Plaintiff v First Defendant

Supreme Court of Victoria|2013-10-17|Before: ALMOND J

EQUITY - Fiduciaries - Director of family trust company arranged for the company to borrow money to make superannuation contributions to himself and family - Whether director breached fiduciary duties - Whether shareholders prospectively assented to transactions - Whether shareholders ratified transactions - Interests of beneficiaries of trust - Liability for knowing receipt - Whether sufficient knowledge - Liability for receipt of trust property as volunteer - Meaning of 'volunteer' - Whether superannuation fund provides valuable consideration in exchange for member or employer contributions - Cook v Benson [2003] HCA 36; (2003) 214 CLR 370 applied - Whether plaintiff has unclean hands - Director breached fiduciary duty but no liability since recipient company had insufficient knowledge and was not a volunteer.

1 The receivers and managers of the plaintiff, Australasian Annuities Pty Ltd (in liq) ('AA') bring a claim in the plaintiff's name against the first defendant, Rowley Super Fund Pty Ltd ('RSF') and the second defendant, Steven Rowley, the sole director of AA, to recover amounts allegedly diverted from AA in breach of Steven Rowley's fiduciary duties. As Steven Rowley has since been declared bankrupt, the claim proceeds only against RSF. AA seeks to recover only the payments which are alleged to have been diverted in breach of Steven Rowley's fiduciary duties and paid to RSF. For convenience, the Rowley family members are referred to by their first names throughout this judgment.

2 The central issue is whether Steven breached fiduciary duties owed to AA by facilitating the transfer of funds from AA to the Rowley Superannuation Fund ('Super Fund') during the financial years 2007 and 2008,[1] and if so, whether those funds or their traceable proceeds are held by RSF, the current trustee of the Super Fund, on constructive trust for the plaintiff; alternatively, whether RSF is liable to the plaintiff for money had and received.

3 AA was incorporated on 10 August 1984. At all relevant times, Steven was the sole director of AA and held one of the two issued shares. The other share was owned by his wife, Barbara Rowley.[2] At all relevant times, AA acted as the trustee of the Rowley Family Trust, a discretionary trust in which the members of the Rowley family are beneficiaries, but not the only beneficiaries.[3]

4 RSF was incorporated on 13 February 2008. It has four directors: Steven, Barbara, and their sons, Adrian and Adam Rowley. At all relevant times since 13 February 2008, RSF has been the trustee of the Super Fund. Prior to the appointment of RSF as trustee of the Super Fund, the trustees were Steven, Barbara, Adrian and Adam Rowley.[4]

5 AA carried on a financial planning business. From about 1992, Steven and Barbara worked in the business. In 1996, they were joined by Adrian and from about 1997, by Adam.[5]

6 The financial planning business was structured so that AA acted solely as a service trust providing management, administration, accommodation and staffing services (including the services of Steven, Barbara, Adrian and Adam) to an entity called London Partners Pty Ltd ('London Partners') pursuant to a service agreement. London Partners held the relevant financial services licence and received revenue in the form of client commissions and the like. London Partners itself had no employees, and had minimal expenses beyond service fees payable to AA. In essence, each year London Partners paid AA (in AA's capacity as trustee of the Rowley Family Trust), a service fee equivalent to 95% of the client commissions received by London Partners.[6]

The facility agreement with Macquarie Bank Ltd

7 Macquarie Bank Ltd ('Macquarie') was the banker to Steven, AA and London Partners. In December 2006, Steven and Adam met with Jamie Melville of Macquarie and Steven expressed interest in borrowing $2.5 million to invest in superannuation. Steven initially said he would borrow the $2.5 million himself but later said that AA would be the borrower. [7]

8 After having discussions with his (and AA's) accountant, Allan Carlile from Murdoch Partners, and consulting with John Day from Remuneration Strategies Group (who had expertise in salary sacrifice, packaging and remuneration generally), Steven devised a strategy which involved AA:

(a) borrowing money from Macquarie such that the interest on the borrowing would be tax deductible to AA;

(b) making maximum employer super contributions on behalf of Steven and Barbara (of $100,000 each) and Adrian and Adam, which would not be taxable in their hands because they would not be received as salary; and

(c) making 'eligible termination payments' to Steven and Barbara, which would be more tax-effective (than ordinary wages and expenses) because the 'eligible termination payments' would be taxed at concessional rates.[8]

9 On 7 May 2007, Steven signed a facility agreement with Macquarie on his own behalf and on behalf of AA, London Partners and other Rowley entities.[9]

10 The facility agreement provided for a facility limit of $2.5 million with the stated purpose of the facility being 'to assist with superannuation contribution'. Security for the loan included a registered first ranking fixed and floating charge over the whole of the assets and undertakings of London Partners and AA.[10]

11 On 15 May 2007, Steven sent Mr Melville from Macquarie an email which stated (omitting formal parts):

The proceeds of the loan will be paid into the Rowley Superfund for both Barbara and myself in a combination of the following

12 On 17 May 2007, Macquarie advanced $2.5 million to AA pursuant to the facility agreement.

Preparation of accounts and financial statements

13 At the end of each financial year, it was Steven's practice to:

(a) direct that Murdoch Partners be provided with copies of the general ledger for AA (which incorporated the general ledger for London Partners);

(b) request that Murdoch Partners prepare annual financial statements for each of AA, AA in its capacity as the trustee of the Rowley Family Trust, and London Partners; and then

(c) request that Murdoch Partners prepare tax returns for each of those entities as well as for himself, his wife Barbara, his two children Adrian and Adam (and their wives), and other entities he controlled.[12]

14 Murdoch Partners had a standard instruction as to the preparation of the accounts. This was to prepare both the accounts and the taxation returns in a manner which was consistent with the regulatory and taxation laws, and which was the most commercially effective for the companies, the trust and the individuals. Balance day journal adjustments were made by Murdoch Partners after the event to re-characterise the accounting treatment of some transactions in order to give effect to this instruction.[13]

15 Steven was aware that, depending upon the structure of the superannuation and taxation laws as they applied at a particular time, along with other income that the family members received from other investments, income received by himself (or any other family members) may in some years have been paid as ordinary wages from AA. In other years, it may have been taken as superannuation or as a distribution of profit from the trust.[14]

16 Further, since 1984 when AA started operating, Steven had from time to time taken monies out of the business which were debited to a loan account that he had with AA. The loan account was set out in the general ledger and incorporated in the company accounts at the relevant financial years as an asset described as 'Loan S Rowley'. The loan was unsecured and did not accrue interest.[15]

17 The debit balance of Steven's loan account for the year ending 30 June 2003 was $1,295,159. By the year ending 30 June 2008, the debit balance had increased significantly to $3,285,405.[16]

18 AA submits that in the financial year ending 30 June 2007, Steven effected payment of $1,341,528 to the Super Fund as superannuation contributions comprising:

(a) $225,560 transferred directly by AA into the Super Fund's account; and

(b) $1,115,968 being part of monies transferred by AA to the personal account of Steven and Barbara Rowley. The sum of $1,115,968 was immediately transferred to the Super Fund's account ('First Sum').

