Plaintiff v First Defendant

EQUITY - Trusts - Accessorial liability for breach of trust - Necessity to show dishonest and fraudulent design to injury of beneficiary - Conduct of alleged accessory explicable as responsive to importunity of alleged beneficiary and protective of trust estate and trustee's interests

TRADE PRACTICES - Unconscionable conduct - Pre contractual representations forming the terms of the agreement - Subsequent dispute about terms - Representor's insistence on its version not unconscionable - No moral taint - Trade Practices Act s 51AA, 51AC

ESTOPPEL - Promissory estoppel - Expectation of a particular legal relationship or contract - Dispute over conversations and expectations preceding agreement - Genuine grounds for disputing burdens of alleged legal relationship - No estoppel

AGENCY - Authority of agent - Execution of trust deed on behalf of corporation - No actual or implied authority of agent - No corporate office held by agent - Whether directors knew of executed deeds and acquiesced - Deeds not lawful

1 There came a moment after the close of the plaintiff's case at trial when a memorable and serious remark was made to the Bench from counsel that this was "a spectacularly messy case". Saying so recognised the task that lay ahead for the Court in trying to: find and assimilate the facts of a laconic deal done figuratively on a handshake; understand the precise content and find mutuality in the loose conversations that constituted the agreement; discern contractual intention according to contested versions of such conversations; understand how business affairs were then carried out to see if that was in implementation of a prior agreement or unilateral conduct; and ultimately apply the law clinically to the facts in a context where counsel for each party submitted that the principal witness for the other side lacked credibility. Where the unbusinesslike and undocumented dealings gave no apparent legal rights or protections to the plaintiff, there was a wide ranging search in equitable remedies, largely the fiduciary principle. Finding a just solution has been difficult, and has called for a most cautious approach.

2 It all has to do with what the parties were content to describe in the case as a joint venture to set up a Degani's café bakery business at shop premises at the World Trade Centre in the Docklands area. It was the old site of the Crown casino. The foyer area of the building was being redeveloped.

3 The deal sounds, and should have been, uncomplicated. The source of all the money to set up the business was to be one, Abraham Ben Cohen. He was a business development manager of a major bank. But this was purely a personal venture by him, and in the background were his parents who were financially interested. He stands behind the plaintiff corporation, alleged to be the source of the money to set up the café.

4 The first defendant ('Umbrella Enterprises') was incorporated especially to be the owner of the café business. The second defendant, Paul Volteas[1] was an experienced

and successful café operator. He had a business partner George Pezaros. He was not a defendant but was, for a time, a co-director of Umbrella Enterprises. Avoiding the side controversies in the case, I think it safe for introductory purposes to describe the deal as follows, with greater detail later. For ease of narration, I shall put aside corporate vehicles and describe the deal by reference to the active individuals.

5 Volteas would find suitable vacant store premises for lease in a location that was also acceptable to Cohen. He would then fit out and set up the Degani's bakery café in a hands-on way. Pezaros was the one responsible for leasing and licensing. Volteas was responsible for the set up and operation of the retail business. This was something more upmarket and extensive than a typical sandwich bar. There could be a full working kitchen and external catering services.

6 Cohen as passive investor would pay for the fit-out, plant and equipment. Volteas would operate the café for about a year to establish steady earnings with a view to sale, and in expectation of a handsome profit. From the proceeds of sale and, after payment of expenses Cohen would be paid back his investment as first call on the proceeds of sale. That is the return of the investment. The remains of the proceeds would then be split 50/50 between Volteas and Cohen. That is the return on the investment.

7 In short, and in those basic terms, it appeared to be a collaborative arrangement ― a combination of money and talent ― to carry out a common purpose or achieve a common end. A prominent issue in the case was the sort of expenses that Umbrella Enterprises was entitled to pay out of the proceeds. At the very least, it included the vendor's selling costs and the clearing of ordinary operating and trading debts to suppliers and others.

8 At this early juncture, it is essential to say something about the casting of the plaintiff's case which I think is truly crucial to the legal analysis and the determination of the case. It was no part of the plaintiff's case that the form of association here was a collaborative fiduciary relationship. That is, a fiduciary relationship to be moulded according to the nature of the relationship and the facts of the case, and based on a mutual trust and confidence in order to collaborate towards a joint goal.[2] Nor was it put as a case of quasi partnership. To the contrary a distinct and adamant feature of the plaintiff's case was that the funding from Cohen to set up the café was to be a loan to the joint venture; and because there was no date fixed for repayment, it was at law a loan repayable on demand by Umbrella Enterprises the joint venture company. That is, the plaintiff's case was that this was a debtor creditor relationship. Such a relationship is anything but fiduciary. It is contractual. Each acts according to their own selfish interests subject to particular terms of the loan agreement. Yet the plaintiff as lender seeks to make the borrower a trustee and fiduciary when it comes to repayment of the loan, which ultimately became the domineering issue in the case.

9 The deal went ahead. For introductory purposes, I shall cut a long story short. Cohen and his family's accountant (one Steven Bendal) attended to the structure of the venture, the preparation of the accounts for the joint venture company, lodgement of statutory documents and such matters. Umbrella Enterprises was the joint venture vehicle incorporated to set up the café, operate it and sell it. Volteas and Pezaros were it directors and equal shareholders on incorporation, but Volteas subsequently became the sole director. Cohen held no official or statutory or recognisable office in that company.

10 The funding to pay fit out costs of $573 500 (including GST) was procured by Cohen by a number of separate instalments as needed. The money was applied by Volteas to set up the business. There was no written agreement to document the venture, or the so called loan. The provision of funds was in reality from Cohen as a medium, but there is a real question whether the plaintiff, Lotteries Pty Ltd (‛Lotteries'), a Cohen company, was in truth the lender and whether it was competent legally to sue as the contracting party.

11 Cohen's set up of the structure included making Umbrella Enterprises a trustee of a unit trust called the Umbrella Enterprises Unit Trust. Of itself that is not unorthodox. For a 50/50 joint venture it would be expected there would be an equal unit holding at inception. But there lies another major controversy, for trust documents were signed by Cohen on behalf of Umbrella Enterprises (of which he was not an a director or officer), to in effect give him 100% ownership of the business as the trading trust asset until he was repaid, and only then would Volteas get 50% of the units. This was a serious issue and part of the attack on Cohen's credibility. The defendants have maintained they knew nothing about this deed until this litigation, and say that Cohen, who was not a director, did not have the authority to sign the deed. They say the deed is invalid and the relationship of the parties is to be analysed at law according to the unwritten contract made between the parties, and the trust deed is to be disregarded.

12 At all events, this had no practical impact at the time because the money from Cohen came and was applied to set up the café. No one says that money was applied badly or unfaithfully in any way by Volteas. No one says Volteas was not competent in setting up the business for trading. The café was established and it traded. Despite assurances by the lessor about exclusivity of trade, other food stores began to trade in competition. The business hit real difficulties. At a time when the parties were falling out because of this adversity, Volteas and Pezaros sold the business in imperative circumstances at a loss for $400 000 on terms that allowed the purchaser to pay the price over five years by weekly instalments of $1500 with an end or ‛balloon' payment.

13 I shall avoid copious reference to the pleadings just yet. The primary case was against Umbrella Enterprises for repayment of the investment moneys as a debt due under a loan payable on demand.[3] It was purely a debt claim for $538 250.[4] It was brought against Umbrella Enterprises as trustee of the unit trust, but that claim is not in any way dependant on a trust relationship. The claim is based on an agreement alleged to have been made between Cohen and Volteas in conversations about the terms of the joint venture. For this principal claim, the relevant alleged unwritten term was that Lotteries would contribute finance to establish the café by way of loans to Umbrella Enterprises which were repayable on demand.

14 The principal defence was that the funding from Cohen was certainly not agreed to be a loan, or to be characterised as one. It had none of the features or incidents of a loan; much less a loan agreed to be repayable on demand. The defendants say the assertion that it was a loan repayable on demand was manifestly repugnant to the very idea of the joint venture for a start-up business which would be vulnerable to immediate insolvency if the loan was called in at the whim of a lender. They say the whole idea was to not have debt or be at the mercy of a lender. The defendants say it has to be characterised as a capital contribution, and as such, it was at risk in the venture. And if things went wrong (with no blame on Volteas as operator), the risk has come home.

15 The defendants disputed Cohen's version of the agreement underlying the joint venture. But they accepted unequivocally, on their version of the agreement, that ownership of the business was to be 50/50, and after a sale of the business, and after payment of expenses (there lies a major controversy) Cohen was entitled to first call on the proceeds of sale to get a repayment of his capital contribution, and after that, each venturer shared the rest 50/50. They analyse the relationship as purely contractual. In that regard they also contended that Lotteries was not shown to be the proper plaintiff. Lotteries was a Cohen controlled company and the unit holder under the controversial unit trust deed. But the defendants say they knew nothing of this company as a contracting party and never intended to have legal relations with it. They contend the proper plaintiff to whom they were obliged was never identified by Cohen at the time of agreement, so, Cohen as procurer of funding should be seen as the contracting party. If not, then the actual lender, the loan originator, was the proper plaintiff.

16 Then there was a secondary case pleaded against Umbrella and Volteas, in a number of ways.

17 First, there was a claim for misleading and deceptive conduct, and a companion claim under the unconscionability provisions of the Trade Practices Act; that is, sections 51AA and 51AC. The first claim was abandoned by the time of closing addresses. Yet the second claim of unconscionability, based on precisely the same facts, was not. This was a strange claim and will require detailed exposure later, but in essence Cohen says the defendants induced him by representation to invest his money on terms as alleged by the plaintiff in this proceeding, and it is now unconscionable for the defendants to deny that the terms of the agreement were as he, Cohen, alleges them to be including a term that the money be repayable on demand. On the same basis he says there is an estoppel; that is, the defendants are estopped by their prior representations from denying the agreement to be on the terms as Cohen alleges them to be. It appears to be an estoppel of the Waltons Stores[5] kind, that is, the defendants are not free to withdraw from the particular legal relationship that the plaintiff was induced to assume would exist. These claims are put against Umbrella as principal and against Volteas under the well-known statutory accessorial liability provisions of the Trade Practices Act.

18 Secondly, there were claims in equity. As I would emphasise, the plaintiff resolutely cast itself as a lender and creditor. That is a contractual relationship. It pleads the unit trust as part of its version of the agreement as governing the relationship of the parties, but make no case of fiduciary obligations arising out of that. It pleads no fiduciary relationship arising out of the form of association and the pursuit of a common venture. However, it seizes on the defendants' version of the agreement as pleaded and says a fiduciary relationship, in the form of a trust, arose after the business was sold and "the expenses of sale" were paid out. The plaintiff says that its entitlement under the agreement (as pleaded by the defendants) to be repaid from the proceeds of sale gave rise to an express trust of those moneys for his benefit, on something analogous to a Quistclose trust.[6] Alternatively, it says a remedial constructive trust sprung into existence. Or it gave rise to an equitable charge. Then, in the plaintiff's closing addresses, it was contended ― for the first time ― that the agreement to pay money from the proceeds of sale was an equitable assignment of future property which entailed a trust relationship.

19 The plaintiff contends the first defendant as trustee has breached that trust by using the proceeds to pay expenses that were not expenses of sale, and in redirecting (really, to say misappropriating) some payments away from the first defendant. The case against Volteas is a Barnes v Addy[7] claim for a knowing assistance in a fraudulent and dishonest breach of duty by the first defendant as trustee.

20 This case is about analysis of legal relationships. The defendants say in essence that the relationship was contractual and not fiduciary, and that the plaintiff is engaging in contortions to find a basis for making a personal claim against Volteas. They say the case put forward by the plaintiff is based on a debtor-creditor relationship. There is no doubt the case is so predicated. They say the appropriate legal vehicle to reflect the plaintiff's interests, if any, in the proceeds of sale could only be arguably an equitable charge, being a security right which arises where a fund is set aside to meet a liability. Even they say there are problems with that analysis. But, they say, if there is a charge, the fact that it is an equitable charge does not create a fiduciary duty of trustee and beneficiary. It is a security right, they say, which confers rights on the chargee to relief from the court to protect and enforce that security right.

21 It all goes back to the sale of the business. In February 2011, the business was in financial trouble and Volteas was inclined to cut the losses and accept an offer from a prospective purchaser (which he later did), over Cohen's resistance. Lotteries demanded repayment of the alleged loan payable on demand on 1 March 2011 and a writ soon followed. The defendants resisted any claim that there was a debt payable on demand, for succumbing to such a claim would mean instant insolvency and an exposure to creditors or insolvent trading. They defended their position. The business was sold in May 2011 for $400 000. The purchaser made an ancillary loan agreement with Umbrella to pay the price in weekly instalments of $1500 over 5 years. The weekly payments started in May 2011, but it was not until 30 November 2012 that the plaintiff sought and obtained a Court order preserving the proceeds of sale. Before then the defendants openly plead[8] they applied the funds received from the purchaser in payment of various expenses and liabilities of Umbrella Enterprises to a total of $121 842. That included legal expenses of resisting the plaintiff's claim. They say the money coming from the purchaser was a company asset able to be used to pay creditors, claimants (such as the tax office), and contrary to expectations, to defend themselves against action by their joint venturer Cohen. For example, they say, how could it be that they could resist paying the tax office or a creditor on the ground that the proceeds of sale were held on trust for the plaintiff?

22 The parties had never discussed precisely what sort of expenses would be deducted from the sale proceeds before payment of the investor's contribution. In its pleading the plaintiff confined it to expenses of sale as if to connote expenses of actual sale such as a selling agent's commission.[9] At trial, Cohen accepted readily that Umbrella Enterprises was entitled to use the funds obtained from the sale of the business to meet the debts and obligations it incurred in conducting the business.[10]

23 The defendants say in essence the proceeds of sale were an asset of the company. The company and its sole director had to act in the company's interests and defend themselves because a failure to defend the proceeding and pay what was being demanded would have affected the rights of third parties with whom it contracted, as well as the position of its directors and insolvency. To that end they say they incurred additional costs, which were reasonable and legitimate, which could only be paid from the proceeds of sale.

24 Pausing there, one can see the crucible created by Cohen, as it was described by Volteas' counsel. Cohen sued Umbrella Enterprises and coextensively its director. If the company's sole asset, the proceeds, are said to be his, then they cannot use company funds to defend themselves and would be forced to capitulate. To insist that it was a loan repayable on demand had to be defended, they say, which had the self-destructive effect for Cohen that the proceeds of sale were being eroded for every dollar that the company had to spend to defend such a claim.

25 Thus, the issues were as follows. First, what was the agreement? Secondly, is the plaintiff competent to sue? Thirdly, under the agreement, was there validly established a unit trust? Fourthly, was this a loan repayable on demand? Fifthly, does an agreement to pay back the investment from proceeds of sale, after deduction of ‛expenses' create a fiduciary relationship (where it otherwise does not exist) of trust, or is a security interest? Sixthly, if a fiduciary relationship did arise, what sort of expenses could be taken out from the proceeds by the company? If it was not confined to the expenses of actual sale and included the company's need to pay trading debts and obligations, was it wrong for the company to use the proceeds as a company asset to meet, for example, the liability of defending the claim (money repayable on demand) on reasonable grounds, or was it bound to prefer Cohen's adverse interests?

26 Such an outline of the case by-passes the digressions on which the Court was taken, but it puts the basic elements of the case.

27 As part of this introduction it is essential to recite, with some detail, the significant events that occurred after the Court reserved its judgment on 10 April 2013. It helps not only understand why the matter has become prolonged, but creates a very important context for the remainder of the case.

28 The Court was put in an awkward position as attempts were made by the plaintiff, after trial finished, to settle with the first defendant (in liquidation) on terms, as it turned out, for a payment of the totality of all its debt claim ($538 250.89), interest ($125 574.67) plus costs. The upshot was that it was not until 22 January 2014 that orders were made giving judgment to the plaintiff against the first defendant by consent.

29 Amidst all this, the tragedy is that the second defendant, Paul Volteas, died on 4 December 2013. He was being treated for cancer at the time of trial.

30 A digression is necessary. The settlement was a remarkable turn of events because not long before the actual trial commenced the first defendant was placed in liquidation under a member's voluntary winding up. That occurred on 18 December 2012. Its solicitors then ceased acting for the company and for Volteas its director. Liquidation occurred not long after I granted a mandatory injunction requiring the first defendant to pay the weekly proceeds of sale coming from the purchaser of the business into a joint interest bearing account to be held by the solicitors. The plaintiff had moved the Court for that preservation type order complaining that the proceeds of sale were being used by the company to fund the litigation rather than preserving the moneys for the benefit of the plaintiff. But the principal case was for repayment of a loan that was repayable on demand, and that is purely a money claim. Hence, the resistance by the company was to say it was entitled to use any income to meet ordinary and reasonable expenses including defending legitimately its interests in litigation.

31 To preserve the funds, the plaintiff altered or clarified its case to say that it (a lender of money payable allegedly on demand) was making a proprietary claim in equity to the proceeds of sale on the grounds of a charge, or express trust or constructive trust. The proceeds were the company's only asset, and such a proprietary claim if sustainable would give Cohen rights ahead of all other unsecured creditors of the first defendant.

32 The Court decided it was just and convenient to preserve the flow of purchase moneys.[11] That order had been resisted on the ground that if granted it would lead to instant insolvency. And that is what happened. The liquidators gave affidavit evidence[12] that they had made investigations into the case. They concluded that it would prejudice creditors to spend money and resources in litigation. They said the plaintiff had lodged a proof of debt (based on an alleged loan) as an unsecured creditor, and they took the view the matter was better left to the ordinary processes of distribution in the winding up. As trial got even closer, the liquidators informed the Court unequivocally that they would not take any further step in the proceeding.[13]

33 Thus the case proceeded against the first defendant undefended. But the case had to be proved and there was a real and significant issue about the terms of the agreement, in particular, whether there was a loan to the first defendant or whether it was a capital contribution to a joint venture undertaking which was at risk according to the fortunes of the venture.

34 To add to the situation, the plaintiff saw fit to serve a voluminous and complicated Notice to Admit Facts and Documents on the liquidators at a time when it was obvious they lacked the funds to look into the case and meaningfully respond to such notice. I thought the use of the notice was dubious in the circumstances. I warned plaintiff's counsel mid trial that I was predisposed to viewing that as an inappropriate use of the admissions procedure, more so as the notice was expressed in broad and tendentious terms on matters of mixed fact and law. The Court expected the burden of proof to be met in the ordinary affirmative way.[14] Despite that, the plaintiff's closing submissions were still dependant on the Notice to Admit to prove the case against the company.

35 This may all seem a point of unnecessary detail. But it helps understand the dynamics and affiliation between the case against the company and Volteas, and the significance of the settlement to the case against Volteas.

36 After reserving its judgment on 10 April 2013, on 28 June 2013 the Court received an email communication from the plaintiff's solicitors stating where relevant:

Please find attached consent orders as between the Plaintiff and the First Defendant in this proceeding.

We would ask that his Honour...make the orders on the papers without the need for the First Defendant and Plaintiff to appear.

The orders finalise the matter as between the First Defendant and the Plaintiff and obviate the need...to deliver reasons for decision in respect of the claim against to (sic) First Defendant. There only remains the judgment to be delivered in relation to the claim against the Second Defendant.

37 The orders amount to a capitulation by the first defendant. Avoiding detail, all moneys that were deposited pursuant to the Court's interlocutory injunction into an interest bearing account were, according to the consent order, to be released to the plaintiff. They sought a declaration that the plaintiff was entitled to the net proceeds of the sale of the business that remained to be paid. The first defendant was to pay the sum of $538 250.89 and interest of $125 574.67 together with all costs of the proceeding. It was a strange turn of events.

38 A formal response was sent to the plaintiff on behalf of the Court, exposing two matters of concern. First, the Court sought to ascertain whether the orders were sought with the knowledge of the second defendant. Secondly, the Court distinctly posed the question whether there was any legal significance to the proposed consent order, and its underlying factual and legal basis, for the case to be decided as between the plaintiff and the second defendant. The Court stated it was willing to reconvene to have those matters considered.

39 The plaintiff did not tell the second defendant about these orders. Moreover, the subsequent correspondence from the plaintiff left the Court in some doubt about the ramifications of making the consent orders. The plaintiff's position was to obtain the consent orders first and then provide submissions to the Court "addressing any legal significance the orders would have for the case to be decided as between the Plaintiff and the Second Defendant".

