Arkup 2 Pty Ltd v Leech

[2017] NSWSC 182

Supreme Court

New South Wales

Medium Neutral Citation:	Arkup 2 Pty Ltd v Leech & Anor [2017] NSWSC 182
Hearing dates:	29, 30, 31 March 2016; 1 April 2016
Decision date:	09 March 2017
Jurisdiction:	Equity
Before:	White J
Decision:	1. Judgment for the plaintiff against the first defendant in the sum of $188,052 plus interest at the rates prescribed for the purposes of s 100 of the Civil Procedure Act 2005 (NSW) from 9 August 2011 to the date of judgment. 2. Order that the plaintiff’s claims be otherwise dismissed. 3. Order that the cross-claim be dismissed.
Catchwords:	EQUITY - trusts and trustees - whether defendant held property on constructive or resulting trust for plaintiff company – no agreement or common intention that property would be held on trust and no resulting trust - whether defendant owed plaintiff company moneys – debt not proven – whether cross-defendant made representations that property and profits from ventures would be shared equally with cross-claimant – representations not established – cross-defendant not required to account to cross-claimant – whether director of plaintiff-company and defendant were partners or parties to a joint venture – parties were not partners – parties did not enter into a joint venture - whether unconscionable for cross-defendant to deny that cross-claimant held a beneficial interest in assets – whether cross-defendant held property on constructive trust for cross-claimant – no constructive trust arose over property or profits.
Legislation Cited:	Civil Procedure Act 2005 (NSW) Evidence Act 1995 (NSW) Limitation Act 1969 (NSW) Superannuation Industry (Supervision) Act 1993 (Cth) Trustee Act 1925 (NSW)
Cases Cited:	Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59 Calverley v Green (1984) 155 CLR 242; [1984] HCA 81 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692; (1987) 5 ACLC 222 Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78 Palermo v Palermo [2015] WASCA 49 Shepherd v Doolan [2005] NSWSC 42 United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1; [1985] HCA 49 Watson v Foxman (1995) 49 NSWLR 315 West v Mead [2003] NSWSC 161; (2003) 13 BPR 24,431
Category:	Principal judgment
Parties:	Arkup No. 2 Pty Ltd (Plaintiff) Alfred Mark Graham Leech (1st Defendant) Deborah Anne Leech (2nd Defendant)
Representation:	Counsel: G Leech, director of plaintiff (Plaintiff) M Gunning (Defendants)   Solicitors: n/a (Plaintiff) KL Legal (Defendants)
File Number(s):	2013/342644

Judgment

1. HIS HONOUR:   This case is about a dispute between a father, Mr Graham Leech, and his son, Mr Mark Leech, over property dealings. There were many such dealings dating back to 1988. Graham and Mark Leech fell out in 2011.

2. Many of the dealings were carried out by a company called Arkup Pty Ltd (“Arkup”). It was the trustee of a family discretionary trust established on 13 October 1992. Both Graham and Mark Leech were directors. Graham Leech was the appointor under the trust deed (called “principal”) with the power to remove the trustee and appoint a new trustee. On 30 August 2011 Graham Leech removed Arkup as trustee of the Leech Family Trust and appointed Arkup 2 Pty Ltd (“Arkup 2”) as trustee of that trust. Graham Leech is the sole shareholder and director of Arkup 2.

3. Arkup 2 commenced these proceedings on 13 November 2013. It named two defendants: Mark Leech and his wife, Deborah Leech. Mark Leech filed a cross-claim naming as cross-defendants Arkup 2, Arkup, Khaleson Pty Ltd (“Khaleson”), Graham Leech, and Dropmat Braking Pty Ltd (“Dropmat”). Khaleson is the trustee of the Leech superannuation fund. The cross-claim against Dropmat has been discontinued.

Arkup 2’s Claims Against Mark Leech

4. In November 1993 Mark Leech purchased a property at 36 Main Road, Fingal Head. In its statement of claim filed on 13 November 2013 Arkup 2 sought a declaration that Mark Leech held that property on trust for it as the new trustee of the Leech Family Trust.

5. Although not pleaded, it is common ground that the deed appointing Arkup 2 as trustee of the Leech Family Trust was registered on 31 October 2013 (that is, after the commencement of proceedings). It was common ground that by virtue of the registration of that deed, any cause of action that Arkup had against Mark Leech became vested in Arkup 2 (Trustee Act 1925 (NSW), s 9(1)).

6. Arkup 2’s second claim against Mark Leech is that between 4 and 9 August 2011 he withdrew four amounts of money totalling $188,052 from an account that Arkup had with the St. George Bank and applied it for his own purposes in partly funding a property purchased by him and his wife in Mt. Isa. It is alleged that he made the withdrawal without the authority of Graham Leech. This is admitted. Subject to his cross-claim referred to below, Mark Leech admits that he is liable to repay the amount he withdrew without the authority of his co-director.

7. Arkup 2 did not press its claim to a constructive trust or equitable lien over the Mt. Isa property. Thus it did not press any claim against Deborah Leech.

8. Arkup 2’s third claim was that as at 30 June 2012 Mark Leech owed Arkup $585,315. Arkup 2 sought recovery of this sum as a debt. Arkup 2 did not plead how the debt arose. It simply asserted the indebtedness and, as a particular, stated that the borrowing was recorded in the balance sheet of the financial statement for the Leech Family Trust for the year ended 30 June 2012. Mark Leech denied the debt and also pleaded that the claim was barred by the Limitation Act 1969 (NSW).

9. Arkup 2’s fourth claim was that it had called upon Arkup for the transfer of a property at 26 Coronation Avenue, Pottsville, NSW, and that Mark Leech as a director of Arkup had refused to execute a transfer of that property to Arkup 2 as trustee of the Leech Family Trust. This claim was not pressed in final submissions. The property at 26 Coronation Avenue, Pottsville was sold in March 2014.

Mark Leech’s Cross-Claim

10. By his cross-claim Mark Leech alleges that he and Graham Leech were partners, or were parties to a joint venture, from about 1988 to 2011, by which they agreed on their own behalf and on behalf of Arkup, Khaleson and Dropmat to conduct a joint business relationship for the purpose of deriving and sharing equally between them the assets acquired during the joint venture, and the income and profits derived from the various business and investment activities conducted over that period, including investments in and leasing of real property, the development of real property and the purchasing and operating of a real estate business.

11. In substance, Mark Leech alleges that he agreed with Graham Leech, or Graham Leech represented to him, that they would share equally in the profits of a real estate agency business conducted by Khaleson between 1989 and 1999 and would share equally the profits and assets of property developments in which they engaged, irrespective of whether a corporate entity was used to acquire, develop and sell land and irrespective of whether or not the corporate entity conducted the transaction in its capacity as trustee.

12. Mark Leech claims that Arkup and Arkup 2 hold property and assets of which they are the legal owners on a constructive trust for him as to 50 per cent share. This includes a property at 28 Johnsons Road, Browns Plains, Queensland of which Arkup became the registered proprietor as trustee of a unit trust. In 2013 it transferred a 20 per cent interest in that property to Khaleson. Mark Leech claims that Khaleson holds its interest in land at 28 Johnsons Road, Browns Plains on a constructive trust for him as to 50 per cent of Khaleson’s interest in the property. He claims that all assets held by Khaleson as trustee of the Leech superannuation fund are held on a constructive trust for him as to a 50 per cent share. He claims that Graham Leech holds properties and assets acquired by Graham Leech throughout the duration of the joint venture on a constructive trust for him as to a 50 per cent share.

13. Mark Leech sought an order for the taking of accounts to determine what profits were derived from the joint venture and claims a 50 per cent interest in those profits.

14. Graham Leech denies that there was any such partnership or joint venture and denies that Mark Leech was entitled to 50 per cent of the assets or profits arising from the property developments and real estate business in which he and Mark Leech engaged between 1988 and 2011.

15. For the reasons which follow I have concluded that Arkup 2 is entitled to judgment for $188,052 plus interest under s 100 of the Civil Procedure Act 2005 (NSW) (the second claim), but its other claims should be dismissed. I have concluded that Mark Leech’s cross-claim should be dismissed.

16. Graham Leech and Arkup 2 had legal representation up to 10 April 2015, on which date Graham Leech filed a notice of removal of the solicitor acting for him, Arkup 2, and Khaleson. Thereafter, Graham Leech acted for himself, Arkup 2 and Khaleson. Whilst he had legal representation Graham Leech made affidavits on 7 November 2013 and 17 October 2014 that were read. Mark Leech made affidavits, including a long and detailed affidavit on 28 February 2015 which, with exhibits, comprised almost 10 folders of documents, to which Graham Leech did not respond. However, the substance of Mark Leech’s case was put to Graham Leech in cross-examination and denied by him.

17. Because Graham and Mark Leech were involved together in so many property transactions, it may be of assistance to any reader of these reasons who is not already acquainted with the facts to provide an abbreviated chronology. I set out the chronology below.

1	October 1988	Khaleson purchase of 115 Gilston Road, Nerang for $93,000 (sold 1989).
2	4 January 1989	Khaleson purchase of 5 Stockton Street, Canungra for $27,000 (sold 1990 for $44,000).
3	3 May 1989	Khaleson purchase of the business The Professionals real estate business at Burleigh Heads (sold 1999).
4	24 May 1990	Mark Leech purchase of 3/34 Hill Avenue, Burleigh Heads.
5	September 1991	Mark Leech purchase of 62 Hillcrest Parade, Miami (sold 2001).
6	13 October 1992	Leech Family Trust established. Arkup was the trustee. Graham Leech the “principal” (appointor).
7	March 1993	Arkup purchase of shops in Cassia Drive, Burleigh Heads for $110,000 (sold December 2002).
8	March 1993	Mark Leech purchase of Tawarri Crescent, Koala Park. Not claimed to be part of partnership or joint venture.
9	November 1993	Mark Leech purchase of 36 Main Road, Fingal Head.
10	21 June 1994	Leech superannuation fund established. Khaleson the trustee.
11	13 August 1996	Leech Unit Trust purportedly established with Arkup as trustee. Mark Leech’s signature as director of Arkup was forged. Unit holders not named in deed. No register of unit holders produced.
12	Approximately 1996-1997	Arkup purchased shops at Connor Street, Burleigh Heads.
13	June 1997	Khaleson purchased 17 Queen Street, Fingal Head for $215,000.
14	Early 19999	Khaleson sold The Professionals business
15	March 1999	Citibank provided facility to Khaleson. Loans on Hillcrest Parade (Item 5) and 36 Main Road (Item 9) paid out.
16	June 2000	Transfer of 17 Queen Street, Fingal Head (Item 13) from Khaleson to Arkup for $375,000.
17	1999-2000	Construction work on 17 Queen Street.
18	June 2001	Arkup sold shops at Connor Street, Burleigh Heads (Item 12) for $679,000.
19	June 2001	Mark Leech sold 62 Hillcrest Parade, Miami (Item 5). Proceeds ($240,000) applied in reduction of Citibank facility.
20	October 2001	Arkup sold units 1 and 2 at 17 Queen Street (Items 16 and 17) for $737,000. Proceeds used to reduce Citibank facility.
21	October 2001	Arkup purchased 7 Elizabeth Street, Pottsville for $150,000.
22	December 2001	Arkup purchased 44 Victoria Avenue, Pottsville for $90,000. Duplex later constructed on the property (sold 2002).
23	December 2001	Arkup purchased 26 Coronation Avenue, Pottsville for $235,000.
24	2002	Two units at 44 Victoria Avenue, Pottsville (item 22) sold for $225,000 and $235,000.
25	February 2002	Arkup purchased factories at 28 Johnson Road, Browns Plains (2/553) as trustee of the Leech Family Trust (2/554).
26	December 2002	Arkup sold Cassia Drive shops (item 7) for $165,000.
27	May 2003	Graham and Mark Leech purchased 24 Coronation Avenue, Pottsville in proportions 99% and 1%
28	July 2003	Arkup purchased 28 Coronation Avenue, Pottsville. Five units constructed from 2005-2006 at cost of $1million.
29	4 February 2005	28 Johnson Road, Browns Plains (item 25) transferred by Arkup as trustee under Instrument 705401631 (the discretionary Family Trust) to itself “as trustee” (Semble as trustee of the unit trust.)
30	October 2007	Unit 2 at 28 Coronation Avenue, Pottsville (item 28) sold for $390,000.
31	November 2007	Unit 3, 28 Coronation Avenue sold for $410,000.
32	February 2008	Unit 1, 28 Coronation Avenue, Pottsville sold for $449,000.
33	September 2009	Unit 5, 28 Coronation Avenue sold for $392,000.
34	July 2010	24 Coronation Avenue, Pottsville (item 27) sold for $560,000. Proceeds used to discharge loan from RESI with balance (estimated $250,000) paid to Graham Leech.
35	June 2011	3/17 Queen Street, Fingal Head (items 13, 16, 17, 20) sold for $599,000. Net proceeds used to reduce St. George facility.
36	June 2011 (or about May)	7 Elizabeth Street, Pottsville (item 21) sold for $300,000. Proceeds used to reduce Suncorp debt.
37	4-9 August 2011	Mark Leech withdrew $188,052 from bank account of the Leech Family Trust.
38	30 August 2011	Graham Leech removed Arkup as trustee of the Leech Family Trust and appointed Arkup 2 as trustee.
39	December 2011	Graham Leech sold his house at 10 Avocet Avenue, Burleigh Heads. Proceeds used to reduce Arkup’s debt.
40	26 January 2012	Completion of purchase of Mt Isa property by Mark and Deborah Leech.
41	10 July 2013	Arkup transferred a 20 per cent interest in 28 Johnson Road, Browns Plains to Khaleson
42	March 2014	26 Coronation Avenue, Pottsville (item 23) sold.

