Plaintiff v Defendants

Mr M D Wyles, one of Her Majesty's Counsel with Ms F L Shand and Mr D J Fahey

1 This was a trial of four proceedings, given the status of 'test cases', representing issues raised by defendants to recovery proceedings commenced by Timbercorp Finance Pty Ltd (in liquidation). The plaintiff had commenced more than 1,500 recovery proceedings. In each proceeding the plaintiff claimed the unpaid balance of a loan, with interest and costs. M+K Lawyers represent approximately 350 defendants, and Slater & Gordon Ltd represent approximately 200 defendants. Most of the Slater & Gordon defendants have executed a deed poll binding them to the outcome. The object of the trials was to determine the merits of common defences, falling into two broad categories, filed by defendants represented by the two firms.

2 The plaintiff and each firm agreed to put forward two proceedings in which Slater & Gordon represent defendants, and two proceedings in which M+K represent defendants, as representative of the issues raised across all defences involving growers who applied for a loan or loans to finance their investment in one or more of three Timbercorp schemes. The schemes are the 2007 Almond Project, the 2008 Olive Project, and a 2007/2008 Single Payment Timberlot Project. I will refer to these projects as the Almond Project, Olive Project and Timberlot Project.

3 Within each project there were investment options, depending on the timing of the investment. Growers who invested in the Timberlot Project between 5 December 2006 and 30 June 2007, were known as the 'pre-30 June growers', while those who invested after 30 June 2007, but before 30 June 2008, were known as the 'post-30 June growers'. For the Almond Project, there were 'Early Growers', who invested after 27 November 2006, but before 15 June 2007; and 'post-30 June growers' who invested before 15 June 2008. The Olive Project opened on 26 February 2008 and closed on 15 June 2008. The description of the relevant Olive Project is sometimes qualified by the descriptor, 'Early'.

4 The defendant in the first of the M+K proceedings is Peter John White[1] and in the second proceeding, the defendants are Douglas James Collins and Janet Ann Collins.[2] Their defences represent a discrete category of issues for determination. The Slater & Gordon defendants are Peter Jeffrey Gruyters,[3] and Morag Lowe.[4] Their defences represent a case which is fundamentally inconsistent with the defences filed by the M+K defendants.

5 The circumstances in which so many recovery proceedings were commenced over a relatively short period of time by the plaintiff, and in which it became appropriate to conduct a trial of four test cases, requires some explanation.

6 The plaintiff was a member of the Timbercorp group of companies established in 1992. At the time administrators were appointed in 2009, the group comprised Timbercorp Ltd, the parent company, and a number of wholly owned subsidiaries, including the plaintiff and Timbercorp Securities Ltd.[5]

7 The Timbercorp group's primary business activity was the establishment, development, marketing and management of primary industry-based managed investment scheme. The business involved the acquisition of land, water rights and infrastructure, and the provision of finance to investors. Between 1992 and 2009, the Timbercorp group invested more than $2 billion in agribusiness projects on behalf of around 18,500 growers. Most investors borrowed moneys from the plaintiff to finance their investments, including the defendants. Some invested in multiple projects and had multiple loans, while others had multiple loans in respect of a single project.

8 By way of example, of 1,334 growers investing in the Almond Project (Early), 1,053 financed their investment through the plaintiff. Of the 163 growers who invested in the Post-30 June Almond Project, 153 entered into loan agreements with the plaintiff. Product Rulings made by the Australian Taxation Office allowed interest charges under loans by the plaintiff as a deductible expense. The rulings expressly stated that they did not apply to other methods of financing. The plaintiff offered to lend investors up to 90 per cent of all fees payable, apart from those to be recovered from harvest.

9 The circumstances in which investments were made, their context and purpose, will be discussed below. This was a dispute, in each group of proceedings, concerning the construction of certain provisions of the management and loan agreements. An important feature of each investment was the creation of an immediate deduction against income, for 100 per cent of the amount paid in Management Fees, and if financed through the plaintiff, the interest. Scheme documents transparently promoted the tax benefit, supported by binding Product Rulings made by the Australian Taxation Office, which were used to promote sales. Thus, a deduction of 100 per cent of Management Fees could be obtained with an immediately outlay of only 10 per cent of the deductible amount. It was little wonder that business for the Group flourished towards the end of each financial year.

10 When the administrators were appointed, the Timbercorp group operated 33 managed investment schemes. Mr White and Ms Lowe invested in the Timberlot Project (Post-30 June). All defendants invested in the Olive Project. Only Mr Gruyters invested in the 'Early' Almond Project, and Mr White also invested in the Post-30 June Almond Project.

11 Timbercorp Securities had a dual role in the group. On the one hand it acted as responsible entity for all Timbercorp schemes offered from 2001. In April 2004, it replaced Timbercorp as responsible entity of the schemes registered before 2001. It also undertook the role of project manager, carrying on business for profit on its own account. As responsible entity it was subject to the requirements of the Corporations Act 2001 (Cth).[6]

12 On 23 April 2009, Mark Anthony Korda, Leanne Chesser, Mark Francis Xavier Mentha, Craig Peter Shephard and Cliff Stuart Rocke, all partners of KordaMentha, were appointed administrators of Timbercorp and 40 of its wholly owned subsidiaries. On 29 June 2009, the creditors of the group resolved to wind up the companies, and the administrators were appointed liquidators. At the time the group collapsed, the plaintiff had a loan book comprising over 14,500 outstanding loans, to over 7,500 borrowers, totalling $478 million.

13 Following the appointment of administrators, borrowers under more than 8,000 Timbercorp loan agreements failed to meet their loan repayment obligations. In June 2009, the plaintiff commenced recovery proceedings against 20 defaulting borrowers. The initiation of further recovery proceedings were deferred when, on 27 October 2009, Alan Rodney Woodcroft-Brown commenced a group proceeding or 'class action' under Part 4A of the Supreme Court Act 1986 against Timbercorp Securities and three directors, Gary William Liddell, Robert James Hance and Sholom Charles Rabinowicz. The plaintiff was the fifth defendant. The recovery proceedings, commenced prior to the commencement of the class action, were 'put on hold' pending the outcome of the class action.

14 The trial of the class action commenced on 23 May 2011 and concluded on 7 July 2011. Judgment was delivered on 1 September 2011.[7] The plaintiffs appealed unsuccessfully to the Court of Appeal,[8] and their application for special leave to appeal to the High Court was refused. Following the conclusion of the appeal process in the class action, the plaintiff revived existing recovery proceedings and initiated a large number of new actions against defaulting borrowers.

15 The relief sought against the plaintiff, as a defendant in the class action, included declarations that it was involved in numerous contraventions of the Corporations Act and, importantly, a declaration that the plaintiff 'and Group Members' were not liable to repay any loans. The allegation that the plaintiff was involved in contraventions was similar to the allegations now made by the defendants in support of their allegations of 'knowing assistance'. While the impugned conduct, on which the lead plaintiffs relied in the class action was different, concerning failure to disclose material risks, the relief sought was substantially the same.

16 Having failed to have the loan agreements declared void or unenforceable in the class action, some growers sought to resist liability by raising new defences. There was the occasional counterclaim and third party claim. The four test cases represent two categories of defences, which stand apart as inherently inconsistent. The plaintiff alleged that the loan payment was evidenced by journal entries. The M+K defendants contended that journal entries recording an advance, which purport to record the discharge of the borrower's liability to Timbercorp Securities, were insufficient to satisfy the contractual obligation imposed upon the plaintiff. They alleged that upon a proper construction of the terms of each loan agreement, the loan to be made by the plaintiff, and paid to Timbercorp Securities, was required to be made in a 'bankable form' and not by journal entries. Even if the loan amount could be advanced by journal entry, it must be on account of Application Money to be held on trust for the investor until applied to Management Fees. They also contended that payment by journal entry would require evidence of an agreement between the participating entities and the person liable to repay the loan.

17 By way of contrast, the Slater & Gordon defendants (Gruyters and Lowe) relied on the fact that a valid loan had been made, by a payment to Timbercorp Securities on account of Application Money. They alleged that the loan amount, together with the deposit, was held by Timbercorp Securities on trust to pay Management Fees. They alleged that Timbercorp Securities breached its duty as trustee when applying Application Money to Management Fees in the first year, because the fees had not been incurred, were excessive or were uncommercial.

18 Both groups sought to differentiate Application Money from Management Fees and other scheme related costs. The manner in which the distinction was deployed was artificial. The distinction was used by all defendants to mask a confected defence. Scheme documents contemplated that Application Money would, upon acceptance of the investor's application, be immediately converted into a payment of Management Fees and other scheme related costs. There was only one amount to be paid by the investor on application, which represented the amount due for Management Fees and other scheme related costs. Scheme documents made it plain that only the Management Fee (and other scheme related costs) and not the Application Money, was tax deductible. Immediate payment of the whole of the Management Fee was of the essence to the scheme.

19 The starting point for the Gruyters and Lowe defences was their allegation that the Application Money was to be held on trust until release pursuant to the terms of each scheme constitution. The plaintiff conceded as much, although it confined its concession to a trust arising under s 601FC(2) of the Corporations Act. Thus, the central question before the Court, in the Gruyters and Lowe proceeding, was whether Timbercorp Securities, as responsible entity, was authorised to release the whole of the Application Money in payment of Management Fees for the first year of the scheme. Put simply, Mr Gruyters and Ms Lowe contended that the Application Money was released in breach of trust, because the amounts paid were not referrable to the performance by Timbercorp Securities of its management obligations under the relevant management agreements, or were excessive. They characterised the conduct of Timbercorp Securities in paying the Management Fees as dishonest.

20 The questions for determination in this proceeding might, quite plainly, have been formulated as common questions in the class action, because they reflected a common position shared by a large group of investors. Had that been done, it would not have been necessary to set aside these test cases for trial, years after the conclusion of the class action. As common questions in the class action, the answers would have been binding upon members of the group. The decision in these test cases will be binding only upon the parties to them.[9] One observation, arising from the events that have occurred, is the unsuitability of 'defensive' claims proceeding as class actions.

21 Before proceeding to consider the issues raised by the two categories of defence, some further context and background is required, which bears upon various estoppels raised by the plaintiff in the White and Collins proceedings.

22 On 4 June 2009, the liquidators of Timbercorp Securities filed an originating motion in this Court seeking directions under s 447D of the Corporations Act that they were justified in applying to wind up the Almond and Olive Projects. Almond and Olive Project assets, including scheme assets, were eventually sold.

23 The liquidators brought a further proceeding to determine competing claims to the sale proceeds. In those proceedings, David Butterfield was appointed representative defendant for the growers, pursuant to r 16.01(2) of the Supreme Court (General Civil Procedure) Rules.[10]

24 In relation to the Almond Project proceeds of sale, Davies J found that the growers held an interest in the land under sub-lease agreement, but had no entitlement to the proceeds of sale. Mr Butterfield appealed, but not on the finding as to the growers' interest. The appeal was settled by agreement,[11] and an amount set aside for distribution to the growers.

25 The liquidators commenced a similar proceeding in relation to the proceeds from the sale of Olive Project assets.[12] Mr Butterfield also became the representative defendant for the growers in that proceeding. The proceeding was settled by agreement, and an amount set aside for distribution to growers. Both agreements required court approval under r 16.01(4) of the Rules of Court.

26 On 12 December 2012, I approved the terms of both agreements, which bound all growers in the Almond and Olive Projects to the agreement.

27 Distributions were declared by Timbercorp Securities in respect of Mr White and Mr Gruyters under the Almond Project compromise agreement, and to each of the defendants under the Olive Project compromise agreement. On 11 February 2013, Mr Gruyters and Mr White were each credited with $1,056.32.

28 Distributions under the Olive Project compromise were also made on 11 February 2013, in the sum of $683.98 to Mr and Mrs Collins; $462.15 to Mr Gruyters; $1,663.74 to Ms Lowe; and $1,386.45 to Mr White.

29 The plaintiff asserted a security interest over each distribution amount. On 15 February 2013, the liquidators wrote to each defendant, or their solicitors, enclosing a direction to pay the distribution amounts in reduction of the outstanding balance of each respective loan account. No defendant has provided such a direction.

30 By its reply to the defences filed in the test cases, and other related proceedings, the plaintiff raised a plea of estoppel in the following terms:

The defendant is precluded from raising the pleaded defences by reason that [he, she or it] was a group member, within the meaning of Part 4A of the Supreme Court Act 1986 (Vic), in proceeding S CI 9807 of 2009.

The proceeding so described was the class action. As a consequence, a separate question was set down for trial under r 47.04 of the Rules of Court, namely:

Are the defendants precluded from raising any and if so what defences pleaded by them in this proceeding by reason of their participation as group members within the meaning of Part 4A of the Supreme Court Act 1986 (Vic) in proceeding S CI 9807 of 2009?

31 The trial of the separate question, framed in the Collins proceeding and another proceeding, in which John Charles Tomes was a defendant, was argued before Robson J on 29 and 30 April and 4 May 2015. Judgment was delivered on 2 September 2015.[13] The preliminary question was answered as follows:

The defendants are not precluded from raising any of the defences pleaded to the claims of Timbercorp Finance in the proceeding.

32 The plaintiff appealed unsuccessfully to the Court of Appeal.[14] Special leave was granted to appeal to the High Court, and the appeals heard on 1 September 2016. The appeals were dismissed on 9 November 2016.[15]

33 One aspect of an early iteration of the defence in the Collins proceeding was the allegation that by reason of the failure of the loan, the defendants did not acquire any interest in the Olive Project. By their rejoinder, filed 31 March 2015, the Collins defendants expressly denied that they had acquired an interest in the Olive Project, and denied that they were group members in the class action. They introduced the novel concept of a counter-estoppel, to preclude the plaintiff from raising the estoppel in its reply. They did so on the basis of a contention that the plaintiff had incorrectly represented that a loan had been made, when it had not.

34 At the conclusion of the trial of these test cases, the Collins and White defendants disavowed any such contention, and argued that their status as growers was immaterial to the efficacy of their defence. The Collins defendants' rejoinder was amended at trial. They expressly rejected having alleged that they had not been issued with grovelots. They went on,

Whether or not Timbercorp Securities issued Mr & Mrs Collins lots in the 2008 Olive Project or whether Mr & Mrs Collins obtained, or held, lots in the 2008 Olive Project, is not relevant to the question of whether Timbercorp Finance performed clause 1 of the loan agreement.

As their counsel aptly acknowledged, they were 'dancing on a pinhead'.

35 The issues for trial in the White and Collins proceedings were sufficiently aligned to require a consideration of the facts in only one proceeding. Their counsel deployed the White proceeding as the vehicle to advance the common defences. The same economy was employed by the Gruyters and Lowe defendants, although there were some factual differences, most notably a Timberlot investment by Ms Lowe.

36 The four test cases, White, Collins, Gruyters and Lowe, were tried together. The trial commenced on 8 August 2016.

37 Evidence given at the trial was evidence in each proceeding. The court book, in its original form, comprised 33 lever arch volumes containing more than 20,000 pages of material. It is no longer the practice in the Commercial Court to tender the whole of the court book, which often contains material that is not evidence, duplicates and documents that are not ultimately relied upon by any party at trial. The parties prepared a schedule describing each document tendered as evidence, identified by description and page number in the court book. The list, comprising documents from the court book tendered in evidence, became exhibit J. Witness statements and affidavits were given separate exhibit numbers.

38 The evidence pertaining to the issues for determination was substantially documentary. It comprised scheme and related documents, and financial records. The plaintiff called four witnesses of fact and one expert. Mr Gruyters and Ms Lowe did not cross-examine any of the plaintiff's witnesses. They gave evidence by short affidavits and were not cross-examined. The defendants in the White and Collins proceedings called an expert, Dawna Wright. Ms Wright was a chartered accountant with forensic experience. She was asked, among other questions, to explain the entries recorded in a journal voucher 504786, which the plaintiff alleged was evidence of the loan made under Mr White's loan agreement. She was asked whether the journal entries evidenced a 'payment' by the plaintiff to Timbercorp Securities, which included a loan amount advanced on behalf of Mr White. The plaintiff called a responding expert, Brendan Halligan, a chartered accountant and forensic expert, to express his opinion as to whether the entries in the journal voucher (504786) recorded a payment by the plaintiff to Timbercorp Securities in discharge of Mr White's liability, and to comment on Ms Wright's analysis. Mr Halligan concluded that there had been a 'payment'. A joint report, dated 15 August 2016, was prepared by the experts, limiting the issues between them.

39 The plaintiff called evidence from Sol Charles Rabinowicz who, on 1 July 2008, was appointed chief executive officer of the Timbercorp group. He had commenced employment with the group in 1996 as legal and corporate counsel. He had been a director of the plaintiff, Timbercorp Securities, and other Timbercorp group companies. Mr Rabinowicz adopted substantial parts of an earlier witness statement, filed in the class action. His evidence traversed the corporate structure of the group, its business, internal administration and the schemes. Some of his evidence was directed to meet allegations concerning the conditions required for the release of funds to the scheme manager under the scheme constitutions. The defendants abandoned that part of their case during the trial. The evidence of Mr Rabinowicz provided important background about the Timbercorp group and its business. It was not controversial.

40 Mr Rabinowicz was cross-examined on behalf of the defendants in the White and Collins proceedings to establish that, as far as he was aware, the Product Rulings, made by the Australian Taxation Office, and Timbercorp Compliance Plans accurately reflected the intended flow of funds. Those defendants sought to draw a distinction, through the evidence of Mr Rabinowicz and Mr Hance, between the flow of funds reflected in the journal entries, on which the plaintiff relied, and the flow of funds described in Compliance Plans and Product Rulings.

41 The next witness for the plaintiff was Mr Hance, the former chairman of the Timbercorp group. He gave evidence of the establishment of the group, its business model and schemes. He had been a director of the plaintiff and Timbercorp Securities, along with John Vaughan, Gary Liddell and Mr Rabinowicz. Mark Pryn had been the company secretary. The significance of the evidence given by Mr Hance, apart from non-controversial background, was in his response to the defendants' allegations of non-compliance with the requirements for payments to the scheme manager under the constitutions. Those allegations were later abandoned. He also gave evidence of the securitisation of the loan book to generate funds. He said that up to 90 per cent of funds invested by growers had been borrowed from the plaintiff. Loans, once made, were provided as security to the ANZ Bank to raise cash. Mr Hance was cross-examined on behalf of the White and Collins defendants, to draw the distinction between the flow of funds described in the Compliance Plans and Product Rulings, when compared with the transactions recorded in the journal entry.

42 The third witness for the plaintiff, Darren Simon Lipton, commenced employment with Timbercorp in April 2000 and continued in full-time employment until December 2009. He was a director of a number of scheme entities which had acquired and provided land for the schemes. His evidence was, for the most part, directed to allegations of non-compliance with the requirements under the constitutions for payments to the scheme manager. He also gave some evidence in relation to the allegations by Mr Gruyters and Ms Lowe concerning scheme budgets and costs. He was not cross-examined.

43 The next witness for the plaintiff was Owain Rhys Stone, a partner of KordaMentha. He had practised as a forensic accountant for 30 years. He was previously the regional head of fraud investigation and dispute services for Ernst & Young. Prior to that, he worked for Arthur Andersen in Melbourne, Singapore and London. He assisted the liquidators of the Timbercorp group and was familiar with the books and records of the group, including the plaintiff, Timbercorp Securities and Timbercorp.

44 Mr Stone gave detailed and well-structured evidence concerning the loan transactions, the subject of these proceedings. He had examined the books of account of the group relating to 34 growers in respect of 80 loans, as a sample from which he described how the loan transactions were effected and recorded in the books of account. His overview made it possible for the Court to understand the nature of the transactions and the scope of the issues between the parties which concerned the making and accounting for the relevant loans. His evidence assisted in exposing the critical issue for determination in the White and Collins proceedings.

45 Mr Stone's evidence became contentious because the White and Collins defendants rejected the notion that a loan might be advanced by means other than the transfer of money in bankable form. Mr Stone was careful to qualify what he meant by a 'payment', which he defined as a 'transfer of value' in the discharge of a liability. He said that the parent company, Timbercorp, was the only entity in the group with an operating bank account. There were no actual money payments, by cash, cheque or electronic transfers, between the plaintiff and Timbercorp Securities. Loan advances were recorded by journal entry. Journal entries also recorded the discharge of the investor liability to Timbercorp Securities; the creation of a liability, for the loan amount, owed by the investor to the plaintiff, and a corresponding liability owed by the plaintiff to Timbercorp Securities.

46 Mr Stone described the accounting system utilised by the Timbercorp group. The group utilised an accounting package known as 'Great Plains', within which each member of the group had an identifying number. That accounting package was utilised to record transactions between group members. There was a separate accounting system, known as the Timbercorp Information Management System (TIMS), to record, amongst other things, investor loan and receipting transactions, and related details. These transactions were recorded in journal vouchers within the Great Plains system, sometimes in batches recorded in a single voucher.

47 It should be remembered that the integrity of the loan transaction was not in issue in the Gruyters and Lowe proceeding, although Mr Stone detailed his findings in relation to those loans. Of particular interest were his observations in relation to Mr White, whose loan transaction, for the purpose of the White and Collins proceeding, provided the evidentiary framework.

48 The plaintiff also called Mark Anthony Korda, one of the liquidators of the plaintiff and the Timbercorp group more generally. He gave evidence of the external administration of the Timbercorp group and ultimately its liquidation. He gave evidence, in the form of a chronology, of each defendants financial dealings with the Timbercorp group, the loan documents and outstanding amounts. His evidence provided the formal proof of the loan agreements, demands and unpaid balances. That evidence was not challenged.

49 Mr Korda also gave some evidence about expenditure on the various schemes relevant to issues raised in the Gruyters and Lowe proceeding. While his evidence was largely formal and uncontroversial, he was cross-examined at some length on behalf of the White and Collins defendants, about amendments to the plaintiff's statement of claim made in June 2016. The defendants claimed to have been taken by surprise about the way in which the loans were made. Mr Korda gave evidence of distributions made following the sale of scheme property, the sale process and the various court proceedings in which the sales and distributions had been approved. He accepted that Application Money should not be characterised as a 'trade receivable'. The significance of that concession, according to the defendants, was that the trade receivable in the books of account of Timbercorp Securities, relating to Mr White, must have been raised in relation to the unpaid invoice for Management Fees, not Application Money.

50 I propose to deal with the Gruyters and Lowe proceedings first, and then move on to White and Collins.

51 The Gruyters proceeding was commenced on 8 July 2014 to recover the outstanding balances under five loan agreements:

(a) Loan No L0021392. The claim is for $81,955.47, with interest accruing at $29.64 per day from 1 April 2014. The loan was alleged to have been procured to fund the initial investment in the Almond Project (Early).

