Deauville Nominees Pty Limited & Anor v Akhil Holdings Limited; Banque Commerciale SA v Akhil Holdings Limited

[1989] HCATrans 59

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S213 of 1988

B e t w e e n -

DEAUVILLE NOMINEES PTY

LIMITED

MAURICE MESSARA

Applicants

and

AKHIL HOLDINGS LIMITED

Respondent

Office of the Registry

Sydney No S216 of 1988

B e t w e e n -

BANQUE COMMERCIALE SA,

EN LIQUIDATION

Applicant

and

AKHIL HOLDINGS LIMITED

Respondent

Applications for special leave

Deauville -

to appeal

DEANE J
TOOHEY J

GAUDRON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 17 MARCH 1989, AT 9.32 AM

Copyright in the High Court of Australia

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MR J.D. REYDON, QC: If the Court pleases, I appear for

Deauville Nominees and Massara in the second-called

matter with MR P.R. GARLING.	(instructed by
Minter Ellison)

MR M.R. TOBIAS, QC: If the Court pleases, I appear with my

learned friend, MR R.G. FORSTER, for the Bank,

(instructed by Freehill Hollingdale & Page)

Your Honours, the appropropriate course would be

for Mr Reydon to go first.

MR A.J. MYERS, QC: If the Court pleases, I appear with

MR D.P. ROBINSON for the respondent in each matter.

(instructed by Brown & Partners)

DEANE J: Yes, Mr Reydon?

MR REYDON:  Your Honours, it may assist if I outline, in half

a minute or so, the skeleton facts. They are that

in 1969, after some conversations between

Mr Akhil and Mr Messara, 600,000 shares which came

to be called the Geneva shares in a company called

Great Southland Mining Company were allotted to the

Bank.

Mr Akhil gave evidence that that allotment was

to the Bank as nominee pursuant to arrangements

made between himself and Mr Messara.

DEANE J:	Mr Reydon, you can proceed on the basis that we have
read the judgments in the courts below.

MR REYDON: .In that case, the Court will know of the subsequent

events, namely, that the shares went from the Bank to Deauville Nominees and thence into the hands of

third parties and the Court will no doubt also know

that, in essence, our case rests - the case of my

clients rests on three contentions: one, that the

Court erred in finding a trust; secondly, that

even if there was a trust and even if Deauville

Nominees was in breach of it, Mr Messara cannot be

liable for procuring a breach of it and, thirdly,

that Mr Messara can rely on a release.

Our submission is that error was committed in

connection with each of those three points. As to

the non-existence of the trust, the errors were
errors of principle of a procedural and evidentiary
character. If I can go to the first of them. In
essense, our submission is that the trial judge's
position of advantage was such that the Court of

Appeal ought not to have interfered with his conclusions and substituted their own. In one

respect, this case is novel in that it seems that

in no other case has there been any explicit attention

given to what the appropriate test is where there is

not so much a conflict of testimony but where the
case for one side depends entirely on the evidence

of·one witness, that being evidence not accepted by

the trial judge, there is no - Mr Akhil gave evidence;

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Mr Messara did not give evidence, and Mr Justice Cohen,

at the end of the day, did not accept Mr Akhil's

evidence.

One issue that may arise is what the appropriate

test is in those circumstances. Our submission will

be that it is either the same as the conventional
test which was stated most recently by this Court,

for example, in BRUNSKILL's case, namely, that an

appellate court ought not to interfere with the
trial judge's conclusions unless he has abused his

position of advantage or palpably failed to make

use of it.

DEANE J:  One factor here though is may it not be said that

the trial judge did not adopt as the starting point

the presumption of a trust in favour of the entity

that supplied the consideration. Now, if that be

so, it would provide a firm foundation for the

Court of Appeal's approach.

MR REYDON:  It is certainly correct that the trial judge did

not start from the presumption that there was a

resulting trust and this will be one of our later

points. That is because no such trust was put to

him and it will be noticed in his reasons for

judgment that he deals with no such thing.	If one
had been, he would have.

DEANE J:	But when he deals with the fact that the consideration
did come from Akhil as a factor favouring a finding of a trust, it is not, to my mind, a very convincing answer to say, "Oh, it was spoken of in terms of
'express trust'and 'resulting trust' was not mentioned".
MR REYDON:	If I can deal with that question of consideration:

if there is a presumption of resulting trust operating,

it can be rebutted and one mode by which it might be

rebutted would be the fact that Mr Akhil, on taped

conversations which he had taped himself, repeatedly

said that he had given the shares away. One of

Mr Justice Cohen's conclusions was that when he said

given by Mr Akhil as to what Mr Akhil meant by	"give" he meant give absolutely. An explanation was
"give". namely that he meant create a trust or nominee
relationship, and the trail judge did not accept that
explanation, that is to say, he did not believe that explanation.
So that whether one approaches it from the point of view of an express trust or a resulting trust, one
does come back to a crucial question of credibility, namely, what was meant by the word "give" and what
was the acceptability of Mr Akhil's explanation for the use of those words.

DEANE J: Except one problem from our point of view, Mr Reydon,

is this, that without having seen the evidence and

reading only the judgments, on matters of fact, I got

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the impression that it was quite an extraordinary

case in which parties were deliberately not mentioning

things such as possible secret commissions and so on.

Well now, in that context, it would need very strong

grounds for this Court to get involved in the factual

matters.

MR REYDON:  Yes, I accept that. Our submission would be that

there are questions of principle which attract the

operation of the - - -

DEANE J: Well, I have diverted you; if we can concentrate on

those.

