Jessup v Lawyers Private Mortgage & Ors [2006] QCA 432
[2006] QCA 432
Court of Appeal (Qld)|2006-11-03|Before: Keane JA, Mackenzie and Jones JJ Separate reasons for judgment of each, member of the Court, each concurring as to the orders made
Keane JA, Mackenzie and Jones JJ Separate reasons for judgment of each, member of the Court, each concurring as to the orders made
Catchwords
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF
TRUSTEES - LIABILITY FOR BREACH OF TRUST - WHAT CONSTITUTES
A BREACH OF TRUST
AND WHO MAY BE LIABLE - second defendants are members of firm of solicitors -
Source
Original judgment source is linked above.
Catchwords
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OFTRUSTEES - LIABILITY FOR BREACH OF TRUST - WHAT CONSTITUTESA BREACH OF TRUSTAND WHO MAY BE LIABLE - second defendants are members of firm of solicitors -firm operated contributory mortgagescheme - first defendant a company of whicheach of second defendants is a director - first defendant carried on business ofcontributorymortgage scheme - dispute over terms of the trust relating todispersal of investors' funds - dispute over whether the first defendantwasmerely a 'bare trustee' - consideration of any distinction between firstdefendant and second defendants - nature of first defendant'sliability -whether terms of trust were established by plaintiff with sufficient certaintyto warrant grant of summary judgment -whether the first defendant was underobligation as trustee, for the contributors of the moneys which it exchanged ontheir behalf
for securities given by borrower, to ensure exchange occurred in
accordance with defendants' assurances to investors - whether a
breach of trust
was established
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF
TRUSTEES - LIABILITY FOR BREACH OF TRUST - WHAT CONSTITUTES
A BREACH OF TRUST
AND WHO MAY BE LIABLE - CAUSATION - defendants argued that learned primary judge
erred in concluding that plaintiff
had not excluded the possibility of a triable
issue in relation to causation - disbursement of loan moneys not authorised by
terms
of trust on which funds were held - whether learned primary judge's
declaration that defendants were liable to reimburse the plaintiff
for the
amount of the loss on the loan was a remedy appropriate in the circumstances
ESTOPPEL - FORMER ADJUDICATION AND MATTERS OF RECORD OR QUASI RECORD -
ISSUE ESTOPPEL - decision of judge of Federal Court of Australia
on a claim by
individual contributors relating to investments made by the defendants on their
behalf in loans to borrowers - decision
of Federal Court judge involved
consideration of role of first defendant - decision of Federal Court judge
delivered after decision
of learned primary judge in Supreme Court of Queensland
- whether decision of Federal Court judge is inconsistent with decision of
learned primary judge in this case - whether plaintiff is estopped from making
the claim against the defendants which succeeded below
A & D Douglas Pty Ltd v Lawyers Private Mortgages Pty Ltd [2006] FCA 520, QUD 115 of 2003, 12 May 2006, consideredDovuro Pty Ltd v Wilkins
[2000] FCA 1902
(2000) 105 FCR 476, cited Herdegen v Federal
Commissioner of Taxation [1988] FCA 419
(1988) 84 ALR 271, appliedKnight & Keay
v Haynes Duffell, Kentish & Co [2003] EWCA Civ 223, citedMaguire
v Makaronis [1997] HCA 23
(1996) 188 CLR 449, appliedPilmer v Duke Group Ltd (In
Liq) [2001] HCA 31
(2001) 207 CLR 165, consideredRe Australian
Elizabethan Theatre Trust
Lord v Commonwealth Bank of Australia & Ors
[1991] FCA 344
(1991) 30 FCR 491, cited Swindle v Harrison [1997] EWCA Civ 1339
[1997] 4 All ER 705,
distinguishedTarget Holdings Ltd v Redferns [1995] UKHL 10
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - LIABILITY FOR BREACH OF TRUST - WHAT CONSTITUTES A BREACH OF TRUST AND WHO MAY BE LIABLE - second defendants are members of firm of solicitors - firm operated contributory mortgage scheme - first defendant a company of which each of second defendants is a director - first defendant carried on business of contributory mortgage scheme - dispute over terms of the trust relating to dispersal of investors' funds - dispute over whether the first defendant was merely a 'bare trustee' - consideration of any distinction between first defendant and second defendants - nature of first defendant's liability - whether terms of trust were established by plaintiff with sufficient certainty to warrant grant of summary judgment - whether the first defendant was under obligation as trustee, for the contributors of the moneys which it exchanged on their behalf for securities given by borrower, to ensure exchange occurred in accordance with defendants' assurances to investors - whether a breach of trust was established
[2]
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - LIABILITY FOR BREACH OF TRUST - WHAT CONSTITUTES A BREACH OF TRUST AND WHO MAY BE LIABLE - CAUSATION - defendants argued that learned primary judge erred in concluding that plaintiff had not excluded the possibility of a triable issue in relation to causation - disbursement of loan moneys not authorised by terms of trust on which funds were held - whether learned primary judge's declaration that defendants were liable to reimburse the plaintiff for the amount of the loss on the loan was a remedy appropriate in the circumstances
[3]
ESTOPPEL - FORMER ADJUDICATION AND MATTERS OF RECORD OR QUASI RECORD - ISSUE ESTOPPEL - decision of judge of Federal Court of Australia on a claim by individual contributors relating to investments made by the defendants on their behalf in loans to borrowers - decision of Federal Court judge involved consideration of role of first defendant - decision of Federal Court judge delivered after decision of learned primary judge in Supreme Court of Queensland - whether decision of Federal Court judge is inconsistent with decision of learned primary judge in this case - whether plaintiff is estopped from making the claim against the defendants which succeeded below
[4]
A & D Douglas Pty Ltd v Lawyers Private Mortgages Pty Ltd[2006] FCA 520, QUD 115 of 2003, 12 May 2006, considered
P J Dunning SC, with E J Crowley, for the appellants
[15]
[1] KEANE JA: On 30 January 2006, the learned primary judge granted the plaintiff's application for summary judgment against the first and second defendants ("the defendants"). The learned primary judge declared that the defendants were liable as trustees to reimburse the plaintiff as new trustee for beneficiaries of the trust an amount equal to the sum lost by reason of the defendants' loan in breach of trust to Ko Huna Beach Holdings Pty Ltd ("Holdings").