40 This caused apprehensions to the Court. By a ruling (designated as Ruling No 1) published on 5 August 2013, the Court made orders that the parties sequentially file written submissions on two questions. First, is there any reason why the Court should not make the consent orders? Secondly, if the consent orders are to be made, what is their legal effect or significance, if any, to the adjudication of the case as between the plaintiff and second defendant?

41 It was just as well the Court did that because a real controversy then ensued. The second defendant opposed seriously the making of the consent orders. There was an apprehension of an issue estoppel being created and affecting Volteas (privy as director) if I made the consent order. Substantial written submissions were filed. The plaintiff submitted there would be no issue estoppel.

42 By a ruling designated as Ruling No. 2 made on 2 October 2013, I rejected the primary ground of opposition to the consent orders based on issue estoppel. My view was that the consent order did not create a preclusionary effect on the facts or the evidence or the outcome of the case as between the plaintiff and second defendant. The second defendant's concern properly analysed seemed to be based on the forensic significance of the consent orders. But I was unwilling to make a declaration of rights and instead suggested a formulation of orders to ensure the cash flow of the proceeds to the plaintiff. I shall not refer to the precise contents of my ruling but it needs to be considered in its entirety in order to understand the basis of the Court making its decision.

43 Further time passed. The Court was subsequently informed by the plaintiff's solicitors that in the meantime the liquidator had completed the administration and the first defendant had been deregistered. There was no one to therefore consent to the orders for the company. Application was then made to me, having been seized of the matter, to reinstate the registration of the first defendant to enable it to make the amended consent orders. An order to reinstate the first defendant and reappoint the liquidators was made on 12 December 2013 without opposition from the Australian Securities and Investments Commission.

44 This was the order made by consent (where relevant):

2. The first defendant shall pay the plaintiff the sum of $538 250.89 and interest of $125 574.67.

3. The first defendant shall pay the plaintiff's costs of the proceeding including reserved costs to be taxed in default of agreement.

4. The claim as against the first defendant is otherwise dismissed.

5. All moneys that have already been deposited into the interest bearing trust account (identified as BSB 06 3009 Account no. 1057 0330) in the names of the solicitors for the plaintiff and Dimos Lawyers (the former solicitors for the first defendant) as was required to be so deposited under paragraph 2 and 3 of the Court's orders on 30 November 2012, shall now be released and paid to the plaintiff together with any interest accrued.

6. Subject to further order, paragraph 2 of the Court's order made on 30 November 2012 shall be varied so as to require the "proceeds of sale" as referred to in paragraph 2(a) or the "installments" as referred to in paragraph 2(b) to be no longer paid into a joint interest bearing account, but paid by the first defendant to the plaintiff.

45 It is well to pause there and survey the situation before the Court comes to decide the case against the second defendant Volteas. The plaintiff has a judgment against the company for the total amount of the alleged loan. Plus interest. Plus costs. It could do no better on any of its causes of action against the first defendant, all of which rose no higher than a return of its investment. The extent of recovery on the judgment is another matter. But the plaintiff gets the money in the joint account; and it gets the flow of the payments still coming in from the purchaser of the business. I do not know the figures, but certainly Cohen will not recover his investment from the first defendant as joint venturer. The company is now insolvent, but it was only ever set up to establish the business, trade for about 12 months, pay expenses, and then sell the business. A failure to sell at a profit was an obvious risk.

46 The consent judgment also creates an awkward, but unavoidable legal state of affairs. The case against Volteas cannot be segregated, factually and legally, from the elements of the case against Umbrella Enterprises. It is based on the same alleged agreement and the same underlying issues as affected the case against Umbrella Enterprises, an apprehension which was confronted in my second ruling. But it means that despite the consent order, the Court is bound to look at the merits of the case as pleaded against Umbrella Enterprises because it is the pathway or the foundation to the case against Volteas. That carries with it, unavoidably in the peculiar situation that was obtained here, the prospect of findings that are inconsistent or adverse to the pleaded case against Umbrella Enterprises. An example of that is the issue whether this was a loan payable on demand.

47 For the purposes of my second ruling, the plaintiff contended definitely, and I accepted, that a consent judgment would not create an issue estoppel as against Volteas in the remainder of the case. That means, the parties to the consent judgment (particularly the liquidators of Umbrella Enterprises) voluntarily now face the prospect of findings about the joint venture agreement that go against the merits of the plaintiff's case on which the consent judgment was given. But the die is cast. In the way this case has been pleaded, I am bound to still consider the whole of the case in deciding the case against Volteas.

48 More delay followed in the grant of probate for Volteas' deceased estate. Probate was granted in October 2014 to Sarah Volteas and Spiros Volteas. I made a consent order on 31 October 2014 substituting them as second defendant.

49 This will be an unavoidably long judgment. At the outset, I am impelled to say a number of things. I do this to step away from the detail in the case, survey the case broadly, and expose some dominant factors that inform my approach to a judgment of this case.

50 First, out of a simple dealing for an ordinary smaller scale retail undertaking, the plaintiff's case became quite elaborate. Apart from a sale at a loss, it was apparent that the first defendant would be insolvent. Legal energies turned to a taxonomical search for a basis to impose liability on Volteas.

51 Secondly, the evidence in the case was administered without witness statements. It had to be that way as it was a case testing personal credibility of the principal players in a dealing that was mostly unwritten. I wish to cause no embarrassment for this was a vague and undocumented venture, but the Court had to intervene frequently throughout the trial (especially in the plaintiff's case) to ensure that facts were being elicited to enable fact finding and was directed to the issues. It really was a matter of concern to the Court. That was particularly so when it came to Cohen's evidence about conversations that informed the creation of legal relations.

52 Thirdly, I am afraid to say the state of evidence (especially in the plaintiff's case) was not satisfactory. There was a tendency to delve into journals, balance sheets, financial statements, e-mails and personalia for accounting or handling details. Maybe it was the nature of the case, and of course the responsible counsel in this case had to deal with matters as they had them. It became then a credibility case, not only about the account of conversations and the terms of the agreement, but who had behaved with greater business or legal unfaithfulness or impropriety. That being so, the two principal witnesses (one of whom is no longer alive) must be prepared for the disfavour of adverse findings on credibility.

53 Judgment in this case will not turn wholly on credibility in the sense of the mendacity of a witness. But it will help understand my account of the facts if I say at the outset that in my judgment much of Cohen's evidence was not an account of what was actually said, but was an account formed or embellished ex post facto in a way to suit his interests in the case. His energetic demeanour produced discursive evidence, and conclusionary assertions of what the agreement was. He may be a man of experience in banking but I am afraid to say that so much of his account of the conversations of the agreement was coloured by what he supposed the agreement to have been, or the agreement as it was in his mind for the purposes of the case, rather than being truly an account of conversations leading to a consensus. I think a lot of his evidence about the conversations was improvised and coloured by his need to justify some post contractual conduct concerning his signing of trust deeds, and the formulation of his case.

54 Even allowing for the passage of time since 2007 and the human tendency when in dispute to fill in the gaps as a matter of self-belief, I am afraid to say that I do not have complete confidence in Cohen's evidence. A troubling part of his evidence seemed to show him to think that an agreement (even with a joint venturer, with mutual interests) is what he as lender can dictate it to be, or now portray it to be. The theme of Volteas' case was that Cohen had wrongly and shrewdly turned the asset of what was supposed to be a 50/50 venture to something that he thought was entirely his to own, and was seeking equitable intervention under the fiduciary principle in a commercial dealing to in effect achieve that in financial terms. Generally speaking, in my assessment, Cohen sought to go beyond the essence or the equality of the 50/50 deal as I have portrayed it and, as counsel for Volteas put it, his evidence or account of dealings was fashioned to improve his position or seek to gain financial leverage.

55 This affected in my view his account of the conversations. I cannot be satisfied that for any controversial matters in this case, what he was telling me was truly what he and Volteas had discussed and on which they had reached consensus in a way the law would conclude was an agreement. All this becomes critical in the evaluation of the plaintiff's misrepresentation, unconscionability and estoppel case against Volteas.

56 Fourthly, the evidence from Volteas was affected by a different type of infirmity. He was quite unwell at trial for an illness that subsequently came to take his life away. But I do not think it impaired his faculties in any way to at least explain the elements of the deal, basic as they were, as far as he was concerned. For him it was a 50/50 deal, plain and simple, and there was no way this was a loan repayable on demand. On that part of the dispute, his evidence was, at least, to the point. As I shall explain later, the problem was in a case that turned on the content of conversations, material parts of the version of conversations were not put to Volteas in cross examination as would be expected, especially in what was pleaded as a misrepresentation case. The plaintiff's counsel contended that not putting contrary versions of the conversation to Volteas under Browne v Dunn[15] and not testing the Volteas version did not undermine Cohen's evidence.[16] Instead the general approach was to put documents concerning the post contractual way that Cohen and his accountant structured the business and prepared tax returns and statutory accounts to show there was documentation to show there was a unit trust and accounts recorded the investment as a loan and a current liability. Conceptually it seemed the plaintiff's approach was to say that if Volteas did not raise overtly an objection to something that Cohen had done in the implementation of the deal and the making of company accounts, then Volteas and the first defendant should be taken as agreeing to it, or being estopped from denying it. This was questionable. Cohen and his accountant had control over the preparation of documents (Volteas was preoccupied with the works and retailing) which was part of the credibility case that Cohen had done things on the documents to give an advantage to himself.

57 It was apparent to me in Court that Volteas was weary from medical treatment (chemotherapy for pancreatitis); wearied by the grind of the case, and not really absorbing the multitude of financial documents put to him as prepared by the accountants concerning the corporate and taxation affairs of the first defendant. These were all matters that Cohen arranged on his initiative to structure the business, leaving it to Volteas and Pezaros to do the hands on work of setting up the café and running it in preparation for ultimate sale. Eventually, as the trial went on, I could see, as Volteas himself put it despondently in Court, he just "wanted this over and done with".

58 Of course, Volteas had his own responsibilities for how he conducted himself as a witness and gave his evidence, and he sought no sympathy. But I sensed that he, a practical man, was not concerned with the accounting details; or he saw the fog of those details as confounding what to him was a simple and straightforward 50/50 deal with Cohen, in which they had both lost out contrary to genuine expectations. I would read his demeanour as a man perplexed why a simple deal was being made so complicated with so many extrinsic documents. That does not make him a "vague, evasive and glib" witness as was submitted by counsel for the plaintiff. The deal was vague. I will say there were moments when Volteas appeared disaffected or resigned. But I would not say it reflected on him adversely or that he was concealing anything that might materially affect the case.

59 Fifthly, the case cannot be decided solely or conveniently by opinions on credibility or witness demeanour. As is often the case in commercial cases, there is less resort to making findings according to "the measurable advantage enjoyed by the trial judge in having seen and heard the witnesses", and greater recourse instead to intrinsic merit, contemporary materials, objectively established facts and the apparent logic of events: see Fox v Percy.[17] To that is added the inherent commercial probabilities and business common sense and what two honest businessmen in the parties' position would have understood their statements to each other to mean.[18]

60 Sixthly, there was the accounting evidence from both sides, albeit for a different purpose. The justice in this case will not turn on how the plaintiff's accountants prepared ledgers or accounts. Just because a balance sheet, prepared by Cohen's accountant on his instructions and signed perfunctorily by Volteas shows something to be a loan or a current liability from a named entity does not therefore mean, in a legal test, that it therefore was.

61 Seventhly, at the outset I am impelled to say there is one issue about which I have a view free from any doubt. This was not a loan repayable on demand. It was not even a loan. It had none of the incidents of a loan. The giving of a loan was not discussed nor agreed and Cohen's own evidence destroyed such a contention. So does an objective assessment based on commercial realities because the characterisation of it as a loan was fundamentally inconsistent with the nature of this venture. Yet the plaintiff built an edifice on such a claim, and I shall show, it was the cause of many problems and a strong factor that helps understand the defensive conduct of the defendants in dealing with proceeds of sale.

62 The question whether this was a loan repayable payable on demand was also relevant to the unconscionability and estoppel case against Volteas, and the question of how the first defendant and its director conducted themselves when it came to dealings with the proceeds of sale, that is, the Barnes v Addy claim. The theme of Volteas' defence was that his financial dealings with proceeds of sale have to be seen in the context of defensive action to the severe importunity of Cohen when he demanded repayment of the loan on demand and then sued on that basis, and the need to discharge other liabilities of the company.

63 Eighthly, although, as I will expose, the plaintiff's case persevered with the question of the unit trust and the ownership of the units in it, it is not at all clear if and how that matters in the ultimate analysis. The claim and the remedy did not end up being dependant on establishing a fiduciary relationship under the unit trust. It was based on a fiduciary relationship engrafted on a debtor creditor relationship. But in the way the plaintiff's case was pleaded and conducted (including the trade practices unconscionability case) the Court is bound to deal with the validity of the unit trust deeds.

64 Finally, in this judgment I am looking where I can to simplify the case. I shall not refer to all the interstices of the evidence that was adduced that made the case so messy, but look to those facts and circumstances which I regard, on the case as pleaded, as informing substantially the case to be decided. In that regard, both sides made submissions based on Jones v Dunkel[19] that certain evidence was not called, from which I should draw adverse inferences. I think this case ought to be decided on evidence that was led, and not on evidence that was not led.

65 I shall start with the evidence of the origins of the business relationship which help inform findings about the terms of the joint venture.

66 Paul Volteas (now deceased) and George Pezaros can be described for present purposes as being business partners. About 15 years ago they commenced business as owners and operators of a "Degani's" bakery and café business in Clifton Hill. Over time, they successfully developed the "Degani's" brand and became experienced café operators with multiple sites in inner and outer suburban Melbourne.

67 They explained in Court there were two ways in which interested persons might trade under the Degani's name or become involved in a Degani's business. One way or another, I think this explanation of business ways was part of the early discussions between the parties.

68 The first way was under a type of licence arrangement. That is, a café operator might have an existing store or café, or perhaps wish to open a new café, but in either case wished to use the Degani's brand. In either situation the café would be supplied with foodstuffs and food products by Volteas and Pezaros, and, I gather, adopt a particular way of running a Degani's business. That is, serve particular food and refreshments in a way, or to a standard and in conditions to distinguish it from a typical sandwich bar or café bakery.

69 The second way involved a collaborative arrangement, suitable for a passive investor. There appeared to be no formal business like or regimented way in setting up such a collaborative arrangement. Indeed, for this case at least, there was no legal or business documentation at all, and much by practical dealing. Messrs Volteas and Pezaros, who struck me as down to earth men more concerned with the practical conduct of business, explained the usual practice for an investment in a café by a third party in this elementary way:

(a) café sites would become available or offered to them by various landlords or leasing agents in shopping centres or locales, and judgements would be made by them (particularly Pezaros) in consultation with the investor about the suitability of the site for a Degani's café and the leasehold terms;

(b) they would arrange for a lease of the premises and for the fit-out of the site which on average would cost $400 000 to $500 000;

(c) the investor would pay for the café fit-out but Volteas and Pezaros would not enter into loan arrangements with the investor with the burden of interest or the fear of loan default, but look to the investor to fund the construction and fit-out works;

(d) as a practical matter, the funding was effectuated by looking to the investor to pay the builders and suppliers and contractors on invoice or under progress payment arrangements (that enables the investor to see how the money is being spent);

(e) ordinarily, the set-up of the business would be conducted through a corporation which would be arranged through the Degani's accountants with a 50/50 shareholding or ownership, but there would be no objection if an investor wanted to use the investor's own accountants to establish the business corporation;

(f) a Degani's café might either be set up as a "grab and go" store in which pre-prepared foods are brought for ready sale, or it may have full on-line kitchen and cooking facilities on site for the preparation of food on order;

(g) they would trade and, all things being equal, revenue would meet outgoings especially if, as was often the case, premises were rent free for an initial period of time thus making the business cash positive rather quickly;

(h) upon the sale of the café, expected to take place by about one year with the possibility of a substantial sale price up to a million dollars depending on the site, any operating expenses (including rates, overdue rent, taxes and outgoings, suppliers, employee entitlements et cetera) would be paid out from the net proceeds of sale;

(i) from the net proceeds, the investor would then be paid back the amount of the investment; and

(j) any surplus would then be shared 50/50 between the investor and the Degani's interests.

70 That is not a sophisticated investment model. It is all based on an assumption of a 50/50 ownership of the business. Assuming an eventual sale for a profit, the investor gets a return of capital as contributed to the venture, and the 50% sharing of the net proceeds constitutes the return on capital for the investor, and 50% as a reward for Volteas and Pezaros. It appears to be a bigger risk for the unsecured investor, but, so risk theory goes, the expected returns on money within 12 months were substantial. Any management of the risk would be a matter for proper and documented protective measures especially to a banker.

71 Volteas was insistent on one matter in this arrangement, which I think stands to reason as a matter of business sense. Under this investment model, he said "We never borrowed money...there was never loans." To him, the idea of borrowing money (certainly borrowing with an obligation to repay on demand) was silly and unacceptable as he did not want to be exposed to the possibility of a tyrannical lender wanting repayment while a business was being built and in the initial stages of trading and therefore in no position to pay about $500 000. The business would be destroyed; and could the lender realistically expect repayment from a start-up business with no other assets? Worse still, there is the innate susceptibility to insolvent trading. The directors of a corporation would be incurring debts to suppliers, contractors, employees, lessors and others on a business which was being set up and established under the ever present current liability to repay an overwhelming debt.

72 That is why on the Degani's model, the investor joined in on the risk, and had the common objective of seeing the café become established and trade with a view to sale of the asset. That is, the investor is not looking for income on the loan as a lender; the investment appears to be for capital works and it is looking for an accretion to its capital investment on a sale of the café.

73 Under that investment model, Abraham Ben Cohen (a director of the plaintiff) was once such interested investor. In 2007, he was a customer of a Degani's store in Fairfield being run by Volteas. He was a business development manager for a branch of a major bank in Preston involved in commercial lending. In that field, as in his own affairs, he was familiar with the setting up corporate structures and trading trusts. He and his family (there was frequent reference to his parents in the background) were, so he said, very much attuned to seeking commercial investment opportunities in land and business. Cohen told Volteas that he and his family were wealthy and invested in a lot of different investments and as a banker he was in contact with the more prosperous bank customers. As part of his personal investment affairs Cohen retained one Steven Bendel an accountant for the management of the corporate affairs of Cohen's interests. Cohen also uses bookkeepers to record the financial affairs of his various businesses.

74 The earliest conditions in which Cohen came to be interested in investing in a Degani's café were something of which Cohen seemed to want to make a point. It arose after a financial dealing in which Cohen became involved with Volteas or his family to obtain planning permits to undertake a residential and commercial development over land in Eltham. It was cryptically explained, but Cohen said he and another property developer were able in some way to extricate Volteas from some planning permit difficulties. A dealing of some sort occurred with which I need not be concerned but it led to discussion with Volteas and then an agreement about Cohen's investment "as a sweetener", he said, to set up a Degani's café at 818 Bourke Street in the Docklands area.

75 It is essential to state the facts of that deal, and make some findings, because that deal was the progenitor or template of the deal that is the subject of the present dispute over a café at the World Trade Centre. Indeed the agreement to proceed with the venture for the café at the World Trade Centre was made whilst the venture for the café at 818 Bourke Street was underway.

The first café at 818 Bourke Street, Docklands

76 During 2007 (sometime pre August), Volteas told Cohen that Degani's had been approached by a commercial estate agent about a retail store premises in the Ericcson building in the Docklands area, at 818 Bourke Street. Ericsson was a telecommunications multinational. The shop premises were in the foyer of that building. There were no other food businesses in the foyer. This building was brand new and it was Ericsson's head office at a time when the Docklands area was being developed. The National Bank was nearby. Cohen inspected the premises. He was attracted. He was willing to proceed to invest. Thereafter, an arrangement was struck between Cohen and Volteas for an investment of $450 000 to set up the café.

77 The arrangements to set up the Docklands café were entirely unwritten and made in conversations between Volteas and Cohen. The evidence from both of them was not clear but I repeat my opening remarks about these witnesses.

