McNally v Harris

CATCHWORDS : TRUSTS - trustees - breach of trust - intentional breach by trustee company - liability of director who was the controlling mind of the trustee company - liable under both limbs of Barnes v Addy - TRUSTS - trustees - breach of trust - intentional breach by trustee company through a director - liability of a sleeping director - first limb of Barnes v Addy - whether receipt of trust property with knowledge of recipient company or notice of trust - must be aware of receipt - sufficient if an honest and reasonable person would have had knowledge - sleeping director signed share transfer without inquiry - whether put on inquiry because transfer was for nil consideration - no knowledge of trust - no such notice - whether property received for own use and benefit - insufficient that money from sale of shares was received into trustee company's account - TORTS - injurious falsehood - malice - malice may be shown by some indirect dishonest or improper motive or intention to injure - causation - need for harm of the kind intended or that was a natural and probable consequence of such actions - no loss resulted from notice to ASIC of change to officeholders - loss did result from lodging share transfer notice with company - DAMAGES - exemplary damages - punishment for conscious wrongdoing in contumelious disregard of plaintiff's rights - disregard not contumelious - compensatory damages sufficient - CORPORATIONS - directors - consent to act - whether consent necessary for person to become a director - an offence to fail to obtain signed consent under s 201D Corporations Act - premise of provision is that person may be a director even though consent not signed - PARTNERSHIPS - whether person knowingly suffered himself to be held out as a partner - no such knowledge where person unaware of matter suggesting partnership - where firm engaged due to pre-existing relationship between client and the 'partner' engaged - no credit given on the faith of any representation of partnership - TRUSTS - trustees - breach of trust - equitable compensation - contribution and indemnity - right of trustee to contribution where his breach of trust was fraudulent - unclean hands - equity will not grant relief - same rule applies to accessaries

Trustee Act 1925 (NSW) LEGISLATION CITED : Corporations Act 2001 (Cth) Partnership Act 1892 (NSW)

Barnes v Addy (1874) LR 9 Ch App 244 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Agip (Africa) Ltd v Jackson [1990] Ch 265 National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 Heperu Pty Ltd v Morgan Brooks Pty Ltd (No. 2) [2007] NSWSC 1438 Hancock Family Memorial Foundation Ltd v Porteous [1999] WASC 55; (1999) 151 FLR 191; 32 ACSR 124 Selangor United Rubber Estates Ltd v Cradock (No. 3) [1968] 2 All ER 1073 Hedges v NSW Harness Racing Club Ltd (1991) 5 ACSR 291 Knight v Bulic (1994) 13 ACSR 553 CASES CITED : Palmer Bruyn & Parker Pty Ltd v Parsons (2001) 208 CLR 388 Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298 Gray v Motor Accident Commission (1998) 196 CLR 1 Adams v Kennedy [2000] NSWCA 152; (2000) 49 NSWLR 78 State of NSW v Ibbett [2005] NSWCA 445; (2005) 65 NSWLR 168 Vignoli v Sydney Harbour Casino [1999] NSWSC 1113; (2000) Aust Torts Reports 81-541 Zhu v Sydney Organising Committee for the Olympic Games [2001] NSWSC 989 XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1984) 155 CLR 448 Duke Group Ltd (in liq) v Pilmer [1999] SASC 97; (1999) 73 SASR 64; 153 FLR 1; 31 ACSR 213 Lynch v Stiff (1943) 68 CLR 428

TEXTS CITED : Fleming, The Law of Torts, 9th ed (1998) LBC Information Services Heydon and Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2006) LexisNexis Butterworths Fratcher, Scott on Trusts, 4th ed (1988) Little, Brown and Company

Katharine Myfanwy McNally & 7 Ors PARTIES : v Nicholas Peter Harris & 5 Ors

Plaintiffs: TGR Parker SC & T To COUNSEL : 1st-4th Defendants: N Perram SC & D Robinson 5th & 6th Defendants: D Davies SC, B McManus & L Fernandez

Plaintiffs: Judd Commercial Lawyers SOLICITORS : 1st-4th Defendants: Horton Rhodes 5th & 6th Defendants: Colin Biggers & Paisley

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5203/05 Katharine Myfanwy McNally & 7 Ors v Nicholas Peter Harris & 5 Ors JUDGMENT Introduction 1 HIS HONOUR: In these proceedings the plaintiffs allege that the first defendant, Mr Nicholas Harris, misappropriated trust property. 2 The active plaintiffs are the first plaintiff, Mrs Katharine McNally, and the eighth plaintiff, Mr Paul Warton. On 13 October 2005, Young CJ in Eq made orders pursuant to s 70(1) of the Trustee Act 1925 (NSW) appointing them joint trustees of the Harraw discretionary trust constituted by a trust deed dated 21 February 2003. His Honour made a vesting order pursuant to s 71 of the Trustee Act in favour of Mrs McNally and Mr Warton in respect of all of the assets of the Harraw discretionary trust. 3 The trust deed dated 21 February 2003 was made between the sixth defendant, Mr Richard Licardy as settlor, and Harraw Nominees Pty Ltd ("Harraw Nominees") as trustee. The deed recited that Mr Licardy had settled the sum of $10 on Harraw Nominees to be held on the trusts of the deed. There were eight individually named beneficiaries, including Mr Walter McNally, Mrs McNally, their children, and the children of Mr Warton. There was provision for the trustee to appoint additional beneficiaries. The trust gave the trustee discretion to apply income and capital. Mr Harris was named as the appointor and was entitled at any time to remove the trustee and appoint a new trustee. The deed was signed by Mr Licardy and was signed for Harraw Nominees by Mr Harris. 4 The plaintiffs contend that on 21 February 2003 Mr McNally transferred 781,000 shares he held in Oxiana Resources NL (a listed company) to Harraw Nominees to be held by it on the trusts of the Harraw discretionary trust. The instrument of transfer stated that the consideration for the transfer was $15,620. At the time, the shares had a market value of about $445,000. 5 Mr Harris and Mr Warton were good friends of Mr McNally. They all intended that Mr Warton and Mr Harris be the directors of Harraw Nominees. 6 The transfer of the Oxiana shares from Mr McNally to Harraw Nominees was received by the share registry for Oxiana on 14 March 2003. On 8 April 2003, the shares were registered in the name of Harraw Nominees. 7 On 5 May 2003, Mr Harris, signing as sole director of Harraw Nominees, transferred the 781,000 Oxiana shares to Harris Johnsson Nominees Pty Ltd. The instrument of transfer stated that it was made for no consideration. Harris Johnsson Nominees is the trustee of a trust and superannuation fund for Mr and Mrs Harris. The directors of Harris Johnsson Nominees are Mr and Mrs Harris. They witnessed the affixing of the common seal of Harris Johnsson Nominees to the transfer. 8 On 20 June 2003, Harris Johnsson Nominees sold 100,000 of the Oxiana shares. On 21 July 2003, it sold a further 31,000 Oxiana shares. It received the proceeds of sale of $55,568.80 and $19,072.01. 9 On 15 August 2003, Harris Johnsson Nominees transferred the remaining 650,000 Oxiana shares to Harris Johnsson Partners Pty Ltd ("Harris Johnsson Partners") for no consideration. Mr Harris was the sole director of Harris Johnsson Partners. Between 7 May 2004 and 16 September 2005, 545,000 Oxiana shares were sold. The proceeds of sale totalling $490,066.37 were credited to a joint bank account in the name of Mr and Mrs Harris. 10 At the same time as Mr Harris caused the 781,000 Oxiana shares to be transferred to Harris Johnsson Nominees, he requested ASIC to deregister Harraw Nominees pursuant to ss 601AA(1) and (2) of the Corporations Act 2001 (Cth). The company was deregistered on 26 August 2003. 11 The plaintiffs contend that in so dealing with the Oxiana shares, Mr Harris dishonestly procured Harraw Nominees to breach its trust and is liable as an accessary for breach of trust. It claims that Harris Johnsson Nominees, Harris Johnsson Partners and Mrs Harris are also liable as accessaries. The plaintiffs do not contend that Mrs Harris knowingly assisted in a dishonest and fraudulent design on the part of the trustee so as to be liable under the second limb of Barnes v Addy (1874) LR 9 Ch App 244 at 251-252; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [171]-[179]. The plaintiffs contend that Mrs Harris was personally liable as a constructive trustee under the first limb of Barnes v Addy as having knowingly received trust property. 12 On 15 April 2003, Mr Harris lodged with the Australian Securities and Investments Commission ("ASIC") a form stating that Mr Warton had ceased to be a director of Harraw Nominees, and on or about 5 May 2003 he prepared a form of transfer of the Oxiana shares from Harraw Nominees to Harris Johnsson Nominees, signed the form purportedly as sole director and company secretary of Harraw Nominees, and affixed the common seal of Harraw Nominees to the form. He lodged the form with the share registry of Oxiana for processing and represented that the transfer of Oxiana shares to Harris Johnsson Nominees had been authorised by Harraw Nominees. The plaintiffs say that these representations were false and that the transfer was not authorised by Harraw Nominees. Mr Warton had not resigned as a director and he had not authorised the transfer of the Oxiana shares to Harris Johnsson Nominees. They say that by making these representations, Mr Harris committed the tort of injurious falsehood and claim compensatory damages and exemplary damages. 13 The fifth and sixth defendants are Licardy Harris & Co Pty Ltd and Mr Richard Licardy. The plaintiffs contend that Mr Licardy is liable for the conduct of Mr Harris on the basis that he suffered himself to be represented as a partner with Mr Harris in a firm carrying on business under the name Licardy Harris & Co and is liable for Mr Harris' conduct in the business of the apparent firm pursuant to s 14 of the Partnership Act 1892 (NSW) in the same way as if they had been in partnership together. The plaintiffs also contend that Licardy Harris & Co Pty Ltd is vicariously liable for the conduct of Mr Harris on the ground that Mr Harris was acting in the course of that company's business. 14 Mr Harris denies that there was a breach of trust. He admits that the shares and the proceeds of sale of the shares were not retained or applied for the beneficiaries of the Harraw discretionary trust. He admits that he applied the shares to his own use through Harris Johnsson Nominees and Harris Johnsson Partners. He says that the shares were never acquired by Harraw Nominees on the trusts of the Harraw discretionary trust. He contends that that trust was never validly constituted because there was no trust property. The settlement sum of $10 referred to in the trust deed was not paid, and, according to Mr Harris, there was no other trust property. 15 The plaintiffs say that Mr Harris is estopped from denying that the trust was validly constituted by the orders made in 2005 for the appointment of Mrs McNally and Mr Warton as trustees and the vesting order. Mr and Mrs Harris, Harris Johnsson Nominees and Harris Johnsson Partners consented to these orders. 16 Mr Harris says that he prepared the trust deed over the weekend of 22 and 23 February 2003, having received instructions to do so on 21 February. He says that he and Mr Licardy signed the deed on 24 February 2003 and he backdated the deed to 21 February to accord with the date of registration of Harraw Nominees. Mr Harris says that even if the trust were validly constituted, the Oxiana shares never became trust property. He contends that before the trust was established, and before the shares became trust property, Mr McNally countermanded his instructions that the shares were to be held on the trusts of the Harraw discretionary trust. Rather, according to Mr Harris, on the evening of 21 February 2003 Mr McNally told him to: " Just put the Oxiana shares in the company, not the trust. The company can just be my trustee until I decide what to do. " 17 According to Mr Harris, Mr McNally subsequently told him that he would not be using the trust and would not need the company Harraw Nominees and that he would obtain Mr Warton's resignation as a director of Harraw Nominees. He asked Mr Harris to use one of his other companies to hold the Oxiana shares. According to Mr Harris, the Oxiana shares were initially held by Harraw Nominees on trust for Mr McNally. When the shares were transferred to Harris Johnsson Nominees, Harris Johnsson Nominees held the shares on trust for Mr McNally. Mr Harris says that on or about 7 June 2003, Mr McNally agreed to swap the Oxiana shares for 250,000 shares held by Harris Johnsson Nominees in Sentinel Properties Ltd ("Sentinel"). After that agreement was made, Harris Johnsson Nominees was free to deal with the Oxiana shares as its own. 18 Mr Harris claims corroboration for this version of events from two sources. The first is a written direction dated 22 February 2003 expressed to be from Mr McNally to Mr Harris in which Mr McNally purportedly referred to a telephone discussion on 21 February 2003 and confirmed that he did not want the Oxiana shares placed into the Harraw trust structure. According to the document, Mr McNally stated that until he decided what to do with the shares, he wanted them in the name of Harraw Nominees as trustee only for himself. The document bears a purported signature of Mr McNally's. It is common ground that the signature is not genuine. There was undisputed handwriting evidence that it was written backwards or upside down. Mr McNally says that the document is a forgery created by Mr Harris. Mr Harris says that he prepared the written direction for Mr McNally to sign, sent it to Mr McNally and received it back in a week or two through the post bearing what appeared to be Mr McNally's signature. Mr Harris says he had no occasion to question the authenticity of Mr McNally's signature and contends that Mr McNally must have written his signature in a way which appeared to be a forgery so that he could later deny the transaction if his subsequent dealings in Oxiana shares went bad and he faced complaints by his wife or her advisers. 19 The second piece of corroborative evidence is a deed dated 7 June 2003 admittedly signed by Mr McNally and also executed by Harris Johnsson Nominees in which Harris Johnsson Nominees assigned 250,000 shares in Sentinel to Mr McNally in consideration for the assignment by Mr McNally to Harris Johnsson Nominees of the 781,000 Oxiana shares. Mr McNally admits signing the deed but says that he did not sign the deed until May 2004 and did not appreciate what he was signing. Issues 20 The issues to be decided are:

