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[2011] QCA 167
Court of Appeal (Qld)
2011-07-19
Margaret McMurdo P, Chesterman JA and Martin, J, Separate reasons for judgment of each member of the Court, each concurring
Original judgment source is linked above.
MORTGAGES - MORTGAGEE'S REMEDIES - SALE UNDER POWER - PROCEEDS OF SALE - where there were nine mortgages over the land registered - where the mortgagee exercised power of sale under two mortgages - where the court ordered that part of the proceeds of the mortgagee's sale be paid into an account pending a further order of the court - where the appellant alleges it held the priority interest in the monies held in the trust account - whether the appellant held the priority interest
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - LIABILITY FOR BREACH OF TRUST - where moneys held in a trust account were paid out in accordance with an order of the court - where the appellant alleges the second respondent made payment in breach of a duty owed by him as a trustee of the fund - whether the second respondent acted in breach of trust
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - LIABILITY FOR BREACH OF TRUST - where the appellant argues a Deed of Settlement dated 13 June 2007 and the consent order do not confer on the first respondent any interest in the fund - where the appellant further argues it was not party to the Deed of Settlement and therefore could not be bound by such an agreement - whether the first respondent could claim payment pursuant to the Deed of Settlement
Property Law Act 1974 (Qld), s 88
Trust Accounts Act 1973 (Qld), s 12(4)
Trusts Act 1973 (Qld), s 96(1), s 97(1)
Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437; [2000] EWCA Civ 502, cited
Barnes v Addy (1874) LR 9 Ch App 244, cited
El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685; [1993] EWCA Civ 4, considered
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22, cited
Harrison v Mills [1976] 1 NSWLR 42, cited
Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405, cited
In re Montagu's Settlement Trusts [1987] Ch 264, cited
M M Stewart SC, with D C Gration, for the first respondent
D J S Jackson QC, with R M Freyling, for the second respondent
[1] MARGARET McMURDO P: The appeal should be dismissed for the reasons given by Chesterman JA.
[2] CHESTERMAN JA: By an application dated 30 July 2007 Mr Joel Pitman, a partner of Morgan Conley Solicitors, sought orders:
"1. Pursuant to section 96 of the Trusts Act ... a direction that the funds held by the Applicant in his trust account pursuant to the order of De (sic) Jersey CJ on 17 October 2006 be paid firstly to the Third Respondent in accordance with the authority of 13 June 2007 and consent of 23 July 2007;
3. That the costs of and incidental to this application to be paid out of the trust funds ... ."
[3] The appellant ("Togito") was not made a respondent to the application but one of its directors Mr Smits ("Smits") was named as third respondent. The first respondent was Pioneer Investments (Aust) Pty Ltd ("Pioneer"), the first respondent to the appeal. The second respondent was Business Bridging Finance Pty Ltd ("BBF").
"1. The moneys held in the trust account of Morgan Conley on behalf of (Pioneer and Smits) being $500,000.00 plus accretions of $31,679.91 ("the trust fund") be paid out in the following order and priority;
(a) The sum of $22,000.00 be paid to the applicant/trustee's for his costs of and incidental to the holding of the trust fund;
(c) An amount equivalent to 156590/500000 of the accretions of $31,679.91 be paid to (Smits);
(d) The balance of the trust fund be paid to (Pioneer), payable to James Conomos Lawyers."
[5] Morgan Conley and Mr Pitman, at all times prior to 30 July 2007, acted for Smits and his companies. Conomos acted for Pioneer.
[6] The balance of the trust fund payable to James Conomos Lawyers pursuant to Order 1(d) was $323,192.61. On 3 August 2007 Mr Conomos, the second respondent to the appeal, ("Conomos") collected a cheque for that amount from Morgan Conley. He deposited the cheque into the credit of his own trust account and had it especially cleared so that he could draw against it that day. This was done and the money was disbursed in accordance with instruction from Pioneer.
[7] On 6 June 2008 Togito commenced proceedings by an Originating Application against Pioneer and Conomos seeking:
"1. A declaration that the Respondents had notice prior to 3 August 2007 that the Applicant alleged an entitlement ... over any interest claimed by (Pioneer) in respect of the sum of $323,410.00 ("the sum") paid out of the trust account of Morgan Conley Solicitors into the trust account of James Conomos Lawyers on that date.
[8] The application was dismissed by Margaret Wilson J on 11 November 2010. Togito has appealed seeking an order that Pioneer and Conomos pay it the sum disbursed by Conomos to Pioneer on 3 August 2007.
[9] The history of the dealings between Pioneer and Togito, and others, which led to the making of the Consent order on 2 August 2007 is long and tangled. It is, as well, in some respects, obscure. The trial judge described the transactions, conflicts and compromises which led to the funds being held in Morgan Conley's trust account with great clarity and thoroughness. It is not necessary to repeat all of her Honour's exposition. An abridgment is sufficient to understand the points raised by the appeal.
