Phillips v Price

[2007] WASC 54

PHILLIPS -v- PRICE [2007] WASC 54

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2007] WASC 54
Case No:	CIV:1825/2005	Heard:	5 FEBRUARY 2007
Coram:	HASLUCK J	Delivered:	11/03/07
No of pages:	34	Judgment Part:	1 of 1
Result:	Judgment for plaintiff Plaintiff entitled to declaratory relief
Category:	B
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Parties:	STEPHEN PHILLIPS JOHN ERNEST PRICE
Catchwords:	Trusts and trustees Claim that shares held on resulting or constructive trust Nature of relief in equity available Whether claimant entitled to relief depends upon intention of parties Whether titleholder acting unconscionably Absence of any enforceable agreement bearing upon the intention of the parties Finding that parties did not finalise exact basis upon which funds were to be employed or in which the shares were to be utilised Presumption that purchaser of shares did not intend agent to take beneficially Plaintiff entitled to call for transfer of title to property of which he was the beneficial owner No basis for defendant to refuse or fail to comply with request for transfer of subject shares Plaintiff entitled to declaratory relief as sought Turns on own facts
Legislation:	Corporations Act 2001 (Cth), s 9, s 201M(1)
Case References:	Calverley v Green (1984) 155 CLR 242 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Gosper v Sawyer (1985) 160 CLR 548 Hunter v Hunter [1938] NZLR 520 Muschinski v Dodds (1985) 160 CLR 583 Nelson v Nelson (1995) 184 CLR 538 Smolarek & Anor v Liwszyc & Ors (2006) 32 WAR 101 Sorna Pty Ltd v Flint (2000) 21 WAR 563 Taylor v Johnson (1983) 151 CLR 422

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION : PHILLIPS -v- PRICE [2007] WASC 54 CORAM : HASLUCK J HEARD : 5 FEBRUARY 2007 DELIVERED : 12 MARCH 2007 FILE NO/S : CIV 1825 of 2005 BETWEEN : STEPHEN PHILLIPS

Plaintiff

AND

JOHN ERNEST PRICE
Defendant

Catchwords:

Trusts and trustees - Claim that shares held on resulting or constructive trust - Nature of relief in equity available - Whether claimant entitled to relief depends upon intention of parties - Whether titleholder acting unconscionably - Absence of any enforceable agreement bearing upon the intention of the parties - Finding that parties did not finalise exact basis upon which funds were to be employed or in which the shares were to be utilised - Presumption that purchaser of shares did not intend agent to take beneficially - Plaintiff entitled to call for transfer of title to property of which he was the beneficial owner - No basis for defendant to refuse or fail to comply with request for transfer of subject shares - Plaintiff entitled to declaratory relief as sought - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 9, s 201M(1)

(Page 2)

Result:

Judgment for plaintiff

Plaintiff entitled to declaratory relief

Category: B

Representation:

Counsel:

Plaintiff : Mr P A Tottle
Defendant : No appearance

Solicitors:

Plaintiff : Tottle Partners
Defendant : No appearance

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

Calverley v Green (1984) 155 CLR 242
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Gosper v Sawyer (1985) 160 CLR 548
Hunter v Hunter [1938] NZLR 520
Muschinski v Dodds (1985) 160 CLR 583
Nelson v Nelson (1995) 184 CLR 538
Smolarek & Anor v Liwszyc & Ors (2006) 32 WAR 101
Sorna Pty Ltd v Flint (2000) 21 WAR 563
Taylor v Johnson (1983) 151 CLR 422


(Page 3)

HASLUCK J:

Introduction

1 The plaintiff, Stephen Phillips, seeks a declaration that the defendant, John Ernest Price, held certain shares in the capital of a company known as Bollway Pty Ltd on trust for the plaintiff.

2 The plaintiff's claim for relief arises out of various events in late 2004 concerning a proposed reconstruction of a company known as Advanced Energy Systems Limited, or "AES". The plaintiff contends that in the course of these events he was encouraged by the defendant to put up funds amounting to $400,000 which were subsequently used to acquire 8,000,000 shares in Bollway, being the shares allegedly held in trust by the defendant on behalf of the plaintiff.

3 The defendant did not dispute that the subject shares in Bollway were held in trust by him. The matter in issue was whether the defendant was entitled to resist a demand made in mid-2005 that the shares be transferred to the plaintiff. On the defendant's case, the plaintiff was not entitled to call for a transfer until the outcome of the AES reconstruction proposal was known.

The proceedings

4 The plaintiff commenced legal proceedings by a writ of summons issued on 11 July 2005, shortly after his demand for a transfer of the shares to him had been made and refused. An appearance was entered soon afterwards by solicitors instructed by the defendant. In the months that followed pleadings and revised pleadings were exchanged and other interlocutory steps were taken. On 4 April 2006 the defendant filed and served notice of intention to act in person. The matter was entered for trial on 12 September 2006.

5 The pleadings in their final form are set out in the papers for the judge dated 8 September 2006. They show that the defendant did not persist in his refusal to transfer the shares. Prior to the matter being entered for trial he filed an amended statement of defence which contained a plea to this effect:

"7. On or about 7 March 2006, Bollway decided not to proceed with the recapitalisation proposal relating to AES.

(Page 4)

8. As a consequence of the matters pleaded in paragraph 7 hereof, and in accordance with the terms of the Agreement, on 8 March 2006 the defendant provided the plaintiff with a signed transfer form in respect of the 8,000,000 Bollway shares thereby enabling the plaintiff to become the registered holder of those shares.

9. In respect of paragraph 5 of the amended statement of claim, the defendant admits that he refused to transfer the shares to the plaintiff prior to 8 March 2006 and says that by reason of the matters set out herein, he was under no obligation to transfer the shares to the plaintiff prior to 8 March 2006 because the plaintiff had not demonstrated his ownership of the subscription moneys and because the recapitalisation proposal relating to AES had yet to be completed or abandoned by Bollway."

6 Put shortly, upon the filing and service of this amended statement of defence dated 21 March 2006, it became apparent that the plaintiff's claim for relief had essentially been satisfied, in that the plaintiff's earlier demand for title to and control over the shares had now been complied with.

7 However, the declaratory relief sought by the plaintiff was arguably of continuing importance to the plaintiff in two respects. First, the plaintiff's statement of claim contains a plea that Bollway has refused and/or failed to issue a share certificate in respect of the shares to the plaintiff. Thus, declaratory relief establishing the plaintiff's entitlement to the shares might arguably be necessary or at least of assistance to the plaintiff in establishing its title. Second, resolution of the issue raised by the defendant's refusal to transfer the shares to the plaintiff in mid-2005 was likely to have a bearing upon any orders made as to which party was to bear the costs of the proceedings.

8 I pause here to refer briefly to an interlocutory hearing on 23 March 2006 before Le Miere J, who was case managing the proceedings. The defendant was represented at the hearing by counsel. The Judge and the parties discussed the developments just mentioned and appeared to accept that the parties had settled the substantive issue. They were now arguing about costs and the related question of whether the defendant had been justified in refusing to transfer the shares to the plaintiff in response to the plaintiff's original demand. I will call this the "March 2006 hearing".

(Page 5)

9 The matters in issue are reflected in the prayer for relief in the plaintiff's statement of claim which now reads as follows:

"(a) A declaration that in the events that happened, the defendant held the plaintiff's shares on trust for the plaintiff between in or about June 2005 and 10 March 2006 and that as between the plaintiff and the defendant the plaintiff is entitled to have the plaintiff's shares registered in the plaintiff's name.

(b) An order that the defendant indemnify the plaintiff in respect of all legal costs incurred by the plaintiff, including the costs of this action, in securing the transfer of 8,000,000 shares in the capital of Bollway Pty Ltd into his name."

