LOIs Nominees Pty Ltd v Hill [No 2] - [2016] WASC 104

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: LOIS NOMINEES PTY LTD -v- HILL [No 2] [2016] WASC 104

CORAM: BEECH J

HEARD: 14 - 15 MARCH 2016

DELIVERED : 6 APRIL 2016

FILE NO/S: CIV 2019 of 2009

BETWEEN: LOIS NOMINEES PTY LTD AND THE PERSONS DETAILED IN THE SCHEDULE ATTACHED TO THE WRIT OF SUMMONS DATED 2 JUNE 2009
Plaintiffs
AND
GORDON LESLIE HILL
Defendant

Catchwords:

Equity and trusts - solicitors receiving funds into trust account - Breach of trust - Whether solicitor's breaches of trust were fraudulent

Legislation:

Bankruptcy Act 1966 (Cth), s 153

Result:

Plaintiffs' claims upheld

Category: B

Representation:

Counsel:

Plaintiffs: Mr J C Vaughan SC
Defendant: Mr T J Hammond (pro bono)

Solicitors:

Plaintiffs: Tottle Partners
Defendant: In person

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

Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
Guidice v Legal Profession Complaints Committee [2014] WASCA 115
BEECH J:

Introduction

From December 2004 to June 2005, the plaintiffs deposited more than $3.3 million into the trust account of the defendant, Mr Hill, who was then practising as a solicitor. The payments were received by Mr Hill on the express basis that they were to be held on trust for the sole purpose of acquiring, and pending the acquisition of, shares in a company called Firepower Holdings Ltd. From March to July 2005, Mr Hill caused all of the plaintiffs' funds to be paid out of his trust account, notwithstanding that the plaintiffs had not received their shares. The plaintiffs never received those shares.
Mr Hill admits that, in causing the payments to be made, he committed breaches of trust. The issue is whether Mr Hill did so fraudulently; knowing, or being recklessly indifferent as to whether, he was not entitled to transfer the funds.
Fraud is a serious allegation. A finding of fraud is not made lightly. In this case I am satisfied that when Mr Hill caused the payments from his trust account, he did so fraudulently.
These reasons deal with the following topics:
(1)Uncontroversial facts.
(2)The pleadings and the issues.
(3)Mr Hill's bankruptcy.
(4)Fraud: legal principles.
(5)Mr Hill's knowledge of the terms of the trust.
(6)Mr Hill's evidence as to why he caused the Trust Payments to be made.
(7)The timing of the decision to incorporate Firepower‑BVI.
(8)Further observations on Mr Hill's evidence.
(9)Conclusions on Mr Hill's evidence.
(10)Were Mr Hill's breaches of trust fraudulent?
(11)Conclusion.