78 It was not clear to me whether Cohen's evidence was based upon an account of the discussion as between him and Volteas. The recurrent problem was his evidence was adduced on the basis of "what was the agreement?" The Court stated its concern about facts being properly elicited and had to wrestle with trying to understand in truth what was said, so as to understand the consensus reached. Despite all that, the gist of Cohen's evidence was that to his mind the deal for the café at 818 Bourke Street worked this way:

(a) a company would be set up and a trust "slipped "under it;

(b) Cohen would set up the corporate structure and use Bendel to "facilitate" as accountant;

(c) originally Cohen would not be a director of that company because the company would be the lessee of the premises as well, and he did not wish to be a guarantor on the lease (but Volteas and Pezaros would);

(d) Cohen would organise a bank account and be a co-signatory;

(e) they would divide units 50/50; if there was 100 units the Cohen interests would hold 50 and the Volteas interests would own 50 but he Cohen would hold Volteas' units in trust "until he was repaid his capital either from the sale of other businesses or from the ultimate sale of this particular business";[20]

(f) they should not hang on to the business for more than a year because "after a year it starts deteriorating and what's the point of spending $500 000 and not getting any money back?"[21]

(g) when the business gets sold "then I just get my money back with 50% of the net proceeds";

(h) if the business was sold for less than his contribution "well then we both wear the loss."[22]

79 Cohen's evidence was they were contemplating not just one but a number of cafés:

I said "Because you are doing this deal, Paul you are now opening a whole lot of cafés. I have got some idle money. How about you open up as many cafés as you can, if we like the format and we will put the money up, we own the infrastructure, we will always own the infrastructure. You will never own that and you will repay may from the sale or from other cafés" - because the aim was to get three up and going so one would be completely debt free, the second one I could go to the bank, they would have an existing cash flow and away you go from there. That was the original origins of the deal.[23]

80 He went on to repeat that for the café at 818 Bourke Street, that the terms upon which he was to be repaid his $450 000 was that it would come from the sale of other cafés, that is from moneys they were getting in from other businesses they had, "or ultimately from the resale of this business, at the latest."[24] To give such evidence was fundamentally contrary to his principal allegation that the loan was repayable on demand. Yet in his evidence, Cohen insisted it was. He said "... it was never capital. It was a loan".[25] He persevered with his insistence that it was a loan payable on demand even though in cross-examination his evidence was contrary to such a proposition. I refer to this small passage of the cross-examination:

Counsel: He [Volteas] will say that the discussion was to the effect that the amount put in would be repaid after the sale of the business. Do you agree with that? --- If they didn't have other monies coming in, yes.

Let me just clarify this with you, Mr Cohen. Is it your evidence that the deal was that if Mr Pezaros and Mr Volteas got money from other sources that they had to repay the loan? ... They didn't have to, but that was the arrangement we wanted and they said, "yeah, yeah, we'll do that".

Right. So there was no obligation on them to do it? No obligation, but it was a preference because if we got that money back we would then go and do another one a lot quicker if the track record and that wasn't there.

But that was a matter for them? ... Yes.[26]

81 He then adapted his evidence to say that to his mind, if proceeds were not available from the sale of other café businesses, then an agreement to pay him back from the sale of the joint venture business meant that the loan was repayable on demand.[27] Yet the case was not pleaded or conducted by counsel on that basis. The case was opened and closed explicitly on the basis that the absence of a date for repayment meant, at law, the loan was repayable on demand.

82 What then became apparent in the course of Cohen's evidence was a view by him that the terms of this deal were as he was able to dictate them to suit his interests because he was providing the money. His evidence was:[28]

He [Volteas] never described the deal to me, I described it to him on the terms we would do the deal. Otherwise we weren't going to do any deal. When we go to people with investing we tell them the way the deal will work and the appetite we have for it and how we will do it and if they want to follow suit, they can.

83 What became more troubling was the progression of that attitude to what Cohen says were the terms as discussed concerning ownership of the business. Cohen was saying this was not a 50/50 joint venture or at least not in the way that would be naturally understood. In the course of his cross-examination, evidence came out that in Cohen's mind ― and therefore by agreement as he would have it ― he would own the business 100% until he was repaid his loan, at which time he would then handover 50% of unit trusts to Volteas. His evidence was:[29]

Mr Cohen, the evidence for the second defendant [Volteas] will be that there are perhaps up to 10 occasions when they set up cafés for what they call investors and that you are but a number of investors. Do you agree with that? --- I agree with that.

Right? --- But the cafés that we were picking had to be strategic and had a competitive advantage. When I started they didn't have many cafés and we were picking and choosing which ones. ...

We, the Cohen family? --- Yes. That's we wanted, because the deal was whether they were there or not there, I didn't give a shit. Pardon the language.

Careful --- sorry. I could move them on. We would still own the business together and I could install another operator. I was never concerned about them running it. We had our own expertise if I had to. That was not the proposition I wanted to do, but that was my back door because I never wanted to be high and dry.

Is it your evidence then Mr Cohen that you had at the back of your mind that once the café was set up you might continue to run it without the involvement of Mr Pezaros and Mr Volteas? --- That was not the intention when I started with them because the way I do business, if I start with them, I finish with them. So if they set up a café, I was quite happy for them to run it until it was moved on, but if from my parents point of view when I went to them, the deal was going to be that if there was a fight between us, we could always push them out and put someone in, but we jointly own it until it is sold.

Is that one of the reasons you wanted to own all the units, so you could push them out as the time came? --- If we didn't agree on things we would at least have a say in how it is controlled because they were really running it and they were using their name.

And that was the commercial objective of you and your parents, was it? --- Yeah, the family. Not to push them out, but to basically have the ability to install another manager if we didn't see eye to eye.

84 This is what Mr Cohen would have the Court accept as being the good commercial sense of the agreement made with Volteas for the café 818 Bourke Street:

(b) Cohen would invest $450 000 for the café as the first of a number of cafés, presumably with an investment on the same terms on each;

(c) the corporation that operates the business would be under the directorship of Volteas and Pezaros, but not Cohen as he did not wish to be liable as a guarantor on the leasehold obligations of the company;

(d) as directors, Volteas and Pezaros would be liable as guarantors, would be responsible for the company's affairs including responsibility to ensure there was no insolvent trading;

(e) Cohen's contribution was not capital but it was a loan repayable on demand, (yet at trial said to be possibly repayable from proceeds of other sales of cafés, but at the latest from the sale of 818 Bourke Street);

(f) the Cohen interests would have 100% ownership of the company even though, paradoxically, "we jointly own it until it is sold"; and

(g) he was never really concerned about whether Volteas and Pezaros were running the café, but as owner of the business he had the ability at any time to remove Volteas and Pezaros and install someone else to run the café if they didn't see eye to eye.

85 The evidence from Volteas, in substance, countenanced no such imperious terms for a joint venture. This was Volteas' account of the agreement concerning the venture to establish the café at 818 Bourke Street:[30]

(a) "That Abraham would put up the money and then when we sold the business we'd pay out whatever business expenses were. Obviously to the business, if there was any outstanding invoices etc. He would take back his investment and the profit would go 50/50".

(b) Cohen said there would be no problem with that and "our job was just to make sure the shop was obviously built correctly and run the business. That was it."

(c) There was no discussion of units and unit trusts.

(d) There was no discussion of a company called Lotteries Pty Ltd.

(e) There was no discussion of the terms of a loan being repayable on demand, and had there been, he would never have gone ahead because "I can't be involved in a store and then have over my head any minute someone's going to ring and they want the money back. You know what I mean, it just doesn't make sense."

(f) The money was to be put in by paying the builders on invoice and paying according to progress payments under the building contract.

(g) Cohen never identified any particular companies as advancing those funds as "Mr Cohen always insisted that the money was his, his father's, his families, they don't need any financing from anyone, they are very wealthy and they're very astute investors".

(h) Volteas was not at all concerned with knowing the precise identity of the person who was putting the money in from the Cohen family, and it was of no interest to him.

(i) There was discussion about who would set up the company and conduct the business and on that question "Abraham said, I'll take care of that and I'll use my accountant to set up the company. There wasn't any argument from us, he was investing the money, we had no issue with that at all."

(j) Volteas had left the setting up of the bank account to Cohen; he and Pezaros would run the day to day operation; the money would go into the account and the aim was always to sell the business.

(k) There was discussion about who would be directors of the company to run the business, and Volteas and Pezaros agreed they would be the directors.

(l) The company was to be set up and the shares would be 50/50 "just normal", that is, 50% shareholding and 50% profits.

(m) Ordinarily, Degani's prefer to set up the shelf company and appoint all the directors and attend to the corporate matters and do that through their own accountants "But if the investor wants to do it through their accountants we have - we don't have an issue with that."

(n) There was never a discussion about a unit trust, "it was just a company set up. That's all it was. Just easy. Just going to be a basic one company."

86 Thus the setting up or the documentation of the company structure to facilitate what can be called the "50/50 deal" was left to Cohen and his accountant Bendal. To carry out the venture at 818 Bourke Street, Cohen's accountants obtained a company by the name of Checoma Pty Ltd. It was incorporated in June 2007. Its inaugural directors were Volteas and Pezaros, appointed on 8 August 2007. They each held 50% of the issued capital.

87 The next event was very significant. On 18 January 2008, Cohen purported to execute a trust deed on behalf of Checoma as trustee to establish the Checoma Unit Trust for the café at 818 Bourke Street. He purported to sign the deed, explicitly, under s 127(1) of the Corporations Act which in substance permits a company to execute a document without using the common seal if the document is signed by two directors of the company or a director and a secretary of the company. The deed is signed only by Cohen. But he was not then a director of Checoma.[31]

88 The schedule to the Checoma trust deed stated that 100 units were allocated to unit holders. It named the plaintiff Lotteries Pty Ltd (as trustee of the Lotteries Unit Trust, and a company within the Cohen interests) as having 100 units allocated to it.[32] But the schedule said that 50 units were to be transferred or allocated to P G Checoma Pty Ltd (as trustee for the P G Checoma Unit Trust). P G Checoma was incorporated on 8 August 2007 under the directorship of Volteas and Pezaros.

89 The precise words of the schedule to the trust deed are important:

*50 Units will be allocated to P G Checoma when the following occurs:

- Repayment of funds invested by Cohen family and its entities.

- Sale of Business and repayment of half of the net proceeds of 818 Bourke Street Café.

90 This does not give 50/50 ownership of the joint venture business. It gives the plaintiff all the units, and therefore complete control of the joint venture business venture and confers only a half share on repayment of the "funds".

91 There is no evidence at all that Cohen sought or was given the authority of the directors, Volteas and Pezaros, to sign the trust deed on behalf of Checoma. He just did it. There is no evidence that such a step was ever discussed. As he was in joint venture with these men, there was no barrier to him simply getting Volteas and Pezaros as directors to sign the trust deed as directors. If that was what the parties had truly agreed it would have been such an easy matter to have the deed executed by the directors. A man of his banking experience would have understood the plain wrongfulness of signing a deed of trust on behalf of a company as a director when he was not, and the necessity for proper authority.

92 Volteas and Pezaros say, I think with conviction, they did not know about the deed until this litigation. Cohen says he gave the deed to his accountant Bendal after signing it, and he Cohen posted it to the Umbrella Enterprises post office box. There was no accompanying discussion with the directors. No covering correspondence. No checking whether it had been received. Cohen's case at trial was that as he was responsible for setting things up, and as nothing was said about the deed by the others after he posted it, he should be therefore taken as having their authority as directors to sign it, or they as directors are estopped from denying his authority. The defendants deny ever receiving the deed by post or otherwise. They squarely plead that he lacked authority and the deed was of no effect. They say their relations are governed by the 50/50 agreement, and not the trust deed.

93 I make this opening finding: I cannot be satisfied that the Checoma trust deed was ever sent to Volteas and Pezaros. There is no objective or circumstantial evidence to support that he did, only Cohen's say-so. The denials by Volteas and Pezaros were not tested. I also find that Cohen did not have the authority to execute the deed for Umbrella Enterprises. The schedule to the deed was not faithful to the 50/50 deal in that it deferred Volteas' 50% ownership interest until payment of the "loan" (on demand). I shall return to this, as strikingly similar facts occurred in the deal that is the subject of the claim.

94 The fortunes of the café business at 818 Bourke Street are not directly relevant but they throw some forensic light and for completeness I shall make brief reference to what occurred. The café at 818 Bourke Street opened for trading in early 2008. It ran for about 12 months. Trading was said by Volteas to be "fantastic" and "gangbusters". An offer of $795 000 or $860 000 or something in that order was received from a purchaser but that offer was rejected by Cohen as he thought the business was worth more, and wanted a price of $1 million. Volteas explained in Court that as time passed and the Docklands area came to be developed, more cafes were being built. The added competition together with the decline of Ericsson in the telephone market resulted in redundancies in the whole building with consequential dramatic declines in the Degani's business there. The business was eventually sold for $630 000 in February 2010 reduced to $620 000 after selling agent's commission. The evidence is imprecise but after payment of expenses, Cohen received at least his investment of $450 000 plus a further amount of $50 000.[33] There is no clear evidence if the Volteas interests got anything.

95 I need to go back in time. Soon after the opening of the café at 818 Bourke Street in mid-2008, another site came to the attention of Volteas at the World Trade Centre, the former site of the casino. We now come to the deal that is the subject matter of this proceeding.

96 Discussions between Cohen and Volteas about setting up a store at the World Trade Centre (‛WTC') occurred from mid-2008 to about November 2008, and in February 2009. The parties deliberated and decided to proceed with building a full café site with an onsite kitchen to enable catering and supply of food to offsite customers as well. But this café carried a greater risk because the rent was markedly higher at $130 000 per annum. Pezaros explained that in the commercial dealings with the lessor, in exchange they were promised the exclusive right to be the only café in the foyer to be selling coffee and operating as a café.[34] That exclusivity was not given in writing. The non-fulfilment of that promise turned out ultimately to be the reason for the venture's loss, and money spent by Volteas and Pezaros to meet the costs owing for action to enforce that promise enforce against the lessor was one item of expenditure said to have been unlawfully deducted from the proceeds of sale.

97 The decision to proceed with the WTC café was effectively in Cohen's hands as he had to be happy as the investor. He played a part in the appraisal of the WTC site and making judgments whether this was a suitable site with a competitive edge, all with a view to realising a high price after 12 months of trading. Moreover and more importantly, Cohen and Volteas agreed - so I would find - that the terms upon which he was to be repaid his investment in this café were to be the exactly the same as existed in the deal for the café at 818 Bourke Street.[35] It would be same model. That included Cohen attending to the paperwork to set up the business and corporate structure to give effect to a 50/50 ownership and profit; using his accountant Bendal for that purpose, and arranging for a bank account for the business to which Cohen would be a co signatory.[36]

98 On 19 May 2009, Cohen executed on behalf of the first defendant a deed to establish the Umbrella Enterprises Unit Trust. Just as he had done with the Checoma trust deed, he purported to do so in accordance with s 127 of the Corporations Act 2001. He was never a director of the first defendant, nor did he hold any office. Nor is there any evidence that he sought or obtained the authority of Volteas and Pezaros to sign such a significant document. It is one thing to take the responsibility to prepare such a document; it is quite another to pretend to sign it as a director of the company. As had occurred at the Checoma Unit Trust, the schedule to the deed modified the simple 50/50 arrangement under this joint venture. The schedule said:

*75 Units are allocated to Checoma Pty Ltd ATFT Checoma Unit trust on the following basis:

25 Units held as bare trustee for Lotteries Pty Ltd ATFT Lotteries Unit Trust

50 Units held for PG Checoma Pty Ltd ATFT PG Checoma Unit trust or nominee until the earlier of (1) Repayment of funds invested by Cohen family entities or the sale of the café located at World Trade Centre.

- Sale of Business and half of the net proceeds are received.

99 So, in effect, according to this writing, the Cohen interests held complete ownership of the units in both trusts, at least until sale of the businesses and repayment of the funds invested. That is, there were 100 units, 25 of which were allocated to the plaintiff, his company. The remaining 75 units were allocated to Checoma as trustee of the Checoma Unit Trust. By this time, Cohen had become a co-director of Checoma (May 2008). Further, Lotteries Pty Ltd held 100% of the units in the Checoma Unit Trust, although 50% was held on trust for the Volteas interests according to the Checoma Trust Deed.

100 As with the Checoma trust deed, Cohen said he gave a copy to his accountant and sent another to Umbrella's post office box. There is no evidence of any accompanying discussion or notification on such a significant document. The defendants say they say they did not know about the Umbrella trust deed (or the deed for the other café) until this litigation. They squarely plead that he Cohen lacked authority to sign the deed, and no trust was brought into existence and relations are governed by the undocumented joint venture agreement. Cohen says as nothing was said after he posted the deed, the defendants should be taken to have approved of his conduct, and are estopped from denying his authority.

101 The significance of this, as an issue, is twofold. First, it is a part of the question of the terms of the agreement; that is whether the interposition of a trading trust was part of the agreement. Secondly, it goes to the question of analysing the relationship; that is, whether the relationship is referrable to the institution of the unit trust and the fiduciary obligations that come with that.

102 The means by which the funding to establish the café was administered were unwritten and ad hoc. Volteas explained that he would await the accumulation of tax invoices as fit out works were being conducted by shopfitters and builders, and then contact Cohen and ask for the money to make payments on those invoices. Cohen or perhaps his accountant would exercise some sort of scrutiny over the invoices or pre-scrutiny of quotes and if satisfied they were in order, would then arrange for the payment by sending a cheque to Volteas. Of course, the costs themselves would form part of the financial accounting for Umbrella Enterprises.

103 On that basis, the total funding was $573 500 made up in this way (remembering the third amended statement of claim explicitly pleads this was "by way of loan, payable on demand"[37]):

(a) on 4 February 2009, Princeton Investments Pty Ltd, a company associated with a Mr Des Randall drew two cheques for a total of $200 000 which were deposited into Umbrella's account on 14 April 2009;

(b) on about 30 June 2009, Surefit Australasia Pty Ltd, a company associated with the Cohen's, deposited $170 000 in Umbrella's account; and

(c) on about 4 August 2009, Calball Pty Ltd, a company associated with Cohen's interests, deposited $203 500 into Umbrella's account.

104 Volteas attended to arranging the fit out and operation of the café. Cohen attended to the regulatory requirements of corporate affairs and received either directly or through his accountant regular uptakes of the takings. In broad terms, the day to day accounts of the café were maintained by bookkeepers employed by the Degani group and were provided in the form of MYOB (computer software) files to Cohen's accountant, Bendal, who generated a general ledger and financial accounts for Umbrella Enterprises from those materials. Bendal also attended to matters such as lodgement of tax returns for the company and the trust. The financial records and tax documents cite Umbrella Enterprises as acting as trustee of the Umbrella Enterprises Unit Trust.

105 Umbrella Enterprises had a bank account for which there were two cheque books. One was held by Cohen, another held by Volteas. (Volteas said he did not know that Cohen had a cheque book, which may be no more than an indication on how loose or unbusinesslike things were.) Using that cheque book, Cohen had withdrawn moneys from the account of Umbrella Enterprises. He drew a cheque for $1300 which was a reimbursement to him for payments made to a corporate services provider for incorporation charges. On 30 December 2009, he withdrew an amount of $35 249.11 for what he described as a reimbursement due to him. The evidence was not clear, but he said that this was the GST payment on equipment purchased for the fit out of the café to which he said he was personally entitled after it was refunded by the tax office.[38] Thirdly, he also withdrew $25 000 from the account which he said was for repayment of a loan made by him to Volteas and Pezaros to pay out someone for the conduct of another café at Plenty Valley.[39]

106 Thus, as I follow the figures, after deducting the two substantial reimbursements from the total funding of $573 500, the result is $513 250. But the figures are shaky as is Cohen's explanation for the fact that elsewhere the relevant balance sheet as adduced by the plaintiff (who says it was a lender) puts the net figure at $502 000.[40] Yet the claim for debt as pleaded (and the consent judgment against Umbrella Enterprises) is $538 250. I shall not dwell on this. Volteas denied that Cohen was entitled to make those reimbursements.

107 After it commenced operations, the WTC café trading was "fantastic" according to Volteas.[41] But, he explained that a marked decline in revenue occurred when the landlord, who was struggling to lease the other retail stores in the building, leased out other shop premises for food businesses, including those with on-site kitchen facilities. That was contrary to the landlord's representations made to Volteas and Pezaros about the retail mix. The higher rental was paid in exchange for exclusivity. Volteas said they engaged an organisation, Leasewise, to bring a case against the landlord for pre contractual promises that they would be the only café in the building with kitchen facilities, and that any other food premises would only be 'grab and go' in the walkway of the building.

108 The high rental and the declining sales had a real negative impact on the business. Pezaros gave evidence that they were struggling to pay the rent and make a profit. He complained to the landlord, and after negotiations, the landlord offered a six month rent reduction period. Pezaros had argued that a transitory reduction was no solution and the matter called for a reduction in the base rent. Eventually, Cohen and Volteas agreed to accept the six month rent reduction. It is to be remembered that Pezaros and Volteas were directors of Umbrella Enterprises, and the guarantors under the lease which was for a 15 year period on an initial rent of $130 000 increasing with annual adjustments.[42] The solvency of the café business was therefore something that put them at great personal risk; and if Cohen is correct, that business was liable at any time to repay on demand the ‛loan' of at least $502 000.