[10] A company, Ammbar Pty Ltd ("Ammbar") owned land ("the land") at Yeppoon. It sought to develop the land as a joint venture but, as the trial judge succinctly put it "The ... venture was beset with conflict between the joint venturers and financial difficulties." On 8 November 2004 receivers were appointed to the assets of the joint venture. Ammbar was wound up on 2 December 2005 and deregistered on 3 June 2007.
[11] The land had been heavily mortgaged to secure monies borrowed for the unsuccessful development. On 30 March 2006 one of the mortgagees (Shirlaw) exercising his power of sale sold the land to a company Zonebar Pty Ltd ("Zonebar"). Smits was Zonebar's only director and share holder.
[12] Togito's claim to the monies paid to Conomos has its origin in the competition between mortgagees for the securities of their debts secured on the land. The trial judge described the position:
"[21] There were nine mortgages over the land registered between 3 November 1998 and 1 November 2005. As a result of dealings in those mortgages and between mortgagees, the holders of those mortgages and the order of priority immediately before the exercise of the power of sale was as follows -
[22] By a declaration of trust dated 11 November 2005, Shirlaw held mortgages 702987988 and 704246070 on trust for three parties as tenants in common in equal shares -
[23] By a subsequent declaration of trust, Shirlaw held mortgage 703570735 on trust for two parties as tenants in common in equal shares -
[24] As at 28 November 2005 there were priority disputes among the various mortgagees and a priority dispute between the mortgagees and Jefferson & Joiner (the receivers). The priority disputes among the mortgagees included a dispute between Shirlaw and BBF based upon differing interpretations of a deed of priority dated 24 July 2000. BBF had taken a transfer of the third mortgage, and it claimed that the first and second mortgages were "hollow" given the provisions of the deed of priority between the holders of the second, third and fourth mortgages." (Footnotes omitted)
[13] BBF was a company associated with Mr Conley who had been a member of Morgan Conley. Mr Shirlaw was a friend of Smits. "Ostabridge" was a reference to Ostabridge Pty Ltd about which no more need be said. The price for which Mr Shirlaw, as mortgagee, sold the land to Zonebar was $3.4 million. The contract settled on 23 December 2005. Zonebar paid approximately $1.9 million of the purchase price. Of that sum $1,368,112.32 was paid to BBF pursuant to a Deed of Settlement, also dated 23 December 2005, pursuant to which, in return for the payment, BBF agreed to assign its mortgages and the debt secured by them to Mr Shirlaw.
[14] Meanwhile on 18 November 2005 Mr Shirlaw had filed an application (proceeding 9791/05) seeking the court's leave to exercise his rights as mortgagee to enter into possession of the land and sell it. He named as respondents all persons known or thought to have any interest in the proceeds of the sale of the land. Ammbar, BBF, Ms Dewar and MacGillivrays Solicitors were respondents. Pioneer, Smits and Togito were not.
[15] On 28 November 2005 Helman J gave Mr Shirlaw the leave sought upon his undertaking to pay the proceeds of sale into an interest bearing account in the joint names of Shirlaw, the receivers of Ammbar and BBF, "(or if such account does not exist, into court)" pending the further order of the court.
[16] $500,000 from the $1.9 million paid by Zonebar for the purchase of the land was paid into a joint account which did not meet the description in the undertaking given to Helman J. BBF was not a joint owner of the account. Shirlaw and the receivers were, as was a representative of the joint venture company. As the trial judge pointed out nothing seems to turn on the discrepancy.
[17] The reason for the payment of $500,000 was not explained and remains a mystery. If the amount paid to BBF discharged all the mortgage debts secured on the land the sum should have been paid to Ammbar, or the receivers, as mortgagor. If the mortgage debts exceeded the sum paid to BBF then the balance should have been paid to the subsequent mortgagees in order of their priority. No one ventured an explanation for the apparent misuse of the money.
[18] Mr Shirlaw did not pursue his friend Smits, or Smits' company Zonebar, for the unpaid balance of the purchase price, $1.5 million.
[19] The $500,000 paid into the joint account in purported compliance with the undertaking is the fund which was ultimately dealt with by White J's order and Mr Conomos' disbursements.
[20] The next relevant transactions were concisely described by the trial judge:
"[40] In exercising the power of sale, Shirlaw acted as trustee for the three parties on whose behalf he held the first two mortgages - himself in his two capacities, Pioneer and Smits.
[41] He used some of the proceeds of the mortgagee's sale to acquire the rights under the BBF mortgages. Accordingly, arguably he held the rights under the BBF mortgages (i.e. the benefit of the personal covenants which had been secured by those mortgages) which he so acquired on resulting trust for the same three parties - himself in his two capacities, Pioneer and Smits.
[44] On 5 June 2006 Pioneer lodged a caveat over the land, claiming an equitable estate or interest as equitable chargee, based on a right in equity to have mortgage 704246070 restored to the register.
[46] On 31 July 2006 Shirlaw (in his two capacities) and Smits entered into a deed of assignment. Shirlaw assigned to Smits (inter alia) all his right, title and interest in and in respect of mortgage 704246070 and the declaration of trust "purportedly made" between Shirlaw, Smits and Pioneer on 11 November 2005.