Uncontroversial facts

There is a great deal of common ground as to the facts. Mr Hill's defence admits a number of the facts pleaded in the statement of claim. Further, the parties prepared a statement of agreed facts.[1] The following facts are uncontroversial.
[1] Exhibit A.
Mr Hill became a director of Firepower Holdings Ltd (Firepower‑Cayman), a company incorporated in the Cayman Islands, on 1 September 2004.[2]
[2] Exhibit A [5]; Amended Substituted Statement of Claim dated 30 April 2015 (SOC) [3.3]; Further Amended Substituted Defence dated 29 May 2015 (Defence) [2(c)].
As at 1 September and at all material times thereafter:
(1)Mr Hill carried on practice as a legal practitioner;[3] and
(2)Mr Hill maintained a solicitor's trust account named 'Gordon Hill & Associates Trust Account'.[4]
[3] Exhibit A [2]; SOC [3.1]; Defence [2(a)].
[4] Exhibit A [3].
Between 24 December 2004 and 8 June 2005, Mr Hill received into his solicitor’s trust account money in varying amounts from the plaintiffs.[5] The money received from the plaintiffs totalled $3,391,518.[6] It was received in connection with Mr Hill's practice as a solicitor.[7] The payments were made on the express basis that they were to be held by Mr Hill on trust pending the acquisition of, and for the sole purpose of acquiring, shares in Firepower‑Cayman and the issue of Firepower‑Cayman share certificates to the plaintiffs.[8]
[5] Exhibit A[7]; SOC [5]; Defence [4]. The relevant dates and amount for each plaintiff are set out in the schedule at annexure A to exhibit A.
[6] See the total on page 10 of exhibit A.
[7] Exhibit A [13]; SOC [7]; Defence [6(a)].
[8] Exhibit A [13]; SOC [6] ‑ [7]; Defence [5], [6(b)].
When making the payments the plaintiffs sent Mr Hill a standard form which, among other things, recorded the terms on which Mr Hill received the payments.[9] The plaintiffs' completed forms are included in the Trial Bundle.[10] Among other things, the standard form stated:
Application for Share Transfer: [Firepower-Cayman]
I hereby make application for shares in [Firepower-Cayman]. I am aware, subject to the Directors' approval, a share certificate will be issued in the name of the applicant as soon as possible after a trust has been established in Singapore for the purpose of holding the said shares. I also acknowledge this process may take time to resolve.
I expressly authorise Gordon Hill & Associates to hold the sum of [relevant amount] in trust pending the settlement of the share transfer hereby contemplated.
I have today transferred to the trust account of Gordon Hill & Associates … the sum of [amount] being the consideration for the purchase of [amount] fully paid shares at twenty Australian cents (AU$0.20) in the capital of [Firepower-Cayman].
...
[9] Exhibit A [9] ‑ [12].
[10] Exhibit B33; see also, by reference to Exhibit A [12], annexure B to exhibit A.
Mr Hill prepared the template for the standard form.[11]
[11] Exhibit 1 [53]; ts 92.
Mr Hill responded to the plaintiffs' applications by letter.[12] His letters were headed 'Application for Share Transfer-[Firepower‑Cayman]'. In each letter, on behalf of Firepower‑Cayman, Mr Hill acknowledged receipt of the relevant plaintiff's funds and application for shares in Firepower‑Cayman. He said that '[p]ursuant to your request the funds were deposited in the trust account of this law firm as a temporary measure'. He also stated that '[a]rrangements will now be made to facilitate the share issue'.
[12] See exhibit B33, page 436.
Mr Hill was not authorised to deal with the plaintiffs' funds other than for the purpose of the plaintiffs' acquisition of the nominated shares in Firepower‑Cayman.[13] In particular:
(a)no plaintiff ever consented to Mr Hill applying or paying out their funds other than for the purpose of acquiring the nominated shares in Firepower‑Cayman;[14] and
(b)no plaintiff ever otherwise authorised Mr Hill to apply or pay out their funds other than for the purpose of acquiring the nominated shares in Firepower‑Cayman.[15]
[13] SOC [8]; Defence [7].
[14] Exhibit A [15].
[15] Exhibit A [15].
The plaintiffs did not become shareholders in Firepower‑Cayman as contemplated by the various share application forms. In other words, the plaintiffs did not receive share certificates for Firepower‑Cayman shares and Firepower‑Cayman shares were not otherwise issued or transferred to them.[16]
[16] Exhibit A [14]; SOC [9]; Defence [8].
On 2 March 2005, Mr Timothy Johnston, also a director of Firepower‑Cayman, sent an email to Mr Hill stating '[w]e need to reimburse George Teleman's Allianze mates in Singapore for the Romanian deal'.[17] The email referred to the amount of 41,000 euros and requested that Mr Hill send the funds to Melanie Darroch.
[17] Exhibit B2, page 5.
Mr Hill's response by email on 2 March 2005 was in the following terms:[18]
[18] Exhibit B2.
Hi mate,
It is a real problem for me sending funds from the Trust account in this way. I am holding funds on behalf of share applicants pending the issue of their shares. Legally the money is not meant to be used until the shares are issued. This is one of the matters I want to talk to you about tomorrow (the Harburn/MvR raising).
We can do this in one of two ways -
1.I can issue an instruction to KPMG to issue additional shares in the Company to the value of the amount transferred (we could round it up to, say, the equivalent of 50,000 Euros. We will need to issue more shares anyway because of the Harburn raising last year. This will require a Directors' resolution.
2.I can instruct KPMG to transfer some of your Heavencity shares at .20 cents. This will require a Directors' resolution from Heavencity (Sandra to sign) and another letter of request to me.
In either case I would have to calculate the amount in Aussie dollars and have KPMG issue them to some selected share applicants from the list.
All of the above should really be done prior to sending the funds.
Which approach do you prefer? ...
Mr Hill caused the plaintiffs' funds to be paid out of his trust account by way of inclusion in the following payments (the Trust Payments):
(1)$200,000 paid on 3 March 2005 to Green Triton Ltd.[19]
(2)$800,000 paid on 4 March 2005 to Green Triton.[20]
(3)$500,000 paid on 31 March 2005 to Operations Firepower Pty Ltd.[21]
(4)$4,000,000 paid on 11 May 2005 to Green Triton.[22]
(5)$415,692.33 paid on 12 July 2005 to Green Triton.[23]
[19] Exhibit A [16.1].
[20] Exhibit A [16.2].
[21] Exhibit A [16.3].
[22] Exhibit A [16.4].
[23] Exhibit A [16.5].
Green Triton was a company incorporated in the British Virgin Islands.[24] A company called Managecorp Ltd held all the shares in Green Triton on trust, the relevant trust being 'The Firepower Trust'.[25] Mr Hill was one of the beneficiaries and controllers of the Firepower Trust (the other being Mr Johnston).[26]
[24] Exhibit A [16.1].
[25] Exhibit A [19], [20].
[26] Exhibit A [22].
Operations Firepower Pty Ltd was a company incorporated in Western Australia.[27] Mr Hill and Mr Johnston were the directors of Operations Firepower.[28]
[27] Exhibit A [16.3].
[28] Exhibit A [21].
Mr Hill admits that he paid away the plaintiffs' funds without authority and in breach of trust - the funds were paid for a purpose other than the plaintiffs' acquisition of the nominated shares in Firepower‑Cayman.[29]
[29] SOC [11]; Defence [10].
The plaintiffs made demand on Mr Hill for repayment of the amounts they paid into his trust account.[30] However, Mr Hill has not restored the trust money.[31] Accordingly, the plaintiffs have lost the funds they paid into Mr Hill's trust account,[32] and they have not received any countervailing benefit.[33]
[30] Exhibit A [26]; SOC [14]; Defence [12].
[31] Exhibit A [27]; SOC [14]; Defence [12].
[32] Exhibit A [28]; SOC [15]; Defence [15(a)].
[33] Exhibit A [28].

