Mahommed v Unicomb

The six debts

1. It will also facilitate the analysis of the pleadings if an explanation is provided of the six debts that lie at the heart of the claims made by Mr Mahommed and Loire. Those debts are described as Debts 1 to 6 in the 2FASOC. In substance, the claims made in the FASOC only relate to the debt that has now been called Debt 5. The other debts are introduced by the 2FASOC.
2. The following information concerning the debts is taken in part from the 2FASOC, but primarily from the tables and schedules at the end of the 2FASOC, as well as the DOA - 1. Debt 1. $300,000. Loan of $300,000 made by Wallace McKenzie Ashton to Loire as trustee of the LRUT on 21 April 2010 (Recital E of DOA) paid into an account of Mr Unicomb on 20 November 2009 (Table G). The application of those funds does not show any payment specifically to Mrs Unicomb (Table H). 2. Debt 2. $109,905.50. Loan of $120,000 made by John and Carol McDonald to Loire as Trustee of the LRUT on 21 April 2014 (Recital D of DOA). $109,905.50 paid to an account of Mr Unicomb on 21 April 2010 (Table G). Application of funds shows no payment made specifically to Mrs Unicomb (Table H). 3. Debt 3. $74,000. Loan of $80,000 made by Dawson Properties Pty Ltd to Loire as Trustee of the LRUT on 17 November 2010 (Recital F of DOA). $74,000 paid to Michael Unicomb trust account on 8 November 2010 (Table G). 4. Debt 4. $141,535.50. Paid by Loire to Greenhills as Trustee of the Anton Holdings Unit Trust on 7 December 2010 (Recital C of DOA and Table G). 5. Debt 5. $207,594.27. Paid out of loan made by Eclipse Prudent Mortgage Corporation Limited (Eclipse) to Loire as Trustee of the LRUT to Greenhills as Trustee of the Anton Holdings Unit Trust on 5 March 2010 (Recital C of DOA and Table G). 6. Debt 6. $1,400,000. This debt is not dealt with in the DOA. The manner in which the claim concerning the debt of $1,400,000 has been pleaded is obscure. It is not explained with the detail of Debts 1 to 5. In par 7 of the Relief Claimed, Loire appears to claim that it is entitled to be indemnified by Mrs Unicomb against 50% of any debts that Loire is liable to pay that it is unable to pay out of the trust assets of the LRUT. This appears to be a claim under the principle in Hardoon v Belilios [1901] AC 118. The debts the subject of this claim are listed in par 8 of the Relief Claimed. Subparagraph (a) refers to a principal sum of $1,400,000 plus interest secured by mortgage made on 9 October 2009 by Loire as mortgagor and trustee of the LRUT. Paragraph [21] of the 2FASOC identifies the lender as Dixon Investments Pty Ltd (Dixon). That company is not a party to the DOA, which in any event only assigned to Mr Mahommed "Debts 1-5 and all associated choses in action, rights to claim interest and costs and other rights and claims" (Recital J and cl 1).
3. Mr Mahommed and Loire claim amounts of interest as well as principal, but it will be unnecessary to refer further to the interest claims.
4. It will be significant to note that Debts 1 to 3 consist of amounts of money to which Loire was entitled that were paid in effect to Mr Unicomb. Only Debts 4 and 5 represent amounts paid from Loire (or from money to which Loire was entitled) to Greenhills. Debt 6 appears only to be an amount borrowed by Loire from Dixon.

A typographical error

1. It is necessary to correct a typographical error in the 2FASOC that would otherwise cause confusion.
2. At [10] there is an allegation that on 5 March 2014, Loire as trustee of the LRUT advanced Debt 5 to Greenhills. That was outside the period alleged in [3] that Mrs Unicomb was the sole director of Greenhills. However, at [16] there is an allegation that the payment that constitutes Debt 5 was made on 5 March 2010 (not 2014). It is sufficient to note that it appears from the table following sub-par (2)(c) to the Particulars to [19] that the correct date is 5 March 2010.

The Unicomb's and Greenhills' position at the hearing

1. Before I consider the adequacy of the manner in which the FASOC and the 2FASOC have been pleaded, it will be necessary to record an adjustment to the position taken by Mrs Unicomb and Greenhills of which their counsel informed the Court during submissions. It is that while Mrs Unicomb still pursues the relief claimed in her notice of motion, the position of Greenhills is that it accepts that the claims against it made in the FASOC as amended by the relevant parts of the 2FASOC should be permitted to proceed against it, but it still claims that leave should not be given to file the 2FASOC in so far as it raises additional claims against Greenhills.
2. It should also be recorded at this point that counsel for Mrs Unicomb and Greenhills informed the Court that even though they had relied in their notice of motion on r 13.4 of the UCPR, as if they were seeking the summary dismissal of the FASOC on the basis that on the evidence there was no arguable causes of action against them, they were not proceeding on the basis of the line of authority that traces back to General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69. Rather, the basis of their claim is that, save for the claim made against Greenhills in the FASOC, the balance of the claims in that pleading and the 2FASOC are not simply deficient as a matter of pleading, but the deficiencies in the light of the history of the attempts by Mr Mahommed to plead proper claims against them, justify the conclusion that properly pleaded claims are not available. Further, in so far as they rely upon limited evidence, that is for the purpose of demonstrating that part of the claims of Mr Mahommed and Loire will definitely fail, because of the availability of an absolute and unarguable defence.

Draft affidavit of Mr Dixon

1. The final preliminary matter that must be resolved is the application made by Mr Mahommed at the hearing to rely upon an unsworn affidavit of Mr Dixon. Mrs Unicomb and Greenhills objected to Mr Mahommed relying on an unsworn affidavit. All that the solicitor for Mr Mahommed could say in response was that before the affidavit could be sworn Mr Dixon had disappeared, and could not be found on enquiry. The solicitor said that Mr Dixon was suffering from very serious medical conditions. Because of the shortness of time available for the hearing, I told the parties that I would rule upon the application to rely upon the unsworn affidavit in my reasons for judgment.
2. I have read the draft affidavit and come to the view that Mr Mahommed should not be given leave to rely upon the draft affidavit for the purpose of proving any facts stated in it. The draft affidavit cannot be treated as evidence having been given on information and belief. Although the present proceedings are interlocutory, I do not consider that s 75 of the Evidence Act 1995 (NSW) has been satisfied. Mr Mahommed deals with this issue in pars 45 to 53 of his 30 October 2017 affidavit. The effect of par 49 is that the draft affidavit "accords fully with my knowledge, information and belief as communicated to me frequently and at diverse times and with the knowledge, information and documents made available to me from a variety of sources (including Dixon, his former accountant… his former solicitor… and the NSW Police…)". I infer that the draft affidavit was prepared by Mr Mahommed with the help of his solicitor, and is not a draft affidavit prepared on the instructions of Mr Dixon, which Mr Dixon has not been able to swear.
3. I will nonetheless pay some regard to relevant aspects of the draft affidavit, but only in so far as that may throw some light on the intention of the pleadings, and also in so far as it may show what further changes to the pleadings Mr Mahommed may be able to make if given leave by the Court to make those changes.

Claims against Mrs Unicomb in the FASOC

1. I will now begin the analysis of the two pleadings in order to decide whether the parties should be given the relief that they still seek.
2. I will deal first with the attack made by Mrs Unicomb on the pleading of the claim against her in the FASOC as presently filed. As I have said above, Mr Mahommed seeks to revise how that claim is pleaded in the 2FASOC. I will treat the proposed amendments to the way the FASOC is pleaded as proposals made by Mr Mahommed as to how he would wish to improve the way the FASOC is pleaded. That is, I will take the amendments to be the changes that Mr Mahommed would wish to make if the Court finds that the FASOC is inadequately pleaded.

