ROBINS & ORS v INCENTIVE DYNAMICS PTY LTD

LOWER COURT Federal Court JURISDICTION : LOWER COURT FILE NUMBER(S) : LOWER COURT Mansfield J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40155/2000

MASON P STEIN JA GILES JA

Douglas Robert McNeill ROBINS & Ors v INCENTIVE DYNAMICS PTY LTD (in liq) & Anor

Incentive Dynamics Pty Ltd was a business that established and marketed "incentive schemes" for employees of large companies. Coldwick Pty Ltd was established solely as a corporate vehicle to facilitate the purchase of two properties. Incentive Dynamics paid Coldwick $375,064.63, which Coldwick used to buy the properties. Incentive Dynamics received no benefit from Coldwick's acquisition of the properties with its money; nor was benefit intended. The inter-company transaction between Incentive Dynamics and Coldwick was not properly recorded as required by s286 of the Corporations Law.

Incentive Dynamics and its liquidator brought personal and proprietary claims against Coldwick. The personal claim asserted that the money advanced to Coldwick in terms of a repayable loan. The proprietary claim was based on the principles of Barnes v Addy (1864) LR 9 Ch App 244 relating to "knowing receipt". Incentive Dynamics sought a remedial constructive trust over the two properties by virtue of the purchase money having been provided without any material benefit to Incentive Dynamics and in breach of fiduciary and statutory duties (including s232(6) of the Corporations Law - now s182 of Corporations Act ) owed by Incentive Dynamics' officers (two of whom were also directors and shareholders of Coldwick at the time).

In the Federal Court Mansfield J accepted the personal claim and ordered that the $375,064.63 used by Coldwick Pty Ltd to purchase the properties be paid back to Incentive Dynamics. However, he rejected the proprietary claim as he was not persuaded that Incentive Dynamics' officers had any dishonest and improper intent at the time of the transaction sufficient to render Coldwick a constructive trustee of the properties for Incentive Dynamics.

The Federal Court was without jurisdiction in light of Re Wakim; ex parte McNally (1999) 198 CLR 511. However, corresponding orders were made in the Supreme Court of New South Wales pursuant to the Federal Courts (State Jurisdiction) Act 1999 .

By way of cross-appeal, Incentive Dynamics sought to have the personal money judgment in its favour set aside and replaced with relief based upon a remedial constructive trust vesting the entire sale proceeds in Incentive Dynamics.

HELD : Mason P (Stein JA agreeing and Giles JA agreeing except as indicated below) allowing the cross-appeal ,

1. A third party who receives a company's money with the knowledge that the money was misapplied by the company's officers in breach of their fiduciary or statutory duty is obliged to make restitution as a constructive trustee for the company ( Barnes v Addy (1874) LR 9 Ch App 244 at 251-2 per Lord Selborne LC; Belmont Finance Corporation v Williams Furniture Ltd & Ors (No 2) [1980] 1 All ER 393) [60] - [63]; Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544 at 587-8) [66] . (a) The trial judge erred in rejecting the proprietary claim on the basis that there was no dishonest and improper intent on the part of Incentive Dynamics' officers at the time of the transaction. (i) Dishonesty or "improper intent" is not necessarily an element of the duty imposed by s232(6) of the Corporations Law (now s182 of the Corporations Act). Assessing impropriety involves an objective test. ( R v Byrnes and Hopwood (1995) 183 CLR 501; Chew v The Queen (1992) 173 CLR 626); Duke Group Ltd (in liq) v Pilmer (1998) 27 ACSR 1 at 300-305). [54] - [55] (ii) The statutory duty was clearly breached by Incentive Dynamics' controlling officers who improperly used their positions to gain advantage for themselves as major shareholders of Coldwick and for others. [54], [56], [58] (iii) The form in which money is received by the third party (be it gift, loan or purchase) is irrelevant to the question of whether a company's officers have breached their fiduciary or statutory duty in making the transaction ( Paul A Davies (Australia) Pty Ltd (in liq) v Davies (1982) 1 ACLC 66 at 69; Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] 1 Ch 246 at 298, 306-307; Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132 at 173-6; Linter Group Ltd v Goldberg (1992) 7 ACSR 580 at 619, 623). [65] (b) Coldwick was in "knowing receipt" of the funds because through its directors, it was complicit in and privy to the misapplication of Incentive Dynamics' funds by its officers in breach of their duties ( Linter Group Ltd v Goldberg (1992) 7 ACSR 580 at 623-4; Farrow Finance Co Ltd (in Liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544 at 587-8); Belmont Finance Corporation v Williams Furniture LtD & Ors (No 2) [1980] 1 All ER 393). [58] - [63], [66] (c) The case is one where it is appropriate to impose a remedial constructive trust because: (i) Rescission is essential for cases of this sort, where the loan transaction is voidable for breaches of fiduciary or analogous statutory duties. ( Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 ; Halifax Building Society v Thomas [1996] Ch 217 at 228 ; Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198 at 210ff) [73] (ii) Incentive Dynamics never sought to affirm the contract for the "loan" transaction that both effectuated and disguised the fiduciary and statutory breaches (cf Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198). [78] (iii) The case does not involve any third party rights which would otherwise prevent rescission and the imposition of a remedial constructive trust ( Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 ; Australian Securities Commission v Melbourne Asset Management Nominees (receiver and manager appointed) (1994) 49 FCR 334 at 358-9 ; Giumelli v Giumelli (1999) 196 CLR 101 at 113-4). [73] - [76] (iv) The profit can be traced into identifiable property in the hands of Coldwick as the defaulting beneficiary ( Farrow Finance Co Ltd (in Liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544). [68], [75] (v) Equity would be abrogating its role of vindicating and protecting fiduciary relationships and deterring improper profit-making conduct if it looked just at the capital sums advanced under the "loans". If only the loans were repaid, the defaulting officers would be unjustly enriched in consequence of their own wrongdoing. [77]

1. Recission is not necessary for the granting of proprietary relief in this case. (a) The proprietary claim alleged that money was "provided" to Coldwick. [83] (b) Rescission is therefore not necessary for the granting of proprietary relief by way of constructive trust because it was not alleged that money was lent to Coldwick. [84]

2. The alternative personal claim, which was based on an allegation that the money was lent to Coldwick should not be upheld. (a) Incentive Dynamics will be held to its preferred position that the money was provided rather than lent, so that there can be no double recovery. [84]