Arkup 2’s First Claim: Resulting or Constructive Trust over 36 Main Road, Fingal Head

18. Mark Leech purchased 36 Main Road, Fingal Head (“the Fingal Head property”) in November 1993 (see item 9 in the chronology). The purchase price was $112,500. Arkup 2 alleges that Arkup as trustee of the Leech Family Trust paid the whole of the purchase price to the vendor using money that it borrowed from the ANZ Bank. It alleges that Mark Leech did not contribute any of the purchase price. It alleges that Arkup did not intend that Mark Leech would have a beneficial interest in the property and that the property was held on trust, presumably a resulting trust, by Mark Leech for Arkup. It also alleges that Arkup paid the mortgage repayments until the ANZ debt was refinanced in 1999 and thereafter paid the mortgage payments on the refinance facility from Citibank.

19. Graham Leech made an affidavit in which he baldly asserted that Arkup provided all of the purchase money using mainly borrowings from the ANZ Bank and that the interest payments on the mortgage were made by Arkup and were entered into the trust records and claimed as a tax deduction. These were opinions (being inferences apparently derived from other particular facts) and I rejected the evidence. Graham Leech did not provide any documents to support the statements. He had verified the statement of claim in which he, as director of Arkup 2, alleged that Arkup contributed the whole of the purchase price using money that it borrowed from the ANZ Bank.

20. This was not true. The evidence established beyond any doubt that Mark Leech purchased the Fingal Head property with money that he borrowed from the ANZ Bank. He made the loan repayments by regular repayments from his savings account with the ANZ Bank to a mortgage account called “RIPL No. 2”. In cross-examination Graham Leech admitted that Mark Leech borrowed the money to purchase the Fingal Head property from the ANZ Bank and that he granted a mortgage over that property to the ANZ Bank to secure repayment of the loan. He accepted that the repayments on the loan from the ANZ Bank came from Mark Leech’s savings account.

21. Graham Leech’s position was that Mark Leech obtained the moneys in his savings account that he used to repay the ANZ loan from moneys paid to him by Khaleson and he said that the payments made to Mark Leech by Khaleson were loans and not income. He had previously accepted that deposits made to the savings account were income in Mark Leech’s hands that he had received from Khaleson. In 1989 Khaleson had purchased a real estate business at Burleigh Heads (Item 3) and Mark Leech worked in that business.

22. But even if the payments to Mark Leech by Khaleson had been loans, the moneys borrowed would still have belonged to Mark Leech and the mortgage debt would have been serviced with his moneys, not those of Khaleson, let alone Arkup.

23. Graham Leech deposed that at about the time the Fingal Head property was purchased, that is, in 1993, he had a conversation with the manager of the ANZ Bank to the following effect:

“Graham:   ‘We are going to sign a contract to buy a place down at Fingal Head. We’ll be putting it in Mark’s name for the stamp duty concession and he’s going to live in it until it is developed. We want to borrow 100% of the purchase price, and an extra $120,000.00 for other development costs’.

George:   ‘I take it Arkup will be offering the security’.

Graham:   ‘Yeah, of course’.

George:   ‘Okay, 100% for the Fingal place will be no problem. Even though Mark will be living in it, we will have to do it as an investment loan in Mark’s name. You’ll need to pay an extra 1% or so in interest. We’ll do a separate loan to the Trust for the development costs, or we might be able to simply advance these funds under the existing mortgages. I’ll let you know’.

Graham:   ‘That’s great, thanks’.”

24. I do not accept this evidence. The ANZ Bank’s letter of offer of a loan of $115,000 for the purchase of the Fingal Head property stated that the required security was a first mortgage over the property to be bought and mortgages over 60-62 Hillcrest Parade, Miami (“the Miami property”) and 4 Tawarri Crescent, Koala Park (”the Koala Park property”). Both of those properties had been purchased by Mark Leech (Items 5 and 8 in the chronology). The ANZ Bank did not require security from Arkup.

25. The mortgage taken by the ANZ Bank over the Fingal Head property was upstamped to $235,000. Graham Leech said that the separate loan for development costs referred to development works to be performed in respect of either the Koala Park property or the Miami property. Mark Leech agreed that the additional amount borrowed was for the development of the Koala Park property. But that was another property owned by Mark Leech and provides no basis for any claim by Arkup to a beneficial interest in the Fingal Head property.

26. Graham Leech deposed that in order to make the principal and interest payments on the Fingal Head property investment loan, the Leech Family Trust funded a periodic transfer of $300 per week from Mark Leech’s savings account to the bank. He deposed that the trust funded the payments by making regular payments directly to Mark from 1993 to 1999. But the payments into Mark Leech’s savings account came not from Arkup, but from Khaleson as Graham Leech admitted.

27. Graham Leech’s assertions in relation to this transaction are damaging to his credit. He said on oath that the purchase price was wholly paid by Arkup. That was not so. The purchase price was wholly paid by Mark Leech from moneys he borrowed from the ANZ Bank. He said that Arkup serviced the loan from the ANZ Bank. That was not so. Mark Leech serviced the loan from payments from his savings account. He said that Arkup paid the moneys into Mark Leech’s savings account from which the mortgage payments could be made. That was not so. Some payments, but by no means the only payments, into the savings account came from Khaleson, not Arkup. Mark Leech worked in the business owned by Khaleson. Graham Leech said that the payments to Mark Leech were by way of loan. That was not so. They were wages.

24. The balance of the mortgage debt was ultimately discharged from money borrowed by Khaleson from Citibank. Khaleson makes no claim for the money paid to discharge Mark Leech’s mortgage debt. Any such claim would be statute-barred.

25. There was no agreement and no common intention that Mark Leech would hold the Fingal Bay property on trust for Arkup. No constructive trust arose and there was no resulting trust, because Mark Leech used moneys that he had borrowed from the ANZ Bank to acquire the property (Calverley v Green (1984) 155 CLR 242; [1984] HCA 81). Arkup’s first claim will be dismissed.

Arkup 2’s Second Claim: Withdrawal and Application of $188,052 Towards Purchase of Mt Isa Property

30. As noted above, Mark Leech has no defence to Arkup 2’s second claim for repayment of $188,052 withdrawn from Arkup’s account with St. George Bank between 4 and 9 August 2011 unless it arises under his cross-claim. Mark Leech’s cross-claim is considered below. Arkup 2 did not press its claim for proprietary relief.

Arkup’s Third Claim: Alleged Debt of $585,315

31. Graham Leech exhibited to his affidavit unsigned financial statements for the Leech Family Trust for the years 30 June 2008 (which included a comparison with the 2007 financial year) to 30 June 2012. The financial statement for the year ended 30 June 2008 was said to have been prepared by Crest Accountants Pty Ltd. It was dated 28 May 2013. It was clearly a draft because against the statements for the compilation report there are entries containing statements such as “Please enter trustee details in ‘Notes to the Financial Statements’ screen **** in compiling the financial statements”. The same information appears in what purport to be financial statements for the year ended 30 June 2009 (also dated 28 May 2013). Financial statements for the year ended 30 June 2010 were stated to have been compiled by PS Partners Pty Ltd on 17 August 2011. They were also unsigned. An unsigned set of financial statements for the year ended 30 June 2011 was also prepared by PS Partners Pty Ltd, so far as appears, and bore a date 17 May 2012. Financial statements for the year ended 30 June 2012 were said to be prepared by Crest Accountants. These were also dated 28 May 2013 and, again, were unsigned.

32. There was no evidence from any accountant (or anyone else) as to how the financial statements were prepared, nor from what books of account.

33. Graham Leech tendered copies of what were said to be general ledgers of Arkup from the financial year ended 30 June 2006 to the financial year ended 30 June 2011. There was no evidence as to whether the general ledgers were complete, nor as to the documents from which they were prepared. Various items of the general ledger referred to an entry “GJ” that I infer would refer to a general journal. The general journal was not produced.

34. The unsigned balance sheet for the financial year ended 30 June 2008 stated that as at 30 June 2007 Mark Leech owed Arkup $174,831 and Arkup owed Graham Leech $266,961.

35. The general ledger for the period 1 July 2006 to 30 June 2007 had an item called “Drawings Mark Leech” with an opening balance of zero and a closing balance of $58,535. The same general ledger showed drawings by Dawn Leech of $32,248. The general ledger for the previous financial year showed drawings by Mark Leech and Dawn Leech with closing balances of $91,012 and $59,268 respectively. The financial statements for the year ended 30 June 2008 which showed comparable 2007 figures did not record Dawn Leech as being a debtor of Arkup. Graham Leech made no attempt to reconcile the figures.

36. The unsigned (and draft) financial statements for the year ended 30 June 2008 recorded a loan by Arkup to Mark Leech as at 30 June 2008 of $233,865. Dawn Leech is not recorded as a debtor. The general ledger (or extracts from it) for the 12 months to 30 June 2008 shows net drawings by Mark Leech in that year of $57,063.20, and drawings by Dawn Leech of $40,852.32.

37. The financial statements for the year ended 30 June 2009 recorded a loan by Arkup to Mark Leech as at 30 June 2009 of $279,071, an increase from the previous year of $45,206. The general ledger for 2008-2009 recorded drawings by Mark Leech of $45,205. Again, drawings in that year by Dawn Leech were not reported in the balance sheet as a debt owed by her.

38. For the year ended 30 June 2010, the balance sheet showed Mark Leech as owing a loan debt of $329,597 as at 30 June 2010, an increase of $50,526. The general ledger for that period showed Mark having drawings of $47,197.08. Again drawings by Dawn Leech were not reflected in the balance sheet as a debt owed by her to Arkup.

39. The balance sheet for the year ended 30 June 2011 showed the loan debt owed by Mark Leech as $383,613, an increase of $54,016. The general ledger for that period showed drawings by Mark Leech of $52,600.62. Again, drawings by Dawn Leech were not reflected in the balance sheet as a debt owed by her.

