Re Casey Downs Retirement Village Pty Ltd (in liquidation)
[2008] VSC 252
•29 July 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMERCIAL AND EQUITY DIVISION CORPORATIONS LIST | |
| No. 5140 of 2006 | |
| IN THE MATTER OF: |
CASEY DOWNS RETIREMENT VILLAGE PTY LTD (In liquidation) (ACN 103 248 979)
| GREGORY STUART ANDREWS (as official | Plaintiff |
| liquidator of Casey Downs Retirement Village Pty Ltd) (In liquidation) | |
| v | |
| DUFFY AND SIMON LAWYERS (A FIRM) & ORS | Defendants |
No. 9754 of 2006
| BABCOCK & BROWN COMMUNITIES LTD | Plaintiff |
| (FORMERLY KNOWN AS PRIMELIFE CORPORATION LTD) (ACN 010 662 991) | |
| v | |
| DUFFY AND SIMON LAWYERS (A FIRM) & ORS | Defendants |
---
| JUDGE: | ROBSON J |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 2 & 3 June 2008 |
| DATE OF JUDGMENT: | 29 July 2008 |
| CASE MAY BE CITED AS: | Re Casey Downs Retirement Village Pty Ltd (in liquidation) |
| MEDIUM NEUTRAL CITATION: | [2008] VSC 252 |
---
EQUITY - Resulting trust – Quistclose trust – Whether moneys paid to a proposed vendor in anticipation of a contract for the sale of land are held on a resulting trust for the proposed purchaser where the contract is not entered into – Whether moneys are held on trust for the beneficial owners of the money used as the proposed deposit where purchaser acts as trustee for the beneficial owners – Whether a fund established by the proposed vendor to compensate investors in a syndicate formed to purchase the land and the owners of the proposed deposit moneys should be distributed to the beneficial owners of the proposed deposit moneys or to the trustee for the syndicate, which is now in liquidation.
TRUSTS – Whether stakeholder’s agreement establishes a valid trust – Whether beneficiaries sufficiently identified – Whether fund held for settlor.
CORPORATIONS LAW – Whether a company in liquidation that acted as trustee for a syndicate to buy the land is entitled to the proposed deposit on the purchase paid with the moneys of the syndicate members under s 474 of the Corporations Act 2001 – s 474 Corporations Act 2001.
APPEAL – Whether appeal should be allowed from Master’s finding that proposed deposit moneys were not property of company in liquidation – Appeal dismissed.
---
Barclays Bank Ltd v Quistclose Investments Ltd [1970] 1 AC 567
Barnes v Addy (1874) LR 9 Ch App 244
Bishopsgate Investment Management Ltd v Homan [1995] Ch 211
Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22
James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62
Romanous v Saleh [2008] NSWSC 656
Re Australian Elizabethan Theatre Trust (1991) 102 ALR 681
Re Goldcorp Exchange Ltd [1995] 1 AC 74
Re Vandervell’s Trusts (No.2) [1974] 1 Ch 269
Salvo v New Tel Ltd [2005] NSWCA 281
---
| APPEARANCES: | Counsel | Solicitors |
| Casey Downs Retirement | Mr J R Dixon SC | Gadens Lawyers |
| Village Pty Ltd (In liquidation) and Mr Andrews | ||
| Babcock & Brown | Mr R M Niall | Minter Ellison |
| Communities Ltd | ||
| Timothy Phelan | Mr R Randall | Logie Smith Lanyon |
TABLE OF CONTENTS
INTRODUCTION AND SUMMARY............................................................................................2
THE PROCEEDINGS........................................................................................................................3
AGREED FACTS................................................................................................................................4
PRIMELIFE’S CLAIM .......................................................................................................................4
THE CLAIM OF CASEY DOWNS................................................................................................10
THE DEFENCE AND CLAIM OF MR PHELAN.......................................................................10
THE CLAIMS OF THE LEVY INVESTORS...............................................................................20
THE CONTENTIONS OF CASEY DOWNS ..............................................................................22
THE CONTENTIONS OF MR PHELAN ....................................................................................23
THE PAYMENT TO PRIMELIFE..................................................................................................24
WERE THE MONEYS PAID TO PRIMELIFE PROPERTY OF THE PRE-DEPOSIT
INVESTORS?....................................................................................................................................25
RESULTING TRUST.......................................................................................................................26
DID PRIMELIFE HOLD MONEYS ON TRUST FOR THE PHELAN INVESTORS? .......29
CONSTRUCTIVE TRUST..............................................................................................................31
WAS THE TRUST FUND RECONSTITUTED? ........................................................................33
THE STAKEHOLDERS AGREEMENT.......................................................................................34
SUBMISSIONS ON BEHALF OF RICHARDSON...................................................................39
THE APPEAL BY THE LIQUIDATOR FROM THE MASTER...............................................40
CONCLUSION AND ORDERS....................................................................................................40
ANNEXURE 1 ...................................................................................................................................41
ANNEXURE 2 ...................................................................................................................................47
HIS HONOUR:
INTRODUCTION AND SUMMARY
Casey Downs Retirement Village Pty Ltd (In Liquidation) (“Casey Downs”) and certain investors lay claim to $1.2 million and interest thereon paid into court.[1] Their claims arise as follows.
[1] The moneys were paid into court by order of Dodds-Streeton J made 2 March 2007 in matter number 9754 of 2006.
In 2002, Babcock & Brown Communities Ltd (formerly known as Primelife Corporation Ltd) (“Primelife”) and Casey Downs proposed entering into a joint venture to build and manage retirement units at 75 Kangan Drive, Berwick (“the Berwick site”). Under the joint venture, Casey Downs was to acquire the Berwick site from Primelife for $12 million, build the units and lease them back to Primelife to manage under a joint venture agreement between Primelife, investors and others. Casey Downs was to finance the acquisition of the land wholly with funds from investors. The Berwick site would be held on trust for the investors alone.
The contract for the purchase of the land was entered into on 29 December 2002, but rescinded by Primelife on 14 July 2003. By 25 August 2003, Casey Downs had raised some $3,359,750 from investors, and from these moneys paid $1.2 million to Primelife to be applied as a deposit in anticipation of the purchase contract being reinstated. The contract was not reinstated and, in the meantime, Casey Downs had raised a further $1,654,500 from further investors. The proposed joint venture collapsed. The person controlling Casey Downs defaulted with the moneys put up by the investors save for the proposed deposit. The investors have lost all.
Primelife sought to repay the $1.2 million proposed deposit to Casey Downs so the moneys could be refunded to the investors entitled to the moneys. Primelife could not get the cooperation of Casey Downs and eventually Primelife paid $1.2 million and interest to solicitors Duffy & Simon, who had previously been acting for some of the investors, who, pursuant to a written stakeholder’s agreement, were to hold it as stakeholders for the benefit of the investors pending resolution of their entitlement.
Those issues could not be resolved, and Duffy & Simon subsequently were ordered to pay the moneys into court.
Various proceedings have been issued laying claim to the moneys and making other claims against Primelife.[2]
[2] These proceedings are set out in the annexure.
The claims before me are limited to the following. Casey Downs and/or its liquidator claim that the fund is the property of Primelife and Primelife has directed that the fund be paid to Casey Downs. Alternatively, Casey Downs claims the fund is its property.
The investors, whose moneys were used to make the payment of $1.2 million to Primelife (“the Pre-deposit Investors”), claim the fund is their property or, alternatively, under the terms of the stakeholder agreement, the fund ought to be paid to them.
For the reasons given below, I find that the fund in court ought to be paid out to the Pre-deposit Investors.
The investors who do not form part of the Pre-deposit Investors have not made a claim to the fund and are not party to the proceedings in which the claims before me are made, but support the claim of Casey Downs. They make other claims, not before me, against Primelife.
THE PROCEEDINGS
The various proceedings are complicated and are described in annexure 1. It suffices at this stage to give the following summary. The liquidator took proceedings against Primelife and Duffy & Simon making claim under s 474 of the Corporations Act 2001 that the moneys Duffy & Simon held were the property of Casey Downs. The Master dismissed the application. The liquidator’s appeal is before me. Primelife also took proceedings against Duffy & Simon claiming the fund was its property. In that proceeding, Mr Phelan and other investors, known as the Levy Investors, were joined and counterclaimed that the moneys were their property or ought to be paid out to them. Mr Phelan was ordered to represent further investors in the hearing before me. All the Pre-deposit Investors are represented or are parties to the matters before me.
Casey Downs and the liquidator were joined to the Primelife proceedings and they have counterclaimed that the moneys were the property of Primelife and Primelife has directed those moneys should be paid to Casey Downs. For ease of reference I will refer to Casey Downs to encompass both Casey Downs and the liquidator unless it is necessary to distinguish them. Primelife’s claim, certain parts of Mr Phelan’s and certain parts of the other investors’ counterclaims and Casey Downs’ counterclaim are before me. To identify precisely which claims are before me, I set them out below.
