Collie v Merlaw Nominees Pty Ltd & oRS [1998] VSC 203

81. As to the second issue, I decline to express any view having regard to the conclusions I have already reached. In any event my views on the merits of the plaintiff's case appear elsewhere in this judgment.

84. I would in any event in the exercise of my discretion have refused the relief sought unless it were shown to a very high degree of satisfaction that the plaintiffs' case was so hopeless that the trial should be summarily terminated. I doubt very much if R. 35.04 is available during trial to a defendant as some kind of substitute for a demurrer or for a no case submission without election before the plaintiffs' case is closed.

91. The principal participants in the events giving rise to this litigation were Mr Collie and Mr Nolan. Each of these men is a professional, trained as a solicitor and a chartered accountant respectively, with extensive background in his discipline. Each is an astute and experienced businessman. The wives of the two men presented, to a greater or less extent, as naive in the ways of business and finance and as having little interest in them. Each of Mrs Nolan and, to a lesser extent, Mrs Collie was content simply to sign documents presented by her husband and to act at his direction without exercising independent judgement or otherwise querying that direction. In the case of the plaintiff, Mr G.M. Collie, he too acted simply at the direction of his son.

94. In late 1984 there were some eight companies within the Collie group. In, each case Mr Collie's was the directing mind of these companies. They included Collian Group Holdings Pty Ltd, a company which held all the shares in Collian Properties Pty Ltd; Collian Properties Pty Ltd which became Nawric Pty Ltd; and Collian Services Pty Ltd. Collian Services provided services for the activities of Mr Collie and his companies, trading under the name Collmor Management Services. All three companies are in liquidation.

97. Mr Nolan, too, carried on business through a number of companies including Merlaw. Merlaw was also the trustee of the Prudent Trust which was a trust created for the benefit of the Nolan family members. Mrs Nolan and he were directors of Merlaw in 1984 to 1990 but his was the directing mind. I have mentioned already that Merlaw between 14 June 1988 and 7 February 1998 was deregistered for non-filing of returns.

100. Another person who played a role in the events with which I am concerned is Helen Marjorie Barr who worked for Mr Collie as an employee of Collian Services in the Jolimont office. Her duties included looking after company documentation and looking after office administration generally. It was she who attended to the preparation of the Terramont documents, who was appointed a signatory with the directors, Mrs Collie and Mrs Nolan, of the Terramont bank account, and who in fact wrote most, if not all, of its cheques and signed them. She was, in May 1985, appointed secretary of Terramont in addition to the two wives. She remained in the employ of Collian Services and secretary of Terramont until 31 December 1988. It was she who, according to Mr Nolan, gave him the copies of the contract of sale to review in February 1985 and reminded him on at least one occasion thereafter that he had not signed them. It was she, according to Mr Collie, who placed the executed documents on his file and maintained the file until she left his employ. Ms Barr was not called as a witness and counsel for Merlaw invited me to draw an O'Donnell v Reichard inference from her absence. Mr Collie told me that she lived somewhere in New South Wales but that he did not know where. He said he did not think it appropriate to find where she was because he did not think this was in issue. I must say that I would have thought it very surprising that those advising Mr Collie did not see her as a potentially important witness in this case. The difficulty is that she would be equally important, if not more so, for Mr Nolan's interests. There was no evidence that she was partisan or hostile to either party. I will not draw any inference from her absence because she is not a witness in the camp of either party to this litigation. Such inference as might be drawn from her absence may be drawn equally against each of the parties.

104. Essentially, this case concerned the arrangement which was said to have been made between Mr Collie and Mr Nolan or persons or entities within the control of each of them in late 1984 and early 1985 and the rights which arose from such arrangement, and the effect upon those rights of the grant of the ANZ mortgage in December 1987 and of the Bank's enforcement of its rights under that mortgage. The events which underlie these matters date back to 1984 when Mr Collie was the tenant of the ground floor of the property at Jolimont. There, Mr Collie carried on practice under the name Ian Collie & Co as a solicitor specialising in tax related and property transactions. His occupancy of this part of the land was by a tenancy agreement with Mr Nolan or his company, Merlaw, which owned the property. Mr Nolan carried on a variety of businesses from the first floor. The tenant was Collian Services which paid a rental of $200 per week plus a share of rates and taxes and other outgoings such as general light and power. The two men, or the entities associated with them, also shared the cost of certain equipment which they both used such as telex and the like. It appears that this was achieved by Mr Collie, or one of his companies making payments to Merlaw for these expenses which it had previously incurred and paid.

108. Late in 1984 there was discussion between Mr Collie and Mr Nolan about the former acquiring an interest in the Jolimont property. According to Mr Collie the reasons for this were his interest in acquiring an asset which he believed had the prospect of capital appreciation and Mr Nolan's need for money. The two men had found that they were able to get on well together and Mr Collie was doubtless keen to have an interest in the property from which he conducted his business. The value of the property, for this purpose, was agreed at $350,000 so that the price of the half-share Mr Collie was to purchase was $175,000. At this time, too, the financing of the property was renegotiated by Merlaw and a fresh mortgage was entered into by Merlaw to secure a loan from Ogge Nominees in the sum of $250,000. The two men agreed that the property would be sold, by Merlaw to a joint venture vehicle for $350,000 payable as to $90,000 cash in 60 days, as to $250,000 by the assumption by the purchaser of the obligations of Merlaw under the Ogge Partners mortgage and as to the balance of $10,000 by a payment at the end of five years.

111. A further consideration affected the transaction and the form which it was to take. Mr Collie had, in 1982, been charged with defrauding the Commonwealth of sales tax and in November 1984 he had been committed for trial. In October of the same year Mr Nolan was also charged with similar offences. Each man, therefore, apprehended that in due course claims might be made against him for substantial sums of money by the tax office. The vehicle which they selected to give effect to the arrangement was therefore designed to protect their assets from such claims and for this purpose the transaction had to be an arm's length sale for full value to a stranger.

114. The purchaser was a shelf company held by Mr Collie called Halls Gate Pty Ltd whose name was changed on 27 February 1985 to Terramont Pty Ltd. I shall for convenience identify it by the name Terramont even for events which pre-date the name change. Terramont was to be a company with no legal connection with the two men. Their wives were appointed its directors and secretary and the signatories to its bank account. Terramont itself was to act as trustee of two discretionary trusts each representing the family interests of one of the two venturers. The trusts, which themselves were shelf trusts created some years previously by Mr Collie, were the Halls Gate No.32 Trust and the Halls Gate No.31 Trust. Trust No.32 became the Terracol Trust and its primary beneficiaries became Mr Collie's wife and her children born and to be born thereafter. Its principal, however, was Mrs Nolan. Trust No.31 became the Terranol Trust, and, its primary beneficiaries became Mr Nolan's wife and her children and children to be born thereafter. Mrs Collie was appointed its principal. In each case, the Trust Deed provided for secondary beneficiaries, being certain named charities, and tertiary beneficiaries to whom the trustee might in its discretion pay income or capital. The role of the principal was to appoint and remove the trustee. Mr Collie said that these arrangements were agreed to in late 1984 and the documentation to record it was brought into existence for execution in due course in February 1985.

