Jessup v Lawyers Private Mortgages Ltd & Ors

PROCEDURE - SUPREME COURT PROCEDURE - QUEENSLAND - PRACTISE UNDER RULES OF COURT - SUMMARY JUDGMENT - where plaintiff brought application for summary judgment against first and second defendants (defendants) - whether plaintiff satisfied Court that defendants had no real prospect of success and summary judgment could be entered; what is the appropriate test for determining if there is a real prospect of success

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 - where plaintiff alleged breach of trust by defendants and sought recovery of moneys contributed to investment fund and loaned to defendants - where defendants claimed a bare trust existed - whether anything more than bare trust could be established and, if so, whether breach of that trust occurred

Body Corporate and Community Management Act 1997 (Qld)

Corporations Act 2001 (Cth), s 601EE(1)

Managed Investments Act 1998 (Cth)

Property Law Act 1974 (Qld), s 11(1)(b)

AVS Catering Pty Ltd v Brisbane Broncos Corporation Pty Ltd [2005] QSC 395, 1 September 2005, discussed

Barclays Bank Ltd v Quistclose Investments Ltd [1970] QC 567, cited

Bernstrom v National Australia Bank Ltd [2002] QCA 231; [2003] 1 Qd R 469, cited

Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370, discussed

Deputy Commissioner of Taxation v Salcedo [2005] QCA 227, 24 June 2004, discussed

Foodco Management Pty Ltd v Go My Travel Pty Ltd [2001] QSC 291; [2002] 2 QD R 249, cited

Gray v Morris [2004] QCA 5; [2004] 2 Qd R 118, discussed

Harvey v Edwards Dunlop & Co Ltd [1927] HCA 13; (1927) 39 CLR 302, cited

Herdegen v Federal Commissioner of Taxation [1988] FCA 419; (1988) 84 ALR 271, discussed

Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165, cited

Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2002] QCA 224; [2003] 1 Qd R 259, cited

Sunbird Plaza Pty Ltd v Boheto Pty Ltd [1983] 1 Qd R 248, cited

Target Holdings Ltd v Redferns (a firm) [1995] UKHL 10; [1996] 1 AC 421, cited

Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, cited

Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484, discussed

McCarthy Durie Ryan Neil for the first and second defendants

[1] The second defendants ('the solicitors') are the members of a firm of solicitors. They are also the directors of the first defendant ('LPM') which was a nominee, or trustee, company which the solicitors utilised in the course of their business of contributory mortgage lending. I shall refer to the first and second defendants collectively as 'the defendants'.

[2] The solicitors conducted the lending business for a number of years until September 2001 pursuant to rules promulgated by the Queensland Law Society. Following the enactment of the Commonwealth Managed Investments Act in 1998 they were obliged to register their lending practice as a managed investment scheme or wind the business up. The Australian Securities and Investments Commission permitted the defendants (and other solicitors in a like position) to continue lending on a transitional basis pending registration or termination of the business. By mid-2001 the only loans which the solicitors had made in the course of their business and which remained unpaid were in default. On 7 September 2001 the defendants applied to this court for the appointment of a liquidator for the purposes of securing the assets of the 'Runout Mortgage Business', which were the outstanding loans I have mentioned, which could not be brought to an end in the transitional period because of the borrowers' defaults.

[3] On 13 September 2001 the Honourable Justice Holmes ordered that the defendants Runout Mortgage Business be wound up pursuant to section 601EE(1) of the Corporations Act 2001 (Cth) and that the plaintiff be appointed liquidator for the purposes of the winding up. Her Honour further ordered that LPM be removed as trustee of all and any relevant trusts created by or subsisting in the Runout Mortgage Business and that the plaintiff be appointed as new trustee in its stead. Another order was made vesting all property held by LPM as trustee in connection with the Runout Mortgage Business in the plaintiff.

[4] The defendants' contributory lending business was conducted in the usual way. Those who wished to borrow money, or brokers acting on their behalf, would approach the solicitors and ask for a loan. They would submit a proposal setting out the amount required and the security they could offer. If the defendants thought the application offered suitable business they would notify their clients, or those known to be interested in lending in such a business, and give them details of the proposed loan. If sufficient investors, or contributors, expressed interest and subscribed the amount sought by way of loan the business would be transacted. The detail will need to be considered, but essentially the individual contributors would pay their individual contribution amounts to the solicitors' trust account. When a sufficient amount had been accumulated and the defendants were satisfied it was appropriate to make the loan the moneys would be transferred to LPM which would make the advance to the borrower. LPM would hold the chose in action constituted by the debt, and any securities given in respect of it, on trust for the contributors.

[5] The solicitors acted as solicitors for LPM and, as I mentioned, they were its directors.

[6] On or about 26 October 1998 Ko Huna Beach Holdings Pty Ltd ('Holdings') borrowed $1,620,000 from the first defendant. It obtained the money by way of contributions from a number of private investors who were approached by the defendants to make up the sum to be lent to Holdings. The term of the loan was one year during which Holdings was to pay interest at 15 per cent reduced to 11 per cent if paid punctually. The principal sum borrowed was to be repaid at the end of the year. Holdings defaulted in paying the monthly instalments of interest due in June, July and August 1999. It failed to pay the principal in October 1999 and was wound up on 21 June 2000. The defendants were able to recover very little of the debt and the contributors have made substantial losses.

[7] The plaintiff, as trustee and liquidator of the assets of LPM, commenced an action against the defendants for negligence, breach of contract and breach of trust. As well the plaintiff sued the third defendants for negligence. They were valuers who provided a valuation of the land which was the principal security for Holdings' loan.

[8] By an application dated 11 August 2005 the plaintiff sought summary judgment pursuant to Uniform Civil Procedure Rule 292 against the defendants. The application was brought only in respect of the cause of action for breach of trust. The plaintiff did not seek to argue that he was entitled to summary judgment in respect of the causes of action for negligence or breach of contract against the solicitors. The third defendants were not made respondents to the application.