For convenience, Mr Phelan, the parties that he has been ordered to represent and the Levy Investors are all described as the Pre-deposit Investors. They all invested prior to 25 August 2003. The payment to Primelife was taken from the trust account into which their investment moneys had been deposited.
AGREED FACTS
The parties tendered an agreed statement of facts.[3] It is convenient to set it out in full in Annexure 2.
[3] Exhibit P1
PRIMELIFE’S CLAIM
Primelife’s claim before me is as follows.[4]
[4] Proceeding number 9754 of 2006; amended statement of claim amended pursuant to the orders of Dodds-Streeton J made 2 March 2007, date of document 27 March 2007.
The defendants to the claim are Duffy & Simon[5], the liquidator[6], Timothy Peter Phelan[7], Gillian Levy[8], Linn Maskell[9], Beth Skirving[10] and Casey Downs[11].[12] Mr Randall appeared on behalf of Mr Phelan and certain additional investors he was ordered to represent. Mr Dixon SC appeared on behalf of the liquidator and Casey Downs. Mr Parncutt appeared for the Levy Investors[13] at earlier directions hearings and indicated his clients would rely on and adopt the submissions of Mr Randall in the hearing before me.
[5] First defendant
[6] Second defendant
[7] Third defendant
[8] Fourth defendant
[9] Fifth defendant
[10] Sixth defendant
[11] Seventh defendant
[12] On 24 November 2005, the third to sixth defendants were joined as defendants to the proceeding upon their application by order of Dodds-Streeton J
[13] The fourth, fifth and sixth defendants
Primelife alleges that on or about 29 December 2002, Primelife as vendor and Casey Downs (then known as “Faral Pty Ltd”), as nominee for FBN Investments Pty Ltd (“FBN”) as purchaser, entered into a contract for the sale of the land at 72 Kangan Drive, Berwick in the State of Victoria and for the construction of a retirement village thereon (“the Contact of Sale”).[14]
[14] Para 6
There were terms of the Contract of Sale, inter alia, that Casey Downs should pay a deposit of $500,000 upon execution of the Contract of Sale and should pay the residue of the purchase price on or before 31 May 2003.[15]
[15] Para 7
On or about 22 May 2003, Primelife, FBN and Casey Downs agreed to vary the Contract of Sale to delete certain clauses relating to construction finance and the construction of buildings upon the land, to extend the date for payment of the deposit to 22 May 2003 and to vary the date for payment of the residue to 30 May 2003.[16]
[16] Para 8
Casey Downs failed to pay the deposit by 22 May 2003 and failed to pay the residue of the purchase price by 30 May 2003.[17]
[17] Para 9
On or about 1 July 2003, Primelife issued a Notice of Rescission under table A of the seventh schedule to the Transfer of Land Act 1958 (Vic) and on or about 15 July 2003, the Contract of Sale was thereby rescinded.[18]
[18] Para 10
On or about 25 August 2003, Casey Downs paid to Primelife $1,200,000 in contemplation of the Contract of Sale being reinstated.[19]
[19] Para 11
By December 2004, the Contract of Sale had not been reinstated and Primelife gave notice of its intention to return the sum of $1,200,000. The intention of Primelife to return the sum of $1,200,000 is expressly contained in, or alternatively can be inferred from, a letter dated 12 November 2004 and a letter dated 14 December 2004, each from Mr Gregory Flood, on behalf of Primelife, to Mr Renato Cenedese, director, Assured Financial Services.[20]
[20] Para 12 and particulars
On or about 16 March 2005, Primelife and Duffy & Simon entered into an agreement (“the Stakeholders Agreement”) in relation to the sum of $1,200,000 plus interest.[21]
[21] Para 13
There were terms of the Stakeholders Agreement, inter alia, that:
(1) [Casey Downs] and Primelife were parties to a Contract of Sale dated 29 December 2002 in respect of the purchase from Primelife of the property for the construction of the Casey Downs Retirement Village.
(2) Various investors provided money to [Casey Downs] in contemplation of the settlement of the [Contract of Sale] and the construction of the Casey Downs Retirement Village.
(3) [Casey Downs] pay to Primelife the sum of $1.2 million, being a 10%
deposit of the purchase price of the subject land.
(4) The Contract of Sale was rescinded at the option of Primelife.
….
(7) Primelife has offered, without any admission of liability or obligation to do so, to contribute a sum calculated as $1.2 million plus an amount of interest calculated at the rate of 7% per annum thereon from 25 August 2003 up to the date of this Agreement to establish a fund to be applied to the investors in the event that there is a shortfall between the moneys that investors provided to [Casey Downs] and any moneys recovered by them from [Casey Downs], and for no other purposes.
(8) In anticipation of settlement of the various disputes between the investors and [Casey Downs], Primelife will pay the sum calculated in accordance with paragraph (5) above, into a bank account (“the bank account”) to be opened and controlled by [Duffy & Simon] (“the stakeholder”) as stakeholder on the following terms and conditions:
(a) The bank account shall be held in the name of Duffy & Simon Lawyers but must be designated by an account name that evidences that the moneys are held by [Duffy & Simon] on trust as stakeholders; (b) The bank account shall be a special purposes bank account and no other moneys shall be paid into the account without Primelife’s consent; … (e) The stakeholder shall not withdraw any moneys from the bank account until such time as the following occurs: (i) Primelife provides its written consent to the stakeholder for the release of any money in the bank account to an identified investor or identified investors in the manner and on the terms provided for (including the signing and delivery of releases and indemnities acceptable to Primelife); or
(ii) a court of competent jurisdiction directs the stakeholder to release any money in the bank account on terms provided for in the court order;
(f)
The stakeholder shall supply Primelife with copies of all bank statements relating to the bank account and shall supply such other information about the bank accounts as Primelife may reasonably request from time to time.
(9) The stakeholder will hold the money on trust, in an interest-bearing
deposit for the benefit of the investors according to the above terms.
(10) To the extent that investors are successful in their claims against [Casey Downs] for the return of their investment moneys and there is no need for recourse to all or any of the moneys in the bank account, the stakeholder shall refund the balance of the moneys in the stakeholder account to Primelife.[22]
[22] Para 14
On 18 March 2005, Primelife electronically transferred $1,200,000 to Duffy & Simon.[23] On 21 March 2005, Primelife electronically transferred $131,178.08 to Duffy & Simon,
representing the amount of interest calculated at the rate of 7 per cent per annum thereon from 25 August 2003 up to the date of the Agreement.[24][23] Para 15
[24] Para 16
At the time Primelife transferred each of the sums referred to above (together, “the Fund”) to Duffy & Simon, Primelife, as settlor, intended that Duffy & Simon hold the Fund on trust for Primelife absolutely. Primelife’s intention was express or alternatively implied and was set out in, or alternatively can be inferred from, the documents set out below:
(a) Facsimile dated 31 January 2005 from Sutton Johnson, solicitors for Primelife, to Mr Richard Bridge, Duffy & Simon and attachments; (b) Facsimile dated 11 February 2005 from Sutton Johnson, solicitors for Primelife, to Mr Richard Bridge, Duffy & Simon and attachments; (c) Facsimile dated 3 March 2005 from Richard Bridge, Duffy & Simon, to Primelife; (d) Facsimile dated 10 March 2005 from Richard Bridge, Duffy & Simon, to Primelife; (e) Stakeholders Agreement dated 16 March 2005, in particular clauses 1, 2, 3, 4, 7, 8(a), (b), (e) and (f), 9 and 10.[25] [25] Para 17
In the premises, at the time Primelife transferred the Fund to Duffy & Simon, Duffy and Simon held the Fund on an express trust for Primelife absolutely.[26]
[26] Para 18
In the alternative to the previous two paragraphs:
(a)
At the time Primelife transferred the Fund to Duffy & Simon, Primelife intended that Duffy & Simon hold the Fund on trust for the investors in the Casey Downs Retirement Village absolutely, subject to the contingent interest of Primelife pursuant to clause 10 of the Stakeholders Agreement. The intention is express and is contained in paragraph (9) of the Stakeholders Agreement dated 16 March 2005.
(b)
It was not possible at the time Primelife transferred the Fund to Duffy & Simon, or at any other material time, to compile a complete list of the investors in the Casey Downs Retirement Village and their respective contributions and, accordingly, the trust failed for lack of list certainty of beneficiaries.