117. One such document was the contract of sale whereby Terramont agreed to purchase the property from Merlaw. A hand-written draft contract of sale dated 31 December 1984 prepared by Mr Collie was in evidence. According to him, its terms were discussed and agreed with Mr Nolan before Christmas 1984 except for the date which was changed to 1 January 1985 for land tax purposes. Mr Nolan told me that he did not agree to its terms. Nevertheless it was engrossed by Mr Collie's staff. Mr Collie said that three copies of this contract were prepared. Two are in evidence, each bearing only the signature of Mrs Collie on behalf of the purchaser, Terramont. No copy bearing the seal of Merlaw or the signature of any person on its behalf was produced. According to Mr Collie a further copy was signed by Mr Nolan in his presence and retained by him, Collie, on his file. It has not been found. Mrs Collie, too, said that she saw Mr Nolan sign a copy. Mr Nolan denied signing any copy of the contract. For reasons which I will later set out I prefer the evidence of Mr and Mrs Collie on this issue.

120. The date for settlement fixed under the contract was 15 February 1985. Under its terms, Terramont was then to pay to Merlaw $90,000 cash and to assume liability for the Ogge Nominees mortgage. Under the arrangement between the two men the sums required for Terramont to comply with these obligations were to be provided by them or their entities in equal shares. Settlement, however, did not occur until six days later. This was because of delays encountered in obtaining Mr Collie's $45,000. In fact, he raised the money through his father, the plaintiff. It was paid into the account of Collian Properties with the Commonwealth Trading Bank on 21 February and a cheque in that sum drawn by that company was lodged with the ANZ Bank in the newly established Terramont account on the same day. At the same time $45,000 was transferred to the Terramont account by Merlaw. Present at the ANZ Bank on this day were Mr Nolan and Ms Barr. The Terramont account was opened with the $90,000 deposit and a cheque drawn in favour of Merlaw in the sum of $88,000 and paid into its account with the same bank. The cheque butt, which is in Ms Barr's hand-writing, describes this payment as "p/p purchase price 32 Jol. Tce 90,000... 88,000" The cheque drawn was for $88,000 only because it was thought undesirable to overdraw the Terramont account on its first day. Ms Barr and Mr Nolan then agreed that the $2,000 outstanding would be paid on the day upon which Terramont was next to make a payment of interest due under the Ogge Nominees mortgage.

123. In this way the $90,000 was paid to Merlaw as provided for in the agreement. There was no evidence, documentary or otherwise, of any agreement between Ogge Nominees, Merlaw or Terramont or in any way involving Mr Collie or Mr Nolan whereby Terramont formally acknowledged or Ogge Nominees accepted that Terramont would henceforth make payments to it under the Ogge Nominees mortgage. I am, however, satisfied that, as a matter of construction, the requirement in the contract of sale that Terramont assume the obligations of Merlaw under that mortgage was satisfied by an acceptance by each of Merlaw and Terramont that Terramont would pay to Ogge Nominees direct or to Merlaw the money from time to time payable by Merlaw under the mortgage to the mortgagee. It is apparent from the events of February 1985 and thereafter that both Merlaw and Terramont saw this condition as having been satisfied by 21 February 1985 which, accordingly, was the date on which settlement of the contract of sale occurred.

127. This is the period from the date of settlement to the date on which the Ogge Nominees mortgage was discharged and Merlaw granted a fresh mortgage to the Bank which is said to constitute a breach by it of various duties owed to Terramont.

130. In the first two years of this period, Mr Collie and Mr Nolan continued to occupy each his own part of the property. They, or their companies, from time to time made payments by way of loan to Terramont from which it paid to Ogge Nominees the Merlaw quarterly interest payments. Mr Collie ceased paying rent to Merlaw and, indeed, neither he nor Mr Nolan nor any of their entities paid rent to Terramont. The out-goings and common expenses were shared as before but they were, for the most part, paid to Terramont which in this way assumed the additional role of service provider for the businesses. In July 1985 Terramont leased from Esanda a photocopier and fax machine and in August 1986 a new telephone system. These payments were made to Esanda by direct debit from the Terramont account. Again, for this, the two men or their entities made payments in more or less equal shares to Terramont. During this period such inequalities as existed between these contributions did not cause any disquiet or difficulty between them.

133. On 24 April 1987 Mr Collie was convicted of the fraud charge and began to serve a sentence of imprisonment. He was released on 17 November 1987. During this time he made no contribution to Terramont for the purpose of the Ogge Nominees mortgage payments or for the on-goings and other shared expenses. By November 1987 there was a significance imbalance of contributions to Terramont and its account with the Bank was overdrawn by some $48,000.

136. At this time, too, the Ogge Nominees mortgage was becoming due for discharge on 17 December 1987 and the question arose whether it should be rolled over or fresh finance obtained. In December the amount required for discharge including one instalment of interest and the costs associated with the discharge was $258,956.50. Both Mr Collie and Mr Nolan told me that there was at that time some uncertainty about interest rates in the future and that Ogge Nominees required a variable interest rate term in any new mortgage. Mr Nolan suggested to his friend that the property be refinanced by his own bank, the ANZ Bank at 454 Collins Street, with a bill facility of $265,000 on a short-term basis to see how interest rates developed. This sum would be sufficient to provide the funds to pay out the Ogge Nominee's mortgage. Mr Collie said he agreed to this and drove Mr Nolan to the Bank on Christmas Eve 1987 for him to sign the necessary documents. Mr Collie was not present at the signing of the documents; he waited outside for Mr Nolan. Mr Nolan said that he may have told the Bank officers that Terramont owned the land but that the mortgage had to be given by Merlaw because Terramont did not have title. All of this was done as a matter of urgency because the Ogge Nominees mortgage was overdue and the Christmas holidays were imminent.

139. The Bank mortgage, like the Ogge Nominees mortgage, was an all-monies mortgage. The significance of this with respect to the Bank mortgage, however, was that Merlaw owed money to the Bank in respect of dealings other than that regarding the Jolimont property. In particular, it already had since April 1986 a bill facility with the Bank in the sum of $450,000 and its current account was, on 24 December 1987, overdrawn in the sum of $31,446. The property which Mr Collie thought was being mortgaged for $265,000 plus the Terramont overdraft, now stood as security for some $780,000, or perhaps more depending upon the liability of Merlaw to the Bank for other debts of the Nolan group. It must be taken that Merlaw was aware of this. Mr Collie and the directors of Terramont, Mrs Collie and probably Mrs Nolan were not.

143. This period marks the decay of the relationship between Mr Nolan and Mr Collie and the ultimate sale of the property by the Bank as mortgagee in July 1990.

146. In July 1988 the bill facility given to Merlaw and secured by the Bank mortgage was increased from $265,000 to $300,000. The extra $35,000 was credited to the Merlaw account and was treated by Mr Collie as an adjustment in favour of Mr Nolan to the disparity which then existed between the two men as to their contributions to Terramont under the arrangements to fund its activities.