19 AA also submits that in the financial year ending 30 June 2008, Steven effected payment of $372,296.99 from AA to the Super Fund comprising:

(a) five payments totalling $204,088.72 transferred directly from AA's account to the Super Fund's account;

(b) a payment of $118,583.27 to the personal account of Steven and Barbara Rowley which was then immediately transferred to the Super Fund's account; and

(c) a payment of $49,625 for stamp duty on the purchase of a property at Garbutt for the benefit of the Super Fund ('Second Sum').

20 The financial records of AA and RSF variously characterised those transactions, in substance, as employer super contributions, 'eligible termination payments' and loans to Steven. AA seeks to recover the First Sum and Second Sum (or their traceable proceeds) from RSF on the basis that Steven, in diverting AA's funds to the Super Fund, has breached fiduciary duties that he owed to AA.

21 The following questions arise for consideration:

(1) Did Steven Rowley breach fiduciary duties owed to AA in his capacity as director?

(2) Did the shareholders of AA prospectively assent to the transactions?

(3) Did the shareholders of AA ratify the transactions?

(4) Was there 'knowing receipt' of trust property by RSF?

(6) Does the subsistence of a debtor/creditor relationship prevent the maintenance of AA's equitable claim?

(7) Is AA disentitled to equitable relief on the basis of having 'unclean hands'?

Question (1): Did Steven Rowley breach fiduciary duties owed to AA in his capacity as a director?

22 The parties did not take issue with the principle that a director of a company is in a fiduciary relationship with that company.[17] Nevertheless, it is convenient to note the defining characteristics of a fiduciary.

23 In Bristol v West Building Society [1998] Ch1, Millet LJ said at 18:

The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of a fiduciary.

24 In Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, Dixon J said of directors of a company at 185:

Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power.

25 In this proceeding, the plaintiff advances a cause of action under the general law (and not based on breach of statutory duties).[18] Relevantly, under the general law, directors are required to act in good faith and in the interests of the company, to exercise their powers for proper purposes and to avoid conflicts of interest.

26 For present purposes, it is important to state that directors' fiduciary duties are owed to a company as a separate legal entity and not to shareholders or creditors. In Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165, McHugh, Gummow, Hayne and Callinan JJ said at 178-179:

It may be readily accepted that directors and other officers of a company must act in the interests of the company as a whole and that this will usually require those persons to have close regard to how their actions will affect shareholders. It may also be readily accepted that shareholders, as a group, can be said to own the company. But the company is a separate legal entity and the question ... is what damage (if any) did it suffer ... The question is not whether the shareholders ... were adversely affected.

27 The first defendant submits that in a solvent company, the shareholders' proprietary interests entitle them to be regarded as the company when questions of the duties of directors arise. It relies on a statement to this effect by Street CJ in Kinsela v Russell Kinsela Pty Ltd (in liq).[19] Further, RSF submits that company directors must exercise their powers for the 'benefit of the company as a whole', but that this does not mean the company as a commercial entity distinct from its shareholders; it means the shareholders as a general body. For this proposition, RSF relies on a statement in Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286, 291, cited in Ngurli Limited v McCann [1953] HCA 39; (1953) 90 CLR 425, 438.

28 In an illuminating passage in Bell Group v Westpac, Owen J said:

It does no damage to the doctrine of separate corporate personality to recognise that a reflection of the interests of the company may be seen in the interest of shareholders. In Greenhalgh v Arderne Cinemas Ltd ... Lord Evershed MR drew a distinction between 'the company as a commercial entity distinct from the corporators' and the 'corporators as a general body'. His Lordship opined that the phrase 'the company as a whole' meant the latter rather than the former.

...

This does not mean that the general body of shareholders is always and for all purposes the embodiment of 'the company as a whole'. It will depend on the context, including the type of company and the nature of the impugned activity or decision. And it may also depend on whether the company is a thriving ongoing entity or whether its continued existence is problematic. In my view the interests of shareholders and the interests of the company may be seen as correlative not because the shareholders are the company but, rather, because the interests of the company and the interests of the shareholders intersect. This, it seems to me, is consistent with what was said in the authorities such as Ngurli Limited v McCann ... I think this is the sense in which the well-known statement by Street J in Kinsela v Russell Kinsela Pty Ltd (in liq) is to be understood...

...

It is, in my view, incorrect to read the phrases 'acting in the best interests of the company' and 'acting in the best interests of the shareholders' as if they meant exactly the same thing. To do so is to misconceive the true nature of the fiduciary relationship between a director and the company. And it ignores the range of other interests that might (again, depending on the circumstances of the company and the nature of the power to be exercised) legitimately be considered. On the other hand, it is almost axiomatic to say that the content of the duty may (and usually will) include a consideration of the interests of shareholders. But it does not follow that in determining the content of the duty to act in the interests of the company, the concerns of shareholders are the only ones to which attention need be directed or that the legitimate interests of other groups can safely be ignored.[20]

Duty to act in good faith and in the interests of the company

29 In Re Smith & Fawcett Ltd [1942] Ch 304 at 306, Lord Greene MR formulated the general law duty that directors must 'exercise their discretion bona fide in what they consider - not what the court may consider - is in the interests of the company and not for any collateral purpose'.

30 The concept of acting in good faith in the interests of the company entails a requirement that directors consider the separate interests of the company. Failure to consider the separate interests of the company may itself be a breach of the duty.

31 In Westpac v Bell Group (in liq) (No 3) [2012] WASCA 157; (2012) 89 ACSR 1 Lee AJA said at 161 [1012]:

I agree with the reservation expressed by Clarke and Cripps JJA in Equity Corp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 146-8 ... Breach of a duty not to act other than in the best interests of a company arises if the failure to consider the separate interests of the company produces a result that fails to meet the best interests of that company. If such a breach and consequence is demonstrated the detriment suffered by the company must be addressed by appropriate remedy. At that point there can be no requirement to consider what an intelligent and honest person would have done, proof of breach of fiduciary duty and entitlement to relief having been demonstrated.