MR REYDON:  Well, one question of principle which might arise

although it did not in the way the Court of Appeal

dealt with it would be is BRUNSKILL the appropriate

test? The Court of Appeal did not deal with that

question because their view was that Mr Justice Cohen
had not had a unique position of advantage because

he had not made crucial findings on the basis of any

disbelief of Mr Akhil.

At page 71 of the papers the Court of Appeal draws a distinction. At the top of the page, they

say:

we have no doubt that Cohen J did not decide

the matter on the basis of a disbelief of

Mr Akhil.

And then at line 20, they say:

it turned not upon a disbelief of Mr Akhil
but upon the failure of Mr Akhil to satisfy

his Honour as to the establishment of

ownership of the shares.

And down towards lines 35 to 40, they say that:

a conclusion that the evidence is either

incomplete or unsatisfactory in particular

respects and so does not, in the end,

establish the case to the requisite standard

of proof.

And, in effect, they say that is what Mr Justice Cohen

did.

Now, our submission is that that is simply a

distinction completely without a difference in these

circumstance$ and a question is posed for this reason:

it was not a case - Mr Akhil was not in the category

of a witness who, as it were, through age or for some

other reason, could not remember part of what had

happened.	He proffered what he contended was a complete
explanation of the circumstances.	Mr Justice Cohen

did not find it to be either complete or satisfactory.

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There is no distinction in those circumstances between

falling short of proof, as it were, and disbelief.

If the Court of Appeal's reasoning in this regard

were to be an "Open Sessame" to look at the reasoning

of trial judges in other cases, it would, in effect,

compel trial judges to adopt some boiler-plate or

talismanic formula in an attempt to indicate the precise

basis of their reasoning. It is not necessary that

any such formula be adopted. It is perfectly plain,

on a fair reading of Mr Justice Cohen's reasons for

judgment, we would submit, that he was determining

the case by reference to the credibility of

Mr Akhil and accordingly, the Court of Appeal's

intervention was wrong and the trial judge's conclusions

ought not to have be~n disturbed.

Now, there are two other of these procedural or evidentiary aspects we would point to. One has been

mentioned by the presiding judge and that is the

question of resulting trust.	Mr Justice Cohen did not
deal with that subject in terms.	Our submission is

that he did not deal with it for the very good reason
that it was not run at the trial and in those

circumstances it ought not to have been permitted to

have been debated in the Court of Appeal. And at

least at one point, the Court of Appeal seems to

place primary reliance on the finding of resulting

trust because it is possible that evidence might have

been called on the issue of resulting trust which was

not called forth by the evidence of express trust

looked at by itself.

A defendant might say, "The evidence on express

trust is not very convincing and I need not give

evidence to rebut it" but, of course, if a resulting

trust has been pleaded, depending essentially on

primary and non-controversial facts, it might be:_.mo1a:e.

necessary for a defendant to give evidence to rebut it

than merely to contradict unsatisfactory evidence

of a -

DEANE J: Except is that not really largely a matter of words?

I mean, if you have a situation in which it is obvious that there was an arrangement in a context where all the consideration was provided by one party to whose name the property did not go, it is rather irrelevant

to talk of resulting trust, you would simply say there

is a presumption of a trust.

MR REYDON: Well, the presumption is of a resulting trust.

DEANE J: Well, if there is nothing els~ but the fact that the

consideration came from one party in a context where

there was an express trust would suffice, would it

not, to establish a prima facie case that the trust

was for the party who provided the consideration?

MR REYDON: -Yes, Your Honour.

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DEANE J: Which means, really, it does not matter whether you

call it a resulting trust or a presumption that the

express trust was for that person.

MR REYDON:  It does not matter in terms of legal conclusion.

My only point, and I do-not want to belabour it is

that in order to preclude someone taking a point in

an intermediate appellate court that was not taken

at the trial, that is necessary to indicate that

some evidence might have been useful on the subject.

Our submission is simply that if the case at a trial

is express trust and only express trust and the evidence

in support of it is considered to be unsatisfactory by

the opponent, he might say, "Well, I won't give

evidence , but if they are running a resulting trust

against me, I have to do more than that, I have to

get it rebutted in some way. I have a slightly

II

h • h 1.g er - - -

GAUDRON J:  Mr Reydon, I find some difficulty in understanding

how the case could have been run as against your

client, Deauville, as an express trust.

MR REYDON: It was run, I think, in this way: the express trust

or resulting trust was created because the legal title

was in the hands of the Banque and that was effected in

1969.      Towards the end of 1970 - yes, in 1970

legal title to the shares passed,to a small extent,

into other people's hands but to the greatest extent

into Deauville Nominees' hands, and the findings below,

in effect, are - in the Court of Appeal are that

Deauville Nomineesknew of the trust.

GAUDRON J:  So, there was never a case of an express trust

alleged against your client, whatever it might have

been against Mr Tobias.

MR REYDON:	No, it would be a form of constructive trust, really; that is to say, the second defendant below is
taking - - -

GAUDRON J: So, this is not, really, a point that your client

can take advantage of?

MR REYDON:  Save for this, that if there was no trust at all,

whether it be express or resulting at the time of the

transfer to the first defendant, then there is simply

no entitlement at all of the plaintiff against the

second defendant. It is in that way that we would

have to - - -

GUADRON J: Yes. Well, what difference does it make then, from

your clients' point of view, whether it was an express

or a resulting trust? And if I can go on: we have

only the benefit of the judgments and not the evidence

but if one reads the judgments, the first thing one

thinks of is resulting trust.