The pleadings and the issues

The plaintiffs claim that when Mr Hill transferred their money in admitted breach of trust, he did so fraudulently in that he did it knowing, or was recklessly indifferent as to whether, he was not entitled to pay the money out of his trust account.[34]
[34] SOC [12.3].
Mr Hill denies that he acted fraudulently. He pleads that:
(a)on 2 June 2005, a new company, Firepower Holdings Group Ltd (Firepower‑BVI), was incorporated in the British Virgin Islands to replace Firepower‑Cayman as the holding company for the Firepower Group in order to facilitate the listing of a holding company for the group on the Alternative Investment Market of the London Stock Exchange (AIM);[35]
(b)on the incorporation of Firepower‑BVI, Mr Hill understood that each of the plaintiffs consented, expressly or by implication, to any money paid (whether prior to or after the incorporation of Firepower‑BVI) by each of them to Mr Hill's trust account being used to purchase an equivalent number of shares in Firepower‑BVI (referring to this as the Varied Purpose);[36]
(c)on the basis that Mr Hill understood that the plaintiffs knew about and consented to the Varied Purpose, he took steps to make the Trust Payments.[37] In particularising that allegation, Mr Hill pleads that as a result of discussions he had by no later than May 2005 with the brokers who were selling the shares and separate discussions with Mr Johnston, Mr Hill believed from about May 2005 that all share applicants including the plaintiffs had been informed that they would be receiving shares in Firepower‑BVI in return for the money they had originally paid for shares in Firepower‑Cayman; and
(d)Mr Hill proceeded to distribute the plaintiffs' funds from his trust account on the basis that he was 'under the impression' that the plaintiffs knew that they would receive, and had consented to receiving, shares in Firepower‑BVI.[38]
[35] Defence [5(d)].
[36] Defence [5(f)].
[37] Defence [5(g)].
[38] Defence [6(c)].
Thus, the critical issue in the action relates to Mr Hill's state of mind when he caused the Trust Payments to be made. When he caused those payments to be made, did he know, or was he recklessly indifferent as to whether, he was not entitled to pay the money out of his trust account? Whether that was so will be influenced by whether, when Mr Hill caused the Trust Payments to be made, he believed that the plaintiffs knew and had consented to what he refers to as the Varied Purpose.

Mr Hill's bankruptcy

After these proceedings were commenced, Mr Hill became a bankrupt.[39] He was discharged from bankruptcy on 25 February 2013.[40]
[39] Exhibit A [6].
[40] Exhibit A [6].
Subject to exceptions, discharge from bankruptcy releases the bankrupt from all debts provable in the bankruptcy.[41] However, discharge does not release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust.[42]
[41] Bankruptcy Act 1966 (Cth) s 153(1).
[42] Bankruptcy Act s 153(2)(b).
It is not necessary to decide any question that may exist as to whether 'fraud' and 'fraudulent breach of trust' in s 153(2)(b) extend beyond actual fraud to include, for example, equitable fraud. In this case, the plaintiffs allege actual fraud.[43] Thus, ultimately Mr Hill's bankruptcy does not affect the plaintiffs' claim; the claim stands or falls on whether they establish that Mr Hill's breaches of trust were fraudulent.
[43] SOC [12.3]; Plaintiffs' submissions [25].

Fraud: legal principles

Fraud is a very serious allegation. The nature and seriousness of an allegation are relevant to whether it is found to have been proved. Fraud must be clearly proved. The court must feel an actual persuasion of the occurrence or existence of the relevant facts before being satisfied that the allegation has been made out.[44]
[44] Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 361 ‑ 363.
In order to prove their case, the plaintiffs must show that when causing the Trust Payments to be made Mr Hill knew that he was not entitled to use the plaintiffs' funds in the way that he did, or that he acted in reckless disregard of whether he was entitled to use them in that way. These issues require attention to, and depend upon, Mr Hill's actual subjective beliefs. In other words, fraud is to be assessed subjectively, not objectively.[45] Recklessness requires proof that Mr Hill acted with indifference, not caring whether he was entitled to use the plaintiffs' money or not.[46] Not caring is not to be equated with failing to take appropriate care; it is important not to equate negligence with fraud.[47]
[45] See, by analogy, Guidice v Legal Profession Complaints Committee [2014] WASCA 115.
[46] Guidice [44], [130].
[47] Guidice [45].
I begin analysis by making findings as to what Mr Hill knew about the terms of the trust on which he held the money in his trust account.

Mr Hill's knowledge of the terms of the trust

Mr Hill knew the terms of the trust on which he held the plaintiffs' funds. He had drafted the template for the standard letters of application for shares. In his oral evidence, Mr Hill accepted that he knew:
(1)when he received money from an applicant, that it was their money and that he had to hold it in accordance with their instructions;[48]
(2)at that time, that he was authorised to hold the applicant's money on trust pending settlement of the transfer of shares;[49]
(3)at the time of receiving the money, that he was not entitled to apply an applicant's funds until the relevant share transfer had occurred and a share certificate had been issued in the applicant's name;[50] and
(4)during that period, that if the sale of shares did not proceed, the applicant's funds would be returned directly to them.[51]
[48] ts 88.
[49] ts 94.
[50] ts 94, 98 ‑ 99, 106, 116.
[51] ts 98, 121.
Mr Hill's knowledge of the terms of the trust on which he held the plaintiffs' money is also revealed by what he wrote in his email of 2 March 2005 to Mr Johnston.[52] In that email he said (correctly) that he was 'holding funds on behalf of share applicants pending the issue of their shares' and that 'legally the money is not meant to be used until the shares are issued'. He proposed two alternative mechanisms for achieving the issuing of shares, with a share certificate, to particular applicants so as to authorise the sending of funds from his trust account. In cross‑examination Mr Hill accepted that he wrote the email to explain to Mr Johnston why there was a legal prohibition on transferring funds before shares in Firepower‑Cayman had been issued to share applicants, and to offer Mr Johnston alternatives as to how the issuing of shares might be achieved.[53] In Mr Hill's words, he wrote the email because he 'wanted to inform Mr Johnston of the legal position'.[54] That evidence indicates that Mr Hill knew the legal position - that he was not entitled to use the money before shares were issued to share applicants and share certificates were provided to them.
[52] Exhibit B2.
[53] ts 109, 110 ‑ 111.
[54] ts 109.
Thus:
(1)Mr Hill knew that he was not entitled to pay the plaintiffs' money out of his trust account before share certificates were issued to them; but
(2)nevertheless, Mr Hill caused the Trust Payments to be made when no share certificates were ever issued to the plaintiffs.
Those findings invite attention to Mr Hill's evidence about why, in these circumstances, he caused the Trust Payments to be made.

