MAUREEN ADA KENWORTHY (as Administratrix of the Estate of LIONEL KENWORTHY)

Equity - Equitable principles - Trust property transferred in breach of trust - Claim against recipient under both limbs of Barnes v Addy (1874) LR 9 CL App 244 - Whether claim defeated by indefeasibility provisions of Transfer of Land Act 1893 (WA) - Whether fraud for the purposes of s 68(1) and s 134 of Transfer of Land Act 1893 - Whether in personam right existed

Real property - Torrens system - Property transferred in breach of trust - Claim under both limbs of Barnes v Addy (1874) LR 9 CL App 244 - Whether claim defeated by indefeasibility provisions of Transfer of Land Act 1893 (WA) - Whether fraud for the purposes of s 68(1) and s 134 of Transfer of Land Act 1893 - Whether in personam right existed

Trusts - Misappropriation of trust funds by trustee - Whether proved by evidence

Evidence - "Books" - Corporations Act, s 1305(1) - Highlighting for purpose of identifying challenged entries in accounts of company - Whether highlighting is a "matter stated or recorded in the book" for the purposes of s 1305(1) - Weight to be given to highlighting as evidence of irregularity

Corporations - "Books" kept by a corporation - Corporations Act, s 1305(1) - Highlighting for purpose of identifying challenged entries in accounts of company - Whether highlighting is a "matter stated or recorded in the book" for the purposes of s 1305(1)

Administration Act 1903 (WA), s 8, s 9

Corporations Law, s 60(1)(b), s 9, s 1305(1)

Supreme Court Act 1935 (WA), s 24(4)

Transfer of Land Act 1893 (WA), s 4, s 68(1), s 134, s 200

Aequitas Ltd v Sparad No 100 Ltd [2001] NSWSC 14; (2001) 19 ACLC 1006

Allen v Rochdale Borough Council [2000] Ch 221

Austin v Austin [1906] HCA 5; (1906) 3 CLR 516

Baden Delvaux & Lecuit v Societe Generale Pour Favoriser le Development du Commerce [1993] 1 WLR 509

Bailey v Federal Commissioner of Taxation [1977] HCA 11; (1977) 136 CLR 214

Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566

Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1

Biala Pty Ltd v Mallina Holdings Ltd (No 4) (1993) 13 WAR 83

Black v S Freedman & Co [1910] HCA 58; (1910) 12 CLR 105

Bride v Australian Bank Ltd [2000] WASC 116

Brown v Heffer [1967] HCA 40; (1967) 116 CLR 344

Burger King Corp v Hungry Jack's Pty Ltd [2001] NSWCA 187

Clay v Clay [1999] WASCA 8; (1999) 20 WAR 427

Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 42 FCR 390

Conlan v Registrar of Titles [2001] WASC 201; (2000) 24 WAR 299

Cowan de Groot Properties Ltd v Eagle Trust plc [1992] 4 All ER 700

Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658

Dempster & Biala Ltd v Mallina Holdings Ltd (1994) 13 WAR 124

Duke Group Ltd (In Liq) v Pilmer (1994) 63 SASR 364

Eromanga Hydrocarbons NL v Australis Mining NL (1988) 13 ACLR 804

Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672

Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134

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

Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq) [1965] HCA 17; (1965) 113 CLR 265

Lonrho plc v Fayed (No 2) [1992] 1 WLR 1

Lord v Spinelly (1991) 4 WAR 158

Luby v Newcastle-Under-Lyme Corp [1965] 1 QB 214

MacMillan Inc v Bishopsgate Investment Trust plc (No 3) [1995] 1 WLR 387

Manning v Cory [1974] WAR 60

Mansard Developments Pty Ltd v Tilley Consultants Pty Ltd [1982] WAR 161

Newton v Gapes (1910) 12 WALR 86

Ninety Five Pty Ltd (In Liq) v Banque Nationale de Paris [1988] WAR 132

Queensland Mines Ltd v Hudson (1978) 52 ALJR 399

R v Connell (1995) 14 ACLC 32

Re Abrahams Will Trusts [1969] 1 Ch 463

Re HIH Insurance Ltd [2002] NSWSC 171; (2002) 41 ACSR 72

Re Vandervell's Trusts (No 2) [1974] Ch 269

Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246

Soar v Ashwell [1893] 2 QB 390

Speight v Gaunt (1883) 9 App Cas 1

Taylor v Davies [1920] AC 636

West Sussex Properties Ltd v Chichester District Council [2000] EWCA Civ 2005 (unreported 28 June 2000)

Westdeutsche Bank v Islington London Borough Council [1996] UKHL 12; [1996] AC 669

Wickham Developments Ltd v Parker BC 9505952 (Unreported Queensland Court of Appeal, 20 June 1995)

Zobory v Commissioner of Taxation [1995] FCA 1226; (1995) 64 FCR 86

1 WALLWORK J: This is an appeal from a decision of a Judge of the Supreme Court dismissing a claim by the appellant (plaintiff) against the respondents arising from alleged breaches of trust in connection with the sale of a home in Mount Pleasant in May 1990 by the plaintiff to Mr Lionel Kenworthy (the deceased) and from an alleged misapplication of the plaintiff's moneys by the deceased.

2 The plaintiff company was at all relevant times the trustee for the Lionel Housden Kenworthy Trust constituted by a Trust Deed dated 3 October 1975. The first defendant, Mrs Kenworthy, was sued in her capacity as administratrix of the estate of the deceased who died on 14 February 1997. Mrs Kenworthy was also sued in her personal capacity concerning an alleged misapplication of trust money arising from the cashing of a cheque for $7000 drawn on the trustee company's bank account. It was alleged that Mrs Kenworthy had used the proceeds from the cheque for her own benefit knowing that the trust was not indebted to her.

3 At the trial written statements from the deceased's three sons were admitted into evidence.

4 In his statement, Mr Lindsay Kenworthy said he became a director of the plaintiff on 12 November 1980 because the deceased (his father) asked him to do so. He said that until the deceased's death, the deceased had had day to day control of the plaintiff company. Mr Lindsay Kenworthy said that he did not have any day to day involvement. His role as a director of the plaintiff was to sign documents when asked to do so. He said the deceased was able to sign cheques on the plaintiff's bank account and had sole control of the plaintiff's finances. Board meetings were not held to discuss any of the investments which were made by the plaintiff.

5 Mr Lindsay Kenworthy said that from about 1984 the plaintiff's sole function had been as trustee of the LHK Trust. It did not carry on any separate business. Its main investments were in mortgages brokered by Blackburne & Dixon and Global Finance. There was also a subdivision of some land at Muchea. He said the plaintiff owned the home at 141 The Esplanade, Mount Pleasant the sale of which was a subject of the action.

6 Mr Lindsay Kenworthy said that when a new investment was to be made by the plaintiff which required his signature, he had usually received a telephone call from the deceased who would later hand him the relevant document for signature. He generally asked the deceased what the document was for. He made a practice of briefly looking at the document without reading the whole of it. He would look at the amount of the investment and the property description but read nothing further. He therefore had some knowledge of the sums being invested by the plaintiff. He had never rejected a proposal or transaction his father had brought to him. He had never spoken to anyone at Blackburne & Dixon or Global Finance while his father was alive. He said he had trusted his father and accepted what he said. He had not investigated any of the investments on their merits and had done nothing more than quickly look at documents and sign where his father "told me to". He said he did not recall ever questioning his father about any of the investments made by the plaintiff.

7 With respect to the subdivision of the property at Muchea he said his father had told him that the plaintiff was subdividing the property into six lots. That was the first time he had been told anything about the subdivision. His father had told him that the property had already been surveyed and that he only needed some documents signed to complete the subdivision. His father had handed him a document or some documents and asked him to sign them. He had then signed them. He said he had had no input into, and had not been consulted in relation to, the decision to subdivide the property at Muchea. At one time he had asked his father why the property had been subdivided. He had been told that the plaintiff had run out of money. His father had told him that the plaintiff needed the money because interest rates were lower and the plaintiff was not earning the income it had been earning from its investments. His father had also said that the plaintiff had lost $30,000 on a deal. He did not know which deal his father had been referring to. He had not been told what had happened or how the loss had been incurred. He said his father had not consulted him about the prices at which the subdivided lots were sold and he had not spoken to a real estate agent in relation to those lots. He recalled signing documents in connection with at least some of the lots. On each occasion his father had given him a document and told him to sign that document. He had done so and not questioned the price. He had told his father that the top three lots should be sold first because he knew they had better grazing potential.

8 With respect to the sale to the deceased of the relevant home at Mount Pleasant, Mr Lindsay Kenworthy said that the plaintiff had owned that home in trust. The transfer to his father had happened without prior warning to him. His father had handed him a transfer form for the property and had told him that the document was a transfer form for it. His father had told him that the transfer was necessary because the plaintiff could not afford the rates on the property any longer and that if it was transferred into his father's name, his father, as a pensioner, would get a 50 per cent reduction in the rates. His father had said that "the outcome would be the same." Mr Lindsay Kenworthy said it had been his understanding that the property would ultimately be transferred back to the trust. He had not discussed the sale price with his father. He had taken no other advice in relation to the transfer. He had just signed it. At the time he did not know whether the price was paid by his father, as his father controlled the plaintiff's finances. He said his father had not told him that the property was being transferred to him at less than the market value. He had said nothing about the price and Mr Lindsay Kenworthy had not enquired.

9 Mr Dennis Kenworthy said he also was a director of the plaintiff. He had been born on 9 March 1962 and was appointed a director of the plaintiff on the 4 December 1987. He said he became a director of the plaintiff because his father "told me to." He said:

"I recall being told by my father shortly before I became a director of the plaintiff that I had to be a director of the plaintiff because my father could not be a director. He said he could not be a director because of his pension."

10 Mr Dennis Kenworthy said his mother had died in 1979 and a substantial portion of the plaintiff's assets had been given to the trust by his mother. His father had made it clear to him that he (Dennis) was doing the family duty in looking after his father. He had just accepted that being a director of the plaintiff was his role in the family. He had accepted that, as a director of the plaintiff, he would do as his father told him. Whilst a director of the plaintiff, until his father's death, he had had no day to day involvement in the plaintiff. His only involvement had been to sign documents which his father had asked him to sign. No directors' meetings had been held to consider or approve the plaintiff's actions.

11 Mr Dennis Kenworthy said he had not questioned his father's decisions or directions. He had been raised by his mother and father not to question his father's decisions. It had been impressed on him by his parents that his father would act in the best interests of the family. He had trusted his father to make the right decisions for the benefit of the family.

12 He said that in 1984 his father had ceased carrying on business and had retired and commenced to receive a pension. Until then he had operated a business as a builder. From his father's retirement in 1984 the plaintiff had solely acted as the trustee of the trust. In or around 1984 all trading operations of the plaintiff had ceased. That was when the back half of the block at 141 The Esplanade, Mount Pleasant had been sold. His father had told him that the reason the back half of the block had to be sold was for a cash flow, as the plaintiff was no longer earning an income from the businesses it had operated. His father had said that the rates on the lot would be greater over time than the increase in the land value.

13 Mr Dennis Kenworthy said that at all times when he was a director of the plaintiff, his father had been the major shareholder. Throughout the time he was a director of the plaintiff whilst his father was alive, he had acted in accord with his father's instructions. He had always done so. There had never been any negotiations between his father and himself. His father had always told him "that what he wanted me to do (which I invariably did) was in our (meaning Lindsay, Trevor and my) best interests." Mr Dennis Kenworthy said that when his father wanted him to do something as a director, for example to sign various documents, "he would say that it was in our (which I understood to mean Lindsay, Trevor and my) best interests to do whatever it was that he was proposing."

14 He said that whilst he was a director of the plaintiff and until his father's death, his father had control of the plaintiff's finances. During that time various investments had been made by the plaintiff. They had included a property investment (land at Muchea) and loans made initially through Blackburne & Dixon and later through Global Finance. He said that his father's invariable practice in relation to the loans made by the plaintiff through Blackburne & Dixon and Global Finance was that his father would give him a letter from Blackburne & Dixon or Global Finance. The letter would contain a description of the borrower, the land and the money being lent. He said that when his father had given him documents from the two firms concerned, he had generally looked at them briefly and read through them to look for any glaring mistakes. When he did this his father would invariably tell him that the investment was a good investment or the best investment available. He had never made any investigations of his own and had never spoken to anyone from Blackburne & Dixon or Global Finance about loans made by the plaintiff. His only input had been to briefly read through the documents and then sign the documents where his father indicated he should sign. He had not rejected any of the proposals brought to him by his father.

15 With respect to the property at Muchea, he said he had had no input into the decision to subdivide the land. He recalled the sales of two or three of the lots. He recalled signing either or both, the offer and acceptance or transfer forms. He recalled that probably on each occasion his father had told him that the sale was the best that could be done. In each case he briefly read through the document to look for glaring errors. He had not rejected a proposed sale of any of the lots or conducted any investigations of his own or spoken to the real estate agent about the sales.

16 With respect to the property at 141 The Esplanade, he recalled being told by his father that the cost of rates on the back lot was greater than the growth of the property value. His father had told him that the back lot should be sold. His father had said it was an issue of cash flow. He had no knowledge of a restrictive covenant being created at the time of the sale.

17 With respect to the sale of the home on the front of the block at 141 The Esplanade, he said that the plaintiff had owned that home in its capacity as trustee of the plaintiff. He recalled his father bringing him a transfer form. His father had told him that the reason for transferring the home into his (his father's) name was "to save on rates" or words to that effect. His father had said that the rates charged on 141 The Esplanade would be halved if he owned the property because he was a pensioner. His father had said that the property "would come back to us" and that "there was nothing to worry about", or words to that effect. He said that as he always did, he had followed his father's direction. He had quickly looked through the transfer document and signed the transfer. He had not considered the value of the property at the time or whether the transfer was at market price. His father had not told him that the sale was far less than the market value.

18 The statement from the deceased's third son, Mr Trevor Kenworthy, was admitted into evidence by consent. He was not cross-examined and the contents of this statement are referred to later in these reasons.

19 The trust deed was also admitted into evidence. Clause 11 of the trust deed provided that:

"11. Subject always to any express provisions to the contrary herein contained every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion PROVIDED THAT notwithstanding anything contained in this Deed:

(a) the Trustees may before exercising any discretion or power vested in them or making any determination hereunder consult the wishes of the Guardian (if any),

(b) Where a Guardian is named in the schedule:

(i) The Trustees shall not make a nomination or declaration of the exclusion pursuant to Clause 1(b) hereof nor exercise any power contained in clauses 7(a), 7(b), 7(c), 8(v), 8(y) and 19 hereof except with the consent of the Guardian.

..."

20 The deceased was also the appointor and as such was able under cl 16 to remove any trustee and appoint a new trustee. Clause 16 provided that:

"16(a) The Appointor and on the death of the last surviving Appointor such other person as he shall have appointed to act as Appointor and in default of appointment his legal personal representative shall be entitled by instrument in writing at any time and from time to time:

(i) to remove any Trustee hereof.

(ii) to appoint any additional Trustee or Trustees.

..."

21 It seems that the deceased could sign any cheques for the trustee company. As Anderson and Steytler JJ point out the deceased received from the bank all the statements of the trust's accounts at the bank. The deceased knew that the trustee company did not trade and existed only as trustee for the family trust. There is no dispute that he knew which bank accounts contained trust funds, and that he controlled the financial and property affairs of the trust and trustee company.

22 It was not disputed that the deceased purchased the trustee company's property at a gross undervalue. His reason was that a saving in rates could be achieved because he could use his status as a pensioner to obtain a discount. The deceased promised to transfer the land back to the trustee.

23 In his reasons for judgment the learned trial Judge said that at the time the transfer of the Mount Pleasant home to the deceased was signed, the deceased had not been a director of the plaintiff. The evidence showed that the directors of the plaintiff had been content to leave the administration of the plaintiff to the deceased, subject to discussion and their agreement to his proposals. His Honour said he did not think the evidence of the directors went so far as to establish that they had been accustomed to act in accord with the deceased's directions or instructions, but only that they were accustomed to accept the deceased's advice as to the best interests of the plaintiff. Importantly, his Honour said: "Nor is there any evidence that that advice was not in the best interests of the plaintiff."

24 That last comment will be discussed later in these reasons.

25 His Honour said that there had been no cross-examination of either Dennis Kenworthy or his brother Trevor; also that Mrs Kenworthy had elected not to give evidence, save for a document tendered by consent.

26 His Honour found that Mr Lindsay Kenworthy had had no day to day involvement with affairs of the trust until 1997 despite being a director of the plaintiff; further that his evidence had indicated that he was at all relevant times content to leave the management of the plaintiff's affairs to the deceased. His Honour said he did not think that Mr Lindsay Kenworthy's evidence showed that the deceased had acted as a director of the plaintiff at the material times; that the deceased seemed to have consulted regularly with Mr Lindsay Kenworthy about the affairs of the plaintiff, answering any questions put to him, and discussing the nature and need for the various documents which were signed by Mr Lindsay Kenworthy from time to time.

27 His Honour said that Mr Dennis Kenworthy had been content to leave the management and day to day activities of the plaintiff entirely to the deceased. Also, that whilst a director of the plaintiff, and until the deceased's death, Mr Dennis Kenworthy had had no day to day involvement in the plaintiff. His only involvement had been to sign the documents his father asked him to sign. He had not questioned his father's decisions or directions. His Honour said that Mr Dennis Kenworthy had said that until his death, his father had had control of the plaintiff's finances.

28 With respect to the deceased's third son, Mr Trevor Kenworthy, his Honour said that his statement had been admitted into evidence by consent. He had not been cross-examined on it. In that statement, Mr Trevor Kenworthy had said that he had been not aware of and had not consented to the transfer of the home to the deceased for $150,000. He had been unaware of the transfer and did not know the price of it. He had learnt about the transfer when the deceased had told him of it approximately a year after it had happened. He had thought there was nothing he could do about it and so he had accepted it. At that time the deceased and he had had a strained relationship.

29 Mr Trevor Kenworthy said that during his time as a director he had done as instructed by his father and had not questioned him - "I just did as I was told." He said that until he heard of the transfer he had trusted that his father had been doing the right thing by himself and his brothers.

30 The learned Judge referred to a valuation of the home by an expert, Mr Christie, which had been tendered into evidence by consent. That valuation had indicated that the value of the property at the date of the transfer was $330,000. His Honour said:

"That valuation seems irrelevant on the pleadings as the plaintiff does not seek to rely upon the objective true value of the property at the date of the transfer but rests solely upon the valuation by the Valuer General."

31 With respect, I do not think that comment is correct. The plaintiff had pleaded that the consideration of $150,000 for the transfer of the property was grossly inadequate. Although in the particulars it is said that the value of the property at the time of the transfer was assessed by the Valuer General at $338,125, resulting in payment of stamp duty on the transfer of $10,300, in my view, that does not do away with the significance of the evidence of Mr Christie which was admitted by consent. His evidence was relevant to the question of whether the purchase price of $150,000 was grossly inadequate.

32 It was pleaded in the statement of claim that the deceased knew that the consideration was grossly inadequate and did not inform the directors of the plaintiff of that fact. It was also pleaded that due to the grossly inadequate price, the property was transferred to the deceased in breach of trust and that the deceased was thereby unjustly enriched. Alternatively, it was pleaded that the deceased dishonestly procured, further or alternatively assisted in a breach of trust by the plaintiff in transferring the property to him at a substantial undervalue and that further or alternatively, the deceased knowingly received property of the trust which was transferred to him in breach of trust.

"Nor does the plaintiff plead that there was a failure on the part of the plaintiff to make all necessary enquiries as to the appropriate value of the property before executing the transfer. While, therefore, it would probably be reasonable to infer from Mr Christie's valuation that there had been such a failure on the part of the plaintiff, there is no pleading of such failure to which that valuation would be relevant."

34 In my view the pleading that the deceased had knowingly received property of the trust which was transferred to him in breach of trust and had dishonestly assisted in a breach of trust by the plaintiff in transferring the property to him at a substantial undervalue were pleadings to which the valuation was relevant. Also, in my view, Mr Christie's valuation was very relevant to the facts of the case.

35 In Professor Finn's "Fiduciary Obligations" (1976) it is stated at 169:

"Equity has long recognised that where a person has acted for another in some way in the management or disposition of that other's property - in a position of 'a confidential character' - he is in a somewhat privileged situation if he contracts to purchase property dealt with in that position. His engagement has afforded him the opportunity to acquire a knowledge of the property - a knowledge which may permit him to purchase on favourable terms. He does not, however come to the purchase as a stranger. He is not 'perfectly independent' of his vendor. And equity will not regard the contract as one between independent parties. The confidential position held by the purchaser greatly limits his contractual freedom. Thus treated for example, are purchases by agents, trustees or solicitors of property dealt with in the agency, trust or retainer. While such purchases are not totally prohibited - and this, on occasion, has been a cause for judicial regret - they are transactions 'of great delicacy... which the Court will watch with the utmost diligence.'"