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MR HEYDON:  The words "resulting trust" do not appear in

Mr Justice Cohen's judgment.	The judgment does not
deal with matters like GRANT's	case and the matters

down the line, as it were, from the first defendant

because, in view of his findings as to the relations

between the plaintiff and first defendant, it was not

necessary to do so. But in rejecting the case

which the plaintiff brought against the first

defendant, he deals exhaustively with the

conversations and so forth and the question of

beneficial ownership. He does not deal with any

way in which the case was put based on a resulting

trust. It is perfectly true that, what I might

call the "raw" or "primary" facts do suggest

resulting trust but neither the pleadings nor, in

particular, Mr Justice Cohen's judgment, suggest

that that was the way the case was put.

I think Your Honour asked two questions in the

last -

GAUDRON J:  I think you have answered them, thank you,

Mr Reydon.

MR REYDON:  It is just that a more general answer is Mr Messara

was the person who dealt with Mr Akhil in 1968 and

1969 as well as having a role to play,on the findings

of the Court of Appeal,in the second defendant,

Deauville Nominees' dealings later. That is why

Mr Messara - it is not so much Deauville Nominees

but it is Mr Messara who would have had something to

say on the case as between plaintiff and first

defendant.

DEANE J: Well now, if you can identify the other matters of

principle that you say are involved in the fact situation.

MR HEYDON:	The third one on this procedure and evidentiary area is that courts dealing with the principles in
JONES V DUNKEL, a topic which seems to have interested
the Coui,.t of Appeal intensely because there is very, very frequest reference to the failure of Mr Messara to give evidence. They formulate the principles in a
number of places. At page 91, at lines 25 to about 31:

A defendant is not required to disprove

the plaintiff's case, at least until enough has

been proved to warrant "a reasonable and

just conclusion" against the defendant,

in the absence of some explanation or

contradiction.

We simply note, by way of submission, a defendant is
never required to disprove the plaintiff's case.

At page 94, about the middle of the page, really

at about line 26:

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the failure of Mr Messara to give evidence

permits this Court to draw the inference

that his evidence could not, relevantly,

have damaged the plaintiffs' case and

might, in significant respects, have

assisted it.

Those last eight words are a completely erroneous application

of the rule in JONES V DUNKEL. The silence of a party

can never positively assist the other side's case.

Silence merely enables inferences to be drawn more confidently and perhaps enables the acceptance of

positive evidence on the other side to be more sure

but it does not assist in any other way.

The next matter concerns what appears at the top

of page 92:

The evidence which will entitle the Court

to take that course -

that is to say, a JONES V DUNKEL type of course -

may be "meagre in the extreme",	as Kitto J
described it in JONES V DUNKEL.	Comparatively
slight evidence may, in a civil	trial, call

for an explanation. See Jordan CJ in PARKER V

PATON & ANOR.

Those statements, the statements of Sir Frank Kitto

and Sir Frederick Jordan were made in cases and

explicitly in a context where all the knowledge of the

material facts was in the possession of the defendant

and not the plaintiff. It will be remembered that

JONES V DUNKEL was a case of a collision of two

vehicles. One driver died; the other did not give

evidence and there was no eyewitness. Accordingly,

the defendant who did not give evidence was in

monopoly possession of knowledge of a first-hand kind

as to what happened. So that is a misleading statement

of the general rule in JONES V DUNKEL.

Now, can we just put this submission by way of

summary: at page 92, lines to 10 to 15, the court
says:_

At the end of the case, it is the duty of the tribunal of fact to look at the matter practically and in the light

of the whole of the evidence.

Without repeating submissions that were put a few minutes ago, we would submit that it cannot be

suggested that Mr Justice Cohen failed to do that.	He
took into account Mr Messara's silence and he stated
accurately the correct principles for determining
its significance.	He also took into account
Mr Akhil's testimony.	He made no error in formulating

or applying principles, and in those circumstances,

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again, it is wrong for an intermediate appellate
court to intervene.

If I can pass from those topics which affect,

really, the events of 1968 and 1969 to come to the
question of whether or not Mr Messara personally

is liable, and there are two aspects to this.	One
assumes an initial trust; one assumes that

Deauville Nominees became a trustee of some character

and one assumes that Deauville Nominees broke its

trust. The question is is Mr Messara liable for

breach of that trust?

GAUDRON J:	Was this point taken in the Court of Appeal?
MR REYDON:	Yes, it was taken in the Court of Appeal but there

is no record in the reasons for judgment of the

submissions that were put, but the submissions were

put orally and in writing and yet there was no

record of it.

The point is simply this:  Mr Messara was the

chairman of Deauville Nominees and he was the

managing director. The amended statement of

claim alleged that he was the effective controller

of the second defendant. And taking that allegation

as being correct, we would make these submissions:

the director of a company cannot be liable for inducing

the company to break a contract. The High Court so

held in O'BRIEN V DAWSON. How then can the director

of a company be liable for inducing the company to

break a trust, because what the pleading was below

in various paragraphs was that Mr Messara caused or procured

Deauville Nominees to transfer the shares in certain

ways.

As I indicated in answer to Justice Gaudron,

the matter does not seem to be specifically dealt

with in the judgment. The place it would have been

dealt with would be about page 100. On that page

there are - from the bottom of the previous page,

the court says it sees no: 

reason of policy why the principle in

BARNES V ADDY should be narrowly restricted

so as not to apply to the circumstances .....

The purpose of providing an equitable remedy of

damages is to ensure that not only the

defaulting trustee but also any other

person ..... must restore the fund. Monetary

compensation is the alternative to the
restoration of the fund. In the

circumstances of the evidence of this case,

Mr Messara was not a mere agent of the

trustees ..... he was an active participant -

pausing there, that was not only submission below.

