securities Commission Act 1989, s1(2)(g)

Australian Securities Commission Act 1989, s50

Re Attorney-General of Canada and Continental Trust Co (No2) (1986) 52 OR 2d

Australian Securities Commission v Corplan Nominees Pty Ltd, unreported decision of Drummond J of this Court, 29 April 1994

Barnes v Addy (1874) LR 9 Ch App 244

Bartlett v Barclays Trust Co Ltd (No 1) (1980) Ch 515

Charitable Corporations v Sutton [1742] EngR 111; (1742) 2 Atk 400; 26 ER 642

In Re Chemicals Plastics Ltd [1951] VicLawRp 18; (1951) VLR 136

Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373

Re Co-operative Development Funds of Australia Ltd (No3) (1978) 3 ACLR 437

Corporate Affairs Commission v ASC Timber Pty Ltd (1989) 7 ACLC 467

Corporate Affairs Commission (NSW) v Walker (1987) 11 ACLR 884

Daniels v Anderson (1995) 16 ACSR 607

Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337

Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609

Glandon Pty Ltd v Strata Consolidated Pty Ltd (1993) 11 ACSR 543

Harris v S (1976) 2 ACLR 51

Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41

Hurley v BGH Nominees Pty Ltd (1984) 10 ACLR 197

Ex p James [1803] EngR 536; (1803) 8 Ves 337; 32 ER 385

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

King v Talbot 40 NY 76 (1869)

Kokotovich Constructions Pty Ltd v Wallington [1995] NSWSC 54; (1995) 17 ACSR 478

Learoyd v Whiteley [1887] UKHL 1; (1887) 12 App Cas 727

Loch v John Blackwood Ltd (1924) AC 283

In re Lubin, Rosen and Associates Ltd (1975) 1 WLR 122

Manchester v Cleveland Trust Co 168 NE 2d 745 (1960)

Permanent Building Society v Wheeler (1994) 14 ACSR 109;

Powell and Thomas v Evan Jones and Co (1905) 1 KB 11

In re The Producers Real Estate and Finance Co Ltd [1936] VicLawRp 39; (1936) VLR 235

Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; (1995) 3 WLR 64

Sharrment Pty Ltd v Official Trustee [1988] FCA 179; (1988) 82 ALR 530

Shuster v North American Mortgage Loan Co 40 NE 2d 130 (1942)

Skinner v Trustees Executors and Agency Co Ltd (1901) 27 VLR 218

Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co

Speight v Gaunt (1883) 9 App Cas 1

Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597

Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1

Re Walter L Jacob and Co Ltd (1988) 5 BCC 244

Wan v McDonald [1992] FCA 4; (1992) 33 FCR 491

Wickstead v Browne (1992) 30 NSWLR 1

CANBERRA, 14; 16-17; 21-24, 28-30 August; 26-29 September, 3-5, 9-10 October 1995

Counsel for the applicant : R S McColl SC and

C M Erskine

Solicitors for the applicant : Jonathan Caddick, of

Australian Securities

Commission

Counsel for the respondent : S L Walmsley

Solicitors for the respondent : Bush, Burke and Company

THE COURT ORDERS THAT:

The applicant is directed to bring in short minutes of

orders by filing and serving draft minutes on or before

Friday 17 November 1995 for the winding up of the three

respondent companies.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

FINN J These are somewhat unusual proceedings. Their object is to secure the removal of trustees and managers of a number of superannuation and unit trusts. Yet in form they involve two applications under the Corporations Law, the one for the winding up of the three corporate respondents, the other (in the alternative) for the appointment of a receiver and manager of all of the property of the corporate respondents and of specified property of the individual respondent. There are good and proper reasons for the proceedings taking the form they have. But as will become apparent in these reasons, the need to view what are essentially trust law problems through the prism of corporations law is itself a complicating factor.

2. The Australian Securities Commission ("the ASC") is the applicant in both applications. Standing behind and supporting the applications, though not itself a party, is the Insurance and Superannuation Commissioner ("the ISC") - the body whose initial inquiries led ultimately to these proceedings.

3. The first three respondents - AS Nominees Ltd ("ASN"), Ample Funds Ltd ("Ample") and AS Securities Pty Ltd ("Securities") - are all members of a group of companies ("the AS Group") founded by the fourth respondent - Mr Windsor - in the 1970s. It will be necessary below to outline the relationships of these companies and the role of Windsor in them. Suffice it to say here that ASN and Ample operate as trustee companies of superannuation (ASN) and unit (Ample) trusts. Until the initiation of these proceedings, these two had common boards of directors for all practical purposes. For its part Securities, a company controlled directly by Windsor, acts as "manager" of ASN and Ample. It has as well acted as manager of the trusts of both companies, though it is a matter of dispute between the parties as to whether it continues to do so.

4. The AS Group is made up, apparently, of ten companies bound together in a predictably bewildering way by interlocking shareholdings held in some instances by individual companies of the group, in others by directors, and in either case sometimes as trustee or nominee for yet another group company or director. Windsor is the strategic presence in these arrangements.

5. Apart from ASN, Ample and Securities, three other members of the AS Group - AS Properties Pty Ltd ("Properties"), Fiduciary Securities Pty Ltd ("Fiduciary") and Constant Nominees Pty Ltd ("Constant") are significant actors in the events giving rise to these proceedings. Windsor is a director of all three of these companies.

6. The first of the two applications was filed on 16 June 1995. It sought the appointment of a receiver and manager of property of all respondents under the Corporations Law, s1323. This application was made by the ASC in consequence of an investigation (instigated by the ISC) that it had been undertaking into the affairs, first of ASN (since November 1994) and then of Ample and Securities (since April 1995).

7. The second application, filed on 27 July 1995, was made by the ASC under the Corporations Law s462(2). It sought an order under s461(k) that ASN, Ample and Securities be wound up on the just and equitable ground.

8. The applications have been heard together with the evidence in each being evidence as well in the other. Put in very general terms the burden of the allegations made in both applications is that (i) the trustee companies have been run largely at the direction of, and in some real measure for the benefit of, Windsor and his interests; (ii) the directors have demonstrated little appreciation both of their own responsibilities as directors and of the trusteeship obligations of their companies, with the consequence that repeated breaches of the Corporations Law s232 and regular breaches of trust have occurred; (iii) trust funds have been invested recklessly and improvidently often in circumstances of blatant conflict of interest or of partiality; (iv) in one instance fraud of some magnitude has been perpetrated on investor-beneficiaries of the superannuation trusts; (v) ASN and Ample have conducted their affairs as if they were a single entity - to the extent of having a common bank account for all of their various trusts; and (vi) shrouding much of this has been deficient and defective record keeping for both the companies and the trusts.

9. To make out its claims the applicant gave detailed evidence of a series of transactions beginning in 1990 involving one or other of ASN and Ample. These, it alleges, betray a pattern of conduct evidencing both the unfitness of the three corporate respondents and their respective management to have control of the trusts, and the justification for their being put into liquidation. A winding up order, it is claimed, is warranted on public interest grounds. Relied upon in this are (a) the need both to ensure investor protection and to maintain confidence in the proper management of superannuation trusts; and (b) the ASC's statutory responsibility to take action where necessary to enforce the Corporations Law, persistent breaches of ss232 and 258 being alleged here.

10. A clear consequence of the approach taken by the ASC is that my findings and determinations must themselves proceed in two stages. The first will require the separate consideration and evaluation of each of the twelve transactions on which the ASC relies. I would note in passing that here the emphasis in legal principle will be on the law of trusts and of fiduciary obligation more so than on company law.

11. The second stage will require a more synoptic treatment of the transactions and of the conclusions drawn from them individually. The end purpose of this will be to determine whether the case is an appropriate one for the making of a winding up order against any or all of the corporate respondents.

12. These two stages will be reflected in the second and third of the three parts of these reasons. The first part deals with issues of law which are common to some number of the transactions and which conveniently can be dealt with together at the outset. The second will focus on the twelve transactions individually. The third, on the winding up application. However, before turning to each of these it is necessary to deal with two preliminary matters. The first is the need to provide a more detailed account both of the companies and trusts implicated in these proceedings and of the manner in which the trust business has been conducted by the three corporate respondents. The second relates to such evidence as has, and has not, been given by, or on behalf of, the respondents and the Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 issues raised in consequence.

A. The Companies, the Trusts and the Trust Business

13. My comments here will be limited to the three corporate respondents, to the trusts with which they are associated and to the conduct of the trust business.

14. This is an unlisted public company. The shares in it are held beneficially by another AS Group company, Australian Superannuation Nominees Ltd ("Australian"). That company plays no active role in the business either of ASN or, through it, of Ample, though it shares a common board of directors with ASN and, until 20 June 1995, with Ample. The directors of ASN are (i) Mr Cahill, the executive director and an accountant engaged full-time in the affairs of the AS Group, who is remunerated for this by Securities for which he acts as a consultant; (ii) Mr Napper, a solicitor and consultant to a law firm in Canberra, who is chairman of the boards of both ASN and Ample; and (iii) Mr Sutherland who is a solicitor in legal practice in Canberra. There are two alternate directors. They have not played parts of any significance in the subject matter of these proceedings. Their actual involvement in the company's management, apparently, is negligible.

