BETWEEN : THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD

BETWEEN : HANCOCK FAMILY MEMORIAL FOUNDATION LTD

BETWEEN : THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD

Companies - Directors - Fiduciary position - Wealthy family company - Company acting as treasury for individual shareholders - Life Governor directing company to make loans to pay family expenses - Life Governor borrowing large sums to make gifts to wife - Company profitable with large accumulated reserves - Breach of fiduciary duty - Test of

Trusts - Constructive trusts - Resulting trusts - Tracing - Loans of company money to directors - Breach of fiduciary duty - Contracts of loan not avoided - Whether equitable remedies available

Equity - Fiduciary obligations - Expenditure of company money - Liability of directors as fiduciaries - Liability of accessories and recipients - Constructive trustees - Rule in Barnes v Addy

Corporations Law - s 286, s 389, s 1305, s 1306, s 60(1)

Plaintiffs : Mr T E F Hughes QC, Mr S J Archer & Ms S C Dowling

Plaintiffs : Cocks Macnish (as agents for Corrs Chambers Westgarth, Sydney)

Plaintiff : Mr T E F Hughes QC, Mr S J Archer & Ms S C Dowling

Plaintiff : Cocks Macnish (as agents for Corrs Chambers Westgarth, Sydney)

Plaintiff : Mr T E F Hughes QC, Mr S J Archer & Ms S C Dowling

Plaintiff : Cocks Macnish (as agents for Corrs Chambers Westgarth, Sydney)

Plaintiff : Cocks Macnish (as agents for Corrs Chambers Westgarth, Sydney)

Plaintiff : Cocks Macnish (as agents for Corrs Chambers Westgarth, Sydney)

Plaintiff : Mr T E F Hughes QC, Mr S J Archer & Ms S C Dowling

Plaintiff : Cocks Macnish (as agents for Corrs Chambers Westgarth, Sydney

Baden, Delvaux v Societe Generale pour Favoriser le Developpment du Commerce et de I'Industrie en France SA [1992] 4 All ER 161

Equiticorp Finance Ltd (In Liq) v Bank of New Zealand (1993) 32 NSWLR 50

Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583

Napier v Public Trustee (WA) (1980) 32 ALR 153

Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425

Paul A Davies (Aust) Pty Ltd v Davies (1982) 1 ACLC 66

Paul A Davies (Australia) Pty Ltd (In Liq) v Davies [1983] 1 NSWLR 440

Permanent Building Society Ltd (In Liq) v Wheeler (1994) 14 ACSR 109

Phipps v Boarduon [1966] UKHL 2; [1967] 2 AC 46

Toikan International Insuranace Broking Pty Ltd v Plasteel Windows Australia Pty Ltd (1989) 15 NSWLR 641

Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102

1 ANDERSON J: These six actions, heard together, are brought by companies which claim a proprietary interest in a Bentley motor vehicle and five parcels of land to which the companies do not have legal title.

2 It will be necessary to refer in detail to the facts of the several cases, but it will be convenient first to refer in general terms to the circumstances which have given rise to the actions, to briefly state the nature of the claims and to outline the principles of law that may be applicable.

3 The plaintiffs, Hancock Prospecting Pty Limited (HPPL) and the Hancock Family Memorial Foundation Limited (HFMF), are two companies in the Hancock group of private family companies. The Bentley and the various pieces of land were bought between 1984 and 1993 with the money of the companies and expensive improvements were carried out on some of the land. Many millions of dollars in cash was involved. The companies did not receive a legal title to any of these assets. In addition, in April 1990, HPPL disposed of an office building in Stirling Highway, Nedlands valued at about $500,000.

4 The companies submit that the transactions give rise to an entitlement by them to equitable relief. The main remedies that are sought are the remedies of resulting trust and constructive trust.

5 Insofar as it is submitted that the Court should presume a trust (the resulting trust head of claim), the plaintiffs seek to invoke the principles relating to purchase money resulting trusts and voluntary transfer resulting trusts.

6 Insofar as it is submitted that the Court should construe a trust (the constructive trust head of claim), the plaintiffs seek to invoke the principles relating to breach of fiduciary and equitable duties. In every case, it is alleged that the transactions were improper and were for purposes unconnected with the affairs of the companies and were to the detriment of the companies.

7 In some cases, the pleadings are wide enough to leave open a claim to trace on a basis independently of the claims for constructive and resulting trusts.

8 The person who benefited from the transactions was Rosemarie Lacson Hancock, the wife of Langley George Hancock, now deceased. Rosemarie Hancock has remarried and is now Rosemarie Porteous and I will refer to her as Mrs Porteous. She was not Mr Hancock's first wife. For many years, he had been married to Hope Margaret Hancock. Mr Hancock and Hope lived on a family sheep station in the Pilbara region of Western Australia and at a home in the Perth suburb of Dalkeith. They had one child, Georgina Hope Hancock, who was born in 1954. She is now Georgina Hope Rinehart and I will refer to her as Mrs Rinehart. From an early age, certainly by the time she attained her majority, Mrs Rinehart was actively involved in the business activities of her father and assisted him in the administration of his and the companies' affairs. She was employed as an executive of HPPL and was one of its directors and a shareholder.

9 On 2 April 1983, Hope Hancock died after a lengthy illness. Mr Hancock was in his seventies with a history of heart trouble. Mrs Rinehart and her husband Frank (also now deceased) decided to advertise for a housekeeper for Mr Hancock. Mrs Porteous, who was then Rosemarie Lacson, responded to the advertisement and was engaged for a two week trial when it would be up to Mr Hancock to decide whether to keep her on. He did decide to do so.

10 Mrs Porteous had not long arrived in Australia from the Philippines under the conditions of a temporary entry visa and wanted to establish herself in employment with a view to obtaining permanent residency. She had been married in the Philippines and had a daughter, Johanna, but by the time she started as Mr Hancock's housekeeper, or shortly afterwards, that marriage was dissolved. Within quite a short time - a few months - an intimate relationship developed between Mr Hancock and Mrs Porteous and by early 1984 they were cohabiting. This disconcerted Mrs Rinehart and animosity developed between the two women. On 6 July 1985, very much to Mrs Rinehart's displeasure, Mr Hancock and Mrs Porteous were married. Thereafter, Mrs Rinehart's personal antipathy towards Mrs Porteous rapidly grew. As well she became genuinely and deeply concerned that Mr Hancock appeared, uncharacteristically, to be reaching into the accumulated wealth of the family companies to enrich Mrs Porteous.

11 At first, Mr Hancock sided with Mrs Porteous. He dismissed Mrs Rinehart from the employment of HPPL in September 1984 and caused her to be removed as a director in October 1985. He caused Mrs Porteous to be appointed to the board in her place. Mrs Rinehart continued to interest herself as closely as she could in the affairs of the companies. A lot of correspondence passed between father and daughter. In her letters, which were sometimes lengthy, Mrs Rinehart referred to Mrs Porteous in disparaging terms and made many allegations against Mr Hancock of mismanagement, misuse of the funds of HPPL and HFMF, maladministration of the companies, disloyalty to her and to the memory of her mother, Hope, and foolish over-generosity to Mrs Porteous. Mrs Porteous saw most of these letters. I mention this only to say that I accept the submission made on behalf of the plaintiffs that, from a very early time, Mrs Porteous was aware of Mrs Rinehart's complaints. She was aware, in a general way, that Mrs Rinehart took the view that Mr Hancock was not entitled to give her money and property of the family companies.

12 Mr Hancock replied infrequently to Mrs Rinehart's letters (or "scree" as he sometimes described them), but when he did he nearly always reassured Mrs Rinehart that it remained his intention to fully provide for her and her children. At the same time, he did make it clear that he also intended to provide for Mrs Porteous. He usually signed his letters, "Love, Dad".

13 Mr Hancock died in March 1992. Mrs Rinehart was reappointed to the board of HPPL almost immediately and Mrs Porteous ceased as a director. Mrs Rinehart now controls the Hancock group of companies. It would be fair to say that it is at her instigation that these actions are brought. The purpose is to recover from Mrs Porteous the money and property which Mrs Rinehart believes was improperly furnished to her, to the detriment of the companies.

14 Mrs Rinehart is not a party in her own right. HPPL is plaintiff by itself in three of the actions. HFMF is plaintiff by itself in two of the actions. HPPL and HFMF are co-plaintiffs in one of the actions. Either Mrs Porteous, or one of her companies - they being Johanna Lacson Nominees Pty Limited ("Johanna Lacson Nominees"), and Belle Rosa Holdings Pty Limited ("Belle Rosa Holdings") - is defendant. As well, an accountant who had been employed by the companies, Kaye Lorraine Burton, is a co-defendant in one action and Mrs Porteous' daughter, Johanna, is a co-defendant in another action. I shall come to the detail of the actions shortly.

15 HPPL is the principal operating company within the group. It is a wealthy company which owes its very substantial wealth to the prospecting and mining activities of Mr Hancock. Mr Hancock discovered large deposits of iron ore in the Pilbara some 40 or more years ago. He and a partner, Mr E A Wright, managed to interest major international mining houses in the development and exploitation of the deposits. The mining and export of iron ore from this region is now one of Australia's great industries. The agreements negotiated by Mr Hancock and Mr Wright gave them the royalty income which eventually ran into millions of dollars per annum. As is entirely to be expected, Mr Hancock chose to create private companies as the medium for the receipt, management and enjoyment of his fortune. There is no need to go too deeply into the details of the corporate structure of the group for the purpose of these cases. The following is a description of the main features of the two plaintiffs and another company Dinari Pty Limited ("Dinari") to which reference must be made from time to time.

16 HPPL was incorporated in 1955 by Mr Hancock. Its principal revenue-producing asset is the right to receive royalties from the iron ore miner, Hamersley Iron Pty Limited. Pursuant to contracts dated 27 December 1962 and 31 January 1968, Hamersley Iron pays HPPL, partly direct but principally through a partnership between the company and Wright Prospecting Pty Limited, royalties based on the fob price it receives for ore from the Mt Tom Price and Paraburdoo mines. At all relevant times, HPPL was highly profitable and had substantial reserves out of which it could properly pay dividends. The accounts which are in evidence as exhibit 5.169-182 show that by 1991, the last full year before Mr Hancock's death, capital reserves had accumulated to $58.38 million, of which $52.1 million was capital profits.

17 From the inception of the company and until not long before his death Mr Hancock held a share called "the Life Governor's share". This gave him extraordinary powers and entitlements. By cl 53 of the company's memorandum, it was provided that as long as Mr Hancock (described in the memorandum as "the founder") held this share and remained of sound mind and capable of managing his own affairs and of performing the functions of a director, the share had attached to it and conferred upon Mr Hancock the following rights:

"(a) The right for the holder at any time by notice in writing to the company to take office as a director and to hold such office so long as he chooses ... and whilst holding such office to be chairman of the board and to exercise all the powers authorities and discretions vested in the directors generally and all other directors if any, for the time being of the company, shall be under his control and shall be bound to conform to his directions in regard to the company's business.

(b) The right for the holder from time to time and at any time by notice in writing to the company to appoint any other persons to be directors of the company and to define limit and restrict their powers and to fix and determine their remuneration and duties and by notice in writing to the company at any time to remove any director howsoever appointed.

(e) The right in respect of the Life Governor's share at every general meeting and on every poll to 76 votes out of every 100 votes cast.

(g) The right to have this article 53 so far as it relates to the Life Governor's share remain unaltered except with the previous consent in writing of the holder."

"The rights qualities and privileges attached to the Life Governor's share or conferred upon the holder shall be fundamental and shall not be altered varied abrogated or diminished except with the previous consent in writing of the holder. When the Life Governor's share has ceased to be held by the founder such share shall thenceforth rank as and become an ordinary share."

19 The articles of association of the company contain detailed regulations regarding the declaration of dividends. Of relevance to this case are the following articles:

"123. The directors as and when they see fit or the company in general meeting may declare dividends from time to time out of the profits of the company and may fix the time for payment thereof ...

124. Subject to the rights of the holders of shares with special or preferential rights or conditions attached thereto any dividends hereunder may be declared:-

(i) on one or more classes of shares to the exclusion of other classes;

(ii) at different rates on different classes of shares;

(iii) and for dividend purposes the Life Governor's share shall be treated as a separate class of shares.

PROVIDED HOWEVER that the declaration of any such dividend in terms of (i) or (ii) above shall be declared only by the company in general meeting by a resolution passed and approved by the holders of not less than 70% of the votes on all shares in the company and PROVIDED FURTHER that in the absence of any such resolution all dividends shall be declared and paid on and according to the nominal amounts of the shares issued and held in the company.

125. The directors or the general meeting declaring a dividend may resolve that such dividend be paid wholly or in part by the distribution of specified assets ...

133. The directors ... may resolve that any moneys, investments or other assets forming part of the undivided profits of the company standing to the credit of the reserve fund or any capital redemption fund or in the hands of the company and available for dividends ... or representing any surplus assets of the company upon a revaluation or otherwise be capitalised and distributed amongst such of the shareholders ... as would be entitled to receive the same if distributed by way of dividend ... the distribution of the capitalised funds referred to in this clause may be made in any one or more of the following modes:

20 By article 88, it was provided that the board could be comprised of as few as two directors. By article 98, it was provided that a director may vote in respect of any contract, transaction or dealing in which he was interested. By article 113, the directors were empowered to meet and regulate their meetings and proceedings as they thought fit, and it was provided that "until otherwise determined one director shall form a quorum". By article 116, it was provided that a meeting of directors at which a quorum was present could exercise all of the powers of the directors.

21 These regulations mean that Mr Hancock, as holder of the Life Governor's share, had total control of the company and its board and the power when he saw fit to declare dividends and cash bonuses from profits and reserves; and to do so for himself to the exclusion of other shareholders.

22 There is little evidence as to how HPPL was actually administered, but the plenary powers conferred on Mr Hancock and the identity of the other members of the company (his wife and his only child), make it likely there was some degree of informality in the proceedings of directors and members. That is not to say that meetings of directors and members were never actually held. Nor is it to say that proper accounts were not kept. There are minutes of meetings and a full set of accounts was kept, in which all revenue and expenditure was accounted for. Internal accountants were employed by the group and external accountants were retained and auditors were appointed and, so far as appears from the accounts themselves, all of the accounts were diligently maintained. They have been audited and accepted in each relevant financial year and proper annual returns have been lodged.

HPPL's power to dispose of its assets and to lend money

23 Of some importance in these proceedings are two other objects of the company set forth in cls 44 and 46 of the memorandum. Clause 44 provides that one of the objects for which the company is established is " ... to lend money to such persons or companies and on such terms as may seem expedient ... ". Clause 46 provides that one of the objects of the company is to " ... sell ... dispose of ... or otherwise deal with all or any of the assets, property and rights of the company ... ".

24 There is an "independent objects" provision. It is in cl 2 which provides that each object " ... shall be capable of being pursued as an independent object ... ".

25 In summary, therefore, at all times relevant to these cases, Mr Hancock had it in his power to cause to be distributed to himself dividends amounting to millions of dollars. It is difficult to see on what basis an exercise of that power could have been challenged (it being a power he possessed in his capacity as shareholder) as long as the power was exercised bona fide for the purpose of obtaining a dividend and not for some ulterior purpose: Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 especially at 437 - 440. Throughout the period in question, the making of loans to directors was permissible and the company was empowered to dispose of its assets.

The Hancock Memorial Foundation Limited - ("HFMF")

26 This company was incorporated in 1972 in the Australian Capital Territory as a company limited by guarantee. Being a company limited by guarantee it does not have a share capital. The Memorandum provided that the company should not be carried on for the purpose of profit or gain to its members and its objects were exclusively in the nature of charitable objects, such as are commonly found in the memorandum of charitable foundations. There is evidence that the company and another similarly constituted company were conceived by Mr Hancock with income tax advantages in mind on the advice of his legal adviser Mr Carnegie Fieldhouse who practised in New South Wales.