[9] The plaintiff's submission was that he can demonstrate by documents and admitted facts an entitlement to relief against the defendants for breach of trust. If he is right he is entitled to an order that the defendants restore to the trust, of which LPM was trustee, the money which was lost by reason of Holdings' default. The plaintiff would hold the moneys restored, of course, on trust for the contributors. Such a result will obviate the need for a trial against the defendants on the other causes of action, or against the third defendants.

[10] The application for summary judgment, if successful, therefore, will bring the action to an end much sooner and with much more economy than would be the case if there were a trial.

[11] The application gave rise to complex arguments and a consideration of a substantial amount of documentary material. The argument occupied a whole day. The defendants resisted the application both on the ground that the plaintiff had not demonstrated an entitlement to relief and on the ground that this was not an appropriate case for summary judgment.

[12] To determine the second point it is necessary to consider the meaning and ambit of UCPR 292 which has been the subject of controversy. The rule provides that if the court is satisfied that the defendant has no real prospect of successfully defending all or part of the plaintiff's claim, and that there is no need for a trial of that claim or part, it may give judgment for the plaintiff by making the order which the court considers appropriate. The phrase 'no real prospect', while apparently innocuous, is redolent of imprecision.

[13] In Gray v Morris [2004] QCA 5; [2004] 2 Qd R 118 at 133 McMurdo J, with whom McPherson JA agreed, said of UCPR 293 (which is relevantly identical to UCPR 292):

'... r 292 and r 293 should be applied by reference to their clear and unambiguous language, without a need for any paraphrase or comparison with a previous rule. But in the application of the plain words of r 292 and r 293, and in particular the consideration of whether there is a need for a trial, a court must keep in mind why the interests of justice usually require the issues to be investigated at a trial. In my view it surely remains the case, as Mason, Murphy, Wilson, Deane and Dawson JJ said in Fancourt ... that "The power to order summary ... judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried". That remains a forceful and authoritative guidance and is in no way in tension with the application of these rules according to their own terms.'

[14] My judgment went further. After reviewing a number of decisions in this court which discussed the operation of the rules and believed they had ushered in a new era of summary dispositions of actions I said (at 126):

'A claim or defence which has no real prospect of success is one which is bound to fail. If one adopts this as a proper test then one has a clear basis on which to proceed. A claim which is bound to fail is one which cannot succeed. It is one which cannot possibly succeed. It is one which has no prospects of success.'

'Three points emerge ... They are: (i) under the new rules as [under] the old ones it is a serious step to order judgment in advance of trial; (ii) the rules as to summary judgment are to be applied in order to do justice between parties; (iii) a claim or defence which has "no real prospects of succeeding" is one which is "hopeless" or one which is "bound to fail".

[15] A differently constituted Court of Appeal in Deputy Commissioner of Taxation v Salcedo [2005] QCA 227, 24 June 2004, expressed disagreement with Gray but did not overrule it. The President said at [2]:

'UCPR r 292 and r 293 should be applied using their clear and unambiguous language ... keeping in mind the purposes of the UCPR to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.

Nothing in the UCPR, however, detracts from the well established general principle that issues raised in proceedings will be determined summarily only in the clearest of cases.'

[16] Williams JA said (at [11]) that the rules had:

'... brought about significant changes in the law and procedure relating to summary judgment.'

His Honour then reviewed a number of authorities and concluded (at [17]):

'... there has been a significant change brought about by the implementation of r 292 ... The test for summary judgment is different, and the court must apply the words found in the rule. To use other language to define the test ... only diverts the decision-maker from the relevant considerations. But, and this underlies all that is contained in the UCPR, ultimately the rules are there to facilitate the fair and just resolution of the matters in dispute. Summary judgment will not be obtained as a matter of course and the judge determining such an application is essentially called upon to determine whether the respondent ... has established some real prospect of succeeding at a trial; if that is established then the matter must go to trial. ... [T]he observations on summary judgment made by the ... High Court in Fancourt ... are not incompatible with that application of r 292 ...'

'... in determining an application for summary judgment ... (must) apply the plain meaning of the words of those rules and not impose a gloss taken from the practice ... that applied ... before the ... UCPR.'

'[T]he test to be applied is that adopted ... in Swain v Hillman ... that is, the court must consider whether there exists a real, as opposed to a fanciful, prospect of success.'

[18] The difficulty with the approach taken in Salcedo is that it begs the question of what is meant by the words 'no real prospect of success.' It may also be noted, in passing, that while eschewing the need to put a gloss upon the wording of the rule in order to arrive at their 'plain and unambiguous meaning' two of the judgments felt obliged to explain that a real prospect of success was to be understood as being different from a fanciful prospect of success. That the rule needs this elaboration of meaning is, in my opinion, to admit that it is not plain and unambiguous. As much as one may like to deny it, it is to put a gloss upon the words of the rule.

[19] The real difficulty is not to understand what the language of UCPR 292 signifies. The difficulty is to know what test to apply in order to determine, without the investigative processes and procedures of a trial, whether a party to litigation should suffer judgment against it. It was for this reason that in AVS Catering Pty Ltd v Brisbane Broncos Corporation Pty Ltd [2005] QSC 395, 1 September 2005, I said at [14]:

'The only safe principle to apply when dealing with applications ... for summary judgment is that which I expressed in Gray ... : '[A] claim ... which has "no real prospect of succeeding" is one which is "hopeless" or one which is "bound to fail". Any other approach runs the risk that judgment will be given undeservedly, as a trial would have demonstrated. Those who see in the terminology of the rule 'a new philosophy' have yet to give content to it, and to explain why it values expedition more highly than justice. Likewise, those who profess to be able to determine, summarily, whether a claim has a real prospect of success, or only a fanciful one, have yet to describe how they do so.'