15. The business of ASN is that of trustee of superannuation trusts. Briefly described that business is conducted as follows. Members of the public who become investors execute their own deed of trust with ASN as trustee (the "Client Plan"). Contributions made under a Client Plan either are invested at the direction of the individual investor ("directed investment") or, in the absence of direction but in accordance with the trust deed, are aggregated with contributions from numerous other Client Plans in pooled superannuation funds (or "SIPs" as they are known). There are three such SIPs - SIP1, SIP2 and SIP3 - each having its own trust instrument. ASN is the designated trustee of each.

16. The activities of the SIPs have varied over time. For the purposes of these proceedings it is SIP1 which is of most importance. It is the fund which, of recent times, has been the investing arm of the trusts. As will be seen, a deal of that investment has been channelled into unit trusts of which Ample is trustee. Securities (which for practical purposes is Windsor) provides management services to ASN and to the SIPs. Under both the Client Plans and the SIP trusts ASN is entitled to draw trustee's fees. Managers fees (paid to Securities) also are charged on the SIPs and, for that matter, on the Ample trusts. These are calculated, in the main, on the asset value of the trusts. This access to fees, and the manner in which it has been exploited, provides one plank in the complaints of the ASC. The ultimate beneficiary of both forms of fees is in fact Securities, those fees derived by ASN being handed over after deduction of expenses.

17. Some indication of the funds/assets held by the SIPs and of the fees derived from them can be obtained from the following two tables prepared by Mr Howard of the ASC and put in evidence. They are drawn from the financial accounts for the 1993 and 1994 financial years.

Table 1

SIP Gross Assets Net Assets

SIP1 $ 8,294,426 $6,685,030

SIP2 $ 678,556 $ 676,569

SIP3 $ 1,100,305 $1,100,305

Total $10,073,287 $8,461,904

Table 2

Trust Profit/Loss Amount Profit/Loss Amount

Detail-1993- $ Detail-1994- $

SIP1 Fees 175,629 Managers and 276,825

Trustees Fees

SIP2 Trustees Fees 1,011 Managers and 6,942

Managers Fees 11,219 Trustees Fees

SIP3 Management Fees 147,196 Managers and 150,588

Trustees Fees 55,756 Trustees Fees

18. I should note that investors in ASN's Client Plans are, in general, referred to ASN by a limited number of advisers around Australia ("client advisers"). For its part ASN ordinarily deals only with the client advisers rather than with investors directly. The AS Group does not publicly promote its business.

19. This also is an unlisted public company. At all relevant times until 28 January 1995 the two issued shares in Ample were held by ASN and Australian. On that date those shares were transferred to Fiduciary, itself a member of the AS Group as I have already noted. I will return to this transfer later in these reasons. At all relevant times up until 20 June 1995 the directors of Ample were Messrs Napper, Cahill and Sutherland. On that date - which was the day before an interlocutory hearing in this Court of the s1323 application - they were removed by Windsor and replaced with Windsor, Mrs Windsor and a Mr Greig.

20. Ample is the trustee of at least 5 unit trusts. Four of these are relevant for present purposes and can be described as Ample 1, Ample 2, Ample 3 and Ample DUT (the "Ample trusts"). These trusts are created under their own trust deeds and, in practice at least, are more in the nature of trusts for specific investments. As I have already indicated, SIP1 has significant investments in the Ample trusts. In fact it is the preponderant investor in those trusts. As with the SIPs, trustee and management fees are charged to the Ample trusts. The ultimate beneficiary of these fees (both trustee and management) is Securities. Securities provides management services to Ample and to the Ample trusts - although the extent of the latter is the subject of dispute between the parties.

21. Again to illustrate (a) the dimension of the funds/assets under Ample's control, (b) the level of SIP investment in the trusts, and (c) the value of fees charged on the trusts, the following three tables drawn from Mr Howard's evidence and based on the 1993 and 1994 financial years, are set out here.

Table 1: Ample Trust assets

Ample Trust Gross Assets Net Assets

Ample 1 $11,533,106 $5,076,981

Ample 2 $ 1,757,794 $1,757,794

Ample 3 $ 834,550 $ 834,550

Ample DUT $ 781,404 $ 781,404

Total $14,906,854 $8,450,729

Table 2: SIP1 investment in the Ample Trusts

Ample Trust SIP1's share in SIP1's share

Gross Assets in Net Assets

Ample 1 $11,533,106 $5,076,981

Ample 2 $ 880,778 $ 880,778

Ample 3 $ 11,981 $ 11,981

Ample DUT $ 760,026 $ 760,026

Total $13,185,891 $6,729,766

Table 3: Management and Trustee Fees for Ample Trusts

Trust Profit/Loss Amount Profit/Loss Amount

Detail-1993- $ Detail-1994- $

Ample 1 Management Fees 193,610 Trustees Fees 35,901.00

Ample 2 Management Fees 9,545 Nil Nil

Ample 3 Management Fees 1,492 Managers Fees 6,758.53

Ample Management 2,042 Trustees Fees 7,814.04

DUT Fees

22. The final observation that should be made is this. The Client Plan which appoints ASN as trustee for each individual investor contemplates that that investor's contributions may be pooled in a SIP. What those Client Plans do not on their face contemplate - or expressly authorise - is that an investor's contribution (so pooled) will be further used to subscribe for units in trusts (i) held by a related entity subject for practical purposes to an identically constituted board; and (ii) on which management and trustee fees were to be charged.

23. According to Mr Cahill's evidence, both the decision to create Ample and the recommendation to constitute the Ample trusts were made by Securities (the manager of the SIPs). I have no evidence before me as to why this additional tier of unit trusts - and of fee imposition on investors - was interposed between the SIPs and the actual assets in which SIP funds were invested. I would add by way of chronology that while the first of the SIPs (SIP1) was created in 1986, Ample itself was not incorporated until the end of 1989 and the first Ample trust (Ample 1) was not constituted until mid-1991.

24. This is a private company. Its two issued shares are held by Mr Windsor and by Capable Nominees Pty Ltd (a member of the AS Group). The directors are Mr and Mrs Windsor. As I have already noted (i) Securities provides management services - as also staff, equipment, and premises - to ASN and Ample and, though this is disputed, to the SIPs and the Ample Trusts; (ii) after deduction of ASN's and Ample's expenses, it is the ultimate beneficiary of all management and trustee fees paid by the SIPs and by the Ample trusts; and (iii) it provides for the remuneration of Mr Cahill's services through a consultancy agreement.

25. Having regard to the arrangements for accounting for fees charged, the conclusion is inescapable that such profit as is derived from the trust business inures to the benefit of Securities, hence to the Windsors. I will refer below to the legal character of Securities' relationship with investor-beneficiaries of the SIPs and the Ample trust.

26. The various transactions to be considered provide example enough of how the affairs of the trusts and the companies were conducted. Here I wish merely to note four matters of more general character which reveal aspects of the style or practice of trust management adopted in ASN and Ample.

27. First, notwithstanding the clear requirements of the law of trusts to the contrary, ASN and Ample maintain a common bank account for all of the SIPs and the Ample trusts. It is in the name of ASN: on the duty to keep separate the funds of separate trusts unless expressly authorised to the contrary, see Skinner v Trustees Executors and Agency Co Ltd (1901) 27 VLR 218; Re Harvey, Westminster Bank Ltd v Askwith (1941) 3 All ER 284; Ford and Lee, Principles of the Law of Trusts, para 948 (2nd Ed); Scott on Trusts, para 179.2(4th Ed). Furthermore, on at least one occasion money owned beneficially by another company in the AS Group (Fiduciary) found its way into this joint trust account.

28. Secondly, while it was by no means the invariable practice, joint board meetings of ASN and Ample were not at all uncommon when trust business was being conducted. I merely note at this stage that an issue in these proceedings is the extent to which the two trustee companies gave separate consideration to the several interests of the individual trusts under their respective control. This undoubted duty of trustees reflects in its own way the like responsibility of directors of a company which is part of a corporate group: see eg Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1 esp at 6-7.

29. Thirdly, despite the provisions of the Corporations Law ss258 and 289 relating to the keeping respectively of minutes of board meetings and of accounting records, a notable feature in quite some number of the transactions to be examined is an absence of any, or else any appropriate, documentary record either of meetings at which trustee decisions were said to have been taken or of those decisions themselves (whether or not taken at a board meeting). I would note in passing that for the purpose of its s1323 application, the ASC investigation into Ample and Securities was based on suspected contraventions of s289.

30. Fourthly, dealings between SIP1 and the Ample trusts and between ASN, Ample and other companies in the AS Group were a pervasive phenomenon over the period inquired into by the ASC. It is this which accounts for the level and intensity of allegations both of conflict of interest and of partial decision-making which have been raised here.

31. As will later become apparent, much in these proceedings is concerned with Windsor and his actions. Here, simply for reasons of convenience in exposition, I will refer to two unrelated matters.

32. First, an issue raised in this case is whether the relationship and actions of Windsor vis-a-vis the directors of ASN and Ample are such that I should conclude he is "a person in accordance with whose directions or instructions the directors of (both companies) are accustomed to act": Corporations Law, s60(1). In other words it is alleged that by virtue of that section he is a director of those two companies. Given the scale of infra-AS Group dealing which I have already foreshadowed, the effect of my so concluding would be to facilitate the finding of conflicts of interest in those dealings. Later in these reasons I in fact make the finding that Windsor is a s60 director. However, analysis of the twelve transactions is not conducted on that assumption. I have considered it appropriate first to identify the ills of those transactions without resort to this deeming provision and only later to suggest the difference in practical effect the s60 finding would make. Such are the vices revealed that that difference, as will be seen, is of no great consequence.