40. The balance sheet for the year ended 30 June 2012 showed the loan debt owed by Mark Leech to be $585,315, an increase of $201,702. No general ledger for this period was produced. It was in this financial year that Mark Leech withdrew the $188,052 that is the subject of Arkup 2’s second claim.

41. Although the figures do not exactly tally, it is likely that a considerable part of the debts recorded in the unsigned financial statements as loans owed by Mark Leech related to the drawings shown in the general ledger. That is not to say that such drawings were by way of loan or created a debt. There are many problems with Arkup 2’s case.

42. First, the profit and loss accounts of Arkup did not record any wages expense.

43. Graham Leech deposed that after the Leech Family Trust was established in October 1992, Mark Leech’s only regular source of income was weekly drawings from the trust of $660 which was debited to his loan account and not recorded as a wage.

44. Mark Leech accepted that between approximately 2001 until 2010 he received drawings of $660 per week, or approximately $300,000. But Mark Leech deposed that because he and Graham Leech were both doing work for the Leech Family Trust, each was paid a “weekly wage” by way of drawings. He deposed that he did not agree to the drawings being classed as a loan. He said that “income tax was paid on this income by Arkup” by which I understood him to mean that Arkup withheld PAYG tax. That evidence was not corroborated. Nor was it refuted, except by the unsigned financial statements and general ledgers. Mark Leech treated the drawings he received from Arkup as income and paid income tax on them. He considered the drawings to be payment in return for work that he carried out on behalf of Arkup. I accept that that was so. Arkup 2 has not established how much of the claimed debt consisted of such drawings, nor that such drawings were loans rather than income.

45. Secondly, no balance sheet was signed by Mark Leech or anyone else. Nor did Graham Leech give evidence that any of the balance sheets were shown to Mark Leech. When cross-examined about the balance sheet as at 30 June 2011 Mark Leech denied that it had been submitted to him for his approval. I accept that denial.

46. After Arkup had been removed as trustee, Mark Leech attempted to obtain copies of the accounts from the accountant, a Mr Peter Chesterton. He was unsuccessful as a result of instructions given by Graham Leech to Mr Chesterton.

47. Thirdly, the amounts shown as drawings by Mark Leech in the general ledger were cross-referenced to “GJ”, that is, a general journal. It was not produced.

48. Fourthly, it appears that the financial statements were not prepared contemporaneously. Thus the unsigned and draft financial statements for the years ended 30 June 2008, 2009 and 2012 all bear a date in the compilation report of 28 May 2013. The financial statements for 30 June 2010 and 2011 are dated 17 August 2011 and 17 May 2012, that is, after Graham and Mark Leech fell out.

49. Fifthly, there are unexplained discrepancies between the general ledger and the balance sheets. The general ledger records a debt owing by Arkup to Mark Leech for each financial year of $41,361. This is not reflected as a liability in the balance sheet. As noted above, drawings by Dawn Leech are not reflected in the balance sheet as a debt owed by her.

50. The financial statements record Graham Leech as being a creditor of Arkup. They show that Arkup owed him the following amounts as at 30 June in each financial year.

2007	$266,967
2008	$199,857
2009	$316,485
2010	$319,222
2011	$260,577
2012	$612,580

51. These figures are not explained in the general ledger. The general ledger for each year includes an item “loan from Graham Leech” of $131,237. It does not appear that the general ledger produced was complete.

52. The (unsigned) financial statements on which the claim for debt is based were objected to and were admitted subject to an order under s 136 of the Evidence Act 1995 (NSW) that limited the use to which they could be put to their being a submission or summary of material said to be contained in the general ledger. The general ledger, which appears to be a business record and which was admitted without objection, does not provide support for the debt claimed in the financial statement. At least that appears to me to be the position, without the benefit of any explanation of the documents from the accountants who prepared them or Graham Leech.

53. Insofar as any part of the alleged debt of $585,315 was incurred before 13 November 2007 it is statute-barred (Limitation Act, s 14). Insofar as the debt included the sum of $188,052, it is picked up by Arkup 2’s second claim. As to the balance of the alleged debt, it has not been proved. The third claim should be dismissed.

54. As noted above at [9], the fourth claim was not pressed.

Mark Leech’s Cross-Claim

55. Mark Leech pleaded that from about 1988 to 2011 he and Graham Leech agreed on their own behalf and on behalf of other entities, including Arkup, Khaleson and Dropmat, to conduct a joint business relationship, venture or partnership (called “the Joint Venture”), the purposes of which were to derive and share equally between Mark and Graham Leech assets acquired during the Joint Venture and income and profits derived from various business and investment activities, including investing in and leasing of real property, engaging in real property development, and purchasing and operating businesses, including a real estate business. Mark Leech pleads that from around 1988 to 2011 he engaged in the Joint Venture with Graham Leech, combined his financial and non-financial resources with those of Graham Leech for the purpose of enhancing their wealth and deriving profits to be shared between them, and contributed to the acquisition of properties and businesses by, from time to time, contributing finance, or using his own assets or borrowings towards the acquisition of properties or business, and by applying his business experience and skills towards arranging or negotiating the purchase and sale of properties, arranging the leasing of properties, engaging in property developments and conducting a real estate business.

56. Mark Leech alleged that Graham Leech made representations to him as follows:

“9   Further, on numerous occasions throughout the operation of the Joint Venture, Graham Leech represented verbally to Mark Leech that:

a.   if Mark Leech’s:

wage earned as an employee of Arkup for the performance of his duties throughout the Joint Venture; or

share in any income or profit generated from the Joint Venture;

was diverted to or retained by Arkup (as trustee of the Leech Family Trust or the Leech Unit Trust) or Khaleson (as trustee of the Leech Superannuation Fund);

b.   the wage, or the share in that income or profits (as the case may be), would be treated by the Joint Venture as either Mark Leech’s superannuation entitlement, or his beneficial entitlement under the Leech Family Trust or the Leech Unit Trust, or his proprietary interest in Arkup as a shareholder.

(‘Graham Leech’s Representation’)”

57. Further pleaded representations and agreements alleged to have been made by Graham Leech were as follows:

a.    that in about 1989 it was agreed that Mark and Graham Leech would purchase a real estate business known as “The Professionals” at Burleigh Heads, Queensland, using Khaleson as the purchaser and they would control and operate the business as though they were partners who were entitled to the income and profits of the business from which they would be entitled to an equal share of the income or profits (para 19);

b.   that Mark Leech would be a “partner” in The Professionals business who was entitled to the income of the business (in context that he would be entitled to an equal share of the income of the business) (para 20(b));

c.   that in about January 2002 Mark and Graham Leech agreed to purchase two factory/shop premises at 28 Johnson Street, Browns Plains, Queensland, and manage and control that property as though they were partners who were entitled to the rental income and profits from leasing Browns Plains to various tenants and that it be a business that was part of the Joint Venture from which they were entitled to an equal share of the income or profits (para 50(b));

d.   that in various discussions both at the time Browns Plains was purchased or subsequently, Graham Leech represented to Mark Leech that Mark Leech would be beneficially entitled to 50 per cent of the ownership of Browns Plains, and would be entitled to an equal share of the rental income derived from Browns Plains as a partner in the Joint Venture (para 52(a) and (b)); and

e.   Mark Leech’s share in the rental income represented his superannuation that would be diverted into or retained by the Leech superannuation fund or other associated family trust on his behalf (para 52(c)).

58. In his principal affidavit, Mark Leech deposed to Graham Leech’s making other representations to the effect that they would share equally in the ownership of property or in profits to be derived from various transactions.

59. As appears from the chronology, the real estate agency business known as The Professionals was purchased by Khaleson and it purchased the first two properties at Canungra and Nerang that were part of the claimed Joint Venture. These acquisitions were made before the establishment of the Leech superannuation fund of which Khaleson was the trustee. It also owned commercial property in Maryborough, Victoria. In other words, Khaleson had a business and property in its own right as well as acting trustee of the superannuation fund. Mark Leech was appointed as a director of Khaleson on 12 April 1989 and he remained a director until 2 October 2009. He was never a shareholder of Khaleson. Whether he was a member of the Leech superannuation fund, and if so, the extent of his interest, remained unclear.

60. Arkup was trustee of the Leech Family Trust. It was a discretionary trust. The discretionary objects included Graham Leech and Mark Leech, but they were not the only discretionary objects. Dawn Leech (Graham Leech’s wife), Brett Leech (their son), and Cindy Kent (their daughter), were also discretionary objects until the deaths of Dawn and Cindy in May 2010 and November 2014 respectively. Brett remains a discretionary object as do Mark and Graham.

61. Arkup also purportedly declared itself a trustee of a unit trust on 13 August 1996. Mark Leech’s purported signature as a director of Arkup on the declaration of that trust was forged by Graham Leech. Nonetheless, Mark Leech has not challenged the existence of the unit trust. He was aware of its purported establishment and made no objection. He has himself pleaded that Arkup is and has been since 13 August 1996 the trustee of the Leech Unit Trust (cross-claim para 3(c)). This was admitted.

62. Mark Leech has not alleged that any transaction was a sham and has not alleged that Khaleson or Arkup made a declaration of trust in his favour or in his or Graham Leech’s favour. He has not challenged the validity of the instrument whereby Graham Leech removed Arkup as trustee of the Leech Family Trust and appointed Arkup 2 in its place.

63. There are difficulties in Mark Leech’s claim that he was or is entitled to a 50 per cent beneficial interest in the assets acquired by Khaleson as trustee of the Leech superannuation fund, or by Arkup as trustee of the Leech Family Trust or as trustee of the Leech Unit Trust, or now by Arkup 2 as trustee of the Leech Family Trust. The constructive trust he asserts is inconsistent with the express trusts on which those companies hold property.

64. Before dealing with these aspects of Mark Leech’s cross-claim, it is convenient to deal with his evidence as to the various transactions said to comprise a joint venture between him and his father and his evidence as to the representations he says were made to him by his father.

65. In none of his evidence does Mark Leech say that Graham Leech made a representation in the terms pleaded in paragraph 9 of the cross-claim set out at [56] above. I take it that that pleaded representation is said to be the conclusion to be drawn as to the effect of other representations said to have been made by Graham Leech to the effect that profits would be shared equally, or that they were partners, so as to accommodate the alleged representations to the business structures that were adopted.

Property Developments: Khaleson’s Purchase of Nerang

66. By 1988 Khaleson owned freehold land in Maryborough, Victoria and a rental property at Mermaid Beach on the Gold Coast. Mark Leech deposed that after working in Victoria he moved to the Gold Coast in 1987 when he was about 22 and obtained a real estate salesman’s licence and that in 1988 he commenced working in a real estate business in Nerang, a suburb on the Gold Coast. He says that he there learned of the opportunity to buy the property at 115 Gilston Road, Nerang (chronology Item 1) and told his father about it. The property was purchased by Khaleson. Mark Leech deposed that he had a telephone conversation with Graham to the following effect:

“Graham:   ‘If we make a profit I will split it with you’.

Mark:   ‘That would be great, I just wish I was in a position to buy it myself.’

Graham:   ‘Just keep working at it, when you make a consistent income for a couple of years you will get finance no worries’.

Mark:   ‘Yeah that’s my plan, I’ll get there.”

67. In his cross-claim Mark Leech alleged that:

“16   In reliance upon the Joint Venture and the common intention of the parties, in about 1989 or 1990 Mark Leech and Graham Leech verbally agreed to apply their respective shares in the profit from the sale of the Canungra Land towards the purchase of a property at Nerang, Queensland for the price of $88,000.00 [sic] (‘Nerang’).”