[16]
[2] The defendants have appealed against that decision, contending that it is at least arguable that the making of the loan involved no breach of trust on their part, and that any breach of trust did not cause loss to the beneficiaries. The defendants also seek leave to pursue a ground of appeal to the effect that the decision of the Federal Court of Australia in A & D Douglas Pty Ltd and Ors v Lawyers Private Mortgages Pty Ltd and Anor,[1] delivered on 12 May 2006, creates an issue estoppel fatal to the plaintiff's assertion that the first defendant was a trustee for the beneficiaries.
[17]
[3] Some reference to the background and to the decision of the learned primary judge is necessary before a discussion of the issues which arise for decision on this appeal.
[18]
[4] The second defendants are members of a firm of solicitors which, until 13 September 2001, operated a contributory mortgage scheme. The first defendant is a company of which each of the second defendants is a director. The first defendant was incorporated to enable the second defendants to carry on the business of the scheme in conformity with the Rules of the Queensland Law Society.
[19]
[5] Under the contributory mortgage scheme, the second defendants received and assessed applications for finance from prospective borrowers. If the application was assessed as satisfactory, the firm invited investors to contribute funds to make an advance to the borrower. Pending the accumulation of a sufficient sum of money to lend to a borrower, each contributor's funds were placed on deposit with the Commonwealth Bank. The interest earned on the deposit was paid to the credit of the contributors.[2]
[20]
[6] When sufficient contributions to meet a successful application for a loan had been received by the second defendants, the moneys would be transferred from the trust account of the second defendants to the first defendant. The first defendant would then make the loan to the borrower and take the security for repayment of the loan. The first defendant held this security on trust for the contributors who had invested in the loan. The second defendants acted as solicitors for the first defendant in the loan transaction.
[21]
[7] Following the enactment of the Managed Investments Act 1998 (Cth), the defendants continued the operation of the contributory mortgage scheme as a run-out mortgage business pending its winding up.
[22]
[8] On 13 September 2001, the Supreme Court appointed the plaintiff to wind up the
[23]
run-out mortgage business. The property vested in the first defendant was vested in the plaintiff as trustee of all trusts subsisting in the run-out mortgage business and was empowered to bring proceedings on behalf of investors. In this capacity, the plaintiff brought the present claim against the defendants.
[24]
[9] On 26 October 1998, the first defendant lent $1,620,000 to Holdings. A number of investors had contributed to this advance. The loan to Holdings was for one year at an interest rate of 15 per cent per annum, reducible to 11 per cent per annum for punctual payment.
[25]
[10] Holdings defaulted in paying the interest due in June, July and August 1999. It failed to repay the loan principal in October 1999. It was wound up on 21 June 2000. There was a substantial shortfall in the recovery of the loan principal.
[26]
[11] Before the learned primary judge, the plaintiff pursued its application for summary judgment only on the basis that the loan moneys were advanced by the defendants in breach of their obligations as trustees for the contributors. The plaintiff claimed that both defendants were trustees for the contributors, and that they had breached their obligations as trustees by advancing the moneys contrary to the terms of the trust.
[27]
[12] The defendants resisted the claim on the footing that the loan was made to Holdings by the first defendant, which did not breach any duty as trustee for the beneficiaries in so doing. This contention was advanced on two bases. First, it was said that the first defendant was arguably not a trustee for the contributors which was subject to any duty to them in relation to the circumstances in which the loan might be made. Secondly, it was contended that even if the first defendant was under obligations as trustee not to make the loan unless certain conditions were met, those conditions were, at least arguably, satisfied before the relevant loan was made. The defendants also argued that the plaintiff had not established that the loss suffered by the contributories was caused by any breach of trust on their part.
[28]
[13] The learned primary judge upheld the plaintiff's claim for summary judgment on the basis that there was no arguable case that the defendants were not liable to restore to the plaintiff as trustee for the contributories the amount of the loan principal which had been lost.
[29]
[14] His Honour summarised the relevant documentation which led him to conclude that the defendants acted as trustees for the contributors in relation to the making of the loan.[3] His Honour's summary commenced with the observation:[4]
[30]
"The evidence, which I did not understand to be controversial, established the following sequence of events when contributors participated in the defendants' lending scheme. A brochure prepared by the solicitors advertising their business and inviting a response from potential contributors explained 'how to get started'. It read:
[31]
'Please complete the Investment Authority in this brochure and send it to us.
[32]
Funds should then be deposited to (the solicitors') Trust Account pending placement in a Private Mortgage and will earn interest from the Commonwealth Bank ... in the interim.
[33]
We receive many applications from borrowers and a summary of those approved will provide you with the following:-
[34]
• Confirmation that a full credit check has been completed ...
[35]
You then confirm your acceptance of one of the proposed investments to us.
[36]
We then prepare all security documents and carry out all necessary searches and enquiries. ...
[37]
Thereafter, you receive an investment certificate and a summary of the mortgage.'"
[38]
[15] The second defendants also circulated a newsletter advertising their lending business. It stated:[5]
[39]
"In addition to obtaining a full valuation by a licensed external valuer applicants for loans are required to provide details of their financial position, a summary of the project and are subject to a check through the Credit Reference Association of Australia ...
[40]
After a synopsis is prepared ... we conduct various ... searches ...and if all are satisfactory, loan documents are prepared. A copy of the synopsis is sent out to you for your approval and if you wish to proceed with the loan an Acknowledgement is requested to be provided to us prior to your funds being made available on settlement.
[41]
We have enclosed a synopsis of a loan that we currently have available which we anticipate settling very shortly. Please complete the Acknowledgement if you wish to proceed with this loan."
[42]
[16] The proposed loan to Holdings was discussed in a letter of 2 September 1998 from Contact Financial Consultants who wrote to the second defendants, relevantly in the following terms:[6]
[43]
"(Holdings) was set up to buy a complex at Bucasia Beach near Mackay by Gregory John Huxley ... He needs funds within 12 days
...
Value of the complex is $4,500,000 as per a report by Kent ... Wood & Associates. ...
The complex consists of a number of shops, a restaurant and conference centre, 60 lodges which are being strata titled and sold, management rights and a medium density parcel of land worth $960,000. ..."
[44]
[17] Kent Wood & Associates, the valuers, are the third defendants in the plaintiff's action. They played no part in the application below or on appeal. Mr Huxley was the sole director and shareholder of Holdings. He is now bankrupt.[7]
[45]
[18] By letter dated 7 September 1998, the second defendants replied to Contact Financial Consultants in the following terms:[8]
[46]
"I detail ... our requirements for consideration of finance ... :-
1. Maximum loan is 70% of purchase price or revaluation of the Ko Huna Resort;
2. Valuation update and report by ... Valuers at your clients' expense to reflect an as is value and value upon strata titling and subdivision of the resort;
3. First registered mortgage security;
4. Guarantees from:-
[47]
5. Company Charge over ... Holdings ..."
...
