Court of Appeal (WA)|2000-02-17|Before: Mr J, Ipp J, Owen J, Kechnie J

The Hancock Family Memorial Foundation Ltd & Anor v Porteous & Anor [2000] WASCA 29 (17 February 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD & ANOR -v- PORTEOUS & ANOR [2000] WASCA 29

BETWEEN : THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD

BETWEEN : HANCOCK PROSPECTING PTY LTD (ACN 008 676 417)

BETWEEN : THE HANCOCK FAMILY MEMORIAL FOUNDATION LTD

Companies - Directors - Fiduciary duties - Life Governor of wealthy family company directed company to make payments of family expenses - Whether payments constituted loans - Whether payments were in breach of fiduciary duties - Company profitable with large accumulated reserves - Whether to company's advantage to make loans rather than to declare dividends - Whether dividends could have been declared - Whether minority shareholder could have obstructed wishes of majority - Whether payments of existing indebtedness were in breach of fiduciary duties

Trusts - Constructive trusts - Resulting trusts - Tracing - Loans of company money made to director in breach of fiduciary duty - Availability of equitable remedies - Effect of breach on validity of loan agreements - Transactions voidable - Daly v Sydney Stock Exchange (1986) 160 CLR 1 - Need to join interested parties

Equity - Fiduciary obligations - Expenditure of company money by director in breach of fiduciary duty - Liability of director as fiduciary - Liability of accessories and recipients - Application of Daly v Sydney Stock Exchange (1986) 160 CLR 1

First Respondent : Mr J W K Burnside QC & Mr D G Collins

Second Respondent : Mr J W K Burnside QC & Mr D G Collins

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

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

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

First Respondent : Mr J W K Burnside QC & Mr D G Collins

Second Respondent : Mr J W K Burnside QC & Mr D G Collins

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

First Respondent : Mr J W K Burnside QC & Mr D G Collins

Second Respondent : Mr J W K Burnside QC & Mr D G Collins

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

Bluecorp Pty Ltd (In Liq) v ANZ Executors & Trustees Co Ltd (1994) 13 ACSR 386

Chow Yoong Hong v Choong Fah Rubber Manufactory [1961] AC 209

Commonwealth Bank of Australia v Friedrich (1991) 9 ACLC 946

Dougan v Macpherson [1902] AC 197

El Ajou v Dollar Land Holdings plc & Anor [1993] EWCA Civ 4; [1994] 2 All ER 685

Heydon v Perpetual Executors, Trustees & Agency Co (WA) Ltd [1930] HCA 26; (1930) 45 CLR 111

Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821

In Re Charge Card Services Ltd (1989) Ch 497

JW O'Brien & Yorkville Nominees Pty Ltd (In Liq) v Walker (1982) 1 ACLC 59

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

Napier v Public Trustee (WA) (1980) 55 ALJR 1

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

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

Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; [1995] 2 AC 378

University of Wollongong v Metwally (No. 2) (1985) 59 ALJR 481

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

Valoutin Pty Ltd v Furst [1998] FCA 339; (1998) 154 ALR 119

Walker v Wimbourne [1976] HCA 7; (1976) 137 CLR 1

Warman International Ltd v Dwyer [1995] HCA 18; (1995) 69 ALJR 362

Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285

1 This appeal arises out of six actions that were heard together. Several companies and individuals were involved as parties. The issues that fell for decision concerned complex questions relating to the law of restitution, resulting and constructive trusts, the law of tracing and the law relating to companies. Nevertheless, at the heart of the actions lay a family dispute.

2 The family concerned was that of Mr Lang Hancock, who died in March 1992. In his lifetime, Mr Hancock was a well-known Perth mining entrepreneur. He controlled several private companies forming the Hancock group of companies. Amongst these were Hancock Prospecting Pty Ltd and the Hancock Family Memorial Foundation Ltd, the present appellants. Throughout the proceedings, Hancock Prospecting Pty Ltd was referred to as "HPPL" and Hancock Family Memorial Foundation Ltd as "HFMF", and we shall continue this practice. We shall refer to them collectively as the appellants. The appellants were the plaintiffs in the six actions, the subject of this appeal.

3 Upon Mr Hancock's death, he was survived by his widow, Rosemarie (Rose) Hancock. Mrs Hancock has remarried and is now Rosemarie Porteous and we shall refer to her as Mrs Porteous. Mr Hancock was also survived by his daughter, Mrs Georgina (Gina) Rinehart. Soon after Mr Hancock's death Mrs Rinehart acquired control of HPPL and HFMF.

4 Ill feeling existed between Mrs Rinehart and Mrs Porteous from at least the time of the marriage between Mr Hancock and Mrs Porteous. During the subsistence of the marriage, Mrs Porteous and companies controlled by her (Belle Rosa Holdings Pty Ltd and Johanna Lacson Nominees Pty Ltd) acquired various properties by utilising moneys derived from the appellants. In addition, she acquired a Bentley motor vehicle in the same way. Mrs Rinehart objected to this use of the funds of the appellants and, after the death of Mr Hancock, at her instigation the appellants brought proceedings against Mrs Porteous, Belle Rosa Holdings and Johanna Lacson Nominees. The latter three are the respondents in this appeal. A variety of claims were made against the respondents, but the principal relief sought was equitable in nature and was for orders that the properties and motor vehicle acquired through the moneys derived from the appellants be transferred to them.