"Whenever a person (F) is acting or has acted in a confidential position for another (B) in relation to specific property, any purchase by (F) of that property for himself or for another is voidable at the suit of (B) unless (F) can show that (B) was aware of and consented to (F)'s dealing, and can prove that the transaction was fair, ie:

(1) That full value was given for the property; and

(2) That he disclosed to (B) any and all the information which he has acquired concerning the value of the property, and concerning the contract itself."

37 In my view, the question of the onus of establishing that "the transaction was fair" is of great importance in this appeal.

"The genus is the relationship of service, that is, a relationship where (S) undertakes for (B)'s benefit to provide some service in relation to (B)'s property or financial affairs, or to property which in law must be dealt with for (B)'s benefit. The particular species of service relationship which the courts will hold to be confidential are those where (S) is being relied upon not only to act competently in discharging his service, but also to protect and/or to advance (B)'s interests."

"The idea of rendering a service for another in relation to his property or financial affairs permeates the cases on confidential position: (S) is acting as 'a servant' for (B); has 'undertaken to act for (B)'; has been 'employed' to sell, or to manage, or to advise; has bound himself to apply his skill and knowledge for (B)'s benefit."

"all that equity requires of a purchaser occupying a confidential position is that he obtain the fully informed consent of those for whose benefit he acts, to his purchase."

"If a fiduciary is to maintain his purchase he must be able to show that his beneficiary was aware of and consented to the purchase, and that the transaction was fair, ie, that full value was given for the property after a full disclosure was made to the beneficiary. The fiduciary carries the onus throughout of justifying the transaction. He does not discharge that onus by showing simply that the beneficiary was aware that he was the purchaser."

42 Professor Finn refers to Williams v Scott [1900] AC 499 at 508:

"The burthen of proof that the transaction was a righteous one rests upon the trustee, who is bound to produce clear affirmative proof that the parties were at arms length; that the cestui que trusts had the fullest information upon all material facts; and that, having this information, they agreed to and adopted what was done."

"So long as the beneficiaries consent to a purchase of trust property at its full value after full information given, the purchase will be unimpeachable either because the beneficiaries will be regarded as the 'de facto' vendors, or because they will have acquiesced in the sale."

"To maintain his purchase, the fiduciary must be able to show that the transaction was a fair one. Ordinarily this will necessitate his proving (1) that he gave full value for the property, and (2) that he has disclosed to his beneficiary any and all the information he has acquired concerning the value of the property, and concerning the contract itself. While these two requirements may be logically distinct, in practice they almost invariably telescope into each other."

45 In McKenzie v McDonald [1927] VicLawRp 19; [1927] VLR 134 at 144 Dixon AJ (as he then was) referred to the words of Fletcher-Moulton LJ in Re Coomber [1911] 1 Ch 723 at 728 - 729 where it was said:

"The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the Court on those facts, than cases which relate to fiduciary and confidential relations and the action of the court with regard to them."

"Did the defendant occupy such a position of confidence towards the plaintiff as to bring him within the equitable requirements of full disclosure and fair and open dealing? In my opinion he did. He assumed the function of advising and assisting a woman in a difficult situation in the acquisition of a residence by means of the disposal or pledging of her property."

"He proceeded to advise her upon the wisdom and practicality of raising money by mortgage, and acted for her in an effort to do so. He undertook the sale of her farm, and acquired such information as he could in relation to it, and offered his counsel as to its condition and the price she had asked and in effect should ask. In this circumstance he was, in my opinion, an agent who came within 'the rule of the Court; which, however, does not prevent an agent from purchasing from his principal, but only requires that he shall deal with him at arm's length, and after full disclosure of all that he knows with respect to the property'... ."

"This is part of 'that great rule of the Court, that he who bargains in matter of advantage with a person placing confidence in him is bound to show that a reasonable use has been made of that confidence; a rule applying to trustees, attorneys, or anyone else': per Lord Eldon Gibson v Jeyes [1801] 6 Ves.J. 266 at 278; [1801] EngR 379; 31 ER 1044 at 1050."

49 It was pleaded in the statement of claim that the deceased did not inform the appointed directors of the plaintiff that he had purchased the property at a grossly inadequate price. It was also pleaded that the property was transferred to the deceased in breach of trust and he was thereby unjustly enriched. There are also the other alleged breaches of trust referred to in par 9 of the statement of claim.

50 His Honour found that he was prepared to assume that the deceased had actual knowledge of the Valuer General's assessment. The transfer had been signed and sealed on 27 May 1990 and registered on 5 October 1990 after having been referred to the Valuer General for assessment of stamp duty.

51 His Honour found that the evidence of Mr Lindsay Kenworthy and Mr Dennis Kenworthy established that prior to the execution and stamping of the transfer the deceased had told them of the proposal to transfer the property to himself for $150,000. Knowing that, they had executed the transfer.

"The conclusion that the plaintiff agreed therefore, at least, orally to transfer the property to Lionel Kenworthy for the consideration stated is, I think, inescapable."

53 His Honour found that the evidence disclosed the existence of a prior oral agreement between the plaintiff and the deceased for the sale of the property at a consideration of $150,000 and that the transfer executed by the plaintiff clearly evidenced that the contract and had been duly stamped. His Honour noted that the plaintiff had full authority under cl 19 of the Trust Deed, in its absolute discretion, to sell, transfer, hire, lease or dispose of any real or personal property of the trust fund and that therefore, subject to a right of rescission, the transfer was effective to convey the legal and beneficial ownership in the property to the deceased.

54 His Honour noted that the plaintiff had not sought to exercise any equity to rescind the contract and had in fact denied the existence of any contract for the sale of the property.

"It is true that plaintiff's counsel submitted that, 'If ... the Court considers it cannot grant any equitable relief other than rescission without first decreeing rescission, it should do so.' "

"The plaintiff's claim to recover the purchase price (albeit alleged - but not so pleaded - to be a part of moneys allegedly misappropriated by Lionel Kenworthy) is inconsistent with a claim for rescission. (So, for what that is worth, is the alternative claim to a charge over the property). Mr Solomon informed me that the plaintiff would acquiesce in a reduction of the amount claimed as having been misappropriated by the sum of $150,000. In my opinion, the pleadings in this matter (which have not relevantly been amended) are inconsistent with that approach. The plaintiff is bound by its pleadings."

57 In Ravinder Rohini Pty Ltd v Krizaic [1991] FCA 318; (1991) 30 FCR 300 at 314, 315 Wilcox J said:

"However, I do not think that it follows that the respondent is precluded from resisting the appeal by reference to a case of breach of fiduciary duty. The purpose of pleadings is to disclose the facts upon which a party relies. If a pleading discloses facts, proved at the trial, which entitle a party to succeed, it does not matter that the pleader did not realise that those facts disclosed a cause of action or defence other than the one to which they were directed.

...

In Swinfen v Lord Chemsford (supra) the new case was raised at the trial, although belatedly. Other considerations intrude where a case is raised for the first time on appeal. Sometimes it may be unfair to allow a new case to be raised at that stage; evidence might have been directed to the question. This point was made by Lord Watson in delivering the advice of the Judicial Committee of the Privy Council in Connecticut Fire Insurance Co v Kavanagh [1892] AC 473. The Judicial Committee specifically accepted the accuracy of the rule applied in Swinfen v Lord Chelmsford 'to the effect that, when a declaration discloses a certain state of facts, the plaintiff may recover upon the liability which the facts disclose'. But Lord Watson added (at 480):

'When a question of law is raised for the first time in a court of last resort, upon the construction of a document, or upon facts either admitted or proved beyond controversy, it is not only competent but expedient, in the interests of justice, to entertain the plea. The expediency of adopting that course may be doubted, when the plea cannot be disposed of without deciding nice questions of fact, in considering which the court of ultimate review is placed in a much less advantageous position than the courts below. But their Lordships have no hesitation in holding that the course ought not, in any case, to be followed, unless the court is satisfied that the evidence upon which they are asked to decide establishes beyond doubt that the facts, if fully investigated, would have supported the new plea.'

This approach has been applied in Australia: see Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 438; Green v Sommerville [1979] HCA 60; (1979) 141 CLR 594 and Wayde v New South Wales Rugby League Ltd [1985] HCA 68; (1985) 59 ALJR 798."

58 SGIC v Sharpe & Sharpe (1996) 126 FLR 341 was a decision concerned with an insurance claim for flood damage. At 344 Millhouse J said:

"Pleadings in an action are to define the issues between the parties. Sometimes - perhaps this is one of those times - the pleadings may not do so at all or only imperfectly. As a rule, though, depending on the course of the hearing, that may not matter because the issues become quite plain as the hearing proceeds and no party is put to a disadvantage. That, I think, was so here. The day has well passed when decisions are based on the state of the pleadings, irrespective of the facts or justice."

59 Similar to Sharpe (supra) is the approach taken in Laws Holdings Pty Ltd v Short (1972) 46 ALJR 563. Estoppel was not pleaded but caused the result of the trial. The result was upheld in the Queensland Full Court and in the High Court. The facts were that the plaintiffs performed contract joinery work for the defendant building company. After a time the defendant's building works were taken over by a company associated with the defendant. The plaintiffs were not aware of this and continued to invoice the defendant, there being no change in the way in which the plaintiffs continued to be engaged. The defendant accepted the plaintiff's invoices and knew they were being sent by mistake. The company associated with the defendants became insolvent.

60 The trial Judge raised estoppel during the final address of the defendant's counsel. No objection was made that estoppel was not pleaded, nor was a request made to obtain evidence to address the issue. The plaintiffs did not ask to amend the pleadings.

"It is clear I think that the learned Judge who heard this action in the Supreme Court of Queensland was left in the unenviable position of having to decide a case in which the parties had not really come to grips. The claim was the value of work done and goods supplied over a period. Indebtedness was denied upon the pleadings and the onus of proving it lay on the plaintiffs. The plaintiffs' real case, however, as his Honour discovered, was that although the evidence did not show the defendant had actually ordered the goods and work ... the circumstances were such that it should not be permitted to deny its liability..."

"I also agree that, having regard to the course of proceedings at the trial, the state of the pleadings did not preclude the learned trial Judge from doing justice by giving effect to his aforesaid conclusions about the course of dealing between the parties."

"The appellant sought to rely ... upon the fact that the respondents did not raise by their pleadings any question of estoppel. In the Full Court Matthews J was of the opinion that the course of the trial might well have been different if estoppel had been pleaded and he considered that judgment for the respondents ought not to stand. He added that he had been concerned as to the proper course to be adopted in those circumstances, but had no need to resolve that question, because the other members of the Court were of opinion that the appeal should be dismissed. If it be supposed that the Full Court had decided that, because estoppel was not pleaded, the appellant had been deprived of opportunities which otherwise it would have had to deal with the question of estoppel by calling further evidence or in some other way, but had decided that all the other grounds of appeal failed, I think it would not have been right in those circumstances for the Full Court to order that judgment in the action be entered for the appellant. Ordinarily the remedy which would have been appropriate for that Court to give in consequence of such a defect in the trial would have been to order a new trial of the action. But the appellant did not include in its notice of appeal to the Full Court any application for the grant of a new trial and that application has not been included in its notice of appeal to this Court. During the hearing of the appeal learned counsel for the appellant stated he did not contend that there should be a new trial.

Therefore ... the appellant ought not now be allowed to complain of the defect in the pleadings ... in any event, it would not be right to grant to the appellant in respect of that defect the only remedy which it has sought, namely, a final determination of the action in its favour."

64 Gibbs J, with whom Stephen J agreed, pointed out at 571 that while the rules indicated that estoppel should be pleaded they did not state a consequence for non-compliance - his Honour referred to the words of Buckley LJ in Re Robinson's Settlement; Gant v Hobbs [1912] 1 Ch 717 at 728 where His Lordship said:

"The effect of the rule is, I think, for reasons of practice and justice and convenience to require the party to tell his opponent what he is coming to the Court to prove. If he does not do that the court will deal with it in one of two ways. It may say that it is not open to him, that he has not raised it and will not be allowed to rely on it; or it may give him leave to amend by raising it, and protect the other party if necessary by letting the case stand over. The rule is not one that excludes from the consideration of the Court the relevant subject matter for decision simply on the ground that it is not pleaded. It leaves the party in mercy and the Court will deal with him as is just."

65 His Honour went on to approve of a situation where if it is plain that all parties come into Court prepared to try the question of estoppel "it was not necessary to be troubled about the exact form of the pleadings". In that respect he thought 'all necessary amendments must be treated as being made": Keith v R Gancia & Co Ltd [1904] 1 Ch 774.

66 Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 is another case which reflects the above approach. In an action for specific performance the defendant was allowed to add a counterclaim for rescission after completion of the evidence. It was the evidence which provoked the leave - disclosing the existence of an unconscionable bargain.

67 The position in Equity is enshrined in legislation. Section 24(4) of the Supreme Court Act 1935 (WA) states:

"The Court, and every Judge thereof, shall recognise and take notice of all equitable estates, titles, and rights, and all equitable duties and liabilities appearing incidentally in the course of any cause or matter, in the same manner in which the Court in its equitable jurisdiction would have recognised and taken notice of the same in any suit or proceeding duly instituted therein before the commencement of the Supreme Court Act 1880."

68 In this case the evidence discloses that the deceased knew he was handling trust property. The trust deed at cl 11 documented a prominent role for him in conduct of the trust's affairs. He received all the bank accounts.

69 His Honour referred to the dicta of Gaudron, Gummow and Kirby JJ in Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457 at par 124 and par 127 where their Honours said:

"Once a Court has determined upon the existence of a necessary equity to attract relief, the framing, or, as it is often expressed, the moulding of relief may produce a final result not exactly representing what either side would have wished. However, that is a consequence of the balancing of competing interests to which, in the particular circumstances, weight is to be given."

70 His Honour said that he did not think that the decision in Bridgewater v Leahy could be read as permitting the grant of a rescission of a contract in the circumstances of the present case, where the plaintiff had not exercised an equity to rescind. He said that rescission of a voidable agreement requires a clear and unequivocal act of rescission by the rescinding party - Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634.

71 His Honour found that there was no evidence establishing knowledge in the deceased as to the value of the property at any time before he became aware of the Valuer General's assessment. He said that there was no evidence of dishonesty on the part of the deceased in relation to the transaction save for the fact that he became aware of the Valuer General's assessment at the time of the transfer. He said the pleadings suggested that the deceased's knowledge of the Valuer General's assessment, derived as it was from the fact that his settlement agents prepared, stamped and registered the transfer, arose after the registration of the transfer and not before. He also found that as the plaintiff had not established that the deceased was aware of the Valuer General's assessment prior to the registration of the transfer, the plaintiff had failed to show dishonesty on his part.

72 In my view, the learned Judge has not in this part of his reasons allowed sufficiently for the business acumen and experience of the deceased, his local knowledge and the extent of his fiduciary responsibilities towards the appellant's property.

73 With respect to recipient liability, his Honour referred to the reasons of Anderson J in the Hancock Family Memorial Foundation Ltd v Porteous [1999] WASC 55; (1999) 151 FLR 191 at par 79 where his Honour said:

"Recipient liability may be established if the defendant had actual or constructive knowledge at the time he received the relevant property that:

(a) it was trust property and

(b) it was being misapplied.

The defendant will be taken to have constructive knowledge if it is proved that he wilfully shut his eyes to the obvious; that he wilfully and recklessly failed to make such enquiries as an honest and reasonable man would make in the circumstances; and that he knew of circumstances which would indicate the true facts to an honest and reasonable man. If all that is proved is that the defendant had knowledge of circumstances which would put an honest and reasonable man on inquiry, that is not enough: see Koorootang at 85 and 105."

74 The learned trial Judge applied Anderson J's reasoning and said that neither the pleadings nor the evidence established what the plaintiff was required to prove in order to make out a claim based on recipient liability.

75 In my view that finding is against the weight of the evidence in the case, which to a great degree was not in contest.

76 His Honour said that the plaintiff's claim to the existence of a constructive trust in any event must fail in the absence of the avoidance (were that possible) of the transfer by rescission of the voidable contract between the plaintiff and the deceased.

77 His Honour concluded by saying that he was not satisfied that the plaintiff had succeeded in showing dishonesty on the part of the deceased; and that the property formed part of the deceased's estate and would accrue to the beneficiaries thereof on intestacy. Those beneficiaries included the three sons of the deceased (who are beneficiaries of the trust) and also his widow.

78 The appellant trustee company appealed against the decision on a number of grounds. It is relevant to the appeal that the original action could have proceeded in a number of different ways.

79 Firstly, in my view of the evidence, the deceased acquired the property of a trustee company in a manner which involved a breach of trust by the directors of the company. In essence the directors were negligent in carrying out their duties to the company. Generally they did not protect the company's assets as they were required by law to do.

80 In Bartlett v Barclays Bank Trust Company Ltd (No 2) [1980] Ch 515 a trustee was held liable for failing to maintain proper oversight of its investment. It is a breach of trust to invest trust moneys in unauthorised investments or if the trustees retain assets which should have been sold and the assets fall in value. If trustees postpone a sale for too long causing loss to the trust estate, it is a breach. Trustees have been held liable for loss caused in running a business by reason of their failure to supervise the conduct of the manager they had appointed.

81 Secondly, in this case, the deceased was the father of the two relevant directors, who effected the transfer of the property to him at his request for less than half its value. The deceased had considerable commercial experience as a builder and investor; also with his knowledge of the neighbourhood where the home was, it is fair to assume that he would have had an approximate idea of the value of it. At the time of the transfer of the property to him in my view he was in a fiduciary relationship with the company and the two relevant directors. He was the effective operator of the company. His sons, the directors, trusted him and had left the management and the direction of the company's affairs to him. They depended upon him for his advice.

82 In certain defined circumstances persons in a fiduciary position are liable to account as if they were trustees. In their "Principles of the Law of Trusts" (2nd ed) Professors Ford and Lee state that such persons are made accountable for gains they have improperly made by virtue of their position or relationship when their duty and their personal interests could have been in conflict. Further that a constructive trust may be imposed as a cautionary or deterrent remedy to enforce the observance of a fiduciary duty not to prefer personal interest over duty to the principal.

83 The learned authors say that a court may order a person to account for gains made as a fiduciary or that there may be an order to pay compensation for loss caused (equitable compensation). A transferor can also have a transfer set aside as against a volunteer claiming through the transferor. A constructive trust can be the appropriate remedy where a fiduciary uses his position to make a gain without the informed consent of the principal.

84 In my view, in this case, as stated above, the deceased was a fiduciary who should not have acted against the interests of the trustee company or its property. He was supposed to be acting for the benefit of the beneficiaries.

85 In McPherson v Watt [1877] 3 AC 254 at 270 Lord Blackburn said:

"If he purchases from his client in a matter totally unconnected with what he was employed in before, no doubt an attorney may purchase from one who has been his client, just as any stranger may do, honestly telling the truth and without any fraudulent concealment, but being in no respect bound to do more than any other purchaser would do. But when he is purchasing from a person property with respect to which the confidential relation has existed or exists, it becomes wrong of him to purchase without doing a great deal more than would be expected from a stranger. In some cases it may turn upon this; that the attorney having been the general agent of the seller, has acquired an intimate knowledge of the condition of the property, and not only learnt as much as the seller himself knows, but perhaps a good deal more. In those cases he has acquired the knowledge as being the general agent of the vendor, and he has an unfair advantage in consequence, and there must not be an abuse of the knowledge which he has so acquired. In other cases the general agent has acquired an influence over his client, I may say an undue influence, and there have been many more cases of a similar character..."

86 The deceased was connected to the trust property by the trust deed. From the outline of evidence he knew he was dealing with trust property.

87 In Tate v Williamson (1866) LR 2 Ch App 55 at 61 Lord Chelmsford said:

"... the courts have always been careful not to fetter this useful jurisdiction by defining the exact lines of its exercise. Wherever two persons stand in such a relation that, while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that influence is possessed by the other, and this confidence is abused or the influence is exerted to obtain an advantage at the expense of the confiding party, the person so availing himself of his position will not be permitted to obtain the advantage, although the transaction could not have been impeached if no such confidential relation had existed."

88 In Ex Parte Lacey [1802] EngR 75; (1802) 6 Ves. Jun. 625; 31 ER 1228 Lord Eldon said:

"...the Law supposes him to have acquired all the knowledge a trustee may acquire; which may be very useful to him; but the communication of which to the Cestuy que trust the Court can never be sure he has made, when entering into the new contract, by which he is discharged."