[20] It is the last expressed consideration which is the critical one. If summary judgment is not to work injustice it must be limited to those cases where it can be seen that a plaintiff or defendant, as the case may be, could not succeed at a trial of the action. It is only where a trial can be seen to be pointless that judgment should be entered summarily. Whatever form of words one uses the reality must be that it will only be just to deprive a party of its right to prosecute its claim or defence at trial where it can be seen that the claim or defence cannot succeed. If it might succeed, if there is a possibility of success, it cannot be just (though it might be expeditious) to enter summary judgment.

[21] In practical terms I suspect the rule means (as the old rules meant) that summary judgment should not be given where the facts upon which the parties' respective rights depend are disputed, or where the respondent to the application for summary judgment adduces evidence as to the existence of facts which, if proved, would establish a defence or a right to relief. In other words it is only where all the facts are known and/or are established beyond controversy that the court should embark upon determining whether to give summary judgment. Where relevant facts are controverted, or where it appears that facts may exist which would affect a right of action or defence, there should be a trial to determine the facts. This was the approach taken, in fact, in the cases which I analysed in my judgment in Gray: Foodco Management Pty Ltd v Go My travel Pty Ltd [2001] QSC 291; [2002] 2 Qd R 249; Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2002] QCA 224; [2003] 1 Qd R 259 and Bernstrom v National Australia Bank Ltd [2002] QCA 231; [2003] 1 Qd R 469, despite what was said in those cases about the 'new' approach which the brave new words of the rule was thought to have made necessary.

[22] It follows from what I have said that if the facts are settled and the respective rights of the parties turn upon questions of law, UCPR 292 and/or 293 would require the court to give judgment in advance of trial, even where the point may be difficult. This conclusion involves a departure from the practice under the former rules as to summary judgment as explained in Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507 and Sunbird Plaza Pty Ltd v Boheto Pty Ltd [1983] 1 Qd R 248. To that extent UCPR 292 and 293 may be said to have wrought change.

[23] I approach the plaintiff's application on the basis that I should give judgment only if satisfied that there are uncontroverted facts proved by the material read in the application which show an entitlement in law to the relief claimed by the plaintiff, and that there is no evidence to suggest the existence of additional facts which, if proved, would controvert those facts.

[24] The plaintiff's claim, for which he seeks summary judgment, is for breach of trust. Put shortly the plaintiff contends that LPM held the sum of $1,620,000 on trust for the various contributors for their respective portions. It advanced the fund to Holdings on the terms set out in the loan agreement and thereupon held the debt and the securities provided by Holdings to secure repayment of the debt and interest on trust for the contributors. It is an essential part of the plaintiff's case that the terms of the trust on which LPM held the money included conditions as to the circumstances in which it could make the loan to Holdings. The conditions were set out in documents called a Loan Synopsis or an Investment Summary which were prepared by the solicitors and sent to the contributors. The loan was made, the plaintiff contends, without a number of those conditions being fulfilled. There being non-compliance with the conditions, there was a breach of the terms of the trust and the contributors' moneys were lost. The plaintiff contends that had the loan not been made in breach of the trust the trust fund would have remained intact.

[25] The defendants' contention is that LPM was a bare trustee, or a cipher; it had no function and no duty other than to pay the fund which it admittedly held on trust for the contributors to Holdings by way of loan. In particular the defendants contest the proposition that the terms of the investment summary formed terms of the trust on which the first defendant held the contributors' moneys.

[26] 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:

'Please complete the Investment Authority in this brochure and send it to us.

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.

We receive many applications from borrowers and a summary of those approved will provide you with the following:-

• The proposed interest rate

• The amount of funds required

• The terms of the loan

• The loan to value ratio to a maximum of 70%

• The location and type of security offered

• Confirmation that a full credit check has been completed ...

• Summary of borrowers [sic] financial detail

You then confirm your acceptance of one of the proposed investments to us.

We then prepare all security documents and carry out all necessary searches and enquiries. ...

Thereafter, you receive an investment certificate and a summary of the mortgage.'

[27] In a newsletter prepared by the solicitors advertising their lending business it was said:

'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 ...

...

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.

...

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.'

[28] When a contributor's funds were deposited in the solicitors' trust account a trust account receipt was issued. Pending accumulation into a fund sufficient to lend to a borrower, moneys were placed on deposit with the Commonwealth Bank and interest earned was paid to the credit of the contributor.

[29] A contributor who completed the 'APPLICATION FOR FIRST MORTGAGE INVESTMENT' would write in details of his name, address, telephone number, tax file number and bank account details for the receipt of interest. It would also indicate the amount to be invested. Printed on the reverse of the application form was a 'PRIVATE MORTGAGE INVESTMENT AUTHORITY'. It contained the following terms:

'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) to place the investment amount [in a first mortgage security] only on the following terms and conditions:

A. Registered First Mortgage Security only over ... Real Estate.

B. Term 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 (LPM).

3. You acknowledge that:

A. Other investment amounts may be contributed by other investors ...

...

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.'

[30] Clauses E and F do not appear in every copy of the investment authorities in evidence. There is no clear proof of the contents of the documents actually sent by the defendants to the contributors to the Holdings loan. The defendants placed particular reliance upon the contents of those clauses. Consistently with the approach which I maintain the court should take in applications for summary judgment I proceed on the basis that the two clauses did form part of the relevant correspondence between the defendants and the contributors.

[31] On 2 September 1998 Contact Financial Consultants wrote to the solicitors:

'(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. ...'

The 'complex' was known as the Ko Huna Resort. It is sufficiently described in the passage quoted. Kent Wood & Associates, the valuers, are the third defendants. Mr Huxley was the sole director and shareholder of Holdings. He is now bankrupt.