5 Basically, the appellants contended that Mr Hancock owed fiduciary duties to them, and he had committed breaches of those duties in causing them to make the various payments to the respondents that were used by them to buy the properties in question and the Bentley. We shall refer to these payments as "the impugned payments". It was submitted that the properties and the Bentley were held by the respondents on resulting trust or constructive trust for the appellants. This contention was not accepted by the trial Judge, Anderson J, and the actions failed. The appellants now appeal against this decision.

HPPL and HFMF: their raison d'etre and Mr Hancock's control over them

6 Some 50 years ago, Mr Hancock discovered large deposits of iron ore in the Pilbara area and entered into various agreements with mining houses for their exploitation. In 1955, Mr Hancock incorporated HPPL and later conferred upon it his right to receive royalties from the iron ore miner, Hamersley Iron Pty Ltd. Pursuant to contracts entered into in 1962 and 1968, Hamersley Iron pays HPPL royalties based on the free-on-board price it receives for ore from the Mt Tom Price and Paraburdoo mines. Royalty income so generated eventually ran into millions of dollars per annum. By 1991, the last full year before Mr Hancock's death, the capital reserves of HPPL had accumulated to $58.38 million, of which $52.1 million were capital profits.

7 From the time HPPL was incorporated, Mr Hancock held a share in the company called "the Life Governor's share". He held this share until he sold it to HFMF by agreement dated 7 August 1991. According to the memorandum of association of HPPL, the "founder" of HPPL was entitled to the Life Governor's share and Mr Hancock was therein described as the founder. The Life Governor's share gave Mr Hancock extraordinary powers. Clause 53 of HPPL's memorandum of association provided that as long as Mr Hancock held the Life Governor's 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 the 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."

9 Anderson J summarised other articles of HPPL that bore upon the proceedings and powers of the board of directors as follows:

"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."

10 In effect, therefore, Mr Hancock, as holder of the Life Governor's share, had complete control of HPPL and its board.

11 HFMF was incorporated in 1972 as a company limited by guarantee. Initially, HFMF's memorandum of association provided that the company should not be carried on for the purpose of profit or gain to its members, and its objects were exclusively charitable in nature, such as are commonly found in the memoranda of charitable institutions. Anderson J observed in regard to HFMF:

"[U]ntil 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."

12 Anderson J found that, although Mr Hancock was not a director of HFMF at times relevant to the issues in this case, 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 over it. His Honour observed:

"[B]y 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.

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 and Trustees Co Ltd (1994) 13 ACSR 286 at 402 - 3."

13 Mr Hancock was married for many years to his first wife, Hope Margaret Hancock. Mrs Rinehart was their only child. Anderson J observed:

"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 as one of its directors and a shareholder."

14 Anderson J explained as follows how Mr Hancock eventually came to be married to Mrs Porteous:

"On 2 April 1983, Hope Hancock died after a lengthy illness. Mr Hancock was in his 70s 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 so do.

Mrs Porteous had not long arrived in Australia from the Philippines ... 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."

15 Anderson J described how this led to animosity 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.

Mr Hancock sided with Mrs Porteous. In September 1984, he dismissed Mrs Rinehart from the employment of HPPL and on 30 November 1985 caused her to be removed as a director. Mr Hancock caused Mrs Porteous to be appointed to the board in Mrs Rinehart's place. After Mr Hancock died in March 1992, Mrs Rinehart was reappointed to the board of HPPL and Mrs Porteous ceased to be a director."

The acquisition of the various properties and the Bentley

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

16 Prix d'Amour is a large residence built between 1989 and 1991 by Mrs Porteous on several parcels of land she purchased in Mosman Park. She first purchased (by contracts dated 28 February 1998) lot 21 and part lot 22 (being 149 Wellington Street) and lot 73 (being 151 Wellington Street). The purchase price of these lots totalled $1,300,000, of which HPPL contributed at least $1,228,086.78.

17 On 13 April 1989 Mrs Porteous purchased lot 18 (145 Wellington Street), lot 20 and part lot 19 (147 Wellington Street), lot 100 (27 Owston Street and 10 Saunders Street) for $4,100,000. Of this sum, $1,950,000 was provided directly by HFMF. The balance of $2,150,000 was paid by Mrs Porteous out of the sum of $2,347,110.14 which she had received as proceeds of the sale of property in Philip Road, Dalkeith.

18 The property in Philip Road, Dalkeith, was made up of two lots, namely 43 and 41 Philip Road. Mrs Porteous had purchased 43 Philip Road for $162,500. Anderson J held that the $162,500 was derived from funds unconnected with the appellants. The appellants challenged this finding and for the purposes of these reasons we shall accept that the $162,500 was obtained from HPPL, as the appellants contended.

19 Mrs Porteous had purchased 41 Philip Road for $200,000 and had obtained this sum in consequence of HPPL paying it to Lacson Investments Pty Ltd, a company controlled by her. Additionally, HPPL paid $792,343 out of its own funds for the construction of a new house on 43 Philip Road.

20 Between 1 July 1988 and 31 October 1991, HFMF paid $458,887, and HPPL paid $5,400,956 towards the construction costs of Prix d'Amour. HPPL also paid an additional amount of $247,548 for the construction of a guesthouse on lot 100.