149. By the end of 1988 the Terramont overdraft stood at about $11,600 and there remained an imbalance in the contributions to the Terramont account in favour of Mr Nolan. The extent of this imbalance is a matter of controversy. According to Mr Nolan's figures provided by him to Mr Collie about this time it exceeded $50,000. Mr Collie's adjustment to these figures suggests that it was closer to $15,000, but in either case it was in favour of Mr Nolan's interests. Ms Barr had left Mr Collie's employ. Terramont had been deregistered because it had not lodged returns for 1985, 1986, 1987 and 1989. Under the arrangement made in 1985 between the two men the preparation and lodging of these returns was Mr Nolan's responsibility. Mr Collie, however, said that he did not learn of the deregistration until early 1989. At this time, too, the Bank was beginning to press Mr Nolan to put his accounts in order.

152. There followed in early 1989 a series of negotiations designed to enable Mr Collie and his interests to retrieve the situation either by selling the property, by Mr Nolan or his entities buying out the Terracol interests or by letting the ground floor to a third party. The first and third courses were rejected out of hand by Mr Nolan. The buy-out figure between the two men could not be agreed upon and the negotiations, in due course, broke down in about April of that year. As part of these discussions Mr Collie obtained a valuation of the land in the sum of $900,000 as at 21 April 1989. The valuer, Graeme Francis Burns, gave evidence of this valuation and I accept it.

155. In April, Mr Collie sought to establish a restaurant in South Melbourne and was frequently absent from the premises. On 14 April 1989 Mr Nolan changed the locks and advised Mr Collie that he might have a key to enable him to have access to the premises during business hours or otherwise by "prior arrangement". Mr Nolan said that this was done for security reasons and there may be a germ of truth in this. I suspect, however, that it was calculated to put pressure on Mr Collie in the hope that he would agree to Mr Nolan's buy-out figure. In any event Mr Collie saw himself as effectively excluded from the ground floor and he did not seek to return. His files relating to the purchase of the land by Terramont remained at Jolimont.

158. At this time, too, Mr Nolan continued to press Mr Collie to pay his share of the Merlaw mortgage payments, at least until 31 May 1989.

161. Meantime, the Bank pressure on Mr Nolan was increasing and in July 1989 it declined to rollover the $300,000 bills. The other Merlaw bills, for $450,000, continued to be rolled over until August 1989. The consequence of this was that these sums were added to the Merlaw overdraft with the ANZ Bank which at the end of August 1989 stood at $896,072.94.

164. On 6 October 1989 Mr Nolan wrote to the Bank that he had received legal advice that no contract with respect to the land existed and that, "as a result, the Collian Group has no interest in the land". In this letter he listed the Jolimont property as an asset of the Nolan group with a value of $900,000. The terms of this legal advice are not before me. It is not clear whether it was based on the factual instructions given by Mr Nolan to his legal advisor or upon some legal point. The effect of it was, however, to enable Mr Nolan to assert to the Bank, to Mr Collie and ultimately to the court that the contract which he had previously accepted as existing had in fact never existed. Having effectively obtained possession of the whole of the premises in April, he and Merlaw now denied the title of Terramont to them.

167. The events of the year or so which followed show how Mr Nolan sought to maintain this position and to defend it against the efforts of Mr Collie, his family members and entities associated with them to dislodge him.

170. On 15 September 1989 Mrs Collie lodged a caveat on the title to the property asserting as the basis for her equitable interest, the contract of sale to Terramont which was a trustee for her. At the insistence of Merlaw, the Registrar of Titles gave to her notice pursuant to s. 89A(3) of the Transfer of Land Act 1958 and she commenced proceeding No. 2034 of 1990 against Merlaw and others seeking declarations as to her equitable title. Merlaw filed a defence denying the contract of sale and denying her entitlement as beneficiary of the Terracol Trust to maintain an equitable interest in the land.

173. In June 1990 the Bank wished to sell the property as mortgagee and sought to have the caveat removed. The response of Merlaw to the suggestion that it might agree that the sale proceed and that the surplus funds be placed in a trust account to await the resolution of the dispute between it and Terramont or Mrs Collie, was met with an application by Merlaw that Mrs Collie's proceeding be struck out as frivolous and vexatious.

176. Meantime, on 15 February 1990, the due date for payment by Terramont to Merlaw of the remaining $10,000 under the contract of sale, Messrs Marshall & Dent tendered that sum to Messrs Baker & McKenzie. The tender was rejected. The evidence of this was sparse. It is not clear on whose behalf Marshall & Dent made the tender, for Terramont was then deregistered. It is not at all clear that the delivery of a bank cheque in that sum to Baker & McKenzie constituted a good tender to Merlaw.

179. In June 1990 Mrs Collie agreed to the removal of her caveat and the property was sold at auction by the Bank on 18 July 1990 for $750,000. On the following day the net proceeds of $729,638.10 were paid into the Merlaw account, reducing the overdraft from $1,051,638.36 to $322,270.26.

182. Mr Collie then moved in a different direction. It appears from an affidavit of Mrs Collie filed in proceeding No. 2034 of 1990 and tendered by the defendant in this proceeding that on 25 July Baker & McKenzie, presumably acting for Mrs Nolan, indicated that their client would oppose any application to reinstate Terramont. On 26 July Mrs Collie requested Mrs Nolan as principal of the Terramont Trust to exercise her powers under cl.9.3 of the Trust Deed to appoint a new trustee in place of the deregistered Terramont. By letter dated 2 August Mrs Nolan also declined this request, again through her solicitors Baker & McKenzie. The terms of this refusal are remarkable for three reasons. First, Mrs Nolan told me and I accept, that this type of decision was made by her husband. Second, the deregistration of Terramont was the result of Mr Nolan's own failure to lodge returns. Third, Mrs Nolan was asked to exercise a function to breathe life into a trust for the benefit not only of Mrs Collie but of infants and charities. Baker & McKenzie wrote in these terms:

"We are not aware of any basis for changing the trustee of the Terracol Trust and have advised Mrs Nolan that she should not accede to your request. Mrs Nolan agrees."

186. On 21 December 1990 Mrs Collie, therefore, applied to the court upon originating motion in Proceeding No.13323 of 1990 seeking an order appointing her husband to be trustee of the Terracol Trust. It may be supposed that she and those advising her took the view that, since she was not a beneficiary of the Terranol Trust, she had no standing to apply for similar relief in respect of that trust. The application came on for hearing on 8 February 1991 when an order was made appointing, not Mr Collie, but his father, Mr G.M. Collie the present plaintiff, to be the new trustee. The terms of the vesting order made by the court are as follows:

"The property both real and personal of the Terracol Trust, including without limiting the generality hereof, the right to sue for or recover any chose in action and all other powers, authorities and discretions provided for by the Deed of settlement dated 23 December 1981 constituting the said trust or at law or in equity be vested in the said Geoffrey Malcolm Collie."

190. Mrs Nolan was represented at the hearing but the order was not shown as having been made by consent. The writ in this proceeding was filed on 26 March 1991.

193. It remains to record the fate of Mrs Collie's proceeding brought to protect her caveat in 1990. On 9 October 1991 Merlaw applied on summons to strike it out for want of prosecution and on 23 October 1991 Master Evans made such an order with costs. Mrs Collie is not showing as being present or represented before the Master.