109 The rent reduction was not enough to ameliorate the trading problems for the WTC café. Pezaros formed the view that the return to full rent meant the business was not going to be able to pay its bills or pay the rent so they had to find another solution. His evidence made commercial sense:[43]

Well the only other solution you have is to either put a lot more money into the business if you think that you're going to see some light at the end of the tunnel which in this case with the rent that it had and the other tenancies trading with coffee, that wasn't going to happen. So then you sold the business.

With the competition within that foyer the rent that we had, the turnover that we had, it was always going to be difficult to sell that business for any price, let alone a good price. So in the end - and plus we had to find operators that were going to be able to go in it that had experience, that believed that they could deal with a rent that high.

Well, if you had have put just anybody in there or a first timer there's no way that they would have survived, so ...

... well, as a - as an overall business we're not - well, we weren't selling one shop where you sell it, you disappear and no-one sees you again. I mean this was part of a multi-store operation. We had to make sure that the people going in were able to look after themselves financially and also protect the brand as well. ... We have to be careful in putting the right people in the right stores and this one was always going to be difficult. I mean under management we couldn't - we couldn't make it work, so it had to be an owner operator that was going to be able to reduce wages, expenses, et cetera ...

110 Pezaros went on to explain that the purchasers they eventually found were experienced operators, but in order to attract them to purchase, they had to sell the business on vendor's finance. That was their only option, he said, because he and Volteas could not pay the company's bills unless they put more money into the business or achieved a sale.

111 The purchaser was AAA International Group Pty Ltd and as I stated earlier, under the sale of business contract made between Umbrella Enterprises and that purchaser, the price was $400 000 on a deposit of $1000. The payment of the residue was financed by an ancillary loan agreement under which the purchaser was obliged to pay weekly payments of $1500 (which included interest) to be paid for a period of five years.

112 Pezaros explained that on informing Cohen of the intention to sell, Cohen was not happy. Pezaros tried to overcome his resistance by proposing the solution referrable to three new stores that Degani's was constructing at the new Children's Hospital. He proposed that Cohen could take those three smaller stores and relinquish his interest in the World Trade Centre. That was rejected by Cohen.

113 At about this time (February 2011) the rent was in arrears for nearly $18 000 and a garnishee order had been issued by the Australian Taxation Office for a tax debt of $13 138. Cohen's position about the sale was clear: 'I clearly do not have any appetite for this transaction. You can sell it to the open market today...and proceed to sue who you like.'[44] By this stage, the purchasers were conducting a trial operation of the WTC Café.

114 Cohen then engaged lawyers to pursue a debt. The ensuing correspondence is important. On 22 February 2011 the plaintiff's solicitors wrote saying, amongst other things:

Our client's representative, Abraham Cohen, learnt today that there has been a purported disposal of the asset of the trust being the business conducted at the above retail premises without his knowledge or consent.

Our client is now taking steps to remove you as the Trustee of the Unit Trust and shall be appointing a new Trustee shortly.

...

We expect by close of business today there will be a new Trustee of the trust.

...

We are in the process of obtaining instructions to proceed to take injunctive relief against Umbrella Enterprises Pty Ltd to prevent it from further disposing of assets of the Trust.

115 In response, on 23 February 2011 the solicitors for the Volteas interests wrote:[45]

Our client denies that it acts in any trustee capacity and is not aware of, or recognises the Unit Trust referred to in your letter.

If your client insists that there is one in existence then we shall require a full copy of the Deed, details as to who prepared it and when it was allegedly signed by the parties.

We shall also require to sight the original of the document.

116 On 1 March 2011, before the commencement of proceedings, the plaintiff's solicitors sent a copy of the unit trust deed which they said they had obtained from the company's accountants the day before. The letter went on to say:

You will note that it is executed by Abraham Cohen. We are instructed that it was executed on the authority of and at the request of Paul Volteas.

...

You will see from the unit holders Agreement that as a consequence of the manner in which the units are held, our client has effective control of the units in the Unit Trust.

In this regard, should you not have the Unit Trust Deed for the Checoma Unit Trust, please advise us accordingly and it will be provided.

There is one other matter which we would also seek to address namely that our client has advanced to Umbrella Enterprises Pty Ltd (whether in its capacity as Trustee or otherwise) the sum of $573,500.00. Of this sum, $35,249.11 was repaid. This leaves $538,250.89 as presently outstanding.

Please be advised that we are instructed to demand immediate payment. Please let us have this sum within seven days of the date of this letter otherwise we will have to seek our client's further instructions concerning recovery.

Please note that payment of the above sum does not relieve your client of the obligation to account to our client for half of the net proceeds of the sale of the business conducted by the company and nor does it discharge our client's right to the proceeds of the sale of the business. ...

118 This proceeding was then commenced on 30 March 2011.

119 Volteas said he was concerned that Cohen, who still had a cheque book for the company, had, so he discovered, made the reimbursements without his knowledge. For that reason, he said, he directed the purchaser of the business to deposit the $1500 weekly payments into an account held by Marvel Gem Pty Ltd at the National Australia Bank. He says he chose Marvel Gem because it was an active account that they had at their disposal. He and Pezaros were its directors. The bank statements for Marvel Gem's account for its business cheque account are in evidence. They show that credits of $1500 were deposited from 30 May 2011 to 11 October 2012. The statements also show a regular monthly debit of $6135.65 for 'hire purchase'.[46]

120 The fact is that Marvel Gem was a deregistered company, although Volteas said he was not aware of that at the time.[47] It is also the apparent fact that although that account was predominantly in debit (presumably an overdraft account) the weekly instalments of $1500 were able to be used on that account to meet a monthly payment of $6135 due under an asset finance agreement for equipment for another Degani store, namely Team Degani Pty Ltd at 833 Collins Street, Docklands.[48] That business was a combination of a café and bike shop which, Pezaros explained, was not successful and went into external administration. He and Volteas were guarantors of Team Degani's obligations under the finance agreement. The finance agreement was then assigned to a new business at the same premises at 833 Collins Street known as Degani@Docklands. The new and smaller business (without the bike shop) was to use the equipment for the café and thus took over the lease.

121 I pause here to see the state of affairs as at about February 2011.

122 The business had been sold with the first payment by the purchaser of $1500 being due that month. The business was the only asset of Umbrella Enterprises. The proceeds of sale were a realisation of that asset. Cohen, by his solicitors, had stated his intention to remove Umbrella Enterprises as the trustee and to appoint a new trustee who could then receive the proceeds of sale under a trust which as configured by Cohen deferred any unit holding for the Volteas interests until the loan of $538 250.89 was repaid. Moreover, Cohen was asserting that the funds provided by the plaintiff were payable on demand and demanded they be paid in 7 days. The business as had been run by Umbrella Enterprises had debts to pay and there were no other funds from which to pay the company's debts and liabilities except from the purchase instalments or the directors' own pockets.

123 More pertinently, Umbrella was being sued for a large sum payable on demand. The company and Volteas were bound to resist that claim on the version of the agreement as always maintained by him that it was a 50/50 deal and this was not a loan. To do that they would have to engage lawyers and incur legal costs and expenses to defend the company interests.

124 Volteas went on to explain that in this crucible (as his counsel described it) Umbrella Enterprises had and was continuing to incur obligations and liabilities. They were as follows.

125 On 24 March 2011 an application was filed on the company's behalf in the Retail Tenancies List of the Victorian Civil and Administrative Tribunal. It was a proceeding brought against the landlord for his misrepresentations of exclusivity before taking out the lease. The claim was for diminution in the value of the business of $500 000 and a loss of profits of $300 000. For that proceeding, an organisation known as The Lease-Wise Group Pty Ltd had been engaged by Volteas and Pezaros. They had rendered invoices from June to November 2011 for $3410, $2618, $968, $4136 and $4136. Volteas explained that those invoices were paid 'through the funds with the Umbrella money'. As it turned out, the proceeding did not proceed because of legal advice that the acceptance of the six month rent reduction undermined the company's case for greater compensation. In about November 2011 a compromise was reached and the matter was settled.

126 Secondly, Umbrella changed its accountants to take the accounting responsibilities away from Bendal Partners to Stirling Partners. As Bendal had not been paid, he had to be paid in order to obtain the files. That revealed that there was a tax liability together with a general interest charge of $13 285 as at July 2011. Volteas said that he or one of his companies had to pay that as the matter was pressing.

127 Thirdly, Volteas sought legal advice about the use of the money being received by the company from the purchaser.[49] That advice, which was not in writing, was that the proceeds of sale were an asset of Umbrella as the realisation of its only asset and that Umbrella had every right to use its funds to defend itself in litigation. His said his lawyers thought the position was ridiculous because Cohen was suing the joint venture company on what was supposed to be a 50/50 ownership for a venture he had funded, an action which would cause the company to spend its own money to defend itself, thus consuming money otherwise available to him as venturer. In evidence, Volteas adduced tax invoices rendered by Messrs Dimos Lawyers from May 2011 concerning the litigation brought by the Cohen interests as well as the proposed sale of the business and the lease dispute with the landlord. Volteas' evidence was that these expenses were met by him and Pezaros from their own resources or from other companies they owned.

128 I trust the narration so far helps illuminate the commercial situation and the legal issues. I put it plainly in the following way.

129 As far as Volteas and Pezaros were concerned, the circumstances called for a distress sale. Umbrella Enterprises could not pay its bills. That was through no fault of theirs. Cohen was against the sale. It was for a price that would not even see a return of his capital, and was payable ‛on the drip' by weekly payments including interest. He brings a primary case saying his funding was a loan payable on demand by the company. He brings a secondary case that he was the victim of unconscionable conduct by the company, aided by Volteas, into giving the funding. He seeks reliance damages for the amount of the funding. Then, as a third case he propounds a case to say that the company was a fiduciary. It held the proceeds of sale on trust for the plaintiff. The company could not use any of that money except for ‛expenses of sale'. In breach of that trust the company diverted the weekly payments into Marvel Gem's account. Volteas was knowingly concerned in the breach of that trust and is liable too as accessory. For that, the plaintiff claims equitable compensation.

130 Now there is the consent judgment against Umbrella Enterprises. On 30 November 2012, I ordered the sale proceeds on or after that date to be quarantined. I did that over the objection of Umbrella Enterprises who argued that the proceeds were the only way it could fund the litigation especially as it stridently wished to defeat the case that this was a loan payable on demand. On a balance of convenience, the plaintiff's claim to having a proprietary claim to the moneys, favoured the preservation of the moneys as the subject matter of the litigation. The consent judgment means the plaintiff has the money that accumulated since November 2012 and will continue to receive the weekly payments until February 2016 with a balloon payment on 20 June 2016.[50] Thus, as I have had to analyse it, in financial terms, this case is about diversion of funds ($1500 per week) from at the earliest February 2011[51] or May 2011[52] to November 2012. The plaintiff does not quantify any of this. Its closing submissions ask for damages, equitable compensation and an inquiry into the disbursement of the sale proceeds.

131 The disbursement of the sale proceeds was a matter investigated by an accountant Mr Hage who was acting on behalf of Volteas. He was engaged in the first half of 2011 by which time the Cohen interests had demanded repayment of the loan and subsequently filed the writ in this proceeding and payments had started to come from the purchaser. He obtained the file from Cohen's accountant, Bendal, and was struggling to obtain a copy of the trust deed as he was not aware of the existence of a trust at all. He also obtained interim financial statements for 2009/2010 from Bendal. He went on to prepare final accounts for 2010 and 2011. His primary concern was the pressing debt to the Australian Taxation Office and any interim or provisional steps to be taken about tax compliance whilst awaiting a copy of the trust deed and ascertaining the true state of affairs from Bendel. He was also given the task of examining the financial transactions undertaken by Volteas since the purchaser's instalments had been paid and to make reconciliation as between funds used by Volteas from the proceeds of sale with expenses and liabilities paid by him, Volteas, on behalf of the company.

132 The reconciliation he produced is not difficult to comprehend.[53] It shows this:

UMBRELLA ENTERPRISES PTY LTD / UMBRELLA ENTERPRISES UNIT TRUST

RECONCILIATION OF MONIES FROM SALE OF BUSINESS

AS AT 30/09/2012

30 June 2011

1 July 2011 - 30 June 2012

1 July 2012 - 30 Sept 2012

LEASING CHARGES

LEGAL COSTS

ACCOUNTANCY FEES

ATO INTEGRATED CLIENT ACCOUNT

DIMOS LAWYERS TRUST ACCOUNT

15,268.00

50,393.58

4,896.00

13,285.20

38,000.00

133 Hage explained that the reference in the reconciliation to 'George Pezaros - $8,741.88' and 'Paul Volteas - $7,241.88' were amounts he had found were amounts paid to them from the company. He said he could not really grasp what that money was for or where it went or why it was there, so he accounted for it in a way that supposed that they had to pay it back. He based the disbursements according to invoices and correspondence from The Leasewise Group, the ATO and Dimos Lawyers.

134 This content of this reconciliation document was not impeached in cross-examination. Hage acknowledged it was a reconciliation prepared in September 2012 on the instructions of Volteas' solicitor. As I understood it, the object of his cross examination was to show that the reconciliation was prepared 'late in the piece' and not prepared at the time that any of the underlying accounts were done. That is, the reconciliation was done after the money was taken out to make the argument that it was too late to do reconciliation after the breach of trust had occurred. But the object of Hage's exercise was to show that even supposing a trust or fiduciary obligation, and even supposing a breach, an exercise of seeing what gains the fiduciary had made, or the amount needed to restore the trust estate showed the net result that there was an amount outstanding of $1640.98 which Volteas paid into a CBA account opened in the name of Umbrella Enterprises.

135 There was nothing to impeach the competence or methodology of Hage's reconciliation. A good part of his cross-examination was dedicated to confirming that as Volteas' accountant, it was not unknown for him to set up a trading unit trust for Volteas. This went to the question whether the parties agreed to conduct this joint venture as a unit trust.

136 To clear the way for legal analysis, as I see it, the commercial difficulty or anomaly was as follows.

137 In a loose and laconic unwritten deal, the parties truly were in unchartered territory in the events that occurred. The deal was predicated on an assumption of success by a profitable sale. Not only were the sale proceeds (coming by the week) insufficient to cover Cohen's financial contribution, but the joint venture company could not pay its debts. Relations between the joint venturers fell apart. Cohen's action in suing the company for a debt payable on demand altered the commercial dynamics vehemently. Volteas as director of the venture was required to meet expenses of the company, pay out liabilities and defend the company in the litigation. They might not be the ‛expenses of sale' that the parties had in mind for a sale according to expectations but there was now, in unexpected circumstances, a discrete legal question concerning the proceeds of sale. The proceeds were the company's only asset; that is the realisation of its only asset. The company had liabilities and obligations to meet. One of those was protecting the company's interests which included defending itself against the claim or making claims against an allegedly deceptive landlord. The panoramic question is this: if as the plaintiff says this was a debt payable on demand, is equitable intervention called to impress a trust on the sale proceeds in favour of the plaintiff (asserting itself to be a lender), to the exclusion of the company and its creditors? As for Volteas the question is whether the first defendant's use of the money to protect its interests was fraudulently and dishonestly in breach of trust with knowing involvement by him as accessory.

138 The issues in this case are, first: what was the agreement? It is from that determination that the legal relationships are to be analysed. Secondly, whether the money be a "loan" or capital investment, if the agreement ─ and I emphasize, an agreement not pleaded to be amongst fiduciaries ─ is for the recipient to pay it back from expected net proceeds of sale, does that therefore make the recipient of the proceeds a trustee and the provider of funds a beneficiary, or is the relationship purely contractual with auxiliary remedies in equity to prevent dissipation of the funds, but no more? Thirdly, if there was a trust in the circumstances, what was the first defendant and its director Volteas entitled to take out of the proceeds of sale to meet liabilities incurred before and after sale? Did Volteas aid a dishonest and fraudulent design or was the trustee doing no more than protecting reasonably its own interests?

139 Paragraph 8 of the statement of claim pleaded the agreement this way:

Pursuant to an agreement made in or about February 2009 the Plaintiff and First Defendant as trustee entered into an agreement for the purpose of developing, establishing, operating and ultimately selling full line café operations with a full kitchen from premises situated at Shop GO1 WTC Wharf, Ground floor, Melbourne. It was a term of the agreement that the Plaintiff contribute finance by way of loans payable on demand and the Defendants contribute the expertise necessary to set up the café and operate it until sale. It was a further term that Lotteries holds all the units in the Umbrella Trust, part of which are to be allocated to the First Defendant when the funds advanced by Lotteries to Umbrella are repaid to Lotteries from either:

together with half of the net proceeds on the sale of the Business ("the Conditions").

The agreement was oral, in writing and to be implied. Insofar as it is in writing Lotteries refers to the Schedule to the Deed of the Umbrella Trust. Insofar as it is oral the Plaintiff refers to the conversations, which took place over the telephone and at the premises of Degani café, 818 Bourke Street, Melbourne, between Abraham Cohen on behalf of Lotteries and Volteas on behalf of the Volteas Interest and Umbrella, in which Cohen said words to the effect to Volteas and Pezaros that if they found suitable sites for a full line café operation, Cohen, or one of his entities, namely Lotteries would loan funds to the effect alleged herein and Volteas and Pezaros indicated they would provide the expertise to set up the café for ultimate sale. In so far as it is to be implied it is to be implied by the parties and the need to give business efficacy.

140 Shortly before trial, further particulars were given of the conversation, which said:

At the meeting in or about November 2008, the date of which the Plaintiff is otherwise unable to recall, Cohen said words to the effect that if Volteas and Pezaros could negotiate for a suitable site for a Degani bakery/café on the ground floor of the World Trade Centre, then he or one of his entities, namely Lotteries, would lend monies for the purpose. Volteas said words to the effect that the World Trade Centre site was highly suitable, with prime tenants including the Victoria Police coming in and the cafes on the upper floors moving out, so that there would be only one café in the building, on the ground floor. Volteas and Pezaros would provide the necessary expertise to set up the café for ultimate sale. No date for repayment of the loan was fixed or agreed, rather Cohen and Volteas said words to the effect that they agreed that it could be repaid by refinancing or from the proceeds of sale of the Business. Volteas said words to the effect that if the monies were advanced to Umbrella, then Lotteries would own the Business outright, but subject to the right of the Volteas interests to call for a half interest when the monies advanced were repaid in full. The bakery/café would be set up in a unit trust, to be known as the Umbrella Enterprises Unit Trust, which Cohen should establish and the units would eventually be held 50/50 on the basis that:

(a) before any distribution of profit or dividend from the bakery/café the advances and/or loan contributed by Lotteries must first be paid out;

(b) before the Volteas Interest was entitled to its half interest the loan from Lotteries must be repaid in full whether from the proceeds of sale or earlier; and

(c) in the event the bakery/café was sold, the proceeds would be used to first pay out the Lotteries' loan before the balance of the proceeds was distributed and then the balance distributed equally between Lotteries and P G Checoma.

141 I find the agreement was not as alleged by the plaintiff. For one thing, the agreement could not have been made with Umbrella Enterprises as trustee because the (impugned) trust deed was not even signed until 19 May 2009. I find that the relevant agreement is the agreement reached between Volteas and Cohen in connection with the Degani Café at 818 Bourke Street in late 2007, because the parties agreed to adopt exactly the same terms for the agreement relating to the WTC Café. The timing was proximate.

