Commonwealth v Booker International Pty Ltd - [2002] NSWSC 292

No judgment structure available for this case.

CITATION: Commonwealth of Australia v Booker International Pty Ltd [2002] NSWSC 292 revised - 5/07/2002

CURRENT JURISDICTION: Equity

FILE NUMBER(S): SC 4960/98

HEARING DATE(S): 04/04/02, 05/04/02

JUDGMENT DATE: 12 April 2002

PARTIES :

Commonwealth of Australia (plaintiff)
Booker International Pty Limited (defendant)

JUDGMENT OF: Campbell J

COUNSEL : Ronald Webb (plaintiff)
Andrew Bell, Jeremy Kirk (defendant)

SOLICITORS: Australian Government Solicitor (plaintiff)
Eakin McCaffery Cox (defendant)

CATCHWORDS: TRUSTS AND TRUSTEES - intention to create a trust - when intention to be inferred - TRUSTS AND TRUSTEES - intention to create a trust - concerning commercial arrangements - TRUSTS AND TRUSTEES - construction of particular contract - TRUSTS AND TRUSTEES - right of beneficiary to recover in personam, from recipient of trust property - when recipient of trust property gives consideration - first limb of Barnes v Addy

LEGISLATION CITED: Trustee Act 1925 (NSW)
Trusts Act 1973 (Qld)
Trustee Act 1958 (Vic)

CASES CITED: Hardoon v Belilios [1901] AC 118
Black v S Freedman & Co (1920) 12 CLR 105
Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548
Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353
City Bank of Sydney v McLaughlin (1909) 9 CLR 615
Barnes v Addy (1874) LR Ch App 244
Baden Delvaux v Sociéte Generale [1993] 1 WLR 509
Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567
Bahr v Nicolay [No2] (1988) 164 CLR 604
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371
Walker v Corboy (1990) 19 NSWLR 382
Henry v Hammond [1913] 2 KB 515
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Jessup v Queensland Housing Commission [2001] QCA 312
Davies v Australian Securities Commission (1995) 59 FCR 221
Occidental Life Insurance Company of Australia Ltd v Bank of Melbourne (1993) 7 ANZ Insurances Cases
78,310
In Re: Hallett's Estate 13 Ch D 696, at 708
In Re Australian Elizabethan Theatre Trust (1991) 30
FCR 491

DECISION: Trust not established

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
EQUITY LIST

CAMPBELL J

12 APRIL 2002

4960/98 COMMONWEALTH OF AUSTRALIA V BOOKER INTERNATIONAL PTY LTD

JUDGMENT

HIS HONOUR:

Nature of the Claim

1 The Commonwealth entered an arrangement with South Pacific Cruise Lines Ltd (“SPCL”), under which the Commonwealth paid money to SPCL to enable unemployed people to be trained to work as crew on a cruise ship. SPCL used the money for other purposes. One hundred and forty thousand dollars of the money found its way to Booker International Pty Ltd (“Booker International”). The Commonwealth seeks to recover that sum, with interest, from Booker International.

2 The first steps in the argument by which the Commonwealth seeks to recover the money are that when the Commonwealth paid money to SPCL, SPCL received it as a trustee, and the payment made by SPCL to Booker International was in breach of that trust. If those steps are accepted, the Commonwealth then makes two alternative claims, either of which, it says, is sufficient to enable it to recover. The first is that SPCL provided no consideration for the payment. The second is that Booker International had notice that the money was paid by SPCL in breach of trust.

PART A – DID THE COMMONWEALTH PAY SPCL ON TRUST?

The Contract Between the Commonwealth and SPCL

3 SPCL is a company of which Mr Gregory Adams is a Director and Chief Executive Officer. From early 1997 SPCL was trying to start a business of running a cruise ship.

4 William Angliss Institute of TAFE is a Victorian educational institution with experience in training people to work in the leisure and hospitality industry.

5 On 22 January 1997 Mr Adams wrote to the Secretary of the Department of Employment, Education Training & Youth Affairs (“DEETYA”), informing him that SPCL would be launching its cruise ship programme in the second half of that year, and that it would be, “the first Australian cruise vessel to be totally staffed by residents of Australia”. The letter said:

“In keeping with the quality expectations of this venture we are pleased to advise that we have appointed William Angliss exclusively to look after the recruitment/employment, training operational and procedural issues related to the hospitality section of the cruise ship.

South Pacific Cruise Lines Ltd will recruit 375 hospitality personnel in stage 1 of the venture, with a further 2-300 within twelve months of the commencement of cruise activity. Furthermore we will also need to train 60 maritime personnel in cruise procedures, this complement consisting of officers, engineers etc.

To this respect we authorise you to speak to Kevin Beck of William Angliss on our behalf on how your organisation can assist in the areas of expertise that William Angliss are involved in.”

6 On 7 May 1997 Mr Beck, the Chief Executive of William Angliss 2000 Pty Ltd (a company which William Angliss Institute of TAFE used to provide services on a commercial basis) wrote to the Manager – Industry Development of DEETYA Queensland, referring to SPCL and saying:

“We do not object to the contract being altered to reflect an agreement between SPCL and DEETYA. We only request that it include an approval for SPCL to subcontract delivery of the project and management to William Angliss 2000 Pty Ltd.”

7 I will refer to both William Angliss Institute of TAFE, and William Angliss 2000 Pty Ltd indiscriminately as “William Angliss”.

8 On 13 May 1997 Mr Adams, on behalf of SPCL, wrote to that same officer of DEETYA in Queensland, saying:

“Further to our telephone discussion last week many thanks for your efforts to re-direct the DEETYA contract to South Pacific Cruise Lines.

South Pacific Cruise Lines will subcontract William Angliss 2000 Pty Ltd for delivery of the project and management.”

9 On 4 June 1997 Mr Adams wrote again to that officer, saying:

“South Pacific Cruise Lines through William Angliss 2000 Pty Ltd are subcontracting Sarina Russo of the Russo Institute of Technology as the primary training provider.”

10 An agreement in writing was entered between the Commonwealth and SPCL, dated 16 May 1997. (I am sceptical about the accuracy of this date, because the letter of 4 June 1997, which I have just mentioned, was annexed to the contract. However nothing turns on this.)

11 The agreement was entitled “Training for Employment Programme (TEP) Agreement”. It began by saying:

“Note:

1. This Agreement is for the provision of labour market services to the Commonwealth.

2. This Agreement includes requirements and provisions contained in the General Conditions of Contract (Version 2) and Specific Conditions for TEP (Version 1). These have been provided to you separately and by signing this Agreement you acknowledge receipt of those documents and their applicability to this Agreement.

12 The Agreement used a naming convention under which the Commonwealth was referred to as “we” or “us”, and SPCL was referred to as “Organisation” or “you”.

13 The Agreement had a reference number BDU MAY 97. It consisted of two and a bit pages of specially drafted conditions, together with attachments consisting of:

· a proposal, undated, which an officer of William Angliss Institute had completed.

· the letters dated 7 May, 13 May and 4 June 1997 which I have earlier set out

· a standard form document entitled “Specific Conditions: Training for Employment Programme (TEP) (Version 1),” and

· a standard form document entitled “General Conditions of Contract for the Provision of Labour Market Programme (LMP) Services (Version 2)”.

14 The specially drafted conditions in the contract included the following:

“4. The Contract is for the period from 23 June 1997 to 29 August 1997.

5. The period of the Contract may be extended by us, by giving you notice in writing no later than 14 days before the end of the Contract, for a further six months if:

· we require the services

· we are satisfied with your performance

· both parties agree to any variation of the services or fees payable,

· funds are available for the services

You acknowledge that nothing in the Contract requires us to extend the period of the contract.

6. You will provide the following services:

Refer to organisations submission attachment 2. South Pacific Cruise Lines will subcontract the management and delivery of the programme to W Angliss 2000 P/L. South Pacific Cruise Lines will provide employment outcomes to graduates of the training programme.

7. You must place at least 70% of the participants referred to you in subsidised employment upon completion of the training courses they attend. …

10. We will refer at least 340 participants to you during the period of this Agreement.

one

12. The number of participants of any one Training Course must not exceed 340, or fall below 340 or as otherwise directed by us.

13. The services are to be undertaken by the personnel listed in the tender submission and listed in attachments 3, 4 and 5.

14. Provided you have performed the Contract to our satisfaction, we will pay you the service fee of $2,794,799.00.

15. Provided you have performed the Contract to our satisfaction, we will pay you the service fee in advance in accordance with subclauses 2.3 and 2.4 of the Specific Conditions. Payment of the service fee will be as follows:

First payment shall be $2,235,839 being 80% of the agreed fee.

Final payment shall be $558,960 being the balance of the agreed fee. This is to be paid after 70% of participants have been in continuous employment for a period of six weeks.