whether the Harraw discretionary trust was ever validly constituted, or whether the defendants are estopped from asserting that the trust was not validly constituted;

whether Mr McNally gave an instruction to Mr Harris countermanding a direction that the Oxiana shares be held on the trusts of the Harraw discretionary trust;

if so, whether such instruction was given before the shares, or an equitable interest in the shares, became held by Harraw Nominees on the trusts of the Harraw discretionary trust;

if Harraw Nominees was in breach of trust, whether Mr Harris, Harris Johnsson Nominees, or Harris Johnsson Partners, are liable as accessaries to the breach of trust;

if Harraw Nominees was in breach of trust, whether Mrs Harris is liable as an accessary to the breach of trust;

whether Mr Harris committed the tort of injurious falsehood by; a. representing to ASIC that Mr Warton had resigned as a director of Harraw Nominees; and/or b. executing the share transfer from Harraw Nominees to Harris Johnsson Nominees purportedly in the capacity as sole director of Harraw Nominees and thereby representing to the persons responsible for keeping the Oxiana share register that the transfer was authorised by Harraw Nominees.

if so, whether Mr Harris is liable for exemplary damages;

whether Mr Licardy or Licardy Harris & Co Ltd are vicariously liable for the conduct of Mr Harris;

if Mr Harris is liable to pay equitable compensation or damages, or Harris Johnsson Nominees, Harris Johnsson Partners or Mrs Harrris are liable to pay equitable compensation, whether he is or they are entitled to contribution or an indemnity from Mr McNally; and

whether the plaintiffs are entitled to further or consequential relief. Credibility 21 The principal protagonists are Mr McNally and Mr Harris. I do not consider either to be a reliable witness. I agree with the submission of Mr Parker SC, who appeared for the plaintiffs, that "it's difficult to escape the conclusion when one looks at the picture right through to the end of 2004 that there's something more that went on behind the scenes that hasn't been completely exposed in the evidence." Further Background 22 Mr McNally and Mr Harris first met in 1994. At the time, Mr McNally was a tax partner in the Melbourne office of Deloitte Touche Tohmatsu ("Deloittes"). Mr Harris and Mr McNally dealt with each other in relation to a company called Wallace International Ltd of which Mr Harris became a director in June 1994. Mr McNally and Mr Harris became friends as well as having a professional relationship. 23 Mr McNally was effectively removed as a partner of Deloittes in 1997. He brought proceedings against Deloittes which resulted in a substantial settlement in his favour. From July 1997, he established the Melbourne office of a tax consulting firm called the Fallon Group Pty Ltd. He and Mr Harris periodically discussed the prospects of establishing a partnership involving corporate advisory and tax consulting work. Mr Harris acted as a corporate adviser. Mr Harris controlled a company called Sentinel Capital and Equities Pty Ltd ("Sentinel Capital") through which he purchased $250,000 worth of options issued by Wallace International Ltd, then called Analytica Ltd. In 2000, Mr McNally contributed equity of $250,000 to become an equal shareholder in Sentinel Capital for the purpose of acquiring further options in Analytica. The investments in Analytica were unsuccessful. In March 2001, Mr McNally sold his shares in Sentinel Capital to Mr Harris for a nominal sum and thereby crystallised a loss on that investment. 24 Mr McNally and Mr Harris remained friends. Mr McNally regarded him as a close friend and someone whose advice he valued and relied upon. In March 2002, Mr Harris was a groomsman at Mr McNally's wedding. Mr Warton was Mr McNally's best man. 25 Mr Warton had a background in indirect taxation. In 2002, he advised Mr McNally that Mr McNally should consider setting up a family trust and transferring some of his assets into the trust to provide protection to his wife and any children. He said that Mr McNally had had a tendency to lose assets in the past in speculative investments so that it would be a good idea to put some assets away so that his family had some security and protection. One of Mr McNally's successful investments had been the acquisition of about 5,000,000 options to acquire shares in Oxiana. 26 At least one of the purposes for which the Harraw discretionary trust was established was the traditional purpose of a husband settling property upon an independent trustee to provide security for his family against future improvidence. As was put by Mr Perram SC, for the first to fourth defendants, in his opening submissions: " Each of Mr McNally, Mr Warton and Mr Harris were aware of Mr McNally's track record with investments and both Mr Warton and Mr McNally thought that an element of estate planning in which Mr McNally ceded control over his assets to independent third parties might impose on Mr McNally the external discipline necessary to avoid further improvident investments. " 27 The defendants said, and I accept, that an additional purpose of the establishment of the trust was to attempt to shelter Mr McNally's assets against apprehended future claims by the Australian Taxation Office ("the ATO"). On 10 February 2003, Mr McNally was advised by officers of the ATO that he was liable to tax, penalty tax, and an interest charge amounting to $557,521 which the officers asserted formed part of his assessable income in the 1998 financial year. Mr McNally disputed that he had any such liability, but in the same month he settled all of his Oxiana shares on trustees. On 10 February 2003, Mr McNally transferred a substantial number of shares to Fashion Tower Pty Ltd, a company of which he was a shareholder and director, to be held on trust for him. On or after 21 February 2003, he transferred the balance of the Oxiana shares to Harraw Nominees. I find that one of Mr McNally's purposes in establishing the Harraw discretionary trust was to attempt to shelter the assets against claims he anticipated the ATO would make for unpaid tax, penalties and interest. That, of course, does not mean that the establishment of the trust was a sham. Although the first to fourth defendants pleaded a case of sham, that claim was rightly abandoned. The intention to shelter the assets from future claims by the ATO could only be effective if Mr McNally truly intended to divest himself of the shares on the terms of the Harraw discretionary trust. However, the motivation for the transfer may be relevant when assessing the likelihood that Mr McNally would at some time attempt to countermand his instruction for the shares to be settled on the trust. That is to say, if Mr McNally's motivation was to shelter assets from claims of the ATO, it may be more likely that he would later attempt to deal with the assets as his own than would be the case if his only motive was to provide security for his family. 28 There was a dispute as to when the trust deed was signed. It is dated 21 February 2003. That day was a Friday. Mr Harris deposed that he, Mr Warton and Mr McNally met on 21 February 2003 at which time he was given instructions to prepare the trust deed. Harraw Nominees was incorporated on 21 February 2003. Its Australian Company Number ("ACN") was issued at 3.19pm on that day. According to Mr Harris, he prepared the trust deed over the weekend, that is, after Mr McNally had told him that the Oxiana shares should be put in the company, not in the trust. According to Mr Harris, the trust deed was signed by Mr Licardy as settlor on 24 February 2003 and signed by him on behalf of Harraw Nominees on the same day. It was stamped on 25 February 2003. Mr Harris said that he backdated the deed to 21 February 2003 to coincide with the date of incorporation of Harraw Nominees. 29 Mr Harris deposed that on either Monday, 24 or Tuesday, 25 February 2003, he posted the share transfer form to either Mr McNally or to Mr Warton to be completed and signed by Mr Warton. The share transfer form is also dated 21 February 2003. 30 I do not accept this evidence. It was inconsistent with the evidence of Mr Licardy, Mr McNally and Mr Warton. 31 In his oral evidence, Mr Harris explained why he proceeded to complete, execute and stamp the trust deed after (according to him) receiving instructions from Mr McNally not to put the Oxiana shares in the trust. He said that Mr McNally did not instruct him that the trust was not to be established, but only that the Oxiana shares were not to be settled as property of the trust. However, if that were so, I can see no reason why the shares would have been transferred to the name of Harraw Nominees which was established to be the trustee of the discretionary trust, rather than into the name of some other company controlled by Mr Harris. Nor would it make sense to backdate the trust deed and the share transfer if Mr Harris' understanding of Mr McNally's instructions was that the shares were not to be held on the trusts of the discretionary trust. 32 Mr Licardy gave evidence that the trust deed was dated immediately after he signed it as settlor, and the date it bears is the date on which he signed it. I accept that evidence. It is consistent also with the evidence of Mr McNally and Mr Warton. They did not give consistent evidence as to the circumstances in which the trust deed was executed. Their first version of events changed after Mr Harris served an affidavit of a Mr John Andrews who arranged for the incorporation of Harraw Nominees. He did so by lodging an application form electronically with ASIC. It was not until 3.19pm on 21 February 2003 that he received from ASIC an "Edge Validation Report". He received the certificate of incorporation of Harraw Nominees some time later that afternoon. It was not until he received the certificate of incorporation that he knew of the ACN of Harraw Nominees. 33 The trust deed consisted of 13 pages. Only Mr Licardy, Mr Harris and a witness signed the execution page of the trust deed. The pages were not initialled. The common seal of Harraw Nominees was not affixed. The ACN of Harraw Nominees was not included in the execution clause. Harraw Nominees' ACN was included where its name appeared on the first page of the trust deed. The names of the beneficiaries were set out on the first and second pages of the trust deed. On the second page of the trust deed, the full name of Mr Warton's daughter was set out. Mr Warton only told Mr Harris her full name at the meeting of 21 February 2003. Mr Harris relied upon these matters as showing that the deed could not have been signed on that day. 34 However, Mr Licardy, Mr McNally and Mr Warton were all clear in their recollection that the deed was signed on that day, and Mr Warton and Mr McNally were clear in their recollection that the share transfer form was also signed at that time. The share transfer form was signed by Mr Warton, although at that time, the common seal of Harraw Nominees was not affixed. 35 It is probable that after the deed was signed on 21 February 2003 the first and second pages were replaced with pages which included the ACN for Harraw Nominees and the full name of Mr Warton's daughter. The original trust deed was not in evidence. It appears from photocopies that were in evidence that the original deed was held together by a spike so that there would have been no difficulty in replacement pages being substituted. I accept Mr McNally's evidence that the reason he travelled to Sydney from Melbourne was to execute the trust deed and share transfer and that he did so, rather than that he merely came to Sydney for the purpose of giving instructions to Mr Harris. Those instructions could as easily have been given over the phone. 36 I conclude that both the trust deed and the share transfer were signed on 21 February 2003, being the date they bear. 37 I do not accept Mr Harris' evidence that on the evening of 21 February 2003, Mr McNally telephoned him and instructed him to "put the Oxiana shares in the company, not the trust. The company can just be my trustee until I decide what to do." Mr McNally denied giving such instructions. The telephone records for his mobile phone do not show his having made any such call. He and Mrs McNally were in each other's company for the whole of that evening. Mrs McNally corroborated his evidence that he did not make any telephone call. Moreover, it is highly unlikely that having been present when the trust deed and share transfer were signed on that afternoon, Mr McNally would have changed his mind in such a short space of time. I accept Mr McNally's denial of having given any such instruction to Mr Harris on the evening of 21 February 2003. 38 In cross-examination Mr Harris was uncertain as to whether the conversation he deposed to with Mr McNally took place on the evening of 21 February 2003. Mr Harris' evidence was that he prepared the trust deed over the weekend of the 22nd and 23rd February 2003. He gave the following evidence: " Q Now if you received instructions on the Friday night, that is the 21st, from Mr McNally not to proceed with putting any substantial assets into that trust, you drew up the trust deed?

