Kaklikos v Property Alliance Group Ltd

[2004] FMCA 303

FEDERAL MAGISTRATES COURT OF AUSTRALIA

KAKLIKOS & ANOR v PROPERTY ALLIANCE GROUP LTD & ORS [2004] FMCA 303

TRADE PRACTICES ACT – Misleading and deceptive conduct – whether fiduciary duty – constructive trust – whether third party liable – Barnes & Addy limbs – whether solicitor liable – negligence – breach of trust – cross-claim.

Trade Practices Act 1974, s.51AB, 51AC, 52
Fair Trading Act 1999, s.8, 8A, 9

Barnes v Addy (1874) 9 Ch. App. 244
Agip (Africa) Ltd v Jackson (1990) 1 Ch 265
Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 66 CLR 768
Carl Zeiss Stiftung v Herbert Smith & Co (1969) 2 Ch 276
Lintrose Nominees Pty Ltd v King (1995) 1 VR 574
Quistclose Investments Ltd v Roll Razor Ltd (1970) AC 567
Barclays Bank v Weeks Legg & Dean [1999] QB 309
Attorney General for Hong Kong v Reid (1994) 1 AC 324
Agip (Africa) Ltd v Jackson (1990) 1 Ch 265
Koorootang Pty Ltd v Meldrum Jeffries P/L (1998) 3 VR 16
Neilsen v Hemptston Holdings Pty Ltd (1986) 65 ALR 302
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 66 CLR 768
McCracken & McCracken v Pippet & Groenwald (1999) VSCA 156 (Unreported 29 September 1999)

Applicants: MICHELLE KAKLIKOS and IAN WOODS

Respondents: PROPERTY ALLIANCE GROUP LTD (ACN 092 256 696), DARREL JOHN McLEOD, MICHELLE ANDREA RYAN and RIGBY COOKE (a firm)

Cross-claimants: PROPERTY ALLIANCE GROUP LTD (ACN 092 256 696) and DARREL JOHN McLEOD

Cross-respondents: MICHELLE ANDREA RYAN, DALE BOWEN and RIGBY COOKE (a firm)

File No: MZ 378 of 2002

Delivered on: 13 May 2004

Delivered at: Melbourne

Hearing Dates: 19, 20, 23, 24 December 2002,
28, 29, 30, 31 January 2003 and
12 February 2003

Judgment of: McInnis FM

REPRESENTATION

Counsel for the Applicants: Mr A Panna

Solicitors for the Applicants: Pryles & Defteros

Counsel for the First and Second Respondents and Cross-claimants: Mr I Williams

Solicitors for the First and Second Respondents and Cross-claimants: Phillips Fox

Third Respondent, First and Second Cross-respondents: No appearance

Counsel for the Fourth Respondent and Third Cross-Respondent: Mr K Oliver

Solicitors for the First and Second Respondents and Cross-claimants: Minter Ellison

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MZ 378 of 2002

MICHELLE KAKLIKOS and IAN WOODS

Applicants

and

PROPERTY ALLIANCE GROUP LTD (ACN 092 256 696), DARREL JOHN McLEOD, MICHELLE ANDREA RYAN and RIGBY COOKE (a firm)

Respondents

and

PROPERTY ALLIANCE GROUP LTD (ACN 092 256 696) and DARREL JOHN McLEOD

Cross-claimants

and

MICHELLE ANDREA RYAN, DALE BOWEN and RIGBY COOKE (a firm)

Cross-respondents

REASONS FOR JUDGMENT

Introduction

1. The claim in this application is for the return of the sum of $110,000 paid by Michelle Kaklikos (Kaklikos) and Ian Woods (Woods) (the applicants) by cheques given in the sums of $50,000 and $60,000 respectively to the third respondent Michelle Andrea Ryan (Ryan).  The money was paid by the applicants in anticipation of purchases of two out of three units which were part of a redevelopment undertaken by the first respondent Property Alliance Group Pty Ltd (Property Alliance), which was the vendor and proprietor of a property situated at 38 Studley Road, Ivanhoe (the property) whereupon it was proposed to build three townhouse units (the units).

Background

1. From August to November 2000 Property Alliance had made a number of unsuccessful attempts to market the proposed development of the property.  Darrel John McLeod (McLeod) at all material times was the sole director of Property Alliance and it is not in dispute he was the sole controller of the business affairs of that company and its sole officer.  In about December 2000 Dale Bowen (Bowen), who has become a second cross‑respondent in a cross‑claim, to which I will refer presently, is claimed to have had a conversation with McLeod in relation to the purchase of the property.  Negotiations between Bowen and McLeod occurred in January 2001 and at the same time with the applicants and Ryan.  The purchase price being discussed was $1.68 million.  A plan of subdivision had been filed but not been approved.  Bowen at all material times was the defacto husband of Ryan.

2. It is the applicants' case that in about January 2001 Ryan spoke with Kaklikos and Woods and the substance of the discussions was that Ryan had been negotiating with Property Alliance to purchase the three units on the property.  It is further asserted that Ryan said she carried out a due diligence analysis of the property and concluded it was worth purchasing as an investment.  It is claimed, however, that she had difficulties obtaining finance to purchase the property.  Kaklikos and Ryan discussed the possibility of other persons purchasing some of the units and Kaklikos said she might be interested in purchasing one of the units.  Ryan provided Kaklikos with a copy of the draft contract, which had been provided to her by Property Alliance, and the due diligence material which had been completed on the property.  After some discussion Kaklikos agreed that she would purchase unit 2, with Ryan expressing the desire to purchase unit 1.  Kaklikos claims that she told Ryan she wanted a separate contract with Property Alliance for the purchase of unit 2 and that with the separate contract she could obtain a deposit bond to cover the deposit in respect of the proposed purchase. Kaklikos further claims that Ryan told her that she would speak to Property Alliance about drawing up separate contracts and the inclusion of a clause dealing with deposit bonds.

3. Kaklikos claims that in the last week of January 2001 she made inquiries of Bowen about the progress of negotiations with Property Alliance and was told by Bowen that he had passed on the request for separate contracts and the insertion of a deposit bond clause.  In her evidence Kaklikos claims that the insertion of the bond clause was becoming an issue as Property Alliance had not encountered that concept before and was sceptical about their use.  Kaklikos claims that she was told by Bowen that Property Alliance wanted the deposit moneys placed into its solicitor's trust account to "prove that you're good for it".  Bowen is claimed to have told Kaklikos that Property Alliance was putting pressure upon them (Ryan and Bowen) to put the deposit money in trust otherwise it would consider selling the units to other buyers.

4. Similar discussions are said to have occurred between Woods and Ryan and Bowen.  Woods expressed interest in buying unit 3 and was provided with a copy of the due diligence material and claims to have told Ryan and Bowen that he wanted a separate contract with the developer for the purchase of that unit. 

5. It should be noted that during the time of these negotiations Woods, Ryan and Kaklikos had all been working for an organisation called Investmentsource Corporation and during the course of the employment it is claimed by Kaklikos that Ryan made Kaklikos and then without the knowledge of Kaklikos, Woods became aware of the prospective investment in the property.

6. Kaklikos claims that having worked with Ryan since October 2000 she trusted her, had faith in her integrity and believed that she would faithfully carry out her instruction in relation to the purchase of the unit.  On about 2 February 2001 Kaklikos told Ryan that she would be prepared to purchase unit 2 for the sum of $545,000 but would only do so on the following terms:-

   (a)A contract of sale for the purchase of unit 2 was to be drawn up and provided to Kaklikos wherein Property Alliance, as vendor, would sell unit 2 to Kaklikos for the sum of about 545,000; and

   (b)Kaklikos would provide a cheque for the sum of $50,000 to Property Alliance as part of the purchase price; and

   (c)The said cheque be made payable to Property Alliance's solicitors, Rigby Cooke, to be deposited in a trust account at Rigby Cooke and the said sum would be held on trust for Kaklikos pending the execution of a contract of sale for the purchase of unit 2; and

   (d)The contract of sale was to incorporate a clause providing for the payment of the deposit for the purchase of unit 2 by a deposit bond; and

   (e)If the contract of sale for the purchase of unit 2, when provided, was not to her satisfaction the said sum of $50,000 was to be returned to Kaklikos forthwith.

7. Kaklikos claims that she was told by Ryan that she agreed to accept the cheque on the terms set out.

8. Kaklikos asserts that as a result of her confidence and trust of Ryan that on or about 2 February 2001 she drew a cheque for the sum of $50,000 made payable to Rigby Cooke and handed the cheque to Ryan for delivery to Property Alliance in accordance with the terms to which reference has already been made.

9. Kaklikos, in her evidence, claims that on about 6 February 2001 Ryan provided her with a copy of a facsimile letter dated 6 February 2001 from Rigby Cooke.  That letter states the follow:-

   Property Alliance Group Pty Ltd

   Ppty: 38 Studley Road, Ivanhoe

   We enclose receipts (x2) with respect to funds received from Daryl McLeod, being cheques drawn on the account of J & M Kaklikos for $50,000.

10. Kaklikos requested a copy of a trust account receipt and later on the same day, 6 February 2001, received a copy of trust account receipt number 032713 dated 6 February 2001.  That receipt provides the following information:-

    “On Account of: TDK20003756 Mr D  McLeod

    Re: Sale: Unit 4, 38 Studley Road, Ivanhoe

    Received from S/C J & M Kaklikos 16

    Part deposit monies     50,000.00”

11. It will be noted a line was drawn through "unit 4".  Kaklikos claims that after receiving the trust account receipt she asked Bowen when she would receive her contract and repeated her request that she be named as purchaser of unit 2 as a deposit bond company would not issue a deposit bond under a general contact.  She claimed that she told him it had to be a contract to purchase in her own name and he later asked her whether she had authority to say to the developer that if the deposit bond issue was not resolved and the clause was not incorporated into the contract of sale then he had her instructions to cease any further negotiations for the purchase of unit 2 and that she would be withdrawing her deposit.  Kaklikos claims that she told Bowen he had that authority.

12. In relation to the Woods transaction it was claimed that on or about 31 January 2001 Bowen telephoned Woods to advise that a deposit of $60,000 was due and that a cheque would be delivered to the developer on Saturday, 3 February 2001 and then be delivered by the developer to Rigby Cooke to be held in the solicitor's trust account.  Woods claims that he told Bowen he would provide the cheque for $60,000 on the conditions he had previously discussed.  Those conditions are claimed to have been incorporated in a letter delivered by Woods to Ryan on 2 February 2001.  The letter in part contains the following:-

    “We understand that the expected outcome of your meeting on Saturday the 3rd at 9 am is -

    1)     A receipt of $60,000 from Rigby Cooke Trust Fund.

    2)     A contract in the name of Ian Edward WOODS

    Janet Lorraine WOODS

    Of - 47 Eley Road, Blackburn South, 3130

    For - unit#3 38 Studley Road, Ivanhoe

    For - the sum of $540,000 or thereabouts.

    Please give me a ring tonight (Friday) if you consider any of these outcomes is not how you see it.

    Once again, thank you for your hard work in negotiating and inviting us to join you in this exciting project.  We feel priviledged.”

13. Woods claims that he gave the cheque, together with the special conditions, because he had confidence and trust that Ryan would carry out the instructions that had been agreed upon.  He claims he had no reason to doubt her integrity or honesty.  On 6 February 2001 Woods received from Ryan a copy of a facsimile letter from Rigby Cooke addressed to Ryan of the same date.  That letter states the following:-

    Property Alliance Group Pty Ltd

    Ppty: 38 Studley Road, Ivanhoe

    We enclose receipts (x2) with respect to funds received from Daryl McLeod, being cheques drawn on the account of I E & J L Woods for $60,000.

14. Woods at the time was not provided with any trust account receipt and claims that at that time he trusted Ryan and did not think it necessary to insist on a receipt being provided.