16. We will pay the agreed fee and any reimbursements by direct credit to your bank account as follows:

[There was provision for identifying the bank account, but the details were not filled in] …

18. We have arranged insurance to cover personal accident and public/products liability for participants. However you must pay the excess of $100 for any claim for damage to property. You must notify us immediately of any loss, damage or injury to personal property that may result in a claim under this insurance …

20. Note that for training conducted at sea insurance to cover person accident and public/products liability for participants will be the responsibility of South Pacific Cruise Lines.”

15 In 1997, 23 June was a Monday and 29 August was a Friday. Thus, the effect of clause 4 was that the period of the contract extended over 10 working weeks.

16 Pursuant to clause 6, it was the obligation of SPCL to provide the training programme (with management and delivery of that programme being subcontracted to William Angliss 2000 Pty Ltd), and also to ensure the employment of at least 70% of the participants in the training programme. By a combination of clauses 10 and 12, there would be exactly 340 participants in the training programme. SPCL also had the responsibility to pay the insurance excesses referred to in clause 18, and pay for the insurance referred to in clause 20.

17 The submission contained in attachment 1 to the contract nominated a course duration of 10 weeks. It made provision for there to be pre-employment training of up to eight weeks on shore, for the trainees then to be,

“passed to the cruise ship’s supervisor relative to their work area for induction training (they are now employees). They then enter a work support environment under William Angliss (3-5 on-site specialists plus the supervisors managers).”

“post course support”

18 The submission contained a page headed “Costs of providing service to DEETYA”. This nominated, in a line of the form labelled “3”, a cost per participant of the course of $6,720. Though the submission did not actually perform the calculation on that page, if one multiplies $6,720 per participant, by 340 participants, one arrives at the figure of $2,284,800. That page also listed:

“Ancillary Costs:

supplied to Participants

Please itemise

a) Books/equipment/uniform $833 per participant.

b) Other (give details): $667 per participant

c) Subtotal (a + b): $1,500 per participant

Total Ancillary Costs (‘c’ x No. of participants) 5: $510,000

TOTAL PROPOSAL COST [3 or 4] + 5: $2,794,799

Cost per participant: $8,220

Cost per participant hour: $15”

19 Again, the submission did not actually perform the calculation on the page, but the total proposal cost of $2,794,799 is one dollar less than the costs of providing the service of $2,284,800, plus the ancillary costs of $510,000.

20 The proposal also included the following:

“ Costing Schedule

The following is intended as a guide for providers in calculating course costs. The breakdown of costs also indicates to DEETYA how course costs have been calculated.

The provider should indicate who will retain possession of any items purchased with Commonwealth funds.

Per Participant Course Total

21 Of the amount included in this costing schedule, the tuition costs of $2,284,800 can be understood as derived from the cost per student of $6,720, multiplied by the number of students attending (340).

22 The Specific Conditions: Training for Employment Programme (TEP) (Version 1) included the following provisions:

“1 SERVICES:

1.1 You must conduct or arrange formal training courses as detailed in the Agreement …

2 PAYMENT ARRANGEMENT:

2.1 Provided you have performed the Contract to our satisfaction we will pay your fee according to one of the following payment arrangements (the Agreement will specify the arrangement):

· payment in arrears; or

· payment in advance …

2.3 If payment in advance is specified in the Agreement we will pay you the services fee by payments as follows:

Duration of Training or other assistance

First payment*

Second payment*

Final payment (in arrears)

0-13 weeks Up to 80% Balance

14-26 weeks Up to 50% Up to 30% Balance

*Payment is expressed as a percentage of the total services fee payable

2.4 We will make the payments referred to in sub-clause 2.3 according to the following conditions:

(a) First payment:

We will pay you the first payment:

· after both parties have signed the Agreement; and

· within 28 days after receipt by us of your invoice for the first payment.

We will not pay you earlier than fourteen days before the commencement date of the training course or other assistance provided under sub-clause 1.2 to which the payment relates. …

(c) Final payment:

We will pay you the final payment within 28 days after receipt by us of:

· your invoice for the final payment;

· your acquittal in the form of Annexure 1 for all previous unacquitted payments; and

· the reports required under clause 3.

We will not pay you the final payment before the completion of the training course or other assistance provided under sub-clause 1.2 to which the payment relates.

2.5 If specified in the Agreement, we will pay you an amount solely for the purpose of providing travel assistance on our behalf to participants who are eligible for travel assistance. You must not provide travel assistance to a participant until we tell you :

· that the participant is eligible for travel assistance;

· the rate of travel assistance you are to provide that participant; and

· The duration of the travel assistance for that participant.

2.6 You must maintain records of travel assistance you have provided to participants in the form of Annexure 4. You must ensure that participants acknowledge receipt of each payment they receive by signing your travel assistance records at the space provided. You must provide us with your records or allow us to inspect your records if and when we request it.

2.7 If the Agreement specified that w e will reimburse you for travel assistance provided by you , we will do so at the end of each training course or other period set out in the Agreement. Provided you have paid the travel assistance to participants in strict accordance with sub-clauses 2.5 and 2.6 above, we will pay you within 28 days after our receipt of:

· your invoice for the amount of travel assistance you have correctly distributed to participants; and

· a copy of your records of the travel assistance you have provided.

2.8 If the Agreement specifies that we will pay travel assistance funding to you in advance, we will pay you an amount, as set out in the Agreement, from which you will provide travel assistance to participants, in strict accordance with sub-clauses 2 5 and 2 6 above. We will pay the advance not earlier than 14 days before the due date of commencement of the first training course or serve you are to deliver under the Contract

We will provide you with further advances for travel assistance if, in our opinion, further advances are required. We will pay you within 14 days of our receipt of:

· your written request for a further advance for travel assistance;

· your acquittal in the form of Annexure 1 for at least 80% of the latest advance and your acquittal in the form of Annexure 1 for any unacquitted funds from earlier advances; and

a copy of your records of the travel assistance for the funds being acquitted.

We will tell you in writing the amount of each further advance.

Within 14 days of the end of the Contract you must provide us with a final acquittal in the form of Annexure 1 for all travel assistance funds not previously acquitted, together with a copy of your records of travel assistance you provided. You must repay us any unspent funds or funds for which you cannot acquit at the same time as your final acquittal. Your attention is drawn to sub-clause 4 13 of the General Conditions.

3.1 Within 14 days of the completion of each training course you must provide us with a written report, in the form of Annexure 2, for each participant who has completed that course.

3.2 Within 28 days of the completion of each training course you must provide us with a written course evaluation report, in the form of Annexure 3.

23 The Specific Conditions: Training for Employment (TEP) (Version 1) had an annexure, as follows:

TRAINING FOR EMPLOYMENT PROGRAMME
FINANCIAL AND PERFORMANCE ACQUITTAL – ADVANCE PAYMENTS
(to be completed by the Organisation)

PROJECT NAME PROJECT No.

I hereby certify that:

(i) $ ………….was paid to ……………………….(Name of Provider) by the Department of Employment, Education, Training and Youth Affairs as an advance of the services fee detailed in the Agreement;

(ii) the Services for which the above payment relates have been delivered in accordance with the provisions of the Contract:

(iii) $ ………….was paid to ……………………..(Name of Provider) by the Department of Employment, Education, Training and Youth Affairs as an advance for travel assistance as detailed in the Agreement;

(iv) the travel assistance advance of $…..…………….has been fully expended or committed, as per the attached Summary of Expenditure/Commitment, in accordance with the provisions of the Contract.

(v) details of expenditure/commitments for travel assistance accord with the attached summary and suitable financial records exist to support this Summary.

Signed:…………………………………………………Date: ……/……/……

(Name of Provider)

24 The “Attached Summary of Expenditure/Commitment”, referred to in item (iv) of that certificate is a form headed “Summary of Expenditure/Commitment – Variable Costs”. The form makes provision for having three boxes to tick, one labelled “Travel Assistance”, another labelled “Books and Equipment”, the third labelled “Other”. There is then a table of three columns, the respective columns headed, “Participant Name” “Purpose of Payment” and “Amount Paid”. At the end of the table is the statement, “The above summary of expenditure is true and correct and suitable financial records exist to support this Summary”, with provision for signature on behalf of the provider. Though paragraphs (iii) (iv) and (v) of the Acquittal Form refer in terms to travel assistance, the “attached summary of expenditure/commitment” refers to not only travel assistance, but to other items on which expenditure can be made.

25 The written report which clause 3.1 requires to be completed for each participant, is a two page document, which requires comment to be made on the job seeker’s attendance during the course or placement, the job seeker’s application and participation, the job seeker’s employment/education status at the time of exit from the course or assistance, and, if appropriate, recommendations for further assistance required to advance the job seeker to their ultimate goal of employment. The written course evaluation report, required by clause 3.2, is a three page form requiring comment on the course itself: how the group of trainees interacted and how any problems were resolved; how any work experience component to the course turned out; what arrangements there were for post course support of trainees; whether the relationship which development with the local CES office throughout the course adequate and appropriate; and in what ways it could be improved; and any general comments.