We·were not submitting that he was a sort of innocuous

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solicitor or typist or something, our submission

below was that he - responding to the allegations

against us, that if they were right, he was procuring

the breach of trust but he could not be personally

liable for that because of the lack of difference

between his mind and the mind of the corporation. The submission is a short one. I should say this about it: there seems to be - at least, we have

not been able to find any direct authority one way

usual, go both ways, appears to indicate that the majority American view is against the submission I am putting but that, of course, we would submit,

or the other apart from the analogous authority

from various parts of the law of tort. Scott on

does not attract from whatever merit it has ...

as a ground for the grant of leave.

The final point concerns whether Mr Messara could

plead clause 7 of a deed of release. This is dealt with

on pages 100 to 104. The actual clause is on page 101

and without going to it in detail, the words were

fairly general words, and the Court of Appeal held

that:

On its face, the deed would release the present claim.

Going down to page 102, about half-way down:

Akhil Holdings relied on the decision of

the High Court of Australia in GRANT V JOHN

GRANT.

And then a statement of principle appears at the

bottom of page 102 which is correct, that is to say,

it is largely the same as the words used by the High

Court in GRANT V JOHN GRANT. At the top of page 103,

though, a different principle is stated, one of

extreme generality:

Equity will not, where it is inequitable

to do so, permit a release -

that should be "a releasee", I think -

to set up the general words of a release to

relieve it of a particular liability which

the releaser seeks to enforce.

Just stopping there, the Court will recollect that

GRANT's case says that in working out whether, in equity,

reliance can be placed on the general words in a

release, you take into account what it is the parties

knew and were bargaining about at the time of the

deed. Now, at line 15, the court says - I might just,

before getting to that - those cases: MILLER's case

and the HOSPITAL PRODUCTS' case do no more, really,

than simply repeat the formulation in GRANT's case.

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At line 15:

this principle which was pleaded by Akhil

Holdings in reply and argued below, is available

to it -

Akhil Holdings certainly pleaded GRANT V JOHN GRANT

with reasonable precision. They did not plead

the principle stated at the top of page 103. Then

going down the page, if I can just pick out one or

two matters; at line 29 the court says:

It was only after the settlement -

that is the settlement of the litigation which

led to this deed -

that it became aware of the transactions.

Then it did so in the circumstances of prevarication by the Messara interests

which have already been mentioned.

That is a reference to what the court considered was

delays by the Messara interests in late 1977 in

revealing information. So, there, subsequent events

are taken into account.	The same thing happens on
page 104 at line 15:

His solicitors then -

that is late 1977 -

used delaying tactics to prevent Akhil

Tl Holdings from securing information.

If I could make this point briefly about those two

passages: events subsequent to a deed of release

had nothing whatever to do with the doctrine in

GRANT's case. They may or may not have something to

do with another doctrine of equity but it is not that

one.

If I can next indicate what appears to be a

contradiction in the way the court applies the

principle to the problem. At page 103 at lines

36 to 42, the court says:

Because Akhil Holdings ..... had no knowledge

..... we consider that it would be inequitable to interpret the general words of the deed of

release to include the claim which Akhil

Holdings now makes -

that sounds as though GRANT's case is a principle of

construction, in the court's view. That contrasts

with the way it is put on page 104, at lines 19 to

21:

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In such circumstances, to permit Mr Messara to hide behind the general terms of the deed of release would be unconscionable.

That formulation, on page 104, is more like the

appropriate formulation, namely, the general terms

mean what they say, that, in equity, a party is not

allowed to rely on their extreme width where that

is not what the parties were really bargaining about.

There is then a sort of melding of the two

together, about line 29 on page 104:

But it is appropriate to deny Mr Messara

in these proceedings relief based upon the

deed, for to provide such relief offends

good conscience -

that sounds like GRANT's case -

and so will not be ordered upon the construction

of its general terms.

That sounds like a reading-down principle which is not

GRANT's case.

Now, if the correct principle in GRANT's case

were applied, in our submission, it would mean

Messara could rely on the release for this reason:

as the court indicated at one point, Mr Simos, who

represented Mr Akhil during the negoti_ations of

this deed, and Mr Handley, who represented Mr Messara,

had numerous discussions with a view to settling the

litigation and producing the deed. Mr Simos kept

asking Mr Handley for a specific exclusion of these

Geneva shares from the scope of the release.	He
asked again and again.	Mr Handley refused again and

again. In those circumstances, it cannot be inequitable

in any way for the width of the words to be relied upon

by Mr Messara. Mr Akhil wanted one thing; Mr Messara

wanted another. They eventually reached an agreement

which contained wide words. It cannot be said that

Mr Akhil's interests were somehow surprised by some

hidden cause of action that they had blindly thrown

away. They were trying to avoid throwing away the

cause of action but they, in the end, agreed to words

that provide a defence to that cause of action. And, so,

on that third basis, we would respectfully submit

that special leave to appeal ought to be granted.

Those are our submissions.

DEANE J: Thank you, Mr Reydon. Yes, Mr Tobias?

:MR. TOBIAS:  Your Honours, we would adopt, with respect, those

parts of my learned friend's submissions that relate

to .matters connnon between the Bank and his clients

which relate to the manner in which the Court of Appeal

dealt with Mr Justice Cohen's findings of fact.

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The Bank raised a defence based on the

STATUTE OF LIMITATIONS. There was no dispute and

there was an express finding by the Court of Appeal,

at page 105, lines 5 to 7, that the proceedings were

commenced outside the six-year limitation period.

The relevant breach of trust alleged against the Bank

occurred at the latest in November 1970 and the proceedings

were not instituted against the Bank until September
1978, nearly two years out of time.

As the Court will appreciate, the Bank not only pleaded but discovered documents and answered

interrogatories.