15. On 6 February 2001 Rigby Cooke issued a trust account receipt number 132714 which provided as follows:-

    “On account of:  TDK20003756 Mr D. McLeod

    Re:  sale unit 1, 38 Studley Road, Ivanhoe

    Received from S/C I.E. and J.L. Woods  5

    Part deposit monies  60,000.00”

Fiduciary Duty – Ryan

1. Both Kaklikos and Woods claim that throughout the course of these transactions Ryan had acted as a fiduciary and was under a duty to Kaklikos in respect of the sum of $50,000 in respect of negotiations for Kaklikos to purchase unit 2, and to Woods in respect of the sum of $60,000 for the purchase for Woods of unit 3.  The duty is claimed to include a duty to:

   (a)Act honestly and in good faith in the interests of Kaklikos/Woods.

   (b)Not place herself in a position where her duty to Kaklikos/Woods was in conflict with her personal interests.

   (c)Not to conduct herself so as to procure a financial or other advantage for herself at the expense of Kaklikos/Woods.

   (d)Not cause harm to Kaklikos/Woods.

Trust

1. It is claimed by both Kaklikos and Woods that the sums of $50,000 and $60,000 delivered to Ryan were to be held on trust by her pending delivery to Property Alliance and Rigby Cooke and thereafter to be held on trust by Property Alliance and Rigby Cooke for Kaklikos and Woods pending the carrying out of the terms of purchase of the units relied upon by both Kaklikos and Woods.

Breach of Agreement, Duties and Trust

1. The applicants claim that on or about 28 February 2001 in breach of the agreements and fiduciary duty and trusts, Property Alliance and Ryan executed a contract of sale (the Ryan contract of sale) where Property Alliance as vendor sold the three units to Ryan as purchaser for the sum of $1,680,000.  Upon execution of that contract of sale or at some other subsequent time, it is pleaded that Property Alliance and Ryan purported to apply the said sums of $50,000 and $60,000 as a "deposit" in respect of the Ryan contract of sale.

2. In the Ryan contract of sale, the purchaser is referred to as Michelle Andrea Ryan and/or nominee.  No mention is made of Kaklikos or Woods.  Kaklikos claims that when shown the Ryan contract of sale by Ryan, she told Ryan that that was not what had been agreed and that her agreement was clear in that she had provided the sum of $50,000 on the basis that there would be a contract of sale between Property Alliance and Kaklikos for about $545,000.  It is claimed that Ryan told Kaklikos that she had spoken to lawyers who said this was the best way to sign the developer contract and that she would arrange for "transfers" of ownership to Kaklikos.  After some discussion about the issue, Kaklikos asked Ryan for a full refund of $50,000 and claimed it had been taken under "false pretences".  Ryan is alleged to have told Kaklikos that she would speak to the developer and the lawyers and get back to Kaklikos.

3. Approximately two weeks later, according to Kaklikos, Ryan provided her with a contract of sale in respect of unit 2 ("the second contract") where Ryan was named as vendor and Kaklikos as purchaser.  A copy of the second contract (exhibit MK3 to the affidavit of Kaklikos sworn 23 April 2002) provides Ryan as vendor and the name of the purchaser left blank.  The unit number on the land and property is also left blank.  According to Kaklikos, Ryan asked her to sign the contract immediately.  Kaklikos refused to do so and claimed that in the circumstances where Ryan had not carried out instructions, she would not sign any contract until at the very least she had "the contract to check out".

4. It is sufficient for present purposes to note that Kaklikos sought legal advice and demand was made for the return of the $50,000 from Rigby Cooke and Property Alliance.  It was only on or about 27 March 2001 that Kaklikos learned that Ian Woods was the other purchaser of unit 3 and found that like Kaklikos, he had sought to retrieve the amount of money held on trust by Rigby Cooke.  Kaklikos and Woods then decided to instruct other solicitors to act on their joint behalf and sought the return of the moneys paid.  The concern of Kaklikos in relation to the arrangement was that if Ryan defaulted under the contract with Property Alliance and as Kaklikos had no contract with Property Alliance directly, that she might lose the funds which had been, according to her "wrongfully applied by Ryan".

5. Woods claims that on or about 28 February 2001 he received from Ryan a copy of a contract of sale for the property which showed Property Alliance as vendor and Ryan as purchaser of the three units (the other Ryan contract).  In the other Ryan contract the purchase price is $1,680,000 and, according to Woods, also shown on that contract is that the sum of $110,000 had been paid as a deposit.  It is noted that the other Ryan contract (exhibit IW2 to the affidavit of Woods sworn 23 April 2002) as the Ryan contract produced for Kaklikos, does not appear to have the amount of the deposit and residue typed clearly on the document but rather a handwritten insertion of figures appears in the right‑hand margin of each document.  Woods claims that when shown the other Ryan contract, he told Ryan that this was not what had been agreed and that she had no authority to place the $60,000 as a deposit on a contract that she had entered into with Property Alliance.  Ryan is claimed to have told Woods that she would satisfy his concerns and give him a "transfer" in respect of unit 3.

6. Woods claims that on about 13 March 2001 he met with Ryan and was given a contract of sale showing Ryan as vendor.  Wood’s name had not been inserted as purchaser and, according to Woods, Ryan handwrote into that contract a price of $568,000 together with Wood’s deposit of $60,000.  The final price, according to Ryan, negotiated for unit 3 was $568,000.  According to Woods, he told Ryan he was expecting a contract to be written for between $540,000 and $560,000.  He claims that he told Ryan he was not prepared to sign the contract that she had prepared without further advice.  Wood’s claim is consistent with the conditions asserted by him in relation to the purchase, although he had arranged a bank guarantee to substitute for the cheque for $60,000.  He had, however, received a statement from his bank showing that his cheque for $60,000 had been presented and negotiated on 6 February 2001.  Woods sought legal advice and instructed solicitors then acting for him not to proceed with the purchase of the property and requesting the return of the $60,000. 

   
   

   A letter was written dated 20 March 2001 by Wood’s then solicitors to Ryan's solicitors and a further letter dated 23 March 2001 was written by Wood’s then solicitors to Rigby Cooke.  Both letters demanded return of the $60,000.

7. It seems that Kaklikos and Woods ultimately agreed to instruct one firm of solicitors and towards the end of 2001 had decided to meet with McLeod.  This followed both Kaklikos and Woods becoming aware that the property was on the market with each unit being offered for sale at "about $700,000".

8. At the meeting with McLeod, it is claimed that both Kaklikos and Ryan pointed out to him that funds had been provided on trust and were held on trust pending purchase of the units by Kaklikos and Woods.  Kaklikos expressed a view that she had no concerns about retrieving funds.  McLeod indicated that he was advised that he could retain the funds.  It is claimed that McLeod expressed concern about marketing costs and being left with unit 1 in the context of a discussion whereby Kaklikos and Woods indicated a desire to still continue with the purchase of units 2 and 3 respectively.  Kaklikos claims McLeod knew that both she and Woods had advanced the moneys referred to, though he is claimed to have said he did not know all the details of their arrangement with Ryan.  Kaklikos claims that she told McLeod he must have known of her identity and that of Woods because their names were on cheques Ryan had given to McLeod and on trust receipts from his solicitors Rigby Cooke.

1. Kaklikos asserted that Ryan had no authority to use the money as a deposit for her contract to purchase the units in her name.  Kaklikos claims that McLeod indicated he had spoken to Ryan about providing three separate contracts and had a discussion with her about the inclusion into the contracts a provision for payment of the deposit by a deposit bond and that at the end he believed it was agreed it was better to sign one contract as that would save on stamp duty.  A discussion then took place, according to Kaklikos, whereby she asserted that there was no authority given to Ryan to enter into one contract, but rather there were supposed to be three contracts, one for Ryan in relation to unit 1, one for Kaklikos for unit 2 and the other with Woods for unit 3.  Kaklikos claims to have told McLeod she had serious concerns about Ryan being able to settle the purchase of the property.  Discussions then took place about alternative resolution of the dispute, with McLeod eventually saying to Kaklikos that he would be entitled to "forfeit" the deposit if Ryan failed to settle her contract.  Further letters of demand by another firm of solicitors acting on behalf of Kaklikos and Woods failed to resolve the matter.

2. It is claimed by Kaklikos that despite correspondence passing between respective solicitors, that she and Woods had a further meeting with McLeod in early December 2001.  It is claimed that McLeod indicated he was not going to take any action against Ryan and that Ryan in fact had requested a return of the $110,000 to her.  Kaklikos again informed McLeod that Ryan was unauthorised to take the money as she had no right to claim that money which had belonged to Kaklikos and Woods.

3. It is alleged by Kaklikos that McLeod said the original contract price for the property was $1.68 million.  He had further expenses of $60,000 and was out of pocket and wanted to recoup those funds.  He allegedly said he was prepared to sell the property to Woods and Kaklikos for $1.7 million.

4. It then appears that Kaklikos and Woods said they would be prepared to purchase all three units at a higher price of $1.74 million and have their funds applied towards the purchase of the units at the higher price.  It is claimed that McLeod said if Woods and Kaklikos purchased the development at the higher price, he would agree to Property Alliance applying their funds to the new contract.  He is then alleged to have said he would have his solicitors draw up a new contract between Property Alliance, Woods and Kaklikos.

5. Kaklikos claims that on or about 31 December 2001 an agreement was drawn up and produced.  That agreement, which was exhibit MK6 to the Kaklikos affidavit sworn 23 April 2002, was examined by Kaklikos who claims that she was "shocked to find the price inserted in this contract had now again escalated and Darrel McLeod and his company wanted $1.784 million for the sale of the property" and, according to Kaklikos, "did not include various matters that I thought we'd agreed with Darrel McLeod".  A draft agreement between Property Alliance and Kaklikos and Woods refers to a total sale price of 1.78 million and it is noted that in handwriting individual amounts are inserted in relation to each unit.  Kaklikos refers to a letter dated 1 February 2002 from Rigby Cooke addressed to both her and Woods which makes reference to the draft agreement.  The letter then states that as the draft agreement remains unaccepted or unexecuted "the offer as set out in the agreement is hereby withdrawn".  The letter further advised, "All negotiations to date are also withdrawn."

6. A further offer to sell units 2 and 3 was made on the basis of unit 2 being $595,000 and unit 3 being $645,000, with a willingness of the vendor to apply previous funds received under "the contract of sale with Michelle Ryan as deposits".  That offer was said to remain open until 8 February 2002.  Significantly, the letter dated 1 February 2002 from Rigby Cooke provides the following:-

   “We confirm that based on the repudiation by Michelle Ryan of the initial contract between Property Alliance Group Pty Ltd and Michelle Ryan, our client has accepted that repudiation and as such is entitled to the deposit as forfeited under such contract.”

7. It will be noted that Kaklikos asserted that originally she believed the purchase price of unit 2 would be $545,000, whilst Woods claimed that unit 3 would be purchased for what he described as "the sum of $540,000 or thereabouts".  Obviously the offer in the letter dated 1 February 2002 from Rigby Cooke, even allowing for the vagueness of the original expectation, involved a considerable increase in the proposed purchase price.

8. Yet another firm of solicitors was engaged on behalf of Woods and Kaklikos who corresponded with Rigby Cooke and asserted that Property Alliance had no right to forfeit the deposit paid by both Woods and Kaklikos and significantly asserted Property Alliance "were at all times upon notice of our clients' equitable interest".  Reference was made to Woods and Kaklikos being willing and able to complete the contract.  This drew a response from Rigby Cooke by letter dated 8 February 2002 which included the following:-

   “We also note your advice that your clients are ready, willing and able to complete the contract.  This does not accord with the discussion between your clients and our client.  Further, your clients are not a party to any contract with our client which your clients could allegedly complete.”

9. It is sufficient to note that further discussions and negotiations occurred without resolving the matter and that ultimately Woods and Kaklikos through their current solicitors simply sought repayment of the $110,000 asserted to be held on trust.  A detailed letter dated 19 March 2002 from the applicants' solicitors to Rigby Cooke set out the basis of the applicants' claim which is now reflected in the pleadings to which further reference will be made in this judgment.  It is relevant to set out an extract from that letter which succinctly summarises the demand and the basis of the demand by the applicants against the respondents as follows:-

   “We hereby demand that your client repay the said sums of $50,000 to Michelle Kaklikos and $60,000 to Ian Woods and Janet Woods within 7 days of the date of this letter.  If your client within the said 7 days from the date of this letter either:

   (e)fails to refund the said sums of $50,000 and $60,000 respectively; or

   (f)fails to instruct you, Rigby Cooke, to return the said sums to our clients, we will without further notice issue proceedings against Property Alliance Group, Daryl Mcleod and Rigby Cooke.