26 Annexure 4 was the Record of Travel Assistance, required by clause 2.6. This requires the name of every participant who is approved by the CES for travel assistance to be listed, in relation to each participant so listed the beginning and end points of the journey for which travel assistance is approved, and the amount payable per fortnight. There is provision on the form for each such participant to complete a record of the date they were paid, the number of days they attended, the amount paid, and a signature to confirm that payment had been received and travel details were correct.

27 The General Conditions of Contract for the Provision of Labour Market Programme (LMP) Services (Version 2) which was annexed to the Contract, contained the following provision:

“1. 1.1 The Contract is between:

2.1 Because some words have a special meaning in the Contract they are explained below. The words may or may not begin with a capital letter where they appear in the Contract.

Services ‘Services’ means the services that you provide either to participants or to us under the Contract. …

2.5 The Contract is the entire agreement and replaces all previous communication and arrangements relating to the Services. …

3.1 In providing the Services, you must:

· take full responsibility for the Services, including the quality of Services and the appropriateness of Services to the needs of participants; and

· exercise a high level of skill, care and diligence. …

3.3 If we are dissatisfied with the quality of Services provided, we may do all or any of the following:

· provide directions to you as necessary to improve the qualify of the Services provided;

· withhold payment until such time as the quality of Services provided improves to our satisfaction;

· if the quality of services does not improve within a reasonable period, recover moneys already paid for Services not property performed; and

· terminate the Contract …

3.7 You must:

· ensure that personnel performing the Services are suitably skilled and/or qualified to perform the Services; and

· provide us with details of the qualifications and work experience of personnel if requested by us. …

3.9 You must not sub-contract or assign any part of the Contract without our prior written approval. We have the right to impose additional terms and conditions before giving our approval. You remain fully responsible for the performance of the Services even when part or all of the Services have been sub-contracted. …

3.14 You must help us to monitor and evaluate the Services provided by: …

· allowing us, at all reasonable times, unhindered access to you financial accounts and records as described in sub-clause 4.5 and allowing us to copy them; …

3.16 You must monitor the performance of participants and:

· provide information, when requested by us, on each participant’s progress, attendance and behaviour;

· advise us of any disruptive behaviour, unexplained absences or other behaviour of participants that may be of concern; and

· assess the efforts of participants in looking for employment, other training or further education

4.1 We will pay for Services you have provided within 28 days of receiving a correct invoice with sufficient supporting information as required by sub-clauses 4.2 to 4.4 below. These are core requirements for payments and the Specific Conditions and the Agreement may impose additional requirements which you will also have to satisfy before we pay you. We will not pay you unless all relevant Services are completed to our reasonable satisfaction. Where we provide you with money for specific purposes (eg income support and training allowances), you can only spend if for those purposes.

4.2 Your invoices must include:

· your name;

· your contact phone number;

· the title of the Services;

· the Project Number;

· details of the Services; and

· the amount for payment …

4.4 We will reimburse you for books and equipment that you purchased on behalf of participants with our prior written approval. You must provide us with an invoice which includes:

· the details set out in sub-clause 4.2 above;

· the suppliers invoice or receipt;

· details of the books and equipment bought;

· the prices paid for the books and equipment; and

· the names of participants who received the books and equipment

4.5 You must keep proper accounts and records of your transactions and affairs in relation to any money you receive from us under the Contract in accordance with Australian Accounting Standards. In particular, all funds provided by us must be clearly and separately identified in your accounts. You must keep your financial accounts and records in such a way so as to enable an auditor or other person to examine them at any time and to ascertain your financial position.

4.6 Unless otherwise specified in the Agreement, we will pay you by direct credit to the bank account nominated by you in the Agreement.

4.7 You must deposit and retain all funds provided by us in an account which must be used exclusively for LMP funds provided by us . The account must be located in Australia with an established Australian financial institution such as a bank, building society or credit union.

4.8 You must provide an acquittal for all advance payments, in the form specified by us , before any further payments will be made by us . If you do not properly acquit advance payments under the Contract or any other contract you have with us , we may defer further payments to you . The unacquitted payment is a debt due to us . …

4.10 In any final report you provide to us, you must identify money owing to us due to:

· non achievement of minimum numbers of participants; or

· failure to comply with the terms and conditions of the Contract and LMP Guidelines (if applicable); or

· unspent funds that were provided for a specific purpose not being spent for that purpose; or

· non-commencement of any or all of the Services; or

· early termination of the Contract.

4.11 If we require you to repay money owing to us under the contract, you must do so within 28 days of our written request (which is “the due date for payment”). …

4.12 If you owe us any money under the Contract, we may offset that debt against any other payments due to you under the Contract or any other LMP contract we have with you .

4.13 If money owing to us is not paid or refunded by the due date for payment, you will be liable to pay us , on the outstanding amount, interest at the rate of the weighted average yield of 13 Week Treasure Notes as at the date on which the money was first payable, plus a margin of 4 per cent per annum. …

6.1 You must have and maintain such insurance cover, as is reasonably required by us , for:

· your staff, premises and equipment; and

· the provision of the Services, through professional indemnity and product liability insurance. …

8.1 You will indemnify (and keep indemnified) us our officers, employees and agents against any loss or expense (including legal expenses) resulting from:

· and overpayment made to a participant; or

· any claim; or

· any action

resulting from any wilful, unlawful or negligent act or omission by you or your employees, agents or sub-contractors in connection with the Contract. …

10.11 If the Contract is terminated, you are not entitled to compensation for loss of expected profits.

28 On 16 May 1997 SPCL wrote to DEETYA, giving details of the bank account of SPCL. It gave the details which were the type that clause 16 of the specially drafted part of the Contract had called for, but which had not been filled in in the contract itself. The name of the account so nominated was “South Pacific Cruise Lines General Account”.

29 On 4 June 1997 SPCL sent an invoice to DEETYA. It read:

“Pre-Employment Training programme of DEETYA clients to positions within South Pacific Cruise Lines in accordance with Agreement between DEETYA and South Pacific Cruise Lines. Agreement No: BDU MAY 97.

Total Amount Due and Payable $2,235,839

PAYMENT INSTRUCTIONS

Could you please bank this amount directly into the bank account of South Pacific Cruise Lines with the Hongkong Bank of Australia Limited, 1 O’Connell Street SYDNEY. BSB: 342 011 Account Number: 068285-002.”

30 The Commonwealth made payment of that invoice (save that the amount paid was, inexplicably, short by 50 cents) on 10 June 1997, by direct transfer to the bank account which SPCL had nominated. That account had been opened on 2 June 1997, but no money was placed into the account until the payment from DEETYA arrived on 10 June 1997.

31 The Commonwealth contends that this money, when received by SPCL was held by it on trust. The factors that the Commonwealth points to, in particular, are -

- comparatively soon before the contract was executed, SPCL was substituted for William Angliss as the contracting party

- the total amount of money payable under the contract is exactly equal to the amount which William Angliss had stated as being the cost of providing the course. Thus, the Commonwealth says, the whole amount of money paid to SPCL was paid for the purpose of being on-paid to William Angliss.

- the money which the Commonwealth paid to SPCL is money paid for a specific purpose (namely, on-payment to William Angliss), so clause 4.1 of the General Conditions imposes a contractual obligation to only spend it for that purpose

- clause 4.7 of the General Conditions requires the money to be kept by SPCL in a separate bank account

- in fact, when SPCL received the money on 10 June it was received into a newly opened account, into which no other money had been paid.

32 This is the sort of situation, according to the Commonwealth, where, in accordance with the decision in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 a court will hold that there is a trust of the money for payment to William Angliss and (in those circumstances where payment to William Angliss is not made) for the Commonwealth. In fact, no training was ever conducted by William Angliss, and William Angliss has never become entitled to any payments. Hence, the Commonwealth says, the money was held on trust for the Commonwealth.

Legal Test for Existence of a Trust

33 The Commonwealth does not assert that the trust which here exists, is a constructive trust. Nor is it a resulting trust. Rather, it is an express trust, where the parties have not actually used the word “trust”.

34 In Bahr v Nicolay[No2] (1988) 164 CLR 604, at 618 Mason CJ and Dawson J said:

In Re Schebsman; Official Receiver v Cargo Superintendents (London) Ltd

“It is true, that by the use possibly of unguarded language, a person may create a trust, as Monsieur Jordain talked prose, without knowing it, but unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention.”