DEANE J: There seems to be a bit of confusion about that in

that the trial judge seems to indicate the Bank only

entered an appearance.

MR TOBIAS:  No, that is wrong. It pleaded - it obviously pleaded -

entered defences. The Court of Appeal refers to the fact that they denied the breaches of trust and they

raised the limitations defence.

DEANE J: Well now, the next point of confusion seems to be

that the Court of Appeal indicates that there was a

reply to the Bank's defence -

MR TOBIAS: Yes. Well, there was not.

DEANE J:  and the documents seem to indicate there was was this: the Bank filed a defence in June 1982 in
which it raised the limitation issue. The same
limitation issue was also raised by the second and not.

MR TOBIAS:  There is no question, there was not. What happened

third defendants, as they were then known as. In

December 1982, the plaintiff filed a reply to the

second defendants,.that is Deauville's defence, and alleged

fraud within the meaning of the proviso to

section 69 of the TRUSTEE ACT.

In March 1983, the plaintiff filed an amended

reply to the third defendant, Messara's defence, in

which inter alia, it replied in exactly the same way

as it had replied to Deauville's defence. And I

can hand up to Your Honours a copy of that reply.

So far as the limitation point is concerned, both the reply to the second defendant's defence and

the reply to the third defendant's defence was

in identical terms. The reply to the third defendant's

defence went on to plead certain matters relating to
the deed of release with which I am not concerned.
And in that reply, as will be seen from paragraph (b),
the plaintiff alleged fraudulent breach of trust on

the part of the Bank, to which Deauville and/or Messara

were privy. But at no time was any reply filed by

the plaintiff to the Bank's defence alleging

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that the Bank was fraudulent or was guilty of fraudulent

breach of trust.

The Bank's solicitor did not cease to act until

July 1984, over a year after the last of the replies

was filed and thereafter, of course, the Bank played

no further part in the proceedings. This, notwithstanding,
of course, the mere fact that the solicitor ceased to act

did not mean that the Bank was still not a party or

that the Bank had withdrawn its defence either in

accordance with the provisions for that course in

the rules or otherwise.

At the trial, of course, Mr Justice Cohen did

not need to deal with the question of limitations
because of his finding of fact on the major issue.
When the matter reached the Court of Appeal the

Bank sought, by its notice of contention, to assert

the limitation defence. The Court of Appeal dealt with

that in two ways. In the first place, although it is not entirely clear, at the top of page 106 they seem to take the view that because the Bank had not been

present at the trial, it was disentitled to pursue

its limitation defence by its notice of contention

before the Court of Appeal. They say in the first

paragraph on page 106:

We do not pause to comment on the claim

by the Bank for this defence. Although

pleaded below, it was not argued for.

Doubtless the Bank is entitled to rely

upon any defence which our law provides.

To do so in these proceedings is somewhat

surprising. It is, and claims to be,

nothing more than a receptacle.

Which is the reason why they would obviously rely upon the defence.

It has refrained throughout from answering

the appellant's contention of a breach of

trust.

By that is meant it did not turn up at the hearing.

It has provided no evidence for the defence on the merits although it clearly

had relevant evidence which could have

cleared up many of the mysteries of the

case.

One might query the speculation involved in that last

statement. Mr Messara, one would have thought, was

in a somewhat different position.

But leaving that aside, of course, so far

as the defence of limitation was concerned, there are

only two matters that the Bank needed to prove and they

S1T2/4/PLC	14	17/3/89
Deauville

were common ground. One was the date the proceedings

were instituted and one was the date of the alleged

breach of trust on the part of the Bank which, at the

latest, was when the Bank transferred the shares to

Deauville in November 1970. So, the limitation period

of six years was clearly exceeded and at no material

time did the plaintiff ever allege the proviso, that

is, fraudulent breach of trust against the Bank.

Having then, in effect - - -

DEANE J:	Mr Tobias, have you got the Bank's defence handy?
We really should have it before us if you have got it.
MR TOBIAS:	I do not have it by way of copy, Your Honour. What it said was simply this, apart from traversing
the plaintiffs' allegations against it:

In answer to the whole of the statement of

claim, the first defendant says that the

plaintiffs' claim is barred by the provisions

of the LIMITATION ACT 1969 and the provisions

of section 69 of the TRUSTEE ACT 1925.

DEANE J:  Under the current rules, the effect of a failure

to file a reply to that means simply that the

matters are in issue, is that so?

MR TOBIAS:  Yes, subject, of course, that if it is proposed

to plead fraud, then it must be pleaded and

particularized.

DEANE J:	The matters are at issue as distinct from
confession and avoidance.
MR TOBIAS:	And the only answer that the plaintiff had to

paragraph 6 of the defence was based upon an

allegation that the Bank were not only guilty of
a breach of trust but guilty of a fraudulent breach
of trust to get it out of the six-year limitation

period.

The Court of Appeal recognized the necessity

to plead fraud when it rejected, at pages 108 and 109,

an alternative assertion on the part of the plaintiffs

that there was concealed fraud which extracted it

from the effect of the provisions of the LIMITATION

ACT.

At page 107, commencing in the last paragraph, the court referred to Akhil's:

alternative ground for circumventing the operation of s 69(3) ..... of the doctrine of "concealed fraud".

On page 108, line 15, Their Honours said:

It is true that fraud must, by conventional

practice, be alleged and pleaded with

S1T2/5/PLC	15
Deauville	17/3/89

particularity. The reply -

and, of course, they were only there referring to the

reply as against the defences of Mr Heydon's clients -

did raise the proviso to s 69(1) of the

TRUSTEE ACT. Accordingly, that matter may

be considered. However, in the circumstances,

consistent with the instruction of the High

Court in SUTTOR, HOLCOMBE and MOUSTAKAS,

it is necessary to uphold the objection of
the respondents to a reply based on concealed

fraud.