33. Secondly, there was a practice engaged in by Windsor which warrants some explanation if only to cast light on an otherwise somewhat perplexing aspect of some number of the transactions to be discussed. From as early as 1991 it is apparent that Windsor was attempting to secure large scale overseas investments in unit trusts under the control of his AS Group. The Janata-Sundowner Transaction to which reference will be made illustrates one such attempt. It equally is apparent that he considered overseas investors would be more likely to make a commitment to the AS Group if he could demonstrate that he had, or at least appeared to have, large dollar investments under the Group's control. It would seem for this reason he adopted a strategy on the making of investments which appeared to promote that end.

34. Put briefly the strategy was this. When an AS Group company made an investment with another party, that party (or one of its affiliates) was requested/required to make a substantial (usually multi-million dollar) deposit with a trust controlled by a group company (usually Ample). The deposits were not ones intended to produce management fees of any significance for the trust company involved. The benefit sought from the deposit was the appearance created - i.e. that the AS Group had substantial funds under its control.

35. Two key figures have not given evidence in the respondents' cases. They are Windsor and Napper. On the evidence before me Windsor can properly be assumed to have an intimate knowledge of almost all of the individual transactions to be considered. They were, in the main, of his making. For his part, Napper was chairman of the boards of ASN and Ample for all of the transactions. He was a principal actor in several of them. The propriety or else the providence of every such transaction involving one or other of the two men is in issue.

36. Evidence was given by two of the directors of ASN and Ample - Mr Cahill and Mr Sutherland. Though having some responsibilities (if only as board members) in all of the transactions, their involvement was, usually, of a lesser order. Often enough they relied on Napper and Windsor for advice and explanation.

37. I have been provided with no explanation at all for the failure to call Napper. He has, apparently, been in Canberra throughout the proceedings. The apparent reason for Windsor's unavailability is that, with notice of these proceedings, he went overseas to generate business for the AS Group. This I do not regard as an explanation of his failure to give evidence as the term "explanation" is used in this context: see Payne v Parker (1976) 1 NSWLR 191 at 202.

38. In these circumstances the applicant has submitted, consistent with Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298, that the inference that may be drawn from the failure to call these witnesses is that their evidence would not have helped the respondents' cases. This is an inference I am prepared to draw given the state of the evidence in these proceedings. It is not an inference which counsel for the respondents felt able to resist either in oral or written submission.

39. Furthermore, as will be seen, it is the case that the majority of the transactions to be considered have unusual, untoward or ambiguous features. These call for explanation. The failure to explain these assists materially in determining the inferences fairly to be drawn from the applicant's evidence: see Dilosa v Latec Finance Pty Ltd (1966) 84 WN (NSW) 557 at 582. I will indicate as appropriate where such assistance is being relied upon in the drawing of inferences.

40. Finally I should add that I do not consider the silence of the Evidence Act 1995 (Cth) on the inferences that may be drawn from the failure of a person to give evidence in a civil case, as in anyway undermining the long standing practice of courts in drawing such Jones v Dunkel inferences as I have indicated I am prepared to draw in this case: cf Cross on Evidence para 1215 fn1; para 1815 (Australian ed.).

41. There are at least three legal issues which either alone or in combination are relevant to almost all of the twelve transactions examined below. So as to avoid undue repetition it is appropriate at the outset to outline those issues and my conclusions on them. The issues are -

(i) the standard of care to be

expected of the trustee

companies and of their

directors in the conduct of

the trust business;

(ii) the extent to which fiduciary

duties are owed by the trustee

companies, the manager

(Securities), and the

directors of the trustee

companies, to the investor-

beneficiaries; and

(iii) the exposure of the directors and of

related companies to accessorial liability

in consequence of their participation in

breaches of trust and of fiduciary duty.

42. It is old and accepted law that in managing a trust business the trustee should exercise the same care as an ordinary, prudent business person would exercise in conducting that business as if it were his or her own: Speight v Gaunt (1883) 9 App Cas 1; Learoyd v Whiteley [1887] UKHL 1; (1887) 12 App Cas 727; Knox v Mackinnon (1888) 13 App Cas 753. There is an equally well accepted gloss on (or adjunct to) this in relation to trustee investments which is aptly described in Scott on Trusts as the "requirement of caution": para 227.3. That requirement is well expressed in King v Talbot 40 NY 76 (1869) to which Scott refers:

It ... does not follow, that, because prudent men may, and

often do, conduct their own affairs with the hope of growing

rich, and therein take the hazard of adventures which they

deem hopeful, trustees may do the same; the preservation of

the fund, and the procurement of a just income therefrom,

are primary objects of the creation of the trust itself, and

are to be primarily regarded.

43. To like effect are the observations of Lindley LJ in In re Whiteley; Whiteley v Learoyd (1886) 33 ChD 347 at 355.

44. In these proceedings I emphasise particularly the requirement of caution. It is this which, often enough, is used to differentiate the expectations properly to be had of trustees and of directors respectively. So in Daniels v Anderson (1995) 16 ACSR 607 at 658, for example, Clarke and Sheller JJA observed that:

While the duty of a trustee is to exercise a degree of

restraint and conservatism in investment judgments, the duty

of a director may be to display entrepreneurial flair and

accept commercial risks to produce a sufficient return on

the capital invested.

45. See also on this distinction the observations of Jacobs J in Re International Vending Machines Pty Ltd (1961) 80 WN(NSW) 465 at 473.

46. I would add that underlying the distinction today is, probably, not merely an historical assumption about the separate purposes of companies and of trusts, but also a generalisation about the different risks that persons who invest their assets in companies on the one hand and in trusts on the other are considered likely to have assumed: for an example of risk assumption applied to trusts see Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] UKPC 1; (1986) 1 WLR 1072.

47. Where the trustee is itself a company the requirements of care and caution are in no way diminished. And here, unlike with companies in general, these requirements have a flow-on effect into the duties and liabilities of the directors of such a company. It was early established - largely it would seem from case law on charitable and municipal corporations - that at least when, and to the extent that, directors of a trustee company are themselves "concerned in" the breaches of trust of their company, they are liable to the company according to the same standard of care and caution as is expected of the company itself: Charitable Corporation v Sutton [1742] EngR 111; (1742) 2 Atk 400; 26 ER 642; Attorney-General v Wilson (1841) 10 LJ Ch 53; Joint Stock Discount Co v Brown (1869) LR 8 Eq 381; Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609.

48. To affirm such a limited coalescence in the standard of care of directors and trustees in the case of directors of trust companies is not to reignite the arid debate on whether directors are trustees: cf Re International Vending Machines Pty Ltd (1961) 80 WN(NSW) 465 at 473; L S Sealy, "The Director as Trustee" (1967) Camb LJ 83. It is merely to say that in this context the duties of trusteeship of the company can give form and direction to the common law and statutory duties of care and diligence imposed on directors, where the directors themselves have caused their company's breach of trust: on the duty of care of directors generally, see Daniels v Anderson (1995) 16 ACSR 607; Permanent Building Society v Wheeler (1994) 14 ACSR 109; see also Superannuation Industry (Supervision) Act 1993, s52(8), (9).

49. It needs, though, to be emphasised - and this is of importance in what later is described as the "SECCU Transaction" - that the coalescence noted is only operative when the trust business itself is involved. Where the company is engaged in its own affairs - and the SECCU Transaction is an example of this - the directors' duty of care and skill will for that reason be unaffected by trust law considerations.

50. The standard of trustee care and caution of which I have been speaking so far does not differentiate between types of trustee. It is of general application. That standard, moreover, was settled a century ago and during a period when trust corporations were not used for the trading and investment purposes that are the commonplace in this country today. There is, in my view, a substantial question now to be answered as to whether a higher standard is not to be exacted from at least corporate or professional trustees (i) which hold themselves out as having a special or particular knowledge, skill and experience and (ii) which, directly or indirectly, invite reliance upon themselves by members of the public in virtue of the knowledge etc they appear so to have.

51. In Bartlett v Barclays Trust Co Ltd (No 1) (1980) Ch 515 at 534 Brightman J was prepared to impose such a higher duty of care on a trust corporation:

a professional corporate trustee is liable for breach of

trust if loss is caused to the trust fund because it

neglects to exercise the special care and skill which it

professes to have.

52. This decision has been cited with apparent approval, though it was not in terms relied upon, by Gleeson CJ in Gill v Eagle Star Nominees Ltd, SC of New South Wales, 22 September 1993. It is, in its own way, consistent with observations of the Privy Council in the Australian appeal, National Trustees Company of Australasia Ltd v General Finance Company of Australasia Ltd (1905) AC 373 at 381, when refusing to excuse a trust company from a breach of trust. There is an extensive United States case law affirming such a higher standard. It is conveniently explained and exemplified in Scott on Trusts para 174.1 (4th Ed); see also Fales v Canada Permanent Trust Co (1977) 2 SCR 302 (Can) where the question is recognised but not answered by the Supreme Court of Canada; and see Bogert, The Law of Trusts and Trustees, para 541 (Rev 2nd Ed).