Personal obligation to repay Debt 5

1. The first claim made against Mrs Unicomb in the FASOC is for repayment of Debt 5 ($207,594.27) [9]-[13].
2. The claim starts by alleging the circumstances in which Mr Unicomb caused Loire to pay the amount to Greenhills, and then alleges the basis of Mrs Unicomb's liability to repay the amount at [12], being that "Debt 5 was paid to [Greenhills] at the oral or implied request of [Greenhills], Mr Unicomb and Mrs Unicomb and each of them impliedly agreed to repay such sum to Loire on demand".
3. In relation to Mrs Unicomb's liability, the question is whether she made an "oral or implied request" that the money be paid to Greenhills, and whether she "impliedly agreed to repay such sum".
4. At this time, 5 March 2010, it is alleged that Mrs Unicomb was the sole director of Greenhills [3(a)], but that Mr Unicomb was the "controlling mind and director or de facto director [of both Loire and Greenhills]" [5(f)].
5. The issue is whether the FASOC alleges facts capable of establishing the alleged liability of Mrs Unicomb. There were no particulars to [12] in the FASOC. It would be appropriate for the Court to strike out [12] on the basis that the FASOC does not contain any allegations of fact capable of supporting the claim that Mrs Unicomb made an oral or implied request that the payment be made to Greenhills, or that she impliedly agreed to repay the amount to Loire.
6. Particulars to [12] have been added to the 2FASOC. I will consider the particulars to see whether they remedy the deficiency in [12] of the FASOC.
7. Paragraph [12] of the 2FASOC contains particulars (a) to (l). In so far as those particulars contain any allegation of any actions that caused the payment to be made, the actions were the actions of Mr Unicomb. The only particular that refers explicitly to Mrs Unicomb is that in (c) which states: "Mrs Unicomb was the sole Director of [Greenhills] from 18 August 2007 until 26 November 2010".
8. The question is therefore whether, in the circumstances that all of the overt actions were undertaken by Mr Unicomb, who was the director of Loire and the controlling mind and de facto director of Greenhills, the bare fact that Mrs Unicomb was the de jure director of the recipient, Greenhills, is sufficient to support a finding that Mrs Unicomb made an implied request that the payment be made, or that she impliedly agreed to repay it personally. It is clear that no particulars have been given that Mrs Unicomb made an oral request.
9. In my view, without more, the FASOC does not allege facts capable of establishing that Mrs Unicomb impliedly asked for the payment to be made to Greenhills. Even if it were thought adequate to allege that Mrs Unicomb was the only de jure director, the facts alleged are plainly not sufficient to be capable of supporting a claim that Mrs Unicomb impliedly agreed to repay the amount personally. Ordinarily, a director who requests that a loan be made to a company does not impliedly agree to repay the loan personally. That is not an implication that can arise solely out of the fact that a person is the only de jure director of the company. Ordinarily, only the company is liable to repay the loan.
10. In submissions the solicitor for Mr Mahommed resisted the proposition that the claim against Mrs Unicomb concerning her alleged personal obligation to repay Debt 5 should be struck out and dismissed by asserting that her liability sufficiently arose out of the fact that she was the only appointed director of Greenhills, which was the recipient of the money. He submitted in effect that Mrs Unicomb must have known that the money was impressed with a trust as it was money to which Loire was entitled as trustee of the LRUT. He also submitted that she must have known that the money was paid to her or in other ways for her benefit.
11. I do not accept that these submissions provide a proper justification for the Court not to strike out the relevant parts of the pleadings against Mrs Unicomb. These matters, if properly pleaded, may give Mr Mahommed or Loire some other cause of action against Mrs Unicomb. They are not sufficient, even if true as alleged, to support a claim for an implied promise on Mrs Unicomb's part to personally repay Debt 5. The fact that no allegations of fact are made that would support any finding that Mrs Unicomb participated in any significant way in the conduct of Mr Unicomb justifies a finding, given the history of the pleading, that Mr Mahommed and Loire simply cannot plead any facts that could properly support a finding that Mrs Unicomb in fact impliedly promised to pay Debt 5 personally.