196. This proceeding has moved at a rather leisurely pace through its interlocutory stages against Merlaw and Mrs Nolan and the Bank. On 8 February 1996 the Bank filed a writ in Proceeding No. 4351 of 1996 against Mr and Mrs Collie seeking $6,176,318.70 under their guarantee of the accounts of a number of companies within the Collie Group. On 28 April 1998 that proceeding, as well as this proceeding insofar as it seeks relief against the Bank, were settled by an agreement of that date. The settlement agreement shows that the parties compromised, not only the claims by or against the Bank in this proceeding and in Proceeding No. 4351 of 1996, but also a proceeding against the Bank brought by Aberford Pty Ltd, another company within the Collie Group (No. 11961 of 1991) and two proceedings brought by the Bank against Woodbury Park Pty Ltd, another company within the Collie Group (No. 4878 of 1997) and against Mr Collie himself (No. 5845 of 1997). The release is expressed in very wide terms which would cover claims between the parties other than those in those proceedings and this proceeding. The operative provision of the agreement is that Mr and Mrs Collie, Aberford and Woodbury Park agreed to pay $30,000 to the Bank in full settlement of all claims, judgments and costs.

199. In the light of these facts, I turn now to deal with the issues raised in this case.

203. I am satisfied that Mr Nolan and Mr Collie had, by early February 1985, agreed upon the transaction which they, or persons or entities under their control, would enter into. The terms of this transaction were those set out in the hand-written draft contract of sale prepared by Mr Collie and assented to by Mr Nolan in the week before Christmas 1984. All that remained was to prepare the documentation and to procure the funds necessary to give effect to it. Mr Nolan said that all the terms of the agreement had not been settled. He was unwilling to sell certain antique light fittings in the premises notwithstanding that they were included in the draft agreement and he had mentioned this with Mr Collie. I reject this evidence. He said that other aspects of the transaction, such as the sharing of outgoings and the purchase of equipment to be used by the two men or their businesses and the means of funding this had not been agreed. I find that the two men said nothing, at least prior to 21 February 1985, about these matters. They were content to continue as before, sharing these outgoings equally. They had minimal common equipment, perhaps a telex. Other items came later. They were agreed, too, that Mr Nolan would attend to any accounting matters affecting the trustee and the trusts and that Mr Collie would do the legal work. In my view the proper analysis of the arrangement agreed to between the two men is that there would be two or perhaps three agreements. The first, between Merlaw and the trustee Terramont was for the purchase of the land. The second related to the contributions which each man or his entities would make to Terramont to enable it to meet its obligations under the contract of sale. The parties to this second agreement were the two men, although it was probably assumed that the funds would be provided by one or more of the corporate entities within the group of companies which each controlled. These contributions would include, too, the outgoings which Terramont as purchaser in possession would incur. It may be that they agreed in February, or perhaps later, that Terramont would also be an appropriate vehicle for the acquisition of equipment for them to share and to pay the costs associated with this. The distinction between these two agreements is confirmed by the fact that the contract of sale makes no mention of the second agreement and, further, by the fact that its capacity as trustee of the two trusts is mentioned only with respect to the first agreement.

206. And so, in early 1985, Mr Collie prepared the necessary documentation to move Terramont and the two trusts off their shelf and into the hands of the two wives. A series of resolutions, deeds, consents and the like were prepared and executed by the appropriate persons. These documents bear the dates 8 February 1985 and 12 February 1985 but I find that they were executed by Mrs Collie and Mrs Nolan and the other signatories on the one day at the office in Jolimont. There was no real challenge to Mr and Mrs Collies' evidence as to this. Another of the documents was the contract of sale of the property. I have already mentioned that I resolve in favour of Mr and Mrs Collie the conflict between the evidence of the witnesses as to whether Mr Nolan signed one copy on behalf of Merlaw. It is necessary, therefore, that I express my reasons for this conclusion.

209. The events, of course, occurred nearly 15 years ago and this must necessarily cause me to be cautious about accepting the recollection of any witness. Mr Collie, however, was cross-examined at great length over six days. I had ample opportunity to assess his demeanour and in so doing I formed the view that he was a witness of truth notwithstanding the conviction for fraud which he admitted. In chief, he made no mention of Mr Nolan signing the contract. He maintained, however, in cross-examination that Mr Nolan signed a copy and that this was done in his office in his presence and in the presence of the two wives who were themselves then signing a number of documents relating to the trusts. He said later that he thought Mr Nolan took and signed a copy which had been signed by Mrs Collie. My impression of his account, however, was that he was uncertain of these events and I would be reluctant to act solely upon his evidence of the signing by Mr Nolan.

212. Mrs Collie, too, gave evidence of the signing. She said that Mr Nolan signed at least one of the contracts and she described the circumstances of the signing and remarked that it was an occasion of some hilarity which she went on to describe. She said that the two couples then went to lunch at the Balzac Restaurant. She was unshaken in cross-examination as to these matters. She said that the contracts were bundled up after execution with the other documents when they left the office for the lunch.

215. Mr Nolan I found generally to be a man who is far less candid. I observed that he hesitated long and often over awkward questions and then gave answers which were cautious and often evasive. The manner generally with which he gave evidence did not inspire me with confidence in him as a witness of truth.

218. He spoke of the occasion when the wives signed the trust documents but maintained that he never signed the contract. He said that Ms Barr handed to him the contracts bearing Mrs Collie's signature sometime in February. This must have been on a date after she had signed because he did not recall her being present when the documents were handed to him. He said that the documents were given to him for review but for some reason he did not review them. The documents were left on his desk, he said, for four years until 1989 when he sent them to his solicitors, Baker & McKenzie. He said that about 12 months after February 1985 Ms Barr enquired whether he had signed them and he told her that he had not. I find this account exceedingly improbable and I reject it. It is the more improbable given the events that followed. For three and a half years after February 1985 he conducted himself in his dealings with Mr Collie in every respect as if a contract had been made. He now says that, if a contract of sale of land was agreed to, it was not executed and, in any event, it was not binding because it represents part only of a broader agreement between the two men. Merlaw's assertion in this proceeding, made on his instructions, that no concluded agreement was reached regarding the sale of land to Terramont sits very uneasily with Merlaw's acceptance and retention of $90,000 from Terramont, including $45,000 from Mr Collies' entities. It is inconsistent with what Mr Nolan told the Australian Tax Office and, on many occasions, the Bank, at least until he obtained legal advice on or shortly before 6 October 1989. I have already mentioned that Mr Nolan in the early part of 1989 negotiated with Mr Collie on the basis that the property was owned by Terramont with a view to buying out Mr Collie's or Terracol's interest. Both before and after these negotiations broke down Mr Nolan made regular demands upon Mr Collie for his contribution to the sums payable by Terramont to the Bank to meet Merlaw's obligations as agreed by the contract of sale. These demands are inconsistent with the position he would now adopt that no contract existed. I am satisfied that until 6 October Mr Nolan and, therefore, Merlaw believed that Merlaw had entered into a contract to sell the Jolimont property to Terramont and that, as a result, Mr Nolan's interest owned only one half of the land. Thereafter Mr Nolan began to deny the agreement and maintained this position until he gave evidence before me. I am reluctant generally to accept his testimony unless it be corroborated by independent reliable evidence.