The trial date

10 At a further case management hearing before Le Miere J on 1 December 2006 the plaintiff's proposal for the matter to be listed for trial was under consideration. I will call this the "December 2006 hearing".

11 For reasons that I will come to later, Le Miere J was of the view that the matter should be listed for trial, and other orders made, notwithstanding the defendant's failure to attend the hearing. Accordingly, the action was listed for trial for two days commencing Monday, 5 February 2007. An order was also made for the plaintiff to prepare, file and serve a trial bundle of documents within three weeks. In addition, his Honour made an order to this effect:

"1. Unless the defendant files and serves any witness statements upon which he wishes to rely at trial on or before 14 December 2006, the defendant shall not be permitted to adduce evidence from any witnesses at trial, except with the leave of the trial Judge."

12 It appears from the affidavit of service of Stephanie Tan sworn 2 February 2007 that the defendant was given written notice of the orders made by Le Miere J at the December 2006 hearing. I understand that the defendant did not file and serve a witness statement in the manner envisaged by the Court order.

(Page 6)

13 On Friday, 2 February 2007, being the last working day prior to the date listed for trial, the defendant faxed to the Court a copy of his own affidavit sworn the previous day at Brighton in the State of Victoria. By this affidavit the defendant sought to have the trial adjourned on the grounds of his ill-health.

14 This led to the solicitors for the plaintiff presenting to the Court at the hearing on Monday, 5 February 2007, being the listed trial date, a number of affidavits in reply.

15 I dealt with the application for an adjournment in reasons for decision which were handed down ex tempore on the first day of the trial. The reasons speak for themselves and I see no need to repeat at length what I said then.

16 It appeared from the defendant's affidavit that he sought to have the matter adjourned upon the basis that he had been diagnosed and treated for cancer towards the end of 2004. This was said to have affected his capacity to work with the result that he could not adequately participate in the trial process. He placed some reliance upon a medical report which suggested that he might be well enough to proceed in July 2007.

17 The affidavits and submissions relied upon by counsel for the plaintiff in rebuttal were to the effect that the defendant had advanced a similar plea on previous occasions but without detailing exactly the extent of his incapacity. There were said to be various indications that throughout 2005 and 2006 the defendant was fit enough to pursue business activities. Moreover, at the March 2006 hearing at a time when the defendant was represented by counsel, Le Miere J had made it clear that on any future occasion in which the defendant sought relief by way of adjournment due to his condition, he was to specify the exact nature and extent of his incapacity. This had not been done in the defendant's affidavit sworn 1 February 2007.

18 The plaintiff's affidavits in rebuttal brought forward evidence also that the defendant had attended a meeting of creditors in October 2006, at which time he appeared to be in good health. There was further evidence that as recently as January 2007 the defendant had been actively attending to business matters.

19 Accordingly, for the reasons given at greater length previously, I refused the defendant's application for an adjournment of the trial, and proceeded upon the basis that the plaintiff was required to prove his case.

(Page 7)

20 Counsel for the plaintiff then opened the plaintiff's case and addressed the issues raised by the pleadings. Evidence was adduced in support of the plaintiff's case in the form of a statement of evidence of Stephen James Phillips dated 1 February 2007, which was confirmed as true and accurate by the plaintiff upon oath, and various exhibits were submitted to the Court by reference to the trial bundle of documents. At the conclusion of the hearing I reserved my decision.

21 Having regard to the evidence adduced by the plaintiff, it will now be useful to look at the matters in controversy in more detail.

Background

22 AES is a public company which was incorporated on 25 October 1994. The plaintiff was an Executive Director of the company from 26 October 1994 to on or about 7 December 2004. Six years after its incorporation the company was listed on the Australian Stock Exchange Ltd, known as "ASX".

23 The plaintiff said in his witness statement that AES manufactured and supplied power conditioners, solar panels, regulators, maximum power point trackers, batteries, wind turbines, diesel generators and gas generators for Australia and worldwide. These products were deployed in over 20 countries. He said also that he currently holds 8,312,229 ordinary fully paid shares in AES being a 14.75 per cent interest in the company.

24 It seems that on 30 August 2004 the Board of Directors of AES resolved to appoint Mr Mervyn Kitay of Grant Thornton as the voluntary administrator of AES and its two subsidiaries, Powersearch Ltd and Prime Power Systems Pty Ltd. The plaintiff referred to these companies as the AES Group. The appointment of Mr Kitay ceased on 8 December 2004.

25 On or about 8 September 2004 Messrs Geoffrey Totterdell and Gregory Hall of Price Waterhouse Coopers were appointed receiver managers of AES. This appointment ceased on 29 July 2005.

26 On 8 December 2004 Mr Brian McMaster was appointed as the administrator of the AES Group pursuant to a Deed of Company Arrangement signed on that date. I will call this the "DOCA". The defendant, Mr Price, was appointed as a director of AES on 8 December 2004 on the signing of the DOCA.

27 According to the plaintiff, the original proponent of the DOCA was a corporation based in the United States of America called Net X

(Page 8)

Incorporated. The present litigation arises out of the attempts of those with an interest in the matter to preserve the business of AES and the events leading up to the proposed reconstruction and recapitalisation reflected in the DOCA.

The plaintiff meets the defendant

28 The plaintiff said in evidence that his first contact with the defendant was at a meeting with him and representatives of Grant Thornton, including Kitay, held at the AES office in Welshpool on or about 27 September 2004. The purpose of the meeting was to discuss a restructure and recapitalisation of the AES Group.

29 According to the plaintiff, the defendant described himself as an associate of Net X who was based in Melbourne. He felt that AES had a high degree of promise with the result that he and his colleagues were minded to explore the prospect of helping AES to recover. In the defendant's view small technology companies in Australia often experience difficulties from a number of factors such as lack of capital, inexperience at the board level and management being overburdened.

30 The plaintiff said that from September 2004 to mid-October 2004, as an employee of AES, he assisted Kitay by providing information relating to the financial and business affairs of the AES Group to the defendant and other potential investors in AES. He communicated regularly with the defendant during this period. As part of the due diligence carried out by Net X, the defendant also became acquainted with other senior AES staff including Satyan Kasturi who held the position of Marketing Executive, Asia, at AES. At a meeting held in early October 2004 the defendant said to the plaintiff and Kasturi words to the effect that he was working on a proposal for recapitalisation in which a group of investors and he would acquire the intellectual property technology owned by AES in the context of a DOCA.

31 In mid-October 2004 the administrator, Kitay, told the plaintiff that he was considering a number of draft proposals with respect to the restructure and recapitalisation of the AES Group including proposals for the sale of the intellectual property assets of the company.

32 The plaintiff was interested in a proposal of this kind and had numerous communications and conversations with the defendant regarding a DOCA proposal that the latter was putting forward to Kitay on behalf of his group of investors. At one meeting attended by the defendant and Kasturi in October 2004 the defendant said that he would

(Page 9)

like to see the internal management of AES contribute half or at least a third of the total investment. This was because "my investors will get cold feet otherwise if they don't see this show of support from you".

The proposal

33 At about this time (but before 19 October 2004) the plaintiff had dinner with the defendant at Ha Tien Restaurant in Victoria Park, Western Australia. Those present also were Kasturi, Len Wright, who was an engineer at AES, and the latter's wife. During the dinner the defendant said words to the effect that "we are proposing to work the acquisition of AES's intellectual property assets into the broader Net X proposal. However, to get the DOCA into shape we will need to raise about $1.1 million to buy the AES technology and will need to provide an upfront down payment if [Mervyn] Kitay is to take us seriously".

34 Kasturi said that the Chairman of AES, Bruno Camarri, could put in $300,000 to $450,000, the plaintiff and he (Kasturi) could put in about $300,000 or $400,000 between them, and then the defendant's Net X investors could put in a third as well.