Obligation to pay Debt 5 under s 197 Corporations Act

1. The next claim made in the FASOC against Mrs Unicomb is in [14]. The allegation is that Mrs Unicomb was a director of Greenhills when it incurred the liability to repay Debt 5 to Loire. It is alleged that Greenhills was then acting as trustee of the Anton Holdings Unit Trust "and cannot discharge that liability or is not entitled to be indemnified against that liability out of the assets of such Trust". Mr Mahommed claims repayment of Debt 5 from Mrs Unicomb pursuant to s 197 of the Corporations Act 2001 (Cth).
2. Section 197 relevantly provides: (1) A person who is a director of a corporation when it incurs a liability while acting, or purporting to act, as trustee, is liable to discharge the whole or a part of the liability if the corporation: (a) has not discharged, and cannot discharge, the liability or that part of it; and (b) is not entitled to be fully indemnified against the liability out of trust assets solely because of one or more of the following: (i) a breach of trust by the corporation; (ii) the corporation's acting outside the scope of its powers as trustee; (iii) a term of the trust denying, or limiting, the corporation's right to be indemnified against the liability. The person is liable both individually and jointly with the corporation and anyone else who is liable under this subsection. Note: The person will not be liable under this subsection merely because there are insufficient trust assets out of which the corporation can be indemnified.
3. It is alleged that Greenhills was at the time the trustee of the Anton Holdings Unit Trust [4(b)], and that Mrs Unicomb was the sole director of Greenhills [3(a)].
4. Section 197(1)(a) makes it a condition of a director being personally liable to discharge the trustee's liability that the corporate trustee "has not discharged, and cannot discharge, the liability or that part of it". It is alleged in [13] that Mr Mahommed, as the assignee of the Debt 5, has requested Greenhills to repay the debt and it remains due and owing. I think this is an adequate pleading of the requirement that Greenhills "has not discharged" the liability.
5. Mrs Unicomb made a submission that Mr Mahommed has not adequately pleaded that Greenhills incurred Debt 5 in its capacity as trustee. It is alleged at [4] that Greenhills was at all material times the trustee of the Anton Holdings Unit Trust. Then, at [14] it is alleged that Greenhills incurred the liability to repay Debt 5 "whilst [it] was then acting as the Trustee" of the trust. In my view this is an adequate allegation of this element of the satisfaction of the requirements for liability under s 197 of the Corporations Act. It may be that Mrs Unicomb is entitled to particulars of the allegation, as it is not clear whether Greenhills' only activity was to act as trustee of the Anton Holdings Unit Trust. The allegation that the liability was incurred while Greenhills was "acting, or purporting to act, as trustee" may only introduce forensic complexity where Greenhills engaged in activities other than that of trustee, so a real issue of fact may arise as to whether the debt was incurred in the capacity of trustee or purported trustee.
6. There are aspects of the way in which s 197 of the Corporations Act may operate that have significant consequences, even at the pleading stage of proceedings. Those aspects will in many cases justify a requirement for full and precise pleading of the basis alleged by the claimant as to how liability arises under s 197. They may also require the Court to consider issues of prematurity, even though the prematurity may arise primarily in a practical sense.
7. While s 197 is drafted in apparently simple terms, there is room for some concern and doubt as to how it is intended to operate.
8. Section 197 is not simply concerned with the ordinary situation where the directors of a corporate trustee cause the company to incur a liability in the performance of the trust when the trustee itself is insolvent or will be unable to discharge the liability from its own resources if it is required to do so personally. Section 588G of the Corporations Act would apply in that situation (and the defences available to directors found in ss 588G(2) and 588H may apply - equivalent defences are not available to a director made liable under s 197). It may be that the field of operation of the two provisions may overlap in some cases, and difficulties may arise from defences being available in one case but not in the other.
9. Section 197 requires first, that the person be a director of a corporation when it incurs a liability whilst acting, or purporting to act, as a trustee.
10. Liability under s 197(1) requires that two additional conditions be satisfied. The first, in par (a) is that the corporation "has not discharged, and cannot discharge, the liability or that part of it". The second, in par (b) is that one or more of three circumstances that may prevent a trustee being entitled to an indemnity from the assets of the trust against the liability of the trustee to personally repay trust liabilities must operate to exclude that right of indemnity.
11. There is a basis for suspecting that the drafters of s 197 may not have given precise attention to the temporal effect of the words of the section. Is it to operate only if the specified conditions are satisfied at the time the corporation incurs the liability, or may the liability of the director arise when some or all of the conditions are satisfied after the liability is incurred (and possibly also after the person has ceased to be a director, and in circumstances where the person has no control over the occurrence of the matters that prevent the corporation being able to discharge the liability, or being able to rely upon an indemnity against the trust assets)?
12. In the chapeau to sub-s (1) the expression "is liable" in the present tense would suggest that the liability of the person who is a director of the corporation is intended to arise when the liability of the corporation is incurred. The condition in par (b), being that the corporation is not entitled to be fully indemnified out of the trust assets is also expressed in the present tense, by use of the words "is not entitled".
13. In a sense, the condition in par (a) is also expressed in the present tense, by reason of the use of the words "has not discharged, and cannot discharge". However, as a corporation will never have discharged a liability at the instant that it incurs it, the first part of this condition would be meaningless if the expression "has not discharged, and cannot discharge" were interpreted as only applying as at the instant the liability is incurred.
14. The ambit of operation of s 197 would be severely curtailed if it only applied when the conditions were satisfied at the instant the liability of the corporation was incurred. That would require that the corporation be unable to discharge the liability from its personal assets at that time, and that, in a case, say, where the factor that disentitled the corporation to the indemnity was that in par (b)(i), the corporation was already in breach of trust. Cases where the corporation only became incapable of discharging the liability as a result of later events, and cases where the right of indemnity was lost by reason of later breaches of trust, would be excluded.
15. On the other hand, while such a narrow reading of s 197 may appear to be too restrictive, it seems to be problematic to make a director of a corporate trustee liable to discharge liabilities that are incurred when the corporation is capable of discharging the liabilities and is entitled to be indemnified out of the assets of the trust, where the capacity is lost by reason of the subsequent conduct of the corporation or events, or the right of indemnity is lost by reason of later breaches of trust. The conditions of liability under s 197 may, on the wider interpretation of the provision that permits the conditions to be satisfied after the liability is incurred by the corporation, arise after the person has ceased to be a director, and in circumstances beyond the control of that person. To posit a relatively extreme case, the directors of the corporation after the person has ceased to be a director could cause the corporation to agree to an amendment to the trust deed for the benefit of the beneficiaries that inserted a term denying the corporation's right to be indemnified out of the assets of the trust, which would satisfy the condition in sub-par (b)(iii).
16. If the section on its proper interpretation allows any of the conditions to be satisfied at a later time than the liability is incurred by the corporation, then the personal liability of the director cannot crystallise until sufficient conditions have been satisfied.
17. McDougall J in Intagro Projects Pty Ltd v Australia and New Zealand Banking Group Ltd [2004] NSWSC 618 at [66]-[67] considered whether the use of the present tense in the expression "is liable" in s 197(1) has the effect that the liability is created when the debt is incurred by the corporation, but said that it was not necessary for him finally to decide that point. It is also not necessary for me to decide these questions on this pleading application.
18. It is, however, proper for the Court to require a claimant to plead the claim fully and in detail and in a way that affords to the person who was a director of the corporation at the time the liability was incurred a proper understanding of how the claimant alleges s 197 operates and how it was satisfied in the circumstances of the case.
19. It will usually be straightforward to establish that a corporation has not discharged a liability after it has become due and payable, and in the ordinary case, if the trust deed contains a term that denies or limits the trustee's right to be indemnified against the liability, a claimant who knows of that term will have no difficulty in pleading it.