Mr Hill's evidence as to why he caused the Trust Payments to be made

There is very little direct evidence in Mr Hill's witness statement that explains why, given the terms of the trust on which he held the plaintiffs' money, he caused the Trust Payments to be made.
In the last paragraph of his witness statement, Mr Hill says that '[i]t was my clear understanding that each of the plaintiffs was aware of the fact [Firepower‑BVI] would be listing on the AIM stock exchange instead of [Firepower‑Cayman]; and each of the plaintiffs would receive the same number of shares in [Firepower‑BVI] as they had applied for in Firepower‑Cayman for no additional consideration because there had been communications with KPMG personnel, brokers and in some cases directly with me'.[55]
[55] Exhibit 1 [120(b)].
Mr Hill also refers to two conversations he had with Mr Johnston requesting that Mr Johnston advise shareholders of Firepower‑Cayman that Firepower‑BVI, rather than Firepower‑Cayman, would be listed on the AIM. He says the first of those conversations occurred in or about May 2005.[56] Mr Hill says that Mr Johnston said words to the effect of 'leave it to me'. He also says that he raised the same topic again with Mr Johnston soon after Firepower‑BVI was established in June 2005 and received a response, in an irritated tone, to the effect that Mr Johnston was 'onto it'.[57]
[56] Exhibit 1 [105].
[57] Exhibit 1 [109].
Mr Hill also gives evidence in his statement that in or about April or May 2005 he contacted each of the brokers who was involved in selling Firepower shares and asked them to advise their clients who had applied for Firepower‑Cayman shares that their shares would issue in Firepower‑BVI, as this was the company to be listed on the AIM.[58] Mr Hill says that each broker indicated that they would contact the applicants who had acquired shares through them. He says that he does not know if the brokers in fact did so.[59]
[58] Exhibit 1 [110], [120(a)].
[59] Exhibit 1 [110].

Nowhere in Mr Hill's statement does he say directly that he believed, based on his conversations with the brokers and Mr Johnston, or otherwise, that share applicants including the plaintiffs had consented to receiving shares in Firepower‑BVI instead of Firepower‑Cayman.
Moreover, Mr Hill does not directly say in his witness statement that any of the matters referred to in the preceding paragraphs led him to believe that he was entitled to pay money out of the trust account notwithstanding the terms of the trust and notwithstanding that no share certificate had been issued in the name of any of the plaintiffs.
In cross‑examination, Mr Hill agreed with the suggestion that he was saying, in summary, that he caused the Trust Payments to be made because he believed that the plaintiffs had agreed to the substitution of Firepower‑BVI shares, which were to be issued to them in due course, for their Firepower‑Cayman shares.[60] Mr Hill was unable, when asked, to identify, even by reference to a month, when he began to hold such a belief.[61] In cross‑examination, Mr Hill said that he understood that the brokers were to inform share applicants and had informed them of the change of arrangement.[62]
[60] ts 120.
[61] ts 120 ‑ 121.
[62] ts 121.
Later in his cross‑examination, Mr Hill said that when he caused the Trust Payments to be made he believed that the share applicants had consented to his doing so.[63]
[63] ts 152 ‑ 153.
Mr Hill's case, and his evidence, relies heavily on the conversations he says he had with the brokers in April or May 2005. Those conversations are essentially what he says founded his belief that the plaintiffs had consented to what he calls the Varied Purpose. In cross‑examination, Mr Hill accepted, as is obvious, that any conversations he had with brokers asking them to inform their share applicant clients that the clients' shares would be issued in Firepower‑BVI rather than Firepower‑Cayman could only have occurred after those who controlled the Firepower Group decided that this would occur.[64] That invites attention to when that decision was made. For the reasons that follow, I find that the decision that the holding company of the Firepower Group would be a British Virgin Islands (BVI) company was not made until the week leading up to 27 May 2005.
[64] ts 127 ‑ 128.