[47] Also on 31 July 2006 Shirlaw (in his two capacities) executed a transfer of mortgages 702987988, 704246070, 703494840, 703570735, 704544382, 707227959 and 709100851 in favour of Smits." (Footnotes omitted)
[21] On 5 June 2006 Pioneer lodged a caveat over the title to the land. It claimed an interest as equitable chargee based upon its beneficial interest in Mortgage 704246070 pursuant to Mr Shirlaw's declaration of trust of 11 November 2005. It also claimed an equitable right to have the mortgage restored to the register.
[22] The trial judge noted that the Deed of Assignment between Shirlaw and Smits, having as the subject matter only Mortgage 704246070, could have done no more than pass legal title to the personal covenants secured by that mortgage, and the one third beneficial interest in those covenants which Shirlaw held pursuant to the Declaration of Trust of 11 November 2005.
[23] The trial judge also noted that the transfer of the seven mortgages could have assigned only such beneficial interest in the personal covenants which Shirlaw held. The transfer could not affect Pioneer's half interest in Mortgage 703570735 created by the Declaration of Trust of 9 December 2005.
[24] On 1 August 2006 Pioneer commenced proceedings 6354/06, against Zonebar, Shirlaw and Smits to establish the interest claimed in its caveat. Pioneer claimed an order that the $500,000 be paid to Shirlaw and Ostabridge to be held by them subject to the trust declared on 11 November 2005, i.e. for Shirlaw, Pioneer and Smits as tenants in common in equal shares.
[25] On 17 October 2006 the Chief Justice made orders, to identical effect, in both proceedings 9791/05 and 6354/06. The relevant order was:
"The moneys (being proceeds of sale from 23 December 2005 ...) held in an account maintained by the National Australia Bank ... Number 59351519 in the names of (Shirlaw, the receivers and BBF) pursuant to the order of the Honourable Mr Justice Helman ... on 28 November 2005 in application BS9791 of 2005 be paid to the trust account of Morgan Conley Solicitors to be invested by them in the names of ... Smits and (Pioneer) to abide the outcome of proceedings BS6354/06 or earlier order without prejudice to:
(a) any claim for a solicitor particular lien over the said moneys ... ;
(b) ... Smits making any application ... for payment ... of the moneys ... ."
[26] Between April and June 2007 Smits and Pioneer (by Mr Loel its controlling mind) held discussions in an endeavour to settle their outstanding disputes and the proceedings they had spawned. During this period, on 30 May 2007, Mr Conley on behalf of BBF gave Morgan Conley Solicitors a Notice of a Claim on the monies held in its trust account. BBF claimed to be subrogated to the rights of Ms Dewar under her Mortgage 707742234. Mr Pitman treated this as a Notice given under
s 12(4) of the Trust Accounts Act 1973 (Qld) and refused to disburse the moneys in the Trust Account.
[27] Pioneer and Smits (and his company Zonebar) came to terms in June 2007. By Deed dated 13 June 2007 it was agreed:
(i) That Pioneer receive unencumbered title to one lot in the development of the land being undertaken by Zonebar. The notional consideration of $200,000 was to be paid by Zonebar but Pioneer had to pay the applicable GST of $20,000;
(ii) All proceedings between the parties were to be discontinued;
(iii) Pioneer was to withdraw its caveats over the land and assign its interests in mortgages 702987988, 704246070 and 703570735 to Smits;
(iv) That Mr Loel on behalf of Pioneer was to sign a Trust Account Authority for disbursement of the moneys held by Morgan Conley pursuant to the orders of the Chief Justice.
[28] Consent orders in proceeding 6354/06, made on 13 June 2007 to which all the parties agreed, contained a term that:
"... subject to (Pioneer) strictly complying with the terms of settlement (Smits) abandons his claim to the fund invested in the trust account of Morgan Conley Solicitors the subject of the orders of De (sic) Jersey CJ made 23 October 2006."
Other orders set aside earlier interlocutory orders and determined proceedings.
[29] The Trust Account Authority contemplated by term (iv) above was in these terms:
Pioneer Investments (Aust) Pty Ltd -v - Zonebar Pty Ltd and Ors
Investment pursuant to the order of De (sic) Jersey CJ 23 October 2006 (17 October 2006)
I, James Beresford Loel Director of Pioneer Investments (Aust) Pty Ltd hereby authorise and direct Morgan Conley Solicitors to disburse funds, held in trust, in regard to the above matter as follows:
(a) the sum of $156,590 to Leonardus Gerardus Smits (and/or nominee) plus an amount equivalent 156590/500000 of all accretions above $500,000;
(b) the balance to be paid to James Conomos Lawyers Trust Account.
3.1 Upon Completion or such other date as agreed in writing between Loel and Smits, Smits shall sign the Consent Orders in the various proceedings as set out in item 1 of the Schedule.