The duty to act in good faith overlaps with the duty not to exercise powers for improper purposes.

Duty not to exercise powers for improper purposes

32 In Permanent Building Society (in liq) v Wheeler,[21] Ipp J (Malcolm CJ and Seaman J agreeing) summarised the relevant principles:

(a) Fiduciary powers and duties of directors may be exercised only for the purpose for which they were conferred and not for any collateral, or improper purpose.

(b) It must be shown that the substantial purpose of directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties.

(c) Honest or altruistic behaviour will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose ...

(d) The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned.[22]

33 As to the conflict of interest rule, Mason J in Hospital Products said:

[T]he fiduciary's duty may be more accurately expressed by saying that he is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect ...[23]

34 To similar effect, Deane J in Chan v Zachariah [1984] HCA 36; (1984) 154 CLR 178 at 198 described the threshold as a 'significant possibility' of a conflict between personal interest and fiduciary duty.

35 The test for whether there is a conflict of interest is an objective one. In Boardman v Phipps [1966] UKHL 2; (1967) 2 AC 46, Lord Upjohn said at 124:

In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.

36 AA submits that the diversion of AA's funds effected by Steven by the gratuitous provision of superannuation payments and 'eligible termination payments' to Rowley family members, and by the making of substantial loans to Steven, constitutes conduct which was:

(b) an exercise of power for an improper purpose; and

37 RSF submits that the controversy in the case is the application of general principle to particular facts and that one has to look at the question of the content of the duty owed by Steven (as director) in light of AA's circumstances at the time of the relevant events. RSF submits that the relevant circumstances are that:

(b) AA was the trustee of a discretionary family trust, the Rowley Family Trust. The primary beneficiaries of the trust were the children of Steven and Barbara. The class of general beneficiaries comprised Steven, Barbara, various other family members and corporate entities beneficially owned by any beneficiary;

(c) under the terms of the Rowley Family Trust deed, AA had wide discretionary powers as to the distribution of the income and capital of the trust;

(d) in particular, clause 6 of the Rowley Family Trust deed conferred upon AA the power to deal with the trust fund entirely as it saw fit and as if it was its absolute owner; to apply monies with or without security on such terms and conditions as the trustee in its absolute discretion thinks fit; to advance or lend monies with or without security; to decide the remuneration to be allowed or paid; and to create or arrange any scheme of superannuation retirement benefit or pension for the benefit of any persons so employed;[24] and

(e) during the period 30 June 2004 to 30 June 2008, AA was solvent and its business (as trustee of the Rowley Family Trust) was thriving.[25]

(a) in a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company, when questions of the duty of directors arise;[26]

(b) in the context of the shareholders of a trustee company, the practical content of the relevant duty is particularly limited;[27]

(c) where there is no insolvency, the content of the duty owed by a director to a company (embodied by the shareholders) 'can ... be no more than a duty to take reasonable steps to ensure that the trustee [company] is not exposed to personal liability.'[28] Or, as it was put in oral submissions, it is no more than a duty to take 'steps to ensure the trustee [company] acted in accordance with the powers and discretions that were given to it under the trust deed';[29] and

(d) in this case, personal liability of AA only arises where there has been 'personal conscious fraudulent bad faith'.[30]

39 Apart from the proposition in (a) which is mentioned earlier, no authority was cited for those propositions. I am not persuaded that the duty of the sole director in the circumstances of this case is so confined. Directors are also obliged to ensure that the powers of the company are duly exercised for proper purposes.

40 In this case, AA borrowed $2.5 million from Macquarie on terms which included the obligation to pay fees and commercial interest rates, and to repay the borrowings by 31 January 2011, subject to review by the bank or events of default.[31] AA received the advance of $2.5 million as a result of drawing down on the facility.

41 Those funds, which were trust funds, were then depleted by substantial direct contributions to the Super Fund. The contributions were effected by substantial payments characterised as 'eligible termination payments' to Steven and Barbara Rowley and by undocumented, unsecured and interest-free loans made to Steven. In my view, the best interests of the company cannot have been served by such improvident arrangements.

42 It emerged at trial that Steven considered that a benefit to his family equated with a benefit to the company. In cross-examination, he said:

[I]t benefits the family, yes, which is the company and myself and the whole lot ... they are all as one.[32]

43 In Ford's Principles of Corporations Law, the learned authors state:

Examples of failure to pay proper regard to the company's separate interests frequently arise in cases about the affairs of small proprietary companies. Controlling shareholders of such companies sometimes treat the company as if its assets are the same as assets they hold in their own names. They may improperly try to cause the company to incur obligations so that it is in a position to provide personal benefits to directors or shareholders. Directors have a duty to use company resources only for the benefit of the company.[33]

44 Though this case concerns a sole director (rather than a controlling shareholder), it is clear to me that Steven failed to pay proper regard to the company's separate interests. He embarked on a deliberate strategy to cause the company to incur obligations so that it was in a position to provide substantial personal benefits to himself and certain members of his family.

45 In my view, it is no excuse that AA had powers and discretion to make the relevant payments. I do not accept the submission made by Counsel for RSF that the powers under the trust deed are so wide that AA can make any payment that it likes and that its only potential exposure as a company is if it 'did something which disentitled it from claiming or exercising its right of indemnity'.[34] The validity of the exercise of fiduciary power must be decided by reference to the circumstances to determine whether the power was exercised honestly for the benefit of the company as a whole.[35]

46 In Hurley v B.G.H. Nominees 37 SASR 499, it was necessary for the court to consider the scope of the fiduciary duty of a director of a company which carried on business as trustee of a trading trust. Walters J said at 510:

[I]t seems to me that a director must not disregard the interests of members of his company, or the interests of beneficiaries who are not shareholders but who are entitled to receive a benefit from the company's activities as a trustee of the relevant trust. I think it would be entirely unreal if a director were allowed to address his mind simply to the interests of the company and not to the additional consideration whether the transaction sought to be impugned was for the benefit of the shareholders or, indeed, the beneficiaries of a trust of which the company is trustee.

47 In Re S&D International Pty Ltd (No 4) (2010) ACSR 595 ('S&D International'), which involved the trustee of a unit trust, Robson J said at 657 [283]:

The basic common law duty of a director is that he or she must act bona fide in what he or she believes is in the best interests of the company as a whole. The duty is encompassed in s 181. In this instance, S&D acted as a trustee of the Unit Trust and the best interests of the company were clearly to act properly in accordance with the Trust Deed and in the interests of the Unit Trust. In other words to ensure that the trustee exercised its powers honestly and in the best interests of the beneficiaries of the trust.