This reluctance to accept that the parties have created an express trust has induced the English Courts to impose what has been described as a constructive trust in order to protect a prior interest from destruction on the registration of a later interest…

Wilson v Darling Island Stevedore & Lighterage Co Ltd

35 In Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 120 Mason CJ and Wilson J said:

Vandepitte

In Re: Schebsman

Wilson

In Robertson v Wait

Lloyd’s v Harper

Les Affréteurs Réunis Société Anonyme v Leopold Walford (London) Ltd

Williams v Baltic Insurance Association of London Ltd

Vandepitte

Williams

Eslea Holdings Ltd v Butts

36 In Trident at 140 Brennan J referred to:

Wilson v Darling Island Stevedoring & Lighterage Co Ltd

37 In Trident, at 146 Deane J referred to the same passage in the judgment of Fullagar J in Wilson, and continued:

Adams v Champion

Commissioner of Stamp Duties (Q) v Jolliffe

In Re Schebsman

38 See also Trident at 156-157 per Dawson J, 166 per Toohey J.

39 Other circumstances where courts have recognised a trust, notwithstanding that the parties have not in so many words said that a trust is intended, have been the line of cases starting from Barclay’s Bank Ltd v Quistclose Investments Ltd [1970] AC 567.

Australian Conference Association Ltd v Mainline Constructions Pty Ltd (in Liquidation)

Daly v Sydney Stock Exchange Ltd

40 In Walker v Corboy (1990) 19 NSWLR 382, at 385 Priestley JA quoted the following passage from the decision of Channell J in Henry v Hammond [1913] 2 KB 515 at 521:

“…We must apply that principle to a case where the property is a sum of money. It is clear that if the terms upon which the person receives the money are that he is bound to keep it separate, either in a bank or elsewhere, and to hand that money so kept as a separate fund to the person entitled to it, then he is a trustee of that money and must hand it over to the person who is his cestui que trust. If on the other hand he is not bound to keep the money separate, but is entitled to mix it with his own money and deal with it as he pleases, and when called upon to hand over an equivalent sum of money, then in my opinion, he is not a trustee … but merely a debtor. All the authorities seem to me to be consistent with that statement of the law.”

41 Priestley JA then continued:

“Channell J in this passage makes the first inquiry the question of the terms upon which a person receives the sum of money. This does not mean starting from some prima facie position. It will be from the detailed facts of the case itself that the court draws its conclusion.”

42 In Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 Gummow J gave a detailed account of the proper scope of operation of the Quistclose decision. However the case before Gummow J was not the type of case to which the Quistclose decision could be directly applied, because in that case there were no loans made for a specified purpose. Rather, in that case there were donations given to the Elizabethan Theatre Trust, “unconditionally”, with the expression of a “preference” that the donations be passed on to some nominated arts organisation.

43 In deciding whether a trust has been established,

Re Kayford Ltd (in Liquidation)

Davies v Australian Securities Commission

Occidental Life Insurance Company of Australia Ltd v Bank of Melbourne

44 As well, it is relevant whether or not the circumstances in which the trust is alleged to arise, is a commercial transaction. In Walker v Corboy (1990) 19 NSWLR 382, at 398 Meagher JA said:

New Zealand and Australian Land Co v Watson

“intricacies and doctrines connected with trusts”

Nest Oy v Lloyd’s Bank Plc

Limitation of Actions in Equity

45 In Walker v Corboy, at 390, Clarke JA noted that that statement of Bramwell LJ had also been applied by Channell J in Henry v Hammond [1913] 2 KB 515 at 521, and in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 119 per Wilson J, and at 149-150 per Dawson J. Clarke JA continued:

“The statement in question does not in my opinion express a principle of law but it is a useful reminder of the caution which should be exercised when deciding whether an intention to impose trust obligations should be inferred from the complex set of circumstances which often attend the commercial relationships of parties who have traded together for a long period of time. If, however, the court, applying due caution, concludes that it is proper to infer, or impute, the requisite intention then it is the duty of the court to give expression to that conclusion.”

Application of the Legal Tests

46 As I construe the contract between SPCL and the Commonwealth, there was no intention that there be a trust of any part of the money paid. The document referred to itself as an “Agreement” in various places (the introductory note, clause 6, and clause 13 of the Special Conditions, para (ii) of the Form of Acquittal, the title of the General Conditions of Contract for the Provision of Labour Market Programme (LMP) Services, and clauses 3.1 3.3, 3.7, 3.9, 3.13, 3.14, 3.17, and 4.1 of those General Conditions). The benefit which SPCL is to provide the Commonwealth is referred to as being “Services”, or a “Service”. Under clause 14 and 15 of the Special Conditions, the money which is to be paid to SPCL is referred to as a “Service Fee”. The terminology of a “Fee” or “Service Fee” is repeated in clause 2.1 and 2.3 of the Specific Conditions: Training for Employment Programme document, and in paragraph (i) of the form of acquittal annexed to that standard form contract. Ordinarily when there is an agreement under which one party provides services to the other for a fee, no trust attaches to the fee so paid. Rather, the fee, when paid, belongs beneficially to the payee. Of course, specific conditions in a contract could displace that usual situation. The point, for present purposes, is that the structure of the Agreement is one where some displacement is called for, if there is to be a trust.

47 While it is correct that the quantum of the “Services Fee”, $2,794,799, is exactly equal to the amount contained in the Costing Schedule prepared by William Angliss, it is incorrect to say that $2,794,799 would, if the contract were performed, necessarily end up with William Angliss. The Costing Schedule includes items of uniforms, and “other course requisites (eg tools)”, which, in the ordinary course of things, would need to be acquired from some provider of such items. I cannot see any intention expressed in the agreement that it would be William Angliss which would be responsible for acquiring those items, rather than SPCL, or Sarina Russo of the Russo Institute of Technology. What was to be subcontracted to William Angliss was “delivery of the project and management” (see paragraph 8 above). When SPCL clearly had some responsibilities of its own under the Agreement (for insurance, for providing the working environment in which the last two weeks training could take place, and for providing employment once the training was over, to name just a few) it could not be said that every task required by the contract was to be subcontracted, under the description “delivery of the project”.

48 Further, it is part of the contract that “South Pacific Cruise Lines through William Angliss 2000 Pty Ltd are sub-contracting Sarina Russo of the Russo Institute of Technology as the primary training provider.”. The Agreement does not inform the reader whether being the “primary training provider” means that all, or only some of the training will be carried out by Sarina Russo. However, it is clear that at least part of the amount which the Costing Schedule shows as being paid for tuition costs, will end up not with William Angliss, but with Sarina Russo.

49 The contract describes the relationship between SPCL and William Angliss as being a sub-contract, and the relationship between William Angliss and Sarina Russo as also being a sub-contract. I cannot see any reason, arising from the text of the contract or the circumstances it was entered, why those two sub-contracts should be of any different kind. If there is a trust, whereby money intended to be paid to William Angliss is held on trust for William Angliss, I see no reason why there ought not also be a similar trust whereby money intended to be paid to Sarina Russo should be held on trust for Sarina Russo. Yet the Agreement provides no way of identifying what proportion of the monies which SPCL received are held for William Angliss (on the one hand), or for Sarina Russo (on the other).

50 Also, the fact that the quantum of the Service Fee is exactly equal to the amount contained in the Costing Schedule prepared by William Angliss does not necessarily mean that the very sum of money which is paid by the Commonwealth to SPCL must itself be passed on to William Angliss (or, indeed, to anyone else). It would be perfectly consistent with this agreement if SPCL had already paid some money to William Angliss, as an advance of the amount it was to be paid for providing the services. Further, there is no evidence to show what the arrangements were between SPCL and William Angliss, so far as payment are concerned, and in particular whether SPCL was obliged to pay William Angliss the exact amount which William Angliss had included in the proposal form which is annexed to the Agreement.

51 The General Conditions of Contract for the Provision of Labour Market Programme Services document is a standard form, designed to cover situations where it is the contracting party which itself performs the services (though clause 3.9 also allows for the possibility of sub-contracting, with consent.) The wording of clause 4.1 needs to be construed with this in mind. The sentence in clause 4.1 “where we provide you with money for specific purposes (eg income support and trading allowances), you can only spend it for those purposes” is, in the circumstance where the contracting party is itself performing the services, designed to cover a situation where it is the contracting party itself which is spending money for specific purposes like income support and training allowance. In that situation, it could not be said that there was a trust of money which had been provided for those specific purposes, because there are no identifiable people who are beneficiaries of the trust, and the purpose that is nominated is not (or at least, is not necessarily) the type of purpose which creates a charitable trust, or a valid non-charitable purpose trust. When that is the situation concerning the usual effect of that sentence in clause 4.1, it would be an oddity if, in the present contract, that same sentence provided part of the reason why a trust was created.