3.2 For the purposes of clause 3.1, Smits shall cause his solicitors Morgan Conley to:
(a) take such steps as are necessary to have the consent orders described in paragraph 3.1 made; and
(b) forthwith on the making of the consent orders and delivery of the authority in item 3 of the Schedule, draw cheques as provided for in the said consent order in respect of the money invested in Morgan Conley's solicitors trust account; and
(c) sign any documents and do anything necessary to give effect to this deed and in particular clause 3.1 and the terms of the consent orders.
3.3 Smits acknowledges that he will, if necessary, sign a further consent order (including a consent order in BS9791/05) or other document to enable the moneys described in paragraph 2 of the Consent order to be paid to Pioneer.
3.4 Loel acknowledges that he will, if necessary, sign further documents or consent orders to give effect to this deed and in particular the terms of the consent orders specified in clause 3.1."
[31] One more fact must be mentioned. It is that on 12 June 2007, the day before the Deed of Settlement between Pioneer and Smits, which was meant to settle all outstanding disputes and claims, was executed, Smits assigned all his rights in and under mortgages 703494840, 703570735, 704544382, 7072227959 and 709100851 and the debts secured or intended to be secured by them to Togito. The consideration was one dollar. Notice of the assignment was given by Morgan Conley to Ammbar's receivers but not until 13 July 2007.
[32] What happened next was described by the trial judge:
"[75] Pitman continued his refusal to disburse the moneys in his trust account because of BBF's claim. Conley was prepared to consent to the payment of part of those funds to Smits, but not to any payment to Pioneer. Conomos would not agree to a payment to Smits unless the balance was paid to Pioneer. Dewar's solicitors gave notice of her claim on the fund."
[33] Mr Pitman then filed the application described earlier and White J made the order by consent on 2 August 2007 pursuant to which Mr Conomos disbursed the monies paid into his trust account. Between the filing of the application and its coming on for hearing before White J BBF withdrew any claim it had to the monies. That left Pioneer and Togito as the only rival claimants to the fund.
[34] Pioneer submitted to the trial judge that the assignments were a dishonest design to allow Togito to pursue claims that Smits and Zonebar had given up in return for valuable consideration from Pioneer. Smits gave evidence that he had a legitimate explanation for the assignment. The trial judge rejected it.
[35] Togito was not made a party to Mr Pitman's application. It submits that it was not, for that reason, bound by the terms of the order and that the monies held on trust by Mr Pitman were held on trust for it as monies due under mortgages assigned to it and which had prior claim over any other mortgage. Togito's subsequent claim against Pioneer and Conomos was that they had notice of Togito's asserted beneficial claims to the trust monies and that with notice of that claim Conomos paid the fund to Pioneer in breach of the trust.
[36] The claim failed because the trial judge held that although not a party to the application Togito was represented in the negotiations which led to the making of the consent order and gave its consent to the payment of the fund to Conomos.
[37] The facts which led the trial judge to conclude that Togito negotiated for the consent order and agreed to the disbursement of monies are set out in length in her Honour's reasons. It is convenient to quote them in full because they are a complete answer to the claim made by Togito on appeal. The trial judge said:
"[77] On 1 August 2007 Dibbs Abbott Stillman Lawyers wrote to Morgan Conley; they sent copies of their letter to Conomos and the solicitor for Dewar. They said -
"We advise that we act on behalf of Mr Smits, the Third Respondent and Togito Pty Ltd ('Togito').
We refer to the application by Mr Pitman, as trustee, pursuant to the Trusts Act 1973 (Qld) and his supporting affidavit sworn on 30 July 2007. That application seeks directions in relation to a fund established following a mortgagee sale of property located at Yeppoon.
As is evident from pages 3 to 7 of the exhibits to that affidavit, on 12 June 2007 Mr Smits assigned to Togito his rights under certain securities described in the various notices issued pursuant to section 199 of the Property Law Act 1974 (Qld). Those securities were formerly registered over the property and have priority in respect of a claim by any of the respondents to the present application.
Accordingly we are instructed to appear at court tomorrow on behalf of our clients seeking orders that:
Please ensure all further correspondence in relation this matter is directed to our office. (Emphasis added.)
[78] Conomos responded by letter sent at 5.28 pm on 1 August 2007, noting that Dibbs Abbott Stillman were acting on behalf of both Smits and Togito, asserting that Smits was proposing to breach the agreement of 13 June 2007, alleging fraud by Smits, and threatening that Pioneer would again lodge a caveat over the properties.
"As well, at the hearing tomorrow we will inform the court of the dispute between the parties (including the conduct of Mr Smits) and ask that the moneys held in Morgan Conley's trust account be paid into court pending the determination of the dispute between our client, Mr Smits and Togito Pty Ltd.
As to Togito Pty Ltd, we note that you assert that certain securities have been assigned to Togito Pty Ltd. We are unaware of any assignment and have no evidence as to the alleged assignments or their effectiveness.
In all of these circumstances, we therefore reserve our client's rights against Mr Smits, Togito Pty Ltd and the directors of Togito Pty Ltd involved in the breach or anticipatory breach of the settlement deed.
We urge you to obtain the instructions of Mr Smits to withdraw your current instructions to enable him to comply with the terms of the settlement deed dated 13 June 2007.