53. If it were in fact necessary for me so to do (which it is not), I would be prepared to apply to the trustee companies in these proceedings a standard of care higher than that of the ordinary prudent business person. The applicant in its submission has invited me to adopt this course.

54. I should indicate that I do not regard the observations of the High Court in Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609 at 641 on the standard of care and prudence expected of the statutory corporation in that case (ie the prudent business person standard) as precluding the adoption of a different and higher standard in the circumstances of a trustee company (a) carrying on business as such in the now established field of superannuation; (b) accepting and soliciting the utilisation by members of the public of its services as a funds manager; and (c) charging significant fees for so doing. The Board in Fouche was a body of a materially different variety. It was created by statute to administer a superannuation scheme for members of the Tasmanian public service. It did not hold itself out as conducting a trust business or as rendering professional trust services.

55. I should also add that it is unnecessary for the purposes of the present proceedings to examine the standards of care for corporate trustees of superannuation entities prescribed in the Superannuation Industry (Supervision) Act 1993, s52 and especially s52(8) and (9). That legislation even now applies only to ASN. For almost all of the period with which I am concerned those provisions were inoperative: see ibid, s2(4).

56. In the event, though, there is no need to specify a higher standard of conduct for the corporate trustees in this instance. This is because the actions alleged to constitute breaches of trust in the transactions to be referred to, characteristically fall short of even the prudent business person measure and by some distance.

57. Finally, I merely note that there is a question whether the duty of care owed by directors of a trustee company to their company is owed as well to the beneficiaries of the trust: see Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; (1995) 3 WLR 64 at 75; see also Wickstead v Browne (1992) 30 NSWLR 1; and cf Scott on Trusts, para 326.3 (4th Ed). Given the view I take of the relevance to these proceedings of the accessorial liability rule in Barnes v Addy (1874) LR 9 Ch App 244, the question is not one that need be explored here.

58. The possible fiduciary issues in this case are multi-dimensional. Given the various roles and responsibilities of the respondents and of the directors of Ample and ASN, it has in effect been submitted that all of these are bound to the investor-beneficiaries by a web of fiduciary relationships both orthodox as well as unusual. The possible fiduciary character of three particular relationships will be raised here. These are the relationships with the investor- beneficiaries (i) of ASN and of Ample; (ii) of Securities; and (iii) of the directors of ASN and Ample.

59. It need hardly be said that both ASN and Ample are in fiduciary relationships with the beneficiaries of the SIPs and of the Ample trusts respectively. In relation to the SIPs those beneficiaries are the investors whose contributions, not being the subject of directed investment, have been pooled in the SIPs. The situation with the Ample trusts is less straightforward. With trusts other than Ample 1, investments have been made variously by ASN (for the SIPs) and by individual investors so directing their investment. Investment in Ample 1 in contrast appears to be limited to the SIPs. Formally then, insofar as SIP funds are invested in Ample trusts, the beneficiary of those trusts is ASN as trustee for those investors beneficially interested in the SIPs.

60. However, this is a case in which the artificiality of form can be overwhelming. Given that ASN and Ample have common boards of directors, and given that the funds invested in Ample 1 by ASN have come exclusively from the SIPs, it would, in my view, be to ignore the true character of the relationship between Ample (as the trustee of Ample 1) and the investors in the SIPs, to conclude that that relationship was not itself a direct fiduciary one. Though it probably is unnecessary so to do for the purpose of these particular proceedings, I am prepared to make such a finding. The investors alone have the real interest in Ample 1 and its administration.

61. In saying there is such a fiduciary relationship, I am not suggesting that Ample has formal powers over the SIPs. Rather I am saying that, in exercising its powers in the Ample 1 trust, it is obliged to act in the interests of the investor-beneficiaries in the SIPs who are for practical purposes to be regarded as the beneficiaries of that trust. I should also add that I am not suggesting that a direct fiduciary relationship necessarily arises between the trustees of trust A and the beneficiaries of trust B whenever trust B invests in trust A. My conclusion is limited to the situation where trust B is the exclusive investor in trust A and where the trustees themselves have common directors. It is unnecessary to express any more general opinion on the possible fiduciary effects of inter-trust investment.

62. Whether or not Securities is in a fiduciary relationship with the beneficiaries of the SIPs and/or the Ample trusts is a matter of some legal significance given the level of its involvement in the transactions to be considered.

63. The two SIPs which are of particular significance for the purposes of these proceedings are SIP1 and SIP3. The Trust Deed of SIP1, executed on 13 August 1986 by ASN and Securities, constituted the former the trustee of the SIP and the latter its manager. The Manager's covenants in that deed were expressed to be for the benefit "not only (of) the Trustee but (of) the Unit Holders jointly and ... severally". The SIP3 Trust Deed of 29 June 1990 between the same parties had like covenants.

64. For its part the Ample 1 Trust Deed of 24 June 1991 did not formally constitute Securities (or any other body) the manager of the trust. The deed, though, gave Ample a wide power to engage the services of a manager. The ASC's case is that Securities was, in fact, so engaged for this and the other Ample trusts.

65. It may well be that, as a matter of construction, the terms of the two SIP trust deeds are themselves sufficient to constitute Securities the fiduciary of the investor-beneficiaries of the two SIPs to the extent that Securities is authorised or required to perform services for their benefit: cf Australian Fixed Trust Pty Ltd v Clyde Industries Ltd (1959) 59 SR (NSW) 33 at 59; Hughes, The Law of Public Unit Trusts, 106ff. I do not, though, proceed on this particular basis of itself to justify the finding of a fiduciary relationship with the SIP investors. For this reason also, I have not here examined the terms of the trust deeds in any detail.

66. It is the case that Securities has acted as a manager for both the SIPs and the Ample trusts. By manager I mean the party who sought out both investors in, and investments for, the trusts. As will be seen, Windsor was a pivotal figure in securing the commitment of the trusts to some number of the investments to be examined even if, as a matter of legal form, the investment decision itself may have been made by the board of the particular trust company concerned. Again as I have noted the benefit of all fees derived from the SIPs and the Ample trusts (less expenses) have been passed on to Securities.

67. The evidence of Mr Cahill was that Securities acted as manager both of the two companies and of their trusts until "several years ago" when it ceased to act as manager of the trusts. No reasonably definite time was given as to when this change was supposed to have occurred. No convincing explanation was given as to why the change did not result in a change in the fee arrangements with Securities. No variation was made of the SIP1 and SIP3 trust deeds to reflect the change. But most significant of all, it seems clear from the transactions to be examined that Windsor has continued to perform a strategic management role in the affairs of the SIPs and the Ample trusts. A late illustration of this to which reference will be made is the Third Fawkner Centre Transaction of 1994. It equally seems clear that Windsor has, throughout, maintained a formidable manipulative capacity in trust decision making. The uncritical reliance placed on his proposals by the directors of ASN and Ample is, as will be seen, sometimes breathtaking.

68. Of relatively recent times it may well be that the level of Windsor's active involvement in SIP and Ample trust affairs has changed. But if Cahill in his evidence was suggesting that Windsor (hence Securities) had abandoned strategic responsibility in guiding and contriving those affairs and that the directors of ASN and Ample in consequence no longer conceded him that power, I am unable to accept this evidence. The considerations I have noted above can lead to no other conclusion. I find that Securities has continued to discharge a management role for the trusts. I should, however, add that some of the difficulties with Cahill's evidence here may be attributable to differing connotations given to the term "manager" itself by the parties in these proceedings.

69. Turning directly to the fiduciary question. My preferred approach is to resolve it by reference to what Securities in fact did for the trusts and to the context in which this occurred. The ASC has submitted that Securities, in any event, is in a fiduciary relationship with the investor-beneficiaries. That conclusion is one with which I agree for the following reasons.

70. Even if it is the case that Securities can properly be said as a matter of legal form to be the manager for, or the agent of, the trustees (ie ASN and Ample) in performing services for the trusts, this by no means precludes a finding that it is, as well, in a direct fiduciary relationship with the beneficiaries of the trusts when providing those services: cf Powell and Thomas v Evan Jones and Co (1905) 1 KB 11; Blair v Martin (1929) NZLR 225.

71. When one has regard (i) to the functions actually performed for the trusts by Windsor who is Securities' alter ego (reference will be made to these in later analyses of the transactions); (ii) to the level of responsibility for identifying and securing trust investments in fact conceded to Windsor by the boards of ASN and Ample; (iii) in the case of SIP1 and SIP3, to the terms of the respective trust deeds and of the "Manager's" undertakings in them; (iv) to the appreciation Windsor must reasonably be taken to have had of the vulnerability of the trusts to Securities' actions; and (v) to the awareness he must reasonably be taken to have had that the function Securities was performing was for the benefit of the trust beneficiaries - the conclusion in my view is irresistible that Securities was in a fiduciary relationship with the beneficiaries of the respective trusts in rendering services to them.