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40155/2000

MASON P STEIN JA GILES JA

Douglas Robert McNeill ROBINS & Ors v INCENTIVE DYNAMICS PTY LTD (in liq) & Anor

1 MASON P: Complex proceedings in the Federal Court were concluded on 16 June 1998. On the evening before the High Court delivered judgment in Re Wakim; ex parte McNally (1999) 198 CLR 511, Mansfield J delivered a reserved judgment (Incentive Dynamics Pty Ltd (in liq) v Robins & Ors [1999] FCA 808) and made ensuing orders. 2 In light of Wakim, the Federal Court was without jurisdiction: the decision was an "ineffective judgment" in the language of the Federal Courts (State Jurisdiction) Act 1999. However, pursuant to that Act corresponding judgments and orders were able to be made in the Supreme Court of New South Wales on 2 March 2000 thus becoming amenable to the appellate jurisdiction of this Court. 3 Several parties appealed or cross-appealed. The only proceedings remaining in this Court are those instituted by a Notice of Cross Appeal filed by Incentive Dynamics Pty Ltd (in liq) ("Incentive Dynamics") and its Official Liquidator ("the appeal"). 4 The Federal Court proceedings were commenced jointly by Incentive Dynamics and its Official Liquidator. Various claims were propounded against directors of Incentive Dynamics and persons (mainly corporations) associated with them. The learned primary judge identified four categories of issues to be determined by him. In the main, the separate categories address a common substratum of facts. The categories were:

(1) that the directors and de facto directors of Incentive Dynamics breached their statutory and common law duties by making advances to various persons and corporations in circumstances in which it was improper to do so;

(2) that the persons and corporations referred to in the amended statement of claim were indebted to Incentive Dynamics in various amounts of money whether as loans or otherwise;

(3) that the respondent Meissner received payments which in the winding up of Incentive Dynamics had the effect of giving him preferences within the meaning of the then operative provisions of the Corporations Law ;

(4) that the funds advanced by Incentive Dynamics to Coldwick Pty Ltd (Coldwick) and to other persons which were used for the purchase of property were advanced in circumstances which gave Incentive Dynamics a proprietary interest in the various properties so acquired. 5 The claims encompassed within issues 1, 3 and 4 were dismissed, but the claims within issue 2 generally succeeded. 6 One set of claims related to moneys totalling $375,064.63 paid by Incentive Dynamics to Coldwick and used by Coldwick to purchase properties in South Melbourne and Crows Nest. Mansfield J awarded Incentive Dynamics judgment in that sum. (In the turmoil of the evening of 16 June 1998 Incentive Dynamics apparently omitted to claim statutory interest on this debt (cf Federal Court of Australia Act 1976, s51A).) 7 The applicants had sought recovery of this money against the directors (issue 1) and, amongst others, Coldwick (issue 2) as well as a declaration of (remedial constructive) trust over Coldwick's properties acquired with the money (issue 4). 8 Mansfield J rejected Incentive Dynamics' claim for a remedial constructive trust in relation to the two properties purchased with the money (ie the claim arising under issue 4). It is this refusal of relief that forms the object of complaint in the appeal.

Facts and Primary findings 9 At all material times prior to its liquidation on 15 April 1996 Incentive Dynamics was owned and controlled by John Robins and his father Douglas Robins, each of whom are now bankrupt. 10 The company secretary was Jonathan Meissner. He was also found by Mansfield J to have acted as the treasury manager of Incentive Dynamics, but not to such extent as to render him a de facto director (see at [224]-[226]). 11 Incentive Dynamics' business was that of establishing and marketing "incentive schemes" for employees of large companies. 12 There were a number of other companies in the "Robins group". These were involved in public relations, marketing, advertising, travel services and other services ancillary to the main business of the group. The group was effectively controlled by John Robins. Meissner was the group treasurer. 13 Coldwick was not part of the group in this sense. It appears to have been established solely to be the corporate vehicle through which the properties at South Melbourne and Crows Nest were acquired in 1991 and 1995 respectively. Coldwick is described by Mansfield J as a property investment company. 14 John Robins was issued with 75% of the issued shares in Coldwick, and minority share holdings were held by Meissner and Mr A T Lorkin. Its directors at all material times up to 1 July 1995 were John Robins, Meissner and Lorkin. On 1 July 1999 John Robins resigned as a director and transferred his shares to his sister, Rosemary Pollack who thereupon became a director in his place. 15 Lorkin was an employee of one of the companies in the Robins group and an associate of John Robins. He did not give evidence and his absence was unexplained. 16 Coldwick purchased the property at 48-52 Dow Street South Melbourne on 22 November 1991. The purchase price was $295,000. The deposit of $29,500 was paid by Incentive Dynamics. $196,500 was borrowed from a third party and secured by mortgage. The balance of $69,000 plus $8,307 for stamp duty were paid by Incentive Dynamics.

17 The property at 24 Falcon Street Crows Nest was purchased by Coldwick on 12 May 1995 for $560,000. Incentive Dynamics paid the deposit and the sum of $119,281 required to complete the settlement. The remaining $420,000 was lent by a bank. 18 The financial records of Incentive Dynamics were not maintained in accordance with s286 of the Corporations Law. That provision obliged a company to keep written financial records that correctly recorded and explained its transactions, financial position and performance; and would enable true and fair financial statements to be prepared and audited. It was found in particular that the inter-company transactions between members of the Robins group, including Coldwick, were not properly recorded in accordance with this standard. 19 Many issues fought at trial related to proof of the underlying transactions said to give rise to the equitable and statutory claims propounded by Incentive Dynamics and its liquidator. The defendants put the applicants to proof and/or asserted that there were offsets in their favour. In the main, Incentive Dynamics was successful in light of favourable scraps of documentary evidence and the unfavourable view formed by the trial judge as to the credibility of the respondents John Robins and Meissner. 20 As regards the Coldwick transactions, the primary judge determined in effect that all moneys spent by Coldwick in the acquisition of the properties were paid by Incentive Dynamics, with the exception of the sums advanced on mortgage. The evidence as to the source of interest payments is unclear, possibly because interest remained unpaid. However, nothing indicates that any money came from Coldwick's shareholders. 21 The pleadings alleged against Douglas Robins, John Robins and Meissner that they had committed breaches of trust and statutory duty and other defaults in relation to a number of transactions, including the transfer of $375,065.03 to Coldwick (Amended Statement of Claim, pars 13-15). The relevant particulars asserted that these wrongs were committed: In causing or permitting to be advanced and lent funds of [Incentive Dynamics] to or at the direction of [Coldwick] when such loan conferred no benefit upon [Incentive Dynamics] and when no proper loan documentation was prepared, no security taken, no interest paid or demanded and further in failing to take any steps to cause or endeavour to cause such funds to be repaid to [Incentive Dynamics].