In the absence of a response from you to the effect stated in the previous paragraph by 8.30 a.m. tomorrow, we have clear instructions to immediately terminate the settlement deed and relodge caveats over the various properties and to the extent necessary, apply for injunctive relief to restrain any further dealings with the property pending the determination of our client's claims." (Emphasis added.)
[80] At 6.03 pm on 1 August 2007 Pitman emailed Conomos. He said he had just received notice that Dewar was withdrawing her claim to the fund. He considered he was "free to-
(a) pay the $20,000 pulled down from the investment to L Smits;
(b) to draw down and pay the amount of $156,590 and the accrued in the percentage of 156590/500000;
(c) draw down and pay [his] costs on an indemnity basis from the balance payable to [Conomos'] trust account...
(d) draw down and pay the balance to [Conomos'] trust account."
"If the amounts relating to my costs and for the distribution of funds are agreed tomorrow morning I would not need to attend on the court other than to dismiss my application if they are not agreed but that with time they could be then I am minded to adjourn my application to a date to be fixed."
[81] There was then some discussion between Pitman and Conomos, much of it "off the record." Pitman emailed Conomos at 6.48 pm. He said -
(a) "I note that we discussed that the assignment by Smits to Togito was of the subsequent mortgages not 88 and 70."
(b) "I understood your client does not object to the payment of the $20,000 which has been drawn down into my trust account. I note that this was for the GST for lot 77 transferred to your client under the terms of settlement."
(c) "I do not recall that the payment to L Smits was otherwise agreed. Is that the case?"
(e) "I am still finalising my accounts and I hope to have them to you shortly.""
[83] At 9.11 am the next day (the day of the hearing) Pitman emailed Conomos saying -
"I would have thought that once the order for my payment was dealt with all we need do is have an order that I make payment in accordance with the authority of 13 June 2007."
[84] Early that morning there was an exchange of emails between Smits and Scott Guthrie ("Guthrie") of Dibbs Abbott Stillman. At 7.52 am Smits emailed Guthrie -
"I confirm my instructions to deny any fraud and to allow the payments in accordance with the Chesterman J Order less the Trustee costs agreed to be paid by Jim from the Pioneer balance. Thanks for your input." (Emphasis added.)
I confirm these instructions and am writing to Conomos on that basis now."
[85] At 8.19 am Guthrie sent a letter to Conomos by email; he sent copies to Pitman and Dewar's solicitor. Guthrie said -
Our client vehemently denies such fraud as alleged in your correspondence.
Notwithstanding the above, we are instructed that Togito Pty Ltd is prepared to permit the funds to be released in accordance with the order of His Honour Justice Chesterman dated 13 June 2007 and the agreement executed by Pioneer Investments (Aust) Pty Ltd and Mr Smits that day, subject to any reasonable claim by the trustees for their fees and expenses.
Please forward us a draft consent order forthwith." (Emphasis added)
[86] Anne Gubbins, a solicitor in the employ of Dibbs Abbott Stillman, ("Gubbins") sent Smits a copy of the letter at 8.40 am. At whatever time Smits read that email, he admitted in cross-examination that the letter was in accordance with his instructions.
[87] At about 9.20 am Conomos emailed Pitman a draft order; he sent a copy to Gubbins. He asked Gubbins to obtain instructions from Smits urgently.
[88] Gubbins attended the Court that morning, where she instructed Kylie Downes SC ("Downes"). Outside the courtroom there were discussions between Downes and Conomos about the draft order. Pitman and Gubbins were there, too, although they do not seem to have played any active part in the discussion. Ultimately, handwritten amendments were made to the draft orders as follows -
(a) The sum of $22,000.00 to the applicant/trustees for his costs of and incidental to the holding of the trust fund;
(b) The sum of $176,590.00 to the third respondent;
(c) An amount equivalent to 15690/500000 of the accretions of $31,679.91 be paid to the third respondent;
(d) The balance of the trust fund be paid to the first
Respondent, payable to James Conomos Lawyers.
The amount of the accretions was inserted in Downes' handwriting, and the words "payable to James Conomos Lawyers" were inserted in Conomos' handwriting. The draft order was signed by Pitman, Downes as counsel for the third respondent (Smits) and Conomos as solicitor for the first respondent (Pioneer). I am satisfied that these changes were made before the application was called on before White J." (Footnotes omitted)
[38] The trial judge then addressed the question whether Messrs Dibbs Abbott Stillman acted for Togito with respect to the making of the consent order. Her Honour concluded:
"[91] In the present proceeding, Togito alleged that it had given notice of its interest in the fund by Dibbs Abbot Stillman's letter of 1 August 2007, and that there was no determination by White J as to the entitlement of Pioneer in the fund or that Pioneer had priority to the fund ahead of Togito, BBF, Dewar, MacGillivrays or Jefferson & Joiner.