20. The position is, however, different with that part of the condition in par (a) that requires that the corporation "cannot discharge the liability or that part of it". There may be some cases where the financial incapacity of the corporation is obvious but that will not always be so. The liability may not have been discharged because it is contested, and incapacity cannot be inferred directly from a failure to discharge a liability. A corporation's balance sheet will not always be a sufficient basis for inferring conclusions as to capacity to discharge liabilities. Assets may be worth more than the book value. Corporations are often able to discharge liabilities by gaining access to resources that are beyond the legal control of the corporation itself. Corporations may in some cases not in fact discharge liabilities because persons who are able to enable the corporation to do so choose not to.
21. It may be, although it is not entirely clear, that the condition in par (b)(ii) that the right to be indemnified out of the trust assets has been lost because the corporation acted outside the scope of its powers as trustee is intended only to apply to the situation where the corporation has done so in incurring the liability that is the subject of the claim. If the corporation lost the right to the indemnity because it had in other situations acted outside the scope of its powers as trustee, the circumstances would ordinarily constitute a breach of trust by the corporation, thus satisfying the condition in par (b)(i).
22. However, where the condition relied upon is that set out in par (b)(i), it will be necessary for the claimant to plead and prove that the corporation committed a breach of trust that had the consequence that the corporation became disentitled to the right of indemnity against liabilities that it had incurred out of the assets of the trust. Where the claimant is a third-party creditor of the corporation the requirement to allege that the corporation has committed a breach of trust that has had these consequences may be problematic.
23. Section 197 is not drafted in terms that would require an interpretation that the claimant's right of action against the person who was a director of the corporation when the liability was incurred only arises if the corporation does not discharge the liability, because in fact it was incapable of doing so, and its attempt to enforce a right of indemnity against the assets of the trust has failed because the indemnity has been lost by one or more of the factors listed in par (b). That is, the claimant's right against the director does not only arise after the claimant has established in fact the conditions to liability in s 197 by attempting to recover against the corporation and failing for reasons that establish those conditions.
24. The language of s 197 does not support the liability only arising in that way and the use of expressions "is liable", "has not discharged", "cannot discharge" and "is not entitled to be fully indemnified" clearly contemplate that the liability of the person can arise because of the existence of objective circumstances before the claimant has actually failed to recover the liability from the corporation.
25. If that is right, it may give rise to problems of practical prematurity in that even though the liability of the person may arise when the conditions are satisfied by objective circumstances that may be demonstrated before the claimant has actually failed to recover from the corporation because of the matters the subject of the conditions, the claimant may commence proceedings against the person at a time when it is practically highly uncertain whether all of the conditions are in fact satisfied. For example, while there will be many cases where it is obvious that the corporation cannot satisfy a liability from its own resources, there will be many others where the actual capacity of the corporation is unclear, and the capacity may depend upon many variables including options within the voluntary control of the directors of the corporation or third parties.
26. In Intagro Projects Pty Ltd v Australia and New Zealand Banking Group Ltd, McDougall J was concerned with the case where the creditor applied for leave to sue the directors at the same time as the corporation. The problem could also arise in the case where the creditor chose to sue the director without actually suing the corporation. His Honour was required to determine an application by the Bank to amend its cross claim to make a claim against the directors of the plaintiff corporation for liability under s 197 of the Corporations Act. The directors argued that the making of the claim was premature because the section "does not create liability ab initio". As I have said above, at [66]-[67] his Honour considered whether the use of the present tense in the expression "is liable" had the effect that the liability was created when the debt was incurred by the corporation, but said that it was not necessary for him finally to decide that point. His Honour nonetheless said at [68] that he did not think that the claim was "entirely hypothetical".
27. In essence, at [68]-[75], McDougall J considered the forensic problems that could arise, but ultimately decided that it was appropriate to permit the Bank to institute the cross claim to ensure that the directors would be bound by the findings in the proceedings, to avoid the possibility that there could be contradictory findings if the creditor was required to sue the corporation in one set of proceedings and then, having failed to recover the debt, been required to sue the directors in later proceedings. It was significant to the course followed by McDougall J that the Bank sought the making of declarations that his Honour accepted would not necessarily be hypothetical, depending upon various facts that may be found in the proceedings.
28. McDougall J noted that the Bank would need to show that the corporation had not discharged and cannot discharge the debt. He observed that the first matter was hardly likely to be a matter in dispute, and that proof that the corporation cannot discharge the debt would involve an analysis of the financial position of the corporation and the relevant trusts. McDougall J noted, however, at [71] that even proof that the corporation cannot discharge the debt may involve more than an analysis of its financial position, as the corporation "might decide to seek other sources of funding to enable it to discharge any liability that it owes to the Bank". This observation recognises the reality that the issue of whether a corporation "cannot" discharge a liability may involve more than knowing the circumstances of its balance sheet, as the requirement that the debt cannot be discharged is a practical rather than a legal one.
29. I propose, with respect, to adopt the course followed by McDougall J in accepting that, although various problems of practical prematurity may arise, s 197 permits the claimant to proceed against the director either at the same time as the corporation, or without suing the corporation. The entitlement of the claimant to proceed in that way may in a particular case mask real practical problems of prematurity when it comes to proof of at least some of the conditions of liability under s 197 of the Corporations Act. For the purposes of the present application, the conclusion that should be reached is the relatively simple one that for the purposes of ensuring the efficient conduct of the proceedings, and affording procedural fairness to the director, the Court should require the claimant to give meticulous attention to the proper application to the rules of pleading.
30. The allegation in the FASOC in the present case of the satisfaction of the condition for liability in s 197(1)(a) of the Corporations Act is no more than that Greenhills "cannot discharge" any liability to repay Debt 5. In the light of the considerations that I have addressed above, that pleading is deficient. In relation to the satisfaction of the condition in s 197(1)(b), the FASOC merely alleges in [14] that Greenhills: "is not entitled to be indemnified against that liability out of the assets of" the trust. Not only does the pleading not identify which grounds for the loss of the right of indemnity are relied upon, but it does not allege the material facts necessary to sustain the grounds.
31. Accordingly, it is clear that the claim in [14] against Mrs Unicomb based upon s 197 of the Corporations Act should be struck out.
32. Ordinarily these defects in pleading could be remedied, assuming that the facts support the allegations. Mr Mahommed and Loire have not by their submissions offered to provide the necessary additional allegations, or explained what they would be. As the claim against Mrs Unicomb is in a sense a derivative liability, where the company trustee is primarily liable, it is most important that the factual basis of the claim be fully pleaded. Even though Greenhills has not paid Debt 5 as claimed, it has not been sued to judgment, and the proposition that it cannot discharge the liability is at this stage hypothetical.
33. The solicitor for Mr Mahommed acknowledged these problems in submissions, but suggested that Mr Mahommed and Loire should be given an opportunity to correct the deficiency because it would only take a short time to revise the pleading. This is a very troubling response! This claim was pleaded against Mrs Unicomb in a manner that clearly failed to allege that the conditions for her liability had been satisfied. No explanation was given for this failure. On the face of it, the deficiency had escaped the attention of the pleader. Consequently, the solicitor was not in a position to tell the Court what the truth was, and what condition of liability Mr Mahommed and Loire could properly allege and prove. In those circumstances it is rational for the Court to fear that, if given the opportunity, Mr Mahommed and Loire will fix the deficiency by simply adding to the pleading whatever allegation is necessary to complete the claim under s 197 of the Corporations Act.