(c)
In the premises, at the time Primelife transferred the Fund to Duffy & Simon, Duffy & Simon held the fund on a resulting trust for Primelife absolutely.[27]
[27] Para 19
Primelife is and was at all material times sui juris.[28] By an irrevocable direction dated 15 March 2006, Primelife directed Duffy & Simon to transfer the Fund to the liquidator.[29] Accordingly, from on or about 15 May 2006, Duffy & Simon held the Fund on trust for Gregory Stuart Andrews as the liquidator absolutely.[30]
[28] Para 20
[29] Para 21
[30] Para 22
Primelife claims a declaration that the money paid into court by Duffy & Simon Lawyers is the property of Gregory Stuart Andrews as official liquidator of Casey Downs or, alternatively, Primelife.[31] Primelife seeks an order that the money paid into court by Duffy & Simon Lawyers be paid over to the liquidator, subject to such conditions (if any) as the court deems fit.[32]
[31] Prayer for relief C
[32] Prayer for relief D
During the hearing before me, Mr Niall, who appeared for Primelife, informed the court that Primelife no longer seeks the relief in its claim. Mr Niall pointed out that Casey Downs, in its defence, admits the allegations of Primelife and, by admitting the allegations, Casey Downs is in effect saying that the relief sought by Primelife is the appropriate relief.[33] Subsequently, Casey Downs made its own counterclaim, which I now turn to.
[33] Transcript 149-150
THE CLAIM OF CASEY DOWNS
Casey Downs’ claim against Primelife is as follows. Casey Downs repeats as positive allegations of fact the admissions and averments made in its defence to Primelife’s claim. It admits all the allegations made in Primelife’s amended claim.[34] On the basis of those allegations (which are, in substance, the allegations made by Primelife), Casey Downs' claims:
[34] Casey Downs pleaded to an earlier claim of Primelife rather than Primelife’s amended claim of 25 March 2007. It did not plead to two allegations in the earlier claim which have been deleted from Primelife’s claim of 27 March 2007.
[35] Further amended defence and counterclaim in matter number 9754 of 2006 dated 3 June 2008. By order dated 22 May 2008, I ordered that the issues raised in proceeding number 9754 of 2006 by the amended defence of the liquidator, but not the counterclaim of Casey Downs dated 23 August 2007, save for paragraph 3 and paragraphs AA and AB of the prayer for relief, be heard together with proceeding number 5140 of 2006 which is currently before me. Thus, the matters raised by the liquidator in its defence of Primelife’s claim have been adopted by Casey Downs as part of its counterclaim against Primelife.
(a) A declaration that the money paid into court by Duffy & Simon is the property of the liquidator. (b) An order that the money paid into court by Duffy & Simon Lawyers be paid over to the liquidator subject to such conditions, if any, as the court deems fit.[35] THE DEFENCE AND CLAIM OF MR PHELAN
I shall not set out the defence of Mr Phelan to Primelife’s claim as the issues raised by Mr Phelan are fully ventilated in his counterclaim.[36]
[36] Defence and further amended counterclaim dated 24 August 2007 filed on behalf of the third defendant in matter number 9754 of 2006.
Mr Phelan counterclaims against Primelife, Duffy & Simon and Casey Downs as follows.[37] He alleges that at all material times Primelife knew that the intended (or by then, the actual) purchase of the syndicate property by Casey Downs was to be financed by forming syndicates and investors.[38]
[37] Defence and further amended counterclaim dated 17 August 2007 in matter number 9754 of 2006.
[38] Para 36
On or about 25 July 2003, Mr Phelan entered into a syndicate agreement (“the syndicate agreement”) between himself and Casey Downs.[39]
[39] Para 37
There were terms of the syndicate agreement, inter alia, as follows:
(a)
Recital A.1 provided Casey Downs “intends to establish a Property Syndicate for the purpose of purchasing the Syndicate Property under the real estate contract.”;
(b)
“Completion Date” means that date which is 14 days prior to Commencement Date;
(c) “Commencement Date” means the completion date of the Real Estate Contract; (d)
“Participants” means all persons including Casey Downs who have become parties to this Agreement;
(e)
“Real Estate Contract” means the contract of sale of real estate made between Casey Downs and the Vendor for the sale and purchase of the Syndicate Property specified in Schedule 3.
(f)
“Syndicate Property” means the property specified in Schedule 1 describing the address, title particulars and purchase price of the property known as 72 Kangan Drive, Berwick, Victoria.
(g) “2. Objectives of the Syndicate The objectives of the Syndicate are:
2.1 The completion of the purchase of the syndicate property by the
Participants;”
(h) “3. Condition Precedent It is a condition precedent to the binding effect of this Agreement that Casey Downs receive sufficient capital from Participants by the Completion Date to allow it to proceed with the purchase of the Syndicate Property.”
(i) “5.2 Capital on Trust
5.2.1 Casey Downs will receive from each Participant into the trust account operated by Casey Downs the Participant’s capital which will be disbursed by Casey Downs only in accordance with this agreement.
(j) “5.3 Release of Participant’s Capital Casey Downs will receive the total of the Participant’s capital on behalf
of the Participants as follows:
5.3.1 To pay all costs properly associated with the acquisition of the Syndicate
Property including all costs and disbursements; and
5.3.2 Any balance is to be applied in payment of the cost of construction, and development of the Syndicate Property and for any other purpose authorised by this Agreement.”
(k) “6. Purchase of Syndicate Property 6.1 Casey Downs to Complete
Casey Downs and the Participants will complete the purchase of the
Syndicate Property on the Completion Date.”[40]
[40] Para 38
In anticipation of entering into the Syndicate Agreement, on or about 13 March 2003, Mr Phelan paid to:
(a) Casey Downs the sum of $100,000; (b)
Ambridge Retirement Management Services Pty Ltd (ACN 103 320 323) (a related company to Casey Downs) with respect to management of the retirement village to be constructed on the Syndicate Property, the sum of $100,000.[41]
[41] Para 39
On or about 29 July 2003, Mr Phelan paid to Casey Downs the balance due under the Syndicate Agreement in the sum of $2,570,250.[42]
[42] Para 40
In total, Casey Downs raised the sum of $5,014,250 from various participants, including Mr Phelan.[43]
[43] Para 41
At all material times, Primelife carried on business involving, inter alia, the development, management and marketing of retirement villages and aged care facilities of which, at the present time, it operates 58 such facilities.[44]
[44] Para 42
In or about December 2002, Primelife proposed to establish a joint venture for the development, operation and management of a retirement village at 72 Kangan Drive, Berwick in the State of Victoria (“the Syndicate Property”), which Primelife was then in the process of acquiring and of which it became the proprietor on or about 30 January 2003.[45]
[45] Para 43
By a joint venture agreement (“the Berwick Joint Venture Agreement”) made between Primelife, Casey Downs and Ambridge dated 22 May 2003, Primelife and Casey Downs agreed to establish a joint venture (“the Berwick Joint Venture”) to carry out and undertake a project involving activities related and incidental to the designing, building and maintenance of a retirement village on the Syndicate Property, being:
(a) the transfer of the Syndicate Property from Primelife to Casey Downs; (b) the sub-division of the Syndicate Property; (c) the construction of the retirement village on the Syndicate Property; (d)
the marketing and licensing of the residential accommodation units in the retirement village;
(e) the possible eventual sale of the Syndicate Property or part thereof; and (f)
all related or incidental activities to be conducted by or on behalf of the joint venture.[46]
[46] Para 44
Casey Downs entered into the Berwick Joint Venture Agreement for itself and as trustee for investors or potential investors who had or who might enter into syndicate agreements, including the Syndicate Agreement.[47]
[47] Para 45
On entry into the syndicate agreement or during the course of negotiations leading up to the entry into the syndicate agreement, Casey Downs did not tell Mr Phelan that:
[48] Para 65. Pursuant to my order of 22 May 2008, I ordered that the matters for hearing include the defence of Mr Phelan but not his counterclaim, save for the allegations made in paragraphs 28 to 32, 36 to 45 and 65 to 89 (other than 65(c) and 70(a)).
(a) a rescision notice had been served by Primelife on or about 1 July 2003; (b) on or about 15 July 2003, the Real Estate Contract had been rescinded and was thereby at an end.[48]
At the time payment was made, Primelife had a copy of Mr Phelan’s syndicate agreement.[49]
[49] Para 66 originally pleaded on or about 25 August 2003, Casey Downs made the payment to Primelife. I was informed at the hearing that that allegation was to be amended to that set out above.
The payment was made in breach of clauses 2.1, 3.1 and 5.2 of the syndicate agreement.[50]
[50] Para 67
Alternatively, the purpose for which the investment was made by Mr Phelan in Casey Downs had failed.[51]
[51] Para 68
By reason of clause 3.1 and clause 5.2.1 of the syndicate agreement, alternatively, by reason of the purpose set out in Recital A1 of the syndicate agreement, Casey Downs received the sum provided by Mr Phelan on trust to be disbursed only in accordance with the syndicate agreement.[52]
[52] Para 69
By reason of the matters referred to, Primelife knew the purpose for which the sum had been paid had already failed.[53]
[53] Para 70. 70(a) was deleted pursuant to my order of 22 May 2008.
Further, such knowledge that the payment was made pursuant to a failed purpose, can be implied by Primelife’s willingness to refund the payment in full to investors and its willingness to assist the process by returning moneys directly to investors.[54]
[54] Para 71 as amended by Mr Randall in submissions – Transcript 164.