   The said funds, when delivered to your client, and subsequently placed in your trust account, were to be held on trust and that trust continues.  It therefore follows that any attempt by your client to characterise the said funds as a deposit and to 'forfeit' the said sums is in breach of the trust pursuant to which the funds are presently held.

   In outline, our causes of action against your client and its director and Rigby Cooke is that your client has received the said funds, or alternatively, your client is asserting a claim over the said funds, to which it has no entitlement as the said funds were placed into Rigby Cooke's trust account to be held on trust pending the execution by your client and Michelle Kaklikos and Ian Woods and Janet Woods of contracts of sale in respect of units 2 and 3 respectively, which has not occurred.

   It is clear that Michelle Ryan held the said funds on trust for Michelle Kaklikos and Ian Woods and Janet Woods respectively, a fact known to your client and you, and by attempting to place the said funds as a 'deposit' on her contract of sale with your client, she has clearly breached the said trust, and your client has participated in the said breach of trust, and it is liable to make good any loss or damage caused to our clients by the said breach of trust, and any persons participating in the said breach of trust.”

10. Other claims are referred to in that correspondence which ultimately have failed to resolve the matter.

11. The claims arising out of the events described above include a claim for breach of agreement, duties and trust.  It is specifically asserted that McLeod and Property Alliance ought to have known that each of the said sums of $50,000 and $60,000 were funds not belonging to Ryan but rather provided by Kaklikos and Woods.  That knowledge is said to arise from correspondence, receipts and the cheques to which reference has already been made.  It is argued that in the alternative, upon execution of the Ryan contract, funds were held on a resulting trust for Kaklikos as to $50,000 and Woods as to $60,000 respectively because the purpose of delivering the funds to Property Alliance was to be held on trust pending the execution by Kaklikos of a contract of sale for purchase of unit 2 and the execution of a contract of sale for purchase of unit 3 by Woods had failed because the units were sold by Property Alliance to Ryan.

12. Further, it was argued that there is a constructive trust for Kaklikos and Woods.  Any attempt at forfeiture of the deposits would be a breach, it was asserted, of duty by Ryan and/or a breach of the trusts alleged by Property Alliance or McLeod.

13. It is not in dispute that Ryan by letter dated 21 November 2001 informed Property Alliance that she was not in a position to settle the purchase of the unit and that, as indicated earlier, requested the sum of $110,000 be returned to her.  It is claimed as against Ryan that she breached the fiduciary duty referred to earlier.

14. A further claim under s.52 of the Trade Practices Act 1974 (the Trade Practices Act) and s.9 of the Fair Trading Act 1999 is said to arise in the first instance by Ryan's conduct and, secondly, by Property Alliance and McLeod as being the persons involved in the contravention of those provisions based upon the matters referred to earlier in this judgment.  The particulars in relation to Property Alliance and McLeod in brief terms involve the allegation that McLeod at all relevant times had been a director and continues to be a director of Property Alliance and has been directly involved in negotiations and communications with Ryan in respect of the sale by Property Alliance and the purchase by Ryan and the drawing up of the contract of sale between Property Alliance and Ryan.

15. An alternative claim is made of unconscionable conduct against Property Alliance in relation to statements concerning the market value of the property increasing, resulting in a willingness to sell the units to Kaklikos and Woods at a price exceeding the purchase price under the contract of sale between Property Alliance and Ryan and that if Kaklikos and Woods refused to accept the offer, that Property Alliance would forfeit the deposits paid and retain those deposits even if the units sold at a higher price than that which had been agreed with Ryan. The conduct of Property Alliance is said to provide a basis upon which it could be claimed that it had contravened s.51AC and/or 51AB of the Trade Practices Act and s.8 and 8A of the Fair Trading Act. McLeod is said to be a person involved in those contraventions. A claim of unjust enrichment has also been raised along with conversion.

Ryan – Non-appearance

1. It is noted in this matter that all parties submitted that the trial should proceed despite the non-appearance of Ryan who is the third respondent in the claim and the first cross-respondent in the cross-claim.  It is useful to note that a notice of address for service was filed on 14 August 2002 for Ryan by solicitors then acting on her behalf.  Orders were made on 27 August 2002 upon there being an appearance for Ryan.  Specifically Ryan was ordered to file and serve a Response on or before 30 September 2002.  No response was filed.  On September 2002 a notice of withdrawal of practitioner was filed by the solicitors then on record for Ryan.  In the notice an address was given for Ryan at Lawson Parade Heidelberg (the Heidelberg address).

2. It should be noted that when orders were made by the Court on

   
   

   27 August 2002 and Ryan was represented further orders were made altering the final hearing date from 19 September 2002 to 19 December 2002.   The hearing commenced as scheduled on that date.  As Ryan had solicitors then acting for her when the final hearing date was fixed and given those solicitors attended when the date was altered I am satisfied that Ryan was properly represented and that reasonable notice of the hearing date had been given.

3. The matter came back before the Court on 8 November 2002 and an application was made for an order for substituted service on Ryan.  That application was made by the first and second respondents and reliance was placed upon an affidavit sworn by Wilhelm Kyle Laird Siebel on 7 November 2002 who deposed to having difficulty serving Ryan at the Heidelberg address and attached to his affidavit an affidavit of attempted service by a process server John Arthur Hemsley sworn

   
   

   7 October 2002.  The process server deposed that he had attempted service upon Ryan on four occasions in October.  In his affidavit Mr Siebel deposes to having a telephone conversation with a person who identified herself as Ryan on 11 October 2002.  He deposes that he asked Ryan for an address for service of Court documents and was informed that they could be sent to a post office box address in Heidelberg (the post office box address).  The Court made an order for substituted service upon Ryan to be effected by pre-paid post care of the post office box address in substitution for the requirement of service in accordance with the Rules of the Court.  Further orders were made that a copy of the orders be served upon Ryan in accordance with the order for substituted service.  The matter was listed again on 10 December 2002 at 9.45 a.m.  Parties were notified of the directions hearing by notice of listing dated 6 December 2002 which relevantly was forwarded to Ryan at the post office box address.  A notation on the Court file notice of listing indicates that Ryan made an enquiry about the details of the Court location by telephone on 9 December 2002.  When the matter was convened on 10 December 2002 there was no appearance for Ryan though orders were made in relation to the filing of documents. 

4. An affidavit of service sworn by Adam Bertuzzi and filed on behalf of the first and second respondents deposes to service upon Ryan pursuant to the order for substituted service of the relevant documents by pre-paid post on 12 November 2002.

5. The orders made by the Court on 10 December 2002 according to the Court file were forwarded to Ryan at the post office box address under cover of letter dated 11 December 2002.  Again according to the file it would appear that on 10 December 2002 Ryan arrived late at Court and was advised that orders had been made and would be sent to her in the post.  Her address at the post office box was confirmed according to the file note.  Subsequent correspondence was received and forwarded according to the file to Ryan at the post office box address simply advising that the matter had proceeded to hearing and judgment would be delivered in due course.

6. For the sake for completeness it should be noted that by affidavit sworn 26 August 2002 Peter Don Pryles deposes that Ryan was served on 25 June 2002 with the application, amended statement of claim, affidavit of Michelle Kaklikos sworn 23 April 2002 and exhibits therein and affidavit of Ian Woods sworn 23 April 2002 and exhibits therein.  An affidavit of service of Stephen Kevin Mitchell sworn 26 June 2002 was relied upon which I am satisfied confirms service.

7. Having regard to the chronology of service, orders and the history of the matter together with the agreement by parties appearing that the application should proceed in the absence of Ryan albeit ultimately with arguments being advanced as to judgments which may be entered against Ryan both as a respondent and as a cross-respondent,

   
   

   I concluded the matter should proceed and I am satisfied that at all material times Ryan either by her advisers or on her own behalf has been given appropriate notice of the proceedings and has chosen not to file a response and/or actively participate in the proceedings.  As a matter of procedural fairness I conclude that in the circumstances an opportunity to be heard has been given to Ryan and she has chosen not to participate in the proceedings and as noted has not even filed a response.  Accordingly I am satisfied it was in the interests of justice to permit the matter to proceed in her absence.  It is clear from the application that non attendance of a party may mean that a hearing may result in orders being made in the absence of the party.

Rigby Cooke Liability

1. The claim against Rigby Cooke relies upon the payment of the amounts referred to earlier into the trust account of that firm and essentially asserts that the firm at all times knew or ought to have known that there had been negotiations between Property Alliance and Ryan in respect of the purchase and that Ryan was acting on behalf of the applicants in negotiation for units 2 and 3, with each applicant intending to purchase one of the three units personally.  It is asserted the identity of the drawers of the cheques deposited in the trust account of Rigby Cooke were known and that it was known the funds did not belong to Ryan personally.  Ryan held, it was asserted, the sums on trust for the applicants respectively and there was a fiduciary relationship known to Rigby Cooke at all relevant times.

2. Further details were referred to in relation to the drawing up of contracts by Rigby Cooke and arising out of that it was claimed that Rigby Cooke held on trust as the stakeholder the sums advanced by Kaklikos and Woods.  After the execution of the contract between Property Alliance and Ryan on 28 February 2001, it was claimed that the use of the sums of $50,000 and $60,000 as a deposit in relation to the Ryan contract occurred at a time where neither Kaklikos or Woods had authorised Ryan or Property Alliance or Rigby Cooke to apply those funds for that contract of sale.  Despite demand made against Rigby Cooke, it refused to return the sums to Kaklikos and Woods.

3. Assertions are otherwise made against Rigby Cooke in relation to constructive trusts and, further, that the respective receipt of the cheques and issuing of trust account receipts constituted representations that moneys were held on trust by Rigby Cooke.  It was claimed that Rigby Cooke was under a duty to take care in making the representations and was negligent in making those representations.  In the alternative, the representations were inaccurate and misleading.

Cross‑Claim

1. An amended cross‑claim filed on 19 December 2002 by Property Alliance and McLeod claimed against Ryan, Bowen and Rigby Cooke (the cross‑respondents) an entitlement by Property Alliance to recover from Ryan the deposit of $110,000 payable under the Ryan contract and/or damages against Ryan.  Further claims are made that when giving the cheques to McLeod in order to induce McLeod to procure and Property Alliance to enter into a contract with Ryan, Ryan and Bowen had represented to McLeod and Property Alliance that the applicants had authorised Bowen to give the cheques to McLeod to be given to Rigby Cooke and that the proceeds of the cheques would stand as a holding deposit payable by Ryan pending her entering into a contract with Property Alliance to purchase the property with the amount of the cheques constituting a deposit.  The representations were claimed to be untrue and warranties broken in the event that the applicants are entitled to pursue the claims for relief against Property Alliance and McLeod to recover the proceeds of the cheques.  Further claims are made by Property Alliance and McLeod against Bowen on the grounds of negligence in making the representations.

1. As against Rigby Cooke, a claim of professional negligence has been made.

2. The first and second respondents by an amended defence, while admitting that a trust account receipt was issued to Kaklikos on 6 February 2001, assert that it acknowledged receipt of the sum of $50,000 in part payment of the deposit in relation to the Ryan contract.  Likewise, the receipt issued on the same date for the sum of $60,000 acknowledges receipt of that amount in relation to the proposed purchase by Ryan under the Ryan contract.  Whilst admitting that they knew the sums of $50,000 and $60,000 were provided by the applicants, they denied any breach of agreement, duty or trust.  Property Alliance and McLeod claim that the funds provided by the applicants were for the purpose of enabling Ryan to pay a deposit in relation to the Ryan contract.  In the alternative, the respondents assert that they did not know and ought not to have reasonably known that the applicants had not provided those funds to Ryan for that purpose.

3. Whilst admitting that by letter dated 21 November 2001 Ryan informed Property Alliance that she was not in a position to settle the purchase of the units pursuant to the Ryan contract, Property Alliance and McLeod dispute any entitlement by Ryan to a refund of the sum of $110,000.  It is claimed that amount was forfeited as a consequence of repudiation of the contract by Ryan and acceptance of repudiation.