221. I find, therefore, that more than two copies of the contract of sale were prepared by Mr Collie and that one copy was executed by Mr Nolan on behalf of the vendor, Merlaw. The copies were then placed on Mr Collies' file where they remained until he ceased to occupy Jolimont four years later in April 1989. It may be that they remained there for some time after that date, at least until 1 June 1989 when one copy was provided by Mr Nolan to his solicitors Baker & McKenzie and faxed by them on that date to Mr Collie.

224. Next, it is said in the defence that the parts of the contract were never exchanged. Mr Collie was in effect acting as solicitor for both parties to this conveyance. This fact, and the circumstances of the conveyance generally suggest that the parties did not contemplate anything as formal as an exchange of parts. There is no substance in this contention. See Smith v Mansi [1963] 1 WLR 26 at 33, per Danckwerts LJ; Storer v Manchester City Council [1974] 1 WLR 1403.

227. Third, it is alleged in the defence that the contract was ineffective because it was signed by Mrs Collie before she became a director of Terramont on 11 February 1985. The evidence shows that the contract was signed by her after her appointment as director of Terramont. There is no substance to this allegation.

230. Fourth, reliance is placed upon the Statute of Frauds. Little was said about this in written or oral submissions and in my view it is not an argument which should distract me from the real issues in this case. Given that I have found that Mr Nolan as a director of Merlaw signed the contract of sale the requirements of the statute are met notwithstanding that the document is not produced. Secondary evidence of its content is given by the production of the two other copies which are identical save for the signature. In any event, there is in this case abundant evidence of part performance which enables me to consider the equitable rights created by the agreement which I have found to exist.

6. THE PLAINTIFF SUES ON BEHALF OF TERRACOL TRUST

234. The fact that the order of 8 February 1991 vested in the plaintiff the rights of the Terracol Trust only was much relied on by counsel for Merlaw. They contended that, since any contract was made by Terramont as trustee for the Terracol Trust and the Terranol Trust and rights at law and in equity passed to Terramont as a result, a plaintiff could only enforce those rights if it did so for both trusts.

237. A convenient starting point is to state the proposition that a successor trustee is entitled to sue a third party for damages for breach of a contract made between a former trustee and that party where the contract was held in trust by the former trustee. Where the former trustee itself holds an equitable interest, or possesses equitable rights against a third party for breach of equitable duty, it and its successor may likewise sue to establish or enforce that interest or right: Young v Murphy [1996] 1 VR 279 at 291, per Brooking J, at 296-7, per J.D. Phillips J. These entitlements arise from the obligation of the successor trustee to get in the trust property which property includes the rights against the third party. In this case the entitlement arises also from the vesting order of 8 February 1991 and the provisions of the Trustee Act 1958 s. 58. It follows from this that, if Terramont had purchased the land as trustee for the Terracol Trust alone, the plaintiff would have standing to bring this proceeding against Merlaw. It might have done so for the benefit of its own beneficiaries without joining them as parties since there are no issues as to the rights of these beneficiaries as between themselves. So much, I think, was not contested in this case. What is said is that, where the wrong is suffered by two trusts with a common trustee such an entitlement to sue may be exercised only by the successor of the trustee of both those trusts.

240. In the circumstances of this case it is truly remarkable for a defendant to seek to rely on this ground to resist an order that it make compensation for breach of equitable duty. It will be recalled that the difficulty arises because Terramont was de-registered when Mr Nolan defaulted in his obligations to Mr Collie to attend to the filing of returns. After it was deregistered, Mrs Nolan said that she would oppose its reinstatement, a decision which I am confident involved Mr Nolan. Mrs Nolan, too, declined to exercise her power as principal to appoint a fresh trustee of Terracol. Again, Mr Nolan was, I am sure, implicated in her decision. Having in this way created the difficulty and placed obstacles in the way of its resolution, Mr Nolan, through Merlaw, seeks to raise it as a bar to prevent the beneficiaries of a trust from enforcing their rights against a trustee.

243. Let us see how equity might analyse the situation. I shall assume for present purposes that the claims of the plaintiff for equitable relief are otherwise good. Terramont was trustee of two trusts and it acquired equitable rights against Merlaw in those capacities. Let us assume that, instead of a common trustee, each of the trusts had its own trustee, T1 and T2. If the purchasers of the contract of sale had been T1 and T2, each would have acquired its interest as tenant in common in equal shares: In re Woolley; Wormald v. Wooley [1903] 2 Ch 206 at 211, per Joyce J. I was referred to no authority and I am aware of none which would preclude T1 alone from seeking to enforce its equitable rights for its own trust beneficiaries. It may be that T2 would seek to be joined in the proceeding or that the court in the appropriate case would direct that it be joined pursuant to R.9.03, but in this case those interested in the Terranol Trust, T2, were well aware of the proceeding and did not seek to be joined. It will be recalled that the evidence showed that the beneficiaries of this trust and those of the Prudent Trust for which Merlaw held the land are members of the same Nolan family. In these circumstances it would be open to T1 to enforce its rights as sole plaintiff. Returning to the facts of this case, the plaintiff as trustee of the Terracol Trust is entitled to bring this proceeding and to recover for the benefit of his trust and its beneficiaries such relief as equity allows. Having regard to the fact that no argument was presented on this precise point and to the conclusions I have reached on the breach of contract claim, I express no view as to the requirement in an action at law for both T1 and T2 to be joined as parties.

247. The plaintiff alleges four terms which are said to be implied in the contract of sale in order to give it business efficacy.

"That any mortgage affecting the land would be discharged by the settlement date."

This term cannot be implied. Settlement date was the date on which Terramont was to assume the obligations under the mortgage which was intended to run until 17 December 1987 as appears in the schedule to the contract of sale.

"That Merlaw (as vendor) would not without the consent of the purchaser further mortgage the land before settlement date and/or registration of the purchaser as the registered proprietor of the land."

The reference to the settlement date in this context is again awkward. In any event, this term was said to preclude the granting of a replacement mortgage upon discharge of the Ogge Nominee's mortgage in December 1987. The term was not pressed by counsel for the plaintiff for the obvious reason that it is clear on the evidence that no breach could be shown. There was no doubt that Mr Collie and Mr Nolan were content that Merlaw grant a mortgage to the Bank to secure the $265,000 bill facility. The purchaser's consent to this was not in issue.

"That the purchaser would assume the obligations under any mortgage that it had consented to Merlaw entering into in substitution for the mortgage then on the land."

Looking at things as they stood at the date of contract, it cannot be said that such a term is necessary to give business efficacy to the contract. Any question of Terramont consenting to a fresh mortgage would arise only and when Merlaw decided to refinance the property and on what terms. Provided that Merlaw's mortgage commitments did not interfere with its obligation to make title upon completion, business efficacy does not require the consent of Merlaw. In any event, as things turned out, Mr Nolan and Mr Collie agreed that Terramont would assume the obligations of Merlaw under the Bank mortgage so that no breach can be shown.

"That Merlaw would take no action to prevent or inhibit the ability of the purchaser to take legal title pursuant to the Contract."