52 Clause 4.1, when read as a whole, is contrasting the situation where the Commonwealth pays SPCL for services, and the situation where the Commonwealth provides SPCL with money for specific purposes. The first three sentences in clause 4.1 deal with the situation where the Commonwealth is paying SPCL for services, while the last sentence in clause 4.1 is dealing with the situation where the Commonwealth provides SPCL with money for specific purposes. The first three sentences impose significant limitations on the circumstances in which the Commonwealth will pay for services (namely that an invoice in the appropriate form is provided, that other specified documentation is provided, and (most importantly, and reserving to itself a power of potentially very wide ambit) that the Commonwealth will not pay for services unless they are completed to its reasonable satisfaction. By contrast, the final sentence in clause 4.1 provides its own explanation by what is meant by the Commonwealth providing SPCL “with money for specific purposes” – it is situations like where the Commonwealth provides money for income support, or for training allowances. Income support, and training allowances, are items of expenditure which SPCL necessarily does not keep, but passes on in total to course participants.

53 In the present case, the first three sentences of clause 4.1 need to be read along with the “Advance Payment” provisions in clause 15 of the Special Conditions, and in clause 2.3 and 2.4 of the Specific Conditions: Training for Employment Programme document. That the payment of 80% of the Service Fee is to be made in advance cuts down significantly the potential for the Commonwealth to exercise its power not to pay the Service Fee unless all relevant services are completed to its reasonable satisfaction. That power still exists, however, in relation to the remaining 20% of the Service Fee. Further, the fact that the Commonwealth is paying some of the Service Fee in advance, does not detract from the validity of the distinction which exists within clause 4.1 between payment for the services (on the one hand) and the situation where the Commonwealth provides SPCL with money for specific purposes.

54 Clause 4.5 of the General Conditions of Contract counts against the parties intending a trust. Clause 4.5 requires all funds provided by the Commonwealth to be clearly and separately identified in the account of the recipient, and the accounts to be maintained so that they can be properly audited, but all that is perfectly consistent with the Commonwealth’s money being able to be mixed with money of the payee.

55 Clause 4.7 of the General Conditions of Contract does not lead to any different conclusion. What clause 4.7 requires to be kept in a separate account is “LMP funds provided by us” “LMP funds” would need to be construed in accordance with the definition of “LMP”. Thus, if the Commonwealth provided money to SPCL for any employment and training initiative which the Commonwealth provided to job seekers registered with it, all monies which the Commonwealth so provided would need to be kept in a single account. However, there is nothing which requires the amount which the Commonwealth paid to SPCL on 10 June 1997 to be kept in an account of its own. That money can be mixed with any other LMP funds that SPCL receives. As early as January 1997 Mr Adams had foreshadowed to DEETYA that more than the initial batch of hospitality personnel would need to be trained, and that as well other maritime personnel would need to be trained – see paragraph 5 above. The contract itself contemplated (in clause 5 of the Special Conditions) that SPCL might, in future, be the recipient on other LMP funds. There would be no necessity that those LMP funds be ones which SPCL received on any kind of trust, and, consistently with clause 4.7, SPCL would be free to mix those funds with the funds which were paid to SPCL on 10 June 1997. In Jessup v Queensland Housing Commission [2001] QCA 312 McPherson JA (with whom Davies JA and Phillippides J agreed) said, at [12]:

“a hallmark duty of a trustee”

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd

Burdick v Garrick

Cohen v Cohen

56 The amount paid on 10 June was, in accordance with Special Condition 15, and clause 2.3 of the Specific Conditions: Training for Employment Programme (TEP) (Version 1) document, a payment in advance of the service fee, being 80% of the service fee. If there were a trust attached to it, I have difficulty in seeing how such a trust would interact with the specific items contained in the Costing Schedule. It is hardly to be supposed that only 80% of the uniforms, or 80% of the other course requisites, would be provided. When at least some of the tuition costs are to be paid to Sarina Russo, and, presumably, at least some of the other administrative items (curriculum design and management) are to be performed by William Angliss, should it be concluded that the 80% of the Service Fee which is paid in advance is held on a trust which permits, or does not permit, Sarina Russo to be paid in full for the services she provides? The documentation does not permit that question to be answered.

57 In taking these matters into account, I bear in mind that the Costing Schedule says that the items in it are, “intended as a guide for providers in calculating course costs.” Even so, it makes clear that it is too simple to say that this contract is one under which all payments of the advance amount are to be made to William Angliss.

58 Clause 4.8 requires an acquittal for all advance payments. The form of that acquittal tells against there being any trust. Paragraph (i) and (ii) of the Form of Acquittal proceed on the basis that certification of the provider, that the services have been delivered in accordance with the provisions of the contract, is a sufficient acquittal for money which is paid as an advance of the service fee. However, paragraphs (iii) to (v) requires much more detailed justification to be given for the expenditure of money which has been provided as an advance for travel assistance. It is only in relation to money provided as an advance for travel assistance that the form of acquittal expressly requires the manner of expenditure to be explained or justified. As I have already noted (see paragraph 24 above) the “Attached Summary of Expenditure/Commitment”, annexed to the Acquittal Form, makes provision for expenditures other than travel assistance to be accounted for. It seems to me that, in a practical working document like this one, the intention of the parties should be construed so that if, for instance, there is a payment specifically made for “books and equipment”, an Acquittal Form, containing paragraphs along the lines of paragraphs (iii), (iv) and (v) would be required by the Commonwealth, but with “books and equipment” substituted with “travel assistance” in those paragraphs. That there is this difference in the form of acquittal between the way that an advance of the Service Fee needs to be accounted for, and the way that expenditure of money provided as an advance for travel assistance, books and equipment, or some other specific purpose is inconsistent, it seems to me, with there being a trust attaching to the advance of the service fee. This form of acquittal is consistent with the distinction, which I have already explained as being inherent in clause 4.1 of the General Conditions, between payments made by the Commonwealth for services, and provision of money by the Commonwealth for specific purposes.

59 There are numerous provisions of the contract which refer to any amount which is outstanding by SPCL to the Commonwealth as being a “debt”. See clauses 4.8, and 4.12. That does not sit well with there being a trust intended by the parties – though, of course, Quistclose itself shows, there is no necessary inconsistency between trust and debt.

60 Clause 4.10 requires a final report to “identify money owing to us due to” – and there follows a list of five matters, one of which is, “unspent funds which were provided for a specific purpose not being spent for that purpose”, and others being “non achievement of minimum numbers of participants” or “early termination of the contract”. Some of those items listed are more likely to be ones which would result in “money owing to” the Commonwealth by reason of a breach of contract. It would be odd if the item “unspent funds that were provided for a specific purpose not being spent for that purpose” was intended to relate to money which became owing not by reason of a breach of contract, but by reason of a trust.

61 There are also some legal consequences of the existence of a trust, which need to be taken into account in deciding whether the parties to this arrangement intended that there be a trust. (cf Jessup v Queensland Housing Commission [2001] QCA 312 at [14].) One of those legal consequences is that a trustee can discharge, out of the trust property, all expenses incurred in or about execution of the trustee’s trusts or powers (Trustee Act 1925, section 59(4)). (The agreement does not have an express choice of law clause in it, but the only possible candidates for being the proper law of the agreement, apart from New South Wales law, are Queensland law (which arguably might apply because the DEETYA office which negotiated the contract was one in Queensland, and DEETYA’s address in the contract was given as a Queensland one), or Victorian law, (because William Angliss is located there). Section 72 Trusts Act 1973 (Qld), and section 36(2) Trustee Act 1958 (Vic) are in terms not materially different to section 59(4) of the Trustee Act 1925 of New South Wales). As well, the trustee is entitled to be personally indemnified by the beneficiary for expenses incurred in the execution of the trust (Hardoon v Belilios [1901] AC 118).

62 In the present case, SPCL has some very significant obligations to perform during, or arising from, the training course. It must pay excess on insurance claims under clause 18 of the Special Conditions, and arrange insurance cover under clause 20 of the Special Condition. It has full responsibility for the Services under clause 3.1, and can be required to repay to the Commonwealth monies which the Commonwealth has paid for services, if the Commonwealth is dissatisfied with those services (clause 3.3). SPCL is responsible for the quality of the people performing the services (under clause 3.7). The forms and records which SPCL must provide under the Specific Conditions: Training for Employment Programme (TEP) (Version 1) are quite extensive – a two-page report on each of the 340 participants, a report on the course itself, and very detailed accounting for travel assistance and other payments made for specific purposes. If SPCL were a trustee of the money which was paid into its account on 10 June 1997, it would be entitled to reimburse itself, from that money, for its costs of performing the obligations connected with the trust. It seems to me that that is not what the Commonwealth is likely to have intended, by entering this documentation. Nor is it likely to have been what was intended by William Angliss, who the Commonwealth suggests is the other beneficiary of the trust, in entering the documentation. Neither is it likely to have been intended that either of those “beneficiaries” would come under a personal liability to indemnify SPCL for performing its functions in connection with the training course.