(b) Loan No L0023844. The claim is for $23,209.78, with interest accruing at $8.39 per day from 1 April 2014. The loan was alleged to have been procured to fund stage 2 costs, including Management Fees and rent due on 31 October 2007, in relation to the Almond Project (Early).

(c) Loan No L0027351. The claim is for $25,646.14, with interest accruing at $9.27 per day from 1 April 2014. The loan was alleged to have been procured to fund stage 3 costs, including Management Fees and rent due on 31 October 2008 in relation to the Almond Project (Early).

(d) Loan No L0026020. The claim is for $45,154.64, with interest accruing at $16.33 per day from 1 April 2014. The loan was alleged to have been procured to fund the initial investment in the Olive Project.

(e) Loan No L0027350. The claim is for $13,787.36, with interest accruing at $4.99 per day from 1 April 2014. The loan was alleged to have been procured to fund stage 2 costs, including management and licence fees due on 31 October 2008 in relation to the Olive Project.

52 Mr Gruyters invested in two managed investment schemes operated by Timbercorp Securities - the Almond Project (Early), and the Olive Project.

53 On about 31 May 2007, Mr Gruyters completed an application form for eight almondlots in the Almond Project. The application fee payable for each almondlot was $7,000. Mr Gruyters paid a deposit of $5,850 and applied to the plaintiff for a loan to cover the balance which, including a $250 loan application fee, was $50,400. The loan period was 10 years.

54 On about 7 June 2007, Mr Gruyters was advised by the plaintiff that his loan application was accepted. He received a 'Timbercorp Almondlot Statement' confirming his subscription amount and the number of almondlots allotted to him. He also received a 'Confirmation Notice/Tax Invoice' for management costs of $7,000 per almondlot. Both documents were dated 7 June 2007.

55 The Almond Project Product Disclosure Statement informed applicants that Application Money covered the Management Fee. The initial Management Fee of $7,000 per lot, was disclosed in the Confirmation Notice/Tax Invoice. The relevant Product Ruling identified the initial fee of $7,000 as a deductible amount. Clause 11 of the Management Agreement imposed on the grower an obligation to pay the fee, which was expressed in an amount net of GST.

56 Assuming Mr Gruyters had read the Product Disclosure Statement, there could not have been any uncertainty as to what the Application Money was intended to cover. The anticipated tax deduction of $7,000 per lot was dependent upon his Application Money becoming transformed into the tax deductible Management Fee. The deductibility of the expense, for income tax purposes, depended on payment of the Management Fee in full before the end of the financial year.

57 On 13 July 2007, Mr Gruyters was provided with a document 'Tax Summary Information', to assist in the preparation of his income tax return for the financial year ended 30 June 2007. Reference was made, there and elsewhere, to Product Ruling PR2006/145. He was advised that he had incurred deductible expenses in respect of management costs of $56,000 and interest in the sum of $14.15. Mr Gruyters claimed those amounts as deductible expenses for that year, and continued to claim Management Fees, rent and interest expenses in subsequent years.

58 On 31 July 2007, Mr Gruyters commenced to pay monthly instalments in repayment of the first loan.

59 Unlike the White and Collins defences, Mr Gruyters accepted that, pursuant to his loan agreement with the plaintiff, the loan was advanced in discharge of the balance of his liability to pay the Application Money. The preparation, timing and delivery of various invoices, or sequence of journal entries within the book of the Timbercorp group, were not in contention.

60 In addition to the initial Management Fees of $7,000 per almondlot, there were additional annual Management Fees and rent of $2,000 per almondlot. The first such payment was due on 31 October 2007, for the 2008 financial year. An identical sum was payable on 31 October 2008 for the 2009 financial year. Thereafter, for the duration of the project, smaller rental amounts were payable, and the Management Fee deferred, to be recovered by Timbercorp Securities from the proceeds of sale of almonds.

61 Mr Gruyters was invoiced for the management costs and rent, for the 2008 financial year, on 1 October 2007. He paid a deposit of $1,600 and applied for a second loan from the plaintiff to pay the balance of $14,500. His loan application was accepted. On 30 November 2007 he commenced to pay monthly instalments in repayment of the loan.

62 Mr Gruyters applied for and obtained a third loan from the plaintiff to meet his obligation for Management Fees and rent due on 31 October 2008. He paid a deposit of $1,600 and borrowed the balance, which included a $100 loan application fee. The loan amount was $14,500. The loan was for a period of eight years. Mr Gruyters commenced to pay monthly instalments on 28 November 2008.

63 In late May or early June 2008, Mr Gruyters decided to invest in the Olive Project. On 11 June 2008, he completed an application form by which he applied for five Grovelots. The application fee for each Grovelot was $5,700. Thus, the total cost was $28,500. He paid a deposit of $2,850 and applied to the plaintiff for a loan to pay the balance. His application was accepted. He commenced to pay instalments on 31 July 2008.

64 In addition to the Management Fee payable for each grovelot in the Olive Project for the first year, which was equal to the application fee, there were licence and Management Fees payable on 31 October 2009 and 31 October 2010, in the sum of $1,650 per Grovelot. Thereafter, for the duration of the project, annual fees were deferred, to be recovered as a percentage of harvest proceeds.

65 On 1 October 2008, Mr Gruyters received an invoice from Timbercorp Securities for $8,250 in relation to management and licence fees. He paid a deposit of $825, and applied to the plaintiff for a loan to pay the balance, including a loan application fee. His application for the fifth loan was made at the same time as the third application for an Almond Project loan. The plaintiff accepted the applications. Mr Gruyters commenced making monthly instalment payments in respect of that loan on 28 November 2008.

66 Following is a schedule of Mr Gruyters' total loan repayments:

(a) Loan L0021392 (Almond Project - initial loan) $15,479.92

(b) Loan L0023844 (Almond Project - second loan) $4,144.09

(c) Loan L0027351 (Almond Project - third loan) $1,308.66

(d) Loan L0026020 (Olive Project - initial loan) $3,807.21 and

(e) Loan L0027350 (Olive Project - second loan) $710.78

Mr Gruyters ceased making loan repayments in June 2009. By 1 July 2009 he was in default under each of the loan agreements.

67 The Lowe proceeding was commenced on 6 November 2014 to recover the outstanding balance due under three loan agreements:

(a) Loan No L0026664. The plaintiff's claim is for $648,638.06. The loan was procured to fund an investment in the Timberlot Project. Interest is claimed at $234.58 per day from 1 April 2014.

(b) Loan No L0026036. The plaintiff's claim is for $170,575.09. The loan was procured to fund an investment in the Olive Project. Interest is claimed at $61.69 per day from 1 April 2014.

(c) Loan No L0027409. The plaintiff's claim is for $50,756.94. The loan was procured to fund stage 2 costs incurred as a grower in the Olive Project, including management costs and rent. Interest is claimed at $18.36 per day from 1 April 2014.

68 On about 11 June 2008, Ms Lowe completed an application to invest in the Timberlot Project and the Olive Project. She applied for 130 Timberlots and 18 Grovelots. The Application Money for each Timberlot was $3,080 per lot. The total amount was $400,400. She paid a deposit of $40,400 and applied for a loan to fund the balance of $360,360. The period of the loan was eight years. On about 30 June 2008, Ms Lowe received notification from Timbercorp thanking her for her application and advising that her application had been accepted. She received a 'Confirmation Notice/Tax Invoice'. The invoice was for 'plantation establishment' and referred to a Product Ruling. Under the Product Ruling, prepayment of establishment costs was tax deductible. Between 29 August 2008 and 29 May 2009, Ms Lowe paid instalments amounting to $59,106.19.

69 At around the same time as Ms Lowe applied for Timberlots, she applied for 18 Grovelots in the Olive Project, at a cost of $5,700 per lot. The total amount payable as Application Money was $102,600. Ms Lowe paid a deposit of $10,260 and applied for a loan to fund the balance of $92,340. She completed a loan application form, and on 14 June was advised that her investment application and loan application had been accepted. She received a 'Confirmation Notice/Tax Invoice' in the sum of $102,600 for Management Fees. The notice made reference to a Product Ruling.

70 On 1 October 2008, Ms Lowe received an invoice from Timbercorp Securities for payment of $29,700 for management costs and licence fees in relation to her Grovelots. She paid a deposit of $2,970 and applied for a loan to fund the balance of $26,730. She completed a loan application form, and on 29 October 2008 was informed that the application had been accepted.

71 Between 29 August 2008 and 29 May 2009, Ms Lowe paid instalments and interest on the second loan in the sum of $13,143.46; and in respect of the third loan, instalments and interest of $2,412.16.

72 The case for Mr Gruyters and Ms Lowe was advanced on their behalf without differentiating between individual fact circumstances, although there were some material differences between scheme documents. Thus, it is convenient to consider the issues jointly, while identifying differences as and when they arise.

73 The facts alleged in the statements of claim were, notwithstanding numerous bare denials by the defendants, not disputed at trial. They accepted that their obligation to pay the Application Money for each scheme was discharged by payment of a deposit and the loan amounts. They contended that Timbercorp Securities received and held such money on trust, and breached that trust. The defendants alleged that the breach of trust by Timbercorp Securities was dishonest, and the plaintiff knowingly assisted the breach. They claim to be entitled, as against the plaintiff, to equitable compensation and a right to set off that compensation against the claims pursuant to s 553C of the Corporations Act. The defendants also sought to recover loan instalments paid by them on the ground that the plaintiff would be unjustly enriched if it were permitted to retain those payments. Further, they sought relief under s 12GM of the Australian Securities and Investments Commission Act 2001 (Cth), on the ground that the conduct of the plaintiff was unconscionable, in contravention of s 12CB of the ASIC Act or the unwritten law.

74 By its amended reply, the plaintiff alleged in the Gruyters proceeding:

1. The defendant is precluded from raising the pleaded defences by reason that he was a group member, within the meaning of Part IVA of the Supreme Court Act 1986 (Vic), in proceeding SCI 9807 of 2009.

Particulars

The preclusion arises as a matter of law.

1. As to paragraphs 127 and 182, the alleged set off did not accrue within six years before the commencement of this action and is barred by s 21 of the Limitations of Actions Act 1958 (Vic.)

An identical estoppel allegation was made in the Lowe proceeding, but no reliance was placed on a limitation period.

75 The preclusion allegation, pleaded in each of the four test cases, was finally resolved against the plaintiff in the High Court.[16] Following the judgment in the High Court, the plaintiff notified the Court that it no longer relied upon the preclusion allegation made in paragraph 1 of its replies. Mr Gruyters and Ms Lowe had contended, however, that they were not members of the group for the purpose of the group proceeding. That contention was based upon a claim that they were beneficiaries under a trust or trusts, of which Timbercorp Securities and the plaintiff were trustees, and thus excluded from group membership by reason of the definition of 'Group Member' in the opt out Notices which expressly excluded the beneficiaries of such a trust.

76 Group members were defined in the class action statement of claim to exclude, from those who 'acquired and/or held an interest' in a scheme between 6 February 2007 and 23 April 2009, persons who:

(i) defendants in the proceeding;

(ii) parents, siblings, spouse or children of defendants;

(iii) bodies corporate of which a defendant was an officer or majority shareholder (defendant's company) at any time during the relevant period; or

(iv) beneficiaries of any trust, the trustee of which is or at any time during the relevant period was a defendant or defendant's company.

Thus, if the defendants in this proceeding are excluded by reason of the statutory trust created under s 601FC(2) of the Corporations Act, or any other trust for which the defendants in this proceeding contend, all scheme members would have been excluded.

77 Mr Gruyters' response to the limitations of actions plea was to allege concealment of wrongdoing by Timbercorp Securities and the plaintiff, and that the breach of trust was dishonest.

78 The starting point for the defences was the contention that the Application Money was to be held on trust until released pursuant to the terms of the scheme Constitutions. The plaintiff conceded as much, although confined its concession to the obligation imposed under s 601FC(2) of the Corporations Act, which provides:

The responsible entity holds scheme property on trust for scheme members.

Timbercorp Securities was the responsible entity. It was common ground that Application Money was, prior to conversion into Management Fees, scheme property.

79 The defendants embarked upon an elaborate submission in support of the existence of a trust obligation. Those submissions were largely unnecessary because of the concession made by the plaintiff. The concession, while inevitable, was qualified. The plaintiff did not accept, as the defendants had contended, that cl 4.2 of the relevant scheme constitution established the trust. The defendants submitted that 'the statutory requirement that scheme property be held on trust is given effect in cl 4.2 of each Constitution', which provided:

Special Trust Account

Any amounts paid by any Applicant in accordance with clauses 6.3 and 6.4 must be accounted for by the Responsible Entity in a special trust account and such amounts must be placed in one or more bank accounts kept solely for the purpose of depositing Application Moneys in relation to the Project.

80 By reason of its heading, 'Bare Trust', and its subject matter, cl 4 as a whole appears to cater for minimum subscription requirements. Clause 4.2 contains machinery provisions for accounting and management of amounts paid by applicants until the minimum subscription is reached. Clause 4.1 reinforces the 'machinery' character of cl 4. It provides:

Bare Trust

Until the Minimum Subscription is reached, or waived by the Responsible Entity, the Responsible Entity must hold all Application Moneys as a bare trustee for the Applicant.

In the previous cases there were no minimum subscriptions. The 'bare trust' provisions were never engaged. In my opinion, the trust created under cl 4.1 was intended to protect Application Money until a minimum subscription level was achieved. Section 601FC(1) requires that scheme property be held separately from other property, and clearly identified as such. The terms of the applicable trust are found in the statutory provisions, which creates a layer of fiduciary protection for investors.[17]

81 Insofar as cl 4, upon its proper construction, is not confined to the management of minimum subscription requirements, but has a more general application, it remains a machinery provision under which Application Money must be 'accounted for'. Application Money was paid with each application. Clause 4 contemplated a possibility that an application might be accepted even though all Application Money had not been paid - for example, an investor may be permitted to pay by instalment [cl 6.4] or a loan might be approved but not advanced [cl 6.5]. Clause 6.5 only required an agreement to lend for the application to be capable of acceptance. Once an application had been accepted, the applicant became a 'Participant Grower' [cl 8.1] bound by the Constitution [cl 8.6] and liable to pay Management Fees under the relevant management agreement [cls 8.7 and 9.3]. Thus, the extent to which cl 4.2 might be engaged, as the source of a trust relationship would be transient, may never extend to the full amount of the Application Money.

82 The existence of the trust in relation to scheme property, imposed on the plaintiff under s 601FC(1) and (2), prescribed certain duties and obligations. The section required the responsible entity to act honestly, exercise reasonable care and diligence, act in the best interest of members and clearly identify scheme property. There were other obligations. The duties and responsibilities of the responsible entity were those of a fiduciary.

83 A complicating factor in the present case was that Timbercorp Securities was permitted to wear two hats. It was responsible entity, bound by the duties imposed under s 601FC, but entitled to manage the projects, on its own account, for profit. The dual role was contemplated by the legislation. Those framing the legislation had sought to avoid the need for a separate management entity, in addition to the responsible entity.[18] Once it is accepted that the transaction and scheme documents were designed to convert Application Money (scheme property) into Management Fees (the manager's money received in its own right) to be paid forthwith, and certainly before the end of the financial year in which each application was made, the duration of any trust obligation attaching to the Application Money must be brief.

84 In Wellington Capital,[19] the High Court had occasion to consider the interface between a scheme constitution and statutory limitations on the power of a responsible entity. When analysing the statutory framework, the court observed:

1. Of significance in the reasoning of the Full Court was s 601FC(2), which provides that "[t]he responsible entity holds scheme property on trust for scheme members". It underpinned the starting point in the Full Court's reasoning that provisions of the Scheme Constitution conferring wide powers on the responsible entity to deal with Scheme Property must be approached "through the prism of trust law". However, the extent to which general principles of the law relating to trusts apply to a responsible entity's functions under a scheme constitution depends upon the purpose of the statutory trust, other provisions of the Corporations Act and the terms of the scheme constitution.
2. The trust relationship which is imposed by s 601FC(2) expressly attaches to a responsible entity by reason of its office. No occasion arises for imposition of a trust by operation of the general law. The trust imposed does not arise from gratuitous transfer of assets by a settlor to a trustee, to be held on behalf of beneficiaries, who may become transferees. Save for its imposed statutory character, it bears a resemblance to trusts created as incidents of business transactions, sometimes described as "commercial trusts". Lord Browne-Wilkinson said of such trusts that:

"it is important, if the trust is not to be rendered commercially useless, to distinguish between the basic principles of trust law and those specialist rules developed in relation to traditional trusts which are applicable only to such trusts and the rationale of which has no application to trusts of quite a different kind."

The same caution applies in relation to public unit trusts, which may operate under principles of both contract and trust law. To the extent that the relationship between the responsible entity and the members is governed by contract, the content of the powers and duties of the responsible entity will be determined by reference to the contract and its statutory setting. This Court has said of the use of trust concepts in revenue statutes:

"the degree to which a revenue statute adopts or qualifies or supplants the general understanding of terms with a particular application in property law will be a matter of statutory construction."

What is true for revenue statutes is true for statutes generally and, in particular, for the use of the term "trust" in s 601FC(2).

1. Section 601FC(2) reflects, albeit in truncated form, a recommended draft provision set out in the joint report of the Australian Law Reform Commission and the Companies and Securities Advisory Committee in 1993. The provision was proposed in part as a protective set-off against the decision not to recommend that the appointment of a custodian of scheme property, separate from the manager, be mandatory. The protection of the trust relationship was to be maintained even in the case in which the responsible entity decided to appoint a custodian:

"Where an operator engages a custodian to hold the legal title to scheme assets, the operator should hold on trust for the investors the equitable interest arising under that arrangement."

The report proposed that "because of the nature of the activity undertaken, this trust relationship should exist in all collective investment schemes, even those based on contract". The purpose of s 601FC(2) is indicated by that aspect of its ancestry and by its place in the statutory scheme. It creates a layer of fiduciary protection for scheme members in addition to the express duties and protections otherwise created by the Corporations Act and the minimum statutory requirements of a scheme constitution.

85 The defendants drew attention to and relied upon the following passage from the judgment of the majority:[20]

However, as shown earlier in these Reasons, a responsible entity's powers in relation to the disposition of scheme property are determined by the terms of the scheme constitution in light of such enhancements or constraints as are provided by statute and, subject to statute, the general law relating to trusts to the extent that it is applicable.

86 The defendants sought to augment the statutory trust by contending that the Application Money was held by Timbercorp Securities, as responsible entity, subject to a Quistclose trust.[21] They submitted that to acknowledge the existence of a statutory trust, by reason of the operation of s 601FC(2) of the Corporations Act, did not conclude the enquiry. It was not quite clear how the application of such a doctrine assisted them, unless to qualify an express power under the constitution, authorising a release of trust property.

87 Scheme documents, such as the constitutions and Management Agreements, provide express obligations and powers in relation to Application Money and Management Fees. A statutory trust was established by s 601FC(1) of the Corporations Act, coupled with explicit obligations imposed on the responsible entity. In my opinion, there was no occasion for the implication of a purpose trust. In any event, a paramount purpose of scheme documents was to ensure that Application Money was, upon acceptance of an application, promptly converted into a tax deductible payment of Management Fees. That purpose was achieved in each case.

88 The plaintiff relied on paragraph (k), which provided that the responsible entity must:

ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and this Act ...

It contended that the relevant enquiry was whether the payment out of the scheme property was authorised under each respective constitution.

89 The defendants' case rested on confining the authority of the responsible entity to pay only for work described in cl 5.2 of the Management Agreement. The Almondlot Management Agreement imposed on Timbercorp Securities (as manager) certain obligations. Under cl 4.1, each Participant Grower engaged Timbercorp Securities to manage and administer the project, to manage, direct and conduct project operations on behalf of the Participant Grower, and to perform Orchard Services. Clause 4.4 provided:

Performance Obligations

(a) Subject to this Agreement, Timbercorp Securities must use reasonable endeavours to perform all its functions, exercise its powers under this Agreement and conduct the Project Operations:

(i) in a commercially reasonable manner;

(ii) honestly;

(iii) generally in accordance with Best Horticultural Practices which is generally recognised and adopted in Australia and is known and acceptable to Timbercorp Securities and suitable for use on the Orchard; and

(iv) in the best interests of all the Participant Growers and not in the interests of Timbercorp Securities if those interests are not the same as those of the Participant Growers.

(b) The phrase "commercially reasonable manner" means, in any particular circumstances, a manner which Timbercorp Securities honestly believes is commercially reasonable in those circumstances (having regard where appropriate to the fact that Timbercorp Securities has to meet the costs of conducting the Project Operations out of the fees paid to it). Subject to paragraph 4.4(a)(iv), the phrase does not require Timbercorp Securities to have regard to the interests of any person other than itself.

90 Clause 5 provided for Orchard Management. After requiring Timbercorp Securities to cultivate and manage the orchard in accordance with the Management Plan and Best Horticultural Practices, as defined, cl 5.2 prescribed services to be performed for the period ending 30 June 2007. These were as follows:

Without limiting the generality of clause 5.1, Timbercorp Securities will carry out the following services in the period ending 30 June 2007. Timbercorp Securities may determine the most appropriate time to carry out the services provided that the services must be completed on or before 30 June 2007:

Infrastructure Management Services

These services commence from the later of the Commencement Date and completion of the Pre-Planting Capital Works on the Participating Grower's Almondlots and will be carried out until 30 June 2007:

(a) undertake a comprehensive internal quality assurance audit in respect of the Pre-Planting Capital Works carried out by the Land Owner under clause 2.1 of the Sub-leases, including but not limited to all irrigation infrastructure, valves, pumps, moisture monitoring equipment;

(b) keep the following in good repair and condition:

(i) any access road or roads within the Orchard, all waterways, dams, irrigation and pumping equipment within the Orchard, as necessary;

(ii) all fences, fire-breaks and other improvements within the Orchard, as necessary;

(iii) all farm equipment, plant and equipment, tractors, vehicles, protective gear and other things used to perform the services described in this clause 5.2;

(c) as permitted by law, control or eradicate rabbits and other vermin which have caused or may cause damage to the Orchard by fumigating and poisoning and complying with the provisions of all relevant statutes, regulations and by-laws (and all amendments) and any other statutes, rules, regulations and by-laws relating to or affecting the Almondlots or the Participant Grower;

(d) to the extent that any fertilisers, nutrients and other chemicals are used, keep proper and accurate records of all fertilisers, nutrients and other chemicals applied to the Orchard and store the chemicals in accordance with all legal requirements;

(e) use and apply appropriate soil management techniques and undertake or procure the carrying out of drainage works to reduce soil erosion, maintain soil quality and carry out or procure the carrying out of drainage work and other works to control salinity levels; and

(f) carry out any other activity that may be required to generally maintain the Orchard in accordance with Best Horticultural Practices or in respect of the provision of the services listed in paragraphs (a)-(e) above including:

(i) training of staff in use of equipment, infrastructure and performance of duties;

(ii) supervision of contractors performing any of the services; and

(iii) obtaining professional services and advice which Timbercorp Securities may consider necessary or desirable in connection with the services.