This term is less controversial as a matter of implication. The difficulty, again, lies with the breach. Two breaches are alleged. The first that Merlaw refused to complete the contract and to transfer the land to Terramont. Although this is not a breach of the term under consideration it has not been made out because, assuming the tender of 15 February 1990 to have been good in form, it was not possible for Merlaw to transfer the land to Terramont which on that date did not exist. The second breach is Merlaw's grant of the all-monies mortgage to the Bank on 24 December 1987. I am not at all certain that the mere granting of this mortgage then prevented Terramont from taking title two years later.

270. I conclude that there is no substance in the breach of contract claim.

274. The consequence of the making of the contract of sale is that Terramont acquired an equitable interest in the land commensurate with its ability to specifically enforce the contract: Bahr v Nicolay (No.2) [1988] HCA 16; (1988) 164 CLR 604 at 612, per Mason CJ, Dawson J. This consequence follows even if the contract fails to satisfy the requirements of the Statute of Frauds: [1988] HCA 16; 164 CLR 604 at 656, per Brennan J. From Merlaw's perspective, after February 1985 it remained the legal owner of the land subject to the terms of the Prudent Trust, but it held that title subject to the equitable interest of Terramont which, in turn, held its equitable interest upon the terms of the two trusts as tenants in common.

277. There was an unpleaded suggestion that the plaintiff failed to show that he or Terramont at the relevant time was ready and willing to perform its obligations under the contract of sale. This suggestion was relied upon in support of a submission that the contract was not specifically enforceable and, therefore, the purchaser had no equitable interest. The suggestion is without merit or substance. The inability of Terramont to complete arose only when it became deregistered on 11 October 1988. In February 1990, when completion was due, the property was worth $900,000 or perhaps a little less if the market had fallen in the preceding 12 months. This represented sufficient security for a loan to pay out the Merlaw mortgage debt or such part of it as was properly referable to the Jolimont property. The fact that Terramont did not then exist is not an insuperable obstacle. It may be taken that its directors, properly advised and conscious of their responsibilities, would have joined in an application for reinstatement or, in their capacity as principal of each trust, they would have appointed a new trustee or trustees to enable completion to take place. There is no evidence to suggest that Terramont when reinstated, or indeed any new trustee or trustees, would have lacked the resources or the inclination to complete the contract of sale into which it had already committed substantial funds. I am satisfied, therefore, that at all material times the title of Merlaw was subject to the equitable rights of Terramont and those persons for whom Terramont purchased the land.

280. The granting of the Bank mortgage in December 1987 is said to constitute a breach of that trust inasmuch as it was an all-monies mortgage. This in itself was not a breach of trust. Indeed, the Ogge Nominees mortgage which it replaced had this same characteristic. But it was the common intention of the two men who were in effect making the decisions for the directors of Terramont and of Mr Nolan who was making the decisions for Merlaw, that the Bank mortgage should be entered into. But it was, as I find, their common intention that the mortgage should not be security for liabilities of Merlaw which were not related to the Jolimont property. It was not suggested to Mr Nolan that Merlaw's act in executing the Bank mortgage was done with the intention of defrauding Terramont or of defeating its legitimate interests or that, as the signing party, Mr Nolan intended to depart from this common intention. I therefore make no such finding. I conclude that, in the rush of putting the transaction together with the Bank on the eve of Christmas, Mr Nolan entirely overlooked this aspect of the matter. Had he given it a thought he would doubtless have implemented the common intention by inserting in the mortgage a stipulation that the property was security only for the bill facility then to be granted. This was not done and it is not suggested that the Bank had any reason itself to insert such a stipulation.

283. But, as between the legal owner of the land and the party with the equitable interest, this common intention cannot be ignored. In equity, the relations between these parties must be adjusted on the basis of their common intention. Put another way, Merlaw cannot, as between itself and Terramont, enjoy the benefit of its breach. In this case, the benefit is that, upon sale by the Bank it obtained the discharge of part of its debt to the bank which debt was not related to the Jolimont property.

286. The case of the plaintiff was that the entering into of the mortgage in these circumstances amounted to a breach of what I have called the purchase trust. I agree. According to the Bank's letter of 19 November 1987, the Nolan Group's facilities with the Bank including Merlaw's $450,000 bill facility, totalled some $2.13M and they were or were to be cross-collateralised. I know nothing of the securities then held by the Bank to support these advances. Nevertheless, the granting by Merlaw of the mortgage over the Jolimont property had the consequence that this property stood as security, not for $265,000 as the two men had contemplated, but for a sum of nearly 10 times that amount and a sum nearly five times the value of the property as was then recorded. There was no evidence that, having received the Jolimont property as a further security, the Bank would release it if asked upon repayment of the $265,000 bills only. Even accepting that Mr Nolan's act was an inadvertent one, it is, in my view, a breach by Merlaw of the duty which it owed to Terramont as a purchaser with an equitable interest in the Jolimont property.

289. Following the sale by the Bank the proceeds were applied by it in reduction of the Merlaw account. This meant that the interests of the Terracol Trust and the Terranol Trust were defeated at least to the extent that they were deprived of their equitable interest in the surplus after payment of the liabilities of Merlaw which they had assumed under the contract of sale to its mortgagee, Ogge Nominees, and after 24 December 1987, the Bank.

293. The plaintiff in paragraphs 29A, 29B and 29C of his statement of claim asserts the existence of a constructive trust. Counsel for the plaintiff in argument applied by analogy to this trust the law which imposes fiduciary duties on joint venturers. Such an analysis must address a number of difficulties in the facts of this case. First and foremost is the fact that the venturers were not Merlaw and Terramont, but the two men each acting through other persons and entities. It is, then, said on behalf of the plaintiff that where an arrangement entered into by joint venturers breaks down without attributable fault, equity will intervene to adjust their legal rights. This analysis must then seek to overcome the obstacle that this is not the case which is pleaded. Far from any want of attributable fault, the plaintiff alleges in paragraph 29D that Merlaw is in breach of the constructive trust.

296. Since this claim was not presented in final submissions on any other basis I will say nothing further about it. The claim fails.

300. Merlaw raised four affirmative defences which I shall now consider in turn.

304. Neither Merlaw nor Mrs Nolan was a party to the Deed of Compromise entered into with the Bank on 28 April 1998. Counsel for those parties submitted, however, that, since the plaintiff had derived a substantial benefit from this compromise, notably the release of Mr and Mrs Collie from their very large debt to the Bank, this should be brought to account. I disagree for a number of reasons. Although the plaintiff in this case was a party to the deed as a claimant against the Bank, there was no evidence of any benefit accruing to him or to the Terracol Trust as a result of the agreement. Second, on the evidence before me, the value of the Bank's claims settled by the compromise is doubtful. Mr Collie's uncontradicted testimony was that the Bank's claim under the guarantee was in truth worthless. There is certainly no evidence of its worth. It appears from the recitals in the deed itself that the other bank claims were for minor sums. Accordingly, I decline to find that the damages to which the plaintiff might otherwise be entitled should be reduced by the making or implementation of the compromise.