4. Property Alliance and McLeod deny any breach of the Fair Trading Act or Trade Practices Act, unconscionable conduct or other matters raised, including conversion and unjust enrichment. It was further pleaded that by providing the total sum of $110,000 to Ryan the applicants knew or ought reasonably to have known that she would apply it for the purpose of the deposit due under the Ryan contract.

5. Rigby Cooke in its notice of defence denies the allegation of holding sums of money on trust and otherwise asserts the right of Property Alliance to claim that the sums of $50,000 and $60,000 respectively were lawfully forfeited.  Whilst admitting that they knew that there had been negotiations between Property Alliance and Ryan in respect of the purchase by Ryan and the applicants of the three units and that Property Alliance had not executed any contract of sale of the property to Ryan at the time of receipt of the cheques on 6 February 2001, the fourth respondent denies that Ryan was acting on behalf of the applicant in negotiations with the purchase of unit 2 by Kaklikos and unit 3 by Woods.

6. Rigby Cooke admits at the time of receipt of cheques there was no contract executed for sale of the property or any part thereof by Property Alliance to the applicant. They deny any knowledge of a request by the applicants to Property Alliance through Ryan for separate contracts for the purchase of the units and apart from admitting knowledge of the identity of the drawers of the cheques, deny knowing that the funds did not belong to Ryan personally and assert the funds belonged to Property Alliance as a deposit for Ryan's purchase of the property. Rigby Cooke otherwise deny acting as stakeholder and the other allegations made by the applicants arising out of any trust or breach of fiduciary duty. Rigby Cooke otherwise deny representations asserted arising out of the issuing of the trust account receipts and otherwise deny any negligence or allegations of unconscionable conduct and/or breach of the Trade Practices Act or Fair Trading Act and/or conversion.

7. Rigby Cooke by way of defence to the cross‑claim denied any liability arising out of an alleged breach of retainer, warranties or duty of care or negligence.  They asserted that if the applicants were entitled to any relief against Property Alliance and/or McLeod, then any loss or damage resulted from the fact that Ryan did not complete the contract and not by any act or omission by Rigby Cooke.

8. Otherwise Rigby Cooke asserted that they acted upon instructions by McLeod of Property Alliance that Ryan was the purchaser of the three units, that there were to be three partners but only one person named on the contract, there would be two cheques for $110,000 for the deposit and the cheques received by McLeod were a payment of the deposit under the Ryan contract.  It is claimed that on 1 February 2001 McLeod told Mr Kelly of Rigby Cooke that Ryan was the purchaser and was going to buy all three units for $1.68 million.  On 5 February 2001 it is asserted that McLeod told Kelly that on the sale of the property there were to be three partners but only one person was to be named on the contract and there would be two cheques for $110,000 for the deposit and that they would be personal cheques.  Had Rigby Cooke received instructions consistent with the arrangement as alleged by the applicants between Ryan, Kaklikos and Woods, then it would have advised McLeod of Property Alliance that separate contracts should be drawn up naming Kaklikos and Woods as purchasers of units 2 and 3 and the proceeds of the cheques drawn by Kaklikos and Woods would have been applied as deposit for the respective purchasers.

The Evidence

The Applicants

1. Kaklikos adopted her affidavit and the facts set out in that document recited to a large extent earlier in this judgment.  Woods likewise adopted his affidavit and otherwise in general supported the matters earlier referred to in his evidence‑in‑chief.

2. Arising from the applicants' evidence, it has been claimed that they gave what is described as evidence which has not been successfully challenged on the following relevant matters as to their claims, namely:-

   a)explanation of the agreements reached with Ryan and their instructions in respect of the funds;

   b)reason for requesting separate trust account receipts be issued to them;

   c)reasons for demanding separate contracts with Property Alliance in respect of the units they were respectively intending to purchase; and

   d)instructions as to the application of their funds to their respective contracts and for no other purpose;

   e)refusal to proceed further with the transactions upon learning of Ryan's misapplication of their funds;

   f)reasons for demanding that the respondents refund their money.

3. An attack was made by the respondents upon the credit or reliability of both the applicants.  Both, it was claimed, failed to make good the alleged breaches of duty and breach thereof. 

4. It is common ground that liability in this matter is claimed to arise under both limbs of Barnes v Addy (1874) 9 Ch. App. 244, namely, that a person who receives trust property transferred to him in breach of trust is liable as a constructive trustee if he receives it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust or he received it without such notice but subsequently discovered the fact.  It is submitted, and I accept on the authorities, that in either case he is liable to take account for the property, in the first case as from the time he received the property and in the second as from the time he acquired notice (see Agip (Africa) Ltd v Jackson (1990) 1 Ch 265 at 291; Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 395-397). The second limb of Addy's case is that a stranger to a trust will also be liable to account as a constructive trustee if he knowingly assists in the furtherance of a fraudulent and dishonest breach of the duty or trust. 

5. I accept, as submitted by counsel for the applicants, that it is not necessary that the parties to be made liable as a constructive trustee should have received any part of the trust property.  The basis as submitted of a stranger's liability is not the receipt of the trust property but participation in a fraud.  Fraud in that context means equitable fraud, not common law fraud (see Consul Developments at 395-397).

6. It is against the reliance upon both limbs of Barnes v Addy, namely, knowing receipt and knowing assistance, that an attack was made upon the applicants' evidence by the respondents.  It was argued that both applicants had failed to make good the alleged duty and breach.  Wood’s evidence was quite contrary to it and reference was made to evidence at transcript pages 123 and 124 as follows:-

   “He told you that a deposit of $60,000 was now due.  Is that right?---That's correct. 

   You agreed to provide that?---I did.

   Just let me ask you this:  $60,000 is somewhat more than a 10 per cent deposit on your purchase, isn't it?---That is correct.

   Did that surprise you at all?---It did and I questioned Mr Bowen on that at the time.

   How did he explain that to you?---He did not give me a satisfactory answer.  He was indicating it would be forming part of taking out the whole or buying the whole project.

   So it was necessary to take out or buy out the whole project?---That is correct.

   So you had to put up more than what would be the normal 10 per cent deposit if you were purchasing it as your unit?---That is correct.

   Did he tell you that the other unnamed investor was putting up some money?

   ---He did.

   Did he tell you how much that was?---No, he did not.

   He declined to tell you that too?---That's correct.

   Did he tell you that he was putting up any money?---He indicated to me in his present circumstances he would not be putting up any money,

   When you say "he indicated" what, he told you this?---Yes.

   He said he wasn't putting any up himself?---No.

   So that you and the other investor, if you like, were in effect subsidising his part of the deposit?---That is correct.

   You agreed to provide this $60,000 as he'd asked of you?---Correct.

   You provided that to him together with a letter, didn't you?---Yes, I did.”

7. It was submitted that evidence in cross‑examination was to the effect that the $60,000 Woods was asked to advance was to enable Ryan to show that she was able to proceed with the purchase, to form part of buying the whole project, and was more, than if Woods was purchasing his own unit.  It was also open to the Court to conclude that the other unnamed investor, Kaklikos, was also putting up money and that Bowen or Ryan would not be putting up any money for the project whilst he and the other investor was subsidising Bowen (Ryan) his part of the deposit.  If that evidence in cross‑examination is accepted, then it was submitted it is fatal to establishing the alleged duty and breach.

8. It was conceded that the position with Kaklikos was not quite as clear but it was otherwise claimed she should not be accepted as a witness of truth.  Seven significant aspects of her evidence were raised by way of criticism, namely:-

   (a)her failure to give a proper explanation of her failure to mention her telephone call to Rigby Cooke's office on 16 March 2001;

   (b)her belated insistence that she spoke to Mr Kelly;

   (c)her insistence that she was waiting for her solicitors to act;

   (d)her failure to produce or refer to her notes in the meeting with McLeod on 13 November 2001;

   (e)her insistence that Janover had gone on holidays;

   (f)her denial that she received a fax from McLeod dated 28 December 2001;

   (g)her failure to produce or refer to the letter dated 16 January 2002 to Ryan's solicitor.

9. In response to those criticisms, counsel for the applicants claim that those matters should be interpreted as a failure to recollect and in any event some of those matters, if given in evidence, would have assisted the applicants' case.  Otherwise the criticisms raised are not relevant to the central issues of the claim.

10. It was argued by the respondents that there is considerable confusion in the evidence of Kaklikos.  In particular, on the one hand, Kaklikos asserts that Ryan acted contrary to Kaklikos's instructions and indeed it even acted dishonestly or fraudulently and nevertheless produced a copy of a contract to Kaklikos which in a sense "gave the game away" by clearly indicating the contract was between Ryan and Property Alliance.

11. It was argued by the applicants that this aspect of the evidence also included the fact that the deposit sum was deleted in the contract in an attempt to conceal Ryan's contract.  By that time, it was submitted, Ryan had to reveal part of what she had done and hope that the applicants were forced by the circumstances to go along with her plans.

12. Reliance was placed upon a significant part of the evidence which concerned what has been described as a $30,000 spin‑off to Ryan and Bowen and what is further described as a "kickback" in better quality finishes to the units that Ryan and Bowen were purchasing.  Reference will be made to that evidence later in this judgment, though it is clearly relevant in terms of any attack upon the applicants' evidence and it relates to matters which were then occurring without the applicants' knowledge.

13. It was claimed by the respondents that during her evidence Kaklikos referred to "transfers".  It is appropriate, however, to set out the evidence in relation to this issue as follows:-

    “What did you tell Mr Bowen?---In fact I had an argument with Mr Bowen about it as to why Michelle had signed it and he and Michelle at various times - as Michelle was in my office, I was with her all the time.  But as for Mr Bowen I got on the phone to him and said, "Why did she sign it?  What is this?  That's not what we agreed on."  He said, "No, no, I've spoken to the lawyers, they said that they'll organise transfers."  I said, "What are transfers?  I've never heard of transfers before." 

    Mr Bowen said this, did he?---Yes.  I said, "What are transfers?" and he goes, "Transfers to transfer the property to you."  I go, "I don't know about transfers, I've never heard of transfers.  Get me the transfer so I can show them to my lawyers," and that's how I left it with him.

    This was a conversation you had with Mr Bowen?---And Michelle Ryan but like she'd come into my office, I'd spoken to her about it.  I'd ring Dale Bowen and talk to him about it while she was in my office.”

    (Transcript page 75 lines 30 to 43)

14. It was submitted by the applicants' counsel that the reference to transfers does not constitute a basis upon which the Court could find that Kaklikos sought a "transfer" and not a contract in her name.  Counsel for the applicants submitted that the Court should find that both witnesses were truthful and the Court should accept the reasons they gave for refusing to proceed further with the transactions after they discovered Ryan was disobedient to their instructions and misapplications of their funds should be accepted by the Court.  It is of significance, according to the submissions for the applicants, that it was not until about the last week of March 2001 that the applicants knew of the existence of the other as "the other purchaser" of the units.

15. Reference was made to subsequent negotiations between the applicants and McLeod and it was submitted that there was nothing in those negotiations which is contrary to the position as asserted by the applicants, namely, that the funds belonged to them, that Ryan disobeyed their instructions in failing to procure for the applicants separate contracts with Property Alliance, that Ryan misapplied the funds and that Property Alliance was never entitled to retain or forfeit those funds, with the funds being returned to the applicants if they did not reach any alternative agreement with Property Alliance to purchase property.

McLeod Evidence

1. Mr McLeod adopted the affidavit which had been sworn by him and filed in the proceedings.  Mr McLeod is a registered builder with project management experience and decided to undertake the role of building the units on the property by engaging subcontractors and overseeing construction of the units.  He confirmed that the presale of the units was unsuccessful as there was very little substantive interest shown.  He then undertook what he described as "direct marketing" through several companies and individuals which he considered might be interested or able to assist prior to November 2000.

2. He met Bowen in mid-December 2000 after Bowen had apparently become aware of the proposed development of the property and had inspected plans with the local council.  Just before Christmas 2000 Bowen told McLeod that he was an investor particularly interested in property investment and mentioned a person then known to be a property investment adviser, Henry Kay, and explained his long-term investment goals.  McLeod states that Bowen told him that he was interested in buying units off the plan for investment purposes and could find other investors to join him, if required. 