Administrative and other Management Services

The following services will also be carried out by Timbercorp Securities from the Commencement Date until 30 June 2007:

(g) prepare a market report to the Participating Grower detailing the following:

(i) world market situation (covering crop positions in major producing countries and general supply/demand dynamics);

(ii) the Australian supply situation (covering the expected crop size for Australia);

(iii) the domestic market situation (covering the Australian market and prices achieved over the past 3, 6 and 12 months or other relevant periods);

(iv) the export market situation (covering each of the main export markets and prices achieved over the past 3, 6 and 12 months or other relevant periods);

(v) information on Project crop (covering new or potential supply contracts and markets, key customers, promotional activities and other relevant matters);

(vi) a 12-month outlook (covering available information on the expected supply/demand and price trends over the upcoming 12 month period having regard to exchange rate fluctuations, CPI movements and other relevant matters; medium-term outlook (covering a 2-5 year period);

(vii) any new articles in relation to the supply, consumption and pricing of almonds; and

(viii) any other relevant market information.

(h) carry out any other obligation to be performed by Timbercorp Securities pursuant to the terms and conditions of any agreement entered into by Timbercorp Securities;

(i) procure on behalf of the Participant Grower and keep current with a reputable insurer the insurance policies described in clause 12 and all other activities in respect of arranging insurance of the Almonds and the Grower's almond growing activities;

(j) prepare the reports and statements described in clauses 8 and 13 and provide the administrative services required to perform the above services;

(k) comply with the Participant Grower's obligations under the Sub-leases by ensuring that the Participant Grower carries out on the Land only those activities he or she is entitled to carry out under the Sub-leases and then only subject to the terms and conditions of the Sub-leases;

(l) review the Management Plan and, if necessary, make amendments to it in accordance with this Agreement; and

(m) in accordance with clause 7, undertake all marketing activities in respect of the future sale of Almonds, including without limitation entering into forward sales agreement in respect of Almonds and foreign exchange hedging agreements, as required, and monitor and supervise the performance of all contractors in that regard.

Part A Almondlot - Almond Tree Management Services

These services will be carried out by Timbercorp Securities from the completion of planting of Part A of the Grower's Almondlots until 30 June 2007. By their very nature, the services relate to the maintenance of established almond trees and, therefore, for the avoidance of doubt it is provided expressly that they will not be carried out, nor are they capable of being carried out, on the unplanted part of the Participant Grower's Almondlots. The services are:

(n) undertake a comprehensive internal quality assurance audit in respect of the Almond Trees, stakes, and all infrastructure associated with the application of fertiliser and water to the Almond Trees including valves, dripper lines and other things;

(o) obtain a formal verification by 30 June 2007 from an expert that Part A of the Almondlots is of an appropriate standard and all required services have been performed are to an appropriate standard;

(p) cultivate, tend, cull, replant, spray and otherwise care for the Almond Trees, as necessary;

(q) undertake pest control, fungicide control and other almond tree disease preventative measures, as necessary;

(r) operate the irrigation system at various times in order to irrigate the Almondlots;

(s) fertilise the Almondlots as required, in accordance with Best Horticultural Practices, to maintain satisfactory rates of growth and productivity of the Almond Trees;

(t) in its absolute discretion and without needing the Participant Grower's consent, destroy any of the Almond Trees which are damaged or which have contracted an exotic, noxious or incurable disease;

(u) as far as reasonably possible, keep the relevant Almondlots free from competitive weeds or other vegetation which may affect the growth or yield of the Almond Trees;

(v) protect the Almond Trees from insect infestation, disease and other matters using Best Horticultural Practices, including (as necessary) applying herbicides or pesticides to the relevant Almondlots and spraying under the Almond Trees as permitted by law;

(w) regularly inspect and repair all stakes, fences and other equipment including plant and machinery, such as tractors and other vehicles used during the period ending 30 June 2007 to carry out tree maintenance services on the Almondlots;

(x) inspect and, where appropriate, retie the Almond Trees to stakes and attach Almond Trees to trellising in accordance with Best Horticultural Practices; and

(y) carry out any other activity that may be required to generally maintain the Orchard in accordance with Best Horticultural Practices or in respect of the provision of the services listed in paragraphs (n)-(x) above including:

(i) training of staff in use of equipment, infrastructure and performance of duties;

(ii) supervising of contractors performing any of the services; and

(iii) obtaining professional services and advice which Timbercorp Securities may consider necessary or desirable in connection with the services.

91 There was no material difference between the relevant provisions of the Almond Project Constitution and Management Agreement, and the Constitution and Management Agreement deployed for the Olive Project. The management obligations in relation to the Timberlot Project were, however, expressed differently. Clause 6 dealt with 'Establishment Services', and cl 6A, 'Plantation Services'. Investment in the Timberlot Project involved a pre-payment for work to be carried out. Even so, the defendants alleged that Timbercorp Securities was not authorised to release the Application Money because the Management Fees were not referable to the services provided, and were excessive. They alleged that the fees were applied to pay down debt and for other internal purposes. In relation to the Timberlot Project, the defendants contended that Management Fees were only payable for services mentioned in cl 6 of the Timberlot Management Agreement, which is concerned with Plantation Services.

92 Clause 5 of the Timberlot Management Agreement was expressed differently.[22] provided:

In consideration of the performance by Timbercorp Securities of its duties and obligations as set out in this Agreement, but subject always to paragraph 24(a) and clause 25, the relevant Grower agrees to pay to Timbercorp Securities all of the following:

(a) the amount or amounts specified in Part 1 of the Schedule on the date or dates specified in it; and

(b) an amount equal to one third of the proceeds from the sale of Carbon Sequestration Rights or Carbon Credits to which Timbercorp Securities is entitled after deduction of the costs of selling, trading or turning to account the Carbon Sequestration Rights or Carbon Credits and such allowance for Carbon Debit Liabilities and such other actual, prospective and contingent carbon debits or offsets as Timbercorp Securities in its absolute discretion determines.

All fees and other amounts payable to Timbercorp Securities under this Agreement are paid to Timbercorp Securities in its personal capacity.

93 Part 1 of the Schedule provides:

FEES PAYABLE (clause 5)

Subject to clause 25:

(i) In respect of the Establishment Services described in clause 6(a)-(g) to be performed during the Establishment Period, being a period of 12 months from the day when the first seasonally dependent agronomic activity for the planting commences:

$2,800 per Timberlot payable on or before the Commencement Date.

94 The defendants submitted that the Establishment Services were to be performed in the future, and the Management Fee was 'not payable for future services'. That was an unusual submission. The scheme was designed to achieve a tax deductible payment of Management Fees in advance. There was no suggestion that the fee was in respect of work already undertaken.

95 The defendants contended that Timbercorp Securities did not have the authority to release the Application Money in payment of the fee expressed to be payable by a grower under each Management Agreement, merely because the fee had been agreed under the scheme documents. They argued that to so construe the constitution would be to fall for the 'superficial attraction of literalism', criticised by Gageler J in his separate judgment in Wellington.[23] They argued that such an approach would be inconsistent with the purpose of s 601FC of the Corporations Act to provide a 'layer of fiduciary protection' for scheme members.[24] Thus, the defendants' case required Timbercorp Securities, as responsible entity, to go behind the payment obligation prescribed in the management agreement in respect of the first year.[25]

96 The central question before the Court in the Gruyters and Lowe proceedings was not whether the Application Money was held upon trust, but whether Timbercorp Securities, as responsible entity, was authorised to release the whole of the Application Money in payment of the first year's Management Fees. Put simply, the defendants contended that the Application Money was released in breach of trust because the amount released was not referrable to the management obligations of Timbercorp Securities under the relevant management agreements, or the amount was excessive or uncommercial. They characterised the amount of the Management Fees paid by all members, in each scheme, as uncommercial and dishonest.

97 Articulation of a breach of trust invites, of course, an enquiry into the nature and content of the trust obligations. The defendants pleaded the obligation of Timbercorp Securities, as trustee, thus:

Under the trust referred to in the preceding paragraph, Timbercorp Securities is under a duty not to apply Mr Gruyters' Application Money otherwise than in fulfilment of the stated purpose as aforesaid.

The 'stated purpose' was 'the establishment and/or operation of the 2007 Almond Early Project by paying a Management Fee in consideration for the management services under the 2007 Management Agreement and in default of such application, to hold it for Mr Gruyters'.

98 Such an expression of the obligation, coupled with allegations of breach, did not provide a sufficiently clear definition of the obligation that was breached. Definition was required, because of the express and very specific obligation on growers to pay the Management Fee, the obligation of the responsible entity under the constitutions, the terms of each management agreement, and the investor expectation that such fees would be paid before the end of the relevant financial period.

99 Once an application for lots had been accepted, it was essential that the application fee be converted into a Management Fee, otherwise the grower would not derive the 'tax benefit'. The Management Fee had to be paid before the end of the relevant financial year if the tax benefit was to be achieved. In such circumstances, what duty could reasonably be imposed on the trustee (Timbercorp Securities in its capacity as responsible entity) to pay something less than the anticipated and invoiced amount, or to refuse to pay the invoice at all?

100 In relation to the Almond Project, Mr Gruyters received an invoice dated 7 June 2007 for 'Management Costs', in the sum of $56,000. In relation to the Olive Project, he received an invoice dated 14 June 2008 for 'Management Fees', in the sum of $28,500. Ms Lowe received an invoice dated 30 June 2008 for 'Plantation Establishment', in the sum of $400,400.00 in relation to the Timberlot Project, and an invoice dated 14 June 2008 in the sum of $102,600 for 'Management Fees' in relation to the Olive Project.

101 Was Timbercorp Securities, as responsible entity, required to undertake an audit of the work carried out in the financial year to ensure that only a reasonable sum for that work was paid? Could the invoices be ignored? If something less was payable, what was the amount? Was the scheme manager confined to charge only a commercially explicable amount for services? What would be a reasonable profit or uplift on fees? It was not enough for the defendants to assert that the fees were uncommercial or excessive, or that they were calculated to compensate the group for costs such as land, capital works, commissions, advertising expenses and operating overheads.

102 The defendants' attempt to define and quantify the Management Fee payable by reference to the work carried out under cl 5.2 would, if correct, create a significant impediment to the implementation of the scheme, and the legitimacy of the transaction documents. If, for example, all that could properly be paid by the responsible entity to the manager was a reasonable sum for management services performed between the date upon which an investor became a Participant Grower, bound by the relevant Constitution and Management Agreement, and the end of the financial year, the amount would vary depending upon the date each application was accepted and the end of the financial year. There would be no justification for raising the invoices for Management Fees for which a full tax deduction could be claimed with the authority of a binding tax ruling.

103 In addition to an invoice, each Management Agreement imposed on each Participant Grower an obligation to pay the invoiced amount. Clause 11 of the Almondlot Management Agreement, for example, provided that each 'Early Grower',

must pay Timbercorp Securities the following management fees and charges in respect of Orchard Services and all other services to be provided under this Agreement:

(a) in consideration of the services described in clause 5.2 and all other services to be provided under this Agreement in the period commencing on the Commencement Date and ending on 30 June 2007, an amount of $6,363.63 per almond lot payable in advance on or before the Commencement Date ...[26]

104 Having become a Participant Grower in the Almond Project (upon acceptance of their application), each investor became a party to the Almondlot Management Agreement. The agreement was executed by Mr Hance on behalf of Timbercorp Securities and as attorney for each Participant Grower, defined relevantly as a person whose application had been accepted by a specified date. Application forms included a power of attorney appointing Timbercorp Securities as the applicant's attorney to enter into, amongst other things, the Management Agreement.

105 It is common ground that in each case, the whole of the Application Money was applied to Management Fees and other deductible scheme related costs for the first year, and paid to Timbercorp Securities in its own right. The defendants' case concept drove them to argue that it was necessary for Timbercorp Securities, as responsible entity, to examine the work that was undertaken by it as scheme manager, and pay itself only a reasonable fee for the prescribed services actually carried out.

106 They submitted that the growers' promise to pay was not a bare promise to pay the agreed fee on entering into the agreement, or in consideration of a bare promise by Timbercorp Securities to perform some or any management services. The defendants contended that the Management Fee was payable for, and only for the services performed by Timbercorp Securities, as manager in its personal capacity, of the management services prescribed in the management agreement, for the prescribed period, for the particular scheme. Thus, so the argument went, the first year Management Fee was payable only if the fee was proportionate to the services required to be, and in fact, performed by Timbercorp Securities as manager of the scheme for which the fee was paid.

107 The defendants did not, however, contend that the Management Fees payable under cl 11.1 of the Almond and Olive Management Agreements might be subject to variation. Rather, they argued that if the fee charged was not proportionate to the services performed, it was not payable at all. Thus, the growers' obligation to pay anything was to be determined by some assessment of the value of the work undertaken to ensure that it only related to the prescribed services, for the particular scheme, over the prescribed period, and was proportionate. According to the defendants, Timbercorp Securities, as manager, had only earned a fee of something less than 20 per cent of that which was paid.

108 There was some evidence, based on financial forecasts, which indicated operating costs falling generally within the description of work covered by cl 5.2, of around 15 per cent of the amount charged for Management Fees. A substantial proportion had been spent on capital expenditure, marketing overheads and other matters, and was confined to the reasonable cost of the specific services described in in cl 5.2 of the Almond and Olive Project Management Agreements, and cl 6 of the Timberlot Management Agreement.

109 The defendants produced tables, said to reflect cash flow forecasts, from which they invited the Court to conclude that the first year Management Fee was designed, calculated and intended to cover more than the reasonable cost of carrying out the management services under each relevant management agreement. They relied on evidence given by Mr Rabinowicz to support their analysis. They contended that if the evidence of Mr Rabinowicz were to be accepted, to the effect that the initial Management Fee was referrable to management services performed between the time each applicant became a grower and the end of the financial year, there may only be a few weeks, or even days, of management services performed that could properly be charged for Management Fees for the particular financial year.

110 The evidence and analysis advanced on this topic by the defendants was little more than indicative. It was difficult, if not impossible, to align forecast operating expenses with actual expenses for a particular period in relation to a particular scheme, while actual costs for a period was generally available from scheme accounts. A further problem arose because of the difficulty in isolating the cost of work confined to that specified in cl 5.2 from other costs. What the accounts demonstrated, however, was that a substantial part of revenue, derived from Management Fees had been applied, as one might expect, in reduction of liabilities incurred by way of capital expenditure.

111 Let it be assumed that an assessment had been undertaken by Timbercorp Securities, in its capacity as responsible entity, disclosing that the actual cost incurred for work performed under cl 5.2 was, by the date of the invoice for Management Fees, substantially less than the amount of the invoice. What then? The defendants say that the responsible entity must refuse to pay the invoiced Management Fee. Presumably, the responsible entity would be obliged to notify each grower that, although their applications had been accepted, the invoices for Management Fees and other scheme related costs would not be paid.

112 The defendants contended that, by failing to inform investors of the discrepancy between invoice and cost, the true character of the initial Management Fee was concealed from them. They complained that the growers were not provided with cash flow forecasts which would have disclosed the application of Management Fees to capital expenditure. They complained that the statutory financial statements provided to growers did not include a detailed breakdown of the initial Management Fee, and that Timbercorp Securities did not disclose, to those who produced investment reports or advice, any such breakdown. The defendants characterised such conduct as dishonest, judged by the standards of ordinary decent people.[27] They deployed the words 'dishonest and fraudulent' to denote conduct that was 'unconscionable having regard to the relationship between the parties'.[28] Thus, they argued, the failure by Timbercorp Securities to disclose the breakdown, while charging a Management Fee equal to the Application Money, was dishonest. The defendants contended that Timbercorp Securities knew that the growers paid the first-year Management Fee when only around 15 per cent would in fact be applied to the management services for which they contracted.

113 Analysis of the content of the trust obligation cannot ignore cl 9.3(a) of the Almond Project Constitution (for example) which provided:

Release of Application Moneys

In relation to each Application that is unconditional as to finance, or is subject to finance and for which finance is approved, the Responsible Entity must within 2 Business Days of the Responsible Entity being satisfied of the matters specified in clause 9.2, release the Application Moneys and apply it in payment of the fees payable under the Sub-leases and Almondlot Management Agreement provided that where a deposit has been paid as provided for in clause 6.4, the balance of the Application Moneys must be paid to the Responsible Entity in accordance with the requirements of clause 6.4.

114 In the White and Collins proceedings, the defendants initially challenged the existence of the preconditions for payment under cl 9.3(a), such as a valid management agreement and sub-licences. By the end of the trial, that challenge had evaporated. There was no such challenge in the Gruyters and Lowe defences.

115 In addition to the duty imposed upon the responsible entity under cl 9.3(a), to apply Application Money to the fees payable under the sub-leases and management agreements, there was a more general power contained in cl 11 of the Constitution. Clause 11 provided:

Each Participant Grower agrees that the Responsible Entity has irrevocable power as the agent, representative and attorney of the Participant Grower and whether in the name of the Participant Grower or the Responsible Entity or both:

(a) subject to the requirements of ASIC and of the Corporations Act, to receive and hold the Application Moneys;

...

(d) to use the Application Moneys of the Participant Grower in discharging the Participant Grower's obligations under the Agreements or under this Deed;

...

(k) to execute any deed, agreement, certificate or other document and to do all such things as are necessary or desirable to further the powers granted to the Responsible Entity in this clause 11, including for the purposes of protecting, insofar as is legally possible, the Participant Grower's tenure to its Almondlots; and ...

116 The defendants submitted that cl 11 of the Constitution did not assist the plaintiff. Such general powers must, it seems to me, be subject to the overarching fiduciary duty.[29] The plaintiff, however, relied on the express obligation in cl 9.3(a) to pay the fees due under the Management Agreement and sub-lease or licence agreements, as the case may be.

117 The defendants' formulation of breach, without the assistance of carefully formulated duties, was unhelpful. But, doing the best I can to draw together the threads of breach to formulate trustee's duties, those duties might be expressed in the following terms:

(a) A duty to ensure that the Application Money, held by Timbercorp Securities as responsible entity, was not applied in payment of the Management Fee unless the responsible entity had satisfied itself that such fee was reasonable having regard to the cost of the work described in cl 5.2 of the Management Agreement, actually performed by Timbercorp Securities, in its own right, as scheme manager for the period ending 30 June 2007;

(b) A corresponding duty to make an assessment of the reasonable cost of the work described in cl 5.2 of the Management Agreement, performed by it or on its behalf in relation to the scheme for the period ended 30 June 2007;

(c) If and insofar as the reasonable cost of such work did not conform or was not 'proportionate' to the invoiced fee payable under cl 11.1(a) of the Management Agreement, that fee, and any related invoice, would not be paid;

(d) A duty to inform the grower of the reasonable cost of such work; and

(e) A duty to hold any balance of the Application Money on trust for the grower, following any authorised payment under cl 9.3(a);

118 The breach of trust alleged by the defendants all but ignored the express terms of the scheme and transaction documents upon which they relied to establish the trust. With the exception of cl 11.1 of the Management Agreement, the relevant text was unambiguous. The context in which Application Fees were paid, held and dealt with was self-evident, and uncontroversial. The purpose for which Application Fees were paid was also self-evident.[30]

119 The defendants sought to construe cl 11.1 of the Management Agreement so as to confine the growers' obligation to pay for cl 5.2 works undertaken between the Commencement Date and the end of the relevant financial year in relation to the Almond and Olive Projects. They submitted that may only involve a period of weeks, or even days, depending upon the timing of acceptance of each application. For the Timberlot Project, they submitted the fees were payable only in respect of cl 6 services performed in the Establishment Period, in the future. They argued that the payment obligation was not a promise to pay whatever was charged, but for that which was actually done in that limited period of time.

120 A construction of cl 11.1 of the Management Agreement to the effect that Timbercorp Securities was only authorised to charge for management services provided between the time at which an applicant became a Participant Grower, and the end of the financial year, would lead to absurd consequences. For a start, it would require the responsible entity to calculate, on a day by day basis, the amount of work for which it might properly be remunerated as scheme manager, with a variety of commencement dates, usually in late June. It would ignore work that had been undertaken to establish the schemes and other costs, including costs associated with the acquisition of land, which the defendants contended should form no part of the initial Management Fee. The defendants would deny Timbercorp Securities any revenue from growers as compensation for very substantial capital and other expenditure. Who was to pay for capital expenditure, overheads, administration, advertising, commissions and such other expenses as would ordinarily be incurred by such a business? It is axiomatic that if the Timbercorp group could only charge management fees reasonably incurred for a few days in June each year, there would be no business.

121 Putting to one side those very practical concerns, which the defendants would no doubt regard as irrelevant, their construction of the obligation in cl 11.1 ignored context, and the fundamental purpose of the parties when entering into their contractual relationship. A self-evident common purpose was to ensure that the full amount of the invoiced fees were incurred by the grower in the relevant year of income as a deductible expense. The parties agreed in advance on the amount of those fees. If Timbercorp Securities, as responsible entity, were to delay payment of the fees, a paramount purpose of the investment would have been denied to the grower.

122 Almond, Olive and Timberlot Projects were designed and promoted as schemes to 'take advantage of tax benefits'. Product Rulings were obtained from the Australian Taxation Office and published by Timbercorp in respect of each of the schemes. Prominent amongst the listed 'benefits of the project' was the tax deductibility of Establishment Costs, in the case of Timberlots, and Management Fees and other costs, in relation to the other schemes. There was no ambiguity in each Product Disclosure Statement, that the Application Money covered the first year's establishment, or Management Fees and rental where applicable. The grower obligations under each Management Agreement precisely reflected that position, and self-evident grower expectation.

123 The defendants invited the court to ignore this common purpose, as if disinterested in a central feature of the investment. They complained that Timbercorp Securities had breached its obligations by doing the very thing that was essential to give efficacy to investor expectation.

124 The express obligation of Timbercorp Securities, in cl 9.3 of each constitution, was to promptly apply all of the Application Money to Management Fees and other deductible costs to realise the expectation of each grower that just such a payment would be made. Growers would rightly complain if the payments had not been made prior to the end of the relevant financial year. The obligation to pay is found in cl 11.1 of each Management Agreement.