89 In Coles v Trecothick [1804] EngR 88; (1804) 9 Ves. Jun. 235; 32 ER 592 at 597 at 247 Lord Eldon said:

"...a trustee may buy from the cestui que trust, provided there is a distinct and clear contract, ascertained to be such after a jealous and scrupulous examination of all the circumstances, proving, that the cestui que trust intended the trustee should buy; and there is no fraud, no concealment, no advantage taken by the trustee of information, acquired by him in the character of trustee."

90 A fiduciary is not bound to account for a gain derived by virtue of his position if the fiduciary can show that the principal gave informed consent. The onus of proving consent is on the fiduciary - Birtchnell v The Equity Trustees Executors and Agency Company Ltd [1929] HCA 24; (1929) 42 CLR 384 at 398 per Isaacs J. The fiduciary has to show that there was "full and frank disclosure of all material facts" - New Zealand Netherlands Society (Oranje) Inc v Kuys [1973] 1 WLR 1126 at 1132.

91 In this case, the trustee made a disposition of the property in a breach of trust procured by the deceased recipient. In such a case there can be two main remedies - one is a liability to restitute the trust property or its traceable proceeds and the other is a liability to pay equitable compensation to restore any loss of trust property or to account for improper gains.

92 Alternatively, a stranger also can be liable for breach of trust - Re Montagu's Settlement Trusts [1987] 2 WLR 1192. The knowledge in the stranger which is important is; (a) actual knowledge; (b) wilfully shutting one's eyes to the obvious; (c) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make; (d) knowledge of circumstances which would indicate the facts to an honest and reasonable person; (e) knowledge of circumstances which would put an honest and reasonable person on inquiry: Ford and Lee at 2217.

93 A fundamental inquiry is whether a defendant's conscience was affected in such a way as to require that the defendant be subjected to an order of a court of equity - Re Montagu's Settlement Trusts (supra) at 1205. When deciding whether a recipient had the knowledge to constitute unconscionability the court allows for the attributes of that particular person in assessing his or her awareness of facts about the property.

94 Want of probity on the part of a stranger can be understood as not being confined to subjective dishonesty in particular circumstances but as extending to a failure to make the inquiries which a hypothetical reasonable and honest person would make in the light of facts known to the stranger. Ford and Lee contend that a stranger could, for example, be assisting a trustee who is inadvertently making an improper investment.

95 In Barnes v Addy (1874) LR 9 Ch App 244 Lord Selbourne said that the responsibility (of a trustee) may be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. Ford and Lee say:

"It is only when a stranger gets control of the trust property and knowingly acts inconsistently with the trust, or a stranger induces a breach, that a stranger's personal liability as constructive trustee can extend to loss caused by a breach that is not dishonest."

96 Ford and Lee contend that if the reason for the stranger's gain is another person's breach of duty, even if not dishonest, and the stranger knows of that breach, it is unconscionable that the gain should be retained.

97 Where a stranger's participation in a trustee's breach goes beyond assistance and consists in inducing the trustee to commit a breach, the stranger will be held liable to compensate a beneficiary for loss caused by a breach of trust. Where the stranger knew that what the trustee was being induced to do was not in accord with the terms of the trust; the stranger would only be liable with subjective knowledge, knowledge derivable by inference from facts subjectively known and knowledge shunned wilfully or recklessly. Where a stranger knowingly induces an innocent breach of trust the stranger is primarily liable to restore the loss.

98 An agent can become personally liable as a constructive trustee for loss caused by the agent receiving the property and dealing with it in a manner that is inconsistent with a performance of a trust of which the agent is cognisant. An agent with subjective knowledge of the terms of a trust who deals with trust property in a way not authorised by those terms may be held personally liable.

99 The appellant plaintiff - the previous registered proprietor - sought recovery from the estate of the person who took the land and which is the current registered proprietor.

100 The transfer to the deceased was registered and it is necessary to consider whether he and/or his administratrix obtained the advantages of indefeasibility. The latter can be dealt with by reference to s 9 Administration Act 1903, which subjects all the real estate vested in her to the trusts subsisting over it. It could also be said that only property capable of being vested by the deceased was available for administration. Transfers by the deceased, a fiduciary, to himself at an undervalue without informed arms length consent from his principal would not be so capable.

101 In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 Tadgell JA said at 143:

"... to abstain deliberately from reasonable enquiry for what the enquiry will reveal, to choose to shut one's eyes to the obvious - to assume a state of 'wilful blindness' - or otherwise generate a state of contrived ignorance, may of course be dishonest."

102 On the terms of the deed the deceased was all but in name a trustee. The directors were entitled to expect he would act in their interests and for the purposes of the relationship.

103 On the evidence the deceased had knowledge. His conduct in arranging the sale to himself at an undervalue given his position in the trust deed and his long standing activity in relation to the trust's affairs (the evidence indicates he had for years invested the trust funds in property) focuses attention on the deceased's obligation to deal fairly between himself and his principal, the trustee company, by obtaining a fully informed arms length consent to the transaction. It is the reality of the deceased's fulfilment of that obligation which will determine whether his estate can rely on the register.

104 Another way of looking at the indefeasibility issue is to conclude that the deceased knew that the trust deed conferred only powers of consent and appointment on him. Yet the outline of the evidence above indicates that he exceeded the deed's mandate and controlled the trust's affairs in such a way that he bought for himself a valuable trust asset at a significant undervalue without a fair open and arms length dealing with the trustee and its beneficiaries (the directors). It is significant that 7 years went by without the deceased fulfilling his promise to return the land to the trust.

105 At trial it was for the estate to prove an informed consent to the deceased's purchase. Pleading mere consent and not contesting the evidence was not a sufficient response to a pleading which brought out at least some kind of fiduciary character in the relationship amongst other things, by describing the deceased as a director of the trustee.

106 The evidence indicates that the deceased knew the beneficiaries/directors of the trustee company had an actual well founded reasonable expectation that he would act to protect the trust's interests (see the factors discussed by Finn J in Australian Securities Commission v AS Nominees Ltd [1995] FCA 1663; (1995) 62 FCR 504 at 521). He was obliged to obtain a fair market price for trust assets.

107 Ejectment under s 199 and s 200 Transfer of Land Act is a response. An equitable charge over the land is another response. An equitable charge can arise where the court is satisfied it would be unconscionable for a party to retain property beneficially to the exclusion of another party. Many family arrangements over land have brought imposition of an equitable charge, despite the wishes of the registered proprietor and the absence of dishonesty or moral turpitude.

108 There is enough evidence to infer that the deceased breached his fiduciary duty to the trust by arranging the sale of the trust property to himself at a significant and objective undervalue. The register can, then, be rectified.

109 In my opinion, the appellant's claim with respect to the home should succeed and the Court should hear further from the appellant as to the precise orders required - see par 4 of the Notice of Appeal. Any necessary adjustments to the accounts of the appellant would then be made.

110 The reason for this view is that at the trial the persons concerned all knew what the issues were. I do not see how the respondent could be said to be unfairly prejudiced if such an order was made. The respondent had the chance to call any relevant evidence and chose not to do so. As stated above and in any event, most of the relevant evidence was not really in dispute. It is too blatant a case for the appellant's claim to fail on grounds concerned with an alleged failure to plead it correctly.

111 In essence the statement of claim pleaded dishonesty by a fiduciary/director when the deceased bought valuable trust property for himself, without paying full value. That was the gist of the action. Greater particularity was not necessary to put the defendant on notice of the kind of claim which had to be answered. Fiduciary law operates to put on the defence a burden of proving that the impugned transaction was fair, open and at arms length. That is the only way the courts can be sure the fiduciary has acted correctly.

112 The administrator of the estate holds the property subject to s 9 of the Administration Act 1903.

113 The second claim was in one paragraph and it was:

"Prior to his death Lionel Kenworthy over a period of years misappropriated from the trust for his own benefit a total of approximately $380,000."

114 As his Honour said in his reasons for judgment, that plea of misappropriation raised very serious allegations of dishonesty against the deceased and the standard of proof required to establish it was a high one.

115 His Honour said that the plaintiff had pleaded the cause of action in the barest terms and had relied upon the fact that Mr Lindsay Kenworthy and his brother Dennis had marked with a yellow highlighter those items of expenses which they thought were not expenses of the Trust. Neither explained in detail each item of alleged misappropriation but contented themselves with the broadest allegation, very largely unsubstantiated, that the items highlighted could not possibly have been incurred for the benefit of the Trust.

116 His Honour said that the plaintiff had not gone to the trouble of a detailed analysis of the items allegedly misappropriated by the deceased and it was apparent that both witnesses had had no day to day involvement with the plaintiff at the material times.

"On the basis contended for by the plaintiff and agreed to by the defendants, that the books (from which expression I exclude the highlighting of certain entries) are prima facie proof of what they record and are accurate, I find that the plaintiff has not established that Lionel Kenworthy misappropriated 'approximately $380,000' or, indeed, any sum nor that he drew from trust funds any amount in excess of his loan account. In relation to the loan account (which started with a credit of some $60,000) Mr Solomon affirmed in his oral address that there could be no complaint as to drawings against that account up to the figure mentioned."

118 In my opinion, his Honour was clearly correct in finding that the plaintiff had not established the misappropriation alleged. Overall the evidence offered in support of the claim was not convincing.

119 The learned Judge discussed the evidence of Mr Lindsay Kenworthy who said that he had been involved in the yellow highlighting of entries in the cash books which books had been prepared by the accountants employed by the plaintiff. The process had involved him, his brother Dennis and another person who was not called to give evidence, marking in yellow "everything that was not associated with the trust ... other than the 'drawings' which were not marked in yellow". The totals of the highlighted items and the "drawings" were carried into the accounts and shown as part of a loan account in the name of the deceased.

120 His Honour concluded that the accountants had prepared the accounts in the light of information given to them by Mr Lindsay Kenworthy and Mr Dennis Kenworthy. His Honour referred to the fact that Mr Lindsay Kenworthy had had no day to day involvement with the affairs of the Trust until 1997 despite being a director of the plaintiff. His evidence had indicated that he was at all relevant times content to leave the management affairs of the plaintiff to the deceased.

121 His Honour said that Mr Lindsay Kenworthy had gone through the cheque butts years after the dates when the cheques were made out. He had identified the handwriting on the cheque butts which was put to him as that of the deceased. He had said that the entries in the cash books in the column headed "Drawings" represented the amounts reflected in the cheque butts which he, Mr Lindsay Kenworthy, considered were not attributable to the Trust but were, he thought, for the deceased's personal benefit. Those items were not highlighted.

122 His Honour said that the term "Drawings" was not derived from the primary documents but applied to those items which Mr Lindsay Kenworthy considered to represent amounts taken by the deceased for himself. His Honour said that in carrying out the relevant exercise, Mr Lindsay Kenworthy had apparently had regard to the cheque butts and to his recollection of what was happening during the years in question when, as his Honour said, he had had no day to day involvement with the affairs of the plaintiff.

123 His Honour came to the conclusion that Mr Lindsay Kenworthy seemed to be impugning the veracity of the cheque butts in spite of the fact that it was no part of the plaintiff's case, as his Honour understood it, that the deceased had falsely recorded misinformation on the cheque butts pursuant to a fraudulent scheme to steal moneys from the trust.

124 His Honour said that as he understood the plaintiff's case, it was that the cheque butts correctly recorded the matters therein but that the payments were made for purposes other than the Trust's. His Honour also commented on the reasons given by Mr Lindsay Kenworthy for having highlighted the relevant items in the cash book. It was Mr Lindsay Kenworthy's opinion that where there were round figures, this displayed a "pattern" of misappropriation. He had highlighted those items accordingly. He had also highlighted items where cheque butts showed a payment to a named payee but Mr Lindsay Kenworthy thought the amount of the payment was excessive.

125 With respect to one item which his Honour referred to, his Honour said:

"Although he [Lindsay] did not expressly say so, I have the impression that he thought this item to be a false entry masking a payment to Lionel Kenworthy personally."

126 In another instance his Honour thought the reason for the highlighting was not apparent. Mr Lindsay Kenworthy had said that the only time he had been involved with the accounts was after 1997. His Honour said that Mr Lindsay Kenworthy's evidence in respect of the "pattern" indicated the basis of his approach to many of the items, namely, that the matter stated on the relevant cheque butt was false. His Honour said that that was entirely inconsistent with the plaintiff's case that the matters in the primary documents were to be accepted as true and correct. It was also inconsistent with the fact that, for example, in relation to the second defendant's Subaru motor vehicle, no attempt had been made to disguise the nature of the payments relating to that vehicle. At the relevant time, when payments for the Subaru motor vehicle were made, the financial statements revealed and the plaintiff's counsel had conceded, that there had been a loan account in favour of the deceased owing to him by the trust in an amount of some $60,000.

127 His Honour said he was not satisfied that the evidence of Mr Lindsay Kenworthy as a whole established on a balance of probabilities that an amount in excess of $60,000 was expended by the deceased for purposes other than those of the trust. His Honour applied the correct test as to the standard of proof - Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 67 ALJR 170 at 172.

128 One interesting exchange which his Honour pointed to was as follows:

"Then lower down, the entry for fuel you were asked about cheque 95, which is on page 1572. Do you see that's payable to the people called Martin's Corner? Do you have that there?

"Yes I do, yes.

Do you know what that is?

No idea at all.

Is that a reason you highlighted it?

That's correct, yes."

129 His Honour discussed the evidence of Mr Dennis Kenworthy concerning the exercise of going through the cash books.

130 I agree with his Honour's comment that this claim was based on:

"the broadest allegation, very largely unsubstantiated, that the items highlighted could not possibly have been incurred for the benefit of the Trust."

131 It was argued for the appellant that the non-trust payments could not be set off against the $60,000 owing to the deceased because the $60,000 had been completely used up in the payment for The Esplanade. It was also submitted that what his Honour ought to have done was approach the question from the point of view of the reversal of the onus of proof by virtue of cl 1305 of the Corporations Law. That had the effect that payments which were cogently seen to have been misappropriations, were misappropriations unless proved otherwise. It was submitted that that had been made clear in the Full Court judgment in Caratti and also in the judgment of Finklestein J in the decision of Valoutin Pty Ltd v Furst [1998] FCA 339; (1998) 154 ALR 119 cited at par 135 of Caratti, the effect of which was a reversal of the onus. It was submitted that the learned trial Judge had erred in placing a further onus on the plaintiff in saying that it had to prove each particular payment.

132 It was further submitted that Mr Dennis Kenworthy had not been cross-examined. He had contributed to the process of identifying payments as misappropriations and that should be taken into account.

133 His Honour dealt with that contention by saying that Mr Dennis Kenworthy knew nothing about the Trust at the time. He said a similar thing concerning Mr Lindsay Kenworthy's evidence.

134 It was submitted for the appellant that with respect to the effect of cl 1305, no evidence was led the other way. Reliance was placed on Goldberg J's judgment in White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169. Further, it was submitted that Dennis had not been put on notice at any time that he was to be found not to have known anything about the Trust or the payments.

135 Reliance was placed for the appellant on the balance sheet at AB 314 which showed that in 1996 the loan to the deceased amounted to $375,417.75. That calculation was said to have reflected the yellow highlighting. It was submitted that the deceased could not but have known he was receiving Trust property. He could not but have known that it was also money not owed to him by the Trust when one took into account that the $150,000 purchase price had taken up what was remaining of any money owed to him. Reliance was placed on the words of Lord Millett in Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 WLR 802 at par 105 as supporting the proposition that the deceased should be held liable because he had sufficient knowledge for constructive notice that he was receiving Trust property. It was also submitted that there was a question whether an honest person would have regarded the conduct as being dishonest - Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] UKPC 4; [1995] 2 AC 378. It was also submitted that the deceased had actual knowledge of what the position was; that the evidence was quite clear that there had never been any consent to the relevant payments to the deceased by Mr Lindsay Kenworthy or Mr Dennis Kenworthy, the two directors at the time. Consent by the directors had never been suggested at the trial.

136 It was pointed out for the appellant that no financial records had been kept during the relevant time at all; that it had been only after the deceased's death that "the boys" had discovered that the financial records had not in fact been kept; that there had been no evidence from the respondent or any evidence that the relevant sums were loans. Further, it was submitted that it had not been pleaded that the claim should have been pleaded in debt and not as a misappropriation. Further, there was no notice of contention that the money was a debt - O 63 r 9. Reliance was also placed on the reasons of Burchett J in Re Vassis; Ex parte Leung [1986] FCA 21; (1986) 9 FCR 518 at 527 for the proposition that a duty to reimburse trust funds was an equitable debt.

137 It was contended for the respondent that the books spoke for themselves concerning what the expenses were. There was not a cause of action unless it was proved that the expenditure was otherwise than for the benefit of the Trust. The learned trial Judge had looked at all the relevant evidence in detail and had basically rejected the attempts to attack the prima facie record.

138 It was conceded that the deceased had been the signatory on the relevant cheques said to reflect the misappropriation, but it was contended that, prima facie, he had the authority of the plaintiff to sign the cheques. That then led to the question whether the payments, being payments he was authorised to draw cheques for, were prima facie authorised by the company. Misappropriation would only be proved upon it being established that there were some limits on his authority. It was submitted for the respondent that there was no evidence of dishonesty. Clause 1305 provided that what was stated in the books was prima facie evidence of the correctness of what was there.

139 The respondent submitted that a question was whether the learned trial Judge had been correct when he said that the Trust owed the deceased $65,000 when it apparently had not. It was submitted that the fact that the deceased had been drawing money, which on the face of the books appeared to have been for his own purposes rather than for the Trust purposes, was not evidence of any misappropriation. The proposition was put that some of the expenses were not obviously for the deceased's purposes. It had not been proved that they were. The learned Judge had not been satisfied that the drawings which, on their face appeared to be for purposes other than the purposes of the company, were in excess of the amount of the loan account.

140 It was submitted that the accounts and tax returns prepared by the accountants had been said by Mr Lindsay Kenworthy to be correct. Those accounts had shown the relevant amounts as a loan. They did not show the money as misappropriated. Even if there was an excess taken by the deceased over and above the amount which was said to be owing to him under his loan account, that had been shown as a loan and not as a misappropriation. That raised the question whether there was authority for the deceased to borrow money and whether or not that was consistent with the terms of the Trust. That matter was not explored at the trial.

141 It was suggested there could have been evidence as to whether there was any authorised capacity to offset funds by drawing funds for the deceased's private purposes against the repayment of a loan owing to him by the Trustee; that the mere existence of a loan account in credit was not a mandate for the deceased to withdraw money from the company in repayment of that loan. There would not be a mandate where, for example, the company could not afford to repay the loan. However, the material facts were not pleaded. One of the consequences of that was that the matter was not fully explored.

142 The orthodox manner of proving a claim for unauthorised use of company money is to produce the books of the company as prima facie evidence of the transactions which are reflected in them and then to give evidence that the transaction identified on page X of this or that ledger was not for the benefit of the company. The defendant would then have to say it was, because of this, that, or the other reason.

143 It was submitted that the books of account had revealed the amount owing as a loan. The money had not been described as a misappropriation. All the moneys, for example, payments to HBF and in relation to Mrs Kenworthy's car, had been described as loans in the books of account, not as misappropriations. There had been no amount shown in the books of account as a misappropriation. Everything that was not for the purposes of the Trust had been shown as a loan. That was the prima facie evidentiary value of the books. There was no evidence of misappropriation because over a long period of time the relevant sums had been described as loans.

144 When counsel for the respondents was asked whether there was any evidence at all on the question of whether or not the deceased was authorised by anyone to borrow moneys from the Trust on his own behalf at his discretion counsel for the respondent said: "I'm not sure". However he said the books were prima facie evidence. Counsel advised that he did not believe there had been any evidence that the deceased was not authorised by the company to operate the cheque book of the company otherwise than for the purposes of the company. He did not recall whether or not there had been any evidence which bore on the question of whether or not the directors knew that the deceased was drawing money for his own purposes. It was an area which was not investigated.

145 In my opinion, the appeal against this section of the judgment has not revealed error and should be dismissed.

146 MURRAY J: I have had the advantage of reading in draft the reasons for decision of Wallwork and Pullin JJ. They enable me to shorten these reasons.

147 It is convenient to deal, at the outset, with the matter raised in grounds 6 and 7 of the appeal which relate to the claim against Mrs Kenworthy as administrator of the estate of Lionel Kenworthy for compensation or restitution of the sum of about $380,000 (which at trial became the sum of about $375,000 or the sum of $225,000 odd, depending upon the view taken of the alleged facts), which sum was said

over a period of years to have been misappropriated by Lionel from the trust fund of which the appellant was trustee.