72. The more prominent of the criteria which have been endorsed or relied upon in case law in this country for identifying fiduciary relationships - (i) undertaking: see Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at 72 per Gibbs CJ and 96-97 per Mason J; (ii) vulnerability to another's power or vulnerability necessitating reliance: Hospital Products Ltd v United States Surgical Corp at 142 per Dawson J; Mabo v State of Queensland (No 2) [1992] HCA 23; 175 CLR 1 at 200-201 per Toohey J; and (iii) reasonable expectation - Glandon Pty Ltd v Strata Consolidated Pty Ltd (1993) 11 ACSR 543 - when applied to the factors I have identified above, confirm in my opinion the conclusion I have reached. Securities is so circumstanced vis-a-vis the beneficiaries of the various trusts of ASN and Ample that the beneficiaries of each individual trust are entitled to expect that Securities will act in the interests of those beneficiaries to the exclusion of its own or any third party's interests, in its dealings for or on behalf of that trust. On the various criteria I have noted above see generally Glover, Commercial Equity: Fiduciary Relationships, Ch3. This being a clear case it is unnecessary to examine those criteria and their present application in any detail.

73. The applicant has submitted that the directors of the two companies owe fiduciary duties not just to their companies respectively, but also to the beneficiaries of the trusts of those companies. As I understood it, the burden of the submission was this. Because the companies were trust companies, if the directors breached their duty to the company in the course of exercising its powers of trust management, that breach would give rise to a related breach of duty by the directors to the trust beneficiaries. That "related" duty was derived, it would seem, from the fiduciary duty owed by the company to the beneficiaries.

74. For the reasons I will give below it is unnecessary to express a concluded view on this particular submission: but see Wilson v Lord Bury (1880) 5 QBD 518 at 535 per Baggallay LJ; In re The French Protestant Hospital (1951) 1 Ch 567; and cf Bath v Standard Land Co Ltd (1911) 1 Ch 618.

75. It is not open to doubt that the particular factual relationship existing between a (or the) director(s) of a trustee company and a beneficiary or beneficiaries of a trust, may properly warrant the finding of fiduciary relationship between them: cf Coleman v Myers [1976] NZHC 5; (1977) 2 NZLR 225; Glandon Pty Ltd v Strata Consolidated Pty Ltd (1993) 11 ACSR 543. But to say this is not to say that there is anything fiduciary in the trust company director-trust beneficiary relationship as such.

76. It also is not open to doubt that some at least of the disabilities fiduciary law imposes on a fiduciary (including a trust company) are imposed as well on the officers, employees and agents of that fiduciary. A simple example is the rule in Ex p James [1803] EngR 536; (1803) 8 Ves 337; 32 ER 385 proscribing the purchase of trust property: see eg In re James; Bagot's Executor and Trustee Co Ltd v McGregor [1949] SAStRp 8; (1949) SASR 143.

77. In contrast with the above is the controversial suggestion in a number of cases that the duty of directors to their "company" can itself embrace some level of direct fiduciary responsibility to the beneficiaries of a trust of which their company is a trustee: see eg Hurley v BGH Nominees Pty Ltd (1984) 10 ACLR 197; Inge v Inge (1990) 3 ACSR 63. This view is not without its critics: see e.g. Ford and Austin's Principles of Corporations Law, para 8.110 (7th Ed); J D Heydon, "Directors' Duties and the Company's Interests", in Finn (ed), Equity and Commercial Relationships, 131-132.

78. It is questionable, in my view, whether this heralded development in our law is a desirable or necessary one in the trust company context. To the extent that it is advanced as a means of protecting trust beneficiaries from misuse by directors either of their company's trustee powers or of their own position vis-a-vis the trust property, it can be said that that protection can be afforded by other quite orthodox means and in a more extensive way.

79. I will in the section next following refer in a little detail to aspects of the rules in Barnes v Addy (1874) LR 9 Ch App 244. Suffice it to say at this point, that the position now reached in the accessorial liability rule of Barnes v Addy is such as to render the directors of trust companies particularly and peculiarly vulnerable to suit by the trust beneficiaries for acts etc which constitute breaches of trust or of fiduciary duty on their company's part.

80. As I indicated earlier it is not necessary to venture a concluded opinion on the applicant's submission as to the fiduciary status of the directors of ASN and Ample vis-a-vis the trust beneficiaries of those companies. The practical result the applicant would seem to wish to achieve through that submission can be secured as well by the Barnes v Addy route. It is that which I would prefer to adopt for the purposes of these proceedings.

81. A final, general observation should be made about the impact of fiduciary law on the transactions to be considered. It is uncontroversial law that, absent an effective exemption clause, if a fiduciary is to be immunised from the legal consequences of conduct that would constitute or has constituted a breach of fiduciary duty, that person at the least requires the informed consent of the beneficiaries to his or her conduct. I say "at the least" because for particular rules (e.g. self-dealing or undue influence) the fiduciary's onus can carry additional burdens. The two points to be made for the purposes of these proceedings are (i) there are not, I am informed, effective exemption clauses covering the conduct to be considered; and (ii) that in none of the trust transactions in which fiduciary wrongdoing is alleged, has disclosure been made to the relevant trust beneficiaries.

82. Legal decision and scholarly opinion in common law jurisdictions are converging in the view that at least what is known as the second ("the knowing assistance") limb of the rule in Barnes v Addy is a fault based form of accessorial liability. For present purposes that liability rule can be formulated (conservatively) as one which exposes a third party to the full range of equitable remedy available against a trustee if that person knowingly or recklessly assists in or procures a breach of trust or of fiduciary duty by a trustee: Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373; see Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; (1995) 3 WLR 64 and the cases and writings referred to therein; Wickstead v Browne (1992) 30 NSWLR 1; Equiticorp Finance Ltd v Bank of New Zealand (1993) 32 NSWLR 50 per Kirby P; Bogert, The Law of Trusts and Trustees, para 901 (Rev 2nd Ed); Oakley, "Liability of a Stranger as a Constructive Trustee" in Cope (ed)

83. As has long been recognised in case law in the United States - see eg Shuster v North American Mortgage Loan Co 40 NE 2d 130 (1942); Seven G Ranching Co v Stewart Title and Trust of Tucson 627 P 2d 1088 (1981); see also Scott on Trusts, para 326.3 ("Directors and officers of corporate trustee") (4th Ed); Bogert, The Law of Trusts and Trustees, para 901 esp fn 10 (Rev 2nd Ed) - this form of liability is one of no little significance to the directors of a trust company for the very reason that, often enough, it will be their own conduct in exercising the powers of the board which causes their company to commit a breach of trust. They are, in other words, peculiarly vulnerable to this rule. Recent Australian case law is demonstrating an appreciation of this: see eg Young v Murphy (1994) 13 ACSR 722; see also Biala Pty Ltd v Mallina Holdings Ltd (1993) 11 ACSR 785 at 832.

84. It cannot be said that all of the various controversies which have beset this limb of Barnes v Addy have been stilled in Australian law - and the "knowledge" requirement is perhaps the most significant of these: see Lodge, "Barnes v Addy: The Requirements of Knowledge" (1995) 23 Aust Bus L Rev 25 and cf the observations on knowledge in the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan, above at 75. Given the particular findings later made in these reasons, none of those controversies would be enlivened in the circumstances of these two applications. In consequence the terms in which I have formulated this type of liability are in my view sufficient and appropriate for the purposes of these proceedings.

85. I should make plain that questions of accessorial liability in the transactions to be considered are not limited to the participation of directors in alleged breaches of trust by their companies. They extend to dealings by ASN and Ample with other companies in the AS Group. Their extension beyond this to "genuine" third parties has not been argued.

86. Each of the twelve transactions to be examined - the first took place in January 1990, the last in June 1995 - will be presented in chronological order. The ASC in its written submissions presented separate factual accounts of the transactions. The respondents have agreed with the accounts given save in a number of specific respects. Because of the level of agreement that does exist, each transaction will be presented in two parts. The first will be a factual account of the transaction itself. This will be based on the facts agreed. Where material is referred to which is not subject to agreement this will be noted specifically. The second part will embody the issues raised and the conclusions reached on the transaction in question.

87. This, the earliest of the transactions, is the least contentious.

88. On 22 January 1990 ASN (as trustee of one or more of the SIPs) resolved to lend $500,000 to Bilambee Pty Ltd ("Bilambee"), a development company. The loan was secured by a registered first mortgage over land at Coolum in Queensland. Guarantees were given by two directors of Bilambee.

89. The board of ASN was advised on 20 October 1990 that the loan was in default. The loan was never again serviced. The accounts for ASN reveal that the interest outstanding was capitalised and that by 31 March 1994 the loan stood at $1,067,386.77. On that date the board was told that the mortgaged property had been sold at auction for $967,500. This resulted in a shortfall which as at 30 June 1994 stood at $141,523.50. With the two guarantor-directors now bankrupt there is no prospect of recoupment from them.

90. There is no record in ASN's minutes of any action being taken to pursue the defaulting loan. Apart from the interest being capitalised the only evidence of any step being taken between 20 October 1990 (the first default) and 31 March 1994 (the notification of the sale) is Cahill's evidence in cross-examination that a valuation of the Coolum property, sometime in 1993 he thought, showed it to be worth around $1.1 million. No copy of any such valuation has been produced.