A Well, I wasn't told not to and that's what makes me think that this conversation may not have occurred on the Friday.

Q You recognise that if the conversation occurred on the Friday it would have made no sense for you at all to thereafter prepare the trust deed which would have just been a waste of paper?

A Not necessarily. He must have wanted to use it for something else. He didn't say not to do it. He just actually said 'don't put the shares in the trust '. Not ' don't prepare the trust '.

Q You said a little moment ago that you thought that might be why in fact the instruction according to you had come later than the 21st?

A It's possible. I'm just not clear on the timing. " 39 This ambivalence is remarkable because of the document relied upon by Mr Harris as confirmation of the instructions he claimed he received from Mr McNally. The document is a memorandum addressed by Mr McNally to Mr Harris dated 22 February 2003 which stated : " I refer to our telephone discussion on 21 February 2003 and confirm that I do not want the Oxiana shares placed in to the Harraw trust structure. Until I decide what to do with the shares, I want them in the name of Harraw Nominees Pty Ltd (the company) as trustee only for myself. " 40 Mr Harris' evidence was that he prepared this memorandum after receiving that instruction from Mr McNally and sent it to Mr McNally. He said that he later received through the post a copy of the signed written instruction and had no occasion to question the authenticity of Mr McNally's signature on the document. In his affidavit, Mr Harris deposed that "I recall this telephone conversation occurred on 21 February 2003 because I thought it ironic at the time that it occurred on the same date I had arranged for the incorporation of the company." 41 Mr Harris' subsequent ambivalence as to the timing of the conversation is surprising because if the conversation did not occur on 21 February 2003, as he conceded in cross-examination it might not have, the document dated 22 February 2003 would clearly be false. 42 I do not consider that the document is authentic. As noted above, it is common ground that the purported signature of Mr McNally's is a forgery, at least in the sense that it is not his usual signature and that it was written hesitantly having been copied backwards or upside down from another signature. The question is whether Mr McNally himself wrote the signature in such an unusual way or whether Mr Harris forged the signature in an attempt to bolster his evidence of the oral instruction. 43 The evidence of the handwriting expert, Mr Westwood, is significant not only for his conclusion that the signature on the memorandum was the product of some person attempting to imitate the form of a genuine "WA McNally" signature, but also for his conclusion that it is probable that the writer of the signature had used the signature on the deed dated 7 June 2003 as a model. Mr Westwood had been provided with at least 33 specimen signatures of Mr McNally. Whilst it is possible that there may have been other signatures of Mr McNally which were the same as his signature on the deed dated 7 June 2003 and which were used as a model for drawing the simulated signature on the memorandum dated 22 February 2003, I think it probable that Mr Harris used Mr McNally's signature on the deed of 7 June 2003 to create the signature on a document which he produced and backdated to 22 February 2003 as attempted corroboration of his evidence of the oral instruction given to him by Mr McNally. The suggestion advanced by Mr Harris that Mr McNally wrote his signature in a way which appeared to be a forgery so that he could later deny the instruction, is far-fetched. If, as Mr Harris said, Mr McNally decided not to transfer the Oxiana shares to Harraw Nominees before the trust had been established, there would be no reason for him to later seek to deny the giving of the instructions. The suggestion that he might seek to set up Mr Harris as a potential target for litigation by the beneficiaries of the trust by creating a false signature so that Mr Harris could be accused of forgery when he later sought to later rely on the instruction is convoluted in the extreme. 44 I do not consider that the memorandum dated 22 February 2003 corroborates Mr Harris' version of events. To the contrary, I accept Mr McNally's evidence that he did not sign the document. Mr Harris' production of the document discredits rather than corroborates his evidence that he received such an instruction from Mr McNally on 21 February 2003. 45 Moreover, my previous findings that the trust deed and the share transfer had been signed on the afternoon of 21 February 2003 coupled with Mrs McNally's evidence that she was with her husband during the course of the evening of 21 February 2003 and that he did not telephone Mr Harris, together with the fact that the records for Mr McNally's mobile phone disclosed no such call, all indicate that the telephone conversation deposed to by Mr Harris did not occur. 46 As noted at para [31] above, if the instruction alleged by Mr Harris were given, it would have made no sense to backdate the trust deed and the share transfer. Mr Harris said that he prepared the share transfer over the weekend and posted it to either Mr McNally or Mr Warton to be signed by them, and subsequently he received the signed form back from Mr McNally. The date of 21 February 2003 was typed as the "date signed". This would have been false. There would be no reason to state a false date of signing. There would be no reason to choose the date of registration of the transferee as the date of transfer of the shares. Having prepared the share transfer dated 21 February 2003 and intending to send it to Mr McNally or Mr Warton, there would be no reason for Mr Harris to backdate the trust deed to accord with the date on the share transfer form, and every reason not to do so if it were not intended that the shares be held for the beneficiaries named in the trust deed. 47 That is not to say that a later instruction was not given by Mr McNally to Mr Harris to deal with the Oxiana shares. For the reasons which appear below I consider that such an instruction was given. However, by that time the shares were trust property. Deed Dated 7 June 2003 48 If Mr McNally signed the deed dated 7 June 2003 on or about that date and knew what he was doing, he and Mr Harris, by that time, were both treating the Oxiana shares as shares with which Mr McNally was then entitled to deal. The deed provided that Harris Johnsson Nominees assigned 250,000 shares in Sentinel to Mr McNally in consideration for the assignment by Mr McNally to Harris Johnsson Nominees of 781,000 Oxiana shares. Mr McNally gave evidence that he did not receive the document until May 2004 and he did not read it. He said that in September 2003 he had been promised 250,000 shares in Sentinel as consideration for his moving from Melbourne to Sydney to take up a position as finance director of Sentinel and as part of his remuneration for the work which he did for that company. He said that he received through the post from Mr Harris the deed and a share transfer. The documents came without a covering letter. Notwithstanding that fact, he did not read the deed or even notice that it provided for the inclusion of a date sometime in 2003. The deed was less than two pages long. Mr McNally deposed that he did not recall sending the documents back to Mr Harris, but it was common ground that he did so. In the course of discovery, both Mr McNally and Mr Harris produced original copies of the deed signed by them both. 49 Mr McNally deposed that he took the deed and the share transfer form to Slater & Gordon in Melbourne in May 2004 although he did not ask that firm for advice on the documents. He asked Slater & Gordon if they could process the share transfer form and was referred to another solicitor, a Mr Sesto. Mr McNally met with Mr Sesto or spoke to him in mid June 2004. He provided him with a copy of the share transfer form. 50 I do not accept that Mr McNally did not read the deed. On his own version of events, Mr McNally was under no pressure when the document was signed. He took the document to two different firms of solicitors. On his version of events, the deed was in some way associated with the transfer of the Sentinel shares. Mr McNally said that Mr Harris had told him that he needed to take the share transfer to a solicitor and that he, Mr Harris, could not deal with the share transfer form because he had been a director of Sentinel. On that version of events, as Mr McNally accepted, there would have been no reason for him to have returned the deed to Mr Harris. 51 Mr McNally's evidence as to the time at which the document was signed was corroborated by Mrs McNally. She witnessed Mr McNally's signature to the second page of the deed. She recalled witnessing the document at a new house in Melbourne to which she and her husband had moved in April 2004. Accordingly, she said that she was sure that the document had been signed in May 2004. She said that she scanned the document and that one word on the first page, namely "Sentinel", stood out. However, she did not scan the document closely enough to observe that it included the year 2003 in typewritten form on the first line of the document. I do not accept that Mrs McNally was able to identify the document in question as the document which she witnessed in 2004. 52 Unless Mr McNally and Mr Harris had agreed to the Oxiana shares being swapped for 250,000 Sentinel shares, there would have been no purpose in Mr Harris sending the deed to Mr McNally. Mr Harris had no reason to think that Mr McNally would not read the document. 53 It is far more likely that Mr Harris sent the document to Mr McNally to sign on or about 7 June 2003 and that Mr McNally signed and returned the document at that time. As at 7 June 2003, Mr McNally had become interested in the proposed float of shares in Sentinel. In April 2003, he was asked to become a director of the company. The promoter of the company was a Mr Anthony Aoun. In early May 2003, Mr McNally met Mr Aoun and they discussed the prospects of the company. The company owned certain real estate agencies and provided property management services. It provided property research advice through the internet. Mr McNally later alleged that he was seriously misled by Mr Aoun in relation to the company's financial position. He asserted that in early May 2003, he met with Mr Aoun and "we thought there were a lot of synergies in terms of vision and creativity. I further met Anthony in Sydney not long after and we again had similar convictions and Anthony reaffirmed his desire for me to belong to the team ...". 54 Sentinel was incorporated on 6 June 2003. Mr Harris, Mr McNally and Mrs Aoun were appointed directors on that day. On that day, 5,500,000 ordinary shares fully paid for $0.0001 each were issued to Harris Johnsson Nominees. Five million of those shares were held by Harris Johnsson Nominees as trustee for the Sentinel Property Trust and 500,000 were issued to it as trustee for the Harris Johnsson Rural Property Trust. The 5,000,000 shares issued to Harris Johnsson Nominees as trustee for the Sentinel Property Trust were held for the benefit of Mr Aoun or his family. It was proposed that the shares in Sentinel would be offered to investors for $3 each. 55 Mr McNally said that Mr Harris promised him half of the 500,000 shares in Sentinel for no consideration moving to Mr Harris, but as a reward or recompense for Mr McNally to move to Sydney to work for the company. In about May or early June 2003, he was told by Mr Harris and Mr Aoun that the profits for the Sentinel business were expected to be about $6,000,000 for the financial year ended 30 June 2003. He gave evidence that he would have regarded the deal outlined in the share swap agreement as being a very good deal if it had happened on 7 June 2003, subject to his doing due diligence. There was nothing irrational in the transaction described in the share swap agreement, except that Mr McNally was not entitled to deal with the Oxiana shares. 56 I do not accept Mr McNally's evidence that Mr Harris offered the Sentinel shares to him as a gift. There is no corroboration of that evidence. If Mr McNally were to be given shares in Sentinel as part of an inducement to him to work for Sentinel, it would not be expected that all of the shares to be so offered would come from Mr Harris' holding. 57 In support of his contention that the deed dated 7 June 2003 was not delivered until May 2004, Mr McNally pointed out that the share transfer for 250,000 Sentinel shares from Harris Johnsson Nominees to him is dated 17 May 2004. Mr Harris accepted that the share transfer was prepared at the same time as the share swap agreement and was sent to Mr McNally with two copies of the share swap agreement. Mr McNally resigned from Sentinel in about October 2003 having discovered that the financial position of the business was not as it had been represented to him. Mr Harris resigned as a director in about December 2003 as a result of his dissatisfaction with Mr Aoun. Mr Harris deposed that some time after Mr McNally resigned he told Mr Harris that he had lost the transfer and asked for Mr Harris to send him another transfer. This is a more likely explanation for the dating of the share transfer than Mr McNally's having signed and returned the share swap agreement in May 2004 without having read it. 58 Counsel for the plaintiffs said that Mr Harris had admitted in correspondence that the share swap was effected in June 2004, not June 2003. In a letter of 28 October 2004 to Arnold Bloch Leibler responding to demands made by that firm on behalf of Mr and Mrs McNally and their family, Mr Harris said: " Prior to the share swap, effected in June 2004, McNally required HNPL to sell 100,000 OXR shares and for the sale proceeds to be given to Sentinel. This was done by me. ... Despite my counsel to him that he was proposing to exchange listed (more liquid) shares for unlisted (less liquid) shares, he was determined to proceed. I prepared a deed to give effect to the transaction and mailed it to him. I also told him that he should seek independent advice, both as to the nature of the transaction and the deed effecting it. The deed's date of execution is June 7th 2003 ... If McNally now claims that he did not agree to the share swap he is lying. To reiterate, not only did he agree to it, he initiated it. " 59 I accept Mr Harris' evidence that the date of June 2004 was a typographical error. It was always Mr Harris' position that the deed was executed in June 2003. He asserted that his company had acquired ownership of the Oxiana shares before they were sold. He was asserting in the letter that his company acquired such ownership from Mr McNally by virtue of the share swap. Given that the shares were sold in 2003, it was clearly a typographical error to say that the share swap was effected in June 2004. The Hungarian Banking Scam 60 The strongest objective indication that Mr McNally did not understand that he had signed a share swap agreement concerns a transaction described in the evidence as the Hungarian banking scam. In about July 2004, a Mr Marcus Rose told Mr McNally of an opportunity to invest in a company he was promoting called Johnson's Well NL (later called Regis Resources NL), which he said potentially showed returns equal to, if not better than, those from Oxiana. Mr McNally expressed interest in investing. He told Mr Rose that he would like to invest a total of $800,000: $600,000 to come from him, and the other $200,000 from Mr Harris. Mr Rose asked him where he would get his $600,000. Mr McNally told him that it would be from the sale of the Oxiana shares. 