22 The statutory duties allegedly breached included those arising under s232(6) of the Corporations Law, which then provided: An officer or employee of a relevant body corporate shall not make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage to himself or herself or for any other person or to cause detriment to the body corporate.

(By the Corporate Law Economic Reform Program Act 1999 s232(6) was repealed and substantially re-enacted as s182 of the Corporations Law . See now s182 of the Corporations Act 2001 .) 23 Damages were sought against the defaulting officers (issue 1). 24 What I shall hereafter refer to as the personal and proprietary claims against Coldwick (ie issues 2 and 4) were pleaded in the following terms (the first applicant being Incentive Dynamics, the first respondent being Douglas Robins, the second respondent being John Robins, the third respondent being Meissner and the fifth respondent being Coldwick): (The personal claim): 16. Further and in the alternative, the first applicant claims as against the fifth respondent for moneys payable by the said respondent to the first applicant being moneys lent to the fifth respondent respectively by the first applicant as set out in Schedule C. ( The proprietary claim ): FIFTH RESPONDENT'S PROPERTY 24. Further and in the alternative, the fifth respondent is the registered proprietor of land at 48-52 Dow Street, South Melbourne in the State of Victoria, being the lands comprised in Certificates of Title volume 4953 Folio 563, Volume 4854 Folio 639 and Volume 3334 Folio 646 being certificates issued under the provisions of the Transfer of Land Act 1954 of the State of Victoria ("the South Melbourne property"). 25. As at 22 November 1991 the fifth respondent was not indebted to the first applicant and was controlled by the second and third respondents. 26. On or about 22 November 1991 the fifth respondent purchased the South Melbourne property for the price of $295,000.00 and used the sum of $128,000.00 alternatively $98,500.00 provided by the first applicant as part of the purchase moneys, and thereafter made further payments of not less than $8,681.25 in meeting the fifth respondent's mortgage obligations secured over the property and in refurbishing the property. 27. The said sums were provided by the first applicant to the fifth respondent without any material benefit to the first applicant and in breach of the duties owed by the first, second, third and fourth respondents. PARTICULARS The applicants repeat the matters set out in paragraphs 13, 14 and 15. 28. In the circumstances the fifth respondent holds its entire interest in the South Melbourne property or alternatively an interest in the South Melbourne property equivalent to the proportion of purchase moneys provided by the first applicant upon trust for the first applicant. 29. Further and in the alternative, the fifth respondent is the registered proprietor of property situated at 2nd Floor, 24 Falcon Street, Crows Nest, being the whole of the lands in Certificates of Title 6/SP34683 and 7/SP34683 ("the Crows Nest property"). 30. On about 12 May 1995 the fifth respondent purchased the Crows Nest property for the price of $560,000.00 and used the sum of $117,178.17 provided by the first applicant as part of the purchase moneys. 31. The said sum was provided by the first applicant to the fifth respondent without any material benefit to the first applicant and in breach of the duties owed by the first, second, third and fourth respondents. PARTICULARS The applicants repeat the matters set out in paragraphs 13, 14 and 15. 32. In the circumstances the fifth respondent holds its entire interest in the Crows Nest property or alternatively an interest in the Crows Nest property equivalent to the proportion of purchase moneys provided by the first applicant upon trust for the first applicant.

25 These pleadings show that Incentive Dynamics and its liquidator were inviting the Court to find that the moneys were paid by way of loan for the purpose of the personal claim. But the alternative proprietary claim was not thus confined. It spoke of money having been "provided" by Incentive Dynamics "without any material benefit to [Incentive Dynamics] and in breach of the duties owed by" the persons who were Incentive Dynamics' officers at the relevant times. 26 The proprietary claim was fought on the basis of the principles relating to "knowing receipt" and remedial constructive trust. 27 The trial judge addressed both the personal and proprietary claims against Coldwick in the following terms:

The claim against Coldwick 119 The South Melbourne property was settled on 22 November 1991. The purchase price was $295,000. The deposit was $29,500. On the basis of the documentary evidence, I find that that sum was paid by Incentive Dynamics.

120 Coldwick borrowed $196,500 from a third party, secured by mortgage, towards the settlement sum, leaving a balance payable of $69,000. The applicants claim that that sum was also paid by Incentive Dynamics on behalf of Coldwick, together with $8,307 for the stamp duty payable on the transfer, making a total paid of $106,807 paid by it in respect of the South Melbourne property. The records of Incentive Dynamics show that, in fact, those monies were paid by it on account of the purchase of the South Melbourne property. The defence to the claim was that those monies were, in reality, monies held by Incentive Dynamics for John Robins, Meissner and Lorkin. In addition, a document contemporaneous with the purchase of the South Melbourne property, written by Meissner, confirms that Incentive Dynamics invested in the South Melbourne property with two other persons (who I find to be Meissner and Lorkin) and lent monies to Coldwick for that purpose. I place considerable weight on that document, notwithstanding that Meissner said that it was inaccurate, particularly as I am reluctant to place any weight on the evidence of John Robins and Meissner on matters such as this. 121 John Robins has given varying information as to the role of Incentive Dynamics in relation to the purchase by Coldwick of the South Melbourne property. One version was that the monies were advanced by Incentive Dynamics but on behalf of himself, Meissner and Lorkin, and that they subsequently reimbursed Incentive Dynamics. In his statement, he said that the advances were provided to Incentive Dynamics by RHM and Travellers Pty Ltd, but no records from either of those entities were presented to confirm that. As I have concluded that he had little awareness of the day to day conduct of the inter-company loans or provision of funds between members of the Robins group, I think his statement reflects what he now thinks may have happened rather than what did happen. He finally submitted that the monies advanced by Incentive Dynamics were on account of a liability it then had to Nicholls-Cumming, albeit improperly documented. That was not put to Morton or to any of the applicants' witnesses. As the applicants point out in their submissions in reply, the analysis of the journal entries by John Robins in that final submission does not have regard to other apparently relevant journal entries. The picture contended for by John Robins does not emerge.