148 On this question I agree with what has been written by both Wallwork and Pullin JJ. The short point is that the claim was not proved. Certainly under s 1305(1) of the Corporations Act 2001 (Cth), which was in operation at the time of trial but which was in substantially the same terms as the former s 1305 of the Corporations Law, the books relied upon were admissible and "prima facie evidence of any matter stated or recorded" therein. The effect of the section was explained in Caratti v The Queen [2000] WASCA 279; (2000) 22 WAR 527. The books recorded payments from trust funds and, in many cases, revealed the purpose of those payments, although in some cases they did not. The evidence established that the payments were made by Lionel, who was a sole signatory.

149 To establish that the payments were unauthorised misappropriations the appellant relied substantially upon the evidence of Lindsay Kenworthy, a son of Lionel, and, like his brother, Dennis, at material times a director of the appellant. Lindsay highlighted various entries in the books to indicate payments which he thought were made without authority. In some cases, he said he highlighted payments because he did not know whether or not they were made with authority. It was open to the trial Judge to hold, as his Honour did, that Lindsay's evidence did not prove the alleged misappropriations.

150 The proposition advanced for the appellant at the trial and before us that the highlighting of the various entries in the books was a statement or recording of matter in the book and, therefore, provided prima facie evidence of misappropriation is, in my view, completely untenable. In the first place, the highlighting established nothing about misappropriation and, in the second place, it would be an extraordinary proposition that by making that addition to the books as they recorded information, the appellant's case could be elevated to the level of prima facie proof once it was explained to the court why the highlighting had been done. The books provided prima facie evidence of matter stated or recorded therein. The highlighting was not matter of that kind. No occasion, therefore, arose to impose an onus of proof on the respondents and there was no capacity to assert that the respondents' failure to lead evidence as to the authority to make the various payments highlighted supported an inference of the kind discussed by the High Court in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298: cf White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169.

151 The other grounds of appeal are all complaints about the dismissal of the appellant's principal claim concerning the transfer of the family home occupied by Lionel and Mrs Kenworthy from the appellant trustee company to Lionel. Although it might have been transferred back that did not occur and, therefore, on Lionel's death intestate, the property passed into his estate and became an asset of his estate, the beneficiaries of which are his widow, the second respondent, and his sons.

152 It is necessary first to understand how the claim was pleaded. It was claimed that Lionel exercised effective control of the appellant until a matter of days before his death on 13 February 1997. It was also pleaded that he was a director of the appellant in de facto terms by the operation of s 60(1)(b) of the Corporations Law but the trial Judge did not so find and no more need be said of this contention.

153 It is convenient before continuing with the case pleaded by the appellant to refer to the property. The following account of its history is that found by the trial Judge or established by uncontroverted evidence.

154 The property appears originally to have been much bigger. It fronts on to The Esplanade, Mount Pleasant, and therefore has unrestricted views out over the Canning River. By a transfer dated 4 September 1984, what is described as the upper rear portion of the original block was transferred by the appellant for the sum of $67,000. I do not know what portion of the original block was sold at this time, but a condition of the sale was the grant of a restrictive covenant over the remaining land with frontage to The Esplanade to prevent the appellant erecting any building above a particular height, a covenant obviously designed to protect the view from the block at the rear out to the Canning River. The land so sold was the subject of a separate Certificate of Title and I presume that that land had a separate street frontage to the west. As I understand it, the house presently existing on the lot with the frontage to The Esplanade was there in 1984. That was the year in which Lionel retired from business as a builder and commenced to receive an age pension. He would then have been about 64 years of age.

155 Early in 1990, Lionel approached Lindsay and Dennis, the two of his sons who were directors of the appellant, with a transfer of the property in The Esplanade, Mount Pleasant, which he asked them to execute. The transfer re-conveyed the property to him. The reason Lionel gave for this proposal was that the plaintiff could no longer afford the rates payable in respect of the property and if it was in his name as a pensioner he would be entitled to a substantial reduction in those rates. He said that he would ultimately transfer the property back to the appellant. The transfer provided for a consideration of $150,000. There is no evidence, I think, that that sum was not paid to the appellant.

156 The two sons in question, Lindsay and Dennis, apparently accepted that this was an appropriate transaction and, on behalf of the appellant, executed the transfer. It was dated 27 May 1990. The transfer was lodged for the assessment of stamp duty and it would appear that on 5 October 1990 stamp duty of $10,300 was paid and the transfer was registered. Lionel then became the registered proprietor of the land.

157 As the duty paid is struck on an ad valorem basis, it is possible to conclude that the Commissioner of State Taxation did not accept the adequacy of the consideration of $150,000 but assessed duty on the basis that the land had a value of $338,125. There seems to have been no evidence in terms of an actual valuation by the Valuer-General in that sum and no evidence that such a valuation was brought to the attention of Lionel (certainly it was not brought to the attention of his sons) at any time before the transfer was lodged with the Registrar of Titles on 5 October 1990, let alone when the transfer was executed on 27 May 1990.

158 In July 2000, before the trial which took place on 17 - 19 July 2001, the appellant's solicitors commissioned a valuation from a sworn valuer, a Mr Christie. In his opinion, the property was valued at $335,000 as at May 1990 and $600,000 as at July 2000. Mr Christie reported that the house was "very basic compared to residences constructed along The Esplanade in the last 10 years". Although comfortable, he said, it is of a quality which is "clearly inconsistent with the prime riverfront location of the subject site". He thought that a discount of, say, 25 per cent to 30 per cent in value should be applied for the effect of the restrictive height covenant.

159 Mr Christie expressed the opinion that when transferred to Lionel in 1990, the market value of the property was well above $150,000. He pointed out that the adjoining property had sold for $440,000 less than 12 months before 27 May 1990. The only substantial difference between the two properties was the restrictive height covenant applying to the subject land. He did not think the covenant would have a negative impact sufficient to reduce the value of the land by two-thirds, as would be the case if it was accepted that the sale price of $440,000 for the adjoining property represented its true market value. It appears that Mr Christie took that view.

160 It appears that there was no objection to the admission in evidence of Mr Christie's valuation, but, in his Honour's judgment, LHK Nominees Pty Ltd v Kenworthy [2001] WASC 205 at [41] the trial Judge said that this valuation, "seems irrelevant on the pleadings as the plaintiff does not seek to rely upon the objective true value of the property at the date of the transfer but rests solely upon the valuation by the Valuer-General". In my respectful opinion, having regard to the way in which the case was pleaded and fought at trial, it was relevant to establish the value of the property when sold and at trial and the evidence was admissible: Brockway v Pando [2000] WASCA 192; (2000) 22 WAR 405 at 419 [53]. It showed no more than that the valuation apparently made by the Valuer-General within a matter of months after the transfer was executed might be accepted as broadly accurate, but to prove that the market value of the property in May 1990 was about $335,000, rather than the $150,000 for which it was sold, would advance the appellant's case little.

161 This report provided the only evidence about the sale of the adjoining property. Mr Christie provided a bundle of transfers of properties as evidencing comparable sales. The adjoining lot, the sale of which is referred to in his report, was apparently sold on 1 November 1989. The consideration is expressed to be $440,000, of which $15,000 is allocated to chattels. The true comparative figure would therefore appear to be $425,000.

162 It seems from the documents annexed to Mr Christie's report that the purchasers in 1989 re-sold that property a few years later, on 8 April 1992, for $380,000, of which $3,000 was allocated to chattels. There is no evidence as to why the value of the property might drop in that period of less than three years from $425,000 to $377,000. The matter is not discussed in Mr Christie's report. Nor is there any evidence that any of Lionel, Lindsay and Dennis Kenworthy knew that the next door property had changed hands in November 1989 or knew anything of the circumstances in which it was sold. Nor, I think, is there anything to ground a conclusion that Lionel ought reasonably to have known about the sale of the adjoining property and the price at which that occurred.

163 On 16 March 1999, before the trial of this action, letters of administration of Lionel's estate were granted to his widow. By the Administration Act 1903 (WA), s 8 the property at The Esplanade, Mount Pleasant vested in Mrs Kenworthy, as from Lionel's death on 14 February 1997.

164 Against that background, I return to the pleaded case. I have mentioned the pleading that Lionel exercised effective control of the appellant until shortly before his death and at all times relevant to the case. It was pleaded that the consideration of $150,000 for the transfer of the Mount Pleasant property was grossly inadequate, the value of the property having been assessed by the Valuer-General at $338,125. I have mentioned the lack of direct evidence about that and that the valuation was inferred from the fact that $10,300 was paid in stamp duty on the transfer. I have mentioned Mr Christie's valuation. The evidence about the payment of stamp duty and the ad valorem calculation which could be made in relation to that, as well as the evidence of Mr Christie's valuation, it seems to me established the fact of gross inadequacy of the consideration.

165 As to whether Lionel was aware of an assessment by the Valuer-General of the value of the property at a little more than twice the sum he proposed to pay for it, the trial Judge at par [42] said that he was prepared to assume that Lionel had actual knowledge of the Valuer-General's assessment. Later, however, at par [65], his Honour said that whether Lionel was aware of the assessment prior to registration and whether the significance occurred to him, "in the sense of alerting him to the probability that the agreed price for the property was an under value, is speculative". Later in that paragraph, his Honour refers to "Lionel Kenworthy's knowledge of the Valuer-General's assessment".

166 His Honour points out that it was pleaded that Lionel had actual or constructive knowledge of the gross under-value because "his settlement agents prepared, stamped and registered the transfer". Indeed, there was evidence to support the conclusion that the transfer was professionally prepared. It is properly typed and there are crosses at the appropriate places for the signatures of Lindsay as a director of the appellant and Dennis as its secretary. Below that, the word "seal" is written and over the top of that word there is the affixation of the appellant's common seal. Further, on the backing sheet of the transfer, there is the indication that it was lodged with the Titles Office for registration by Standish Settlements.

167 Given that the trial Judge appears to have proceeded upon the basis that the true value was in the region of that apparently assessed by the Valuer-General, to my mind the finding that Lionel knew at any time that the stamp duty paid was based upon a valuation in any particular sum by the Valuer-General is a finding which is generous to the appellant on the evidence. To my mind, there was no evidence capable of supporting a conclusion that at the time when the transfer was prepared, when it was put before Lindsay and Dennis as directors and secretary of the appellant, when by their execution of the transfer they agreed on behalf of the appellant to the conveyance of the property on its sale for the sum of $150,000, when the property was assessed for stamp duty in the sum of $10,300, when that was paid, and when the transfer was lodged with the Titles Office and registered, Lionel had any actual knowledge that the property had been sold at an under-value.

168 The only element of the factual circumstances which could be said to have given him constructive knowledge of the under-value, in the sense that Lionel should be taken to have known that fact because it was only by wilful blindness that he could have failed to have that knowledge (Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133, 145 - 146) was the amount to be paid by way of stamp duty, and there was nothing to suggest that Lionel knew or ought to have known how the ad valorem rate at which that duty was assessed could be translated into an opinion about the value of the property. The trial Judge made no such finding.

169 Nor in my opinion, would the evidence about the sale of the adjoining property be capable of being translated into evidence about Lionel's knowledge of the market value of the Mount Pleasant property. Certainly, the sale was only shortly before Lionel arranged the transaction in question and, as I understand it, he resided at the property with his widow during his lifetime, but nothing is known about the circumstances of the sale of the adjoining property, whether it was advertised for sale, if so whether Lionel saw such an advertisement. It is not known if there was any "for sale" sign placed on the property itself or whether the vendors and purchasers came together privately.

170 Certainly, the drop in value from $425,000 to $377,000 on the resale of the property some 2-1/2 years later would tend to suggest that it was sold at an over value in November 1989, but, however that may be, there was nothing to establish that if Lionel knew of the sale in November 1989 of the adjoining property, he knew the price which had been obtained. There was nothing to show whether he was on speaking terms with his neighbours and nothing to indicate whether he established a friendly relationship with his new neighbours, assuming they resided in the house and did not rent it to tenants. Much less is there anything to indicate that Lionel's sons knew anything of this particular transaction at all. Certainly there was no reference to this transaction in their evidence.

171 The appellant's case in relation to the Mount Pleasant property was that by reason of its sale at a substantial under-value, to Lionel's knowledge, and by reason of the fact that he did not inform the directors of the appellant of the substantial under-value, the property was transferred to him in breach of trust and he was thereby unjustly enriched. The alternative cases were variations on the same theme. They were that in the pleaded circumstances to which I have referred, Lionel dishonestly procured or assisted in the appellant's breach of trust or, alternatively, that he knowingly received the property transferred to him in breach of trust.

172 All of those pleadings involve the common element of breach of trust by the appellant by its directors, Lindsay and Dennis, which Lionel procured because he knew of the under-value or must be taken to have known of it and did not tell the appellant's directors, or because, having that knowledge, he allowed the property to be transferred to him and was thereby unjustly enriched. Those differences in the pleaded case focus upon the mechanisms of Lionel's involvement in the transfer. They are immaterial because it was undoubtedly the case that Lionel initiated the process, obtained the appellant's execution of the transfer and organised its eventual lodgement and registration. The important allegations were that Lionel knew or should be taken to have known that the property was being transferred to him at a substantial under-value or, as the statement of claim put it, for a consideration which was grossly inadequate.

173 It is clear that, having regard to the evidence and the findings of the trial Judge, the appellant failed to make out that case. I have already indicated that, in my view, his Honour's judgment is unassailable in respect of those findings of fact. Grounds 3 and 4 detail the appellant's complaints in that regard and assert that his Honour erred in holding that Lionel was not dishonestly involved in the appellant's breach of trust in the transfer of the property to him and that his Honour erred in finding that the appellant did not establish that Lionel was a knowing recipient of the trust property. I need not set out these grounds. There are lengthy particulars, particularly in ground 3. I have discussed the issues of fact and it need only be said that, to my mind, grounds 3 and 4, which depend upon the contention that the trial Judge should have drawn different inferences of fact, are not made out.

174 There are two matters to which I should refer which I have not previously mentioned. The first concerns the appellant's contention that Mrs Kenworthy was, on the evidence, a person who would have known what Lionel knew and what were the full surrounding circumstances in respect of the transfer of the property and, indeed, the relatively contemporaneous sale of the property next door. She was not called and the appellants contend that his Honour erred by not drawing an adverse inference in terms of the rule in Jones v Dunkel. To my mind, however, there was no evidence to suggest that Mrs Kenworthy would have been able to give evidence concerning the matters in contention. Indeed, there was evidence that she was excluded from discussions between Lionel and his sons in respect of the subdivision and sale of an investment property at Muchea. In other words, there was a suggestion that she might not have been expected to know anything about the transfer of the Mount Pleasant property. This was not an appropriate case to draw an inference of the kind mentioned.

175 Finally, there was a pleading point which should be mentioned. In the amended statement of claim, par 6.1, it is pleaded that Lionel had actual or constructive knowledge of the gross under-value of the Mount Pleasant property and the assessment of the Valuer-General because his settlement agents prepared, stamped and registered the transfer. The defence, par 5(a), admitted par 6.1 of the amended statement of claim, but I think that could not have been taken to be an admission that Lionel had actual or constructive knowledge of the substantial under-value of the Mount Pleasant property because the defence, par 4 denied par 5 of the statement of claim which pleaded the sale at a substantial under-value. It could hardly be taken that it was admitted that Lionel knew that if it was denied. It seems to me that the admission in the defence was of the factual processes involved in the sale and that it was understood in that way. Indeed, there was no contest about those matters of primary fact.

176 Had the appellant been able to prove its case, the remedy it sought with respect to the Mount Pleasant property was a declaration that the property had, since conveyed to Lionel, been held on constructive trust for the appellant, or alternatively it sought the imposition of an equitable charge on the property in respect of the difference between its current value, as to which it will be recalled it led the evidence of Mr Christie that as at July 2000, a year before the date of trial, he would have valued the property at in the region of $600,000, less the consideration of $150,000 paid when the property was transferred to Lionel, together with interest on that sum. In case I should be wrong as to the grounds touching upon the facts of the case, or alternatively having regard to the facts as found and established by the evidence, I should set out my views as to the liability of the first respondent to a remedy of either kind.

177 Before doing so, I should comment on ground 1.1, which complains that the trial Judge erred by holding that the appellant and Lionel entered into a contract for the sale of the Mount Pleasant property to Lionel. The trial Judge found that the directors of the appellant, Lionel's sons, "were accustomed to accept his advice as to the best interests of the [appellant]". His Honour found that, when Lionel put the proposal to his sons, the directors of the appellant acting on its behalf, they agreed to sell the property to Lionel for $150,000 and they caused the appellant to execute the transfer. The oral contract for the sale of the property thus achieved his Honour found was in the terms of and evidenced by the transfer. Under the trust deed, the appellant had power in its absolute discretion to sell, transfer or dispose of real property of the trust. His Honour concluded that the transfer was effective to transfer all interests in the land to Lionel, at least upon registration. His Honour noted that the appellant denied the existence of a contract which, therefore, it had never sought to rescind.

178 In my view, his Honour's conclusions, so far as they are material to the case, that there was an oral contract that the land should be conveyed by the appellant to Lionel for the consideration of $150,000 is well supported by the evidence to which I have referred. The transfer was effective to convey the legal and equitable estates in the land and, of course, upon registration of the transfer paramount title was conferred upon Lionel as the registered proprietor "except in case of fraud": Transfer of Land Act 1893 (WA) s 68(1). That provision was not relied upon by the trial Judge. It was not pleaded by the respondents, as might have been expected, and nor did the appellant plead any allegation of fraud, again as might have been expected: Rules of the Supreme Court O 20 r 9; Macquarie Bank at 138.

179 However that may be, I find it difficult to see how the property could be followed so that any remedy would be available to the appellant so as to encumber the legal title and the property, both legal and equitable, in the land, once it vested in the first respondent by operation of law under the Administration Act, at least in the circumstances of this case in which she was not proved to be implicated in any way in the circumstances alleged to give a remedy against Lionel in respect of his acquisition of the property. However, for completeness, in case I am wrong about that, I will say what to my mind would have given rise to a cause of action for which a remedy by way of trust or equitable charge might have been imposed against the property, at least before it passed from Lionel to the administrator of his estate for the benefit of his beneficiaries as from the date of his death.

180 In my opinion, it may be accepted that the transfer of the property to Lionel by the appellant was in breach of trust. In Breen v Williams (1996) 186 CLR 71 at 137, Gummow J put the proposition neatly as follows:

"Where an express trust has been effectively constituted and under its terms the trustee is obliged to manage a trust business, the trustee is required both to observe the terms of the trust and, in doing so, to exercise the same care as an ordinary, prudent person of business would exercise in the conduct of that business were it his or her own."

181 The appellant was under that duty in its management of the trust assets. It may be accepted for present purposes that the appellant, in the person of its directors, Lindsay and Dennis, failed to obtain the best price upon the disposition of the property to Lionel. They failed to make any inquiries as to the sufficiency of the consideration proposed by him. It may be accepted that they agreed to dispose of the property to him for $150,000 in circumstances which established that the appellant failed to exercise that ordinary degree of prudence which ought to have been exercised in respect of the property were it its own.

182 It is no impediment that the appellant made the claim to remedy that breach, although it was the party in breach: Young v Murphy [1996] 1 VR 279. The action is brought for the benefit of the beneficiaries of the trust. The claim so made may be brought, as this was, to assert a proprietary right in the property (assuming for present purposes that it might be followed into the hands of the administrator of Lionel's estate): Foskett v McKeown [2000] UKHL 29; [2001] 1 AC 102.

183 In that event, the action may be defeated in a case such as this by the indefeasibility of title conferred upon Lionel upon registration of the transfer, by the Transfer of Land Act 1893 (WA) s 68(1), which is the provision material to the circumstances of this case. That is because the section confers paramountcy of title upon the registered proprietor, notwithstanding the existence in another of any estate or interest in the land, whether legal or equitable, and no matter how derived. In Leros Pty Ltd v Terara Pty Ltd [1992] HCA 22; (1992) 174 CLR 407 at 419, the majority of the High Court explained that:

"In this respect, the operation of the Act is similar to the operation under the general law of the doctrine of the bona fide purchaser for value who acquires the legal estate without notice of a prior equitable interest. The acquisition of the legal title by such a purchaser in those circumstances defeats the prior equitable interest in the sense that the interest is destroyed. Thus a subsequent purchaser with notice of the equitable interest, who purchases from the first purchaser, is not bound by the interest. If it were otherwise, a bona fide purchaser might be unable to deal with his or her property. The sale of the property would be clogged."

