LHK Nominees Pty Ltd v Kenworthy

[2001] WASC 205

LHK NOMINEES PTY LTD -v- MAUREEN ADA KENWORTHY (as Administratrix of the Estate of LIONEL KENWORTHY) & ANOR [2001] WASC 205

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2001] WASC 205
Case No:	CIV:2073/1999	Heard:	17-19 JULY 2001
Coram:	WHITE AUJ	Delivered:	10/08/01
No of pages:	36	Judgment Part:	1 of 1
Result:	Plaintiff's claims against the first defendant dismissed with costs Judgment for the plaintiff against the second defendant in the sum of $7000.00 with costs
Category:	A
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Parties:	LHK NOMINEES PTY LTD MAUREEN ADA KENWORTHY (as Administratrix of the Estate of LIONEL KENWORTHY) MAUREEN ADA KENWORTHY
Catchwords:	Trusts Constructive trusts Voidable contract for sale of land Whether claim that transferee of land pursuant to a voidable contract holds the land as constructive trustee is valid where the contract has not been avoided
Legislation:	Corporations Law Supreme Court Rules Transfer of Land Act 1893
Case References:	Alati v Kruger (1955) 94CLR 216 Bahr v Nicolay [No 2] (1988) 164 CLR 604 Barnes v Addy (1874) LR 9 Ch. App 244 Bridgewater v Leahy [1998] 194 CLR 457 Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 Equiticorp Industries Group Ltd v R [1996] 3 NZLR 586 Hancock Foundation v Porteous (2000) 22 WAR 198 Koorootang Nominees Pty Ltd v ANZ Banking Group Ltd [1998] 3 VR 16 Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Sargent v ASL Developments Ltd (1974) 131 CLR 634 The Hancock Family Memorial Foundation Ltd & Anor v Porteous [1999] WASC 55 Aequitas v AEC [2001] NSWSC 14 Agip (Africa) Ltd v Jackson [1990] Ch 265 Agip (Africa) Ltd v Jackson [1991] Ch 547 Biala Pty Ltd v Mallina Holdings Ltd [No 4] (1993) 13 WAR 11 Caratti v R (2000) 22 WAR 527 Clay v Clay [1999] WASCA 8 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 Foskett v McKeown [2001] 1 AC 102 Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265 Lonrho plc v Fayed & Ors (No 2) [1992] 1 WLR 1 Maguire v Makaronis (1997) 188 CLR 449 Manning v Cory [1974] WAR 60 Ninety Five Pty Ltd (In liq) v Banque Nationale de Paris [1988] WAR 132 Pilmer v The Duke Group Ltd (In liq) [2001] HCA 31 The Hancock Family Memorial Foundation Ltd v Bella Rosa Holdings Pty Ltd (1992) 8 WAR 435 The Hancock Family Memorial Foundation Pty Ltd v Porteous (2000) 22 WAR 198 The Hancock Family Memorial Foundation Pty Ltd v Porteous [2000] HCA 51 Wickham Developments Ltd v Parker, unreported; Qd Court of Appeal; 20 June 1995 Young v Murphy [1996] 1 VR 279 Zobory v Federal Commissioner of Taxation (1995) 129 ALR 484

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION : LHK NOMINEES PTY LTD -v- MAUREEN ADA KENWORTHY (as Administratrix of the Estate of LIONEL KENWORTHY) & ANOR [2001] WASC 205 CORAM : WHITE AUJ HEARD : 17-19 JULY 2001 DELIVERED : 10 AUGUST 2001 FILE NO/S : CIV 2073 of 1999 BETWEEN : LHK NOMINEES PTY LTD

Plaintiff

AND

MAUREEN ADA KENWORTHY (as Administratrix of the Estate of LIONEL KENWORTHY)
First Defendant

MAUREEN ADA KENWORTHY
Second Defendant

Catchwords:

Trusts - Constructive trusts - Voidable contract for sale of land - Whether claim that transferee of land pursuant to a voidable contract holds the land as constructive trustee is valid where the contract has not been avoided

Legislation:

Corporations Law

Supreme Court Rules


(Page 2)

Transfer of Land Act 1893

Result:

Plaintiff's claims against the first defendant dismissed with costs

Judgment for the plaintiff against the second defendant in the sum of $7000.00 with costs

Category: A

Representation:

Counsel:

Plaintiff : Mr D H Solomon
First Defendant : Mr J C Curthoys
Second Defendant : Mr J C Curthoys

Solicitors:

Plaintiff : Solomon Brothers
First Defendant : Stables Scott
Second Defendant : Stables Scott

Case(s) referred to in judgment(s):

Alati v Kruger (1955) 94CLR 216
Bahr v Nicolay [No 2] (1988) 164 CLR 604
Barnes v Addy (1874) LR 9 Ch. App 244
Bridgewater v Leahy [1998] 194 CLR 457
Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371
Equiticorp Industries Group Ltd v R [1996] 3 NZLR 586
Hancock Foundation v Porteous (2000) 22 WAR 198
Koorootang Nominees Pty Ltd v ANZ Banking Group Ltd [1998] 3 VR 16
Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
Sargent v ASL Developments Ltd (1974) 131 CLR 634
The Hancock Family Memorial Foundation Ltd & Anor v Porteous [1999] WASC 55




(Page 3)

Case(s) also cited:

Aequitas v AEC [2001] NSWSC 14
Agip (Africa) Ltd v Jackson [1990] Ch 265
Agip (Africa) Ltd v Jackson [1991] Ch 547
Biala Pty Ltd v Mallina Holdings Ltd [No 4] (1993) 13 WAR 11
Caratti v R (2000) 22 WAR 527
Clay v Clay [1999] WASCA 8
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672
Foskett v McKeown [2001] 1 AC 102
Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265
Lonrho plc v Fayed & Ors (No 2) [1992] 1 WLR 1
Maguire v Makaronis (1997) 188 CLR 449
Manning v Cory [1974] WAR 60
Ninety Five Pty Ltd (In liq) v Banque Nationale de Paris [1988] WAR 132
Pilmer v The Duke Group Ltd (In liq) [2001] HCA 31
The Hancock Family Memorial Foundation Ltd v Bella Rosa Holdings Pty Ltd (1992) 8 WAR 435
The Hancock Family Memorial Foundation Pty Ltd v Porteous (2000) 22 WAR 198
The Hancock Family Memorial Foundation Pty Ltd v Porteous [2000] HCA 51
Wickham Developments Ltd v Parker, unreported; Qd Court of Appeal; 20 June 1995
Young v Murphy [1996] 1 VR 279
Zobory v Federal Commissioner of Taxation (1995) 129 ALR 484

(Page 4)

WHITE AUJ :

The case on the pleadings

1 It is convenient to start by setting out the plaintiff's Statement of Claim, which is in the following terms:

"1. The plaintiff: -

1.1 is a duly incorporated company being ACN 008 794 072; and

1.2 sues in its capacity as trustee for the Lionel Housden Kenworthy Trust ('the Trust'), constituted by a trust deed dated 3 October 1975.


2. The first defendant is sued in her capacity as administratrix of the estate of the late Lionel Housden Kenworthy ('Lionel Kenworthy') who died on 14 February 1997 ('the Estate').

2A The second defendant is sued in her personal capacity.

3. Lionel Kenworthy at all material times: -


3.1 exercised effective control of the plaintiff until 2 February 1997; and

3.2 was a director of the plaintiff by operation of s.60(l)(b)of the Corporations Law and its statutory predecessors.


The Mount Pleasant Property

4. By a transfer of land dated 27 May 1990 and registered on 5 October 1990 by dealing number E461263 ('the Transfer'), the plaintiff transferred the land and dwelling house at 141 The Esplanade, Mount Pleasant being the land comprised in certificate of title volume 1510 folio 782 ('the Mount Pleasant Property') to Lionel Kenworthy for a price of $150,000.00.