The timing of the decision to incorporate Firepower‑BVI

In my view, both the contemporaneous documents and the evidence in Mr Hill's witness statement sustain the finding that the decision of those controlling the Firepower Group to incorporate a company in the BVI as the holding company of the group was made in the week leading up to 27 May 2005, and not earlier.
I start with the evidence in Mr Hill's witness statement. He says that in around May 2005 a decision was made to establish the new company in the BVI.[65]
[65] Exhibit 1 [73].
Mr Hill gave evidence of a series of meetings at the conclusion of which that decision was made:
(1)Mr Hill attended a meeting with Mr Johnston and two representatives of KPMG at a café near Mandurah on 19 December 2004.[66] Following that meeting, KPMG sent a detailed letter to Mr Johnston and Mr Hill.[67] At the meeting and in the follow‑up letter there was mention of listing on the AIM, but no mention of the use of a BVI company.
(2)In early 2005, Mr Hill and Mr Johnston travelled to London where they had various meetings. One of the meetings was with a London law firm, Bird & Bird. At that meeting, advice was given that it would be better for Firepower to be domiciled in the BVI.[68]
(3)In May 2005, Mr Hill met in London with representatives of Norton Rose, who advised Mr Johnston and Mr Hill that it would be advantageous to incorporate a Firepower company in the BVI in order to facilitate a listing on the AIM.[69]
(4)Mr Hill and Mr Johnston also attended a meeting with representatives of the London stock exchange on 19 May 2005.[70]
[66] Exhibit 1 [78].
[67] Exhibit B25.
[68] Exhibit 1 [81] ‑ [82].
[69] Exhibit 1 [83].
[70] Exhibit 1 [84].
Not long after those meetings, Mr Johnston drafted a revised structure for the Firepower Group, with the holding company of the group being incorporated in the BVI.[71]
[71] Exhibit 1 [86].
The evidence of Mr Hill outlined in the preceding paragraphs supports the finding that the decision to incorporate a company in the BVI as the holding company of the Firepower Group was made after the meeting of 19 May 2005.
Mr Hill also gave evidence that:
(1)in about March 2005, he and Mr Johnston met with two representatives of Portcullis Trustnet (Portcullis) in Singapore and discussed the idea of moving the main Firepower holding company to Australia and closing Firepower‑Cayman. At that meeting Portcullis suggested the establishment of another Firepower company in Samoa as an interim step;[72]
(2)Mr Johnston changed his mind about establishing a new Firepower company in Australia in or about April 2005;[73]
(3)following the advice of lawyers, including Bird & Bird and Norton Rose, Mr Johnston decided to establish Firepower‑BVI as the new holding company for the Firepower Group.[74]
Again, this evidence supports the finding that the decision to use a BVI company as the holding company was made in May 2005.
[72] Exhibit 1 [91].
[73] Exhibit 1 [92].
[74] Exhibit 1 [93].
The documents in evidence created in 2005 also strongly support this finding.
A file note, evidently prepared by a representative of Portcullis, records a meeting on 11 April 2005 between Mr Johnston, Mr Hill and the two representatives of Portcullis referred to by Mr Hill.[75] Among other things, the file note records an intention to incorporate a company in Samoa with a similar name to 'Firepower Holdings Limited', and that ultimately an Australian company would be set up with the same name and structure, or the Samoan company would be re‑domiciled. Given that it was a meeting involving the same persons and substantially the same topics, I am satisfied that the meeting recorded in the note of 11 April 2005 is the same meeting that is the subject of Mr Hill's evidence.
[75] Exhibit B3.
On 11 May 2005, Ms Ng of Portcullis sent an email to Mr Hill, copied to Mr Johnston and others.[76] The email advises that a company called Firepower Holdings Limited was incorporated in Samoa on 13 April 2005 and that other companies were incorporated in the Cook Islands, Mauritius and Labuan on various dates between then and 11 May 2005. The email also notes that Portcullis was still waiting for the finalised list of shareholders for Firepower Holdings Limited in Samoa. There is no mention in the email of 11 May 2005 of the incorporation of any company in the BVI.
[76] Exhibit B7, page 15.
On 14 May 2005, Mr Hill responded to the email stating that he hoped to revert to Ms Ng within the next week in relation to the share structure for Firepower Samoa.[77] In his email, Mr Hill did not say anything about the possible incorporation of a company in the BVI.
[77] Exhibit B7, page 15.
On 27 May 2005, Mr Hill sent a further email to Ms Ng, copied to Mr Johnston and others. The email said that:
After much consideration the directors of Firepower have decided we require a new company to be established in the BVI jurisdiction. That company will be Firepower Holdings Limited and the directors will be Tim Johnston and myself. Are you able to undertake this expeditiously? We will not proceed with Firepower (Samoa).[78]
[78] Exhibit B7, page 14.