35 The plaintiff said: "I could put in about $150,000 to $225,000 depending on what the deal requires. We will need to work out the terms of the arrangement though."

36 On 19 October 2004 the plaintiff received an email from the defendant in respect of a proposal being put forward by Net X to acquire the intellectual property assets of AES for $1.1 million. The defendant intended for the AES technology to be transferred from Power Search to a "clean entity". He also indicated that Kitay required a down payment of $650,000 for the technology.

37 The plaintiff said that he received a further email from the defendant on 20 October 2004 referring to the defendant's understanding that as part of the proposed investment in AES the plaintiff would provide $150,000, as would Kasturi. The defendant stated in the email that the balance of funds towards the down payment of $650,000 for the acquisition of AES's assets would come from the defendant and his consortium of investors. He said in the email that all technology shareholders would be treated equally. It was said in the email also that the shares in the shelf company were later to be exchanged for shares in AES at a mutually agreed ratio. A further email from the defendant was then received on the same day requesting that Kasturi and the plaintiff each deposit that day $150,000 in the trust account of Freehills, a leading law firm.

(Page 10)

38 Later on the same day, the plaintiff responded to the defendant's email in a favourable tone. However, he indicated that an underlying agreement would need to be reached between the parties if he was to contribute any funds towards the purchase of the intellectual property assets of AES.

39 These exchanges led to an assertion by the defendant in a further email on 20 October 2004 that it was critical that $300,000 be deposited in the Freehills trust account by close of business 20 October 2004. A few hours later on the same day at 3.06 pm the defendant asserted in an email to the plaintiff that the proposal envisaged the investors setting up a new shelf company which would acquire the technology of AES and which would issue $1 shares in the shelf company to shareholders in proportion to funds contributed by investors. A draft AES Deed of Company Arrangement prepared by Net X was attached to that email.

40 On or about 21 October 2004 the plaintiff and the defendant again had dinner at the Ha Tien Restaurant in Victoria Park with Kasturi and Len Wright in attendance. The defendant said words to the effect that "you need to deposit the money with Freehills immediately so that Net X and/or the new company we set up can progress the reconstruction proposal with Kitay and so that we can establish credibility". According to the plaintiff, these words were said to him by the defendant on a number of occasions including in telephone conversations on 22, 25, 26 and 27 October 2004.

41 I note in passing that on 22 October 2004 Bollway was incorporated in Victoria, being a company that had an important part to play in the DOCA proposal. It appears from the company extract that the defendant became a director and secretary of the company soon after its incorporation.

42 By letter dated 23 October 2004 the defendant forwarded a revised DOCA proposal to Kitay on behalf of Net X. The defendant provided the plaintiff with a copy of this document.

The plaintiff's first instalment

43 By an email to the plaintiff on 25 October 2004 the defendant encouraged the plaintiff to transfer the sum of $200,000 into the Freehills' trust account, with these funds to be transferred to Kitay once an agreement was reached with Kitay. The defendant attached to the email a revised draft agreement between Net X and the plaintiff with the defendant's proposed changes tracked.

(Page 11)

44 This agreement was not signed by the parties. In summary, the draft agreement reflected an arrangement whereby the proposed parties, the plaintiff and Net X, would work with each other to implement a proposal of interim intellectual property acquisition and sponsoring of the DOCA proposal that had been submitted to the administrator of the AES Group on 25 October 2004. Provision was also made for a cash contribution by the plaintiff. The draft agreement envisaged that the consideration for the plaintiff and Net X providing exclusive support to each other was $1 each.

45 The plaintiff responded by sending an email to the defendant on 25 October 2004 which referred to the plaintiff having in mind at that stage two completely separate strategies. The defendant responded on 26 October 2004. In that email he emphasised the need for the plaintiff to transfer funds to Freehills forthwith in order to show the administrator of AES, Kitay, that the parties were able to implement the draft DOCA proposal.

46 On 26 October 2004 the plaintiff sent an email to the defendant with an attached document entitled "Co-Investment Agreement". This agreement was not signed by the parties. The defendant then informed the plaintiff by an email dated 27 October 2004 that it was imperative for the plaintiff to deliver a bank cheque made out to Freehills Trust Account by 10 am on that day.

47 The plaintiff said in evidence that on or about 27 October 2004 he arranged for a bank cheque in the sum of $200,000 to be drawn from his private company Optimal (formerly known as Oakla) payable to Freehills' trust account to be delivered to Freehills. I will call this the "first instalment".

The plaintiff's second instalment

48 A few days later, on 2 November 2004 the defendant sent an email to the plaintiff referring to the balance of the investor funds at Freehills at that time being $805,000 and requesting the plaintiff to deposit another $200,000 with Freehills.

49 The plaintiff said in evidence that, on or about 3 or 4 November 2004 he met with the defendant at the offices of Freehills at 250 St George's Terrace, Perth. According to the plaintiff, the defendant said words to the effect: "Stephen our bid is going to collapse unless you deposit a further $200,000 with Frank Thornton immediately. The funds will be held on trust until Q Legal say the funds can be released to Mervyn Kitay so that our DOCA proposal can proceed".

(Page 12)

50 On 4 November 2004 the defendant sent an email to the plaintiff requesting him to authorise the transfer of $137,500 from the Freehills' trust account at the instructions of Nino Odorisio, a solicitor associated with the firm Q Legal. The email made reference to Odorisio ensuring that there be appropriate documentation and protection. On 5 November 2004 Mr Odorisio sent an email to the plaintiff to which was attached Net X's draft DOCA proposal.

51 The plaintiff said in evidence that on 5 November 2004 Bruno Camarri of Freehills sent to him a copy of a letter he had sent to Grant Thornton setting out the basis upon which the sum of $805,000 had been released to Kitay of Grant Thornton. On or about 8 November 2004 in the course of a telephone conversation the defendant again emphasised to the plaintiff that the bid was going to collapse unless the plaintiff deposited a further $200,000 with Grant Thornton immediately.

52 The plaintiff said in evidence that on 9 November 2004 Kasturi handed him a bank cheque in the sum of $200,000 payable to Grant Thornton Trust Account. Provision of this cheque by Kasturi represented repayment of a loan that the plaintiff had previously provided to him in the sum of $100,000 and $100,000 of Kasturi's own funds to be contributed towards the investment. Kasturi said words to the effect that he was happy for the investment in AES to be in the plaintiff's name as he had known the plaintiff for six years.

53 The plaintiff asserted that he would give the cheque to Grant Thornton to hold on trust until the DOCA proposal was accepted. The plaintiff then provided the bank cheque to Freehills as the second instalment of his investment. I will call this the "second instalment".

Subsequent communications

54 The plaintiff in his witness statement referred to subsequent communications between the parties including two emails he sent to Odorisio on 10 and 11 November 2004 concerning the $400,000 he had contributed. He attached a draft agreement relating to his contributions.

55 I note in passing that in these communications the plaintiff envisaged that his investment of $400,000 would be converted into fully paid ordinary shares in AES or otherwise, if the DOCA failed or was terminated, it would be converted into equity in Net X or be part of a partnership along with the other interested parties. In either case, the plaintiff was to share proportionally with the assets to be owned by the other interested parties as permitted by the DOCA.

(Page 13)

56 By email dated 11 November 2004 Odorisio sent the plaintiff a draft letter in respect of his contribution of $400,000 to the initial payment of $1,160,000 payment to be made by Net X to AES. The draft letter dated 10 November 2004 reads as follows (omitting the inessential parts):

"We act for Net X Communications Inc. and attach, for your records, a copy of the final proposal submitted by our client in respect of the AES group of companies.

On behalf of our client, we confirm the following:

1. You have contributed a total of $400,000 of the $1,160,000 initial payment being made by our client under the proposal and that this amount has been contributed by way of 2 bank cheques drawn on the National Australia Bank.