27 It appears that, until 1986, HFMF held non-voting redeemable preference shares in HPPL and received dividends in cash and in kind (and perhaps also "donations") from HPPL which enabled HFMF to acquire valuable investments. In 1986, HFMF's redeemable preference shares in HPPL were redeemed and, by resolution dated 21 May 1986, it resolved to alter its memorandum by inserting a series of objects which authorised it to carry on the business of mining and exploration "in all its facets" including to acquire, prospect and explore mineral lands and deposits and to mine the same and generally to carry on the business of mining and exporting. This was, of course, the line of business in which Mr Hancock was so spectacularly successful.

28 It seems to have been assumed at trial that Mr Hancock never was a director of HFMF. The evidence is a little unclear about that, but it is reasonably clear he was not a director in the years with which these proceedings are concerned.

29 Although Mr Hancock was not a director of HFMF at the material time, it is part of HFMF's case that he was a shadow director as defined in s 5 of the Companies (Western Australia) Code and s 60(1) of the Corporations Law and exercised de facto control; and in those circumstances owed fiduciary and statutory duties to it. This is disputed by the defendants who submitted that HFMF had failed to prove that Mr Hancock was a person in accordance with whose directions or instructions the directors of HFMF were accustomed to act. I do not accept this submission. It is true that at least some of the people who were directors of HFMF in the relevant period were available to give evidence and were not called to say that they were accustomed to act in accordance with Mr Hancock's directions and instructions. However, I accept the submissions of Mr Archer on behalf of HFMF that there is ample evidence from which an inference may be drawn that Mr Hancock controlled HFMF. All these private companies were set up by Mr Hancock for the benefit of his family, of which he was the head. He was the principal force in all the business activities and investment undertakings. It was he who dealt with the lawyers and accountants in all matters of importance and dictated the policies of the group. The directors of HFMF appear to have been either senior executives in the group (for example, Mr Salt) or professional people retained by Mr Hancock (for example, the solicitor, Mr Fieldhouse). HFMF did not have separate offices. It was administered from the group's offices. Its books and records were kept by the same internal accountants and employees who kept the books and records of HPPL. The evidence of the senior bookkeeper, Mrs Burton, (exhibit 71 pars 9, 10 and 14) was that, with respect to HFMF, she performed functions requested by Mr Hancock without being required to obtain anyone else's approval. Although it is perhaps admissible only against Mrs Burton in the case in which she is a defendant (CIV 2094 of 1993), I refer also to Mrs Burton's answer to interrogatory 18 (exhibit 105) in which she said that, from her standpoint, Mr Hancock was a de facto director of HFMF. The share redemption transaction and the changes to the constitution and regulations of HFMF to which reference has been made have Mr Hancock's handprint on them.

30 Mr Hancock had full voting control of HFMF. The number of members with which the company was registered was 20, divided into four classes (A, B, C and D) to which voting rights were attached for the purpose of general meetings. Each class A member had the right to 15 votes. Each class D member had the right to one vote. Class B members had the right to 15 votes during such time as there was not in existence any class A member; and class C members had the right to 15 votes during such time as there was not in existence any class A or B members. Mr Hancock controlled HFMF through the voting power attached to the class A and B membership. I think that, for a time, perhaps until December 1989, he was the class A member. Until Mrs Hope Hancock's death in April 1983, she was the class B member. Mrs Rinehart was the class C member. In March 1989, Zamoever Pty Limited was incorporated by Mr Hancock and he controlled that company. Zamoever was appointed the class B member a few days after it was incorporated. I detail this only to show that, by one means or another, Mr Hancock completely controlled HFMF. It would be naive to think that the board of HFMF, however comprised from time to time, did not do Mr Hancock's bidding in all matters of importance.

31 On the whole of the evidence, the proper finding is that, in respect to HFMF, Mr Hancock was the person who "called the tune": Bluecorp Pty Ltd (In Liq) v ANZ Executors & Trustees Co Ltd (1994) 13 ACSR 286 at 402-3.

32 The earliest financial information relating to HFMF which is in evidence is in the form of its 1989 annual return. The consolidated accounts accompanying that and subsequent returns show the consolidated net assets as being:

33 As at 30 June 1992, the capital profits reserve of HFMF stood at $31,760,716. The accounts show that the consolidated capital profits reserve and asset revaluation reserve stood at $35,944,036 and $45,500,000 respectively as at that date: Exhibit 6.190-197.

34 So far as appears, therefore, HFMF was also a wealthy and highly profitable company at all material times. As I have mentioned, there were restrictions in its constitution as to the disposition of its reserves. It was supposed to be a charitable foundation incapable of applying its earnings for the benefit of its members or their relatives. There is evidence, however, that at some stage Mr Hancock arranged for Queen's Counsel's advice to be obtained as to HFMF's power to lend. It appears that advice was received to the effect that HFMF did have the power to enter into "commercial" lending arrangements, at least with HPPL - exhibit 36.13.6. Whether this advice extended to cover lending arrangements with individual family members and their associates, I do not know. On the accounting evidence, HFMF certainly did enter into many such lending transactions. It maintained loan accounts in its ledgers referable to Mr Hancock and Mrs Porteous, which were very active, at least from 1988. It was not contended at trial that lending or disposing of assets was ultra vires the company.

35 On 24 February 1989 Mr Hancock sold to HFMF 666 "A" class shares, 2334 "C" class shares and 333 cumulative special shares in HPPL for the sum of $23.2 million. He did not receive these proceeds in cash. Instead, $23.2 million was recorded as an amount due to him in a loan account referable to him in the general ledger of HFMF.

36 Counsel for the plaintiffs submitted that this transaction was a sham. There is no basis on which I can treat it as a sham. The sale was supported by a valuation (exhibit 118); and was fully documented by formal agreements (exhibit 6.202 - 204). It has never been attacked for want of bona fides, notwithstanding that the companies passed out of Mr Hancock's control more than seven years ago. There is no claim in these proceedings to set the sale aside, nor could there be without a rescission and that would seem to be impossible.

37 Two and a half years later, on 7 August 1991, Mr Hancock sold to HFMF his Life Governor's share in HPPL for the sum of $20 million. That transaction has never been impugned either and the plaintiffs do not seek to set it aside in these proceedings, nor do I see how they could do so as the actions are presently constituted and without a rescission. Although I was urged by counsel for the plaintiffs to treat this sale as not having any reality, what I have said about the other sale is also applicable to this transaction. The sale price in respect to this sale was not paid to Mr Hancock. It, too, was entered as a credit to one of Mr Hancock's loan accounts in HFMF's general ledger.

38 The share sales are important because one of the big issues in the proceedings is the bona fides of the loan account system which the group operated. Large debit balances built up in the loan accounts as a result of entries made with respect to the transactions the subject of these actions. The credit entries in Mr Hancock's loan account in the ledgers of HFMF arising through the share sales and amounting in all to $43.2 million play a critical role in the accounting process relied on by the defendants to assert that the debit balances in the loan accounts referable to family members were cleared.

Dinari Pty Limited as Trustee for the HPPL Pension Fund - ("Dinari")

39 This company was, and I think still is, the trustee of the HPPL Pension Fund and I do not think it carried on any other business. It was a wholly-owned subsidiary of HPPL and so was also controlled by Mr Hancock. The accounts of the HPPL Pension Fund are not in evidence and, of course, they are not included in the consolidated balance sheets of HPPL or HFMF. There is little evidence about the HPPL Pension Fund or, for that matter, about Dinari. Dinari's corporate documents and records are not in evidence.

40 HPPL shareholders (the three members of the Hancock family) got the benefit of the company's profits in a largely ad hoc manner. Although there were declarations of dividends from time to time, there was no regular cash dividend distribution. No substantial salaries or directors' fees were paid to family members. If money was needed for anything or bills needed to be paid, the money would be provided from company resources and entries would be made in the books and accounts. In this sense, HPPL habitually acted as the family treasury. Personal expenses paid by HPPL would be journalised and posted to loan accounts maintained in the ledgers. Speaking very generally, non-business expenditure was debited to a loan account in the general ledger bearing a name referable to the recipient or object of the expenditure.

41 The names referable to family members which appear in the styles of the most active loan accounts in HPPL's ledgers in the period relevant to these proceedings are: "L G Hancock", "G H Rinehart", "R L Hancock", "Lacson Investments", "R L Hancock - Milgraum House", "Riverview Flats Pty Limited" and "Wellington St - Running Costs". The company Riverview Flats Pty Limited is the company which owned the house in Dalkeith which, for a long time, was the family home and where Mrs Rinehart continued to reside after Mr Hancock moved out. Mrs Rinehart wholly owned Riverview Flats Pty Limited from about 1983.

42 A glance at the books and accounts of HPPL is enough to reveal that it was HPPL's practice to pay big and small bills for the family. This it would do almost on a daily basis. There are a great many such payments recorded in the company's accounts. By way of example, the following is an extract from the 1988 loan account maintained in the name of Mrs Rinehart in the general ledger. It is styled "790/02 Advances to Directors and Shareholders - G.H. Rinehart".

43 I find this was the established and accepted method by which the family was provided for from day to day.

44 The movements in the accounts which are material to these cases are numerous and a little complicated. Analysing them has been very time-consuming and it is not practicable to set out my findings in narrative form. I have prepared a Schedule of Account Movements which contains (hopefully intelligible) detail as to how the proceeds of the sale by Mr Hancock to HFMF of shares in HPPL were applied. The Schedule has been prepared by me from an examination of the accounts themselves. It can be taken to be my findings as to what the accounts show in regard to the distribution through the loan accounts of the proceeds of the share sales. The Schedule is not in a format which lends itself to inclusion in the body of the judgment. I will issue it as a separate document so that it will not have to accompany any secondary publication of the judgment, either in hard copy or in electronic form.

45 The pattern of entries in the HPPL accounts reveals that Mr Hancock regularly assumed liability for the accumulated debit balances in the accounts in the names of other family members and their entities. This would be done by crediting the accounts to reduce the debit balances to zero and by making corresponding debits in Mr Hancock's account. The practice was then to clear Mr Hancock's account each balance date by crediting it to reduce the balance to zero. The debt would be assumed by either Dinari or HFMF. HFMF accounted for the transactions separately in its books and, presumably, Dinari did the same.

46 The pattern of entries in HFMF's accounts reveals that, through a series of transactions, HFMF would clear Mr Hancock's loan account to a loan account styled "Other Debtors - Dinari Pty Limited Trustee HPPL Pension Fund" (for example, see Schedule, table 1, item 15). The prima facie effect of these entries is that Dinari (that is, the HPPL Pension Fund) accumulated a substantial debt to HFMF over a period of time. As I have said, the HPPL Pension Fund accounts are not in evidence and I do not know how these transactions were brought to account in those accounts. Obviously those accounts, if properly maintained (and provided the entries in HFMF's accounts are genuine) would have corresponding debtor/creditor entries whereby Mr Hancock became indebted to the HPPL Pension Fund to the extent that the Fund assumed Mr Hancock's obligations to HFMF. On the face of the accounts that are in evidence, the accumulated debit balance in Dinari's loan account in HFMF's ledgers was cleared by transfer to Mr Hancock's loan account on 31 December 1991 (see Schedule, table 3, item 2), when his account was substantially in credit as a result of the sale of the Life Governor's share. It is an over-simplification but nonetheless substantially true to say that prima facie this cleared all the personal debts owed to HFMF and HPPL, including those arising out of the various transactions in suit although it left some indebtedness as between HPPL and HFMF. More of this later.

The authenticity and probative value of the accounts

47 There is a degree of ambivalence in the plaintiffs' attitude to the authenticity of the accounts and, therefore, their probative value. On behalf of the plaintiffs, Mr Hughes QC and Mr Archer sought to persuade me that the accounts were, to use Mr Hughes' phrases, an "accounting merry-go-round", a "paper landscape" and "not in accordance with reality". However, at the same time, the plaintiffs relied on the accounts to establish their case in-chief.

48 The principal witness for the plaintiffs was Gary Richard Schwab. He has formal qualifications as an accountant and joined the Hancock group of companies in 1981 as an executive. He was in full-time employment with the group until early 1987. Between 1987 and 1989 he worked for the group part-time as a consultant and thereafter resumed full-time employment with the group to assist the then managing director, Mr Dalby, and to be responsible for financial matters for one of the Hancock companies, Hancock Mining Limited. When Mr Dalby died in October 1991, Mr Schwab became general manager of the group. He did not become a director of HPPL until 1 April 1992, a few days after Mr Hancock's death. He was appointed a director of HFMF on 28 October 1991 and continued as a director of HFMF until 15 November 1996. Mr Schwab gave extensive evidence of the payments made from the accounts of HPPL and HFMF in support of the plaintiffs' claim that the acquisition of the properties and the costs of the improvements on them was paid for by the plaintiffs. Mr Schwab did not personally enter up the accounts and did not purport to have personal knowledge of the facts which are asserted in the accounts. It is clear that his evidence was based upon the entries in the accounts and that he accepted the entries as reliable and the books and accounts as being, in truth, the accounting records of the companies. He admitted as much in cross-examination by Mr Burnside QC. At transcript 314 - 315, the following cross-examination is recorded:

"The statement (sic) which you prepared in this case are all based, to the extent that they refer to accounting matters, on the contents of the accounts, are they not?---Yes.

In order, for example, for you to say in your statement that various amounts were paid by the companies you rely on the accounts?---I rely on the cheques and the accounts, yes, the ...

And the journals in some instances?---In some instances, yes."

49 I need hardly say a company's books and accounts are admissible as prima facie evidence of the transactions recorded and explained in them. By s 286 of the Corporations Law, a company is required to "keep such accounting records as correctly record and explain its transactions ... and financial position and to so keep its accounting records that true and fair accounts of the company can be prepared from time to time and its accounts can be conveniently and properly audited or reviewed in accordance with the law". By s 1305 of the Corporations Law it is provided that a book kept by a body corporate under a requirement of the Law or kept by a corporation under a requirement of a previous law corresponding to a provision of the Law is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book. The "previous law" which is relevant to these proceedings is the Companies (Western Australia) Code and the provisions of s 267 of that Code correspond to the aforementioned provisions of the Corporations Law.

50 It is not in dispute that the books and accounts tendered in evidence, including the balance sheets, profit and loss statements and annual returns were accounting records "kept" by the companies within the meaning of s 1305. The plaintiffs called no witness to contradict the accounts.

51 In one important respect the evidence as a whole refutes the prima facie effect of some of the loan accounts, but with that exception, I accept the accounts as proof of the matters stated in them.

52 The exception to which I refer is this. On the face of the accounts, it would appear that several arrangements of loan existed between HPPL on the one hand and Mr Hancock, Mrs Rinehart, Riverview Flats Pty Limited, Mrs Porteous, Lacson Investments Pty Limited and "Wellington St - Running Costs" on the other hand. I find, on the evidence as a whole, that there was not, in fact, an arrangement of loan between HPPL and any of these entities, except Mr Hancock. For instance, everything Mrs Porteous received from the companies was intended to be a gift or advancement to her and not a loan. There never was an intention that she should be a debtor in respect to the payments which were debited to loan accounts referable to her.

53 HPPL's general role as family treasurer was directed by Mr Hancock. As I have already said, when personal or domestic expenses were paid by HPPL there was an entry in a loan account referable to that person or entity. This was not intended to record a debt due by that person or entity. I infer that it was simply a step in the accounting procedures by which Mr Hancock could keep track of the details of the money which was being provided to family members and to himself. I infer from the pattern of accounting that, in truth, as between Mr Hancock and HPPL, he, and therefore HPPL (he being the embodiment of HPPL), intended the expenditure to be an advance to him (sometimes to Dinari) and repayable by him (or Dinari). It was on that basis and with that understanding that loan accounts referable to Mrs Porteous were maintained.