125 The distinction between Application Money and Management Fees was deployed by the defendants (and by the defendants in the White and Collins proceedings) to identify trust property under the control of the responsible entity, while attempting to disconnect the Management Fees, and the obligation to pay them. The distinction was artificial and unhelpful. The concept of Application Money was relevant only to the pre-acceptance phase of an application. Minimum subscription levels might not be achieved. Finance might not be approved. There were also conditions for payment under cl 9.3 of the constitutions. Upon acceptance of an application by Timbercorp Securities, the applicant became a Participant Grower, and was thereby bound by the Constitution and Management Agreement. A Participant Grower became liable for the Management Fees and charges under cl 11.1 of the Management Agreement. The Participant Grower was not obliged to pay the Management Fees and other charges in addition to the Application Money. The Product Disclosure Statement made that clear.

126 The definition of 'Commencement Date' in the Almondlot Management Agreement was 'the date of this Agreement' was problematic. The agreement was undated. The offer to 'Early Growers' under the Almond Project Product Disclosure Statement opened on 27 November 2006, and closed on 15 June 2007. If the Commencement Date for each investor was the date upon which his, her or its application was accepted,[31] (when the applicant was deemed to have contemporaneously become a party to the Constitution and thereby bound by its terms, conditions and obligations[32]) for Mr Gruyters, that date was 7 June 2007. The defendants were equivocal as to whether the Management Fee was calculated by reference to only such services as were performed between 7 and 30 June 2007, in the case of Mr Gruyters. By the time Mr Gruyters made application, almond orchards for the Almond Project had already been established on two properties known as Menegazzo and Annuello. The Product Disclosure Statement informed investors that,

The Project Land will be fully developed with all of the improvements required to grow almonds, including Almond Trees, an irrigation system and other capital works.

According to the Product Disclosure Statement, at least 15 per cent of the planting was to be completed by 23 June 2007, with the balance by the end of September 2007. Thus, the establishment of the project was well advanced by the time the defendants invested.

127 The Management Fees and other charges payable under cl 11.1 were segregated by time periods, set out in paragraphs (a), (b), (c) and (d). Paragraph (a) is unfortunately phrased, inviting the kind of submission advanced by the defendants. On its proper construction, in order to give effect to the common purpose, paragraph (a) was intended to record four elements:

(i) a description of services for which the fee was payable;

128 Contrary to the defendants' contention, the description of services extended beyond cl 5.2, to include 'all other services to be provided under this agreement'. The period commencing on the Commencement Date, defined to mean, 'in respect of each several Participant Grower, the date of this Agreement', may suggest a date individual to each grower. Such a construction would, however, result in the date for the commencement of the services corresponding with the date for payment ('in advance on or before the Commencement Date') leaving no time for the performance of any services. On the other hand, the definition may have been intended to mean a date which corresponds with the commencement of the scheme, or perhaps the adoption of the Management Agreement by Timbercorp Securities. Whichever construction is to be adopted, there is a common end to the period under consideration - 30 June 2007.

129 Some insight into the meaning of 'Commencement Date' in cl 11.1(a) may be achieved by reference to other parts of the Management Agreement. In cl 5.1 the manager must prepare the 'Management Plan on or about the Commencement Date or before 30 June 2007'. This would suggest only one Commencement Date. Other provisions, and common sense, support the existence of only one date. Under cl 5.2, Infrastructure Management Services commence 'from the later of the Commencement Date and completion of the Pre-Planting Capital Works on the Participating Growers Almondlot and will be carried out until 30 June 2007 ...'. Administrative and other Management Services 'will also be carried out ... from the Commencement Date until 30 June 2007 ...' Almond Tree Management Services for Part A Almondlots will be provided for those almondlots that are fully planted by 23 June 2007, until 30 June 2007.

130 It is obvious that the words 'Commencement Date' are not used consistently throughout the agreement. But, for the performance of services by Timbercorp Securities, the term is intended to specify a date, not a variety of dates, from which works are to be done on the preparation, planting and maintenance of almondlots prior to 30 June 2007. A significant amount of work appears to have been done prior to 30 June 2007, according to the Product Disclosure Statement. For performance by a Participant Grower (payment of the Management Fee) the Commencement Date is the date upon which the application is accepted and the fee is to be paid. That time corresponds with the grower adopting the Management Agreement.

131 The inconsistent use of the definition is eliminated if, in cl 11.1(a), the second use of the term 'Commencement Date' is replaced with '30 June 2007'. The anomaly is, however, of no consequence because the parties have agreed in advance on the amount and the character of the payment.

132 Clause 9.3(a) of the Constitution required the trustee to release the Application Money 'in payment of the fees payable under the sub-leases and Almondlot Management Agreement ...'. Thus, the Application Money, or such of it as has been paid, would be deployed to discharge the grower's liability for the Management Fee.

133 Another feature of the scheme documents, evident from cl 11.1 of the Management Agreement and cl 9.3(a) of the Constitution, is the requirement for immediate conversion of Application Money into Management Fees. Having become a party to the Management Agreement, upon acceptance of an application, the Participant Grower had an immediate liability to pay the Management Fee. The responsible entity was required to pay that fee, from Application Money, within two days.[33] Thus, the transactional scheme revealed by the text involves a very short period during which Application Money, as scheme property, is held upon trust. The role of Timbercorp Securities, as the recipient of Management Fees, and the party responsible to perform management services, is not as trustee, or the recipient of scheme property. Timbercorp Securities was conducting a business for profit.

134 While the Management Agreement states that Timbercorp Securities, as scheme manager, will perform certain services, it does not prescribe the basis upon which fees will be calculated or money spent once received. The relationship between a Participant Grower and scheme manager is contractual. The parties have contracted, through the Management Agreement, for payment of a specified fee at a prescribed time. A refusal by the responsible entity to discharge the Participant Grower's obligation for Management Fees, by releasing funds under cl 9.3(a) of the Constitution, would probably constitute a breach by the responsible entity of its duty under the Constitution.

135 The defendants' case assumed that there was a rule or principle that inhibited an applicant and scheme manager from fixing a sum for management services that was not an accurate or approximate reflex of the cost of such services. A conceptual difficulty arose because Timbercorp Securities wore two hats. In the absence of a common identity it would not have been exceptional for an applicant and scheme manager to agree upon any amount as a fee payable for a particular year. In the absence of fraud or other actionable misconduct, the parties would ordinarily be free to decide on a price. Approval by the Australian Taxation Office to the deductibility of the fee is another matter. While one might question the basis for allowing the whole of the fee as a tax deductible expense, it is not for this court to second guess the Tax Ruling. After all, the Australian Taxation Office had all relevant material, including the Constitution and a draft Management Agreement. No condition was imposed that would have the fee, expressly identified, questioned.

136 The context in which Application Money was paid, and an applicant became a Participant Grower, informs the purpose for which the Application Money was paid, and confirmed the existence of a transactional regime in which the responsible entity was required to release the Application Money as Management Fees forthwith if the transaction was to have the desired effect. Unless the Application Money was wholly converted into a tax deductible expense prior to the end of the financial year, the investment by the applicant would lose an important element of its anticipated utility.

137 To refuse to pay the contracted fee, notify the grower that the fee was excessive, or release a much lesser amount, would have been antithetical to the expectation of investors that the Management Fee and other scheme related costs would be paid and become a wholly deductible expense. A reasonable person, familiar with the language in which the parties expressed themselves, the context and purpose, would have been astonished by a suggestion that Timbercorp Securities, as responsible entity, might refuse to convert the whole of the Application Money into a tax deductible Management Fee prior to the end of the financial year, or challenge the validity and enforceability of the grower obligation to pay the Management Fee, and its duty to release funds for that purpose.

138 A construction of the scheme documents that permitted the parties to agree upon a fee, without reference to the actual work carried out prior to 30 June 2007, with payment of the agreed fee from Application Money, does not undermine or circumvent the importance of the duties imposed upon the responsible entity under the Corporations Act; in particular, its duties and responsibilities as trustee of scheme property. There is no warrant for imposing on the responsible entity, for the very short time it held the Application Money, a duty that was inconsistent with the text and purpose of the scheme documents. The defendants have failed to establish that Timbercorp Securities, as responsible entity, released their Application Money in breach of trust.

139 There being no breach of trust by Timbercorp Securities, consideration of the question of 'knowing assistance' must be based on the opposite premise. Thus, let it be assumed that Timbercorp Securities was not authorised to pay the first year Management Fee.

140 The defendants contended that the plaintiff assisted Timbercorp Securities in its breach of trust 'with knowledge of a dishonest and fraudulent design' on the part of the Timbercorp Securities and is liable, as constructive trustee, for the full amount of the Application Money under the second limb of Barnes v Addy.

141 The allegation of dishonesty against Timbercorp Securities is very serious. Notwithstanding the defendants' attempts to mitigate the force of the allegation of dishonesty, by adopting 'constructive' knowledge as the preferred basis, the allegations involved actual dishonesty and concealment. Because of the defendants' failure to adequately plead the terms of the trust that they alleged were breached, the precise definition of the 'dishonest and fraudulent design' was never adequately expressed. What may be discerned from the defendants' pleading is the proposition that the dishonest scheme involved knowledge, action and purpose.

142 While the defendants made efforts to neutralise the allegation of dishonesty and fraud by use of the 'honest and reasonable man' objective test, they alleged that the breach of trust was dishonest because:

(i) Timbercorp Securities knew that Mr Gruyters paid his application money on terms that it be held on trust and released in payment of a management fee payable for the management services under the 2007 Management Agreement.

(ii) Timbercorp Securities intended to and did in fact apply Mr Gruyters' Application Money towards the Almond Non-Commercial Management Fees [in breach of trust].

(iii) Timbercorp failed to reveal to Mr Gruyters [their breach of trust].

143 The dishonest plan of Timbercorp Securities was, according to the defendants, to overcharge growers for its own profit as scheme manager, knowing that it was not entitled to the overpayment, and to conceal its conduct. Having advanced such a case against Timbercorp Securities, the defendants sought to implicate the plaintiff under the second limb of Barnes v Addy. They submitted that the plaintiff, through Mr Rabinowicz, knew of and assisted the dishonest and fraudulent design of Timbercorp Securities. The defendants contended that the plaintiff had knowledge of the essential facts constituting a dishonest breach of duty. These essential facts were as follows:

(a) the plaintiff (through Mr Rabinowicz) had knowledge of the scheme documents and transactions;

(b) the plaintiff knew that Timbercorp Securities was trustee of Application Money;

(c) the plaintiff knew that Timbercorp Securities was only authorised to release Application Money as Management Fees in accordance with the Management Agreements and Constitution, as were 'properly payable in respect of the scheme';

(d) the plaintiff knew that Timbercorp Securities released the whole of the application fee as Management Fees;

(e) the plaintiff knew that the Management Fee was excessive or uncommercial;

(f) the plaintiff failed to inform the grower that the real cost of management services or that the fee was excessive and uncommercial.

144 While the defendants pleaded a full range of states of mind of the plaintiff,[34] they confined their submissions to category four - knowledge of circumstances that would indicate to an honest and reasonable person that a deliberate deceit had been practised on investors, by charging a fee in breach of trust, and concealing the breach.

145 It is never appropriate to allege dishonesty by 'scattergun' allegations. In submissions, the defendants relied upon the actual knowledge of Mr Rabinowicz as the knowledge of Timbercorp Securities and the plaintiff. There was an attempt to qualify the accusation by reference to 'circumstances which would indicate the facts to an honest and reasonable man'. In other words, Mr Rabinowicz must be taken to have known that the conduct of Timbercorp Securities was dishonest.

146 Even if it be found that the responsible entity wrongly converted the Application Money to Management Fees, because the amount charged is found to be uncommercial or excessive, I would reject the characterisation of the transaction as a 'dishonest and fraudulent design'. Payment of a Management Fee equal to the application fee was integral, even fundamental, to the purpose and efficacy of the scheme. It was fully disclosed. Thus, even if by some means the defendants are later to persuade a court that the responsible entity was required to make an assessment of value for money, before payment of Management Fees (ignoring text, context and purpose), I am not persuaded that any overpayment, or failure to notify was dishonest and fraudulent. The scheme documents, invoices, published accounts and Product Rulings provide a powerful evidentiary basis for a claim of right by Timbercorp Securities, inconsistent with a finding of dishonest and fraudulent design necessary to support the second limb of Barnes v Addy.

147 Nor am I persuaded that the plaintiff relevantly assisted in the conduct of Timbercorp Securities of which the defendants complain. The plaintiff was the group's 'in-house lender'. It provided funding to growers, essential to the marketing of the schemes. Liquidity was achieved by selling its loan book to a bank. While it performed an important role, the plaintiff was a service provider, supporting the main operations conducted by Timbercorp Securities. Its role and business objectives were limited. Even though Timbercorp Securities had an interest in the service provided by the plaintiff, the plaintiff had no relevant interest in the transaction that resulted in the conversion of Application Money into a Management Fee. The plaintiff's relationships were as lender to investors, and borrower from Timbercorp Securities. It made advances as directed. Notwithstanding common directorships, the defendants have failed to establish that the plaintiff assisted the conversion of the Application Money into a Management Fee, which involved a transaction between Timbercorp Securities in its different capacities. Its conduct did not make a relevant difference.[35] Accordingly, the allegation of 'knowing assistance' failed at its threshold.

148 Finally, to rely upon the participation of Mr Rabinowicz, as common director, to attribute liability to the plaintiff, under the second limb of Barnes v Addy, is to attribute to him involvement in dishonesty and fraud. In my opinion, the allegation of dishonesty and fraud should never have been advanced.

149 These, and the following allegations depend, of course, on the defendants succeeding on their principle contention concerning the alleged breach of trust by the responsible entity releasing the Application Money in payment of Management Fees.

150 The defendants' principle contention was that Timbercorp Securities had breached s 601FC(1)(k) of the Corporations Act, because it did not ensure that the payments out of the Application Money, as scheme property within the meaning of s 9, were authorised under cl 9.3(a) of each constitution. A further statutory breach, alleged by the defendants, involved a contravention of s 601FC(1)(c), which required the responsible entity to act in the best interests of members and, if there was a conflict between the members' interests and its own interests, to give priority to the interests of the members. They also alleged a breach of s 601FC(1)(i), which required scheme property to be held separately. These particular breaches were not developed by the defendants in their submissions. That is understandable, because they appeared as a sub-set of the breach of trust. The substantive breach, according to the defendants, was the wrongful payment by the responsible entity of grower funds to itself as manager. The defendants alleged that the plaintiff contravened s 601FC as a 'person involved', in the contraventions of Timbercorp Securities as responsible entity.

151 The question of whether the plaintiff was a 'person involved' is one of fact. The defendants relied upon the same factual analysis as to contend for the proposition that the plaintiff knowingly assisted the breach of trust. For the reasons given above, I am not persuaded that the plaintiff was knowingly concerned in any such breach, if there was a breach.

152 The defendants advanced an alternative case to the effect that even if the Application Money was not held on trust, it was nonetheless unconscionable for the plaintiff to make loans in circumstances where it knew, but did not disclose that the Application Money would be, and was always intended by the responsible entity to be paid as Management Fees. While the defendants submitted that this part of their case was independent to any allegation of breach of trust, it depended upon the same facts - the conduct of the responsible entity making an uncommercial payment, with the knowing assistance of the plaintiff. The defendants also relied upon the failure of the plaintiff to disclose that it intended to advance the balance (90 per cent) of the Application Money to Timbercorp Securities in circumstances where the plaintiff knew that it would be applied to excessive or uncommercial Management Fees. They contended that the plaintiff should either have not made the loans, not paid the money over to Timbercorp Securities, or disclosed to them the intention of Timbercorp Securities to apply the Application Money in a dishonest way. The defendants claimed to be entitled to an order under s 12GM of the ASIC Act that the loan agreements were void ab initio and are unenforceable.

153 The attribution of responsibility to the plaintiff, for unconscionable conduct, was unpersuasive for reasons already advanced in relation to the breach of trust and the alleged 'knowing assistance'. There was no occasion for the plaintiff to disclose to a grower/borrower anything concerning the value for money of the Management Fee to which the Application Money would be applied. The plaintiff had agreed to fund 90 per cent of Application Money or Management Fee as directed. It performed that obligation.

154 Moreover, an essential feature of the scheme, and the expectation of each investor, was to achieve a deduction against income by payment of a Management Fee equal to the whole of the Application Money. That purpose would not have been achieved had the plaintiff not made the advance, and the responsible entity not paid the Management Fees.

155 This part of the claim relates to loan instalments and interest paid under an alleged mistake that Application Money was applied to a Management Fee paid for services to be performed under each respective management agreement. The defendants contended that the unjust enrichment claim was coextensive with the unconscionable conduct claim.

156 There was no mistake on the part of the defendants concerning the conversion of Application Money into Management Fees. That transaction was disclosed in the Product Disclosure Statements and an inherent feature of the scheme. The transaction was necessary to support the tax deductible claim by the grower. The plaintiff performed its part of the loan agreement by making an advance of 90 per cent of Application Money, which resulted in a discharge of the grower's liability for the balance of the Application Money, and the whole of the Management Fee payable under the Management Agreement. There was no basis for the contention that, in such circumstances, the plaintiff was in some way unjustly enriched by repayments.

157 The defendants claimed to be entitled to equitable compensation payable as a consequence of the conduct of a defaulting trustee, and against the plaintiff under the second limb of Barnes v Addy. They also relied on the alleged statutory contraventions. They argued that the Application Money was released by the plaintiff and applied by Timbercorp Securities when it had no authority to do so; and was lost. They contended that compensation should include any losses caused by the defendants entering into later loans in circumstances where they did not know that their Application Money had been misapplied. They contended that had they been so informed, it is inconceivable they would have applied for later loans.

158 For reasons given above, there is no basis to the defendants' claim for equitable compensation. I also reject the causation pathway advanced by the defendants. It was not supported by any evidence. It was speculative.

159 The relief sought by the defendants, as a consequence of the alleged breaches of trust, and statutory breaches, is equitable compensation which they seek to set off, pursuant to s 553C of the Corporations Act, against the amounts claimed by the plaintiff. The occasion for doing so would only arise if the plaintiff's claim for repayment of the loan balances and interest was made out. That would not occur, for example, if the loan agreements, and any obligations thereunder, were declared void ab initio.

160 Insofar as the defendants can establish a breach of trust by Timbercorp Securities, by an unauthorised payment of the Application Money as a Management Fee, with the knowing assistance of the plaintiff, I am persuaded that they would be entitled to set off any compensation, for which the plaintiff may be found liable, against the outstanding balance of any loan amount. That is because the compensation would be directly referrable to an advance made by the plaintiff, who was found to have knowingly assisted Timbercorp Securities in a dishonest and fraudulent design. When calculating compensation payable by the plaintiff, the amount must be reduced by the value to each grower of the tax benefit obtained as a consequence of claimed deductions. Those deductions must have been claimed on the footing that the Management Fee was proper and payable, and that the advance by the plaintiff was applied in payment of the Application Money, and ultimately the Management Fee. After all, that is the basis upon which interest became a deductible expense.

161 In the Gruyters proceeding, the plaintiff filed and served a reply in which it raised the same preclusion allegation as that which was heard and determined, as a preliminary question, by Robson J in Collins and Tomes. The Gruyters proceeding was initially a candidate for the trial of the preliminary question with Collins and Tomes, but Mr Gruyters withdrew from participation before the hearing. The circumstances in which he withdrew are unclear, although the contentions of the defendants on the preclusion allegation raised by the plaintiff in these proceedings may provide some explanation.

162 The defendants contended that the definition of Group Member in each Opt-Out Notice expressly excluded a beneficiary of a trust of which Timbercorp Securities was trustee. Insofar as that position depended on the relationship of trustee and beneficiary, advanced by these defendants in these proceedings, it must apply universally to all growers. I am not persuaded that the position of these defendants, as a beneficiary under one or another of the trusts advocated by them in this proceeding, was a disqualification for participation as a member of the 'group' as defined in the class action. In any event, the plaintiff has now withdrawn the allegation following the decision of the High Court.[36]

163 The second limb of the plaintiff's reply invoked s 21(2) of the Limitation of Actions Act 1958 (Vic). Section 21 provides:

Limitation of actions in respect of trust property

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action -

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

(3) No beneficiary as against whom there would be a good defence under this Act shall derive any greater or other benefit from a judgment or order obtained by any other beneficiary than he could have obtained if he had brought the action and this Act had been pleaded in defence.

164 The plaintiff alleged that the set-off, upon which the defendants relied, did not accrue within six years before the commencement of the action. The defendants relied upon the exceptions contained in s 21(1)(a) and (b), and an alleged fraudulent breach of trust, or the recovery of trust property previously received by the trustee and converted to its use.

165 The relevant trustee was Timbercorp Securities. The defendants, of course, alleged wrongdoing by the plaintiff - 'knowing assistance' in a dishonest and fraudulent design - as well as involvement in statutory breaches. If the defendants were to persuade a court that the plaintiff had knowingly assisted in a dishonest breach of trust by Timbercorp Securities, involving the diversion of Application Money for its own use, the exception would apply. Moreover, if the defendants established, for the purpose of s 27 of the Limitation of Actions Act, that the plaintiff was involved in concealing a fraud, by failing to disclose the true character of the payment made on account of Management Fees, or the breakdown of the Management Fees, that would be sufficient to invoke s 27(b), extending the commencement date of the limitation period until the fraud was discovered or could have, with reasonable diligence, have been discovered.

166 These observations, of course, presuppose a character to the transaction, and concealment, which I have rejected. For reasons given above, there was no basis upon which to allege dishonesty and fraud against Timbercorp Securities. Thus, there is no occasion to allege the concealment of a fraud.

167 In each of the Gruyters and Lowe proceedings, the plaintiff has established its claim for the unpaid balance of the alleged loans. The calculation of loan balances and interest were not disputed. The defendants have failed in each of their defences to establish a breach of trust by Timbercorp Securities in the payment of the Application Money as Management Fees. They have failed to establish that the plaintiff knowingly assisted Timbercorp Securities in a dishonest and fraudulent scheme. In my opinion, the allegations of dishonesty made against Timbercorp Securities and the plaintiff, through the common directorships (and in particular Mr Rabinowicz) should not have been made. Having regard to the purpose of the investment in the schemes, and investor expectations, the conversion of Application Money into Management Fees was fundamental to the investment contract. In that context, there was no reasonable basis upon which to make an allegation that what was plainly intended by the parties was dishonest. The claims for equitable compensation and other relief must fail. Accordingly, the plaintiff is entitled to judgment for the amount claimed in each case, together with interest.

168 The Collins proceeding was commenced on 13 June 2014 to recover $90,501.68 as the balance due under a loan from the plaintiff to assist the defendants to fund an investment in the Olive Project. Interest is claimed at $32.73 per day from 1 April 2014.