2. Our client will issue you with 8,000,000 shares in its associate, Bollway Pty Ltd (Bollway), at $0.05 per share in respect of your $400,000 contribution.

3. Once the DOCA in respect of the AES group of companies has been successfully completed your shares in Bollway will be converted to shares in AES on the basis that all shares held by Bollway in AES will be distributed in species to Bollway shareholders in proportion to their respective shareholdings in Bollway. In the event that the DOCA fails, Bollway Pty Ltd will own the IP Assets and Associated Assets as set out in paragraph 11 of the attached proposal.

4. Bollway Pty Ltd reserves the right to issue a further $340,000 of shares at $0.05 per share to fund working capital and transaction costs."

57 The plaintiff responded by email dated 11 November 2004 in which he stated that the draft letter only needed "a small amount of rework to achieve what I require". Later on the same day he conveyed to Odorisio that he was looking forward to a redraft of the letter.

Related events

58 Kitay put out a circular to creditors on the letter of Grant Thornton dated 11 November 2004 concerning his appointment as administrator of the AES Group and a meeting of creditors to be held on Friday,

(Page 14)

19 November 2004. His report noted at cl 5.4 that the AES Group had three key marketable assets being the intellectual property and business assets, the ASX shell and a commercial property in Bentley. A sale process had been undertaken in respect of these assets.

59 Kitay said that he had received 62 expressions of interest and analysed 13 proposals. Of these he preferred the proposal that had been provided to him by Net X. The Net X proposal was summarised at cl 8.2.1. Broadly described, Net X or its nominees would inject $1.5 million into AES by way of share subscription. An initial sum of $1.1 million (of the $1.5 million) had already been paid by Net X to Kitay. The further sum was to be paid upon execution of the DOCA and Net X would undertake an equity raising of not less than $4.8 million by 31 March 2005. If the DOCA failed, for example, due to the failure to raise $4.8 million by 31 March 2005, then the intellectual property and certain shares would be automatically sold to Net X for the payment of $1,160,000 (most of which had already been received).

60 There were further email exchanges between the plaintiff and Odorisio in the course of which Odorisio requested on 15 November 2004 that the plaintiff advise him of the specific amendments required to the 11 November draft letter.

61 In his witness statement the plaintiff had this to say about the events preceding the meeting of creditors held on 19 November 2004:

"14. Prior to a meeting of the creditors of the AES Group being held on 19 November 2004 and the DOCA being signed on 8 December 2004, Bollway paid to Kitay, as Administrator of AES, the sum of $1,160,000 ('the Contribution'). The Contribution is acknowledged by Kitay at clauses 1.1 and 2.4 of the DOCA [TBN1/234 and 239].

15. Pursuant to clauses 1.1 and 2.4 of the DOCA:


(a) If the conditions precedent of the DOCA are satisfied (which include the raising of sufficient funds to permit the securities of AES to be requoted on the Australian Stock Exchange) then the Contribution would be treated as part of the subscription price paid by Bollway for 30,000,000 shares in the capital of AES at $0.05 per share;

(Page 15)

(b) If the conditions precedent of the DOCA are not satisfied, then the Contribution will be treated as part of the purchase price payable by Bollway under the Fall Back Sale Agreement annexed to the DOCA. The Fall Back Sale Agreement enables Bollway to purchase certain assets of AES including its intellectual property.

16. Price is a director and the company secretary of Bollway. From 3 November 2004 to on or about 13 June 2005 he was the sole company director and secretary of Bollway. On or about 13 June 2005 Mr Graham Spurling ('Spurling') and Mr Graeme Longbottom ('Longbottom') were also made directors of Bollway."

Subsequent events

62 The plaintiff said in evidence that on or about 17 November 2004 he had a telephone conversation with the defendant in which a number of issues were discussed bearing upon the plaintiff's $400,000 investment. The plaintiff said that he recorded the discussion in an attachment to an email that was sent to the defendant on 20 November 2004 which purported to contain observations on the "overall issues" in regard to the plaintiff's $400,000 investment.

63 This was followed by other exchanges between the parties including the submission to the plaintiff by the lawyer Odorisio of a signed copy of Q Legal's 11 November letter together with an enclosure being Net X Proposal to Amended Deed of Company Arrangement.

64 It seems that the plaintiff's preference at this stage was for his $400,000 investment to convert directly into AES on success of the DOCA and that a sensible agreement be put in place for Bollway if the DOCA failed. It is difficult to identify within the various exchanges between 17 November 2004 and 6 January 2005 any document that is described by either the plaintiff or the defendant unequivocally as constituting an agreement concerning the $400,000 investment or as representing a fair summary of an agreement that had been arrived at verbally.

65 It seems that the relationship between the parties became strained on 6 January 2005 when the defendant sent the plaintiff a further email to the effect that if he had anything to say or communicate it was to be sent to the lawyer Odorisio. The plaintiff said in evidence that he received no

(Page 16)

further communication from the defendant or his representatives in relation to this issue.

66 Before leaving this part of the narrative I note in passing that the defendant's stance was that weight should be given to the 11 November letter as a fair summary or confirmation of the agreement arrived at. This was later said to justify the defendant's position that he was not obliged to transfer the Bollway shares to the plaintiff until it was clear that the DOCA had failed or would not be proceeded with.

The Bollway shares

67 There is evidence before me from which it may be inferred that in or about June 2005 Bollway issued 8,000,000 shares to the defendant. It does not appear to be disputed that Bollway received the sum of $400,000 consisting of the first and second instalments mentioned earlier. Indeed, the defendant pleaded at par 1 of his amended defence that Bollway "received $400,000 purportedly from the plaintiff". It is, of course, a matter of contention as to the basis upon which the subject shares were issued to and held by the defendant.

68 The plaintiff said in evidence that in or about early July 2005 he received a document dated 22 June 2005 entitled Notice of Annual General Meeting and Explanatory Statement for the Approval of the Recapitalisation Proposal issued by AES ("the July notice"). The plaintiff received the July notice in his capacity as a shareholder of AES.

69 Paragraph 1.6 of the July notice states that the recapitalisation of AES and its commencement of trading shares on the ASX would occur by 12 August 2005. Under the heading "Shareholders" on page 15 is a schedule, the first entry of which states that the defendant is holding 8,000,000 shares in Bollway (being 24.99 per cent of the issued capital in the company) as trustee for the plaintiff.

70 The plaintiff's evidence included reference also to a Form 484 "Change to Company Details" lodged with ASIC by the defendant on behalf of Bollway. This form purports to have been signed by the defendant as a director of the company on 14 July 2005 and is date stamped 18 July 2005. The document states at page 5 that 8,000,000 ordinary fully paid shares in Bollway are held non-beneficially by the defendant.

(Page 17)

71 The plaintiff adduced evidence also in the form of a copy of the ASIC company extract for Bollway dated 5 August 2005 which showed that the defendant held 8,000,000 shares in Bollway.

The plaintiff's demand

72 The plaintiff said in evidence at par 83 of his witness statement that at no stage had he authorised the defendant to hold the subject shares on trust for him. He said further that with the continuing inability of Bollway/Net X to complete the DOCA he became more concerned and on 1 July 2005 he sent an email to Odorisio of Q Legal (to be sent onwards to the defendant) containing a demand that the 8,000,000 shares in Bollway be transferred to him (the plaintiff) immediately and that he (the defendant) was to send the plaintiff a signed share transfer form and the share script in respect of the shares immediately.

73 The plaintiff's demand was followed up by a letter dated 6 July 2005 from his solicitors, Tottle Partners, directed to Q Legal requesting an immediate transfer of the shares to the plaintiff. I will call this the "6 July Tottle letter".