3. McLeod delivered detailed plans and specifications for the construction and fit-out to Bowen.  He then had several other conversations with Bowen in early January 2001 and provided him with a copy of one of the presale contracts prepared by Rigby Cooke.  In relation to price, McLeod claims that in substance he told Bowen the price was $1.72 million and was told by Bowen that he was looking at a price in the range of $1.55 - $1.6 million and said that $1.68 million was the "bottom line". 

4. McLeod claimed that at the end of January 2001 Bowen contacted him and said he had organised finance to buy all three units and had two other investors interested in buying two of the units from him.  Price was again discussed with agreement being reached in the amount of $1.68 million.  It is claimed that Bowen told McLeod that his son was ill, undergoing extensive medical treatment and he and his partner preferred to retain spare cash to assist their son.  Bowen asked if the deposit could be about two-thirds of the usual deposit of 10% to which McLeod agreed.  Bowen said he would provide the cheques which McLeod instructed should be made payable to Rigby Cooke. 

5. In his affidavit McLeod refers to Bowen telling him that there would probably need to be "three separate contracts" to facilitate his "on‑sale" to the two other investors but that he would let McLeod know definitely within a few days.  Within a couple of days Bowen again contacted McLeod and told him that only one contract was required but with a right to take three separate transfers of each of the units.  He told McLeod that the contract would be in the name of his partner, Ryan, and told him that a bank guarantee or deposit bond would be provided to replace the cash deposit.  McLeod claims that he told Bowen that he would make arrangements with Rigby Cooke to prepare a contract once cheques had been received from Bowen.

6. McLeod claims that he then telephoned Mr Kelly of Rigby Cooke and advised him of the outcome of the discussions with Bowen and to expect cheques to be delivered.  McLeod claims he met Bowen on 3 February 2001 to receive the cheques.  The total of the cheques was $110,000 which he stated was the agreed deposit of two-thirds of 10% of the purchase price, that is, $112,000.  Despite the shortfall of $2000 he agreed to accept the $110,000 as required deposit.  McLeod claims that Bowen asked him to retain receipts from Rigby Cooke and to then fax them to Ryan.

7. McLeod gave the cheques to Kelly of Rigby Cooke on 5 February 2001 and states that he asked Kelly to fax a copy of the receipts to Ryan, as requested by Bowen, and to then fax copies of letters and receipts to him.  A fax from Rigby Cooke to McLeod dated 6 February 2001 was produced which in part states the following:

   “We enclose for your information copy letter and copy receipts.  We were telephoned by Dale Bowen with respect to the matter and we explained to Dale the practical delays in the obtaining of funds, banking of funds and issuing of the receipts.  He indicated that he understood.

   We note that you will provided (sic) additional information to us to enable finalisation of the contract, including details with respect to the amended plans and specifications and an address for Michelle Ryan for inclusion in the contract.”

8. McLeod indicated that upon being told by Kelly the cheques had cleared on 7 February 2001 he asked Kelly to proceed to prepare the contract and that he would provide details.  He did that by a facsimile transmission dated 7 February 2001 which states in part the following:

   “The following details and documents are provided to complete the contract of sale and vendor's statement for units 1, 2 and 3.

   As agreed, please provide a single contract and vendor statement within three (3) separate 'transfer' documents to minimising stamp duty expenses on the purchaser.”

1. The facsimile dated 7 February 2001 refers to Ryan as the purchaser. 

2. On 14 February 2001 McLeod received a draft of a contract of sale under cover of letter of the same date from Rigby Cooke.  The letter refers to "sale to Ryan and/or nominee" and the draft contract included special condition 10 as follows:

   “10  Nomination

   In the event the Purchaser desires to nominate a substitute or additional Purchaser pursuant to the General Conditions of this Contract, then the purchaser shall at least 14 days before settlement, deliver to the solicitor for the Vendor:

   10.1 An executed Nomination Form;

   10.2A copy of the Statutory Declaration completed by or on behalf of the Purchaser in a form acceptable to the Vendor's solicitors;

   10.3 If the nominated Purchaser is a company, an executed guarantee by the Directors of that company;

   10.4 A cheque in the sum of $250.00 per nomination being nomination costs payable to the Vendor's solicitors;

   and upon nomination all monies previously paid by the Purchaser under this Contract are deemed to have been paid by the nominated Purchaser and the nominated Purchaser is deemed to have accepted Title.”

3. In the covering letter Rigby Cooke referred to a right to take separate transfers "of the separate units pursuant to special condition 26 of the contract" which provides as follows:

   “26  Separate Transfers

   The Vendor and Purchaser agree that the Purchaser shall be entitled to take separate transfers of the separate lots which will be formed on the Subdivision of the property hereby sold provided always that the settlement of each of the lots shall occur at the same time.  The Vendor and Purchaser agree that the consideration for the value of each lot shall be the consideration as calculated pursuant to the terms of this Contract divided by the lot liability as set out in the Plan of Subdivision.”

4. According to McLeod, he received a final contract of sale and vendor's statement on 15 February 2001.  On 23 February 2001 he spoke to Bowen who told him that the contract was with his solicitor.  On 26 February 2001 he again spoke to Bowen and was told that he had spoken to his solicitor, Mr Adno, who would contact Rigby Cooke to discuss changes to the contract relating to a right to swap cash deposit with a bank guarantee bond, a right to on-sell to other investors and settlement after the issue of a certificate of occupancy for the units.  McLeod discussed with Bowen on that date the changes and asked him to fax to Mr Adno a letter with the agreed changes and with a request that Ryan sign the contract that day and return it to McLeod for signing. 

5. McLeod had a further conversation with Bowen on 28 February 2001.  According to McLeod, he was told by Bowen that the contract had been changed and signed by Ryan and that it would be delivered to  McLeod.  The changes included the addition of special conditions 27 and 28 which related to third party purchase and bank guarantee or deposit bond respectively. 

6. Later on 27 February 2001 McLeod claims that he met with Bowen and handed him two sets of the contract signed by Ryan.  The following day McLeod claims he spoke to Mr Kelly of Rigby Cooke by telephone who explained the changes and asked McLeod to sign and exchange the contract.  McLeod then signed both parts of the contract, delivering one part to Bowen and retaining the other.  He forwarded a letter and copy of the signed contract to Mr Kelly on 1 March 2001.

7. According to McLeod, once the contract was signed he was then in a position to obtain funding from the bank and proceed with construction of the units.  He made application for the required building permit having previously arranged for a contractor to demolish the dwelling and asking him to proceed further.

8. On about 27 March 2001 McLeod received a letter from Mr Kelly which stated that Rigby Cooke had been contacted by Kaklikos and solicitors for Woods and his wife seeking a refund of the deposit.  It is noted that McLeod was advised by Rigby Cooke that "neither party has the right to a refund".  The letter further provides:

   “The deposit moneys have been applied to the contract as signed and the funds will continue to be held on trust.”

9. The next day McLeod telephoned Kelly of Rigby Cooke to discuss the letter and the issue of the deposit.  McLeod asserts that he believed at the time that there was an issue between Ryan and Bowen and Kaklikos and Woods and that Property Alliance and himself were not involved.

10. Site works commenced on the property during March 2001.  On 3 April 2001 a building permit for construction of the units was issued and during course of construction of the units McLeod claims he had minimal contact with Bowen and none with Ryan.

11. McLeod states that in about September 2001 a real estate agent erected an advertising board on the property which surprised McLeod as there had been no prior communication with him about the sign.  After a conversation with the agent he was told that Ryan had engaged him to sell all three units.  The asking price was $700,000 per unit.  Because the contract provided for an on-selling of the units McLeod took the matter no further with Ryan.  McLeod recalls meeting Mr and Mrs Woods on the site in September 2001, although Mr Woods did not introduce himself as one of the investors at that time.  McLeod claims that he had earlier met another man and woman at the site in September 2001 and was told that they were prospective buyers.

12. In November 2001 McLeod states he was telephoned by a person claiming to be a property investor seeking to arrange a meeting which occurred on 14 November 2001 at the offices of Investmentsource.  He recognised the man as being the person he met in September as Mr Woods and a woman who attended in September.  Both said they had worked at Henry Kay's office and were concerned over the ability of Ryan to complete the contract.  It is clear that the parties were the applicants and, according to McLeod, told him they were prepared to enter into separate contracts with him to buy units 2 and 3 using the existing deposit of $110,000.

13. Kaklikos is claimed to have mentioned a "renouncable contract of sale" which McLeod believed had something to do with avoiding stamp duty, and he told them he would refer that to his solicitors.  McLeod claims that he told the applicants that he had been advised by Rigby Cooke that he would be entitled to the deposit if Ryan failed to settle the contract.  He then telephoned Mr Kelly of Rigby Cooke to advise him of what had taken place.

14. McLeod claims that on 21 November 2001 Mr Kelly informed him by telephone that he had been advised by the solicitor acting for Ryan that she was not able to settle the contract as funds were not available.  Mr McLeod received a copy of a letter dated 21 November 2001 addressed to Rigby Cooke from Ryan's solicitors confirming inability to complete the contract and seeking refund of the deposit of $110,000.  On 3 December 2001 McLeod instructed his solicitors to take the necessary steps to end the contract with Ryan and this occurred by letter dated 6 December 2001 from Rigby Cooke to Ryan's solicitors.

15. McLeod claims that after termination of the contract with Ryan he had several conversations with the applicants and had two meetings with them during December 2001.  Negotiations took place where McLeod suggested a revised price of $1.74 million for the sale of the three units.  This was to cover unexpected additional costs of construction, although that was offset by an increase in value since February 2001.  He calculated increased costs at $44,000.  During the course of the hearing he gave other evidence in relation to the costs.

16. A contract was prepared by Rigby Cooke at the request of McLeod and a copy faxed to Kaklikos, together with a facsimile cover sheet on 28 December 2001.  McLeod claimed that on 21 January 2002 he met with Woods at the property and inspected unit 3.  Woods had asked for McLeod to take steps to stop Ryan's agent from marketing the units and to provide him with a copy from Ryan's solicitors repudiating the contract.  McLeod instructed Kelly of Rigby Cooke to provide the letter to Woods.  McLeod believed that after providing that document it was his understanding that Woods and Kaklikos were seeking legal advice and that this was going to lead to completion of the sale at the revised price of $1.74 million.

17. Having not heard anything further from the applicants McLeod instructed Kelly of Rigby Cooke to withdraw the agreement sent on 28 December 2001 and to offer to sell them units 2 and 3.  He did this on 1 February 2002 by a solicitor's letter from Rigby Cooke to the applicants, referring to a purchase price for unit 2 of $595,000 and unit 3 of $645,000.  Ultimately after further correspondence and a meeting the matter was not resolved between the parties.  McLeod then decided to sell the units and as a result unit 3 was sold on 11 April 2002 for $610,000 and unit 1 was sold on 27 May 2002 for $605,000.  Contracts were duly completed and according to McLeod he was unable to sell unit 2 and took occupation of that on 1 July 2002. 

18. During the course of his evidence under cross‑examination McLeod was asked questions as to whether he would take advantage of the misfortune of others and ultimately the following exchange occurred:

    “So you would seek to take advantage of the misfortunes if it suited you.  Is that right?---Yes.”

    (Transcript page 193)

19. After raising the issue of the demand by Kaklikos and Woods for the return of the deposit the following exchange occurred:

    “Were you concerned at all that Ryan and Bowen may have misused funds?---There is no indication that they had misused funds.

    Why do you think that Ms Kaklikos and Woods wanted the return of funds?---I honestly don't know.

    You don't know. Tell me, Mr McLeod, you had regular contacts with Bowen up to March 2001?---I did.

    You had a telephone where you could call to contact Mr Bowen?---I did.

    Did you make such a phone call to Mr Bowen and ask him what's going on?---In relation to that specific matter?

    Yes?---No.

    Why not?---I had no reason to.

    Didn't you have a reason? There's a demand for funds by Ms Kaklikos and Woods and it doesn't concern you?---From my point of view the issue was I had a contract with the other party, being Michelle Ryan. What was happening behind the scenes was an issue between Michelle Ryan and the other investors.