169 The White proceeding was commenced on 4 November 2014 to recover $371,097.58 as the balance due under a loan from the plaintiff to assist the defendant to fund three projects: Timberlot Project; Almond Project (Post-June 30); and Olive Project. Interest is claimed at $134.21 per day from 1 April 2014.

170 The defendants in the White and Collins proceeding advanced a joint defence using the White proceeding as a convenient vehicle. The parties advanced their respective cases on the basis that the facts in the Collins proceeding were, in all material respects, identical to the facts in the White proceeding, and the outcome in the White proceeding would dictate the outcome in the Collins proceeding.

171 The central issue in these two proceedings was whether the plaintiff performed its obligation under loan agreements with the defendants. While the defendants claimed there was only 'one question' to answer at trial, it had many aspects. The defendants starting position was to construe cl 1 of the loan agreement so as to require the plaintiff to make the loan payment 'in a form capable of being banked'. They also contended that the loan amount was required to be paid to Timbercorp Securities, in its capacity as responsible entity, in discharge of an obligation to pay the balance of Application Money. The defendants claimed that the plaintiff had made a material change in its case in June 2016, by relying on journal voucher 504786 to evidence the loan payment. They characterised the amendment as a transition from a case involving an allegation that there was a 'real money transfer'.

172 Although the defendants' 'no loan' defence found its final resting place in the allegation that no loan payment had been made, because of the absence of a 'real money transfer', it was mercurial, necessitating a review of the pleadings. The defendants placed great reliance on a contention that it was only in June 2016, shortly before trial, they were first informed of the true nature of the transaction on which the plaintiff relied to constitute 'payment' of the loan amount pursuant to their loan agreements with the plaintiff. The significance of that revelation, according to the defendants, was twofold. First, it revealed that the plaintiff had not performed its part of the bargain; second, the late notice defeated estoppels raised by the plaintiff.

173 Mr White entered into only one loan agreement with the plaintiff. The plaintiff alleged that on about 2 June 2008 Mr White applied for a loan in the sum of $205,756 to fund part of the cost of his initial investment in three projects: the Timberlot Project, Almond Project and Olive Project. By its statement of claim the plaintiff alleged that it paid the loan amount of $205,756 to Trust Company of Australia Limited, as custodian and agent for Timbercorp Securities, and thereby loaned the amount to Mr White in accordance with the terms of the loan agreement. The plaintiff alleged that on about 30 May 2009 Mr White defaulted under the loan agreement by failing to pay instalments. Demands were made on 30 October 2009 and 2 May 2014, which were not paid.

174 Mr White filed his first defence on 22 December 2014. He denied the loan agreement and any indebtedness to the plaintiff. He alleged[37] that the plaintiff drew down on a facility provided by the ANZ Bank, in an amount equal at least to Mr White's loan, and paid those funds to a Trust Company account. At around the same time, pursuant to a direction given to Trust Company, the funds were paid to Timbercorp Ltd to be used by it in the course of its business. There was a symmetry between the plaintiff's characterisation of the advances, as payments to Trust Company, and the defendant's affirmative allegation of the payment to Timbercorp from Trust Company.

175 The defendant's substantive defence commenced with an allegation[38] that under the various scheme constitutions, certain preconditions must exist before a valid direction could be given to Trust Company for payment of the Application Money under cl 9.3 of the Almond Project and Olive Project Constitutions.[39] The conditions included the preparation of sub-leases or licences, and management agreements. He alleged that Timbercorp Securities was only permitted to apply Application Money to the particular scheme for which it was paid, and then only if Timbercorp Securities was reasonably satisfied that the sub-leases or licence agreements, as the case may be, and management agreements, were in place. Timbercorp Securities was also required to be reasonably satisfied that each sub-lease was not subject to any encumbrance or restriction which had not been disclosed, and that there were no outstanding material breaches of any of the constitutions.

176 Mr White alleged,[40] in relation to the Timberlot Project, that there were no valid agreements to sub-lease, or sub-leases, and in relation to the Almond Project and Olive Projects there were no valid sub-leases or licence agreements. Thus, to some extent, the White and Collins defences to this point were aligned with the Gruyters and Lowe defences, insofar as they all challenged the validity of the exercise of power under cl 9.3 of the constitutions to convert Application Money into Management Fees.

177 Mr White assembled what he described as 'relevant events'.[41] He alleged that from the beginning of May 2008 Timbercorp was experiencing cash flow difficulties, and was not in a position to pay outstanding debts to contractors. The loan facility with the ANZ had increased to $150 million. He alleged that by 30 July 2008 Timbercorp Securities had not leased or purchased the land required for the Timberlot Project, and had fully drawn down on its extended loan facility.

178 Mr White alleged[42] that, by reason of common directorships and the corporate structure of the group, the plaintiff's knowledge was the knowledge of Timbercorp and Timbercorp Securities. He alleged that the group operated on a consolidated basis. It was not entirely clear from the pleadings how the 'knowledge' allegation was to be utilised.

179 Mr White alleged[43] that by reason of most of the 'relevant facts', no loan had been made to him because the plaintiff had not paid anything to Timbercorp Securities from the funds drawn down from the account at the ANZ Bank. In the alternative, and based on the same facts, Mr White alleged that the plaintiff had not made an advance or loan to him within the terms of the loan agreement, or made a payment for his benefit. The scope of these allegations were unclear, except to constitute the first expression of a 'no loan' case.

180 Mr White further alleged[44] a duty of care owed to him by the plaintiff, to protect him against the failure of Timbercorp Securities to hold and retain the loan amount until such time as valid sub-leases or licences had been granted or timberlots established. He alleged that the loan amount had not been deployed for the various projects, and was not available to repay him. These allegations prompted the plaintiff to join Timbercorp Securities as a defendant.

181 Finally, Mr White alleged that the plaintiff had engaged in unconscionable conduct, in contravention of ss 12CB and 12BAB of the ASIC Act, by reason of which he had suffered loss and damage in the amount claimed by the plaintiff in the proceeding.

182 On 20 November 2015, the plaintiff delivered an amended statement of claim in which it joined Timbercorp Securities as second defendant, to meet the 'no loan' defence, based upon the alleged failure by Timbercorp Securities to satisfy itself that the necessary preconditions for use of Mr White's Application Money were in place. In other words, if Timbercorp Securities had deployed the Application Money in breach of the preconditions for release under cl 9.3 of the constitution, and Mr White was thereby relieved of his obligation to repay his loan, the plaintiff had suffered loss and damage. Timbercorp Securities delivered its defence on 11 December 2015, in which it alleged compliance with the various constitutional provisions, or sufficient compliance, or a common assumption of compliance.

183 The plaintiff also delivered its reply to Mr White's defence on 20 November 2015. In paragraph 1 it alleged that Mr White was precluded from raising the pleaded defences by reason that he was a group member within the meaning of Part 4A of the Supreme Court Act, in proceeding S CI 9807 of 2009. A like plea in Collins was the subject of a trial of a separate question.[45] The plaintiff also alleged facts and matters to support allegations that Mr White was estopped from denying the existence of the preconditions for payment under cl 9.3.

184 In response to Mr White's 'no loan' defence, the plaintiff alleged, by way of reply, that Mr White had authorised the plaintiff to satisfy his liability to Timbercorp Securities for the Management Fee.[46] The plaintiff went on to plead that it had done so because the accounts of the group recorded the discharge of his liability for the Management Fee on 14 June 2008. The plaintiff further alleged ratification by Mr White, by making loan repayments, and by claiming a tax deduction for the full amount of the Management Fee. There was a further allegation that as Mr White had derived a material benefit, it would be unconscionable for him to retain the benefit without paying a reasonable sum in return. The precise scope of the 'no loan' defence remained opaque, and clarity was not introduced by the plaintiff's apparently alternative allegations, in its amended statement of claim and reply, of the means by which the advance had been made.

185 Mr White's amended defence, filed 22 December 2014, was reflected, in all material respects, in the defences filed in the Collins proceeding on 12 February 2015. In the reasons for judgment by the majority in the High Court, the Collins defence was summarised as follows:[47]

The amended defence of Mr and Mrs Collins in the proceedings brought by the appellant, Timbercorp Finance, against them contains two principal claims: that they did not acquire an interest in the project in which they sought to invest through Timbercorp Securities and that no loan was advanced to them by the appellant for that purpose. The first-mentioned claim is based largely on the requirements of the constitution of the project and Timbercorp Securities' inability to comply with it. As a result, it could neither release application monies for the purpose of an allotment of any interest in the project nor allot such an interest to them. As to the second, it is alleged that it was a condition of the loan agreement that the appellant pay monies to Timbercorp Securities on their behalf. However, upon receipt of their application for a loan the appellant paid monies to a trust company, which in turn paid them to Timbercorp Ltd, which then used them in the conduct of its business.

Mr and Mrs Collins contend, in the alternative, that the loan offers were unconscionable conduct, in contravention of the Australian Securities and Investments Commission Act 2001 (Cth). They further allege that if they are required to pay loan monies to the appellant, it would be unjustly enriched by reason that it has not made an actual monetary payment and has therefore suffered no loss.

186 The Collins defences changed quite dramatically thereafter. Their defence at trial only resembled the defence filed 12 February 2015 because they continued to advance a 'no loan' case, but on a very different basis.

187 On 17 June 2016, Mr White filed a defence to the amended statement of claim, which went much further than was necessary to respond to the contingent claims made by the plaintiff against Timbercorp Securities. The 'no loan' defence began to achieve some elaboration. It is sufficient, for present purposes, to focus on the useful summary contained in paragraphs 4 to 12 inclusive of the defence. Those paragraphs may be summarised as follows:

(a) The plaintiff did not make a payment in accordance with the terms of the loan agreement, because it was Timbercorp Ltd, and not the plaintiff, who made the transfer to the relevant Trust Company account.

(b) Mr White's money was not used for the acquisition of lots in a scheme, but was used by Timbercorp 'in the course of the conduct of its business'.

(c) The preconditions required under the constitution for the release of the Application Money under cl 9.3 had not been satisfied.

(d) By reason of the failure to satisfy the preconditions, the group structure, the common knowledge of group entities including the plaintiff, and the purpose of the loan [to pay 'for lots and the loan application fee as described in the application form'], there was no payment in accordance with the terms of the loan agreement.

(e) If the plaintiff had made a payment or payments pursuant to the loan agreement, those payments 'were made at a time when the Loan Agreement was not extant'. This allegation appeared to depend upon the date of the loan agreement which seemed to post-date the release of funds.

(f) Mr White did not have allotted to him any almondlots, grovelots or timberlots, because there was no valid sub-lease or because such sub-leases as there were failed to comply with the requirements of the relevant constitution.

(g) Because of the absence of valid sub-leases, and the terms of the relevant Product Rulings issued by the Australian Taxation Office in relation to the schemes, the plaintiff had not made a payment for the benefit of Mr White.

(h) As a consequence, the plaintiff had not made a loan to Mr White.

188 Apart from the allegation that it was Timbercorp and not the plaintiff who had paid money to Trust Company, the 'no loan' case remained confusing and confused. It was a jumble of facts, particulars and contentions, without discernible connection, save for the repetition of the allegation that the plaintiff had not made a loan to Mr White, or for his benefit.

189 On 22 June 2016 the plaintiff further amended its statement of claim. The substantive change was to paragraph 10, in which the plaintiff alleged:

The Plaintiff paid the L0025841 Loan Amount to TSL (or as it directed) as payment of the balance for the First Defendant's lots and his loan application fee, by:

(a) the following:

(i) a debit entry of $4,473,412 (which included the L0025841 Loan Amount) on 14 June 2008 to an account in the general ledger of the Plaintiff named "Loan Control Account" and numbered 51-1221, by way of a journal voucher numbered 504786 entered in the Great Plains accounting software maintained by the Plaintiff and TSL;

(ii) a credit entry of $4,473,412 (which included the L0025841 Loan Amount) on 14 June 2008 to an account in the general ledger of the Plaintiff named "Loan - Timbercorp Securities Ltd" and numbered 51-1208, by way of the same journal voucher;

(iii) a debit entry of $4,473,412 (which included the L0025841 Loan Amount) on 14 June 2008 to an account in the general ledger of TSL named "Loan - Timbercorp Finance Pty Ltd" and numbered 12-1200 by way of the same journal voucher;

(iv) a credit entry of $4,473,412 (which included the L0025841 Loan Amount) on 14 June 2008 to an account in the general ledger of TSL named "Suspense New Loans Advanced" and numbered 12-7234, by way of the same journal voucher;

(v) TSL recording in its "Timbercorp Information Management System", on 13 June 2008, the settlement of the First Defendant's balance liabilities to TSL (following payment of his deposit) recorded in invoices 2256378 and 2261873 issued 13 June 2008; or

(b) on or about 19, 20 and 25 June 2008, the L0025841 Loan Amount [was] paid to Trust Company of Australia Limited as custodian and agent for TSL; or

(c) both (a) and (b)

And thereby loaned it to the First Defendant in accordance with the terms of the Loan Agreement L0025841.

190 It was by reference to the new plea in paragraph 10 that the defendants claimed they first learned of the plaintiff's 'payment by journal entry' case. That may well be so, although the plaintiff had always alleged that a loan payment had been made. The defendants had denied the loan, thus creating an issue for trial. All that occurred by the amended statement of claim, served in June 2016, was notice to the defendants of a different interpretation of existing facts to establish the payment. The relevant facts (journal vouchers) already existed. But as a result, the defendants shifted ground, challenging the efficacy of the journal entries as evidence of a loan. They re-crafted their 'no loan' case to respond, by denying that the transaction evidenced by the journal entry was a 'payment'.

191 At the same time as delivering its amended statement of claim on 22 June 2016, the plaintiff delivered an amended reply. In respect of the 'no loan' allegations summarised in paragraphs 4 to 12 of Mr White's amended defence dated 17 June 2016, the plaintiff alleged that he had authorised the plaintiff to satisfy his liability to Timbercorp Securities for Application Money, and the plaintiff had satisfied Mr White's liability to Timbercorp Securities by making the payment recorded by the journal entries alleged in paragraph 10 of the amended statement of claim. Alternatively, the plaintiff alleged that Mr White had acted on the basis that the plaintiff had discharged his liability to Timbercorp Securities, and thus ratified the transaction, making him liable to the plaintiff under the loan agreement. Alternatively, Mr White had derived a benefit as a consequence of the payment, and it would be unconscionable for him to retain the benefit without paying a reasonable sum in return.

192 In relation to that part of the 'no loan' case, in which Mr White alleged failure to satisfy the preconditions for payment under cl 9.3, the plaintiff alleged that Mr White was precluded from so contending by reason of his involvement in events and circumstances concerning the winding up of the schemes, and the allocation and distribution of proceeds. The plaintiff also alleged the existence of valid agreements for sub-lease, leases, licences and management agreements, alternatively a common mistaken assumption as to their validity. It also pleaded estoppel by representation, and part performance.

193 In relation to Mr White's allegation that any payments that were made pre-dated the existence of a loan agreement, the plaintiff alleged that the payment was made and ratified by Mr White, alternatively authorised by Mr White and made pursuant to the loan agreement.

194 On 13 July 2016, Mr White delivered a further amended defence to the amended statement of claim dated 22 June 2016. The amendments were substantial. His new defence involved a significant change of emphasis, but with some clarification. First, Mr White alleged that the plaintiff had not made any loan to him; second, the plaintiff had not made any payment to Timbercorp Securities for his benefit; third, if a payment had been made to Timbercorp Securities, it was not in payment of the balance of Mr White's Application Money.

195 Mr White persisted with his allegations[48] that it was Timbercorp and not the plaintiff who transferred funds from the ANZ Bank to Trust Company, and Timbercorp who procured the transfer to itself of funds from Trust Company, which it used for its own purposes. Mr White continued to allege[49] that preconditions for the release of Application Money had not been performed or did not exist.

196 Because sub-leases under the Timberlot Project might have been concluded in the future, Mr White alleged the absence of any reasonable satisfaction that such sub-leases would exist.[50] He invoked s 912AB of the Corporations Act, and a condition of the Australian Financial Services Licence, requiring Timbercorp Securities to have formed a reasonable belief that there was no material risk that an interest in land would not be granted, or that sub-leases would not be lodged for registration. Mr White alleged that there was no such belief, and Timbercorp Securities was therefore prohibited from releasing the Application Money.

197 Mr White alleged[51] that, because of common directorships and officers in the Timbercorp group, and the fact that Timbercorp conducted the operations of the group on a consolidated basis, the plaintiff had the knowledge of Timbercorp and Timbercorp Securities. He also alleged[52] unconscionable conduct in contravention of ss 12CB and 12BAB of the ASIC Act.

198 Under the heading 'TFin made no actual payment', Mr White complained[53] of the plaintiff's intention to adduce evidence from Mr Owain Stone to the effect that payment by the plaintiff, in performance of its obligation under the loan agreement, was evidenced by journal entries, without the actual transfer of cash. He complained that such evidence was inadmissible. Mr White alleged that because the plaintiff had not made a payment of 'actual' money, it had not suffered any loss and damage as a consequence of Mr White not having repaid the loan.

199 During the course of the trial, the defendants further amended their defences, by indicating their intention to align the pleadings to their case. The contraction of issues by the defendants resulted in corresponding amendments by the plaintiff to its statement of claim against the defendant and Timbercorp Securities. The material change to the plaintiff's case was the deletion of sub-paragraphs 10(b) and (c) in its statement of claim. Thus, the plaintiff narrowed its case to rely upon the transactions recorded in journal entries to evidence the advance under the loan agreement.

200 By his further amended defence filed 30 August 2016, after the conclusion of evidence, Mr White deleted paragraphs 6, 7, 8, 10, 11 and 11A from his previous defence. During the trial, he had abandoned any reliance on the absence of preconditions for the release of Application Money. He focused directly on the entries recorded in journal voucher 504786, alleging that the entries 'do not and cannot constitute the payment required' under the terms of the loan agreement. The basis of that allegation, as pleaded,[54] was that journal voucher 504786 'records a present obligation by TFin to make a payment to TSL at a future date'. Mr White went on to allege that even if there had been a payment, the payment could not properly be construed as a payment of the balance of Application Money on behalf of Mr White to Timbercorp Securities in its capacity as responsible entity.

201 Mr White further alleged that the journal entries could not of themselves constitute a payment in the absence of an agreement between the respective entities to that effect.[55] He alleged,

by reason of the matters referred to in paragraphs 12A to 64E below, no agreement ... to the book entries, constituting payment of the balance of Mr White's application moneys for the lots as required by the TFin Lending Obligation, as alleged by TFin in its oral opening at T41:1-4, T104:3-9, and T177:27-31, can be inferred.

202 No objection was taken to this most unsatisfactory pleading. Paragraphs 12A to 64E constituted the vast bulk of Mr White's defence, traversing allegations to the effect that Timbercorp Securities was required to comply with its Australian Financial Services Licence; the existence of conditions imposed under the licence; the registration of the schemes; the content of the constitutions (by reference to other paragraphs in the pleading); the content of Product Disclosure Statements; obligations under the Corporations Act; the character of 'scheme property'; the content of Product Rulings; the content of each relevant Application Form attached to the Product Disclosure Statements; the Loan Explanation and Loan Terms; the fact that Mr White had a 'commercial interest' in the plaintiff making the advance; the existence of bank transfers that occurred between 2 June 2008 and 4 July 2008 within the Timbercorp group; instructions given to Trust Company; the existence and terms of Compliance Plans; the common directorships; the operation of the group on a consolidated basis; and the failure of the plaintiff to make payments by cheque.

203 That part of Mr White's pleaded defence, in which he gathered together paragraphs 12A to 64E as the basis upon which to contend that no agreement to support the journal entries should be inferred, was unhelpful. Nevertheless, I take him to contend that, as a matter of construction, cl 1 of the loan agreement required the advance to be made in bankable form, but if the plaintiff was permitted to rely on the efficacy of journal entries to support a payment between related entities, it was necessary for the plaintiff to allege an agreement between the entities to the effect that such transactions, or the particular transactions, may be validly effected by journal entry rather than the transfer of bankable funds. The defendants complained that no such agreement had been pleaded by the plaintiff, and insofar as the plaintiff relied upon the inference of an agreement, any such inference ought to be rejected. Accordingly, the defendants alleged, the journal entries did not constitute evidence of the transactions which they purported to record.

204 The course of the pleading in the Collins proceeding was relevantly identical to the pleadings in the White proceeding, with only minor differences. Mr and Mrs Collins applied for Grovelots in the Olive Project. They applied for a loan. Their loan application was accepted. The loan number was L0026087. The loan amount was $51,300. The Collins defendants filed an amended defence on 5 September 2016 which, in all material respects, corresponded with the defence in the White proceeding. There were some differences between the plaintiff's case evidence in the White and Collins proceedings, involving the factual matrix to support estoppels. Further, in the Collins proceeding the defendants filed a rejoinder on 14 September 2016, in substantially the same form as their defence to the counterclaim by Timbercorp Securities. In the circumstances, it is not surprising that a rejoinder was not filed and served in the White proceeding.

205 The defendants' response to the estoppels raised by the plaintiff in their replies was to contend that they could not be maintained 'in circumstances where Mr White was not made aware by Timbercorp Finance of its book entries case until June of this year'.

206 The issues for trial, arising out of the defences and replies, were in a constant state of flux, even during the trial. There was no challenge by any of the defendants to the plaintiff's proof of relevant loan documents, or the calculation of the unpaid balances and interest, on the assumption that a loan had been made.

207 The starting point for the defendants' defences was their contention that upon its proper construction, cl 1 of the Loan Terms required the plaintiff to make a loan in a form capable of being banked. Clause 1 of the Loan Terms provided:

1. What we lend and when

We agree to lend you the loan amount by paying it to Timbercorp Securities Limited AFSL 235653 (or as it directs) as payment of the balance of your application money for lots and the loan application fee as described in the application form. However, we only have to lend you the loan amount if:

(a) we have received all documents (including securities) and information we require, in a form satisfactory to us; and

(b) neither you nor a guarantor is in default under this agreement or a security.

208 A corollary of the defendants' primary contention was that a loan recorded by a journal entry between related corporations, the plaintiff and Timbercorp Securities, did not satisfy the requirements of cl 1. They contended that even if the loan amount could be paid by such means, the journal entry upon which the plaintiff relied did not constitute evidence of the payment because it did not involve the immediate movement of a resource from the plaintiff to Timbercorp Securities. They contended that, at best, the transaction recorded a future obligation which did not constitute a payment.