74 The 6 July Tottle letter reads as follows (omitting the inessential parts):

"We act on behalf of Mr Stephen Phillips.

We understand that you act on behalf of Bollway Pty Ltd and Mr John Price.

In a document entitled 'Notice of Annual General Meeting and Explanatory Statement for the approval of the Recapitalisation Proposal' published on behalf of Advanced Energy Systems Limited (Subject to Deed of Company Arrangement) (Receivers and Managers Appointed) a statement is made to the effect that Mr John Price holds 8,000,000 shares in Bollway Pty Ltd as trustee for our client.

Our client has attempted to communicate with Mr Price and has asked him to transfer the shares in Bollway into his name as a matter of priority.

The purpose of this letter is to repeat our client's request and seek from you, on behalf of Mr John Price, confirmation that the shares will be transferred into our client's name immediately.

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If such confirmation is not forthcoming by 12 noon tomorrow, 7 July 2005, our client reserves the right to take proceedings without further reference to Mr Price."

The defendant's response

75 The defendant refused and/or failed to transfer the shares to the defendant in response to this demand. The defendant's stance in that regard is reflected in a letter dated 7 July from Mr Odorisio of Q Legal to Tottle Partners as the solicitors representing the plaintiff.

76 The 7 July Odorisio letter reads as follows (omitting the inessential parts):

"We refer to your letter of 6 July 2005 and confirm that we act for Bollway Pty Ltd (Bollway) and Mr John Price.

We advise that the statement referred to in your letter is based on an agreement entered into between Bollway and your client pursuant to which your client demanded that he not be issued with any shares in Bollway pending completion of the recapitalisation of Advanced Energy Systems Limited (AES). Bollway has structured its affairs in reliance on this agreement and does not propose to alter the current arrangements until completion of the recapitalisation.

We also advise that the statement is based on the assumption that the funds contributed to Bollway by your client were his own funds and that he (rather than someone else) is entitled to receive the relevant Bollway shares. Your client has been asked to clarify this issue on numerous occasions but has failed to provide our clients with any relevant information. Accordingly, would you please confirm, on behalf of your client, the source of the funds which were contributed to Bollway. In particular, please confirm that this contribution was made from your client's own funds and not from those of AES or any of its subsidiaries."

Later events

77 The plaintiff said in evidence that on 1 August 2005 AES held its AGM (delayed from November 2004) and under special business it was resolved to issue 30,000,000 fully paid shares in the capital of AES to Bollway on the terms set out in the July notice as amended.

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78 On 31 August 2005 AES announced to the ASX that the timing for completion of the recapitalisation proposal had been delayed and would not be achieved in accordance with the timetable set out in the company's announcement dated 29 July 2005.

79 Further announcements were made to ASX by Minter Ellison on behalf of the Deed Administrator of AES dated 10 August, 8 September and 15 September 2005. An information memorandum was issued by AES in October 2005. A report to creditors of AES was issued by McMaster as the Deed Administrator of AES dated 27 October 2005. Further announcements to the ASX by AES were made on 8 December 2005 and 5 January 2006.

80 The defendant pleaded by his amended statement of defence at par 7 that on or about 7 March 2006 Bollway decided not to proceed with the recapitalisation proposal relating to AES.

81 It appears to be common ground on the pleadings that on 8 March 2006 the defendant provided the plaintiff with a signed transfer form in respect of the 8,000,000 Bollway shares registered in the name of the defendant. It is said that this was done to enable the plaintiff to become the registered holder of the subject shares.

82 On the plaintiff's case the defendant informed the plaintiff on or about 22 March 2006 that he had delivered the share certificate with respect to the subject shares in Bollway to the registered office of Bollway. On the plaintiff's case, despite requests, Bollway has refused and/or failed to issue a share certificate with respect to the shares to the plaintiff. However, as I indicated in earlier discussion, as between the plaintiff and the defendant, the plaintiff does not appear to be seeking any immediate relief against the defendant or requiring steps to be taken by him other than the declaratory relief mentioned earlier.

83 This brings me to the pleadings.

The pleadings

84 As I indicated in earlier discussion, the pleadings filed on behalf of the parties as the proceedings ran on were subject to various amendments. However, the final form of the pleaded case for each party is reflected in the Papers for the Judge dated 8 September 2006. Accordingly, using that bound volume as a convenient point of reference, I will henceforth refer simply to the statement of claim and the statement of defence.

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85 The plaintiff pleaded at par 1 of his statement of claim that on or about 27 October 2004 at the direction of the defendant on behalf of Bollway and for the benefit of Bollway, alternatively, for the benefit of Bollway, the plaintiff caused the sum of $200,000 to be paid on his behalf to the trust account of Freehills, a firm of solicitors. I will continue to describe this as the first instalment.

86 Particulars in support of the plaintiff's par 1 plea concerning the first instalment included an allegation that the direction was given to the plaintiff by the defendant on behalf of Bollway in that the defendant was acting as a de facto director for and on behalf of Bollway pursuant to s 9 of the Corporations Act 2001 (Cth) on 22, 25, 26 and 27 October 2004. The direction was said to be made orally and in writing with various of the documents and conversations mentioned earlier being specified.

87 With respect to the direction made orally it was said that this was constituted by conversations taking place between the plaintiff and the defendant by telephone on 22, 25, 26 and 27 October and at an evening dinner held at Ha Tien Restaurant on 21 October 2004. The plaintiff alleged that in each of the conversations in question the defendant said words to the following effect:

"You need to deposit the money with Freehills immediately so that Net X and/or the new company we set up can progress the reconstruction proposal with Mervyn Kitay and so that we can establish credibility."

88 The plaintiff pleaded at par 2 that on or about 9 November 2004 at the direction of, and for the benefit of Bollway, alternatively, for the benefit of Bollway, the plaintiff caused the sum of $200,000 to be paid on his behalf to the trust account of Grant Thornton, a firm of accountants. I will continue to refer to this payment as the second instalment. Again, the plaintiff's par 2 plea was supported by particulars of the alleged direction drawn from the conversation and email exchanges mentioned in earlier discussion.

89 Particulars of the conversations constituting the direction were said to include not only the conversations referred to in support of the plaintiff's par 1 plea but also further conversations between the plaintiff and the defendant at a meeting at the offices of Freehills on or about 3 or 4 November and by telephone on 8 November 2004. In respect of these latter conversations the defendant was alleged to have said words to the following effect:

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"Stephen, our bid is going to collapse unless you deposit a further $200,000 with Grant Thornton immediately. The funds will be held on trust until Q Legal say the funds can be released to Mervyn Kitay so that our DOCA proposal can proceed."

90 The plaintiff went on to plead in par 3 of the statement of claim that in or about June 2005 Bollway issued 8,000,000 shares to the defendant to hold on trust for the plaintiff and treated the aggregate sum of $400,000 being the moneys paid on the plaintiff's behalf at the direction of and for the benefit of Bollway alleged in pars 1 and 2 above as the subscription moneys for the plaintiff's shares.

91 Significantly, in response to a request for particulars of the plaintiff's par 3 plea as to whether it was alleged that the plaintiff's shares were issued pursuant to an agreement between the plaintiff and Bollway, the plaintiff pleaded at Answer 3(a):

"The plaintiff is not seeking to advance a claim of contract in these proceedings. The plaintiff is not relying on an agreement between Mr Phillips and Bollway Pty Ltd in respect to the 8,000,000 shares issued to Mr Price to hold on trust for Mr Phillips to establish a resulting and/or express trust between Mr Phillips and Mr Price."

92 The statement of claim went on to refer to the presence of certain company documents mentioned in earlier discussion which suggested that the defendant held the subject shares on trust for the plaintiff including reference to a statement in the notice of annual general meeting and explanatory statement of AES to the effect that the defendant held the plaintiff's shares on trust for the plaintiff.