91. The issue the ASC raised on these facts is whether the more than three years failure by ASN to foreclose on the mortgage or to call up the guarantees amounted to a breach of trust resulting in the loss of over $140,000. Such explanations as were given for this failure to pursue the default were (a) by Cahill, that, notwithstanding the default, the return secured through interest capitalisation meant that the loan remained a good trust investment; and (b) by Sutherland, that negotiations for sales occurred over the period and an ordinary sale was preferable to a mortgagee's sale. I should note that, if a valuation was made in 1993 as Cahill suggested, Sutherland seems, from his evidence, to have been wholly unaware of it.

92. Neither explanation is sufficient in my view to defeat a finding that ASN so mismanaged this investment as to expose itself to liability for breach of trust. Whatever the attractions of the capitalisation provisions in the loan agreement, ASN was holding a defaulting loan. For practical purposes its only certain source of repayment was the security it held. If it was to continue to rely upon the default/capitalisation clauses of the loan agreement - and, as will be seen, this has been a repeated, and unsuccessful, practice of AS Group companies - then as a matter of prudent management to safeguard the investment, ASN was required closely to monitor the security and its adequacy, the more so as the investment itself was an escalating one because of the capitalisation provisions.

93. Even if I was prepared to find that a valuation was obtained in 1993 - and I refrain from so doing - I have no evidence that it informed deliberations of the board in its management of this investment. Indeed Sutherland's evidence would suggest it was not drawn to the attention of all board members. Viewed in its totality the evidence distinctly lacks any demonstration of careful consideration being given over time to this investment and to the appropriate time for its realisation. The conclusion in my view is inevitable that it was allowed to drift to a point well beyond that where a prudent trustee would have acted to protect it. In his submissions counsel for the applicant conceded that one might have expected the trustees to have acted a little more swiftly. This is an understatement.

94. All of the directors were aware from as early as October 1990 that the loan was a non-performing one. This notwithstanding, they neglected to take such steps as would facilitate ASN's prudent management of the investment. In these circumstances, though there may be a possible question as to whether the directors have acted knowingly or recklessly for Barnes v Addy purposes (cf Royal Brunei Airlines Sdn Bhd v Tan, above, at 73G), there is a prima facie case of conduct amounting to a breach both of their common law duty of care and of the Corporations Law s232(4), which conduct caused ASN to incur the liability it appears to have.

95. I should state in conclusion that while the loss from the shortfall is $140,000, counsel for ASN submitted that this bald figure gives an exaggerated impression of the real loss actually sustained. The $140,000, he submitted, represents an amount equivalent to what had been derived over the period as interest on interest. It would not have been derived at all if no default had occurred. Of this I would merely indicate that, howsoever it may be said to have been made up, the $140,000 was money to which ASN was entitled as trustee and is now irrecoverable.

96. This matter involved the loss of $279,000 drawn by ASN on SIP3. This sum was paid by way of a commitment fee to secure an investment of US$10 million from a US company, California Sundowners Corporation, whose president was a Mr Janata. The commitment fee - which was to be returned to ASN when the first instalment of investment money was made - was to be paid in the US to Fidelity Contract Insurance Inc. It was first placed in escrow with a Mr Baskette, a US attorney, pending his validation of a financial surety bond to be given by Fidelity Contract Insurance. It was then paid over and lost in what proved to be a scam practised on investors.

97. The transaction apparently was a consequence of proposals to invest in orchards in eastern Australia which were brought to Windsor's notice by a Mr Pilley (of whom more will be said in discussion of later transactions). It is uncertain how Windsor came to learn of the apparent availability of US funds to invest in orchards. What seems clear from the documentary evidence is that he was acting at the time on behalf of another AS Group Company - "Constant" - and that his dealings with US sources in this matter were through a Mr Marshall, a commercial consultant in New Zealand whose fee of $20,000, according to Sutherland, was paid by ASN or, according to Cahill, by another company in the AS Group.

98. A fax from Marshall to Windsor of 16 November 1991 incorporated a proposal from California Sundowners to invest in a joint venture project involving plantation investments. US$10 million was to be made available. The proposal, as distinct from the fax, was directed to Cahill at ASN and the project was identified in the proposal as an ASN project. The two additional features of the proposal were (i) it set out the requirement of a commitment fee; and (ii) it stressed the need for urgent decision and secrecy.

99. The proposal was put to the ASN board by Windsor on 18 November 1991. The documentation for that meeting included a memorandum from Windsor which indicated (i) that his project had been presented and approved by the funding source; (ii) that the project would be established in the form of a unit trust with Constant as trustee; (iii) that future loans were likely to be available from the funding source; and (iv) that all aspects of the arrangements needed to be verified and to that end he intended to go to the US and proposed that an ASN board member accompany him.

100. The minutes of the board meeting of 18 November note that:

The Manager's recommendations for venture with United States

financing was accepted in principle. ... Concern was

expressed at the bona fides of the American source and it

was RESOLVED that Messrs Windsor and Sutherland should go to

the United States and check all avenues before we proceed.

It was FURTHER RESOLVED that the Manager guarantee the

interest which could be foregone on the investment and the

costs of investigating the proposals to ensure there was no

loss to the pools.

101. After a further board meeting of 22 November in which the need for verification was reiterated, Windsor and Sutherland went to the United States. On 25 November, Sutherland had a meeting with a lawyer, Mr Astiz, of the Palo Alto offices of Baker and McKenzie. That evening he received written advice from Astiz which warned that the "lending transaction" could be fraudulent. It went on to note that:

there have been increased reports of fraudulent attempts to

seek payment of advance loan commitment fees for loans which

are never made.

It equally commented on deficiencies in the terms of the proposed financial surety bond which was to guarantee repayment of the commitment fee. The advice offered only superficial and heavily qualified comments about the bona fides of Fidelity Contract Insurance, the company providing the surety bond, and of Baskette, the escrow agent.

102. On 27 November Sutherland had two meetings with Baskette who was to hold the fee in escrow until he (Baskette) validated the surety bond. In evidence Sutherland said he could not remember having Baker and McKenzie's advice before those meetings although it is clear that suggested amendments made by Mr Astiz found their way into the final form of the surety bond. Sutherland agreed in cross-examination that he had the advice prior to negotiating those amendments.

103. It is also clear that Sutherland personally took no steps to check the bona fides of the surety company or of Baskette whom, he admitted, he took at face value. Shortly after these meetings with Baskette, Sutherland gave Baskette the commitment fee. Neither he nor Windsor were able to meet Janata prior to the fee being handed over. Sutherland indicated he had no intention of meeting Janata whom he described at the time as a "Scarlet Pimpernel".

104. Sutherland returned to Australia and at a board meeting of 4 December 1991 he reported his satisfaction with the escrow arrangements and the surety bond.

105. Under the surety bond, California Sundowner was to have made the first payment of investment funds by 27 May 1992. This did not happen. A default notice was faxed by ASN to the bond company, Fidelity Contract Insurance. It then became clear that the commitment fee was lost.

106. Sutherland was retained by ASN to seek to recover the commitment money. He engaged an attorney in Georgia to advise and make further inquiries. On 1 September 1993 that attorney reported that had "any reasonable and diligent inquiry" been made in November 1991, it would have revealed that the principals behind Fidelity Contract Insurance were not licensed to act as surety bond holders.

107. On 14 September 1992 Sutherland wrote to ASN setting out the progress of his inquiries and seeking further instructions. That letter noted that there was "also concern about AS Nominees and the Windsor security aspect". This reference to Windsor related to the guarantee to be provided by Windsor which is referred to in the board resolution of 18 November 1991. I have earlier set out the terms of this resolution. Though Cahill said in evidence that he had seen this letter, it was neither discussed at a board meeting nor was it responded to by ASN.

108. It remains to refer to two matters which are not agreed between the parties. First, notwithstanding the terms of the board resolution which indicated that both Windsor and Sutherland were, in going to the US, to "check all avenues before we proceed", Sutherland has maintained that this was not his understanding of his responsibilities. He considered that his task was merely to examine the bona fides of the escrow arrangements and the financial surety bond. Windsor was solely responsible for examining the rest of the transaction.

109. While I am prepared to find this to be his understanding - and it is reflected in his actions - it betrays a lack of appreciation of the responsibilities of a company director who, in the face of his board's declared concern about a proposed investment, has been given the opportunity to investigate the wisdom of that investment. In this regard, as in his role of director more generally, Sutherland was swimming in waters into which he should never have ventured.

110. The second area of disagreement between the parties relates to why SIP money was used at all in making the commitment fee given that the investment moneys to be secured were to go (whether by way of loan or not is unclear even on the respondents' evidence) to Constant. The memorandum Windsor submitted to the board meeting of 18 November makes plain that the investment was to support unit trusts of which Constant was to be trustee. Though I raised this issue of the use of SIP funds with counsel for ASN, the best explanation that could be given was that it was something of a mystery because, for lack of other documentation, it could not be said what the directors had in mind.

111. The first and most obvious issue arises out of the matter last mentioned above: Why was ASN trust money used in this way at all when, on the material before me, there was no prospective benefit to the beneficiaries of SIP3 from the transaction?

112. The ASC in its oral submissions proposed that the inferences were open to be drawn either that SIP3 was used because ASN alone had funds at the time, or, alternatively, that funds controlled by one company in the AS Group were used from time to time for the benefit of the Group or of another company in it and that this was an example of such a usage.