DEANE J:	Am I correct that the Court of Appeal said that
a reply was filed to the Bank's defence?

1"IR TOBIAS:	No.	Your Honour is wrong, they never said that.
DEANE J:	They did not.	I must have misread it then.

1"IR TOBIAS:  No, what they - well, except in the passage I have

just referred to, that what the Court of Appeal said

is:

The reply did raise the proviso to

s 69(1).

DEANE J:	I thought I saw somewhere a reference to the reply
to the first and second defendants' defence.
1"IR TOBIAS:	I do not think so, Your Honour.
DEANE J:	I am no doubt mistaken.
GAUDRON J:	I think there is some ambiguity in the sentence at

line 35 of page 108. It says:

It cannot, for example, be imagined

that the Bank, which even waived its

right to be present at the trial, could

have been lured into giving evidence had

only it known that the reply -

which seems to - - -

1"IR TOBIAS:  Yes. Well, what happened, Your Honour, was that

the two replies that were filed to the defences of

the second and third defendants did allege fraud

on the part of the Bank. But, of course, those

documents were not filed as against us. So that

there was never any reply to the Bank's defence of

limitations that raised a question of fraud which

we would have been entitled to answer.

The Court of Appeal at page 86 do deal with the fact that at the trial an amended statement of

c~aim was filed and for some reason they proceed to

suggest, at lines 15 to 30, that:

S1T2/6/PLC

16   17/3/89

Deauville

The Bank by absenting itself -

from the hearing -

must be taken to have waived any objection which it might have voiced had it appeared.

That is, to the amended statement of claim. That,

of course, was irrelevant because there was no

allegation contained in the amended statement of

claim which affected the Bank. There was no

allegation of fraud in that statement of claim,

either original or amended, because that was not

necessary for the plaintiff's claim to succeed

for breach of trust. The allegation of fraud was

only relevant in order to defeat any defence based

on the limitation period. It so pleaded it except,

as the Court of Appeal found, concealed fraud which
they were then denied the opportunity before the

Court of Appeal of pursuing as against the second

and third defendants and as appears from the passage

to which Your Honour Justice Gaudron referred,

against the Bank.

What the Court of Appeal failed to realize,

when it then found, at pages 106 and 107, that the

Bank was guilty of fraudulent breach of trust in

November 1970, that that had neither been pleaded nor

particularized against the Bank. The Bank had never

been given an opportunity of dealing with it.

GAUDRON J:  Was some point taken about this in the Court of

Appeal?

MR TOBIAS:  Absolutely, Your Honour, that was the very basis of

our submission - of my learned friend, Mr Forster's

submissions in the Court of Appeal and they are set

out in his written submissions. It was just ignored ..

So, the result, therefore, is that the Court of Appeal,
on the one hand, at the top of page 106, say, ?Well,

the Bank are not, in effect, not entitled to pursue

before us its defence based on limitations because it didn't appear at the trial" which of itself	raises a question of importance as to whether that
means that a defendant has abandoned its defences,
especially where, as in the present case, there was
no suggestion that the Bank did not have a right of
appeal which it pursued. But, more importantly,
Their Honours uphel~_an allegation of fraud against the Bank so as to defeat the Bank's defence, based on
limitations on its merits, in circumstances where
that had neither been pleaded - never been pleaded
against the Bank at any time.

TOOHEY J:  Is it right to say, Mr Tobias, that while at the

same time as it did that, the Court of Appeal refused

to allow the matter of concealed fraud to be relied

up~n as against the other respondents?

MR TOBIAS:  Because it was not pleaded, exactly. So, there

was a total inconsistency of approach there, with great respect.

SlT2/7,PLC	17	17/3/89
Deauville

TOOHEY J:  The difference, apparently, in the court's view,

being that the other party had participated in the

trial.

MR TOBIAS:  No, I think the reason and the error that they

fell into was this, that the court accepted that

concealed fraud had not been pleaded as against

Mr Heydon's clients, Deauville and Messara. But

the proviso to section 69, that is fraudulent breach

of trust, had been pleaded as against those defendants.

What the court overlooked was that it had not been

pleaded against the Bank. They simply, as it were,

assumed it. The consequence of that is there is a

finding not only of breach of trust but there is a

finding of fraudulent breach of trust against the

Bank when it has had no opportunity to meet that

allegation. There are other errors, in our

submission, into which the court fell in relation to

its finding that the Bank was guilty of fraudulent

breach of trust. There was no issue, of course,

nor could there have been, that the Bank held the

shares as a bare trustee. But in order to be guilty

of fraudulent breach of trust there needed to be

some evidence, and there was none, that the Bank

was aware that when it transferred the shares in

November 1970 to Deauville that it was aware or

ought to have been aware that it was not transferring

the shares to the true beneficiary.

GAUDRON J:  That does not seem to be raised in your affidavit

for special leave or your grounds of appeal.

MR TOBIAS:	No, it is not.
GAUDRON J:	Was it raised in the Court of Appeal?
MR TOBIAS:	It was raised below but I concede that those documents

are defective in that respect.

GAUDRON J: And could I ask this: did the cause of action

remain - as against your client - conversion

at all stages in the first trial?

MR TOBIAS:	No, because the evidence was clear that the Bank did not convert the shares to its own use. It transferred them to Deauville and that is why the Court of Appeal,
when dealing with this aspect of the case, only made
findings that the Bank was guilty of a fraudulent breach of trust, not that the Bank converted the trust assets to its own use. Conversion to its own
use was pleaded in the reply that I handed up to
the Court, but there was no findings to that and the evidence was contrary to it because the shares
were never retained by the Bank, they were transferred
to Deauville.