61 This evidence had something in it for both sides. It showed that Mr McNally considered that he could deal with the Oxiana shares as if they were his own. Counsel for Mr Harris submitted that this was consistent with the instructions Mr Harris said he had received from Mr McNally that the Oxiana shares were to be held on trust for him, and not on the trusts of the Harraw discretionary trust. Counsel for the plaintiffs said that it corroborated Mr McNally's evidence that he did not appreciate that he had signed an agreement to assign the Oxiana shares in consideration for the transfer of shares in Sentinel. 62 At Mr McNally's request, Mr Harris agreed to apply for 16,000,000 shares in Johnson's Well NL for $800,000. The application was lodged on 4 August 2004. The application moneys were due on 6 August 2004, but were not forthcoming. I accept Mr Rose's evidence that in the course of a conference call between Mr Rose, Mr McNally and Mr Harris, Mr Harris said that the funds had been cleared from his account but had been diverted to Hungary. In fact, no payment was ever made. 63 Mr Harris' evidence was that he never intended to invest $800,000 in Johnson's Well NL. He said that he agreed to put in an application for the shares at Mr McNally's request because Mr McNally wanted to secure the right to the shares and needed some time to raise the money elsewhere. According to Mr Harris, he agreed to lodge the application to help Mr McNally, although he never intended to take up the shares. Mr Harris said that he sent Mr Rose two facsimiles on 4 August 2004. His evidence was as follows: " In the first [facsimile] I indicated that I had sent an application form through and that I had cancelled a cheque which had been intended to pay for the shares. These statements were incorrect. In the second facsimile I enclosed a share application form and indicated that I had transferred funds to a solicitor's trust account as payment for the shares. This was also incorrect. It was never my intention to invest such a large sum in Johnsons Well Mining NL. I had originally only intended to assist McNally by giving him some time to find another investor. Ultimately, I became trapped in a deception. The deception served me no benefit at all. I was extremely embarrassed by the position I found myself in. " 64 Mr Harris denied that he had raised in a telephone conversation with Mr McNally and Mr Rose that he had paid for the shares but the funds had been diverted to Hungary. According to Mr Harris, Mr Rose asked him "what's this story about the Hungarian bank scam?", and that Mr McNally admitted to him that he, Mr McNally, had told Mr Rose that a cheque for $800,000 had gone missing and the money had ended up in Hungary. Mr Rose deposed that it was Mr Harris who raised the story of diversion of funds to Hungary to explain why the subscription moneys were not paid. 65 Mr Rose was a credible witness. I have no hesitation in preferring his evidence to that of Mr Harris. Whilst the story of the Hungarian banking scam adversely reflects on Mr Harris' credit, it is of only indirect relevance to the question of whether Mr McNally believed that he was then entitled to deal with the Oxiana shares. The story of funds being diverted to Hungary was raised because Mr Harris, at Mr McNally's request, had applied for the shares in Johnson's Well. The fact that he should give a false reason as to why the funds to subscribe for the shares were not forthcoming is not of primary importance. The false story was told because Mr Harris had made an application to subscribe for shares which he did not intend to fulfil. 66 I do not consider that either Mr Harris or Mr McNally told the whole story. If, as Mr McNally said, he believed the Oxiana shares were held by Harraw Nominees on the trusts of the Harraw discretionary trust, there is no reason he would have asked Mr Harris personally to have applied for shares with the subscription funds to come from the sale of Oxiana shares. He would have to have involved Mr Warton, and in all probability his wife, in a decision to sell the Oxiana shares. Nor would the application for Johnson's Well shares have been made in the name of Mr Harris, as distinct from Harraw Nominees. On the other hand, if Mr McNally had already sold the Oxiana shares, as Mr Harris contended, by exchanging them for shares in Sentinel, there is no reason that Mr McNally should have told Mr Rose that the subscription funds for the shares in Johnson's Well would come from the sale of Oxiana shares. Nor, prima facie, would there be any reason for Mr Harris to have agreed to assist Mr McNally by applying in his own name for shares which required the payment of $800,000. 67 There is at least one hypothesis which would explain the transactions, although it is not an hypothesis supported by evidence of either party. Nor was it put to either party. If Mr McNally and Mr Harris knew that the Oxiana shares had been held on the trusts of the Harraw discretionary trust and that the share swap agreement was in breach of trust, Mr McNally may have been able initially to persuade Mr Harris to put the proceeds of sale of the Oxiana shares towards subscription of shares in Johnson's Well, particularly as he could point to the fact that his investment in Sentinel shares had failed. I do not make any finding that that occurred. There was no evidence that it did. However, the possibility of such an alternative hypothesis shows that I should not discount the effect of the share swap agreement of 7 June 2003 merely because Mr McNally represented to Mr Rose that he could deal with the Oxiana shares, or because of Mr Harris' conduct in relation to the shares in Johnson's Well in 2004. Conclusion in Relation to the Deed of 7 June 2003 68 I conclude that Mr McNally's signing and returning the share swap agreement dated 7 June 2003 corroborates Mr Harris' evidence that he was instructed by Mr McNally that the Oxiana shares should be held for Mr McNally. However, it does not follow that those instructions were given before the Oxiana shares became assets of the Harraw discretionary trust. When Oxiana Shares Became Property of the Harraw Discretionary Trust 69 Clause 15 of the trust deed provided that future contributions could be made to the trust fund by, inter alia, any person transferring to the trustee any securities and directing the trustee to hold the securities upon like trusts as were contained in the trust deed. At the meeting of 21 February 2003, Mr McNally gave such a direction by stating that he would transfer to the trust his 781,000 Oxiana shares in his margin lending account and by then writing in the number of shares to be transferred onto the share transfer form and signing it. 70 The share transfer stated that the consideration for the transfer of the shares was a sum of $15,620, or two cents per share. This was very substantially less than the then market value of the shares. The consideration was not paid. As at 21 February 2003, Mr McNally remained the legal and beneficial owner of the shares. The shares were still registered in his name. Although the share transfer form contained a contract for valuable consideration for the transfer of the shares for a specified price to Harraw Nominees, the consideration had not been paid. No order would have been made for the specific performance of the contract. The shares in question were shares in a listed company. Damages would be an adequate remedy. On the other hand, the chose in action, being the contractual rights embodied in the share transfer, was trust property. The trust was completely constituted on 21 February 2003, even though the settlement sum of $10 was not paid. 71 There was delay in registering the transfer of shares. The transfer was registered on 8 April 2003. From that date the shares were trust property held on the trusts of the deed dated 21 February 2003. Mr McNally was not entitled to deal with them. Timing of Mr McNally's Instructions to Mr Harris 72 I do not consider that Mr McNally and Mr Harris agreed to swap the Oxiana shares for the Sentinel shares to be transferred to Mr McNally, or that Mr McNally instructed Mr Harris to deal with those shares as if they were his property, before 8 April 2003. As noted in para [53] above, it was in early May 2003 that serious discussions started about Mr McNally taking up a position with Sentinel. 73 It is probable that it was in about May 2003 that Mr Harris and Mr McNally agreed that Mr Harris should take an assignment of the Oxiana shares in return for Harris Johnsson Nominees transferring 250,000 Sentinel shares to Mr McNally. 74 The deed of 7 June 2003 recited that Mr McNally was the holder of the 781,000 Oxiana shares. This was not the fact. Harraw Nominees had become the holder of the shares on 8 April 2003. The shares were transferred to Harris Johnsson Nominees on 5 May 2003. The transfer was registered on 7 May 2003. I do not consider that the false recital affects the substance of this transaction. It is probable that at about the time these steps were taken and discussions were on foot for Mr McNally to work for Sentinel that he and Mr Harris agreed that on the formation of the company proposed to be listed, Mr Harris would transfer 250,000 of the shares to Mr McNally in return for the Oxiana shares. I infer that it was in anticipation of that step that steps were taken to remove the shares from the control of Harraw Nominees. It is possible that there were discussions in April 2003 between Mr Harris and Mr McNally relating to the transaction which ultimately found expression in the deed of 7 June 2003. It was on 15 April 2003 that Mr Harris signed the statutory form for notification to ASIC of change to officeholders. In that form he represented that Mr Warton had ceased to hold office as a director on 15 April 2003. The form was lodged with ASIC on 22 April 2003. This was a prelude to Mr Harris dealing with the Oxiana shares and may have been the result of discussions then being conducted with Mr McNally. But having rejected Mr Harris' evidence that Mr McNally gave a countermanding instruction on 21 February 2003, there is no basis for saying that any such instruction was given prior to 8 April 2003. 75 I do not overlook the fact that neither Mr Harris nor Mr McNally said that it was in about April, May or June 2003 that Mr McNally told Mr Harris that he wanted to be able to deal with the Oxiana shares. It was not in either of their interests to do so. Acting on such an instruction from Mr McNally would not relieve Mr Harris from the consequences of causing Harraw Nominees to breach the trust. Nor was it in Mr McNally's interest to say so, as he would potentially be liable for inducing the breach of trust. As I have said, I do not regard either man as a reliable witness. 76 The most probable inference from the documentation is that the trust was established on 21 February 2003, the transfer of shares was signed by Mr McNally as transferor and by Mr Warton and Mr Harris as directors of Harraw Nominees on 21 February 2003, that transfer was registered on 8 April 2003 (a fact about which there is no dispute), the share transfer form from Harraw Nominees to Harris Johnsson Nominees was signed on 5 May 2003 (a fact which is not in dispute), and that transfer was made because Mr McNally and Mr Harris then contemplated the share swap agreement documented by the deed dated 7 June 2003. I accept that between 5 May 2003 and 7 June 2003 Mr Harris treated the Oxiana shares as held by Harris Johnsson Nominees on trust for Mr McNally. He was not, as the plaintiffs would have it, simply stealing the shares. Whilst the deed of 7 June 2003 recites that Mr McNally was the holder of the shares, the position of Mr Harris, and I consider also of Mr McNally, was that at that time they were treating Mr McNally as the beneficial owner of the shares and entitled to deal with them in the way provided for in the deed of 7 June 2003. 77 However, this was a breach of trust. I am satisfied that Mr Harris was conscious that it was a breach of trust. Mr McNally must also have realised that the transaction into which he was entering involved a breach of trust. Liability of Mrs Harris 78 Mr and Mrs Harris are the directors of Harris Johnsson Nominees. Mrs Harris had no involvement in the day-to-day affairs of the company and left such matters to her husband. They have been effectively separated for nine years, but their financial affairs are still connected. The transfer of shares from Harraw Nominees to Harris Johnsson Nominees was executed under the common seal of Harris Johnsson Nominees and signed by Mr and Mrs Harris as directors of the transferee. 79 I accept Mrs Harris' evidence that although she is also a signatory to the joint bank account, the account is operated by her husband. He puts money into the account and takes money out without her questioning it. She was made a signatory to the account only because Mr Harris was worried that if something happened to him she would not have any money at all. She did not receive bank statements or know the source of money that was paid into the account. She signed the share transfer form for Harris Johnsson Nominees at Mr Harris' request without inquiry about the transaction. She signed the transfer of 650,000 Oxiana shares from Harris Johnsson Nominees to Harris Johnsson Partners as a director of Harris Johnsson Nominees. Again, she did that at Mr Harris' request. She did not ask about the share transactions. I accept her evidence that she did not ask her husband about the reasons for the transfer of the 781,000 shares from Harraw Nominees to Harris Johnsson Nominees or the transfer of 650,000 Oxiana shares from Harris Johnsson Nominees to Harris Johnsson Partners. She agreed that she was content to receive the shares (meaning she was content for the shares to be transferred to Harris Johnsson Nominees) on the basis that they reflected some sort of transaction her husband had been involved in. She had no involvement with Harris Johnsson Partners. 80 Mr Harris was the controlling mind of both Harris Johnsson Nominees and Harris Johnsson Partners. Harris Johnsson Nominees received the Oxiana shares with knowledge, through Mr Harris, that the shares were transferred to it in breach of trust. When Harris Johnsson Partners received the transfer of 650,000 shares on 15 August 2003, it knew, through Mr Harris, that the shares had been acquired by Harris Johnsson Nominees through a breach of trust. 81 Mrs Harris had no knowledge or notice that the Oxiana shares had been held on trust or were transferred to Harris Johnsson Nominees in breach of trust. She had no knowledge or notice that the proceeds of sale of the Oxiana shares paid into the joint bank account, whether pursuant to the sales made by Harris Johnsson Nominees or by Harris Johnsson Partners, represented the proceeds of the breach of trust. 