122 Meissner did not deal with this transaction in his statement. In his evidence-in-chief, and in cross-examination, he suggested that the funding for the purchase of the South Melbourne property largely came from RHM or Nicholls-Cumming and that Meissner had contributed some $34,000 partly by cash and partly by not seeking payment of certain monthly fees due to him by Incentive Dynamics and that Lorkin had contributed $20,000 partly by cash and partly by not claiming for fees due to him. Morton was dismissive of those assertions, by reference to the records of Incentive Dynamics available to him, and because the records of payments of fees by Incentive Dynamics to Meissner did not demonstrate any such forbearance. In his own cross-examination, Meissner acknowledged that there was no trading relationship between Coldwick and Incentive Dynamics. There was therefore no reason why certain of the payments into Incentive Dynamics for the purchase of the South Melbourne property, and the payments by Incentive Dynamics for that purpose, should be referred to the Reconciliation File for later balancing out. Despite that, he was unable to explain in a satisfactory way why the payments actually made by Incentive Dynamics for Coldwick were not simply recorded, and the receipt of offsetting funds also simply recorded. Further, although he asserted that the financial accounts of Coldwick would display the picture that it was not indebted to Incentive Dynamics, he did not produce those accounts. He was pressed to do so. His evidence was suspended for some time, so there was no apparent reason why those records were not produced. He is still a director of Coldwick, and it would have been an obvious thing to produce those accounts if they bore out his assertions. His explanations for not producing those documents were unsatisfactory, and as I have earlier observed, impact adversely on my assessment of his reliability as a witness.

123 Lorkin did not give evidence, although he was opened on as a proposed witness for the respondents. He attended in the course of the hearing in response to a subpoena to produce documents. There is no apparent reason why he could not have given evidence.

124 In my view, Lorkin was a person who was a witness naturally called by the respondents. If Meissner's evidence is correct, Lorkin could have confirmed it in significant respects. He could have produced records which, to a large measure, would have confirmed that evidence. The fact that he did not do so enables me to draw the conclusions which I have drawn from the documentary material relied upon by the applicants with more confidence. Similarly, the failure of either Meissner or Lorkin as the directors of Coldwick to produce the records of Coldwick which Meissner said supported his oral evidence gives me more confidence in reaching those conclusions; I infer that, if produced, they would not assist the respondents' case.

125 Fettes also dealt with this transaction. He referred in detail to the various journal entries giving rise to the applicants' claim as ultimately formulated against Coldwick, and to the lack of sufficient records to identify reliably how that liability was built up. That paucity of records reflects the sort of difficulty confronting Morton, which I have found was not his responsibility. It occurred because Meissner failed to make and maintain sufficiently coherent and reliable records. Morton's information was built up with the aid of examinations conducted under the Law. In addition, I have the benefit of knowing that whatever monies were not the subject of external finance for the purchase of the South Melbourne property (and for the Crows Nest property) came in the first place from Incentive Dynamics. The issue is whether those payments were made from monies held by Incentive Dynamics on behalf of John Robins, Meissner and Lorkin, or whether those persons reimbursed Incentive Dynamics for those payments.

126 The records of Incentive Dynamics demonstrate that $98,378.19 was withdrawn from its bank at the time of settlement of the South Melbourne property, and a payment of $8,681.25 paid on account of stamp duty and like expenses. The trial balances show amounts owing by Coldwick of $183,873.83 at 30 June 1992, and increasing to $239,173.08 by 30 June 1995 on the numbered account established during the financial year in which that property was purchased. There are also some documents which show the payment of what may have been part interest payments to a bank on behalf of Coldwick.

127 I find that Incentive Dynamics did largely finance Coldwick in the purchase of the South Melbourne property. Whatever the intention of the participants at the time may have been, I also find that it has not received from any entity the amounts which it then paid or further amounts which it paid from time to time in relation to the property. The fact that the amount owing on that account progressively increased indicates to my mind that it represented an ongoing current liability to Incentive Dynamics. It is not consistent with a once-off loan which was reimbursed either before 30 June 1992 or "reconciled" by somehow being offset by a debt of Incentive Dynamics to another entity in the Robins group. I reject the evidence given by the respondents to the contrary. I found it unconvincing. My conclusions are supported by the contemporaneous memorandum of Meissner. In reaching that conclusion, I have also had regard to the cheque butt apparently dated 28 November 1991 apparently drawn on the Shinsay Pty Ltd account in favour of Incentive Dynamics for $17,000 with the notation "Tony's money to ID". The writer of that cheque was not called to explain it and it has not altered my conclusion.

128 In my view, it does not follow that Coldwick holds its interest in the South Melbourne property on constructive trust for Incentive Dynamics. The applicants relied on Barnes v Addy (1874) LR 9 Ch App 244 and Farrow Finance Co Ltd (In Liq) v Farrow Properties Pty Ltd (In Liq) (1997) 26 ACSR 544 in support of their claims to such an interest. I do not think that those authorities advance the matter sufficiently in the particular circumstances for the applicants to succeed in this aspect of their claim. That is because I am not persuaded that either of the directors of Incentive Dynamics, or Meissner, had any dishonest and improper intent at the time of the transaction, even if their state of mind be attributed to Coldwick (cp per Hansen J in Farrow at 585-586). Although the question remains to be determined whether the directors of Incentive Dynamics are also liable for the various liabilities identified by the applicants and which I find to exist, I do not find that in respect of the purchase of the South Melbourne property they were consciously in breach of their duties to Incentive Dynamics, or that their state of mind was such that, even if it were attributed to Coldwick, it would be sufficient to render Coldwick as holding the South Melbourne property as constructive trustee for Incentive Dynamics.

129 Coldwick also purchased the Crows Nest property. The purchase price was $560,000 of which $420,000 was procured from a bank. It was settled on 12 May 1995. On 11 May 1995, Incentive Dynamics paid $119,281.95 to complete the settlement. By 30 June 1995, the trial balance shows that the amount then owing by Coldwick to Incentive Dynamics in respect of the numbered account in which that sum was advanced was $135,891.55, with an opening balance of $16,530 to make up the total outstanding. How the $16,530 came to be owing is unexplained.