68. In his affidavit of 28 March 2015 Mark Leech said that from documents he had obtained since the pleading was drafted he had learned that the Gilston Road, Nerang property was purchased prior to the Canungra property. He thus withdrew his allegation that he and Graham verbally agreed to apply their “respective shares in the profit from the sale of the Canungra land towards the purchase of the property at Nerang”.

69. This illustrates the difficulty of reconstructing events decades after their occurrence.

Khaleson’s Purchase of Canungra

70. The Canungra land (chronology Item 2) was purchased on 4 January 1989. It was a block of vacant land. Canungra is about 35 kilometres west of the Gold Coast. The land was purchased for $27,000. The land was bought by Khaleson. Each of Graham and Mark Leech paid 50 per cent of the deposit, that is, they each paid $1,350. Mark Leech deposed that he had about $20,000 that he was keen to use to invest in real estate. He deposed that he made an offer of $20,000 to buy the land which was not accepted. He deposed:

“28.   …

I subsequently had a telephone conversation with Graham as follows:-

Graham:   ‘How did your offer go?’

Mark:   ‘They want $27,000.00 for it but I think that’s good value. I’m going to see if I can get some finance to help me buy it.’

Graham:   ‘Maybe we could buy it together.’

Mark:      ‘Yeah, maybe we could.’

Graham:   ‘You’ve still got some money from Jabiluka so if you put in half of the deposit, I’ll put in the other half and I’ll speak to the bank down here and see if they will give us the rest of the money.’

Mark:      ‘Yeah why not, it can’t hurt.’

29.   Graham subsequently spoke to me and said:-

Graham:   ‘The ANZ will give us the money to buy the land.’

Mark:      ‘If I’m putting this money in, who’ll own the property?’

Graham:   ‘We will borrow the money through Khaleson, so Khaleson will be the purchaser but you and I will split any costs and profit we make 50/50. You don’t have to worry about that.’”

71. I have difficulty in accepting that Mark Leech could have had an actual recollection of his conversations with Graham Leech that took place more than 26 years before he made his affidavit. Having said that, Mark Leech was not cross-examined on that evidence. Nor did Graham Leech swear an affidavit in response to Mark Leech’s affidavit. However, the substance of what Mark Leech deposed to was put to Graham Leech in cross-examination. He said that he had no recollection of the events that were said to have taken place more than 20 years before, and that anything was possible 20-odd years before.

Khaleson’s Purchase of The Professionals Real Estate Agency

72. Khaleson purchased the real estate agency business called The Professionals at Burleigh Heads on 3 May 1989 (chronology Item 3). The purchase was financed by a loan provided by the ANZ Bank to Khaleson.

73. Mark Leech deposed that while he was working as a real estate agent in Nerang he and Graham Leech continually spoke of his desire to own a real estate business. He deposed that Graham Leech said to him:

“Because I am already in the real estate industry down here, I could move up there and we could go into business in real estate together as partners.”

74. Mark Leech said that he agreed to go into partnership with his father in a real estate business when a suitable one was found and that he started looking for real estate businesses that were for sale and found The Professionals at Burleigh Heads. He said that both he and Graham were involved in negotiations for the purchase of the business and the purchase price was agreed at for about $258,000. He said that following the negotiations he and Graham went to a restaurant and there was a conversation as follows:

“Graham:   ‘Ah well Marko we’ve done it now. We are about to become partners in the real estate business. Let’s hope we can make a quid out of it.’

Mark:      ‘How are we going to purchase the business?’

Graham:   ‘Well for a start we’ve got to arrange the finance to buy it.’

Mark:      ‘How are we going to arrange that?’

Graham:   ‘We will go to the ANZ and talk to them.’

Mark:   ‘Do you think they will give us a loan based on the income from the Rent Roll?’

Graham:   ‘Yeah, I’m sure they will look at that, but I don’t know if they will give it to us just based on that.’

Mark:      ‘Well how are we going to do it?’

Graham:   ‘Maybe we should use Khaleson to buy it. We can use Khaleson’s assets as well as the business for collateral.’ (Graham had negotiated a deal with his father and brothers just prior to this to take over Khaleson and all of its assets, which was a block of five shops and units in Maryborough, Victoria. This was to be his payment for his share of the family owned business that Graham had been a partner in. Khaleson was a subsidiary of AG Leech Motors. In addition, Khaleson owned Gilston Road and Canungra).

Mark:   ‘How will I be included if we do that? How will we be equal partners if Khaleson buys the business?’

Graham:   ‘I’ll make you a Director of Khaleson and that will make you an equal partner in the business with me. We will still need to borrow all the money for the purchase of the business but by using Khaleson’s assets and income this should not be a problem.’

Mark:      ‘That sounds like a fair deal. When will we do that?’

Graham:   ‘We will arrange it as soon as possible. I will speak to the solicitor and the accountants and get it under way.’”

75. The business was purchased in May 1989. Hence this conversation took place sometime before May 1989. Again, it is difficult to accept that Mark Leech could recall the terms of that conversation more than 25 years later. Again, he was not cross-examined on it. Nor did Graham Leech make an affidavit responding to this evidence. However, in cross-examination Graham Leech denied Mark’s evidence. He said he decided to buy the real estate business of The Professionals at Burleigh Heads and there was no agreement with Mark at all. When asked why the business was not purchased in his name Graham’s response was “Why would I? .. .The company is the normal way to do it.” (T44) He denied ever saying that he would go into business with Mark as partners (T40). He regarded Khaleson as his company (T40). He denied saying to Mark that “I’ll make you a director of Khaleson and that will make you an equal partner in the business with me”. He denied any discussion about Mark having effectively a 50 per cent share in the profits.

76. A Mr Garth Hart was the licensee of the real estate business of The Professionals. Graham Leech said that he told Garth Hart that he would be the sales manager of the office and would receive a retainer for doing that job, but he was not offered any ownership interest in the business and no-one was. Garth Hart was appointed as a director of Khaleson on 1 June 1989 and ceased being a director on 1 November 1992. Both Graham and Mark Leech say in substance that the reason Mr Hart was appointed a director was because he held the real estate agent’s licence and the licensing provisions required him to be a director. The company search of Khaleson also records Mr Hart as being a holder of one-third of the shares in Khaleson.

77. Khaleson sold the Gilston Road, Nerang property in 1989. There was a small profit from the sale. Mark Leech deposed to having had a conversation in 1989 with Graham in which the following words were said:

“Graham:   ‘Do you agree to put the extra money from the sale of Gilston Road towards paying [off] some of Khaleson[‘]s debt for the purchase of the business.’

Mark:   ‘Yeah I’m happy to do that. It sounds like a good plan to me.’”

78. Again, it is difficult to accept that Mark could have recalled a conversation in which those words were said, or even a conversation to that effect, more than 25 years later. Again, however, he was not cross-examined on that evidence.

79. To similar effect, Mark Leech deposed to having a conversation with Graham after the purchase of The Professionals business was completed in May 1989 in which he said that Graham said to him:

“Well Marko, we own it now, we’re partners in our own real estate office. We owe a lot of money, so let’s get to work and try and make a dollar out of it.”

80. Again, Mark Leech was not cross-examined on this evidence. But it is highly unlikely that anyone could remember the actual words used in a conversation said to have taken place 25 years previously. The circumstantial detail fleshed out in Mark Leech’s affidavit does not add to the credibility of his account. If anything, it weakens it.

81. Mark Leech deposed that after the purchase of The Professionals he worked full-time in the business as a real estate salesman and was involved in the day-to-day management of the business as a director of Khaleson. I accept this evidence. Graham Leech said that when he bought the real estate business in 1989 he gave Mark a job to try and help him get on his feet, but Mark did not stay long. Graham deposed that Mark would come into the office and say:

“This is a pig of a place. I am getting out of here; I am bored shitless in this little store”.

Mark denied this. I accept Mark’s denial.

82. Mark Leech deposed that when he was appointed a director of Khaleson on 12 April 1989 Graham said to him words to the effect that:

“You are appointed a director because you are an equal partner in the real estate business and therefore you should have a say in the company”.

83. I do not accept that Mark recalled the terms of a conversation from 1989 in which the words “because you are an equal partner” were used.

84. Graham Leech denied that he arranged with Mark Leech that he (Graham) would handle all of the financial side of the business and the paperwork of the business. Graham said that that was something that he just did. I accept that evidence.

85. Mark Leech obtained a real estate agent’s licence on 11 April 1991. Mark Leech deposed that he was employed by The Professionals on a full-time basis and earned additional money from sales commission. He also said that he received drawings which he said, to his mind, “cemented … my complete belief that we were partners in the business.” He says that in around late 1993 or early 1994 Graham said to him “Don’t include the payments from Khaleson to you in your income tax returns as they are your ‘pay’ from the business. The company pays the tax on that income for you.” He said that accordingly he did not include drawings from Khaleson in his income.

86. Mark Leech produced a copy of a tax return that appears to have been for the year ended 30 June 1993, although the date is cut off. It disclosed his having received income from The Professionals of $25,872 in that financial year.

87. Mark Leech produced copies of his savings account commencing 4 August 1993 that showed weekly deposits of $475. These were payments from Khaleson. It is clear that Mark was paid a wage by Khaleson. That does not provide any objective corroboration of his evidence that Graham said that they would be equal partners in the business.

88. Graham Leech initially accepted that the payments of $475 per month were income in Mark’s hands received from Khaleson. Later, he denied saying that such payments were income and said that they were moneys that were given to Mark and that the money was not Mark’s money because it came from the company. He said the payments were loans from either Khaleson or Arkup. This was clearly incorrect and reflects adversely on Graham Leech’s reliability.

89. It does appear that Mark Leech, amongst others, received drawings from Khaleson. Khaleson’s balance sheet as at 30 June 1991 records debts owed by Mark Leech, Garth Hart and a G Archer in the sums of $10,015, $8,864 and $1,656 respectively. Those accounts were signed by Graham Leech and Garth Hart. In the following financial year ended 30 June 1992 the accounts were signed by Graham Leech. They disclose debts owed to Khaleson by Brett Leech of $5,430 and G Hart of $1,865 and shows Khaleson having liabilities to Graham Leech of $262,258, Deborah Leech of $33,984 and Mark Leech of $2,666. In the following financial year ended 30 June 1993 the accounts were signed by Graham and Mark Leech on 14 December 1993. They were the only two directors then in office. The balance sheet as at 30 June 1993 records Khaleson having assets that included debts owed to it by Brett Leech ($5,430), Mark Leech ($5,560) and two sums owed by Arkup Pty Ltd ($1,184) and Dropmat ($1,922). In the following financial year the debt owed by Mark Leech to Khaleson was shown as $2,548 and in the year ended 30 June 1995 it was shown as $6,628.

90. The fact that Mark Leech had a loan account with Khaleson is consistent with his making drawings. It is not corroboration that he and Graham Leech were “partners” in the real estate business.

91. If Graham and Mark Leech had agreed that they would be equal partners in the real estate business then it could be expected that either the business would have been acquired through a new company of which they were both directors and shareholders or, if not, that Khaleson would have kept separate accounts of that business. It did not. Khaleson’s financial statements showed the income from real estate agent commissions on rentals and sales and, separately, the rents received from its real estate holdings. But the financial statements did not allocate expenses to one business or the other.

92. Mark Leech became a director of Khaleson on 12 April 1989. He said this reaffirmed his belief that he was an equal partner in the “Joint Venture” with Graham Leech and equally entitled with Graham Leech to the income and profits of the Joint Venture, and, in particular, to the income and profits of The Professionals business. However, Mark did not become a shareholder in Khaleson. The shareholders were Graham and Dawn Leech. Mark Leech’s appointment as a director is corroborative of his evidence that he played an active role in the management of Khaleson’s affairs. The fact that he was not made a shareholder is an objective consideration that is inconsistent with his having been led to believe that he would be equally entitled to the income and profits of The Professionals business.