On 29 May 2005, Mr Hill sent an email to Ms Ng confirming that the directors did not intend to proceed with Firepower Samoa and that Firepower Holdings Limited in the BVI was more 'preferable for [their] long term planning'.[79]
[79] Exhibit B7, page 14.
On 30 May 2005, Ms Ng sent an email to Mr Hill stating that the name Firepower Holdings Limited was unavailable in the BVI for incorporation.[80] She suggested some alternatives, including Firepower Holdings Group Limited. On 31 May 2005, by email, Mr Hill stated that the directors were happy to proceed with Firepower Holdings Group Limited.[81]
[80] Exhibit B7, page 13.
[81] Exhibit B7, page 13.
In cross‑examination, Mr Hill gave evidence, for the first time, that in or about February 2005, Firepower directors decided that the holding company would be domiciled in the BVI rather than the Cayman Islands.[82] He repeated that assertion many times in the course of cross‑examination,[83] and again in the course of re‑examination.[84]
[82] ts 122 ‑ 123.
[83] ts 129 ‑ 135, 149.
[84] ts 164 ‑ 165.
The inconsistencies between that assertion, on the one hand, and the contemporaneous documents and the evidence in his witness statement, on the other hand, were put to him in cross‑examination. As I explain in the following three paragraphs, his responses were, with respect, unconvincing and detract from his credit generally.
The email exchanges between Mr Hill and Ms Ng in May 2005 were put to Mr Hill in cross‑examination. It was suggested to him that his email of 27 May 2005 followed soon after the directors' decision to incorporate a company in the BVI, and was the first request by the Firepower directors to Portcullis for Portcullis to incorporate a company in that location. Mr Hill gave evidence that instructions had been given earlier to Portcullis requesting them to incorporate a company in the BVI.[85] When it was put to Mr Hill that if someone else had given instructions to Portcullis to incorporate a BVI company it would not have been necessary for Mr Hill to give that instruction in his email of 27 May 2005, he responded '[n]o, but it may have been necessary to confirm it [as] a matter [of] courtesy'.[86] Mr Hill's email of 27 May 2005 was not confirming an earlier instruction. In substance it was announcing an evidently recent decision, said to have been taken 'after much consideration', and providing a new request to Portcullis. Mr Hill did not have any explanation for why he used the phrase 'after much consideration'.[87] Moreover, consistently with the email being a new request to Portcullis, it asked Ms Ng whether Portcullis was able to incorporate the BVI company expeditiously.
[85] ts 133 ‑ 134, 168 ‑ 169.
[86] ts 132 ‑ 133.
[87] ts 135.
In cross‑examination Mr Hill was also taken to parts of his witness statement. Initially, with reference to par 92 of his witness statement, Mr Hill said that based on what Mr Johnston told him, in or about April 2005 Mr Hill became aware that Mr Johnston had changed his mind about incorporating and putting the holding company of the Firepower Group in Australia.[88] A little later in his evidence, Mr Hill said that he 'would have thought' that Mr Johnston would have told him about his change of mind in this respect before the meeting in Singapore.[89] At the meeting in Singapore, Mr Johnston and Mr Hill discussed with Portcullis representatives the idea of moving the holding company to Australia.[90] It makes no sense for Mr Hill to assert, in cross‑examination, that prior to this meeting Mr Johnston had decided he was not going to proceed with the idea of moving the holding company to Australia, when that concept was a central element of what was discussed at the meeting. Moreover, what Mr Hill said in this respect in cross‑examination is inconsistent with his own evidence in his statement.[91]
[88] ts 139.
[89] ts 141; see also ts 143.
[90] Exhibit B3, exhibit 1 [91].
[91] Exhibit 1 [91] ‑ [92].
When asked whether the 'consideration' by the directors of Firepower referred to in Mr Hill's email of 27 May 2005 included the preparation by Mr Johnston of the revised structure for the Firepower Group (as referred to in Mr Hill's statement), Mr Hill was evasive and would not accept the obvious proposition that it did.[92]
[92] ts 148 ‑ 149.
Mr Conwell gave evidence of a meeting at which a proposal to use a BVI company was discussed.[93] His evidence does not assist in identifying the timing of the discussion in that respect. He did not recall the timing. His statement revealed that it had 'been suggested' to him that the meeting was sometime in early 2005, which he said 'might be correct'.[94]
[93] Exhibit 3 [11] ‑ [15].
[94] Exhibit 3 [12].
For these reasons, I find that:
(1)the decision to incorporate a BVI company as the holding company for the Firepower Group was not made until the week leading up to 27 May 2005;
(2)Mr Hill did not tell any broker of such a decision, or ask them to inform share applicants of it, prior to that time; and
(3)Mr Hill's evidence to the contrary must be rejected, and detracts from his credit generally.
There are a number of further difficulties with Mr Hill's evidence relating to why he made the Trust Payments.