48 In Bell Group v Westpac, (in the context of s 181 of the Corporations Act 2001 (Cth)), Owen J stated the principle (among others) at 1194 [4619] that:

The directors must give real and actual consideration to the interests of the company. The degree of consideration that must be given will depend on the individual circumstances. But the consideration must be more than a mere token: it must actually occur.

49 In this case, I am not satisfied that Steven gave even token consideration to the interests of the company (AA), or that he gave any consideration to what was in the interests of the beneficiaries of the trust (Rowley Family Trust). No evaluative process occurred beyond the implementation of a strategy which would maximise the contributions to the Super Fund in the most tax effective way. I agree with and adopt the approach taken by Robson J in S&D International, namely that where a company acts as a trustee, the best interests of the company are to act properly in accordance with the trust deed and in the interests of the trust; that is, to ensure that the trustee exercises its powers honestly and in the best interests of the beneficiaries of the trust.

50 In this case, Steven appears to have had scant regard (if any at all) to the fact that AA is the trustee of a trust, and that whilst he was a beneficiary together with other beneficiaries, it was a discretionary trust and he had no present entitlement to the trust funds. Yet, he facilitated the distribution of those funds to his family superannuation fund to benefit himself and certain members of his family as though the trust fund was his to do with as he pleased.

51 In my view, the duty to act in the interests of the company when the company is a trustee (that is, with a legal but not a beneficial interest in the assets of the trust), carries with it a duty to consider the legitimate interests of the beneficiaries. In this case, there is no evidence of any such consideration. Indeed, Steven testified that he does not 'look at it from the point of view of the company' but rather he 'look[s] at it from the point of view of the shareholders, which is the company'.[36] This is an additional reason why Steven has failed in his duty as director to act in the interests of the company.

52 I am also satisfied that Steven, as sole director, exercised his powers and duties for the collateral and improper purpose of obtaining substantial and direct personal benefits in the form of superannuation contributions by causing AA:

(a) to make substantial employee contributions to the personal superannuation accounts of himself and of his wife Barbara; and

(b) to make substantial interest-free loans of funds which were then paid into the Super Fund for the benefit of Steven, Barbara, Adrian and Adam Rowley.

53 In addition, Steven caused the company to make significant 'eligible termination payments' to himself and his wife of $578,620 and $260,380 respectively. While these amounts were recommended by Mr Day from Remuneration Strategies Group based on AA's financial information provided by Murdoch Partners (on Steven's instructions),[37] the amount paid to Steven represented nearly four times his assessment of what an annual commercial salary would have been for a person in his position.[38]

54 The definition of 'eligible termination payment' under s 27A of the Income Tax Assessment Act 1936 (Cth)[39] is 'any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer' (other than specified payments which are not relevant for present purposes).

55 The plaintiff submits that Steven and Barbara were not entitled to eligible termination payments because:

(a) they both remained as employees of AA until the appointment of receivers and managers on 29 June 2009;[40]

(b) there was no contemporaneous document indicating that either Steven or Barbara were resigning from their employment or intending to resign from their employment;

(d) Barbara did not tell Steven that she was retiring; and

(e) neither Steven nor Barbara told their sons that they were retiring.[41]

56 I am satisfied that there was no intention to retire or otherwise terminate the employment of Steven and Barbara at the relevant time. Steven gave evidence at trial that at the time he received the eligible termination payment he intended to retire.[42] I found his evidence on this issue evasive and wholly unconvincing. I am not satisfied on the material before the Court that the relevant payments were made in consequence of the termination of employment of either Steven or Barbara or that the payments were made in conjunction with any intention on their part to retire or resign.

57 RSF submits that the question of whether Steven and Barbara were in fact entitled to treat the payments made to them as 'eligible termination payments' in their taxation returns raises issues that are not relevant to the question of breach. I disagree, because the making of such payments where there was apparently no legitimate basis for making them has clear bearing on the question whether the director's duty has been exercised for an improper purpose. In any event, in my view the payments also demonstrate that Steven was squarely in breach of his duty to avoid a conflict of interest. The payments clearly promote Steven's personal interests by advancing his personal circumstances or those of his family at the expense of AA directly and of the other beneficiaries of the Rowley Family Trust indirectly.

58 RSF submits that where the directors and shareholders are one and the same, the concept of any conflict between the interests of a director and the interests of the shareholder is 'much less acute', and 'is a circumstance which can impact considerably on the content of the duties', as Brereton J said in ASIC v Maxwell.[43] There, his Honour further observed that:

The significance of a correspondence between the identity of the directors and the shareholders is illustrated by the circumstance that, at general law, a fully informed general meeting can prospectively or retrospectively ratify the actions of directors of the company, though they involve negligence, breach of fiduciary duty or the exercise of the directors' powers for an improper purpose...[44]

59 That is undoubtedly so and such identity of interest will likely have a bearing on questions of ratification of or acquiescence in a course of conduct.

60 In this case, the directors and the shareholders are not identical. Steven is the sole director but he and his wife Barbara each own one of the two shares in the company. There is the additional factor that the company is a trustee. In considering whether there is a possibility of conflict, in my view account must be taken of the fact that the company owes a fiduciary duty to the beneficiaries. In this case, there are the personal interests of the sole director, the interests of the shareholders of the company, and the interests of numerous beneficiaries, which include but are not identical to the interests of the directors or the shareholders.[45] There is a 'significant' or 'real or substantial' possibility of conflict between those interests.

61 Looking at the issue objectively, I am satisfied that Steven, in breach of his fiduciary duty to avoid conflicts of interest, promoted his personal interests by causing the company to:

(a) make superannuation contributions to himself and his family (directly and indirectly) from the proceeds of unsecured and interest-free loans;

(b) make substantial 'eligible termination payments' in favour of himself and Barbara; and

(c) provide unsecured and interest-free loans to himself to enable property to be purchased for the benefit of the Super Fund.

Question (2): Did the shareholders of AA prospectively assent to the transactions?

63 RSF submits that shareholders can give their assent to transactions before their implementation, so that subsequent acts of the directors in approving such transactions become the company's acts and are binding on it.[46] RSF contends that what constitutes informed consent varies according to the circumstances of the case and that the level and sufficiency of the disclosure required depends upon the sophistication and intelligence of the persons to whom the disclosure is to be made.[47] I accept those general propositions.