93 The plaintiff went on to allege that by the 6 July Tottle letter he demanded that the defendant transfer the plaintiff's shares to him but until 7 March 2006 the defendant refused and/or failed to do so. On or about 10 March 2006 the defendant provided the plaintiff with a signed transfer form in respect of the 8,000,000 shares in Bollway which the plaintiff then signed and submitted to the registered office of Bollway. It was said further that despite requests, Bollway has refused and/or failed to issue a share certificate in respect of the subject shares to the plaintiff.

94 The plaintiff's prayer for relief, as I indicated in earlier discussion, sought a declaration that in the events that happened, the defendant held the plaintiff's shares on trust for the plaintiff between in or about June 2005 and 10 March 2006 and that as between the plaintiff and the

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defendant the plaintiff is entitled to have the plaintiff's shares registered in the plaintiff's name.

Statement of defence

95 The defendant, by his statement of defence, denied par 1 and par 2 of the statement of claim and said that Bollway received $400,000 purportedly from the plaintiff. The defendant denied par 3 of the statement of claim and said further that by partly written and partly oral agreement made between the plaintiff and Net X, the plaintiff agreed to cause the sum of $400,000 to be invested in the capital of Bollway, being a company formed by Net X for the purposes of effecting a recapitalisation and reorganisation of AES. The defendant described this as "the Agreement".

96 The defendant pleaded at par 3 of his defence that he acted as agent for his disclosed principal, Net X, in respect of the Agreement. He said at par 4 that it was a term of the agreement that no shares in Bollway would be caused to be issued directly to the plaintiff and that only shares in AES would be required to be issued in consideration for the subscription moneys upon completion of the recapitalisation proposal relating to AES. It was a further term of the agreement that if the recapitalisation proposal was not successful, the plaintiff (or such other person as may be entitled to the benefit of the subscription moneys) would receive 8,000,000 shares in Bollway.

97 The defendant said that pursuant to the agreement, in or about June 2005, Bollway issued 8,000,000 shares to the defendant to hold on trust for the plaintiff or such other person as may be entitled to the benefit of the subject shares. The defendant admitted that the plaintiff demanded that the defendant transfer the shares to him. He went on to say at par 7 that on or about 7 March 2006, Bollway decided not to proceed with the recapitalisation proposal relating to AES. Thus, (at par 8), as a consequence of such matters, and in accordance with the terms of the Agreement, on 8 March 2006 the defendant provided the plaintiff with a signed transfer form in respect of the subject shares thereby enabling the plaintiff to become the registered holder of those shares.

98 The defendant (at par 9 of the statement of defence) admitted that he refused to transfer the shares to the plaintiff prior to 8 March 2006 and says that by reason of the matters set out in his pleading, he was under no obligation to transfer the shares to the plaintiff prior to 8 March 2006 because the plaintiff had not demonstrated his ownership of the

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subscription moneys and because the recapitalisation proposal relating to AES had yet to be completed or abandoned by Bollway.

99 In his answers to a request for further and better particulars of defence as to the conversations and documents allegedly constituting the agreement, the defendant referred to various conversations and email exchanges which were described by me in general terms in earlier discussion.

100 In summary, the substance of the conversations was said to be that Net X and the plaintiff would work together to get AES out of administration and receivership and would contribute funds in an agreed ratio for this purpose. The Net X funds would either come from existing Net X shareholders, associates of the shareholders or third parties. The plaintiff's funds would come from himself, Mr Kasturi or Mr Kasturi's uncle in the USA. Net X would sponsor a deed of company arrangement for AES which would provide for AES to be recapitalised and relisted on the Australian Stock Exchange or ASX. The plaintiff would do all things necessary to ensure that the DOCA and recapitalisation of AES would succeed. Upon completion of the DOCA, and subject to any necessary consents from AES shareholders, ASX and ASIC, the plaintiff's investment would convert to shares in AES. In the event that the deal failed, the plaintiff would be issued shares in the bid vehicle to the extent of his financial contribution and the parties would continue to fund the bid vehicle in an agreed ratio or, in the event of a disagreement, they would buy each other out or would sell AES' technology and intellectual property to recover transaction costs and their original investments.

101 It was said further that Net X would have the full and unfettered conduct of the matter and Net X would nominate all of the AES board members. The plaintiff would not have a board or senior management position with AES due to perceived investor attitudes. The plaintiff would introduce Net X to staff and customers associated with AES' subsidiaries in India and the USA. AES executives, including the plaintiff, would be required to make full and appropriate disclosure concerning the company's accounts, records, contracts, liabilities and affairs in order to enable the Net X directors to issue the information memorandum without any risk or liability to them.

102 For ease of reference, I will henceforth refer to the matters just mentioned as "the defendant's alleged particulars of the Agreement".

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103 The defendant also provided particulars of the alleged agency between the defendant and Net X. He said that he disclosed to the plaintiff that he acted for and on behalf of Net X on various dates between September and November 2004, such disclosure being made both orally and in writing (with particulars being provided of the relevant conversations and email exchanges). It was said further that the agency agreement was express and oral. The defendant also had ostensible authority to act for and on behalf of Net X. The oral agency agreement was said to have been constituted by telephone conversations held in or about late September 2004 between the defendant and the other directors of Net X, Mr Graham Spurling and Mr John Sharkey. The substance of the conversations were that the defendant had authority to act for and on behalf of Net X in relation to the proposed recapitalisation of AES. It was said also that the defendant was at all material times a director and the CEO of Net X.

The Issues

104 It emerges from my review of the pleadings that on the plaintiff's case $400,000 belonging to or controlled by the plaintiff, in two equal instalments of $200,000 each, was placed at the disposal of the defendant and utilized by him to facilitate the issue of the subject shares to the defendant.

105 It is said that in the absence of any concluded agreement defining exactly the purpose for which the two instalments were paid, it must follow from the equitable rules concerning resulting trust and/or constructive trust that at all material times thereafter the subject shares were held on trust by the defendant for the plaintiff as the beneficial owner of the same. The plaintiff was therefore entitled to call for a transfer of the shares.

106 It is said that the defendant's refusal to comply with the 6 July Tottle letter calling for a transfer amounted to a breach of trust with the result that the plaintiff is entitled to declaratory relief; that is, a declaration that the plaintiff was entitled to have the subject shares transferred to him by the defendant as from the date of the demand. Further, the plaintiff was obliged to commence proceedings in order to obtain such relief and is therefore entitled to recover the costs of the action.

107 The defendant appears to accept that at all material times he held the shares in trust. However, on the defendant's case, it is said that the nature of the trust, and the duties and powers associated with it, were defined by the Agreement contended for by the defendant, being a contractual

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relationship conditioned essentially by the success or failure of the reconstruction proposal reflected in the DOCA.

108 In other words, the plaintiff could not be characterised as the beneficiary of an unconditional resulting trust upon the basis that he had provided the purchase price for the shares exclusively because, in reality, the advances comprising the two instalments were put up as part of a joint venture of sorts which gave rise to various reciprocal obligations related to the proposed reconstruction of AES. Thus, the defendant's alleged Agreement was supported by consideration in the form of mutual promises and undertakings with a view to carrying into effect the proposal reflected in the DOCA.

109 On the defendant's case, it was consistent with the alleged Agreement that the defendant refused to transfer the subject shares in response to the plaintiff's initial demand; that is, no shares were to be issued to or to be subject to the control of the plaintiff pending completion of the reconstruction of AES. Moreover, the defendant required confirmation as to the source of the funds which were contributed to Bollway.

110 Against this background, it becomes necessary to determine whether the defendant's alleged Agreement was made, bearing in mind that, on the defence plea, it is said to be a contract made between the plaintiff and Net X on the basis that the defendant was acting as a disclosed agent for Net X.