54 That this is how Mrs Rinehart had always regarded the loan account entries in her name and in the name of Riverview Flats Pty Limited is confirmed by the evidence of communications between Mrs Rinehart and Mr Hancock after Mrs Rinehart had been dismissed from the board of HPPL. There are many references in these communications showing that Mrs Rinehart expected to continue being provided for through the loan account method. For example, there was a meeting between Mrs Rinehart and her husband and Mr Hancock in February 1986. The meeting was to attempt to resolve some of the differences that had arisen between Mrs Rinehart and Mr Hancock. Mrs Rinehart requested Mr Hancock's "assurance that Riverview Flats' expenses can continue to be run up against HPPL without our gardeners, electricity, maids, water, etc, being cut". Mr Hancock replied, "Yes, you can continue to charge against HPPL like always. [It] will be a bookkeeping entry". That is, the debit balance in the Riverview Flats loan account was not really a debt due by Riverview Flats. As another example, in par 22 of the draft oppression petition which had been prepared on Mrs Rinehart's instructions in 1988, there is a complaint by Mrs Rinehart that "Mr Hancock also refused to cancel the 'debt' run up by charging all expenses for the residence to the company ever since the petitioner was an infant". That is, Mrs Rinehart saw it as wrong of Mr Hancock to leave the loan account in debit as if the debit balance was really a debt of Riverview Flats when it was not.

55 I therefore reject, as not accurate, the accounts to the extent that they say that Mrs Rinehart or Riverview Flats Pty Limited was indebted to the companies for the debit balance in their loan accounts. I also reject the accounts to the extent that they say that Mrs Porteous, or entities owned by her, were indebted to the companies for the debit balance in their loan accounts. Otherwise, I accept the accounts as establishing the truth of the matters stated, recorded and detailed in them.

The loan account system - the "transfer" of balances between accounts - novation

56 It is necessary to say a word about the accounting procedure whereby the balance in one account is said to be "transferred" to another account so as to, for example, "clear" the first account. This is the terminology that was used by counsel and by the expert accounting witnesses. It is convenient accounting language which I have gratefully adopted. It does not, of course, purport to describe transactions with reference to their legal character. Therefore, I should say that, in respect to the loan accounts which really did record indebtedness to one or other of the companies, before the debit balance in the account could be "transferred" to an account referable to a different entity, there must have been a novation. The burden of a debt cannot otherwise be transferred. Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 especially per Collins MR at 668. I take it, therefore, that (subject always to the qualification I have mentioned in respect to the interpretation of loan accounts referable to entities such as Mrs Porteous and Mrs Rinehart) when the books and accounts record transfers of debit balances between accounts, they record a novation and are prima facie evidence of the novations which they purport to record. Book entries are prima facie evidence of the underlying transactions. If an inference can be drawn from the recorded book entries that a transaction occurred, then the books stand as evidence of that transaction: Petagna Nominees Pty Ltd v Ledger (Liquidator of Linun Pty Ltd) [1989] 1 ACSR 547 per Franklyn J at 559; Valoutin Pty Ltd v Furst [1998] FCA 339; (1998) 154 ALR 119 per Finklestein J at 131.

57 There is no reason, in principle, not to approach these accounts in that way in relation to the transfer of balances from account to account. No particular form or formality is necessary to effect a novation. Writing is not required. The agreement of the creditor to the novation may be inferred from conduct without express words. See Halsbury's Laws of England, 4th ed, vol 9 par 584. And see generally Re Charge Card Services Ltd [1989] Ch 497. In respect to all relevant transfers of debit balances in these proceedings, and subject to the qualification mentioned, my finding is that, prima facie, there was a novation on each occasion that there was a transfer of a debit balance from an account referable to one entity to an account referable to a different entity.

58 It is quite common for one or two companies in a group of private companies to act as treasury companies so that the group need not operate bank accounts and maintain cheque-books for every entity in the group. A simple method for a treasury company to record its activities on behalf of other entities in the group is by a system of loan accounts.

59 In this context, the mere fact that one company within the group habitually makes payments on behalf of other entities in the group and keeps track of its expenditure through loan accounts does not necessarily point to impropriety. It does not necessarily mean that the loan accounts are not genuine. However, the duties of the directors of the treasury company are no different from the duties of any other director. The directors must still act honestly in the interests of the company whose money they are lending. When directors of a treasury company make loans to themselves, their duty to the company and their personal interests obviously may conflict. Unless a benefit to the company appears from all the relevant circumstances, then prima facie the loan would involve a breach of the duty: O'Brien and Nuhan Ltd (In Liq) v Walker (1982) 1 ACLC 59 per Kearney J, especially at 63.

60 All the surrounding circumstances are to be taken into account. An important circumstance here was that this group of companies was pregnant with profits and, as holder of the Life Governor's share, Mr Hancock was entitled to and had the power to claim them as dividends. That he did not deplete its reserves by doing so, but instead directed that loans of lesser amounts be made to him, represents a sufficient benefit to the company to displace what might otherwise have been an adverse implication arising from the loans.

61 Anyway, as I will shortly explain, I do not think it is open in any of these cases for the plaintiffs to obtain equitable relief in the form of trusts based on allegations that loans were made in breach of fiduciary duty.

62 As mentioned at the commencement of this judgment, the plaintiffs mainly base their claims on doctrines relating to resulting and constructive trusts and it was mainly on that basis that the cases were argued. However, the plaintiffs did also submit that they were entitled to succeed under the equitable doctrine of tracing as a separate head of claim. The doctrines applicable under this latter head of claim are most conveniently summarised in Meagher and Gummow: "Jacobs' Law of Trusts in Australia" 6th ed at par 2714. If trust property has been transferred to someone who has taken the legal estate for value without notice of the trust, the property cannot be followed. If the transfer is to a volunteer who takes without notice and there is no question of mixing, the volunteer holds the property on behalf of the true owner whose equitable right persists against him: Strang v Owens (1925) 42 WN (NSW) 183. Where the transfer is of money to a volunteer who innocently mixes it with money of his own, the tracing remedy may still be available even though the volunteer stood in no fiduciary relationship involving an equitable proprietary interest in the claimant: Re Diplock; Diplock v Wintle [1948] 1 Ch 465. If the volunteer uses a mixed fund to acquire a new asset, then a charge will be enforced by sale and distribution, each party getting back its part of the money put in to acquire the asset.

63 These are only some of the rules governing the right of a claimant to trace trust property into the hands of a third party. For the purposes of this case, they can be reduced to this; that if the recipient of misapplied trust property still has the property or its traceable proceeds in his or her possession, he or she is liable to restore it to the cestui que trust and will be required to do so unless he or she is a bona fide purchaser for value without notice of the trust. In other words, even an "innocent" recipient of trust property must recognise and answer the prior equitable interest of the cestui que trust unless he or she is a purchaser for value.

64 I am not altogether sure to what extent the plaintiffs rely on this head of claim, or to what extent they are strictly entitled to do so having regard for the pleadings. However, the submissions that were made as to remedy and as to the basis upon which the plaintiffs were entitled to equitable relief were not put on any narrow basis and there was no complaint from the defendants about that broad brush approach. I will take the view that the plaintiffs are not precluded from obtaining relief under the equitable doctrine of tracing as a separate head of claim if the evidence is sufficient to establish a right to trace and if, on the broadest view, the pleadings are wide enough to sustain such a claim.

65 Of course, even if property is traceable, there is no equitable right to trace except upon proof of misuse of trust property. This assumes an initial fiduciary relationship and a breach of the duties arising under it. As is pointed out in Baker & Langan "Snell's Equity" 29th ed 302:

"The right to trace is founded upon the existence of a beneficial owner with an equitable proprietary interest in property in the hands of a trustee or other fiduciary agent".

67 It will be convenient now to state some general propositions in respect to resulting and constructive trust heads of claim.

68 Putting the pleadings to one side for the moment, I was left in no doubt at the end of the trial that each of the plaintiffs contended for a resulting trust in each case. The precise basis on which the Court was being asked to presume a trust was not always made absolutely clear, but as to those cases involving the acquisition of property, I think that what must be contended for is a purchase money resulting trust. As to the case in which there was a transfer of property by the company, I think that what must be contended for is a voluntary transfer resulting trust.

69 Dealing with the purchase money resulting trust first, the general rule is that " ... where one person pays for the purchase of a legal or equitable interest in the character of a purchaser or who contributed to the purchase price in that character and the vendor transfers the title into the name of a third person who is a stranger in relation to the person who has paid or contributed" there is a purchase money resulting trust. Ford & Lee "Principles of the Law of Trusts" 2nd ed par 2107.

70 A voluntary transfer resulting trust may arise where there has been a transfer of a legal estate or equitable interest for no valuable consideration to a transferee who is not a wife or child of the transferor. Ford & Lee (loc cit).

71 Whether these broad principles may be invoked by the plaintiffs in any of the cases will be considered case by case.

72 For the purposes of a general statement of the relevant principles, I take the starting-point to be that the directors of a company should be regarded as holding on trust any property or money of the company under their control. In re Lands Allotment Co [1894] 1 Ch 616 at 631, 638 per Lindley and Kay LJJ; Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 1 WLR 1555 at 1580-1882; Belmont Finance Corporation Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 per Buckley LJ at 405; Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 per Gibbs J at 396; Russell v Wakefield Waterworks Co (1875) 20 LR Eq 474 per Jessel MR at 479. A director who misapplies the money or property of a company by causing the assets to be used for purposes which are not the purposes of the company acts in breach of trust. Re Lands Allotment Co (supra); Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) (supra). In the sense in which the word "fraud" is used in equity, he is regarded as having acted fraudulently.

73 A director against whom such a breach of duty is proven may be called upon to account for the consequences of his fraudulent conduct and the remedy may be in rem, requiring that the property, or its traceable proceeds, be returned to the company, or in personam, requiring that the director make monetary compensation for the loss or account for any profit or gain derived from use of the trust property.

74 But it is not only the fraudulent director - the trustee - who may be called on to account. Persons who are not trustees may also be required to do so if they are within the category of persons who are "constructive" trustees: Re Montagu's Settlement Trusts; Duke of Manchester v National Westminster Bank Ltd [1987] 1 Ch 264 per Megarry VC at 276.

75 The liability of constructive trustees is based on participation in the trustee's fraudulent conduct. The rule was expressed by Lord Selborne LC in Barnes v Addy (1874) LR 9 Ch App 244, 251-252 in the following seminal terms:

"It is equally important to maintain the doctrine of trusts which is established in this court, and not to strain it by unreasonable construction beyond its due and proper limits. There would be no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable application of them.

Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But ... 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."

76 As was noted in the advice of the Privy Council delivered by Lord Nicholls of Birkenhead in Royal Brunei Airlines Sdn.Bhd v Tan [1995] UKPC 4; [1995] 2 AC 378 at 382, the first limb of the rule is concerned with the liability of a person as a recipient of trust property or its traceable proceeds. The second limb is concerned with the liability of an accessory to a trustee's breach of trust. Liability as an accessory is not dependent upon receipt of trust property.

77 There are many cases which discuss the proper application of each limb of the rule. The cases respecting the second limb, that is, the cases of accessory liability, have been analysed recently by the Privy Council in Royal Brunei Airlines Sdn.Bhd v Tan (supra) and by Hansen J in Farrow Finance Co Ltd (In Liq) v Farrow Properties Pty Ltd (In Liq) (1997) 26 ACSR 544 at 585-6. See also Cowan de Groot Properties Ltd v Eagle Trust Plc [1992] 4 All ER 700. In the Farrow case (supra), Hansen J concluded that the standard of fault required of a constructive trustee who was merely an accessory to the fraudulent conduct as distinct from a recipient of trust property is "now beyond doubt" in light of Royal Brunei. I respectfully agree with Hansen J that what is required to be proved in the case of an accessory to fraudulent conduct is dishonesty, that is, want of probity, on the part of the accessory; and that whether the accessory acted dishonestly or with lack of probity is to be judged by objective standards and means simply not acting as an honest person would in the circumstances. The Privy Council said in Royal Brunei at 389:

"In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not intentionally deceive others to their detriment. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless."

78 As Hansen J pointed out in Farrow at 586, the Royal Brunei case was concerned only with the second limb of the Barnes v Addy principle, that is, accessory liability.

79 As to recipient liability, there is less certainty about what must be proved to sheet home liability to the non-trustee but I adopt, with respect, the reasoning and conclusions of Hansen J in Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16 on the question. In the first place, it is not necessary to establish that a recipient of trust property acted dishonestly or with want of probity. Recipient liability may be established if the defendant had actual or constructive knowledge at the time he received the relevant property that (a) it was trust property and (b) it was being misapplied. The defendant will be taken to have constructive knowledge if it is proved that he wilfully shut his eyes to the obvious; that he wilfully and recklessly failed to make such inquiries as an honest and reasonable man would make in the circumstances; and that he knew of circumstances which would indicate the true facts to an honest and reasonable man. If all that is proved is that the defendant had knowledge of circumstances which would put an honest and reasonable man on inquiry, that is not enough: see Koorootang at 85 and 105.

80 There was some debate at the end of the case about burden of proof and, because it is an issue which relates to all six cases, it is convenient to say something about it here. I do not think there is any great difficulty about it. The plaintiffs' case is that, by reason of the conduct of its fiduciary agents (the plaintiffs would say their fraudulent conduct), the companies expended money and dissipated assets otherwise than in the conduct of the affairs of the companies and for purposes unconnected with their purposes and to their detriment. That is the case that the plaintiffs set out to prove and upon which they carried the burden of proof. As to the monetary payments, the case in-chief was sought to be proved by proof (principally through Mr Schwab) of each item of expenditure and the purpose of it and the absence of any connection between the purpose so proved and the purposes of the companies. On that state of the evidence (if it remained in that state), fraudulent conduct and detriment might be inferred. I think it was for the defendants then, out of prudence, to adduce rebutting evidence to show, if they could, that what appeared to be a payment in the character of an expense of the company (using that word in the sense of a dissipation) was not in truth a payment in the character of an expense. As to the case involving the transfer of land out of the ownership of the company, the case in-chief was sought to be proved by evidence that the company (in that case HPPL) did not receive any money for the land. I think it was for the defendants out of prudence to adduce evidence, if they could, that the company received value in some other form.

81 Whether it is correct to describe this as a shifting of the burden of proof may be debatable. See the discussion in Heydon: "Cross on Evidence" (5th Aust ed) par 7205 - 7210 and Katsilis v Broken Hill Pty Co Ltd (1977) 52 ALJR 189 per Barwick CJ at 196 - 197.

82 The subject arose in these proceedings with reference to a particular plea which is contained in each of the defences in the cases in which fraudulent payments of company money is alleged. The defendants plead in these cases that the payments were not payments in the character of expense but were loans to Mr Hancock. In these cases the defendants also plead that, in every instance, the loans were "repaid". Thus, for example, in the case involving the Wellington Street properties (CIV 2119 of 1994), a typical answer to a claim of fraudulently procuring a payment to be made by the company is the plea in par 27 of the defence, as follows:

"27.3 The amounts referred to in par 26 were advanced by HFMF to Mr Hancock as a loan.

27.5 The advance to Mr Hancock was recorded as owing by him to HFMF by debiting his loan account with HFMF.

27.6 At 30 June in each year relevant to the transactions, all amounts owed to HFMF by Mr Hancock were repaid (my emphasis):

(a) by cash payments by or on behalf of Mr Hancock;

(b) by accepting in satisfaction of part or all of the loan the promise of Dinari Pty Limited (and other companies in the Hancock group) to pay part or all of the loan and by crediting to Mr Hancock's loan account the amounts so promised;

(c) by payments made on behalf of Mr Hancock by HPPL."

83 Accepting, for present purposes, that it is necessary for the defendants to go so far as to plead repayment in order to disclose a defence, the question is whether there is, upon the defendants, a burden of proof in respect to the issue of repayment. About that, the parties were in dispute. In my opinion, the matter is to be approached in this way. The plaintiffs assert loss of trust assets in the form of money and in one case land. The ultimate burden is upon the plaintiffs to establish not only breach of fiduciary duty but that, unless equity intervenes, the trust fund; ie, the assets of the plaintiff companies, will stand diminished in consequence of the breach. It is that essential fact that is the foundation of the claims to equitable relief in these cases. The nature of the plaintiffs' claims are such that the equity arises on proof of loss and not otherwise. The ultimate burden of proof of loss or detriment must, therefore, rest with the plaintiffs. Of course, the issue whether trust property has been lost is to be judged on the whole of the evidence, including such evidence as may be adduced by the defendants (either as part of their case or by cross-examination of the plaintiffs' witnesses) tending to establish that the transactions in question have not resulted in any detriment to the trust. Only in this sense is it correct to say that a burden of proof rests on the defendants. It is "an evidential burden, the burden of proof in the sense of adducing evidence". Phipson on Evidence (14th ed) par 4-03; Purkess v Crittenden [1965] HCA 34; (1965) 114 CLR 164 at 168.