142 These are my findings about the agreement, having regard to my opening statements in this judgment about the competing versions:

(a) Cohen's evidence leaves radical uncertainty about the agreement made between him and Volteas, as distinct from what Cohen merely assumed he was entitled to do;

(b) the salient elements of the agreement were as Volteas has described them in his evidence which was consonant with a typical way in which he and Pezaros undertook such ventures with investors;

(c) it was no part of that agreement that the funding, whether it be called a loan or otherwise, was repayable on demand; that was not discussed nor is it the legal outcome at law if there was no fixed date for repayment or recovery of the investment;

(d) any prospect of early repayment from the sale of some other café was not a matter of agreement, and as a commercial proposition it would go against the idea of joint risk under this joint venture if Cohen could be thereby replaced as financier;

(e) Cohen's evidence that he was entitled before payment to 100% of the units to empower him to remove Umbrella Enterprises as trustee as install someone else was no part of the agreement and is manifestly hostile to the idea of a joint venture;

(f) the agreement was that repayment would be made when the café was sold and after payment of expenses, but there was no discussion or agreement about the nature or type of those expenses although it would have reasonably been assumed to mean at least the costs of sale and liabilities such as outstanding trading debts for such things were inevitable and necessary to be met;

(g) on close analysis, the issue is not what meant by "expenses". At the least there were costs of the sale transaction meeting that description. The expenditure in dispute concerns expenses in another context which the company and Volteas were free to spend unless it could be held that the proceeds were not property of the company because they belonged beneficially to the plaintiff, as lender, under some fiduciary relationship;

(h) in discussions, there is insufficient evidence to show that the plaintiff by name was identified as the investing party with whom legal relations would be created; it is more probable there was never mention of any party at all, as both sides were content to accept that the money was coming from some source within reach of the Cohen family in some way; that is, Volteas was indifferent to where the money was to come from, for under the agreement it was not as if he or Pezaros were somehow personally bound to repay in which case the lender might have had some significance;

(i) there was no agreement (because discussion did not condescend into that) of a unit trust and certainly no discussion let alone agreement that Cohen would own the business and hold 100% of the units until repayment of the advances made;

(j) the trust and confidence reposed in Cohen by Volteas to set up the structure would, even though not explicitly discussed, conceivably permit the creation of the unit trust as a means of giving effect to the 50/50 deal by a 50/50 ownership of units, for that would be faithful to the agreement to have 50/50, and if that was all there was to it, there would be no controversy; and

(k) Cohen reconfigured the arrangement under the trust deed to give him ownership and control of the business which was something inimical to the 50/50 joint venture as agreed.

143 They being the Court's findings about the agreement, the next issue was the identity of the party entitled to sue on it.

144 The plaintiff's case is that it, in its capacity as trustee of the Lotteries Trust, advanced money to Umbrella Enterprises, pursuant to the agreement, and that it was payable on demand. The defence, as pleaded, contends that the joint venture agreement was with Cohen personally and that it was he who undertook personally the obligation to provide the moneys to establish the café business, and that it was with him that legal relations were created, and not the plaintiff.

145 The fact is that the plaintiff was not the source of the funds. The cheques came from Princeton Investments Pty Ltd ($200 000), Surefit Australasia Pty Ltd ($170 000) and Calball Pty Ltd ($203 500). None of the money came from the plaintiff, the party that now sues on a loan. How is it then that the plaintiff claims to be entitled to sue? The plaintiff's case was that the source of the funds did not matter, for the plaintiff could be the lender of moneys provided to it for on-lending by others.

146 The evidence was unsatisfactory. Volteas' evidence was that in his discussions with Cohen, there was no reference by Cohen to the identity of the provider of the funds. However Volteas said he was unconcerned about knowing the precise source of the funds and beyond believing the money was to come from the Cohen family, what mattered to him was that there was a source of funds to pay building invoices as the café was being established.[54]

147 To be unconcerned about the source of funds is consistent with the defendants' case that this was not a loan. Ordinarily, a lender borrower relationship would at the very least be documented in some way and would identify who the lender was to be. On the other hand, in an arrangement by which moneys are being invested, it would not be so significant for the joint venturer in Volteas' position to be concerned precisely about the source of funds of the investment moneys, merely that the funds were to be provided by the investor.

148 Cohen's evidence on the question was not at all clear. His case was predicated on the creation of the unit trust deed (itself in controversy) which named the plaintiff as the unit holder and therefore the competent plaintiff as lender. That is, because the trust deed showed Lotteries as the unit holder then it was the party competent to sue as lender. But the two are different. On the face of it, there is a question whether the plaintiff as unit holder has for commercial convenience been chosen to be treated as the lender. The Court pressed Cohen in his examination-in-chief to identify precisely the facts by which Lotteries' claims to be entitled to repayment of the alleged loan. His evidence was discursive, and was a composite of the following:

(a) "Lotteries was set up to basically hold the investments of the café";[55]

(b) neither he or Volteas wanted anything in their personal names, and for both of them, corporate entities would have ownership;[56]

(c) in talking to Volteas, he had a joke about the name Lotteries because cafés are a gamble, and that was the name he had originally picked for the company;[57]

(d) "When I was giving him the money he knew it was coming from one of our companies";[58]

(e) "... The deal was I would give him the money through our company which I would borrow the money from my family companies to put into that company to give him the money across";[59] and

(f) Lotteries was exposed as the lending party "because I told Paul that it would come from one of the family entities".[60]

149 What prevails in the evidence is that the identity of the lender was not an issue for either Cohen or Volteas.[61] Therefore it is improbable that the plaintiff was mentioned at all and I am not willing to believe that a joke was made about the name "Lotteries", at least not to establish something as serious as the identification of a lending party with mutual legal rights and obligations. As was submitted for Volteas, there was a conspicuous fault line in the plaintiff's case between ownership under the unit trust and identity of the lending party. I find that the ‛lender' was never identified in the discussions between these men; discussions which were loose and bereft of details. Volteas knew the money was coming from somewhere associated with Cohen or his family but was unconcerned to know precisely where. When an invoice was to be paid for works to set up the business, the money would come from Cohen. The source of those funds was a matter for Cohen as investor.

150 Mr Upjohn submits that should the Court find that Cohen had not disclosed the lender of the funds to Umbrella Enterprises, the Court ought nonetheless find that Umbrella Enterprises had no difficulty in relation to who the lender was to be and that Cohen was an agent of an undisclosed or undetermined principal, namely the plaintiff: see Pico Holdings Inc v Wave Vistas Pty Ltd.[62]

151 This is problematic at a legal level if the question was: to whom would the borrower complain, or who would be sued, if the funds were not forthcoming? Presumably the liable party would be the person agreeing to procure the money. And that is how I would see things here. Both parties experienced in business were not entering into the venture personally, but through a 50/50 structure involving corporate entities. Cohen was the procurer, and the funds were procured. Thus I reject the first defence that Cohen personally was intended to be the contracting party.

152 But on the facts, the plaintiff was not the source of the funds. Mr Crennan submits that where Cohen took it upon himself to procure the funds from other entities, it is reasonable to infer an objective intention to create legal relations with Cohen himself or at least to create legal relations between the actual lender and the borrower. He relied on Carminco Gold & Resources Ltd v Findlay & Co Stockbrokers (Underwriters) Pty Ltd,[63] for the proposition that if at the time of the agreement, the identity of the source of the funds was not identified or ascertained, then the person who agreed to raise or procure the funds acts purely as agent and as such cannot sue to recover the money lent by the principals, as the principals (as lenders) are the only ones who have suffered loss and damage.

153 The respondent in Carminco was a corporate advisory and underwriting business that was approached by a borrower to raise seed capital and to raise loan funds to exercise an option to purchase a mine. The respondent agreed to raise funds from its investor-clients, the identity of whom was unknown at the time of the agreement. The money was raised from the respondent's clients and advanced, but it transpired that the borrower had no option to purchase the mine. The respondent sought to recover the money, claiming it was deceived. The borrower claimed that the respondent was merely an agent who entered into the agreement on behalf of principals and, as such, sustained no loss and damage, and therefore could not sue to recover the money. Thus, in Carminco, it was the procurer of the funds that sought to sue, not the provider or source of the funding. The question was whether it was merely an agent, that is, one who by conventional description brings together principal and borrower for the making of contractual relations, and then steps away.

154 The Court in Carminco posed the fundamental question of fact in every case as being what the parties intended or must fairly be understood to have intended.[64] The Court held that whilst the expected principals came from a known class, they were not identified and not ascertained. That alone suggested the view that the procurer was intended to be acting as principal. Further, there was evidence that the procurer told the borrower that it would be too inefficient for the borrower to deal with the procurer's clients, so the borrower would best deal direct with the procurer. To that end the loan agreement named the procurer as lender and as acting as an agent for its various clients "and in its own right."[65] On that strong evidence of intention, it was held that the contract was one on which the respondent alone acquired rights and assumed obligations and was therefore entitled to sue.

155 The facts here are very peculiar. What is confounding is the plaintiff's casting of its case as a loan. But in truth, as I assess the evidence, Cohen and Volteas were approaching the deal not as a loan at all, but as an investment from Cohen and his family, and in that distinct context, the identity of a "lender" did not enter the consciousness. The situation defies analysis according to principles of agency law. Really, to my mind, the question is: who were the parties to the joint venture arrangement because it is those parties who may enforce rights and obligations according to the terms of the agreement. With whom was Volteas doing business? He was doing business with Cohen. The money was to come from Cohen from a source within his family or possibly elsewhere, but the source was immaterial.

156 The doctrine of undisclosed principal, thought to be based on commercial convenience, permits a person to sue on a contract even though the other contracting party does not know that the person with whom he was contracting was acting as an agent: see generally Dal Pont, Law of Agency.[66] The law permits this because the contract is seen in truth to be with the undisclosed principal even though made by a middleman, where usually it is matter of indifference to either party whether there is an undisclosed principal or not.[67]

157 So who was the undisclosed lending party? The cheques did not come from the plaintiff. There was difficulty in showing that in truth the plaintiff was the on-lender. The Court taken to general ledgers and balance sheets, but even then the position was not clear.[68] I pressed Cohen on this. His evidence was that the plaintiff was the investing company therefore it was the lending company.[69] Yet, entries in the general ledger made reference to another entity, Big Dreams Investment Trust, which was said to be part of the Cohen family's business, and a company in which Cohen said 'all the money ends up in that pot.' A better explanation was left to his accountant, Bendal. He prepared the draft accounts of the plaintiff and for Umbrella Enterprises (until Hage took over). Avoiding the details, he said the bookkeeper Brian Thompson told him to see Big Dreams Investment Trust as the lender of the funds until more instructions.[70] Big Dreams Investment Trust was as a treasury or bucket entity that the Cohen family predominantly used. He was subsequently told by Cohen that the correct lender was the Lotteries Unit Trust.[71]

158 There are limits to which I need to go through the machinations for the preparation of balance sheets and the labours the Court went through to clarify the accounting material. The preparation of the balance sheet had passed through the hands of Bendal, who said he was not happy with the financials and after he was disengaged, the balance sheet fell into the hands of Mr Hage who was likewise struggling to get complete information but maintained the state of accounts until he could better ascertain the facts concerning the trusts. Amidst all this, I will seize upon the balance sheet for the Lotteries Unit Trust for the year ended 30 June 2009, 2010 and 2011 which are said to be final.[72] In 2009, there is a current asset to the Umbrella Enterprises Unit Trust shown as $370 049 and a current liability for that same sum to 'Abraham Cohen &/- associated entity'. For the year ended 30 June 2010 and 2011, Umbrella Enterprises is still shown as being a debtor to Lotteries Unit Trust for $502 000 (which is a lesser amount than the claim in this case) and the Big Dreams Investment Trust is shown as the entity to which Lotteries is liable. That is consistent with the evidence that Big Dreams Investment Trust was a source or conduit of funds and that the 'loan' to Umbrella Enterprises appears as an asset for the plaintiff. The same is shown in the balance sheet as at 30 June 2011. The evidence should have been clearer as this was a serious issue, but in my judgment there is enough to show that the money that was put into the joint venture by Cohen came from three sources, was put through the 'treasury' of the Big Dreams Investment Trust and was then shown on the plaintiff's books as a loan to Umbrella Enterprises.

159 Whilst I think there is some blurring between the plaintiff in its role as unit holder and some internal fiscal arrangement by which it is then shown as the lender as well, and imperfect as the evidence is, there is sufficient to conclude that Volteas and Cohen had dealt with each other on the basis that Cohen would or could be left to his own devices to arrange the funds without reference to Volteas and that for the purposes of the venture, the plaintiff could be brought forward in the events that have occurred as the party making the loan or investment. I therefore reject the defence that the plaintiff is not competent to sue.

160 It is plain Cohen had no actual authority to sign the trust deed for the Checoma Unit Trust and the Umbrella Enterprises Unit Trust. For the Checoma Unit Trust, Cohen sought to justify his actions by saying that as part of the agreement, he was asked by Volteas to set up the companies or "organise the set up" and control the whole structure.[73] Then, when asked explicitly of the basis on which he saw fit to sign the deed when he was not a director of Checoma, he said "I was a shadow director". This was the first mention of such a thing. It had never been pleaded in reply. When he was asked to explain what he meant by that, his answer was:[74]

Well, basically, I pretty much put all the money in. I was running the finances, I knew exactly what was going on with the company. I was looking at the original budgets, the original quotes; everything. So whilst it not appear that I am on as a director I was pretty much carrying the can.

161 When asked by what arrangement he was conducting himself as shadow director, he said:

Paul and his accountants confirmed I was able to do this.

How did they do that? How did they signify that?---Well, we can talk about their actions on - I kept asking for the name of the entity for the trust and their accountant came back on an email on it because they were sick and tired of me nagging them, "What's the name of the entity?". They came back on email with, "Just put that name."

What was that entity they nominated it?---P G Checoma, which was short for Paul George Checoma.

Going back to Checoma Pty Ltd, can you explain to the court what role or function in fact did Volteas and Pezaros carry out as directors of Checoma?---So Paul and George were running the café or installing people to run the café. They were responsible for having the café set up as a full-line café. The whole fit out, the whole everything. The negotiation of the lease with me agreeing to it.

I'm talking about their role and carrying out the corporate affairs or corporate management of Checoma of which they were directors?---Zero.

Why was that?---Because the deal was that it had to run through our family office, or Bendals. In order to get our family money or my money to go into this business, we were going to run the company because we believed that if we controlled the money and the company everything should be pretty simple.

162 There was other evidence from him that made clear what he was really thinking at the time or how he now sought to justify his actions in signing the Checoma deed even though he knew he was not a director. For him, a willingness by Volteas to leave it to Cohen and his accountant to set up the structure was taken to be a carte blanche to not just take the administrative steps of getting a shelf company and appointing directors, lodging ASIC forms, and perhaps setting up a unit trust on terms that give 50/50 ownership of the business asset, but to also introduce any other terms concerning ownership of the business and to therefore effectively run the company as if it was his, even though he was not willing to be a director as he did not wish to incur liabilities as a guarantor on the lease. There was this telling evidence given by him that he regarded himself as having carte blanche to set up the structure as he wished:[75]

COUNSEL: What I'm putting to you, Mr Cohen, is that these trust deeds, the documents which you executed simply to protect your own interests that they were not documents agreed between you and Mr Volteas?---I don't agree, but anyway, they didn't agree to the substance. What we agreed to was whatever documents I prepared they were happy with, whatever structure, they were happy.

Let me understand your answer, Mr Cohen, are you saying to his Honour that the reason you did this was that you were given carte blanche by Mr Volteas to set up things however you wished?---Correct.

It was on that basis that you set up the structure?---Correct.

163 And that is why I have difficulty in accepting Cohen's evidence about the content of the agreement. His account of the discussions of the agreement is coloured by his belief that he had carte blanche to set up the structure of the deal and I cannot accept that he had any such thing. His evidence about the agreement is what he came to regard it to be. But the structure had to be faithful to the agreement. Thus the outcome was for Cohen to go beyond the licence to set up the documentation for the joint venture, and to establish the unit trust on terms that gave him ownership of all of the units, and only allocated a 50% ownership of the unit trust after the business had been sold. It was as if he regarded this as his business.

164 Moreover, his spontaneous evidence (for such a material matter was never pleaded) that he signed the Checoma deed because he was a shadow director was opportunistic, but unsustainable. The plaintiff's counsel seemed to shy away from making a submission that Cohen was a shadow director as that is understood under the Corporations Law. The definition of director under s 9 of the Corporations Law extends to a person who is not validly appointed as a director but the directors of the company are accustomed to act in accordance with the person's instructions or wishes. In essence, it has to be shown that in the face of directions or instructions from the alleged shadow director the properly appointed directors cast themselves in a subservient role or surrendered their respective discretions.[76] Moreover, the extended meaning is there to impose fiduciary and statutory duties on the shadow director towards the company. It does not of itself confer authority.

165 The submission was that as Cohen was the provider of funds and the person who, with his accountant, set up the structure, and attended to the ASIC forms and statutory accounts, he was the one responsible for the company's corporate affairs and corporate management and that gave him the authority to sign the trust deed. I cannot accept this. It amounted to saying no more than as the financier of the company's business he had the authority to act as director. It gives no regard to the fact that the business undertaking was being conducted by Volteas and Pezaros, and their appointment and legal responsibilities as directors by design. A financier, even one who holds the purse strings and in that sense is calling the tune is not thereby a director or agent of the company. The evidence established that Volteas was content to let Cohen and his accountant attend to setting up the structure. But that was for the purposes of setting up the structure faithful to the agreement, and not as Cohen saw fit; and certainly not to give him 100% ownership of the business at the outset. Moreover, the arrangement to let Cohen set up the structure and attend to lodgements was at a nascent stage. It was not an authority given after the incorporation of Umbrella Enterprises and the creation of directorships to execute something as significant as a trust deed on behalf of the company, certainly not under s 127 of the Corporations Law.

166 The Court never got a satisfactory answer from Cohen why it is he regarded himself as legally entitled to sign the trust deed on behalf of the company. His evidence that he thought he was a director is not credible or sustainable on any facts.[77] He had previously said he did not want to be a director and be liable as a guarantor under the lease.

167 Alternatively, it was asserted on nothing more than a passing reference to Verwayen[78] that leaving Cohen to attend to important corporate and accounting tasks worked as an estoppel or waiver, that is, to estop or prevent the defendants from denying his authority to bind the company. That is as far as the submission went.

168 The estoppel or waiver is based on the exiguous assertion that after he took it upon himself to sign the deed without authority, Cohen sent the trust deed to Pezaros and Volteas and they did not say anything about his authority or lack of it to execute the deed nor did they say anything about the content of the schedule which deferred their entitlement to a 50% unit holding. Therefore, his case was: if nothing was said then the Court should see that as assent by Volteas and Pezaros and, the submission went, as creating an estoppel.

169 Cohen does not say he spoke about the deed to Volteas or Pezaros or somehow got their authority to sign it as director. That would have been such a simple and expected matter. After he took it upon himself to sign the deed without authority, Cohen says he sent the trust deed to Pezaros and Volteas. He says they did not say anything about his authority or lack of it to execute the deed nor did they say anything about the content of the schedule which deferred their entitlement to a 50% unit holding. Therefore, his case was: if nothing was said then the Court should see that as assent by Volteas and Pezaros to what he had done. There was no evidence from him that after sending the deed, he asked if they had got it or whether he had raised any reference to it. It was submitted that the silence from the recipients created an estoppel or ratification or waiver; that is, by not saying anything after the deed was posted to them, the defendants were estopped from denying that Cohen had the authority to act as he did even if he did give him ownership of the business until repayment. That was the limit of the submission.

170 That involved the factual issue whether Cohen truly did tell Volteas and Pezaros what he had done and given them a copy of the trust deed. Even before then, it left unresolved why it is Cohen saw fit to take this step rather than dealing openly with Volteas and Pezaros and asking them to execute the deed as directors. It would have been a very simple matter, unless (and this was the defendants' case) he was acting unilaterally to give himself an advantage for potential use.

171 Cohen's evidence was that when he signed the deed he sent one to his accountant Bendal and another one to Volteas to a post office box address in Templestowe. There is no evidence of any conversation before or after such an alleged step or any accompanying materials or anything else that one would ordinarily expect to accompany such a significant document. They were in a joint venture and in regular contact. Cohen says he sent the deed to the post office box "because their girl would empty it every day". There was never an antecedent or follow up conversation about the signing of the deed or its delivery. Bendal was called as a witness for the plaintiff and there was no evidence from him to say he had been given the deed by Cohen. There was no evidence at all from him about the handling and delivery of the trust deed. Indeed, the circumstantial evidence derogated from what Cohen had told the Court. There was evidence of an e-mail from Bendel to Cohen on 7 August 2009 (about the time the café started trading) concerning the subject matter of draft accounts for the Umbrella Enterprises Unit Trust in which in which Bendal exclaims: "Abraham to provide the Unit Trust Deed!"[79] Cohen really had no answer to this, content to say in Court "I sent it. If they didn't have it, that's not my concern."

172 Volteas and Pezaros said they had never seen the trust deed before.[80] They said the first time they had seen it was in the course of this litigation. Volteas was not cross examined at all about this. Pezaros was not tested in cross examination, beyond a suggestion that one of the Degani employees might have collected the trust deed from the post office box and "wouldn't trouble you with a trust deed." All of that is consistent with the minatory pre litigation correspondence in which the plaintiff's lawyers stated their intention to remove Umbrella Enterprises as trustee of the unit trust, and Volteas lawyers disavowed knowledge of it.[81] They had to press to get it. Their accountant Hage had also pressed to get the deed.