130 It was suggested in evidence that Travellers Pty Ltd had paid in excess of $100,000 towards the purchase of the Crows Nest property, by two cheques to Incentive Dynamics of $52,000 and $80,000 drawn on 4 and 12 May 1995 respectively. Holland gave some evidence to support the fact of such payments, but as I have found, I do not think his level of involvement in the affairs of the Robins group was sufficient to place any weight on his evidence as to why a particular payment of monies was made. There is no cogent reason why Travellers Pty Ltd would make a payment into Incentive Dynamics for the purposes of Incentive Dynamics on-lending that money to Coldwick. Coldwick had no trading relationship with Travellers Pty Ltd so it could not have been part of any reconciliation or balancing process. The account of Incentive Dynamics into which the payment of $80,000 was made by Travellers was one used substantially for a particular campaign account for Chez Nous Catering, and the matters put forward by John Robins in his submission to explain the payment into that account were not supported by Meissner in his evidence, although his ability to readily draw a cheque on that particular account was said to be one of the reasons for the payment being made in that way.

131 Whether the payments by Travellers gave rise to a debt by Incentive Dynamics to Travellers or not, I find that those payments were not received by Incentive Dynamics charged with any form of trust that they be applied to Coldwick for its purchase of the Crows Nest property. I find that Incentive Dynamics advanced the funds to Coldwick for its purchase of the Crows Nest property. As I am not persuaded that the directors of Incentive Dynamics and Meissner had the intention to breach their duties to Incentive Dynamics at the time Incentive Dynamics provided funds for the purchase of the Crows Nest property, I reject the applicants' claim that Coldwick holds its interest in the Crows Nest property in trust for Incentive Dynamics.

132 In my judgment, Incentive Dynamics is entitled to recover from Coldwick the two sums of $239,173.08 and $135,891.55, making a total of $375,064.63. 28 The document referred to at [120] is a note in Meissner's handwriting reading: Coldwick Incentive Dynamics invested in a property with two other people. As part of the deal monies were lent to Coldwick to fund the purchase. These funds were to be repaid either on profit share or when building is refinanced or on point of sale of building. Coldwick is a company external to the group and it has a mortgage over its buildings through a solicitor's trust account.

29 The claims for damages against the defaulting officers were addressed later in the judgment (at [233]-[252]). These claims were rejected, but not always because the officers were acquitted of the alleged breaches of duty. Regarding the personal claims against Meissner and John Robins relating to the Coldwick advances, Mansfield J said (at [249]: I am not satisfied on the evidence that the judgments to be entered against Coldwick … will be unmet in part. I am unable to find that, even if either Meissner or Robins were in breach of duty, Incentive Dynamics will have suffered a loss by any such breach. 30 This left unresolved so much of the applicants' proprietary claims against Coldwick as depended on the same allegations of fiduciary and statutory breaches against those officers. The lengthy passage that I have already set out addressed those claims. 31 In the upshot, Mansfield J entered money judgments against the several respondents. The only one of present relevance was the judgment that Coldwick pay $375,064.63.

Issues in the appeal 32 At the hearing of the appeal, the cross appellant was represented by Mr Whelan QC and Mr Chippindall of counsel. The cross respondent Coldwick was represented by Mr English, solicitor who adopted the written submission previously filed by Coldwick's counsel. Mr English also made brief oral submissions supporting the reasoning of Mansfield J. In particular, Coldwick submitted that no sufficient level of conscious impropriety had been established to ground either recipient liability or the element of unconscionability necessary for a proprietary remedy. The money was advanced as a loan and recovery of the principal plus statutory interest would be sufficient to satisfy Coldwick's duty in the circumstances. 33 The substantive issue in the appeal is the rejection of Incentive Dynamics' proprietary claim to the equity in the two properties. The cross appellants accept that they cannot have both the personal money judgment and the proprietary relief they seek. They did not have occasion to elect, because the proprietary claim was rejected, and wish to press the more advantageous relief. They seek to have the personal money judgment in their favour set aside and replaced with more valuable declaratory and substantive relief effectively vesting the entire sale proceeds in Incentive Dynamics. 34 Mansfield J's critical finding was: 128 In my view, it does not follow that Coldwick holds its interest in the South Melbourne property on constructive trust for Incentive Dynamics. The applicants relied on Barnes v Addy (1874) LR 9 Ch App 244 and Farrow Finance Co Ltd (In Liq) v Farrow Properties Pty Ltd (In Liq) (1997) 26 ACSR 544 in support of their claims to such an interest. I do not think that those authorities advance the matter sufficiently in the particular circumstances for the applicants to succeed in this aspect of their claim. That is because I am not persuaded that either of the directors of Incentive Dynamics, or Meissner, had any dishonest and improper intent at the time of the transaction, even if their state of mind be attributed to Coldwick ([cf 20] per Hansen J in Farrow at 585-586). Although the question remains to be determined whether the directors of Incentive Dynamics are also liable for the various liabilities identified by the applicants and which I find to exist, I do not find that in respect of the purchase of the South Melbourne property they were consciously in breach of their duties to Incentive Dynamics, or that their state of mind was such that, even if it were attributed to Coldwick, it would be sufficient to render Coldwick as holding the South Melbourne property as constructive trustee for Incentive Dynamics.

35 A similar finding was made in relation to the Crows Nest acquisition (at [131]). 36 The cross appellants submit that the primary facts as found by Mansfield J or disclosed incontrovertibly in the evidence reveal error of law in these conclusions. Absence of dishonest or conscious improper intent on the part of Incentive Dynamics' directors and Meissner was not the end of the picture. 37 Senior counsel for the cross appellants took the Court to passages in the cross-examination of Meissner (Black 275-6, 292-3, 312, 317) and John Robins (Black 394-5). These show that Incentive Dynamics was the "cash rich entity" in the Robins group and that large amounts of cash were lent in a "treasury style of operation" to other companies that needed cash for various purposes. 38 The evidence of Meissner (the group treasurer) also established that Coldwick had no cash of its own. It was "just a company owning assets" (Black 275). The moneys (apart from those borrowed on mortgage) spent by Coldwick in the acquisition of the two properties had been "financed by Incentive Dynamics" (Black 275). Meissner described the moneys as having been lent, although there was (he acknowledged) no loan agreement, no security taken and no benefit to Incentive Dynamics as regards the South Melbourne acquisition (Black 292). 39 John Robins did not dispute that Coldwick got the money from Incentive Dynamics or that there was no loan agreement or security for the moneys advanced (Black 394). He endeavoured to raise the case that the moneys which came ostensibly from Incentive Dynamics were in truth advanced from other sources or represented the discharge of some obligation owing by Incentive Dynamics to third persons including himself. This is the "offset" case which the primary judge rejected. 40 Once this prop was knocked away, the case was one in which (to the knowledge of the common officers of both Incentive Dynamics and Coldwick) Incentive Dynamics received no benefit from Coldwick's acquisition of the properties with Incentive Dynamics' money. Nor was any benefit intended. 41 The rejection of the "offset" defence did not establish the precise basis upon which the moneys were provided to Coldwick. Mansfield J held that the money for South Melbourne was lent by Incentive Dynamics as an investment (see at [120], [127]. See also the terms of the Meissner memorandum). By implication, a similar position applied to Crows Nest, although there is no express finding to that effect (cf [131]). The money judgment entered against Coldwick rested upon this loan basis. 42 This Court was informed, without objection, that the evidence did not suggest that Coldwick had assets of any worth other than the two properties, nor did it have any creditors other than Incentive Dynamics. 43 Some time after judgment in the Federal Court the two properties were sold and the third party financiers were discharged. Incentive Dynamics was paid the judgment debt of $375,064 from the net proceeds. The balance of the sale proceeds have been invested to abide the outcome of this appeal.