84 The question of burden of proof also arises in relation to the claims for resulting trusts. I think the correct approach is this. Where the money used for the purchase of property in the name of Mrs Porteous, or one of her companies, was provided by one of the plaintiff companies for the purpose of the purchase, there is a prima facie implication of a resulting trust. I think there is an evidential burden on the relevant defendant to adduce evidence of circumstances that would rebut that implication: O'Brien and Nuhan Ltd (In Liq) v Walker (supra) at 64.

The debtor/creditor relationship - entitlement to equitable relief

85 Following on from the observation I have just made as to the kind of cases which these are, I should also say what they are not.

86 These cases are not about whether the fiduciary agents of the company acted in breach of duty by making loans to Mr Hancock. The starting-point of an improper loan case must surely be an assertion that the outlays in suit were loans; that is, payments made pursuant to contracts of loan. There is no such plea, either in-chief or in reply. To the contrary, the plaintiffs have unswervingly maintained in their pleadings and in their conduct of the trial that there were no genuine loans at all - that the loan account entries were, in effect, fraudulent entries calculated to mask a fraudulent taking and converting of the companies' assets.

87 This is not just a pleading point. If the plaintiffs wished to mount a case that these outlays were loans made in breach of fiduciary duty, then I think that the claim for equitable relief might have foundered on the decision of the High Court in Daly v The Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371. That was a case in which the defendant persuaded the plaintiff to lend money to the defendant at a time when the defendant was in a parlous financial position. The relationship between the parties was of a fiduciary nature and the procuring of the loan was in breach of the fiduciary duties owed by defendant to plaintiff. The question was whether a constructive trust came into existence when the moneys were paid by the investor to the defendant. The High Court held that it did not. At 397, Gibbs CJ, with whom Wilson and Dawson JJ concurred, said:

"The benefit which the firm obtained in consequence of its breach of fiduciary duty was a loan of money, and the firm, as a debtor, was bound to repay the debt to the creditor, the appellant."

88 Gibbs CJ held that there was no occasion for the intervention of equity in such a case because the ordinary legal remedy of a creditor was adequate to prevent the firm from being benefited at the expense of the appellant. This was so even though it transpired that the firm was unable to repay the loan. There was no unjust enrichment because the firm was bound to repay the debt even although it could not in fact do so. Equity would not intervene as long as the contract of loan remained on foot. And, as Brennan J pointed out at 389:

" ... until the lender elects to avoid the contract of loan, he cannot assert an equitable title to the money lent. He cannot at once leave the contract on foot and deny the borrowers the title to the money which the contract confers. When, as in the present case, a borrower acquires title to money paid to him under and pursuant to a contract of loan, the borrower cannot be made a trustee of the money without his consent so long as the contract stands."

89 The position was put in the following terms by McLelland AJA (with whom Priestley and Meagher JJA agreed) in Greater Pacific Investments Pty Ltd (In Liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 at 153:

"In general, where there is a contract for the sale of property by A to B made in breach of a fiduciary duty owed to A by B (or by C in whose breach B knowingly participated) pursuant to which the legal title to the property has been transferred from A to B, the transaction is in equity voidable at the instance of A, who may (if necessary) obtain an order for rescission setting it aside. Unless and until A effectively avoids the transaction and (if necessary) obtains an order for rescission, B's property rights as a result of the transaction remain unaffected. However, if A does effectively avoid the transaction and (if necessary) obtain an order for rescission, the parties will be treated in equity as if the transaction had never been effected: in other words equity will treat B as if he had held the property in trust for A, that is, as a constructive trustee, ab initio. A constructive trust arises in such circumstances as a consequence of the effective avoidance or rescission of the transaction. Where, for whatever reason, the transaction has not been and cannot be effectively avoided and rescission is unavailable, it remains effective and no constructive trust can arise."

90 There is no relevant difference between a contract of sale and a loan. So, if it should transpire that any of the payments in suit were made as loans, I do not see how the plaintiffs could succeed in obtaining the equitable remedy of trusts in respect of the payments. If the payments created a relationship of debtor and creditor as between Mr Hancock/Dinari on the one hand and the companies on the other, then, on the authority of Daly v The Sydney Stock Exchange, there would be no occasion for equity to intervene. The plaintiffs would be left to pursue their remedy at law as creditors entitled to recover the moneys from the person who, on the whole of the evidence, was the real borrower. No constructive or resulting trust would arise in respect of the borrowed funds and there would be no question of tracing.

91 Certainly, equity would not intervene so long as the contracts of loan remained on foot. There is no claim in these proceedings to set them aside, nor could there be. At the very least, this would require the joinder of Mr Hancock's estate.

92 I shall now attempt to set out the history of the acquisition of the various properties said now to be the subject of constructive or resulting trusts in favour of the companies and make findings with reference to each transaction.

The Wellington Street property: "Prix d'Amour" - CIV 2119 of 1994

93 This is the most complex of the six cases, so I will deal with it first. It is the suit in which HFMF and HPPL are co-plaintiffs and in which Johanna, Mrs Porteous' daughter, is a co-defendant with Mrs Porteous and which relates to "Prix d'Amour", a grand residence built by Mrs Porteous on several parcels of land in Mosman Park between 1989 and 1991.

94 Throughout the proceedings it has been referred to as the Wellington Street property. The property is actually bounded by Wellington, Owston and Saunders Streets in Mosman Park. It is presently three separate lots, they being lot 104 upon which the main house Prix d'Amour is erected; lot 100 upon which a bungalow or "guest-house" is erected and lot 18 upon which, so far as I know, there are no buildings, although of that I cannot be absolutely sure. Each lots 18 and 104 are registered in Mrs Porteous' name. Lot 100 is registered in the name of Johanna but there is a deed under which she declares that she holds lot 100 on trust for Mrs Porteous and there is an agreement between them providing that lot 100 is to be transferred to Mrs Porteous. I gather that transfer would have been completed by now had it not been for injunctions granted in this action. Johanna did not give evidence and was not separately represented.

95 Between them HPPL and HFMF claim to have expended $10,985,695 on the acquisition of the parcels of land comprising the Wellington Street property and on the construction of the main residence and outbuildings. They claim to be entitled to a beneficial interest in the property on a constructive trust to the extent of their respective expenditure. In all, the pleadings run to 108 pages. Doing the best I can to summarise the plaintiffs' claims, they are put on the footing that:

(a) the money which Mrs Porteous herself contributed to purchase this land (some $2.15 million) is traceable by HPPL as trust property on the basis that Mrs Porteous is constructive trustee of the money under the recipient liability limb of Barnes v Addy; and perhaps also as the holder of misapplied trust property otherwise than as a bona fide purchaser for value without notice.

(b) all of HPPL's money that was used to purchase the parcels of land comprising the Wellington Street property and which was expended on improvements to the property was money of HPPL which Mrs Porteous herself misapplied in breach of her director's fiduciary duties to HPPL so that she is liable to HPPL on a constructive trust as a fraudulent fiduciary. (The basis of this claim is that she was herself a director of HPPL between 14 November 1985 and 31 October 1991.)

(c) all of HPPL's and HFMF's money that was expended for the same purpose was received or the benefit of it was received by Mrs Porteous and so received with actual or constructive knowledge that it was misapplied trust property, so that she is liable to both plaintiffs with respect to that money on a constructive trust under the recipient liability limb of Barnes v Addy.

(d) the basis upon which it is claimed that the money was trust property is that it was money of the companies paid out in fraudulent breach of fiduciary duties.

(e) the breaches of fiduciary duties upon which the claims are based is that the various officers and directors of the company involved knew or ought to have known that the moneys were to be expended for purposes which were not the company's purposes and that they either actively caused the expenditure to be made or chose to do nothing to stop it.

96 At the very foundation of the claims is the proposition that all the payments in question were made in the character of a transferring away of the funds of the two companies in the sense of a dissipation of their assets. If that is true, prima facie, the payments were in breach of duty. There might be questions about the extent of Mrs Porteous' involvement in or knowledge of the breaches, but, subject to the plaintiffs obtaining such findings (if any) as may be required on that issue and overcoming any equitable defences that might be available to the defendants (such as estoppel or the like), there would be no denying the plaintiffs' entitlement to equitable relief in some form.

97 The threshold question, therefore, relates to the character of the payments. Were they expenditure without commensurate gain? Were they fraudulent dissipatations of company money? Or were they loans?

98 The history of the acquisition of the parcels of land making up the Wellington Street property is a little complex. The parcels were not all bought at the same time. Lot 104 is itself an amalgamation of several lots acquired in Mrs Porteous' name by purchase agreements entered into between 28 February 1987 and 13 April 1989. The original lots which made up lot 104 were lot 21 and Part lot 22 (149 Wellington Street), lot 73 (151 Wellington Street) and lot 20 and Part lot 19 (147 Wellington Street). This amalgamation took place in two stages. On 9 March 1988, lot 21 and Part lot 22 and lot 73 became lot 103. On 17 May 1990, lot 103 and lot 20 and Part lot 19 became lot 104. The other two lots - lot 18 and lot 100 - remain as separate lots.

99 The other complicating feature is that, although funds comprising $2,347,110.14 of the aggregate purchase price of the various parcels making up the Wellington Street property came from Mrs Porteous herself, HPPL claims that it is entitled to an interest in those funds as the beneficiary of a constructive trust. I will deal with this in a moment under the heading "Philip Road". First, the brief details of the piecemeal acquisition of the Wellington Street property itself and my findings in regard to the source of the funds for each acquisition.

100 The first of the parcels to be acquired were the two adjoining parcels, lot 21 and part lot 22 (149 Wellington Street) and lot 73 (151 Wellington Street) which, as I have said, became lot 103. These acquisitions were contemporaneous, both purchase contracts being dated 28 February 1987. The vendors were unrelated to the Hancock interests or to Mrs Porteous and, so far as I can tell, the vendors were unrelated to each other. The purchase price in each case was $650,000. Mrs Porteous was named as the purchaser in each case.

101 In respect to lot 21 and Part lot 22 (149 Wellington Street) a deposit of $60,000 was paid and I find that no part of that deposit came from either of the two companies (exhibit 13 GRS8).

102 In respect to lot 73 (151 Wellington Street) the deposit which was paid was $65,000 and I find that no part of that sum came from either of the two companies.

103 The stamp duty payable in respect of the purchase contracts was $48,650 (exhibit 13, par 24) and I find that this was paid by a cheque drawn on HPPL's account on about 29 April 1987 (exhibit 13 GRS10).

104 Both purchases were settled on about 29 April 1987 by payment of a bank cheque in the amount of $583,323.84 in favour of the vendor of lot 73 and a bank cheque in the amount of $596,093.94 in favour of the vendor of lot 21 and Part lot 22. These cheques were purchased by HPPL by a single cheque drawn on its account in the sum of $1,179,436.78. (The difference between that amount and the total amount paid to the two vendors - that is, $19 - is made up of bank charges in respect to the acquisition of the bank cheques.)

105 On the face of it, therefore, HPPL had contributed a total of at least $1,228,086.78 to the purchase price of these two lots. I say "at least" because HPPL made another payment of $2,000 on this same date to the solicitors, Messrs Keall Brinsden, who were acting for Mrs Porteous in the acquisition of the properties. The evidence is unclear as to the purpose of this payment but it may have related to acquisition costs.

145 and 147 Wellington Street, 27 Owston Street, 10 Saunders Street

106 The purchase which next occurred was the purchase of lot 18 (145 Wellington Street), lot 20 and part lot 19 (147 Wellington Street) and lot 100 (27 Owston Street and 10 Saunders Street). These parcels appear to have been in the same ownership. They were the subject of one contract of sale purportedly entered into on behalf of Mrs Porteous by an agent on 13 April 1989.

107 The purchase price stipulated in the contract was $4,100,000. It is not in dispute (transcript 1104-1105) that $1,950,000 of this amount was provided directly by HFMF to Mrs Porteous to enable her to settle the purchase and was used by her to settle the purchase.

108 As I have said, there is a contention, which is in dispute, that the whole of the balance of the purchase price - approximately $2,150,000 - is traceable by HPPL as its money and the factual basis for this contention must now be looked at.

109 It is not in dispute and I find that the $2,150,000 was paid by Mrs Porteous from a bank account in her name at the R & I Bank. However, it is contended that Mrs Porteous was only able to pay the amount from that account because she had received into that account on 30 November 1985, or thereabouts, (exhibit 13 GRS28) $2,347,110.14 as the proceeds of the sale by her of property she held on trust for HPPL. This was property in Philip Road, Dalkeith and the history of the acquisition and sale of that property is as follows.

110 After Mrs Porteous and Mr Hancock had begun to cohabit, Mrs Porteous persuaded Mr Hancock that they should move from the Hancock family home to a home of their own. She chose 43 Philip Road and Mr Hancock agreed that she should buy it and renovate and refurbish it before they moved in. On 14 October 1984, Mrs Porteous signed a purchase contract at a price of $162,500 and the property was transferred into Mrs Porteous' name on settlement of the purchase on 19 November 1984.

111 It is alleged in par 22(c) of the statement of claim that the whole of the purchase price for the purchase of 43 Philip Road ($162,500) was provided from the funds of HPPL. There is no evidence that any of the purchase price for that property came from HPPL and I find there is no basis on which HPPL can assert that it had any interest in that property.

112 After the property was bought Mrs Porteous persuaded Mr Hancock that, instead of renovating the existing house, it should be demolished and a new house built.

113 Mr Hancock and Mrs Porteous were married in July 1985. Construction of the new house at 43 Philip Road started soon after. It took up nearly all the land. Mrs Porteous persuaded Mr Hancock that they should have a larger garden than could be fitted onto what remained of the land; and that for this purpose the adjoining property should be bought.

114 On 28 August 1985, Mrs Porteous entered into an agreement to purchase the adjoining property, 41 Philip Road, for $200,000. This purchase was settled on 4 September 1985 by transfer of the property into Mrs Porteous' name.

115 In its statement of claim, HPPL claims that it paid the whole of the purchase price in respect to the purchase of 41 Philip Road ($200,000). The company's books show that money was gathered from deposits which the company had with various institutions and, on 2 September 1985, three deposits including one of $200,000 were made to the company's overdrawn Westpac account at Bridge Street in Sydney. These deposits placed that account substantially in credit. On the same date a withdrawal of $200,003.50 was made from the account by cheque number 673050. I find that this cheque was used to purchase a Westpac bank draft in the sum of $200,000 and that the bank draft was used to complete the settlement of the purchase of 41 Philip Road. I find that the whole of the purchase price for the property was paid by HPPL.

116 The purchase price provided by HPPL was accounted for in the following way: HPPL maintained an assets account styled "3010 - Cash at Bank" and a loan account styled "3230 - Eureka Publications". (There is evidence that Eureka Publications became Lacson Investments Pty Limited - one of Mrs Porteous' companies.) On 9 September 1985, the Westpac draft was credited to HPPL's investment account "3010 - Cash at Bank" and a corresponding debit entry was made to the Eureka Publications' loan account 3230. That is, the payment was recorded as a loan to Eureka Publications. The debit balance in this loan account was cleared periodically by transfer to a loan account referable to Mr Hancock.

117 It is pleaded in par 22(c) of the statement of claim that it was Mr Hancock who arranged for the $200,000 to be made available from HPPL for the purchase, in Mrs Porteous' name, of 41 Philip Road, as indeed he did. So much is not disputed by the defendants. It is pleaded in par 22(h) that, in "paying out" the moneys, Mr Hancock acted in breach of the fiduciary duties owed by him as a director of HPPL to employ the funds of the company only for the purposes of the company and to act honestly and carefully so as not to cause detriment to the company. It is then pleaded in par 22(i) that Mrs Porteous received the moneys or the benefit of them in circumstances which implicated her in the breach and so she held the property which was purchased with the moneys "on trust for HPPL". The circumstances relied on in regard to the receipt of the moneys are that Mrs Porteous knew or ought to have known that she "was receiving the same as a result of the breaches of fiduciary duty by Hancock ...".