184 Section 68 is subject to recognised exceptions. The one relevant for present purposes is "fraud". As the High Court held in Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604, what is required is "actual fraud, personal dishonesty or moral turpitude" (614), particularly on the part of the registered proprietor in securing the registration from which his title stems. As I have noted, there were no findings of the trial Judge (and as I would hold, his Honour's conclusions were well-supported by the evidence) of any conduct or knowledge on the part of Lionel which would constitute actual fraud, deception, dishonesty or any moral turpitude in the way the transaction was presented to the directors of the appellant and no knowing concealment of any matter affecting the fairness of the transaction which, in my opinion, could constitute fraud within the meaning of s 68.

185 I should add, I think, that I note the case put by the appellant at trial in the alternative that it was sufficient that Lionel knowingly received the property transferred to him in breach of trust. This case was said to rely upon what is described as the second limb in Barnes v Addy (1874) LR 9 Ch App 244, referring to the obiter dictum of Lord Selborne LC at 251 - 252 in which his Lordship referred to the case which may be made for a constructive trust where trust property is acquired by persons who "assist with knowledge in a dishonest and fraudulent design on the part of the trustees". Such a case would seem to me to fall squarely within s 68 of the Transfer of Land Act and, in my opinion, unless it does so in relation to the registered title to land under the Torrens system, there would be no capacity to defeat the indefeasibility of title conferred by the Act by reason merely that title to the land was acquired in circumstances in which the recipient knew that the transfer to him was in breach of trust.

186 Like Pullin J, I must say that I prefer the reasoning of the majority of the Court of Appeal of Victoria in Macquarie Bank to that of the contrary majority of the Court of Appeal of Queensland in Tara Shire Council v Garner [2002] QCA 232. For present purposes, I need add nothing, I think, to the analysis of those decisions and the views expressed by Pullin J.

187 A matter debated at trial, and before us, was the question of rescission of the contract found by the trial Judge, and in my opinion correctly so, to have been made for the sale of the property for $150,000. It will be recalled that his Honour found the contract to have been oral, but to have been in the terms of and evidenced by the transfer which was then executed and ultimately lodged with the Land Titles Office. The trial Judge noted that the appellant had not sought to exercise its equity to rescind the contract on the basis that the contract was voidable because made in breach of trust to Lionel's knowledge. His Honour held that in those circumstances no claim of trust of a propriety character could be made. His Honour relied upon the decision of this Court in Hancock Family Memorial Foundation Ltd v Porteous [2000] WASCA 29; (2000) 22 WAR 198 which, in turn, applied the decision of the High Court in Daly v Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371. It was argued before us that the court of trial could make a curial decree of rescission if that was required and that the approach taken by the trial Judge was in error. The Court was constituted by five Judges because the appellant invited the Court to hold that Hancock was wrongly decided. As will appear, in my opinion, this case requires no such decision.

188 Daly was a case where an investor placed money on deposit with a firm of stockbrokers. He had been advised to do so by an employee of the firm pending the occurrence of an opportunity to buy shares at the right price. The investor loaned the money to the firm, but the firm was in a bad financial situation, subsequently ceased trading and could not repay the loan. The question arose whether there was a defalcation within the meaning of the Securities Industry Act 1975 (NSW). A defalcation under that Act included a failure to pay when money had been received in trust. It was held that, although there was a fiduciary relationship between the firm of stockbrokers and the investor, the money in question had merely been loaned to the firm and no trust arose. The firm was merely bound as a debtor to repay the debt to the investor.

189 Hancock was found to be a similar case in that "H" had borrowed money from the foundation and provided it to the respondents, who had used the money to acquire properties. "H" had then settled the loans. If the loans were wrongly made, the contracts were voidable. The appellants sought a declaration that the properties acquired by the respondents were held on resulting or constructive trusts for them. This was held not to be possible until the appellants elected to rescind the contracts. This, of course, they had not done, and indeed, as I have mentioned, the loans had been discharged.

190 In my respectful opinion, these decisions must be right. If money is given on loan, then all proprietary interests in the money are conveyed. It must be so in any case where property is conveyed to another pursuant to a contract, whether voidable or not. If the conveyance occurs in circumstances which would give rise to a proprietary claim by way of a resulting or constructive trust, then until the contract is rescinded, if that should be possible either at law or in equity, it cannot be said that the circumstances which give rise to the proprietary claim in equity can result in the conclusion that, although legal title to the property may have been conveyed, the plaintiff retains an equitable interest therein which may result in the conclusion that the defendant holds the property on trust for the plaintiff.

191 Certainly the commencement of this action, framed as it was, could not constitute a clear and unequivocal act of rescission by the appellant: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634. I doubt whether, in any event, rescission would have been available at law once the transfer was registered. As I have noted, the effect of the relevant indefeasibility provision of the Transfer of Land Act was to confer title upon Lionel by the act of registration. Thereafter, relevantly except in case of fraud, the appellant could not be restored to its former position of holding at least an equitable interest in the property.

192 If I am wrong about that, then there is the further difficulty that, by virtue of the Administration Act 1903 (WA) s 8, as I have mentioned, upon the grant of letters of administration, the property was by force of that Act transmitted to and vested in the administrator of Lionel's estate, the first respondent, for the benefit of those entitled to participate in the distribution of the estate under that Act. There is a statutory trust created by s 13 of that Act for those so entitled. An equitable decree of rescission is more readily made and may be available in circumstances where a rescission is not available at law, but a curial order is required and, for myself, on the facts as found or as established by the evidence, in this case I can see no basis upon which the interests of the first respondent, as administrator of Lionel's estate and as a beneficiary upon its distribution, would be set at nought, even if rescission was otherwise possible. Problems of this kind were discussed in Hancock by the Court at 215 [192] and 216 - 217 [196] - [197]. See also Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 467 - 468.

193 In my opinion, therefore, there were various reasons why the appellant could not succeed in a proprietary claim that Lionel held, and now the first respondent holds, the property on a resulting or constructive trust for the appellant; a claim which depends on the view that, although legal title was transferred to Lionel, the equitable interest in the land was retained by the appellant. Putting to one side the pleading points, the case was not proved in fact. The effect of s 68 of the Transfer of Land Act was to pass to Lionel the legal and equitable interests in the property. The appellant did not prove fraud so as to overcome the effect of the statutorily conferred paramountcy of Lionel's title. Nor am I persuaded that the appellant could overcome the vesting of the property in the administrator of Lionel's estate as from the date of his death. Certainly the lack of rescission of the original transaction, if such was possible at law or in equity, provided a further impediment to the grant of relief. I am satisfied that the appeal should be dismissed. But before I leave the case I should mention one further matter.

194 It seems to me that the appellant could seek to pursue a claim for a constructive trust in an entirely remedial sense, as opposed to the pursuit of a proprietary claim that, in the circumstances of the case, the appellant retained the equitable interest in the property which was held on trust for the appellant. Although such a trust is commonly called a constructive trust, I prefer to describe it as a resulting trust arising, not expressly, or by implication from the common intention of the parties, but as a matter of the application of equitable principle.

195 The constructive trust in a remedial sense, on the other hand, was discussed by the High Court in Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583. Particular reference may be made to the judgment of Deane J at 613 - 615. In that type of case the trust is declared by the court. To refer to a constructive trust in that context is to refer to an equitable remedy for infringement of the plaintiff's personal equity. In such cases, the preference of the court will be to tailor the equitable remedy provided to the circumstances of the case and a remedy short of the imposition of a trust will be sought; for example, the provision of equitable compensation secured by an equitable charge and, if necessary, aided by a decree of equitable rescission: Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101, 113.

196 It can be seen that the provision of such a remedy, even by way of a declaration of trust, involves no detraction from the principle of indefeasibility of title of Torrens system land and the equitable remedies might be available in an appropriate case, and in an appropriate form, where property is to be traced or followed into the hands of a third party. The remedy of the Court, in whatever form is judged appropriate, will be applied to give effect to the personal equity established by the plaintiff and will proceed upon the basis that the defendant has, to the point of judgment, title to the property which may be qualified where necessary by the exercise of curial power in the form of a declaration of trust.

197 So far as real property under the Transfer of Land Act is concerned, by s 200 of that Act:

"Upon the recovery of any land estate or interest by any proceeding at law or in equity from the person registered as proprietor thereof it shall be lawful for the court or a judge in any case in which such proceeding is not herein expressly barred to direct the Registrar to cancel any certificate of title or instrument or any entry or memorandum in the Register relating to such land estate or interest and to substitute such certificate of title or entry as the circumstances of the case may require; and the Registrar shall give effect to such order."

198 But to speak of the availability of remedies of this kind is to say nothing about the circumstances in which they will be held available. It is important to identify the cause of action which will ground the claim for relief based upon the application of equitable principle. In the very different factual context of Muschinski and the later case of Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137, the foundation of the action which was identified was where the proven circumstances, which cannot and should not be sought to be exhaustively defined, reveal what is regarded as unconscionable conduct resulting in the unjust enrichment of the defendant at the expense of the plaintiff.

199 However, it should not be overlooked that Australian courts have affirmed that, although equity is fundamentally concerned with the modification of rules of law in circumstances where their application would be abhorrent to good conscience, there are limits to the capacity of equity to intervene. It is necessary to identify a guiding principle and the matter is not to be decided merely by the application of judicial discretion and subjective views of fairness and justice. Nonetheless, unconscionability is the term which has been used to describe the guiding principle involved and the content of the notion may vary according to the individual circumstances of particular cases.

200 In my opinion, in a case such as this, the court would look for fraudulent conduct in the equitable sense so as to make it unconscientious

that Lionel and those who take through him should enjoy the entirety of the proprietary rights in the Mount Pleasant property. The ultimate impediment to the appellant succeeding was the failure to prove that, when Lionel took the transfer of the property, he knew it was at an undervalue of which the appellant, through its directors, was ignorant, so that he was taking unconscientious advantage of them. In the absence of such proof, it seems to me that the appellant could not successfully pursue a claim to be compensated for the loss of the increase in value of the property (less the sum of $150,000) and it could not seek to have remedies crafted by the court which would secure such compensation to it for the benefit of the beneficiaries of the trust.

202 ANDERSON & STEYTLER JJ: We have had the advantage of reading the reasons for decision of the other members of the Court and are consequently relieved of the need to set out the facts giving rise to the appeal.

203 We propose to deal, first, with that part of the appellant's claim which relates to the Mount Pleasant property. In pars 3 to 7 of the statement of claim, it is pleaded that the property was held by the appellant company in its capacity as trustee of the Lionel Housden Kenworthy Trust ("the LHK Trust"), that it was transferred to Mr Kenworthy for a price of $150,000 on 5 October 1990 and that the consideration of $150,000 was grossly inadequate. The inadequacy is particularised by reference to the fact that, at the time of the transfer, the value of the property was assessed by the Valuer-General, for stamp duty purposes, at $338,125. It is pleaded that Mr Kenworthy knew that this was so and did not inform the appellant's appointed directors of that fact. It is also pleaded that Mr Kenworthy exercised effective control of the appellant at the material time and was a director of the appellant by operation of s 60(1)(b) of the Corporations Law as it then stood. Then, in pars 8 and 9 of the amended statement of claim, the appellant pleads that:

"8. By reason of the matters pleaded in paragraphs 3 - 7:-

8.1 the Mount Pleasant Property was transferred to Lionel Kenworthy in breach of trust; and

8.2 Lionel Kenworthy was thereby unjustly enriched.

9. Alternatively to paragraph 8, by reason of the matters pleaded in paragraphs 3 - 7, Lionel Kenworthy:-

9.1 dishonestly procured, further or alternatively assisted in, a breach of trust by the ... [appellant] in transferring the Mount Pleasant Property to him at a substantial undervalue;

9.2 further or alternatively, knowingly received property of the Trust transferred to him in breach of trust."

204 It follows, from this pleading, that the breach of trust alleged by the appellant is that arising from the transfer of the property to Mr Kenworthy at a grossly inadequate price, in circumstances in which Mr Kenworthy, as the person in effective control of the appellant, knew that to be so. This breach is said to have occurred in circumstances in which Mr Kenworthy arranged the transfer and dishonestly did not disclose the inadequacy of the price to the appointed directors of the appellant.

205 In case it matters, and we do not think that it does, we would make the observation that there is no plea of breach of trust by the appellant arising from the conduct of its appointed directors. While counsel for the appellant submitted that an allegation to that effect was implicit in the pleading and was treated as an issue at the trial, we are unable to accept that this is so. No such case appears from the pleadings and the transcript does not bear out the submission that the trial was run in that way. The appointed directors, who gave evidence on behalf of the appellant, did not give evidence that they had failed in any respect in their duties as directors of the appellant and there is certainly no plea nor any evidence that they acted dishonestly. While the appellant led evidence from the appointed directors to the effect that neither of them took advice in respect of the value of the property, the purpose of this evidence appears to have been to support their evidence that they did not appreciate that the price of $150,000 was grossly inadequate. The appointed directors were not cross-examined to the effect that they had been in breach of duty. As we have indicated, we do not think anything turns on this. The appellant's position would not have been advanced by pleading and proving that the breach of trust relied on arose from the failure of the appointed directors to act prudently with respect to the sale of the property. Without more, the equity arising from a breach of duty of that kind would not survive registration of title in favour of a stranger to the trust as Mr Kenworthy was. It is important to note also that there is no plea that Mr Kenworthy breached any duty owed by him as a "de facto director" or that he acquired the property in breach of any fiduciary duty owed by him. Indeed, both at trial and on appeal, counsel for the appellant expressly disavowed any claim against the respondent based upon a breach of duty owed by Mr Kenworthy.

206 Insofar as the head of claim pleaded in par 8 (the claim of unjust enrichment) is based on the bare proposition that a recipient of trust property is bound to restore the property to the beneficiaries of the trust unless he is a bona fide purchaser for value without notice, the answer is that the equity arising in the trust beneficiaries to have restitution in those circumstances alone is defeated by registration. Something more must be shown: Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133.

207 There is some support for the proposition that liability of a recipient of misapplied property is coexistent with the liability in restitution of a person unjustly enriched at another's expense (see Birks: Restitution - The Future (1992), p 28; Moore: Equity, Restitution and in personam claims under the Torrens system (1998) 72 ALJ 258 at 266 and an addendum to that article, published in (1999) 73 ALJ at 712, and Koorootang Nominees Pty Ltd v ANZ Banking Group Ltd [1998] 3 VR 16 at 100 - 102); and that a restitutionary claim of that kind falls outside the operation of the indefeasibility provisions (see R Chambers: Indefeasible Title as a Bar to a Claim for Restitution; [1998] Restitution LR 126). However, no sufficient basis for a restitutionary order of that kind has been pleaded or made out in this case. The appellant's unjust enrichment claim relies solely upon the allegation that the property was transferred to Mr Kenworthy in breach of trust. There is no plea of unconscionable conduct in the form of duress, undue influence or the like. The only suggestion of unconscionability is contained in the allegation that the property was transferred to Mr Kenworthy at a grossly inadequate consideration in circumstances in which he knew this to be so, but did not tell the appellant's appointed directors. For reasons which we shall later explain, this conduct, in all of the other circumstances of the case, would not amount to unconscionability sufficient to justify a restitutionary order, if it was open to the Court to make such an order.

208 That leaves the alternative claim pleaded in par 9 which, as it was developed in argument, was that Mr Kenworthy was either a knowing recipient of trust property or a knowing participant in a breach of trust. He was said to have become a constructive trustee and to be liable accordingly and, as we understand the claim, the first respondent as administratrix of Mr Kenworthy's estate to whom the property has passed in that capacity, is also said to be liable. These claims are said to depend on an application of the two so-called "limbs" of Barnes v Addy (1874) LR 9 Ch App 244.

209 In that case, Lord Selborne made the following statement at 251 - 2:

" ... strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property [the first 'limb'], or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees [the second 'limb'] ... I apprehend those who create trusts do expressly intend, in the absence of fraud and dishonesty, to exonerate such agents of all classes from the responsibilities which are expressly incumbent, by reason of the fiduciary relation, upon the trustees."

210 As to the first of those limbs (the so-called "recipient liability" limb), the equity thus arising is defeated by registration of Torrens title in favour of the recipient. Like Pullin J, we prefer the reasoning of Tadgell JA and Winneke P to this effect in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd (supra) to that of Ashley AJA in that case and also the decision of the majority in Tara Shire Council v Garner [2002] QCA 232. Critical to this preference is the fact that, as was pointed out by Tadgell JA at 157 (and also by Street J in Mayer v Coe [1968] 2 NSWR 747 at 754), because the Torrens system is one of title by registration and not one of registration of title, the proprietary rights of a registered holder of Torrens title land derive "from the fact of registration and not from an event antecedent thereto". While Tadgell JA was referring to a registered mortgagee, the position is, of course, the same in the case of the registered owner of the land. Consequently, where registration of title is not dishonestly obtained, it is, to use the words of Tadgell JA (ibid), not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker [1967] 1 AC 569 and Breskvar v Wall (1971) 126 CLR 376, to treat the holder of the registered title to property that is subject to a trust as having received trust property.

211 We should also mention that, in Koorootang Nominees, above, which was a case in which the defendant bank had actual knowledge that land mortgaged to it was held on trust and, by reason of its wilful and reckless failure to make inquiries, had at least constructive knowledge that the property was being misapplied, Hansen J held that this was sufficient for the trustee to establish an in personam claim against the bank in respect of the mortgaged property and to impeach the indefeasibility of the bank's title under the Transfer of Land Act 1958 (Vic). However, as has been pointed out by Tadgell JA in Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd, at 157, the bank really was found by Hansen J to have acted dishonestly. Furthermore, it would appear that the bank did not seek to rely on indefeasibility. It is clear from the judgment of Hansen J at 75 et seq, that the bank did not argue that the indefeasibility of title conferred by s 42 of the Transfer of Land Act 1958 (Vic) protected the bank from a claim that it held its registered interest on constructive trust for the plaintiff. As Hansen J said, this relieved him of the need to consider the question whether the plaintiff's equity survived registration. He said (ibid) that "the bank did not seek to argue that the immediate indefeasibility conferred upon its interest by s 42(1) of the TLA rendered it immune from a claim that it held its interest in the subject land on constructive trust for the plaintiff under either 'limb' of Barnes v Addy". Because of these features of the case, we do not consider that Koorootang Nominees is persuasive authority for the proposition that the Court may impose or enforce a constructive trust upon a registered proprietor who has obtained his title without fraud or dishonesty, simply because he knew that the transfer was in breach of trust by the vendor.

212 We should also recognise that in Doneley v Doneley [1998] 1 Qd R 602, De Jersey J (as his Honour then was) appears to have held registered lessees and a registered mortgagee bank constructive trustees of their respective interests over freehold property because, when they took those interests, they knew that the property was held upon a trust and knew facts which established that the lease and mortgage respectively were in breach of trust. However, as was pointed out by Davies JA in Tara Shire Council at [36], no reference was made in that case to the principle of indefeasibility or to the statutory provisions or authorities relevant thereto and it is unclear whether they were referred to in argument, perhaps because the lessees and the bank did not wish to rely on indefeasibility.

213 Like Davies JA in Tara Shire Council, at [33], we are unaware of any other authority, binding or persuasive, for the proposition that the registered interest of a purchaser of Torrens system land is defeasible simply because he became registered with knowledge that the transfer was in breach of trust by the vendor.

214 As to the second limb in Barnes v Addy (the so-called "accessory liability" limb), this has come to be understood as requiring a finding of dishonesty, either in the sense of knowledge by the defendant that what he was doing would be regarded as dishonest by honest people (Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] UKPC 4; [1995] 2 AC 378 and Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 WLR 802 [HL], [6], [8], [20] and [36]), or, perhaps, knowledge on his part of circumstances which would indicate to an honest and reasonable person that a fraud is being committed (Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373, per Barwick CJ (at 376, agreeing with Stephen J), Stephen J (at 412) and Gibbs J (at 398)). Dishonesty of either kind would be fraud for the purposes of s 68(1) and s 134 of the Transfer of Land Act 1893, "fraud", in that context having traditionally been said to mean "actual fraud" (Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604 at 630) or "actual fraud, moral turpitude" (Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78 at 97) or "something more than mere disregard of rights of which the person sought to be affected had notice" (Wicks v Bennett [1921] HCA 57; (1921) 30 CLR 80 at 91).