64 On this basis, RSF submits that if there was any breach of duty, it is not actionable at the suit of AA. First, because Steven plainly knew of the transactions and assented to them before he implemented them. Secondly, because Barbara may be taken to have assented to the transactions prospectively because she had a general level of knowledge of them, and willingly reposed in Steven the task of implementing them.

65 RSF relies on the following facts to make good its submission with respect to Barbara's assent:

(a) in about 2007, Steven told Barbara in general terms that there was an opportunity to put a substantial amount of money in superannuation and that it was a good idea. Barbara could recall that Steven told her at the time that he had discussed it with Allan Carlile from Murdoch Partners and with John Day, who she understood was a remuneration consultant with relevant expertise;[48]

(b) Barbara understood that Steven (in consultation with Murdoch Partners) had determined the appropriate structure for the treatment of the various transactions; and

66 RSF submits that informal assent is enough, even if Barbara's knowledge of the transactions was only limited.

67 I am not satisfied that Barbara assented to the relevant transactions before they were implemented. During cross-examination about her level of awareness, the following exchanges took place between Barbara and Senior Counsel for the plaintiff:

In 2006/2007 large amounts of money were transferred to the Rowley Superannuation Fund. Were you aware about that at the time?---I didn't know the details of things because Steven was the one who looked after our finances. He's a financial planner. He looked after all that sort of thing.

So you relied upon him to do these things and he would tell you things if and when it became necessary to do so?---Yes, when there were things to be done or whatever, he would tell me.

So in 2007, if you look at the first page of the document "Payments sought to be recovered", you will see reference to a number of transfers there. Am I right to suggest to you that you wouldn't have been consulted before any of those payments were made from the company or to the superannuation fund?---Look, I can't remember these, you know, exact dates or anything. All I can say is that Steve would consult me about things when it was necessary.

But in respect of those payments you don't recall ever being consulted about any of those before they were made?---I can't remember very much of those times.

And likewise if I asked you about the payments on the second and third page which were made in the financial year 2008, your answer would be the same?---Yes. I can't remember details of those times.

And the likelihood is that your husband wouldn't have consulted you because he arranged those matters?---I'm sure he would have told me things that were happening and what was going on.

Do you remember him telling you, for example, about discussions with Allan Carlile from Murdoch Partners?---There were talks with Allan, regarding Allan Carlile, yes. He was a personal friend of ours as well as our accountant.

Can you remember him ever talking to you in 2007 about the fact that he was talking to Mr Carlile about substantial superannuation payments?---Not really. I can't remember very much.[50]

68 In my view, Barbara had only a vague idea of transactions effected by the company in the years 2007 and 2008. In essence, she was unable to remember whether she was consulted about any of the transactions before they were made. In the circumstances, I am not satisfied that she assented to the transactions before they were implemented or, given the generality of the discussions, that she was in a position to give fully informed consent.

69 RSF cited four cases in support of the proposition that when all shareholders are unanimous in their wishes, acting intra vires and in good faith, the directors cannot be liable for breach of duty.[51]

70 In Multinational Gas, the directors acted in accordance with and at the behest of three oil companies, the only shareholders, and there was no allegation that the directors of the plaintiff had acted outside power or in bad faith. It was held that the plaintiff as a matter of law could not complain.[52]

71 In Saloman v Saloman, every member of the company assented to a contract for the purchase of a business and the company was held to be bound 'in a matter intra vires by the unanimous agreement of its members'.[53]

72 In Pascoe v Lucas, which applied Multinational Gas, the directors of a solvent company had acted intra vires and in good faith in accordance with the wishes of its sole shareholder. The director was held not liable to the company.

73 In Canada v The Standard Trust Company, a syndicate of four persons incorporated a railway company and subscribed for all the issued shares and were appointed directors. The syndicate members then purchased a railway themselves and the newly incorporated railway company purchased it from the syndicate (as it was empowered to do using the amount subscribed on incorporation of the railway company) and acknowledged a debt owed to the syndicate for the balance. Upon insolvency of the railway company, an assignee of the syndicate's claim claimed to rank as a creditor for the balance of the purchase price. The claim was admitted but the Attorney-General intervened, contesting the claim on the basis that the syndicate members were promoters of the railway company, occupied a fiduciary position towards it and that the resolution of directors fixed an excessive price on the railway which was unfair and could not stand. The judgment was delivered by Viscount Haldane. His Lordship said:

But whatever may have been the character of this transaction, it was approved, with full knowledge of the facts, by all of those who owned, or were beneficially interested in, the stock of the company at the time. It therefore, does not matter, for the purposes of the case such as the present that these persons were also promoters and vendors.

...

In this case the interests of the company and of the syndicate were identical. The only persons beneficially interested in the company were the four members of the syndicate. The law gave them the complete control of its action. Under that control the company gave effect to the policy of the only persons who had any beneficial interest in its capital.[54]

74 None of the cases upon which RSF relies concerns trustee companies. In the absence of assent by Barbara (a shareholder and beneficiary), it cannot be said in this case that all of those who 'owned or were beneficially interested in' AA had given approval with full knowledge of the facts. In the circumstances, it is unnecessary to decide whether the assent of the shareholders would be adequate without the assent of all other persons beneficially interested in trust fund held by AA as trustee.

75 An issue arose as to whether Barbara gave her assent by her attendance at AA's meetings at its accountants' office on Whitehorse Road, Mont Albert in December 2007 and on Cotham Road, Kew in December 2008. I am not satisfied that meetings occurred on or about these dates. The evidence on this issue was extremely vague and unsatisfactory. Barbara could not recall whether she attended a meeting on 28 December 2007 or on 29 December 2008. She did not know whether she read the financial statements at or about that time and in any event, did not do so in detail because she said she depended upon Steven to explain anything imperative. Barbara's state of knowledge is dealt with in more detail in the discussion of Question (3) below.

76 Having regard to all of the evidence given by Barbara and taking account of her general level of recall, I am not satisfied that she had sufficient knowledge to assent. It is clear that the financial statements for 2007 and 2008[55] do not disclose the relevant nature of the transactions. Therefore, even if Barbara Rowley had read and understood the statements, she would still, in my opinion, not be in a position to give informed consent to the underlying transactions.

77 It follows that I am not satisfied that AA's shareholders prospectively assented to the transactions. The answer to Question (2) is No.

Question (3): Did the shareholders of AA ratify the transactions?