118 At this stage Mrs Porteous was still quite fresh on the scene, so to speak. She was not yet a director of HPPL. I am not persuaded she had any relevant knowledge. There is no evidence that Mrs Porteous knew the detail of the transactions described above which resulted in the $200,000 becoming available from HPPL funds. It was her evidence (exhibit 2.7 par 60), which I accept, that she believed at that time that any money which Mr Hancock obtained from "his companies" (as she described HPPL and HFMF) was money to which he was entitled. I am not persuaded that this was an unreasonable belief. Therefore, even if Mr Hancock had procured the money in breach of his fiduciary duties as a director, Mrs Porteous was not liable on Barnes v Addy principles as constructive trustee in respect of the property purchased with the money.

119 As to whether the Court should presume a trust on the principles set out above with respect to purchase money resulting trusts, whilst it is true that HPPL provided the purchase price, the entries in its accounts are prima facie evidence that it did so intending to do so by way of loan not as purchaser. This is sufficient to rebut the implication of a resulting trust.

120 As to whether the money was misapplied trust property able to be traced into Mrs Porteous' hands, this depends on proof at least that there was a breach of fiduciary duty on the part of HPPL's fiduciary agents responsible for the payment. It is submitted by HPPL that there was because, it is put, they spent (in the sense of dissipated) the company's money on a house for Mrs Porteous and the money was thereby lost to the company as they must have known it would be; and no responsible officer of HPPL could have held the belief that to buy a house for Mrs Porteous advanced the interests of HPPL or was a purpose of HPPL.

121 On the face of the accounts, the $200,000 was advanced by way of loan to Eureka Publications (Lacson Investments Pty Limited). Whilst I reject the prima facie effect of the entries insofar as they indicate that there was a loan to that entity, that is no reason to reject the entries insofar as they are to the effect that the money was paid as lender. An examination of the accounts shows that the debit balance in the loan account referable to Eureka Publications was regularly cleared to Mr Hancock's loan account. This was in accordance with the long-established practice, to which reference has been made, by which Mr Hancock provided for his family. A pattern of accounting entries is evidence from which inferences may be drawn as to the intention of the relevant parties: Valoutin Pty Ltd v Furst (supra) at 132. Having regard for the pattern of accounting entries in HPPL's books of account, I find that it was at all times intended that the payment in question be made, and that it was made, by HPPL as an advance by way of loan from HPPL to Mr Hancock. This is sufficient to rebut the implication of a resulting trust and to defeat the equitable claims of constructive trust and/or tracing. Unless and until the loan is set aside, HPPL's remedy in respect of the money (if it is unpaid) is at law against the estate of Mr Hancock, not in equity with respect to the fund, or property purchased with the fund. As to detriment, I would add that the asset which had been in the form of cash was not lost to the company. It remained an asset of the company in the form of a debt due by and recoverable from Mr Hancock. There is no evidence that Mr Hancock did not intend to, or could not, meet that obligation.

122 There is no occasion for equity to intervene in respect of the payments by declaring a trust.

123 In my opinion, HPPL has not established that the circumstances under which 41 and 43 Philip Road were purchased entitled it to maintain that Mrs Porteous holds an interest in the properties on trust for it. Neither has HPPL established that it has an equity to trace trust assets into that property.

124 Evidence was given by Mr Schwab that, between 1 August 1985 and 8 September 1988, HPPL paid out of its funds a total of $792,343 for the construction of the new house at 43 Philip Road. This evidence was not contradicted and I accept it. The evidence as to how the expenditure was made is sketchy. Mrs Porteous' uncontradicted evidence is that Mr Hancock arranged for a bank account to be opened in her name into which funds would be deposited "to enable me to pay the construction costs of the house". I accept that this is how some, perhaps most, of the bills were paid.

125 On 14 November 1985, during the period of the expenditure on building costs, Mrs Porteous became a director of HPPL.

126 It is part of the plaintiffs' case that all of the funds advanced by HPPL for the construction works were procured by Mr Hancock and, after she became a director, by Mrs Porteous, from HPPL in breach of their fiduciary duties as directors of HPPL from which it is said to follow that the property upon which the money was expended is the subject of a constructive trust in favour of HPPL to the extent of the expenditure.

127 Further, it is claimed that Mrs Porteous was a constructive trustee as a knowing recipient of misapplied trust property under the first limb of Barnes v Addy.

128 Once again, it is the very foundation of HPPL's case in respect to these payments that all the payments were made and were intended to be made in the character of a transferring away of the assets of the company in the sense of a dissipation of the company's assets in favour of and for the benefit of Mrs Porteous. If that is right, it was plainly a breach of duty on the part of the fiduciary agents of the company responsible for the payments and there would be no denying HPPL's entitlement to equitable relief. Mrs Porteous knew that the money was coming from HPPL at Mr Hancock's direction. There is no need to consider whether her state of actual or constructive knowledge was such as to make her liable under Barnes v Addy principles or whether she herself should be held to be a fraudulent fiduciary in her capacity as a director of HPPL. It is clear, and I find, that in respect to payments made by HPPL used for the building of the house at Philip Road, Mrs Porteous gave no value to HPPL in return. For the purposes of the equitable doctrines of tracing, she was a volunteer with notice of the trust. That is all that would need to be shown to invoke the intervention of equity in respect of misapplied trust assets still in the hands of the volunteer, even if they have been mixed. So, once again, the question is: what was the character of the payments and the intentions of Mr Hancock in directing them to be made and did they deplete the company's assets? Were they expenditures without commensurate gain? Were they a fraudulent dissipation of assets which deprived the company of its property? Or were they loans to Mr Hancock?

129 In fact, all expenditure outlaid for the purpose of the construction of the house at Philip Road was fully accounted for in HPPL's books as loans. All amounts paid into Mrs Porteous' bank account or to contractors were debited to four loan accounts in HPPL's general ledger styled as follows:

134 Once again, I reject as not accurate the accounts insofar as they indicate that this money was loaned to Mrs Porteous or to "Philip Road Residence" or to "Imprest Account Philip Road". However, I accept the accounts as confirming that the payments were made as lender.

135 As to the account "3345 - Philip Road Residence" there are no debit entries relating to the construction of the house after 30 June 1986. On that date the balance of the account was reduced to nil by transferring a debit of $1,068,469.85 to the loan account "3440 - RL Hancock". As to the loan account "3440 - RL Hancock" there are no debit entries to that account relating to the construction of the house after 30 June 1987. On that date the balance of the account was reduced to nil by transferring a debit of $1,810,474.60 to a loan account styled "3270 - Dinari Pty Limited Trustee HPPL Pension". As to the account "3015.0000 - Imprest Account Philip Road" there are no debit entries after 30 June 1986 relating to the construction of the house. On 30 June 1986 the account was credited with $1,134,747.98 which placed the account in credit in the amount of $5,454.92. The credit was matched by corresponding debit entries in other loan accounts including a loan account in Mr Hancock's name. As to the loan account "790/03 - RL Hancock", the debit balance in this account was cleared at the end of each financial year by the amount of the debit balance being transferred to Mr Hancock's loan account 790/01.

136 Therefore, on the face of the accounts, each payment made in respect to the construction of the house in Philip Road was made not as a taking away of assets but in the character of a loan; ie, on the basis that it would be repaid. Accepting that it was Mr Hancock who directed that the payments be made and how they were to be entered up, the accounting entries themselves stand as prima facie evidence of Mr Hancock's intentions. (Valoutin Pty Ltd v Furst (loc cit)). In the customary manner there was a transfer of the debit balances out of the four loan accounts referable to Mrs Porteous. In this case the transfers were to Mr Hancock's loan accounts and to a loan account of Dinari. Unlike the situation in O'Brien and Nuhan Ltd (In Liq) v Walker (supra), there is no evidence to displace the prima facie conclusion that these were proper loan account entries. Having regard for the pattern of loan account entries, I find that it was at all times intended that the payments be made as loans to Mr Hancock and at his direction to Dinari. This is sufficient to defeat the claims of constructive trust and/or tracing. There is no application to set aside the loans, nor could there be, in these proceedings.

137 As to detriment, I am not persuaded that, in directing these payments to be made, either Mr Hancock or any of the fiduciary agents of the company intended to diminish the assets of HPPL or otherwise cause detriment to HPPL. They intended to and did make loans. I am not persuaded the company suffered the detriment pleaded in consequence of these outlays. The asset represented by the cash which was outlaid remained an asset of HPPL in the form of debts due by Mr Hancock and by Dinari. There is no evidence they could not or did not intend to repay those debts. There is no evidence that, in that form, the asset was worth less than the cash equivalent.

138 Returning now to the acquisition in Mrs Porteous' name of the various parcels of land making up the Wellington Street property, as has been related, the first parcels of land to be acquired were 149 and 151 Wellington Street. In respect to this land HPPL paid on 29 April 1987:

142 HPPL claims that these payments were made in breach of fiduciary duty on the part of Mr Hancock in directing the payments to be made and because of a breach by Mrs Porteous (who by this time was a director of HPPL) of her equitable duty of care in not taking any step to prevent the payments from being made. The claim against Mrs Porteous is also put on the recipient limb of Barnes v Addy.

143 Once again, it is the foundation of HPPL's case in respect to these payments that all the payments were made and were intended to be made in the character of an expense of the company in the sense of a dissipation of the company's assets in favour of and for the benefit of Mrs Porteous. If that is right, it was plainly a breach of duty on the part of the fiduciary agents of the company responsible for the payments, including Mr Hancock who directed them to be made. Once again, there is no need to consider whether Mrs Porteous' actual or constructive knowledge was such as to make her liable under Barnes v Addy principles or whether she herself should be held to be a fraudulent fiduciary in her capacity as a director of HPPL. There would be no denying HPPL's equity to trace the property into Mrs Porteous' hands if Mrs Porteous knew or ought to have known (and I find that she actually knew) that the money was coming from HPPL at Mr Hancock's direction. She gave no value to the company in respect of the payments. She was a mere volunteer. If these payments amounted to a misapplication of trust assets, the Court would intervene to restore their traceable proceeds in Mrs Porteous' hands to the trust. So once again the question is: what was the character of the payments and Mr Hancock's intentions in directing them to be made? Were they payments without commensurate gain? Did they diminish the company's assets? Or were they loans?

144 As has been recounted, the cheque drawn in favour of the Bank of New Zealand in the sum of $1,179,436.78 was for the purchase of two bank cheques in the sum of $596,093.94 and $583,323.84 respectively to settle the purchases.

145 All these payments were recorded in HPPL's books of account as advances on loan account "3440.1000 - Wellington Street Mosman".

146 The debit balance in the loan account referred to was reduced on 30 April 1987 by a cash book transaction showing a deposit by "RL Hancock" of $502,536. It was further reduced on 1 May 1987 by a cash book transaction showing a deposit by "LG & R Hancock" of $679,463.78. There is no reason to doubt the authenticity of these accounts. The balance of the loan account on 30 June 1987 was a debit of $50,629.55. This debit entry was cleared by a transfer to Dinari's loan account 3270.

147 I accept the prima facie effect of these entries. They show that the moneys were intended to be advanced as a loan to Mr Hancock with reference to Prix d'Amour and that the loan was discharged by cash payments and by a novation as to $50,629.55 to Dinari. As it was Mr Hancock who gave the instructions for the setting up of this loan account in the name "Wellington Street, Mosman" and, because the account was finally cleared, I infer that it was the common intention of Mr Hancock and HPPL that these were loans to Mr Hancock. As there is no claim to set aside the loans, this is sufficient to rebut the implication of a resulting trust and to defeat the claim of constructive trust and tracing.

148 As to detriment, I am not persuaded the company suffered any detriment. The asset represented by the cash which was outlaid remained an asset of HPPL in the form of debts due by Mr Hancock (although recorded in a loan account which was not in his name) and the debt was cleared mostly by cash payments which I infer came from Mr Hancock. As to the relatively small balance of $50,629.55 which was cleared to Dinari's loan account, there is no evidence that in that form (a debt due by Dinari) it was worth less than the cash equivalent. There is no evidence that Dinari could not or did not intend to repay it.

149 In my opinion, no basis has been established for the intervention of equity or on which to hold that Mrs Porteous holds or held her interest in the parcels of land that were 149 and 151 Wellington Street upon trust for HPPL.

145 and 147 Wellington Street, 27 Owston Street and 10 Saunders Street

150 The next parcels to be acquired were the parcels making up 145 and 147 Wellington Street, 27 Owston Street and 10 Saunders Street. The price was $4,100,000 and of this amount $2,150,000 or thereabouts came from the sale of the Philip Road property. I have already held that the plaintiffs have failed to establish any interest in that money.

151 As to the other portion - $1,950,000 - this came directly from the funds of HFMF. On 2 May 1989, a cheque for that amount was drawn on HFMF's account with the Bank of New Zealand for a bank cheque in that amount payable to Space Settlements who were the settlement agents handling the purchase. The funds were used to complete the purchase of these properties in Mrs Porteous' name.

152 HFMF claims that this disbursement of funds occurred in breach of fiduciary duty on the part of Mr Hancock as a de facto director and on the part of the directors of the company Messrs Fieldhouse, Dalby, McKenna and Salt. The case against Mrs Porteous is that she was a knowing recipient of misapplied trust property. I will take it that the case against her is also put on the basis that she is a volunteer against whom there is an equity to trace.

153 I accept that Mr Hancock and the directors referred to owed directors' fiduciary duties to the company. However, once again, the foundation of the company's case is that the payment was and was intended to be an expense of the company in the sense of a dissipation of assets in favour of Mrs Porteous, which depleted or diminished the trust fund under the control of the fiduciary agents. The prima facie effect of the entries in the company's books is that the payment was intended as an advance to Mr Hancock in reduction of the amount owing to him by the company; ie, a repayment of debt which reduced the company's liabilities. As at 2 May 1989, Mr Hancock's loan account in HFMF (styled "859/01 - LG Hancock") was very substantially in credit. The credit balance was $23,220,000. The payment of $1,950,000 made by HFMF on 2 May 1989 is recorded in the general ledger on 30 June 1989 as a reduction in the credit balance of the loan account. On the face of HFMF's accounts, HFMF simply paid to or to the order of Mr Hancock, money that was due to him (see Schedule of Account Movements table 1, item 3).

154 I was invited by counsel for HFMF, Mr Archer, to find that the credit balance in Mr Hancock's account was a fictitious entry, but the credit balance arose from the sale by Mr Hancock to HFMF on 24 February 1989 for $23.2 million of 666 "A" class, 2334 "C" class and 333 cumulative special shares in HPPL. As I have said, that transaction cannot be set aside by me and is not shown to have been wrongly dealt with in the accounts. From this it follows that I cannot ignore the credit balance in Mr Hancock's account. It is entirely in accordance with the transaction which it purports to record. The plea in par 30 of the statement of claim that "The Foundation has not at any time received any consideration for the payments out of its funds ..." of the sum of $1,950,000 has not been made out. The consideration it received was the pro tanto reduction of Mr Hancock's loan account.

155 Because the money was not paid in the character of purchaser but as a reduction of debt due to Mr Hancock, there is no basis on which the Court can construe a trust, grant the equitable remedy of tracing or presume a trust on the principles relating to purchase money resulting trusts.

156 Between 1 July 1988 and 31 October 1991, HFMF paid from its funds a total of $458,887 and this money was used in part payment of the costs associated with the construction of Prix d'Amour on lot 104. Between those same dates HPPL paid from its accounts an amount of $5,400,956 and this money was used for the same purpose. It also paid $247,548 from its accounts which was used in payment of the costs of the construction of the guest-house on lot 100.

157 HFMF and HPPL claim that these payments were caused to be made by Mr Hancock in breach of his fiduciary duties to each of them and that, in allowing the payments to be made by HFMF, Messrs Fieldhouse, Dalby, McKenna and Salt breached the directors' fiduciary duties which they owed to HFMF and, in allowing the payments to be made by HPPL, Mrs Porteous breached the director's equitable duties owed by her to HPPL. On behalf of HFMF it is also claimed that Mrs Porteous is liable on a constructive trust under the recipient limb of Barnes v Addy on the footing that she received the benefit of the payments in the actual or constructive knowledge she was receiving the same as the result of the breaches of fiduciary duties on the part of Mr Hancock and Messrs Fieldhouse, Dalby, McKenna and Salt. I will take it that the case against her is also put on the basis that she is a volunteer against whom there is an equity to trace.