    Is that the advice you received from Mr Kelly, that you shouldn't be concerned about what's happening between Ryan and Ms Kaklikos and Woods?---The advice from Mr Kelly was we would monitor the situation and see what came, what followed at that particular point in time.”

20. In relation to instructions by McLeod to Kelly, the following evidence is relevant:

    “You gave instructions to Rigby Cooke to prepare three separate contracts of sale. Is that right?---I don't believe there's an instruction as such. Early discussions between Dale Bowen and myself, I got the impression that there would be three separate contracts.

    That's because you knew that there were three people involved in the purchase of the units?---He did mention about two other investors so that brings the total to three, yes.

    It's reasonable, Mr McLeod, that there are three people involved in the purchase and there ought to be prepared three contracts of sale?---Logic tells me that, yes.

    That's the instruction you gave to Rigby Cooke to prepare three separate contracts of sale?---I indicated to Rigby Cooke that there's likely to be three but Dale Bowen was going to confirm the number.”

21. In relation to the identity of the other investors the following exchange is relevant:

    “MR PANNA: Certainly by the time the cheques were placed in your hands by Bowen you knew the identity of the other investors?---By the names on the cheques, yes.

    Did you consider contacting these other investors to see who they were?---No.

    Did you discuss the identity of these other investors and their circumstances with Bowen?---No.

    By this time though you had worked out what was going on, Mr McLeod. You had worked out that there would be a purchase of these three units by three different people. One would be Bowen and Ryan; one was going to be Kaklikos; and one was going to be Woods. Is that right?---Correct.

    It worked out that the funds for the purchase of these three units were likely to come, the one from Bowen and Ryan, the one from Kaklikos, and one of them from Woods?---Correct.”

22. Once Mr McLeod received the cheques indicating the names of Kaklikos and Woods he admitted that he knew that each was going to buy one unit.  He denied that Bowen had used the word "partners".  During the course of evidence he was then referred to an affidavit of Mr Kelly and the following exchange occurred:

    “I'll read to you what Mr Kelly has said in his affidavits. Paragraph 6 of the affidavit of 17 December 2002, "On 5 February 2001 in a telephone conversation with McLeod he instructed me that on the sale of the property there were to be three partners but only one person was to be named in the contract." Do you recall saying that there were to be three partners?---No, I don't.

    Are you saying that Mr Kelly's recollection is faulty?---I believe you have to ask him that question.

    Well, I'm asking you. He says in his affidavit that you told him. Are you saying he's wrong?---I don't believe I used that term.

    Are you saying that he is wrong?---No, but - - -

    He may be right, then?---As much as he may be wrong, yes.

    You may have used the word "partners" to him?---I don't believe so.

    In paragraph 9 of Mr Kelly's affidavit he says this is what you said to him, "Later on 5 February 2001 McLeod telephoned me and told me that each partner wants a receipt; one to each person joining the cheque with the deposit for the purchase by Ryan." Do you recall saying to him later on 5 February that each partner wanted a receipt?---I do recall asking for separate receipts, yes.

    Do you recall saying to him that each partner wanted a separate receipt?---No, I don't.”

23. During the course of cross‑examination an issue arose as to whether or not Mr McLeod intended to pay Bowen and Ryan a "commission" in respect of the transaction.  The following evidence is relevant:

    “In order to ensure that Mr Bowen brought about the conclusion of an executed contract, did you tell Mr Kelly on about 30 January that Bowen was to get a fee of $5000 per unit to be sold?---I did mention a fee but I don't recall 5000.

    In a discussion with Mr Kelly you told him that Bowen was going to get a fee for negotiating the sale of each of these three units?---On behalf of the other two investors, that's correct.

    That's correct, isn't it?---From the other two investors.

    So you told from the other investors, not you?---I wasn't giving him a fee, no.

    Are you sure about that?---Yes.

    So you told Mr Kelly at least there was a fee of $5000 to be obtained by Bowen from somebody. You say it's not you but it's by the other investors. Is that right?---Sorry, can you repeat that?

    Yes. You told Mr Kelly that there was to be a fee of $5000 to be paid to Bowen?---No.

    Perhaps I have misunderstood what you have said. Did you tell Kelly that Bowen was to obtain a fee of $5000 per unit?---No.

    You did not tell him that?---Correct.”

24. After becoming aware of the claims by Kaklikos and Woods and that any contract in existence that was relevant was with Ryan, McLeod confirmed that he asked for advice from his solicitor, Mr Kelly.  The following exchange occurred:

    “So when you spoke to Mr Kelly did you ask him what was your position?  When I say "you", I equate you and your company the same. Did you ask him what your position was? Did you ask for advice?---Yes.

    I take it Mr Kelly said, "Don't worry about it. Keep the money"?---No.

    He didn't say that?---No.

    So you decided not to make any further investigations of Bowen to find out what's truly going on?---A situation we agreed that we would see what would further transpire from Ryan or the other investors.

    You agreed with Mr Kelly not to take any action?---Other than - correct.

    So you agreed with Mr Kelly not to make any investigations of to whom the money truly belonged between Ryan and the other investors?---We agreed not to make any further investigation as to that particular matter of Ryan and - sorry, Kaklikos and with wanting their money back.

    So you deliberately shut your eyes to what in fact may have been going on between Kaklikos, Woods and Ryan?---I wouldn't describe it like that, no.

    You wouldn't describe it like that?---No.

    Let's just reassess the position. You've got two people - the two people who put their money down in the contract want their money back. That's right?---It would appear that way, yes.

    Appear, that's how it was, wasn't it?---They were asking for their money back, correct.

    You can get hold of Bowen and Ryan or Bowen, that's right?---I could, yes.

    And you could find out what is the true position?---I could ask the question.  Whether I would find out I don't know.

    You could ask the question, true?---I can.

    You could have asked the question?---That's correct.

    That would have told you at least Bowen's version of it?---Correct.

    You choose to do nothing, Mr McLeod?---At that point I chose to do nothing, yes.

    You chose to do nothing, on Mr Kelly's advice, to just wait and see whether anything else comes out?---Yes.”

25. Mr McLeod was cross‑examined by counsel for Rigby Cooke.  In relation to the issue of whether or not McLeod told Kelly three separate contracts of sale were required the following exchange occurred:- 

    “Mr Kelly says that you didn't tell him that three separate contracts of sale were required to facilitate an on-sale to other investors.  Do you accept that?---No, for the following reason, I thought initially when Bowen and I had initial discussions in early January that there was talk about three separate contracts but then that was confirmed later by Bowen to me - only one contract and that I conveyed to Mr Kelly.

    He also says that you didn't inform him of a critically ill son requiring expensive medical treatment "and of this being a reason for McLeod accepting a reduced deposit".  Do you accept that   ?---I'm surprised that I didn't mention that to him.  I thought I did.

    Did you keep file notes of conversations you had with Mr Kelly  ?---No, I didn't.”

26. During the course of his re-examination when asked to address the issue of whether he would take advantage of people he clarified it on the basis that he understood that legally the deposit money was money to which he had a right or entitlement.  To that extent he was prepared to benefit from the circumstances in this case.

27. During the course of re-examination when asked about the fee to Bowen and a figure of $5000, the following exchange occurred:

    “So they were arranging the finance to complete the contract?---Ryan, correct.

    On the same page of the transcript my learned friend asked you some questions about a fee that was to go to Mr Bowen and Mr Panna mentioned a fee of $5000.  Do you recall the questions relating to that?---Yes, I do.

    Did you know whether Bowen was supposed to get a fee out of this transaction?---He did mention to me he was getting a fee, a spin-off, from the two other investors, yes, for representing them in the - overseeing the project.

    So that fee was to come from the other investors?---That's how I understood it, yes.

    Did he tell you what the fee was?---I recall a figure the order of $30,000.

    30,000?---Correct.”

28. The issue of payments to Bowen then became the subject of further cross‑examination and McLeod acknowledged that he had not referred to any commission or spin-off in his affidavit material and the following exchange of evidence occurred:

    “Now, nowhere in your affidavit did you say that Dale Bowen told you that he was to obtain $30,000 from the other investors as some spin-off.  Why didn't you mention that in your affidavit?---

    
    

    I guess I considered it not to be important at the time, or to be important.

    You did not consider it to be important at the time you swore your affidavit?---I believe so, yes.

    Did you tell that to Mr Kelly?  Did you tell Mr Kelly, "As part of the arrangements between Bowen, Ryan and Kaklikos and Woods, Bowen is to receive $30,000."  Did you tell Mr Kelly that?---I believe I did, yes, in passing comment.”

1. The fourth respondent noted that the duty of a solicitor to bring to the task is that related to the exercise of a reasonable degree of care and skill.  It was submitted that Rigby Cooke was not negligent and that there was no breach of the retainer.  There was no evidence, according to the fourth respondent's submissions, that there was something unusual about the transaction that required a specific warning to be given to Property Alliance and McLeod about applying the cheques drawn on the accounts of the applicants as deposit for the sale of the property to Ryan.

2. Even if Rigby Cooke were negligent it was submitted that Property Alliance and McLeod have suffered no loss.  If the deposit is lost then it was because it was not truly the deposit for the sale by Property Alliance to Ryan.  What Property Alliance and McLeod are claiming, according to the fourth respondent’s submissions, is that if they had been properly advised they would have taken a different course of action which would have avoided the loss that this case may have caused them.  There is no loss according to the fourth respondent’s submissions.  In order to obtain substantial, as distinct from nominal, damages against Rigby Cooke, Property Alliance and McLeod need to establish causation before the Court is required to assess damages.  It was submitted in the present case that Property Alliance and McLeod, in order to claim the loss of the deposit as damages, would need to establish that Rigby Cooke had given the advice that Property Alliance and McLeod's claim it should have given and that Property Alliance would have accepted the advice and as a result of accepting the advice Property Alliance and McLeod would have received authorisations from the applicants and the deposit cheques would not have been forfeited.

3. It was submitted that if the Court were to find that the applicants would have given the authorisations sought then the Court will have found that there was no breach of fiduciary duty by Ryan and Property Alliance will return the deposit. 

4. If, on the other hand, the Court finds that the applicants would not have given such authorisation then Property Alliance would have been required to enter into separate contracts with the applicants for units 2 and 3 respectively.  In the circumstances Property Alliance has sold unit 3 for $610,000, which is approximately $50,000 to $70,000 more than the price Woods was prepared to pay, and unit 1 for $605,000.  If a valuation of $600,000 is assumed for unit 2 the difference between the price obtained plus the value of unit 2 and the price of the contract is $135,000.  Property Alliance and McLeod have led no evidence as to what they would have done if advised by Rigby Cooke of the dangers of accepting cheques drawn on the accounts of the applicants for the Ryan transaction.  In the absence of that direct evidence it was submitted the Court is left to consider any contemporaneous facts or documents which might assist in determining how Property Alliance might have acted.  It is open for the Court to conclude that Property Alliance and McLeod would probably have proceeded with the transaction, even if advised that there might be a danger that the cheques received could not be forfeited if there was a default by Ryan.  In the alternative if Property Alliance and McLeod had accepted that advice and specific authorisation had been sought from the applicants the transaction would not have come to fruition and the cheques would not have been received by Property Alliance and McLeod.

Reopening of the case

1. Although I permitted a re-opening of the evidence I am satisfied having regard to my findings in this matter that the additional evidence did not advance the issues further nor detract from my ultimate conclusions as to the evidence received during the course of the re-opening.

Relevant law

1. All parties made submissions in relation to the relevant law. It is appropriate to set out in brief form those principles which I regard as relevant based upon submissions made by the parties in this matter. It is useful to set out the key principles relied upon in support of a claim of breach of fiduciary relationship, specific purpose or Quistclose trust, constructive trust, knowing receipt of trust property and knowing assistance of breach of fiduciary duty, the Barnes & Addy limbs, s.52 of the Trade Practices Act and s.9 of the Fair Trading Act.