Pursuant to the willingness set out in the preceding paragraph and/or by reason of the matters set out in the paragraph before, Primelife did not return the payment to Casey Downs but entered into the Stakeholders Agreement on or about 16 March 2005.[55]
[55] Para 72
At the time of the payment, in addition to the sum provided by Mr Phelan in the amount of $2,670,250, Casey Downs had received a further sum of $689,500 from other participants.[56]
[56] Para 73
Accordingly, by virtue of the matters set out above, Primelife held the payment on a constructive trust or a Quistclose trust for such of the participants, including Mr Phelan, who contributed the funds held by Casey Downs from which funds the payment was made (“the constructive trust/Quistclose trust”).[57]
[57] Para 74
Further, Primelife held the payment pursuant to the constructive trust/Quistclose trust for each of the participants at the time the payment was made in proportion to each participant’s contribution compared to the then total investment of $3,359,750.[58]
[58] Para 75
Alternatively, Primelife held the payment pursuant to the constructive trust/Quistclose trust for the participants in such proportions of the investment made by each compared to the total sum of $5,014,250.[59]
[59] Para 76
Primelife entered into the Stakeholders Agreement and remitted the payment on 18 March 2005 and remitted interest thereon in the sum of $131,178.08 on 21 March 2005:
[60] Para 77
(a) in breach of the constructive trust/Quistclose trust; (b) without the authority of Mr Phelan; and (c) without the knowledge of Mr Phelan.[60]
Alternatively, entry into the Stakeholders Agreement and the making of the payment referred to in the preceding paragraph was to discharge Primelife’s obligations pursuant to the constructive trust/Quistclose trust.[61]
[61] Para 78
At all material times leading up to the negotiations for the Stakeholders Agreement and thereafter, Duffy & Simon:
(a) acted for some but not for all of the participants; (b)
knew that their client participants had invested less than $1.2 million by the date of the payment;
(c)
knew, or ought to have known by reason of the matters referred to in sub- paragraphs (a) and (b) hereof, that there were other participants who had made investments at the time of the payment;
(d) knew that the Real Estate Contract had been rescinded; (e) knew that the purpose for which the payment had been made had failed; (f)
knew that Primelife had determined not to sell the syndicate property or enter into any management or joint venture agreement;
(g)
knew that Primelife wished to return the payment and interest thereon, to the participants; and
(h)
knew, or ought to have known, that Primelife held the payment and interest thereon pursuant to the constructive/Quistclose trust.[62]
[62] Para 79
Accordingly, notwithstanding the express terms of the Stakeholders Agreement, Duffy & Simon held the sum provided to it by Primelife on trust for the participants in such proportions as referred to in paragraph 75, alternatively paragraph 76.[63]
[63] Para 80
Alternatively, if the Stakeholders Agreement defines the rights of the participants (which is denied), then Stanley, in breach of trust, in breach of his duties as director of Casey Downs, or otherwise fraudulently applied funds received from participants not for the purposes of the syndicate agreement or for the purposes of Casey Downs, but for his own purposes.[64]
[64] Para 81
Apart from the amounts provided by the participants to Casey Downs, Casey Downs did not have any other funds paid to it at the date of the payment, the date of the syndicate agreement or at any other material time.[65]
[65] Para 82
At the date hereof, there is no source of funds to return to the participants to meet the shortfall between the money held by Duffy & Simon and the moneys which the participants had provided within the meaning of clause 7 of the Stakeholders Agreement.[66]
[66] Para 83
Accordingly, Duffy & Simon hold the sum of $1,200,000, $131,178.08 together with any interest thereon on trust for the participants in the syndicate in the proportions referred to in paragraph 75, alternatively paragraph 76.[67]
[67] Para 84
Mr Phelan alleges that wrongfully and in breach of the Stakeholders Agreement, and further alternatively one or other of the trusts referred to, on or about 9 February 2006 Duffy & Simon withdrew $25,475.51 from the bank account without Primelife’s written consent or direction from a court of competent jurisdiction first having been obtained and that such withdrawal was done without Mr Phelan’s consent or direction.[68]
[68] Para 85. In paragraph 85 Mr Phelan refers to and repeats paragraph 26 of the Statement of Claim and paragraph 26 of his defence.
Paragraph 26 of the Statement of Claim is a reference to the Statement of Claim delivered by Primelife on 21 December 2006 in matter number 9754 of 2006.
Mr Phelan alleges that if Duffy & Simon is entitled to deduct any sum from the fund held by it pursuant to the Stakeholders Agreement, such deduction should only represent the costs of receiving the fund held by it and the costs of its preservation and distribution.[69]
[69] Para 86
Further, if, contrary to what is set out in Mr Phelan’s counterclaim, Casey Downs is entitled to payment of the funds held by Duffy & Simon, Mr Phelan refers to and repeats paragraphs 33 to 41 and 64 to 78.[70]
[70] Para 87
Accordingly, by virtue of the provisions of the syndicate agreement referred to in paragraph 38, Casey Downs is only entitled to receive such funds on an express trust for the participants in accordance with the proportions referred to in paragraph 75, alternatively, in accordance with paragraph 76.[71]
[71] Para 88
Further or alternatively:
(a) as the purpose for which the payment was made failed; and/or (b)
as the purpose for which the participants had invested in Casey Downs had failed by the date of entry into the syndicate agreement or by the date of providing funds pursuant to the syndicate agreement;
Casey Downs would only be entitled to receipt of the funds from Duffy & Simon on a Quistclose trust for the participants in such proportions as referred to in paragraph 75, alternatively paragraph 76.[72]
[72] Para 89
Mr Phelan claims:
(A)
A declaration that Primelife held the payment together with interest thereon on a constructive trust or a Quistclose trust for each of the participants in the proportions referred to in:
(i) paragraph 75; alternatively
(ii) paragraph 76.
(B) A declaration that Duffy & Simon hold the funds paid to it by Primelife on trust for the participants in the syndicate agreement in the proportions referred to in: (i) paragraph 75; alternatively (ii) paragraph 76. (D) A declaration that if Casey Downs is entitled to payment of the funds held by Duffy & Simon pursuant to the Stakeholders Agreement and/or the directions of Primelife, such entitlement is subject to the express trust or Quistclose trust in favour of the participants. (C) and (E) Mr Phelan seeks all necessary and consequent accounts and directions and orders to give effect to the declarations sought.[73]
[73] Paras (A), (B), (C), (D) and (E) of the prayers for relief
Mr Phelan is also acting as the representative for certain other Pre-deposit Investors.[74] Mr Phelan, the other Pre-deposit Investors who he represents and the Levy Investors are collectively described as the Pre-deposit Investors.
[74] Order 22 May 2008, No. 4: “Timothy Peter Phelan be appointed in proceeding number 9754 of 2006 as representative, pursuant to Rule 16.01(2) of the Rules of Court, of those investors in the Casey Downs Retirement Village Joint Venture who are not plaintiffs to the counterclaim and whose investment is identified in paragraph 76 of the affidavit of Joseph Subcic sworn 27 July 2005, being Ryan Woodfine, Maureen Roberts, Bruce Stocks and Adrian Harrison.”
THE CLAIMS OF THE LEVY INVESTORS
The fourth, fifth and sixth defendants[75] in the Primelife proceedings are known as “the Levy Investors”. In their defence to the claim of Primelife, the Levy Investors allege as follows.[76] They say the class of beneficiaries is sufficiently defined to enable identification of all known investors as potential beneficiaries.
[75] Gillian Levy, Linn Maskell and Beth Skirving respectively
[76] Dated 11 July 2007
Further, they say the Fund is impressed with a trust in favour of investors in the Casey Down Retirement Village, in that –
[77] Para 19(2)
(i) at all material times Duffy & Simon was acting, inter alia, on behalf of Renato Cenedese, a financial consultant, who was acting on behalf of the Levy Investors, alternatively Duffy & Simon was acting on behalf of the Levy Investors; (ii) Primelife and Duffy & Simon entered into an agreement for Duffy & Simon to hold the sum of $1.2 million for persons classified as investors in Casey Downs of which the Levy Investors are members and thereby cestui que trust.[77]
The Levy Investors allege the purpose of the Fund is and was to provide $1.2 million to the cestui que trust to cover any loss of their investment in Casey Downs. Reference is made to clauses 7 and 9.[78]
[78] Pra 19(3)
Further, they allege that, pursuant to the trust, Primelife declared itself at all relevant times after 12 November 2004 ready, willing and able to refund the sum of $1.2 million to investors. They refer to the letter of 14 December 2004 from Mr Flood to Mr Cenedese.[79]
[79] Para 19 (4)
The Levy Investors make a counterclaim. They do not name any defendants, so I take it to be a counterclaim against Primelife alone.[80] They refer to and repeat certain of the allegations made by Primelife and their assertions made in their defence. Further, they allege that on or about 10 March 2005, Primelife and Duffy & Simon entered into an agreement to establish a guarantee fund for the benefit of investors in the Casey Downs Retirement Village.[81]
[80] Amended defence and counterclaim of the fourth, fifth and sixth defendants dated 11 July 2007 in matter number 9754 of 2006
[81] Para 28
Prior to entering into the agreement, on or about 25 August 2003, Primelife received, inter alia, the sum of $300,000 from Casey Downs on account of the Levy Investors.[82]
[82] Para 30
At a date unknown to the Levy Investors, Stanley, as director of Casey Downs, paid to Primelife the said sum of $300,000, as part of a deposit of $1.2 million under a Contract of Sale of the land from Primelife to Casey Downs for the sum of $12 million (“the Contract of Sale”).[83]
[83] Para 30A
In or about July 2003, Primelife rescinded the Contract of Sale.[84]
[84] Para 30B
Subsequently, pursuant to clauses 7 and 8 of the Shareholders’ Agreement, Primelife transferred to Duffy & Simon –
(a) the sum of $1.2 million on 18 March 2005; and (b) the sum of $131,178.08 in interest on 21 March 2005; to hold the money on trust for the benefit of investors and for no other purpose.