63 It is also of some significance that this agreement, extending as it does over 48 pages, and making detailed provision for many matters, does not anywhere say in so many words, that a trust is being created. The drafting of the document appears to have been in the hands of the Commonwealth, and in some respects it has been able to impose terms which are very onerous – for instance, under clause 3.3 of the General Conditions of Contract it need not pay if it is dissatisfied with the quality of services performed. There is no reason to suppose the Commonwealth would have had any difficulty in including an express provision that SPCL was a trustee, if that was the Commonwealth’s intention.

64 Further, the very length and detail of the Agreement tells against there also being an intention on the parties, not expressed in the Agreement, that there should be a trust attaching to monies paid by the Commonwealth. This is particularly so when clause 2.5 of the General Conditions was an “entire agreement” clause.

65 It is for these reasons that I conclude that there was no trust intended by the Commonwealth and SPCL in relation to the money the Commonwealth paid to SPCL.

How Booker International Came to Receive the $140,000

66 In light of the conclusion which I have reached, that there was no trust in relation to the money paid on 10 June 1997, in my view the Commonwealth’s claim must fail. However, lest the matter go further, I should make factual findings relevant to the other aspects to the Commonwealth’s claim, and express my views concerning those matters.

67 Booker International conducted an insurance broking and insurance underwriting business. Its insurance underwriting business is conducted by accepting risks on behalf of underwriters at Lloyd’s.

68 Mr Donald Booker has at all relevant times been the Managing Director of Booker International. In March 1993 he met Mr Gregory Adams. Mr Adams was, at that time, in the process of developing a travel insurance policy, which he wanted to market to travel agents, using computer technology to generate the business, accept risks, and accept payment of premiums. It was to be called Passport Travel Insurance. Mr Adams interested Mr Booker in having Booker International become the underwriter of this product. This happened at a time when there was considerable work to be done in getting the product to a marketable stage, both in developing the computer technology, and also in settling on a policy wording and rating structure for the insurance itself.

69 In early April 1994, Mr Adams asked Mr Booker to make a short-term loan to his company, Apollo Automated Services Pty Ltd (“Apollo”), in order to complete the development of the insurance product. Mr Booker agreed to make a loan of $175,000, in two instalments, the whole of the loan to be repayable on 30 June 1994. Mr Booker wrote Mr Adams a letter setting out the principal points of the loan agreement. Mr Adams signed that letter on behalf of Apollo. That letter also had a paragraph reading, “I, Greg Adams, hereby do personally guarantee to repay this amount of $150,000 in the event of the failure of Apollo Automated Services Pty Ltd”.

70 (There was no explanation in the evidence how it happened that the loan was to be for $175,000 while Mr Adams’ guarantee related to $150,000.)

71 The loan of the $175,000 was duly made, and was duly repaid on 30 June 1994.

72 On 1 July 1994 Booker International advanced a new loan of $175,000 to Apollo. At the time it was advanced, Mr Booker told Mr Adams that he required repayment within a month or so. In fact, that did not happen. In September 1994, Booker International made a further loan to Apollo of $150,000. Mr Booker was led to believe, at that time, that the completion of the development of the insurance product was a matter of a week or so away.

73 Before the end of September 1994, Mr Adams gave Mr Booker a cheque for $75,000, but that cheque was not met on presentation. Mr Booker impressed onto Mr Adam, what Mr Booker accepted was in “the most forceful way possible” that Apollo had to make repayment of the outstanding balance of loan funds.

74 By the end of 1994, the product was launched, but it did not prove successful. The premium income generated was “next to nothing”.

75 In the early months of 1995, Apollo made some repayments of its indebtedness to Booker International, so that by the end of March 1995 there was $140,000 outstanding.

76 Before the end of May 1995, Mr Adams told Mr Booker that he was pursuing a new way of earning premium income from travel insurance. He said he was going into the cruise line industry, that he would charter a cruise ship, organise a crew, and have compulsory travel insurance as part of the cost of a ticket. Booker International carried out some investigations about the capacity of this second version of the travel insurance product to earn premium income.

77 Mr Booker agreed that Booker International would lend Mr Adams’ company a further $140,000, supported by Mr Adams’ guarantee.

78 On 30 May 1995 Mr Booker wrote to Mr Adams on Booker International letterhead, as follows:

“I have talked to Noel in respect of the Travel Insurance Product (second version), and your need to again borrow some $140,000 to help you through the development costs. The concept of extending this to include passengers of Cruise Boats as a compulsory product, is innovative, and would certainly generate the Premium Income you propose.

Given that you repaid the last loan, and the product did not reach its potential, Noel and I have agreed to lend you the $140,000 you require, but cannot do so until July 1995. Assuming you can wait the two months, and you agree to personally indemnify us, regardless of whether Apollo/Passport Travel can or cannot repay, we will proceed in the same way as before.”

79 The letter also included a guarantee, in the following terms:

“I Greg Adams, do hereby personally guarantee to repay the amount of $140,000 in the event of the failure of Apollo Automated Services Pty Ltd or Passport Travel Insurance.”

80 Mr Adams signed this guarantee also. Though the letter did not say so, Mr Booker had told Mr Adams, and Mr Adams had agreed, that the $140,000 to be lent would need to be repaid by 30 June 1996.

81 Part of the reason for Mr Booker wishing to have the $140,000 loan then outstanding repaid, and then make a fresh advance to Apollo of the same amount, was that the $140,000 which was outstanding as at May 1995 did not have the benefit of any guarantee from Mr Adams.

82 On 30 June 1995, Apollo repaid $140,000 to Booker International, thereby reducing to zero the amount it owed to Booker International.

83 On 3 July 1995 Booker International made a fresh advance of $140,000 to Apollo.

84 Throughout the year to 30 June 1996, Mr Booker reputedly impressed on Mr Adams that the loan had to be repaid by 30 June 1996. Notwithstanding this, the loan was not repaid, by 30 June 1996. Mr Booker knew as at 30 June 1996 that Apollo was not in a position to repay the loan, and that Mr Adams was not in a position to repay it.

85 Every couple of months after 30 June 1996, Mr Booker asked Mr Adams where he was going with his product, and what stage he was at with chartering a cruise vessel and getting people in place to operate it. Mr Adams kept on telling him that he was, “just about there”, and would be able to pay shortly.

86 In March 1997, SPCL moved into offices located on the same floor as Booker International’s office. Thereafter, there was frequent informal contact between Mr Adams and Mr Booker about the progress of his cruise ship enterprise. Mr Booker knew that SPCL was the company through which Mr Adams was working to develop this enterprise, and that he was the only executive working out of the SPCL offices in the building. Mr Booker knew that Mr Adams was seeking Government assistance for the training of crew for the vessel, but Mr Booker did not know whether Mr Adams had been actually successful in obtaining that government assistance. Mr Booker knew that Mr Adams had tried to charter a vessel, on a couple of occasions, but had not succeeded in doing so. This information came to Mr Booker because it was proposed that Booker International would arrange the hull insurance for any vessel which was chartered.

87 By 30 June 1997, it was Mr Booker’s understanding that Apollo was “looking shaky”. He had been expecting the repayment of the loan of $140,000 to come out of income generated by the second version of the insurance product, through sales to cruise passengers, but by that time there had, of course, been no such sales. However, Mr Booker did not know whether Apollo, or Mr Adams, had any other sources of funds from which it might possibly have been able to be paid.

88 On 30 June 1997, SPCL wrote a cheque for $140,000, payable to Booker International. Mr Adams gave it to the Administrative Accountant/Manageress of Booker International, Ms Jelinek. Ms Jelinek banked the cheque on 30 June 1997. Mr Adams did not say anything to Mr Booker about this cheque. Mr Booker came to know that the cheque had been received within 24 hours of the cheque being banked. He was told about it by Ms Jelinek, who told him that Mr Adams had paid his debt back. The cheque was written on the account into which the Commonwealth had sent money on 10 June 1997. No other money had been paid into that account between 10 June 1997 and 30 June 1997.

89 Up to that time, Mr Booker had been applying regular pressure to Mr Adams to arrange for the repayment of the debt. Once the cheque was received he stopped applying that pressure.

90 The printed cheque form, on which that cheque was written, showed that the cheque was drawn on, “South Pacific Cruise Lines Ltd Settlement Account”. Booker International’s bank deposit slip records the drawer of the cheque as being, “South Pacific Cruise Lines P/L”. The cash receipts book of Booker International for June 30, shows an amount received from “Sth Pacific Cruises” of $140,000, which is recorded in the “Sundries” column of the cash receipt book.

91 It was not until about September or October 1997, when there was some adverse publicity surrounding SPCL, that Mr Booker became aware that either Apollo, or SPCL, was actually in any trouble. In fact, Apollo had been placed in liquidation by a court order on 13 May 1997.

No Consideration for the Payment?

92 The Commonwealth contends that, in the event that there is a trust of the money which SPCL received on 10 June 1997, Booker International must repay the $140,000 it received out of that money, because Booker International provided no consideration for the payment.