93. Mark Leech deposed that whilst working at The Professionals, a friend of his, a Mr Mark Rosenberg, introduced him to an invention for a truck braking system and solicited an investment. He said that he discussed this with his father and they agreed to pay an initial sum of $5,000. He deposed that Graham said they would have to look at setting up a new company for the manufacture and marketing of the system and should keep it separate from the real estate business so they could keep a track of expenses and any profits. Mark Leech deposed that Graham Leech said “we will need to set up the company so that you and I are equal partners, just like we are in the real estate business”, and that Graham agreed that if profits were made they would be shared equally.

94. Graham Leech did not respond to this evidence, just as he did not respond to any of Mark Leech’s principal affidavit, but he denied ever agreeing to split profits equally with Mark and denied ever saying that they would be equal partners. Graham said the word “equal” was never mentioned.

Establishment of the Leech Family Trust

95. Mark Leech deposed that in September or October 1992 he had a conversation with Graham at the office of The Professionals where he told Graham that he had been discussing with another person the possibility of buying land in Banora Point and developing it by putting units on it, and that Graham suggested that they do that together rather than involving a third party. According to Mark, he asked how the developments would be financed and how the profits would be split and Graham said:

“We’ll borrow the money, take out all of the costs and expenses and we’ll split the profits evenly. We’ll worry about that when we make a profit.”

96. Mark Leech then deposed that Graham later told him that his accountant had suggested that they set up a new company and a trust. Mark said he asked why they needed a trust and Graham said that it would help protect them if anything went wrong and would make it more difficult for anyone to take their assets if they lost money on a development, or if someone tried to sue them and would also help if they made a profit as they could put money into a super fund or make payments to themselves which would save their paying tax.

97. The Leech Family Trust was established on 13 October 1992. Arkup was incorporated on the same day. Mark Leech and Graham Leech were the directors and shareholders of Arkup. Mark Leech relies on this as objective corroboration of the representation said to have been made to him by Graham Leech that he would be an equal partner in property developments. But Arkup was the trustee of a discretionary trust. The discretionary objects were Graham, his wife Dawn, and their three children. Graham Leech was named as the “principal” of the trust with power to remove the trustee and appoint a new trustee.

98. The trust deed of the Leech Family Trust provided that the trustee should have a discretion to accumulate net income of the trust fund and to distribute income on trust for the “Beneficiaries” or any one or more of them exclusive of the other or others in such shares and proportions as the Trustee might in its absolute discretion determine on or before the last day of any financial year. In the event of the Trustee’s failing to make a determination to accumulate income or to appoint income to one or more of the Beneficiaries, the net income of the trust estate was to be held on trust for such of the “Primary Beneficiaries” as should be living on the last day of such year in equal shares as tenants in common, with a gift over to issue of a deceased Primary Beneficiary. The trustee had power to appoint the whole or any part of the trust fund for the benefit of all or any one or more of the Primary Beneficiaries, Secondary Beneficiaries or Tertiary Beneficiaries in such proportions or manner as the trustee should in its absolute discretion from time to time think fit. There were no Secondary Beneficiaries or Tertiary Beneficiaries. The Trustee also had power to transfer any part of the trust fund to any company in which any Beneficiary was beneficially entitled to any shares. “Beneficiaries” was not itself defined. But clearly it included Primary Beneficiaries. The Primary Beneficiaries were Graham Leech, Mark Leech, Dawn Leech, Brett Leech and Cindy Kent. Clause 9.3 empowered the “Principal” to remove any trustee from office and to appoint a new trustee, provided that the new trustee was not himself, the Settlor (Mr Baxter) or a Beneficiary. The schedule to the trust deed named Graham Leech as the Principal.

99. The trust deed was prepared by a solicitor, a Mr Philip Baxter, who acted for Graham. In his oral evidence Graham Leech said that he did not give any instructions to Mr Baxter as to what it should contain and he was unaware of its terms. He also said that it was his understanding that only he and Mark were beneficiaries of the trust.

100. Mark Leech said that he told Mr Baxter that the documents had to be set up in such a way that Graham and he were equal partners, that they had equal control and say in the “partnership/Leech Family Trust affairs” and that they would equally share in the profits. He said that Mr Baxter confirmed that that is what the documentation did.

101. Mark deposed to a lengthy conversation that he said took place to the best of his recollection in which he asked what a trust did and why a trust was needed. In the course of a long reconstruction of a conversation said to have taken place with Mr Baxter, Mark deposed that Mr Baxter said to him in Graham’s presence that he and Graham were not the only beneficiaries of the trust, but Mark’s mother and Brett and Cindy were also beneficiaries. According to Mark, Mr Baxter said in substance that it was a matter for the directors to decide to whom profits should be distributed. Mark said that Mr Baxter did not explain that the trust deed gave power to Graham to remove Arkup as trustee without his consent. He also complains that “the documents do not necessarily reflect an equal entitlement of Graham and myself solely to the Leech family trust income and assets.” However, it was clear from Mark Leech’s own evidence that he was told that it was a matter for the directors to decide to whom trust income or assets should be distributed. Even on Mark’s version of the conversation he should have appreciated that he could not compel an equal distribution of income or assets without Graham’s consent as his co-director.

102. Mr Baxter was not called. Graham Leech did not recall providing instructions and did not recall any of the discussions. Graham Leech both said that he would have read the trust deed at the time and that he did not read it at all, and that he did not know whether he read it, or he did not read it, and he did not remember. I think Graham Leech had no memory of what was said or what instructions he gave or whether or not he read the trust deed. That is not surprising as the events took place more than 23 years previously. Again, I find it difficult to accept that Mark Leech could have an actual recollection as he deposed to. I think there must have been a process of reconstruction.

96. Dropmat was incorporated on 19 October 1992, six days after Arkup was incorporated and the Leech Family Trust was established. A complete company search of Dropmat was not tendered. But Mark Leech said that contrary to his agreement with Graham, he was not made an equal “partner” in Dropmat, although Arkup was one of the shareholders. He said that Arkup was set up as they agreed, i.e. as “equal partners”.

Initial Allegations Concerning Connor Street and Koala Park

104. In the first version of the cross-claim Mark Leech filed he alleged that in or about 1990 or 1991 in reliance upon the Joint Venture and the common intention of the parties, he agreed with Graham to purchase a number of shops at Connor Street, Burleigh Heads through Khaleson as the purchaser at a price of approximately $440,000, to obtain finance from ANZ to fund the purchase and that he become a personal guarantor on the loan. That transaction did not take place until 1996 as reflected in his amended cross-claim.

105. In the original cross-claim that Mark Leech filed he also alleged that in about October 1992 in reliance upon the Joint Venture and the common intention of the parties he agreed with Graham Leech to purchase via Arkup a property at 4 Tawarri Crescent, Koala Park, Queensland for approximately $125,000 for the purpose of developing two duplex units with a view to deriving a profit (chronology Item 8). He alleged that in reliance upon the Joint Venture and the common intention of the parties he designed the plans for the rear unit, renovated the front unit and participated in the financing and arrangement of the construction of the rear unit. He said that on completion the units were sold from which a profit of approximately $50,000 was derived.

106. However, in his affidavit of 28 February 2015 Mark Leech said that he separately purchased the Koala Park property as his own and it was not part of the “partnership/trust assets”. Consistently with this evidence the reference to the purchase of the Koala Park property was deleted from the amended cross-claim.

107. Mark Leech was not cross-examined about the deletion. He did not explain in his affidavit how he came to make the mistake as to who was the purchaser. In his affidavit Mark Leech deposed that there had been a dispute in 1994 between him and the Queensland Office of State Revenue in relation to his entitlement to claim a principal place of residence concession on the rate of stamp duty. He annexed correspondence in relation to that issue. His affidavit was made 21 years after these events. But as Mark Leech was unable to recall that he personally had bought the Koala Park property, notwithstanding that it had been the subject of a dispute between him and the Office of State Revenue, there must be considerable doubt on his ability accurately to recollect conversations said to have taken place so long ago.

Arkup’s Purchase of Cassia Drive

108. Arkup’s first property investment was in shops at Cassia Drive, Burleigh Heads in Queensland in March 1993. The shops were purchased for approximately $110,000 (see Item 7 in the chronology above). The purchase price was funded by Arkup’s borrowing from the ANZ Bank. Graham Leech deposed that the ANZ took a mortgage over the property being purchased and also over other assets including over assets in Maryborough, Victoria held in the name of Khaleson. He said that the Victorian assets were pledged as collateral for all of the ANZ borrowings to Arkup as well as to himself and his wife personally. Mark Leech agreed with this, but said that he also provided his assets as collateral for Arkup’s borrowings. Neither party tendered the documents that would establish exactly what security the ANZ Bank took. The shops at Cassia Drive were sold by Arkup in December 2002 (Item 26). The proceeds were used either to discharge debt or for reinvestment in future developments.

Establishment of the Leech Superannuation Fund

109. The Leech Superannuation Fund was established on 21 June 1994. It was expressed to be made between Khaleson as “Founder” and “Principal Employer” and Khaleson as “Trustee”. It was a deed poll and executed by Khaleson under its common seal as both “Founder” and “Trustee”. The execution of the common seal was witnessed by Dawn and Graham Leech. The deed did not identify the members of the Superannuation Fund. It was a term of the deed that the Fund should at all times maintain a corporate trustee in order to comply at all times as a regulated fund under the provisions of the Superannuation Industry (Supervision) Act 1993 (Cth). It is not clear from the trust deed that the Fund was to be a self-managed superannuation fund within the meaning of the Superannuation Industry (Supervision) Act.

110. Mark Leech deposed that in about June 1994 he had a conversation with Graham Leech as follows:

“139.    At some point in time around June 1994, Graham said to me:-

Graham:   ‘I’ve been told by the Accountant that we should set up a superannuation fund to protect us from financial difficulties should anything go wrong with the partnership.’

Mark:      ‘Why does he want to do that?’

Graham:   ‘Mainly for tax purposes. It will let us use the money however we choose. For example, we could use it to buy an investment property or put it into shares.’

Mark:   ‘That sounds alright but why would we want to tie up money in a super fund? That would mean we can’t get it until we retire, wouldn’t it?’

Graham:   ‘Yeah it does, but if we just keep the money in the company and it goes onto the profit, we will be paying tax at the company rate. If we put it into our own super fund we will pay a lot less in tax. It just means we can write off some of the profit and invest that money ourselves.’

Mark:   ‘How much will we put in?’

Graham:   ‘That will be up to Barry (the accountant) when he does the books.’

Mark:   ‘I suppose that will be OK. At least we will have some money at the end of the day. How will Barry record the money in the super fund?’

Graham:   ‘The contributions to the fund will be made equally by us and the assets of the fund will be for our mutual benefit. You don’t have to worry about that. I’ll tell Barry to go ahead and use the Trust as the Trustee of the super fund’.”

111. Again, I think this must have been a reconstruction. I do not see how anyone can have an actual recollection of what words were spoken in relation to the setting up of the superannuation fund 21 years earlier.

112. There was minimal evidence as to what contributions were made to the superannuation fund and by whom. An incomplete copy of a trial balance for the Leech Superannuation Fund as at 30 June 2006 was tendered. The trial balance was missing its first page. It showed that as at 1 July 2005 Dawn Leech had an opening balance of $237,636 and a closing balance as at 30 June 2006 of $235,434; Mark Leech had an opening balance of $1,767 and a negative closing balance of $199; Brett Leech had an opening balance of $985 and a negative closing balance of $120; and that the total members’ funds as at 30 June 2005 amounted to $677,154. Presumably Graham Leech and/or Cindy Kent, had the balance.