[48]
[19] The "Application For First Mortgage Investment" completed by investors required that the contributor write in details of his or her name, address, telephone number, tax file number and bank account details for the receipt of interest, and the amount to be invested. On the reverse of the application form was a "Private Mortgage Investment Authority". Relevantly, it stated:[9]
[49]
"1. You authorise (the second defendants) to open up a Pre- Settlement investment account with Commonwealth Bank in their name as Trustee on the understanding that all interest earned on such account shall be paid to you.
2. You authorise (the second defendant[s]) to place the investment amount [in a first mortgage security] only on the following terms and conditions:
[50]
A. Registered First Mortgage Security only over ... Real Estate.
B. Terms of the Loan to be in accordance with the summary approved by you.
C. Loan amount to be less than 70% of the valuation.
D. First Mortgage security to be held in the name of [the first defendant].
[51]
A. Other investment amounts may be contributed by other investors ...
[52]
E. The decision to invest is yours and you have not relied upon any statement, warranty or representation made or alleged to have been made by (the solicitors)...
F. (The solicitors recommend) that you obtain financial advice prior to the making of this investment and that (the solicitors do) not guarantee the security of this investment."
[53]
[20] On or about 28 September 1998 the second defendants wrote to a number of people who became contributors to the loan to Holdings relevantly as follows:[10]
[54]
"... [W]e enclose a synopsis for a loan to ... Holdings ... for which we are urgently seeking funds and which may be of interest to you in placing the above funds.
The purpose of the advance is to raise funds to assist with the purchase of Ko Huna Beach Resort at ... Mackay ... The borrower proposes to strata title and refurbish the development for sale as individual bures/polynesian style units.
Pertinent details of the loan are:-
[55]
Interest will be paid by the Borrower for the full term of the loan in the event that the loan is repaid before the due date.
Please contact Mr David Gill of this office should you be interested in placing investment monies ... following which we shall be pleased if you will complete and return the Acknowledgement enclosed with this letter."
"LAWYERS PRIVATE MORTGAGES PTY LTD LOAN TO KO HUNA BEACH HOLDINGS PTY LTD ACKNOWLEDGEMENT
[58]
Please proceed with the investment of my funds in the amount of $ in the above loan."
[59]
[22] The synopsis, or loan summary, which was enclosed with the second defendants' letter of 28 September 1998 included the following:[12]
[60]
"This first mortgage provides an opportunity to receive a sound return of 11% against a strong loan to purchase price and valuation 'as is' of $2.7million. This loan is backed by guarantees of related companies with a net worth of $9,770,280.00 and directors [sic] net asset position of $1,972,000.00.
Applicant - Holdings
Loan to Value Ratio - 60% (on purchase price)
36% (on strata title and subdivision)
Term of Facility - 12 months
Interest Rate - 11% net Paid monthly in arrears to your bank account
Secured by - first registered bill of mortgage over beachfront property Ko Huna Beach Resort, located Bucasia Beach, Mackay
Registered Mortgage Debenture over ... Holdings to include all assets and undertakings
Guarantees from
• Ko Huna Holdings Pty Ltd
•Investment Company of Australia Pty Ltd
• Gregory John Huxley
Loan amount - $1,620,000.00
...
We detail a mortgage submission for your consideration ... and confirm we have the following information available ...:
[61]
Over the years Greg Huxley has built up a substantial real estate portfolio and operating businesses. ...
Additionally the client has negotiated sale of the management rights to the resort for a further $1.5million (contracts have exchanged). Impressively, he has 11 contracts currently for the sale of bures in the resort. ... Based on available sales data ... Greg Huxley appears likely to generate a gross profit from this project in the order of $3.5million to $4million.
...
LOAN SUMMARY
...
The loan will be serviced from:-
...
3. The ultimate clearance of the proposed facilities will come from the sale of subdivided land, strata title units and sale of management rights. The applicant has a contract exchanged for the sale of the management rights of $1.5million. This will clear second mortgage finance.
...
A CONDITION PRECEDENT
...
2. Check valuation report of (the third defendants)
...
5. Confirmation from Solicitors as to "exchange of Contract" for the sale of the management rights.
...
7. Clear credit report."
[62]
[23] The learned primary judge concluded that it was "inescapable that the investment authority, the loan summary and the acknowledgment are to be read as ... three documents constituting evidence of the one transaction".[13] His Honour regarded it as significant in this regard that the first defendant obtained the loan funds from the second defendants' trust account where the contributions were held on trust for the contributors by the second defendants, and that the first defendant was the vehicle controlled by the second defendants by which the loan funds were conveyed to the borrower. It was by virtue of security taken by the first defendant that the rights of the contributors against borrower were secured. There could, of course, be no doubt that these rights were held on trust for the contributors: the first defendant did not assert otherwise.[14]
[63]
[24] The primary judge went on to address the terms of the trust obligation owed by the defendants:[15]
[64]
"What then were the terms of the trust? Clearly to lend the moneys to Holdings. But on what terms? The answer can, I think, only be found by reference to the investment summary which was sent to the contributors and on the contents of which they were asked to decide whether to contribute to the moneys to be lent to Holdings. This seems to be the only possible answer; it is the one suggested very strongly by the terms of the investment authority itself. I conclude, therefore, that the defendants held the moneys on trust for the contributors to invest it by way of a loan to Holdings on the terms set out in the investment summary.
I see no point in distinguishing between the [second defendants] and [the first defendant] in relation to the existence of, or the terms of, the trust. The [second defendants] certainly held the money on trust to invest by way of loan to Holdings and, as I have held, on the terms contained in the investment summary. They either applied the moneys on behalf of [the first defendant] which knew it was trust money and knew of the terms of the trust, or they paid it to [the first defendant] to allow it to make the advance to Holdings. The [second defendants] were the directors of [the first defendant]; their knowledge and intention was [the first defendant's] knowledge and intention. If the [second defendants] paid the moneys to [the first defendant] they did so knowing and intending that they would be lent to Holdings. [The first defendant] would have taken the money, which it knew to be trust money, knowing of the terms on which it had been contributed and on which it was to be lent. Both the [second defendants] and [the first defendant] were trustees of the contributions on the terms found in the investment summary."