78 RSF submits that to the extent there was any breach, there was later ratification of the transactions by the shareholders of AA, on the basis that:

(a) one shareholder, Steven, had not only approved the transactions at the time of their occurrence but had approved them when he signed the company's financial statements for the financial years ending 30 June 2007 and 30 June 2008; and

(b) the other shareholder, Barbara, gave evidence that although she could not recall the annual general meetings at which it was resolved to adopt the financial statements for the relevant years, she did not doubt having attended them.[56] Further, RSF submits that Barbara approved and consented to the transactions when giving evidence at trial.[57]

79 RSF submits that the assent giving rise to the ratification of a breach can occur informally without a meeting and may be given simultaneously or at different times.[58] I accept those propositions. However, for the following reasons, I do not accept that Barbara ratified any breach of the director's fiduciary duties.

80 First, I am unable to accept on the balance of probabilities that Barbara attended a meeting when the accounts were approved. Indeed, having regard to Steven's evidence, I have considerable doubt whether there was a meeting (formal or informal) at which the financial statements of AA were approved by the two shareholders. I have the same doubt in relation to the minuted resolutions of the annual general meetings held at the office of the company's accountants on 28 December 2007 and 29 December 2008 purportedly in the presence of Steven and Barbara and signed as a true record by Steven. In my view, those 'meetings' probably did not occur.

81 In relation to the minute of the purported meeting held on 28 December 2007, Steven frankly conceded in cross-examination that it probably was not signed on that date at the accountants' office, and that it was unlikely that Barbara would have been there when he signed it. In relation to the minute of the purported meeting held on 29 December 2008, Steven again conceded that he did not recall going to the office of his accountants on that date, that the minute could have been signed anywhere and that, to his best recollection, he probably did not go there with Barbara on that day.

(a) she was not involved in the details as to the financial arrangements pursuant to which AA and the Rowley Family Trust conducted its affairs;

(b) she did not review the contents of her taxation returns over the relevant years in any detail;

(c) Steven had told her in general terms that there was an opportunity to put a substantial amount of money in superannuation and that this was a good idea to do at the time;

(d) aside from a general understanding from Steven, she was neither familiar with the way the various superannuation contributions were financed nor the way they were treated in the accounts of the Rowley Family Trust;

(e) she did not receive or read the Macquarie bank statements which exist in relation to an account in the name of Steven and herself. Likewise in regard to similar bank statements for the Super Fund; and

(f) she did not read the financial statements prepared for the Super Fund and/or for AA for the years ending 30 June 2007 or 30 June 2008.[59]

83 Nevertheless, in her witness statement, Barbara states that she 'now know[s]' that AA as trustee of the Rowley Family Trust had made various payments to her husband, herself and/or her sons Adrian and Adam in the form of employee superannuation contributions, eligible termination payments, employer superannuation contributions or loans as reflected in the accounts of AA. She also states that she gave her consent to and approved of the making of those payments as a beneficiary of the Rowley Family Trust and as a shareholder of AA.[60] Given Barbara's inability to recall very much at trial, that evidence in her witness statement has little probative value. I do not accept that she, at any relevant time, was sufficiently familiar with the details of these matters to enable her to give informed consent.

84 Thirdly, even if Barbara had read the financial statements, the relevant transactions have not been exposed in sufficient detail. Also, there was no evidence that Steven gave Barbara any other information which would have constituted full and fair disclosure of the detail of the matters which would have enabled her to make a properly informed judgment.[61]

85 Fourthly, AA is now insolvent. In the circumstances, it is not now possible for Barbara alone to absolve the director from his breach of duty by ratifying the breach. In Kinsela, Street CJ expressed the principle this way:

It is, to my mind, legally and logically acceptable to recognise that, where directors are involved in a breach of their duty to the company affecting the interests of shareholders, then shareholders can either authorise that breach in prospect or ratify it in retrospect. Where, however the interests at risk are those of creditors I see no reason in law or in logic to recognise that the shareholders can authorise the breach. Once it is accepted, as in my view it must be, that the directors' duty to a company as a whole extends in an insolvency context to not prejudicing the interests of creditors (Nicholson v Permakraft (NZ) Ltd and Walker v Wimborne) the shareholders do not have the power or authority to absolve the directors from that breach.[62]

86 In Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler [1994] FCA 1117; (1994) 51 FCR 425, after referring to the above passage in Kinsela, Gummow J stated at 444:

It is clear that the duty to take into account the interests of creditors is merely a restriction on the right of shareholders to ratify breaches of the duty owed to the company. The restriction is similar to that found in cases involving fraud on the minority. Where a company is insolvent or nearing insolvency, the creditors are to be seen as having a direct interest in the company and that interest cannot be overridden by the shareholders.[63]

87 In this case, the direct interest of Macquarie as a creditor of the insolvent company cannot be overridden by the shareholders.

88 Lastly, the plaintiff submits that even if Steven and Barbara had consented, the consent would have been insufficient in the circumstances of this case where the company was merely a trustee. Whilst Steven and Barbara were both shareholders and beneficiaries of the Rowley Family Trust, there were many other beneficiaries of the trust who had a contingent interest in the trust property. Given my finding that the shareholders have not and cannot now ratify the transactions, it is unnecessary to decide this issue.

Question (4): Was there knowing receipt of trust property by RSF?

90 The plaintiff submits that RSF is liable for 'knowing receipt' of trust property under the first limb of Barnes v Addy.[64]

91 To establish liability on this ground, the plaintiff must establish that RSF received trust property and knew that the relevant property was trust property being misapplied or transferred pursuant to a breach of fiduciary duty or trust.[65] The level of knowledge that will suffice for the purpose of recipient liability is knowledge within the following categories (i)-(iv), also known as the Baden categories:[66]

(iii) wilfully and recklessly failing to make such enquiries as an honest and reasonable person would make; and

(iv) knowledge of circumstances which would indicate the facts to an honest and reasonable person.

92 In assessing the level of knowledge that RSF (or the individual trustees) had at the relevant time, I am mindful of the caution, noted in Grimaldi, against treating each category as exclusive and rigid.[67]

93 It is clear that Steven had actual knowledge as he facilitated the completion of the transactions either in his capacity as one of the four trustees of the Super Fund prior to 13 February 2008 or as one of RSF's four directors thereafter.