82 Counsel for the plaintiffs submitted that because the transfer from Harraw Nominees to Harris Johnsson Nominees disclosed that the transfer was for nil consideration, Mrs Harris was put on inquiry as to why that was so. It was accepted that she did not receive the shares and that the only trust property she received was moneys paid into the joint bank account. The plaintiffs accepted that there was no evidence that Mrs Harris knew that such moneys were trust property but submitted that she was liable because she allowed her husband to deal with the moneys once they were received as he saw fit. Counsel acknowledged that they were unable to identify any authority that this was sufficient to render Mrs Harris personally liable to the plaintiffs for the proceeds of sale of the Oxiana shares paid into the joint account. (I leave aside any tracing remedy which may or may not still be available. It is not suggested that any of the proceeds of sale can be traced to Mrs Harris except if they can be identified in the joint bank account. There was no evidence about the state of that account and the plaintiffs indicated that if they were successful in establishing a breach of trust they may wish to pursue tracing remedies after discovery of information as to how the proceeds of sale have been dealt with.) 83 In Barnes v Addy, Lord Selborne LC said (at 251-252): " Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt 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 . 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. " 84 The plaintiffs did not contend that Mrs Harris was liable under the second limb of Barnes v Addy. For Mrs Harris to be liable under the first limb of Barnes v Addy it must be shown that she received trust property, which would include the moneys received from the sale of the shares in breach of trust, with knowledge or notice of the trust (Farah Constructions Pty Ltd at [112]). It was not shown that Mrs Harris received trust property for her own use and benefit. This is essential (Agip (Africa) Ltd v Jackson [1990] Ch 265 at 292). The mere fact that the moneys were paid into the joint account does not establish receipt for this purpose, it not having been shown that she was aware of the receipt or that she received any benefit from the receipt, or that the moneys remained in the account (National Commercial Banking Corporation of Australia Ltd v Batty (1986) 160 CLR 251 at 268; Heperu Pty Ltd v Morgan Brooks Pty Ltd (No. 2) [2007] NSWSC 1438 at [127]-[130]). 85 In Hancock Family Memorial Foundation Ltd v Porteous [1999] WASC 55; (1999) 151 FLR 191; 32 ACSR 124, Anderson J said (at [79]): " [79] As to recipient liability, there is less certainty about what must be proved to sheet home liability to the non-trustee but I adopt, with respect, the reasoning and conclusions of Hansen J in Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16 on the question. In the first place, it is not necessary to establish that a recipient of trust property acted dishonestly or with want of probity. 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 inquiries 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)." 86 In Kalls Enterprises Pty Ltd (In liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557, the Court of Appeal made no adverse comment on the parties' acceptance of this as an accurate statement of the law (at [176]). It confirmed that knowledge of facts that would show to an honest and reasonable person that property received was trust property, or was misapplied in breach of fiduciary duty, is sufficient to render the recipient liable under the first limb of Barnes v Addy (at [179]). 87 Mrs Harris did not even have notice of facts which would put a reasonable person on enquiry as to whether a fraud or breach of trust had been committed. She had no knowledge of facts which showed that there had been a breach of trust and no knowledge or notice that moneys received into the joint account were held on trust for any third person. 88 Accordingly, she is not shown to have received trust property for her own use and benefit, nor shown to have notice or knowledge which would render her liable under the first limb of Barnes v Addy had she done so. 89 The fact that Mrs Harris is not liable to a personal remedy does not exclude the possibility that the plaintiffs may be able to trace trust property into assets acquired by her otherwise than as a bona fide purchaser for value without notice. The plaintiffs submitted that if they established that a breach of trust had occurred they should be allowed the opportunity to investigate the availability of any tracing remedies after further inquiry. I did not understand that course to be opposed if the plaintiffs establish their claim that the Oxiana shares had been dealt with in breach of trust. That course is appropriate. Accordingly, the rejection of personal remedies against Mrs Harris does not lead to the conclusion, at this stage, that the proceedings against her should be dismissed in their entirety. Liability of Mr Harris and Harris Johnsson Nominees 90 Mr Harris and Harris Johnsson Nominees are liable under both limbs of Barnes v Addy, to pay equitable compensation or to account for profits received; that is, for having received and become chargeable with trust property, and for having assisted with knowledge in a dishonest and fraudulent design on the part of Harraw Nominees. There is no dispute that Mr Harris' state of mind can be attributed to Harris Johnsson Nominees. Mrs Harris left it to Mr Harris to run the affairs of the company. Harris Johnsson Nominees took a transfer of the Oxiana shares with actual knowledge through Mr Harris that the transfer was in breach of the trusts of the Harraw discretionary trust. Whilst initially it did not receive the shares for its own use and benefit that position changed on entry into the deed of 7 June 2003 by which it transferred shares in Sentinel to Mr McNally in return for the assignment to it by Mr McNally of the 781,000 Oxiana shares. Whilst it gave value for the shares, it was not a bona fide purchaser for value without notice because it knew that the shares did not belong to Mr McNally but were required to be held on the trusts of the Harraw discretionary trust. It sold at least 131,000 of the shares and is liable to account for the proceeds of sale. It held the shares and the proceeds of the sale on constructive trust for the beneficiaries of the Harraw discretionary trust. 91 Mr Harris is liable under the first limb in respect of the proceeds of sale of the Oxiana shares paid into the joint bank account which he controlled. 92 In paragraph [76] I have found that Mr Harris did not simply appropriate to himself the Oxiana shares but that he agreed to Mr McNally being treated as the beneficial owner of the shares so that they could be swapped with the Sentinel shares to be transferred to Mr McNally. But I have also found in paragraph [77] that Mr Harris was conscious that this was a breach of trust. Mr Harris was acting as if he were the sole director of Harraw Nominees. In determining whether Harraw Nominees was engaged in a dishonest and fraudulent design within the second limb of Barnes v Addy, Mr Harris' state of mind and conduct is to be attributed to Harraw Nominees. In Consul Development Pty Ltd v DPC Estates Pty Ltd (1974) 132 CLR 373, Gibbs J (as his Honour then was) said (at 398): " I respectfully agree with what was said in Selangor United Rubber Estates Ltd v Cradock [No 3] [1968] 1 WLR 1555 as to the meaning of 'dishonest and fraudulent' for the purposes of the rule. This expression is to be understood by reference to equitable principles and, as I have already indicated, in my judgment it includes a breach of trust or of fiduciary duty. " 93 In Farah Constructions, the High Court referred to this passage without disapproval, whilst not attempting any further explication of what is encompassed within the requirement of the second limb that the trustee or fiduciary be engaged in a dishonest and fraudulent design. In the context of dealing with the question of what is sufficient knowledge for a third party to be liable as an accessary under the second limb, the High Court did observe (at [173]) that: " ... a person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards. " 94 In Selangor, Ungoed-Thomas J said (at 1582-1583, 1590-1591) that what is a dishonest and fraudulent design on the part of trustees is not to be determined by reference to the criminal law, but to the principles applied by a court of equity in its administration of equitable relief. His Lordship accepted that the phrase referred to conduct which was morally reprehensible, but said it was undesirable to attempt an exhaustive definition. 95 Mr Harris must have known that by allowing Mr McNally to deal with the Oxiana shares as if they were his own he was acting to the immediate detriment of the beneficiaries of the trust. I have found that he was conscious that he was acting in breach of trust. The transaction was also of benefit to him because Harris Johnsson Nominees was to acquire the Oxiana shares from Mr McNally. Mr Harris said that he attempted to dissuade Mr McNally from exchanging the Oxiana shares for the Sentinel shares explaining that Mr McNally would be exchanging a liquid investment for an illiquid investment. He said that Mr McNally was determined to proceed. That evidence shows that Mr Harris regarded the exchange as being a good transaction from his point of view. He may have thought that Mr McNally would later replenish the trust fund, although there is no evidence that he did so because it was his case that the shares never became trust property. But even if he were of that view, I consider that his design, and hence the design of Harraw Nominees, was dishonest and fraudulent when considered by reference to equitable principles within the meaning of the second limb. The breach of trust was deliberate, was to the detriment of the beneficiaries, and Mr Harris stood to gain from the transaction. 96 Hence I conclude that both Mr Harris and Harris Johnsson Nominees are also liable as constructive trustees under the second limb of Barnes v Addy. Conclusion as to Liability of Mr Harris and Harris Johnsson Nominees 97 The plaintiffs are entitled to recover at their election from Mr Harris equitable compensation for the loss of 781,000 Oxiana shares or an account, with interest, of the proceeds of sale of such shares paid to Mr Harris. As against Harris Johnsson Nominees, the plaintiffs are entitled to recover equitable compensation in respect of the loss of 781,000 Oxiana shares or, compensation for the loss of the 650,000 Oxiana shares transferred to Harris Johnsson Partners and an account, with interest, of the proceeds of sale of the 131,000 shares sold on 20 June and 21 July 2003. They are also entitled to an inquiry if they wish to pursue tracing remedies. Liability of Harris Johnsson Partners 98 The shares held by Harris Johnsson Nominees were impressed with a constructive trust when they were transferred to Harris Johnsson Partners. Harris Johnsson Partners, through Mr Harris, was aware of all of the facts which gave rise to the trust. It is also liable to account as a constructive trustee under the first limb of Barnes v Addy in respect of the 650,000 Oxiana shares transferred to it on 15 August 2003 and to account for the proceeds of sale of those shares. There was no argument as to whether it was also liable under the second limb to pay equitable compensation for the loss of all 781,000 shares. By the time Harris Johnsson Partners became involved, the dishonest and fraudulent design of Harraw Nominees had been completed by the transfer of the shares to Harris Johnsson Nominees to be held for Mr McNally and the exchange of those shares for the Sentinel shares. In my view, Harris Johnsson Partners is liable only under the first limb of Barnes v Addy in respect of the shares it received. Further Inquiry 99 In their outline of submissions, the plaintiffs contended that in November 2003 and May 2004 Mr Harris caused Harris Johnsson Partners to sell 150,000 of the Oxiana shares in two transactions. They submitted that the proceeds of the November 2003 sale were deposited to a bank account of Harris Johnsson Nominees and the proceeds of the May 2004 sale were deposited to the joint bank account. The statement of claim filed on 22 September 2005 alleged that on about 19 November 2003, Harris Johnsson Partners sold and transferred 50,000 Oxiana shares through a broker on the Australian Securities Exchange ("ASX") and that on or about 10 May 2004 it sold 95,000 Oxiana shares through the ASX. It was originally alleged that on about 3 June 2004, it transferred 500,000 Oxiana shares through the ASX and sold a further 5,000 shares through the ASX on 25 June 2004. These allegations were admitted. However, the allegations were removed from the further amended statement of claim filed on 20 December 2006. There was no admission on either the existing or earlier pleadings as to the application of the proceeds of sale of the shares, save for the shares sold between 7 May 2004 and 16 September 2005. If not agreed, this is a proper matter for inquiry. Harris Johnsson Nominees, Harris Johnsson Partners and Mr Harris are liable to account for proceeds of sale received by them whether the sales were made by Harris Johnsson Nominees or Harris Johnsson Partners. Injurious Falsehood 100 As summarised at para [12] above, the conduct of Mr Harris said to give rise to a liability in tort was the preparation, signing and lodgment with ASIC of a Form 304 giving notice of change to officeholders. Mr Harris signed the form as director and secretary of Harraw Nominees on 15 April 2003. He certified that on that day, Mr Warton had ceased to hold office as director of Harraw Nominees. He lodged the form with ASIC. He was described as the lodging party and he gave as his address a post office box in Mittagong. The second action relied on as giving rise to liability in tort was the preparation, signing and lodgment with the Oxiana share registry of a standard transfer form for the transfer of the 781,000 Oxiana shares from Harraw Nominees to Harris Johnsson Nominees. Mr Harris affixed the common seal of Harraw Nominees Pty Ltd and signed the form for Harraw Nominees describing himself as "sole director & company secretary". He thereby represented that the transfer had been authorised by Harraw Nominees. It is necessary to consider both claims separately because different arguments may be available as to the vicarious liability of Licardy Harris & Co Pty Ltd and Mr Licardy in relation to the two claims. 101 Initially, on the incorporation of Harraw Nominees, Mr Andrews was the sole shareholder and director of the company. He received instructions from Mr Harris that Mr Harris and Mr Warton were to be appointed directors. He also received instructions from Mr Harris as to the intended registered office of the company. As sole director of Harraw Nominees, Mr Andrews passed resolutions that Mr Warton and Mr Harris be appointed as directors. His sole share was a redeemable preference share. He also passed a resolution for the redemption of that share and the issue of one share to each of Mr Harris and Mr Warton. 102 Mr Warton did not sign a consent to act as director but he agreed with Mr McNally and Mr Harris to accept an appointment as director. He signed the transfer of shares from Mr McNally to Harraw Nominees as a director of Harraw Nominees along with Mr Harris. I have accepted his evidence that he did so on 21 February 2003. Section 201D of the Corporations Act provides: " 201D Consent to act as director