Reference is made to clauses 7 and 9 of the Stakeholders Agreement.[85][85] Para 31
In the premises, the Fund is impressed with a trust in favour of the Levy Investors as beneficiaries to the extent of their investment and interest payable thereon.[86]
[86] Para 31
By the order of 22 May 2008, I was not to hear and determine the issues raised in the balance of the pleading.[87]
[87] By Order 22 May 2008 it was ordered that I hear and determine the issues raised in the amended defence of the fourth, fifth and sixth defendants, but not the counterclaim, save for the allegation made in paragraphs 28 to 32 inclusive and paragraphs (A) and (B) of the prayer for relief, dated 11 July 2007.
The Levy Investors claim:
(A) A declaration that Duffy & Simon holds the sum of $1.2 million plus interest,
on trust, inter alia, for the Levy Investors.(B) An order that the sum of $100,000 plus interest or such other sum as the court
deems fit be paid to each of the fourth, fifth and sixth defendants.
The Levy Investors were not represented at the hearing before me, but Mr Parncutt of counsel had appeared on an earlier directions hearing and informed the court that his clients were content to rely upon the submissions made by Mr Randall on behalf of Mr Phelan.
THE CONTENTIONS OF CASEY DOWNS
Casey Downs claims the fund on two bases. First, that Duffy & Simon held the fund on an express trust for Primelife absolutely.[88] Alternatively, that Duffy & Simon held the Fund on trust for the investors in the Casey Downs Retirement Village absolutely subject to the contingent interest of Primelife. The trust in favour of the investors failed for lack of certainty as to the beneficiaries and that the Fund was therefore held on a resulting trust for Primelife absolutely.[89]
[88] Para 17 of the amended statement of claim of Primelife dated 27 March 2007 which Casey Downs repeats by its counterclaim dated 3 June 2008
[89] Para 20
In each case, Casey Downs claims that it is entitled to the moneys through the direction given by Primelife on 15 March 2006.[90]
[90] Para 22
Accordingly, Casey Downs contends that Duffy & Simon held the Fund on trust for the liquidator absolutely.[91]
[91] Para 22
The written contentions filed on behalf of Casey Downs appear to rely on a further ground that the moneys paid by Primelife to Duffy & Simon were intended to represent compensation for the payment made to Primelife by Casey Downs as the proposed deposit. It is said in the contentions that, for reasons there stated, the release of funds in court to Casey Downs is the proper disposition of the funds, irrespective of the terms of the Stakeholders Agreement entered into between Primelife and Duffy & Simon.[92] That claim does not appear to be based on any proprietary interest of Casey Downs, nor does it depend upon the terms of the Stakeholders Agreement. As far as I can see, that contention puts forward no legal basis for the claim.
[92] Liquidator’s contentions dated 2 June 2008 para 22
The other claims put forward on behalf of Casey Downs proceed on the basis that the moneys paid to Duffy & Simon were not the moneys held on trust for the investors or, for that matter, for Casey Downs. The liquidator submits that, even if the investors or Casey Downs could lay claim to the funds paid to Primelife, the evidence does not permit any tracing of that sum into the later payments made by Primelife to Duffy & Simon. Accordingly, the contentions and submissions of Casey Downs proceed on the assumption that the moneys paid by Primelife to Casey Downs were the moneys of Primelife and were not in any way subject to any other proprietary interest, whether by the investors or Casey Downs.
THE CONTENTIONS OF MR PHELAN
Mr Phelan contends that Primelife held the payment of $1.2 million to it by Casey Downs on a constructive trust or a Quistclose trust for the Pre-deposit Investors. The constructive trust is alleged to arise as follows. He alleges that Casey Downs held the investment moneys on trust for the Pre-deposit Investors. He says that those moneys were paid by Casey Downs to Primelife in breach of trust. It is said that Primelife knew the purpose for which the moneys had been paid had already failed.
The Quistclose trust is alleged to arise for substantially the same reason; that is, that at the time Primelife received the sum from Casey Downs, the purpose for which the sum had been paid had already failed and that no contract of sale was entered into.
Mr Dixon SC, who appeared for Casey Downs, conceded that Primelife owed a fiduciary duty to return the moneys to Casey Downs.[93] He submits that this obligation arose as the moneys had been paid pursuant to the proposed joint venture that had not proceeded. He submits that the moneys were described as a deposit but never formally became a deposit and did not gain the protections that a deposit normally has of being held in trust.[94] He submits the fiduciary obligation to return the moneys arises where the moneys are contributed to a proposed joint venture which does not proceed.
[93] Tr 85
[94] Tr 72. Under s 24 of the Sale of Land Act 1962 deposit moneys received by a legal practitioner or estate agent are to be held by them as a stakeholder
THE PAYMENT TO PRIMELIFE
On or about 29 December 2002, Primelife and Casey Downs (as nominee for FBN Investments Pty Ltd) entered into a contract for the sale of land at 75 Kangan Drive, Berwick for $12 million on a deposit of $500,000 to be paid by Casey Downs upon execution.[95] The deposit was not paid at that time. Subsequently, the contract was varied to extend the time for payment of the deposit to 22 May 2003 and completion by 30 May 2003.[96]
[95] SAF [4]
[96] SAF [14]
Casey Downs failed to pay the deposit by 22 May 2003 or complete settlement by 30 May 2003 as required by the contract as varied.[97] Primelife rescinded the contract of 14 July 2003.
[97] SAF [13]
On 25 August 2003, after the contract had terminated, Casey Downs paid to Primelife $1.2 million to be applied as a deposit for the purchase of the Berwick site if the contract of sale was reinstated. Casey Downs and Primelife continued negotiations to reinstate the contract. The $1.2 million was sourced from a pool of investors’ moneys of $3,359,750 that Casey Downs held for the investors in a separate bank account.[98] By 31 October 2003, the contract of sale had not been reinstated and the proposed acquisition was abandoned by all parties.[99] After the deposit was paid, investors subscribed a further $1,654,500 to Casey Downs to participate in the joint venture.
[98] SAF [20]
[99] SAF [21] and [24]
Primelife deposited the $1.2 million into its business cheque account at the National Australia Bank, by doing so, mixing with other moneys belonging to Primelife. The business cheque account was Primelife’s general operating account. By 28 August 2002, the account stood at $724,950.44, indicating that some $460,000 of the $1.2 million had been dissipated.[100] There is no evidence that the remaining $724,950.44 was retained in any form.
WERE THE MONEYS PAID TO PRIMELIFE PROPERTY OF THE PRE-DEPOSIT INVESTORS?[100] CB 370
Each of the investors entered into a Syndicate Agreement with Casey Downs. The Syndicate Agreement signed on Mr Phelan’s behalf listed Mr Phelan as the sole participant in Schedule 2 giving the Syndicate details.[101] No other participant was identified in the agreement.
[101] CB 621
Clause 5.1 of the Syndicate Agreement provided that each participant was to advance to Casey Downs as capital for the Syndicate the participant’s capital at the time of execution. Mr Phelan’s capital was $2,661,250 said to represent a 20 per cent interest in the Syndicate. Clause 5.1 provided:
Capital on Trust
5.2.1 [Casey Downs] will receive from each Participant into the trust account
operated by [Casey Downs] the Participant’s capital which will be disbursed
by [Casey Downs] only in accordance with this Agreement.
There was such a trust account operated by Casey Downs and Mr Phelan and the other investors’ moneys were so deposited.
The Syndicate Agreement implicitly acknowledged the participants would beneficially own the Syndicate Property (the Berwick site). For example, clause 9 provided the participants may not require the transfer of any part of the Syndicate Property or lodge a caveat over or grant security to any lender entitling the lender to lodge a caveat.