[65]
[25] The learned primary judge held that the defendants had clearly breached trust obligations found in the investment summary in a number of respects. It is not necessary to deal with all of the alleged defaults. It is sufficient for present purposes to refer to the two most substantial defaults. The first was that the loan of $1,620,000 when made was not a figure which was 60 per cent of the amount which the valuer gave as the value of the resort "as is". Holdings had paid $2,700,000 for the property in question. Holdings had a valuation of $4,500,000 for the land. That valuation had been given on the assumption that it was subdivided in accordance with a plan lodged for approval with the local authority. Nowhere in the valuation was "the opinion expressed that the resort, as it was, was worth $2,700,000".[16] His Honour, therefore, held that the advance had been made in breach of trust.
[66]
[26] The second substantial breach related to the statement in the investment summary which represented that Holdings had negotiated the sale of the management rights to the resort for $1,500,000, and "[c]onfirmation from Solicitors as to 'exchange of Contract' for the sale of the management rights" was expressed to be a "Condition Precedent".[17] The learned primary judge concluded that there was no contract in existence for the sale of the management rights for that sum, and no sale eventuated.[18]
[67]
[27] The learned primary judge concluded that the contributors' loss was caused by the defendants' breach of trust on the footing that the contributors' funds should never have been advanced to Holdings.[19] His Honour rejected the defendants' argument that, because none of the contributors gave evidence, the court could not be satisfied that the contributors would not have authorised the making of the loan in the circumstances in which it was made. His Honour concluded that a sufficient causal nexus between the defendants' breach of trust and the contributors' loss was established by the non-recovery of part of the loan that was made in breach of trust.[20]
[68]
[28] Having summarised the decision of the learned primary judge, I turn now to a discussion of the issues raised by the parties on the appeal.
[69]
[29] At the forefront of the arguments advanced on appeal by the defendants was an interpretation of the "Private Mortgage Investment Authority" which was, in my respectful opinion, quite untenable. It was said that the terms of any trust relating to the dispersal of investors' funds were contained exclusively in the "Private Mortgage Investment Authority" document and that the obligations of the defendants were fully discharged so long as the funds were advanced against a loan which answered the criteria in cl 2A to cl 2D of that document.
[70]
[30] This interpretation founders upon the terms of cl 2B. They require that the advance to the borrower be made only on the terms of the loan in accordance with the loan summary approved by the investor. That loan summary, which is referred to in paragraph [22] above, contemplated, in the clearest terms, that the terms of loan included the conditions precedent there set out. It may also be noted that the document containing terms of the loan between the first defendant and Holdings actually included the conditions precedent in the loan summary.
[71]
[31] The defendants sought to argue that the references in cl 2B of the investment authority to the "Terms of the Loan ... in accordance with the summary approved by you" were only to "standard" terms, such as the amount and duration of the loan. This submission arbitrarily restricts the scope of the expression "Terms of the Loan". There is also no reason why the words "in accordance with the summary approved by you" should be ignored. There is, equally, no reason why those words are not sensibly understood as including terms of the loan which are conditions precedent to its being made. The defendants argue that to understand cl 2B of the investment authority in this way is to render cl 2A, cl 2C and cl 2D otiose. That argument must also be rejected. Once again, it is entirely arbitrary to treat the summary to which cl 2B refers as one which does not contain terms additional to those adverted to in the other provisions of cl 2 of the investment authority.[21] The whimsical nature of the defendants' contention is confirmed by the circumstance that the defendants admitted in paragraph 3(c) of their defence that:
[72]
"any invitation to investors to contribute funds to ... an advance [to Holdings] was made in the form of written investment summaries ('Investment Summary') that set out a description of the nature of the transaction, a summary of the information that had been obtained in assessing the application, a description of the borrower, a summary of the loan, the securities to be taken and relevant conditions attached to the loan."
[73]
[32] Importantly, the loan summary of 28 September 1998 informed investors, inter alia, that:
[74]
(a) the loan was to be secured by a registered first mortgage over Ko Huna Beach Resort, Bucasia Beach;
[75]
(b) the borrower had entered into a contract to sell the "management rights" to the resort for $1,500,000;
[76]
(c) the conditions precedent included conditions that:
[77]
(i) a valuation "as is" of $2.7 million from K D Woods & Associates would be assigned to the first defendant before the loan was made, the LVR (loan to value ratio) being 60 per cent of the "as is" value of $2.7 million;
(ii) the exchange of contracts for the sale of the management rights to the resort for $1.5 million would be confirmed.
[78]
[33] In these circumstances, the inference was overwhelming that the intention of the parties was that the defendants were to be entrusted with the moneys contributed by the investors on the explicit footing that the funds should be laid out on the loan to Holdings only upon the satisfaction of conditions precedent which had an important bearing on the security of the investment. Only the defendants were in a position to ensure that the investors' expectations as to the terms on which their moneys were to be risked with Holdings would be satisfied. Having regard to the language of the loan summary, the relationship between the investors and the defendants and the nature of the proposed transaction, no other inference was available.[22]
[79]
[34] For these reasons, in my opinion, the conditions precedent in the loan summary were terms which controlled and limited the defendants' authority to disburse the funds obtained by the defendants from the investors.
[80]
[35] The defendants sought to rely upon cl 3E and cl 3F in the investment authority to suggest that investors could have had no expectation that their funds would be advanced to Holdings only in accordance with the intention stated in the investment authority and the loan summary. But the liability asserted against the defendants is not related to the decision by the contributors to invest in the loan. The liability which the plaintiff asserts is said to arise because the defendants' breach of trust committed the contributors to a loan in circumstances different from those in relation to which the decision to invest was made.
[81]
[36] The defendants' submission that the plaintiff had not established the terms of the trust upon which it relied with sufficient certainty to warrant the grant of summary judgment must be rejected.
[82]
[37] The defendants then argued that the primary judge erred in holding that there was no reason to distinguish between the first and second defendants as trustees of the contributors' funds. The defendants accepted that the second defendants held investment moneys on trust for individual contributors, but said that there were a series of individual trusts which came to an end when the contributions were pooled in the trusteeship of the first defendant. The defendants contended that it was crucial to understand that the first defendant was merely a "bare trustee" for the contributors with limited obligations in relation to the dispersal of the funds held by it. The defendants' contention was that there was a radical difference between the content of the obligation owed to contributors by the second defendants (who were said to be only trustees for each individual investor whose obligation to each individual contributor ceased when that individual's funds were pooled in the account of the first defendant) and the obligation owed by the first defendant, which was said to be a trustee for all the contributors to the advance made to Holdings, but merely a "bare trustee".