21 The Milgraum House property is an office building on Stirling Highway in Nedlands. It was constructed on lots 191 and 193 Stirling Highway which, until 5 April 1990, were owned by HPPL. On 5 April 1990, HPPL transferred the lots to Belle Rosa Holdings. The transfers took place pursuant to contracts of sale executed on behalf of HPPL by Mr Hancock and Mr Salt, a director of HPPL. The sale price of 191 Stirling Highway was $214,675, and the sale price of 193 Stirling Highway was $287,900.

22 Anderson J found that there was no intention that Belle Rosa Holdings would itself pay for Milgraum House. The properties were intended to be gifts to Mrs Porteous from Mr Hancock. The purchase price of the lots 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, this debt was transferred to a loan account of Mr Hancock. As Anderson J put it:

"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 ... [I]nstead of receiving cash, the company got Mr Hancock's promise to pay."

23 The Double Bay properties are substantial office buildings at 24 Bay Street and 4 - 10 Bay Street, Double Bay, New South Wales.

24 On 5 October 1988, Mrs Porteous executed an agreement to purchase 24 Bay Street for $5.5 million. On that date HPPL paid a deposit of $550,000 and on 17 November 1988 paid the balance plus fees and adjustments. On 12 December 1988, Mrs Porteous became the registered proprietor of the property.

25 On 21 November 1991, Mrs Porteous executed an agreement to purchase 4 - 10 Bay Street, Double Bay, for $6.1 million. HPPL's claim to an interest in this property was based on the proposition that the funds used by Mrs Porteous to acquire it were borrowed on the security partly of 24 Bay Street and the Milgraum House property, over which, it was said, there was a constructive or resulting trust in favour of HPPL.

26 Anderson J set out the relevant facts concerning the acquisition of this property as follows:

"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 Ltd 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."

27 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 (the Orlando property). This property is apparently a parcel of land in a residential development project on which Mrs Porteous constructed a luxurious residence.

28 Mrs Porteous paid in the following way for the Orlando property and the construction of the residence upon it. 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 a bank in Orlando, Florida. On 23 October 1991, a 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. 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 Hancock. This charge related to a fireplace purchased by Mrs Porteous for the Orlando property, using Mr Hancock's credit card.

29 In July 1989, Mrs Porteous purchased a Bentley motor vehicle for $372,496. HPPL provided $40,000 of the purchase price by way of a cash deposit and a subsequent cash payment of $227,496. Additionally, Mrs Porteous traded in a Mercedes-Benz motor vehicle belonging to HPPL having a trade-in value of $105,000.

The treatment of the impugned payments in the appellants' books of account

30 The principal evidence at the trial was the books of account of the appellants. The appellants relied largely on the books to prove that the impugned payments were made. The respondents relied largely on the books (and on the evidence of Mrs Porteous) to prove that the impugned payments were loans to Mr Hancock (which, they submitted, were not made in breach of fiduciary duty). As Anderson J observed, there was a degree of ambivalence in the appellants' attitude to the accounts. Although they relied on the authenticity of the accounts to prove that the impugned payments were made, they also contended that they were "an accounting merry-go-round", a "paper landscape" and "not in accordance with reality". In other words, they contended that in certain, but not all, respects the entries in the accounts that described the impugned payments were not genuine, or did not accurately record transactions that actually occurred, or did not genuinely record the transactions that occurred.

31 With these introductory remarks, we now turn to the way in which the impugned payments were treated in the books of account.

32 Of the sum of at least $1,228,086.78 that HPPL contributed to 149 Wellington Street and 151 Wellington Street, $1,179,436.78 was recorded in HPPL's ledger as advances on loan account "3440.1000 - Wellington Street, Mosman".

33 Anderson J explained as follows how the sum of $1,950,000 contributed by HFMF towards the parcel comprising 145 and 147 Wellington Street, 27 Owston Street and 10 Saunders Street was treated in HFMF's books:

"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 - L G 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."

34 Anderson J explained as follows how the sum of $200,000 used by Mrs Porteous to complete the settlement of the purchase of 41 Philip Road was accounted for in the books of HPPL:

"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' [sic] 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."

35 All the expenditure outlaid by HPPL in regard to the construction of the house at Philip Road was fully accounted for in HPPL's books as loans. Anderson J observed:

"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:

36 Construction of Prix d'Amour commenced in mid 1998. Anderson J observed:

"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."

37 The payments amounting to $458,887 by HFMF towards the construction of Prix d'Amour were explained by Anderson J as follows:

"HFMF made 13 payments of costs incurred in the construction of [Prix d'Amour] 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."

38 We have set out above how the Milgraum House purchase was treated in HPPL's ledger.

39 The payment of $550,000 made by HPPL, being the deposit on the purchase of 24 Bay Street, Double Bay, 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 payment of $4,996,405.32 made by HPPL on 17 November 1988, being the balance paid to settle the purchase, was 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". The payment of $287,991.50 by HPPL, being the stamp duty on the purchase of 24 Bay Street, was also 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".

40 Anderson J dealt with the payments by HFMF in regard to the Orlando property as follows:

"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 - 'RL 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.