'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:-

• Ko Huna Holdings Pty Ltd

• Investment Company Australia Ltd

• Gregory John Huxley

• Appropriate ... directors' guarantees ...

5. Company Charge over ... Holdings ...'

[33] On 25 September 1998 the solicitors wrote to Holdings to inform them that their:

'... request for a loan facility has been approved on a "best endeavours" basis subject to all conditions being satisfied and clearly the availability of investor funds in total ...

This letter is not to be construed as a binding agreement to make the advance. Such agreement shall only come into existence upon the making of the advance. ...

The full terms and conditions of the Loan Facility shall be set out in the security documents which will prevail over this letter and any other negotiations. A brief summary of the details proposed to be relied upon to prepare documentation is enclosed in the Schedule ...'

[34] Holdings wished to borrow $2,970,000 to enable it to buy the resort. The defendants were prepared to, or able to, lend only $1,620,000. The balance which Holdings required for the purchase was borrowed from two companies which were also clients of the solicitors. Their advance was also secured by mortgage which ranked in priority behind the mortgage over the resort land given to LPM to secure the loan made on behalf of the contributors.

[35] On or about 28 September 1998 the solicitors wrote to a number of people who, in response, became contributors to the loan to Holdings. The letters were in similar terms and said:

'... [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:-

Amount of Loan : $1,620,000.00

Term of Loan : One (1) year

Interest Rate : 11% per annum

Loan to Value Ratio : 60% as is/36% on strata titling

Settlement Date : 2 October 1998 (Urgent)

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

[Names of Contributors]

Please proceed with the investment of my funds in the amount

of $ in the above loan'.

[37] The summary which was enclosed with the letter had these relevant terms:

'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 ...:

...

• Valuation by (the third defendants)

...

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.

[38] The plaintiff's case is that the solicitors and LPM were trustees of the contributories' moneys and were authorised, as trustees, to invest those moneys by way of loan to Holdings to enable it to buy the Ko Huna Beach Resort. It is the critical part of the plaintiff's case that the terms on which the money was to be lent by LPM to Holdings were also terms of the trust on which LPM held the contributories' moneys. In particular the terms of the loan as to security, valuation and the sale of the management rights to the resort were terms of the trust. To put it more simply the plaintiff's case is that the contributories advanced moneys to LPM to be invested by it on the investment described in detail in the loan synopsis, or investment summary. The trustee, LPM, was authorised to invest only on those terms and no others. If the trustee invested the moneys in some other investment, it would have committed a breach of trust. It will have invested in an unauthorised investment if it lent the money to Holdings in terms other than those which were set out in the synopsis, which was the only investment authorised by the contributories.

[39] The defendants deny that the terms of the loan proposed in the investment summary became terms of the trust. Their submission is that LPM was a 'bare' trustee. Its obligation was no more than to lend the moneys it received from the contributories to Holdings. They contend that the only trust relationship was that created by the investment authorities signed by each contributory which were addressed to the solicitors, not LPM. The defendants accept that the securities given by Holdings to LPM were 'necessarily' held by it on trust for the benefit of the contributories. The chose in action constituted by the debt owed by Holdings to LPM must also have been held on trust for the contributories. The defendants argue that the contributory mortgage scheme was operated by the solicitors to whom, as I say, the investment authorities were directed. It is, the defendants contend, the investment authority which sets out the terms and conditions in accordance with which the solicitors invested money on behalf of a particular contributor. The defendants submit that the investment summaries produced by the solicitors were no more than proposals for investors to consider when deciding whether or not to invest. It is said that 'both in form and in substance the document was in the nature of a prospectus or information memorandum'.

[40] Whether the terms of the trust on which LPM held and advanced the moneys is limited as the defendants contend, or include the terms the plaintiff identified, is the critical issue in the application and in the action so far as it asserts a breach of trust. That fact, what are the terms of the trust, is to be decided from the communications between the parties and the intention is to be presumed from those communications. The communications were in writing and the documents have been put into evidence in the application. The precondition I earlier identified before proceeding to determine the question summarily has been satisfied.

[41] LPM made the advance to Holdings from the accumulation of contributions as a matter of administrative convenience for the operation of the solicitors' lending business. If the contributions were not accumulated into one fund before being lent there would be as many loans as contributors. The borrower would have to provide separate securities to each contributor and make repayments separately to each contributor/lender. In the event of default each contributor would have to take action against the defaulting borrower and/or separately enforce rights given by the securities. Duplicate sets of accounts would be needed. As it is, the moneys were paid by contributors to the solicitors' trust account and when sufficient moneys were on hand, paid from that account to LPM which paid the money by way of loan to Holdings, in this case. The moneys may have been paid directly from the solicitors' trust account to Holdings but payment would have been made on behalf of LPM, which was the lender and mortgagee.

[42] It is to be noted that the investment authorities were addressed to the solicitors and directed them to place the moneys contributed on deposit with the Commonwealth Bank as trustee until an authority was given by the contributors to the solicitors 'to place the investment' by way of a loan 'to be in accordance with the summary approved by' the contributor. The acknowledgments which I referred to earlier and which were signed by the contributors indicated the respective amounts to be invested and identified the loan to Holdings as the particular loan to which the contributions were to be applied. The acknowledgments were sent by contributors in response to loan summaries sent to them by the solicitors.

[43] By paragraph 3(c) of their defence the first and second defendants admitted that:

'... 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...'

[44] By paragraph 13 of the defence the defendants admitted that on or about 26 October 1998 LPM lent $1,620,000 to Holdings 'from the funds invested by the various investors in response to the Investment Summary as their nominee or base [sic] trustee'. In response to a request for particulars of that admission the defendants admitted that 'particulars of the terms of the funds invested by the various investors in response to the investment summary are those set out in the investment summary.'