5. The consideration of $150,000.00 for the transfer of the Mount Pleasant Property by the plaintiff was grossly inadequate.

(Page 5)

PARTICULARS

The value of the Property at the time of the Transfer was assessed by the Valuer-General at $338,125.00, resulting in payment of stamp duty on the Transfer of $10,300.00.

6.Lionel Kenworthy:-

6.1had actual or constructive knowledge of the matter pleaded in paragraph 5 by reason, inter alia, that his settlement agents prepared, stamped and registered the Transfer; and

6.2 did not inform the appointed directors of the plaintiff of the matter pleaded in paragraph 5.

7.The plaintiff held the Mount Pleasant Property prior to registration of the Transfer in its capacity as trustee of the Trust.

8. By reason of the matters pleaded in paragraphs 3-7:-

8.1 the Mount Pleasant Property was transferred to Lionel Kenworthy in breach of trust; and

8.2 Lionel Kenworthy was thereby unjustly enriched.

9. Alternatively to paragraph 8, by reason of the matters pleaded in paragraphs 3-7, Lionel Kenworthy:-

9.1 dishonestly procured, further or alternatively assisted in, a breach of trust by the plaintiff in transferring the Mount Pleasant Property to him at a substantial undervalue;

9.2 further or alternatively, knowingly received property of the Trust transferred to him in breach of trust.

Misapplication of Trust Money by Lionel Kenworthy

10. Prior to his death, Lionel Kenworthy, over a period of years, misappropriated from the Trust for his own benefit a total of approximately $380,000.00.

(Page 6)

Misapplication of Trust Money by Second Defendant

11. On or about 6 February 1997:-


11.1 Lionel Kenworthy was in a coma;

11.2 the second defendant wrote a cheque on the Trust's bank account payable to the second defendant in the sum of $7,000.00 (using a blank cheque previously signed by Lionel Kenworthy);

11.3 the second defendant collected payment of that cheque for her own benefit.


12. At the time the cheque pleaded in paragraph 11 was written and presented: -

12.1 the Trust was not indebted to the second defendant; and

12.2 the second defendant knew the Trust was not indebted to her.


13. By reason of the matters pleaded in paragraphs 11 and 12, the second defendant: -

13.1 knowingly received property of the Trust paid to her in breach of trust;

13.2 further or alternatively, dishonestly assisted in a breach of trust by Lionel Kenworthy;

13.3 further or alternatively, has been unjustly enriched by receipt of money belonging to the Trust paid to her without consideration and in breach of trust.


AND THE PLAINTIFF CLAIMS:-

A. With respect to the Mount Pleasant Property:-


(i) a declaration that the Mount Pleasant Property is and has at all times since 5 October 1990 been held on constructive trust for the plaintiff and an inquiry as to, and account of, all profits with respect to the Mount Pleasant Property and compound interest thereon at commercial rates;

(Page 7)

(ii) alternatively, the imposition of an equitable charge on the Mount Pleasant Property for the current value of the Mount Pleasant Property less the consideration of $150,000.00 paid for the Transfer pleaded in paragraph 4 and simple interest thereon at the rate of 6.5% per annum from 5 October 1990.

B. Payment of equitable compensation or restitution from the first defendant of an amount being the amount misappropriated as pleaded in paragraph 10 together with compound interest thereon at commercial rates from the date of each misapplication.

C. The sum of $7,000.00 pleaded in paragraph 11 together with compound interest thereon at commercial rates from 6 February 1997.

D. Restitution for unjust enrichment from the second defendant.

E. Interest on damages or restitution at the rate of 6% per annum pursuant to s.32 of the Supreme Court Act.

F. Further or other relief.

G. Costs."

2 That Statement of Claim was amplified by the following Further and Better Particulars in relation to par 10 thereof:

Request 1

How the sum of $380,000.00 referred to in paragraph 10 of the amended statement of claim is made up including:-

(a) The starting date or approximate starting date of the misappropriation;

(b) The amounts misappropriated totalling $380,000 which amounts can be listed or identified by reference to documents; and

(c) Brief statement of why the sums are said to be misappropriated.

(Page 8)

Answer

A. 27 May 1990;

B. The amounts listed in the plaintiff's discovered documents numbers 107 and 108 listed under the heading 'Dwgs' [drawings] and those entries in those documents highlighted in yellow. Equivalent entries appear, although unmarked, in the cheque butts discovered as plaintiff's discovered documents numbers 73-99.

C. The plaintiff was conducting no business at any material time. The only costs which it was incurring were limited costs in relation to accountancy fees, Australian Securities Commission fees and limited miscellaneous minor costs. The plaintiff's only function was to act as trustee of the L.H.K. Trust. All other payments were improperly incurred."

3 The first defendant filed a Defence in which she admitted pars 1, 2, 2A, 3 (save for not admitting par 3.2), 4, 6.1, and 7 of the Statement of Claim. She denied par 5 (adding the allegation that "… the Transfer, and the consideration of $150,000, were consented to by all of the Directors of the plaintiff and all of the beneficiaries under the Trust"), 6.2, 8, 9 and, as to par 10 of the Statement of Claim, denied that Lionel Kenworthy misappropriated money from the Trust and did not plead to pars 11, 12 and 13 of the Statement of Claim. As filed, the Defence contained a par 8(b) which read:

"states that any monies paid to Lionel Kenworthy by the Trust constituted repayments of monies previously loaned by Lionel Kenworthy to the Trust and was paid to Lionel Kenworthy with the express permission of the plaintiff and each of the beneficiaries under the Trust."

4 In further and better particulars of the Defence, the first defendant, in effect, abandoned the allegation in par 8(b). Furthermore, an allegation in the first defendant's Defence that the Transfer and the consideration of $150,000.00 were consented to by "all of the beneficiaries under the Trust" was also abandoned.

5 The first defendant was asked for and gave the following further and better particulars of the allegation that all of the directors of the plaintiff consented to the Transfer referred to in par 5 of the Statement of Claim:

(Page 9)

"1. As to the allegation in paragraph 4 of the defence that all of the Directors of the plaintiff and all of the beneficiaries under the Trust (as defined in the amended statement of claim) (the 'Beneficiaries') consented to the Transfer (as defined in the amended statement of claim) for consideration of $150,000:

1.1 whether the alleged consent was given by the plaintiff and by each of the beneficiaries wholly or partly in writing, wholly or partly orally or wholly or partly by implication;

1.2 to the extent the alleged consent was given by the plaintiff and by each of the Beneficiaries wholly or partly in writing, identify the document;

1.3 to the extent the alleged consent was given by the plaintiff and by each of the Beneficiaries wholly or partly orally:


1.3.1 when, where and in whose presence that consent was given;

1.3.2 by whom and to whom that consent was given;

1.3.3 the substance of the conversation by which that consent was given;


1.4 to the extent the consent was given by the plaintiff and by each of the Beneficiaries wholly or partly by implication, state all facts, matters, circumstances and things which give rise to that implication;

1.5 state all facts, matters, circumstances or things that the plaintiff and each of the Beneficiaries were informed of, and all advice given to the plaintiff and to the Beneficiaries, prior to the alleged consent being given.


Answer 1

Orally and by implication.

(Page 10)

the Transfer and a consideration of $150,000.00 were discussed by the directors of the plaintiff and Lionel Kenworthy at or prior to the time that the Transfer was signed by the plaintiff. The first defendant cannot provide further particulars of the discussion.

By implication from the following facts:

(a) the directors of the plaintiff were beneficiaries under the Lionel Housden Kenworthy trust;

(b) the plaintiff signed the Transfer;

(c) at the time the Transfer was signed the deceased was not a director of the Plaintiff;

(d) the directors of the Plaintiff were aware of the consideration of $150,000.00 evidenced by the Transfer;

(e) at the time the transfer was signed the directors were of full age and capacity and aware of the location and features of the Mount Pleasant property; and

(f) the directors of the plaintiff were the sons of Lionel Kenworthy, had love and affection towards Lionel Kenworthy, were aware that he resided at the property and did not object to his acquiring the property."