Under the Berwick Joint Venture agreement, Casey Downs was identified as the owner of the Berwick site in its own capacity and as bare trustee for the Casey Downs Joint Venture comprising those parties and corporations named in Schedule 1. Schedule 1 was not completed but there was no dispute that it should have listed the participants.
As it was, the Berwick site was to be purchased for $12 million. Those moneys were not raised. It was a condition precedent to the Syndicate Agreement that Casey Downs receive sufficient capital from Participants by the Completion Date to allow it to proceed with the purchase of the land.[102]
[102] Clause 3.1 CB 599
I find that the moneys transferred to Primelife were the moneys of the Pre-deposit Investors.
RESULTING TRUST
It is convenient at this point to consider the nature of a resulting trust. As will be discussed below, there is some doubt as to whether the trust that was alleged to arise in Barclays Bank Ltd v Quistclose Investments Ltd[103] was an express trust or a resulting trust or a combination of them.
[103] [1970] 1 AC 567
In Re Vandervell’s Trusts (No.2)[104], Megarry J laid down the relevant points on resulting trusts in a series of propositions:
(1) If a transaction fails to make any effective disposition of any interest it does nothing. This is so at law and in equity, and has nothing to do with resulting trusts.
(2) Normally the mere existence of some unexpressed intention in the breast of the owner of the property does nothing: there must at least be some expression of that intention before it can effect any result. To yearn is not to transfer.
(3) Before any doctrine of resulting trust can come into play, there must at least be some effective transaction which transfers or creates some interest in property.
(4) Where A effectually transfers to B (or creates in his favour) any interest in any property, whether legal or equitable, a resulting trust for A may arise in two distinct classes of case. For simplicity, I shall confine my statement to cases in which the transfer or creation is made without B providing any valuable consideration, and where no presumption of advancement can arise; and I shall state the position for transfers without specific mention of the creation of new interests.
(a) The first class of case is where the transfer to B is not made on any trust. If, of course, it appears from the transfer that B is intended to hold on certain trusts, that will be decisive, and the case is not within this category; and similarly if it appears that B is intended to take beneficially. But in other cases there is a rebuttable presumption that B holds on a resulting trust for A. The question is not one of the automatic consequences of a dispositive failure by A, but one of presumption: the property has been carried to B, and from the absence of consideration and any presumption of advancement B is presumed not only to hold the entire interest on trust, but also to hold the beneficial interest for A absolutely. The presumption thus establishes both that B is to take on trust and also what that trust is. Such resulting trusts may be called “presumed resulting trusts.”
(b) The second class of case is where the transfer to B is made on trusts which leave some or all of the beneficial interest undisposed of. Here B automatically holds on a resulting trust for A to the extent that the beneficial interest has not been carried to him or others. The resulting trust here does not depend on any intentions or presumptions, but is the automatic consequence of A’s failure to dispose of what is vested in him. Since ex hypothesi the transfer is on trust, the resulting trust does not establish the trust but merely carries back to A the beneficial interest that has not been disposed of. Such resulting trusts may be called “automatic resulting trusts.”
(5) Where trustees hold property in trust for A, and it is they who, at A’s direction, make the transfer to B, similar principles apply, even though on the face of the transaction the transferor appears to be the trustees and not A. If the transfer to B is on trust, B will hold any beneficial interest that has not been effectually disposed of on an automatic resulting trust for the true transferor, A. If the transfer to B is not on trust, there will be a rebuttable presumption that B holds on a resulting trust for A.
[104] [1974] 1 Ch 269 at 294 – 295. Megarry J judgment was reversed on appeal on other grounds.
In Barclays Bank Ltd v Quistclose Investments Ltd[105], the House of Lords recognised that a sum lent to a borrower could also be subject to a resulting trust or an express trust by the borrower in favour of the lender where the moneys were advanced solely to pay dividends to the borrower’s shareholders and the mutual intention of the borrower and the lender was that the moneys lent should not become part of the assets of the borrower (Rolls Razor Ltd).
[105] [1970] AC 567
Lord Wilberforce (with whom Lords Reid, Morris of Borth-y-Gest, Guest and Pearce agreed) did not describe the trust in favour of the lender as a resulting trust or an express trust but, rather, he said there was a “primary trust” in favour of the creditors and if that primary trust could not be carried out a “secondary trust” arose for the benefit of the lender.[106] The headnote to the case, however, referred to the trust in favour of the lender as a resulting trust.[107]
[106] Ibid 582A - B
[107] Ibid 567
The decision of the House of Lords has been considered and applied in many cases in Australasia.[108] In Re Australian Elizabethan Theatre Trust[109], Gummow J analysed at length Barclays Bank Ltd v Quistclose Investments Ltd[110]. He concluded that the characterisation of Lord Wilberforce of the transaction into a primary trust and secondary trust was indicative of an express trust with two limbs, rather than an express trust in favour of the shareholders and a resulting trust in favour of Quistclose which arose by reason of an incomplete disposition by Quistclose of the whole of its interest in the moneys lent to Rolls Razor.[111]
[108] See the list of cases in Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 499; (1991) 102 ALR 681 at 689. See also Jacob’s Law of Trusts, Sixth edition, [214] fn 38
[109] (1991) 30 FCR 491; (1991) 102 ALR 681
[110] (1970) AC 567
[111] 691
Gummow J said:
But the essential reason the insolvency law did not strike at the transaction in question in Quistclose was that the moneys represented by the cheque drawn by Quistclose in favour of Rolls Royce and banked in the special account of Rolls Razor never at any stage became the beneficial property of Rolls Razor. It acquired no more than what Dixon J called a dry legal interest: see Commissioner for Stamp Duties (NSW) v Perpetual Trustee Co Ltd[112], at 510. On its part, Quistclose had both contractual right to repayment out of the general assets of Rolls Razor, as a general creditor, and the beneficial interest in a fund, whether by way of resulting trust or as a second limb of an express trust.[113]
[112] [1943] AC 425 and (1941) 64 CLR 492
[113] (1991) 30 FCR 491 at 501; (1991) 102 ALR 681 at 692
Accordingly, depending on the facts, a Quistclose trust is no more or less than a resulting or express trust.[114]
[114] See also Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 100
DID PRIMELIFE HOLD MONEYS ON TRUST FOR THE PHELAN INVESTORS?
The payment to Primelife was made without Primelife providing any valuable consideration where no presumption of advancement can arise. The moneys were therefore held on a presumed resulting trust (to use the words of Megarry J in In re Vandervell’s Trust (No.2)[115]) for the Pre-deposit Investors.[116] The moneys were neither a loan, a purchase, a deposit on a purchase nor a settlement. As indicated in point (5) of the quotation from In re Vandervell’s Trust (No.2)[117] above, and adapting the quote to the identities in this case: where a trustee (Casey Downs) holds property in trust for A (Mr Phelan) and it, at Mr Phelan’s direction, makes the transfer to B (Primelife), similar principles apply as to where A (Mr Phelan) makes the transfer himself, even though on the face of the transaction the transferor appears to be the trustee (Casey Downs) and not A (Mr Phelan). If the transfer to A (Mr Phelan) is not in trust, there will be a rebuttable presumption that B (Primelife) holds on a resulting trust for A (Mr Phelan).
[115] [1974] 1 Ch 269 at 294 - 295
[116] In re Vandervell’s Trust (No.2) [1974] 1 Ch 269 at 294 – 295 as discussed above. See also Ford and Lee Principles of the Law of Trusts para 21060 (loose leaf series)
[117] [1974] 1 Ch 269 at 294 - 295
The moneys were advanced by Casey Downs to Primelife to be used for a specific purpose - that is to be applied as a deposit if the contract of sale was reinstituted between Casey Downs and Primelife. The Pre-deposit Investors did not give away their interest in the moneys unconditionally, nor was it given away on their behalf by their trustee. The intention of Casey Downs (as trustee for the investors) was to apply the moneys as a deposit on behalf of the investors if a contract for the purchase of the land could be made.
Accordingly, in the events which happened, Primelife held the proposed deposit moneys on a resulting trust for the Pre-deposit Investors.
Mr Phelan submitted that a constructive or Quistclose trust arose. As indicated above, Gummow J analysed the Quistclose trust as an express trust with two limbs or an express trust and a resulting trust. In this case, Primelife was not holding the moneys to apply to a third party as in Quistclose. Rather, Primelife was holding the money in anticipation that it might be applied for its own benefit as a deposit if a contract was made. Was there a mutual intention between Casey Downs and Primelife that the moneys would not form part of the property of Primelife? This was an essential element in the making of the Quistclose trust.