So, Your Honours, the court's findings in relation

to-whether or not there was a fraudulent breach of

trust on the part of the Bank is to be found at page 97.

SlT218:'PLC	18
Deauville	17/3/89

One has to go back, perhaps, to page 96, lines 40

to 45, when, referring to:

The elements of the cause of action relied

upon were:

(ii)   the disonest and fraudulent design, in the legal sense, on the part of the

trustees (ie on the part of the Bank

and Deauville) -

they then say at the top of page 97:

The elements of (ii) are also made out.

In the absence of explanation in response

to the formidable case of the appellant,

the unauthorised transfer of the
possession of and control over the shares

to other persons, without notice to or

knowledge of the beneficial owner -

that is Akhil -

sufficiently establishes, even by the high

standard of proof required for such a finding,

the dishonest and fraudulent design of the

trustees.

GAUDRON J: Well now, Deauville, of course, was not a trustee

until it received the shares.

MR TOBIAS: Exactly. And they make that error, of course, where

they deal with the two breaches of trust - - -

GAUDRON J: In relation to the limitation period, I see.

MR TOBIAS:	Yes, and also, I think, starting at - I am sorry, Your Honour, there is another passage in which they make the same error which I cannot, for the moment,
pick up. Yes, at page 107, lines 25 to 30.
What they say is, just above 20:

The fraud asserted is the deliberate action

of the trustee -

singular -

to deprive the beneficiary of its property.

That is what occurred here. Accordingly,

the ordinary limitation period of six years
was not available to the respondents in

respect of the first breach of trust.

Now, the first breach of trust was only a breach of

trust by the Bank and, of course, as Your Honour

quite correctly says, Deauville did not become a trustee

and did not breach a trust until 1972 when it transferred

tte shares on. But, Your Honour, what the court asserted

S1T2/9/PLC	19	17/3/89
Deauville

and found was that it was sufficient to constitute

fraud, that there was a deliberate action of the

trustee to deprive the beneficiary of its property,

but the only evidence that was established was that

at the request of Deauville the shares were transferred

to it by the Bank. There was not a jot or tittle
of evidence to suggest that the Bank was ever aware,

either of the identity of Akhil or was aware of the

fact that Deauville was not the beneficiary. The

findings in that respect of the Court of Appeal are

set out from page 87 through to page 90 in which some

13 matters are relied upon by the Court of Appeal to

establish that the Bank received the shares in trust

but none of those items establish that the Bank not
only received those shares in trust but were aware

that Deauville was not the beneficiary or that,

more importantly, that Akhil was the beneficiary.

I should just make two cormnents in relation to

that material. At page 88, item (4) at line 20

there is a reference to a:

letter requesting the allotment of the

shares to the Bank was prepared by Mr Messara. That was a letter that is referred to at pages 45 and

46 of the appeal papers. It was a letter to Southland.

It was not a letter that was prepared by the Bank or

of which the Bank had any knowledge. And on

paragraph (8) on page 89 there was no evidence that

the Bank asserted:

that the beneficial owners of the

shares were non residents of Australia.

There was evidence that the Bank. in reply to a query

in 1976-77, said that the beneficial owners of the shares

were non-resident in Australia and that is referred to

over the page at page 90, line 4.

DEANE J:	But you are really beginning to make it sound a very
complicated and messy lot of facts - - -

:t1R TOBIAS:  Your Honour, I would not wish to do that. May I

then go back - - -

DEANE J:	into which this Court would not dream of -
:t1R TOBIAS:	No, I realize that hole into which I could dig myself.

May I go back to the question of principle, and that

simply is that the Court of Appeal made findings of

fact, made findings of fraudulent breach of trust against

the Bank in circumstances when it was never pleaded and

never alleged against it and in respect of which the

Bank never had the opportunity to provide an answer.

DEANE J: Just one matter, Mr Tobias. Looking at the reply to

the defence, it says in l(b) - this is the second defendartt:

S1T2/lo/PLC	20	17/3/89
Deauville

The plaintiff's claim is an action on a cause

of action in respect of a fraudulent breach

of trust.

Well now, while that is in a reply, it refers to the

nature of the action as distinct from confessing and

avoiding by raising new matter.

MR TOBIAS: 

But, Your Honour, neither the statement of claim

nor the amended statement of claim alleged fraudulent
breach of trust.

DEANE J: What did it say, that your client was the trustee and

that it had transferred trust property to somebody

else?

MR TOBIAS:  Can I hand up the amended statement of claim?

DEANE J: Yes.

MR TOBIAS:  The parts underlined are the amended parts to which

reference is made in page 86 of the Court of Appeal's

judgment. Paragraph 15 is the essential paragraph,

Your Honour, on page 4. They say:

The transfer is referred to in paragraphs 13,

14 and 14(c) -

and the transfers referred to in paragraphs 13 and

14 were the transfers by the Bank. -

were made by the first defendant without the

authority and consent of the plaintiff and in

breach of trust and were not within the knowledge

of the plaintiff.

So, it was an allegation of bare breach of trust.

Nowhere else did they seek to - of course, the reason for that was it was simply not part of their case.

It was part of their case in reply, in order

t~ defeat limitation but they never asserted it against
them.	Those are our submissions, Your Honour.

DEANE J: Yes, Mr Robinson.

HR ROBINSON:  On what point would Your Honours wish me to

begin?

DEANE J: Well, we would just like to hear what you have to

say about whether leave should be granted.