6 The second defendant's Defence consisted of a denial of the allegations in the Statement of Claim.

A Shadow director?

7 In relation to the allegation in par 3.2 of the Statement of Claim, Mr Solomon pointed to the provisions of s 60(1)(b) of the Corporations Law as it was at the relevant time. That section has subsequently been repealed and the matter is now covered in s 9 of the Corporations Law.

8 At the relevant time, the section provided:

"60(1). Subject to sub-section (2), a reference to a director, in relation to a body, includes a reference to

a person occupying or acting in the position of director of the body, by whatever name called and whether or not

(Page 11)

validly appointed to occupy, or duly authorised to act in the position;

a person in accordance with whose directions or instructions the directors of the body are accustomed to act."

9 Counsel for the defendant submitted that s 60(1)(b) applies only where there is a reference to a director in the Corporations Law. He pointed out that the plaintiff has not pleaded any breach of the Corporations Law nor sought any relief under that Law and that, accordingly, s 60(1)(b) simply has no application. Counsel further submitted that the witness statements do not disclose that Lionel Kenworthy was a director of the plaintiff even in an extended sense.

10 I uphold both of these submissions. During Mr Solomon's closing address, the following exchange took place:

"SOLOMON, MR: It's in section 9 now. It's essentially the same test.

WHITE AuJ: Yes, but that refers to - a reference to a director in the Corporations Law is to include such a person.

SOLOMON, MR: That's all conceded, your Honour. I'm not running a claim for breach of statutory duty.

WHITE AuJ: No.

SOLOMON, MR: I'm merely saying that in - take, for instance, since cases in tort the existence of a statutory provision may affect a duty of care. It may not create an actual remedy for breach of statutory duty at law but the imposition of a statutory liability is a factor in looking at a general law liability in tort.

All I'm saying is that the fact that the corporations legislation makes a person in his position accountable under the law as a director affects the approach in equity - that he is a person who is to be treated generally as at the same level of a director. I'm not relying on any breach of duty by a director. It just creates him at a level - he is at a level that the statute law of the country has recognised for quite some time. It's just a fact. It's just a material fact.

(Page 12)

WHITE AuJ: Does it go beyond his knowledge?

SOLOMON, MR: No. No, because we are not saying that he acquired the property in breach of any fiduciary duty. It just goes to his knowledge and his position.

WHITE AuJ: So I don't really need to find whether he was a director or not.

SOLOMON, MR: No, no. As I say, unless you were to say that - along the lines in Heyman Council (sic), Mason J's judgment in tort - that a statutory duty may colour and affect the content of a common law duty of care like negligence, the same principle would apply in equity; that if he is a shadow director - it's just one of the bundle of facts, overall material, but if you don't think it's material at all, then don't find it. I have only put it down as part of the bundle of facts to establish his level of knowledge and involvement. Ultimately it is the de facto control which is made out on the witness statements that is the fact and whether or not that amounts to him being a shadow director is - - -

WHITE AuJ: Doesn't seem to matter.

SOLOMON, MR: No, it doesn't really. It doesn't.

WHITE AuJ: All right."

11 In any event, the evidence shows that the directors were content to leave the administration of the plaintiff to Lionel Kenworthy, subject to discussion and their agreement to his proposals. I do not think that the evidence of the directors goes so far as to establish that they were accustomed to act in accordance with Lionel Kenworthy's "directions or instructions" but only that they were accustomed to accept his advice as to the best interests of the plaintiff. Nor is there any evidence that that advice was not in the best interests of the plaintiff. To suggest, as Mr Solomon did in his submissions, that "the directors acted as Lionel Kenworthy's puppets" put the matter too highly, in my view. In my opinion, the reference to s 60(1)(b) of the Corporations Law is not helpful in the determination of this matter.

(Page 13)

The evidence

12 By consent, a large number of copied documents, an original cheque butt and the witness statements of Lindsay Kenworthy, Dennis Reginald Kenworthy and Trevor Kenworthy (the three sons of the late Lionel Kenworthy) were admitted into evidence.

13 Lindsay Kenworthy was cross-examined on his testimony, but there was no cross-examination of either Dennis Reginald Kenworthy or Trevor Kenworthy.

14 The defendants elected not to give evidence, save for a document tendered by consent.

15 Included among the documents tendered were copies of cheque butts, the Trust Deed, the Transfer and financial records. Both parties submitted that the financial records, including the cheque butts and the accounts prepared by accountants engaged by the plaintiff for the purpose, should be regarded as being documents to which s 1305 of the Corporations Law applied. Accordingly, it was common cause that I should treat those documents as prima facie proof of the matter contained therein, save to the extent, if any, that there was acceptable evidence to the contrary in respect of any specific item recorded in the accounts. While counsel for the plaintiff submitted that the yellow highlighting, added after the cash-books had been written up, should be regarded as part of the books of the plaintiff to which s 1305 of the Corporations Law applied, I reject that proposition. In my opinion, the highlighting of entries in the books of the plaintiff does not fall within the terms of that section and amounts to no more than a subsequent commentary upon certain entries in the books, expressing the ex post facto opinions of Lindsay and Dennis Kenworthy. These must stand or fall on their own merits and not by reliance upon the statutory provision relating to the prima facie evidence of the matter recorded in the books kept or purporting to be kept by a corporation under the requirement of the Corporations Law.

16 The plaintiff did not plead, nor did either party suggest, that Lionel Kenworthy was in a fiduciary relationship with the plaintiff at any material time (although it seems that he had been a director of the plaintiff at an earlier time).

Lindsay Kenworthy

17 Mr Lindsay Kenworthy was born on 13 May 1958 and he became a director of the plaintiff on 12 November 1980 because, as he said, his

(Page 14)

father asked him to do so. In relation to the allegation that Lionel Kenworthy exercised effective control of the plaintiff until 2 February 1997, he said, inter alia, in his written witness statement:

"WITNESS STATEMENT
LINDSAY KENWORTHY

...

2. Until his death in 1997, my father had day to day control of the plaintiff. I did not have any day to day involvement. My sole role as a director of the plaintiff was to sign documents when asked to do so. My father was able to sign cheques on the plaintiffs bank account and had sole control of the plaintiff's finances. Board meetings were not held to discuss any of the investments made by the plaintiff.

3. From in or about 1984, the plaintiff's sole function was as trustee of the LHK Trust. It did not carry on any separate business. As trustee of the LHK Trust the plaintiff's main investments were in mortgages brokered by Blackburne & Dixon and Global Finance and a property investment in land in Muchea. The plaintiff also owned the property known as 141 The Esplanade, Mt Pleasant.

...

5. When a new investment was to be made by the plaintiff as trustee of the LHK Trust, which required my signature, I generally received a telephone call from my father. Usually my father and I arranged for me to meet him at 141 The Esplanade (he lived at 141 The Esplanade) and for me to sign the documents there. Occasionally, when the matter was urgent, he would meet me where I worked.

6. Invariably he would, either at 141 The Esplanade or where I worked, hand me the document he wanted me to sign. I generally asked him what the document was for. Most of the documents I recall signing related to loans made by the plaintiff through either Blackburne & Dixon or Global Finance.

(Page 15)

7. When my father handed me a document relating to a new investment I made a practice of briefly looking at the document. I would not read the whole document. When looking at the document I would look at the amount of the investment and property description. I read nothing further. I looked at the amount and the property descriptions so that I had some knowledge of the sum being invested by the plaintiff. Once I had looked at those two items, I then signed the document, where my father indicated.

...

9. When he gave the document to me which I was required to sign and while I was briefly looking at it, my father usually said to me words to the effect 'this is the best offer available at this time'. I trusted my father and accepted what he said. I trusted him to be correct.