307. Merlaw in paragraph 50A of its defence relied upon this compromise also as disentitling the plaintiff to claim "all sale proceeds appropriated by the ANZ Bank arising from the sale of the land in or about July 1990". The plaintiff makes no such claim. Moreover, the fact that such a claim has been settled with the Bank does not, as a matter of law, affect the entitlement of the plaintiff to seek to recover it against another person who is otherwise liable.

311. In paragraph 25(e) of the defence of Merlaw, it is said that the plaintiff is estopped from seeking any equitable relief against that defendant. It is not entirely clear how this estoppel arises or operates. I take it that it arises because Mr Collie who is husband and father of the Terracol primary beneficiaries and who had control of the Terracol Trust attended at the Bank to arrange the mortgage that was entered into on 24 December 1987.

314. It is sufficient that I record as the principal reason for rejecting this defence the fact that Mr Collie did not in any real sense attend the Bank on that occasion. The evidence of both him and Mr Nolan was that the latter had discussions with the Bank officer and Mr Nolan attended alone for the execution of the documents.

318. It will be recalled that Mrs Collie in late 1989 sued Merlaw seeking declarations that she had a caveatable equitable interest in the land as beneficiary of the Terracol Trust. This proceeding was settled inasmuch as it concerned the Bank in June 1990 when she agreed to remove the caveat to permit a purchaser from the Bank to take title. Merlaw was not a party to this agreement although it was aware of it.

321. What is put in paragraph 36(a) of the defence is that the equitable interest of the plaintiff was the subject matter of the claim of Mrs Collie. This is not, strictly speaking, correct although it is clear that if she had obtained judgment or failed for want of proof of the interest of the Terracol Trust, the plaintiff as trustee of that trust as well as the Bank would be bound by the finding. Merlaw then says that the order of Master Evans of 9 October 1991 striking out the proceeding for want of prosecution binds the present plaintiff.

324. The defence cannot depend upon any kind of res judicata since the proceeding was not determined after a trial on the merits. When the circumstances attending her proceeding were fully exposed it was apparent that her claim was different from that of the present plaintiff and, indeed, this proceeding was brought some seven months before the Master's order was made striking out her proceeding. It was not suggested at that time that this proceeding was commenced as an abuse of process.

327. In their written submissions counsel for Merlaw moved the argument somewhat. Instead of relying upon an estoppel arising out of the Master's order, they contended that, since no explanation has been offered by the plaintiff for "the fact that he has sued again for the same equitable interest" this should, in the exercise of the courts' discretion, be treated as a factor to take into account against his claim in this proceeding.

330. I am not at all confident that I understand the legal principle involved in this submission. If the plaintiff is entitled as a matter of law to bring this claim after the earlier proceeding has been dismissed with costs, I do not see why this fact should operate against a claim for equitable compensation which the plaintiff is assumed otherwise to have made out.

334. This defence is found in paragraphs 52, 53, 55 of the Merlaw defence. In the last paragraph it is alleged that "in the premises it would be contrary to good conscience and equity for the plaintiff to be entitled to any relief in these proceedings". The premises, it would seem, are the facts alleged in the three preceding paragraphs. In these, Merlaw raises what has been referred to elsewhere as the broader arrangement. Terramont was to act as trustee of the two trusts, and was to be used as the vehicle for the payment of the common expenses and outgoings of the two men or their businesses. The two men or their entities were to contribute equally to pay these expenses and outgoings including the interest payable by Merlaw as mortgagor of the land. It is then said that Mr Collie failed to pay his share of these contributions with the consequence that Merlaw defaulted and the land was sold.

337. This brief summary demonstrates the flaw in this defence. It is true that Mr Collie and Mr Nolan agreed that they would pay or cause to be paid in equal shares whatever sums Terramont required in order to meet its obligations under the contract of sale and also its leasing obligations and other expenses and outgoings associated with the premises and the businesses conducted upon it. The arrangements between the two men, however, were carefully drafted to ensure that they were not legally concerned with the contract of sale. The rights and obligations which are in issue in this proceeding are those which arise out of the contract of sale between Merlaw and Terramont. If one of those responsible for providing funds to Terramont to enable to fulfil these obligations has defaulted in the agreement under which the payments were to be made to it, then this matter must be resolved between the contracting parties. To my mind, it is entirely inappropriate to call in aid any such default in order to relieve Merlaw of the obligation to compensate Terramont or a person claiming through it for its breaches of fiduciary or other duties.

341. Mrs Nolan was at all material times, except during the period of their deregistration, a shareholder and director of Merlaw and a director of Terramont. She was also a guarantor of the liability of Merlaw to the Bank and a principal of the Terracol Trust. It is alleged in paragraph 31 of the statement of claim that she owed duties to Terramont as Trustee of the Terracol Trust. These duties are said to have been imposed upon her by s. 229 of the Companies (Victoria) Code and at common law, which must be understood to include non-statutory duties imposed by equity. In the pleading these duties are described as follows:

(a) to act honestly in the discharge of her duties as a Director;

(b) not to make improper use of her position to gain an advantage for herself or for any other person or to cause detriment to Terramont (as trustee of the [Terracol] Trust);

(d) not to place herself in a position of conflict between her own interests and those of Terramont.

The first two duties are expressed in terms of s. 229(1) and (4) of the Companies (Victoria) Code. The others were said to arise from the general law.

349. In Young v Murphy [1996] 1 VR 279 at 301, J.D. Phillips J, writing with the concurrence of Brooking and Batt JJ, observed that the duties of the directors of a corporation which is a trustee are owed to the corporation itself irrespective of its business activity. In the context of this case the directorial duties which Mrs Nolan owed were owed to Terramont simpliciter, and not to Terramont as trustee of the Terracol Trust. This is the position whether the duties in question are owed as a fiduciary or are imposed by statute. The significance of this is not merely to offer criticism of the terminology of paragraph 31 of the statement of claim, but to strike at the heart of the plaintiff's standing to enforce those rights [1996] 1 VR at 302. The terms of the vesting order are set out in paragraph [49] above. It vests in the plaintiff the property of the Terracol Trust. The other property of the deregistered trustee, including its rights of action against directions, remains with the National Companies and Securities Commission: Companies (Victoria) Code s.461.

352. Counsel for the plaintiff sought to overcome this difficulty in a number of ways. First, they relied on those cases where the corporation was in truth a partnership between the directors so that a wrong committed by one director to such company may be enforced by another director: Glavanics v Brunninghausen (1996) 19 ASCR 204. This is not such a case. Next, it was said that a director owes a fiduciary duty to a shareholder and where the corporation is a trustee, to the beneficiaries of the trust: Hurley v BGH Nominees Pty Ltd (No.2) (1984) 37 SASR 499 at 510 per Walters J. In that case his Honour concluded that a breach of such a fiduciary duty entitled a shareholder to sue. The plaintiff relied upon this decision in support of the proposition that if a beneficiary might sue a director of the former trustee, so too, the new trustee who represents all of those beneficiaries. See, also Inge v Inge (1990) 3 ACSR 63 at 69-70 per O'Bryan J. These cases, as authority for such a proposition, have not escaped criticism. See R.I. Barrett casenote 59 ALJ 46; Cope v Butcher (1996) 20 ACSR 37; Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504 at 522, per Finn J. It may be, too, that the cases upon which Walters J and O'Bryan J relied would have limited the existence of such a duty to circumstances where the corporation was insolvent; Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1; Jeffree v NCSC (1989) 15 ACLR 217 at 222, per Wallace J or where the corporation was in deadlock or in its death throes: Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128 at 139, per Young J. It may be, too, that to impose upon a director the obligation to have regard to the interests of a class of persons, be they creditors, shareholders or beneficiaries, is not the equivalent of imposing upon that director a fiduciary duty actionable at the suit of any one member of that class. In my opinion, the preponderance of authority is against the right of a beneficiary, qua beneficiary, particularly a potential beneficiary under a discretionary trust, to sue, not the trustee for breach of trust, but a director of the trustee for breach of a directorial duty owed to that trustee. This is not to say that the circumstances of the particular case may not give rise to such a duty; the mere fact of the relationship between a trustee's director and a beneficiary of the trust does not.