[45] On 27 November 1997 the solicitors wrote to Bradfield O'Brien & Co to thank them for the interest they 'expressed in referring your clients to us who [were] desirous of investing in Private Mortgages.' The letter discussed the payment of a referral fee and went on to explain something of how the solicitors and LPM conducted their business. It said:

'You ... agree not to make any representations about our private mortgage investment service other than as provided in our ... brochure and as outlined in the synopsis provided to you.

We agree ... to invest your clients' funds after receiving approval to invest in accordance with the synopsis.'

[46] The conclusion seems to me inescapable that the investment authority, the loan summary and the acknowledgment are to be read as one document, or at least three documents constituting evidence of the one transaction. The authority is general and directs how the contributions are to be dealt with prior to their accumulation into a fund to be lent. The acknowledgment is the authority to lend each contributor's share of the fund to an identified borrower; it contains no information about the terms of the loan. It says nothing about duration, security or interest rate. Nor does the investment authority. If one regarded the authority and/or acknowledgment as the only instrument of trust between contributors and LPM it would be void for uncertainty. One must have regard to the loan summary to find the terms on which the loan was to be made by LPM. This was clearly contemplated by the investment authority itself which said that the terms of the loan were to be in accordance with the loan summary which the contributors had to approve. The letters of 28 September 1998 enclosed a synopsis of the proposed loan to Holdings and asked the correspondents to sign and return an acknowledgment if they wished to contribute to that loan. The acknowledgment sent in response was an assent to the loan described in the loan summary. I conclude that the acknowledgment was the specific authority to advance the money on the terms set out in the loan summary.

[47] The accumulation of funds took place in the solicitors' bank account. Clearly they held the money on trust for the contributors. The loan to Holdings was made by LPM. I do not know that the precise mechanism of the payment was proved but I presume that it was by way of a cheque drawn on the solicitors' trust account. LPM had no moneys of its own. The solicitors must have paid the contributors' moneys, which they held on trust, to LPM so that it could make the advance to Holdings, or they applied the money on LPM's behalf by paying it directly to Holdings. Either application of the moneys by the solicitors and LPM was authorised by the contributors. The money which LPM advanced, or which was applied on its behalf was trust money. I think that is clear, for the following reasons: firstly, the money was held by the solicitors on trust to be lent in accordance with the contributors' instructions; secondly, LPM was the vehicle by which the loan was made; thirdly, after the loan was made it is accepted that LPM held the debt and the securities for its repayment as trustee for the contributors; and fourthly, it was never intended that LPM should have any beneficial interest in the money. The course of dealing with the contributors' moneys shows it was paid to or on behalf of LPM on a trust of the kind described by the House of Lords in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.

[48] 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.

[49] I see no point in distinguishing between the solicitors and LPM in relation to the existence of, or the terms of, the trust. The solicitors 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 LPM which knew it was trust money and knew of the terms of the trust, or they paid it to LPM to allow it to make the advance to Holdings. The solicitors were the directors of LPM; their knowledge and intention was LPM's knowledge and intention. If the solicitors paid the moneys to LPM they did so knowing and intending that they would be lent to Holdings. LPM 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 solicitors and LPM were trustees of the contributions on the terms found in the investment summary.

[50] The defendants object to these conclusions. Attention was drawn to the remarks of Gummow J in Herdegen v Federal Commissioner of Taxation [1988] FCA 419; (1988) 84 ALR 271 at 281:

'Today the usually accepted meaning of "bare" trust is a trust under which the ... 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 ... to perform, except to convey it upon demand to the beneficiary ...'

Reference was also made to the judgment of Meagher JA in Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 at 398. The question in that case considered the meaning of the term "bare trustee" in section 8(8)(a)(iii)(B) of the Companies (NSW) Code. Meagher JA said:

'A "bare trust" is one in which the trustee has no active duties to perform and is usually contrasted with a trust where there are such active duties. A recent discussion of the topic may be found in ... Herdegen ... In that case, [Gummow J] points out that the precise nuances of the phrase must depend on the context in which it is found ... But as a matter of strict logic almost no situation can be postulated where a trustee cannot in some circumstances have active duties to perform ... Bearing in mind the evident statutory purpose, ... I think the expression must be related to situations where a trustee is no more than a nominee or cypher, in a commonsense commercial view.'

[51] I was also referred to Target Holdings Ltd v Redferns (a firm) [1995] UKHL 10; [1996] 1 AC 421 at 434-6; Jacobs' Law of Trust in Australia 6th ed., paragraphs 305 and 318; and Snell's Equity 31st ed., paragraphs 19-20. I might say that I have found the discussion in Ford and Lee Principles of the Law of Trusts paragraph 9620 to be the most helpful on the topic of 'bare trustees'.

[52] The defendants' submission is that LPM was a bare trustee. It took the moneys from the solicitors and advanced it, as directed by the contributors, to Holdings. It was a 'cypher or nominee in a commonsense commercial view.' It had no other duty to perform as trustee. It did not breach that duty and could, by definition breach no other, since none existed.

[53] I cannot accept this submission. I note that the authors of Jacobs in the paragraph referred to, 305, said:

'A simple trust is one in which the trustee has no active duties to perform beyond the conveyance of the property to the beneficiaries when required to do so. In such a case the trustee is called a passive or bare trustee. If the trustee has duties ... in connection with the trust property so that he has to do something more ... than merely convey the trust property to the beneficiaries, the trust is called a special trust and the trustee an active trustee.'

[54] LPM's duty was not to pay the trust moneys to the beneficiaries, the contributors. It was to pay it by way of loan to Holdings. It was to hold the debt and securities on trust for the contributors. It had at least those 'active' duties. Moreover as Meagher JA pointed out in Corumo Holdings what is meant by the phrase 'bare trust' will vary according to its context, and there is almost no situation where a trustee does not have some duties to perform. The defendants' submission inverts the proper process of reasoning. They contend that the solicitors and/or LPM were or was a bare trustee and therefore had no duties and could not therefore be in breach of any duty. The proper approach is to identify what, if any, duties the trustee had and then determine whether there has been a breach of those duties.