209 They also contended that insofar as a payment might be evidenced by a journal entry (and not coupled with the concurrent movement of cash or value in bankable form) it would require evidence of an agreement between the entities involved, and of the party to be made liable under the loan agreement.

210 The defendants further contended that cl 1 required that the payment be made on account of the balance of Application Money, and there was no evidence of any journal entry recording payment to Timbercorp Securities in its capacity as responsible entity.

211 The plaintiff responded by contending that even if the balance of Application Money had not been paid by the loan money, Mr White had, in any event, authorised the plaintiff to discharge his liability for Management Fees, or the payment of such fees had been ratified by him. In the alternative, the plaintiff alleged that Mr White was precluded from denying payment of his Application Money or Management Fees, and that he did not obtain Timberlots, Grovelots and Almondlots. While the significance of these allegations by the plaintiff diminished after the defendants withdrew allegations of non-compliance with the precondition for payment under cl 9.3 of each constitution, they remained a live alternative for the plaintiff's primary case, that the loan amount was paid to Timbercorp Securities as the balance of Mr White's Application Money.

212 In paragraph 76C of his defence, Mr White alleged that even if the loan amount had been paid in discharge of his obligation to pay Management Fees, 'any such payment was not, and cannot properly be construed as, a payment on behalf of Mr White of the balance of Application Money for lots payable by him in accordance with the Constitutions ... to [Timbercorp Securities] in its capacity as responsible entity'.[56]

213 The plaintiff had interpreted this plea by Mr White to mean that, as no Application Money had been paid to Timbercorp Securities, Mr White had never held lots in any scheme. That, in turn, caused Mr White to respond, in his defence to the counterclaim by Timbercorp Securities:

Mr White denies that in paragraph 76C of the defence of Timbercorp Finance he denies that he ever obtained lots of became a Grower in the relevant Project.

He went on to allege that whether he obtained lots was not an issue in the trial. It was this exchange in the pleadings, and the defendants' efforts to divert attention from the discharge of any liability other than Mr White's liability for Application Money that caused his counsel to concede 'dancing on a pin-head'.

214 In response to the preclusion allegations, Mr White alleged that he was not aware of the way in which the Timbercorp group maintained its accounts and recorded the loan transactions until June 2016 when first pleaded by the plaintiff. As far as he was concerned, he incurred a liability with Timbercorp Securities, for the balance of his Application Money which was to be discharged by the plaintiff on terms set out in a loan agreement. The loan was not to be applied in discharge of any obligation for Management Fees or other scheme related costs, which were to be paid out of Application Money under cl 9.3 of the Constitution. He contended that if the balance of his Application Money had not paid by the plaintiff, he was not liable to repay the loan.

215 The defendants contended that in the absence of knowledge of how the loan was made, they could not have ratified the loan by accepting lots in the various schemes. By its reply, the plaintiff alleged a number of mistaken assumptions. The defendants argued that they did not induce or participate in a mistaken assumption. Having regard to the manner in which the defendants conducted their case, and amendments made to their defences following the conclusion of evidence, I will proceed on the basis that the relevant mistaken assumption challenged by the defendants was an alternative plea by the plaintiff, that it made the payment (reflected in the journal entry) on the assumption that it discharged the defendant's obligation to pay the balance of his Application Money to Timbercorp Securities as responsible entities. The preclusion raised by the plaintiff against the defendants was based upon the defendants having accepted the benefit of the payment by obtaining timber lots, and payment of related Management Fees and scheme related costs. In response, the defendants allege that any mistake was purely of the plaintiff's own making, and it had not been placed in a position of material disadvantage by reason of a mistaken assumption, and consequently there was no basis for the operation of the estoppel.

216 The evidence revealed that sometime in the first half of 2008 Mr White had sought advice and assistance from his accountant, Graham Fuller, for a tax deductible investment. Mr Fuller introduced Mr White to the Timbercorp products. On 2 June 2008, Mr White completed an application for the 2008 Timbercorp multi-choice product, which included 23 Timberlots at a cost of $3,080 each, 8 Almondlots at $9,000 each, and 15 Grovelots at $5,700 each. The total cost was $228,340. Mr White paid a deposit of $22,834 by two credit card payments made that day, leaving a balance of $205,506, 'subject to finance'. At the same time Mr White completed a loan application for $205,756 including a loan application fee of $250.

217 On 13 June 2008, Timbercorp Securities prepared a number of documents addressed to Mr White. Mr White had no recollection of receiving certain correspondence mentioned in his affidavit sworn 15 July 2016, although believed it was likely that he had done so. He provided his accountant with some of the correspondence. He specifically mentioned a letter dated 30 June 2008 in relation to the payment of loan instalments, a Tax Summary Information document dated 22 July 2008, and a Lot Statement dated 12 August 2008. In submissions, he relied upon receipt of the Confirmation Notice/Tax Invoice dated 13 June 2008, but contended that there was no evidence that Timbercorp had ever issued a document described by his counsel as the 'Multichoice Invoice' in which the three schemes were listed, and the total amount of $228,340 claimed to have been due and payable on 13 June 2008.

218 The significance of that distinction was elusive. The defendants submitted that the evidence suggested the Multichoice Invoice had not been issued, although relied on a Confirmation Notice of the same date, as having been issued. The distinction between the Confirmation Notice and the Multichoice Invoice, both dated 13 June 2008, was material to the defendants' case because the Multichoice Invoice appeared to relate to Application Money. It was crucial to the defendants' case concept to maintain a clear distinction between the concept of Application Money and Management Fees.

219 The basis for the submission, that the Multichoice Invoice had never been issued, was that the project description contained in the invoice did not cite the ARSN number, which was said to indicate a connection with Timbercorp Securities as responsible entity. The defendants also contrasted the BPay option in the Multichoice Invoice with the prescribed method for payment - cheque or credit card - found in other documents. The defendants also submitted that the invoice was inconsistent with the Product Rulings. They submitted that the invoice contradicted statements made in the Product Disclosure Statements, to the effect that Application Money would be used to pay grower expenses, and a letter from Mr Hance, also dated 13 June 2008, in which he wrote, 'Once your funds have cleared we will send you a tax invoice ...'.

220 The defendants' attempt to establish that the Multichoice Invoice was never issued was unpersuasive. Quite plainly, such an invoice existed. It was not seriously contended that the invoice was a confection. In his evidence, Mr White did not deny having received the Multichoice Invoice. He did not mention any of the 13 June letters. The Multichoice Invoice purported to constitute a business record of the plaintiff. Insofar as it is material, I find that the Multichoice Invoice was raised, sent to Mr White, and received by him.

(b) A 'Tax Invoice Statement' which identified, under each project, the Management Costs, Rent, Plantation Establishment and Management Fee respectively. The statement invited Mr White to complete a loan application.

(c) A letter from Mr Hance thanking Mr White for his application.

(d) A 'Confirmation Notice/Tax Invoice' advising Mr White that his application for Timberlots had been accepted, with an invoice for 'Plantation Establishment' in the sum of $70,840. The notice made reference to the Product Ruling, and the invoiced amount was said to have been paid.

(e) A 'Confirmation Notice/Tax Invoice' advising Mr White that his application for the Almondlots and Grovelots had been accepted, and that, for the Almondlots the total Management Costs were $68,000, and Rent $4,000; and for the Grovelots, the Management Fee was $85,500. The notice referred to the relevant Product Rulings, and the invoiced amount was said to have been 'paid'.

222 It was common ground that Application Money was scheme property, to be held on trust by the responsible entity, until applied to scheme costs under the constitutions. The flow of funds was complicated because Application Money and Management Fees were to be paid by Mr White to the same entity. The defendants' case relied on the obligation of the plaintiff to make an advance, in discharge of the balance of Mr White's obligation to pay Application Money, not Management Fees and other costs. Thus, according to the defendants, it was necessary that the advance be made to the responsible entity.

223 The accounting system maintained by the Timbercorp group recorded receipt of Mr White's deposit on 13 June 2008, and a loan balance liability of $205,506, leaving a nil balance outstanding on the Multichoice Invoice, identified by reference number 2256378. Mr White's loan amount of $205,756 was recorded in the TIMS system on the same day. Journal voucher 504452, dated 13 June 2008, recorded a debit entry for $205,506 in the Timbercorp Securities 'loan suspense account' and a credit entry for the same amount in the Timbercorp Securities 'new sales control account'.

224 Mr Stone identified the relevant journal entries which commenced with the recording of Mr White's liability for the balance of his Application Money, in the sum of $205,506, as a 'trade receivable' in journal voucher 504452. There was a dispute as to whether 'trade receivable' was apt to describe a liability for Application Money, in contrast to a liability for Management Fees and other scheme related costs. If the liability recorded as a trade receivable was in respect of Management Fees, its discharge would not, according to the defendants, evidence payment under the loan agreement.

225 The experts agreed that in journal voucher 504452 the transaction 'appears to take the receivable of $205,506 due from Mr White and "park" it temporarily in a suspense account pending further accounting'. They also agreed, notwithstanding the absence of a journal voucher, that there must have been a journal entry that created the receivable from Mr White in the same amount in the same account.

226 Mr Stone explained that on 13 June 2008 the deposit money paid by Mr White was allocated to the three schemes in which he invested. Journal voucher 505116 allocated $7,084.14 to the 'Timberlot application trust account'; journal voucher 505117 allocated $8,550.02 to the 'new sales application account - olives'; and journal voucher 505118 allocated $7,199.94 to the 'new sales application account - almonds'. In each case there was a corresponding credit entry in each relevant 'new sales control account'.

227 Thus, from the Timbercorp group books of account in evidence at trial, there is a record of a liability of Mr White which has been discharged, in part by his payment of deposits, and in part from receipt numbered 248853 on 13 June 2008 in the sum of $205,506, characterised and recorded as a 'loan'. Thus, the liability purportedly discharged by the loan amount may be characterised as the balance of Mr White's liability for Application Money.

228 The defendants challenged Mr Stone's evidence to the effect that the journal entries recorded receipt of the deposit into the various application accounts. They submitted that the entries pre-dated payments to Trust Company, so that the deposits were transferred into the main operating account of Timbercorp, where they were treated as the repayment of a loan to Timbercorp Securities. They submitted that the scheme constitutions did not permit such a transaction, because the deposits constituted Application Money which, as scheme property, must be held on trust. But even if the defendants' submission in that regard is correct, and Application Money had been mixed in a central bank account maintained by Timbercorp, it is not clear what relevance such a breach by Timbercorp Securities would have to the question of whether there was a 'payment' by the plaintiff, and whether the loan amounts are recoverable.

229 Mr Stone said that journal voucher 504786, dated 14 June 2008, recorded an increase in the loan account between the plaintiff and Timbercorp Securities by an amount that included the amount to be financed under Mr White's Loan Agreement. The plaintiff characterised the entries in the journal voucher as recording a payment by the plaintiff to Timbercorp Securities in discharge of Mr White's liability to Timbercorp Securities for the balance of the Application Money. Putting to one side the defendants' contention that the Loan Agreement required the advance be made in bankable form, this journal entry was at the heart of the dispute.

230 The journal voucher (504786) recorded a transaction linked to a 'Loan Batch' that included Mr White's loan amount, which was characterised by both experts in the following terms:

The effect of Timbercorp Securities journal entry 504451 ... and 50452 ... is to reduce the trade receivable (an asset) due from Mr White by $205,756 and 'park' it in a suspense account, while the effect of Timbercorp Securities subsequent journal entry 504786 is, as noted above, to take the $205,756 out of suspense and reclassify it as an amount receivable from Timbercorp Finance (an asset). The net effect, therefore, is that the receivable from Mr White is replaced by a receivable due from Timbercorp Finance.

231 The plaintiff's forensic accounting expert, Mr Halligan, expressed the opinion that journal entry 504786 recorded a transfer of value or benefit in the sum of $205,756 in favour of Timbercorp Securities on behalf of Mr White, and corresponding debt due from Mr White to the plaintiff for the same amount. To arrive at that conclusion it was necessary for the amounts recorded in the journal entry ($4,473,412) to include the amount referrable to Mr White. The experts accepted that it did.

232 The defendants' forensic accounting expert, Ms Wright, expressed the opinion that even though Timbercorp Securities may have discharged Mr White's liability, it had not yet received payment from the plaintiff. It had only transferred a receivable from Mr White to the plaintiff. She said that even though the replacement of one obligation with another may have resulted in the discharge of Mr White's obligation to Timbercorp Securities, it did not constitute a 'payment' from the plaintiff to Timbercorp Securities. In Ms Wright's opinion, the journal entry merely reflected an obligation of the plaintiff to make a payment in the future to Timbercorp Securities. Thus, the defendants contended, the loan amount was never paid by the plaintiff.

233 Also on 13 June 2008, Timbercorp Securities wrote to Trust Company of Australia enclosing Mr White's completed application for Almondlots and Grovelots, noting that 'a Timbercorp Finance Pty Ltd cheque of $141,750.04 will be forwarded in due course'. The defendants relied upon the letter to support their case that the payment by the plaintiff must be made with bankable funds. A similar letter, in respect of the financed portion of the fee payable for Timberlots, was sent to Trust Company on 30 June 2008.

234 Later in June 2008 there were transfers of funds from the operating account maintained by Timbercorp with the ANZ Bank, to Trust Company, followed almost immediately by drawdowns. While the loan payment was made, according to the plaintiff, by adjustment of the its loan balance with Timbercorp Securities, there was a transfer of funds, in bankable form, from the ANZ account to Trust Company, at the direction of the plaintiff, to each relevant scheme account maintained by Trust Company. On the same day, there was a drawdown from each account pursuant to a direction given under cl 5 of the relevant Custody Agreement between Timbercorp Securities and Trust Company. Drawdown instruction was given by John Murray and Mark Pryn. Mr Murray was the Chief Financial Officer for the group. Mr Pryn was an Authorised Person under the Custody Agreement. The instruction must be taken to have been given on behalf of Timbercorp Securities, as the party to the Custody Agreement. The account to which the funds were paid, on drawdown, was the Timbercorp account. The transactions were recorded in the bank statements of Trust Company and Timbercorp. The drawdown instructions were contained in three facsimile transmissions to Trust Company.

235 Each transmission was sent by Mr Pryn. The first such advice and instruction was sent on 18 June 2008 in relation to the Almond Project. Messrs Murray and Pryn wrote:

We confirm that 700 almondlots have been allocated to growers in the 2007 Timbercorp Almond Project.

We advise that Timbercorp Finance Pty Ltd has instructed ANZ Bank to telegraphically transfer $5,498,398.74 into your almond application account - account no. 083-091 528760374, being finance for investors as set out in the attached schedule.

Accordingly, we hereby instruct Trust Company of Australia Ltd as per clause 3 and 5 of the Custody Agreement dated 27 November 2006 between Trust Company of Australia and Timbercorp Securities Ltd, to electronically transfer $6,300,000.00 to our Timbercorp Ltd account at ANZ Bank - no. 013-006 837347612[57]

236 The second advice and instruction was sent on 19 June 2008. Messrs Murray and Pryn wrote:

We confirm that 3279 Olive lots have been allocated to growers in 2008 Timbercorp Olive Project-Early.

We advise that Timbercorp Finance Pty Ltd has instructed ANZ Bank to telegraphically transfer $16,516,865.98 into your application account - Account No. 083-001 49-4382-378, being finance for investors as set out in the schedule.

Accordingly, we hereby instruct Trust Company Of Australia as custodian under Clause 3.3 and 5.1 of the custody agreement dated 18 December 2006 to electronically transfer $18,741,600.00 to our Timbercorp Ltd account at ANZ bank - Account No. 013-006 8373-47612.

237 The third advice and instruction was sent on 25 June 2008 in the following terms:

We confirm that 3309 Timberlots have been allocated to growers in 2007/2008 Timbercorp (Post- 30 June) Timberlot Project.

We advise that Timbercorp Finance Pty Ltd has instructed ANZ Bank to telegraphically transfer $10,191,720.00 into your application account - Account No. 083-091 569035419, being application deposits and finance for investors as set out in the schedule.

Accordingly, we hereby instruct Trust Company Of Australia Ltd as custodian under clause 5.1 of the custody agreement dated 27 November 2006 to electronically transfer $10,191,720.00 to our Timbercorp Ltd account at ANZ bank - Account No. 013-006 8373-47612.

238 The three letters of instruction confirm the accumulation, in bankable form, of deposit money (paid in bankable form) and loan money (transferred by journal entry) into the Timbercorp operating account before the transfers to Trust Company. It was the practice of Timbercorp to raise cash against the loan agreements as security. Each letter included, as an attachment, a schedule identifying each grower, a batch number (which permitted cross-referencing to journal entries), number of lots, application date, deposit amount, loan amount and the total including GST.

239 The drawdown notices recorded the plaintiff's instructions to transfer the 'finance for investors' to Trust Company. By reference to the schedules, the amount transferred included Mr White's deposit and the loan amount. The aggregate of all loan amounts set out in the schedule corresponded with the amount transferred into the Trust Company account on instructions from the plaintiff.

240 A copy of the Loan Terms was included in a letter dated 30 June 2008 from Mr Hance to Mr White, in which he was notified that his application for finance had been accepted. Mr White could not recall receiving the letter. The Loan Terms were executed by Mr Pryn on behalf of the plaintiff, and on behalf of Mr White, pursuant to a power of attorney granted by Mr White in his loan application. The Finance Package utilised by Mr White when making his loan application also included the Loan Terms. While Mr White was formally notified on 30 June 2008 that his loan application had been accepted, the 'paid' invoice for Management Fees provided earlier confirmation.

241 The defendants criticised the timing of transactions. There was evidence of the receipt of a loan amount on 13 June 2008. Journal voucher 504786 was dated 14 June 2008, while the cash followed a few days later. The criticism involved at least two layers. First, unreliability of records; second, a failure to segregate 'scheme property'. Importantly, the defendants expressly rejected any suggestion that the transactions were, or any part of them was, a sham.

242 I am not persuaded by either criticism. There were timing anomalies, but the business records revealed a series of transactions in which the Application Money accumulated in the hands of Timbercorp - deposit and loan moneys - who operated the central bank account from which those funds were paid to Trust Company. If by these transactions Timbercorp Securities failed in its obligation to keep scheme property separate from other property, until converted into Management Fees, scheme property nevertheless remained subject to a trust obligation. It was not suggested that investors suffered any prejudice as a result of any such breach by Timbercorp Securities. The whole of the value of the Application Money was ultimately paid in cash to Trust Company, who in turn paid out the same amount in satisfaction of the obligations of Participant Growers for Management Fees.

243 Mr White was issued with Tax Summary Information on 22 July 2008 to assist in the preparation of his income tax return. He commenced to make monthly loan repayments on 31 July 2008. On 12 August 2008 Mr White was provided with a description of his Almondlots and Grovelots. On 26 September 2008 the Almond Project financial report for the year ended 30 June 2008 was sent to Mr White, reporting that as at 30 June 2008 Timbercorp Securities had received all grower subscription moneys. On the same day financial reports for the Timberlot Project and the Olive Project were sent to Mr White, each confirming receipt of all grower subscriptions. On 9 December 2008 Mr White paid recurring management and other fees in respect of the Almond and Olive Projects.

244 Mr White's accountant prepared an income tax return in which deductions were claimed, consistent with payment of Management Fees and other scheme related costs under each project. In his affidavit Mr White deposed to the preparation of the tax return. The Courtbook contained an electronic lodgement declaration for Mr White in which he claimed a deduction for the fees and expenses in respect of each of the schemes. That said, Susan Gayle Honey, Mr White's present accountant, filed an affidavit in which she deposed that she examined the Australian Taxation Office tax agent portal and ascertained that Mr White's tax returns for the year ended 30 June 2008 had not been filed. The status of Mr White's 2008 income tax return was never clarified.

245 In and since 2009, Mr White has become entitled to distributions as a member of the three schemes, and has been notified from time to time of the fact of the distributions and the amount. The plaintiff registered a security interest over Mr White's distributions. He was notified of the security interest. Thus, it was surprising when Mr White deposed that he was not aware of any right to a distribution until about March 2016. Nevertheless, that is what he said, and he was not cross-examined.

246 The defendants contended that upon a proper construction of cl 1 of the Loan Terms, read in the context of the scheme documents, and the relevant provisions of the Corporations Act, the plaintiff was required to pay the loan amount to Timbercorp Securities, in its capacity as responsible entity, in a form capable of being banked.

247 The principles to be applied to the construction of cl 1 were not in dispute. They were recently summarised by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd & Ors:[58]

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience".

248 The defendants did not contend that cl 1 was ambiguous or susceptible of more than one meaning, but sought to introduce events, circumstances and things external to the contract to support their case that the plaintiff was required to pay to Timbercorp Securities, in its capacity as responsible entity, the balance of Mr White's liability for Application Money (not Management Fees) in a bankable form. They sought to attach a meaning to the word 'payment' that would not be satisfied by recording a loan amount as discharging an anterior liability for Application Money in a journal voucher.

249 Purpose and context were discussed in that part of these reasons for judgment as relate to the Gruyters and Lowe proceedings. While the issues in those proceedings were different, the observations remain apt in these proceedings. The scheme documents were the same.

250 The defendants submitted that the objective purpose of the loan was to provide Mr White with finance for the sole purpose of investing in three managed investment schemes operated by Timbercorp Securities in its capacity as responsible entity. Payment to Timbercorp Securities in its capacity as responsible entity, was required because it was identified by reference to AFSL 235653. They submitted that cl 1 should be construed against the legislative framework found in Chapter 5C of the Corporations Act, which involved the pooling of contributions. They submitted that the loan was to assist the payment of Application Money, which would constitute scheme property, to be held on trust for scheme members until applied pursuant to the constitutions.

251 As responsible entity, Timbercorp Securities undertook the prescribed duties set out in s 601FC of the Corporations Act:

(1) In exercising its powers and carrying out its duties, the responsible entity of a registered scheme must:

(a) act honestly; and

(b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the responsible entity's position; and

(c) act in the best interests of the members and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests; and

(d) treat the members who hold interests of the same class equally and members who hold interests of different classes fairly; and

(e) not make use of information acquired through being the responsible entity in order to:

(i) gain an improper advantage for itself or another person; or

(ii) cause detriment to the members of the scheme; and

(f) ensure that the scheme's constitution meets the requirements of sections 601GA and 601GB; and

(g) ensure that the scheme's compliance plan meets the requirements of section 601HA; and

(h) comply with the scheme's compliance plan; and

(i) ensure that scheme property is:

(i) clearly identified as scheme property; and

(ii) held separately from property of the responsible entity and property of any other scheme; and

(j) ensure that the scheme property is valued at regular intervals appropriate to the nature of the property; and

(k) ensure that all payments out of the scheme property are made in accordance with the scheme's constitution and this Act; and

(l) report to ASIC any breach of this Act that:

(i) relates to the scheme; and

(ii) has had, or is likely to have, a materially adverse effect on the interests of members;

as soon as practicable after it becomes aware of the breach; and

(m) carry out or comply with any other duty, not inconsistent with this Act, that is conferred on the responsible entity by the scheme's constitution.