41 As regards the Bentley, there were two entries in the general ledger of HPPL which recorded the payments of cash in respect of the purchase of the Bentley. These appeared as debits to the loan account "790/01 - LG Hancock" as follows:

The appellants' case at trial: the general approach

42 Until the six actions were listed for hearing, each was conducted as a separate and independent suit. The pleadings in each differed. The facts were complex and several amendments were made on both sides in the course of several interlocutory hearings. The different allegations in the various actions were not always consistent with each other and the precise nature of the appellants' case and the defence raised in each instance by the respondents was not always apparent with clarity. Nevertheless, it was plain that the appellants were relying on the contention that each of the impugned payments was impressed with a resulting trust, alternatively a constructive trust.

43 Anderson J accepted that in those cases involving the acquisition of property, the appellants were contending for a purchase money resulting trust. And in the case in which there was a transfer of the Milgraum House property by HPPL to Belle Rosa Holdings, HPPL contended for a voluntary transfer resulting trust.

44 The argument that, in each case, a constructive trust arose, was based principally on the proposition that Mr Hancock, as a director of HPPL and a shadow director of HFMF, committed breaches of the fiduciary duties he owed each of these companies by procuring each to make payments to the respondents that were not to its benefit. Typically, the statements of claim alleged that Mr Hancock breached his fiduciary duties by utilising the funds of either HPPL or HFMF for purposes that were not related to their affairs and making improper use of his position to gain an advantage for the respondents, to the detriment of HPPL or HFMF, as the case might be.

45 It is to be emphasised that at no time was it pleaded or argued that Mr Hancock converted or stole any of the moneys that he caused the appellants to pay to the respondents. Nor was it pleaded or argued that Mr Hancock was not authorised by the appellants to perform any of the acts which led to his causing them to make the impugned payments to the respondents. Nor was it pleaded that the impugned payments were ultra vires the appellants. The case of the appellants was solely that, in causing or procuring them to make the impugned payments, Mr Hancock committed breaches of his fiduciary duties. Typical of the appellants' approach was the submission by counsel for HFMF at the trial (who did not appear for HFMF on appeal):

"Our case is that Mr Hancock as a de facto director of HFMF simply caused the company's money to be paid out to respond to Mrs Porteous' demands."

46 At the trial it was submitted on behalf of the appellants that, immediately upon the breach of fiduciary duties by Mr Hancock (and other officers of the appellants), the moneys paid out by the appellants to the respondents were impressed with a constructive trust. It was submitted that the respondents received these trust moneys as knowing recipients or volunteers and were liable as accessories to the breach of trust by Mr Hancock and the other officers of the appellants under the second limb of the rule in Barnes v Addy [1874] LR 9 Ch App 244.

47 Having set out, in general form, the basis of the equitable relief claimed, we turn now to the relief sought in each particular action. In so doing, we shall not refer to the claims based on resulting trust, as these are covered by what we have already said. We shall refer only to the claims based on constructive trust.

48 It is also to be noted that, essentially, the appellants claimed return of property or the proceeds thereof acquired through the use of the impugned payments. Although there were prayers for accounts of profits, these were in lieu of return of property, and not independent and separate claims.

49 In the Prix d'Amour action, HPPL and HFMF claimed to have expended nearly $11 million on the acquisition of the parcels of land comprising the Wellington Street property and on the construction of the main residence and outbuildings. They claimed to be entitled to a constructive trust in respect of the property to the extent of their respective expenditures. It was said that Mrs Porteous was a knowing recipient, or a recipient as a volunteer, of misapplied trust property.

50 Anderson J described the case mounted by HPPL in the Milgraum House action as follows:

"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 duty. 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.

All of the claims summarised above rest on the fundamental premise that HPPL received no consideration for the transfer of the Milgraum House property. 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."

51 In the case involving the Double Bay properties, HPPL's claim against Mrs Porteous was put on the same basis as the Prix d'Amour action. It was said, in essence, that the payments by HPPL that were used to purchase 24 Bay Street were made at the direction of Mr Hancock in breach of his fiduciary duties. As it was put by Anderson J, "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". HPPL claimed an interest in both properties arising out of the circumstances of their acquisition.

52 In the Owston Street property action, HFMF claimed, on the same basis, that Mr Hancock committed a breach of his fiduciary duties to HFMF by causing moneys to be paid to Belle Rosa Holdings. Accordingly, the case against Belle Rosa Holdings was put on the recipient liability limb of Barnes v Addy, on the same basis as the Prix d'Amour action. Anderson J similarly observed that it was the foundation of HFMF's claim that the relevant expenditures were made and were intended to be made in the character of transferring away of assets of the company in the sense of a dissipation of its assets in favour of Belle Rosa Holdings. HFMF claimed an interest in the property as constructive trustee and claimed to be entitled to receive the proceeds of the sale thereof.

53 In the case of the Orlando property action, HFMF contended that, in causing its funds to be transferred to the bank account of Johanna Lacson Nominees in 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. HFMF contended further that it was entitled to trace the moneys as misapplied trust assets into the hands of Johanna Lacson Nominees on the ground that it was a mere volunteer. In other words, the constructive trust was alleged to exist on the same basis as was applicable to the other actions.