[55] In my opinion the solicitors and LPM had duties as trustee to lend the contributed moneys to Holdings. They were not to lend on any terms but on the terms found in the investment summary. It was, therefore, a term of the trust that the moneys be advanced by way of loan on those terms.

[56] Next the defendants argue that the law evinces a predisposition against expanding obligations in commercial transactions to include unnecessary relationships of trusteeship or fiduciary obligations. The authority principally relied upon was Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165, particularly at paragraphs 69-75. I agree, as I must, with the principle expressed in that judgment but it has no application in a case such as this where there already exists a relationship of trust, in the technical sense, between the parties. The question in this case, as I see it, is not whether a trust should be imposed but what are the terms of the trust that the parties themselves created.

[57] The defendants point also to the terms of clauses E and F of paragraph 3 in the investment authorities. By these, it will be recalled, the solicitors advised prospective contributors that the decision to invest was theirs; and they made that decision without relying upon any statement, warranty or representation made by the solicitors; and that the solicitors recommended that the contributors obtain financial advice prior to contributing their money. These clauses, it is submitted, show that that relationship between contributors and the solicitors was 'a commercial one' of the ordinary kind in which money was to be invested on the basis of information contained in the loan summaries. The clauses are said to be inconsistent with the undertaking of a trust obligation by the solicitors to invest as trustees.

[58] I cannot accept the alleged inconsistency. It is no doubt true that the prospective contributors were asked to consider for themselves the prudence of investing money by way of loan. But, in particular, they were asked to consider the prudence of a loan to Holdings on the terms set out in the loan summary. If they lent money, or contributed moneys towards loan funds to be advanced to Holdings, on the basis of the loan summary and lost money because of the borrower's default, other things being equal, they could not complain about the loss. Where, however, they advanced moneys on the basis of the loan summaries and the money was advanced on some other basis the position is different. Depending on the circumstances the contributors may well have a right to legal redress. If, as the plaintiff contends, and I have accepted, it was a term of the trust upon which moneys were paid to the defendants to be held by them and applied by way of investment in a loan on terms set out in the loan summary, the contributors would have a cause of action for breach of trust if those moneys were advanced on different terms. If the contributors' money was invested on terms other than those which were proposed it does not matter that they were advised to make their own decision on whether it was prudent to invest upon the terms proposed.

[59] Lastly the defendants object that if the terms of the investment summary were to be regarded as the terms of the trust on which the money was lent they would amend their defence to plead reliance upon section 11(1)(b) of the Property Law Act 1974 (Qld) because the summary, which would constitute a declaration of trust in respect of land, was not signed by the contributors. The short answer to this submission is that the acknowledgment was signed by the contributors, the persons able to declare the trust, and the acknowledgment incorporated the summary. It expressly referred to the loan to Holdings, which was the subject of the summary, and without that reference the acknowledgment was incomprehensible. See Harvey v Edwards Dunlop & Co Ltd [1927] HCA 13; (1927) 39 CLR 302.

[60] The plaintiff claims that LPM made the loan to Holdings on terms other than those set out in the investment summary which I have found to be terms of the trust on which LPM was to invest the contributors' money. The plaintiff identifies several respects in which the terms of the loan that was made depart from those described in the summary. Whether or not there was a breach of the terms is a question of fact in each case. Consistently with the approach I have indicated a judge should take on an application for summary judgment, I should not find any breach unless it is clear that there is no triable issue with respect to the facts in relation to the breach. Where the facts are controverted or where there is evidence to suggest that at a trial the defendant could prove a fact which would show there was no breach I should not proceed to make a determination.

[61] I am satisfied that there is, at the least, a triable issue with respect to a number of the matters on which the plaintiff relies as constituting breaches of the trust. Accordingly I intend to discuss only those in which I am satisfied that the plaintiff has made out his case.

[62] The summary stated that the loan to Holdings was to be secured by, inter alia, guarantees from Ko Huna Holdings Pty Ltd and Investment Company of Australia Pty Ltd. It is, I think, clear on the material that no guarantee was ever obtained from Ko Huna Holdings Pty Ltd. There was therefore a breach of the term. I should mention that no guarantee was ever obtained from a company called Investment Company of Australia Ltd and the plaintiff relies upon this fact too. However, a guarantee was got from a company with a very similar name and I am satisfied that that was sufficient compliance with the summary. It was a case of misnomer only.

[63] The summary stated that the loan to Holdings provided 'an opportunity to receive a sound return of 11% against a strong loan to purchase price and valuation "as is" of $2.7million.' It also said that the solicitors had a valuation by the third defendants 'available on request'. The solicitors did have a valuation of the real property which Holdings intended to, and did, mortgage to secure repayment of the loan. It was a valuation prepared by the third defendants on instructions from Mr Huxley, Holdings' managing director. The valuation of the Ko Huna Beach Resort for mortgage purposes was said to be, having regard to available sales evidence and relevant market data, $4,500,000. Holdings had paid $2,700,000 for the property.

[64] That substantial discrepancy is explained by the fact that the third defendants valued the resort, not as it was, but as it would be if subdivided in accordance with a plan lodged for approval with the Mackay City Council. That plan would have divided the land into three lots. Lot 1 would consist of the buildings which constituted the core of the resort: the bars, restaurant, convention buildings, reception office and administration block, together with the recreation complex. Lot 2 would comprise the 60 bures available for accommodation. The plan proposed that each of these should have its own separate title and be available for individual sale. Lot 3 was the balance of the land which was vacant but which was thought to have development potential for 50 residential units.