Fiduciary relationship

1. It was submitted by the Applicants and I accept that a person will be a fiduciary in his relationship with another when and insofar as that other is entitled to expect that he will act in that others or in their joint interests to the exclusion of his own several interests (see Meagher, Gummow and Lehane, Equity Doctrines and Remedies (4th Edition 2002) p.157-158);  Ormiston J in Lintrose Nominees Pty Ltd v King (1995) 1 VR 574 at 580-81).

Specific purpose or quistclose trust

1. The Applicants submitted and I accept that where money is advanced for a specific purpose to a person who undertakes to apply the money in the specific purpose then that person is not free to apply the money for any other purpose and a fiduciary obligation arises on the part of that person which a Court of equity will enforce to ensure that the specific purpose is given effect to (Quistclose Investments Ltd v Roll Razor Ltd (1970) AC 567). Monies advanced to the fiduciary never become part of the fiduciary’s monies or assets and there is no beneficial interest in the fiduciary to dispose of the funds at his or her discretion. It was submitted and I accept that because the fiduciary does not obtain a beneficial interest in the money there is a resulting trust to the person who is advanced the money. To dispose of the money otherwise than in accordance with the undertaking given by the fiduciary constitutes at one and the same time a breach of a contractual undertaking and a breach of trust in which the money is held (see Barclays Bank v Weeks Legg & Dean [1999] QB 309 at 324). Until money is paid in accordance with the beneficiary’s instructions or returned, it is property of the beneficiary and the beneficiary may trace the money and obtain proprietary relief against any third party who has taken the funds.

Constructive trust

1. It was submitted that the existence of a constructive trust does not depend upon a Court declaring that it exists, see Muschinski v Dodds (1985) 160 CLR 583 at 614 per Deane J as follows:

   “… The old maxim that equity regards as done that which ought to be done is as applicable to enforce equitable obligations as it is to create them and, notwithstanding that the constructive trust is remedial in both origin and nature, there does not need to have been a curial declaration or order before equity will recognize the prior existence of a constructive trust: cf. Scott, Law of Trusts, 3^rd ed. (1967), vol. V, par.462.4.  Where an equity court would retrospectively impose a constructive trust by way of equitable remedy, its availability as such a remedy provides the basis for, and governs the content of, its existence inter partes independently of any formal order declaring or enforcing it.  In this more limited sense, the constructive trust is also properly seen as both ‘remedy’ and ‘institution’”.

2. It is also perhaps useful to set out from the head note in Muschinski’s case the following:-

   “There is no place in Australian law for the notion of a constructive trust which is imposed by law whenever justice and good conscience require it.  Proprietary rights fall to be determined by principles of law and not by some mixture of judicial discretion, subjective views about which party ought to win, or the formless void of individual moral opinion.”

3. Reliance was placed upon the Privy Council decision in Attorney General for Hong Kong v Reid (1994) 1 AC 324 at 331 where Lord Templeton stated the following:-

   “Equity considers as done that which ought to have been done.  As soon as the bribe was received whether in cash or in kind, the false fiduciary held the bribe on a constructive trust for the person injured.”

4. I accept that if a constructive trust is established arising out of a breach of fiduciary duty then the Applicants are entitled to trace funds obtained by others in breach of that fiduciary duty and those funds cannot be retained against the Applicants if it be established that they are the true owners of the funds.

Barnes & Addy

1. It is accepted that the Court needs to consider the issue of the Respondents’ involvement in the knowing receipt of trust property and knowing assistance of Ryan’s claimed breach of fiduciary duty.

2. As a matter of law I accept that a person who receives trust property transferred to him in breach of trust is liable as a constructive trustee if he receives it with notice, actual or constructive, that it was trust property and that the transfer to him was a breach of trust, or if he receives it without such notice but subsequently discovered the fact.  In either case he is liable to account for the property, in the first case as from the time he received the property and in the second as from the time he acquired notice (see Agip (Africa) Ltd v Jackson (1990) 1 Ch 265 at 291; Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 395-397).

3. I further accept that a stranger to a trust will also be liable to account as a constructive trustee if he knowingly assists in the furtherance of a fraudulent and dishonest breach of duty or trust.  As submitted by the Applicant it is not necessary that the parties to be made liable as a constructive trustee should have received any part of the trust property.  The basis of the stranger’s liability is not the receipt of trust property but participation in the fraud.  I further accept that fraud in this context means “equitable fraud” not common law fraud (see Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 395-397).

4. In dealing with the issue of knowing receipt of trust property I was referred to the summary in Ford & Lees Principles of the Laws of Trusts at paragraph 22800 where the elements are set out as follows:-

   “The long accepted elements of a stranger’s personal liability for knowingly receiving for her or his benefit property from a fiduciary in breach of duty are:

   ·    A fiduciary duty owed by one person to a third person principal or beneficiary;

   ·    A breach of the duty on the part of the fiduciary;

   ·    Receipt by the stranger in the course of, or following, the breach of duty; and

   ·    Cognisance on the part of the stranger that a breach of duty is being committed.”

5. It was submitted that the liability under the first limb of Barnes & Addy or what is described as “recipient liability” may be established when the respondents had constructive knowledge at the time he received the relevant property and that:-

   a)It was trust property; and

   b)It was being misapplied.

6. I accept that liability can be established in that matter.  Constructive knowledge for the purpose does include in my view wilfully shutting ones eyes to the obvious, wilfully and recklessly failing to make such enquiries as an honest and reasonable person would make and knowledge of circumstances which would indicate the facts to an honest and reasonable person (see Koorootang Pty Ltd v Meldrum Jeffries P/L (1998) 3 VR 16 at p.17).

7. I accept that the elements of the second limb in Barnes & Addy as set out in Jacobs’ Law of Trusts in Australia (6^th Edition 1997) at paragraph 1339 may be summarised as follows:-

   “1.The existence of a fiduciary duty (as trustee or otherwise).

   2.      A dishonest and fraudulent design by the fiduciary.

   3.      The assistance by the third party in that design; and

   4.      With knowledge of the dishonest design.”

8. The onus is on the respondents to negative knowledge of the breach of trust or duty (see Koorootang at p.105).

9. I further accept that a constructive trust may be imposed by the Court irrespective of actual inferred or presumed intention of the parties in issue.  It is not necessary in Australia to show a pre-existing fiduciary duty between a plaintiff seeking a constructive trust and the defendant to impose a constructive trust (see Mark & Lehane p.166).

10. It follows that tracing in an available remedy for property declared to be under a constructive trust.  I referred to and found useful a further reference to Jacobs’ Law of Trusts were at paragraph 2703 the learned authors stated in relation to the applicant’s right to trust the following:-

    “Tracing is seen most simply as a proprietary remedy available to beneficial owners of property against miscreant trustees or third parties.  But it should be emphasised that tracing cannot be so simply treated.  It has long been available in cases falling short of the trustee-beneficiary relationship.  Thus, a fiduciary to whom the plaintiff entrusts his property, albeit by a means falling short of a vesting of the legal title in a trustee, attracts the tracing remedy, which may also run against third persons claiming under him.”

Trade practices claim

1. It is accepted that failure to disclose information can constitute misleading and deceptive conduct when there is a reasonable expectation that the information will be provided (see Koorootang Pty Ltd v Meldrum Jeffries P/L (1998) 3 VR 16 at 722).

2. Potentially under the provisions of the Trade Practices Act and similar provisions of the Fair Trading Act, the applicants may recover the amount of loss and damage alleged to be caused by a contravention of the relevant legislation against the person contravening the sections or against other persons involved in the contravention.

3. It is clear that intent is not relevant under s.52 of the Trade Practices Act and it is relevant to determine whether the conduct was misleading or deceptive or likely to mislead or deceive (Miller’s Annotated Trade Practices Act (23^rd Edition 2002 at p. 391-393)).  It is possible for a person to act honestly and reasonably but nevertheless be rendered liable to pay damages for conduct if it has in fact mislead or deceived or is likely to mislead or deceive.  Liability is not related to fault.

4. It should also be added that a person who has been subject of a misrepresentation even if careless or if it could be claimed that person should have discovered the misrepresentation had he or she made proper enquiries does not then absolve the maker of the misrepresentation from liability for breach of s.52 of the Trade Practices Act (see Neilsen v Hemptston Holdings Pty Ltd (1986) 65 ALR 302).

5. It is now accepted that for the applicants to recover damages they must prove that the loss or damage was suffered by conduct in breach of s.52 of the Trade Practice Act (see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525).

6. Whilst there must be a nexus between the conduct complained of and the loss or damage suffered, it is not always necessary for the claimant to prove that he relied on the conduct (see Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526).

Reasoning

1. I accept and find that both applicants were witnesses of credit.  Although both may be said to have provided different instructions to various solicitors prior to the commencement of proceedings and to some extent have conducted themselves in a manner which would only be described as unwise, I nevertheless find that each has been a witness of truth before this Court. 

2. The facts in one sense are quite simple.  I am satisfied and find that the chronology of events set out by Kaklikos and Woods leading up to the tender of the respective cheques is accurate.  Both in my view had formed an intention to purchase the respective units to which reference has already been made.

3. I am further satisfied that both had advanced a deposit in the belief that it was a deposit for the respective units.  In doing so they would have expected that in due course the deposit would be held as a deposit on each unit subject to an individual contract. 

4. I am also prepared to find that in the circumstances it is clear that Ryan and Bowen had been prepared to negotiate with McLeod and to do so on the basis that their ability to raise a deposit depended solely upon funds being provided by Kaklikos and Woods.  I am satisfied that Ryan at all material times had acted as a fiduciary and that the cheques paid were so paid as a deposit for and on behalf of Kaklikos and Woods and not to be used effectively as a deposit for Ryan for the contract she entered into with Property Alliance.

5. I do not regard it as particularly relevant that there has been a change in the nature of the demands made for and on behalf of Kaklikos and Woods through respective solicitors up to the time of the first demand by their current solicitors.  The lack of a proper formulation of a demand by legal representatives does not in my view in the present case provide a basis upon which the Court should reject what is now asserted to be the facts in evidence by both applicants.

6. Likewise I do not believe that the attempts by the applicants to negotiate a compromised solution after making demand for return of the deposit should be a matter that is held against them in terms of this Court’s ability to make findings of fact in their favour and consider the merits of the application in relation to the various causes of action claimed.

7. I further find that arising out of negotiations with Ryan both applicants in or about January 2001 had sought to negotiate the purchase of one of the units for each applicant.  I am satisfied that Kaklikos made it clear to Ryan that she wanted a separate contract with Property Alliance for the purchase of unit 2.  Likewise I am satisfied and find that Woods also sought a separate contract for the purchase of unit 3.  On or about 2 February 2001 agreement was reached between the applicants, Ryan and Bowen and the conclusion I draw is that Kaklikos had agreed to purchase unit 2 for $545,000 with Woods agreeing to purchase unit 3 somewhat curiously though for the sum of between $540,000 and $560,000.  Although that final price had not been the subject of a concluded agreement I am satisfied that the deposit paid was specifically for the purpose of the purchase of the unit with the price to be finally determined.

8. I am otherwise satisfied that Kaklikos had told Ryan on 2 February 2001 that the purchase of unit 2 for the sum of $545,000 would be on conditions (a) to (e) of paragraph 7 of this decision.  Likewise I find and accept that consistent with the letter of Woods to Ryan dated

   
   

   2 February 2001 he had imposed the conditions set out in that letter.  In both instances I am satisfied that each of the applicants had delivered a cheque being a deposit on the respective units and that an individual contract would be provided.  There is no evidence upon which I can rely to satisfy me that in the circumstances either of the applicants agreed to hand over cheques to enable those cheques together to form the basis of a deposit for the Ryan contract.  To do so would be simply to provide a credit facility to Ryan who could then enter into a contract without providing any money whatsoever by way of deposit for the purchase of all units.  The consequence of a single contract albeit with an option for Ryan to nominate other purchasers for separate contracts meant that in default of the Ryan contract the deposit moneys provided by the applicants would be at risk without there being any financial risk personally to Ryan of immediate forfeiture of any money advanced by her personally.  I accept that the prospect of forfeiture of the deposit moneys in this manner was never contemplated by either of the applicants who expected and were entitled to expect separate contracts and separate receipts specifying the deposit moneys were advanced for the purchase of the respective units.