54 Finally, as regards the Bentley action, HPPL's case was put, similarly, on the basis of a constructive trust (arising in a like way) and upon the equitable doctrines of tracing. It was said that funds were made available by HPPL for the purchase of the Bentley in breach by HPPL's directors of their fiduciary duty. Mrs Porteous, it was said, was liable as a knowing recipient or as a volunteer. HPPL contended that it was the owner of the Bentley and sought recovery thereof.

The defences raised by the respondents and the trial Judge's findings

55 Several defences were raised by the respondents. For the purposes of these reasons, however, it is necessary only to focus upon their contention that all the impugned payments were either loans by the appellants to Mr Hancock (the proceeds of which he gave to Mrs Porteous or her companies), or were payments by HFMF to Mr Hancock in discharge of debts which it owed to him (which proceeds, in effect, he gave to Mrs Porteous or her companies).

56 The respondents contended that, if it were to be accepted that the appellants did not give any moneys to any of them, but lent the moneys in question to Mr Hancock, and that HFMF paid moneys to Mr Hancock in reduction of debts owing to him, a number of consequences followed. These were:

(a) There could be no resulting trust of any kind. The circumstances would then rebut any implication of such a trust.

(b) Although conduct on the part of Mr Hancock in causing the appellants to give moneys to Mrs Porteous would almost self-evidently be a breach of fiduciary duties, the question whether such a breach was committed when the appellants made loans to Mr Hancock, or when HFMF paid debts owing by them to Mr Hancock, was much more complex. The respondents contended that in the circumstances postulated no breach of fiduciary duties had been established.

(c) Even if breaches of fiduciary duties were established, in those instances where loans were made a serious question arose as to whether equitable relief was available. The respondents relied on Daly v The Sydney Stock Exchange Ltd [1986] HCA 25; (1986) 160 CLR 371 in contending that the fact that moneys were expended pursuant to contracts of loan precluded the grant of equitable relief (as the appellants had not rescinded the contracts of loan).

(d) The respondents contended further that all debts constituted by loans made by the appellants to Mr Hancock had been repaid. Thus, according to the respondents, the appellants had received the agreed consideration for all payments made by them. This, it was said, was an additional bar to equitable relief.

57 Generally speaking, Anderson J upheld the contentions advanced on behalf of the respondents, and in so doing found that the appellants' claims should be dismissed.

58 His Honour held, in particular, that the impugned payments were either loans to Mr Hancock or payments in discharge of existing debts. This finding was fatal to the appellants' contentions regarding the existence of resulting trusts.

59 Similarly, the finding that the impugned payments were either loans to Mr Hancock or payments of existing debts owing to him led his Honour, in each action, to conclude that there had been no breach of fiduciary duties. Anderson J held that no impropriety was involved in causing payments to be made to discharge existing debts. As regards those payments that had been made by way of loans, the learned Judge observed:

"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 [moneys lent]. 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."

Therefore, his Honour held, no breach of fiduciary duties resulted.

60 Additionally, Anderson J concluded that, in each case where there had been contracts of loan, Daly v The Sydney Stock Exchange Ltd precluded equitable relief. He said:

"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."

61 Anderson J found further that all loans made to Mr Hancock had been settled. This occurred, in most instances, by the debit balance in Mr Hancock's account being cleared by the debt being assumed by Dinari Pty Ltd, the trustee of the HPPL pension fund. We shall refer to Dinari in more detail later, as well as this method of dealing with the debit balance. At this stage it is sufficient to point out that Anderson J considered that in the light of the debts having been so settled, no relief could be granted in equity except on a rescission of the contracts of loan. His Honour considered that "at least Mr Hancock's estate, and perhaps also Dinari, would have to be parties."

62 In all the circumstances, his Honour was of the view that there was no basis on which equity should intervene at the instance of the appellants.

63 The foregoing is the general basis on which Anderson J concluded that the actions should be dismissed. His Honour made some particular findings peculiar to certain of the individual actions, to which we shall briefly refer.

64 In the Milgraum House action it had been submitted on behalf of HPPL that the contracts of sale relating to the Milgraum House property were false documents and that there was no sale in truth and nothing to rescind. Anderson J rejected this argument.

65 With regard to 4 - 10 Bay Street, his Honour held that no part of the purchase price was provided from the funds of HPPL, and HPPL had no beneficial interest in the properties used by Mrs Porteous as security for loans by third parties which she used to purchase this particular property.

66 As regards the Orlando property, after finding that the payments made by HFMF were intended by Mr Hancock to be loans to him which he would repay, Anderson J noted:

"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."

67 As regards the Bentley, Anderson J found that at the time the payments made by HPPL in respect thereof were made, Mr Hancock's loan account with HPPL was in credit. The payments made in regard to the Bentley merely reduced Mr Hancock's credit loan account with HPPL. As it was put by his Honour, "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." It followed that there was neither a resulting trust nor a constructive trust established in regard to the payments made for the Bentley.

68 The notice of appeal sets out 22 grounds of appeal. This number is, however, illusory. Many of the 22 grounds contain within themselves several other grounds. In effect, there are more than 40 grounds of appeal. Many of these are repetitive, many are bound up one with the other, and many were not touched upon in argument before this Court. Indeed, neither senior counsel for the appellants argued the appeal by reference to any specific ground of appeal.

69 The general propositions advanced by Mr Myers QC, senior counsel for HPPL (who was not counsel at the trial), were as follows:

1. (a) Anderson J wrongly found that the payments sought to be impugned were loans and not gifts to Mrs Porteous or her companies.