10. 1 did not investigate any of the investments on their merits. I did nothing more than look quickly at the documents and sign where my father told me to. I do not recall ever questioning my father about any of the investments made by the plaintiff.

11. 1 knew that the plaintiff, as trustee of the LHK Trust, owned a property in Muchea. At the time I was working on the neighbouring property. One day I visited my father at 141 The Esplanade. I do not know recall the reason I visited my father. It may be that he asked me to come to 141 The Esplanade to sign some documents. He then told me that the plaintiff was subdividing the property in Muchea into 6 lots. That was the first time I was told anything about the subdivision. My father said to me that the property had already been surveyed. He said that he only needed some documents signed to complete the subdivision. He handed a document or some documents ( I do not recall how many) to me and asked me to sign the document or documents. I did sign those documents. I had no input into and was not consulted in relation to the decision to subdivide the property at Muchea.

(Page 16)

12. At the same meeting, or shortly after that meeting, I asked my father why the Muchea property had been subdivided. He said that the plaintiff had run out of money. I recall that the defendant was present when I was speaking to my father. We were in the living room at 141 The Esplanade. My father and I then went out to the shed at 141 The Esplanade. Only my father and I went out to the shed. The defendant did not. My father said to me that the plaintiff needed the money because interest rates were lower and the plaintiff was not earning the income it had been earning from its investments. He also said to me that the plaintiff had 'lost $30,000 on a deal'. I did not know and still do not know what 'deal' he was referring to. He did not explain to me what had happened or how the loss was incurred.

13. I said to my father that I thought that the top 3 lots at Muchea should be sold first. Although I do not now clearly recall, I must have seen the plan of subdivision at that time as I knew the lower 3 lots had better grazing potential. Ultimately, the top 3 lots were sold first."

18 In relation to the transfer of 141 The Esplanade, his evidence-in-chief was:

"141 THE ESPLANADE, MT PLEASANT - SALE

15. The plaintiff owned 141 The Esplanade as trustee of the LHK Trust. The transfer of 141 The Esplanade by the plaintiff to my father happened without prior warning to me. The first time I had any notice that the plaintiff was transferring 141 The Esplanade to my father was when my father drove out to Bullsbrook where I was working and met with me. He may have telephoned me beforehand to say that he had a document for me to sign and to arrange a time to sign that document, but he did not tell me what the document was in relation to. When my father met me at Bullsbrook, he handed to me a transfer form for 141 The Esplanade. He told me that the document was a transfer form for 141 The Esplanade. He said to me that the transfer was necessary because the plaintiff could not afford the rates charged on 141 The Esplanade any longer and that, if it was transferred into

(Page 17)

his name, he would get a 50% reduction in the rates as a pensioner. I recall making a comment to him but I do not now recall what my comment was. The reason I recall making a comment was that I recall my father's response. He said that 'the outcome would be the same'. It was my understanding from that response that 141 The Esplanade would ultimately be transferred back to the LHK Trust. I never discussed the price with my father. I took no advice in relation to the transfer. He gave the document to me and I signed the transfer. At the time I did not know whether the price was paid by my father as my father controlled the plaintiff's finances.

16. My father did not tell me that 141 The Esplanade was transferred to him at less than market value. He said nothing to me about the price and I did not inquire."

19 Lindsay Kenworthy gave further evidence-in-chief after the deletion of par 20 of his written statement to the effect that he, with one Linda Buxton (who was not called), was involved in the yellow highlighting of entries in the cash-books which had been prepared by the accountants employed by the plaintiff. He said that everything that was not associated with the Trust was marked in yellow, other than the "drawings" which were not marked in yellow. Dennis Kenworthy was also involved in the exercise. The totals of the highlighted items and the "drawings" were carried into the accounts and shown as part of a Loan account in the name of Lionel Kenworthy.

20 The accountants, therefore, prepared the accounts in the light of the information given to them by Lindsay and Dennis Kenworthy.

21 Lindsay Kenworthy was cross-examined at length by counsel for the defendants and thereafter re-examined at length by counsel for the plaintiff.

22 It appears that Lindsay Kenworthy is and has for some 20 years been a bob-cat operator. He had no day to day involvement with the affairs of the Trust until 1997, despite being a director of the plaintiff. His evidence indicates, I think, that he was at all relevant times content to leave the management of the plaintiff's affairs to Lionel Kenworthy. I do not think that his evidence shows that Lionel Kenworthy acted as a director of the plaintiff at the material times. Lionel Kenworthy seems to have consulted regularly with Lindsay Kenworthy about the affairs of the plaintiff,

(Page 18)

answering any questions put to him and discussing the nature and need for the various documents signed by Lindsay Kenworthy from time to time.

23 Lindsay Kenworthy went through the cheque butts, years after the dates when the cheques were made out. He identified the handwriting on those cheque butts which were put to him as that of Lionel Kenworthy. The entries in the cash-books in the column headed "Drawings" represented the amounts reflected in the cheque butts which Lindsay Kenworthy considered were not attributable to the Trust but were, he thought, for Lionel Kenworthy's personal benefit. These items were not highlighted. The term "drawings" is not derived from the primary documents but applies to those items which Lindsay Kenworthy considered to represent amounts taken by Lionel Kenworthy for himself.

24 In carrying out the exercise, Lindsay Kenworthy apparently had regard to the cheque butts and to his recollection of what was happening during the years in question, when, of course, as he said, he had no day to day involvement with the affairs of the plaintiff.

25 In highlighting amounts reflected in cheque butts as payments to a named payee other that Lionel Kenworthy, it seems to me that Lindsay Kenworthy was in fact seeking to impugn the veracity of the cheque butts. For example, cheque 403775 dated 2 August 1991 was reflected as a payment to "Global Machining – Dodge" in the sum of $1,000. It is recorded in the cash-book, Ex 22, under the heading "M.V.E." On its face, therefore, the payment was made to Global Machining in respect of a Dodge vehicle. The Trust did own a Dodge vehicle and it is nowhere suggested that Lionel Kenworthy owned a Dodge vehicle. Either the payment was indeed made to Global machining in respect of the Trust's Dodge, as the cheque butt indicates, or the cheque itself, as opposed to the cheque butt, was payable to someone else - Lionel Kenworthy? But it is no part of the plaintiff's case, as I understand it, that Lionel Kenworthy falsely recorded misinformation on the cheque butts pursuant to a fraudulent scheme to steal moneys from the Trust. As I understand the plaintiff's case, it is that the cheque butts correctly record the matter therein but that the payments were made for purposes other than the Trust's. Mr Solomon made it clear that one of the purposes of his re-examination of Lindsay Kenworthy was to verify the source documents.

26 It was apparent from the evidence of Lindsay Kenworthy that there were differing reasons for his having highlighted the relevant items in the cash-book. Where there were round figures, he was of the opinion that

(Page 19)

this displayed a "pattern" (of misappropriation) and he highlighted those items accordingly. In the case of references to a Subaru vehicle, he knew that the trust did not own a Subaru and that the second defendant did. He formed the view, in relation to expenses relating to a Subaru, that such expenses had nothing to do with the Trust and, of course, such a view seems entirely justifiable in the circumstances. Where a cheque butt showed a payment to a named payee but he thought the amount of the payment was excessive, he highlighted the item. An example is the cheque butt of cheque 635141 of 1 August 1989 in the sum of $200, in favour of The Sunday Times. This item is highlighted. As I understood his evidence, he formed the view that this was an excessive amount, bearing in mind the comparatively small amount of advertising in relation to manure or chaff or hay placed by the Trust. Although he did not expressly say so, I have the impression that he thought this item to be a false entry, masking a payment to Lionel Kenworthy personally. It is interesting to note, on a quick glance at the cash-book, that there are many entries referring to payments to The Sunday Times, usually in much smaller sums and not usually in round figures. In most cases, these smaller items are not highlighted or recorded under the column headed "Dwgs". However an item of $26.40 in favour of The Sunday Times in relation to cheque 472140 dated 11 December 1990, has been highlighted, as have the items relating to cheques 472302, 472753, 472759 and 472772 in favour of The Sunday Times for the sums of $33.00, $46.20, $19.80 and $23.10 respectively, bearing dates from January to April 1991. The reason for such highlighting is not apparent. These items appear in the cash-book under the heading "LHK Trust 1990-1991". Against this, there are items relating to payments to The Sunday Times reflected later in the accounts, under the heading "LHK Nominees 1990-1991", in respect of cheques 403733 ($24.00), 403737 ($30.00), 403747 ($33.00) and 403751 ($26.40) which are not highlighted. These latter items are reflected at dates between July and November 1990.