215 Of course, indefeasibility provisions of the kind found in s 68(1) and s 134 of the Act have never been regarded as "destroying the fundamental doctrines by which courts of equity have enforced, as against registered proprietors, conscientious obligations entered into by them" (Barry v Heider [1914] HCA 79; (1914) 19 CLR 197 at 213, per Isaacs J). In Frazer v Walker, above, at 585, the Privy Council made it clear that the indefeasibility principle "in no way denies the right of a plaintiff to bring against a registered proprietor a claim, founded in law or in equity, for such relief as a court acting in personam may grant". As is pointed out by Butt, Land Law, 4th ed, at 676 - 677, this is why a beneficiary can compel performance of a trust despite the trustee's status as registered proprietor (Sistrom v Urh (1992) 40 FCR 550) and a right in personam may be enforced against a registered proprietor so as to set the title aside where the proprietor became registered under a dealing which his or her own conduct made voidable, or through his or her own breach of trust or fiduciary obligation (see, for example, Corozo Pty Ltd v Total Australia Ltd [1988] 2 Qd R 366). In Bahr v Nicolay (No 2), above, the Court was prepared to find a sufficient personal equity where there was not only the acquiring of title with notice of an existing interest (which would not be enough to overcome the indefeasibility provisions), but also an agreement to recognise and be bound by the unregistered interest (see, in particular, the judgment of Wilson and Toohey JJ, in that case, at 638ff).

216 However, it has often been said that the expression "right in personam" or, as such rights have also come to be known, "personal equities", encompasses "only known legal causes of action or equitable causes of action" (Grgic v ANZ Banking Group, above, at 222 - 3; Pyramid Building Society (In liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188; Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd, above, and see also Butt, above, at 677). The expressions "personal equity" and "right in personam" do not supply a blank canvas on which a plaintiff can paint any picture. As we have observed, there is no plea in this case of any breach of duty on the part of Mr Kenworthy, nor was there an allegation to that effect at trial. It was not pleaded or argued that Mr Kenworthy stood in a fiduciary relationship to the trust or to the appellant or that he knowingly misrepresented the value of the property to the appointed directors of the appellant (as to which, cf Yew v Port Swettenham Rubber Company Ltd [1913] AC 491). It was not the appellant's case that Mr Kenworthy took the transfer of the property intending to do so on trust for the beneficiaries of the LHK Trust, or that he otherwise agreed to recognise and be bound by any unregistered interest or that he dishonestly repudiated an interest which he had agreed to recognise.

217 It consequently seems to us that the appellant is left in the situation in which it can only succeed in overcoming the indefeasibility of title obtained on registration of the conveyance to Mr Kenworthy if it proves the allegation in par 9.1 of the statement of claim that " ... Lionel Kenworthy ... dishonestly procured ... a breach of trust ... " or, perhaps, if it can make out some lesser form of unconscionability sufficient to give rise to a restitutionary claim.

218 We agree with Pullin J that the onus was on the appellant to establish this. Counsel for the appellant argued that the appellant was not required to plead and prove dishonesty except in reply to a defence of indefeasibility; and that because there was no plea of indefeasibility it was never incumbent on the appellant to plead and therefore to prove dishonesty. The answer to this is that the appellant did not object at trial to the raising of a defence of indefeasibility. That being so, it was a defence which had to be met and it seems to us that this was accepted by the appellant's counsel at trial who sought to meet it by proving the dishonesty pleaded in par 9.1 of the appellant's statement of claim.

219 In order to make good the plea of dishonesty, the appellant sought to show that Mr Kenworthy, being in effective control of the appellant, used his control to procure the appellant to transfer the property to himself for a price which he knew was grossly inadequate and deliberately did not inform the appointed directors of the appellant of that fact, dishonestly intending to conceal the fact from them.

220 The appellant did not succeed in persuading the trial Judge that Mr Kenworthy was in effective control of the appellant or that he was a de facto director by operation of s 60(1)(b) of the Corporations Law. The trial Judge found that the evidence of the appointed directors did not go so far as to establish that they were accustomed to act in accordance with Mr Kenworthy's directions or instructions but established only that they were accustomed to accept his advice as to the best interests of the appellant [11]. That finding is challenged, if in a somewhat indirect way, in par 3 of the grounds of appeal. That ground is to the effect that the trial Judge erred in fact and law in holding that Mr Kenworthy was not dishonestly involved in the appellant's breach of trust in transferring the property to him in various circumstances pleaded in subpars 3.1 to 3.12. Subparagraph 3.9 is to the effect that Mr Kenworthy had actual control over the appellant's chequebooks and finances and subpar 3.11 is to the effect that the directors of the appellant were, to Mr Kenworthy's knowledge, accustomed to acting at his direction.

221 It seems to us, with due respect, that the trial Judge should have concluded that the evidence of the directors did establish that they were accustomed to act in accordance with Mr Kenworthy's direction - to do his bidding unquestioningly.

222 From time to time, the three appointed directors of the appellant were Mr Kenworthy's sons, Lindsay, Trevor and Dennis. Latterly, the appointed directors were Lindsay and Dennis. The evidence of each of them on this issue was to similar effect. Each of Lindsay and Dennis said that he became a director of the appellant because he was asked to do so by his father. Lindsay said that, until his father's death, his father had day-to-day control of the plaintiff. He said that he (Lindsay) did not have any day-to-day involvement in the company and that his sole role as a director of the appellant was to sign documents when asked to do so. He said also that his father was able to sign cheques on the appellant's bank account and had sole control of its finances. While he did say that he looked at documents presented to him by his father for signature, and sometimes asked about them, he also said that he never rejected a proposal or transaction "brought" to him by his father and that he did not investigate any of the investments made by the appellant on its merits. He said that he "trusted" his father "to be correct". So, for example, he had no input in relation to his father's decision to subdivide land owned by the appellant in Muchea or as to the prices for which the subdivided lots were to be sold. Dennis, too, said that, as a director of the appellant, he would do as his father told him. He, too, said that he had no day-to-day involvement in the appellant other than to sign documents which his father asked him to sign and that he always acted in accordance with his father's instructions. He said that no directors' meetings were held to consider or approve the appellant's conduct and that he did not question his father's decisions or directions. He, too, did not reject any of the proposals "brought" to him by his father. Trevor (who was not a director of the appellant in 1990) said that his time as a director was spent doing as instructed by his father and not questioning him. He said that he simply did as he was told. None of this evidence was challenged. It seems to us, with due respect to the trial Judge, inevitably to lead to the conclusion that Mr Kenworthy was in effective control of the appellant at all material times.

223 Next, it was not really in contest that the property was transferred to Mr Kenworthy at a grossly inadequate consideration. So much was established by the Valuer-General's assessment of the value of the property, which was not challenged. Nor was it disputed that Mr Kenworthy did not tell any of his sons that the consideration of $150,000 for the transfer of the property by the appellant was far below its true value. The first respondent's case in that respect was somewhat ambiguously pleaded. In par 4 of her defence she denied par 5 of the amended statement of claim (being that which alleged that the consideration of $150,000 for the transfer of the property was grossly inadequate) and pleaded that the transfer, and the consideration, were consented to by all of the appellant's directors and all of the beneficiaries under the trust. Then, in par 5 of her defence, she admitted that Mr Kenworthy "had actual or constructive knowledge of the matter pleaded in paragraph 5 [of the amended statement of claim] by reason, inter alia, that his settlement agents prepared, stamped and registered the Transfer". She also there denied par 6.2 (which is to the effect that he did not inform the appointed directors of the appellant of the matter pleaded in par 5) and repeated what had been pleaded in par 4 of her amended defence. However, the trial Judge, after noting the apparent contradiction in the pleading, said at [42] that, as he understood the submissions of the second respondent's counsel, par 5 of the amended defence was to be read as an admission that Mr Kenworthy had actual knowledge of the Valuer-General's assessment. There was no suggestion that Mr Kenworthy told any of his sons what he had learned in this respect.

224 There remains only the question whether these circumstances were sufficient, in all of the other circumstances of the case, to amount to dishonesty or unconscionability on Mr Kenworthy's part. The trial Judge found that they did not amount to dishonesty.

225 With due respect, we do not find all of his Honour's reasoning on this issue easy to follow. In particular, we are not sure what his finding ultimately was as to the state of Mr Kenworthy's knowledge with respect to the true value of the property. We think he should have found that Mr Kenworthy well knew the real value of the property. This is because it is very likely that the process of assessment of stamp duty would have brought home to him (he, after all, had to pay the stamp duty) that the property was worth a great deal more than $150,000 in the opinion of the Valuer-General. In the normal course of things, a purchaser obtaining specialist assistance in conveyancing transactions, as did Mr Kenworthy in this case, would seek to be informed, and would be informed, what the liability for stamp duty was likely to be and why. In this case, the assessment was in excess of $10,000 and in the context of the financial affairs of this family, that was a very substantial sum of money at that time. It is difficult to think that, faced with a charge of those proportions, Mr Kenworthy did not get advice as to the correctness of it and it is difficult to believe that he would not have been made fully aware that the amount of the assessment was payable because, according to the Valuer-General, the value of the property was $338,125. It is also difficult to believe that the thought of a challenge to that valuation did not at least cross his mind if he genuinely believed the property was only worth $150,000. There is no evidence of any appeal against the assessment and it is a fair inference therefore that Mr Kenworthy accepted the Valuer-General's assessment as at least approximately right.

226 We think the finding should have been that, by the time the transfer was lodged for registration in the Titles Office, Mr Kenworthy knew that the consideration stipulated in the transfer was less than half true value.

227 But it does not follow from this that Mr Kenworthy was acting dishonestly.

228 Lindsay's evidence about the transaction was given in-chief by way of a written statement. In it, he said that he had been telephoned by his father who told him that he had a document for him to sign. When he attended on his father for that purpose, he was handed a copy of the transfer form for the property. He went on to say the following:

"He said to me that the transfer was necessary because the plaintiff could not afford the rates charged on ... [the property] any longer and that, if it was transferred into his name, he would get a 50% reduction in the rates as a pensioner. I recall making a comment to him but I do not now recall what my comment was. The reason I recall making a comment was that I recall my father's response. He said that ' the outcome would be the same'. It was my understanding from that response that ... [the property] would ultimately be transferred back to the LHK Trust."

229 Dennis Kenworthy's evidence was to similar effect. He said:

"I recall my father bringing to me a transfer form to transfer ... [the property] from LHK to him. He told me that the reason for transferring ... [the property] into his name was 'to save on rates' or words to that effect. He said that the rates charged on ... [the property] would be halved if he owned ... [the property] because he was a pensioner. He said to me that ... [the property] 'would come back to us' (Lindsay, Trevor and me) and that 'there was nothing to worry about' or words to that effect."

230 This evidence seems to us to establish that Mr Kenworthy told each of Lindsay and Dennis, in effect, that they need not be concerned about the transaction because its purpose was solely that of saving money for the trust and that the property would, in any event, ultimately come back to the trust or to his three sons (who were the sole beneficiaries of the trust), a proposition which each of Dennis and Lindsay appears then to have accepted.

231 While the appellant contends, by par 3.8 of the grounds of appeal, that Mr Kenworthy "incorrectly" informed Lindsay and Dennis that the property would be transferred back to the appellant, there is no finding, or even any evidence, which suggests that Mr Kenworthy did not then genuinely intend to restore the property to the trust, or to its beneficiaries, at a more appropriate time or that he did not genuinely consider it to be in the trust's interests to transfer the property into his own name in order to save on rates. Contrary to submissions to this effect advanced by counsel for the appellant, the fact that the property had not been transferred back to the trust, or to its beneficiaries, by the time of Mr Kenworthy's death (and Mr Kenworthy seemingly left no will) sheds no light on his intention at the time of the transfer. Nor does it establish any change of intention on his part.

232 In all of these circumstances, we are not persuaded that the trial Judge made any error in finding that the appellant did not succeed in showing dishonesty on the part of Mr Kenworthy. Nor are we persuaded that Mr Kenworthy has been shown to have behaved unconscionably, in a manner sufficient to give rise to a restitutionary claim, if such a claim is open.

233 It follows, in our opinion, that the appellant's claims in respect of the Mount Pleasant property was rightly dismissed.

234 Accordingly, we see no need to consider various other points that arise out of the very extensive grounds of appeal and "outline" of argument and which are touched on in the judgments of the other members of the Court.

235 The claim of misappropriation is pleaded in the statement of claim as follows:

3.1 exercised the effective control of the plaintiff until 2 February 1997 and

3.2 was a director of the plaintiff by operation of section 60(1)(b) of the Corporations Law and its statutory predecessors.

...

10. Prior to his death, Lionel Kenworthy, over a period of years, misappropriated from the Trust for his own benefit a total of approximately $380,000."

236 The following particulars as to when the "period of years" started, how the sum of $380,000 is made up, and why the individual items are said to have been misappropriated, were given:

"A. 27 May 1990.

B. The amounts listed in the plaintiff's discovered documents number 107 and 108 [the cash books] listed under the heading 'DWGS' [drawings] and those entries in those documents highlighted in yellow. Equivalent entries appear, although unmarked in the cheque butts discovered as the plaintiff's discovered documents number 73-99.

C. The plaintiff was conducting no business at any material time. The only costs which it was incurring were limited costs in relation to accountancy fees, Australian Securities Commission fees and limited miscellaneous minor costs. The plaintiff's only function was to act as trustee of the LHK Trust. All other payments were improperly incurred."

237 The cheque butts and bank statements show that two bank accounts were maintained at the Commonwealth Bank, Bentley branch, one for the trust and one for the appellant. The addressee on the statements with respect to the account of the trust is "Mr L H Kenworthy" and the addressee on the statements with respect to the account of the appellant is "The Directors, LHK Nominees Pty Ltd". The address to which the statements with respect to both accounts were sent was 141 The Esplanade, Mount Pleasant, which was Mr Kenworthy's home. It is to be inferred from the whole of the evidence that Mr Kenworthy was the recipient of all the bank statements for both entities and there is evidence that he was the holder of the cheque books for each account and that he was the cheque signatory.

238 Two matters of some importance seem to have been not in dispute at trial, they being that the appellant had no other business or purpose than to act as trustee for the LHK Trust, and that Mr Kenworthy knew that fact. We can take it that it was not in dispute that Mr Kenworthy knew that the funds in both bank accounts were property of the trust.

239 The term "misappropriated" takes its meaning from its context and counsel for the appellant made it clear that the misappropriation pleaded in this case was Barnes v Addy misappropriation. The appellant's case was that Mr Kenworthy knew that the money he was spending was trust money and that the expenditure was not for the purposes of the trust or in the interests of the beneficiaries of the trust. As in the case with respect to the property at 141 The Esplanade, Mount Pleasant, the case with respect to misappropriation was not put upon the basis that Mr Kenworthy stood in a fiduciary relationship to the appellant or to the beneficiaries of the trust. It was not the appellant's case that, in drawing cheques on the appellant's bank account and on the bank account of the trust, Mr Kenworthy was himself in breach of trust. The case was (a) he was liable to repay the money or to compensate the trust to the extent of the misappropriated funds because he received the proceeds of the cheques knowing the bank accounts to be trust property which was being misapplied and (b) that he knowingly caused or assisted the appellant dishonestly to breach its duties as trustee by allowing him to operate the two bank accounts for his own benefit.

240 There was no dispute at trial, and it was not in contention before us, that if a cheque was written by Mr Kenworthy on either bank account, and the cheque was not for the purposes of the trust, but was for his own benefit, he would be liable under one or other of the two limbs of Barnes v Addy to make reparation to the extent to which the trust assets were thereby diminished; and that the appellant is the proper entity to pursue the remedy even although the cheque may have been drawn on the bank account maintained in the name of the trust.

241 The main issue was whether there was sufficient evidence to support the allegation implicit in the claim that cheques amounting in the aggregate to approximately $380,000 were written by Mr Kenworthy for his own benefit and not for the purposes of the trust or for the benefit of the beneficiaries.

242 The history of the trust's business activities is very unclear. Mr Kenworthy had been a builder and there is some rather vague evidence (AB 332) that his building business, or some parts of it, may have been carried on through the trust after it was established in 1975. There is evidence that, in 1984, Mr Kenworthy stopped working as a builder and commenced to receive the age pension. There is no clear evidence as to what were the trust's activities at that time, or subsequently. There is some evidence in the cross-examination of Lindsay that it carried on the business of growing hay and making chaff, and of cleaning out manure from poultry sheds and selling the poultry manure, and that there was a marine dealer's licence which may have been operated for the benefit of the trust (AB 69, 75, 76, 77). The earliest financial accounts of the trust which are in evidence are those for the year ended 30 June 1989 and show "sales" of $27,126.24, "interest received" of $16,687 and "rents received" of $5200. The accounts prepared for subsequent years show that income was received from sales in every year down to the date of Mr Kenworthy's death in 1997. In some years, sales income was insignificant. For example, in 1995, it was only $239. However, for the year ended 30 June 1997, it was $10,277.62, more than 25 per cent of the trust's total income. There is evidence that the appellant held rural land at Muchea on which livestock was depastured from time to time. The tax depreciation schedule for the year ended 30 June 1989 lists substantial plant and equipment on which accumulated depreciation was $47,842. The list of plant and equipment in that year includes substantial items, such as a tractor, a plough, several trucks, a front-end loader and bucket, electric motors and generators, welders and sundry farm equipment. In comparing that list with the list of plant and equipment in the accounts for the period ended 30 June 1997, it is apparent that some items had been disposed of, but the list remained quite substantial. Exactly what the state of the Muchea land was during the period covered by the claim of misappropriation is not known, although there is a reference in the evidence of Lindsay to the subdivision of the land into six lots and there was evidence that three of the lots have been sold, but that three remain in the ownership of the appellant.

243 It was the evidence of Lindsay that, after his father's death in 1997, he discovered that no financial accounts, or tax returns, had been prepared for the appellant, or for the trust, for some years. He located a lot of primary records at his father's house, such as cheque butts, bank statements and deposit books, gathered them together and delivered them to a firm of accountants, Creagh Barker & Associates Pty Ltd, who created tax returns, financial reports and financial accounts from them, including two cash books. This work appears to have been done or completed in May 1999, some two years after Mr Kenworthy's death. The cash books relate to three entities: the LHK Trust, the appellant and L Kenworthy & Co. The cash books themselves commence from the year 1985 and, in the case of the trust and of the appellant, they go forward to 30 June 1995. It is not entirely clear what portion of the cash books were prepared by Creagh Baker & Associates Pty Ltd on instructions from Lindsay after Mr Kenworthy's death. A close examination of the cash books would indicate that Creagh Baker & Associated Pty Ltd were really engaged to bring existing cash books up to date. At all events, the financial documents prepared by the accountants, especially the cash books, are the documents mainly relied on by the appellant to prove the claim of misappropriation from the date pleaded in the particulars to par 10, that is 27 May 1990. The appellant relied on s 1305 of the Corporations Law and the definition of "books" in s 9 to adduce the cash books and other financial documents into evidence.

(a) kept by a body corporate under a requirement of this Law; or

(b) kept by a corporation under a requirement of a previous law corresponding to a provision of this law;

is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book."

"(a) a register;

(b) any other record of information;

(c) financial reports or financial records, however compiled, recorded or stored; and

(d) a document.

... "

246 It was not disputed at trial that the cash books and financial accounts prepared by Creagh Barker & Associates Pty Ltd in 1999, and the primary financial records of the appellant as to its own affairs and the affairs of the trust were "books" within the meaning of s 9 and were admissible in evidence as prima facie evidence of the matters stated or recorded in them.

247 If, therefore, these "books" show on their face that, from time to time between 29 May 1990 and the date of his death in 1997, Mr Kenworthy caused the company to pay to himself or for his benefit a total of $380,000, or thereabouts, the plaintiff would have established the basis for an inference that Mr Kenworthy had misappropriated that amount of money as pleaded in par 10 of the statement of claim.

248 The accountants did not give evidence, but it is to be inferred from Lindsay's evidence, from the way in which the cash books are written up and from the disclaimers which the accountants wrote on the financial reports that the accountants' primary source of information was what Mr Kenworthy had written on the cheque butts and what Lindsay and Dennis were able to tell them after Mr Kenworthy's death. An examination of the cash books shows that one of the expense columns is headed "Dwgs", ie, drawings. The accountants posted many expense items to that column, where the payee of the cheque was not Mr Kenworthy. For example, an entry in the cash book of the trust on 14 May 1992 of $7.94, being a cheque drawn in favour of "Water Authority" is posted to the drawings column. It is to be inferred, in accordance with the disclaimer written by the accountants on the financial reports, that the accountants were simply told by either Lindsay or Dennis that the cheque paid to the Water Authority was not an expense of the trust, but a bill payable by Mr Kenworthy personally and that it should therefore be posted as a personal drawing by Mr Kenworthy.

249 There is evidence that when the accountants completed the cash books, and before they prepared the financial accounts based upon the cash books they gave the cash books to Lindsay and he and his de facto and Dennis went through the cash books with a highlighter. They applied the highlighter to a large number of items in the cash book, their evidence as to that being as follows. Lindsay said:

"Once those cash books were produced I, together with my then de facto partner and with assistance from my brother Dennis, went through those cash books and the plaintiff's cheque butts and identified a large number of payments that were not possibly associated with the LHK trust. I have highlighted those payments in the cash books."