94 The plaintiff submits that the knowledge of Steven (either as a co-trustee or as a co-director of the corporate trustee) is to be imputed to the other trustees or other directors (as the case may be) because:

(a) at all relevant times, Steven acted as agent for the co-trustees or co-directors (as the case may be) such that his knowledge is to be imputed to Barbara, Adrian and Adam as his principals; and

(b) Barbara, Adrian and Adam did not fulfil their duties to make reasonable enquiries regarding the funds received by the trust and left it to Steven to fulfil their duties.

95 RSF submits that the plaintiff's case is complicated by the fact that the majority of the relevant transactions (approximately $1.5 million out of $1.7 million) occurred prior to 13 February 2008 when the trustee of the Super Fund was not the corporate trustee (RSF) but was in fact the four Rowley family members (Steven, Barbara, Adrian and Adam). Therefore, RSF submits that the question of knowing receipt in relation to those transactions must be examined by reference to the knowledge of those individual family members.

96 RSF points to the plaintiff's pleaded case which is to the effect that each of the Rowleys individually had the requisite level of knowledge. It was alleged that Steven had actual knowledge and that it could be inferred (from asserted facts) that Barbara, Adrian and Adam had the knowledge described above in the Baden categories (ii) to (iv).

(a) in the case of Barbara, that: (i) she is Steven's wife and Adrian and Adam's mother; (ii) she was a shareholder of the plaintiff; (iii) she was the addressee of bank statements which showed payments from AA into a joint account in her and Steven's name; (iv) the Super Fund's bank statements showed that payments came out of AA's account or her personal joint account; (v) the Super Fund's financial statements showed the payments; (vi) she attended a meeting of members of the plaintiff at which it was resolved to adopt AA's financial statements for the financial year ended 30 June 2007; and (vii) she knew she was not eligible to employment benefits from AA, including employer superannuation contributions and an eligible termination payment.

(b) in the case of Adrian, that: (i) he is Steven and Barbara's son and Adam's brother; (ii) the Super Fund's financial statements for the years ended 30 June 2007 and 30 June 2008 showed the payments; and (iii) he knew he was not entitled to employee benefits from AA, including employer superannuation contributions.

(c) in the case of Adam, that: (i) he is Steven and Barbara's son and Adrian's brother; (ii) he was a recipient of bank statements for an account number in the name of Steven and Adam as trustees for the Super Fund; (iii) he attended a meeting on 18 December 2006 with Macquarie during which the facility was discussed and Steven stated that he was waiting on final legislation to determine how much he would be able to roll over into super if he sold part of the business to his sons; (iv) he received an email from Macquarie which described the structure of the facility, including that the funds advanced would be paid into superannuation; (v) the Super Fund's financial statements for the years ended 30 June 2007 and 30 June 2008 showed the payments; and (vi) he knew he was not entitled to employee benefits from the plaintiff, including employer superannuation contributions.[68]

98 Senior Counsel for the plaintiff did not formally abandon the pleaded case that it could be inferred from the asserted facts that Barbara, Adrian and Adam each had the requisite knowledge, but made no submissions to this effect. RSF submits that it is impermissible for the plaintiff to advance a case based on constructive knowledge, namely that Steven's knowledge can be treated as the knowledge of the other trustees, as that case was not pleaded.[69] I accept that RSF pleaded to and defended a case brought on the basis of knowledge of each of the individual trustees (within categories (ii) to (iv) above). In my view, the plaintiff should be bound by its pleaded case. No application was made to amend the pleadings to advance an alternative basis for the plaintiff's knowing receipt claims. After carefully considering the evidence, I am not prepared to infer that Barbara, Adrian or Adam individually had the requisite knowledge. For reasons previously given, Barbara did not have the requisite knowledge either at the time she received monetary benefits or at the time the monetary contributions were received by the Super Fund. Likewise, Adrian and Adam did not have the requisite knowledge, at least at the time the monetary contributions were received by the Super Fund, having no involvement with the transactions in question. In relation to the payment of a deposit on the Keilor North property ($99,000) and stamp duty on the Garbutt property ($49,625), there was no evidence that Barbara, Adrian or Adam had any knowledge of these transactions at the time the Super Fund received the contributions. This in itself is enough to dispose of the plaintiff's knowing receipt claim.

99 Nevertheless, for completeness I will address the submissions made at trial with respect to agency and a trustee's duty to make reasonable enquiries.

100 Instead of its pleaded case, the plaintiff submitted at trial that 'at the time of receipt, [Steven] had the knowledge and the other trustees did not.'[70] The plaintiff relies on evidence to the effect that Steven devised the strategy to transfer money into the Super Fund and exercised his discretion to effect all the transactions while the other trustees or co-directors relied on and trusted Steven to manage the Super Fund and make the payments in question.

101 On that basis, the plaintiff submits that Steven's knowledge, being the trustee to whom the other trustees had 'abdicated responsibility' for the purposes of conducting the transactions, is the requisite knowledge of the Super Fund. Put in another way, since the family members 'expressly permitted' Steven to effect the transactions for the benefit of the Super Fund, Steven was his family's agent and the Super Fund received any payments impressed with his knowledge.[71]

102 It is trite law that the knowledge of an agent may be attributed to the principal. In Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634 ('Sargent'), Mason J stated at 658-659:

As against a third party the law imputes to a principal knowledge gained by his agent in the course of, and which is material to, a transaction in which the agent is employed on behalf of the principal, under such circumstances that it is the duty of the agent to communicate it to the principal. In the words of James LJ in Vane v Vane, "the actual knowledge of the agent through whom an estate is acquired is...equivalent to the actual personal knowledge of the principal." (citations omitted).

103 In this case, unlike Sargent (where a solicitor was retained to act on his clients' behalf), there was no express or implied request by Barbara, Adam or Adrian for Steven to act on their behalf (jointly or individually) in relation to the relevant transactions or more generally with regard to their wages, salaries, entitlements or superannuation. Steven made all the decisions without seeking instructions, obtaining consent from or informing Barbara, Adrian and/or Adam before decisions were made or implemented. There is no evidence that the other trustees knew that the transactions would be effected until they were effected. In Bowstead and Reynolds on Agency, agency is defined in the following terms:

Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his relations with third parties, and the other of whom similarly manifests assents so to act or so acts pursuant to the manifestation.[72]

104 In this case, I am neither satisfied that there was implied assent from Barbara, Adrian and/or Adam that Steven should act on their behalf nor am I satisfied there was implied assent from Steven to so act. In my view, Steven acted on his own rather than 'on behalf of' others in so far as these transactions are concerned.