113. This is a situation upon which Windsor could have cast light. He has not done so. While I do not consider that the first of the above two inferences is an available one to draw on the evidence before me, the second is. It is one which, in the absence of explanation, can fairly be drawn - the more so given other examples of the practice to which I will later refer. Accordingly I am prepared to find that the decision to use SIP3 funds to pay the commitment fee was itself a breach of trust as being a decision taken without appropriate separate regard being had to the interests of the beneficiaries of SIP3. It suffered a like vice to that which, in the group company context, was condemned in Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1.

114. Irrespective of whether this decision was wrongful per se, the commitment fee arrangement and the $10 million investment it was to ensure, as the board itself recognised, were ones which excited concern. The demands for haste and secrecy only compounded the problem.

115. The payment of the commitment fee being entrusted to Sutherland, ASN was poorly served by his exertions on its behalf. It is not possible to avoid the conclusion that he had notice of the warnings sounded by Baker and McKenzie. His advice to ASN of 14 September 1992, in its reference to time constraints preventing further inquiries being made in consequence of the Baker and McKenzie advice, tend to confirm this conclusion. Yet he handed over the fee to Baskette. Although the respondent has submitted to the contrary, I can only conclude that Sutherland has failed in his duty as agent and delegate of ASN to exercise care, prudence and caution in the matter and his failure so to do caused the loss sustained by SIP3.

116. The sequel to the loss exposes a different set of issues. The ASC has submitted that, by accepting instructions from ASN to recover the money, Sutherland placed himself in a position of conflict of interest for the reason that he was one of the persons potentially liable to be sued by ASN in negligence for loss of the funds.

117. The ASC also submitted that, given the board resolution of 18 November 1991 requiring a guarantee from Windsor, there is no satisfactory explanation as to why recourse was not had against him. This, it was suggested, further demonstrated his dominance of the board of ASN.

118. There is substance in both submissions. Sutherland's position as legal adviser in this matter was an untenable one. He should have recognised this but did not. As to Windsor, what he proposed, what he in fact secured from the board and his apparent immunity from pursuit by the board, all provide emblems of his course through some number of the transactions yet to be considered.

119. Finally, if I am incorrect in the view that the use of ASN funds for the commitment fee was itself wrongful, and if it be the case that ASN in fact was intended to benefit in some way from the entire transaction, there is, nonetheless, a strong arguable case that entering into the California Sundowners investment arrangement with its ancillary requirement of a commitment fee was in the circumstances so imprudent as to amount in all probability to a breach of trust.

120. The transaction was one which excited concern from the outset. Far from being prosecuted with haste - only 10 days elapsed between the matter being first brought to the board of ASN and the handing over of the commitment fee in the US - it was a matter in which caution of some order was required. Though it tried to protect itself by sending Sutherland abroad with Windsor, the risk ASN was taking - "the hazard of adventure": King v Talbot 40 NY 76(1869) - was itself not one which was appropriate for a prudent trustee to take. "(R)estraint and conservatism" were what were required in this matter if it was to be pursued at all: cf Daniels v Anderson (1995) 16 ACSR 607 at 658. Responsibility for the loss SIP3 suffered because of the loss of the commitment fee cannot in consequence be off-loaded onto Sutherland alone.

121. This is the most financially significant investment of the period under review. Effected by Ample for the Ample 1 trust, its burden in fact has been borne by SIP1.

122. The Fawkner Centre is a large office building on St Kilda Rd, Melbourne. The Fawkner Centre Trust is a unit trust with 21 million $1 units. Its manager is Hudson Conway Corporation Ltd. The trust was created to purchase the building. The promotion of sale of units in it was undertaken by Cornwall Stodart Financial Services Pty Ltd, an offshoot of Cornwall Stodart, Solicitors ("Cornwall Stodart").

123. Baillieu Knight Frank prepared a valuation for the unit sale prospectus showing the value of the building on 21 May 1991 as $46 million. Hudson Conway Corporation Ltd underwrote the promotion of the trust in the following way. If more than 14 million but fewer than 21 million units were subscribed, it would buy the unsold units. If fewer than 14 million units were subscribed, it had the option to buy. If the trust was not fully subscribed by 31 January 1992 (taking into account the underwriting agreement) subscriptions would be returned to investors. On 30 January 1992 this date was extended to 13 March 1992. Hudson Conway Ltd ("Hudson Conway"), I should note, provided an income guarantee for the trust.

124. In March 1992 Windsor was given a "very good presentation" about the Centre and the trust by a private consultant, Sinn, who worked in conjunction with Cornwall Stodart Financial Services Pty Ltd in the promotion of the trust. Windsor was introduced to Sinn by a Mr Davis apparently of Cornwall Stodart.

125. On 12 March 1992 - the day before subscriptions were to be returned to investors if the trust was not fully subscribed - Cornwall Stodart faxed a proposal from Hudson Conway Corporation Ltd for Ample to invest in 7 million units in the Centre. There was to be some discount (relating to foregone commissions to which I will refer below) because Cornwall Stodart was facing the prospect of the trust being undersubscribed.

126. Though it is of no direct relevance to my examination of this transaction, I would note that the practice of Windsor described earlier of having funds deposited in association with an investment was heralded - but in the event not put into effect - in this proposal. I quote from the proposal merely to illustrate the form the practice took at this stage:

Hudson Conway has accepted in principle the proposition put

forward by Peter Windsor on behalf of his American

associates, namely that they, Hudson Conway, will deposit

funds in a Cash Management Fund to equivalent value of the

sale price of any property being sold subject to the

progressive payment of such purchase price over a 12 month

period as discussed.

Hudson Conway have agreed that the Fawkner Centre can be

used as a "trial run" for this concept.

127. As for the investment proposal itself, this was put to the board of Ample on the afternoon of 12 March 1992. Board members had also been provided with copies of the prospectus. Windsor was in attendance at that meeting. In less than three hours the board resolved to buy 7 million units to be funded as follows:

Cash

$320,000 (provided by the SIPs)

Foregone commissions $280,000 (see below)

Borrowings $100,000

Loan $6.3 million (provided by Vania

Pty Ltd, acompany associated with

Hudson Conway Corporation Ltd)

128. In reaching its decision the board took into account three "scenarios" (described in the minutes of 12 March 1992). These were:

(i) to borrow $6.3 million, but to

limit the lender's recourse in

the event of default to the

units acquired;

(ii) to sell the units within 3

months to a buyer introduced

by Windsor - and the minutes

indicate that Windsor advised

the board that he was

presently negotiating with

other buyers; and

(iii) to pay down the borrowing by further

investment.

129. In considering what the result would be if a sale did not occur the board took as its "worst-case scenario" the projection contained in the Cornwall Stodart fax that the gearing be reduced to 70 per cent. This it considered would show a return on investment of 15 per cent. The minutes do not indicate how that reduction was to be effected. And what was not considered was what in fact occurred - the result if the gearing remained at 90 per cent.

130. Ample entered into a secured loan agreement with Vania Pty Ltd ("the Vania loan") for $6.3 million. That agreement, in contrast with the board's decision, did not limit the lender's recourse to the units purchased. Recourse could in fact be had to the assets of the Ample 1 trust. Beyond the Vania loan, Ample also assigned to Hudson Conway Ltd by way of security its income from the Alamagordo Film Book investment, a distinct, and seemingly profitable, investment of Ample 1.

131. If the Vania loan was not reduced or the units sold, Ample would not have sufficient income from Fawkner trust distributions and from the Alamagordo investment to service the loan. It would need money from the SIPs. And the SIPs were so used. I would emphasise that there does not appear to be a single minuted instance of the board of ASN deciding to invest SIP funds in Ample 1. As I noted early in these reasons, SIP1 has invested over $5 million in Ample 1. I will return to this matter. It needs, though, to be said that if the board of ASN had, in effect, agreed to underwrite Ample's liability to Vania that, of itself, would have been an improper - a "fettering" - exercise of discretion on its part: see Ford and Lee, Principles of the Law of Trusts, para 954 (2nd Ed); see also Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597 at 605-606.

132. In the year ending 30 June 1992 the Fawkner Centre investment was wrongly attributed to SIP3. The effect the Vania loan repayments had on Ample was not, in consequence, disclosed in Ample's accounts. By the time the error had been corrected its effect in Ample 1's accounts was disguised because Ample, as will be seen, treated a later "transaction" - the Second Fawkner Centre Transaction - as an effective one.

133. At the time it resolved to make this investment the board had no independent valuation made of the property. The valuation in the prospectus alone was relied upon. There is no evidence before me that any member of the board had experience either in valuation or in the Melbourne commercial property market. Both Mr Cahill and Mr Sutherland said they thought it unnecessary in the circumstances of this investment for the trust company, Ample, to obtain an independent valuation before investing in the units. Mr Cahill further indicated in cross- examination that the board was aware that there had been a slump in Melbourne's commercial property market.

134. The Fawkner Centre property was valued in the prospectus as at 21 May 1991, at $46 million. The Ample investment was made in March 1992. By 30 October 1994 the value of the property had fallen to $35.3 million.

135. Such legal advice as was obtained by the board was furnished by Davis of Cornwall Stodart, the firm which provided the solicitor's report for the promoters, Hudson Conway, in the prospectus for the units. Cahill said he did not at the time see any conflict of interest in this.

136. Two final matters require mention. First, the negotiations Windsor was having with "other buyers" which were referred to in the minutes of 12 March 1992 came to nothing. No other buyer was found.