"I was involved in the process, mostly undertaken by Lindsay, of checking the payments referred to in the cash books. I am certain that a very high percentage of the payments were not made for the purpose of the trust."

250 Some 460 items were highlighted. In many respects, there appears to have been an inconsistent or selective approach in the choice of entries to be highlighted. For example, entries referring to "fuel" are sometimes highlighted and sometimes not. These 460 items were in addition to those items which the accountants had posted to the drawings column.

251 After the highlighting work was completed, the cash books were returned to the accountants who then prepared the financial accounts. It appears that, in compiling them, the accountants accepted that all of the highlighted items of expenditure were "misappropriations" by Mr Kenworthy and were recoverable from him (his estate), as well as all of the amounts which had been written up by them as drawings. The total of these amounts was brought to account in the annual balance sheets and profit and loss accounts under the heading "Current Assets - Receivables", the particular entry being "loan Lionel Housden Kenworthy". In the final balance sheet, the amount had accumulated to $375,417.79 and it is this amount which is referred to in par 10 of the statement of claim as "a total of approximately $380,000".

252 Counsel for the appellant tried to persuade us that the highlighting should be received under the prima facie evidence rule in s 1305. With due respect, we found this submission a little difficult to follow, but, as best we understood it, it was to the effect that what constituted "books" for the purpose of applying the statutory presumption created by s 1305(1) were the accounts, as marked-up by highlighting, and that the highlighting was itself a "matter stated or recorded in the book" within the meaning of the subsection. The trial Judge held that he could not treat the highlighting as part of the books, because the highlighting marks were "no more than a subsequent commentary upon certain entries in the books ... " par [15]. We respectfully agree with this analysis. Moreover, the highlighting was a commentary the purpose of which was actually to refute the prima facie effect of the entries. The purpose was to say "this entry is not true". We are not able to understand how books in that state could be prima facie evidence of anything. If the marks were to be treated as a matter stated or recorded in the books with respect to the marked entry, the books would be in a contradictory state. In any event, we fail to see how yellow, or orange, or pink highlighting over an entry can be regarded as having any prima facie meaning. It has no accounting significance. Its meaning (if any) is to be gathered from evidence extrinsic to the books.

253 As to whether the highlighting, taken together with the evidence of Lindsay and Dennis, could stand as evidence that each item highlighted was, in fact, a misappropriation, his Honour decided that he could not safely accept their evidence that all of the items of expenditure which they had identified as unrelated to the purposes of the trust were, in fact, unrelated to the purposes of the trust. We are not persuaded that this conclusion was against the evidence. Both Lindsay and Dennis frankly admitted that they had no involvement in the day-to-day affairs of the trust or of the appellant. It is apparent that they had little or no knowledge of its business activities. They said that it had no business activities, apart from the administration of the investment of funds and the receipt of interest from those investments. This was not the case, on the face of the accounts. As limited as the trust's activities may have been, the books show that the trust was engaged in revenue-earning activities apart from investment, and this appears to have been recognised by the accountants in their preparation of the cash books and other financial records. We have already mentioned the depreciation schedules which show that the trust owned, and presumably had to maintain, substantial plant and equipment, for which it presumably had a use. We have referred to the item "sales" in the profit and loss accounts which, in some years, was not an insignificant source of revenue. We have referred to the evidence of Lindsay himself, who, under cross-examination, appeared to concede that there were activities such as a poultry manure business, a marine dealer's licence, hay growing and chaff-making. The Muchea land was rural land and there are entries in the books which indicate that the trust was engaged in buying and selling cattle. The highlighting undertaken by Lindsay and Dennis, and Lindsay's de facto, appears therefore to have been based upon an unsafe assumption, namely, that the trust engaged in no commercial activity except for passive investments.

254 It is true that many items in the cash books look like personal expenditure. Items such as "HBF" and "Pier 21" (a restaurant) are examples. It is to be remembered, however, that the trial Judge was not asked to consider each individual item in the light of evidence relating to that item. There are many highlighted items which may or may not be expenses for trust purposes, as, for example, "Global Machining - Dodge". His Honour found that the trust property included a Dodge truck.

255 Save to the extent that some of the highlighted items were touched upon in cross-examination and re-examination, the appellant's case was sought to be proved by generalised evidence. The consequence of any substantial inroads being made into this generalised evidence inevitably was that the global claim must fail unless saved by the application of s 1305 in some other respect. As we understood the appellant's argument, it was to the effect that, because the financial accounts prepared by the accountants from the cash books must also stand as prima facie evidence of the matters stated in them, there should have been a finding that, as at 30 June 1997, Mr Kenworthy had misapplied the sum of $375,417.79 because that was the amount shown in the balance sheet for that year as a "receivable" - an amount owing to the trust by Mr Kenworthy.

256 There are two points to be made in response to this submission. The first, which is without practical significance, is that the balance sheet item is not prima facie evidence of defalcation, but only of simple indebtedness. The more fundamental answer, however, is that the evidence as to how the books were created refutes the prima facie effect of the entries in the balance sheet. The evidence to which we refer is the evidence as to how the amount in the balance sheet was in fact arrived at. The books were prepared by accountants whose only source of

information outside the primary documents themselves was Lindsay and/or Dennis who his Honour found to be unreliable sources of information. It is therefore to be inferred that, when expenditure is treated in the accounts not as an expense of the trust or for its purposes but as a misappropriation, it represents the opinion of Lindsay or Dennis which the trial Judge found to be unreliable. This is sufficient to displace the statutory presumption.

257 For these reasons, we are of the opinion the trial Judge was correct to reject the claim of misappropriation.

258 PULLIN J: I have read a draft of the reasons for decision of Wallwork J. I differ from his Honour's conclusion about the part of the appeal concerning the Mount Pleasant land. I would dismiss that part of the appeal. I agree with Wallwork J's conclusion that the appeal concerning alleged misappropriation of money should be dismissed. My reasons appear later.

259 Lionel Kenworthy ("Mr Kenworthy") and the appellant trustee entered into a contract whereby the trustee sold the Mount Pleasant land to Mr Kenworthy for $150,000. Mr Kenworthy became the registered proprietor of the land. The appellant trustee had the power in the trust deed to sell the land. The appellant alleges that the transfer was a transfer in breach of trust and that the first respondent holds the land on a constructive trust for the appellant.

260 On the appeal, one of the contentions of counsel for the appellant was that the material fact establishing a breach of trust by the appellant, was the breach of duty on the part of the two directors of the appellant in failing to investigate the value of the land before selling it. It was submitted on behalf of the appellant that the claim was therefore to recover trust property and that the only defence the first respondent could have to such a claim was that Mr Kenworthy was a bona fide purchaser of the legal estate for value without notice, that the onus was on Mr Kenworthy to make out such defence, and that such defence was not pleaded. Whether such a breach of trust was advanced on the pleadings or run at trial outside the pleadings, will have to be considered. First, though, I will deal with that claim and the above submissions as though they were open on the pleadings.

261 If such a claim were advanced in relation to property not the subject of registration under the Transfer of Land Act, then it is true that the case would be resolved by application of the maxim "equitable rights are good against all persons except a bona fide purchaser of a legal estate for value without notice" and that the onus would be on Mr Kenworthy to make out such defence.

262 However, as far as land under Torrens title is concerned, there is very little scope for the doctrine of "bona fide purchaser of a legal estate for value without notice", because the scheme of the legislation requires that, with very few exceptions, a purchaser who becomes the registered proprietor of an interest in land under Torrens title takes free from all unregistered interests, whether he has notice of them or not (Meagher, Gummow and Lehane, "Equity Doctrines and Remedies", 3rd ed par 859).

263 In Frazer v Walker [1967] 1 AC 569 at 582, Lord Wilberforce observed that in all systems of registration of land it is usual and necessary to modify, and indeed largely to negative, the normal rules as to notice, constructive notice, or enquiry as to matters possibly affecting the title of the owner of land.

264 In Macquarie Bank Ltd v Sixty-Fourth Throne Pty Ltd [1998] 3 VR 133 at 151, Tadgell JA at 152 observed that if the doctrine of constructive notice were held to apply generally to the ordering of priorities under the Torrens system, it would, in effect, introduce into the system of title by registration, the notion of priority determinable by reference to the doctrine of the bona fide purchaser for value without notice. That doctrine is at odds with the Torrens system.

265 Section 68(1) of the Transfer of Land Act 1893 reads:

"Notwithstanding the existence in any other person of any estate or interest ... which but for this Act might be held ... to have priority the proprietor of land or of any estate or interest in land under the operation of this Act shall except in case of fraud hold the same subject to such encumbrances as may be notified on the registered certificate of title for the land; but absolutely free from all other encumbrances whatsoever ..."

266 "Encumbrances" is defined in s 4(1) to include "all prior estates (or) interests ... in respect of the land".

267 In addition, s 134 of the Transfer of Land Act provides that:

(a) fraud ... no person contracting or dealing with or taking or proposing to take a transfer ... from a person who is ... the proprietor of any registered land ... shall be affected by notice actual or constructive of any trust or unregistered interest any rule of law or equity to the contrary notwithstanding; and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud."

268 The reference to "fraud" in these two sections means "actual fraud, personal dishonesty or moral turpitude": Assets Co Ltd v Mere Roihi [1905] AC 176 at 210; Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604 at 614. There is no fraud on the part of a registered proprietor in merely acquiring title with notice of an existing unregistered interest or in taking a transfer with knowledge that its registration will defeat such an interest: Bahr v Nicolay (supra) at p 613. This is not to deny the possibility of a claim with a view to recovering land from a registered proprietor. In Breskvar v Wall (1971) 126 CLR 376 at 384-5, Sir Garfield Barwick said:

"Proceedings may of course be brought against the registered proprietor by the persons and for the causes described in the quoted sections of the Act or by persons setting up matters depending upon the acts of the registered proprietor himself. These may have as their terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate or interest vested in him by registration and endorsement of the certificate of title."

269 See Bahr v Nicolay (supra) at 637-638 and 652-653; Macquarie Bank case at p 146. The relevant "cause" described in s 68 and s 134 is "fraud". In Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1926] AC 101 at 106, it was said:

"If the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent, and so also fraud may be established by a deliberate and dishonest trick causing an interest not to be registered and thus fraudulently keeping the register clear. ... The act must be dishonest, and dishonesty must not be assumed solely by reason of knowledge of an unregistered interest."

270 In cases of suits in equity, some species of equitable fraud are included within the statutory concept of fraud: Bahr v Nicolay (supra) at 614.

271 The question then is whether a claim under the two limbs of Barnes v Addy (1874) LR 9 Ch App 244 will entitle a plaintiff bringing such a claim, which will have as its "terminal point orders binding the registered proprietor to divest himself wholly or partly of the estate ... vested in him by registration and endorsement of the certificate of title" (to quote the words of Sir Garfield Barwick in Breskavar v Wall (supra)). The two limbs in Barnes v Addy are sometimes referred to as "knowing receipt" and "knowing assistance". I refer to Barnes v Addy because the appellant, in par 9 of the statement of claim, pleads reliance on both of the limbs in Barnes v Addy.

272 Accepting, as I do, that the decision in Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] UKPC 4; [1995] 2 AC 378 correctly states the law, then a "knowing assistance" claim requires proof that the knowledge of the breach of trust involves dishonesty, which, in my view, is the same as "fraud" within the meaning of s 68 and s 134 of the Transfer of Land Act. "Knowing assistance" claims are usually brought against a person who was an accessory to some breach of trust but who does not have the trust property. Nevertheless, if the appellant insists on categorising the claim as a "knowing assistance" claim (as it does in this case), then fraud has to be shown. The basis of the defendant's liability in such a case is not receipt of trust property but participation in a fraud: Agip (Africa) Ltd v Jackson [1990] Ch 265.

273 In the case of the "knowing receipt" claim, I have read the reasons of Tadgell JA ,with whom Winneke P agreed, in the Macquarie Bank case and the dissenting reasons of Ashley AJA in the same case. I agree with the majority view. I agree with the conclusion reached by Tadgell JA at 156-157. He said at 157:

"In truth, I think it is not possible, consistently with the received principle of indefeasibility as it has been understood since Frazer v Walker and Breskvar v Wall, to treat the holder of a registered mortgage over property that is subject to a trust, registration having been honestly obtained, as having received trust property. The argument that the appellant is liable as a constructive trustee because it had 'knowingly received' trust property should in my opinion fail."

274 The result is, that however the case is approached by the appellant, it must prove fraud on Mr Kenworthy's part if it is to succeed. Mr Kenworthy became the registered proprietor of the land. His registered title is defeasible only if the appellant shows "actual fraud, personal dishonesty or moral turpitude" on the part of Mr Kenworthy.

275 The result of the foregoing is that I disagree that the appellant could succeed merely by proving a breach of trust based on knowledge by Mr Kenworthy of the failure of the two directors to investigate the value of the land before selling it. I also disagree with the appellant's submission that the onus was on Mr Kenworthy to show that he was a bona fide purchaser for value without notice. If the appellant was to succeed, it had to plead and prove fraud on Mr Kenworthy's part. The appellant well understood that the first respondent was relying upon provisions of the Transfer of Land Act. This was referred to by counsel for the appellant in his closing submissions before the trial Judge. He said at AB 2810:

"We now have this argument relied upon with respect to indefeasible title. Passages were read at some length from Macquarie and Sixty-Fourth Throne ..."

276 Counsel continued by suggesting that the onus was on the first respondent to plead "indefeasible title", but then said at AB 2811:

"but I don't think the matter needs to go off on a pleading point in any event because we are plainly within the species of fraud contemplated by section 68 of the Transfer of Land Act."

277 As I have said above, in my opinion it was for the appellant to plead and prove fraud on Mr Kenworthy's part in order to defeat Mr Kenworthy's otherwise indefeasible title.

278 Since dictating the foregoing, the Court has been referred to the decision of the Queensland Court of Appeal in Tara Shire Council v Garner [2002] QCA 232, which was delivered after the hearing of this appeal. In that case, Atkinson J at [88] (McMurdo P agreeing) quoted a passage from the dissenting judgment of Ashley AJA in Macquarie Bank (supra) and at [89] said that the passage was "more in accordance with principle" and more effectively balanced "the protection afforded to trust property against its knowing receipt by a third party and the protection afforded to the title of registered proprietors". Davies JA dissented and agreed with the majority in the Macquarie Bank case.

279 I still prefer the reasoning of Tadgell JA (Winneke P agreeing) in the Macquarie Bank case, but in view of the Tara Shire Council case I should explain why this is so in some more detail.

280 In the Macquarie Bank case, the bank held a mortgage of land of which Sixty-Fourth Throne Pty Ltd was the registered proprietor. The mortgage was a forgery, being the work of Michael Kandy who was the son-in-law of the directors of Sixty-Fourth Throne Pty Ltd. The trial Judge held that the bank had not committed any fraud. The Court of Appeal agreed there was no fraud. The passage from Ashley AJA's reasons in the Macquarie Bank case, and quoted by Atkinson J, is set out below. The passage followed a reference to the opinion of Tadgell JA that absent fraud registration rendered the bank's title indefeasible. Ashley AJA then said:

"To accept such a position is, in my respectful opinion, effectively to deny the operation of a remedy which squarely falls within the in personam exception to indefeasibility, an exception which undoubtedly exists as a basis for indirect attack upon registration separate from the direct attack available by reliance upon statutory fraud. The approach accepts that, speaking generally, improper receipt of trust property can give rise to a constructive trust. But it says that, in the case of a dealing with trust property which is Torrens system land, recourse to imposition of such a trust is in part unnecessary; for dishonest receipt will constitute statutory fraud. Otherwise the possible scope of the remedy is denied application. The consequence of that approach is that the full range of operation of the particular remedy is emasculated. The proposition that an equity may be recognised and enforced so long as it involves no conflict with the indefeasibility provisions has not prevented the High Court from imposing constructive trusts so as to recognise equities in cases where the transfer of real property was effected at different stages in the course of events giving rise to the equities: thus Bahr, Muschinski and Baumgartner. In my opinion this court is not obliged to, nor should, deny the applicability of the constructive trust remedy in a case such as this. It is one thing to say (in the context of transfer) that, absent fraud, a potential transferee is not to be affected by notice, actual or constructive, of any trust. It is a quite separate matter to say that such a person is to be unaffected by notice, actual or constructive, of a breach of trust. Likewise, I consider, by analogy in the case of a mortgage of land. Moreover, it has been said that the purpose of indefeasibility is to protect a transferee from defects in the title of the transferor; not to free the transferee from interests with which he has burdened his own title. To deny the applicability of the in personam remedy now under discussion would not, I think, achieve that outcome."

281 The dispute between the members of the Queensland and Victorian Courts of Appeal is whether the only exceptions to indefeasibility are the statutory exceptions, or whether an in personam claim not based on fraud of the registered proprietor is also an exception.

282 The conclusion that Ashley AJA has reached is based on Bahr v Nicolay (supra), as can be seen from p 162 of the Macquarie Bank case, where he says that the "necessary balance" between indefeasibility and "in personam" claims or remedies is disclosed by Bahr v Nicolay. It is therefore necessary to closely analyse the reasons for decision in Bahr v Nicolay.

283 In Bahr v Nicolay, the Bahrs sold to Nicolay on condition (cl 6) that the land would later be resold to the Bahrs. Nicolay then sold to the Thompsons, and cl 4 of that agreement contained a provision whereby the Thompsons acknowledged the agreement between the Bahrs and Nicolay. The Thompsons became the registered proprietors and refused to sell back to the Bahrs. The "real question" (629) was whether the Thompsons acquired a title which was indefeasible.

(a) fraud means "actual fraud, dishonesty of some sort, not what is called constructive or equitable fraud ..." (page 614 quoting Lord Buckmaster in Assets Co Ltd v Mere Roihi), but that such definition did not mean that "all species of equitable fraud stand outside the statutory concept of fraud". Thus the collusive and colourable sale by a mortgage company to its subsidiary, was a plain case of fraud (614);

(b) fraud includes fraud in obtaining a transfer or registration and "dishonest repudiation of a prior interest which the registered proprietor has acknowledged" (615);

(c) clause 4 of the Nicolay/Thompson agreement created a trust in favour of the Bahrs as third parties. The trust was an express trust. The effect of the trust was that the Thompsons held the land subject to such rights as were created in favour of the Bahrs by the agreement between the Bahrs and Nicolay (618 through to the first paragraph on 619); and

(d) in the alternative, the conduct of the Thompsons "constituted fraud" and fell within the statutory exception (619).

285 Brennan J considered that the second respondents ("Thompsons") had been guilty of fraud and that the Thompsons' registered title was therefore defeasible and subject to the Bahr's claim, because it fell within the statutory exception of fraud in s 68 (see 654-656).

286 Wilson and Toohey JJ in Bahr v Nicolay said:

(a) (after stating, as I have mentioned above, that the "real question" was whether the Thompsons had acquired a title which was indefeasible) that:

"The question may be further refined by asking - having regard to ss 68 and 134 of the Act, was there in any relevant sense fraud on the part of the [Thompsons]? Unless there was such fraud, the [Thompsons] hold their title free of any interest the [Bahrs] have by reason of cl 6, subject to any claim in personam that may lie against the [Thompsons]." (629);

(b) the fraud referred to in s 68 and s 134 is actual fraud, involving some act of dishonesty on the part of the person whose title is sought to be impeached (630);

(c) it is equally clear that to acquire land with notice of an unregistered interest such as a lease, to become the registered proprietor and then to refuse to acknowledge the existence of the interest, is not of itself fraud (630);

(d) evidence going no further than to show that when the Thompsons took a transfer of the land from Nicolay and became the registered proprietors, they were aware of the Bahrs' agreement with Nicolay allowing the Bahrs to purchase the land at an agreed price "cannot amount to fraud within the meaning of ss 68 and 134" (631);

(e) the evidence fell short of establishing that the designed object of the transfer from Nicolay to the Thompsons was to cheat the Bahrs of a known existing right (636);

(f) however, the evidence did establish that the Thompsons took a transfer knowing of cl 6, accepting an obligation to resell to the Bahrs and communicating that acceptance to Mr Callard (the Thompsons' agent) but banking on the Bahrs' inability to find the money necessary to implement the clause (637);

(g) the finding in (e) above led "irresistibly" to the conclusion that the Thompsons understood through Mr Callard that Nicolay would not sell the land unless the Thompsons agreed to be bound by the obligation in cl 6 which required Nicolay to resell to the Bahrs. The Thompsons bought the land on the understanding common to the Bahrs and Nicolay that they were so bound, and cl 4 was included to give effect to that understanding (638); and

(h) by taking a transfer of the land on that basis:

"and the [Bahrs'] interest under cl 6 constituting an equitable interest in the land, the [Thompsons] became subject to a constructive trust in favour of the [Bahrs] ... If it be the position that the [Bahrs'] interest under cl 6 fell short of an equitable estate, they none the less had a personal equity enforceable against the [Thompsons]. In either case ss 68 and 134 of the Act would not preclude the enforcement of the estate or equity because both arise, not by virtue of notice of them by the [Thompsons], but because of their acceptance of a transfer on terms that they would be bound by the interest the [Bahrs] had in the land by reason of their contract with the first respondent."