27 The witness said that the only time he got involved with the accounts was after 1997. Questioned about an item of $200 for "Parts for mower" at page of the Trial Documents, the following was said (transcript pages 118 - 120):

"I think both of those - is the item underneath there at $200 highlighted by you?---That's correct.

But does it also appear - does it show in the repairs and maintenance column, R and M?---It would be. The accountant put it there; yes, that's correct.

(Page 20)

If it's in the repairs and maintenance column, do you accept that it was for repairs and maintenance?---As I said before, the trust did not own the mower.

How do you know that it wasn't parts for a mower? I thought you had nothing to do with the trust at this stage?---Only after his death.

What, it only owned a mower after his death or it only - what do you mean by "only after his death"?---The only time I got involved with the preparation of the accounts was after 97.

So you don't know on August the 11th whether it was used for parts for a mower or not, do you?---The trust never owned a mower.

You don't know whether or not it was used for parts for a mower, do you?---No."

28 Lindsay Kenworthy's evidence in respect of the "pattern" indicates the basis of his approach to many of the items, namely that the matter stated on the relevant cheque butt was false. This is entirely inconsistent with the plaintiff's case that the matters in the primary documents are to be accepted as true and correct. It is also inconsistent, it seems to me, with the fact that, for example in relation to the second defendant's Subaru, no attempt was made to disguise the nature of the payments relating to that vehicle.

29 The expenses in relation to the Subaru and the purchase of a vehicle from Goldy Motors in the sum of $20,990, as to which the witness was able to give direct evidence that such expenses were not for the benefit of the Trust but for the benefit of the second defendant were, in my opinion, expenses incurred by Lionel Kenworthy and to be debited to his account. At the relevant time, however, the financial statements show, and plaintiff's counsel concedes, that there had been a loan account in favour of Lionel Kenworthy, owing to him by the Trust, in an amount of some $60,000. I am not satisfied that the evidence of this witness as a whole establishes on a balance of probabilities that an amount in excess of $60,000 was expended by Lionel Kenworthy for purposes other than those of the Trust.

30 The cross-examination of the witness was directed, I apprehend, to demonstrating that the highlighting done by the witness was based upon his subjective view as to the significance of the various cheque butts upon

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which he relied, and that his actual knowledge or recollection, apart from the matters recorded on the cheque butts themselves, was inadequate to enable him to come to a reliable conclusion in relation to many of those cheque butts. As the witness said, the only time he "got involved with the preparation of the accounts was after 97".

31 For example, (T127) the following exchange between the witness and counsel for the defendants took place:

"Can we go now to page 165? The item there for the chainsaw from Milford Mowers is $46, isn't it?---That sounds to me like a lawn mower, not a chainsaw.

It says 'chainsaw' over on the right, doesn't it, and it has an arrow?---Yes, it's been put back in the purchases column.

Earlier when there's entries for milford Mowers – you said the Trust didn't own a mower – it's quite possible that related to a chainsaw, wasn't it?---I can't honestly say the chainsaw – we did all our own repairs on the chainsaw.

You just don't know, do you, Mr Kenworthy?---No, I don't. I don't know what these – from a cheque butt, that's all."

32 It was also directed to demonstrating that the cheque butts which the witness claimed to represent "drawings" of Lionel Kenworthy did not in terms record drawings. Accordingly, to classify the amounts there referred to as "drawings", with the possible exception of cheque butts reflecting "Cash", was to deny the accuracy of the matter in the cheque butts concerned – a position precisely opposed to that maintained throughout by the plaintiff. In my opinion, the cross-examination was to this extent successful and I do not uphold Mr Solomon's submission that the cross-examination was unfair.

33 This witness was extensively re-examined by counsel for the plaintiff. The re-examination was very largely directed to some of the cheque butts upon which Lindsay Kenworthy had based his opinion and his decision to highlight certain items in the cash-books. The re-examination affirmed that the witness had relied upon the cheque butts for the exercise carried out by him. An example appears at pages 144 - 145 of the transcript:

(Page 22)

"Then cheque number 1 you were asked about on that page 237 which is bobcat parts. You will find that at 1558; still in the same volume, page 1558?---Yes.

It says 'Bobcat parts for,' it reads to me, 'Sereko' – S-e-r-e-k-o. Do you know what that is?---No, I've no idea.

No idea what that is?---No.

Do you know whether that Sereko had anything to do with the trust?---No, I don't know.

Then lower down, the entry for fuel, you were asked about cheque 95 which is on page 1572. Do you see that's payable to the people called Martin's Corner? Do you have that there?---Yes; I do, yes.

Do you know what that is?---No idea at all.

Is that a reason you highlighted it?---That's correct, yes."

Dennis Reginald Kenworthy

34 This witness's statement was tendered by consent and accepted as Exhibit D. It is clear from his statement that, although he was a director of the plaintiff since December 1987, he was content to leave the management and day to day activities of the plaintiff entirely to Lionel Kenworthy. He was told by his father, and accepted, that he should be a director of the plaintiff to do his "family duty" and to look after his father. While a director of the plaintiff, until his father's death, he had no day to day involvement in the plaintiff and his only involvement was to sign the documents his father asked him to sign. He did not question his father's decisions or directions. In 1984, Lionel Kenworthy retired and commenced receiving a pension. This witness said that, until his death, Lionel Kenworthy controlled the plaintiff's finances. Lionel Kenworthy would discuss with the witness those transactions in respect of which he required the signature of the witness and would give a description of the proposed transaction. Dennis Reginald Kenworthy said that he read through the documents handed to him by his father and that, when he did so: "my father invariably would tell me that the investment was a good investment or the best investment available".

35 In relation to the sale of 141 The Esplanade, Dennis Reginald Kenworthy said:

(Page 23)

"SALE OF 141 THE ESPLANADE

26. I recall my father approaching me in or about May 1990 in relation to 141 The Esplanade. At that time, the plaintiff owned, in its capacity as trustee of the LHK Trust, the property known as 141 The Esplanade.

27. I recall my father bringing to me a transfer form to transfer 141 The Esplanade from LHK to him. He told me that the reason for transferring 141 The Esplanade into his name was "to save on rates" or words to that effect. He said that the rates charged on 141 The Esplanade would be halved if he owned 141 The Esplanade because he was a pensioner. He said to me that 141 The Esplanade "would come back to us" (Lindsay, Trevor and me) and that "there was nothing to worry about" or words to that effect. As I always did, I followed my father's direction. I quickly looked through the transfer document and signed the transfer. I recognise my signature on the transfer.

28. At the time I did not take any advice about the transfer of 141 The Esplanade. I did not consider the value of 141 The Esplanade nor whether the transfer was at market price. My father did not tell me that the sale was at less than market value. I did not even consider whether or not my father would actually pay the LHK Trust for 141 The Esplanade. I assumed that, as he always did, my father would arrange the plaintiff's finances."