173 Much time and effort was spent on behalf of the plaintiff to show that Volteas knew what a unit trust was, was a director of many companies in the café industry, and that a unit trust was a typical way that Volteas himself had set up a Degani's business. He was shown trust tax returns and financial statements all of which cited "Umbrella Enterprises Unit Trust". From there an attempt was made to establish that therefore he was in no position to disavow that a unit trust had been established and that he had espoused it, and it therefore incredible (and unconscionable, so pleaded) to deny the Umbrella Enterprises Unit Trust. Volteas, as he said, is an experienced retailer. He had no diffidence in saying that he does not prepare accounts or ASIC or tax documents; he signs what an accountant tells him to sign. It must be born in mind that by the time Hage is engaged to act for Umbrella Enterprises and take over from Bendal (who was having difficulties in carrying out his tasks with the financials he had, and himself was trying to obtain the unit trust deeds from Cohen) the state of quandary in Hage's mind about the unit trust and the absence of any deed trust led him to advise Volteas that in the interests of avoiding problems with the ATO it was better to leave things as they were and look into the trust question later and make amendments to tax affairs if necessary.

174 If the plaintiff's forensic purpose was to show that Volteas' signature on any document which had the words Umbrella Enterprises Unit Trust fed the estoppel, or showed an acknowledgment of the institution of a unit trust which had been previously created by Cohen without any authority, then it was not achieved. A trust cannot be forced into existence that way; not in these circumstances. And Volteas' assumed knowledge of a unit trust as a form of business structure does not therefore impress him with knowledge of this unauthorised one, especially if it was a trust on terms that departed from the 50/50 agreement and gave Cohen ownership of the business until the loan (payable on demand) was repaid. Of course a company director has his responsibilities to statutory authorities when signing documents put before him by an accountant, but as I shall return to later, going beyond a prima facie stage, the real controversy in the case was whether a trust relationship was institutionalised consensually and intentionally.

(a) Cohen had no authority to sign the trust deeds and the fact that he was the source of the finance and that he volunteered to set up the structure did not therefore give him the authority or allow him to arrogate to himself the authority; it would have been a simple matter for such a significant document to have simply been sent to Volteas and Pezaros for execution if its contents truly were faithful to the 50/50 agreement.

(b) As with Checoma Trust Deed, I cannot be satisfied that Cohen sent the Umbrella Trust Deed to Volteas and Pezaros. His evidence about posting it is vague and improbable, unsupported by any objective evidence. I do not believe it. His accountant Bendel did not seem to have it. I accept the evidence that the defendants saw the deed for the first time in this litigation.

(c) The fact that Volteas and Pezaros may be familiar with a unit trust as a form of business structure and saw financial statements citing the first defendant as the trustee of the unit trust does not show they acceded to what Cohen had done . They cannot be taken to have acceded to a structure where their joint venture partner had taken complete ownership of the business under that unit trust and asserted power to remove Umbrella Enterprises.

(d) Thus, the legal relationships in this case cannot be referable to the unit trust deed.

176 By the time of the plaintiff's closing addresses, the Court was left to wonder whether the issue had become lessened or sterilised. The plaintiff's claim, or the remedy, came to be based on imposing a fiduciary duty or a proprietary right to the proceeds of sale not by virtue of a trust or unit trust but by virtue of the agreement to pay back the investment (steadfastly asserted by Cohen to be a loan repayable on demand) from the proceeds of sale. In other words, the plaintiff was asserting a trust arising from the fact of sale. That was put as a trust relationship analogical to a Quistclose trust. From there, the plaintiff sought to impose fiduciary obligations, and accessorial liability on Volteas. I shall return to this.

177 As I have already said, it was not so agreed in discussions between Cohen and Volteas. Even though the plaintiff makes no claim for repayment of the loan as a debt against Volteas, the finding on the issue whether it was repayable on demand by operation of law is still relevant for three purposes.

178 First, as part of the Court's findings on the terms of the agreement be they express or to be implied as a matter of law. Secondly, on the unconscionability and estoppel case, it is put against Volteas that he made a representation to that effect, which was an inducing factor to Cohen to invest in the first place. Thirdly, it is of substantial forensic significance because the tenacious assertion by Cohen every step of the way that this was a loan repayable on demand comes to better understand the predicament in which Volteas found himself in, and the defensive measures to be taken when the defendants came under threat for immediate repayment at a time when the joint venture business was being sold and debts existed. Added to that, is the general credibility point put against Cohen that the high handed assertion of this being a loan payable on demand was a demonstration of how he was willing to forsake what was supposed to be a joint venture undertaking and conduct himself in his own interests regardless of the true commercial cooperative nature of the venture.

179 Mr Upjohn contended that the absence of a stipulated date for repayment of Cohen's investment meant, necessarily at law, that the money was repayable on demand. He submitted that although the plaintiff here could be regarded as a "friendly lender" and although it was in the plaintiff's commercial interest to see that the business was established and trading for about a year in order to establish a trading history, that was merely a commercial consideration and it does not override the implication in law of a term that the contract is repayable on demand. For that submission, there was singular reliance on the decision of Fullagar J in Ogilvie v Adams.[82]

180 In my view, reliance on Ogilvie v Adams was misplaced. That was a case about the statute of limitations. It concerned the accrual of a cause of action for the recovery of a debt which was expressly agreed to be "repayable on demand". The case stands for the proposition that when a loan is expressed to be repayable on demand, no demand is necessary to found the cause of action because the cause of action accrues instantly upon the making of the loan. The principle as stated by Fullagar J was:[83]

The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor's money, and this whether the creditor brought an action of debt or an action in i_ndebitatis assumpsit_. Therefore if A lends money to B, then instantly B is detaining A's money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation. The Courts have long since settled it that a mere statement or agreement that the money is repayable on demand, or request or at call, is not sufficient to contract out of that situation where all else that is known are the terms of the contract is that A has paid money to B by way of loan. The lenders cause of action still rises instanter on the receipt of the money by the borrower, so that the lenders cause of action becomes statute barred at the expiry of six years after the receipt of the money.

181 Thus Ogilvie v Adams is not authority for the proposition that the absence of a fixed date for repayment of a loan means, at law, that it is repayable on demand. As analysed by Nettle J in VL Finance Pty Ltd v Legudi,[84] the principle in the case is that time runs on a debt repayable on demand when the debt was created, and to change that, there has to be something in the contractual relationship which necessarily implies that the cause of action for recovery of the loans was not to arise upon the making of the loan.

182 Moreover, the submission was unaligned with the evidence which was plainly to the effect that the parties did agree on a date or an occasion or event for repayment; namely, the sale of business after payment of expenses. The problem here, as I see it, was that such an agreement assumed not only a profitable sale, but a lump sum sale price from which there would be at least a return of investment. Here, an event occurred from which accrued an obligation to repay the investment. But there was no agreement what would happen if the sale was at a loss and the price was payable by instalments. The plaintiff's case has been conceived without grappling with the exigencies and the legal ramifications of adamantly asserting it was a loan payable on demand. How could the company be expected to pay the investor $538 250 on demand in the events that occurred? The weekly payments were the company's only source of money. The dispute arose because of the assertion of a loan repayable on demand and the question of the use of the proceeds of sale by the defendants to defend their position.

183 In any case, the terms of repayment also, together with other circumstances, support the characterisation of the investment here as being by way of capital and not by way of loan. In this regard, I would accept the elements of the defendant's submission that:

(a) Cohen himself said in evidence that the profits to be obtained by this investment in the enterprise would be in the nature of a capital gain;[85]

(b) the purpose and effect of the investment was that the family would own infrastructure, as he saw it;[86]

(c) the purpose of the adventure is to obtain and enhance a capital asset;

(d) the proposition that it was a loan repayable on demand was fundamentally inconsistent with the nature of the joint venture, which explains his own evidence that it was not repayable on demand but it was repayable earlier than the sale of the business at the option of Mr Volteas and Mr Pezaros, and otherwise not repayable until the business had been sold.[87]

184 Further, even apart from Cohen's own evidence, the objective facts support the characterisation of the advances as a matter of capital:

(a) They secured a permanent advantage for Mr Cohen's interests in relation to the business enterprise, that is, the joint venture. This advantage included an ownership interest in the form of units and a contractual right to return of the funds and to receive an aliquot share in any surplus.

(b) The terms on which the advances were made were not at all consistent with normal business practice in relation to a loan, including the provision of security, and the right to interest, but were consistent with the economic activity of venturing capital into an enterprise in the hope of increasing the capital, with the concomitant risk of losing it.

(c) The profits if any from the investment were to be realised on the sale of the entire enterprise.

185 Undeterred, the plaintiff sought to make its case that the investment from Cohen was a loan (repayable on demand) because it was recorded as a current liability in the balance sheet of the first defendant in the financial years 2009, 2010 and 2011. As is well known, a current liability is one which is expected to fall due within 12 months.

186 But categorisation of a liability as current, even if the categorisation is correct in fact, does not mean that it is a loan payable on demand. All loans repayable on demand are current liabilities; but not all current liabilities are loans repayable on demand. The plan always was to sell the joint venture business after about twelve months.

187 Despite that, the submission was it must be a loan because the financial statements showing it as a current liability were signed as being true and correct by Volteas or Pezaros, and that a person is bound by a document as signed according to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[88]

188 This case does not call for the application of the principle in Toll. That was a case in contract law. It stands for the proposition that a person who signs a document which was intended to effect legal relations is bound by the terms whether or not the person has read the document, unless there was a vitiating element such as misrepresentation, duress or mistake or a claim for equitable or statutory relief. It would be correct to say that a company's accounts signed by a director as being true and correct is prima facie evidence for statutory reporting purposes of the facts stated in those accounts: see Hancock Family Memorial Foundation v Porteous.[89] But going beyond a prima facie stage, the real controversy in the case was whether the current liability truly was a loan.

189 The evidence was as follows. Cohen's accountant, Bendal, prepared the accounts for Umbrella Enterprises for the year ending 30 June 2009. When asked if the treatment of something as a loan was a matter of instruction or was a matter of an accountant's characterisation, he said that he treats it as a loan until otherwise instructed. He said that if a unit holder was making a capital type contribution, then it would be classified under another sub-heading known as a unit holder loan account or unit holder's current account. But it is plain that for 2009 Mr Bendal was not called upon for himself to investigate the proper characterisation of the investment. The Cohen family had a bookkeeper, a Mr Brian Thompson (not a witness) who treated the money as loan, and Bendal, acting on the bookkeeper's view, assumed it was a loan.[90] Bendal prepared draft accounts as at 30 June 2010 again acting on instructions of Cohen's bookkeeper but they were never finalised beyond the draft stage. His evidence was he was not happy with the financials, and he was then disengaged as the accountant.

190 The person who then took over as the accountant for Umbrella Enterprises was Paul Hage. He became the accountant in the first half of 2011 at the request of Volteas at a time when there were difficulties between the parties and litigation was underway He took over the file from Bendal and was given documentation. Hage says in his examination of the accounts he was not aware of the existence of a unit trust. He could not see a unit trust deed amongst the materials he had been given. Having observed that the accounts showed the first defendant as being the trustee, he asked Bendal for a copy of the trust deed. His evidence was "That was one of the sticking points that I felt was a bit odd, that I couldn't get a copy of the trust deed."[91] He asked for a copy of the deed from Bendal but it was not given to him. He received a copy of the 2009 financials and the draft or interim financials as at 2010. When examining those financials, and observing the liabilities, he still needed to see a copy of the trust deed. He said he tried to ring Bendal to try and get the deed but could not get anywhere. Bendal told him he just didn't have one.[92]

191 Hage asked his clients if they had one and asked their bookkeeper if they had one. They did not. He then prepared the accounts for 2010 and for 2011. Both those accounts describe the first defendant as trustee of the Umbrella Enterprises Unit Trust. He prepared those accounts still not having seen or having obtained a unit trust deed. His view was that the way the unit holdings were described in the schedule of the Trust Deed "Didn't look ordinary" and he had never come across unit holdings done that way before. His advice to Volteas and Pezaros was that the right thing to do would be to deal with the Australian Taxation Office and go back in time and amend all documentation and taxation affairs which were based on the Unit Trust, and to apply for a new tax file numbers and a new ABN for the company. That did not occur he explained because as he was trying to finalise all the paperwork, and in the situation where legal proceedings were underway, his advice was to lodge the returns on the basis that there was unit trust, pay the taxes and then come back to the question of the unit trust once the dispute was resolved. For his purposes he explained that apart from making some changes to the draft accounts as prepared by Bendal, he had nothing else to go by except the information contained in the draft accounts prepared by Bendal. He was particularly concerned about lodging the accounts because the ATO was threatening penalties for not lodging returns. He was in the predicament where he could not get clear answers from Volteas and Pezaros because they were unaware how the Cohen interests had prepared these accounts and he couldn't get clear answers from Bendal because for one thing, Bendal could not provide him with the Trust Deed. The first time he saw the Trust Deed was when the legal proceedings produced them. His evidence was he eventually got a copy of the trust deed from Dimos Lawyers who were then acting for both defendants.

192 The point of the evidence was this. For regulatory purposes, when directors sign financial statements they have responsibilities to the regulating bodies and to those who may rely upon these accounts. They are prima facie evidence of the financial position. The contents of the balance sheet may be an acknowledgement by the company because it may be supposed that the return is intended for use by the company's creditors.[93] But in my view, as a matter of evidence, they were only prima facie evidence. If, as here, I have evidence that those signing the accounts were truly ignorant of the precise veracity of their contents because it had been prepared by the Cohen interests, and that their own accountant Hage was dealing with the exigency of having to urgently file to ensure compliance with the laws, with the intention of revisiting the accuracy of the balance sheets afterwards and making changes, then it is not correct to submit that the defendants are bound by what is said in those balance sheets. It cannot be that the Court is bound with the characterisation of something as a loan and a current liability when on the true facts, it was not. That is especially the case whereas here there is a real controversy between disputing parties about whether one party has questionably categorised something as appearing to be a loan when it truly was not. I will accept the evidence of Hage. There was nothing really put that impeached his evidence. He did what he could in the circumstances at a time when an intense dispute was developing.

193 I would hold that in this case, the question whether Cohen's investment was a loan repayable on demand is a matter of legal analysis according to the terms of the agreement as I found them and the characterisation based on an objective analysis, as well as the commercial considerations. I cannot ignore what is said in the balance sheet. But I can come to the conclusion, as I do, that the balance sheet at least for this item does not properly reflect the intention of the parties and the true nature of the investments. This was not a loan.

194 The plaintiff sought to make a case for misleading and deceptive conduct by misrepresentation, wrapped up with a statutory unconscionability case, and an estoppel case all based on the same allegations. Paragraph 15 and 16 of the statement of claim alleged:

1. Further, from in or about November 2008 and thereafter, Volteas promoted the business to be established and established and situated at and conducted at Shop GO1, WTC Wharf, Ground Floor, Melbourne under the name Degani of a full line café operation and a full kitchen ("the Business").

1. Volteas both on behalf of himself and for and on behalf of Umbrella represented to Lotteries:-

(a) Volteas both on behalf of himself and for and on behalf of Umbrella represented to Lotteries:-

(b) The Business would be owned by Umbrella as trustee of the Umbrella trust to be created and known as the Umbrella Enterprises Unit Trust.

(c) that each of the Lotteries Interest and Volteas Interest would hold an equal interest in the Business subject to the following conditions:-

(i) that before any distribution of profit or dividend from the business the advances and/or loan contributed by Lotteries must first be paid out;

(ii) that before the Volteas Interest was entitled to its half interest in the Business the loan from Lotteries must be repaid in full whether from the proceeds of sale of the Business or earlier; and

(iii) that in the event the Business was sold, the proceeds would be used to first pay out the Lotteries' loan before the balance of the proceeds was distributed and then the balance distributed equally between Lotteries and P G Checoma;

(d) That the Plaintiff was authorised to prepare a Unit Trust Deed wherein the unitholders were in effect 50% the Cohen interest and 50% the Volteas interest.

("the Representations")

PARTICULARS

The representations were made orally by Volteas to the Plaintiff from on or about June 2008 to November 2008, at meetings conducted at Degani Café, 818 Bourke Street, Melbourne, and at the World Trade Centre, Melbourne, Victoria and over the telephone during that period. Volteas said on behalf of himself and for and on behalf of the First Defendant to Abraham Cohen on behalf of the Plaintiff words to the effect referred to herein. The representations were made and repeated by Volteas on behalf of himself and for and on behalf of the First Defendant during the relevant time and on or about when the Deeds referred to above were executed. Prior to 7 November 2008 the representations were made by Volteas in anticipation by him and the Plaintiff that the First Defendant would become incorporated.

195 Paragraph 18 pleads that in reliance on the representations, the plaintiff advanced funds to Umbrella Enterprises. Paragraph 23 and 24 alleges said:

1. The Plaintiff would not have advanced the funds nor would it have assisted in the establishment of the Business but for the Representations and/or unconscionable conduct on the part of Umbrella and Volteas.
2. By reason of the matters aforesaid the Plaintiff has suffered loss and damage.

(a) The monies advanced by the Plaintiff to the First Defendant in the sum of $538,250.89.

196 Further particulars of the representations stated:

The Representations were made by Volteas in the course of the conversations referred to in paragraph 1 above, to which the Plaintiff refers to and repeats in response to this part of the Request. Prior to the November 2008 meeting Volteas and Cohen had a meeting face-to-face in or about June 2008 in the course of which Volteas raised the possibility of a further Degani bakery/café near the Yarra, possibly on one of the wharfs being renovated and the former casino site. Volteas enquired of Cohen whether he had contact with real estate agents who could identify suitable premises. The expected rental according to Volteas would be $75,000 per annum.

197 The plaintiff opened and conducted its case by contending that, having made those representations, it was wrongful for the defendants to deny that the moneys advanced were a loan; to deny the existence of the Umbrella trust; and to deny that the plaintiff owned the business (subject to giving 50 units to Umbrella but only after repayment of the loan). That conduct was alleged to be misleading and deceptive in contravention of s 52 of the Trade Practices Act (and identical provisions of the Fair Trading Act) and unconscionable under section 51AA and 51 AC of the Trade Practices Act. Volteas was alleged to be liable as accessory. On the same alleged representations, the plaintiff alleged in paragraph 20A that the defendants were estopped from denying the agreement as alleged by the plaintiff and estopped from denying the validity of the unit trust deed.

198 It is apparent that the alleged representations are nothing more than a restatement of the terms of the agreement as alleged by the plaintiff in its principal case. The defendants have always disputed the terms of the agreement as alleged and propounded other defences such as the invalidity of the unit trust deed, the competence of the plaintiff to sue, and denied the obligation to repay a loan repayable on demand. In that situation, the case is a contractual dispute and comes to be decided by a Court determining the terms of the agreement, orally constituted, according to the evidence.

199 I have already made my findings about the terms of the agreement, which in some material respects go against the terms as alleged by the plaintiff and collaterally therefore defeat any misrepresentation case in the way fashioned by the plaintiff. On that basis alone, the plaintiff's unconscionability and estoppel case falls. But a number of further determinations are called for in any event as a matter of completeness.

200 First, a breach of contract simpliciter is not misleading and deceptive conduct. In other words it is not enough to say "you promised to do something; you did not do it; therefore you have misled and deceived me". When the alleged misrepresentations are co-terminus with the alleged terms of the contract, non-fulfilment of the representations can only constitute misleading and deceptive conduct if it can be shown there is no intention by the representor to comply with the terms as represented: see Futuretronics International Pty Ltd v Gadzhis[94] and Coles Supermarkets Australia Pty Ltd v FKP Limited.[95] Otherwise non-compliance with the terms of the contract, especially where there is a dispute about the terms in an entirely unwritten agreement, is not misleading and deceptive.

201 Secondly, the cross-examination of both Volteas and Pezaros was not conducted so as to try and demonstrate that the defendants were incapable of fulfilling the alleged agreement or that they had no intention of doing so. The pleaded misrepresentations were not put to either of them, as would be expected. Instead, the gravamen of the cross-examination of Volteas at least seemed to be designed to show that Volteas was familiar with a unit trust as a trading legal structure and had conducted many other Degani's businesses by that form of structure. But this was of no moment for the real dispute was whether it was a term of the agreement, or whether it was represented that the Cohen interests would own all the units or own the business outright until repayment of the financial contribution which was repayable on demand. It was that part of Cohen's case that was so hotly disputed as being repugnant to the idea of a joint venture under which the venturers would have a 50/50 ownership. The downfall was Cohen's execution of the trust deed, without any authority, and without reference to the directors which gave him outright ownership. This facet of the case makes a case for misleading and deceptive conduct, and indeed unconscionability and estoppel, unsustainable.