Barnes v Addy claim for Debt 5

1. The third and final claim against Ms Unicomb is made at [20] of the FASOC on the basis of the allegations made in [15]-[19].
2. At [15], an allegation is made that Mr Unicomb owed fiduciary duties to Loire and the LRUT. It is alleged at [16] that on 5 March 2010, Mr Unicomb breached his fiduciary duties by causing $207,594.27 of the money to be loaned by Eclipse to Loire to be paid directly to the bank account of Greenhills. It is then alleged at [17] that the payment was made on the basis that Greenhills would hold the money on an express trust (by reason of statements made by Mr Unicomb to Mr Dixon). To the extent that the express trust failed, it is alleged at [18] that a resulting or constructive trust in favour of Loire arose.
3. Paragraph [19] deals with the manner in which Mr Unicomb and Greenhills applied the money from Debt 5, and says that it was "substantially for the benefit of Mrs Unicomb, Greenhills Securities and other persons". In the draft 2FASOC "persons" has been replaced by "Unicomb Entities as particularised in Tables "G" and "H" herein". (This is a convenient point to note that Table G does no more than list the primary facts relevant to the payment of the amount from Eclipse to Greenhills. Table H lists how Debts 1 and 2 were applied, and does not mention Debt 5. The amendment only increases the level of confusion).
4. It is then alleged at [19(c)]: … Mrs Unicomb, as sole director of Greenhills Securities: i) with the knowledge of the said design of her husband, Mr Unicomb, to occasion the wrongful use (sic) the said Trust Funds of Loire Consultancy; and ii) with the knowledge of the said design of Greenhills Securities to wrongly use or disburse the said Trust Funds of Loire Consultancy; iii) caused Greenhills Securities to use and disburse the said Trust Funds not for the uses and purposes set out in that paragraph 17(a) above and Particular 1(b) below but substantially for the benefit of Mrs Unicomb, Greenhill Securities and other Unicomb Entities as particularized in Tables "G" and "H" herein. (I have set out this extract from the 2FASOC without attempting to identify small amendments to the equivalent paragraph in the FASOC, as the attempt to do so would only be confusing).
5. Particulars are then given of Mrs Unicomb's alleged "knowledge". In paragraph (1) of the particulars, Mrs Unicomb's knowledge is described as: "Actual or, alternatively, constructive or inferred, knowledge of Mrs Unicomb or Greenhills Securities is found or to be inferred from…"
6. The allegation in this form is potentially embarrassing because it conflates the basis of Mrs Unicomb's knowledge with that of Greenhills.
7. Two specific particulars were given in the FASOC, and two particulars were added in the 2FASOC.
8. The first of the original particulars (a) is: "one or more of the facts, matters and circumstances set out in paragraphs 3, 4 and 5". Those are the paragraphs of the FASOC that respectively allege the circumstances in which Mrs Unicomb, Greenhills and Mr Unicomb were involved in the matters the subject of the claim. In respect of Mrs Unicomb, the only allegation is that she was the sole director of Greenhills. As to Greenhills, the relevant allegations are that it was the trustee of the Anton Holdings Unit Trust, and that it was controlled by Mr and Mrs Unicomb. In relation to Mr Unicomb, allegations are made concerning his business, being a tax accountant and investment adviser, and his de jure and de facto directorships. These are broad allegations of certain roles played by the three parties.
9. The second of the original particulars (b) is: … The fact that the commercial purposes or objects of the [LRUT] were set out in clause 3 of a Profit Sharing Agreement dated 25 November 2009 annexed to Caveat Rd, No. AG114077A, of which her husband, Mr Unicomb, was aware at all material times".
10. The commercial purposes or objects referred to are not identified in the FASOC. Even if they were identified, the only allegation is that Mr Unicomb was aware of them at all material times.
11. There is no allegation in the FASOC that Mrs Unicomb had any role with Loire, which was the company that had borrowed the money that was allegedly paid to Greenhills. Mrs Unicomb was the de jure director of Greenhills, although it is alleged that Mr Unicomb was the controlling mind and a de facto director. As it cannot be inferred that a fact known to a husband is also known to the wife, the particulars that were given of the first alleged basis of Mrs Unicomb's knowledge in the FASOC are entirely inadequate as a basis for establishing the claim.
12. The 2FASOC adds two additional particulars, being (c) and (d). The first is: "the matters stated in Particulars (a) to (l) under paragraph 12 above". That is the paragraph, considered above, that alleged Mrs Unicomb made an oral or implied request that Debt 5 be paid to Greenhills, and impliedly agreed to repay that sum to Loire. As stated in relation to that paragraph, all of the overt facts were activities of Mr Unicomb, and the only particular given in relation to Mrs Unicomb was that she was the sole de jure director of Greenhills.
13. The addition of the particular that Mrs Unicomb was a director of Greenhills is no addition at all, as the same allegation was made at [3(a)]. The addition of allegations of activities of Mr Unicomb without more is not capable of improving the basis of the claim that Mrs Unicomb had the alleged knowledge.
14. The final new particular added in the 2FASOC refers to certain press reports made on 1 December 2007, 27 June 2008 and 23 July 2008 regarding "unconscionable business dealings of [Mr] Unicomb with client funds in breach of fiduciary obligations as determined and reported in" three judgments of this Court or the Court of Appeal.
15. Those judgements were delivered about two years before the date of Debt 5. Even if it be assumed (it is not alleged) that Mrs Unicomb would have become aware of the findings against her husband in those cases, those events are not capable of supporting proof that Mrs Unicomb had actual, constructive or inferred knowledge of how Mr Unicomb procured the payment of Debt 5 to Greenhills, and how any payments of that money were breaches of fiduciary duty owed to Loire.
16. A further concern about the way [19] is pleaded is the nature of the knowledge on Mrs Unicomb's part that is alleged.
17. The allegation is made in [19(c)(iii)] that Mrs Unicomb, as sole director of Greenhills, "caused Greenhills Securities to use and disburse the said Trust Funds not for the uses and purposes… but substantially for the benefit of Mrs Unicomb, Greenhill Securities and other persons". This allegation obscures the question of whether the claim is based on the first or the second limb of Barnes v Addy (1874) LR 9 Ch App 244 at 251-252, where Lord Selborne LC said: … But, on the other hand, 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, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.
18. A defendant is entitled to be clearly told whether the case is put upon the basis of the defendant having received and become chargeable with some part of the trust property (first limb), or whether the alleged default is that they assisted with knowledge in a dishonest and fraudulent design (second limb). I will return to this issue after I have considered the second aspect of the particulars of knowledge contained in the FASOC. I will defer the issue because there are some further particulars given which throw some light on whether it is claimed that Mrs Unicomb received part of the money, or only assisted in some dishonest and fraudulent design on the part of Mr Unicomb.
19. Particular (2) is in the following terms: Alternatively, knowledge of Mrs Unicomb or Greenhills Securities is to be found or inferred from: a) their wilful, reckless or calculated restraint from making any, or due, inquiry of Mr Unicomb that an honest and reasonable person would make concerning the source, use or purpose of the subject funds; b) their knowledge of such facts as would to an honest and reasonable person indicate the existence of Mr Unicomb's said design. c) the wrongful use or disbursement of the said Trust Funds by Greenhills Securities was as follows:…
20. A table is then set out in the FASOC showing the payment of the $207,594.27 on 5 March 2010, and most of the money being expended by a number of payments in the period up to 30 April 2010. Only two transactions involve Mrs Unicomb. On 16 March 2010, Mrs Unicomb is said to have made a deposit into the account of $12,352. On the same day she is said to have made a withdrawal of $18,411. None of the other transactions on their face suggest that any payment was made to or for the benefit of Mrs Unicomb. The difference between the deposit and the withdrawal is $6059. That is the only amount that is referred to in the FASOC that is capable of falling within the first limb of Barnes v Addy. The balance of the claim must concern the second limb.
21. The first, obvious observation to be made about the allegations in (2) of the Particulars to [19] is that they are bald and general assertions. There is no factual basis alleged for the assertion that Mrs Unicomb acted wilfully or recklessly or without making an enquiry that an honest or reasonable person would make. There is no basis for the allegation that Mrs Unicomb had knowledge of facts that would indicate to an honest and reasonable person the existence of any design on the part of Mr Unicomb. The FASOC does not allege facts that would give Mrs Unicomb, even if the de jure director of Greenhills, any reason to know where Debt 5 came from or to understand that there was any impropriety in the manner in which Mr Unicomb caused the receipt to occur.
22. In reality, no adequate particulars are given in [19] of any allegation of knowledge on the part of Mrs Unicomb.
23. I will now return to the matter that I deferred, being the fact that the FASOC (and the 2FASOC) allege "actual or, alternatively, constructive or inferred, knowledge of Mrs Unicomb".
24. In the unanimous decision of the High Court in Farah Constructions Pty Limited V Say-Dee Pty Limited (2007) 230 CLR 89; [2007] HCA 22 at [174]-[178] concerning the nature of the knowledge necessary to establish liability on the second limb of Barnes v Addy, the Court said (footnotes omitted): [174] Against this background, it has been customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA: "(i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry." In Bank of Credit and Commerce International (Overseas) Ltd v Akindele ("BCCI"), Nourse LJ observed that the first three categories have generally been taken to involve "actual knowledge", as understood both at common law and in equity, and the last two as instances of "constructive knowledge" as developed in equity, particularly in disputes respecting old system conveyancing. After noting that in Royal Brunei the Privy Council had discounted the utility of the Baden categorisation, Nourse LJ in BCCI went on to express his own view that the categorisation was often helpful in identifying the different states of knowledge for the purposes of a knowing assistance case. [175] Although Baden post-dated the decision in Consul, the five categories found in Baden assist in an analysis of that for which Consul provides authoritative guidance on the question of knowledge for the second limb of Barnes v Addy . [176] Thus, support in Consul can be found for categories (i), (ii) and (iii). Further, Consul also indicates that category (iv) suffices. However, in Consul, Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Gibbs J left open the possibility that constructive notice of this description would suffice. Barwick CJ agreed with Stephen J. [177] The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the first limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. In this way, there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons. [178] These conclusions in Consul as to what is involved in "knowledge" for the second limb represent the law in Australia. They should be followed by Australian courts, unless and until departed from by decision of this Court.
25. The allegation of knowledge in Particular (2)(a), which is an alternative to Particular (1), appears to fall within category (iii) in [174] of Farah Constructions. The allegation in Particular (2)(b) appears to fall within category (iv). Both allegations of knowledge are therefore permissible. However, in so far as constructive knowledge it is alleged in the chapeau to Particular (1), that will would fall within the impermissible category (v).
26. The allegation of knowledge is therefore defective in that it is infected by the inclusion of a form of knowledge that is not accepted as supporting liability on the basis of the second limb in Barnes v Addy. Equally, when all of the particulars that are given are considered in detail, they are not capable by themselves of supporting allegations of knowledge on Mrs Unicomb's part within categories (iii) and (iv). They are not in reality capable of supporting the impermissible claim of constructive knowledge within category (v), but that is the closest form of knowledge that they could arguably establish.
27. Consequently, in my opinion, the allegation at [20] of the FASOC that Mrs Unicomb is obliged to repay to Loire (in fact to Mr Mahommed after the assignment) the amount of Debt 5 has not been properly pleaded.