[65] The third defendants valued Lot 1 as it was proposed to be at $1,200,000. Lot 2 was valued on the basis that the 60 bures would be worth $90,000 each, giving a total of $5,400,000. Lot 3 was valued at $750,000 being 50 unit sites at $15,000 each. This approach gave a total valuation of $7,350,000. After allowing for realisation costs, the risk that things might not turn out as they anticipated, and making allowances for interest and expenses associated with the development but offsetting income anticipated from renting the bures, the third defendants derived a value for the resort on the hypothetical development basis of $4,500,000. Nowhere in the valuation does one find the opinion expressed that the resort, as it was, was worth $2,700,000.

[66] Mr Blackadder who was at the relevant time employed by the solicitors as the General Manager of Finance for their mortgage lending business deposed that:

'There was no valuation on file for $2.7million; rather there was only the valuation for $4.5million. The reason I only recorded the "as is" valuation at $2.7million was that it is my practice, outside some special circumstances, to rely upon the lower of the valuations for mortgage purposes from the ... valuer or the contract price. I understand this to be good practice amongst lenders ...'

[67] Mr Ryan, the solicitor principally responsible for the conduct of the lending business deposed that:

'The valuation makes clear that the current market value, in the opinion of the valuer at the time ... was $4.5million. Notwithstanding, (the solicitors) considered the contract price of $2.7million as also relevant and the eventual loan advance was sixty per cent ... of that sum ...'

[68] Whatever basis in fact there might have been for the third defendants' sanguine expectation that the resort would be worth $4,500,000 on the hypothesis that it would be developed relatively cheaply, and could obtain necessary approvals and sales relatively quickly, the reality is that the valuation was not one of the resort as it was in October 1998 and it did not express the view that, in that state, the resort was worth $2,700,000. The loan of $1,620,000 when made was not a figure which was 60 per cent of the amount which a valuer gave as the value of the resort 'as is'. To an extent the terms of the loan made did not comply with the terms described in the summary.

[69] The next point taken by the plaintiff concerns the statement in the investment summary, under the heading 'ABOUT THE BORROWER' that:

'Additionally the client (Holdings) has negotiated sale of the management rights to the resort for a further $1.5million (contracts have exchanged).'

'The applicant (Holdings) has a contract exchanged for the sale of the management rights of $1.5million. This will clear second mortgage finance.'

Under the heading 'CONDITION PRECEDENT' the summary said:

'5. Confirmation from Solicitors as to "exchange of Contract" for the sale of the management rights.'

[70] There was, in fact, no such contract and no such sale eventuated.

[71] There is in the material an unexecuted and undated copy of a contract between Holdings and Ms Kerrie Page for the purchase of 'proposed Lot 61 ... shown on the draft plan' for a price of $1,200,000. The proposed lot appears to coincide with what was described as Lot 1 in the subdivision proposal described in the third defendant's valuation. For the purposes of the application I accept the copy of the contract as evidence that the defendants can prove that at the relevant time there was in existence an executed binding contract between Holdings and Ms Page for the sale of Lot 61. It is immediately apparent that that contract does not answer the description of a contract for the sale of management rights in the resort for $1,500,000. It did not purport to sell the management rights to the resort. Rather

clause 43 of the contract provided that it was subject to and conditional upon a company, called Ko Huna Management Pty Ltd, entering into a contract for the acquisition of the management and other rights upon terms and conditions satisfactory to the buyer, and the completion of that agreement contemporaneously with the completion of the contract for the purchase of Lot 61.

[72] 'Management rights' do not appear to be described in that contract but another contract, also undated and unexecuted was in evidence. It was between Holdings as seller and Ko Huna Management Pty Ltd as buyer. By the terms of this contract, Holdings, in consideration of the payment of $300,000 by Ko Huna Management Pty Ltd, promised to cause the bodies corporate, which would come into existence when the resort land was subdivided and title to the bures registered pursuant to the Body Corporate and Community Management Act 1997 (Qld), to enter respectively into a management agreement and a caretaking agreement with Ko Huna Management Pty Ltd. The terms of the management agreement were set out in a schedule to the contract which was not put into evidence. No doubt Ko Huna Management Pty Ltd was to act as a letting agent for the owners of the bures which would have separate titles and would charge a commission or fee for the service. The terms of the caretaking agreement were not proved.

[73] I treat the evidence as showing that the defendants might prove at trial that at the relevant time there was an executed but conditional contract for the sale of management and caretaking rights from Holdings to Ko Huna Management Pty Ltd for $300,000.

[74] It is obvious that at the time of the advance a binding contract for the sale of the management rights by Holdings for $1,500,000 did not exist. What there was was a conditional sale of those rights for $300,000. There was, separately, a contract for the sale of a substantial part of the resort for $1,200,000. The sale of that land would diminish the value of the land available to secure the debt to LPM. This last consideration may well be relevant for the plaintiff's causes of action in negligence but is not relevant to the cause of action for breach of trust, which is the only one with which I am concerned. Of relevance to that cause of action is the fact that the terms of the summary as to the existence of a sale of rights distinct from the land for $1,500,000 was not made out.

'... the reference to the sale of the management rights of $1.5million reflected the sale of both the management rights of $300,000.00 and the management property for $1.2million. It is customary to refer to the total amount, without regard to the individual breakdown, as typically neither are sold separately.'

Whatever may be customary, or typical, the fact is the summary said that there was a contract for the sale of management rights for $1,500,000 when there was not, and it did not inform the contributors that there was a contract for the sale of a substantial part of the resort land, the proceeds of which would not go in reduction of the debt owed to LPM on their behalf.

[76] It is to this last point that I now turn. Condition precedent 3, set out in the investment summary, was in these terms:

'Partial discharges of security permitted from time to time without reduction in loan principle [sic], however without limiting the mortgagee's rights in any way, the outstanding principle [sic] shall not at any time exceed 40% of the updated valuation of security held.'