355. Insofar as the plaintiff relies upon statutory directorial duties, its task is even more difficult. Section 229 of the code imposes duties on directors to the corporation which they direct, not to its shareholders nor to beneficiaries of trusts of which the corporation is trustee. I leave to one side the question whether a corporation could assign the benefit of these duties or its cause of action for their breach. That is not the present case. The plaintiff has been appointed successor of Terramont as trustee of the Terracol Trust and the property of that trust vests in him. That property does not include the rights of Terramont against its own former directors.

358. Nor do the particular facts of this case assist the plaintiff against Mrs Nolan. There were no dealings between her or Mr Collie or any beneficiary of the Terracol Trust with respect to the grant by Merlaw of the Bank mortgage on 24 December 1987 or the sale of the property by the Bank and its disposition of the proceeds. Nothing was shown which might give rise to a fiduciary duty in her to the beneficiaries of the Terracol Trust. Indeed, her evidence, which I accept, was that she had no involvement at all with any person with respect to those matters. The only act which she performed with respect to them was to sign a certificate some five months after the granting of the Bank mortgage which the Bank required in order to register the mortgage.

361. Moving to the duties alleged, there is no doubt in my mind that Mrs Nolan as director owed to Terramont each of the four duties, whether by statute or as a legal incident of her office. But the plaintiff again runs into difficulty with the breaches alleged in paragraph 32 of his statement of claim. The factual basis for these is that she caused the land to be mortgaged by Merlaw to the Bank to secure Merlaw's debts and that she permitted the proceeds of sale to be applied against those debts. As to the first, she had no involvement and probably no knowledge of the mortgage. Insofar as she was a director of Terramont the arrangements for the obtaining of the loan were made by Mr Collie and her husband. Insofar as she was also a director of Merlaw, again she had no involvement. The same may be said of the distribution of the proceeds of the Bank sale. She may have known that the Bank would appropriate them to itself in reduction of Merlaw's indebtedness, but there was nothing she could do about this. A further consideration affecting her conduct at this time was that, since Terramont was deregistered, her office as director had lapsed or was futile. The fact that a consequence of the sale by the Bank was to relieve her of part of the debt which she owed to the Bank as guarantor was offered in support of the proposition that she had derived a personal benefit from the sale at the expense of Terramont. Again, this result does not follow. Accepting as I do that the Bank had the right to take all of the proceeds of sale, there is no basis for concluding that she gained any advantage or benefited from any conflict of interest.

364. The claims against Mrs Nolan must therefore fail.

368. Mr Collie prepared a document which he entitled Equity Reconciliation and which became Exhibit 34. In it he deducted from the sale price obtained by the Bank of $750,000, sale costs of $20,632, the amount of the bill facility of $300,000 and the amount of the Terramont overdraft of $15,581, giving a net surplus for the two trusts of $413,787. It was put on the plaintiff's behalf that one half of this sum is the equitable compensation payable by Merlaw to him in order to cure the breach of trust to the Terracol Trust alone. I agree in principle, subject to two qualifications.

371. First, where the Terracol Trust seeks equitable compensation it must itself do equity to Merlaw. Under the contract of sale Terramont agreed to assume Merlaw's responsibilities to its mortgagee. To this I would add its responsibility to Merlaw's substitute mortgagee for the sums which Terramont agreed that Merlaw might obtain. This appears to have been accepted in Mr Collie's reconciliation inasmuch as credit is given for the full $300,000 facility which was granted in July 1988. Merlaw incurred other obligations to its first mortgagee, Ogge Nominees, other than the repayment of the principal debt. These comprise payments of interest as well as legal and other costs associated with the discharge of the mortgage. Many, if not all of these have been paid by Terramont. Further, when the ANZ facility was established, Merlaw incurred obligations to the Bank in the way of fees and interest each time the $265,000 bills, and later the $300,000 bills were rolled over up to July 1989. These sums, insofar as Terramont has not paid them, must also be brought to account. Finally, in the period when the $300,000 bill liability remained as part of the overdraft in the Merlaw account, Merlaw incurred obligations to the Bank in the nature of interest and fees which are referable to that part of its overdraft. These too, inasmuch as Terramont has not paid them, should be brought to account. The amount of these I shall leave to be calculated by counsel.

374. Second, Mr Collie in his reconciliation gives credit for the Terramont overdraft as it stood in April 1989. This date may have been fixed as the appropriate date when the negotiations for the purchase by Mr Nolan or his entities of the Terracol interests broke down. To my mind, however, this is not the relevant date. As at the date of the sale of the property, the Terramont overdraft stood at $25,017.57. This was subsequently paid by Merlaw. It may be said on behalf of Terracol that this represents the balance after the inclusion of payments for expenses under the second agreement, that is, the agreement relating to outgoings and common expenses with which I am not presently concerned. It may be said on the other hand that it represents the balance after the two men or their entities had made contributions, which contributions, on balance, favoured Mr Nolan's interest. It may have been, but was not, said too that since April 1989 Mr Nolan enjoyed the possession of the whole building. My present concern is not with the contributions to Terramont which were made by the two men or their entities; it is with the relationship between Terramont and Merlaw. Terramont should have itself satisfied its obligations to the Bank and not left it to Merlaw to do so. I am of opinion that the two trusts must therefore give Merlaw credit for the sum of $25,017.57.

377. It follows that the proper measure of compensation is to be calculated as follows. From the sale price of $750,000 must be deducted the costs of sale in the sum of $20,632, the sums borrowed from the Bank in the sum of $300,000, the sums paid by Merlaw under the mortgages to Ogge Nominees and to the Bank for which it has not received payment from Terramont. These sums remain to be calculated. Finally, there must be deducted the amount of the Terramont overdraft as at the date of the sale in the sum of $25,017.57. The net proceeds after deduction of these four items reflect the loss to the two trusts as a result of Merlaw's breach. One half of that sum would, in the ordinary course, have been paid to the Terracol Trust on about 18 July 1990 when the proceeds of sale were received. I conclude that this is the amount of equitable compensation payable by Merlaw to the Terracol Trust.

380. The consequence of this is that the plaintiff should have judgment against the firstnamed defendant in a sum which I shall leave to counsel to calculate and agree, and that the third defendant should have judgment against the plaintiff. I will hear counsel further on the question of costs.