Further observations on Mr Hill's evidence

On Mr Hill's own evidence, he caused three of the Trust Payments to be made in March 2005, before he had spoken to the brokers to ask them to inform their share applicant clients that shares would be issued in Firepower‑BVI instead of Firepower‑Cayman.[95] On Mr Hill's evidence, he asked the brokers to inform their clients in conversations in April or May 2005.[96] Mr Hill gave some evidence that he had earlier conversations with the brokers in which they discussed the notion of establishing Firepower‑BVI and issuing shares in it.[97] In my view, that evidence smacks of reconstruction in an attempt to create a defence. In any event, Mr Hill did not give any evidence that, before April 2005, he asked any broker to inform their share applicant clients that shares would be issued in Firepower‑BVI rather than Firepower‑Cayman.
[95] Exhibit 1 [72(d)], [72(g)], [72(h)].
[96] Exhibit 1 [110], [120(a)]; ts 154.
[97] Exhibit 1 [120(a)]; ts 153, 164.
It should also be noticed that, on Mr Hill's evidence, when he spoke to the brokers to ask them to inform their clients, the brokers did not say that they had already told their clients. Rather, on Mr Hill's evidence, the brokers informed Mr Hill that they would do so. Moreover, Mr Hill gave no evidence that he followed up his request in any way, in order to ascertain whether clients had been informed. In his witness statement, Mr Hill says that, even now, he does not know if the brokers did as he asked.[98] In cross‑examination, Mr Hill said that when making the Trust Payments he 'understood the brokers ... had informed the shareholders of the change of arrangement'.[99] Mr Hill did not refer to any basis for his understanding in this respect other than the brokers' assurances that they would inform their clients of the change.
[98] Exhibit 1 [110].
[99] ts 121; see also ts 152 ('They said they would and I believe they did').
On Mr Hill's evidence, he did not request that the brokers ask their clients whether they agreed to the change. On his evidence, his request was that the brokers inform their clients of the change. That does not invite consent (or otherwise) from the clients.
Taken together, all of these matters seem to me to suggest that, even on Mr Hill's evidence, his conversations with the brokers in April or May 2005 would have provided an extremely shaky foundation for any understanding on his part that, following those conversations, the brokers' clients could be taken to have consented to the substitution of shares in Firepower‑BVI for shares in Firepower‑Cayman.
In the end, the question is not whether Mr Hill had firm or adequate foundations for any belief that he held. Rather, the question is what belief he held when he made the Trust Payments. However, in assessing that question, the inadequacy of the foundation of a professed belief may bear upon the objective probabilities that it was in fact held.
Mr Hill's avowed belief that shareholders had consented to the issuing to them of shares in Firepower‑BVI rather than Firepower‑Cayman does not explain why he thought he was justified in paying out the plaintiffs' funds without the issue of any share certificates. In other words, while Mr Hill's professed belief might explain why he would pay out an applicant's funds in exchange for a share certificate in Firepower‑BVI as distinct from a share certificate in Firepower‑Cayman, that is not what Mr Hill did. In fact, the substantial majority of the plaintiffs' money was paid out of the trust account before Firepower‑BVI was incorporated. I do not accept that Mr Hill believed that the trust funds could be disbursed on the basis that shares would, at some later time, be issued to the share applicants whose money was to be disbursed. Mr Hill knew, as was clear from the terms of the share applications, that funds deposited in his trust account by share applicants could not be paid out without a share certificate.[100] He also knew that a share applicant's funds would go back to the applicant if they were not issued with a share certificate.[101]
[100] ts 94, 99, 106, 109, 116; exhibit B2.
[101] ts 98, 121.
When Mr Hill was pressed in cross‑examination in this respect, he asserted that he understood that there was an arrangement involving KPMG, or its company Rectify, holding shares on trust for share applicants and that there were deeds signed by shareholders authorising that arrangement.[102] He gave similar evidence in re‑examination.[103] Several points may be made about this aspect of Mr Hill's evidence.
[102] ts 112 ‑ 116, 152 ‑ 153; see also exhibit 1 [52].
[103] ts 169.
First, Mr Hill knew that there was a distinction between a certificate being issued in a share applicant's name, and the issue of shares to Rectify to be held on trust for an applicant. Each of those had occurred.[104] Mr Hill knew that the terms of the trust on which he held the plaintiffs' funds meant that he was obliged not to pay out funds unless a share certificate was issued in an applicant's name.[105]
[104] Exhibit 1 [52].
[105] ts 94, 98 ‑ 99, 106, 116.
Secondly, and in any event, Mr Hill's evidence about the KPMG/Rectify arrangement was general in nature. It did not relate specifically to the plaintiffs or to those who owned shares at the specific times at which the Trust Payments were made. Mr Hill did not give evidence directly asserting that when he caused the Trust Payments to be made he believed, at the time of each payment, that shares had been issued that were held by Rectify as trustee for the particular plaintiffs whose money he was then paying out. If and insofar as Mr Hill was implicitly saying that, I do not accept it. Mr Hill did not give evidence that he took steps to satisfy himself that, at the time of making each of the Trust Payments, those share applicants whose money was being paid out had by then become the beneficial owners of shares issued to Rectify and held on trust for them.[106] I find that Mr Hill did not take any such steps. In my view, as I will explain later in these reasons, that is because, when he paid the Trust Payments, he was not concerned with the question of whether any shares had by then been issued in favour of the particular share applicants whose funds he was disbursing.
[106] cf ts 111 ‑ 117.
Thirdly, if Mr Hill had believed that by early March 2005, the share applicants whose funds he held in his trust account had become the beneficial owners of shares issued in the name of Rectify, and that this was sufficient to authorise the disbursement of those trust funds, Mr Hill would not have raised the concerns which he raised in his email of 2 March 2005. To my mind, the terms of the email that Mr Hill wrote on 2 March 2005 reveal that, as at that time, he considered (correctly) that he was not entitled to pay funds out of his trust account because share certificates had not been issued in favour of the share applicants whose funds he then held on trust.

Conclusions on Mr Hill's evidence

For these reasons, I reject Mr Hill's evidence that:
(a)in April or May 2005 he asked brokers to advise their share applicant clients that their shares would be issued in Firepower‑BVI rather than in Firepower‑Cayman;
(b)he caused the Trust Payments to be made because he believed that the plaintiffs had agreed to the substitution of Firepower‑BVI shares, to be issued to them in due course, for the Firepower‑Cayman shares to which they were otherwise entitled;
(c)(to the extent he said it) when he caused the Trust Payments to be made he believed that shares had been issued that were held by Rectify as trustee for the plaintiffs whose money was, in the case of each payment, then being paid out.
I find that when Mr Hill caused the Trust Payments to be made he did not hold either of the beliefs outlined in par (b) and (c).

Were Mr Hill's breaches of trust fraudulent?