(b) Mr Hancock, in causing HPPL to make gifts to Mrs Porteous or her companies, committed breaches of his fiduciary duties.

(c) In consequence, the moneys so paid by HPPL were impressed, in each case, with a constructive trust, and HPPL is entitled to recover the money or the property purchased with it by way of equitable relief of a tracing nature.

2. (a) Even if HPPL made payments as loans, those loans were not made as loans to Mr Hancock, but were loans to Mrs Porteous.

(b) Mr Hancock, in causing HPPL to make loans to Mrs Porteous, committed a breach of his fiduciary duties.

3. In the further alternative, if Anderson J rightly held that the loans were made to Mr Hancock himself, they still resulted in breaches of fiduciary duty on the part of Mr Hancock and HPPL is entitled to the same kind of equitable relief.

4. Anderson J wrongly held that Daly v The Sydney Stock Exchange Ltd barred HPPL from being afforded equitable relief; in the circumstances of this case, Daly has no application.

5. Anderson J erred in holding that the loans made by HPPL had been discharged: this finding was relevant to any exercise of discretion as to whether constructive trusts should be imposed.

70 Mr Heydon QC, senior counsel for HFMF (who, also, was not counsel at the trial), adopted the arguments of Mr Myers. That is to say, he adopted the same arguments in relation to HFMF that Mr Myers raised in regard to HPPL. Additionally, to the extent that Anderson J held that payments by HFMF were in reduction of existing debts it owed to Mr Hancock, he submitted that Mr Hancock, in causing those payments to be made, committed breaches of his fiduciary duties.

71 We shall proceed to deal with each of these arguments.

Were the payments gifts to Mrs Porteous or her companies?

72 The accounts of HPPL and HFMF reflect the impugned payments either as payments in discharge of existing indebtedness of HFMF or as loans by the appellants to Mr Hancock. To the extent that they are reflected as loans, they are to a degree ambiguous in the sense that it is not clear whether they are intended to describe loans to Mrs Porteous or loans to Mr Hancock. Anderson J held that the accounts established that the loans were made to Mr Hancock. This finding is challenged on appeal. But before examining the various arguments in this respect, it is important to observe that, at trial, no party sought to contend that loans were made to Mrs Porteous. The contest was solely between the appellants' proposition that the impugned payments were gifts to Mrs Porteous and her companies and the respondents' proposition that they were loans to Mr Hancock.

73 At trial, counsel for the appellants sought to persuade Anderson J that the books of account and financial statements of HPPL and HFMF were not genuine; that is, they did not describe genuine transactions and were a sham. That submission was fundamental to the appellants' case. As the accounts reflected the impugned payments as either loans to Mr Hancock or loans to Mrs Porteous, the appellants needed to destroy the evidentiary value of the accounts so as to establish the main plank of their case; namely, that the impugned payments were gifts to Mrs Porteous and her companies, and not loans. The point to be emphasised is that if Anderson J rightly held that the accounts were not a sham, the contention by the appellants that the payments were made as gifts to Mrs Porteous must fail.

74 Although, during the appeal, neither HPPL nor HFMF abandoned the argument that the accounts were a sham and that the payments were gifts to Mrs Porteous and her companies, these propositions were not pressed. By this, we mean that Mr Myers merely informed the Court that HPPL maintained the argument that the impugned payments were gifts to Mrs Porteous (and maintained the grounds of appeal in this respect) but advanced no oral argument in support of the proposition. Mr Heydon, on behalf of HFMF, merely adopted the position taken by Mr Myers. Thus, although argument on appeal ran for more than four days, this particular issue did not take more than five minutes of the Court's time.

75 It is quite understandable that senior counsel for the appellants took the approach they did. The evidence that the accounts were intended to describe genuine transactions was powerful indeed.

76 At the relevant time, the Hancock group of companies employed eight persons to attend to the writing-up of the accounts of HPPL and HFMF. This they did as a matter of routine. The accounts were kept in accordance with the same systems and routines ever since the companies were incorporated and these systems and routines were still in operation at the time of the trial.

77 Additionally, a well-known firm of chartered accountants audited the books each year. The board of directors of the two companies, in each year, approved their annual reports.

78 After Mr Hancock's death in 1992, when Mrs Rinehart assumed control of HPPL and HFMF, she personally signed the annual reports. The new boards certified that the accounts represented a true and fair view of each company's affairs. No step was taken prior to 1992 or even by the time of the trial to reverse or alter any entries in the accounts and all financial statements of the appellants issued prior to the trial were drawn up on the basis that the accounts were accurate and genuine.

79 Mr Schwab was the principal witness called on behalf of the appellants. He testified that the impugned payments were made. Mr Schwab was an accountant who joined the Hancock group of companies in 1981 as an executive. He accepted the account entries as reliable and the books and accounts as being, in truth, the accounting records of the company.

80 Further, it was not in dispute that the books and accounts tendered in evidence were accounting records "kept" by the appellants within the meaning of s 1305 of the Corporations Law. The appellants called no witness to contradict the accounts.

81 Anderson J said, in regard to the significance of the accounts:

"Book entries are prima facie evidence of the underlying transaction. If an inference can be drawn from the recorded book entries that a transaction occurred, then the books stand as evidence of that transaction."