93 Booker International asserts that, if there were a trust, it would still not be obliged to repay the $140,000 because, even though it had provided no consideration to SPCL, it provided consideration to Mr Adams for the payment, in the form of a discharge of his liabilities under the guarantee.

94 The claim which the Commonwealth brings against Booker International is a claim for a personal remedy, not a proprietary remedy. The Commonwealth expressly disclaims any attempt to trace the $140,000 into an asset remaining in the hands of Booker International. In circumstances where a proprietary remedy is claimed, there would be obvious scope for a defence of bona fide purchaser for value without notice. When a proprietary remedy is claimed, whether or not value was given, can be a relevant enquiry in connection with that defence.

95 The Commonwealth submits that where, as here, someone has received trusts monies, without giving value, there is a personal obligation on the recipient to refund an amount equal to the amount which was received.

96 In support of that proposition, the Commonwealth relies on Black v S Freedman & Co (1920) 12 CLR 105. In that case, Mr Black had a practice of stealing from his employer. He paid three amounts of stolen money – £460, £200 and £94.10 – into his wife’s savings bank account. An amount of £250 was withdrawn from the wife’s savings account, and used to purchase “circular notes” in Mrs Black’s name. The question for decision in the High Court was whether the amount remaining in the wife’s bank account, and the circular notes, could be recovered by Mr Black’s employer. The case was both argued, and decided, as a tracing claim. Counsel for the appellants, at 106, submitted “once the money had been through the bank it had passed into currency and could not be followed.” Griffith CJ, at 106 described the plaintiffs claim as:

“As against the wife they claimed to recover part of that money, which they say came into her possession and is identified as the stolen money, and which she received under such circumstances that she is bound to repay it to the plaintiffs.”

97 Concerning the payment of £460 into the wife’s account, Griffith CJ concluded, at 107, “That sum, therefore, I think can be identified as part of the stolen money.” Concerning the £200 paid in, his Honour also concluded, “That sum can also be identified as being the stolen money” (at 107). At 108, his Honour said, “I think therefore that it is a reasonable inference – though it is not so strong as with respect to the other two sums – that the £94.10 can also be identified as part of the stolen money.” And in relation to the “circular notes” his Honour said, at 108:

“I think that is sufficient evidence that that sum of £250 was his money, and that the notes were only taken in her name as a blind. Taking all these transactions together, I have no doubt that the whole amount claimed by his wife, consisting of the four sums I have mentioned, can be identified as part of the stolen money.”

98 His Honour then went on to apply principles concerning “following trust property”. At 109, after quoting from the judgment of Sir George Jessel MR In Re: Hallett’s Estate (13 Ch D 696, at 708) he said that the assets were adequately identified in the hands of the wife, and continued (at 109):

“Of course it is not sufficient if the money is taken by the other party bona fide for valuable consideration. There the money cannot be recovered back. But it has been laid down in cases decided long ago that if the alienee is a volunteer the estate may be followed into his hands whether he had notice of the trust or not.”

99 He went on to hold that Mrs Black was a volunteer, concluding this part of his reasoning by saying, “The money is identified; it came into her hands as a volunteer, and she is liable to repay it.” (at 109)

100 Barton J concurred. O’Connor J also agreed, saying (at 110):

“Where money has been stolen, it is trust money in the hands of the thief, and he cannot divest it of that character. If he pays it over to another person then it may be followed into that other person’s hands. If, of course, that other person shows that it has come to him bona fide for valuable consideration and without notice, it may lose its character as trust money and cannot be recovered. But if it is handed over merely as a gift, it does not matter whether there is notice or not.”

101 The judgment of O’Connor J likewise shows that the claim being pursued against Mrs Black was put on a proprietary basis, not on a personal basis. If follows that the decision in Black v Freeman cannot assist the Commonwealth in making good its present contention.

102 The Commonwealth also submits that, as a beneficiary of the trust, it can sue to recover the amount by which Booker International has been unjustly enriched. The Commonwealth says that such restitution is available where a defendant has been enriched in consequence of a wrong, and a breach of trust is such a wrong. The Commonwealth relies on Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 by analogy. Lipkin Gorman was a case concerned with a common law action for money had and received. Though the monies which were the subject of the action were monies paid from a solicitor’s trust account, it was the solicitors (ie the trustee) which brought the action, not the beneficiary. Hence, the Commonwealth says, it is only by analogy that Lipkin Gorman is applicable in the present situation.

103 The Commonwealth accepts, however, that in any such action by a beneficiary to recover money, the defences available in a restitutionary action would also be available. Those defences were stated by Goff J in Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677, at 695, in a passage adopted by Mason CJ, Deane, Toohey, Gaudron and McHugh JJ in David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353, at 380:

“(1) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact.

(2) His claim may however fail if

(a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or

(b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principle on whose behalf he is authorised to receive the payment) by the payer or by a third party by whom he is authorised to discharge the debt; or

(c) the payee has changed his position in good faith, or is deemed in law to have done so.”

104 David Securities was also a common law action for money had and received. The Commonwealth says that, like Lipkin Gorman, it should be applied by analogy in the present case.

105 There have been more detailed discussions than this of the circumstances in which a beneficiary of a trust has a right in personam to recover the value of trust property which has been paid, in breach of trust, to someone from whom recovery is sought. (Jacobs Law of Trusts in Australia, 6th edition para [2318]-[2320], Ford and Lee, Principles of the Law of Trusts [17280] – [17300], [17320] – [17360], [22780].) I propose to assume the correctness of the legal position which the Commonwealth puts.

106 In the present case, the liability of Mr Adams under the guarantee which was one which had crystallized by 30 June 1997. The guarantee was one which was performable in either of two events, namely the failure of Apollo, or the failure of Passport Travel Insurance. By 30 June 1997 the former of those events had occurred, even though Mr Booker was not aware that it had occurred.

107 There is a difference of opinion in the authorities as to whether it is possible for “A” to discharge a debt which “B” owes to “C”, unless “B” authorises, or subsequently ratifies, the payment, or there is some legal compulsion on “A” to make the payment (City Bank of Sydney v McLaughlin (1909) 9 CLR 615 at 633; Goff v Jones, The Law of Restitution, 5th edition page 17, Stoljar, The Law of Quasi Contract, 2nd edition page 166). In the present case, that debate does not have room to operate. Here, Mr Adams, by handing to Ms Jelinek the cheque for $140,000, clearly assented to it being used to discharge his liability under the guarantee. When Mr Adams was the Chief Executive Officer of SPCL, the payer, he had ostensible authority to make the payment with SPCL’s cheque. No question has been litigated about whether the assumptions of regularity of corporate conduct derived from section 128 and section 129 Corporations Law (and it was the Corporations Law which was the relevant statute in 1997) have been displaced.

First Limb of Barnes v Addy?

108 An alternative ground on which the Commonwealth would seek, if there were a trust of the money it paid to SPCL on 10 June 1997 to enforce its claim for recovery from Booker International is that Booker International falls within the first limb of Barnes v Addy (1874) LR Ch App 244.

109 Barnes v Addy concerned the circumstances in which someone who is acting as an agent for trustees can himself be required to bear the responsibility of a trustee, if the transaction in which he acts is one where the trustee acts in breach of trust. The plaintiffs were the Barnes children, who had an interest in remainder (consequent upon a life estate in their mother) in a share of the residue of their grandfather’s estate. The will had appointed three executors and trustees but eventually, through deaths, only Mr Addy remained as trustee. He was married to one of the testator’s daughters, who also had a life estate, with remainder to her children, in a share of the testator’s residue.

110 Mr Barnes had bought litigation against Mr Addy, charging him with breach of trust. That litigation was settled, on terms that it be dismissed, that the plaintiffs bear their own costs, and the costs of the trustees be paid out of residue. Afterwards, Mr Addy, disgruntled, decided to retire from being trustee of the share of residue held for the Barnes family, and to appoint Mr Barnes as trustee in his place. Mr Addy called on his solicitor, Mr Duffield, to draw the necessary document. Duffield advised against adopting this course, which advice Mr Addy refused to accept. Mr Duffield then advised that Mr Addy should take a deed of indemnity from Barnes. Mr Duffield consulted a former solicitor for the trustees (Mr Parker) who declined to approve of the deeds. Mr Addy, told of this, remained insistent that the transaction should proceed.

111 Duffield then told Barnes that he did not proceed further unless the drafts were approved by some solicitor on behalf of Barnes’ wife and children. Barnes then engaged Mr Preston for that purpose. Preston wrote to Mrs Barnes pointing out that the transaction would give Mr Barnes full power over the funds, to do as he liked with. Mrs Barnes wrote in reply that she was fully aware of the proposed arrangement, and wished it to be carried through.