(1) A company contravenes this subsection if a person does not give the company a signed consent to act as a director of the company before being appointed. (2) The company must keep the consent. (3) An offence based on subsection (1) or (2) is an offence of strict liability. " 103 As the plaintiffs submitted, the section assumes that a person may be appointed as a director notwithstanding his or her not having provided a signed consent to act. That is to say, whilst the company would commit an offence by not having received the signed consent, it does not follow that the person was not appointed to the office of director. A person cannot be a director of a company unless he or she has consented to act as such (Hedges v NSW Harness Racing Club Ltd (1991) 5 ACSR 291 at 293; Knight v Bulic (1994) 13 ACSR 553). Before the introduction of s 201D, there was no statutory requirement that the consent of a director, other than the initial directors, be in writing (Knight v Bulic at 560). Section 201D now requires written consents before a person is appointed as a director but the absence of a signed consent did not mean that Mr Warton did not become a director when he gave his consent orally and acted in that capacity. Mr Warton did not resign as a director. Mr Harris did not believe that he had resigned on 15 April 2003. According to him, Mr McNally told him he had no further use for Harraw Nominees but that Mr Harris could use it if he wanted to. Mr Harris deposed that there was a conversation to the following effect: " Harris: Paul will have to resign if I'm to use the company.

McNally: Send me a resignation letter and I'll get Paul to sign it. " 104 Mr Harris said that he posted to Mr McNally a letter of resignation to be signed by Mr Warton but did not ever receive a signed letter back. Mr McNally denied this evidence. There may have been something said between Mr McNally and Mr Harris about obtaining Mr Warton's resignation, but I am not satisfied that a conversation occurred as described by Mr Harris, because I do not accept that his evidence can be relied upon unless corroborated. 105 On Mr Harris' own evidence, he had not received any evidence that Mr Warton had resigned as a director of Harraw Nominees when he signed the share transfer for the transfer of the Oxiana shares from Harraw Nominees to Harris Johnsson Nominees. Mr Warton was not consulted about the transfer and there was of course no resolution of directors that Harraw Nominees transfer the shares. The express representation in the share transfer form that Mr Harris was the sole director of Harraw Nominees was false and the implied representation alleged by the plaintiffs that the transfer for the Oxiana shares to Harris Johnsson Nominees had been authorised by Harraw Nominees was also false. The representations were false to Mr Harris' knowledge. 106 There was little argument about the ingredients of the tort of injurious falsehood and as to whether they were or were not satisfied. In Palmer Bruyn & Parker Pty Ltd v Parsons [2001] HCA 69; (2001) 208 CLR 388, Gummow J said (at 404 [52]): " [52] The elements of the action for injurious falsehood usually are expressed in terms which derive from Bowen LJ's judgment in Ratcliffe v Evans [1892] 2 QB 524 at 527-528, to which further reference will be made. Thus, generally, it is said that an action for injurious falsehood has four elements: (1) a false statement of or concerning the plaintiff's goods or business; (2) publication of that statement by the defendant to a third person; (3) malice on the part of the defendant; and (4) proof by the plaintiff of actual damage (which may include a general loss of business) suffered as a result of the statement. " 107 Kirby J identified seven elements to the tort (at 425 [114]), namely: " [114] In my opinion, there are seven elements to the tort. They are:

(1) That the defendant published matter that was false; (2) That the falsity concerned the plaintiff or its property; (3) That such falsity was calculated to induce others not to deal with the plaintiff or was otherwise likely to damage the plaintiff;

(5) That the publication had the results complained of; (6) That those results included actual damage to the plaintiff; and

(7) That such damage was either: (a) The result which the person publishing the false matter intended; or (b) The natural and probable result of such publication. " 108 The notice of change of officeholders and the share transfer form signed by Mr Harris both contained statements that were false. The false statements did not concern the plaintiffs. The notice to ASIC concerned Harraw Nominees and its officeholders. The share transfer form concerned Harraw Nominees and its property, namely the Oxiana shares. It is implicit in the plaintiffs' claim that Harraw Nominees was entitled to sue for damages for injurious falsehood and that its chose in action was itself trust property now held by the present plaintiffs pursuant to the vesting order of 13 October 2005. No issue was taken about this by the defendant. Senior counsel for the defendant accepted that if Mr Harris' case were otherwise rejected it would be difficult for him to contend that that did not involve the making of a maliciously false statement to the Oxiana share registry causing a loss to the company in its capacity as trustee. 109 For the purposes of this tort, in order to show that the publication was actuated by malice, it is sufficient to prove "some indirect, dishonest or improper motive, or at any rate an intent to injure without just cause or excuse, ... It is sufficient evidence of malice that the defendant knew the disparaging statement to be false ..." (Fleming, The Law of Torts, 9th ed (1998) LBC Information Services at 780). In Palmer Bruyn & Parker Pty Ltd v Parsons, Callinan J said (at 448 [193]-[194]) that it was sufficient to show some indirect dishonest or improper motive without necessarily requiring proof of an intent to injure without just cause or excuse. Knowledge of the falsity of the statement would be sufficient. 110 I conclude that "malice" in this sense has been established. Mr Harris knew that the statement in the notice lodged with ASIC was false and he knew that the statement sent to the Oxiana share registry that he was the sole director of Harraw Nominees, and the implied statement that he was authorised to cause Harraw Nominees to transfer the shares, was false. If there be a requirement of an intention to injure without just cause or excuse, that element is also satisfied because he intended that Harraw Nominees be divested of the shares without just cause or excuse. 111 Different considerations apply to the two publications insofar as causation of loss is concerned. The plaintiffs must prove that the false statements must cause harm of a kind which was intended, or of a kind which is the natural and probable consequence of the making of the false statements (Palmer Bruyn & Parker Pty Ltd v Parsons at 397 [14], 414 [81], 425 [114]). 112 No damage was suffered by Harraw Nominees by the lodgment with ASIC of the notice of change of officeholders. Its loss was suffered by Mr Harris' affixing of the common seal of Harraw Nominees to the share transfer form and signing as sole director and secretary and sending that form to the Oxiana share registry. It is possible that a responsible person in the Oxiana share registry might have checked the records kept by ASIC to see whether they showed that Mr Harris was the sole director and secretary of Harraw Nominees as he claimed. There was no evidence that anyone did so. But even if someone did so, it would not mean that the publication of the notice to ASIC caused Harraw Nominees' loss. It would be but one of several steps which ultimately led to the transfer of the shares, but not in itself either sufficient nor even necessary for the transfer. Senior counsel for the plaintiff accepted that once Mr Harris was recorded at ASIC as being a director, the share registry did not need to make a further check of the ASIC records. The share registry was entitled to assume that Mr Harris had been duly appointed as a director (s 129(2) Corporations Act), had the authority to exercise the powers customarily exercised by a director (s 129(3)(b)), and was doing so properly (s 129(4)). Moreover, the Oxiana share registry could assume that the seal affixed to the share transfer had been duly executed by Harraw Nominees and that Mr Harris who stated he was the sole director and secretary of the company occupied both offices (ss 129(6) and 127(2)). 113 Further, it would not be sufficient to infer that Mr Harris lodged the notice of change of officeholders with ASIC with a view to later signing the share transfer himself without having to involve Mr Warton. It would be necessary to show that he intended to cause injury to Harraw Nominees by that publication, or to show that such injury was the natural and probable consequence of the publication of the false statements in the form. Neither is established. 114 For these reasons, I do not accept that Mr Harris was liable to Harraw Nominees for the tort of injurious falsehood by publishing the false statements in the notice of change of officeholders to ASIC. 115 The publication of the statements on the share transfer form to the Oxiana share registry is in a different position. In the case of the share transfer form, Mr Harris did intend that the publication to the Oxiana share registry of the statements in the share transfer form would result in the transfer of the Oxiana shares from Harraw Nominees to Harris Johnsson Nominees for no consideration, and hence to the injury of Harraw Nominees. The loss of the shares was the direct and intended consequence of the publication of statements in the form which were knowingly false. For these reasons, I conclude that by preparing, signing and despatching the share transfer form on or about 5 May 2003, Mr Harris committed the tort of injurious falsehood. As I have said, the damage was suffered by Harraw Nominees and no issue has been raised about the fact that its chose in action to recover such damages was trust property which vests in the present plaintiffs. However, save for the claim for exemplary damages, I doubt that any additional sum could be recovered at common law in damages for tort than would be recoverable as equitable compensation for knowing assistance in the breach of trust or as an account of profits. However, if common law damages provide a greater compensatory remedy the plaintiffs are entitled to that remedy. I apprehend that the primary purpose of the claim is to recover exemplary damages which are not allowable in equity (Harris v Digital Pulse Pty Ltd [2003] NSWCA 10; (2003) 56 NSWLR 298). Exemplary Damages 116 An award of exemplary damages is exceptional. It is made to punish a defendant who has engaged in conscious wrongdoing in contumelious disregard of the plaintiff's rights, in order to deter him and others from like conduct (Gray v Motor Accident Commission (1998) 196 CLR 1 at 9 [20], 12 [31]). Whilst I have found that Mr Harris engaged in conscious wrongdoing, I have not accepted the plaintiff's contention that he simply set about stealing the Oxiana shares. Mr McNally had voluntarily settled the Oxiana shares on the trusts of the trust deed. Mr Harris agreed that Mr McNally could again deal with the shares as if they were his, and exchange them for shares in Sentinel. That disregarded the interests of the beneficiaries of the trust but it involved no humiliating insult or contemptuous or humiliating treatment of those beneficiaries (see the Macquarie Dictionary definition of "contumely"). The kinds of conduct which have attracted awards of exemplary damages have involved physical assault (e.g. Adams v Kennedy [2000] NSWCA 152; (2000) 49 NSWLR 78; State of NSW v Ibbett [2005] NSWCA 445; (2005) 65 NSWLR 168), false imprisonment (Vignoli v Sydney Harbour Casino [1999] NSWSC 1113; (2000) Aust Torts Reports 81-541), the arranging of the plaintiff's arrest on spurious grounds (Zhu v Sydney Organising Committee for the Olympic Games [2001] NSWSC 989), or intentional trespass and destruction of the plaintiff's property (XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1984) 155 CLR 448). Of course, these categories are not exhaustive, but they are indicative of the seriousness of the kinds of conduct which will attract awards of exemplary damages. I do not consider that Mr Harris showed contumelious disregard, as distinct from ordinary disregard, of the rights of the beneficiaries of the discretionary trust. In any event, I would decline to award exemplary damages because in my view compensatory damages, or an award of equitable compensation, or an account of profits, for the same conduct as that which attracts liability in tort, adequately marks the Court's condemnation of Mr Harris' conduct. Vicarious Liability of Mr Licardy 117 The plaintiffs pleaded that when Mr Harris prepared and lodged the Form 304 with ASIC stating that Mr Warton had ceased to be a director of Harraw Nominees, and when he signed the share transfer form for the Oxiana shares from Harraw Nominees to Harris Johnsson Nominees and sent the form to the registry of Oxiana for processing, he was acting in the ordinary course of business of a firm of which he and the sixth defendant, Mr Licardy, were partners. In the course of final submissions the plaintiffs accepted that Mr Harris and Mr Licardy were not partners. Instead, the claim against Mr Licardy was put on the basis that he represented himself, or knowingly suffered himself to be represented, as a partner, with Mr Harris, in a firm carrying on an advisory business. The claim was based on s 14(1) of the Partnership Act. That section provides: " 14 Persons liable by 'holding out'