202 Thirdly, the plaintiff abandoned the section 52 claim in closing addresses. If the plaintiff ended up conceding that there was no misleading and deceptive conduct, it is difficult to see how the same conduct could be unconscionable. They are based on the same disavowal of terms of the agreement. But the contention was maintained. Section 51AA states:

(1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

(2) This section does not apply to conduct that is prohibited by section 51AB or 51AC.

203 The exclusion in sub-section 2 takes attention away from section 51AC which concerns unconscionable conduct in business transactions. Where relevant that sections states:

(1) A corporation must not, in trade or commerce, in connection with: -

(a) the supply or possible supply of goods or services to a person (other than a listed public company); or

(b) ... ―

engage in conduct that is, in all the circumstances, unconscionable.

204 Subsection 3 sets out a non-exhaustive list of matters which the Court may have regard in determining whether there has been a contravention. It is unnecessary to refer to them beyond mentioning the well-known factors sometimes present in contracts of adhesion or commercial ascendency such as the superior bargaining strength of a party and the use of pressure and unfair tactics. The relevant principles for the application of section 51AC have been considered in a number of authorities but see especially the Victorian Court of Appeal in Body Bronze v Fehcorp[96] and Director of Consumer Affairs v Scully.[97] Unconscionability is more than a buzzword. Those cases establish that the notion of statutory unconscionable conduct requires a high level of moral obloquy or taint. And absent such taint, conduct which might be thought otherwise to be unfair or unreasonable should not be held to be unconscionable.

205 The allegations of statutory unconscionable conduct are levelled against both defendants. As against Volteas it is based on the corresponding provisions of section 8 and 9 of the Fair Trading Act and I shall deal with the issue in an aggregate way despite the consent judgment against the first defendant because it necessarily covers the same field.

206 In my view, there is no basis whatsoever on the evidence to say that either defendant engaged in unconscionable conduct largely for the same reasons that no case of misleading and deceptive conduct could have been made out simply because the defendants disputed the terms of the agreement as alleged by the plaintiff. The alleged representations were simply not proven. There is no basis for contending that the defendants promised but had no intention of complying with the terms of the agreement. They have done no more than dispute the terms of the agreement which they are entitled to do. I cannot resist saying this was a most unmeritorious allegation and only served to take attention away from the real question of ascertaining the terms of the agreement and analysing rights according to the agreement.

207 For the same reason the case based on estoppel, was also unsustainable. It was not unconscientious for the defendants to dispute the terms of the agreement as they contended them to be.

208 Even less needs to be said about the section 51AA case. If the case under section 51AC is unsustainable, then so is the case under section 51AA. That section concerns itself with the field of unconscionable conduct in equity where equity may set aside a contract or disposition resulting from the knowing exploitation by one party of the special disability of another, such as the constitutional disadvantage of age, illness, poverty, inexperience or lack of education, or the situational disadvantage such as emotional dependence or vulnerability between people: see generally ACCC v Berbatis Holdings Pty Ltd.[98] I think this part of the plaintiff's claim was untenable. This was a dealing between experienced and knowledgeable people albeit it of different personalities or approaches to the conduct of business. On no sensible basis could it be said that Cohen was in some position of disadvantage that was exploited by Volteas or Pezaros so as to induce him to, against his will, or contrary to a proper conservation of his interests, to enter into some improvident transaction. This too was a most unmeritorious allegation.

209 Accordingly, I regard the totality of the unconscionability case and the estoppel case as unsustainable.

How does the plaintiff say there was a trust relationship?

210 The plaintiff's primary basis for propounding a trust relationship appeared to be the Umbrella Enterprises Unit Trust deed. Its case as pleaded was that there was a duly executed unit trust deed under which it held all of the units in the trust until repayment of its advances, on which event the Volteas interests would receive a 50% interest in the business. Consistently with that, when the dispute first arose, the plaintiff's first step was to threaten to take steps to remove Umbrella Enterprises as the trustee of the unit trust and to appoint a new trustee, which of course would be under Cohen's control as 100% unit holder. An issue soon arose about the validity of the unit trust deed. As I have endeavoured to show, a good part of the plaintiff's claim was directed at attempting to show that Cohen had the authority to sign the trust deed or that the defendants ought to be estopped from denying that he lacked authority or, as a final resort, that he was a shadow director. A good part of the attack on Volteas was designed to show that a unit trust was the way he had ordinarily conducted his businesses and he should be taken as realising that this venture was conducted on the same basis.

211 But the plaintiff did not proceed with its threat to appoint a new trustee. Instead, it claimed that it had lent the money to Umbrella Enterprises, a trustee and the loan was payable on demand.[99] Thus, its claim was not based on the unit trust deed or the relationship under the unit trust deed. It was purely a claim in debt. Its case was that a debt without a fixed date for repayment is repayable on demand. Such an elementary cause of action is not dependent in any way on a trust relationship. It sued Umbrella Enterprises as debtor. And, as things stand, it has obtained a consent judgment for the full amount of that debt by consent of the liquidator for the first defendant.

212 Now, the plaintiff seeks to transform itself into a beneficiary under a trust to enable it to assert a beneficial or proprietary interest in the proceeds of sale. Its object was plain. By seeking to establish a trust relationship, it then opened the way to make a case against Volteas personally under Barnes v Addy for assisting the trustee or fiduciary in carrying out a dishonest and fraudulent design by redirecting the funds into the Marvel Gem account.

213 This part of the plaintiff's was based on paragraph 25 of the statement of claim which pleads a beneficial interest in the proceeds of sale. It says that by reason of the defendant's version of the agreement as pleaded and not as pleaded by the plaintiff:

... the Plaintiff is entitled:

(a) as chargee;

(b) pursuant to an express trust or

(c) pursuant to a constructive trust

to the proceeds of sale of the World Trade Centre Bakery/Café business after payment of expenses of sale.

214 Particulars of that conclusionary pleading were provided shortly before trial. They repeat the defendant's acknowledgement that, under the agreement, the funds would be used to fit out the bakery and the parties would then share the sale price (after payment of expenses and return of capital) as to 50% each. The particulars add this:[100]

Further, the charge or trust is established by the Defendant's agreement to re-pay the loan out of the proceeds of sale of the business, prior to any distribution of profit or payment of any dividend to the Plaintiff or PG Checoma. Further, or alternatively, a remedial constructive trust is to be imposed on the basis of the Defendant's unconscionable conduct by reason of their misrepresentations, as alleged in paragraph 20A.

215 For each limb of paragraph 25, the plaintiff's case based on the law of trusts, as I understood it, was that a trust sprung into being upon the sale of the business and the receipt of the proceeds of sale. But it is important to see that the alleged trust estate was the proceeds after the taking away the expenses.

216 Consistently with the further particulars, the case as opened propounded the express trust as a Quistclose trust. To understand Quistclose, the starting point is to recognise that debt and trust are distinct and separate norms. A debtor is not a trustee for the creditor since there is no identifiable fund which the creditor is entitled to compel the borrower to apply for the creditor's benefit.[101] A lender does not ordinarily pay the loan moneys on trust. The loan gives rise to a debt and the remedy is at common law on an action for debt. But Quistclose is an example of a loan transaction where, on an analysis of the parties' intention in that particular case, a situation can arise where a loan transaction can have a dual character of debt and trust. It can happen if money is lent for an exclusive purpose and is not at the free disposal of the recipient. If the borrower is not free to apply the money for any other purpose, that gives rise to a fiduciary obligation on the borrower which a court of equity will enforce: see Twinsectra Ltd v Yardley.[102] That is, the borrower takes the loan with an obligation or undertaking to apply it only for an explicit purpose. If that purpose cannot be carried out, the money is returnable to the lender, away from the borrower's creditors. In Quistclose the arrangement was characterised as giving rise to the lending of the money to the borrower on a primary trust to carry out the exclusive purpose, and then a secondary or resulting trust in favour of the lender if that purpose could not be carried out.

217 In Twinsectra it was explained this way:[103]

Such arrangements are commonly described as creating "a Quistclose trust", after the well known decision of the House in Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567 in which Lord Wilberforce confirmed the validity of such arrangements and explained their legal consequences. When the money is advanced, the lender acquires a right, enforceable in equity, to see that it is applied for the stated purpose, or more accurately to prevent its application for any other purpose. This prevents the borrower from obtaining any beneficial interest in the money, at least while the designated purpose is still capable of being carried out. Once the purpose has been carried out, the lender has his normal remedy in debt. If for any reason the purpose cannot be carried out, the question arises whether the money falls within the general fund of the borrower's assets, in which case it passes to his trustee in bankruptcy in the event of his insolvency and the lender is merely a loan creditor; or whether it is held on a resulting trust for the lender. This depends on the intention of the parties collected from the terms of the arrangement and the circumstances of the case.

218 The analysis of Quistclose by Gummow J in Re Australian Elizabethan Theatre Trust[104] prefers to characterise it as express trust with two limbs, rather than a resulting trust. But on either characterisation, the lender had something more than the benefit of a promise to repay; it has retained for itself a beneficial interest in the loan funds.[105] His Honour said:

But the essential reason why the insolvency law did not strike at the transaction in question in Quistclose was that the moneys represented by the cheque drawn by Quistclose in favour of Rolls Razor and banked in the special account of Rolls Razor never any at stage became the beneficial property of Rolls Razor.

His Honour makes the reminder that the question as to the existence of any express trust will always have to be answered by reference to intention. That is the essential proposition. To that end, the intention is to be inferred from language used by the parties, the nature of the transaction and the relevant circumstances attending the relationship between them.[106] But, the carrying out of that intention may not necessarily result in the creation of an express trust. There are a range of equitable measures to give effect to the parties' intentions.

219 In my view the arrangement here did not establish an express trust according Quistclose or even something analogous to it. That is because the purpose for which the funding was given was fulfilled.

220 The starting point for a Quistclose trust is that there exists a creditor and debtor relationship. That is the basis of the plaintiff's case. But in this case, the financial relationship between the parties was not that of creditor and debtor. If it were, then as was submitted by Mr Crennan, the operation of a Quistclose trust would be as follows. The amounts advanced would be held by Umbrella Enterprises for the purpose of paying for the fit out of the WTC café. If that purpose failed, for example, because the project did not go ahead, the lender would be entitled to claim as beneficiary against Umbrella Enterprises as trustee. But here, the fit out occurred and trading commenced. The fit out formed an inseparable part but not the entirety of the business which the first defendant sold, and for which it became entitled to receive payments from the purchaser. Umbrella did not hold the proceeds of sale, which were the entire assets of the business on trust for the plaintiff merely because the plaintiff advanced the purchase price of the fit out.

221 It is here that I must emphasise a critical feature of this case as stated at the outset of this judgment. The plaintiff has cast its case in amended versions and brought it to trial. It is cast as an action by lender against borrower. It was no part of the plaintiff's case that the form of association here was a collaborative fiduciary relationship. The relationship pleaded is contractual. That being so, what the plaintiff acquired was a contractual promise that the funding (whether it be characterised as a loan or as capital) would be from the proceeds of sale when the business was sold.

222 This part of the plaintiff's claim was asserted but not developed. According to the further particulars under paragraph 25, the remedial constructive trust is alleged to have arisen on the basis of the defendant's unconscionable conduct by reason of their misrepresentations about the agreement. Paragraph 20A pleads an estoppel, based upon the alleged representations made by Volteas in his own capacity and in his capacity as director concerning the terms of the agreement. But, as I have already held, the plaintiff's representation case is not made out. So, there is nothing unconscionable about the defendants having disavowed the terms of the agreement as the plaintiffs allege, and in advancing by way of defence their version of the agreement, which I have preferred. The highest the position could be put is that the defendants contested the rights asserted by the plaintiff. That is incapable of forming the foundation of an estoppel.

223 Mr Crennan accepts that on the case put forward by the plaintiff, that is, the case based on the existence of a debtor/creditor relationship, the only arguable legal vehicle to reflect the plaintiff's interests, if any, in the proceeds of sale is the equitable charge (a hypothecation) but even then he says, in the events that occurred there was no definite ascertainable property.

224 A charge is a type of security.[107] In essence, an agreement that a debt will be paid out of a specific fund will create a charge over the fund. But it is absolutely necessary that the specific fund be identified; that there be definite ascertainable property.[108] In Swiss Bank Corporation v Lloyd's Bank Ltd,[109] it was explained this way:

An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale ...

It follows that whether a particular transaction gives rise to an equitable charge of this nature must depend upon the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred. If the debtor undertakes to segregate a particular fund or asset and to pay the debt out of that fund or asset, the inference may be drawn, in the absence of any contra indication, that the parties' intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor ...

225 As was submitted for Volteas, the facts supporting the existence of a charge are dubious. The normal obligations and liabilities of the joint venture vehicle had to be met from its own resources, and that included the proceeds of sale. Cohen accepted, as he had to, that Umbrella Enterprises had to meet its liabilities. It is inconsistent with the nature of a charge that the charged property is subject to meeting the other liabilities of the chargor. If the charge is subject to unidentified and unquantified other liabilities, there is no specific fund. This supports the view that the contract here was to pay the investment out of the proceeds, but those same proceeds being the asset of the company were also called upon to protect the company's interests in dealing with the debt claim and the litigation.

226 I think another problem with the plaintiff's argument is that the assertion and existence of an equitable interest in property does not therefore mean a trust relationship arises. It means equity will lend its aid to preserve the interest. But the making of a contract under which a charge is created in equity does not create a trustee/beneficiary relationship between the chargor and charge, necessarily at least. It gives a right to execute. That is:

The creation of an equitable charge makes the charged property liable, or specially appropriated, to the discharge of a debt or other obligation, and confers on the charge a right of realisation by judicial process (by the appointment of a receiver or judicial sale)".[110]

227 On that basis, the plaintiff has gained the proceeds of sale ever since the Court's orders on 30 November 2012 and it has the consent judgment.

228 This element of the plaintiff's case, as I understand it, was to lay the groundwork to establish a trust relationship for the Barnes v Addy claim against Volteas. I find that a trust relationship was not so created.

229 As I understood the plaintiff's submission eventually, it was not pursuing an equitable charge as a source of fiduciary duty or as the basis of creating a trust. In the plaintiff's closing written submissions, something new or different was advanced to that end. The plaintiff contended that the agreement to repay the loan, at the latest, from the proceeds of sale of the café amounted to an equitable assignment of the proceeds. That was submitted to be analogous to the Quistclose trust but "without the complication of the primary and secondary purpose". Further written submissions posited the case as being "an express trust arising out of the equitable assignment of future property".

230 The plaintiff's submitted that its entitlement to be repaid from the proceeds of sale amounted to an equitable assignment of future property which was a fully-fledged equitable interest, one which created a trust of that property for its benefit. That submission was based on Palette Shoes Pty Ltd v Krohn.[111] That case concerned an issue whether a particular transaction was required to be registered under the Instruments Act as an assignment or transfer of future book debts. Cases turn on their facts. Palette Shoes was based on some peculiar facts under what was described in the judgment as a "carefully drawn agreement" having "very special character".

231 Palette Shoes is a case about the law of assignment, more precisely the assignment of a future chose in action. An expectancy of money to be received in the future was not assignable at common law as the subject matter had no existence; but in equity if it is of such a nature and so described to be capable of being ascertained at such later time, and if it was supported by consideration, an agreement to assign binds the conscience of the assignor and binds the subject matter when it comes into existence: see Chesire and Fifoot Law of Contract[112] and Starke, Assignment of Choses in Action in Australia.[113]

232 Dixon J considered the doctrine of equity which gives efficacy to an assignment of future debts. In a passage relied heavily on by the plaintiff, his Honour explained (omitting citations):

An assignment of future debts obtained its efficacy from the doctrines of equity. In Tailby v Official Receiver Lord Macnaghten stated the principles, which he described as well-known. "It has long been settled," he said, "that future property, possibilities and expectancies are assignable in equity for value. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate the intention an assignment for value, in terms present and immediate, has always been regarded in equity as a contract binding on the conscience of the assignor and so binding on the subject matter of the contract when it comes into existence, if it is of such a nature and so described as to be capable of being ascertained and identified." ... In a later passage he says: "Long before Holroyd v Marshall was determined it was well settled that an assignment of future property for value operates in equity by way of agreement, binding the conscience of the assignor and so binding the property from the moment when the contract becomes capable of being performed, on the principle that equity considers as done that which ought to be done. ... Again:- "The truth is that cases of equitable assignment or specific lien, where the consideration has passed, depend on the real meaning of the agreement between the parties. The difficulty, generally speaking, is to ascertain the true scope and effect of the agreement. When that is ascertained you have only to apply the principle that equity considers that done which ought to be done if that principle is applicable under the circumstances of the case."[114]

233 Having stated those principles, Dixon J proceeded to apply to the facts of that case as follows:[115]

For the purpose of deciding in the present case whether the respondents' title to the book debts depends upon what amounts to an assignment, it is important to notice the essential elements upon which Lord Macnaghten dwells. As the subject to be made over does not exist, the matter primarily rests in contract. Because value has been given on the one side, the conscience of the other party is bound when the subject comes into existence, that is, when, as is generally the case, the legal property vests in him. Because his conscience is bound in respect of a subject of property, equity fastens upon the property itself and makes him a trustee of the legal rights or ownership for the assignee. But, although the matter rests primarily in contract, the prospective right in property which the assignee obtains "is a higher right than the right to have specific performance of the contract," and it may survive the assignor bankruptcy because it attaches without more eo instanti when the property arises and gives the assignee an equitable interest therein ...

234 In looking at the real meaning of the agreement made between Cohen and Volteas, I do not think it right to analyse or characterise their agreement here as intending to effect an assignment. An assignment involves a disposition. It is in the nature of a transfer from assignor to assignee. The rudimentary 50/50 deal here, done with the mutuality that comes necessarily in the context of a joint venture undertaking, does not purport to involve an assignment of anything. I see the proceeds of sale as a corpus of funds for the joint venture, with an obligation to apply the fund in a particular manner or by priorities, and even then it was subject to the vexed question of 'expenses' and the wider question of the proceeds being an asset of the joint venture company. All things considered, the closest one gets to classification of the repayment arrangement amongst these two businessmen is to see this as a type of security, just as Cohen himself had said in evidence. Even then, such a classification has its legal defects because the charged asset is of a nature making it not capable of precise ascertainment. As was submitted for Volteas, the business was the only asset of Umbrella Enterprises, and the proceeds of sale were the realisation of the company's only asset. But the fund was not definite or ascertained because of the very controversy about the use of company assets to meet the company's liabilities including its alleged liability to Cohen who was suing on a debt payable on demand.

235 The plaintiff also relied on Swiss Bank Corporation v Lloyds,[116] That case too turned on its facts and the intentions to be imputed from financial documents to see if an equitable charge over proceeds of sale was intended to be granted to a lender. The House of Lords affirmed[117] the principle that an agreement between debtor and creditor that the debt shall be payable from a specific fund coming to the debtor will create a valid equitable charge over such funds. An agreement to apply a fund in a particular way will not, without more, amount to an equitable assignment, but may found an injunction to apply the fund in another way. In my view this case does not advance things for the plaintiff. This was not a debtor creditor relationship. In any case, at best the plaintiff obtains a security interest, over a fund that is subject to competing claims.

236 I would hold as follows. There was an agreement that the Cohen interests were to be repaid their investment out of the proceeds. That was not a transfer or assignment to him of such a fund. At best the plaintiff might have an equitable interest in the fund, but that does therefore not make Umbrella or Volteas a fiduciary. It means the company could be restrained form dealing with the fund in a contrary manner (which is what happened with my injunctive orders). Even then, that interest was subject to other claims on the fund. To repeat the good example used in argument, the directors were bound to pay liabilities to the Australian Tax Office, which is not an expense of sale. How could it be said sensibly that the proceeds of sale were unable to be used or claimed by the ATO on the ground that the proceeds were the property of Cohen and untouchable? A similar argument was put for legal expenses of the claim against the landlord, and in this case. Volteas and Pezaros had fiduciary obligations to Umbrella to serve its interests. That included defending the company's position in this case, and recovering compensation against the landlord.