9. I find that there was a fiduciary relationship between the applicants and Ryan and indeed her partner Bowen.  For all practical purposes it is not necessary to distinguish between the conduct of Ryan and Bowen as

   
   

   I am satisfied that at all material times they acted together or in what might be regarded as in concert.  Ryan had a fiduciary obligation to the applicants and was entrusted with the deposit moneys to ensure the purchase on behalf of the applicants of the respective units.  By permitting the deposit moneys to be advanced for the benefit of Ryan in the Ryan contract rather than separate deposits for separate units for each of the applicants, I am satisfied that there has been a breach of the fiduciary obligation and that there should be judgment against Ryan on that basis alone.

1. Once the funds were deposited in Rigby Cooke’s trust account I am further satisfied that Ryan held an interest in those funds on trust for the applicants.

2. I am further satisfied applying the authorities to which I have been referred (Muschinski v Dodds) that in the circumstances a constructive trust is established as a consequence of the breach of fiduciary duty.  Upon the breach by Ryan of her fiduciary duty I accept that she became a debtor in equity to the applicants for each of the sums respectively and held the funds and any property representing the funds on a constructive trust for the applicants.  Accordingly the applicants are entitled to trace the funds into the hands of Property Alliance and to recover those funds in circumstances where I am satisfied they were obtained in breach of Ryan's fiduciary duty.  Those funds cannot be held by Property Alliance against the true owner of the funds.

3. I did not find the evidence of McLeod to be satisfactory or reliable. 

   
   

   I am satisfied that he took the view that in the circumstances there would be a “kick back” or secret commission to Bowen and Ryan and that in the circumstances he had reached a stage where on balance

   
   

   I find that he had experienced difficulty in selling the proposed subdivision and was anxious to achieve a sale.  In that context I am prepared to accept without finding precise details that there was some type of arrangement which may properly be described as a “kickback” or “secret commission” to Bowen and Ryan and became aware that there were in fact three purchasers.

4. I am not satisfied that McLeod did not understand the concept of “partners” and regard his evidence in that regard.  He was well aware in my view that funds for the purchase of units had come from only two of the three potential purchasers, that is the applicants, and that there were not funds coming directly from Ryan.  In those circumstances at the very least I am prepared to find that he was prepared to turn a blind eye to Bowen and Ryan’s dishonest acts whereby they would not only obtain the “kickback” referred to but would manage to use the funds advanced by the applicants as a deposit in the Ryan contract with Ryan being the sole purchaser albeit with the right to nominate other purchasers.

5. It is relevant to note that McLeod was prepared to take advantage of the misfortunes of others if it suited him and although that finding is not determinative as to the rest of his conduct it does place in context his attitude in this matter where at the very least he was prepared to turn a blind eye to what was occurring.  He of course had the advantage of receiving a deposit for a contract for the sale of the units and in the circumstances I am satisfied he knew that there were three partners.  So much is clear from the file notes of Kelly and the use in those file notes of the word “partner”.  It is clear that McLeod chose not to make any enquiries that an honest or reasonable person would be expected to make when confronted with the circumstances of Ryan requesting a contract in her name alone despite the fact the deposit moneys had been advanced for and on behalf of the applicants for the purchase of individual units by them.  It is irrelevant in my view as to whether or not McLeod sought or obtained any advice from Kelly as I conclude that any reasonable businessman and/or vendor in the circumstances would not have simply turned a blind eye to what was occurring and would not have instructed solicitors to simply proceed with a contract in Ryan’s name and apply deposit moneys sourced from two other applicants for that purpose knowing that upon default by Ryan the deposit moneys potentially would be forfeited.  At the very least McLeod should have made enquiries in relation to the sources of the cheques particularly when initially he had indicated that there were three partners involved and three contracts required.

6. I am otherwise satisfied that there is liability on the part of both the first and second respondents under both limbs of Barnes & Addy.  I am satisfied in the circumstances that McLeod as the key man of Property Alliance at all times had knowledge that the applicants were to purchase the respective units and they provided all the funds deposited into the solicitors trust account.  It was known by McLeod and Property Alliance that this was the case at all material times.  McLeod willingly participated in what I accept could properly be described as equitable fraud and whether he was aware of the true circumstance at the time the deposit was lodged or subsequently discovered the fact would not alter his liability under the first limb of Barnes & Addy. 

   
   

   I am satisfied that McLeod and Property Alliance had constructive knowledge at the time that the deposit money was received, that it was trust property and that it was misapplied to the extent that it should have been applied as deposits individually for each applicant for the purchase of their respective units and not applied as a deposit for the Ryan contract alone.  I find that at the very least McLeod and Property Alliance had constructive knowledge which in this case includes as

   
   

   I have indicated wilfully shutting one’s eyes to the obvious and wilfully and recklessly failing to make such enquiries as an honest and reasonable person would have made and where knowledge of circumstances described would have indicated the facts to an honest and reasonable person.

7. The second limb of Barnes & Addy is made out against the first and second respondents as I am satisfied that as found there was a fiduciary duty combined with the dishonest and fraudulent design by the fiduciary and by receiving the deposits and forwarding them to the solicitors and instructing them to prepare a contract in the name of Ryan, the first and second respondents have assisted that dishonest and fraudulent design with knowledge, whether constructive or otherwise, of that dishonest design.

8. The position in relation to the fourth respondent however is different.  Whilst I have some reservations about the file notes and the extent of knowledge of Kelly, I accept that he was acting as a solicitor in the normal course of a commercial contract.  He clearly became aware initially that there was a request for three contracts and that there were three partners.  By issuing the receipts however it is clear that he acted in a manner consistent with the instructions concerning the purchase of the property and the preparation of the Ryan contract.  Whilst he no doubt would have realised that the source of the funds came from both applicants, that is not of itself sufficient in my view to draw a conclusion that he was then involved in a manner which would attract the same liability as the first, second and third respondents.  As a solicitor whilst he had notice that funds were sourced from other parties that does not of itself mean in the absence of any other details that Ryan did not have the authority to apply those funds for the purchase of the units for herself.  The state of Kelly’s knowledge is different to the state of McLeod’s knowledge and whilst I am satisfied that McLeod had recklessly disregarded the applicants’ rights I find that Kelly in all the circumstances has acted on his client’s instructions and prepared the appropriate contract with a nominee clause which he was entitled to expect may be utilised without of course knowing the full details of the relationship which existed between Ryan, the applicants and McLeod or his company.  The fourth respondent to the extent that he bears an onus has in fact discharged that onus in relation to the knowledge of a breach of trust or duty.

9. In relation to the trade practices claim I am satisfied having regard to the findings of fact made earlier that Ryan has clearly received the sums from each of the applicants and then not applied them according to the understanding. Ryan’s conduct in applying the funds was in my view conduct of a kind which could be construed as misleading and deceptive pursuant to s.52 of the Trade Practices Act (and s.9 of the Fair Trading Act). That conduct comprised applying any part of the sums advanced as deposit for the individual units by the applicants as a deposit for a contract in Ryan’s name alone for the whole project.

10. I am further satisfied and find that on the evidence before me McLeod knew that there were to be three contracts for three units and that the funds had been sourced from the applicants for what ultimately became a deposit for the Ryan contract.  To that extent I find that McLeod and his company Property Alliance are persons involved in the contravention of the relevant legislation.  McLeod would have instructed solicitors to issue separate trust accounts identifying precisely the units to be purchased by each of the purchasers and instructing further the solicitor to prepare individual contracts.  His failure to do so meant that he had an active role in assisting Ryan in the contravention of the relevant legislation.

11. In relation to the further allegations against Rigby Cooke, I am not satisfied that the trust account receipts issued constitute a sufficient representation upon which the claim can be made out against Rigby Cooke.  The trust account receipts on a proper reading are accurate to the extent that although they do not recite the particular units and indeed have a precise unit crossed out, they do accurately record that the funds were received from McLeod and record the accounts upon which the cheques were drawn.  That is consistent with the instructions given to Rigby Cooke and in the circumstances it is not in my view appropriate to rely upon the trust accounts receipts as constituting representations of the kind sought to be relied upon by the applicants.

12. I am not satisfied that the conduct by Rigby Cooke would constitute negligence and/or breach of the Trade Practices Act or Fair Trading Act.

13. The duty of the solicitor in the present case to his client McLeod and his company Property Alliance is to bring to the task to which the retainer related the exercise of a reasonable degree of care and skill.  Although a prudent solicitor may have sought to make further enquiries it is not at all uncommon for the source of funds for a property investment to be derived from various accounts.  Confronted with instructions from the client to prepare a contract in the name of one person albeit with it cheques constituting the deposit being sourced from other identified person is not of itself sufficient to attract liability in my view.

14. It follows therefore that on the claim there should be judgment for the applicants against the first, second and third respondents and that there should not be any judgment against the fourth respondent.

15. In relation to the cross-claim against Ryan and Bowen, it would follow from the findings of liability succeeding against McLeod and Property Alliance that Ryan had failed to pay the deposit under the contract.  Property Alliance is entitled to claim the payment of the respondent and that entitlement I accept survives the discharge of the contract.  Hence subject to further submissions in relation to this matter there should be judgment on the cross-claim against Ryan and Bowen upon  a finding that both have been served with the relevant documents.

16. The cross-claim based upon retainer, breach of warranty and negligence against Rigby Cooke in my view cannot be made out.  Whilst I have reservations about the role of Kelly and the fact that he perhaps ought to have given general advice to McLeod upon becoming aware of the funding circumstances, I am not satisfied despite the file notes tendered in evidence that there was sufficient knowledge or indeed request for advice which would broaden the retainer to include specific advice alerting McLeod to the difficulties as they have now unfolded through the Court proceedings.

17. It is important to remember that this was a commercial transaction where some uncertainty was created by the inconsistent instructions from McLeod where initially three contract were required and then the instructions changed for the preparation of a single contract albeit with deposit moneys funded from named sources other than the single purchaser.  I am not satisfied however that the retainer in this instance extended to an expiration of the precise nature of the relationship between McLeod, Property Alliance, the applicants, Ryan and Bowen.

18. In the present case the prime responsibility of a commercial investor such as McLeod was to give precise and clear instructions concerning the prospective purchasers to the solicitor who would then act on those instructions accordingly.  In a transaction of this kind I do not accept that there is a higher duty on the solicitor to explore in detail the background including the source of funds for the investment though obviously if advice is sought by the client in relation to that matter then further enquiries should be made.  That is not the case here save for when negotiations were entered into against the backdrop of demands for return of deposit moneys.  The claim before this Court is not in relation to advice given as to whether or not the deposit moneys should have been returned upon demand which ultimately has been a matter for this Court to determine.

19. I otherwise accept the submissions made for and behalf of the fourth respondent in relation to the matter.  Although cases were referred to for and on behalf of the first and second respondents in relation to the liability of the fourth respondent including the decision of the Court of Appeal of the Supreme Court of Victoria in the matter of McCracken & McCracken v Pippet & Groenwald (1999) VSCA 156 (Unreported 29 September 1999), I do not find that case of assistance in the present application. It is clear each case has to be determined on its facts and whilst there might be a reference in McCracken to the obligation of a solicitor to make enquiries that is not sufficient from the context of the present case to extend those enquiries as to the source of funds for this investment and certainly not sufficient in my view to attract liability of the fourth respondent.

20. It follows therefore that the cross-claim against the fourth respondent should be dismissed.

Conclusion

1. I accept that issues concerning unconscionable conduct, conversion, unjust enrichment, moneys had and received and estoppel were not pursued with vigour and in any event it is not necessary for me to decide those matters.

2. It follows that in the circumstances there should be orders made in favour of the applicants against the first respondent, the second respondent and the third respondent together with appropriate orders for costs.  It also follows that there should be judgment on the cross-claim against the first and second cross-respondents with the claim against the third cross-respondent dismissed with appropriate orders for costs.  I shall deal with the form of orders together with any issues arising out of the notices of contribution after hearing further submissions from counsel.

I certify that the preceding two hundred and thirty-nine (239) paragraphs are a true copy of the reasons for judgment of McInnis FM

Associate: 

Date:  13 May 2004