158 If these payments were made as an expense of the companies in the sense of a dissipation of company funds for no commensurate gain, the plaintiffs would be entitled to relief on one or other or all of the grounds pleaded. No fiduciary agent of the companies could have honestly believed spending vast amounts of the company's money building Prix d'Amour benefited the companies or was a purpose of the companies. Mrs Porteous knew where the money was coming from and gave no value to the companies in respect of the payments. If the payments were made in breach of fiduciary duty, Mrs Porteous was a volunteer with notice of the trust into whose hands the payments may be traced.

159 So, once again, the question is: what was the character of the payments, what was Mr Hancock's intention in directing them to be made and did they diminish the assets of the companies? I find that the payments were not made as an expense of the companies in the sense of a dissipation of their assets, but were made as loans. The evidence is as follows.

160 Construction of the house commenced in mid-1988. By 16 November 1991, HPPL had made 188 payments totalling $5,400,956. All but four of these were recorded in HPPL's accounts as debits to the loan account styled "790/03 - RL Hancock". Three of the remaining four payments were debited to the loan account styled "790/01 - LG Hancock". It is not clear to which loan account the remaining payment (a payment of $30,000 to Design Gardens) was debited. The accounts show that the debit balance of loan account 790/03 was reduced to nil at the end of each of the relevant financial years by transferring the debit balance to the loan account in Mr Hancock's name (see Schedule, table 1, items 12 and 13, table 2, items 1 and 4). In this way, the money remained, and I find Mr Hancock intended that it remain, an asset of the company although, in the form of a debt due by Mr Hancock. There is no evidence that Mr Hancock did not intend to or could not meet the obligations recorded in his loan accounts. There is no evidence that the asset in that form was worth any less to the company than in the form of cash. Anyway, the loan transactions have not been set aside and cannot be set aside in these proceedings.

161 HFMF made 13 payments of costs incurred in the construction of the house on the Wellington Street land between 30 April 1991 and 30 August 1991 totalling $458,887. Each payment was recorded as a loan by HFMF by entry into a loan account. Not all the loan accounts are named but their numbers are 664/05, 664/06, 664/12 and 664/14. The first of these is in Mr Hancock's name and the second bears Mrs Porteous' name. Five of the payments totalling $398,327.80 were entered in Mr Hancock's loan account. The balance of the payments were recorded in the other three loan accounts. These three loan accounts were cleared to a nil balance by transfer to the loan account in Mr Hancock's name (see Schedule, table 3, item 3). On the face of the accounts and accepting that Mr Hancock gave all the relevant directions, the common intention of Mr Hancock and HFMF was that the payments were to be by way of loan to Mr Hancock to be repaid by him. For the same reasons as expressed immediately above, the transactions did not result in a diminution of HFMF's assets. The asset represented by the cash payments remained an asset of HFMF in the form of a debt due by Mr Hancock. There is no evidence that in that form it was worth less than the cash equivalent. It is not proved that Mr Hancock did not intend to or could not meet the obligations assumed by him as recorded in his loan accounts. The loans have not been and cannot be set aside in these proceedings. It would, anyway, appear that they have been repaid. On 7 August 1991, Mr Hancock's loan account in HFMF went into net credit to the extent of approximately $19 million consequent on the purchase by HFMF of his Life Governor's share in HPPL.

162 Between 28 August and 1 December 1989, HPPL made seven payments totalling $247,548 in respect of the construction of the guest-house on lot 100. Each of these payments is recorded in HPPL's accounts as a debit to loan account "790/03 - RL Hancock". The debit balance on that account was transferred to loan account "790/01 - LG Hancock" at 30 June 1990 (see Schedule, table 1, items 12 and 13). The accounts raise the prima facie inference that the common intention of Mr Hancock and the company was that the payments would be by way of loan repayable by Mr Hancock. There is no evidence that Mr Hancock did not intend to or could not meet the obligation assumed by him as recorded in his loan account. Anyway, the transactions of loan have not been set aside and cannot be set aside in these proceedings.

163 For the same reasons as expressed above, the transactions did not result in the detriment pleaded and do not require the intervention of equity.

165 Mrs Porteous makes a counterclaim, but she does not seek any substantive relief beyond the orders to which she would be entitled on dismissal of the plaintiffs' claim. There is, therefore, no need to say any more about the counterclaim.

166 In this suit, HPPL is the plaintiff and Belle Rosa Holdings Pty Limited and Mrs Porteous are the defendants. The suit relates to an office building in Stirling Highway, Nedlands, transferred to Belle Rosa Holdings in 1990.

167 Belle Rosa Holdings was incorporated on 18 May 1989 and on that date Mrs Porteous and her daughter Johanna were appointed directors. The company had an issued share capital of 1,000 ordinary shares of which 501 were issued to Mrs Porteous and 499 to her daughter Johanna. The latter is no longer a shareholder. The shares originally held by her are now held by Lace Enterprises Pty Limited. That company was incorporated on 1 August 1991 with a share capital of two ordinary shares, one of which is held by Mrs Porteous and the other by Mrs Burton, who is an employee of Mrs Porteous. In practical terms, Belle Rosa Holdings was and is Mrs Porteous' company.

168 "Milgraum House" was the name of the building. It sat on two adjoining lots, they being numbers 191 and 193 Stirling Highway. Until 5 April 1990 both lots were legally and beneficially owned by HPPL. On 5 April 1990 HPPL transferred the lots to Belle Rosa Holdings. The transfers were expressed to be pursuant to contracts of sale each also executed on 5 April 1990. In respect to 191 Stirling Highway, the contract of sale provided for a sale price of $214,675 payable by a deposit of $1,000 on 5 April 1990 and the balance payable in cash on the same date. As to 193 Stirling Highway, the contract provided for a sale price of $287,900 payable by a deposit of $1,000 on 5 April 1990 and the balance payable in cash on the same date. The contracts in each case were signed on behalf of HPPL by Mr Salt and Mr Hancock, as were the transfers. The common seals of HPPL and Belle Rosa Holdings were affixed to each document.

169 On the same date which the contracts bear, that is, 5 April 1990, two letters of authority were signed by Mr Salt, and initialled by Mr Hancock. They are in similar terms and relate to the two transactions. I will set out one of them. It is exhibit 12 GRS10:

"To Space Settlement Services 19 Southport Street, Leederville, WA, 6007

We, Hancock Prospecting Pty Limited of 3rd floor HML House 28-42 Ventnor Avenue West Perth WA 6005 do hereby acknowledge receipt of the sum of $214,675 from Belle Rosa Holdings Pty Limited in full and final satisfaction for the sale of the abovementioned property.

We therefore authorise your office to register the transfer of land document at the Land Titles Office in due course.

__________________________

For and on behalf of Hancock Prospecting Pty Limited

170 In fact, these acknowledgements were untrue. No money was received by HPPL from Belle Rosa Holdings in respect to the sale of either property. There is no record of a meeting of directors of HPPL authorising the execution of the letters of authority. However, it is recorded in the directors' minutes that there was a meeting of directors on 23 May 1990. The minutes, signed by Mr Hancock, record the attendance of Mr Dalby and Mr Salt. The minutes record that Mrs Porteous was not in attendance. It was recorded that Mr Salt was "in attendance as Secretary". The minutes record that, at that meeting, "the action of affixing the common seal to [the contracts of sale in respect of 191 and 193 Stirling Highway] was confirmed".

171 During the period in which these events occurred, the directors of HPPL were Mr Hancock, Mr Dalby and Mrs Porteous and the secretary of the company was Mr Salt. It is pleaded in the statement of claim that Mr Hancock and Mrs Porteous owed directors' fiduciary duties to HPPL to employ its assets only for its purposes, to act honestly and not to make improper use of their position to gain an advantage for themselves or to cause detriment to the company. It is also pleaded that each owed HPPL a duty to exercise a reasonable degree of care and diligence in the discharge of their directors' duties.

172 It is pleaded that Mr Hancock breached each of these duties. The breaches are said to have occurred "by reason of" the matters recounted above.

173 It is pleaded that Mrs Porteous breached the duty upon her to exercise reasonable care and diligence as a director. The breach by her is said to be constituted by her knowledge that the properties "were to be and were transferred to the First Defendant without the purchase price being paid to the Plaintiff and the Second Defendant took no steps to prevent this occurring"

174 The claim against Belle Rosa Holdings is put under the recipient liability limb of Barnes v Addy on the footing that it knew what Mrs Porteous knew; and she knew that the transfers were effected by Mr Hancock or caused to be effected by him in breach of his fiduciary duties. The claim against Belle Rosa Holdings is also put on the basis, I think, that HPPL has an equity to trace the properties into the hands of Belle Rosa Holdings as a volunteer recipient of misapplied trust property and on the principles relating to voluntary transfer resulting trusts. In the alternative, it is pleaded against Belle Rosa Holdings that, if the contract of sale was good, the purchase price was not paid and HPPL is entitled to rescind the contract on that ground and recover title. In the further alternative, HPPL claims payment of the purchase price plus interest from the agreed settlement date.

175 All of the claims summarised above rest on the fundamental premise that HPPL received no consideration for the transfer of the Milgraum House properties. HPPL's main contention is that the two contracts of sale were a sham, that the conveyances were effected without consideration and that the effect of the conveyances was to transfer away assets worth some $500,000.

176 The background to the transaction is given in the evidence of Mrs Porteous (pars 30 - 41) and briefly it is as follows. In March 1990, Mrs Porteous wished to establish an interior decorating and fashion business and was looking for premises. Mr Hancock informed her that he had been trying to sell Milgraum House, but had not been successful. He said he would arrange for the property to be transferred to Mrs Porteous so that she could use it for the business which she wished to start up. Mrs Porteous knew the property was owned by HPPL. Her statement of evidence continues in the following terms:

"31. I knew that the Nedlands properties were owned by HPPL. Lang told me that he would make arrangements for the transfer of the properties and that he would ensure that it was properly documented and recorded.

32. Lang told me to arrange for William Porteous [now Mrs Porteous' husband] a real estate agent at Acton Consolidated who handled property transactions for Lang and I, to arrange for a contract of sale to be prepared. Lang told me that he would arrange for Doug Salt at his office to identify what the purchase price of the properties should be. Lang told me that I would not need to arrange for payment of the purchase price. I left it to him to make sure that the proper arrangements were made.

33. On 6 April 1990 Lang told me that the Nedlands properties had been transferred to Belle Rosa. I then proceeded to have one of the buildings on the Nedlands properties demolished and for the other building to be renovated. I then commenced the interior decorating and fashion business which were conducted in the renovated building."

177 Plainly, therefore, there was no intention that Belle Rosa Holdings would itself pay for Milgraum House on 5 April or at all. Mrs Porteous' evidence, which was not contradicted and which was not on this point challenged, was that the properties were intended to be gifts to her from Mr Hancock. I accept that evidence.

178 There is, however, more than one way to make a gift of property belonging to another. The donor can take it from the owner and purport to give it to the donee, which is HPPL's case in these proceedings. Or he can buy it from the owner and give it to the donee. Or he can arrange for the donee to buy it on the basis that the donor will pay the purchase price, which is the defendants' case in these proceedings.

179 As things stood, the properties were not Mr Hancock's to give, nor did he have the right to direct the company to give the properties away. Whatever level of control Mr Hancock had over HPPL, he was duty-bound not to take and give away its assets. On the other hand the directors clearly had the right to dispose of non-core assets as long as they did not do so to the detriment of the company. I have already set out cl 46 of HPPL's memorandum by which one of HPPL's independent objects is to dispose of any of its assets. Milgraum House appears to have been simply a property investment and not one of HPPL's core assets. To dispose of it for full value would not harm the company in any way that I can see. Whatever may be said about the conduct of the officers of the company as to the manner in which the disposal was purportedly effected (the bringing into existence of contracts of sale in terms not intended to be enforced and the signing of false acknowledgments of receipt of purchase price) if there was in substance a sale of the properties for full value and the full value of the purchase price was received, there is no basis that I can see for the grant of the equitable relief which is sought, or for the relief at law. It would not matter that the sale was to someone other than the person who paid the purchase price.

180 What then was the substance of the transaction from HPPL's standpoint?

181 In the first place, formal contracts of sale were executed with a consideration stated. The affixing of the company's seal to the contracts was approved. The transfers were expressed to be pursuant to those contracts. There can be no voluntary transfer resulting trust in those circumstances. The purchase price was not paid at settlement, but on 30 June 1990 the amount of the unpaid purchase price was debited to a loan account in the name of Mrs Porteous in HPPL's ledger. On the same date, 30 June 1990, the "debt" was transferred to a loan account of Mr Hancock (see Schedule, table 1, item 12). So, according to the source documents, records and accounts of HPPL there was a sale, a conveyance pursuant to it and an assumption by Mr Hancock of the purchaser's obligation to pay the purchase price. There is no evidence that he did not intend to accept and meet that obligation or that he could not do so. It is true that the purchase price was not paid in cash as provided for in the contract. But this means only that, instead of receiving cash, the company got Mr Hancock's promise to pay. As there is no evidence that that promise was not bona fide or that it was unenforceable, there does not seem to be any basis on which equity should intervene. In fact, the accounts show that on the same date (30 June 1990) the debit balance in Mr Hancock's account was cleared to Dinari's loan account (see Schedule, table 1, item 14). There is no evidence that Dinari could not or did not intend to pay out the debit balance in its account. In fact the accounts show that on 30 June 1990 Dinari's account was cleared to a nil balance. (See Schedule, table 1, item 15.) It seems to me that, on that state of affairs, even if this sale was in breach of Mr Hancock's duty not to let his duty to the company conflict with his own interests, no relief could be granted in equity except on a rescission. That is not possible in these proceedings. I think that at least Mr Hancock's estate, and perhaps also Dinari, would have to be parties.

182 Mr Hughes QC submitted that I should infer that the contracts of sale were false documents and that there was no sale in truth and nothing to rescind. Mr Hughes' submission was mainly based on four things: (a) Belle Rosa Holdings was never going to pay the purchase price and did not do so; (b) Mr Hancock always intended that the properties be a gift to Mrs Porteous; (c) purportedly on behalf of HPPL, Mr Hancock and Mr Salt signed false acknowledgements of receipt of the purchase price for each parcel and (d) the unpaid "purchase price" did not receive treatment in HPPL's accounts until three months after the transaction and then only as "book entries".

183 I am not prepared to make an inference of fraudulent conduct based on those matters.

184 I attach little significance to the delay in making the relevant entries in the books of account. In the circumstances of this case, delayed entries in the books of some three months does not raise an inference that the entries were an ex post facto allocation of an expense made at the direction of Mr Hancock to record a transaction as having occurred that was different from the transaction that actually occurred, if I may respectfully borrow the terminology of Finklestein J in Valoutin Pty Ltd v Furst (supra). This was not a delay of the sinister proportions (some 12 months) that was present in O'Brien and Nuhan Ltd (In Liq) v Walker (supra). An examination of the journals of HPPL, which are the books of prime entry, indicates that there occasionally was some delay in journalising ordinary transactions. There is no evidence that these payments were brought to account in some other fashion initially and then "corrected" so as to indicate that they may have been a contrivance. The journal entries, which are to be found in exhibit 119 at p 120 of the HPPL journal or cash book for the year 1989-1990, do not suggest that the entries relating to the transaction were other than the first posting of entries in relation to the transaction.

185 As to the false acknowledgements of receipt, I infer that more probably than not the purpose of this was not to defraud HPPL but to satisfy the requirements of the people attending to settlement of the transaction on HPPL's behalf. The acknowledgements did not have any other purpose. They were not used as the basis for false entries in the accounts or to lay any kind of false trail that I can see. For Mr Hancock to provide false assurances to settlement agents as to the receipt of the purchase price may be deserving of criticism in some quarters, but it does not show that there was no contract. As I have tried to explain, the books clearly show that Mr Hancock assumed an indebtedness to HPPL for the full amount of the unpaid purchase price. These book entries, if genuine, are consistent only with a real sale. There is no evidence they are not genuine. Furthermore, the books show the indebtedness was discharged. (See Schedule, table 1 items 12 to 15).