238 This issue arises only if (a) Umbrella Enterprises was a trustee of the proceeds of sale; (b) the trust estate was the proceeds of sale from which the only deductions were the expenses of sale; and (c) the conduct of the trustee in directing the funds to the account of Marvel Gem was a breach of fiduciary duty owed to the plaintiff. With those pre-conditions, the case put against Volteas is that he acted as human agent of Umbrella Enterprises and is liable as accessory because he was complicit, indeed carried out as alter ago the fraudulent conduct of the trustee to the injury of the plaintiff as beneficiary. This is the second limb of Barnes v Addy.[118] It makes a defendant liable if that defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary: Farah Constructions v Say-Dee Pty Ltd.[119] The defendant will be accountable as constructive trustee; that is, liable in equity to make good the resulting loss. That is as much of the legal principle as needs be stated. Legal submissions did not go any further. Certainly, there was no debate from the plaintiff at least on the usual controversy about the requisite degree of knowledge or the mental element involved, or the proscriptive themes of the fiduciary principle.[120]

239 One thing is clear to my mind about the putative trust estate. If a trust was to arise over the proceeds of sale, it could only arise or attach to the proceeds after the payment of expenses (whatever that meant or whatever they were) and, as Cohen conceded, after the discharge of liabilities. But I think the case cannot be decided in the circumstances by asking what the parties meant by ‛expenses' or what that connotes. It goes beyond that. The determination of what the parties intended to mean by 'expenses' is affected by a number of things.

240 First, in this laconic deal, the evidence does not establish what truly was said about those things. It was more a case of what was assumed would be expenses ordinarily incurred in a successful profitable sale, where trading and other liabilities incurred in the ordinary course of business would be met from trading account. I was not sure, but the plaintiff's case seemed to be that it should be assumed or construed to mean the expenses of the actual sale. The commercial severity of that view must have become evident to Cohen because in the course of his evidence he accepted that from the proceeds of sale, there also had to be deducted "any other taxes or whatever", and he also accepted that Umbrella Enterprises, as the entity responsible for the carrying on of the enterprise, was entitled to use the sale funds to meet the debts and obligations it incurred in carrying out that business.[121]

241 Secondly, as the proceeds of sale represented a realisation of the business as the defendant's only asset, then as was submitted the funds themselves form part of the trust estate. As the plaintiff's case was that the first defendant was trustee under the unit trust deed or otherwise, then that necessarily also brings into play the trustee's rights at laws for reimbursement and indemnity for liabilities that are incurred by the trustee in carrying out the trust or protecting the trust estate.

242 I think it becomes simplistic to pitch the case, as the plaintiff does, by saying that the analysis and questions of breach turn on what was agreed to be expenses. The whole question about what was meant by 'expenses' comes to be expanded or overtaken by the events that occurred, including the litigation. I think that the parties assumed or envisaged in striking their business relations that there would be a sale for a handsome profit, or at least for a profit that would exceed the amount of funding put in by Cohen and which would result in a share of the excess for both of them. The assumption was, that the successful trading of the café in 12 months would give sufficient revenue or cash flows to enable all liabilities to be met in the course of trading so that by the time of sale, apart from selling expenses and maybe unavoidables such as taxation and trading liabilities, there would be no other expenses in contemplation. If the business was trading successfully, things like trading liabilities and taxes and outgoings would have been be met out of trading revenue.

243 What happened in this case was wholly contrary to assumptions and expectations. Trading revenue could not meet debts and liabilities; not even rent or tax. It was a sale at a loss, with a vehement dispute about the validity of the unit trust and whether it was a debt payable on demand. All of this in the context of acrimony between the parties and Volteas and Pezaros having to defend the interests of Umbrella Enterprises in the face of hostile litigation by Cohen and bearing in mind that they had fiduciary responsibilities to Umbrella Enterprises as directors and were liable or possibly liable for its insolvent trading. And, amidst this, there is no assertion that Volteas and Pezaros were somehow responsible in the management of the business or for the loss on the distress sale.

244 My view of the situation that the parties obtained is this: proceeds of sale 'less expenses' assumes no other problems or liabilities such as the many that arose here. A different or supervening legal state of affairs arose. The lawfulness of the actual application of the weekly proceeds by Volteas then comes to be considered by reference to the position he was in as director, his duties as director to the company, and the predicament of the company being sued by a joint venturer for what was asserted (speciously as I have found) to be a large debt payable on demand.

245 I will accept that the irregular diversion of funds into the Marvel Gem account as something not in the ordinary course of business attracts a natural sense calling for a good explanation as a matter of commercial probity. But great care has to be taken before making a finding of fraudulent and dishonest conduct especially in the circumstances that prevailed here. The Court must have regard, carefully, to all of the circumstances that actuated Volteas to do what he did. For one thing, there was no mystery in what he did. That is, the fact of the weekly instalments from the purchaser was known, and the fact that they were not going into the first defendant's account was not being concealed. The foundation of the plaintiff's allegation of fraud is akin to saying the facts speak for themselves: the moneys went into a bank account of a deregistered company once used for another Degani's business and from which monthly liabilities on an asset purchase agreement were debited.

246 What was the state of affairs by which I am to judge the presence of fraud and dishonesty? The redirection of moneys to the Marvel Gem account occurred at a time when Cohen's lawyers said they would replace Umbrella Enterprises as the trustee. They then demanded the entire amount advanced to Umbrella Enterprises as a debt repayable on demand. They then commenced legal proceedings. Cohen was putting a precipitate end to the venture and asserting liability. There is simply no doubt that the amount claimed simply could not be met by Umbrella Enterprises. It was dependent on revenue of $1500 per week from the purchaser and there were not only outstanding liabilities to the tax office but also prospective liabilities including having to defend the claim brought against the company. What is more, the relationship had broken down to the point where Volteas did not trust Cohen, particularly as Cohen had access to the first defendant's funds by a cheque book. Added to that is a legal consideration. As directors, Volteas and Pezaros as directors owed fiduciary obligations to that company and, that would include, protecting the company's assets and ensuring that its liabilities could be met and possibly pursing claims for any wrongdoing against the company.

247 The plaintiff submitted that if Volteas regarded himself as having acted honestly and reasonably then it was incumbent on him to seek relief under section 67 of the Trustee Act if he wished to be excused for a breach of trust. Or, it was submitted, he ought to have sought the Court's advice or directions as trustee in an administration action under order 54 of the Rules of Court. In my view that is implausible. It assumes, controversially, a trust relationship. Volteas was not purporting to act as trustee. He was looking to protect the interests of the joint venture company in the face of attack and the prospect of instant insolvency and all that entails.

248 Thus, it seemed to me that the plaintiff's case on fraudulent conduct was based upon the mere fact that moneys were directed into the Marvel Gem account, and that there were withdrawals from that account, and of itself and without more that makes a case that Volteas assisted a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee.

249 Volteas gave evidence to explain his conduct and his motives. In essence, he explained his distrust of Cohen, particularly after his discovery of the withdrawal of approximately $35 000 and $25 000 from the company's account to which I have already made reference. He acknowledged that he knew the moneys belonged to Umbrella Enterprises and recognised that the monies diverted would have to be returned to Umbrella Enterprises. It was a case he said of keeping the money away from Cohen, meeting liabilities and defending the legal proceedings. For that purpose, he sought legal advice which was to the effect that the moneys were assets of the company and it was legitimate for the company to use its assets to properly defend its interests.

250 As events turned out, the dispute arising out of Cohen's claim intensified. Real issues arose about the validity of the trust deed that Cohen signed. Real issues arose about the identity of the contracting parties. Real issues arose about the nature of the relationship between the parties, whether it be in contract or in trust. Allegations of fraud and misleading and deceptive conduct and unconscionable conduct were being made. Even before then, the distress sale led Volteas and Pezaros to bring claims against the landlord seeking to get compensation for the harm done to the value of the business and the loss of profit.

251 There was no crossexamination of Volteas to make the Court think that his evidence about the handling of the proceeds was false. He was not discredited. The plaintiff asks me to look at what he did and conclude that his evidence was disingenuous, despite the objective truth of the dispute and the situation at hand. Volteas gave evidence as to the payment of creditors. He proved the relevant invoices upon which invoices were put into evidence. He was not challenged or cross-examined on any of this. It was not put to him that the amounts paid under these invoices were not debts of the first defendant or were not paid. It seemed to me as if the plaintiff was content to simply rely upon the diversion of funds as the basis for the Court to conclude, without more, there was a fraudulent and dishonest breach of trust. But that fact alone is not enough to make a finding of fraudulent and dishonest conduct.

252 Volteas went to his lawyers. The plaintiff dispelled the significance of Volteas having acted on legal advice saying that it is no defence to a breach of trust. Reference was made to what was said by Bowen LJ in Re Beddoe to which I add my emphasis:[122]

The principle of law to be applied appears unmistakably clear. A trustee can only be indemnified out of the pockets of his cestuis que trust against costs, charges, and expenses properly incurred for the benefit of the trust - a proposition in which the word "properly" means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in the idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges, and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestuis que trust costs which his own solicitor has unreasonably and perversely incurred merely because he had acted as his solicitor told him.

253 Can it be said that the legal advice here, in the circumstances that prevailed, was wrong headed and perverse? The legal advice was unwritten and the solicitor was not called. Even so, the very question whether the proceeds of sale as an asset of the company could be used to meet liabilities and to meet the costs of fighting this proceeding and making a claim against the landlord is the very question for determination in this case. The legal advice, presumably based on the facts as given by Volteas and Pezaros in court, was that the proceeds were an asset of the company, and the directors were entitled to defend or advance the company's interests in the pressing circumstances. That cannot be said to be wrong headed and perverse.

254 I would hold that, assuming contrary to all my previous findings, that there was a trust and fiduciary relationship between the parties, the plaintiff has not made out a case that Volteas assisted the company as trustee with knowledge of a dishonest and fraudulent design on the part of the trustee. The design was to defend itself against the plaintiff's claims which I have found are not sustainable.

255 I do not think the plaintiff has made out a case to show that there was any loss to the trust estate or suffered by the plaintiff as a beneficiary, if there was a trust relationship and a fraudulent and dishonest breach of it.

256 The evidence given by Volteas as supported and enhanced by the reconciliation done by Hage as accountant was not really tested. The plaintiff sought to disparage the reconciliation statement as an exercise done after the even; that is, after the alleged breach. It was self-evidently. But that does not impeach its evidentiary worth to demonstrate that the net result was a rather small amount of money being payable to Umbrella Enterprises. The plaintiff did not seek as part of this long case to engage in any sort of testing of the figures or its own investigations into the proceeds that had been diverted. It put no figures to the Court. Ultimately it asked for an inquiry.

257 The starting point for an understanding of the figures is paragraph 41 of Volteas' amended defence.[123] That was in response to the plaintiff's allegation that in breach of the charge or the trust, Umbrella Enterprise failed to neglect to account to the plaintiff for receipt of a deposit of $1000 from the purchaser and weekly payments of $1500 between May 2011 and October 2012. The defence admitted that $107 500 had been received by 30 September 2012 and that those weekly payments of $1500 continued. But flow to the Umbrella Enterprises ceased as a result by the Court's orders made on 30 November 2012. The defence then went on to say that the funds received were applied to meet the following expenses:

(a) legal costs of the sale of the business of $9468.20;

(b) costs of action against landlord, including legal costs of $18 483.96;

(e) legal costs of this proceeding paid prior to 30 September 2012 of $37 709.42;

(f) legal costs on account prior to 30 September 2012 of $38 000; and

(g) continuing legal expenses of the first defendant.

258 In the course of submissions, the plaintiff conceded items (a) and (c). Item (b) was not conceded on the ground that it was an expense incurred after the sale took place. The tax liability in item (d) was conceded as proper but resisted on the basis that it was not paid from sale proceeds. The legal costs of the sale were opposed on the grounds that they were not expenses and in any event occurred well after the sale.

259 The accounting of these expenses was left to Hage who as I have said produced a reconciliation statement based upon tax invoices. As I have also remarked, the conduct of the plaintiff's case was such that there was not much by way of impeachment of the evidence given by Volteas about payments, or the reliability of the invoices, or the payments made and the reliability of the reconciliation statement prepared by Hage. The whole question about the legitimacy of the application of any of the funds, I think, became tackled in a way that left the matter up in the air. In the end, plaintiff's counsel seemed to be asking, assuming a breach was proven, for an inquiry to be ordered into the receipt and disposal of funds and expenses paid and, I suppose, conducting a cost accounting exercise according to expenses of sale.

260 In the course of submissions, I pressed counsel in a search for a discrimen to determine whether costs and expenses were properly incurred. For the plaintiff, the discrimen was purely to ask whether it was an expense of sale which carried with it the conclusion that any expense after the sale was illegitimate. I do not accept such a test based strictly on timing. Expenses can arise after sale. Counsel for Volteas posited a test of reasonableness in the circumstances.

261 I think the search for a discrimen in the events that occurred can be no more exacting than to say that the costs and expenses had to be reasonably incurred to properly meet the company's liabilities. I conceive of it as an adaptation of the test for a trustee incurring expenses properly incurred for the benefit of the trust - a proposition in which the word "properly" means reasonably as well as honestly incurred. The liabilities include not only ordinary trading liabilities or legal responsibilities such as taxation liabilities, but also liabilities to properly defend its interests including, so I would find, liabilities for legal expenses to defend the company from a claim which the directors could well have honestly regarded as unjustified or wrong, as I have found it to be.

262 I will accept that the evidence about payments made to meet expenses or liabilities was not crystal clear. But, broadly speaking, so much of this case can be described in the same way. There is sufficient to accept that in the urgency and in the heat of the dispute, Volteas and Pezaros were making payments on behalf of Umbrella Enterprises from one or other of their companies or from one or other of their bank accounts, and that payments to their lawyers for the litigation were likewise coming from such sources. That was the case for example with the payment of the tax liability.[124]

263 For the purposes of legal determination, of course, the Court cannot proceed by speculation or guesswork. There must be a rational foundation for findings. I think there is a rational basis from the exercise done by Hage based on the invoices and investigations to conclude that the expenses were incurred for the purposes of meeting the company's liabilities, and that expenditure on the legal action against the landlord and the legal costs of this proceeding were in the circumstances both properly and reasonably incurred to deal with the fallout of the distress sale. Or at least, they have not been shown to be improper or unreasonable or dishonest. The best the plaintiff could do to arouse a sense of impropriety was to say that the monies went into Marvel Gem to pay the liabilities of another business. It looks that way, but as I have said, Volteas was not really cross-examined on this. The plaintiff seemed to be content to say that if it appeared that way, that was sufficient to show a breach of trust and subsequent explanations in court were irrelevant.

264 I think such an approach overlooked the purpose of the exercise undertaken by Hage, which was to demonstrate that amidst the controversy whether there was a trust relationship or not and whether there was a breach or not, and whatever was redirected from the proceeds of sale, the outcome is that one way or another Volteas and Pezaros paid by one means or another the liabilities of the company from funds otherwise not available in the company. The amounts involved are not great. The net result was, on Hage's calculations, an amount of $1064 which Volteas has paid.

265 Thus, even assuming contrary to my conclusions that this was a relationship of trust or a fiduciary relationship, and that the remedy calls for a restoration of a diminution of the trust estate, after taking into account liabilities paid by a trustee who has a right of indemnity from the trust estate, the outcome is that the trust estate has been restored.

266 I would hold that there is no occasion for an inquiry or account taking. There is sufficient before the Court for me to conclude that the proceeds of sale up to September 2012 have been basically, but in the circumstances adequately, accounted for in the reconciliation. There was no residual shortfall that has not already been repaid.

267 There were high expectations for the venture to establish and sell the WTC café. The assumption was a profitable sale after 12 months trading. That was the basis for this laconic deal. Things went wrong through no fault of Volteas. It was a venture in which both parties have lost.

268 For someone who contended that this venture was set up through corporations so that there was no personal involvement, the plaintiff has sought in this proceeding to find any means to impose a personal liability on Volteas in equity. It was all based on an alleged agreement under which the plaintiff's contribution was said to be a debt payable on demand. That was commercially unthinkable.

269 The plaintiff never put its case that the venture was a fiduciary collaboration. It has not established a trust or fiduciary relationship. Cohen signed a trust deed without any authority to do so, having configured the terms of the unit holding to give him complete ownership to enable him to remove Umbrella. That was unfaithful to the 50/50 deal.

270 At best, there was a question whether the terms of the arrangement created an equitable charge, a security interest.

271 The plaintiff has sought to make a case for unconscionable conduct and estoppel, all of which I have rejected because the terms of the agreement as alleged were highly controversial.

272 Volteas as director expended much money within his resources to meet the litigation and other liabilities including defending the company and suing the landlord. Those expenses were incurred for reasonable purposes.

273 After taking into account moneys paid by the purchaser and spent by Volteas, there has been a reconciliation to show no loss to the (putative) trust estate.

274 When I have careful regard to all of the circumstances, I cannot make a finding that Volteas acted dishonestly and fraudulently.

275 The plaintiff's legal relations were with the first defendant, Umbrella Enterprises. It has a consent judgment against Umbrella Enterprises for the full amount of the 'debt' with interest and costs. On its application to the Court 18 months after the writ was filed, the plaintiff obtained a freezing order for the weekly proceeds. Since then, the plaintiff has received the proceeds.

276 In my judgment the plaintiff's claim has not been made out.

[1] For ease of narration, I shall call him the second defendant in this judgment even though he was recently replaced as a party by his executors.

[2] See Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 103 at 102. See also United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1984) 157 CLR 1 at 10-11. See generally G M D Bean, Fiduciary Obligations and Joint Ventures (Clarendon Press, 1995) Ch. 7.

[3] See paragraphs 1-14 of the third amended statement of claim.

[4] From the $573 500, there was a GST refund of $35 243.

[5] Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1987) 164 CLR 387.

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

[7] (1874) LR Ch App 244. In Australia, see Farah Constructions v Say-Dee Pty Ltd ([2007] HCA 22; 2007) 230 CLR 89.

[8] See para 41 of amended defence filed 18 March 2013.

[9] See para 25 of amended statement of claim.

[12] Affidavit of Victor Raymond Dye sworn 1 February 2013.

[15] (1893) 6 R 67. See Cross on Evidence (9th Ed) esp. at [17445].

[17] [2003] HCA 22; (2005) 214 CLR 118 at [29]- [31], [65] ff.

[18] See Schenker v Maplas [1990] VicRp 74; [1990] VR 834 at 840.

[19] [1959] HCA 8; (1959) 101 CLR 298.

[31] He became a director on 12 May 2008 after the café at 818 Bourke Street had opened for trading.

[32] The Lotteries Unit Trust had been set up by deed dated 1 January 2008 under which Cohen held 75% of the units.

[35] T 146 (Cohen) and T 371 (Volteas) and T503 (Pezaros).

[47] Deregistered voluntarily on 22 September 2008.

[51] The first payment according to Schedule A of the sale contract.

[52] The date of the "1st payment" noted in the Marvel Gem bank statement.

[62] [2003] QCA 204, [69].

[63] [2007] FCAFC 194; (2007) 243 ALR 472.

[66] Third ed. (LexisNexis 2014), [19.28] and [19.33].

[67] Keighly Maxted & Co v Durant [1901] AC 240 at 260-1 (referred to in Pico Holdings).

[76] See Ford's Principles of Corporations Law (14th Ed) at p 368, [8020].

[78] Commonwealth v Verwayen (1990) 170 CLR 394.

[82] [1981] VicRp 92; (1981) VR 1041.

[84] [2003] VSC 57.

[89] [1999] WASC 191 at 203, [49].

[94] [1992] VicRp 63; [1992] 2 VR 217 at 238-9.

[95] [2008] FCA 915 at [67]- [73].

[96] [2011] VSCA 196 at [74].

[97] [2013] VSCA 292 passim.

[98] (2003) CLR 51.

[101] See Jacobs' Law of Trusts in Australia, at [213] ff.

[102] [2002] UKHL 12; [2002] 2 AC 164 at 184 ff.

[104] [1991] FCA 344; (1991) 30 FCR 491, at 500-501.

[106] See also Salvo v New Tel Ltd [2005] NSWCA 281 at [32], [33].

[107] See generally Young, Croft and Smith, On Equity (2009) 659-652.

[108] See Sykes and Walker, The Law of Securities (5th ed) at 196.

[109] [1982] AC 584 [595] (per Buckley LJ) (affd [1982] AC 548).

[110] Young, Croft and Smith, On Equity, [9180].

[111] [1937] HCA 37; (1937) 58 CLR 1.

[114] [1937] HCA 37; (1937) 58 CLR 1 at 26.

[115] [1937] HCA 37; (1937) 58 CLR 1 at 26-7.

[116] [1982] AC 584.

[117] At 613 (per Lord Wilberforce) adopting Palmer v Carey [1926] UKPC 30; [1926] AC 703. 706-7.

[118] (1874) LR 9 Ch App 244 at 251-2.

[119] [2007] HCA 22; (2007) 230 CLR 89 at 159 [160].

[120] See Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178.

[122] (1893) 1 Ch 557 at 562.