MR ROBINSON:  Leave should not be granted. The Court of Appeal'

unravelled, and we submit correctly, a reasonably

sophisticated fraud where two parties, that is,

Mr Akhil and Mr Messara, were not in equal positions

and Mr Messara was able to divest Akhil Holdings of

its property. The findings the Court of Appeal made

SlT2/11 /PLC	21	17/3/89
Deauville

were open on .the evidence. The attempt to say that

the Court of Appeal wrongly dealt with the credit of

Akhil is just not there because Mr Justice Cohen does

not say that he dealt with Akhil's evidence as being

a matter of credit.

The position is that the facts were unravelled

and the Court of Appeal dealt with the position which

the Bank finds itself and the explanations as to how

they dealt with it are set out and, in my submission,

there is no error. Your Honours do not have the full
text of the evidence which went for some 10 days but

the analysis which the Court of Appeal makes of that

evidence is open to them and they have made the analysis.

There is no point of principle here, with respect.

DEANE J: What do you say to the proposition that fraud was

never pleaded at any time against the Bank?

MR ROBINSON:  There are two aspects to that. The Court of

Appeal deals with that and say the fraud asserted

is the deliberate action of the trustee to deprive

the beneficiary of his property. That is taken,

presumably, straight from the statement of claim, but

the other answer to that is it was - - -

DEANE J: Where is that? Page what?

MR ROBINSON:  Page 107 about line 20. That is a passage that

has been read to Your Honours. At about line 15

Their Honoours say:

In these circumstances, there is no reason to give the proviso to s 69 of the TRUSTEE ACT

T2 a narrow construction.

DEANE J: Where is that in the statement of claim; the deliberate

action of the trustee to deprive the beneficiary of

its property.

MR ROBINSON:  I think paragraph 15.

TOOHEY J:	It really has to be there or it is nowhere, I would think.
MR ROBINSON:	It is nowhere but there is a further answer to

this position.

DEANE J: Well, it is certainly not in 15.

MR ROBINSON:  As it is asserted there, it is a bare breach of

trust. But, Your Honour, the other answer to this

is that it was the defendant Bank who invoked

section 69 of the IRUSTEE ACT and what emerged at

the evidence just did not bring the defendant Bank

within section 69 of the TRUSTEE ACT, that is, prima facie,

they wanted the benefit of the six years and presumably

invoked it for that reason, but all of the evidence

showed that they were unable to rely on it.

22

SlT3/l/PLC	17/3/89
Deauville

DEANE J: Well, I do n_ot follow that. Why did the evidence

show that?

MR ROBINSON:  Because the same evidence brought them into the

proviso.

DEANE J: Is what you are saying that if a defendant pleads the limitation provision under the TRUSTEE ACT, a plaintiff does not have to allege fraud to say

he is deprived on the benefit by reason of the

proviso?

MR ROBINSON:  Your Honour, that is the alternative submission

I make.

DEANE J:  I see.

MR ROBINSON:  That it simply was a case where section 69 was of no use to the defence. They invoked it.

DEANE J: Is there any dispute that this matter was squarely

raised by the Bank in the Court of Appeal.

MR ROBINSON:  No, Mr Forster raised it.

DEANE J: And it was not dealt with by the Court of Appeal.

MR ROBINSON: Well, they have dealt with it.

DEANE J: In express terms.

MR ROBINSON:  That is right, Your Honour. What is in their

reasons is how they dealt with it, Your Honour.	That
is as far as I can put the matter.

DEANE J:	Thank you, Mr Robins.on. '~O either of you want to say
anything in reply?
MR REYDON:	No, Your Honour.
DEANE J: The Court will give its decision in this matter at

2.15.

AT 10.34 AM THE MATTER WAS ADJOURNED UNTIL

LATER THE SAME DAY

UPON RESUMING AT 2.16 PM:

DEANE J: If the application for special leave to appeal by

Deauville Nominees Pty Ltd and Mr Messara stood alone,

we would be disposed to refuse it. In so far as those

S 1·r3 / 2/PLC	23	l.7;3/89
Dea-:.1ville

applicants wish to atta·.:1. the Court of Appeal's findin:s

that the subject shares had been held by the Banque

Commerciale upon trust for the respondent is concerned,

we do not think the matter raises any real point of

general importance. In particular, we are not

persuaded that the Court of Appeal was in error in
placing particular significance upon the fact that the

consideration for the allotment of those shares had,

on the evidence, Leeu solely pruvided by the respondent.

As regards the other points which it is desired to raise on behalf of those applicants, we consider

that they turn very much on the facts of the particular

case which does not provide an appropriate vehicle

for their determination.

The additional matters raised by Mr Tobias, QC,

on behalf of the Banque Commerciale seem to us, however,

to fall into a different category. We think that

special leave to appeal should be granted to the Banque

Commerciale confined to the matters raised by grounds

(a), (b) and (f) of its draft notice of appeal.

In these circumstances, we propose to grant special leave to appeal to Deauville Pty Ltd and

Mr Messara which, while not expressly limited, should

be treated as enabling those parties only to rely on

any matters arising from the matters in respect of

which special leave to appeal would be granted to the

Bank.

Accordingly, special leave to appeal is granted

to the Banque Commerciale which is confined to the
matters raised by grounds (a), (b) and (f) of its

draft notice of appeal. Special leave to appeal is

granted to Deauville Pty Ltd and Mr Messara for the

limited purpose which we have indicated. The costs

of the applications will be costs in the appeal.

AT 2.20 PM THE MATTER WAS ADJOURNED SINE DIE

S1T3/3/PLC	24	17i3/89
Deauvilie