113. There was no evidence as to how Mark Leech’s benefit was transferred or, as it was said, “paid out”. As Mark Leech had not reached retirement age it is hard to see how his benefit could have been “paid out”. Be that as it may, it does not appear that the superannuation fund was ever established on the basis that contributions to that fund would be made equally by Graham and Mark Leech, or that its assets would be held for their mutual benefit. There is no obvious reason why Graham Leech would have made the representations that Mark Leech said he made if he did not intend to perform them. He had no need to tell Mark that contributions to the fund would be made by them equally and that the assets of the fund would be for their mutual benefit. To the contrary, the most obvious reason for establishing a superannuation fund would be to provide for the retirement of Graham and Dawn Leech. I am not satisfied that Graham Leech made the representation that Mark Leech deposed he made in about June 1994 that the contributions to the superannuation fund would be made equally by Graham and Mark and the assets of the fund would be held for their mutual benefit. I do not accept that Mark believed that he and Graham were the only members of the superannuation fund who would benefit from its operation.

Oz Sales

114. Mark Leech deposed that in about March 1995 Dropmat acquired a business called Oz Sales that was an internet sales marketing business in which Mark worked along with six to seven other people. Apparently it involved listing real estate on the internet. According to Mark Leech, his agreement with Graham was that they were equal partners in Oz Sales. Mark Leech deposed that in 2001 the Oz Sales business was wound up because Graham refused to allow the business to be expanded. There was no corroboration or elaboration of this evidence.

115. Mark Leech commenced living with Deborah Leech in about October 1996. They lived at the property at 36 Main Road, Fingal Head.

Arkup’s Purchase of Connor Street, Burleigh Heads

116. In 1996 Arkup purchased two shops in a building from which The Professionals operated in Connor Street, Burleigh Heads. Although the evidence was not clear, it may be that one of the shops that was purchased was that from which The Professionals carried on its business. Mark Leech deposed that the Fingal Head property was provided as security for the loan used to acquire the Connor Street property.

Establishment of the Leech Unit Trust

117. On 13 August 1996 a trust deed establishing the Leech Unit Trust was purportedly executed by Arkup. Mark Leech who was a director of Arkup did not sign the trust deed. The handwriting evidence established that his purported signature was written by Graham Leech. There was no contrary evidence. However, Mark Leech was aware of the creation of the unit trust and did not dispute it. As noted earlier in these reasons, he himself asserted that the unit trust was established in August 1996. No register of unit holders was produced by Graham Leech. It appears from Khaleson’s financial statements that the accountants are treating Khaleson as a holder of units in the unit trust. There was no evidence as to who else, if anyone, held units in the unit trust.

Purchase by Khaleson of 17 Queen Street, Fingal Head

118. In June 1997 Khaleson purchased 17 Queen Street, Fingal Head (Item 13). Mark Leech alleged in his cross-claim that:

“in reliance upon the Joint Venture and the common intention of the parties [he] agreed with Graham Leech to purchase, via Khaleson [the] property at 17 Queen Street, Fingal …”

119. Mark Leech deposed that he was fully involved in the sourcing and purchasing of 17 Queen Street, Fingal Head and in planning for its development and in managing the property. The property was purchased by Khaleson for $215,000. There were two older style units that were rented out. Mark Leech deposed that over a period of years the units became vacant at various times and he carried out repairs, painted them and maintained the grounds and that this continued until the construction of the first stage of the development was nearly completed. The first stage of the development involved the construction of two townhouses on the rear of the property. Mark Leech worked on clearing the property over a period of nearly two weeks prior to the commencement of construction. Stage 2 was to involve removing the existing building and the construction and selling of the final two townhouses – it being a proposed four-townhouse development.

120. Khaleson sold The Professionals business in early 1999.

Citibank Refinance

121. Mark Leech deposed that when Khaleson sold The Professionals business in early 1999, at the same time it obtained a loan from Citibank to finance the development of the property at 17 Queen Street. He deposed that when the refinance by Citibank was carried out the loans on Hillcrest Parade and 36 Main Road were paid out fully.

122. On or about 3 March 1999 Khaleson agreed to borrow $1.1 million that was split into three subaccounts of $310,000, $159,000 and $631,000. The loan was guaranteed by Graham Leech, Mark Leech, and Arkup as trustee for both the Leech Unit Trust and for the Leech Family Trust. Mortgages were provided over the property in Alma Street, Maryborough owned by Khaleson; the flat situated at 17 Queen Street, also owned by Khaleson; three shops situated at 8 Cassia Drive owned by Arkup; two shops situated at 19 and 21 Connor Street, Burleigh Heads owned by Arkup; 62 Hillcrest Parade, Miami owned by Mark Leech; and 36 Main Street, Fingal Head owned by Mark Leech. Mark Leech deposed that he was told by Graham that:

“Most of your share of the proceeds from the sale of The Professionals has been used to pay out your ANZ mortgages on Hillcrest and 36 Main Road”.

123. The fact that the loans on Mark Leech’s properties were paid out with moneys borrowed by Khaleson and those properties were then mortgaged to Citibank as part of the security for Khaleson’s borrowings is consistent with the arrangements that Mark Leech deposed he had reached with his father. It is also consistent with Graham and Mark Leech’s having no fixed idea of what Mark Leech might become entitled to in addition to a wage for his services. It is also consistent with Graham and Mark Leech’s expecting Mark Leech becoming entitled to a distribution as a discretionary object of the Leech Family Trust in respect of anticipated future profits from the 17 Queen Street development. This is so notwithstanding that Khaleson purchased those units. Mark Leech deposed that at that time it was decided, on the advice of the accountant, Mr Turnbull, that 17 Queen Street should be transferred from Khaleson to Arkup. In this respect Mark Leech said that around the time they were considering selling The Professionals business it was decided on the accountant’s advice that 17 Queen Street should be transferred from Khaleson to Arkup. He said that that transfer was subsequently carried out. It is admitted on the pleadings that Khaleson transferred 17 Queen Street to Arkup in about June 2000 for $375,000 (Item 16).

124. Two of the shops were sold in October 2001 for $737,000.

Application of Proceeds of Sale of Mark Leech’s Hillcrest Avenue Property

125. In June 2001 Mark Leech sold the Hillcrest Avenue property. The proceeds of sale ($240,000) were also used to reduce the Citibank facility. Graham Leech said “That would be obvious”. There are many possible reasons as to why the proceeds of sale of the Hillcrest Avenue property would have been applied to reduce the Citibank borrowing. One reason could be, as Mark Leech contends, that he and Graham Leech through Khaleson and Arkup, were engaged in a joint venture under which Mark Leech expected to benefit equally with Graham. Another possible reason, consistently with Graham Leech’s evidence, would be that Khaleson indirectly provided the funds for the acquisition of the Hillcrest Avenue property by making payments to Mark Leech by which he could service the debt to the ANZ Bank on the property when, according to Graham Leech (but denied by Mark), Mark did little in working in The Professionals business. A third, and simpler, reason is that the existing loans that Mark Leech had on the Hillcrest Avenue and 36 Main Road properties were paid out on the refinancing of the Citibank loan in 1999 from moneys borrowed by Khaleson and accordingly when the Hillcrest Avenue property was sold the moneys raised were used to reduce the Citibank facility and thus discharge or reduce a debt he would have owed to Khaleson. There was no evidence of the amounts owed by Mark Leech to the ANZ Bank that were discharged on the Citibank refinance.

126. In June 2001 Arkup sold the Connor Street shops at Burleigh Heads for $679,000. There is no evidence as to how the proceeds of those sales were applied, but it is likely they were applied in reduction of the Citibank loan as Citibank had a first mortgage over the properties.

Arkup’s Purchase of Pottsville Properties

127. In October and December 2001 Arkup purchased properties at 7 Elizabeth Street, Pottsville (Item 21), 44 Victoria Avenue, Pottsville (Item 22) and 26 Coronation Avenue, Pottsville (Item 23). A duplex was constructed on 44 Victoria Avenue, Pottsville. Mark Leech said, and I accept, that he supervised and managed that project.

128. Mark Leech also said that in 2001 he and Graham were concentrating on their “joint property development activities”. After the transfer of 17 Queen Street from Khaleson to Arkup in June 2000, the real estate activities were being conducted through Arkup. It is not clear in what capacity Arkup acquired 17 Queen Street, Fingal Head. The balance sheet for Arkup as trustee for the Leech Family Trust as at 30 June 2000 does not record 17 Queen Street, Fingal Head as an asset of the Leech Family Trust. Prima facie, it acquired the property either as trustee of the Leech Unit Trust or in a non-trustee capacity.

Purchase of Browns Plains

129. Mark Leech deposed that in in about October 2001 after inspecting the Browns Plains property he and Graham had a conversation as follows:

“[Mark]:   ‘I think they (factories) are a good buy. They have got a good income, which could come in handy. How are we going to buy them if we decide to make an offer?’

[Graham]:   ‘We will probably use the Citibank line of credit. That’s what it’s there for.’

[Mark]:      ‘Should we buy them in the name of Arkup or Khaleson?’

[Graham]:   ‘We will buy them in Arkup. Like you just said the income will come in handy. It will help pay the interest on the line of credit, especially when we are doing a building. As you well know it can take a fair while for things to sell and the interest still needs to be paid and we need to live.’

[Mark]:   ‘Yeah I know, nothing ever seems to sell as quick as we would like it to. How should we account for the income?’

[Graham]:   ‘It will all just go in the pot, the building will be an asset and we’ll use the income as we need to.’

[Mark]:   ‘That’s good because I might need my half to build my new house on my block in Fingal. How are we going to work out how much we are each going to take?’

[Graham]:   ‘We will split any profits we make 50/50, the same as we agreed when we set up the company. We will worry about that when we need to.’”

130. Arkup purchased the factory and shop premises at 28 Johnson Road, Browns Plains for $552,500 in February 2002. Browns Plains is a suburb of Logan City in south-eastern Queensland.

131. In his later affidavit Mark Leech deposed:

“177.   In February 2002, Arkup purchased factory/shop premises at 28 Johnson Road, Browns Plains (‘Johnson Road’) for $552,500.00. Prior to the purchase of Johnson Road, Graham and I discussed the purchase as follows:-

Mark:      ‘Will we use Arkup to purchase the factories?’

Graham:   ‘Yes’

Mark:   ‘I assume that we will share the profits like we have done with all of the other projects?’

Graham:   ‘Yes we’ll share the profits on a 50/50 basis’.”

132. As noted above, Graham Leech did not respond to Mark Leech’s affidavit. Nor was he cross-examined on this evidence. That does not mean that I should infer that he accepted it. Nor does it appear that Graham and Mark had shared profits on other projects on a 50/50 basis. It does not appear that there had been any previous sharing of profits on other projects.

Graham and Mark Leech’s Purchase of 24 Coronation Avenue, Pottsville

133. Graham and Mark Leech purchased 24 Coronation Avenue, Pottsville in May 2003 using money borrowed by Arkup from the ANZ Bank. The land was purchased in the proportions of 99 per cent for Graham Leech and one per cent for Mark Leech. Mark Leech deposed that they purchased the property in their own names to minimise land tax, presumably to take advantage of the land tax threshold. Mark Leech deposed that the proportions in which the land was held were put in place because, according to Mark, Graham wanted to safeguard the property from any attack by Deborah if Deborah and Mark separated and there was a property settlement under the Family Law Act. Mark went along with this. He deposed that he now realises that Graham was not only worried about protecting the property from Deborah, but wanted to make sure that Mark had very little claim on it as well. But the plan to protect the property from claims by Deborah required that Mark not have the 50 per cent beneficial interest in the property that he now claims he assumed he did have. Whilst 24 Coronation Avenue was purchased in the name of Graham and Mark Leech, it was included in the financial statements for the Leech Family Trust as a trust asset. This is consistent with Graham and Mark Leech intending to hold their legal title to the property, not on trust for themselves in equal shares, but on trust for Arkup as trustee of the Leech Family Trust.