137. Secondly, and this is not fully agreed, one of the sources of funds making up the investment were referred to in the minutes as "foregone commissions" amounting to $280,000. The provenance of these commissions was described in a letter of 27 May 1992 from Davis, a Cornwall Stodart lawyer. They were in the nature of brokerage provided by Hudson Conway to Cornwall Stodart Financial Services ($105,000), Windsor ($105,000) and Pilley ($70,000). The letter indicates that these sums had been advanced to Ample to allow it to aggregate sufficient funds to make its subscription. They "can be repaid by Ample when it is able to refinance its position". The letter also enclosed a cheque for $5,000 from Cornwall Stodart as a contribution to Windsor's costs of travel to Melbourne. This was made apparently in recognition of Windsor's efforts on the Fawkner Centre.

138. In his examination by the ASC Windsor professed irritation at this letter which he said was compromising. He said the commission was never intended to be paid; that it was, effectively, a discount of the purchase price the benefit of which went to Ample. What he seems not to have explained is how and why Hudson Conway thought it appropriate that he, Windsor, receive brokerage in the first place. He was, after all, acting for the manager of the purchaser. Equally it is not clear whether, when it passed its resolution to invest on 12 March, the board was aware that Windsor had a sizeable interest in the commissions foregone.

139. The alleged vices in the events I have narrated are unsurprising: (i) this negatively geared investment was reckless, speculative and hazardous; (ii) it was founded on conflicts of interests involving variously ASN, Windsor and Cornwall Stodart; and (iii) its inadequate documentation in relation to ASN breached the Corporations Law, s258.

140. I should state at the outset that I refrain from entering upon whether or not the provision to Windsor (a) of brokerage by Hudson Conway and (b) of $5000 by Cornwall Stodart could, on further inquiry, provide a possible basis for impeaching the entire Fawkner Centre investment by Ample. However, I would observe that it is not apparent why Windsor should have had such provision made for him by parties with interests adverse to those which he was duty bound to protect, whether or not he personally received the benefit of the brokerage: cf Grant v The Gold Exploration and Development Syndicate Ltd (1900) 1 QB 233; Taylor v Walker (1958) 1 Lloyds R 490.

141. The question whether the investment was of such character and was made in such circumstances as to be characterised as reckless and hazardous admits only one possible answer in my view. In less than three hours, and on the day before the unit trust scheme may well have fallen to the ground for undersubscription, the board of Ample made a $7 million investment without independent advice or an up-to-date independent valuation. It did so with what can only be said to be a cursory consideration of the financial implications of the investment for Ample and, for that matter, ASN and the SIPs. It did so without any clear view of what the strategy was the board was putting into effect in making the investment - the investment may in fact only have been for 3 months and, it could be said, for Mr Windsor's convenience while he negotiated with other buyers. This was reckless behaviour for a trustee to engage in - and it was recklessness of some magnitude. The breach of trust here is a grave one.

142. Its actual consequences are a testament to this. But this is not to judge the matter simply from the standpoint of hindsight. Responsibility to the investor-beneficiaries was, simply, abdicated. The transaction became the haemorrhaging wound of SIP1.

143. I should add, though it was not argued expressly in these terms, that there are obvious grounds here upon which a claim for accessorial liability could be made against Windsor. He was the procurer of the investment and of the breach of trust: see Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193 at 238-239. The ASC's case sought to impose liability on Windsor directly as a Corporations Law s60 director of Ample. I will return to this later in this judgment.

144. The ASC likewise submitted that the directors of Ample were in breach of the Corporations Law s232(4) in taking Ample into this investment. I agree with this. It was their own reckless behaviour which caused Ample to commit the grave breach of trust it did and to be exposed to the drain of the Vania loan: cf Fouche v The Superannuation Board [1952] HCA 1; (1952) 88 CLR 609 at 641.

145. The manner in which the transaction was put into effect is no less arresting. (i) The promoter's legal adviser was engaged by the manager seemingly to negotiate with Hudson Conway. (It is the same legal adviser I would note who wrote the letter of 27 May 1992 detailing the brokerage arrangements.) (ii) The Vania loan agreement failed to give effect to the board decision as to the basis of the borrowing (ie limited recourse). (iii) The accounting treatment initially attributed the transaction to SIP3 - which was at this stage the source of its funding in any event. (iv) Finally there has been what can only be called the pirating of the SIP funds.

146. As I have noted, there has never been a minuted board decision of ASN committing SIP1 funds to any investment in the Ample 1 trust. Yet, as I have also noted, over $5 million of SIP1 funds are now so invested. There has been in this a breach of fiduciary duty by ASN and on a large scale. At best it has acted in the interests of Ample without considering and protecting those whom its first and paramount duty is to serve. At worst it has simply allowed this use of SIP1 funds to occur because of its own reckless indifference to its responsibility to the investor-beneficiaries. The ASN directors are deeply implicated in this. Their potential liability as accessories under Barnes v Addy is strongly arguable.

147. Given my earlier finding that Ample itself was in a direct fiduciary relationship with the beneficiaries of the SIPs, its own conduct once SIP investments in Ample 1 became necessary has probable fiduciary law consequences. Consideration of these, though, is better later left to discussion of the Second Fawkner Centre Transaction.

148. The respondent's submissions in relation to these events were, in essence, that the investment should not be judged with the benefit of hindsight; that negative gearing was an acceptable investment technique; and that there was no evidence to show what a prudent investor would have done in the circumstances. I mean no disrespect when I say that the considerations relied upon by the respondents may possibly have carried some weight if the question was whether the directors of a non-trust company had exercised due skill and diligence in making a commercial decision. That is not the question here. One is not concerned with "good or bad company conduct" - to use language from the respondent's written submission. One is concerned with the proper discharge of duties of trusteeship. It cannot be assumed that persons who invest in superannuation funds intend their investment to be hazarded in high risk activities: cf Space Investments Ltd v Canadian Imperial Bank of Commerce Trust Co (Bahamas) Ltd [1986] UKPC 1; (1986) 1 WLR 1072. The person making investment provision for his or her future may be expected to be somewhat more risk averse than the corporate entrepreneur.

149. This transaction is of narrow compass. It nonetheless exhibits features apparent in some of the transactions so far considered.

150. It is uncertain who introduced this investment to Ample. California Film Finance (Vic) Pty Ltd ("Calvic") is a film finance company whose directors at the relevant time were Messrs Pilley, Park and Crombie. Cahill became a director as a result of the loan transaction discussed here. The manager of Calvic is Australian Property and Financial Management Pty Ltd ("APFM").

151. The subject transaction involved a loan to a film finance company that was to on-lend the money to investors in a film called "Carlito's Way". The funds came from Ample 2 which had been created for the specific purpose of lending money to Calvic. Part of the funds for this loan ($877,016.64) came from directed investments. The basis on which those investments were made was that the funds were directed to a film investment. I did not understand it to be suggested that some form of Quistclose trust was created in consequence: cf Re Australian Elizabethan Theatre Trust [1991] FCA 344; (1991) 102 ALR 681.

152. On 31 July 1992 Ample paid $2,088,500 to Calvic. It was described in the cheque payment voucher as "Loan to APFM for finance for film book loan". There are no minutes of Ample recording a board decision to make that loan.

153. In the accounts for the year ended 30 June 1993 Ample split the Calvic loan into two parts: Loan 1 of $1,571,062.56 and Loan 2 of $569,889.40. The loan was not split in the general ledger.

154. Loan 2 was in fact on-lent by Calvic to APFM. It is not clear when this happened. It was not part of the original agreement for Calvic to on-lend to APFM. That seems to have happened when some investors in the film pulled out late in the day leaving Calvic with unapplied funds. According to Cahill, Calvic applied to Ample for permission to on-lend; Ample did not ask for what purpose APFM wanted the money; and it did not take security from APFM. There is no documentation to support this agreement though Cahill asserted that the permission was sought by letter. It was not discussed at a board meeting. And there is no evidence that the consent of any of the investors was sought to have their moneys applied otherwise than in accordance with their original intention.

155. At the time of the loan to Calvic, Ample took a charge over Calvic. This was not registered with the ASC until 18 September 1994, 48 days after its creation. It would for this reason be void against a liquidator should Calvic go into liquidation: Corporations Law, s266. A Melbourne solicitor (Lewis) was handling the documentation including the charge. Cahill was unaware of the late registration until quite recently.

156. Loan 1 has been regularly serviced. Loan 2 has not been serviced since the split because APFM was having difficulties servicing its borrowings. Park suggested the loan not be serviced. Ample apparently has acquiesced in this. Pilley proposed in or about September 1993 that Ample take over the Calvic loan to APFM so that the latter's liability would be to Ample direct. This has not happened. Loan 2 has been capitalised in the Ample accounts.

Australian Securities Commission v As Nominees Limited, Ample Funds Limited, As Securities Pty Limited and Peter Grenfell Windsor [1995] FCA 1663

At a glance

Court

Decision date

Before

Source

Judgment (457 paragraphs)

Australian Securities Commission v As Nominees Limited, Ample Funds Limited, As Securities Pty Limited and Peter Grenfell Windsor [1995] FCA 1663 (15 November 1995)

Parties

Legislation Cited (2)

Cases Cited (22)