287 Thus, Mason CJ and Dawson J considered that the Thompsons were express trustees but that they were also guilty of fraud. Brennan J held there was fraud.

288 Wilson and Toohey JJ concluded that the Thompsons did not set out to "cheat" the Bahrs of a known existing right, but found that the Thompsons bought the land on the understanding that they were bound and that cl 4 was included to give effect to that understanding. That strikes me as coming close to a conclusion that there was fraud on the part of the Thompsons. However, their judgment seems to have been understood by commentators as concluding that there was no fraud. Their Honours held that some equitable estate or "personal equity" not involving fraud gave rise to an in personam claim, which could be enforced notwithstanding the indefeasibility provisions of the legislation.

289 Ashley AJA bases his decision in the Macquarie Bank case upon the reasoning of Wilson and Toohey JJ. He also refers to Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583 and Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137 to support his conclusion. In both of those cases, and in Bahr v Nicolay, the defendant was the primary wrongdoer, attempting to ignore an obligation to share or convey the land with or to the plaintiff. In none of those cases was the defendant a party who merely had notice of an earlier interest or notice of third party fraud. All three cases are of the type described by Brennan J in Bahr v Nicolay (653), where he said:

"... the title of a purchaser who not only has notice of an antecedent unregistered interest but who purchases on terms that he will be bound by the unregistered interest is subject to that interest. Equity will compel him to perform his obligation."

291 Reference was also made by Atkinson J in the Tara Shire Council case [89] to the decision of de Jersey J in Doneley v Doneley [1998] 1 Qd R 602. Doneley's case and a number of others (as to which see "Equity, Restitution and In Personam Claims under the Torrens System" (1998) 72 ALJ 258) proceed on the assumption that even though the registered proprietor had not been guilty of fraud, that nevertheless a Barnes v Addy "knowing receipt" would defeat the registered proprietor's title. There is no suggestion in Doneley's case (if the land was Torrens title land) that the parties holding registered interests challenged the assumption. Tadgell JA in the Macquarie Bank case has concluded that the assumption is incorrect.

292 I prefer the reasoning of Tadgell JA and Winneke P in the Macquarie Bank case, and of Davies JA in the Tara Shire Council case. That being so, the appellant had to prove fraud on the part of Mr Kenworthy if it was to succeed.

293 There are different ways in which the appellant might have pleaded a case of fraud (depending on the facts). For example, if Mr Kenworthy fraudulently misrepresented the value of the land to the appellant directors and they were induced by the misrepresentation to transfer the land, and if those facts had been pleaded and proved, then that would have amounted to fraud. See, for example, Loke Yew v Port Swettenham Rubber Co Ltd [1913] AC 491.

294 In short, the case to be advanced depends on what was pleaded. It may also depend upon how the case was conducted, but it must be borne in mind that allegations of fraud must be distinctly pleaded and a plaintiff will not be able to mount a case on appeal outside the pleadings unless it is clear beyond question that the allegation of fraud was carefully identified and the parties conducted the case on the basis that fraud, as identified, was an issue. It would be a very rare case for an allegation of fraud to be conducted outside of the pleaded case.

295 It is now time to look at what was pleaded and what was not pleaded.

296 The statement of claim does not plead as a material fact that the appellant, by its directors (Lindsay and Dennis Kenworthy) who made the decision to sell, breached its duty in the exercise of the discretionary power to sell, by failing to make any enquiries about the value of the Mount Pleasant land at the time the directors placed their signature and seal on the transfer.

297 The appellant's counsel, however, submits that the case was conducted in this way even if not pleaded. He points to witness statements filed by the appellant. Lindsay Kenworthy's statement contains a sentence which reads: "I took no advice in relation to the transfer". Dennis Kenworthy's statement reads in part:

"... I did not take any advice about the transfer of 141 The Esplanade. I did not consider the value of 141 The Esplanade nor whether the transfer was at market price."

298 On the pleadings, that evidence was not relevant because the appellant did not plead, as a material fact, that the directors' failure to make enquiry was the conduct which established a breach of trust by the appellant. No objection was made by the respondent to these two pieces of evidence. Objection should have been made, and the evidence should have been ruled irrelevant to any pleaded issue. There was no cross-examination of Lindsay Kenworthy directed to his knowledge about the value of the land and what enquiries he made concerning its value. Dennis Kenworthy was not cross-examined at all. The lack of cross-examination is explicable, however, because the pleadings did not direct any attention to the conduct of the two directors. Counsel for a party does not have to cross-examine a witness in relation to subjects which are irrelevant to any pleaded issue.

299 In any event, accepting, as I do, the reasoning of Tadgell JA in the Macquarie Bank case, a "knowing receipt" case, even if made out, will not defeat Mr Kenworthy's registered interest.

300 The pleaded case for the appellant was that Mr Kenworthy:

(a) exercised effective control of the appellant until 2 February 1997 and

(b) was a director of the plaintiff by operation of s 60(1)(b) of the Corporations Law and its statutory predecessors.

301 Paragraph 4 refers to the transfer by "the plaintiff" to Mr Kenworthy. Paragraph 5 contained a plea that the consideration of $150,000 was grossly inadequate, and par 6 directs attention to Mr Kenworthy's conduct and not to the conduct of the two directors. It is pleaded that Mr Kenworthy:

(a) had actual or constructive knowledge of the matter pleaded in par 5 and

302 Paragraph 8 pleads that by reason of the matters pleaded in pars 3 to 7, the property was transferred to Mr Kenworthy in breach of trust.

303 In my opinion, such a pleading concentrated the mind of the parties, and of the Court, on the conduct of Mr Kenworthy on the basis that he was the decision maker on behalf of the appellant and that he was also the recipient of the land. The pleadings make it clear that the "breach of trust" pleaded in par 8.1 relies upon the preceding paragraphs, the first of which (par 3) was that Mr Kenworthy at all material times "exercised effective control of the plaintiff until 2 February 1997" and "was a director of the plaintiff by operation of s 60(1)(b) of the Corporations Law ...". That is, as it was put in submissions before this Court - Mr Kenworthy was the controlling mind and will of the trustee - his acts and decisions were the decisions of the trustee. That being so, the person whose conduct had to be analysed in deciding the issue about whether there was a breach of trust or not, was Mr Kenworthy.

304 In effect, the pleaded case was almost a "self dealing" case. See Clay v Clay [2001] HCA 9; (2001) 202 CLR 410 at [51]. That is, Mr Kenworthy, acting for and on behalf of the trustee, sold to himself. The directors were "mere puppets" (to quote counsel for the appellant). That case failed. It is clear that his Honour in his reasons concentrated on the pleaded case. At par 9, his Honour referred to the submission on behalf of the defendant that the witness statements did not disclose that Mr Kenworthy was a director of the plaintiff, even in an extended sense, and this submission was upheld. That conclusion is not challenged in the notice of appeal.

305 As to the alternative plea, ie that Mr Kenworthy exercised effective control of the appellant, his Honour found at par 11 of his reasons:

"I do not think that the evidence of the directors goes so far as to establish that they were accustomed to act in accordance with Lionel Kenworthy's 'directions or instructions' but only that they were accustomed to accept his advice as to the best interests of the plaintiff ... To suggest, as Mr Solomon did in his submissions, that 'the directors acted as Lionel Kenworthy's puppets' put the matter too highly, in my view."

306 The notice of appeal does not challenge the trial Judge's conclusion that the directors were not Mr Kenworthy's puppets, nor his conclusion that they were not accustomed to act in accordance with his directions or instructions.

307 The trial Judge, at par 64, said that there was no evidence to support a finding of wilful blindness "on the part of the directors who executed the Transfer in his favour", and that is followed by the statement "Nor is that pleaded".

308 The reasons for decision therefore concentrated on the issue about Mr Kenworthy's conduct. In my view, the trial Judge decided the pleaded case.

309 In view of the appellant's submission that the case was conducted below by reference to the breach of trust based on the conduct of the two directors, this Court called for the outline of submissions filed on behalf of the appellant at trial. This was to allow this Court to see whether the appellant had alerted the respondent to the fact that it intended running a case at trial which was not in accordance with the statement of claim. The outline of submissions ran for 17 pages and cited a large number of authorities. When the solicitors for the appellant sent this document to this Court, it was accompanied by a letter referring to par D.11 and D.15.5. as showing that the "proprietary remedy" was relied on at trial. Paragraph D11 read:

"The plaintiff (subject to a defence of bona fide purchaser for value without notice, which is not pleaded) has had a proprietary right to the property at all times from the moment of receipt by Lionel Kenworthy: Foskett v McKeown [2000] UKHL 29; [2001] AC 102 @ 108, 115 and 127-9; Jacobs @ [2714]. The plaintiff's primary right is a proprietary interest in the property held by the recipient, which right the plaintiff holds for the benefit of the beneficiaries of the LHK Trust."

310 D15.5 is to similar effect. Neither paragraph submits that the breach of trust occurred as a result of the inadequate enquiry made by the two directors of the appellant. I have also read the closing submissions made by counsel for the appellant. I cannot see anywhere throughout those submissions, a reference to a breach of trust as a result of the conduct of the two directors of the appellant. At appeal book p 2809, counsel for the appellant said this to the trial Judge:

"To come back to my notes about the breach of trust, this is para 16 of the notes, it was suggested yesterday that we haven't pleaded sufficient facts to make out a breach of trust. With the greatest of respect, we are not here to plead causes of action like pleaders in the common law system prior to the common law procedure acts of 1852 to 1854 used to do. We are here to plead facts and the remedy emerges from the facts. That's fairly elementary, post judicature act pleading.

What we have pleaded are the facts. We pleaded his effective control in paragraph 3. We pleaded the transfer, its registration and the price. We pleaded that that consideration was grossly inadequate and particulars of why. We have pleaded that Mr Kenworthy had actual or constructive knowledge of that matter by reason inter alia that his settlement agents prepared stamped and registered the transfer.

We pleaded he didn't tell the appointed directors of those matters. We pleaded that the property was previously held prior to registration as trustee and we say it was transferred in breach of trust and that he was also unjustly enriched ..."

311 It can be seen that there is nothing in that summary to suggest that the breach of trust was constituted by the conduct of the two directors of the appellant. I repeat that even if this had been the appellant's case run outside the pleadings, then knowledge by Mr Kenworthy of the breach of trust by the directors (and therefore the trustee) would not avail the appellant. Such a case would have been a "knowing receipt" case. Such a case does not defeat Mr Kenworthy's registered interest. Macquarie Bank case per Tadgell JA.

312 I should add that counsel for the respondent denies that the case was fought on an issue outside the pleadings.

Is it too Late to Entertain the Case Contended for on Appeal?

313 The question is whether it is now too late to allow the appellant to turn attention to the state of knowledge, or the conduct, of the two directors who executed the transfer. In my view, it is too late. Further, there is no point in the appellant doing so because, at best, it amounts to a "knowing receipt" case, not a case of fraud. In case I am wrong in adopting the reasoning of Tadgell JA in the Macquarie Bank case, I will say why I think that it is too late to entertain such a case.

314 Quite different issues would have arisen if the attention of the parties and the Court had been directed to the conduct of, and the knowledge of, the two directors about the value of the property. The duty of a trustee exercising a discretionary power is to act honestly and in good faith. Mere carelessness or honest blundering will not negative good faith. On the other hand, trustees exercising discretionary power must not act irresponsibly, capriciously or wantonly. If the appellant was to allege that its own directors did not act bona fide, then that would have to be pleaded and proved. Although the two directors said they took no advice in relation to the transfer, there was no investigation at trial about whether or not they had some existing knowledge about the value of the house. It cannot be assumed that they did not know about the value of the home just because they made no inquiry when the transfer was presented to them. Such an assumption would not be based on any evidence. The pleadings did not require any evidence on the point.

315 A court will presume that a trustee has acted bona fide, and the onus of proving male fides lies on those impeaching the trustee's action. See Jacob's "Law of Trusts in Australia", 6th ed, par 1609-1616. In my opinion, it is now too late for the appellant to run a case based on the fact that the two directors had breached their duties and that Mr Kenworthy took the property knowing that to be so.

316 In ground 4 of the notice of appeal, the appellant seeks to set up a Barnes v Addy "knowing receipt" case but relies upon what is in ground 3. The contention that there was "no defence of indefeasible title under s 68 of the Transfer of Land Act 1893 ... pleaded or proved by the first respondent ..." does not avail the appellant. If the appellant was to succeed, then the onus was on the appellant to plead fraud and to prove fraud as pleaded.

Is There Any Challenge to His Honour's Findings Supporting his Conclusion that There was no Dishonesty by Mr Kenworthy?

317 Ground 3 of the notice of appeal complains that the trial Judge erred in finding that Mr Kenworthy was not "dishonestly involved" in the appellant's breach of trust. In this ground, it is clear that the breach of trust is alleged a breach by reason of Mr Kenworthy's conduct (not the lack of inquiry by the two directors). Ground 3 of the notice of appeal is, in effect, a contention that the appellant should have succeeded on a Barnes v Addy "knowing assistance" claim. As I have said, to make out such a claim, it is necessary to show that Mr Kenworthy was guilty of actual fraud, personal dishonesty, or moral turpitude.

318 This ground of appeal is argumentative in form. It argues for the case that the appellant was advancing before the trial Judge but does not allege an error on the part of the trial Judge in relation to any finding of fact.

319 The trial Judge deals with the allegations which were before him in relation to the sale of 141 The Esplanade from par 41 through until par 50.

320 At par 75, his Honour then concluded, "I am not satisfied that the plaintiff has succeeded in showing dishonesty on the part of [Mr] Kenworthy". The only ground which challenges that finding of his Honour is ground 3, and the thrust of the sub-paragraphs in it is directed to the appellant's pleaded case that Mr Kenworthy was the controller of the appellant. See, for example, grounds 3.5, 3.8 and 3.9. As I have already observed, his Honour concluded that Mr Kenworthy did not exercise effective control over the appellant. That conclusion is not challenged in the notice of appeal.

Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198

321 Ground 1 contends that there was no contract before the transfer was registered and that Hancock's case did not apply. The trial Judge concluded that there was a contract and that the contract for the sale of property had to be rescinded before a constructive trust could be imposed. This conclusion was based on Hancock's case. Ground 2 contends that Hancock's case was wrongly decided and should be overruled.

322 In my opinion, it was unnecessary for the trial Judge to consider whether or not there was a voidable agreement and whether or not there should or should not have been rescission before the appellant's claim could succeed.

323 Mr Kenworthy is the registered proprietor of the land, and the only way in which his title is defeasible is if it can be shown by the appellant that Mr Kenworthy was guilty of fraud. If such finding had been made, then s 200 of the Transfer of Land Act empowered the Court to cause the transfer and the entry in the register.

324 The trial Judge found that he was not satisfied that dishonesty had been shown on the part of Mr Kenworthy, ie he was not guilty of fraud.

325 I would dismiss grounds 1 and 2 for those reasons.

326 As a result, I would dismiss the appellant's appeal in relation to the Mount Pleasant land.

327 I agree with Wallwork J's conclusion that the appeal concerning the misappropriation of money should be dismissed for the following reasons.

328 In the statement of claim, the appellant claimed that:

"Prior to his death, [Mr] Kenworthy, over a period of years, misappropriated from the Trust for his own benefit a total of approximately $380,000.00."

329 Particulars were sought as to how the sum of $380,000 was made up. The particulars supplied by the appellant read:

"The amounts listed in the plaintiff's discovered documents numbers 107 and 108 listed under the heading 'Dwgs' [Drawings] and those entries in those documents highlighted in yellow. Equivalent entries appear, although unmarked, in the cheque butts discovered as plaintiff's discovered documents numbers 73-99."

330 In the notice of appeal, the appellant claimed that the sum of $225,417.79, or alternatively $375,417.79, was misappropriated.

331 The sum of $375,417.79 was an amount which appeared in the Lionel Housden Kenworthy trust balance sheet as at 30 June 1997 as a current asset under the heading "Receivables" and with the description "Loan Lionel Housden Kenworthy".

332 The evidence-in-chief of one of the directors, Lindsay Kenworthy, was given partly orally and partly in the form of a written statement. His written statement revealed that Mr Kenworthy had not filed a tax return or prepared accounts since 1990. The financial records were delivered to accountants.

333 In the course of producing the accounts, the accountants "produced two cashbooks". Lindsay Kenworthy's written statement reads at par 20:

"Once those cash books were produced I, together with my then de facto partner and with assistance from my brother Dennis, went through those cash books and the plaintiff's cheque butts and identified a large number of payments that were not possibly associated with the LHK Trust. I have highlighted those payments in the cash books. I approached that task conservatively. For example, there are payments such as payments to HBF which, on further consideration, could not possibly have been for the LHK Trust but for which I have not highlighted. There are very many such examples. One example of a payment which was not for the benefit of the LHK Trust is the entry for 8 August 1994. That is a payment of $20,000.00, apparently for a car. The LHK Trust does not own a car. I can explain why each entry is highlighted."

334 In his oral evidence, Lindsay Kenworthy said that the column headed "drawings" were his father's drawings. He said they were not associated with the trust.

335 Dennis Kenworthy's statement revealed that he was involved in the process of checking the payments. He makes it clear, however, that this was mostly undertaken by Lindsay Kenworthy. His statement says at par 33:

"I am certain that a very high percentage of the payments were not made for the purpose of the trust. For example, there was no reason for the trust to be making payments to HBF."

336 He makes it clear that Lindsay Kenworthy undertook the bulk of the highlighting task. At par 34 he says:

"Lindsay undertook the task of going through the cash books and highlighted those payments that were obviously not made for the purpose of the LHK trust."

337 There was extensive cross-examination of Lindsay Kenworthy.

338 In his reasons for decision, the trial Judge gave examples of deficiencies in Lindsay Kenworthy's evidence. I need not repeat what his Honour has set out in par 25 to par 27 of the reasons.

339 His Honour noted that Lindsay Kenworthy was of the opinion that there was a "pattern" of misappropriation. However, the examples that his Honour set out led him to find that there was no drawing in relation to personal expenditure relating to Mr Kenworthy beyond the amount that was then due to Mr Kenworthy by the trust. His Honour, at par 29 of his reasons, refers to the amount owing to Mr Kenworthy in an amount of "some $60,000". As at 30 June 1990, the balance sheet does show under the heading "current liabilities" and under the sub-heading "beneficiaries loan accounts", that the sum of $62,882.65 was owing to Mr Kenworthy.

340 I now turn to deal with the first ground of appeal, which complains that the trial Judge erred in not accepting that the cashbook "as marked up" proved the misappropriation of funds. This Court was not asked to embark on the task of deciding whether or not each highlighted item was a misappropriation or not.

341 The appellant contends only that the Court should have accepted that all of the yellow marked items were misappropriated sums. The appellant argues that s 1305 of the Corporations Law switched the onus onto the first respondent to prove that there was no misappropriation.

342 In my opinion, that contention cannot be accepted for these reasons.

343 First, the yellow highlighting, even if it formed part of the books, says nothing about misappropriation. They remain yellow marks, whether s 1305 applies or not.

344 Secondly, in my opinion, the yellow marks are not part of the cashbook. Section 1305 applies to the contents of the cashbooks, which were prepared and then delivered by the accountants to the directors. The cashbooks contain words, letters, figures and symbols. The yellow marks simply highlight some of those words, letters, figures and symbols. In short, s 1305 does not apply to the yellow marks on the cashbook.

345 The total of the yellow marked items were totalled and the total included in the balance sheets of the trust and shown as a current asset under an item styled "receivables". The word "receivable" is a neutral word meaning "awaiting receipt of payment" (see the Macquarie Dictionary; "receivable").

346 The appellant's argument that the evidence of the directors about all of the monies marked yellow being misappropriated, ignores his Honour's reference to the evidence adduced in cross-examination, which revealed that many items highlighted were not examples of misappropriation.

347 In my opinion, this aspect of the appeal should be dismissed.

348 The result is that the appeal should be dismissed in its entirety.