36 The witness went on to deal with the events following his father's death. He said:

"34. Lindsay undertook the task of going through the cash books and highlighted those payments that were obviously not made for the purpose of the LHK trust. He, on a number of occasions, asked me about particular payments which I then looked at. I recall various events that happened or things that my father did or said that he owned. The payments made by the plaintiff related to a number of those. I can identify a large number of payments in the cash books which were, to my knowledge, made for my father's benefit and not made for

(Page 24)

the benefit of the LHK Trust. Lindsay and I highlighted those payments in the cash books.

35. There are also a number of payments of round sums (eg $500) recorded in the cashbooks. I recall that from time to time, in 1996 and early 1997 when my father was unwell, he would give me a cheque for a round number (for example $500). That cheque would be made out to cash and I would cash it for him. I would then give the money to him. I did so at the time because my father asked me to. It was only once he died and Lindsay and I reviewed the plaintiff's affairs that I realised that my father had been spending the LHK Trust' money on himself."

37 In respect of par 35 of his witness statement, the witness did not attempt to identify the specific items to which he referred.

Trevor Kenworthy

38 This witness's statement was admitted by consent as Exhibit C. It was short and he was not cross-examined upon it. His statement reads:

"I was not aware and did not consent to the transfer of the property at 141 The Esplanade, Mt Pleasant to Lionel for $150,000.

I was unaware of the land transfer and did not know the price of it.

I learnt about this transfer approximately 1 year after it happened, when Lionel told me.

I thought there was nothing I could do about it and so accepted it. At that time we had a strained relationship.

My time as a director was spent doing as instructed by my father and not questioning him. I just did as I was told.

Until I heard of the transfer I trusted my father was doing the right thing by myself and my brothers."

(Page 25)

The claim for misappropriation

39 The plea of misappropriation raises very serious allegations of dishonesty against Lionel Kenworthy and the standard of proof required to establish this is a high one. The plaintiff has pleaded the cause of action in the barest terms and has relied upon the fact that Lindsay Kenworthy and his brother Dennis marked with a yellow highlighter those items of expenses which they thought were not expenses of the Trust. Neither explained in detail each item of alleged misappropriation but contented themselves with the broadest allegation, very largely unsubstantiated, that the items highlighted could not possibly have been incurred for the benefit of the Trust. The plaintiff has not gone to the trouble of a detailed analysis of the items allegedly misappropriated by Lionel Kenworthy. It is apparent that both witnesses had no day to day involvement with the plaintiff at the material times.

40 On the basis, contended for by the plaintiff and agreed to by the defendants, that the books (from which expression I exclude the highlighting of certain entries) are prima facie proof of what they record and are accurate, I find that the plaintiff has not established that Lionel Kenworthy misappropriated "approximately $380,000" or, indeed, any sum nor that he drew from trust funds any amount in excess of his loan account. In relation to the loan account (which started with a credit of some $60,000) Mr Solomon affirmed in his oral address that there could be no complaint as to drawings against that account up to the figure mentioned.

The Sale of 141 The Esplanade

41 I have set out above the plaintiff's brief pleading of this cause of action. The only pleaded basis of the allegation that the property was transferred for a "grossly inadequate" consideration is set out in the Particulars to par 5 of the Statement of Claim. The plaintiff has tendered a valuation by a Mr Christie which indicates a value of the property at the date of the transfer of $330,000. That valuation seems irrelevant on the pleadings as the plaintiff does not seek to rely upon the objective true value of the property at the date of the transfer but rests solely upon the valuation by the Valuer-General. Nor does the plaintiff plead that there was a failure on the part of the plaintiff to make all necessary inquiries as to the appropriate value of the property before executing the transfer. While, therefore, it would probably be reasonable to infer from Mr Christie's valuation that there had been such a failure on the part of the

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plaintiff, there is no pleading of such failure to which that valuation would be relevant.

42 I have noted the apparent contradiction in the first defendant's Defence wherein she pleads in par 4 a denial of par 5 of the Statement of Claim but in par 5 of the Defence, admits par 6.1 of the Statement of Claim. As I understand the submissions of counsel for the defendant, par 5 of the Defence is to be read as an admission that Lionel Kenworthy had actual or constructive knowledge of the matter pleaded in the particulars to par 5 of the Statement of Claim, by reason that his settlement agents prepared, stamped and registered the Transfer. There is no evidence of constructive knowledge of the part of Lionel Kenworthy and I am prepared to assume that he had actual knowledge of the Valuer-General's assessment.

43 The evidence is clear, and it is common cause on the pleadings, that the Transfer was signed and sealed on 27 May 1990 and that it was registered on 5 October 1990, after having been referred to the Valuer-General for the assessment of stamp duty. That assessment was made at some date after 27 May 1990 and before 5 October 1990.

44 The evidence of Lindsay Kenworthy and Dennis Reginald Kenworthy establishes that, prior to the execution and stamping of the Transfer, Lionel Kenworthy told them of the proposal to transfer the property to him at a consideration of $150,000 and that they did execute the Transfer. The conclusion that the plaintiff agreed therefore, at least orally, to transfer the property to Lionel Kenworthy for the consideration stated is, I think, inescapable.

45 Counsel for the defendants argued that the Transfer itself constituted a contract for the conveyance of the property to Lionel Kenworthy. Counsel for the plaintiff denied that there was any contract and said that the Transfer was only an instrument, of no force or effect until and unless registered. Mr Solomon pointed to the provisions of s 31B of the Stamp Act in support of his submission that there was clearly no contract between the plaintiff and Lionel Kenworthy for the sale of the property and that the Transfer was a "mere conveyance". He said that if there had been an oral agreement for such sale, then, applying the principle expressed in the maxim omnia rite esse acta praesumuntur, the parties must be taken to have complied with s 31B by executing a written statement recording the oral contract and have had it stamped. It followed, he submitted, that the absence of any such written statement is to be regarded as proof of the absence of any oral contract between the

(Page 27)

parties. I do not uphold that submission. I do not accept that the maxim referred to, upon which the plaintiff relies to establish the absence of an oral agreement between the plaintiff and Lionel Kenworthy, has any application to the circumstances. However, be that as it may, there is no substance in that submission which ignores the evidence of the oral discussions, followed by the execution of the Transfer and, moreover, misstates the effect of s 31B of the Stamp Act. That section provides, in relevant part, that a person who becomes a party to a transaction which causes a change in the beneficial ownership of an estate or interest in freehold land, but which transaction "is not effected or evidenced by any instrument chargeable with ad valorum duty, shall, if he would have been liable to pay duty in respect of that transaction had such an instrument been executed, within three months after entering into that transaction, prepare and lodge with the Commissioner a statement in a form approved by the Commissioner in respect of that transaction".

46 The statement there referred to is not required, therefore, where the transaction in question is evidenced by an instrument chargeable with ad valorum duty. In the present case, there was such an instrument upon which stamp duty was in fact paid.

47 In my opinion, the evidence discloses the existence of a prior oral agreement between the plaintiff and Lionel Kenworthy for the sale of the property at a consideration of $150,000. The Transfer executed by the plaintiff clearly evidences that contract and has been duly stamped. It follows that the provisions of s 31B of the Stamp Act do not apply to disprove the existence of an oral contract prior to the execution of the Transfer.

48 The plaintiff had full authority under cl 9 of the Trust Deed (Exhibit 1) in its absolute discretion to:

"sell transfer hire lease or dispose of any real or personal property of the Trust Fund."

49 Subject, therefore (at best for the plaintiff) to a right of rescission, the Transfer was effective to convey the legal and beneficial ownership in the property to Lionel Kenworthy.