In Salvo v New Tel Ltd[118], Spigelman CJ said as follows:
[33] It is well established that an intention to create an express trust can be inferred from the full range of relevant circumstances, including the nature of the transaction and the construction of the words used. (See Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 120; Walker v Corboy (1990) 19 NSWLR 382 esp at 395-399; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (2000) 202 CLR 588 at [34]; Tito v Waddell (No 2) [1977] Ch 106 at 211. The relevant case law has been summarised by Campbell J in Commonwealth v Booker International Pty Ltd [2002] NSWSC 292 at [34] – [45].) There are cases in which it is pertinent to consider the mutual intention of the parties to a transaction. (See Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 at 580B; Australasian Conference Assn Ltd v Mainline Constructions Pty Ltd (in liq) (1978) 141 CLR 335 at 353; Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 502-503; Re Goldcorp Exchange Ltd; Kensington v Liggett [1995] 1 AC 74 at 100.)
[34] As Gummow J put it in Re Australian Elizabethan Theatre Trust (1991) 30
FCR 491 at 503:
The relevant intention is to be inferred from the language employed by the parties in question and to that end the court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them: Walker v Corboy (1990) 19 NSWLR 382; Scott, The Law of Trusts, 4th ed, 1987, s 25.2. There is no need for particular caution in drawing the inference that a trust was intended: Bahr v Nicolay (No 2) 1988) 164 CLR 604 at 618-19. However, it also is important to appreciate both the flexibility of the institution of the express trust and the range of equitable institutions which fall short of but have some of the characteristics of a trust.
[118] [2005] NSWCA 281
I am not satisfied that there was a mutual intention between the parties Casey Downs and Primelife to create an express trust. Although, in Quistclose, an express trust was found to exist in favour of the shareholders of Rolls Razor, the trust in favour of Quistclose may have been a resulting trust. It was identified as such in the headnote as I have already observed and Gummow J concluded it may have been a resulting trust.
To the extent that the term Quistclose trust encompasses a resulting trust, I shall treat Mr Phelan’s claim as encompassing a resulting trust.
As indicated above, in this case I find that there was a resulting trust on the basis that the money was paid to Primelife in the absence of any consideration where there was no presumption of advancement to Primelife. The presumption is rebuttable but it has not been rebutted in this case.
Accordingly, I find that the moneys received by Primelife were held on trust by it for the Pre-deposit Investors to be applied only towards a deposit if a contract was reached. That purpose was abandoned and the Pre-deposit Investors were entitled to their moneys. Casey Downs had no right to the moneys. The proposed joint venture had failed and was at an end.
CONSTRUCTIVE TRUST
Mr Phelan alleges that Primelife held the purported deposit payment on a constructive trust for himself and the other relevant investors. The precise pleadings are set out above.
Mr Phelan alleges that at the time of the payment, Primelife had a copy of Mr Phelan’s syndicate agreement. This is an agreed fact.
Further, Mr Phelan alleges that the payment was made in breach of clauses 2.1, 3.1 and 5.2 of the syndicate agreement. Mr Phelan alleges that Casey Downs had not received sufficient capital from participants to allow it to proceed with the purchase of the syndicate property. Accordingly, Mr Phelan contends the syndicate agreement had not come into effect. As such, Casey Downs had no authority to use Mr Phelan’s moneys to pay Primelife a purported deposit. Mr Phelan contends that Casey Downs did not disburse the funds in accordance with the syndicate agreement. Further, that Casey Downs did not make the payment for the acquisition of the syndicate property. The syndicate agreement stated that the Real Estate Contract was annexed. It was not. In fact, it had been rescinded. Further, that there was no imprimatur in the syndicate agreement to make a payment on the “off chance” that a new contract for the purchase of the syndicate property might exist in the future. He says the purpose for which he had agreed to make an investment in Casey Downs had failed prior to him even making the investment. Alternatively, Mr Phelan alleges the purpose for which the investment was made had failed. Mr Phelan alleges that, by reason of the rescission notice served by Primelife, Primelife knew the purpose for which the sum had been paid had already failed.
By reason of these matters, Mr Phelan alleges Primelife held the proposed deposit moneys on a constructive trust for Mr Phelan and other participant investors.
Mr Phelan does not allege Primelife knew, either actually or constructively, of the payment being made in breach of the clauses of the syndicate agreement. Nor does Mr Phelan allege that the payment was made in breach of trust. The written submissions submitted on behalf of Mr Phelan also do not make these allegations. Notwithstanding this, the written submissions do allege Primelife had notice of the terms of the syndicate agreement setting out the express trust giving rise to a relationship of a fiduciary character or trust.[119]
[119] Written submissions – contentions of law: [6]
A constructive trust would not arise in the present circumstances merely because Primelife knew that the payment was being made from moneys held by Casey Downs on trust. In my view, it would be necessary to establish that Primelife knew or had constructive knowledge that the moneys were trust moneys and had been paid to Primelife in breach of trust.
Mr Randall conceded that he had not pleaded Barnes v Addy[120], which set out the principles whereby a third party may be held liable as a constructive trustee for receiving trust property or knowingly participating in a breach of trust.[121] The principles in that case proceed on the assumption that there has been a breach of trust. On the other hand, Mr Randall did contend that Primelife “in effect” knew that the moneys should not have been handed over.[122]
[120] (1874) LR 9 Ch App 244
[121] Transcript 179
[122] Transcript 179 line 16
There is no evidence that Primelife knew that there had been a breach of the clauses of the syndicate agreement or that there had been a breach of trust by Casey Downs. There is no evidence of what, if any, inquiries Primelife made. The fact that it received trust properties where the purpose for the payment to it had failed gives rise to a resulting trust as I have discussed above. Accordingly, I refrain from finding whether Primelife held the moneys also on a constructive trust.
WAS THE TRUST FUND RECONSTITUTED?
I have found that Primelife did hold the purported deposit moneys on trust for Mr Phelan and the other Pre-deposit Investors. Those moneys have been dissipated. There is no evidence that any of those moneys can be traced into the trust fund that Primelife settled on Duffy & Simon.
Mr Randall submitted that the facts establish that the purported deposit trust fund (if I can call it that) which had been dissipated, was reconstituted by the moneys that were settled by Primelife on Duffy & Simon. There is no doubt that a dissipated trust fund can be reconstituted if that was the intention of the person reconstituting it: James Roscoe (Bolton) Ltd v Winder.[123] In that case, Sargant J said:
Of course, if there was anything like a separate trust account, the payment of the further moneys into that account would, in itself, have been quite a sufficient indication of the debtor to substitute those additional moneys for the original trust moneys, and accordingly to impose, by way of substitution, the old trusts upon those additional moneys. But, in a case where the account into which the moneys are paid is the general trading account of the debtor on which he has been accustomed to draw both in the ordinary and in breach of trust when there were trust funds standing to the credit of that account which were convenient for the purpose, I think it impossible to attribute to him that by the mere payment into the account of further moneys, which to a large extent he subsequently used for the purpose of his own, he intended to clothe those moneys with a trust in favour of the plaintiff.[124]
[123] James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch. 62
[124] Ibid 69
In Bishopsgate Investment Management Ltd v Homan[125], Dillon LJ said there must be “clear evidence” of an intention to make good a depredation.
[125] [1995] Ch 211 at 220; see also Ford and Lee Principles of the Law of Trusts [17245] [17.40733]
For the reasons discussed below, I find that it may have been the intention of Primelife to reconstitute the trust fund subject, however, to its consent being given to the release of the moneys to the investors once their entitlement had been determined. As discussed below, the terms of the trust are therefore slightly different to the terms of the resulting trust that Primelife previously held the purported deposit moneys under. I refrain from making a final determination of that issue. In my opinion, the proper characterisation of the moneys settled on Duffy & Simon is of an express trust which was intended to be applied to compensate those investors who would otherwise have been entitled to the trust fund constituted by the purported deposit moneys. In the end, the result is the same, although there is the subtle difference that the purported deposit moneys were held on a resulting trust, whereas the Duffy & Simon fund is the express trust.
THE STAKEHOLDERS AGREEMENT
As it was, the trust fund was dissipated by Primelife. It was mixed with its own funds and there is no evidence to suggest that the moneys Primelife paid to Duffy & Simon were the moneys initially received by it from Casey Downs.
Mr Phelan contends that the moneys paid to Duffy & Simon were settled on Duffy & Simon as trustee. I agree. The terms of the trust made it clear that the beneficiaries were the investors.
Casey Downs submits that the beneficiaries were uncertain and, in accordance with the principles of resulting trusts set out above, as the trust failed for uncertainty, the moneys would be held by Duffy & Simon on a resulting trust for Primelife. I do not accept the submission.
In my opinion, Primelife intended to replace the fund it initially received with the fund it settled on Duffy & Simon in order to have it distributed to those entitled at law to the original fund.
The terms of the Stakeholders Agreement provide that the fund is to be held on trust.
The Stakeholders Agreement contains several provisions that indicated the fund was to be held on an express primary trust for the Pre-deposit Investors.
Clause 7 provides that Primelife had offered to contribute moneys to establish a fund to be applied to the investors in the event that there is any shortfall between the moneys that investors provided to Casey Downs and any moneys recovered by them from Casey Downs and for no other purpose.