Transfer of Browns Plains Property by Arkup as Trustee of Leech Family Trust to Itself as Trustee of the Leech Unit Trust

134. The Johnson Road property was purchased by Arkup in its capacity as trustee of the discretionary trust. On 4 February 2005 Arkup executed a transfer from itself as trustee of the Leech Family Trust to itself as “trustee” (apparently as trustee of the Leech Unit Trust). The transfer was signed by both Graham and Mark Leech. As noted above it is quite unclear who are the unit holders of the Leech Unit Trust, but it appears that Khaleson is said to be either the only unit holder or the principal unit holder of the Leech Unit Trust. Mark Leech does not seek to have this transaction set aside. That might not be surprising, given that there is no issue as to the authenticity of his signature on the transfer as a director of Arkup.

135. Arkup, as trustee of the Leech Family Trust, could not properly have transferred the Browns Plains property to itself in its capacity as trustee of the unit trust without the informed consent of the discretionary objects of the Leech Family Trust and the unit holders of the unit trust. It was in a clear position of conflict between its duties to the beneficiaries of the Leech family and the unit holders of the Leech Unit Trust, whoever they may be. It is said that the transfer was suggested by an accountant. That is probable.

136. Mark Leech deposed that at the time of the transfer of the Johnson Road property from Arkup as trustee of the Leech Family Trust to itself as trustee of the Leech Unit Trust, Graham said to him:

“The accountant has said that the Johnson Road property should be transferred to our super fund for tax purposes, but the same arrangements will apply to the distribution of income and profits on a 50/50 basis to you and I.”

137. Mark noted that in the following year, when Arkup refinanced its Citibank borrowing with a loan from the St. George Bank, the application form for the loan that was signed by him and Graham showed each of them receiving income of $4,230 per month from Arkup for Johnson Road. In his earlier affidavit Mark Leech deposed to Graham having said to him “This transfer will transfer Browns Plains to the Leech superannuation fund”. He said that he had earlier queried Graham about the properties being put into the superannuation fund, but Graham told him that the accountant, Mr Barry Turnbull said it was to save tax, and they could draw income from their line of credit and pay much less in interest than the 30 per cent they were paying in company tax on the income from Johnson Road. Mark deposed to the following conversation:

“[Mark] said:   ‘How and when can we get the money out of the super fund if we need it?’

Graham said:   ‘If we need the money I can retire, and we can draw the money back out as we need it’.

[Mark] said:   ‘How can I use the money if I need to?’

Graham said:   ‘I can just draw it down and put it back into the trust account and you can draw it out through company’.

[Mark] said:   ‘That sounds alright, as long as my HALF of the money is going to be there for me to use if I need it.’

Graham said:   ‘Yeah of course it is, you’ve got nothing to worry about, super funds are pretty tightly controlled.’

[Mark] said:   ‘Myself and Deb want to build ourselves a new house on my block at Fingal, so I just want to be sure we can get the money if we need it’.

Graham said:   ‘That won’t be a problem. We’ll worry about that when the time comes.’”

138. Graham did not respond to this affidavit and Mark was not cross-examined on it. Even if this evidence is accepted, it is clear that Mark knew that the income from Johnson Road was to be distributed to Khaleson as trustee of the superannuation fund and that the only means of his accessing what he asserts was his 50 per cent entitlement to the income would be by Graham drawing money out of the fund. How Mark thought Graham could draw down Mark’s superannuation entitlement to give him access to it was not explained.

Mortgage of 24 Coronation Avenue and Graham Leech’s Home

139. In 2004 the 24 Coronation Avenue property was mortgaged along with Graham Leech’s home to secure refinancing of Arkup’s loan with the ANZ Bank.

Development of 28 Coronation Avenue

140. In 2005 Arkup started construction of five units at 28 Coronation Avenue, Pottsville. Mark Leech worked on the site on a daily basis as a labourer. He said that he was responsible for having the plans drawn and engaging numerous people to have the project approved and engaged the builder and signed the building contracts, and that he and his wife, Deborah, designed the layouts of the kitchens and bathrooms and went to numerous suppliers to pick out the fixtures and fittings. That evidence was not contradicted and I accept it.

141. As noted in the chronology, from October 2007 to September 2009 four units at 28 Coronation Avenue, Pottsville were sold.

Mark Leech Resigns as Director of Khaleson

142. Mark Leech resigned as a director of Khaleson in 2009 at Graham’s request. According to Mark Leech the accountant, Mr Turnbull, had recommended that they should wind Khaleson up as they were no longer using it. This seems improbable. If Mark thought that he had a balance in the superannuation fund, one would expect him to inquire to what new fund his balance was to be transferred.

Sale of 24 Coronation Avenue

143. In July 2010, 24 Coronation Avenue, Pottsville was sold. The net proceeds of sale after payment off of the mortgage were paid to Graham Leech. Mark Leech initially calculated that the amount paid to Graham Leech on the sale of the property at 24 Coronation Avenue was $250,000, but subsequently revised that figure to $190,870. Graham Leech did not give evidence as to what it was.

144. In December 2011 Graham Leech sold his house at 10 Avocet Avenue, Burleigh Heads. $293,175.51 of the sale proceeds were paid to Perpetual to reduce Arkup’s debt under the Perpetual facility obtained in 2004 on a refinancing of the ANZ loan.

145. The unsigned financial statements recorded movements in Graham Leech’s loan balance so as to show Graham Leech as a creditor of Arkup as at 30 June in the sum of $612,580. However, the financial statements were not admitted as evidence of the truth of the facts asserted but only as a summary of information in the general ledger. As noted at [51] the general ledger did not record the movements in Graham Leech’s loan account with Arkup as reflected in the unsigned financial statements. Nonetheless, the general ledgers to 30 June 2011 recorded Arkup owing a loan balance of $131,237 that would have increased in the following financial year as a result of the payment of the proceeds of the Avocet Avenue property to reduce Arkup’s debt. This transaction, along with the evidence from the general ledger that Graham Leech made loans to Arkup that far exceeded the recorded loan from Mark Leech is not consistent with Mark Leech’s assertion that property transactions through Arkup were to be made on the basis that he and Graham were equal partners in the venture. Although Mark Leech provided guarantees and properties as security for loans, those securities were not called on, whereas Graham Leech did provide funding for the trust.

Sale of Further Properties

146. As appears from the chronology, 3/17 Queen Street, Fingal Head was sold in about June 2011 and the net proceeds of sale were used to reduce debt. This was the last of the 17 Queen Street units. At about the same time 7 Elizabeth Street, Pottsville was also sold and the moneys used to reduce debt.

Breakdown of Relations

147. It appears that relations between Graham and Mark broke down in 2011. Mark Leech said that he did not believe he needed permission to withdraw the $188,052 that he withdrew from Arkup’s bank account in August 2011. He said in oral evidence that:

“A.    The basis for that belief was that the asset securing that loan was my personal property at 36 Main Road, Fingal Head, being the only asset securing that loan. This was after the rift with Mr Graham Leech in regards to the company proceedings, and when I went, or I could not borrow any money to support myself or my family and to move on with my life, and to relocate in order to find employment, due to the fact that Mr Leech also had a caveat over my property, so I in fact couldn't sell the property either, so I believed as a director of the company that I was within my rights to withdraw that money.”

148. It appears that relations had broken down by 4 August 2011. The reason for the breakdown was not explained.

Transfer of 20 Per Cent Interest in Browns Plains Property

149. In July 2013 Arkup transferred a 20 per cent interest in the Browns Plains property to Khaleson. Graham Leech did not explain the reason for this. Mark Leech was apparently not involved. As that property was held by Arkup as trustee of the unit trust and as Mark remains a director of Arkup it is hard to see how this could properly have been done. But the issue was not explored, and is not relevant having regard to the way Mark Leech puts his case.

Rents from Browns Plains

150. It appears that from the bank statements kept by Arkup as trustee of the Leech Unit Trust that from at least 2004 a substantial part of the rents collected from the Johnson Road, Browns Plains property were paid into an account in the name of Khaleson as trustee of the Leech Superannuation Fund with J B Were. Mark Leech calculated that between 2004 and September 2015 $1,940,760.90 was so applied. Some moneys from the Arkup Unit Trust bank account were paid directly to Graham Leech. Mark Leech concluded that $1,940,761 was transferred to an account that only Graham Leech had access to and control of. This evidence was not contradicted and I accept it. Mark Leech claims half of those moneys and also half of the moneys paid to Graham Leech from the sale of 24 Coronation Avenue, Pottsville, which in his last affidavit he estimated to be $190,870 (not $250,000). He also claims half the value of the Browns Plains property which he describes as being the major asset held by the trusts, the beneficial ownership of which is in dispute.

Representations as to Equal Sharing of Assets and Profits not Established

151. The central factual issue is whether I should accept Mark Leech’s evidence that Graham Leech represented to him on many occasions that they were equal partners in the property transactions in which both were involved and that the assets and the profits from the property developments and acquisitions would be shared between them equally. Mark Leech was not cross-examined on that evidence, but that does not mean that I am bound to accept it. Most of the representations were put to Graham Leech in cross-examination and he denied ever making such representations.

152. Graham Leech was an unsatisfactory witness. He was at times sarcastic, dismissive, and rude. Parts of his affidavit evidence were shown to be unreliable. He came across as a hard and mean-spirited man who would be unlikely to make concessions or do favours. I take account of the fact that whatever was the cause of his rift with Mark in 2011, that rift, and the subsequent death of Cindy Kent, have embittered Graham Leech towards Mark. I have to consider whether he may have been more generous in his dealings before the rift than the appearances given at trial.

153. But Deborah and Mark Leech’s evidence suggests that Graham had that same character before 2011. Deborah Leech gave evidence that between 1994 and 1999 Mark suffered from chronic fatigue and was quite sick. She described Graham bullying Mark at the time by saying to him:

“You better get on your feet soon and start doing some work. What do you think we’re paying you for? I’m not paying your mortgage – I’ve got enough to worry about.”

154. She deposed to Dawn Leech warning her to watch Graham who was a “greedy bugger”. She said that in 1998 she had a conversation with Graham at their house at 36 Main Road, Fingal Head in which she told Graham that she and Mark were going to buy a nice second-hand lounge suite and his response was:

“Why do you want to go wasting money doing that? Money doesn’t grow on trees you know. Mark should concentrate on paying off his mortgage before he goes throwing money away on rubbish.”

155. She said that in 2002 she told Mark that she wanted to see the books and he said “That’s not going to happen. Graham won’t let me see the books”, and that he had asked lots of times, but Graham never let him see them.

156. Mark gave evidence that in about September 2007 Graham discussed with him increasing the rents on the Johnson Road, Browns Plains properties above the CPI increases. Mark expressed concern that increasing the rents could result in losing a tenant and Graham responded heatedly:

“You need to stop being so bloody weak. They [the tenants] can afford to pay more. Why should Mum and I miss out because you’re too scared to put the rent up? The bloody costs keep going up. Wake up to your bloody self.”

157. Mark said “What’s the point? You always do what you bloody want anyway”, and Graham replied “Yeah, I bloody do. God knows you are too stupid too. The tenants will just walk all over you. Wake up to yourself.”