82 In summary, there was simply no cogent evidence impugning the genuineness of the entries described in the books of account. There was also no cogent evidence tending to establish that the transactions described in the accounts were anything other than what they purported to be. The case that the accounts were a sham was not made out. The grounds of appeal based on that argument therefore fail. The appellants did not establish that, contrary to what is shown in their books of account, the impugned payments were made as gifts to Mrs Porteous.

Were the payments by HPPL loans to Mr Hancock or were they loans to Mrs Porteous?

83 The proposition that the impugned payments were loans made to Mrs Porteous and not to Mr Hancock formed an important part of the appellants' argument on appeal. If Mr Hancock had caused the appellants to make substantial loans to Mrs Porteous and her companies, it was readily arguable that he thereby committed breaches of his fiduciary duties. The loans were not documented, there was no security for them, and there was no interest payable on them. There was no evidence that loans to Mrs Porteous and her companies on that basis would have resulted in any benefit to the appellants. The significance of the argument that Mr Hancock caused several millions of dollars to be lent to Mrs Porteous on this basis is therefore obvious.

84 As mentioned, there was evidence in the appellants' accounts capable of supporting the proposition that loans were made to Mrs Porteous and not to Mr Hancock. There was, for example, at least one account in HPPL's ledger relating to Mrs Porteous. The account in question was numbered 790/03 and headed "Advances to directors and shareholders - RL Hancock". It is apparent that this ledger account was operated in the same way as loan accounts in HPPL's ledger relating to Mrs Rinehart, Riverview Flats Pty Ltd (a company controlled by Mrs Rinehart and which owned the property on which her residence was constructed), Lacson Investments Pty Ltd (a company controlled by Mrs Porteous), and Mr Hancock himself.

85 Anderson J held that the evidence as a whole refuted the prima facie effect of these loan accounts to the extent that he found, on the evidence as a whole, that there was not, in fact, an arrangement of loan between the appellants and any of the entities mentioned, except Mr Hancock. He said:

"[E]verything 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 referrable to her."

By a "gift to Mrs Porteous", Anderson J was referring to gifts made to her by Mr Hancock. In other words, Anderson J found that the appellants had lent monies to Mr Hancock who, in turn, made gifts thereof to Mrs Porteous.

86 Anderson J's conclusion that the ledger accounts for Mrs Rinehart, Riverview Flats, Mrs Porteous, and Lacson Investments, were not intended to describe debts owing by those entities, but rather by Mr Hancock himself, was based on what was referred to at trial as "the loan account system".

87 There was evidence that a "loan account system" or "loan account mechanism" had been implemented whereby over several years, including the period with which the six actions were concerned, payments were made, particularly by HPPL, on behalf of members of Mr Hancock's family. Part of this system included a practice whereby, at the end of each financial year, the ledger accounts relating to the family members for whose benefit payments had been made were credited by amounts necessary to bring the balances in those ledger accounts to zero in each case, and Mr Hancock's loan account would be debited by the amounts so credited. In other words, for many years, throughout each financial year, domestic and living expenses relating to Mrs Rinehart, Riverview Flats and Mrs Porteous and her companies would be paid, particularly by HPPL, and debited in HPPL's books under the loan accounts as described. There were also loan accounts in HPPL's ledger entitled "Wellington Street - running costs" and "Milgraum House" against which costs relating to Prix d'Amour and Milgraum House were debited in the same way. At the end of each financial year, all these accounts were credited to reflect zero balances and Mr Hancock's loan account was debited by the amounts so credited (save that, to a limited extent, Mrs Rinehart's loan account was reduced from time to time by dividends declared by HPPL, as well).

88 Mr Schwab agreed that over the years Mrs Rinehart and companies associated with her had received substantial benefits through this loan account system. He said that these benefits received by Mrs Rinehart and her companies "totalled millions of dollars". The "millions of dollars" related to living expenses incurred by Mrs Rinehart and expenses incurred by her company, Riverview Flats.

89 Mr Schwab accepted that Mr Hancock used the loan accounts in HPPL in the manner described "to bestow his bounty on members of his family". As Anderson J put it, HPPL had a general role, directed by Mr Hancock, "as family treasurer". His Honour considered that the entries in the various family loan accounts and the loan accounts referring to entities such as "Wellington Street - running costs" and "Milgraum House" were merely part of an accounting process by which Mr Hancock could keep track of the details of the money which was being provided to family members. That is, the process of debiting the loan accounts in question each year until they were cleared by transferring the debit balances to his loan account was merely a system designed to record how much was being spent on each family member and for what general purpose. Accordingly, the loan accounts were not intended to record debts due by those persons or entities. His Honour inferred from the pattern of accounting that:

"[I]n 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 ... and repayable by him. It was on that basis and with that understanding that loan accounts referrable to Mrs Porteous were maintained."

90 The learned Judge referred to references in communications between Mrs Rinehart and Mr Hancock which showed that Mrs Rinehart expected to be provided for by means of the loan account system. He also referred to evidence that indicated that Mrs Rinehart always regarded the loan account entries in her name and in the name of Riverview Flats to have been made on the basis indicated, namely, that they did not record any genuine debts owed by her or Riverview Flats. His Honour's reasoning can be seen from the following remarks:

"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."