Additional claims against Mrs Unicomb in the 2FASOC

1. I will now consider the additional claims that are made against Mrs Unicomb in the balance of the 2FASOC.

Claim for indemnity as beneficiary of LRUT

1. The first new claim is made in [21]-[25] under the heading: "The Rule in Hardoon v Belilios [1901] AC 118 - re Debts 1-6".
2. The editors of Jacobs' Law of Trust in Australia (8 ed) state the principle in Hardoon v Belilios [1901] AC 118 as follows at [21-05]: "A sole beneficiary who is sui juris is personally bound to indemnify a trustee for liabilities properly incurred; the obligation of the beneficiary rests upon the principle that the cestui que trust who gets all the benefit of the property should bear its burden… It is now established that where there are multiple beneficiaries, all sui juris and absolutely entitled, they will also be personally liable".
3. Loire alleges at [21] that since 9 September 2009, Loire as trustee of the LRUT has carried on the business of the LRUT as a commercial trading trust and incurred liabilities. Those liabilities are (a) the liability of $1,400,000 plus interest under the mortgage to Dixon (Debt 6); and (b) a liability as an assignor to pay Mr Mahommed the amount of Debts 1 to 3 and 5.
4. There is an allegation at [22] that, at least since 7 December 2010, the assets of the LRUT have been insufficient to pay any part of the liabilities of the trust, all of which remain unpaid and are incapable of being paid by Loire as trustee from the assets of the trust.
5. Accordingly, there is an allegation at [23] that Mrs Unicomb, as the holder of 50% of the issued units in the LRUT, is liable to pay to Loire 50% of the debts owed by Loire as trustee.
6. Particulars are given to the allegation in [23], which appears to be based upon a misconception that the liability of a beneficiary to indemnify the trustee depends upon proof of "neglects and defaults" of the beneficiary. On one view the particulars should be struck out because they are confused and meaningless, as well as being unnecessary.
7. However, a careful examination of the particulars suggests, albeit in an obscure way, that they contain positive allegations that would justify a rejection of the application for leave to file the draft 2FASOC, until the effect of the allegations has been clarified.
8. I simply do not understand the meaning of Particular (b), which alleges that Mr Unicomb caused Loire to make payments including "in November/December 2009 in respect of the proposed Loan of $525,000 from First Mortgage Managed Investment Limited (FMI) to Loire". In the context of all of the other allegations, this particular is embarrassing.
9. Particular (c) alleges that Mr Unicomb procured the execution by Dixon of a discharge of the mortgage that secured the $1,400,000 loan, in return for a particular payment, and that the payment was not made.
10. Particular (d) alleges that Mr Unicomb arranged for registration of the statutory discharge of the mortgage without securing any payment to be made.
11. It may be that these particulars are no more harmful than that they are misconceived and irrelevant, but their inclusion would require clarification before it would be proper for the Court to permit the filing of any 2FASOC that included them.
12. Mr Mahommed's solicitor made a number of brief statements on this issue in his oral submissions, to the effect that the Court should allow these proceedings to go forward because somehow Mrs Unicomb had come to enjoy half the beneficial ownership of the Property through her 50% of the units in the LRUT, because the mortgage to Dixon to secure the original loan of $1,400,000 plus interest had been fraudulently discharged and removed from the register.
13. This subject was also dealt with in what purports to be the unsworn affidavit of Mr Dixon, which I have received for the limited purpose of assisting the Court in an understanding of the claim that Mr Mahommed and Loire seek to make. As far as I can understand it, the unsworn affidavit seeks to establish that the discharge of mortgage was fraudulently procured and registered.
14. As I understand it, the only allegation concerning the ownership of the Property is that in [8], that on 9 October 2009 Loire acquired the Property as trustee of the LRUT. There is no allegation that title to the Property was transferred to any other party. I do not understand how Mr Mahommed or Loire seeks to make a claim out of these events, assuming they occurred, against Mrs Unicomb.
15. If the debt of $1,400,000 plus interest has not been repaid to Dixon, it remains outstanding under the terms of the original mortgage. If a discharge of the mortgage was fraudulently procured and registered, the discharge will be ineffective. Dixon will remain as an equitable mortgagee of the Property on the same terms as the original mortgage, and will be entitled to an order for the execution of a new mortgage. One way or another, Loire will remain liable for the original debt plus interest, and Dixon will be entitled to the rights of a mortgagee. Dixon's interests could be protected by the lodgement of a caveat. In equity, nothing is changed. The Property is still charged by an interest that is equivalent to the original mortgage. Mrs Unicomb, as the holder of units in the LRUT has gained no advantage. Moreover, any misdeed that needs to be put right must be put right in proceedings instituted by Dixon, and not by proceedings instituted by Loire, which would have benefited from the misdeed no less than Mrs Unicomb and any other unit holders.
16. There is an allegation at [24] that, by reason of the DOA, Loire is liable as an assignor to Mr Mahommed in respect of Debts 1 to 3 and 5 "and as a Trust Creditor of the Trustee of LRUT, he is entitled to subrogation to or against the rights of indemnity of [Loire]… including the rights which [Loire] holds as against [Mrs Unicomb]…"
17. In [25], Loire appears to claim an entitlement as trustee of the LRUT and an assignee of Debt 4 (which is a debt that is alleged to have been assigned by Loire to Mr Mahommed and then re-assigned by him to Loire).
18. Also in [25], Mr Mahommed claims against Mrs Unicomb as an assignee of Debt 1 to 3 and 5.
19. Finally in [25], there is a claim that is worded unclearly but appears to be a claim by "them", being both Mr Mahommed and Loire, against Mrs Unicomb in relation to 50% of the current LRUT liabilities of Loire as trustee.
20. In order to understand these claims, it will be necessary to analyse the separate components of the claims individually.
21. The first claim appears to be based upon the proposition that Loire, as trustee of the LRUT, owes $1,400,000 plus interest to Dixon. I am not sure that there is a clear and positive allegation that Loire is actually indebted in that amount, and the position is confused by the garbled particulars to par 23 that I have discussed above.
22. It may be that in principle Loire has an arguable claim on the basis pleaded against Mrs Unicomb that she is the holder of 50% of the units in the LRUT as trustee for another trust. (It is not clear why Loire is not seeking indemnity for the other 50% of the liability from the holder of the other 50% of the units, which is apparently an entity associated with Mr Dixon).
23. Mrs Unicomb has relied upon evidence to support her claim that, as well as the fact that the pleading of this claim is defective, the claim should be dismissed as it cannot succeed because the terms of the trust deed that governs the LRUT exclude Loire's right to be personally indemnified by the unit holders. As the editors of Jacobs' Law of Trusts in Australia say at [21-06]: "there is no doubt that the personal indemnity against cestuis que trust can be excluded". I accept that statement of principle.
24. Relevantly, clause 16 of the Lovedale Ranch Unit Trust Deed dated 1 September 2009 provides: (b) No Unit Holder… shall be liable to this trust… except for his own gross acts, neglects and defaults as constitute a breach of trust committed in bad faith… (c) Without limiting the generality of the foregoing it is expressly provided that the Trustee shall have no rights of indemnity against Unit Holders or the Settlor.
25. Loire was unable in submissions to suggest any reason why these terms of the trust deed did not have the effect of excluding Loire's right to seek personal indemnity from the unit holders of the trust. This position is consistent with the balance of clause 16, which seeks to have the effect that both the trustee and third parties dealing with the trustee would be confined to looking to the assets of the trust to recover any trust liabilities.
26. I will now consider Loire's claim against Mrs Unicomb for recovery of Debt 4 as assignee of that debt from Mr Mahommed [25].
27. I have explained above that, as pleaded, Debt 4 is an amount of $141,535.50 that is alleged to have arisen as a result of a payment of that sum to Greenhills.
28. Debt 4, if it exists, is owed by Greenhills and not Mrs Unicomb. No claim has been pleaded in respect of Debt 4 that Mrs Unicomb is personally liable for its repayment on the ground that she was a director of Greenhills at the time the debt was created.
29. Mr Mahommed claims that Mrs Unicomb is obliged to repay him Debts 1 to 3 and 5. Repayment of Debt 5 was claimed in the FAS, and has been considered above. I cannot conceive how Mrs Unicomb could have any liability to Mr Mahommed in respect of these debts under the rubric of the principle in Hardoon v Belilios. The debts are not owed by Loire in its capacity as trustee of the LRUT.
30. In any event, while Debt 5 arose, as pleaded, in respect of a payment to Greenhills, Debts 1 to 3 arose because payments were made to Mr Unicomb or Mr Unicomb's firm's trust account. The 2FASOC does not contain any pleading of a basis for Mrs Unicomb being liable to Mr Mahommed as assignee in respect of debts that could only be owed by Mr Unicomb.
31. Finally, it is necessary to refer to the allegation [21(b)] that Loire's liabilities as trustee of the LRUT include "a liability as an assignor to pay Mahommed an amount equivalent to each respective amount outstanding in respect of the said Debts 1-3 and 5… pursuant to the said Deed of Assignment… in the circumstances which surrounded the incurrence and non-repayment of each such debt…".
32. It is difficult to be sure, but the allegation appears to be that Loire can recover the amount of these debts from Mrs Unicomb on the Hardoon v Belilios principle, irrespective of who owed the debts that were assigned to Mr Mahommed, because Loire has an obligation as trustee to pay the amounts of the debts to Mr Mahommed "as an assignor".
33. That view in my opinion is clearly misconceived. If a creditor A is owed a debt by B, and assigns that debt to C, the amount of the debt is owed by C to B but A clearly has no obligation to A. Ordinarily, the assignor is not required to pay the assigned debt to the assignee.
34. The position may be different if an assignor not only assigns the debt, but guarantees that the debt will be paid by the debtor. Not only is there no allegation to that effect in the 2FASOC, but clauses 2 and 3 of the DOA have the effect that the assignors only warrant to Mr Mahommed "that Mr Unicomb, the Debtor has not paid any monies to the Assignor" and that: "No Assignor makes any other warranty or representation to the Assignee as to the enforceability nor recoverability of the Assigned Property".
35. It follows in my view that not only are the claims pleaded in the 2FASOC based upon the principle in Hardoon v Belilios defective, but if regard is had to the substance of the claims, they are either misconceived in principle or absolutely excluded by the evidence.
36. For completeness, I should refer to the allegation in [24] of the 2FASOC which is to the effect that, because Loire is liable to Mr Mahommed "as an assignor to Mahommed in respect of said Debts 1-3 & 5", Mr Mahommed is "a Trust Creditor of the Trustee of LRUT", so that Mr Mahommed is "entitled to subrogation to or against the rights of indemnity of [Loire]" against Mrs Unicomb. It is not necessary to consider the question of whether trust creditors are entitled to be subrogated to the indemnity that the trustee is entitled to enforce against the beneficiaries personally, as this aspect of the claim is flawed because of the misconception that Loire as the assignor of the debts is liable to pay the debts to Mr Mahommed.