[92] Smits acknowledged that Dibbs Abbott Stillman's letters of 1 and 2 August 2007 accorded with his instructions. In the first of those letters, they said they were acting for both Smits and Togito, and in the second they conveyed the substance of Togito's instructions to them. Togito was not a party to the application. When the order came to be made, Downes correctly announced her appearance as being on behalf of Smits. Nevertheless, in all the circumstances I am satisfied that Dibbs Abbott Stillman acted for Togito as well as Smits in negotiating the terms of the consent order, and when Gubbins instructed Downes to consent to the draft order as amended. I reject Smits' evidence that they were acting only for him in his personal capacity." (Footnotes omitted)
[39] Unless Togito can demonstrate that the facts found by the trial judge are wrong, or do not support the conclusions made from the facts, the appeal must fail.
[40] The appellant did not, as I understood the argument, attempt the first task. The alternate attack, that the facts do not justify the conclusion that Togito consented to the payment to Pioneer, founder because, with respect, it is the only sensible conclusion available. The result follows inevitably from the email from Smits to his solicitor on the morning of 2 August 2007 in which he gave instructions "to allow the payments in accordance with the (13 June 2007) order" and that the trustee's costs were to come from the "Pioneer balance".
[41] The consent order of 13 June 2007 and the Deed of Settlement provided for the abandonment by Smits of his claim to the trust fund and payment of the relevant balance to Pioneer. The subsequent email from Smits and Togito's solicitor to Conomos stating that Togito is "prepared to permit the funds to be released in accordance with the order of ... 13 June 2007 and the agreement executed by Pioneer ... and ... Smits that day" is explicit and means what it says. The appellant gave up any claim it had to the trust fund and gave his consent to the payment of the funds to Pioneer.
[42] Togito's submission that it was not a party to the application before White J is technically correct but irrelevant. Although not bound by the terms of the order it was a party to the agreement which underlay it and gave its consent to the payments directed by the order.
[43] The appellant sought to avoid these difficulties for its case by changing the point of attack and arguing that on its true construction the order, and any agreement, did not provide for the payment of the funds to Pioneer but to Conomos to be held by it pending the determination by the Court, or by agreement of the parties, of the trusts on which the fund was held. To put the matter more directly Togito submitted that the proceedings and order before White J did not determine ownership of the fund but provided a mechanism by which the monies were to be held until the ownership could be determined by the court agreement.
"(It) did no more than consent to the funds being released in the same manner as provided for by the Deed of Settlement (of 13 June 2007). There is no evidence that Togito intended Pioneer take the balance of the fund absolutely. Togito's stated position on 1 August 2007 was that it had the priority claim in respect of the fund. That position is contrary to a view that the Deed of Settlement or the (Consent) order (of 13 June 2007) gave Pioneer the balance (free of the trust claimed by Togito). Nor does the evidence support the suggestion ... that Togito had consented to its interests being defeated by the order. ... (T)he application made by a trustee for directions ... does not (ordinarily) determine substantive rights ... ."
[45] In support of the submission Togito drew attention to the phrase added in handwriting to paragraph 1(d) of the draft consent order. The addition provides the balance of the trust fund was to be "payable to James Conomos Lawyers". The monies so paid would inevitably have been held on trust. There is no suggestion that Conomos had any claim to the fund (ignoring his right to costs against his client). Togito argues that the addition of the phrase shows that the money was not to be paid to Pioneer but to the solicitors on a trust not identified or described. Given the history of dispute to the fund it should be concluded, the submission continues, that the trust was to be ascertained after further proceedings.
[46] The trial judge thought that the phrase described only the mechanism by which the money was to be got to Pioneer. It was not indicative of a payment to beneficiaries to be determined in the future.
[47] The trial judge's categorisation of the phrase is, with respect, plainly right. It is to be noted that order 1(d) is not that the money was to be paid to James Conomos Lawyers. They were to be paid to Pioneer, "payable to James Conomos Lawyers". Togito's construction of the order involves ignoring the direction to pay the money to Pioneer. Those words would have been unnecessary and productive of confusion had the parties' intention been that the monies should be held by Conomos on a trust to be determined. It is inconceivable that had that been the intention of the experienced legal practitioners who negotiated the terms of the order that they would not have excluded that source of confusion and removed all reference to payment of the monies to Pioneer.
[48] On Togito's analysis nothing was achieved by the agreement and consent order. The monies had been held in Morgan Conley's Trust Account because of the competing claims to it. All that has to be achieved by the order was that the trustee would change. The disputes would remain. Worse still the proceedings which had been commenced for the purpose of determining ownership of the fund had been discontinued by the order and Deed of Settlement of June 2007. There were no proceedings left on foot to determine the dispute which Togito asserts the parties deliberately left unresolved.
[49] As a corollary to that point Togito's submission involves accepting that experienced practitioners, including senior counsel, agreed to defer determination of ownership to the fund without recording that that was what they had agreed and without providing for any mechanism for determining the dispute.
[50] There is as well the point that the correspondence rehearsed by the trial judge points to Smits and Togito expressly agreeing to the reinstatement, or reaffirmation of the terms of the June 2007 agreement. That agreement, as I have already said, recorded Smits' abandonment of his claim to the monies in the trust account and an order that they be paid to Pioneer. Togito's consent to that arrangement is irreconcilable with its present submission that it did not intend the money be paid for the benefit of Pioneer.