(1) Every one who by words spoken or written, or by conduct represents himself or herself, or who knowingly suffers himself or herself to be represented as a partner in a particular firm that is a firm other than a limited partnership or incorporated limited partnership, is liable as a partner to any one who has on the faith of any such representation given credit to the firm, whether the representation has or has not been made or communicated to the person so giving credit by or with the knowledge of the apparent partner making the representation or suffering it to be made. " 118 The plaintiffs alleged that on the faith of a representation that Mr Harris was a partner with Mr Licardy, Mr McNally and Mr Warton gave credit to the apparent firm. The plaintiffs alleged that Mr Warton and Mr McNally believed that their instructions for the establishment of the trust, the incorporation of Harraw Nominees to be the trustee of the trust, the appointment of Mr Warton and Mr Harris as directors, the allotment and transfer of shares in Harraw Nominees to Mr Warton and Mr Harris, the establishment of the registered office of Harraw Nominees at the office premises of Richard A Licardy & Co, the lodgment with ASIC of forms required to be lodged to record the corporate activities of Harraw Nominees, the holding of the corporate register and other books of Harraw Nominees at the office premises, the preparation, execution and stamping of the trust deed and the transfer of the Oxiana shares from Mr McNally to Harraw Nominees, were to be carried out by the apparent firm of Mr Harris and Mr Licardy. The plaintiffs alleged that they gave credit to the apparent firm on the faith of this belief. 119 The plaintiffs alleged that Mr Licardy represented or knowingly suffered himself to be represented as a partner with Mr Harris in a firm carrying on an advisory business in three ways: first, by not contradicting Mr Harris' introduction of Mr Licardy to Mr McNally as his partner; secondly, by allowing the office premises to be used for the conduct of an advisory business under the name "Licardy Harris & Company"; and thirdly, by his signing the trust deed which bore the name "Licardy Harris & Company" as the firm responsible for the preparation of the document. 120 Prior to April 2004, Mr Licardy carried on sole practice under the name Richard A Licardy & Co. From April 2000, that practice was carried on at offices in Level 1, The Edgecliff Centre, Edgecliff. On 19 September 2001, Licardy Harris & Co Pty Ltd was incorporated. Mr Licardy and Mr Harris were the shareholders and directors of the company. The company did not undertake legal work. Licardy Harris & Co Pty Ltd traded as a "corporate advisory firm". 121 From 1 April 2004, Licardy Harris & Co Pty Ltd also carried on business as an incorporated legal practice with Mr Licardy being the only solicitor/director. 122 In about 2002 and 2003, Mr Harris represented himself to be a partner of a firm called Licardy Harris & Co. In late 2002 or early 2003, he used a business card describing himself as a partner in a firm called Licardy, Harris & Company. However, Mr Licardy had not seen the card and had not permitted or suffered Mr Harris to represent himself as a partner in such a firm. 123 Mr McNally gave evidence that Mr Harris was introduced to him as a lawyer by a Mr Wallace. He said that in 2002, he was introduced by Mr Harris to Mr Licardy at the offices in Edgecliff and that words to the following effect were said: " Harris: 'Walter, I would like to introduce you to my partner, Richard Licardy.'

McNally: 'It's a pleasure to meet you. Nick and I are doing a lot of good work together.' Licardy: 'It's good to meet you. Nick has spoken to me often about you.'" 124 Mr Licardy initially said that he had no recollection of that conversation. Mr Harris did not deny the conversation. Mr Harris said that he referred to Mr Licardy as his "partner" from time to time as they were co-owners and co-directors of Licardy Harris & Co Pty Ltd. Mr Parker SC submitted that Mr McNally's evidence ought to be accepted as it was not put to him in cross-examination that the conversation to which he deposed did not occur. In cross-examination, Mr Licardy denied that Mr Harris described him as his partner in the presence of Mr McNally and said that Mr Harris had never in his presence described himself as Mr Licardy's partner. That evidence went much further than the evidence in his affidavit that he did not recall the conversation. I do not accept that Mr Licardy had a sufficiently good memory of such events to be able to make such a denial. On the other hand, I do not accept that when he swore his affidavit in 2006 Mr McNally had an accurate recollection of precisely what words were used by Mr Harris in introducing Mr Licardy to him some four years previously. I do not regard Mr McNally as a reliable witness and his perception of events when he came to swear his affidavit would have been coloured, even if subconsciously, by the claims the plaintiffs were making. I am not satisfied that a conversation as deposed to by Mr McNally occurred. 125 The plaintiffs allege that Mr Licardy permitted the office on Level 1 of The Edgecliff Centre to be used for the conduct of an advisory business under the name "Licardy Harris & Co". Mr Licardy and Mr Harris denied that such a sign was displayed at the premises prior to April 2004. I accept that denial. 126 In one of his affidavits, Mr Licardy said that for the period from 1 July 2002 to 30 May 2003, he conducted business as Richard A Licardy Harris & Co. I am satisfied that that was a mistake. Mr Licardy also said that at that time he was carrying on business under the name of Richard A Licardy & Co. Even when his attention was drawn to the phrase used in his affidavit he did not detect the error. Nonetheless, I am satisfied that it was an error. 127 The third respect in which the plaintiffs allege that Mr Licardy suffered himself to be represented as a partner with Mr Harris was that he signed the trust deed which bore the name "Licardy Harris & Company" as the firm responsible for the preparation of the document. That name appears on the cover page of the deed. Mr Licardy gave evidence that he did not see the cover page when he executed the trust deed. He had seen precedents of a trust deed previously but these had not included a cover page showing the name Licardy Harris & Co as the firm responsible for the document. Mr Licardy said that had he seen the cover page with the name Licardy Harris & Co, he would have "pulled it up". I accept that evidence. 128 For these reasons, I am not satisfied that Mr Licardy knowingly suffered himself to be held out as a partner with Mr Harris in any of the three respects alleged by the plaintiffs. 129 In any event, even if Mr Licardy had suffered himself to be held out as a partner with Mr Harris in an apparent firm, neither Mr McNally nor Mr Warton "gave credit" to that apparent firm on the faith of any such representation that Mr Licardy was Mr Harris' partner. Mr McNally entrusted his business to Mr Harris because of their existing personal relationship. 130 Mr McNally was asked about work done by Mr Harris in establishing the discretionary trust and preparing the trust deed. He gave the following evidence in cross-examination: " Q. You did not have him do this work because you thought he was a partner in Licardy Harris & Co, did you?

A. In the first instance he was a lawyer. He operated under Licardy & Harris and I thought he could adequately prepare the documents.

Q. You did not have Mr Harris do these things because you thought he was a partner of Licardy Harris?

Q. Because he was somebody you had used over the years and he was a friend?

A. Yes he was a friend and my lawyer in some respects.

Q. It was nothing to do with the fact that you thought he was a partner of Licardy Harris & Co that you wanted him to do this work for you?

A. He was just part and parcel. He presented himself as being a partner and that was comforting and he sounded like a lawyer and he quacked like a lawyer and naturally ...

