The participation of Mr Roxo in any breach of duty
25 In Barnes v Addy at 251, Lord Selborne LC said that the responsibility of a trustee extended in equity to others who were not properly trustees if they were found either making themselves trustees de son tort or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust.
26 The requisite knowledge of such a person to be liable as an accessory to the breach of trust was discussed by the High Court in Consul Development Pty Ltd v DCP Estates Pty Ltd (1975) 132 CLR 373. Stephen J, with whom Barwick CJ agreed, said at 412 of the extent of constructive notice that would enliven the principle, that if a defendant knew of facts that themselves would, to a reasonable man, tell of fraud or breach of trust, the case might well be different as it clearly would be if the defendant had consciously refrained from inquiry for fear lest he learn of fraud. But to go further was, in his Honour's view, to disregard equity's concern for the state of conscience of the defendant.
27 A useful summary of the relevant bases of liability is contained in NCR Australia Pty Ltd v Credit Connection Pty Ltd [2004] NSWSC 1 at [168]. At [169] Austin J points out that there is no liability if the defendant merely knows facts that would have been investigated by a reasonable person acting diligently, thereby discovering the truth, where the defendant had innocently but carelessly failed to make the appropriate investigations.
28 There was nothing in the circumstances leading up to the documentation with respect to a loan to Yeshiva 7 that implicated Mr Roxo with knowledge of a breach of director's duty. He had been approached by Global Synergy Finance for short term bridging finance on a second mortgage with low loan value ratio over the Dover Heights property for rezoning and development. He was asked for $800,000 and said he could possibly raise $500,000.
29 Yosef Feldman told him that he and his parents were the directors of Yeshiva 7 and it required the moneys to do a subdivision on the Dover Heights property. He was told the property was worth around $17 million and would be worth more than $22 million after subdivision. He was told the company required the funds only until a refinance came through. He was told that they had an offer to purchase for $15 million and they were only looking for a loan term of one to two months. He was told that the Feldmans were prepared to give personal guarantees for the loan. Mr Roxo said he would list them as joint borrowers. Mr Roxo was told there should be no problem with the first mortgagee, Meriton Finance Pty Ltd, consenting to the registration of a second mortgage. Mr Roxo said he preferred to have a consent from Meriton beforehand so the second mortgage could be registered but he could proceed on the basis of an executed second mortgage, a registered caveat and a signed request for the consent of Meriton and a deed of priority.
30 It was submitted that Mr Roxo should have carried out a greater degree of due diligence than he did. But any failure in that regard did not enliven the second limb of Barnes v Addy. There was nothing in the information given to him and which he discovered in carrying out his due diligence that would, of itself, suggest breach of duty on the part of the directors of Yeshiva 7. The case for the Yeshiva companies was not based upon the initial information acquired by Mr Roxo but was based on his knowledge when the arrangements were varied.
31 On the morning of 30 June 2003, Mr Roxo conducted final searches and discovered that the Dover Heights property was registered to Yeshiva 1 to Yeshiva 6 and not to Yeshiva 7. He spoke with Mr Crawley who said that a transfer of the property from Yeshiva 1 to Yeshiva 6 in favour of Yeshiva 7 could be registered before lodgement of the caveat.
32 About midday, Mr Roxo spoke with Ms Zeglis who asked that the cheques be drawn. Mr Roxo said he would only draw the cheques after the caveat had been registered. Ms Zeglis said she would send the fully executed documents to Mr Roxo by facsimile and she could lodge the caveat. She said that the alternative to registering a transfer in favour of Yeshiva 7 was to change the documentation to Yeshiva 1 to Yeshiva 6.
33 That was the course ultimately adopted. Ms Zeglis lodged the caveat early in the afternoon of 30 June 2003. There was a taxi receipt timed at 2.09 pm. Mr Roxo said he obtained the bank cheque in favour of Vageta after the caveat was lodged. His BankWest statement records the debit raised in his account at 2.12 pm.
34 Mr Roxo maintained that he knew nothing about Vageta until well into the afternoon. That could not be correct if the time recorded on his bank statement was accurate. It was suggested that the time was Western Australian time and it was two hours later as Eastern Standard time. I reject that suggestion. The bank statement was one from the Sydney branch.