[83]
[38] The terms of the defendants' defence to the plaintiff's claim serve to demonstrate that this contention is untenable, and that the learned primary judge was entitled to be confident that it should be rejected. The defence admitted, in paragraph 8(b) that:
[84]
"the extent of a relationship of trustee on the part of [the second defendants] and beneficiary on the part of the investors is limited to [the second defendants] applying funds paid into its trust account from the various investors to the loan transaction described in the Information Summary dated 23 September 1998 and in exchange for the securities in favour of [the first defendant] there described, in accordance with the Investment Authority."
[85]
[39] In paragraph 10(a) of their defence, the defendants admitted that:
[86]
"it was the duty of [the second defendants] as trustee only to pay the funds received from the various investors into its trust account:
[87]
(i) to the borrower or its nominee described in the Investment Summary;
(ii) in exchange for the securities in favour of [the first defendant] described in the Investment Summary;
..."
[88]
[40] The defendants, in paragraph 2 of their defence, denied that the first defendant was subject to obligations as trustee in the same terms. The only basis for this denial was that the first defendant was "solely a nominee of the investors or alternatively a bare trustee of the title to the security for the benefit of the investors contributing to that particular loan, and did not engage in any activity outside that".
[89]
[41] The relationship between the defendants and the contributors, established as a result of the contributors' response to the invitation issued by the defendants, was one of "dependence or trust" on the part of the contributors[23] who were entirely in the defendants' hands so far as the observance of the conditions of the advance to Holdings was concerned.
[90]
[42] The only basis set up by the defence for distinguishing between the obligations owed by the first defendant and the second defendants to the contributors is that the first defendant was a "bare trustee" of title to the securities obtained by it from Holdings in exchange for the loan moneys. There is no substance in this distinction. As was explained by Gummow J in Herdegen v Federal Commissioner of Taxation:[24]
[91]
"the usually accepted meaning of 'bare' trust is a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office and the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party."
[92]
[43] In this case, the first defendant held the securities obtained in exchange for the loan funds for the benefit of the contributors. In that capacity, it had duties to receive payments of interest and principal for the benefit of the contributories and to pursue the recovery of moneys under those securities in the event of default.
[93]
[44] The first defendant acted entirely as the second defendant's nominee under the Queensland Law Society Rules which regulated the second defendant's contributory mortgage practice. It was, as described in r 87(2) of the Queensland Law Society Rules, "a practitioner's nominee company in whose name a mortgage or contributory mortgage is held". Its role was solely to give effect to the expectations of investors generated by the second defendant's invitations to invest. In this regard, the first defendant was not the "nominee" of the investors, it was the "nominee" of the second defendants, and the agent whereby the second defendant's obligations to investors were discharged. It served to add to, rather than subtract from, the protection afforded to investors. Its role did not exclude or diminish the obligations of the second defendants but served to facilitate their discharge.
[94]
[45] In my respectful opinion, the primary judge was correct to conclude that little purpose is served by attempting to distinguish between the position of the second defendants as trustees and that of the first defendant. The second defendants may have been trustees for the first defendant of the money that was held in their trust account in the name of the first defendant, but there can be no doubt that they were obliged to ensure that the loan was made to Holdings in accordance with the authority given to them. Nor can there be any doubt that the first defendant - which has never made any beneficial claim to the money - was trustee for the contributors whose funds were pooled to enable it to make the loan advance to Holdings. The funds were earmarked by both defendants to be deployed in accordance with the statements made to the contributors. It was undeniably the case that the first defendant held the securities exchanged by Holdings for the loan moneys on trust for the contributors. It cannot have been intended that the moneys for which those securities were exchanged were not likewise held in trust.
[95]
[46] For these reasons, it is hardly surprising that the learned primary judge rejected out of hand the contention that the first defendant was under no obligation as trustee for the contributors of the moneys which it exchanged on their behalf for the securities given by the borrower to ensure that the exchange occurred in accordance with the defendants' assurances to the investors.
[96]
[47] The defendants argued that the courts should not be astute to discover trust relationships in commercial dealings.[25] They assert that it is surprising that the first defendant should, by means of a trust relationship, find itself in the position in which it is obliged to underwrite the borrower's performance of its loan obligations. These assertions reveal the misconception which is a fundamental aspect of the defendants' attempt to avoid liability for the loss which has occurred. The first defendant's liability arises, not because of commercial obligations assumed to contributors as the underwriter of Holdings' obligations as borrower, but because of the responsibility which the defendants assumed to ensure that moneys held by them on behalf of the contributors would only be disbursed in accordance with the authorisation given by the contributors.
[97]
[48] To say this is not to impose a trust relationship by resort to fiction or artifice. At the clear invitation of the defendants, especially by the letter of 28 September 1998, and the loan summary enclosed therewith, the contributors, quite literally, entrusted the defendants with their money on the express footing that their money would not be risked in the proposed advance to Holdings unless the preconditions to the making of that advance were satisfied. Ensuring that these preconditions were satisfied was the substance of the obligation assumed by the defendants to the contributors solicited by them. Had the defendants acted in conformity with their obligations to the contributors, who entrusted the defendants with their funds, those funds never would have been at risk of default by Holdings.
[98]
[49] Nor do the observations in Pilmer v Duke Group Ltd (In Liq),[26] as to the proscriptive as opposed to prescriptive nature of fiduciary obligations, assist the defendants in any way. The observations by the members of the High Court in Pilmer v Duke Group Ltd (In Liq), upon which the defendants rely, concerned duties imposed by the law (including the rules of equity). In this case, the defendants' obligations were voluntarily assumed by them upon this receipt of moneys from contributors. Indeed, the moneys were received by the defendants only on the basis of the assurances provided by them to the contributors that the moneys would only be lent to the borrower if certain conditions were met. Furthermore, in the present case, the defendants' liability arises from their failure to honour their assurance not to part with the funds held for the contributors save on certain conditions.
[99]
[50] The learned primary judge was correct to conclude that the first defendant advanced the loan funds in breach of its trust obligation not to pay over the loan funds unless the conditions precedent to doing so were met. This conclusion makes it unnecessary to consider the plaintiff's argument, advanced pursuant to a notice of contention, that other breaches of trust were also established with the requisite degree of clarity.