(2) The responsible entity holds scheme property on trust for scheme members.

Note: Under subsection 601FB(2), the responsible entity may appoint an agent to hold scheme property separately from other property.

252 The obligations imposed upon a responsible entity were considered by the High Court in Wellington Capital. The relevant parts of the judgment of the majority are set out in the Gruyters & Lowe reasons for judgment. The defendants submitted that these obligations were inconsistent with payment of a loan amount made by journal entries in the books of account of the plaintiff and Timbercorp Securities, without evidence of agreement between the parties to the transaction, including Mr White. They submitted that Timbercorp Securities was not entitled to pool the balance of Mr White's Application Money with contributions made in respect of other schemes. Nor was it entitled to use his Application Money for its own benefit, or for the benefit of the plaintiff or Timbercorp.

253 It was not always possible to discern a clear path of reasoning from the defendants' alternative submissions. At times, they emphasised that only cash would do, while at other times, they could accommodate transactions recorded by journal entry, provided there was evidence of agreement between the parties, including Mr White; and providing the journal entry recorded the transfer of a resource to the responsible entity. Doing the best I can, I understand the defendants' primary position to be a contention that the legislative scheme, coupled with the mandate for payment of the loan money, required the whole of the Application Money (deposit and loan amount) to be assembled in cash, in a scheme bank account, maintained by the responsible entity, before it could be paid out as a Management Fee. They contended that such an aggregation of cash was not achieved by journal entries.

254 The defendants relied on the Product Disclosure Statements as evidence that, upon acceptance, an applicant for Almondlots, Grovelots or Timberlots acquired a commercial interest in a scheme that would be adequately funded to meet its operating costs. That submission was not developed, but I take the defendants to mean that without an injection of real cash, the schemes could not pay their way. There is much to be said for such a general proposition, although it does not lead to the conclusion that the loan amount must always be paid 'in a form capable of being banked'. The defendants also relied upon the payment methods for Application Money designated in the application form, under 'Method of Payment', as cheque or credit card.

255 The defendants pointed to the terms of the Compliance Plans for each scheme, which required Application Money to be banked in a separate account, established solely for the purpose of receiving Application Money, and held until applied pursuant to the scheme constitutions, to pay fees payable under Grower Agreements, which relevantly included scheme Management Agreements. They pointed out that Product Rulings also assumed a particular flow of funds, initially into a scheme account operated by Trust Company. The Product Rulings specified that it was only if Application Money was paid in full by a particular date (eg 15 June 2008 in relation to the Almond Project) that a deduction could be claimed for Management Fees, rent, interest, and loan application fee. Thus, the defendants argued, the responsible entity must first collect the whole of the Application Money before releasing fees payable under Grower Agreements. They argued that because the Application Money had not been paid in full to Timbercorp Securities, in its capacity as responsible entity, in bankable form, it could not be dealt with as contemplated in the Product Rulings, Compliance Plans, or as required under the scheme constitutions. Consequently, the plaintiff's failure to make a 'payment' of the balance of the Application Money meant that it had never made a loan to or on behalf of Mr White, and its claims must fail in these proceedings.

256 Thus, the primary case advanced by the defendants involved a number of propositions which may be summarised as follows:

(1) 'payment' in cl 1 meant a payment of money in bankable form because:

(a) the purpose of the loan was to support an investment in a commercial venture. The defendants had a commercial interest in the viability of the venture. Viability could only be achieved if the investment (including the loan amount) brought real money, in bankable form, into the project;

(b) it was so held by the Full Court of the Supreme Court of South Australia in Rocky Castle Finance Pty Ltd v Taylor;[59] and

(c) references in the loan application form, and other scheme documents, to the means of the payment as cheque or credit card.

(2) Loan money must be paid to Timbercorp Securities in its capacity as responsible entity because:

(a) it was described in cl 1 by reference to its AFSL number;

(b) the payment was for the balance of Mr White's Application Money, which was scheme property, to be aggregated with his deposit;

(c) scheme property could only be released by the responsible entity for Management Fees under cl 9.3 of the Constitution; and

(d) Application Money could not be used by Timbercorp Securities for its own purposes.

257 The decision of the Full Court of the Supreme Court of South Australia in Rocky Castle, involved an offer by the appellant to finance persons wishing to invest in a managed investment scheme. The investors entered into loan deeds with Rocky Castle, under which it agreed to advance money payable by the investors to the scheme manager. The 'advance' was purportedly made by promissory notes issued in favour of the manager, who in turn endorsed them in favour of a subcontractor. The manager had issued tax invoices to each investor for the relevant fees, each deducting, as paid, an amount shown as financed by Rocky Castle. The court held that the promissory notes did not comprise advances or payments under the loan agreement. Vanstone J held that the delivery of a promissory note to a creditor is regarded as a conditional payment, having the effect of suspending the cause of action, but not discharging the original debt. The loan deed required no less than a payment. Vanstone J held:[60]

Delivery of the promissory note gave rise to an enforceable obligation by Rocky Castle to pay Hardwood the balance of the management fee due by the investors to Hardwood. But Hardwood already had a right of action against the investors in respect of the same obligation. In terms of legal effect Hardwood was no better off. Rocky Castle's promise to pay - which was not performed - was not equivalent to payment. [emphasis added]

258 Blue J (Stanley J concurring) held:[61]

As between Rocky Castle and each Participant, section B clause 2 of the Application Form contained an irrevocable authorisation and direction by the Participant to Rocky Castle to apply the proceeds of the loan to payment of the Management Fees. The reference to "proceeds of the loan" is suggestive that the authority and direction equates the type of payment to be made by Rocky Castle to the type of payment which AHM would be obliged to accept directly from the Participant. This is confirmed by the wording of clause 2.1 of the Loan Deed which refers to an advance "to the Borrower or as he may direct", which also suggests payment in a form which might be directly on-paid by the Borrower to AHM. It is also confirmed by the concept of "part payment" in clause 2.1(a), suggesting that the payment out of the Borrower's own pocket is to be made in the same form as the payment funded by the Lender.

The Prospectus treated the Participants as having a commercial interest in the Manager having sufficient funds to meet the establishment and maintenance expenses and lease rent required to be met by it as responsible entity. If the Manager did not pay Participation Fees into a bank account, it would not hold sufficient funds to meet its obligation under the Joint Venture Agreement as responsible entity of the Joint Venture. The existence of that commercial interest in the Participants suggests that it was the intention of the Participants reflected in clause 2.1 of the Loan Deeds that Rocky Castle must pay funds advanced by it in a form capable of being banked in the Manager's Bank Account. While this would not have prevented AHM paying those funds out of its bank account for purposes other than the Joint Venture, it would have required an active decision by AHM's signatories to the bank account to do so.

Given the wording, context and apparent purpose of clause 2.1 of the Loan Deeds and the overall context of the Joint Venture, the references to "advance" and "payment" are to payments capable of being banked into a bank account of the Manager. A promissory note does not qualify. [Emphasis added]

259 The use of a promissory note executed on behalf of the lender in favour of the scheme manager was a promise to pay, which did not discharge the antecedent debt of the borrower. As Blue J said,[62]

Whatever might be the position in a case in which the creditor and the debtor are the parties to the promissory note, the position is fundamentally different when it is provided to a creditor by a third party in respect of an antecedent debt due by the debtor to the creditor. In the latter case, the question whether the antecedent debt is discharged, either absolutely or conditionally, does not depend merely upon the agreement or intention of the maker and payee of the promissory note. It also depends fundamentally on the agreement between the creditor and debtor as the parties to the loan or other transaction giving rise to the debt.

260 There was no mention in the reasons for judgment in Rocky Castle of the books of account of the creditor, to whom the anterior debt was owed by the investor, which revealed a discharge. On the contrary, as Vandstone J pointed out, the manager retained a right of action against the investor for the debt.

261 The promissory notes went a full circle. They were given by the lender in favour of the manager, endorsed by the manager in favour of another entity providing subcontract services to the manager, who in turn endorsed the promissory notes back to the lender. When approaching the construction of the loan agreement, Blue J noted that the constitution required the payment of fees into a scheme bank account. That was not done. His Honour also found that the participant investors had a commercial interest in the manager having sufficient funds to meet the establishment and maintenance expenses.

262 There are features of Rocky Castle which distinguish its facts from the present case, even though a similar issue of construction arose in the present case - namely, whether there was a payment by the plaintiff to Timbercorp Securities that had the effect of discharging the defendants' anterior obligation. One obvious distinguishing fact was the use of promissory notes, which did not discharge any anterior liability. The court in Rocky Castle held that the promissory notes did not constitute a payment. In the present case, there was a payment of real money at the direction of the plaintiff, followed by a payment of real money at the direction of Timbercorp Securities, in discharge of grower obligations for Management Fees. Those payments satisfied the legitimate commercial interest of each investor in having the manager fully funded. There was also evidence of the discharge of the anterior obligation of the defendants, owed to Timbercorp Securities.

263 The question of construction facing this Court, and the court in Rocky Castle, was not so much to ascertain the meaning of the word 'payment', but its content, having regard to the text, context and purpose of the loan agreement. To achieve the purpose of the loan agreement in Rocky Castle, as a mechanism to provide funding for the scheme, it was necessary for the instrument or transaction constituting the payment to be coupled with the transfer of value in bankable form. That is to say, the supply of real money without which the investors' expectations of a fully funded scheme would not be realised. A round robin of promissory notes did not achieve that objective, and undermined the purpose of the loan transaction.

264 In the present case, the requirement for real money to support the investors commercial interest had been satisfied. That being so, the purpose of the loan agreement, to assist in funding the scheme, was not subverted by an advance recorded only by journal entry.

265 A reference in the loan application form, and other material, to payment methods does not inform the question of how the loan obligation under cl 1 of the loan terms might have been discharged. Had the flow of funds contemplated by the Compliance Plans or the Produce Rulings not been achieved, auditors might have qualified the accounts, or tax deductions might have been disallowed. Any such non-compliance or lack of conformity does not, however, determine the question whether in fact a loan was made. In any event, I am persuaded that the flow of funds between Trust Company and the Timbercorp operating account, at the direction of the plaintiff and then Timbercorp Securities, amounted to substantive compliance with the transaction as contemplated in the Product Rulings.

266 The defendants' contention that, under s 601FC(1)(i), funds must be held separately, prior to payment out for scheme expenses, is correct. But such an obligation did not require payment of the loan amount to the responsible entity, to be aggregated with the deposit as scheme property, before it was paid out as Management Fees. Clause 6.5 of the constitutions contemplated acceptance of an application prior to the loan having been made. Upon acceptance, an applicant became a Participating Grower, acquired lots, and was immediately liable to pay Management Fees. In such circumstances, the loan amount might quite properly have been applied to discharge the obligation for Management Fees.

267 Journal entries evidenced the discharge of Mr White's liability for the balance of his Application Money before the transfer of cash to Trust Company. That would suggest a short period during which, it might be argued, there was an aggregation of cash representing those funds in the Timbercorp operating account, without segregation. Any such aggregation in the operating account was, of course, a reflex of journal entries adjusting loan accounts between Timbercorp, Timbercorp Securities and the plaintiff, which crystallised into the payments made to Trust Company.

268 It might be argued that Timbercorp Securities ought to have procured the transfer of the cash on 13 or 14 June to comply with its obligation to keep scheme property separate. If so, Timbercorp Securities may have breached its duty under s 601FC(1). But even if it did, such a breach would not, it seems to me, provide a defence to the plaintiff's claim for repayment of outstanding loans. In any event there was, in my opinion, substantial compliance with the requirement to maintain separate accounts by the payment of accumulated cash to the various accounts maintained by Trust Company.

269 The significance of the distinction between Application Money and Management Fees, so important to the defendants' case concept, arose in part from the reference to 'application money' in cl 1 of the loan terms, and the character of Application Money as scheme property. That character, according to the defendants, required the recipient to be the responsible entity.

270 By emphasising the distinction, the defendants introduced an element of artificiality and fragility into their case. As a commercial reality, an applicant for allotments, who paid Application Money, was not required to make an additional payment, in the same amount, by way of a Management Fee for that financial year. As the Product Disclosure Statement made clear, Management Fees and other scheme related costs were included in, and would be paid from, the Application Money. The Application Money was not a tax deductible expense, whereas the Management Fee and other scheme related costs were tax deductible according to the Product Rulings.

271 The characterisation of a payment as Application Money may have had some practical significance if Timbercorp Securities had imposed a minimum subscription level, or if Application Money was required to be held as such in a bank account. Under the scheme documents, Application Money was to be promptly converted into Management Fees, if investors were to derive the anticipated tax benefit. The payment might just as well have been characterised in cl 1 as for 'management fees'.

272 I am not persuaded, on the facts of this case, that cl 1 of the loan terms required the loan money to be 'paid' in cash or in a bankable form in discharge of the balance of Mr White's liability for 'application money'. What was crucial for the commercial viability of the schemes was the discharge of each Participant Grower's liability for Management Fees to be accompanied by a payment in cash, real money in bankable form. That occurred.

273 Neither context nor purpose required the rigid construction of cl 1 for which the defendants contend. The relevant context included the business model of the group, informed by the Product Disclosure Statements and Product Rulings, which recognised the various roles of the multiple operating entities within the group. There was one central bank account. Trust Company maintained separate scheme accounts. The purpose of the loan agreement was to facilitate a fully tax deductible payment of Management Fees for an upfront investor contribution of only 10 per cent. An incident of that purpose was the need for scheme viability (which required real money to support the management activity of Timbercorp Securities) and the prospect of a return to investors at the end of the scheme. The intended commercial result was achieved in the absence of a payment in cash by the plaintiff, of the balance of Mr White's Application Money, into an account maintained by Timbercorp Securities in its capacity as responsible entity.

274 The plaintiff relied on the entries in journal voucher 504786 to evidence payment of the loan amount, discharging Mr White's liability for the balance of his Application Money. The defendants contended that while journal entry 504786 recorded an increase in the liability of the plaintiff to Timbercorp Securities, it did not record a 'payment' of Mr White's loan amount to Timbercorp Securities in its capacity as responsible entity. At the time the journal entry was made the accounting records revealed that the plaintiff already owed Timbercorp Securities more than $28 million. The effect of journal entry 504786 was to record the increase in that liability to more than $32 million.

275 The defendants characterised the transaction recorded by the journal entries as recording an obligation on the plaintiff to make a 'future payment' of funds to Timbercorp Securities, not a 'payment', in and of itself. They contended that journal entry 504786 merely recorded a promise by the plaintiff that, at some time in the future, it would make a payment to Timbercorp Securities. They contended that the plaintiff had not advanced any evidence that a payment was ever made.

276 The defendants did not accept Mr White's liability for Application Money had been discharged, although journal entry 504452 recorded a credit to a trade receivables account, dated 13 June 2008, with a corresponding liability of Mr White in the sum of $205,506. The defendants submitted that no evidence had been advanced by the plaintiff explaining how the credit came to exist in the first place, or why there was a corresponding increase in a suspense account entitled 'Suspense - New Loans Advanced'. The defendants' real complaint seemed to be that there ought to have been another journal entry that created a receivable from Mr White of the same amount, in the same account, and that the liability discharged should relate to Application Money.

that in order for the second part to be a reduction in the receivable from Mr White, there must have been beforehand another Timbercorp Securities journal entry that created a receivable from Mr White of the same amount in the same account.

The experts note that they have not been provided with a journal entry showing that. Notwithstanding this, the experts note that the distribution reference for journal entry 504452 (ie BSID33737 Batch 5208) appears to related to Mr White, ... The experts assume that a receivable from Mr White was recorded by Timbercorp Securities before journal entry 504452 because this would be consistent with the invoices raised, the entity receipt list, and journal entry 504452.

The effect of Timbercorp Securities' journal entries 504451 ... and 504452 ... is to reduce the trade receivable (an asset) due from Mr White by $205,756 and 'park' it in a suspense account, while the effect of Timbercorp Securities' subsequent journal entry 504786 is, as noted above, to take the $205,756 out of suspense and reclassify it as an amount receivable from Timbercorp Finance (an asset). The net effect, therefore, is that the receivable due from Mr White is replaced by a receivable due from Timbercorp Finance.

278 The real point of difference between the experts was not whether a liability of Mr White owed to Timbercorp Securities had been discharged, but the character of the 'receivable due from Timbercorp Finance'. The defendants' expert, Ms Wright, expressed the following opinion:

Even though Timbercorp Securities may have discharged Mr White's liability, it has not yet received a payment. Timbercorp Securities has transferred the receivable from Mr White to Timbercorp Finance.

279 Mr Halligan characterised journal entry 504786 as recording an immediate benefit of $205,756 given to Timbercorp Securities on behalf of Mr White, who became indebted to the plaintiff for the same amount. The defendants' expert, Ms Wright, was asked whether journal entry 504786 evidenced a 'payment' by the plaintiff to Timbercorp Securities. The question asked of her was no doubt informed by the terminology employed in cl 1 of the Loan Terms, in which the plaintiff agreed to make a loan of the amount 'by paying it to Timbercorp Securities ... as payment of the balance ...'.[63]

280 In their joint report, both experts considered whether the journal entry recorded a payment. Ms Wright persisted with her opinion, previously expressed, that the journal entry did not constitute a payment from the plaintiff to Timbercorp Securities. She said:

The recording of the obligation from Timbercorp Finance to Timbercorp Securities, whilst it may discharge Mr White's liability, represents an obligation of Timbercorp Finance for a future payment to Timbercorp Securities.

A payment will be made by Timbercorp Finance to Timbercorp Securities when the receivable from Timbercorp Finance is extinguished in the accounts of Timbercorp Securities.

In other words, there would be no payment until the plaintiff repays its loan from Timbercorp Securities.

281 Mr Halligan, on the other hand, was of the opinion that journal entry 504786 recorded a payment by the plaintiff to Timbercorp Securities of $205,756 on account of discharging Mr White's liability to Timbercorp Securities. Mr Halligan approached the question by acknowledging that there were many ways in which a payment, in discharge of a liability, could be made. He said that while payments are often made in cash, a payment may occur when one liability is replaced by another. In other words, replacing Mr White's obligation to pay Timbercorp Securities with a corresponding obligation from the plaintiff for the same amount.

282 The Australian Accounting Standards Board published the Framework for the Preparation and Presentation of Financial Statements in July 2004. The Framework sets out the concepts that underlie the preparation and presentation of final reports. Paragraph 60 of the Framework states:

An essential characteristic of a liability is that the entity has a present obligation. An obligation is a duty or responsibility to act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally the case, for example, with amounts payable for goods and services received. Obligations also arise, however, from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner. If, for example, an entity decides as a matter of policy to rectify faults in its products even when these become apparent after the warranty period has expired, the amounts that are expected to be expended in respect of goods already sold are liabilities.

The settlement of a present obligation usually involves the entity giving up resources embodying economic benefits in order to satisfy the claim of the other party. Settlement of a present obligation may occur in a number of ways, for example, by:

(a) payment of cash;

(b) transfer of other assets;

(c) provision of services;

(d) replacement of that obligation with another obligation; or

(e) conversion of the obligation to equity.

An obligation may also be extinguished by other means, such as a creditor waiving or forfeiting its rights. *Emphasis added.

283 Ms Wright sought to differentiate between a payment and settlement of an obligation. In her opinion, the forgiveness of a debt would not be considered a payment even though a liability or obligation may have been settled. She took a narrow view of her task, confining her attention to journal voucher 504786, approaching the question thus:

I think to assess whether there's a payment in a particular transaction I need to know whether there's been a movement of resources or cash or some other resource. That's my criteria in assessing whether there has been a payment.[64]

... If you had been informed that Timbercorp Securities was satisfied with the transaction between it and Timbercorp Finance as discharging Mr White's liability to Timbercorp Securities, would that have made a difference to your opinion?---No.

So had one of the assumptions that you were given for the purpose of preparing this report included an assumption that Timbercorp Securities was satisfied by the increase in the loan balance to discharge a liability to it by Mr White, that would not have affected your opinion?---Correct.[65]

285 A fair reflection of Ms Wright's opinion is her requirement for a 'movement in cash or resources' before a journal entry, recording such a movement, might be regarded as reflecting a payment. For Ms Wright an issue of shares would have been sufficient. She firmly rejected the suggestion that the increase in a loan account between entities would amount to the movement of a resource.

286 Ms Wright was cross-examined about what might constitute such a resource. She accepted that the assignment of a debt might create an asset in the hands of the assignee, and thus a resource, but was unwilling to accept that the creation of a debt would have the same effect. I formed the very clear impression that Ms Wright was intent on adhering to a brief, as she struggled to justify an unsustainable opinion.

287 Mr Stone was cross-examined at some length in an attempt to support the position adopted by Ms Wright. He was asked what he meant when he said that a transfer of 'value' reflected a payment. At times, the exchange between counsel and the witness became abstract and unhelpful. The defendants relied on this exchange to support a submission that the plaintiff had not led any evidence from anyone within the group 'as to what the precise measure of "value" was at the time the entry was made'. The relevant entry was, of course, 504786, on which the plaintiff relied to support the making of the advance. The defendants complained that the plaintiff had not called anyone who was in a position to explain the journal entries, and that Mr Stone was in no position to do so. They pointed out that Mr Murray and Mr Pryn had not been called by the plaintiff.

288 At trial there was no challenge to the authenticity of the journal vouchers and other Timbercorp documents, save for the Multichoice Invoice. Double entry bookkeeping had been applied and was capable of explanation by an accountant familiar with such accounts. It was not clear what assistance Mr Murray or Mr Pryn would have provided, except to recite that which was obvious from the documents and other evidence.

289 Mr Stone conceded in cross-examination that the journal entries recording transactions, relating to Timbercorp Securities, did not specify the capacity in which the transaction was undertaken. That is, whether in its own right or as responsible entity. Timbercorp Securities was a single entity wearing two 'hats'. Whether or not transactions were recorded in journal vouchers by reference to its capacity seems beside the point. If Timbercorp Securities received an asset as responsible entity, it was bound to deal with the asset in that capacity. The audited accounts were prepared in such a way as to reflect the different capacities.