112 The deeds to effect the change in trustee were then executed. No sooner was the trust fund transferred into Barnes’ name than he sold it, and used the proceeds in his own business. The proceeds were lost when Barnes became bankrupt within a year. By the litigation, the Barnes children sought relief against Mr Addy, and against the two solicitors, Duffield and Preston. The Vice-Chancellor had held that Addy was liable for breach of trust in connection with the loss of the funds, but that the two solicitors were not liable. The appeal to the Court of Appeal in Chancery was against the dismissal of the bill brought against the two solicitors. Counsel for the two solicitors were not called on, and the judgment of the Court of Appeal in Chancery was given ex tempore. It was in that context that Lord Selborne LC made his oft quoted remarks, at 251-252.

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

de son tort

cestui que trust

113 It is to be observed that, in this passage, Lord Selborne LC is not purporting to give an exhaustive account of when a recipient of trust property is liable in equity either to return the property in specie, or, by a personal remedy, to make good any loss which the trust estate has suffered. Rather Lord Selborne LC is talking about when it is that liability will be imposed on those who act as agents for trustees. Second, his Lordship is not saying that every time an agent receives trust property in breach of trust the agent bears a liability – the agent must not only receive, but also “become chargeable with”, some part of the trust fund. Barnes v Addy was a case where the remedy sought against the solicitors included a declaration that the solicitors were (at page 250) “liable and bound to answer for and make good” the trust fund which had been transferred to Mr Barnes, “and also the amount of the dividends which would have accrued and become due upon or in respect of the same sum, in case it had not been transferred to Barnes; for all necessary and proper accounts” and costs. It is in this context, of a dispute about liability to recoup the trust fund, and taking of accounts, that the notion of a recipient of trust money “becoming chargeable with” part of the trust fund needs to be understood. In connection with the main matter at issue in the proceedings, namely the role which the solicitors played in Mr Barnes becoming substituted for Mr Addy as trustee, the solicitors had not received any part of the trust fund, so Lord Selborne LC’s lack of explanation of the concept “and become chargeable with some part of the trust property” is hardly a surprise.

114 There was one aspect of the case in which Mr Duffield did actually receive part of the trust fund, namely when, following the litigation which Mr Barnes had brought against Mr Addy which was settled, Mr Duffield received his costs from the trust estate. Concerning that, however, Lord Selborne LC at 255 said:

“…First of all, that there is nothing before us to shew that such an application was improper on the part of Mr Addy, the trustee; but, secondly, that if it had been, the solicitor could not possibly have been held on that account responsible.”

115 It is in later case law that the articulation of what has become known as the “first limb in Barnes v Addy” has occurred. Of recent times it has become common to refer to liability under the first limb in Barnes v Addy as “recipient liability”, and liability under the second limb in Barnes v Addy as “accessory liability”.

116 The Commonwealth submits that Booker International has received trust property in circumstances which fit within the third of the Baden categories of knowledge, and that that suffices for imposition of liability under the first limb in Barnes v Addy. The reference to Baden is a reference to the decision of Peter Gibson J in Baden Delvaux v Sociéte Generale [1993] 1 WLR 509, at 575-576, where his Lordship noted five different mental states:

117 The Commonwealth relied on Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16, at 105, where Hansen J said:

Barnes v Addy

“constructive knowledge”

Baden

118 I propose to assume, without deciding, that this statement of the law is correct, subject to it being narrowed, in accordance with the Commonwealth’s submission, to requiring knowledge to fall within one of the first three categories in Baden before liability exists.

119 As I have found that there was no trust in existence, it necessarily follows that Mr Booker could not have had knowledge, of any of the five Baden categories, that the money paid to Booker International was trust property, and was being misapplied. However, I can make some findings which might bear upon this question, if an appellant court were to disagree with my finding that there was no trust.

120 First, there was no tinge of dishonesty in Mr Booker’s acceptance of the money. He did not know that SPCL had had any government money made available to it. He had no reason to believe that the money which was received was anything other than SPCL’s own money. The purpose for which the loan was originally made, namely the development of the Passport Insurance product, had at least some connection with the proposed business of SPCL, in that it was Mr Adams’ intention, known to Mr Booker, that every passenger on the cruise ship would be required to take out travel insurance as part of a “package”. While the premium for that policy would be payable to the underwriter of the policy, the writing of insurance policies was still going to be intimately connected with the cruise ship business. Further, Mr Adams was the Chief Executive Officer of SPCL. Further, the particular piece of property which was being passed to Booker International was money, in the form of a cheque. In connection with some types of property, like land, it is usual for someone proposing to take a transfer to make enquiries, to satisfy himself that the transferor is indeed entitled to make the transfer. That is not usually so when the property being transferred is money. Admittedly in the present case, the transfer was being made by a third party cheque. However, there is no reason to believe that anything appeared on the face of the cheque to indicate that the monies being paid were trust monies. While there is sometimes some commercial reluctance to accept third party cheques in payment of debts, that reluctance is adequately explained by the risk that the person who accepts such a cheque might be guilty of the conversion of it, if the person who gave the cheque to him did not have good title to it.

121 The cross-examination of Mr Booker established that Mr Booker was anxious to have the $140,000 repaid and was applying as much pressure as he could to Mr Adams to achieve this. There is also the following response in cross-examination.

122 It was not put to Mr Booker that he had failed to make any particular type of enquiries, that a person who was honest and reasonable would make particular types of enquiries, or that he suspected that there was something odd about the source of the money from which Mr Adams repaid the $140,000. Indeed, Mr Booker never saw the cheque by which the payment was made – all he knew about the payment was what Ms Jelinek told him. While the bank deposit slip, and cash receipts book, of Booker International both show that the payment was made by South Pacific Cruises, it is not shown that those particular entries ever came to Mr Booker’s attention. In those circumstances, I would not hold that Booker International had wilfully and recklessly failed to make such enquiries as an honest and reasonable man would make.

Commonwealth of Australia v South Pacific Cruise Lines LTD

123 In Commonwealth of Australia v South Pacific Cruise Lines Ltd (22 April 1998) unreported Foster J gave summary judgment against Mr Adams, for money which Mr Adams had received from SPCL. He awarded equitable compensation, and accepted that a trust relationship existed between the Commonwealth and SPCL.

124 I am conscious that I have come to a different decision to that of Foster J. It is only after very careful consideration that I would differ from a decision of his Honour. However, the case before Foster J was one where Mr Adams appeared in person, and his Honour had, it appears from the reasons for judgment, no effective contradictor for the Commonwealth’s contention that a trust existed.

1. Suit dismissed.

2. Plaintiff to pay costs of defendant.

**********

Last Modified: 07/09/2002

Citations

Commonwealth v Booker International Pty Ltd [2002] NSWSC 292

Most Recent Citation

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CITATION:	Commonwealth of Australia v Booker International Pty Ltd [2002] NSWSC 292 revised - 5/07/2002
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4960/98
HEARING DATE(S):	04/04/02, 05/04/02
JUDGMENT DATE:	12 April 2002
PARTIES :	Commonwealth of Australia (plaintiff) Booker International Pty Limited (defendant)
JUDGMENT OF:	Campbell J

COUNSEL :	Ronald Webb (plaintiff) Andrew Bell, Jeremy Kirk (defendant)
SOLICITORS:	Australian Government Solicitor (plaintiff) Eakin McCaffery Cox (defendant)
CATCHWORDS:	TRUSTS AND TRUSTEES - intention to create a trust - when intention to be inferred - TRUSTS AND TRUSTEES - intention to create a trust - concerning commercial arrangements - TRUSTS AND TRUSTEES - construction of particular contract - TRUSTS AND TRUSTEES - right of beneficiary to recover in personam, from recipient of trust property - when recipient of trust property gives consideration - first limb of Barnes v Addy
LEGISLATION CITED:	Trustee Act 1925 (NSW) Trusts Act 1973 (Qld) Trustee Act 1958 (Vic)
CASES CITED:	Hardoon v Belilios [1901] AC 118 Black v S Freedman & Co (1920) 12 CLR 105 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 Barclays Bank Ltd v W J Simms Son & Cooke (Southern) Ltd [1980] QB 677 David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 City Bank of Sydney v McLaughlin (1909) 9 CLR 615 Barnes v Addy (1874) LR Ch App 244 Baden Delvaux v Sociéte Generale [1993] 1 WLR 509 Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Bahr v Nicolay [No2] (1988) 164 CLR 604 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 Walker v Corboy (1990) 19 NSWLR 382 Henry v Hammond [1913] 2 KB 515 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Jessup v Queensland Housing Commission [2001] QCA 312 Davies v Australian Securities Commission (1995) 59 FCR 221 Occidental Life Insurance Company of Australia Ltd v Bank of Melbourne (1993) 7 ANZ Insurances Cases 78,310 In Re: Hallett's Estate 13 Ch D 696, at 708 In Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491
DECISION:	Trust not established

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