50 Furthermore, although the Statement of Claim as pleaded proceeds, at least implicitly, on the basis that Lionel Kenworthy paid the $150,000 purchase price for the property, counsel for the plaintiff submitted, orally, that that consideration had not been paid and that the amount of the purchase price was included in the figure of "approximately $380,000"

(Page 28)

stated in par 10 of the Statement of Claim to have been misappropriated. There is no relevant pleading to this effect. The pleadings do not support a finding that the consideration was not paid, nor do they make out a basis for the submission that the $150,000 was misappropriated. The particulars of the allegation in par 10 of the Statement of Claim refer to amounts highlighted. Counsel for the plaintiff acknowledged that the figure of $150,000 does not appear in the cash-books as drawings or at all and, accordingly, has not been highlighted.

51 Despite the plaintiff's contention that the property is held by the first defendant on a constructive trust for the plaintiff, the plaintiff claims the purchase price from the first defendant. It follows that the plaintiff claims both that the property is beneficially owned by the plaintiff and also that the first defendant should pay to the plaintiff the purchase price thereof. In his closing submissions, counsel for the plaintiff resiled somewhat from this position. He said that the figure claimed as moneys misappropriated should be reduced by the sum of $150,000. If there was, as I find, an oral contract between the plaintiff and Lionel Kenworthy for the sale of the property at the price stated, then, at best for the plaintiff, such contract was voidable, not void. The plaintiff has not sought to exercise an equity to rescind that contract and, in fact, denies the existence of any contract for the sale of the property.

52 It is true that plaintiff's counsel submitted that, "If ... the Court considers it cannot grant any equitable relief other than rescission without first decreeing rescission, it should do so. Again, unlike in HMFM v Porteous, the plaintiff has not relied on or affirmed any part of the transaction".

53 Counsel referred to Alati v Kruger (1955) 94CLR 216 at 222 for the statement therein that: "... the appellant cannot have been in any doubt that the respondent by commencing the action was assuming to rescind."

54 However, that statement was made in the context of the Court's finding expressed as follows in the decision of their Honours Dixon CJ, Webb J, Kitto J and Taylor J:

"Primarily, it was on the basis of rescission that relief was claimed, and the appellant cannot have been in any doubt that the respondent by commencing the action was assuming to rescind and was asserting a consequential right to get his money back."

(Page 29)

55 The pleading in that case was different from that in the matter now before me. The plaintiff's claim to recover the purchase price (albeit alleged – but not so pleaded - to be a part of moneys allegedly misappropriated by Lionel Kenworthy) is inconsistent with a claim for rescission. (So, for what that is worth, is the alternative claim to a charge over the property). Mr Solomon informed me that the plaintiff would acquiesce in a reduction of the amount claimed as having been misappropriated by the sum of $150,000. In my opinion, the pleadings in this matter (which have not relevantly been amended) are inconsistent with that approach. The plaintiff is bound by its pleadings.

56 Counsel for the plaintiff submitted that further or other relief is claimed in the Statement of Claim and that any Court of Equity may grant relief it considers appropriate despite not having been sought in that form by either party: Bridgewater v Leahy [1998] 194 CLR 457 at [124] and [127] per Gaudron, Gummow and Kirby JJ.

57 At [127], their Honours said:

"[127] Once a court has determined upon the existence of a necessary equity to attract relief, the framing, or, as it is often expressed, the moulding of relief may produce a final result not exactly representing what either side would have wished. However, that is a consequence of the balancing of competing interests to which, in the particular circumstances, weight is to be given."

58 I do not think that that decision can be read as permitting the grant of a rescission of the contract, in the circumstances of the present case, where the plaintiff has not exercised an equity to rescind. Rescission of a voidable agreement requires a clear, unequivocal act of rescission by the rescinding party: Sargent v ASL Developments Ltd (1974) 131 CLR 634.

59 If there was a voidable contract between the plaintiff and the defendant, then the defendant argues, the decision in Hancock Foundation v Porteous (2000) 22 WAR 198 requires that, before any claim to a constructive trust arises, the plaintiff must first have exercised its equity to rescind that contract. At par [178 - 180], the Court cited the following observations by Brennan J in Daly v Sydney Stock Exchange Ltd(1986) 160 CLR 371:

"Brennan J delivered reasons of his own, with which Wilson J also agreed. His Honour observed (at 384):

(Page 30)

'Dr Daly lent the money to Patrick Partners. As borrowers, Patrick Partners received the money on their own account, not on behalf of Dr Daly nor as trustees. They were Dr Daly's debtors. When the debt was assigned, Patrick Partners became Mrs Daly's debtors. A contract for the lending of money repayable on demand does not itself create a relationship of trustee and cestui que trust ...'

Brennan J then proceeded to deal with the argument that Patrick Partners obtained the loan in breach of fiduciary duty and 'that the moneys lent are and have been held on a constructive trusts, at first for Dr Daly and now for Mrs Daly'. His Honour observed (at 387 - 388):

'Irrespective of the fairness of its terms, equity regards a contract made between a fiduciary and the person to whom he stands in a fiduciary relationship as voidable if the fiduciary has breached his fiduciary duty in respect of the contract. If property is transferred to the fiduciary pursuant to the contract, the transfer may be set aside in consequence of the avoidance of the contract ... The contract and the transfer are voidable, but not void. If the transfer is set aside, the fiduciary transferee (and, no doubt, a volunteer or a purchaser with notice of the circumstances) holds the property transferred on a constructive trust for the transferor which a court of equity will enforce subject to any accounts or inquiries that may be necessary to do equity to the transferee. The transferor may elect to avoid the contract and to assert his title to the land or other property transferred assuming it still exists in specie or, being money, can be traced. He may invoke the assistance of equity to recover the land or other property in specie or to trace the money.'

Brennan J (at 388) observed that the principles governing the setting aside of contracts of purchase or sale are applicable to contracts of loan, and said:

'[A] person lending money to a fiduciary who obtains the loan without discharging his fiduciary duty is entitled in equity to avoid the contract of loan and to recover, by tracing if need be, the money lent.'

(Page 31)

His Honour then commented as follows on the need for the vendor or lender to avoid the contract before seeking to assert equitable title tot he property sold or the money lent:

'But where property has been sold and conveyed, the purchaser's beneficial title must be ascertained by reference to the sale so long as it stands; the vendor cannot insist on an equitable interest in the property if he does not choose to enforce his equity to avoid the sale: see per Kitto J in Latec Investments Ltd v Hotel Terrigal Pty Ltd (In liq) (1965) 113 CLR 265 at 277-278; In re Sherman dec'd [1954] 1 Ch 653 at 658. Similarly, until the lender elects to avoid the contract of loan he cannot assert an equitable title to the money lent. He cannot at once leave the contract on foot and deny the borrowers the title to the money which the contract confers. When, as in the present case, a borrower acquires title to money paid to him under and pursuant to a contract of loan, the borrower cannot be made a trustee of the money without his consent so long as the contract stands.'

Brennan J emphasised (at 389-390) that:

'There is no analogy between the present case and one in which a constructive trust is imposed on money or other property which is acquired by a fiduciary in breach of his duty but not pursuant to a voidable contract. In such a case there is no question of avoiding the contract before the constructive trust is imposed. A fortiori, there is no analogy between the present case and one where a constructive trust is imposed on money or other property which is acquired by a non-fiduciary otherwise than by contract: as, eg, in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] 1 Ch 105 at 118-120.'

And remarked (at 390):

'In equity, Patrick Partners' title to the money lent was imperfect from the beginning by reason of their failure to discharge their duty as a fiduciary ... and, had the contract of loan been avoided, Mrs Daly's rights as against Patrick Partners might have been determined as though the firm

(Page 32)

had from the beginning held the money lent on a constructive trusts for Dr Daly and then for Mrs Daly.'

There was no evidence, however, that the contracts of loan were avoided. Thus, Brennan J held, a constructive trust could not be imposed and Patrick Partners did not hold the money lent as a trustee."

60 While Lionel Kenworthy was not alleged to be in a fiduciary relationship with the plaintiff, it is clear from the observations of Brennan J that the position is not different where the transferee is a purchaser with notice of the circumstances, and that is what is alleged against Lionel Kenworthy.