35 There was, at the time, a deal of publicity over an action by Josef Gutnick calling in a $13 million loan from the Yeshiva companies. It was submitted that Mr Roxo was aware that Yeshiva 1 to Yeshiva 6 were incapable of discharging their liabilities and he was party to the determination to forward the loan moneys to Vageta and, by insisting the caveat be lodged over the property of Yeshiva 1 to Yeshiva 6 before drawing the cheques, Mr Roxo required the breach of duty to be perpetrated before the moneys were advanced.
36 Mr Roxo denied any knowledge of the Gutnick litigation until later negotiations to refinance the loan took place in July 2003. The Yeshiva companies did not establish earlier knowledge. While Mr Roxo's insistence that he knew nothing about Vageta until late in the afternoon of 30 June 2003 was clearly incorrect, the doubt it raises with respect to his testimony generally is not sufficient to establish such knowledge on his part as would put him on notice that a breach of duty was to be committed. Nor, in my opinion, would the request by the directors and secretary of the Yeshiva companies to pay the funds to Vageta of itself raise in the mind of a reasonable person a suspicion of breach of duty.
37 On 2 September 2003, Mr Roxo sent an email to Mr Crawley. Meriton had not consented to the registration of the second mortgage. Mr Roxo was anxious to obtain registration. The email contained the following:
"I confirm that we based our decision to lend the money to Yeshiva 7 based on your advice that the transfer from Yeshiva 1-6 was taking place and that this would take this property out of the reach of the other "unrelated Gutnick action".
It has always been our understanding (based on your advice) that our advance would be ranked only behind Meriton and that the Gutnick claim had nothing whatsoever to do with the Dover Heights property and only related to the Flood Street properties over which security was held.
I would appreciate your response."
38 Mr Roxo said the letter was based upon his overall perception of what happened and discussions he had with Mr Crawley in relation to refinancing. He said the email was wrong in stating that his decision to lend to Yeshiva was, as at 30 June 2003, based upon any knowledge of the Gutnick action because he had not heard about it at that stage.
39 Notwithstanding Mr Roxo's attempt to explain the email, the two accounts do not stand together. Either Mr Roxo knew about the Gutnick litigation on or before 30 June 2003 or he did not. But while that conflict gives pause as to the veracity of this portion of his evidence, it does not ground the additional assumption of complicity by Mr Roxo in any attempt by the Feldmans to engineer an indebtedness of Yeshiva 1 to 6 to Vageta to justify the direction that the loan funds be paid to it.
40 Mr Roxo was also taxed about a statement made by him in a letter of 21 July 2003 in which he said:
"There was an article in the Sydney Morning Herald of the 19th July 03 relating to the legal action between Messrs Gutnick and Yeshiva & Feldmans. Your earlier verbal advice was that this action related to other properties and had no affect on this security. Is that still the case or is there now reason for concern?"
41 The reference to a conversation earlier than 19 July 2003 did not sheet home to Mr Roxo knowledge of the proceedings on or before 30 June 2003.
42 It was submitted that Yeshiva 1 to Yeshiva 6 conducted a religious school and were not involved in land redevelopment. Those companies were the owners of the Dover Heights property. The school had been transferred to other premises and the land was ready to be redeveloped. There was no reason why Mr Roxo should not regard Yeshiva 1 to Yeshiva 6 as in any different position from Yeshiva 7 so far as subdivision of the Dover Heights property was concerned.
43 In my view, the evidence did not establish that Mr Roxo had actual knowledge of any design on the part of the Feldmans that would have constituted a breach of duty on their part to Yeshiva 1 to Yeshiva 6. Nor did it establish that he had deliberately shut his eyes to such a design; nor that he abstained in a calculated way from making such enquiries as an honest and reasonable person would make, where such inquiries would have led to discovery of such a design; nor that he had actual knowledge of facts that to a reasonable person would have suggested such a design.
44 In my judgment the second limb of Barnes v Addy was not enlivened with respect to Mr Roxo and his principal, Ms Marshall.