186 As to the fact that Belle Rosa Holdings was never going to pay the purchase price, this has no significance if, as I find, it was always intended that the purchase price be Mr Hancock's responsibility and if, as I find, that obligation was discharged. It does not mean the contract of sale was a sham, and not intended to take effect according to its tenor but only that Mr Hancock accepted the obligation to discharge Belle Rosa Holdings' obligations to pay the contract price.

187 I accept that the proper inference from the entries and the sequence of events is that there probably never was an intention on the part of Mr Hancock actually to pay cash on the day stipulated in the contract; that is, 5 April 1990. But this would not seem to be of any great significance in the particular circumstances of the case and does not mean that the whole contract was a sham. What the company appears to have had from the outset was an acceptance by Mr Hancock that he would pay the purchase price. The capital profits reserves of the company were in the millions of dollars. As the holder of the Life Governor's share, Mr Hancock could have quite properly claimed as dividends a payment to himself of an amount greatly in excess of the purchase price of Milgraum House. In those circumstances, it is easy to see that it might have suited the company to make a loan to him of these lesser amounts instead. No doubt, the book entries from which the promise is inferred were made by his direction, but there is no evidence to displace the inference that there was indeed a promise by him to pay nor on which to conclude that the promise was not bona fide or that he could not honour it. That he always intended to do so is an inference to be drawn from the entries in the loan accounts made at his direction, whereby the debit entry relating to this transaction became part of a debit balance in his account, which was then cleared.

188 As I have said, the case is founded on the proposition (which I have not accepted) that there was no intention to create contractual obligations as to payment; and the claims to relief are put on the basis that no payment was made. I should make it clear that the plaintiff does not seek to invoke the trustees "purchase rule" so as to set aside a purchase of Milgraum House on the footing that there was a purchase by a fiduciary without a proper consent and/or at an undervalue, as to which see Queensland Mines Ltd v Hudson (1978) 18 ALR 1. That would be a very different case giving rise to questions not argued in this case - questions such as whether the claim to set aside the purchase is brought within a reasonable time (Re Postlethwaite (1888) 60 LT 514), whether the sale can be avoided without rescission, whether rescission is still possible, whether Mr Hancock's estate ought to be a party and so on.

190 Belle Rosa Holdings has made a substantive counterclaim in this case. The basis of the counterclaim is that certain steps taken by the plaintiff to caveat the land resulted in Belle Rosa Holdings losing a sale of the land to a purchaser with whom a contract of sale had been entered into in April 1992. No evidence was led in support of the counterclaim and no submissions were made in respect to it. If the only basis for the claim by the plaintiff to a caveatable interest in the land are the matters upon which the plaintiff has been unsuccessful in this action, it would follow that the caveat ought to be removed and that an order to that effect should be made on the counterclaim. I will hear the parties as to whether the Court is in a position to make any other orders on the counterclaim.

191 In this action HPPL is the plaintiff and Mrs Porteous is the defendant. There are two separate property transactions involving large amounts of money whereby Mrs Porteous became the owner of two substantial office buildings in Double Bay in New South Wales, they being 24 Bay Street and 4 - 10 Bay Street. HPPL claims an interest in both properties arising out of the circumstances of their acquisition.

192 The history of this transaction is given in Mrs Porteous' evidence as follows.

"20. In August 1988 Lang was expecting to have funds available as a result of the sale of a property located in Macquarie Street, Sydney known as 'Hope House'. At about this time I told Lang that I was concerned about my security and wanted him to give me money which I could invest in income producing assets to make sure that I was adequately provided for. I was anxious because I was concerned that Lang was in bad health and his daughter, Gina Rinehart, was already complaining to Lang about the assets he had provided for me. Gina and I did not get on. Lang and I discussed a number of proposals, one of which included establishing a fund, which was proposed to be called the 'Lang and Rose Hancock Domestic Fund' which would be used for our living expenses during Lang's life, and upon his death would be mine.

24. Mr Fieldhouse had, at Lang's suggestion, been looking for a suitable investment to be made for me in anticipation of funds becoming available as a result of the sale of Hope House. Although the arrangements between Lang and myself concerning the 'Lang and Rose Hancock Domestic Fund' were not concluded. Lang had told me he would purchase a Sydney investment property for me, and told Fieldhouse to look out for a suitable property. In or about September 1988 Fieldhouse told Lang and me that he had located a property at 24-26 Bay Street, Double Bay in New South Wales which would be a suitable investment for me. Lang instructed Fieldhouse to negotiate for the purchase of the property for me.

25. In early October 1988 ... I received a telephone call from Fieldhouse who told me he had negotiated the purchase of the property ...

29. In approximately October 1991 Mr Fieldhouse told me that there was a property for sale located at 4-10 Bay Street, Double Bay which would be a suitable investment for me. I told Lang about the property but I did not ask him to pay for it for me. Mr Fieldhouse said that he would be able to arrange finance for me to fund the purchase. I told [Mr Fieldhouse] to arrange the purchase of the property for me ... ".

193 The documentary evidence reveals that on 5 October 1988, Mrs Porteous executed an agreement to purchase 24 Bay Street for $5.5 million. The deposit for the purchase of this property was $550,000 and was paid by HPPL on about the contract date by cheque drawn on HPPL's Bank of New Zealand account at George Street, Sydney. This payment was accounted for in HPPL's books of account by an entry in the general ledger as an advance on the loan account "790/03 - RL Hancock". The balance of the purchase moneys to complete the settlement was $4,968,282.33 plus fees and adjustments totalling $28,122.99 and this amount ($4,996,405.32) was paid by HPPL on 17 November 1988 by three bank cheques at settlement. This payment was also accounted for in HPPL's books of account by an entry in the general ledger as an advance on loan account "790/03 - RL Hancock". On 24 November 1988, the stamp duty on the purchase of 24 Bay Street in the sum of $287,991.50 was paid by HPPL, also by cheque drawn on its Bank of New Zealand account. This payment also was accounted for in the books of account of HPPL by an entry in the general ledger as an advance on loan account "790/03 - RL Hancock".

194 On 12 December 1988, Mrs Porteous became the registered proprietor of the property.

195 At all material times the directors of HPPL were Mr Hancock, Mrs Porteous and Mr Dalby. It is pleaded that they each owed fiduciary duties to HPPL to act honestly and not to make improper use of their position to gain an advantage for themselves or to cause detriment to the company. It is also pleaded that they owed a duty to exercise a reasonable degree of care and skill in the discharge of the duties of their office. It is not disputed that these three were the fiduciary agents of the company and owed it the duties pleaded

196 The case against Mrs Porteous is put under the knowing recipient limb of Barnes v Addy. It is pleaded that (a) the outlays made by HPPL and which were used to purchase 24 Bay Street were made at the direction of Mr Hancock in breach of his fiduciary duties and his duty of care and (b) these payments were made "because" Mrs Porteous and Mr Dalby breached each of their fiduciary duties and their duty of care and that these matters were known to Mrs Porteous when she "accepted" the transfer of the property.

197 This then is also a case the foundation of which is that the payments in suit were payments in the nature of a transferring away of the assets of the company in the sense of a dissipation of funds in favour of Mrs Porteous. If they were then there was prima facie a breach of fiduciary duty and of the duty of care because no responsible officer of HPPL could have believed that money spent to purchase an office building in New South Wales for Mrs Porteous was money spent in the interests of and for the purposes of the company. HPPL would be entitled to succeed against Mrs Porteous because, if it was Mr Hancock's intention to enrich her at the expense of the company of which she was one of three directors, she must have known of that intention or deliberately shut her eyes to the possibility. I would have little hesitation in holding that she benefited as a collaborator. Anyway, she would be a volunteer recipient of misapplied trust property and liable to answer HPPL's equity to trace.

198 And so, once again, the great question is as to the character of the payments, the intentions of Mr Hancock in directing them to be made and whether they diminished the company's assets. Or were the payments proper transactions of loan?

199 The prima facie effect of the entries in the books of account is that all of the payments were made in the character of loans.

200 An examination of the loan accounts shows that as at 17 November 1988 (the date on which the purchase of 24 Bay Street was settled) the balance owing to HPPL on the loan account referable to Mrs Porteous (790/03 - R L Hancock) was $6,405,853.13 which included the purchase price of this property. During the financial year ended 30 June 1989 the loan account rose to a maximum debit of $7,858,226.85 which included the debit in respect to the stamp duty. On 28 June 1989 the loan account was credited by journal entry in the amount of $7,602,478.33 and the corresponding debit was taken up in Mr Hancock's loan account, 790/01. The debit balance as at 30 June was $359,450.24. This was cleared to nil on that date by a transfer to Mr Hancock's loan account 790/01. So, the whole of the debit balance of the loan account referable to Mrs Porteous, which included the price of 24 Bay Street, was transferred to Mr Hancock's loan account.

201 The accounting entries in respect to the payments made for the acquisition of 24 Bay Street together with the evidence as to how the loan accounts in general were customarily used show that Mr Hancock borrowed the funds in question from HPPL in order to buy 24 Bay Street for Mrs Porteous. There is no evidence to contradict the prima facie effect of the accounts.

202 In fact, the books show that Mr Hancock's indebtedness to HPPL as recorded in his loan account was discharged. On 30 June 1989 the total debit balance in Mr Hancock's loan account 790/01 was transferred to Dinari's loan account by one transaction in the amount of $6,604,374.24 and a separate transaction in the amount of $69,552.70 thereby reducing the debit balance in Mr Hancock's loan account to nil. There is no reason to doubt the authenticity of this transaction. What it shows is that, by a novation, Dinari assumed the obligation of Mr Hancock to repay the advances. In other words, the accounts show that, on that date, HPPL accepted that Dinari should replace Mr Hancock as obligor in respect to repayment. There is no evidence that Dinari would not or could not discharge the obligation if called on to do so. The books show that it did so.

203 The entries in the accounts are to the effect that, as at 30 June 1989, the debit balance in the Dinari loan account was $14,560,066.91. This balance had reduced to $9,599,031.33 by 30 June 1990. On that date it was cleared to nil (see Schedule, table 1, item 15). I have tried to detail in the Schedule how the loan accounts referable to family members were ultimately cleared using HFMF's very substantial indebtedness to Mr Hancock as the discharging medium (see table 1, items 12 - 15, table 3, item 2). I have already stated my finding that the share sales and consequent indebtedness must be treated as real for the purposes of these proceedings.

204 Accepting, as I do, the prima facie effect of the records, there can be no presumption of a resulting trust. As the loan transactions have not been set aside and cannot be set aside in these proceedings, there is no basis on which the equitable remedy of a constructive trust can be granted.

205 On 21 November 1991, Mrs Porteous executed an agreement to purchase 4 to 10 Bay Street, Double Bay for $6,100,000. The purchase was settled on 20 December 1991. There is no evidence that any part of the purchase price was provided from the funds of the defendant. As I understand HPPL's claim to an interest in this property, it is entirely based on the proposition that the funds used to acquire it were borrowed on the security of property in respect to which there is a constructive or resulting trust in favour of HPPL.

206 The evidence is, and I find, that Mrs Porteous borrowed $5.5 million from ICLE Finance Corporation Limited on the security of 24 Bay Street and 4 to 10 Bay Street and $1.1 million from the Commonwealth Bank of Australia at St George's Terrace. The borrowing from the Commonwealth Bank was secured by the grant of a mortgage by Johanna Lacson Nominees Pty Limited over property in Owston Street Mosman Park and by the grant of a mortgage by Belle Rosa Holdings over Milgraum House. It is not contended that HPPL had any relevant interest in this Owston Street property but, as has been recounted, it is contended that HPPL is the beneficiary of resulting or constructive trusts in respect of the other properties.

207 I am not at all sure that a party in whose favour a resulting or constructive trust is held to exist may claim a beneficial interest (that is, a right in rem) with respect to property acquired with borrowings secured by mortgages over the trust property: see Haydon: "Underhill's Law of Trusts and Trustees" (13th ed) 720. The point was not really argued. It is, to my mind, a difficult concept. The case fails at the threshold in light of the conclusion I have reached that HPPL does not have a beneficial interest in the properties in question, that is 24 Bay Street and 4-10 Bay Street.

209 In this action, HFMF is plaintiff and Belle Rosa Holdings and the Commonwealth Bank of Australia are defendants. The action did not proceed against the bank. It proceeded with Belle Rosa Holdings as the only defendant. The history of this transaction, as recounted in evidence by Mrs Porteous, is as follows:

"55. In or about April 1991 Lang told me that he would purchase vacant land located at 40-42 Owston Street, Mosman Park for me as an investment. He said that I should keep myself busy by designing and building a house on the land. He told me that he thought it would be a good project for me as designing and decorating homes was something which he believed I had a talent for.

56. William Porteous assisted me in purchasing the property. Belle Rosa purchased the property under a contract of sale dated 28 May 1991. The purchase was handled on behalf of Belle Rosa by Space Settlements, a settlement agency which was used by Lang and I.

57. I left the details of the transaction to the settlement agents, and left it to Lang to arrange for the payment of the purchase price. I did not know how the purchase price was paid but understood that Lang would use money he was entitled to receive from his companies.

58. On the advice of William Porteous I did not proceed with the project of constructing a house on the land ... the land was subsequently sold in early 1992."

210 The evidence shows that, on 28 May 1991, Belle Rosa Holdings executed an agreement to purchase 40 Owston Street, Mosman Park for $385,000. The deposit on the purchase was $38,500 and this was paid by a cheque signed by Mr Hancock drawn on HFMF's account on 4 June 1991. On 17 June 1991, Mr Hancock signed a cheque drawn on HFMF's account payable to Johanna Lacson Nominees in an amount of $353,084 to enable the completion of the purchase of the property. On 20 July 1991, Belle Rosa Holdings became the registered proprietor of the property. On 26 February 1992, Belle Rosa Holdings executed two contracts to sell the two lots comprising 40 Owston Street, that is, lots 3 and 4, to Gibros Pty Limited each for $190,000. These agreements were settled on 28 April 1992 and 23 July 1992 and the proceeds of sale remain on deposit in an interest-bearing account pending the determination of the proceedings.

211 HFMF claims an interest in the property as constructive trustee and hence claims to be entitled to receive the proceeds of sale. The claim is based on allegations of breach by Mr Hancock of his fiduciary duties to HFMF by reason of his de facto directorship of that company and his de facto control of its affairs. There is also an allegation of breach of directors' fiduciary and equitable duties on the part of Mr Dalby, Mr McKenna and Mr Salt. They were the directors of HFMF at the material time. The essence of the allegations regarding Mr Hancock's breach of fiduciary duty is that he directed the purchase to be made and signed the cheques. The basis of the allegations against Mr Dalby, Mr McKenna and Mr Salt are that they knew what was going on and dishonestly or negligently failed to stop it. The case against Belle Rosa Holdings is put on the recipient liability limb of Barnes v Addy. It is contended that HFMF's internal accountant, Mrs Burton, was, at the material time, also a director of Belle Rosa Holdings. It is contended that she attended to all payment formalities on behalf of HFMF in favour of Belle Rosa Holdings knowing that "the plaintiff's funds were not being used for purposes which were related to the plaintiff's affairs" and knowing that "Hancock treated the plaintiff's funds as being at his personal disposition and that Dalby, McKenna and Salt acquiesced in that": statement of claim par 17(c) and (d). Therefore, it is contended that Belle Rosa Holdings, by its director Burton, assisted in the fraudulent scheme so that Belle Rosa Holdings is liable under the accessory limb of Barnes v Addy.

212 Once again, therefore, it is the foundation of the plaintiff's claim that the relevant expenditures were made and were intended to be made in the character of a transferring away of assets of the company in the sense of a dissipation of its assets in favour of Belle Rosa Holdings, Mrs Porteous' company. If they were, then there was, prima facie, a breach of fiduciary duty on the part of Mr Hancock. The evidence would not go so far as to enable a finding of breach of fiduciary duty to be made against the other directors. There is no evidence that they participated in any way in the transaction or knew or ought to have known of it.