Additional Barnes v Addy claims

1. The final claims made against Mrs Unicomb in the 2FASOC are made in [26]-[34] under the heading "Rule in Equity Against Unauthorised Benefits of Fiduciaries, Trustees & Ors".
2. First, a number of breaches of fiduciary duty are alleged against Mr Unicomb in [26]-[28]. While there may be some grounds to criticise these allegations, broadly they plead a proper claim that Mr Unicomb breached various fiduciary duties that he owed to Loire and the unit holders of the LRUT. It is not necessary to analyse in detail the pleading of the breaches of fiduciary duty alleged against Mr Unicomb.
3. In [28], the following allegation is made against Mrs Unicomb: Notwithstanding the true characterisation of the nature or character and incidents or conditions of and incidental to the transactions of the said trading trust of the LRUT, including the said Debts 1-6 and said Loans ("business dealings"), at all material times, to the knowledge of [Mrs Unicomb], who had actual or constructive notice, and it should be inferred in the circumstances that she knew, that the clients of Unicomb & Associates including the principals, being clients referred to in paragraph 5(c) above and in the Trust Deed for the LRUT and that the conduct of Unicomb was in breach of the duties owed by Unicomb as stated or alleged in this FASOC.
4. The first deficiency in this allegation is that in pleading that Mrs Unicomb had "actual or constructive notice", the allegation is not permitted on the authority of Farah Constructions v Say-Dee that I have considered above.
5. It is also defective because it is insufficiently precise and its meaning is ultimately unclear.
6. Particulars are then given of the allegation in [28]. The inadequacy of the particulars is best shown by setting them out: Mrs Unicomb knew or it should be inferred that she knew, suspected, or failed to make enquiries as to knowledge and information: (a) as to the said objects or purposes of the LRUT; (b) through the relationships and connections referred to in paragraphs 3-5 and 19 above, including Particulars, the First Defendant had knowledge, the means of obtaining knowledge or was directly or indirectly knowingly concerned in or privy to the said fiduciary breaches, breaches of trust and statutory breaches of Unicomb referred to in this FASOC; (c) as to the matters stated in the particulars under paragraph 19 and in Tables "G" and "H" hereto; (d) as recited in the said Deed of Assignment of 12 November 2015; (e) as stated in this FASOC with regard to the said acquisition, ownership, sale and other dealings of Loire as Trustee of the LRUT as disclosed herein in relation to the Lovedale Property; (f) as to the matters particularized under paragraph 23 above; (g) by purporting ineffectually to avoid her duties as the sole director of [Greenhills] by resigning on 26 November 2010; (h) the duties owed by herself and Unicomb respectively as directors of [Greenhills] and Loire respectively under sections 180-185 and 191 of the Corporations Act 2001 (Cth).
7. It is unfortunately necessary to say so, but by this stage of the 2FASOC the pleader appears to have abandoned any attempt to plead in a proper and precise manner. It is not unfair to describe the attempt to set out the basis of the alleged knowledge of Mrs Unicomb as a 'blunderbuss' approach.
8. As there is no allegation that Mrs Unicomb had any role in relation to Loire or the operation of the LRUT, there is no basis for any allegation that she knew of the objects or purposes of the LRUT, or that she knew enough to understand that she should find out what they were.
9. Not only is Particular (a) unwarranted as a matter of logic, it demonstrates why the 2FASOC is embarrassing because it does not specify whether the particular matter relates to knowledge, suspicion or failure to make enquiries.
10. The allegation in Particular (b) that Mrs Unicomb had "the means of obtaining knowledge or was directly or indirectly knowingly concerned in or privy to", the breaches stated shows: (a) a serious transgression of the requirements laid down in Farah Constructions v Say-Dee, and also by reason of the use of the expression "knowingly concerned" a confusion of the basis of ancillary liability for breach of fiduciary duty.
11. In relation to the allegation in Particular (c), concerning the matters stated in the particulars to [19], no basis is alleged as to how Mrs Unicomb knew those matters, so they must be relied upon as matters of which Mrs Unicomb could have learnt had she made enquiry.
12. There is no basis at all in the 2FASOC for the claim in (d) that Mrs Unicomb had any means of learning what was recited in the DOA.
13. Equally, there is no basis for the claim in Particular (e) that Mrs Unicomb had a basis for knowing all of the matters connected with the operation of the LRUT.
14. Particular (f) is a claim that Mrs Unicomb knew, suspected or failed to make enquiries about the matters alleged in the particulars to [23]. I have already explained why I have found those particulars to be unintelligible. There is no basis in the 2FASOC for any claim that Mrs Unicomb knew of any of those matters or had any reason to investigate them.
15. The claim in Particular (g) that Mrs Unicomb attempted to avoid her duties as the sole director of Greenhills by resigning on 26 November 2010 is a matter of mere assertion and is patently baseless.
16. Further breaches of equitable duty are then alleged against Mr Unicomb in [29].
17. In [30] Mr Mahommed and Loire allege that they are each persons who are entitled under s 1324 of the Corporations Act to seek recovery from Mr Unicomb for contraventions of ss 180 to 184 and 191 of the Corporations Act. First, as I understand the pleading, the only involvement of Mr Mahommed was as an assignor of debts, and a director of Loire from 22 August 2014 (which is after the time of all relevant events). He is not a person to whom Mr Unicomb owed relevant duties under the Corporations Act.
18. There is then an allegation in [30] that Mrs Unicomb aided, counselled or procured Mr Unicomb, or induced or attempted to induce Mr Unicomb, or was directly or indirectly, knowingly concerned in, party to, or conspiring with Mr Unicomb to commit the breaches referred to.
19. This is plainly an impermissible rolled up allegation and devoid of the pleading of the necessary facts to support it.
20. Furthermore, in the context of the whole of the 2FASOC, there is no basis for the Court to believe that there is any likelihood of truth in the claims, given that there are no allegations of fact that would support a claim that Mrs Unicomb knew anything about the activities of her husband.
21. The particulars to [30], apart from repeating the particulars to [26]-[29], make allegations in (b) to (g) of a diffuse and general nature about the conduct of Mr Unicomb, and then merely assert in (h): "Mrs Unicomb was accessorily involved in those contraventions and breaches of Unicomb in the ways described generally in subsection 1324 (1) of the [Corporations Act], as stated in those particulars".
22. It is plain that the 2FASOC is entirely devoid of allegations of particular facts that would support the general allegation in Particular (h).
23. Paragraphs [31] and [32] are further assertions of breach by Mr Unicomb of respectively, sections 181 and 184 of the Corporations Act in the first case, and section 180 in the second case. Paragraph [33] is an allegation of breach by Mr Unicomb of his obligation to avoid conflicts of interest.
24. Paragraph [34], being the last substantive paragraph in the 2FASOC, is a bare allegation that Mrs Unicomb is liable to Loire as a person involved in the breaches of duty by Mr Unicomb, which are alleged in the preceding paragraphs.
25. It follows from what I have said above that the 2FASOC is entirely devoid of the pleading of the necessary facts to support any of the new causes of action that it seeks to add to the claims made originally in the FASOC.
26. Those reasons are sufficient to justify a decision to strike out the FASOC and to decline leave to file the 2FASOC in so far as they plead claims against Mrs Unicomb.
27. I will defer considering the issue of whether I should make an order dismissing the FASOC in so far as it makes claims against Mrs Unicomb until after I have decided the position in respect of the claims pleaded against Greenhills.