[100]
[51] The defendants contend that they have an arguable case that the valuation which was obtained before the advance was made was an "as is" valuation. That was said to be because, while the actual valuation of the land was put at $4.5 million on the basis of a hypothetical development, that figure, which represented its value having regard to its potential highest and best use, was the value for which, in the valuer's opinion, the property in its undeveloped state would be exchanged between a willing but not anxious vendor and purchaser. But this argument assumes the soundness of the valuer's opinion as to highest and best use, the cost of realising that potential and the outcome of that realisation process. The "as is" valuation which was required was one which avoided the risks involved in those opinions. What was required was a judgment that the land would fetch $2.7 million "as is". That was not an assessment which the valuer made, or, indeed, it would seem, to which he turned his mind.
[101]
[52] Next, the defendants argued that the learned primary judge erred in failing to hold that it was arguably not a breach of trust for the defendants to part with the investors' moneys without confirmation of the sale of the management rights to the resort for $1.5 million. In written submissions before this Court, the defendants asserted that it "is a question of fact to be determined upon all of the evidence as to what, to investors in real property loans, 'sale of management rights' means". That is plainly not so. The assurance given to investors was that confirmation of the sale of management rights for $1.5 million was a condition precedent to the advance. What this assurance meant is clear beyond argument. Whether this assurance was honestly given or honestly overlooked is immaterial to the question whether the advance was made in breach of trust.
[102]
[53] The defendants submitted that the primary judge erred in concluding that the plaintiff had not excluded the possibility of a triable issue in relation to causation in that the contributors had not proved that they had suffered any loss by reason of the defendants' breach of trust.
[103]
[54] The plaintiff's case may be stated simply. The loan would not have been made if the terms of the trust had been observed. The fund held in trust for the contributors would have been intact. The defendants' obligation is to restore the trust fund which was depleted by their breach of duty in making the loan after taking into account the value of the securities held by the trustee. In my view, the plaintiff's submission must be accepted.
[104]
[55] In Maguire v Makaronis,[27] Brennan CJ, Gaudron, McHugh and Gummow JJ said:
[105]
"Recovery is sought in respect of a loss. There, the same principle underlying Hallett should be understood as attending any exposition of the phrase used by Lord Haldane LC in Nocton v Lord Ashburton ([1941] AC 932 at 956-957], 'by [the fiduciary] acting'. It is appropriate to begin with those fiduciaries who are trustees. The obligation of a defaulting trustee is essentially one of effecting restitution to the trust estate. In Target Holdings Ltd v Redferns ([1996] 1 AC 421 at 434), Lord Browne-Wilkinson said:
[106]
'The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries' rights can be protected is to restore to the trust fund what ought to be there. In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate.' (His Lordship referred to Nocton v Lord Ashburton[1914] AC 932 at 952, 958. As is implicit in the above remarks, the Court of Chancery awarded compensation in these cases in the exercise of its inherent jurisdiction and independently of the jurisdiction received by Lord Cairns' Act (Chancery Amendment Act 1858 (UK)) to award damages in lieu of or in addition to injunctions or decrees for specific performance, where what was at stake were legal not equitable rights: see Underhill and Hayton, Law Relating to Trusts and Trustees, 15th ed (1995), p 827 and Perell, The Fusion of Law and Equity (1990), pp 75-83).'
[107]
His Lordship continued (Target Holdings Ltd v Redferns[1995] UKHL 10; [1996] 1 AC 421 at 434), with reference to decisions of Lord Eldon (when Master of the Rolls) in Caffrey v Darby ((1801) [1801] EngR 484; 6 Ves Jun 488 [31 ER 1159]), Lord Cottenham LC in Clough v Bond ((1838) [1838] EngR 949; 3 My & Cr 490[40 ER 1016]), Street J in Re Dawson (deceased) ([1966] 2 NSWR 211) and Brightman LJ in Bartlett v Barclays Trust Co [Nos 1 and 2] ([1980] Ch 515):
[108]
'If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed ... Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred.'"
[109]
[56] In Youyang Pty Ltd v Minter Ellison Morris Fletcher,[28] the defendant was a firm of solicitors which had been placed in funds to enable the plaintiff to subscribe for shares in an investment company. The investment company was to use part of the subscription moneys to buy a bearing deposit certificate issued by a prime bank in Australia which undertook to pay the bearer an amount equivalent to the amount of the subscription moneys after 10 years. The balance of the subscription moneys were to be used in speculation by the investment company. The defendant firm acted on behalf of the investment company. The defendant firm received the subscription moneys of $500,000 on trust to release them in part for the requisition of the bearer deposit certificate referred to above and the balance to the investment company upon the delivery of the bearer deposit certificate to a "paying agent" on behalf of the plaintiff. At the investment company's direction, on 24 September 1993, the defendant firm paid part of the subscription moneys to the prime bank and received in return a letter acknowledging the deposit which was addressed to the investment company. The balance of the subscription moneys were then paid over to the investment company. The prime bank's letter of acknowledgment was not a bearer certificate. It provided the plaintiff no security in respect of its investment. About a year after the investment, at the request of the investment company, the plaintiff executed a deed poll authorising the withdrawal of the funds on deposit with the prime bank and the deposit of those funds with an overseas bank. The plaintiff also authorised, by the deed poll, the substitution of a deposit certificate which confirmed the subscription agreement. The investment company then obtained from a prime bank a deposit certificate which was not a bearer certificate. The funds were withdrawn and lent to an associate of the investment company. Two and a half years later, a provisional liquidator was appointed to the investment company. It was later wound up, and the plaintiff lost the whole of its investment. The plaintiff sued the firm in the Equity Division of the Supreme Court of New South Wales for the restoration of the $500,000 which had been paid from the defendant's trust account on 24 September 1993. The trial judge held that the defendant's payment of the subscription moneys without obtaining the bearer deposit certificate was a breach of trust which caused the loss of the investment, and ordered that the plaintiff recover $414,009 on the basis that this sum would yield $500,000 on the date 10 years from the date which was the 10th anniversary of the date of the subscription. The majority of the Court of Appeal held that, although the acceptance of the defective deposit certificate was a breach of trust on the part of the defendant, it did not cause the loss of the plaintiff's funds.