158. This evidence is believable. It is entirely consistent with how Graham Leech presented in the witness box.

159. The conversations to which Mark Leech deposed all took place many years, and even decades, before Mark Leech made his affidavits. I do not doubt that at least by the time he made his affidavits, Mark Leech believed that he should be entitled to half of the profits and assets of the property ventures engaged in by Arkup and Khaleson in which he participated. Human nature being what it is, a belief as to what he should be entitled to could easily become a belief in what he was entitled to and his memory of events long in the past could adjust accordingly. As McLelland CJ in Eq said in Watson v Foxman (1995) 49 NSWLR 315 at 319:

“… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consider­ation of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”

160. As noted earlier in these reasons, I think there has been a great deal of reconstruction in Mark Leech’s evidence. That is evident from the circumstantial detail in his evidence and his professed ability to recall words spoken decades earlier. That has to be assessed against his understandable inability to recollect the sequence of the purchases of the Gilston Road, Nerang and the Stockton Street, Canungra properties, notwithstanding that he deposed to recalling the detail of conversations that occurred at the time of the acquisition of those properties; his initial allegation that in reliance upon the Joint Venture and the alleged common intention of the parties, he agreed with Graham to purchase shops in Connor Street, Burleigh Heads through Khaleson in 1990 or 1991, when in fact that purchase did not take place until five years later; and his initial assertion that the purchase of the Tawarri Crescent, Koala Park property in 1992 was a purchase by Arkup that was part of the alleged Joint Venture, a proposition from which he later resiled. This last matter is particularly telling because it is evident that when Mark Leech gave instructions for the preparation of his cross-claim which he verified, he was unable to recall that in 1994 he had been in dispute with the Queensland Office of State Revenue in which he had claimed a stamp duty concession on the basis that the property had been acquired by him as his principal place of residence, whereas in his cross-claim filed decades later, he alleged that the property had been acquired by Khaleson. Given that there had been a dispute with the Queensland Office of State Revenue, one might expect, even after the lapse of time, that Mark Leech would recall that he had acquired the land personally. His initial inability to do so indicates that his memory is not as reliable as presented in his affidavits.

161. Nor, on the whole, is there objective support for Mark Leech’s evidence as to the representations said to have been made by Graham. As noted earlier in these reasons, if it had been agreed between Graham and Mark that they would share equally in the profits (and any losses) of The Professionals business, even though it was conducted by Khaleson, one would expect separate accounts of that business to have been kept, or that the business would have been conducted through a new company in which they had equal shareholding. That did not happen. The appointment of Mark as a director of Khaleson does not objectively indicate that he and Graham were to be equal partners sharing in the profits equally. Similarly, the fact that Arkup acted as trustee of a discretionary family trust and of a unit trust is inconsistent with Mark Leech’s contention that it was agreed that he and Graham would share the assets and profits equally. The fact that 24 Coronation Avenue, Pottsville was purchased by them in proportions of 99 per cent to Graham and one per cent to Mark is also objectively inconsistent with Mark’s version of events.

162. For these reasons I do not accept Mark’s evidence that Graham represented to him that they would equally own the assets of the businesses or investments conducted through Khaleson and Arkup and that they would share profits from those ventures equally. That conclusion is not based on any adverse assessment of Mark’s demeanour in the witness box, although as indicated above, it is in part based upon my assessment of Graham Leech’s character which in turn, is in part based upon my assessment of his character as portrayed in the witness box and at the bar table.

163. Had I concluded that the alleged representations were made, I would have accepted Mark’s evidence that he altered his position to his detriment in the expectation that he would share equally in the assets and profits of the businesses and investments, having been induced to form that expectation by such representations. The consequence of such a finding would not be that the assets of Arkup or Khaleson were held on constructive trust for Mark Leech. So to conclude would be to treat the Leech Family Trust, the Leech Unit Trust, and the superannuation fund, as shams. No such contention was raised, nor could such a contention have had any reasonable prospect of success, notwithstanding Graham Leech’s evidence that he regarded the assets and money in the Leech Family Trust as beneficially belonging to his wife and him. As Young J said in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 694-695; (1987) 5 ACLC 222 at 224-225:

“Unfortunately, it very often happens in cases in this court that a person has arranged his affairs for commercial or fiscal reasons employing a particular structure, which with respect to creditors and the Government he expects to be recognized as no sham, but when it comes to a dispute with his former wife or former business associates it is not in his interests to maintain the structure and he pleads before this Court that one must not look at the structure at all but rather at the ‘realistic’ or ‘practical’ effect of what has happened. I do not find this sort of submission attractive. So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer, in commercial sickness or commercial health.”

164. However, that would not preclude the making of an order requiring Graham Leech to account to Mark Leech for half of the profits Graham Leech has personally derived from the various ventures through his position as a discretionary object of the family trust, a beneficiary of the superannuation fund and as a unit holder of the unit trust, if in fact he is such a unit holder. An inquiry for the taking of such an account could have been ordered. That is to say, the use of Arkup and Khaleson and the establishment of the three trusts is not necessarily inconsistent with the existence of an agreement between Graham and Mark that through those structures they would each use their powers as directors, to the extent they had such powers, to ensure an equal distribution of profits generated by the different ventures (Palermo v Palermo [2015] WASCA 49 at [150]-[159]). Likewise, Graham could be estopped from denying Mark’s expectation that he would share equally with Graham in the profits of such ventures if he had induced Mark to adopt that assumption to Mark’s detriment by making the representations alleged. Had I concluded that the agreement or representations alleged by Mark had been made, it would have been appropriate to make orders to require Graham Leech to account to Mark for half of the profits derived from the various ventures that he personally has received.

164. However, as I have not found that the alleged agreement was made or the alleged representations were made, I do not propose to order such an account.

Other Grounds for Imposition of a Constructive Trust

166. Mark Leech rested his claim on other grounds. He submitted that he and Graham Leech engaged in a joint undertaking or activity that constituted a joint venture pursuant to which the participants were joint venturers in a commercial enterprise with a view to profit and that the profits were to be shared and the joint venture property was to be held on trust (United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1; [1985] HCA 49 at 10-11). He submitted that when the relationship between Graham and him broke down which caused the joint venture to come to an end and removed its substratum, then, at that point, it was unconscionable for Arkup and Arkup 2 and Khaleson and Graham Leech to deny that Mark Leech held a beneficial interest in the assets and properties that they had acquired or benefited from throughout the course of the Joint Venture.

167. But in my view, the parties were not in a joint venture in any relevant sense. In United Dominions Corporation Ltd v Brian Pty Ltd Mason, Brennan and Deane JJ (at 10) described the term “joint venture” as connoting, in ordinary language:

“[A]n association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, ‘adventure’) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership.”

168. The point of that explanation was to explain how proposed participants in a joint venture owed fiduciary obligations to each other such that, in that case, one of the participants in the joint venture could not pursue a collateral advantage in relation to the proposed project without the knowledge and informed assent of the other participants (at 13).

169. In the present case Mark and Graham Leech did not associate for the purpose of conducting undertakings with a view to “mutual profit”. They were not partners. There was no agreement that the profits derived by the companies would be shared between Mark and Graham Leech. The profits would either be derived by shareholders (in the case of Khaleson) or beneficiaries of the trusts of which Arkup was trustee. The only agreed “profit” for Mark Leech was his wage from Khaleson and the drawings he received from Arkup which I have accepted were not loans, but reward for services rendered. No doubt both parties anticipated that the business and developments would yield profits. But there was no agreement between them as to how the profits would be shared and they adopted business structures under which the assets of the ventures belonged to Khaleson and Arkup, and under which the companies were the principal borrowers, albeit supported by guarantees and securities provided by Graham and Mark Leech and Khaleson. In my view, their business dealings were not conducted pursuant to an agreement in the nature of a joint venture.

170. Mark Leech also submitted that there is a general equitable principle that where a party makes contributions to a joint endeavour that fails, his contributions will be restored to him if made in circumstances where it was not intended that the other party should enjoy them, citing Baumgartner v Baumgartner (1987) 164 CLR 137 at 148; [1987] HCA 59 and Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78). He submitted that he and Graham Leech pooled their earnings for the purposes of their joint relationship, that their contributions, financial and otherwise to the acquisition and development of properties were on the basis, and for the purposes of, their joint relationship, and that it was unconscionable for Graham Leech and the entities associated with him to take the position that after the joint endeavour failed in 2011 the properties and income with which were acquired through pooled funds belonged to them to the exclusion of Mark Leech. He submitted that such unconscionable conduct required the intervention of equity and the imposition of a constructive trust.

171. In Baumgartner v Baumgartner Mason CJ, Wilson and Deane JJ referred (at 148) to the:

“… general equitable principle which restores to a party contributions which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.”

Their Honours referred with approval (at 148) to the principle stated by Deane JJ in Muschinski v Dodds at 620 that:

“… the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do: cf Atwood v Maude (1868) LR 3 Ch App 369 at 374-5 and per Jessel MR, Lyon v Tweddell (1881) 17 Ch D 529 at 531.”

172. Baumgartner and Muschinski v Dodds concerned the beneficial interests of parties to a de facto relationship in land, the legal title to which was held by both parties (in Muschinski v Dodds) or by one of them alone (Baumgartner) where the parties’ relationship could be characterised as a joint venture. As Campbell J explained in West v Mead [2003] NSWSC 161; (2003) 13 BPR 24,431 at [52], in Baumgartner the High Court applied to domestic relationships principles which courts of equity have developed in relation to claims for property entitlements of partners in failed commercial ventures. Baumgartner was noteworthy for allowing non-financial contributions to be taken into account in deciding whether it would be unconscionable for the party with legal title to the asset to deny a beneficial interest of the other party having regard to that party’s contribution, financial or otherwise, to the relationship or joint endeavour. As Campbell J explained in West v Mead:

“[58]Before any particular asset can become subject to a constructive trust in accordance with the Baumgartner principle, one needs to have a joint relationship or endeavour, and an asset acquired in the course of, and for the purposes of, that joint relationship or endeavour. In Baumgartner the application of the principle proceeded thus:

‘The facts that the Leumeah property was acquired and developed as a home for the parties and that, at least indirectly, it was largely financed out of money drawn from the pool of their earnings, this being one of the purposes which the pool was to serve, combine to support an equality of beneficial ownership at least as a starting point. Equity favours equality, and, in circumstances where the parties have lived together for years and have pooled their resources and their efforts to create a joint home, there is much to be said for the view that they should share the beneficial ownership equally as tenants in common, subject to adjustment to avoid any injustice which would result if account were not taken of the disparity between the worth of their individual contributions either financially or in kind.’

[59]In accordance with this approach, a plaintiff needs to establish that there is indeed a joint endeavour between the parties, in which expenditure is shared for the common benefit.”

173. In my view, the parties were not engaged in a joint endeavour within the meaning of these principles. Nor did they share expenditure for their common benefit. Expenditure was incurred by Khaleson or Arkup from moneys generated from profits or rents or from borrowed funds provided either by third party lenders or by Graham Leech or Khaleson. Mark Leech provided his services, but did so for reward. He provided properties of which he was the legal and beneficial owner as security for Khaleson’s and Arkup’s borrowings, but they were not called on and he benefited from the mortgage over 36 Main Road, Fingal Head being discharged from the Citibank loan obtained by Khaleson. Mark and Graham Leech did not pool their resources. In my view, no constructive trust arises on the principles in Baumgartner or Muschinski v Dodds.

174. Finally, Mark Leech submitted that a common intention constructive trust arose in respect of the assets and profits acquired throughout their joint venture (Shepherd v Doolan [2005] NSWSC 42 at [34] ff). I do not think that Graham Leech ever had the intention that Mark Leech would have a beneficial interest in the assets acquired by Arkup or Khaleson. In any event, for the reasons given earlier, I do not think that it is open to Mark Leech to maintain a claim to a beneficial interest in assets held by Khaleson and Arkup when the trust deeds under which those companies hold property are not impugned.

175. For these reasons the cross-claim should be dismissed.

Conclusion and Orders

176. For these reasons I give judgment for the plaintiff against the first defendant in the sum of $188,052 plus interest at the rates prescribed for the purposes of s 100 of the Civil Procedure Act 2005 (NSW) from 9 August 2011 to the date of judgment.

177. I order that the plaintiff’s claims be otherwise dismissed.

178. I order that the cross-claim be dismissed.

179. I will hear the parties on costs.

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Decision last updated: 09 March 2017