[51] The opinion of the trial judge has the effect that the consent order and agreement of 2 August 2007 did bring all outstanding disputes to an end. Pioneer gave up its claims to the land which it had threatened to protect by caveat. Togito gave up its claim to the money which its assignor, Smits, had given up some weeks earlier. Zonebar and Smits were free to deal with the land. Pioneer had the money.
[52] On this view the consent order and agreement brought finality. Nothing was left to be done. The order took effect according to its terms. On Togito's submission the order resolved nothing and made no provision for what was to happen by way of resolving the competing claims to the fund.
[53] It may be implicit in Togito's submissions that the June 2007 settlement did not provide for monies to be paid beneficially to Pioneer. That is not a tenable view of the affect of the Deed and the Consent orders. Clause 3.3 expressly recognised Smits' obligation to do what was necessary to "enable the moneys described in paragraph 2 of the Consent order to be paid to Pioneer." Order 2 did not expressly describe any monies but it did refer to the order of the Chief Justice of 23 October 2006 pursuant to which the monies later in dispute were paid to Morgan Conley. Clause 3.3 of the Deed can only be a reference to that sum.
[54] The appellant's next point was that its asserted claim to the fund in priority to others meant that the June 2007 Deed of Settlement and consent order did not give Pioneer a beneficial interest in the trust fund. The submission overlooks two points. The first is that its asserted position on 1 August may have been baseless or derived from a misunderstanding of the effect of the Deed. The second is that on 2 August 2007 Togito gave up its claim in respect of the fund.
[55] Nor is there anything in the point that the proceedings, and the consent order made in them, were inapposite to affect substantive rights because it was in form an application by a trustee for directions as to the application of the trust fund.
[56] It is pointed out that s 96(1) of the Trusts Act 1973 provided:
"Any trustee may apply upon a written statement of facts to the court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee."
"Any trustee acting under direction of the court shall be deemed, so far as regards the trustee's own responsibility, to have discharged the trustee's duty as trustee in the subject matter of the direction ... ."
[57] It is then said that the effect of s 97 is to provide statutory protection for a trustee who might otherwise act in breach of trust so long as he acts under the court's direction. The provision does not, the submission continues, purport to extend any similar protection to other parties and, as well, directions made under s 96 do not affect the rights of a beneficiary of the trust save with respect to remedies against the trustee who acts pursuant to the court's direction. It is pointed out that it is not ordinarily appropriate on an application under s 96 for the court to determine controversies between parties to a trust: Harrison v Mills [1976] 1 NSWLR 42, Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405.
[58] I am prepared to accept the submission but it does not follow that the parties to a trustee's application cannot compromise their controversy and give effect, by consent orders or otherwise, to their agreement. That is what happened here.
[59] The trial judge found that Conomos gave no undertaking to hold the balance of the fund, paid to him pursuant to the Consent order, on trust to do other than to pay the money as Pioneer directed. The only attack to the finding came by way of the submission that the phrase "payable to James Conomos Lawyers" imposed a different trust. That submission has already been rejected. The finding must therefore stand.
[60] Togito has not demonstrated any reason for doubting the correctness of the primary judgment, which is sufficient to dispose of the appeal. There are, as well, a number of other grounds on which it should be concluded that the appeal cannot succeed. Of the several other arguments advanced by the respondents it is necessary to notice only two.
[61] Togito's claim, when analysed, has three component parts.
3. Conomos and Pioneer received the money with knowledge that it was paid in breach of trust.
[62] A necessary factual pre-condition for the first component, that Togito had a beneficial interest in the trust fund, was that the money held by Mr Pitman was the subject of one of the mortgages to which Togito became assignee on 12 June 2007. The monies were paid from the proceeds of sale following on Mr Shirlaw's exercise of power of sale.
[63] There was no evidence as to the state of the account between Ammbar and any of its mortgagees when the land was sold in December 2005. The trial judge noted:
"[43] The amount owing by Ammbar under the various mortgages at the time of the sale was not proved in this proceeding. It was common ground that the two mortgages under which the power of sale was exercised (702987988 and 704246070) were cross-collateralized. However, I am unable to make a finding as to whether the liabilities secured by them were discharged by the exercise of the power of sale."
[64] Unless the debt owed by Ammbar under the various mortgages exceeded the proceeds of sale, $1.9 million, Togito could have no claim to any part of the balance left after BBF's mortgages were discharged pursuant to the Deed of 23 December 2005. As was noted earlier the payment of the money into the joint account was on the face of things unusual. Those with an obvious claim to it were the mortgagor or subsequent mortgagees.
[65] Togito submitted that there was evidence that the money was subject to one of its mortgages. It relied on some calculations Mr Loel had made of the amounts owing under the Togito mortgages as of 22 December 2005; and another document, described as "an extract from an affidavit of Gallus deposing to the amounts owing under the Togito mortgages as at 31 August 2005." Togito also argued that the amount secured could be calculated from the known advances and rates of interest identified in the various mortgages.