analysis 44 The proprietary claim was based upon the concept of "knowing receipt" stemming from the first limb of the so-called rule in Barnes v Addy (1874) LR 9 Ch App 244 at 251-2. Lord Selborne LC said that: … strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

45 The recipient cause of action may generate a personal obligation to make restitution with interest of moneys received. In a proper case the unjustified receipt can also be made the springboard for a proprietary claim such as a (remedial constructive) charge or trust (as to the distinction, see Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 at 585). 46 As indicated, the pleadings averred that the purchase money was paid in circumstances conferring no benefit upon Incentive Dynamics and in breach of various duties owed by Douglas and John Robins and Meissner. 47 The statutory duties invoked are not confined to those precluding conscious impropriety. These included s232(6) of the Corporations Law which forbade officers from making improper use of their position to gain an advantage for themselves or others or to cause detriment to the body corporate. 48 The appellants submit that the primary findings established that no interest of Incentive Dynamics was advanced or intended to be advanced by the Coldwick payments. There was therefore a clear breach of this statutory duty (and its analogue in the general law) by the officers in control of Incentive Dynamics given that they and their associate (Lorkin) were the shareholders of Coldwick when the properties were acquired with Incentive Dynamics' money. 49 The appellants further submit that at the time of receipt Coldwick had actual knowledge of the facts giving rise to the breach of duty, through its own officers, John Robins and Meissner. 50 It is also submitted that it would be unconscionable for Coldwick (and its shareholders) to retain any benefit from the improper receipts. Accordingly, a constructive trust should be imposed, rather than merely allowing personal recovery of the moneys advanced. 51 I accept these submissions, which are sufficient to uphold the cross appeal. 52 I shall, however, state my own reasons for upholding the appeal. 53 It is unnecessary to consider the exact scope of the non-statutory fiduciary duty that probably corresponds with s232(6). 54 The duty imposed by s232(6) of the Corporations Law was clearly breached by Incentive Dynamics' controlling officers, Douglas and John Robins and Meissner. Contrary to the finding of the primary judge, dishonesty or "improper intent" (in a conscious sense) is not a necessary component of that duty. 55 Mansfield J's reasons at [128] and [131] do not address s232(6) in terms, but they must be taken to have done so in their global rejection of the pleaded proprietary claim. His Honour's implicit requirement of proof of "dishonest and improper intent" by officers "consciously in breach of their duties to Incentive Dynamics" or an "intention to breach their duties" puts an unnecessary and false gloss on s232(6). In R v Byrnes and Hopwood (1995) 183 CLR 501 the High Court was dealing with s229(4) of the Companies (South Australia) Code, which is in identical terms to s232(6). Brennan, Deane, Toohey and Gaudron JJ said (at 514-5, citations omitted) that Chew v The Queen (1992) 173 CLR 626 has: … rightly been taken to approve an objective test of impropriety. Impropriety does not depend on an alleged offender's consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case. When impropriety is said to consist in an abuse of power, the state of mind of the alleged offender is important: the alleged offender's knowledge or means of knowledge of the circumstances in which the power is exercised and his purpose or intention in exercising the power are important factors in determining the question whether power has been abused. But impropriety is not restricted to abuse of power. It may consists in the doing of an act which a director or officer knows or ought to know that he has no authority to do.