111 If it be found on the balance of probabilities that such an agreement was not entered into as alleged, then, in the absence of mutual undertakings or any form of monetary consideration being contributed by the defendant himself or Net X to the acquisition of the subject shares in Bollway, a finding must be made as to whether the defendant held the subject shares on trust for the plaintiff pursuant to equitable principles as alleged by the plaintiff at pars 1 to 3 of the statement of claim. If so, a further finding must be made whether such a trust was subject to any terms or conditions that might justify a refusal upon the part of the defendant as the holder of the legal title to transfer the shares to the plaintiff as beneficial owner when called upon to do so.

112 I note in passing that if it be found that there was no concluded agreement of the kind contended for by the defendant, then I must remain alert to the possibility of a finding that the defendant was in fact acting simply as the plaintiff's agent for the limited purpose of causing the

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instalments to be forwarded to Bollway to the intent that the subject shares would be issued to the defendant to be held on trust by him for the plaintiff; that is, held on trust until some form of agreement satisfactory to the plaintiff was arrived at concerning the future of the proposed reconstruction of AES.

113 It will now be useful to look at the legal principles bearing upon these issues.

Legal principles

114 In Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Galdron, McHugh, Hayne and Callanan JJ made certain observations about the intention to create contractual relations at [24] and [25]. They said that it was of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty. To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet the circumstances may show that the parties did not intend to subject their agreement to the adjudication of the court.

115 It was said further that because the search for the intention to create contractual relations requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjective reservation or intention that either party may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual context. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happen. It is not a search for the uncommunicated subjective motives or intentions of the parties. See also Taylor v Johnson (1983) 151 CLR 422 at 428.

116 It emerges from this that an intention to contract is essential. This is bound to be of importance in circumstances in which a contract is said to have been made on behalf of one of the parties by an agent, especially if the group behind the agent or the role of the supposed agent in the negotiations has not been defined with particularity.

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117 I note that by s 9 of the Corporations Act the term "director" embraces one who is not validly appointed if he in fact acts in the position of a director. This is reinforced by s 201M(1) whereby an act done by a director is effective even if his appointment is invalid. See also Smolarek & Anor v Liwszyc & Ors (2006) 32 WAR 101 at [59]. It is important to keep in mind in the present case that Bollway was incorporated on 22 October 2004 with the defendant becoming a director and secretary of the company soon after its incorporation. The plaintiff's first instalment of $200,000 was transferred into Freehill's trust account on 25 October 2004.

118 A trustee is generally bound to adhere to the terms of the relevant trust deed. However, a trustee who acts as a protagonist for some beneficiaries and in antagonism to others commits a breach of trust and may be discharged: Hunter v Hunter [1938] NZLR 520. The powers and duties of trustees are described in the Trustees Act 1962 (WA) and are discussed in various texts including Jacobs: "Law of Trusts in Australia" (6th ed) at 406 to 554.

119 A resulting or implied trust can arise where a person transfers property to another without intending that person to have the beneficial interest in the property. Thus, in Calverley v Green (1984) 155 CLR 242 Gibbs CJ observed at 246 that where a person purchases property in the name of another, or in the name of himself and another jointly, the question whether the other person, who provided none of the purchase money, acquires a beneficial interest in the property depends on the intention of the purchaser. However, in such a case, unless there is such a relationship between the purchaser and the other person as gives rise to a presumption of advancement (that is, a presumption that the purchaser intended to give the other a beneficial interest), it is presumed that the purchaser did not intend the other person to take beneficially. In the absence of evidence to rebut that presumption there arises a resulting trust in favour of the purchaser.

120 Gibbs CJ observed also at 252 that in a case where two parties had contributed to the acquisition of a property the extent of the beneficial interests of the respective parties must be determined at the time when the property was purchased and the trust created.

121 Constructive trusts, unlike express trusts, do not depend on an express intention to create a trust, and, unlike resulting trusts, do not depend on an implied intention to do so. Constructive trusts arise by operation of law independently of the intentions of the parties and

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sometimes contrary to such intentions. They arise because it is regarded as desirable in certain circumstances to impose on a person in relation to particular property, the duties of a trustee.

122 These principles are reflected in the reasoning of Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 613. His Honour observed that the constructive trust is both an institution and a remedy of the law of equity. In its basic form it was imposed, as a personal obligation attaching to property, to enforce the equitable principle that a legal owner should not be permitted to use his common law rights as owner to abuse or subvert the intention which underlay his acquisition and possession of those rights. This was consistent with the traditional concern of equity with substance rather than form. The constructive trust developed as a remedial relationship superimposed on common law rights by order of the Chancery Court. It differs from those other forms of trust, however, in that it arises regardless of intention.

123 His Honour went on to observe at 614 that the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principles.

124 In Gosper v Sawyer (1985) 160 CLR 548 Mason and Deane JJ made these observations at 568:

"The origins and nature of contract and trust are, of course, quite different. There is however no dichotomy between the two. The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of a trust. Conversely, the trust, particularly the resulting and constructive trust, represents one of the most important means of protecting parties in a contractual relationship and of vindicating contractual rights."

125 It seems to follow that if for some reason a proposed contractual relationship between the parties does not eventuate, or the contractual relationship entered into does not cover the circumstances, or cannot be enforced due to illegality, a disaffected party may nonetheless be able to obtain relief in equity: Nelson v Nelson (1995) 184 CLR 538.

126 The relationship between contractual and equitable rules was explored in Sorna Pty Ltd v Flint (2000) 21 WAR 563. In that case the

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respondents contended that pursuant to an oral contract the appellant held certain mining tenements on trust for them. The appellant conceded that it held an 80 per cent interest in the tenements as trustee for the respondents but maintained that it was the holder of the beneficial interest in the remaining 20 per cent. The respondents' case was that as it was clear on the evidence that they were to pay the whole of the cost of acquiring and holding the tenements, a presumption in support of their claim to a beneficial interest in the entirety arose.

127 The case turned upon certain provisions of the Mining Act 1978 (WA) which prevented the creation of any equitable interests in mining tenements except by an instrument in writing. However, while canvassing the issues, Murray J made these observations at 574:

"I have explained that in my view the respondents' claim was for a beneficial or equitable interest in the mining tenements to the extent of 100 per cent by way of resulting trust, or alternatively by way of a constructive trust arising out of the proposition that the common intention of the parties was proved to be such as to make it unconscionable not to imply a trust of the kind asserted, by operation of law. The fundamental difficulty with the proposition however, in my opinion, is that the warden found a loose arrangement, of the nature of a joint venture, that the parties' beneficial interests in the tenements held by Sorna was 20:80 as between Sorna and the respondents respectively. He so found solely upon the basis of the concession made in the pleadings by Sorna because he was not prepared to rely upon the evidence of Flint, Del Fante or Mrs Del Fante to determine what the true nature of the arrangement between the parties was.

The respondents have argued throughout that even in that event they were entitled to succeed because it was undisputed that they paid all the costs of acquisition and maintenance of the tenements and upon that ground it is to be presumed and found that the tenements were acquired and held in the name of Sorna on a resulting trust for the respondents."

128 His Honour Justice Murray then went on to make these further observations at 574:

"In support of this argument the respondents relied particularly on the decision of the High Court in Calverley v Green (1984)

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155 CLR 242. That was a case where, in the view of the Court, a man and a woman had jointly contributed to the acquisition of a house in which they were to live together. That conclusion arose from the fact that although the man paid the deposit and met all the repayments due under a mortgage, the woman was jointly liable for the mortgage payments and that was taken to be a contribution by her. In the judgments of their Honours there are a number of references to the presumption of trust.