Claims against Greenhills

1. As I have noted above, Greenhills position is now that it does not seek an order striking out or dismissing the FASOC (as amended by that part of the 2FASOC that does nothing more than amend the individual paragraphs of the FASOC), but Greenhills does ask the court to deny Mr Mahommed and Loire leave to file the balance of the 2FASOC.
2. As I have also noted above, of Debts 1 to 5, Debts 4 ($141,535.50) and 5 ($207,594.27) are alleged to have arisen out of payments that Mr Unicomb caused to be made into Greenhills' account out of monies that were due to Loire. The FASOC only makes a claim against Greenhills for payment of Debt 5. It is likely to be possible that Loire (which is the assignee of Debt 4) will have some proper basis to claim repayment of Debt 4 from Greenhills as the recipient of the payment. It may be that when the balance of the 2FASOC is analysed, Loire has not made a properly pleaded claim for repayment of Debt 4 by Greenhills. In principle, the Court should be open to giving Loire an opportunity to properly plead such a claim, in parity to the position that Greenhills accepts that Mr Mahommed has a proper basis for his claim in respect of Debt 5 in the FASOC as it will be amended.
3. It is not necessary to consider the part of the 2FASOC that relies upon the principle in Hardoon v Belilios as no claim is made against Greenhills on that basis.
4. It does not appear in any clear way that Mr Mahommed and Loire make any further claim against Greenhills in the balance of the 2FASOC [26]-[34]. The allegations of knowledge of the breaches of duty by Mr Unicomb and ancillary liability in [28], [30] and [34] are only made against Mrs Unicomb. My understanding appears to be borne out by an examination of the new claims in the Relief Claimed. The only further relief claimed against Greenhills concerns the repayment to Loire of Debt 4 (par 11) and interest on that debt (par 13).
5. Greenhills no longer complains about the basis of the claim against it in respect of Debt 5, although it may be that the proper basis for both that claim and the claim in respect of Debt 4 is the first limb of Barnes v Addy (as in each case Greenhills is alleged to have received and may have become chargeable with some of the trust property of the LRUT).

Conclusion

1. I consider that the following course should be taken in addition to the order striking out the FASOC against Mrs Unicomb and the refusal of leave to file the 2FASOC as against her: 1. The claim made in [12] that Mrs Unicomb impliedly agreed to repay Loan 5 should be dismissed. Mr Mahommed and Loire have had more than sufficient time to plead that claim properly and they have not done so. They have not pleaded any facts at all, save for the fact that Mrs Unicomb was a director of Greenhills, that would give the Court any reason to think that Mrs Unicomb made any personal promise to repay Loan 5. 2. Notwithstanding my reservations about the deficiencies of the pleading in [14] of the claim against Mrs Unicomb based upon s 197 of the Corporations Act that I have expressed above, Mr Mahommed and Loire should be given one final opportunity to plead that claim properly. However, in order to reduce the risk that the necessary allegations will be made for no better reason than to perpetuate the proceedings against Mrs Unicomb, I will not give leave to amend the FASOC now. I will permit Mr Mahommed and Loire to apply to me by notice of motion for leave to make specific amendments, provided that the draft amendment cures the deficiency in the reliance on s 197, and the notice of motion is supported by affidavit that provides sufficient evidence that the conditions for liability under s 197 can be established for the Court to accept that claim as having a genuine basis. (This does not mean that prima facie proof of the claim must be provided at this stage, just facts that justify a rational belief that the claim is arguable on the evidence). 3. Similarly, in relation to what I consider to be the Barnes v Addy claim in respect of Debt 5 [15]-[20], I would not give Mr Mahommed and Loire leave to file an amended pleading. I would permit them to include in the notice of motion referred to in sub-par (2) above an application for leave to amend in a way that specifically identified the limbs of Barnes v Addy upon which they seek to rely, and also genuine particulars of claims that Mrs Unicomb had knowledge of the nature accepted in Farah Constructions v Say-Dee as being sufficient to support a claim of liability of Mrs Unicomb. The notice of motion in that regard must be supported by affidavit evidence to the same effect as I have discussed in sub-par (2). If Mr Mahommed and Loire are not able to provide adequate evidence at this stage to establish that their case that Mrs Unicomb had the necessary knowledge is genuine and objectively based, then they should not be permitted to pursue a claim of this nature against her. 4. I will not give Mr Mahommed and Loire leave to amend to plead a Hardoon v Belilios claim against Mrs Unicomb, as I am satisfied on the basis discussed above that such a claim is absolutely precluded by the terms of the trust deed that established the LRUT by which Loire is bound (and also that the DOA does not create a liability on Loire's part to Mr Mahommed). 5. I will permit Mr Mahommed and Loire to seek by their notice of motion leave to file an amended statement of claim that makes a Barnes v Addy claim against Mrs Unicomb in relation to Debts 1 to 4, but only on the same basis as that application will be permitted to be made in relation to Debt 5. Mr Mahommed and Loire would be well advised to bear in mind that although Debts 4 and 5 allegedly arise out of payments made into the account of Greenhills of which Mrs Unicomb was a director, the payments leading to Debts 1 to 3 were made into accounts of Mr Unicomb or his firm. 6. In principle, Loire should be permitted to pursue a claim against Greenhills to recover Debt 4, on the same basis as Mr Mahommed seeks recovery of Debt 5 (about which Greenhills does not complain).
2. Mr Mahommed and Loire should understand that they are being given a last chance, and if their proposed amended pleading does not meticulously conform with the applicable pleading rules and accord with the relevant principles of law, and if there is lacking sufficient evidence to establish that the claims are genuine and objectively based to justify the Court giving leave to allow them to proceed, I will deny the application. At the end of the day, Mr Mahommed and Loire must be able to demonstrate at least a sufficient basis to satisfy the Court that Mrs Unicomb had an actual involvement and knowledge of her husband's affairs to justify the pursuit of the claims against her, so that the Court can be satisfied that those claims are not oppressive.
3. It may be that claims that can genuinely be based on the first limb of Barnes v Addy, in so far as they depend upon actual receipts of trust property by Mrs Unicomb, can be more easily justified than claims based upon the second limb. However, any claims sought to be based on the first limb will require the specific identification of trust property received by Mrs Unicomb.
4. The parties should bring in short minutes of order to give effect to these reasons for judgment.
5. In principle, Mr Mahommed and Loire should be ordered to pay Mrs Unicomb's costs of both notices of motion. The position is not so clear in relation to Greenhills' costs. Greenhills did not ultimately pursue the relief that it originally claimed in its notice of motion, and the only additional claim made against it in the 2FASOC concerned Debt 4.
6. I will also hear any application by Mrs Unicomb and Greenhills concerning when the costs of their notice of motion, the cost of the notice of motion filed by Mr Mahommed, and the future costs of Mr Mahommed and Loire seeking leave to file amended pleadings should be paid. There is a case for the proposition that Mr Mahommed and Greenhills have now received so many indulgences from the District Court, the Court of Appeal, and this Court that they should not be permitted to continue unless they have first paid those costs. That is a matter that I cannot decide without further argument.

Amendments 13 March 2018 - par 129, last sentence, last line, "in" has been deleted. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 March 2018