This condition does not concern the state of affairs said to exist at the time the loan was made. The terms of the trust which I have so far discussed were all concerned with what was to exist at the time of the loan. There was to be a guarantee from Ko Huna Holdings Pty Ltd, a valuation of the property as it was and a contract for the sale of management rights for $1,500,000. The term now being considered concerned the performance of the investment which LPM held on trust for the contributors. It is more difficult for the defendants in this regard to contend that condition precedent 3 was not a term of the trust. They admit that LPM held the mortgage from Holdings over the resort on trust for the contributors. The condition sets out in one respect how the mortgage was to be dealt with and restricts the circumstances in which part of the mortgaged property would be released from the mortgage.

[77] Holdings defaulted in the payment of interest due in the months of June, July, August, September and October 1999. On 12 August 1999 the solicitors for the purchaser of Lot 61 wrote to the solicitors to advise that the plan of subdivision of the resort had been registered and that the sale of Lot 61 would settle very shortly. They asked the solicitors to arrange for a release of the mortgage over Lot 61 and 'understood' that the security would be released in return for the payment of $800,000. The evidence, which I understand to be uncontroverted on this point, shows that LPM released Lot 61 from Holdings' mortgage. The sum of $800,000 (or perhaps some smaller sum) was paid in partial discharge of the second mortgagee's debt. This was the debt owed to the solicitors' other clients who had lent the balance of the purchase price to Holdings. No part of the money went in reduction of the loan moneys LPM had advanced on behalf of the contributors. The evidence is also uncontroverted that LPM did not obtain an 'updated' valuation to show that the amount of the outstanding debt did not exceed 40 per cent of the value of the remaining mortgaged land. That term of the investment summary was not complied with.

[78] There are some other aspects in which the plaintiff contends that there was non compliance with the terms of the investment summary. They concern the requirement that a check of the borrower's credit with a credit reference association produce a 'clear' report, and that LPM was to obtain a 'check valuation' of the third defendant's valuation. The plaintiff submits that neither was obtained and there appear to be substantial grounds of fact for the submission. The defendants dispute both points and identify some evidence which may just be capable of giving rise to a triable issue.

[79] I do not propose to deal with those arguments because I am satisfied that the plaintiff has made out substantial departures between the terms on which the investment summary said the loan would be made and the terms in which it was made. It follows from my earlier reasons that I am satisfied that each departure constitutes a breach of trust by LPM and the solicitors. Their authority as trustees was to invest the contributors' moneys in an investment which met the description set out in the summary. Their authority was limited to making a loan on those terms and they made a loan on different terms. There is, consequently, a breach of trust.

[80] The High Court pointed out in Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 that the most important duty of a trustee is to obey the terms of the trust and to adhere to the terms of the trust 'in all things great and small, important and seemingly unimportant.' It is clear that it was the defendants' failures as trustees to comply with the terms of the trust that led to the contributors' losses. It is true that it was Holdings' default which immediately caused the loss, but the loan would never have been made in the first place if the defendants had acted in accordance with the trust. They were authorised to lend money on terms which provided for a guarantee, a valuation, a sale of management rights for $1,500,000 and a mortgage over the borrower's land. The trustees lent without the guarantee, without the valuation, without the sale and released the mortgage without obtaining any recompense and without a valuation showing that the contributors were protected by the value of what was left as security.

[81] The case seems to me indistinguishable in principle from Youyang in which a trustee was held liable for parting with the trust estate on terms different to those which the beneficiaries authorised. In that case, too, it was the borrower's default which led to the loss, but the trustee paid over the money without obtaining a certificate which would have given some security for the repayment of the loan. The case is different to Target Holdings in which, according to the High Court's analysis in Youyang:

'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 ... [T]he 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.'

[82] The last remarks apply exactly to the defendants who disbursed the contributors' money by way of loan to Holdings without ever obtaining the guarantee, the valuation and the contract of sale of management rights which were preconditions for the advance. They failed to perform the trust by releasing property from the mortgage without obtaining evidence that the contributors were protected by the value of what remained

[83] The defendants have another ground for submitting that the plaintiff has not proved that any breach of trust caused the contributors' loss. None of the contributors gave evidence and the lack of their evidence is said to be fatal because without it the court cannot be satisfied that the contributors would not have authorised the loan on the terms on which LPM, in fact, lent. The short answer is the breach of trust was established when it was proved that the money was paid to an unauthorised investment. The loss of the money from that unauthorised investment provides a sufficient causal nexus between the breach and the loss. Evidence from contributors that they would have agreed to the loan actually made would be evidence of acquiescence in the breach of trust, or that the contributors would have authorised a different investment. These are matters of defence, and the onus was on the defendants to adduce evidence establishing the defence or showing that it might be established at trial. The absence of any such evidence does not disentitle the plaintiff from recovering from breach of the trust it has proved for a loss which it has shown followed the breach.

[84] Accordingly I am satisfied that the plaintiff has made out an entitlement to judgment for an order that the defendants reimburse the trust fund in the amount of the loss, which the plaintiff submits is established in the sum of $1,458,612, together with interest at nine per cent from the date of the breach, 26 October 1998. This amounts to $720,133.81.

[85] Counsel for the defendants assured me that his clients had not resisted the application on the understanding that the plaintiff was pursuing the recovery of a specific sum. No evidence was given as to the amount of the loss. The amount of the advance was proved but not what was recovered by way of interest from the loan until the first default by Holdings. The amount recovered by way of realisation of the secured property appears to be established but there was no argument about the appropriate rate of interest which should be allowed. Accordingly I think it inappropriate to order the repayment of a specific sum. Rather I will declare that the defendants are liable to reimburse the plaintiff an amount equal to the sum lost by the contributors by reason of the defendants' loan to Holdings. The amount can be agreed or fixed after a further hearing. The defendants should pay the plaintiff's costs of the action and of the application to be assessed on the standard basis.