That brings me back to the central question: were Mr Hill's breaches of trust fraudulent? That will be established if it is found that, when he caused the Trust Payments, he knew, or was recklessly indifferent as to whether, given the terms of the trust on which he held the funds, he was not entitled to make the payments.
By 2005, Mr Hill was a man with considerable experience. He had been a director of public and private companies, a member of Parliament and a Minister. He had been admitted as a lawyer for about 5 years, and had practised on his own account since about mid‑2001.[107]
[107] Exhibit 1 [2] ‑ [6].
Mr Hill's breaches of trust did not occur by oversight. Mr Hill did not suggest in evidence that he overlooked his obligations as trustee. It is to be expected that any solicitor holding money on trust would be conscious of the constraints imposed on them by the terms of the trust. In this case, Mr Hill's email of 2 March 2005 makes it quite clear that he was conscious of the limitations that the terms of the trust imposed upon him. That is why he described sending funds from the trust account as requested as 'a real problem for me'. The first of the Trust Payments was made the day after that email was sent, on 3 March 2005. In causing that payment to be made, Mr Hill did not overlook the terms of the trust. Nor did he materially misunderstand those terms.
In his statement,[108] and in his oral evidence,[109] Mr Hill sought to explain his email of 2 March 2005 on the basis that his concern was that the proposed use of funds to pay Mr Teleman's expenses was not a use of funds that would have been expected by investors. Because the payment made on 3 March 2005 was of a different character, Mr Hill suggested, there was no similar problem in making that payment.[110] I do not accept this evidence. Mr Hill's email identified the problem that caused him to write it, and proposed alternative solutions to that problem. The problem, as Mr Hill (correctly) saw it, was that he was holding the funds on behalf of applicants pending the issue of their shares, and legally, the funds could not be used until the shares were issued. In his email Mr Hill proposed alternative payment mechanisms, both involving the issue of shares to particular share applicants, to overcome this problem.
[108] Exhibit 1 [66], [67].
[109] ts 109 ‑ 111, 114 ‑ 115, 169.
[110] ts 114 ‑ 115, 169.
By the next day, when he made the first Trust Payment, the problem had not been overcome, and Mr Hill knew it. Although Mr Hill made some generalised assertions in the course of his cross‑examination that he believed the second alternative proposed in his email had occurred,[111] I am satisfied that this was not so. Mr Hill's email stated that the second alternative required a directors' resolution and a further letter of request to Mr Hill. There is no evidence that either of those requirements were met before he caused the Trust Payments, and I am satisfied that they were not. Further, as I have said, I am satisfied that before he caused the Trust Payments to be made Mr Hill took no steps to check whether any shares had been issued to the share applicants whose funds he was disbursing.
[111] ts 111 ‑ 114.
By March 2005, Mr Hill had a close relationship with Mr Johnston. In evidence he described him as a mate.[112] He addressed Mr Johnston as 'mate' in his email of 2 March 2005.
[112] ts 103.
Mr Hill said that he caused the Trust Payments to be made on instructions from Mr Johnston, his wife, or one of his staff.[113] In cross‑examination Mr Hill said that he made the Trust Payments 'under [Mr Johnston's] instructions',[114] as Mr Johnston was the person in control of Green Triton and Operations Firepower.[115]
[113] Exhibit 1 [62].
[114] ts 103.
[115] ts 103 ‑ 104.
The Trust Payments were made to Green Triton and to Operations Firepower. The directors of Operations Firepower were Mr Hill and Mr Johnston. All the shares in Green Triton were held by Managecorp on trust for the benefit of the Firepower Trust. There were two beneficiaries of this trust: Mr Johnston and Mr Hill. In making the Trust Payments Mr Hill acted in a way that benefited all or some of Green Triton, Operations Firepower, Mr Johnston and himself. I find that in so acting Mr Hill sacrificed the interests of the plaintiffs to whom he owed his duties as trustee. He knew the funds in his trust account belonged to the share applicants and not to him. He knew that under the terms of the trust, they were entitled to have their funds preserved in his account unless and until those funds were paid in exchange for shares in their names. When Mr Hill made the Trust Payments, he knew they were not being made in exchange for shares. In making the payments, he did not believe that shares had been issued in the names of those whose funds he was disbursing.
Given its very serious nature, a finding of fraud is not to be made lightly. Notwithstanding that, to my mind the circumstances I have outlined compel me to conclude that Mr Hill acted fraudulently in causing the Trust Payments to be made. As his email of 2 March 2005 shows, he was acutely conscious of the question of whether he was entitled, as trustee, to pay monies out of his trust account. He did not form any belief that he was entitled to do so. Either he knew he was not so entitled or, at best from his perspective, in complying with Mr Johnston's instructions to make the Trust Payments, he deliberately turned a blind eye to the obligations that he knew he had as a trustee. In other words, at best Mr Hill was recklessly indifferent to his obligations; he consciously put those obligations to one side when complying with Mr Johnston's instructions and making the Trust Payments, thereby benefiting some or all of Green Triton, Operations Firepower, Mr Johnston and himself.
It is not necessary to determine whether Mr Hill acted in this way because he was keen to maintain his relationship with Mr Johnston, and the benefits it brought him, or for some other reason(s).
Counsel for Mr Hill submits that:
(1)in making the Trust Payments Mr Hill believed that, in the end, the share applicants would be no worse off because ultimately they would receive shares in Firepower‑BVI, and those shares would be worth the same as, and be otherwise equivalent to, shares in Firepower‑Cayman; and
(2)consequently, it should not be found that Mr Hill acted fraudulently.[116]
[116] ts 186, 191.
Mr Hill did not give direct evidence that he had the belief asserted in the first proposition. Even if the first proposition is accepted, I do not accept the second proposition. As I have said, under the trust, the share applicants were entitled to have their money preserved in Mr Hill's trust account unless and until it was paid in exchange for shares. Mr Hill knew that. The terms of the trust were designed to avoid the risk of a purchaser of shares paying the purchase price without receiving the bargained‑for shares in exchange. If Mr Hill held the belief set out in (1) above, it would mean that he expected that his breaches of trust would cause no loss. Mr Hill would nevertheless have known that payment of the funds other than in exchange for shares, supported by a share certificate, was a breach of trust. Accordingly, even if he had held the belief set out in (1), Mr Hill would still have acted fraudulently in making the Trust Payments.

Conclusion

For these reasons, the plaintiffs' claims succeed. I will hear from the parties as to the precise terms of the judgment and as to costs.