Q. He quacked like a lawyer before he was associated with Licardy Harris?

Q. And you did not go to him on this occasion because he was a partner, you thought, of Licardy Harris?

Q. You did not go there for any reason associated with Mr Licardy, did you?

A. No. Licardy in this matter was superfluous because Nick said he would prepare it. " 131 Mr Warton said that he paid no part in giving instructions to Mr Harris. He accepted the position of director but all the instructions to Mr Harris came from Mr McNally. 132 Accordingly, I conclude that neither Mr McNally nor Mr Warton dealt with Mr Harris in the transaction on the faith of any representation that Mr Licardy was Mr Harris' partner. Therefore even if the giving of instructions to Mr Harris as a partner in an apparent firm could constitute the giving of credit within the meaning of s 14 of the Partnership Act, such credit was not given on the faith of any representation or even any assumption that Mr Licardy was in partnership with Mr Harris. In Duke Group Ltd (in liq) v Pilmer [1999] SASC 97; (1999) 73 SASR 64; 153 FLR 1 at [1032]; 31 ACSR 213, the Full Court of the Supreme Court of South Australia emphasised that for credit to be given on the face of the representation that a person is a partner in a particular firm, the person giving credit must have relied upon that representation (at [1032]-[1050]). In this case, there was no such reliance. 133 I do not consider that the High Court's decision in Lynch v Stiff (1943) 68 CLR 428 indicates a different result. There, the High Court said that (at 434-435): " In our opinion there is no justification for making any addition to the requirements of the section by holding that the person who has given credit must show that, apart from the holding out, he would not have given credit. The doctrine of holding out is a branch of the law of estoppel. So far as the element of action by the party relying upon an estoppel is concerned, it is sufficient if that party acts to his prejudice upon a representation made with the intention that it should be so acted upon, though it is not proved that in the absence of the representation he would not have so acted. " 134 In Lynch v Stiff, there was evidence there that the client gave credit to the firm of solicitors because he believed the defendant, whom he trusted, was a partner. In the present case, neither Mr McNally nor Mr Warton were influenced in their actions in any way by any belief that Mr Licardy was Mr Harris' partner. 135 It is unnecessary to decide whether there was a giving of credit within the meaning of s 14, or what was the scope of the business of the apparent firm and whether the actions of Mr Harris which caused loss to Harraw Nominees and the trust were carried out in the ordinary course of the business of such an apparent firm. However, for the reasons given below in relation to the claim against Licardy Harris & Co Pty Ltd, had the other elements of the claim against Mr Licardy been established, I would not accept that Mr Harris' conduct in transferring the Oxiana shares from Harraw Nominees to Harris Johnsson Nominees was done in the course of the business of the apparent firm. 136 For these reasons Mr Licardy is not vicariously liable in respect of Mr Harris' conduct. Liability of Licardy Harris & Co Pty Ltd 137 The nature of the business carried on by Licardy Harris & Co Pty Ltd was not clearly explained. The plaintiffs alleged that Licardy Harris & Co Pty Ltd carried on an "advisory business" and that the instructions described above were given to Mr Harris in the course of that business. The plaintiffs also alleged that Mr Harris' conduct in lodging the Form 304 with ASIC and transferring the Oxiana shares from Harraw Nominees to Harris Johnsson Nominees was undertaken by him "as a representative, and [was] fairly characteristic, of the enterprise conducted by Licardy Harris & Co Pty Ltd, in which event, by the principle of vicarious liability, [it] is subject to [sic] the liabilities of Harris ...". 138 The profit and loss statements for Licardy Harris & Co Pty Ltd for the relevant periods describe its income as being derived from "consulting fees". All the income for the relevant years were generated by work done by Mr Harris and the fees earned were paid to Mr Harris or at his direction. 139 I conclude that Mr Harris was acting in the course of the business of Licardy Harris & Co Pty Ltd in acquiring Harraw Nominees and establishing the Harraw discretionary trust. That is so notwithstanding that the company and Mr Harris did not charge any fees for the establishment of the company or the trust. Corporate Representatives Pty Ltd charged $998.50 for the establishment of Harraw Nominees Pty Ltd. An invoice for that amount was sent to "Licardy Harris & Company" at the Edgecliff office. Mr Harris paid the account of Corporate Representatives Pty Ltd and forwarded the account to Mr McNally asking for reimbursement. Mr Harris also paid the stamp duty on the trust deed. The trust deed was lodged for stamping by Mr Licardy using the rubber stamp of Richard A Licardy & Co but that was because Mr Licardy took all documents to the Office of State Revenue for stamping. 140 The registered office of Harraw Nominees was the office at Level 1 at The Edgecliff Centre. On the company incorporation form, the occupier's name of those premises was given as Licardy Harris & Company. The order for the company was noted as having been placed by Mr Harris of Licardy Harris & Company and the invoice was sent to "Licardy Harris & Company" at the Edgecliff address. The registered office was given as "c/- Licardy Harris & Company, Suite 101A, Level 1, 203-233 New South Head Road, Edgecliff" and the occupier was named as "c/- Licardy Harris & Company". 141 I should note that Mr Licardy was not privy to these representations that there was a firm called Licardy Harris & Company occupying the premises. As the only business being carried on under that name at the relevant time was that of the company, it appears to me that the incorporation of Harraw Nominees and the lodgment of the notice of change of registered office, were acts done by Mr Harris in the course of the business of that company. His preparation of the trust deed using a cover sheet in the name of Licardy Harris & Co indicates also that the trust deed was prepared by him in the course of the company's business. That is so notwithstanding that the company was not paid for that work. 142 I do not consider that in accepting office as a director of Harraw Nominees Mr Harris was also acting in the course of the business of Licardy Harris & Co Pty Ltd. He and Mr Warton were asked to take office as directors because of their personal friendship with Mr McNally. 143 As noted in para [100], when Mr Harris lodged Form 304 with ASIC giving notice of change to officeholders of Harraw Nominees, he named himself as the lodging party and gave as his address his post office box in Mittagong. Mr Parker SC submitted that the preparation and lodgment of the form was nonetheless done in the course of the business of the company. He submitted that the company records were held by "Licardy Harris & Company" at the Edgecliff office and it should be inferred that Mr Harris used those records to complete the form. The form included Mr Warton's full name and his date and place of birth. Hence, he submitted, once one accepted "Licardy Harris & Company" had possession of Harraw Nominees' records, including the corporate seal, and Mr Harris used those records to complete the Form 304 giving notice of change of officeholders and the share transfer form, it should be concluded that Mr Harris was not acting in his individual capacity as a director of Harraw Nominees but, at least additionally, in the course of the business of the company or, as the plaintiffs would have it, the apparent firm of Licardy Harris & Company. 144 It was never clearly established what happened to the records of Harraw Nominees, but it is clear that Mr Harris held them at least until the company was deregistered. He deposed that after receiving notification of deregistration of Harraw Nominees he forwarded the "Harraw register" to Mr McNally at his Melbourne address. 145 In my view in completing the notice of change of officeholders and the share transfer form dated 5 May 2003, Mr Harris was acting in his capacity as a director of Harraw Nominees. He signed the Form 304 as director and secretary of that company and he witnessed the common seal of Harraw Nominees as sole director and company secretary of Harraw Nominees. The fact that he had access to those documents at the company's registered office care of "Licardy Harris & Company" does not mean that in completing and lodging Form 304, he was acting in the course of the business of Licardy Harris & Co Pty Ltd. In any event, for the reasons earlier given, I do not accept that any liability in tort arose as a consequence of the lodgment of Form 304 with ASIC. Even if in lodging that form Mr Harris was acting in the course of the business of Licardy Harris & Co Pty Ltd, that company would not be vicariously liable for any amount for which Mr Harris is liable. 146 By 5 May 2003, Licardy Harris & Co Pty Ltd was not providing any service to Harraw Nominees except holding the company records. The fact that Mr Harris had access to the company seal when he signed the share transfer from does not mean that, when preparing and signing the share transfer form, he was acting in the course of the business of Licardy Harris & Co Pty Ltd. Mr Parker SC submitted that if an employee of Licardy Harris & Co Pty Ltd had used the company records held by Licardy Harris & Co Pty Ltd to forge a share transfer there could be no question but that the company would be vicariously liable for his acts. This is probably right. But Mr Harris did not have access to the records merely because he was a director of Licardy Harris & Co Pty Ltd. He had access to them in his capacity as a director of Harraw Nominees. In my view, he acted in that capacity, and in that capacity only, in lodging the Form 304 with ASIC and in executing and forwarding the share transfer form. 147 For these reasons, judgment should be entered for both the fifth and sixth defendants. Contribution or Indemnity from Mr McNally 148 The defendants sought indemnity from Mr McNally in respect of any amounts or in respect of any relief which they might be ordered to pay or provide to the plaintiffs, or alternatively, contribution or equitable compensation. The claim was pleaded on the basis of the contentions advanced by Mr Harris that he had been encouraged by Mr McNally to transfer the Oxiana shares to Harris Johnsson Nominees and thereafter enter into and perform the share swap agreement. The particulars given of the encouragement were the directions Mr Harris claimed he had been given on 21 February 2003 as confirmed by the written direction of 22 February 2003 and the oral representation allegedly made on 15 April 2003 by Mr McNally that he would not be using the trust, would not need Harraw Nominees and that the Oxiana shares should be held by another of Mr Harris' companies. I have not accepted the facts upon which the defendants claim for indemnity or contribution was pleaded. 149 Nonetheless, I should consider that claim on the basis of the findings of fact I have made. On those findings, had Mr McNally been sued, he also would have been liable to pay equitable compensation as a constructive trustee for having knowingly received trust property, namely the Oxiana shares with which he was permitted to deal by the share swap agreement, and for having participated with knowledge in a fraudulent and dishonest design on the part of Harraw Nominees. 150 Although Mr McNally, Mr Harris, Harris Johnsson Nominees and Harris Johnsson Partners would all liable to pay equitable compensation as accessaries to Harraw Nominees' breach of trust, the defendants are not entitled to contribution. As it is succinctly put in Heydon and Leeming, Jacobs' Law of Trusts in Australia, 7th ed (2006) LexisNexis Butterworths at [2120]: " Where there has been a fraudulent breach of trust to which all the trustees have been parties, there is no right of contribution between them. " (See also Belan v Casey (2003) 57 NSWLR 670 at 701.) 151 The principle is well expressed in Fratcher, Scott on Trusts, 4th ed (1988) Little, Brown and Company at [258.3]: " A trustee who is guilty of a fraudulent breach of trust is precluded from recovering either contribution or indemnity from his co-trustees. Thus if the trustees fraudulently participate in misappropriating trust funds, and one of them makes good the loss to the trust estate, he is not entitled to reimbursement in whole or in part from the others. This is an application of the general principle that one who has unclean hands cannot get relief in equity. There is a broad principle of policy against assisting a person with respect to a matter as to which his conduct is so reprehensible that the courts ought not in any way to help him. ... the mere fact that a trustee has through negligence committed a breach of trust does not preclude him from obtaining contribution or in some cases from obtaining a full indemnity from his co-trustees. Even though a trustee has participated in an intentional breach of trust, this does not necessarily preclude him from obtaining contribution from his co-trustees. The mere fact, for example, that the trustees have made an investment which they knew or should have known was not a proper trust investment does not preclude one of them from obtaining contribution from the others. But where a trustee has acted dishonestly - where, for example, he has participated in defrauding the trust estate - he is denied the right to compel the other trustees to reimburse him for the loss which he has made good to the trust estate. " 152 The same principle must be applied to persons liable as accessaries. 153 Mr McNally did not plead unclean hands as a defence to the claim for contribution. However, that would be explicable by the fact that the claim for contribution was pleaded on the basis of the facts alleged by Mr Harris, which, if established, would not have shown a want of clean hands on his part or on the part of the companies he controlled. 154 It follows that the claims for contribution or indemnity must fail. Summary of Conclusions 155 For these reasons I have concluded that:

1. The Harraw discretionary trust was validly constituted and the Oxiana shares became trust property;
2. Mr McNally gave an instruction to Mr Harris seeking to countermand his direction that the Oxiana shares be held on the trusts of the Harraw discretionary trust, but that instruction was not given prior to the shares becoming trust property;
3. Harraw Nominees through Mr Harris breached the trust by transferring the Oxiana shares to Harris Johnsson Nominees where they were initially held for Mr McNally until Mr McNally dealt with them in accordance with the share swap agreement of 7 June 2003;
4. Mr Harris, Harris Johnsson Nominees and Harris Johnsson Partners are liable as accessaries for the breach of trust;
5. Mrs Harris is not liable as an accessary to the breach of trust;
6. Mr Harris committed the tort of injurious falsehood by his execution and delivery to the Oxiana share registry of the form transferring the Oxiana shares from Harraw Nominees to Harris Johnsson Nominees but is not liable to pay exemplary damages;
7. Mr Licardy and Licardy Harris & Co Pty Ltd are not vicariously liable for Mr Harris' conduct;
8. Because Mr Harris, Harris Johnsson Nominees, Harris Johnsson Partners and Mr McNally participated in fraudulent breaches of trust, the former are not entitled to contribution or indemnity from Mr McNally, even though had he been sued he would also have been liable;
9. The plaintiffs are entitled to an inquiry if they wish to pursue a tracing claim. Otherwise they are entitled to equitable compensation for the loss of the Oxiana shares, and are entitled to equitable compensation from Harris Johnsson Partners in respect of the 650,000 Oxiana shares received by it. Alternatively, those parties are required to account for the proceeds of sale of the Oxiana shares received by them. 156 I direct counsel for the plaintiffs to bring in short minutes of order at a time to be arranged to give effect to these conclusions. 157 Prima facie, the plaintiffs are entitled to recover their costs from Mr Harris, Harris Johnsson Nominees and Harris Johnsson Partners and are liable to pay the costs of Mrs Harris, Mr Licardy and Licardy Harris & Co Pty Ltd. I will hear any submissions in relation to costs if different orders are sought when short minutes are brought in.

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