213 There is a dispute as to whether Mrs Burton was, in truth, a director of Belle Rosa Holdings at the time the payments were made to it by HFMF; that is, from and after 4 June 1991. The corporate records of Belle Rosa Holdings purport to show that Mrs Burton was appointed a director of Belle Rosa Holdings on 31 May 1991 and there are records purporting to show that she performed directors' functions thereafter. However, I accept Mrs Burton's evidence that she signed no documents in respect to the directorship of Belle Rosa Holdings or acted in the capacity of a director of that company until after Mr Hancock's death. Shortly after Mr Hancock's death, an event occurred which caused one of the directors of Belle Rosa Holdings, Mr Boerkamp, to resign. Mr Boerkamp gave evidence confirming that it was not until after Mr Hancock's death that his resignation was effected and he confirmed that it was upon his resignation that documents were signed whereby Mrs Burton consented to become a director. Notwithstanding the documentary evidence to the contrary, I find that Mrs Burton did not become a director of Belle Rosa Holdings until some time after Mr Hancock's death on 27 March 1992. Any knowledge which Mrs Burton may have had, or any conduct in which she might have engaged in May 1991, cannot form the basis of a claim for equitable relief against Belle Rosa Holdings on the ground that her knowledge must be imputed to Belle Rosa Holdings, or on the ground that her conduct was the conduct of Belle Rosa Holdings.

214 Still, if the payments were made as expenditures of the company in breach of Mr Hancock's fiduciary duties to HFMF, the company would be entitled to relief. Mrs Porteous knew, and so Belle Rosa Holdings knew, that the money was coming from the family companies. Belle Rosa Holdings gave no value. It was a mere volunteer. If the payments were made as expenditures of the company in breach of Mr Hancock's duties as a fiduciary agent of HFMF, there would be no denying HFMF's entitlement to trace the funds into the hands of Belle Rosa Holdings. So that is the question. Were these payments made as expenditures of HFMF in breach of Mr Hancock's fiduciary duties to HFMF? I am not persuaded that they were.

215 The prima facie effect of the entries made in the books of account is that all payments were made as loans. Each of the payments is recorded in HFMF's general ledger as an advance made on the loan account styled "664/07 - RL Hancock - Milgraum House". I infer, therefore, that the payments were intended to be loans by the company. Once again, there was no lending arrangement between HFMF and Mrs Porteous with respect to these amounts. However, as I have said before, that does not mean that there was not a genuine lending arrangement. I find that the moneys in question in this claim were advanced at the direction of Mr Hancock and were intended by him to be a gift from him to Mrs Porteous, but a loan from the company to him. The entry of debit balances in a loan account referable to Mrs Porteous was simply the first step in recording what, from the outset, was intended by Mr Hancock to be a loan for which he would be responsible. In fact, the debit balance of the loan account in Mrs Porteous' name as at 30 June 1991 was cleared to nil by transfer to Mr Hancock's loan account 664/05 (see Schedule, table 2, item 5). There is no evidence to contradict the prima facie effect of the accounts, save to the extent mentioned. There can, therefore, be no presumption of a resulting trust. As the loan transactions have not been set aside and cannot be set aside in these proceedings, there is no basis on which the equitable remedy of a constructive trust can be granted.

216 Anyway, there is no occasion for the intervention of equity. The money spent on the purchase of this property remained, and I find that Mr Hancock intended it to remain, an asset of the company, although in the form of a debt due by Mr Hancock to the company. It is not proved that Mr Hancock did not intend to or could not repay the debt. There is no evidence that in this form the asset was worth any less to the company than in the form of cash.

218 There is a counterclaim by Belle Rosa Holdings concerning the proceeds of the sale which, it will be remembered, remain on deposit in an interest-bearing account pending the determination of the proceedings. No other substantive relief is sought by way of counterclaim and I will hear counsel as to the orders that ought to be made concerning the proceeds of sale.

219 The plaintiff in this suit is HFMF and the defendants are Johanna Lacson Nominees and Mrs Burton. In early 1991, Mrs Porteous obtained some form of interest in a property known as Lot 26, Alaqua, Phase 3 in the County of Seminole in Florida, USA. This property has been referred to throughout the proceedings as the Orlando property. The property details are not very clear to me, but it is possible to get the impression from the documents that the parcel of land was in a residential development project and that the agreement for the acquisition of it was an entire agreement involving the purchase of the land and the construction of a residence on it.

220 In her evidence-in-chief, Mrs Porteous gave the following account of the circumstances under which the Orlando property was acquired.

"45. In early 1991 I travelled to the United States of America because I had decided that Lang and I should have a home in the USA. This was because Lang was negotiating with US steel companies for the supply of iron ore. Lang and I had discussed the idea and decided that I should purchase a property in Florida.

46. I located a property in Alaqua Orlando which I bought ('the Orlando property'). I engaged builders, Clayton Jones, to construct a residence on the Orlando property. I asked the architect Kevin Palassis to draw up plans for a house to be built on the Orlando property.

47. I subsequently returned to Perth and had a discussion with Lang about the purchase of the Orlando property. I told him that I would pay for it from my own funds and that that way he could not complain if I spent too much money on the project. I said that I wanted antique marble fireplaces and other valuable items in the house, and that I might eventually need some financial assistance from him to enable me to complete the construction and fitout.

49. I paid for the purchase price of the property using my own funds. Lang had previously encouraged me to build up a 'kitty' in US dollars, which I had done. The property was registered in the name of JLN [Johanna Lacson Nominees].

50. After I had purchased the Orlando property, Lang told me that he had purchased a property for his daughter, Gina Rinehart, in Boston in the USA for about $3.5 million. He told me that I should have waited before I purchased the Orlando property and that he would have matched what he had spent on Gina. I told him that he could still make a contribution towards the construction and fitout of the residence. Lang said that he would do that, but quipped that he would not be giving me $3.5 million.

51. The construction of the house built on the Orlando property was paid for out of funds held in South Trust Bank of Orlando account number 63-940-211 in the name of JLN. Part of these funds were advanced by Lang ...

52. There were other funds deposited into the JLN account from my own sources. These funds were also applied towards the construction costs.

53. I did not know how Lang raised the funds he arranged to have transferred to the JLN account, but believed they were funds he was entitled to receive from his company.

54. In about July 1991 I purchased a fireplace for the Orlando property from Architectural Heritage in Sydney. I paid for the fireplace by using Lang's Visacard, which he had authorised me to use."

221 In case it matters, which I do not think it does, I do not believe that Mrs Porteous was motivated by the belief that Mr Hancock needed a house in America to facilitate his negotiations with "US steel companies". As Mr Archer pointed out, Florida is not known for steel mills.

222 As to payment, the evidence is that on 31 May 1991, a cheque was drawn on HFMF's Bank of New Zealand Perth account for $659,650.61 and paid to the credit of an account established by Mrs Porteous with the South Trust Bank of Orlando. On 23 October 1991, the further sum of $254,129.71 was paid by HFMF to the credit of that account. On 25 February 1992, HFMF paid a further $641,751.22 to that account. I find that all of these payments were expended from Mrs Porteous' Orlando account to purchase Lot 26 and construct a luxurious residence. Exhibit 11 is an attractive photograph of the approaches to it.

223 On 26 August 1991, an amount of $35,000 was paid by HFMF to discharge the charges due on a credit card account of Mr L G Hancock. This charge related to the fireplace purchased by Mrs Porteous for the Orlando property using Mr Hancock's credit card or charge account with the R & I Bank.

224 It is HFMF's case that, in causing the funds of HFMF to be transferred from HFMF's account to the account in the name of Johanna Lacson Nominees in the South Trust Bank of Orlando and in causing HFMF to pay the credit card account debit relating to the purchase of the fireplace, Mr Hancock acted in breach of the fiduciary duties he owed to HFMF by reason of his position as a de facto director of HFMF and by reason of his position as the person in de facto control of HFMF's affairs. As I understand par 16 and par 17 of the statement of claim, they constitute a plea that HFMF is entitled to trace the moneys as misapplied trust assets into the hands of Johanna Lacson Nominees on the ground that Johanna Lacson Nominees is a mere volunteer in whose hands the money or its traceable proceeds remain.

225 For good measure, it is also pleaded that the directors of HFMF (Messrs Dalby, McKenna, Salt and Schwab) breached their fiduciary duties to HFMF in failing to act honestly in the exercise of their powers and breached their equitable duty of care to HFMF in failing to take any or any sufficient steps to control the disbursements of its funds.

226 The case against Mrs Burton is put upon the basis that she drew up the necessary cheque requisitions and arranged for the banking transactions by which the moneys were transferred to Johanna Lacson Nominees' account in Florida. The case against her is put on the accessory limb of Barnes v Addy. The case against Johanna Lacson Nominees is also put upon the basis that it was a knowing recipient of misapplied trust property in that, at the material time, Mrs Burton was a director of the company so that her knowledge of the breaches of fiduciary duty on the part of Mr Hancock and Messrs Dalby, McKenna, Salt and Schwab were to be imputed to Johanna Lacson Nominees.

227 Concerning Mrs Burton's directorship of Johanna Lacson Nominees, counsel for HFMF tendered, as exhibit 78, what purported to be minutes of a meeting of directors of Johanna Lacson Nominees held on 31 May 1991 commencing at 7.30 pm whereby it was purportedly resolved that Mrs Burton, "having signed and tabled a consent to act as director, be appointed a director of the company". It was purportedly further resolved that Mr Boerkamp "retire as a director of the company, such resignation to take effect after the closure of this meeting. A letter of resignation had been sighted by the secretary".

228 I do not accept that this minute truly records a meeting that occurred at that time. I accept the evidence of Mr Boerkamp that he did not resign as a director of the company until after Mr Hancock had died and until the happening of a certain event, the details of which do not matter, which caused his resignation. I accept Mrs Burton's evidence that she did not sign any document relating to her appointment as a director of the company until after Mr Hancock's death and until the occasion of Mr Boerkamp's resignation. Notwithstanding the documents in the corporate records of Johanna Lacson Nominees which assert to the contrary, I find that Mrs Burton was not a director of Johanna Lacson Nominees at any material time. Any knowledge she may have had about breaches of fiduciary duties on the part of those in control of HFMF cannot be imputed to Johanna Lacson Nominees.

229 This finding is of little practical consequence, because, in my opinion, the evidence does not reveal that either Mr Hancock or Messrs Dalby, McKenna, Salt or Schwab engaged in conduct which was in breach of their fiduciary duties to HFMF. Once again, what has to be considered is the nature of the payments that were made out of HFMF's funds in relation to the acquisition and development of the Orlando property, Mr Hancock's intentions in directing that these payments be made and whether the making of the payments diminished or depleted the assets of HFMF, thereby causing detriment to HFMF.

230 The payments in suit are recorded in HFMF's general ledger as three advances made on Mr Hancock's loan account 664/05 and one advance on a loan account referable to Mrs Porteous; ie, 664/06 - "R L Hancock". The advance debited to the loan account referable to Mrs Porteous was in respect of the payment of $35,000 to the credit of Mr Hancock's credit card account with the R & I Bank. On 31 December 1991, the whole of the debit balance in the loan account referable to Mrs Porteous (which, by then, was $83,146.26) was transferred to Mr Hancock's loan account, 664/05 (see Schedule, table 3 item 3). I infer that, in directing the payments to be made and entered up in this way, it was always his intention that the payments be loans which he would repay.

231 In fact, as from 7 August 1991, Mr Hancock's loan account in HFMF was very substantially in credit until the day he died. The debit balance transferred from Mrs Porteous' account on 31 December 1991 and the debit entries made to Mr Hancock's account simply reduced HFMF's indebtedness to Mr Hancock. In this way, Mr Hancock repaid or refunded to HFMF all moneys outlaid by HFMF in respect of the Orlando property (see Schedule, table 3 item 3). HFMF did receive consideration for the payments. The consideration it received was the commensurate reduction in its indebtedness to Mr Hancock.

233 For completeness, I should mention that Johanna Lacson Nominees maintains a formal counterclaim, but does not seek any substantive relief in addition to the orders to which it is probably entitled on dismissal of the plaintiff's claim. I therefore say no more about the counterclaim.

234 The parties to this action are HPPL as plaintiff and Mrs Porteous as defendant.

235 The action concerned the purchase from Winterfaulls Motors of a Bentley motor vehicle for the price of $372,496. It is alleged by HPPL that the Bentley was bought for Mrs Porteous and paid for in part by trading a Mercedes-Benz motor vehicle which belonged to HPPL and with cash provided by HPPL. The trade-in value of the Mercedes was $105,000 and the cash provided by HPPL was $227,496. The purchase occurred in July 1989.

236 The case against Mrs Porteous is put in detinue on the grounds that the Bentley is the legal property of HPPL on the basis of a constructive trust and upon the equitable doctrines of tracing. As to the constructive trust head of claim, it is alleged that the funds were made available for the purchase of the Bentley by reason of the breach by HPPL's directors of their fiduciary duties. It is alleged (as was the fact) that Mrs Porteous was then a director of HPPL and, therefore, participated in the fraudulent scheme as a director of HPPL and is liable under the knowing recipient limb of Barnes v Addy.

237 I find that HPPL had no beneficial interest in the Mercedes-Benz. There is simply no credible evidence that it did.

238 As to that part of the purchase price of the Bentley paid in cash, there is no doubt that the cash was provided by HPPL. It is not in dispute that Mr Hancock gave in to Mrs Porteous' persistent requests that Mr Hancock buy her a Bentley and that he did so, arranging for the trade-in and for the balance of the funds to be provided by HPPL. If it was intended that the moneys be expended as an expense of the company in the sense of a dissipation of its assets, there can be no denying the entitlement of the company to equitable relief. It was no part of the affairs of the company to buy a car for Mrs Porteous and it was not one of the purposes of the company to do so.

239 And so the questions once again are: what was the character of the payment that was made to purchase the Bentley, what were Mr Hancock's intentions in directing that the payment be made and did the payment diminish the assets of HPPL?

240 The two entries (the prima facie effect of which I accept) in the general ledger of HPPL which record the payments of cash in respect to the purchase of the Bentley appear as debits to the loan account "790/01-L G Hancock" as follows:

243 These, together, account for the cash which went out of HPPL in respect to the purchase of the Bentley. The $40,000 was the deposit and the $227,496 was the final payment. Once again, therefore, they are brought to account in the books and accounts of HPPL as an advance or loan made to Mr Hancock by HPPL on his loan account 790/01. Hence, the payments were not made as expenses of the company in the sense of a dissipation of the company's assets. The loan transactions have not been, and cannot in these proceedings, be set aside. The money expended for the purchase of the Bentley remained, and I find that Mr Hancock intended it to remain, as an asset of the company, although in the form of a debt due by Mr Hancock to the company. There is no proof that Mr Hancock could not meet the obligations recorded in his loan account and there is no evidence that, in that form, the asset was worth any less to the company than in the form of cash. There is no occasion for the intervention of equity.

244 In fact, at the time the payments were made and debited to Mr Hancock's loan account, his loan account with HPPL was in credit. That is, HPPL was indebted to him. The debit entries merely reduced that debt. On 1 July 1989, after payment of the $40,000 deposit and debit of that amount to Mr Hancock's loan account, the loan account remained in credit in the sum of $4,182,481.16. On 15 July 1989, after payment of the balance of purchase price for the Bentley and debit of that amount to Mr Hancock's loan account, the loan account remained in credit in the sum of $3,954,985.16.

245 It is not, therefore, the case, as is pleaded in par 16(c), that the "plaintiff received no consideration" for the payments. The consideration received by HPPL was the reduction of its indebtedness to Mr Hancock in the amount of the payments made by it for the Bentley.

247 For completeness, I would mention that Mrs Porteous maintains a counterclaim in this action, but she seeks no substantive relief other than the relief to which she is probably entitled upon dismissal of the plaintiffs' claim. I, therefore, say no more about the counterclaim.

248 If follows that the plaintiffs have failed to make out any of their claims for equitable relief or any of their claims at law.