[66] The first point is wrong as a question of fact. The document referred to was a calculation, about which when questioned in evidence Mr Loel said he could not verify and could not identify. The calculation was marked for identification but not admitted into evidence.
[67] Mr Gallus' extract was no more than a claim by Gallus (who had been director of Ammbar) as to the state of the account between Ammbar and Citymark Finance Pty Ltd, an original mortgage, in August 2005, an irrelevant debt. The amount said to be owing to the mortgagee was $730,000. If that figure for the debt was right the sale produced a surplus which should have been paid to Ammbar. The amount asserted was not proved and did not speak as to the state of the account when Mr Shirlaw exercised his power of sale.
[68] The respondent's contention, that the amount owing on the mortgages was not proved, is made out. Togito's second answer does not help. The fact that it did not itself undertake the calculation of the extent of the debt from the known advances and the rates of interest might suggest that the exercise, if undertaken, would not have helped Togito. Speculation is, in any event, unnecessary. The fact is that there is no evidence that there was any factual basis for Togito's claim to the trust fund.
[69] Togito also failed to make good the third component of its claim; which was that Pioneer and Conomos were constructive trustees of the funds disbursed on 3 August 2007 by reason of the fact that Conomos paid the money, and Pioneer took it, knowing that, or with notice that, the monies were trust monies and Togito was the beneficiary of the trust. The claim was put under what is commonly called the "first limb" of Barnes v Addy (1874) LR 9 Ch App 244.
[70] The respondent submitted that Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 decided that to make out a case of constructive trust of the kind claimed by Togito the plaintiff must show that the recipients of trust property took it knowing that the receipt involved a breach of trust. They referred to what Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ had said at 141:
"Persons who receive trust property become chargeable if it is established that they received it with notice of the trust",
and to their Honours' conclusion at [129] that there had been "no notice of any breach of duty", having discussed the factual case brought against the alleged constructive trustee.
[71] The respondents also relied on the judgment of Hoffmann LJ in El Ajou v Dollar Land Holdings Plc [1993] EWCA Civ 4; (1994) 2 All ER 685 at 700:
"For this purpose the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of assets which are traceable as representing the assets of the plaintiff; and thirdly, knowledge on the part of the defendant that the assets he received are traceable to a breach of fiduciary duty."
[72] Reference was then made to Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 in which Nourse LJ drew attention to Sir Robert Megarry's judgment in Re Montagu's Settlement Trusts [1987] Ch 264 and concluded:
"... Megarry V-C summarised his conclusions in eight subparagraphs, at p 285. I read the first three:
(2) In considering whether a constructive trust has arisen in a case of knowing receipt of trust property, the basic question is whether the conscience of the recipient is sufficiently affected to justify the imposition of such a trust;
(3) Whether a constructive trust arises in such a case primarily depends on the knowledge of the recipient, and not on notice to him; and for clarity it is desirable to use the word "knowledge" and to avoid the word "notice" in such cases.'
The effect of the Sir Robert Megarry V-C's decision, broadly stated, was that, in order to establish liability in knowing receipt, the recipient must have actual knowledge (or the equivalent) that the assets received are traceable to a breach of trust and that constructive knowledge is not enough." (at 453)
[73] Togito identified the following facts which it says were known to Conomos and/or Pioneer and which were sufficient to make them constructive trustees of the money paid by Mr Pitman. The facts identified were:
(a) That the monies had come from the proceeds of sale of the land and were surplus, after the discharge of mortgages;
(b) The existence of s 88 of the Property Law Act 1974 (Qld);
(c) The existence of priority disputes in relation to the surplus including the receivers of Ammbar, BBF, Ms Dewar and MacGillivrays;
(d) The history of the litigation in relation to the $500,000, including the orders made by Helman J and the Chief Justice;
(e) The decision of the Supreme Court determining a question of priority between the receivers and mortgagees;
(f) That Mr Pitman had applied for directions from the court to resolve the competing claims on the trust fund;
(g) The nature of the claim, and the basis for it, made by Togito to the monies.
[74] It is not necessary to discuss the contents of the list. What, egregiously, is missing from it is the fact, known to both Conomos and Pioneer, that Togito gave its express consent to the payment of the fund by Mr Pitman to Pioneer via Conomos.
[75] It is not necessary in this case to determine what level of knowledge or notice is required in one who receives trust monies to make him chargeable for it. In this case the person said to be constructive trustee took the money knowing that the person now claiming to be the beneficiary of the constructive trust expressly approved the payment on the basis that it relinquished all rights it might have had to the trust property. The consent was given with the benefit of legal advice, in order to settle a long standing dispute and as the price for removing an adverse claim. What Pioneer and Conomos knew was that the payment to them was not made in breach of trust, whether by the operation of consent or acquiescence.
[77] MARTIN J: I agree, for the reasons given by Chesterman JA, with the order he proposes.
Togito Pty Ltd
Pioneer Investments
(2007) 230 CLR 89
(1992) 29 NSWLR 405