The plaintiff's claims

61 The plaintiff submitted that the transfer of the property to Lionel Kenworthy at a gross undervalue in breach of trust gives rise to three causes of action.

62 The first is said to be a claim in restitution that Lionel Kenworthy received trust property in breach of trust. Counsel referred to the decision in Koorootang Nominees Pty Ltd v ANZ Banking Group Ltd [1998] 3 VR 16 at 100, 105, per Hansen J and to the authorities and articles cited therein.

63 The plaintiff submitted that Lionel Kenworthy held, and the second defendant now holds, the property on constructive trust for the plaintiff. Counsel very properly conceded that the majority of the Victorian Court of Appeal in Macquarie Bank Ltd v Sixty Fourth Throne Pty Ltd [1998] 3 VR 133 held that, in relation to land under the Victorian equivalent of the Transfer of Land Act more than receipt was required.

64 In the present case, there is no evidence establishing knowledge in Lionel Kenworthy as to the value of the property at any time before he became aware of the Valuer-General's assessment. There is no evidence to support a finding of wilful blindness on his part (or on the part of the directors who executed the Transfer in his favour). Nor is that pleaded. As was pointed out by Winneke P and Tadgell JA in Sixty Fourth Throne Pty Ltd, wilful blindness "connotes more than a failure to see or look; it connotes a concealment deliberately and by pretence, from oneself, a dissembling or dissimulation, a form of designed or calculated ignorance" of which none was proved against Lionel Kenworthy.

(Page 33)

65 Whether Lionel Kenworthy was aware of the Valuer-General's assessment prior to registration of the Transfer and whether the significance of the Valuer-General's assessment occurred to Lionel Kenworthy in the sense of alerting him to the probability that the agreed price for the property was an undervalue, is speculative. There is no evidence which throws any light on this question. Lionel Kenworthy offered an explanation to Lindsay Kenworthy as to the reason the transfer of the property was necessary, namely that the plaintiff could not afford the rates charged on the property any longer and that, if it were transferred to him, he would get a 50 per cent reduction in the rates as a pensioner. There is nothing before me to support or to derogate from that explanation, which was accepted by Lindsay Kenworthy . There is no evidence of dishonesty on the part of Lionel Kenworthy in relation to this transaction, save for the fact that Lionel Kenworthy became aware of the Valuer-General's assessment at the time of the Transfer. The pleading of the particulars to par 5 of the Statement of Claim, as read with par 6.1 thereof, suggest that Lionel Kenworthy's knowledge of the Valuer-General's assessment, derived as it was from the fact that his settlement agents prepared, stamped and registered the Transfer (stress added by me) arose after registration of the Transfer and not before.

66 Mr Solomon submitted that:

"... as Lionel Kenworthy was a shadow director of the plaintiff and in any event [had the knowledge that the property was being transferred at an undervalue; that the property was trust property and that he had not paid for the property; ] and took the benefit of the property, plainly there was fraud or a personal equity within s 68 of the Transfer of Land Act."

67 Counsel referred to Bahr v Nicolay [No 2] (1988) 164 CLR 604. I have pointed out above the difficulties faced by the plaintiff in establishing that submission on the evidence and pleadings.

68 The second claim, plaintiff submitted, was under the accessory principle in Barnes v Addy, to which some reference has been made above. The plaintiff is required to show dishonesty on the part of the accessory. As the plaintiff has not established that Lionel Kenworthy was aware of the Valuer-General's assessment prior to registration of the Transfer, the plaintiff has failed to show dishonesty on his part. Mr Solomon referred to the comments of Lord Nicholls of Birkenhead in Royal Brunei Airlines where, at 389, his Lordship said:

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"In most situations there is little difficulty in identifying how an honest person would behave. Honest people do not knowingly take others' property. Unless there is a very good and compelling reason, an honest person does not participate in a transaction if he knows it involves a misapplication of trust assets to the detriment of the beneficiaries. Nor does an honest person in such a case deliberately close his eyes and ears or deliberately not ask questions, lest he learn something he would rather not know, then proceed regardless."

69 No doubt his Lordship's remarks are compelling, but the problem the plaintiff has in putting them forward is that the evidence and pleadings do not support their relevance to the present case.

70 The third cause of action relied upon by the plaintiff is the knowing receipt of trust property. This is a claim based on the recipient liability limb of Barnes v Addy(1874) LR 9 Ch. App 244. Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, cited in Koorootang at 101, referred to the distinction between recipient liability and accessory liability, saying at 386:

"It is not necessary, however, to look even more widely and consider the essential ingredients of recipient liability. The issue on this appeal concerns only the accessory liability principle. Different considerations apply to the two heads of liability. Recipient liability is restitution-based; accessory liability is not."

71 Smellie J, in Equiticorp Industries Group Ltd v R [1996] 3 NZLR 586 at 604 said:

"Recipient and accessory liability are different, the latter invoking liability for a wrong triggering compensation not restitution, the former being imposed in order to compel the return of an unjust enrichment received."

72 In The Hancock Family Memorial Foundation Ltd & Anor v Porteous [1999] WASC 55 at [79], Anderson J said:

"Recipient liability may be established if the defendant had actual or constructive knowledge at the time he received the relevant property that (a) it was trust property and (b) it was being misapplied. The defendant will be taken to have constructive knowledge if it is proved that he wilfully shut his

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eyes to the obvious; that he wilfully and recklessly failed to make such inquiries as an honest and reasonable man would make in the circumstances; and that he knew of circumstances which would indicate the true facts to an honest and reasonable man. If all that is proved is that the defendant had knowledge of circumstances which would put an honest and reasonable man on inquiry, that is not enough: see Koorootang at 85 and 105."

73 I respectfully adopt his Honour's statement and point out that neither the pleadings nor the evidence establishes what the plaintiff is required to prove in order to make out a claim based on recipient liability.

74 The plaintiff's claim to the existence of a constructive trust in any event must fail in the absence of the avoidance (were that possible) of the transfer by rescission of the voidable contract between the plaintiff and Lionel Kenworthy.

75 I am not satisfied that the plaintiff has succeeded in showing dishonesty on the part of Lionel Kenworthy. The property forms part of Lionel Kenworthy's estate and will accrue to the beneficiaries thereof on intestacy. The beneficiaries of that estate include the three sons of Lionel Kenworthy (who are the beneficiaries of the Trust) and also his widow.

The plaintiff's claim against the second defendant

76 The plaintiff's pleaded claim against the second defendant is answered by a Defence of bare denial and the second defendant did not offer any evidence against that claim. The cheque for $7,000 was dated 6 February 1997 and the evidence of both Lindsay and Dennis Kenworthy was to the effect that, on that day, Lionel Kenworthy was in a coma. The cheque butt, Exhibit 25A is dated 26.1.1997 and the figure "1" is altered. I think that one can just discern the figure "2" under the heavy over-scoring. On a balance of probabilities, I find that the original date on the cheque butt of 6-2-1997 has been altered to 26-1-1997. There is nothing to establish that the second defendant had any entitlement to be paid the $7,000. Counsel for the second defendant argued that, at best for the plaintiff, the claim lay in debt and this had not been pleaded. I do not accept this submission - there is no evidence that there was any transaction giving rise to a debt and the alteration of the cheque-butt has not been explained by the second defendant, who simply pleaded a denial of the plaintiff's claims.

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77 The cheque was drawn on trust funds and, in the absence of any evidence that the plaintiff owed the second defendant that amount, I am satisfied that this claim has been made out by the plaintiff.

Conclusion

78 In the result, the plaintiff's claims against the first defendant are dismissed with costs to be taxed.

79 There will be judgment in favour of the plaintiff against the second defendant in the sum of $7,000 with interest at the rate of 6 per cent per annum from 6 February 1997 to the date of payment and costs to be taxed.