Additionally, it may be said that "Wellington Street - running costs" and "Milgraum House" were not names of debtors, even though they were the headings of loan accounts, and this tended to support his Honour's conclusion.

91 Mr Myers contended that the learned Judge was wrong in drawing the inferences that he did. He submitted that there was not a "pattern of entry" in the HPPL accounts whereby Mr Hancock regularly assumed liability for Mrs Rinehart's debts. He referred in this regard to a document signed by both Mr Hancock and Mrs Rinehart dated 22 June 1988, which was admitted into evidence at the trial as exhibit 29. The document is in Mrs Rinehart's handwriting and is headed "Plan of 22 June 1988". It sets out various steps that Mr Hancock and Mrs Rinehart apparently were to take in relation to various of their affairs. The document contains a number of paragraphs. Paragraph 2 states:

"LGH and Gina Hope Rinehart (Gina) will immediately enter into a legally binding agreement by the terms of which ... "

"LGH will use part of the money paid by the foundation (HFMF) for the purchase of the shares in HPPL to pay off various family debts currently owing to the company. In effect LGH would become the creditor instead of the company in respect of any debts not owing directly by him which would of course be discharged. Gina's and Riverview Flats' would be discharged immediately."

92 Mr Myers submitted that exhibit 29 was a contract between Mr Hancock and Mrs Rinehart. He submitted that, by this contract, Mr Hancock undertook to discharge the debts of Mrs Rinehart and Riverview Flats to HPPL through the proceeds of the purchase price of certain shares in HPPL which he was to sell to HFMF. There were two contracts whereby Mr Hancock subsequently sold shares in HPPL to HFMF, and we refer to them below in more detail. Mr Myers submitted that two points flowed from the contract he submitted was constituted by exhibit 29. First, there was an acceptance by both Mr Hancock and Mrs Rinehart that debts were owed by Mrs Rinehart and Riverview Flats to HPPL. Secondly, all entries made after June 1988 in the books of HPPL crediting the loan account of Mrs Rinehart and Riverview Flats and debiting Mr Hancock did not form part of any loan account system, but occurred pursuant to the contract.

93 There are, however, a number of difficulties with these submissions. Not least is the fact that at the trial senior counsel for HPPL objected to the tender of exhibit 29 and submitted that it was not a contract. That it was not a contract was indeed common cause at the trial. Anderson J admitted the document for a limited purpose only; namely, to explain the "commercial reality" to the fund which was expected to be created by the sale by Mr Hancock to HFMF of the HPPL shares. In other words, exhibit 29 was admitted only to the extent that it tended to support the genuineness of the transactions relating to the two share sales, and the fund that thereby resulted - against which debts owed by Mr Hancock to HFMF were offset. Mr Myers, therefore, sought to utilise exhibit 29 for a purpose beyond that for which it had, at the instance of HPPL itself, expressly been admitted at the trial.

94 Moreover, it was not suggested at trial that the debits in the loan accounts of Mrs Rinehart and Riverview Flats in HPPL's ledger (made in respect of payments made for their benefit) and the annual crediting of their loan accounts to zero, did not occur pursuant to the loan account system, but rather because of what had been agreed by exhibit 29. Mr Schwab, the witness called by HPPL to deal with the books of account, did not testify that, after June 1988, the loan accounts of Mrs Rinehart and Riverview Flats were credited to a zero balance at the end of each year and Mr Hancock's loan account was debited by a corresponding amount because of exhibit 29 and not because of the loan account system (as contended for by the respondents). Indeed, the inference that Mr Myers sought to draw from par 12 of exhibit 29 was not put to any witness at the trial and it was not advanced in argument at trial by counsel for any of the parties. Thus, no witness called by the respondents was asked to answer or explain par 12 and the proposition now being advanced (even though those witnesses included Mrs Rinehart herself).

95 In the circumstances, we do not think HPPL should be allowed to argue that exhibit 29 supports its case in the manner described. Such a course would be unfairly prejudicial to the respondents.

96 Mr Myers submitted further that the loan accounts relating to Mrs Rinehart and Riverview Flats were paid by dividends and director's fees, and not discharged by credits from Mr Hancock's loan account. The evidence relating to the precise details of the transactions that led to the clearing of these loan accounts to zero is not entirely clear. Undoubtedly, the loan accounts were cleared partly by dividends, but we have been unable to find details of the crediting of director's fees. On our calculations, the dividends declared would not have been sufficient to account for the discharge of all of the debts of Mrs Rinehart and Riverview Flats reflected in the loan accounts, and the balance was covered by transferring the indebtedness of Mrs Rinehart or Riverview Flats as reflected in their loan accounts to Mr Hancock's loan account. In any event, as we have pointed out, the evidence of Mr Schwab was to the effect that the benefits received by Mrs Rinehart from the loan account system were very large, and involved "millions of dollars".

The Hancock Family Memorial Foundation Ltd & Anor v Porteous & Anor [2000] WASCA 29

At a glance

Court

Decision date

Before

Catchwords

Source

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Judgment (386 paragraphs)

The Hancock Family Memorial Foundation Ltd & Anor v Porteous & Anor [2000] WASCA 29 (17 February 2000)

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Legislation Cited (1)

Cases Cited (25)