[110]
[57] In the unanimous decision of the High Court, the plaintiff was held to be entitled to recover the full amount of $500,000 paid over by the defendant on 24 September 1993 on the basis that:[29]
[111]
"[t]he trust moneys were lost when paid out in breach of trust. That is the injuria with which equity is concerned, not the failure of the investment transaction ... By analogy with common law terms, the damage was then suffered; subsequent events went to quantification."
[112]
[58] In the present case, the injury of which the plaintiff complains is the depletion of the funds held in trust by the defendants by the exchange of the moneys contributed by the beneficiaries for securities in circumstances where the conditions precedent to that exchange had not been satisfied. Because the conditions precedent were not satisfied, the defendants were guilty of a breach of trust. Moreover, the failure of the conditions precedent also meant that the loan transaction to which the defendants committed the contributors' funds was, in material respects, different from that to which the contributors had agreed to commit their funds. The breach of trust by the defendants was complete when the trust moneys were paid over. The subsequent events which bore upon the extent to which the securities for which the moneys were exchanged were worth less than the trust moneys was not an issue of loss or causation but of quantification.
[113]
[59] The defendants relied heavily upon the decision of the House of Lords in Target Holdings Ltd v Redferns[30] in which it was held that the client of a solicitor who had paid over the client's funds contrary to the client's instructions to exchange the funds for a charge on property was not liable for the loss suffered by the client in circumstances where the charge was subsequently obtained but the property proved to be of a value insufficient to enable the loan to be repaid. The present case is distinguishable in that, in this case, the beneficiaries' funds were paid over by their trustees in circumstances where the conditions precedent to the defendants' authority to do so were not, and have never been, satisfied.
[114]
[60] In Youyang Pty Ltd v Minter Ellison,[31] the High Court distinguished the decision in Target Holdings Ltd v Redferns in terms which serve to confirm the importance of this distinction between the present case and Target Holdings Ltd v Redferns. The High Court said:[32]
[115]
"Target Holdings concerned the misapplication by the solicitors for a finance company of moneys held by the solicitors on a bare trust for their client. The solicitors had received moneys from their client to be held on trust, subject to any contrary instructions of the client, to pay to or to the order of the proposed mortgagor and borrower from the client; payment out was to occur only when the property in question had been conveyed to the mortgagor and the mortgagor had executed charges in favour of the client. The solicitors acted in breach of trust in paying out the moneys prematurely and before the conditions had been satisfied, and were liable to account. However, ultimately, the property was conveyed to the mortgagor and the charges were duly executed. That was an important circumstance and one that differs from the present case. The House of Lords held in Target Holdings that the client had suffered no loss for which the solicitors were accountable in an action for breach of trust for the premature payment out of the funds. Writing extrajudicially of Target Holdings, Lord Millett has said (Millett, 'Equity's Place in the Law of Commerce', Law Quarterly Review, vol 114 (1998) 214, at p 227. See also Underhill and Hayton, Law Relating to Trusts and Trustees, 16th ed (2003), p 857):
[116]
'The plaintiff could not object to the acquisition of the mortgage or the disbursement by which it was obtained; it was an authorised application of what must be treated as trust money notionally restored to the trust estate on the taking of the account.'
[117]
The litigation in Target Holdings arose when it transpired the mortgaged property, on subsequent exercise by the client of its power of sale, was worth far less than the moneys disbursed by the solicitors. The client brought an action claiming restitution of the entire moneys held by the solicitors (£1.525 million). In the Court of Appeal, the client recovered final judgment for that amount less the sum realised on the subsequent sale of the property (Target Holdings Ltd v Redferns[1994] 1 WLR 1089; [1994] 2 All ER 337).The House of Lords rejected the reasoning of the Court of Appeal, which had accepted that in cases of 'immediate loss' by wrongful payment out of trust moneys, the loss was treated as established at that moment and subsequent events were to be disregarded. Their Lordships emphasised that the depositing of the moneys with the solicitor had been but one aspect of the arrangements for the financing transactions and until 'the underlying commercial transaction' had been completed, the solicitors could be required to restore to their client account the moneys wrongly paid away (Target Holdings v Redferns[1995] UKHL 10; [1996] AC 421 at 436). Lord Browne-Wilkinson said that he did not doubt that moneys held by solicitors on client account were trust moneys or that the basic equitable principles applied to any breach of trust. However, his Lordship continued (Target Holdings v Redferns[1995] UKHL 10; [1996] AC 421 at 436):
[118]
'[T]he basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach.'
[119]
'I have no doubt that, until the underlying commercial transaction has been completed, the solicitor can be required to restore to client account moneys wrongly paid away. But to import into such trust an obligation to restore the trust fund once the transaction has been completed would be entirely artificial ... To impose such an obligation in order to enable the beneficiary solely entitled (ie the client) to recover from the solicitor more than the client has in fact lost flies in the face of common sense and is in direct conflict with the basic principles of equitable compensation. In my judgment, once a conveyancing transaction has been completed the client has no right to have the solicitor's client account reconstituted as a 'trust fund.'
[120]
The breach of trust committed by the solicitors in Target Holdings left the client in exactly the same position as if there had been no breach; if the instructions had been obeyed, the transaction still would have gone ahead and the client suffered a loss represented by the difference between the amount advanced on security and the amount realised from the security. That loss would have been caused by the fraud of third parties.
The present case is distinguishable from Target Holdings in at least two respects. First, Youyang was not the client of Minters, although Minters was trustee of the moneys for it. Secondly, the proposed commercial transaction, involving the provision of security to Youyang, was not after delay, as in Target Holdings, completed; the security was never provided and Minters should not have disbursed Youyang's moneys.
Nevertheless, the creation of the trust in favour of Youyang was not an end in itself; the terms of the trust which bound Minters were concerned with the application of the trust moneys in completion of a larger commercial transaction with Youyang and Minters' client, ECCCL, as the principal actors. To acknowledge that situation is not necessarily to embrace any theory of reductionism whereby, notwithstanding the rigour of the rule requiring observance of the terms of the trust, in certain events "commercial" trusts do not provide for their beneficiaries the full panoply of personal and proprietary rights and remedies designed by equity (cf Austin, 'Moulding the Content of Fiduciary Duties', in Oakley (ed), Trends in Contemporary Trust Law (1996) 153, at pp 167-168). Rather, it emphasises that, in the administration of the pecuniary remedy Youyang seeks for misapplication of its funds by Minters, regard should be had to the scope and purpose of the trust which bound Minters.