Two presumptions were identified in respect of the acquisition of property. The first, when the proper conclusion is that property has been acquired solely by the financial resources of one person and then put into the name of another, is that the other holds the legal estate on a resulting trust for the former. The second presumption, in a case such as Calverley v Green was found to be, is that where both parties make financial contributions to the acquisition of the property the party who holds the legal estate will be held to do so on a resulting trust for both parties, their respective interests being proportionate to the value of their contributions.

But throughout the case there is a clear acceptance that to refer to those presumptions is to do no more than to speak of a standardised inference which may be drawn from the evidence as to the manner in which the property was acquired. The inference is as to the intention of the party who makes the sole contribution to the acquisition of the property which is then vested in the other, or as to the common intention of both parties. So it is that the presumption of trust may be rebutted by evidence to the contrary as to the relevant intention, or indeed, simply by evidence of the nature of the relationship between the parties if that is such as to raise what is described in the cases as the presumption of advancement."

Control by beneficiaries

129 I noted in earlier discussion that in carrying out his duties, a trustee must be guided by the rules of equity and any instrument or agreement defining the terms of the trust. In the exercise of any power or discretion which is confided to him, a trustee is bound and entitled to use his own judgment and ordinarily is not obliged to consult the wishes or accede to the importunities of the beneficiaries.

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130 However, although the beneficiaries cannot, in general, control the trustees while the trust remains in being, they can, if sui juris and together entitled to the whole beneficial interest, put an end to the trust and direct the trustees to hand over the trust property as they direct; and this is so even if the trust deed contains express provisions for the determination of the trust. In other words, if an accumulation is directed exclusively for the benefit of a beneficiary, the moment he is sui juris he may put an end to it and demand the property.

131 The position is expressed in this way in Jacobs: "Law of Trusts" (supra) at [23080]:

"Where a sole beneficiary's interest in the trust property is vested and he is sui juris, he may put an end to the trust by directing the trustees to transfer the trust property to him or his nominee, notwithstanding any directions to the contrary in the trust instrument. This is the celebrated rule in Saunders v Vautier [1841] CR & PH 240. The conveyance required may be an absolute transfer or by way of settlement upon other or fresh trusts."

Findings

132 It emerges from a consideration of these legal principles that, prima facie, if one person provides the entire purchase price for an item of property the legal title to which is then vested in another, it is presumed that the person providing the purchase price did not intend the other person to take beneficially and a resulting trust will arise in favour of the person providing the price. Moreover, in a straightforward case, if the party holding the legal title is thought to be acting contrary to the wishes of the first person and unconscionably by setting up his legal title as a means of preventing the beneficial owner obtaining that to which he is entitled, relief in equity will be available pursuant to the remedial institution known as constructive trust.

133 However, in the end, the question of whether a claimant is entitled to relief may turn upon the intention of the parties. If the evidence reveals that the title to the property was to be held pursuant to some common purpose or intention other than the immediate enjoyment or control of the property by the person providing the price, with such intention or purpose being embodied in an enforceable agreement, then it will be difficult to make a finding that the titleholder is acting unconscionably and the claimant beneficiary is entitled to relief.

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134 In determining whether an agreement exists, it must be established that there are identifiable parties, the terms are certain, and there is an intention to create contractual relations. The search for such an intention requires an objective assessment of the state of affairs between the parties. A lack of certainty as to the terms or subject matter of a proposed agreement in the context of ongoing negotiations concerning such matters may lead to a finding that the parties did not arrive at a moment when, objectively assessed, there was an intention to create legal relations. If a contract was not made it will nonetheless be possible for a disaffected party to seek relief in equity.

135 If it be found that the subject property is held by the legal owner on trust for another unconditionally pursuant to a resulting trust then a sole beneficial owner is entitled to call for a transfer of the subject property to him pursuant to the rule in Saunders v Vautier (supra).

136 Having regard to the evidence before me, it appears that prior to payment of the two instalments the plaintiff had given thought to negotiating an agreement to the effect that his $400,000 was not to be converted into any interim Australian bid vehicle such as Bollway for tax reasons and had expressed a strong preference that his proposed investment convert directly into shares in AES on the success of the DOCA. However, it appears that this was not accepted by the defendant who regarded the plaintiff as attempting to vary the agreement.

137 In the course of reviewing the evidence I noted that there did not appear to be any document in existence signed by both parties which purported to be a concluded agreement as to how the DOCA proposal was to be carried into effect. That is recognised by the defendant's alleged particulars of agreement.

138 The defendant by his particulars relies upon various emails and other exchanges. However, it is apparent from my earlier review of the exchanges between the plaintiff and the defendant that although the parties obviously came close to finalising mutually acceptable arrangements, there is no document, or combination of documents and events, which can be regarded as expressing a final intention to enter into contractual relations. It seems that they were overtaken by an apparently pressing need to satisfy the administrator, Mr Kitay, that the required funds were in hand. The plaintiff said that further work was required on Mr Odorisio's draft letter dated 10 November 2004, with the result that this cannot be said to evidence a concluded agreement. Further, and in any event, an agreement of the kind envisaged by the letter does not

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cover, and therefore cannot be regarded as applicable to the situation that came to pass whereby the subject shares were issued to the defendant.

139 Accordingly, I am of the view, and so find, that in the end the parties did not arrive at a concluded agreement defining exactly how the proposed purpose was to proceed. They were united in a belief that it would be desirable for the plaintiff to put up the funds in question immediately as a means of persuading the administrator, Mr Kitay, that there was financial support for the proposal underlying the DOCA, but as between themselves the plaintiff and the defendant did not manage to finalise the exact basis upon which the funds were to be employed or the way in which the shares in Bollway were to be utilised.

140 It follows that, as to the first of the issues defined by me in earlier discussion, I am satisfied on the balance of probabilities that the plaintiff's instalments were not paid to Net X or to the defendant pursuant to an agreement of the kind contended for by the defendant. The funds were simply forwarded to Bollway for the limited purpose of showing the administrator of AES, Mr Kitay, that Net X and the other interested parties had sufficient financial resources to implement the draft DOCA proposal. It was in that context that the subject shares were issued to the defendant. An issue of shares in these circumstances gave rise to a resulting trust in favour of the plaintiff as the person who had provided the price. That is because, in the absence of a concluded agreement containing reciprocal obligations, it must be presumed that the plaintiff as purchaser of the shares did not intend the defendant or Net X to take beneficially. It follows from the reasoning of Gibbs J in Calverley v Green (supra) that the extent of the beneficial interest to the plaintiff must be determined at the time when the property was purchased.

141 The position therefore emerges that at the time the subject shares were issued to the defendant they were held by the defendant pursuant to a resulting trust in favour of the plaintiff who was the sole beneficiary. In the manner allowed for by the rule in Saunders v Vautier (supra), he was therefore entitled to call for a transfer of title to the property of which he was the beneficial owner.

142 I digress briefly to observe, and to make an incidental finding, that on the evidence before me the plaintiff was indeed the person who had provided the funds in their entirety. That is the effect of the evidence before me and it is significant that in due course the defendant abandoned its insistence upon being provided with confirmation as to the source of the funds. It follows that there is no substance in the defendant's plea in

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par 9 of the defence that he was entitled to refuse to transfer the shares to the plaintiff because the plaintiff had not demonstrated his ownership of the subscription moneys.

143 It follows from these findings that when the plaintiff called for the transfer of the subject shares to him by the 6 July Tottle letter there was no basis upon which the defendant was entitled to refuse or fail to comply with the request. It follows also that, in the absence of compliance, the plaintiff was obliged to commence the present legal proceedings in order to force compliance. I consider that the plaintiff is entitled to declaratory relief in the terms sought. I will hear from the parties as to further orders or directions including the appropriate orders to be made in respect of the costs of the proceedings. The usual practice is that, after a judgment has been handed down, the parties are afforded an opportunity to be heard as to the proper order to be made in respect of legal costs. I have in mind to give directions concerning that aspect of the matter.