See also per McHugh J at 521-2. See also Duke Group Ltd (in liq) v Pilmer (1998) 27 ACSR 1 at 300-305. 56 The incontrovertible facts establish that, unless Coldwick's assets were intended to be held on trust for Incentive Dynamics from the outset (in which case caedit quaestio), the payments for that company represented an improper use of its officers' positions to gain advantage for themselves as major shareholders of Coldwick and for others (Coldwick itself and its other shareholder Lorkin). No benefit accrued to Incentive Dynamics, while the officers (through their shareholdings in Coldwick) reaped the benefit of having to spend nothing to obtain enjoyment of the equity in two valuable assets. 57 The principles relating to the "knowing receipt" of trust property limb of the rule in Barnes v Addy are in considerable flux (see generally Lord Nicholls, "Knowing Receipt: The Need for a New Landmark" in WR Cornish et al eds, Restitution Past, Present and Future Hart Publishing, 1998; Koorootang Nominees Pty Ltd v Australian & New Zealand Banking Group Ltd [1998] 3 VR 16 at 78-105). Uncertainties surround the conceptual basis of the claim, its relationship with the "second limb" in Barnes v Addy, its concept of "trust property" that includes property that was not necessarily held in trust at the time of misappropriation or misdirection, and the "knowledge" element appropriate to trigger a personal or proprietary remedy against the recipient. The problems are especially vexing in England which, unlike Australia, has not embraced the notion of a remedial constructive trust (see Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 714. Contrast Baumgartner v Baumgartner (1987) 164 CLR 137; Bryson v Bryant (1992) 29 NSWLR 188). 58 This appeal is not the proper vehicle to plunge into these murky waters. For one thing, the knowledge element touching the recipient is clearly established in the present case. If Coldwick had been intended by Incentive Dynamics' officers to be the corporate vehicle for holding Incentive Dynamics' investments in the two properties there would have been an express trust: caedit quaestio. Since ex hypothesi it was not (according to Coldwick and its officers at least), and since those very officers have failed in their attempt to suggest a basis for an honest receipt of Incentive Dynamics' moneys (ie the "offset" defence) it follows that, in the circumstances established by the evidence, the transactions were from start to finish an improper diversion of Incentive Dynamics' moneys in favour of a body which, through its directors was complicit in and privy to the impropriety. 59 As officers of Coldwick, John Robins and Meissner had actual knowledge of the circumstances in which the moneys were paid which satisfied the "knowing" element of the cause of action, at whatever level it is required in the uncertain jurisprudence (see Linter Group Ltd v Goldberg (1992) 7 ACSR 580 at 623-4, Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544 at 587-8). 60 It is well established that the first limb of the rule in Barnes v Addy extends to property protected by fiduciary or statutory fiduciary obligations such as are presently involved. The process whereby an obligation to make restitution is imposed upon a third party who (with requisite knowledge) receives money belonging to a company that was misapplied by its officers in breach of their fiduciary or equivalent statutory duty is explained by the English Court of Appeal in Belmont Finance Corporation v Williams Furniture Ltd & Ors (No 2) [1980] 1 All ER 393. In that case, directors participated in a transaction involving the plaintiff company giving financial assistance for the purpose of purchasing its own shares. It is pertinent to observe that such breach did not involve the element of dishonesty or conscious impropriety found vital by the primary judge. 61 Buckley LJ said (at 405, citations omitted): I now come to the constructive trust point. If a stranger to a trust (a) receives and become chargeable with some part of the trust fund or (b) assists the trustees of a trust with knowledge of the facts in a dishonest design on the part of the trustees to misapply some part of a trust fund, he is liable as a constructive trustee ( Barnes v Addy per Lord Selborne LC). A limited company is of course not a trustee of its own fund: it is their beneficial owner; but in consequence of the fiduciary character of their duties the directors of a limited company are treated as if they were trustees of those funds of the company which are in their hands or under their control, and if they misapply them they commit a breach of trust ( Re Lands Allotment Co , per Lindley and Kay LJJ). So, if the directors of a company in breach of their fiduciary duties misapply the funds of their company so that they come into the hands of some stranger to the trust who receives them with knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds against the company unless he has some better equity. He becomes a constructive trustee for the company of the misapplied funds. This is stated very clearly by Jessel MR in Russell v Wakefield Waterworks Co , where he said: In this Court the money of the company is a trust fund, because it is applicable only to the special purposes of the company in the hands of the agents of the company, and it is in that sense a trust fund applicable by them to those special purposes; and a person taking it from them with notice that it is being applied to other purposes cannot in this Court say that he is not a constructive trustee. In the present case, the payment of the £500,000 by Belmont to Mr Grosscurth, being an unlawful contravention of s54, was a misapplication of Belmont's money and was in breach of the duties of the directors of Belmont. £489,000 of the £500,000 so misapplied found their way into the hands of City with City's knowledge of the whole circumstances of the transaction. It must follow, in my opinion, that City is accountable to Belmont as constructive trustee of the £489,000 under the first of Lord Selborne LC's two heads. 62 Goff LJ agreed, adding (at 406-7) that: However, the constructive trustee claim was formulated, both in the finally amended statement of claim and in argument before us, in the two alternative ways stated by Lord Selborne LC in Barnes v Addy , namely, receiving trust funds in such a way as to become accountable for them and knowing participation in a dishonest and fraudulent design on the part of the trustees. The second of those ways does depend on fraud or dishonesty, but the first does not …. 63 Waller LJ agreed with each judgment on the constructive trust issue. 64 These passages show how the Barnes v Addy principle can be applied to money which is not trust money in the strict sense at the time of its misapplication by directors acting in breach of their duties. 65 Belmont also demonstrates that the (remedial) constructive trust capable of being imposed by the court as the springboard for a personal or proprietary remedy is not precluded merely because the recipient took the money under a transaction having a particular form such as a gift, loan or purchase. If the gift/loan/purchase transaction was itself part of a breach of appropriate fiduciary or statutory duty on the part of the officers its mere form cannot stay the hand of equity. See also Paul A Davies (Australia) Pty Ltd (in liq) v Davies (1982) 1 ACLC 66 at 69; Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] 1 Ch 246 at 298, 306-7; Ninety Five Pty Ltd (in liq) v Banque Nationale de Paris [1988] WAR 132 at 173-6; Linter Group Ltd v Goldberg (1992) 7 ACSR 580 at 619, 623. 66 Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) & Ors (1997) 26 ACSR 544 illustrates these propositions in relation to a loan transaction. The plaintiff (FFC) applied $2.803m as a loan to a related company (FP). The loan was in connection with the acquisition of a property at Queens Road, Melbourne by FP. FP was used as the vehicle in the group to undertake "one off" property developments. The loan was made in circumstances involving breach of the fiduciary duty of FFC's directors to act in the best interests of FFC. The breach was found on the test not only that the directors failed to consider the best interests of FFC but also that an intelligent and honest director in their position would have concluded, in the face of all the relevant facts and circumstances, that the loan was not in the best interests of FFC (see at 580-5, where Hansen J applied this test, while noting the reservation in this Court's decision in Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50). (This, in effect is the state of mind required in the passage from Byrnes set out above.) The recipient corporation (FP), through its directors common to the directors of FFC, had the requisite knowledge of the breach sufficient to trigger liability under the recipient limb of Barnes v Addy. 67 The fact that the breach of fiduciary duty resulted in a loan from FFC to FP did not preclude FFC from ignoring the form and terms of the loan transaction once it established FP's recipient liability. 68 A personal liability to make restitution of the moneys received would have been of little benefit to FFC because FP was in insolvent liquidation and a third party, Pyramid Building Society (PBS) held a first mortgage over the Queen's Road property. FFC was, however, permitted to trace what were its moneys (through the Barnes v Addy constructive trust) and use this as a springboard for a proprietary remedy. Hansen J held (at 589) that FFC can trace … into the Queens Road property because that property was the direct substitution of the money improperly transferred from FFC to FP (together with the money lent by PBS to FP). From there, the plaintiff can trace into the proceeds of the sale of that property - again, a direct substitute of the asset. 69 In Farrow, PBS had knowledge of the breach of fiduciary duty, which meant that its mortgage could not give it priority over the equitable interest in the full proceeds of sale claimed by FFC through the combined operation of a Barnes v Addy constructive trust and the process of tracing. (This added factor is not an issue in the present case because the appellant only seeks the net proceeds of sale of the two properties after discharge of the external mortgages.) 70 Thus analysed, Farrow Finance is on all fours with the present case. The plaintiff there claimed several remedies in the alternative, including personal remedies against FFC limited to $2.803m, but it was entitled to elect in favour of the more generous proprietary remedy based upon constructive trust (see at 565, 589-90). 71 The imposition of a remedial constructive trust is discretionary. 72 A loan contract entered into by a corporation in circumstances involving statutory contravention may be void for illegality or merely voidable at the option of the corporation. In Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198, the Full Court of the Supreme Court of Western Australia said (at 217-9) that Belmont and Rolled Steel Products were properly to be seen as involving contracts void for illegality. The voidness meant that the court imposing the Barnes v Addy constructive trust was not concerned to consider the rights of third parties such as creditors. 73 However, rescission is essential for cases (like the present one) where the loan transaction is at best voidable for breach of fiduciary duty or an analogous statutory duty (Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143; Halifax Building Society v Thomas [1996] Ch 217 at 228; Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198 at 210ff). Affirmation, delay, intervention of third party rights and inability to give counter-restitution may cause any right to rescission to be lost. 74 In some situations, an order for rescission will be at least a practical necessity (Greater Pacific at 153). If such an order is sought independently or as a step towards a remedial constructive trust based upon the process of tracing the "trust" money into the hands of the recipient or into the property acquired by the recipient with that money, the remedy is discretionary. In general, the court will need to be satisfied that a remedial constructive trust (or charge if that suffices) is necessary to protect the legitimate rights of the plaintiff and does no injustice to the rights of third parties, such as creditors (see Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371; Australian Securities Commission v Melbourne Asset Management Nominees (receiver and manager appointed) (1994) 49 FCR 334 at 358-9; Giumelli v Giumelli (1999) 196 CLR 101 at 113-4). 75 A full proprietary remedy is not always necessary or appropriate and it is not automatic. Sometimes the interests of innocent third parties such as creditors will mean that the plaintiff will be confined to a personal remedy or the narrower remedial constructive charge. But a remedial constructive trust will generally be appropriate where profit can be traced into identifiable property in the hands of the defaulting beneficiary or the agent of the defaulting beneficiary (see generally RP Meagher, JD Heydon and M Leeming, Meagher, Gummow & Lehane's Equity Doctrines and Remedies 4th ed at [5-250]). 76 A remedial constructive trust is entirely appropriate in the present case in light of the absence of third parties such as creditors having a legitimate claim on the assets of Coldwick. If it were relevant to consider the interests of shareholders of Coldwick, which I doubt, I observe that they are John Robins (at to 75%) and Meissner and Lorkin as to the balance. Their interests as shareholders are part of the very problem to be addressed in the remedy designed to stop unconscionable conduct that would result in unjust enrichment. 77 The remedial constructive trust is not the medium for indulgence of idiosyncratic notions of fairness and justice (Muschinski v Dodds (1985) 160 CLR 583 at 615 per Deane J). But here equity would be abrogating its role of vindicating and protecting fiduciary relationships and deterring improper profit-making conduct if it looked just at the capital sums advanced under the "loans". If only the loans were repaid, the defaulting officers would be unjustly enriched in consequence of their own wrongdoing. They would reap the fruits of their wrongdoing by taking the equity in the properties acquired by the corporate shell Coldwick. 78 This is not a case like Hancock where a remedial constructive trust was inapt inter alia because loans made in breach of fiduciary duty by the controllers of the plaintiff had already been enforced and discharged before the plaintiff sought equitable relief touching the properties acquired with the loan proceeds. In the present case, the alternative proprietary claim was raised in the pleadings. Incentive Dynamics at all times acted on the basis that it was seeking to repudiate the formal transactions (whatever they truly were) that both effectuated and disguised the fiduciary and statutory breaches. 79 I propose the following orders:

2. Set aside order 3(d) made in the Equity Division of the Supreme Court of New South Wales on 2 March 2000.

3. In lieu thereof: (a) declare that Coldwick Pty Ltd held its interest in the properties at South Melbourne and Crows Nest on trust for Incentive Dynamics Pty Ltd; (b) order that the whole of the proceeds of sale of the several properties (including accrued interest) other than what has already been accounted for pursuant to the said order 3(d) be paid to the second cross appellant on behalf of the first cross appellant.

4. Cross respondent to pay cross appellants' costs.

5. Liberty to apply. 80 STEIN JA: I agree with Mason P. 81 GILES JA: I have had the advantage of reading the reasons of Mason P in draft. Subject to what follows, I respectfully agree with them. 82 The President has referred to the need for rescission (paras [73] - [74]). If there were loans, cases such as Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 386-90 and Greater Pacific Investments Pty Ltd (In liquidation) v Australian National Industries Ltd (1996) 39 NSWLR 143 at 153 require rescission. Equity could simply impose a constructive trust over funds acquired under a contract of loan which was a transaction in breach of fiduciary duty. That is not done. Requiring rescission is a way of ensuring that account is taken of the rights of third parties before equity grants a proprietary remedy, and of guarding against recovery under the contract of loan as well as having the proprietary remedy.

83 Incentive Dynamics did not claim relief by way of rescission of what for the personal claim it is alleged were loans by it to Coldwick. However, for the proprietary claim it alleged not that money was lent to Coldwick, but that money was provided to Coldwick. The claims were plainly in the alternative. Incentive Dynamics' position was that the money was provided to Coldwick and the properties purchased with the money were held for it, but that if that were not so it could recover the money as money lent. On its case for the proprietary claim, there was no question of rescission. It was as if the money had been stolen by Coldwick.

84 Mansfield J's upholding of the personal claim was in default of upholding the proprietary claim. It was not founded on any overt loan transaction, but was a characterisation of the provision of the money effectively for want of better legal character. In those circumstances, I do not think that the requirement of rescission stands in the way of the proprietary relief. Because the constructive trust remedy is discretionary it is still necessary to consider any rights of third parties, but on the facts of this case third party rights did not intervene. Incentive Dynamics will be held to its preferred position that the money was provided rather than lent, so there can not be double recovery.

85 I agree with the orders proposed by the President. **********

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