These considerations in turn lend force to the application here of the proposition expressed as follows by Lord Browne-Wilkinson in Target Holdings ([1996] AC 421 at 437):
[121]
'[T]he fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for 'stopping the clock' immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered.'" (emphasis added)
[122]
[61] In the present case, the preconditions to the making of the loan were never satisfied. Accordingly, the defendants should not have parted with the contributors' funds. Once the defendants' argument that the conditions precedent in the loan summary were not terms of the trust is rejected, it can be seen that, in the present case, unlike Target Holdings Ltd v Redfern, the disbursement of the loan moneys was not authorised by the terms of the trust on which the defendants held the contributors' funds. This ground of distinction was adopted by Aldous LJ, with whom Kay and Jonathan Parker LJJ agreed, in the decision of the Court of Appeal of England and Wales in Knight & Keay v Haynes Duffell, Kentish & Co.[33]
[123]
[62] In Target Holdings Ltd v Redfern, the decision of the House of Lords emphasised that the loss in question was suffered because the transaction which was completed was inherently disadvantageous. This disadvantage was not something for which the solicitors were responsible. Here, the contributors' complaint is not that they were induced to make a disadvantageous loan, but that their trustees committed their funds contrary to their instructions as to their willingness to invest in the transaction at all. In this respect, the present case may also be distinguished from Swindle v Harrison[34] upon which the defendants also relied.
[124]
[63] The defendants also argued that it was incumbent on the plaintiff to show that the contributors would not have agreed to the advances being made if they had known the true position. That argument is unsustainable. The following passage from the judgment of the High Court in Youyang v Minter Ellison[35] is apposite:
[125]
"In any event, Brownie A-J did not find, as Handley JA later assumed he had found, that if Mr Hayward had been told about the form of the certificate he would not have been concerned and would have proceeded with the investment. The matter was accurately put in the following passage from the judgment of Hodgson JA:
[126]
'There is in my opinion a world of difference between, on the one hand, an investor seeking to reverse an investment that has already been made because of a matter of the form of a certificate considered in isolation and, on the other hand, a proposed investor instructing a trustee to go ahead and make an investment notwithstanding that the party to whom the money is to be entrusted is deliberately breaching its contract by not proffering the security for the investment which it undertook to provide. In my opinion, the primary judge's finding concerning the former matter says nothing about the latter.'
[127]
'In my opinion, if a trustee wishes to assert that a breach of trust caused no damage for the reason that the beneficiary would, if asked, have authorised the very action which constituted the breach of trust, then there is at least an evidentiary onus on the trustee to make good that proposition.'"
[128]
[64] The defendants' defence raised no such issue. Whether or not the contributors would have instructed the defendants to proceed with the loan to Holdings if they had known the true position in relation to the non-satisfaction of the conditions precedent was not an issue in the case at all, much less one warranting a trial.
[129]
[65] In the present case, the plaintiff continues to hold rights on trust for the contributors. The defendants held the contributors' moneys, and the securities for which they were exchanged, on trust for the contributors. The plaintiff has replaced the first defendant in this regard. The declaration by the learned primary judge that the defendants were liable to reimburse the plaintiff for the amount of the loss on the loan was a remedy appropriate in the circumstances to meet the defendants' obligations.[36]
[130]
[66] The learned primary judge was correct to reject the defendants' submissions in relation to causation.
[131]
[67] In A & D Douglas Pty Ltd and Ors v Lawyers Private Mortgages Pty Ltd & Anor,[37] Dowsett J was concerned with a claim by individual contributors relating to investments made by the defendants on their behalf in loans to borrowers other than Holdings. In a judgment delivered on 12 May 2006, Dowsett J described the role of the first defendant as having been "to receive and advance investors' funds, to take security for repayment thereof and to realize the security if necessary".[38] His Honour went on to find that:[39]
[132]
"the mortgage business was conducted by [the second defendants]. The [first defendant] was simply a nominee company, appointed to hold securities on behalf of investors and take appropriate action to enforce such securities where necessary."
[133]
[68] The defendants seek to amend their notice of appeal to allow them to contend that these conclusions of Dowsett J are inconsistent with the findings central to the decision of the primary judge in this case, and that, because the conclusion of Dowsett J is an element of a final judgment, the "interlocutory judgment" of the primary judge has been retrospectively trumped thereby.
[134]
[69] There are many difficulties in the way of the defendants' submission that the plaintiff is estopped from making the claim against the defendants which succeeded below. It is far from clear that there is the necessary identity of parties to give rise to an estoppel. Nor is it readily apparent that the point can now be taken. The claim having been made and accepted by the Supreme Court, it is incongruous to speak of the plaintiff being estopped from making his claim: the claim has been made and upheld. Thirdly, while the quantification of the sum necessary to restore the trust property may have been left for later quantification, the declaration of the parties' rights and obligations made by the learned primary judge was a final judgment: there was nothing interlocutory about it.
[135]
[70] More importantly, however, the defendants' submission must fail because it is based on the erroneous assumption that the conclusions of Dowsett J to which I have referred are inconsistent with the decision of the primary judge in this case. Nothing in the description by Dowsett J of the role of the first defendant in the mortgage lending business conducted by the second defendants is inconsistent with the view that the first defendant was subject to the obligations of a trustee for the investors when advancing the trust funds provided to it for that purpose by the second defendants. Dowsett J was not called upon to determine this issue. He cannot be thought to have done so inadvertently. Monsieur Jordain, of Molière's "Le Bourgeois Gentilhomme", may well have spoken prose without knowing it, but Dowsett J certainly did not relieve the first defendant of the obligations of trusteeship without even adverting to the question.
[136]
[71] Nothing in the reasons of Dowsett J affords any support for the notion that, in the time when the first defendant controlled the direction of the funds of the contributors to Holdings, it was unaffected by any obligation to those contributors to ensure that those moneys were ventured only in conformity with the terms on which they had been obtained from the contributors.
[137]
[72] The argument as to issue estoppel which the defendants seek to agitate is entirely without substance. The defendants' application for leave to add this point to their grounds of appeal should be refused.
[138]
[73] The defendants have failed to demonstrate any basis for concluding that the learned primary judge erred in entering judgment for the plaintiff.
[139]
[75] The defendants should pay the plaintiff's costs of the appeal.
[140]
[76] MACKENZIE J: I agree, for the reasons given by Keane JA, that the orders he proposes should be made.
[141]
[77] JONES J: I have had the advantage of reading the reasons prepared by Keane JA. I agree with those reasons and the orders he proposes.