105 Agency aside, the plaintiff submits that the individual trustees were under a duty to make reasonable enquiries as to the circumstances of the acquisition of funds acquired by the trust; that equitable constructive notice includes notice of facts that could have been discovered by conducting enquiries that a reasonable person would conduct as a matter of course; and that a trustee who leaves his or her duties to be fulfilled by a co-trustee is jointly liable with the co-trustee.

106 In support of its submission, the plaintiff relies on three cases relating to the attribution of knowledge. The first case, Sargent, turns on principles of agency which have been dealt with above. The second and third cases, Chambers v Minchin[73] and Jones v Collins[74] involved co-trustees.

107 In Chambers, executors of an estate were directed by a court order to purchase bank annuities out of the proceeds of an estate. Stock was sold to facilitate the purchase but the annuities were not purchased as directed and one of the executors absconded with funds from the estate.

108 One executor, Green, allowed the other executor, Minchin, to have sole management and control of the affairs of the estate. Green, at Minchin's request, had executed a power of attorney to enable Minchin to do so. The question to be determined at trial was whether Green was liable for Minchin's acts. The court held on the facts of the case that Green was 'connected with Minchin, as attorney'[75] and 'Minchin, was not only his co-trustee, but also his town-attorney and agent in this cause; and it is very clear, that, if a trustee trusts an attorney, he must abide by the effect of that confidence.'[76] There are several distinguishing features of Chambers. First, Green was directly involved in the sale of the annuities held by the estate. Second, Minchin was Green's agent and attorney. In the present case, the co-trustees, Barbara, Adrian, and Adam had no direct involvement. There was, as I have found, no agency relationship and Steven was not acting as an attorney under power. In my view, Chambers has no application to this case and does not assist the plaintiff.

109 In Jones, Frederick Jones assigned all his property to trustees for the benefit of his creditors. Prior to executing the deed of assignment, Jones informed the managing trustee that he had previously given a mortgage over the property. The court held that by giving notice to the managing trustee, the co-trustees were bound, 'notice to one being notice to all'.[77]

110 Jones is also distinguishable from the present case. First, Jones did not involve a breach of fiduciary duty (the issue was simply a question of notice). Secondly, one of the trustees in Jones was characterised as the managing trustee, to whom notice was given. There is insufficient evidence to suggest that Steven was appointed 'managing trustee' by the co-trustees, Barbara, Adrian and Adam so that notice to a managing trustee might be notice to the other trustees. In my view, Jones does not assist the plaintiff's case and is to be confined to its context.

111 In this case, RSF submits that Steven's knowledge can only be imputed to the co-trustees if Steven was appointed agent of each of them with respect to the receipt of the monies, and that there was no sufficient evidentiary basis for such a finding. RSF relies on Farah Constructions as an illustration. In Farah Constructions, the High Court held that Mrs Elias and her daughters (who were principals of Farah Constructions in addition to Mr Elias) had not been shown to have known or to have had reason to know the essential facts which constituted an alleged breach of fiduciary duty by Farah Constructions. Assuming for the purposes of argument that there had been a breach of fiduciary duty in that case, the court held that members of the relevant family were separate individuals; that it had not been shown that they were mere ciphers for Mr Elias; and that it had not been established that Mrs Elias and her daughters had put Mr Elias in a position of sole control over their affairs in respect of the relevant matters. As a consequence, it was held that Mrs Elias and her daughters had no notice of any breach of duty by Mr Elias.[78] While each case turns on its own facts, RSF submits that a similar conclusion can be drawn in the present case; namely that the knowledge of Steven in his capacity as managing director of AA does not become the knowledge of all the trustees of RSF unless the four trustees appointed Steven as their agent.[79]

112 Further, RSF submits that the terms of the trust deed for the Super Fund provides that where the trustee consists of individual trustees, all decisions and authorisations and any exercise of powers or discretions required unanimous resolution of those persons or by a majority at a meeting of such persons.[80]

113 In addition, RSF submits that the trust deed reflects the principle that where there is more than one trustee, each trustee must exercise his or her discretion and each must address their minds to relevant transactions.[81]

114 I accept RSF's submissions on each of those points.

115 In Consul Development Pty Ltd v DBC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373, Stephen J stated at 412-413 that 'courts have been markedly reluctant to extend the application of the doctrine of constructive notice' due to 'equity's concern for the state of conscience of the defendant.' His Honour observed that the most common operation of the doctrine of constructive notice is in dealings with real property where investigation of title is part of the normal course of business. A failure to acquire knowledge by negligently failing to make such enquiries may constitute constructive notice. Clearly that circumstance is not analogous to the facts in this case.

116 Absent agency, the knowledge of Steven is not to be imputed to the other trustees of the Super Fund. Mere negligence will not suffice to ground constructive notice in this context. There must be some lack of probity such as a conscious refraining from making an enquiry.[82] In this case, there is no evidence of anything in the nature of a conscious refraining from making enquiry by Barbara, Adrian or Adam or of any other aspect of their behaviour touching the conscience. I accept that the other directors of RSF relied on Steven Rowley, the accountants, Murdoch Partners and other advisers in relation to the transactions which led to contributions being made to the Super Fund. Indeed, there were indications of over-reliance but I am not satisfied that any of them (Barbara, Adrian or Adam) wilfully shut their eyes to the obvious, wilfully and recklessly failed to make appropriate enquiries, or knew of circumstances indicating that the contributions to the Super Fund came from trust property being misapplied or transferred in breach of fiduciary duty.

117 During the period from February to June 2008, the trustee of the Super Fund was RSF and its directors were Steven, Barbara, Adrian and Adam Rowley. In relation to knowledge of the corporate trustee, the plaintiff submits (as it has in relation to co-trustees) that knowledge of Steven as co-director of the corporate trustee is imputed to the other co-directors because Steven was, in substance, the agent of the other directors in arranging and effecting the transactions. For reasons mentioned previously, I reject the argument that Steven was the agent of the other directors.

118 Nevertheless, an individual may be regarded as the directing mind and will of a company such that the state of knowledge of the individual may be imputed to the company not because he/she is an agent of the company but because the individual may, in particular circumstances, be regarded as the company.[83] RSF does not dispute this proposition but submits that Steven's knowledge cannot be treated as the knowledge of the corporate trustee because the case was not pleaded in that manner, and because there is no evidence to infer that Steven, after 13 February 2008, constituted the directing mind and will of RSF.[84]

119 On the issue of Steven being RSF's directing mind, RSF submits that the focus of cross-examination at trial was directed to Steven's involvement in the activities of AA not RSF.

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