290 Notwithstanding the evidence of both expert witnesses, the defendants persisted in their criticism of the bookkeeping within the Timbercorp group, arguing that the journal entry vouchers and notes might have been better expressed, to record the receivable from Mr White within a trade debtors account. There was room for improvement, particularly in the timing of transactions. But in my opinion, such anomalies, if they be anomalies, do not detract from the evidence, constituted by the books of account of the Timbercorp group, assisted by the joint opinion of the experts, to the effect that a pre-existing liability of Mr White in the sum of $205,506 had been discharged and replaced by his liability to the plaintiff.

291 The defendants contended that even if the Court were to accept that the accounts recorded that a debt due from Mr White to Timbercorp Securities had been discharged, and replaced by a debt due from Mr White to the plaintiff, such a discharge could not have been for the balance of Mr White's Application Money as required by cl 1 of the Loan Terms. They contended that a discharge of Mr White's liability for Management Fees and other scheme costs, in a sum corresponding precisely with the amount of the Application Money, would not amount to performance by the plaintiff of its obligation to pay 'the balance of your application money'.[66] For reasons given above, I do not regard the distinction as material on the facts of this case. For 'application money', cl 1 might just as well have referred to 'management fees'.

292 The defendants argued that Application Money must be accumulated in full before it could be converted into Management Fees. They formulated an elaborate argument in which they contended that the 'constitutions confirmed' such a requirement. Unfortunately, they did not explain how. As noted above, an application might be accepted before a loan was advanced. When cl 9.3(a) imposed a duty on the responsible entity to release the Application Money for the payment of fees, the obligation applied 'in relation to each application that ... is subject to finance and for which finance is approved.'[67]

293 The finance which might have been available and approved was from the plaintiff. There was no express requirement in the constitutions that it must have been advanced with the character of Application Money. What was commercially important, however, was that funds were available to meet the growers' liability to pay Management Fees. Unless Management Fees were paid prior to the end of the financial year, growers' expectations for the tax deduction would not be achieved.

294 The defendants contended that the electronic transfers that took place on 18, 19 and 25 June 2008, between Trust Company and Timbercorp had nothing to do with the plaintiff, and did not assist to establish that a payment had been made in satisfaction of its obligations under the loan agreement. I disagree. While the transfer to Trust Company was made from the Timbercorp operating account, the loan component was transferred on behalf of the plaintiff. The payment had been foreshadowed on 13 June 2008, albeit by way of a cheque.

295 The defendants argued that there was no evidence of an underlying agreement to support the use of journal entries to evidence a payment. I disagree. The plaintiff, Timbercorp Securities and Timbercorp were members of a group, whose management of funds was controlled through a single operating account. Substantive cash transfers were made to and from that account, maintained at the ANZ Bank. Group funding was achieved by sale of loans to the Bank, generating real cash. Internal transactions did not involve cash transfers, but adjustments recorded in journal vouchers.

296 There may be criticism about the corporate structure, a single operating bank account and the limited deployment of Trust Company, but that structure and the relevant transactions, were the subject of audit and continuing reporting obligations. There was no suggestion that the corporate structure was unauthorised, or in breach of the law, or a sham.

297 The defendants seemed to require evidence of a document, or a conversation, to support such an agreement. Such evidence was unnecessary, and misunderstood the way in which corporate groups, including the Timbercorp group, carried on their business. In Re York Street Mezzanine Pty Ltd,[68] Finkelstein J said, commenting on the need for payment in legal tender or by the transfer of a money fund,

This method of payment is highly inconvenient, especially where large sums are involved. It is not uncommon, therefore, to find that parties to a bill of exchange agree that payment can be made by some other means which is commercially acceptable, such as by the delivery of a bankers cheque. Not surprisingly, it has been held that parties to a note may agree that the note can be satisfied otherwise than by the transfer of legal tender (money). In that way (that is by the agreement of the parties) the law relating to bills of exchange (including promissory notes) is brought in line with the law relating to contracts generally: Chalmers and Guest on Bills of Exchange and Cheques (16th ed, 2005) para 8-005; Byles on Bills of Exchange and Cheques (27th ed, 2002) para 13-04. The result is that, by agreement, payment of money due under a bill of exchange can be made by set off, by the delivery of goods, by a bond, by cheque or bankers draft or even by book entry: see eg Pease v Hirst [1829] EngR 773; (1829) 10 B & C 122; 109 ER 396; Callandar v Howard [1850] EngR 687; (1850) 19 LJ CP 312; 138 ER 117). For a recent example see Gokal & Company (HK) Ltd v Rippleworth Ltd [1998] CLY 370.

There is every reason to permit a payment to be made by a book entry. Often it is simply a short-hand for money or a cheque being handed across the table and money or a cheque being handed back. It would be entirely inconsistent with modern commercial life if a payment due by one person to another could not be effected in this manner. At any rate, that is how the law has progressed. See, for example Manzi v Smith [1975] HCA 35; (1975) 132 CLR 671; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471. All that is required is an actual agreement by the relevant parties that payment be made by means of entries in books of account: Manzi v Smith 132 CLR at 674. The agreement may be express or it may be inferred. In the case of a bill of exchange, however, in the absence of an express agreement the court will not readily infer an agreement that the payment, which must otherwise be in money, may be made by some other means.[69]

298 The facts pointing to the existence of such an agreement within the Timbercorp Group include the following:

(a) The Timbercorp group carried on business as a group of wholly owned subsidiaries under Timbercorp Ltd.

(b) There were common directorships and officeholders.

(c) The Group prepared and filed consolidated accounts.

(d) The Group maintained only one central operating account, into which all funds were paid and out of which all expenses were paid.

(e) The Group maintained ledgers for the operating entities, Timbercorp Securities and the plaintiff, which contained journal entries recording transactions, in dollar amounts, without underlying cash transfers.

(f) The accounts of the Group were regularly audited and published. The defendants points to no qualification or criticism by an auditor or a regulator of the way in which the Group maintained its accounts.

299 The foregoing facts were not challenged by the defendants. Indeed, the defendants relied upon many of those facts to allege shared knowledge between the plaintiff, Timbercorp Securities and Timbercorp. Proof of such an agreement, by production of a document or proof of a conversation, was unnecessary. Indeed, it would be surprising if such a document had been prepared, or if there had been a formal conversation evidencing such an agreement. The dependency of the Group on properly kept books of account, recording exchanges of value in lieu of cash payments, produced practices and procedures, evident in the books of account available as evidence at trial, that supported the authenticity and accuracy of the records relied upon by the plaintiff as evidence of the transactions recorded in them.

300 The defendants submitted that under Chapter 2E of the Corporations Act, which applies to a registered scheme, with modifications set out in Part 5C.7,[70] scheme members must approve any financial benefit to the responsible entity from scheme property, or that could endanger members' interests. The defendants argued that payments by journal entry would require the approval of members, because the transaction recorded in the relevant journal entry made the plaintiff liable in the future to meet its obligation to discharge its loan account with Timbercorp Securities. The extent to which the assumption of a liability by the plaintiff to Timbercorp Securities, might adversely affect the grower, whose debt to Timbercorp Securities had been discharged, was not explained.

301 In my opinion, there is evidence to support the plaintiff's contention that, within the Timbercorp group, the plaintiff and Timbercorp Securities conducted their relationship on the basis that the financed portion of a grower's indebtedness for Application Money and Management Fees (and related grower costs) would be satisfied by an increase in the loan account between Timbercorp Securities and the plaintiff for the corresponding amount, relieving the defendants of their indebtedness to Timbercorp Securities and replacing that liability with a debt due to the plaintiff. That was the method by which those entities chose to make the loan. There was no requirement that the defendants agree to that arrangement. The defendants were not disadvantaged. In fact, the internal transactions between Timbercorp Securities and the plaintiff had the very outcome the defendants had sought when making their loan applications - to replace their liability to Timbercorp Securities with a liability to the plaintiff, repayable by instalments. The requirement for a 'payment' was satisfied by that transaction.

302 The internal transactions, between the group members, reflected in journal entries, was a convenient mechanism to record the changing financial position as new applicants subscribed for lots, Management Fees and other costs were paid, and expenses incurred in relation to the operation of the schemes. Those activities were audited and reported.

303 Nothing turned on the capacity in which Timbercorp Securities was credited with the loan amounts for the defendants. By the time that transaction took place, the obligation had changed, or was about to change, from an obligation to pay the balance of Application Money, into an obligation to pay the balance of Management Fees in precisely the same amount. When the cash was transferred to and from Trust Company and the central account, it followed the journal entries. The conversion of Application Money into Management Fees was authorised under each Constitution as payments made on behalf of Participating Growers to discharge their liability for Management Fees and related scheme costs.

304 While it is true that journal entries are not, of themselves, transactions, they record transactions. They constitute evidence of a transaction. The authenticity of the journal entries was not challenged. The journal entries were sufficient for the experts engaged by the plaintiff and defendants to reach the conclusion that a receivable due for Mr White was replaced by a receivable due to Timbercorp Securities from the plaintiff, and that Timbercorp Securities transferred the receivable from Mr White to the plaintiff.

305 Further evidence of the efficacy of transactions by journal entries, including advances, is found in the audited accounts of each scheme for the relevant period. Grower 'subscription money' is recorded by reference to the number of Grovelots, Almondlots and Timberlots. The accuracy of the accounts was not challenged. They include the 'subscription money' paid by the defendants as deposits and the loan amount for the balance.

306 It was necessary for the plaintiff to establish that the advance had been made under the loan agreement. The plaintiff has satisfied the evidentiary burden, through its books of account, which included the journal entries, the invoices and banking records. The commercial interest of the defendants, in having real value paid to the manager in satisfaction of their Management Fee obligations, was satisfied by the movement of money in bankable form to and from the Trust Company. The books of account of the plaintiff and Timbercorp Securities recorded the discharge of the defendants' anterior obligation. The defendants derived full value for their loan obligation. I find that in each case the plaintiff made a payment of the balance of the defendants' obligation to pay Application Money to Timbercorp Securities, by increasing its loan account with Timbercorp Securities, which in turn had the effect of discharging each defendants' anterior obligation.

307 The defendants' responses to the estoppels raised by the plaintiff in its replies was to contend that Mr White was not made aware of the 'book entries case' until June 2016.

308 The estoppels raised by the plaintiff were advanced on the assumption that it had not make a payment in accordance with the terms of the loan agreement. The defendants contended that the only analysis to be undertaken by the Court was whether a 'payment' had been made to Timbercorp Securities in its capacity as responsible entity, on account of the balance of Application Money. By his defence to the counterclaim by Timbercorp Securities,[71] Mr White sought to isolate his participation in the various schemes by contending that, whether he became a Participant Grower, owned Almondlots, Grovelots or Timberlots, claimed deductions, paid loan instalments, was bound by various court proceedings, or received or became entitled to a dividend on the winding up of the schemes, should be disregarded in favour of the narrow focus upon the simple question of whether a 'payment' had been made in the manner and for the purpose for which the defendants contended.

309 To approach the issues in this proceeding by disregarding the defendants' participation in schemes, would be artificial and uncommercial. A purpose of the scheme, reflected in the documents, was to provide investors, such as Mr White and Mr and Mrs Collins, with a tax deduction for Management Fees and other scheme related costs paid prior to a prescribed date. It was an essential part of the scheme that Application Money be converted into such payments prior to those dates. Scheme constitutions required the conversion to be made promptly.[72] The plaintiff contended that it would be unjust if the defendants had acquired and enjoyed the intended benefits - the acquisition of Grovelots, Almondlots or Timberlots, and a tax deduction for the amount of the Management Fees, on the basis that such fees had been paid - and at the same time be relieved of the price.

310 The defendants contracted with the plaintiff to discharge the balance of their liability to Timbercorp Securities. They became Participant Growers and acquired lots. They commenced to repay loans. Until pursued for repayment of the loan, they did not raise any question about their status as Participant Growers or entitlement to a distribution upon the winding up of the schemes.

311 Using the plaintiff's amended reply in the White proceeding as a vehicle to determine the various estoppel and related allegations, the plaintiff alleged that Mr White authorised it to satisfy the balance of his liability to Timbercorp Securities for fees on terms contained in the loan agreement. Mr White did not contend that Management Fees and other scheme related costs had not been paid. Quite plainly, Management Fees were paid, reflected in journal entries and the transfer of money from Trust Company on the instruction of Timbercorp Securities. Journal entries recorded the conversion of Mr White's liability to Timbercorp Securities into a debt due by him to the plaintiff. Thus, Timbercorp Securities gave up its rights against Mr White in return for an increased loan amount due from the plaintiff.

312 The plaintiff alleged that Mr White ratified the loan payment by servicing his loan obligation. He had been invoiced for Management Fees, paid a deposit and completed a loan application. Mr White received notification that his loan application had been accepted, Management Fees paid and lots allocated to him. He also instructed his accountant to prepare an income tax return in which Management Fees and other related costs were claimed as a tax deduction. If the defendants are found to be correct in their contention that performance by the plaintiff under the loan agreement is to be ascertained on the narrow basis that there was no payment of the balance of Mr White's obligation to Timbercorp Securities for Application Money, I find that by accepting a discharge of the balance of his liability to Timbercorp Securities for Management Fees and other scheme related costs, Mr White derived a benefit equal to the loan amount. Mr White treated that benefit as a loan from the plaintiff and, acting on that basis, claimed a full tax deduction and paid instalments. By his conduct, he ratified any irregularity in the payment of the loan amount.

313 Next, the plaintiff alleged that it was unconscionable for Mr White to retain the benefit of the payment that was made without paying a reasonable sum in return. The basis for the unconscionability claim depended on the same conduct as the allegations of authority and ratification. It was unnecessary to reconfigure those allegations, and the facts on which they depend, into a vague claim of unconscionability.

314 The plaintiff alleged that Mr White is precluded from alleging that the plaintiff's payment of the loan amount was not a payment under the loan agreement, or did not discharge his liability to Timbercorp Securities under each relevant Management Agreement. The plaintiff alleged that for Mr White to so contend was an abuse of process, because he was bound by the outcome of other proceedings conducted in this Court[73] as a grower in the Timberlot Project, having been allotted Timberlots and derived a benefit from a distribution approved by the Court following the winding up of the schemes. While 'growers' were represented through the participation of the Timbercorp Growers Group, which represented some of the growers who had invested in forestry schemes, no representative order had been made under r 16 of the Supreme Court (General Civil Procedure) Rules 2005, by which he might have been bound to a decision or approved compromise. There was no evidence that Mr White participated in the Timberlot apportionment proceeding, as a member of the 'growers group' or otherwise. In my view, it would not be an abuse of process, in this proceeding, for him to maintain a different position based on his involvement in the Timberlot Project. Mr White has, however, conducted himself on the basis that he was a Participant Grower. It is too late to resile from that position, which has been acted upon by Timbercorp Securities, the plaintiff and their liquidators. It would be unjust to permit Mr White to now avoid his obligation to the plaintiff as part of the price to be paid for the benefits he has already received as a Participant Grower.

315 Mr White also invested in Almondlots and Grovelots. Having become a Participant Grower, he was (as were all other scheme members) bound by an order made under r 16, and thus precluded by issue estoppel, from contending that they did not hold lots in the schemes wound up with the aid of such an order. In relation to the Almond Project, Mr White was bound by the decision of this Court approving a compromise in relation to the distribution of proceeds from the sale of almond scheme assets.[74] In relation to the Olive Project, Mr White is bound by approval of the compromise in relation to the sale of olive scheme assets.[75] The defendants' participation in the schemes, as Participant Growers, bound by an order based upon their participation, would make it manifestly unjust to the plaintiff if they could avoid their loan obligations merely because the loan funds had been applied in reduction of a liability to pay Management Fees rather than Application Money, or because it was not paid in bankable funds to Timbercorp Securities.

316 The estoppel, preclusion and abuse of process allegations in the Collins proceeding were, in all material respects the same, although they related only to the Olive Project. They relied on the same or near identical facts, with the same consequence.

317 The plaintiff advanced a number of further estoppels based upon common mistake. These allegations were predicated on the defendants having not obtained lots under a scheme. The defendants no longer so contend, and it is unnecessary to deal with these estoppel allegations.

318 The plaintiff's claim against Timbercorp Securities was a contingent claim based upon the assumption that the plaintiff failed to establish its claim, because the loan amount had not been paid in a bankable form to Timbercorp Securities in its capacity as responsible entity in discharge of the defendants' obligation to pay Application Money. For the purpose of the claim, the plaintiff alleged against Timbercorp Securities that it was reasonably foreseeable, in relation to each project, that if it did not receive and hold the loan amount as payment of the balance of the Application Money, in its capacity as responsible entity, or did not apply the payment and discharge of the defendants' liability for Management Fees and other scheme related expenses in accordance with the relevant scheme constitution, the defendant might deny the making of a loan. The plaintiff alleged a corresponding duty of care and breach. It alleged that if the defendant was not liable to repay the loan, the plaintiff had suffered loss and damage by reason of the breach of duty.

319 Timbercorp Securities responded to the plaintiff's contingent allegations with a defence and counterclaim. In substance, it alleged an abuse of process and estoppel against the defendants based upon their membership of a group within the meaning of Part IVA of the Supreme Court Act 1986 in the class action. It also relied upon the same or similar facts and circumstances as the plaintiff when making similar allegations against the defendants.

320 By its counterclaim, Timbercorp Securities sought a declaration that the defendants were precluded from denying, on the basis of the matters alleged in paragraph 76C of their defences, that the balance of Application Money was paid on their behalf to Timbercorp Securities for the Timberlots, Almondlots and Grovelots, and that as a consequence, they each became a Participant Grower in the projects. Paragraph 76C of the defendants' defence alleged that insofar as there had been a payment of Management Fees and other scheme related costs, such payment was not, and could not properly be construed as, a payment on behalf of the defendants of the balance of the Application Money payable to TSL in its capacity as responsible entity.

321 Insofar as it may be necessary to so find, I am persuaded that the defendants conducted themselves as Participant Growers, with lots, acknowledging an indebtedness to the plaintiff under their loan agreements until the schemes failed. They accepted the discharge of their liability to Timbercorp Securities for Management Fees, and took the benefits. They accepted a corresponding obligation to the plaintiff to repay a debt, on terms set out in their loan agreements. Thus, even if it be found that the payment from the plaintiff was not a payment of the balance of the Application Money, the defendants remain liable for the amount of the plaintiff's claim.

322 The plaintiff is entitled to judgment against each defendant, in each proceeding, for the unpaid balance of each loan as alleged, together with interest.

[5] The third defendant in proceeding S CI 2014 02972 and the second defendant in proceeding S ECI 2014 00419.

[6] Part 5C.2.

[7] [2011] VSC 427.

[8] [2013] VSCA 284.

[9] The extent to which forcible undertakings, or agreement to rely only on particular defences will, in effect, make these decisions binding on other defendants is yet to be seen.

[11] BOSI Security Services Limited v Australia and New Zealand Banking Group Limited [2011] VSC 255.

[13] [2015] VSC 461.

[14] [2016] VSCA 128.

[15] [2016] HCA 44.

[16] [2015] VSC 461; [2016] VSCA 128; [2016] HCA 44.

[17] Wellington Capital Ltd v Australian Securities and Investments Commission (2014) 254 CLR ('Wellington Capital').

[19] Wellington Capital, [12]-[14] (citations omitted).

[20] [2014] HCA 43, 309 [32].

[21] Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567.

[22] The Timberlot Project applies only to Ms Lowe. In the Timberlot Management Agreement the prefatory words are, 'in respect of the Establishment Services described in clause 6(a)-(g) to be performed during the Establishment Period ...'. The establishment period was defined to mean the period commencing on the day when the first seasonally dependent agronomic activity for the planting commences and ending on the earlier of 12 months thereafter on 30 June 2009. [The timberlot project applies only to Ms Lowe. An application fee of $3,080 per lot was payable. Ms Lowe subscribed for 132 timberlots. The total cost was $400,400. She paid a deposit of $40,400 and financed the balance of $360,360 through Timbercorp Finance. The Establishment Services were to be performed after the investment was made. The growers were entitled to take advantage of a 12-month prepayment rule applicable to the plantation forestry industry, and to claim an immediate tax deduction for certain prepaid expenditure incurred under a plantation forestry management agreement. Accordingly, there was no occasion for any enquiry, at the time the payment became due, into work that had actually been undertaken.

[23] [2014] HCA 43; (2014) 254 CLR 288, 313 [49].

[24] Wellington [2014] HCA 43; (2014) 254 CLR 288, 301 [14].

[25] Clause 11.1(a) Almondlot Management Agreement; cl 11.1(a) Grovelot Management Agreement.

[26] Emphasis added. The defendants relied on these introductory words to confine the services to those provided under cl 5.2 for which payment was authorised.

[27] Farrah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 162, [173].

[28] Bartlett v Barclays Bank Trust Co Ltd (No 1) [1980] Ch 515, 537.

[30] Mount Bruce Mining Pty Ltd v Right Prospecting Pty Ltd (2015) 256 CLR 104, 116 [46].

[31] Almond Project Constitution cl 8.1.

[32] Almond Project Constitution cl 8.6.

[33] Subject to satisfaction of the conditions.

[34] See Mr Gruyters' defence [125]; the fifth category of knowledge, pleaded by the defendants, does not conform with the accepted position in Australia; Farah Constructions v Say-Dee Pty Ltd (2007) 230 CLR 89, [174]-[178].

[35] Re-engine Pty Ltd (In liquidation) v Ferguson [2007] VSC 57, [120].

[36] [2016] HCA 44.

[39] Clause 8.3 of the Timberlot Constitution. Hereafter, a reference to cl 9.3 of the constitutions includes a reference to cl 8.3 in the Timberlot Constitution.

[45] Timbercorp Finance Pty Ltd v Collins & Tomes [2015] VSC 461; [2016] VSCA 128; [2016] HCA 44.

[46] The use of the expression 'Management Fee' as an amount paid to Timbercorp Securities in its own right, shortly after Mr White applied for Almondlots, Grovelots and Timberlots, shall be taken to refer, in the case of the Olive Project, the initial Management Fee; for the Almond Project, the initial Management Costs and Rent; and in the case of the Timberlot Project, the initial Plantation Establishment costs.

[47] [2016[ HCA 44, [23]-[24].

[58] [2015] HCA 37; (2015) 256 CLR 104, 116, [46]-[51] (citations omitted).

[59] [2014] SASCFC 1; 118 SASR 349 ('Rocky Castle').

[68] [2007] FCA 922; (2007) 162 FCR 358, [25]-[26].

[71] There were corresponding allegations in the defence of Mr and Mrs Collins to the counterclaim by Timbercorp Securities, and the rejoinder of Mr and Mrs Collins to the plaintiff's reply.

[72] Clause 9.3 Almondlot Constitution.

[73] Re Timbercorp Securities Limited (in liq) [2009] VSC 608.

[74] [2012] VSC 590.

[75] [2012] VSC 590.