Clause 8(a) provides that the moneys were to be held by Duffy & Simon on trust as a stakeholder.
Clause 8(e) provides that the stakeholder was not to withdraw any moneys from the bank account until such time as the following occurs:
(i) Primelife provides its written consent to the stakeholder for the release of any money in the bank account to an identified investor or identified investors in the manner and on the terms provided for; or (ii) a court of competent jurisdiction directs the stakeholder to release any money in the bank account on terms provided for in the court order.
Under clause 8(e)(i) the fund could only be paid to investors.
Under clause 9 the stakeholder was to hold the money on trust for the benefit of the investors according to the above terms. In Romanous v Saleh[126] White J of the Supreme Court of New South Wales held that a stakeholder for a deposit is not customarily required to hold it on trust. He said:
…subject to the express terms of a contract, a stakeholder is not customarily required to hold a deposit received under a contract for the sale of land on trust for the parties, in other words, to hold the moneys separate from his or her own moneys. The obligation of a stakeholder is usually to pay the deposit to whoever is entitled to it, but the obligation to make that payment is a personal obligation rather than an obligation to account for trust moneys: Potters (a firm) v Loppert[127]; Hastingwood Property Ltd v Saunders Bearman Anselm (a firm)[128]; Manzanilla Ltd v Corton Property & Investments Ltd.[129]
The terms of the Stakeholder Agreement make it quite clear the fund was to be held on trust and that beneficiaries of the trust were the investors.
[126] [2008] NSWSC 656 at [16]
[127] [1973] Ch 399 at 409
[128] [1991] Ch 114 at 123
[129] Court of Appeal, Millet LJ, 13 November 1996 unreported at 11
The moneys were only payable, however, in the event specified in clause 7. That is, “in the event that there is any shortfall between the moneys that investors provided to Casey Downs and any moneys recovered by them from Casey Downs.”
This event has been satisfied. There is no dispute there is such a shortfall.
Casey Downs contends that the fund was held for Primelife absolutely. The terms of the trust do not support such a contention. At most, the fund would be held on a resulting trust for Primelife if the primary trust fails.
It is submitted by Casey Downs that it is not possible at the time Primelife transfers the fund to Duffy & Simon, or at any other material time, to compile a complete list of the investors in the Casey Downs Retirement Village and their respective contributions and, accordingly, the trust failed for lack of list certainty of beneficiaries.
There are only two possible lists of investors. First, the Pre-deposit Investors and secondly, all the investors, whether they invested before or after the deposit. In my opinion, the trust makes it clear that Primelife wished the moneys to go to those investors who were entitled to the return of the proposed deposit moneys that were paid to Primelife. There was a dispute as to who was entitled. It was clear, however, that the beneficiaries were those investors who, as a matter of law and fact, were entitled to the return of the proposed deposit moneys.
For the reasons expressed above, those investors were the Pre-deposit Investors. Thus, the trust has not failed for lack of uncertainty.
The factual context in which the Stakeholders Agreement was reached supports the construction I have given the agreement. The Stakeholders Agreement states that Casey Downs paid Primelife the sum of $1.2 million, being a deposit of the purchase price of the “subject land”. This was a misstatement of the facts, according to the statement of agreed facts. It is agreed that Primelife issued a Notice of Rescision to Casey Downs dated 1 July 2003 which purported to rescind the contract if, within 14 days of service of the Rescision Notice on Casey Downs, it failed to remedy its default.[130] Casey Downs failed to remedy its default.[131] Primelife received from Casey Downs the sum of $1.2 million on 25 August 2003, purportedly by payment of the deposit for Casey Downs’ purchase of the Berwick site in contemplation of the reinstatement of the contract of sale.[132] Casey Downs failed to complete the purchase of the Berwick site.[133] The negotiations to reinstate the contract were unsuccessful and the proposed joint venture between Casey Downs and Primelife was abandoned.[134]
[130] SAF [15]
[131] SAF [16]
[132] SAF [19]
[133] SAF [21]
[134] SAF [23] and [24]
Recently, the High Court examined the nature of a “deposit” in Commissioner of Taxation v Reliance Carpet Co Pty Ltd.[135] It is plain from the joint judgment of Gleeson CJ, Gummow, Heydon, Crennan and Kieffel JJ that the payment to Primelife would not constitute a deposit in the normal sense unless and until the contract was entered into. The deposit is evidence that the bargain has been entered into.[136]
[135] [2008] HCA 22
[136] Ibid para 27
On 12 November 2004, Primelife’s General Counsel wrote to Renato Cenedese, a director of Assured Financial Services (a financial advisor to some of the investors) that Primelife retained $1.2 million received from Stanley (Casey Downs) and “wishes to make sure that those funds are refunded to the investors.”[137] Mr Flood also said “Primelife does not wish to distribute any of those moneys until we are satisfied that the distributions are made to the right persons. Accordingly, I propose to provide Mr Stanley with a list of the investors (and their investment amounts) as per the information that you have provided. Assuming that Mr Stanley cooperates in providing this information, I see no reason why we cannot then proceed to refund the moneys directly to the investor.”[138]
[137] SAF [30]
[138] CB 430
This correspondence confirms there was some uncertainty as to which investors were legally entitled to the moneys. There is no suggestion in the correspondence that the moneys were to go to any investors other than those legally entitled to the moneys.
Mr Dixon SC for Casey Downs submits that under the trust, Primelife was the beneficial owner of the moneys. He submits this is supported by the fact that the moneys could not be released by Duffy & Simon without the consent of Primelife. I do not agree. The moneys could only go to an “identified investor”. In my view, an “identified investor” means a person who has been identified as an investor entitled to the money. Further, the power given to the courts to direct release of the money is not consistent with Mr Dixon’s submission. Mr Dixon submitted that Primelife retained the ultimate control over the disposition of the fund. It could withhold consent and prevent the fund going to anybody but itself. In my view, if Primelife refused to consent to moneys being released to investors entitled to the moneys and appropriate releases were offered, the court could release the moneys under clause 8(e)(ii). In my view, Primelife’s powers were limited to achieving the purpose of the trust.
The terms of the agreement provide that the fund can be distributed as the court directs. The court could only direct it to be distributed to those entitled to it. The only investors entitled to it will be those who are entitled to the proposed deposit moneys received by Primelife.
I reject the submission on behalf of Casey Downs that the moneys in court are held on a resulting trust for Primelife. The Stakeholders Agreement makes it clear the fund is to be held for the investors. A resulting trust in favour of Primelife would only arise if the trust failed. Casey Downs’ claim to the fund is by the irrevocable direction of Primelife of 15 May 2006. That direction would only be activated if the fund were the property of Primelife. It is not.
SUBMISSIONS ON BEHALF OF RICHARDSON
On 29 October 2004 Primelife’s then General Counsel, Gregory David Flood (Flood), and Primelife’s solicitor Harold James Johnson (Johnson) met with Renato Cenedese (Cenedese), a director of Assured Financial Services.
At that meeting: -
(a)
Cenedese said that he was a financial advisor and a number of his clients had invested moneys with Casey Downs in connection with the Casey Downs Transaction.
(b)
Cenedese tabled a list of investors’ names and amounts invested, and said that while this was a list of investors who were clients of his firm there were another six investors not on the list who were clients of Neil Robertson (Robertson), a director of Robertson Wouters who had invested, in total, $600,000.
(c)
According to that list, a total of 11 of Cenedese’ Investors had invested $725,000 (although he claimed in this meeting that there was a $10,000 understatement for one of his investors, so the correct amount was $735,000).
(d)
In total, Cenedese stated that he and Robertson had as clients 17 investors who had invested a total of $1,335,000 with Casey Downs in relation to the Casey Downs Transaction.
At the meeting Johnson stated to Cenedese words to the following effect:
(a) While Primelife had no reason to doubt the genuineness of the claims contained in that list of investors, Primelife could not refund directly to those persons any of the moneys that Primelife had received from Casey Downs. (b) That was because there was no contractual privity between Primelife and the persons who had invested moneys with Casey Downs, and also because Primelife would first need written instructions and authority from Stanley or some other person with due authority to act on behalf of Casey Downs before refunding moneys directly to persons who were creditors of Casey Downs. (c) Primelife had no way to determine the validity of claims by persons claiming to be creditors of Casey Downs by virtue of investing moneys with Casey Downs in connection with Casey Downs’ involvement in the Casey Downs Transaction. (d) There were practical as well as legal reasons why the involvement of Casey Downs was critical to the process of returning the Casey Downs Deposit Moneys through to the true investors.
Shortly after the meeting on 29 October 2004 Cenedese provided to Primelife by facsimile a copy of the list of investors that he had tabled at that meeting. [Court Book 435]
On 12 November 2004, Flood wrote to Cenedese stating inter alia [Court Book 429- 430]:
(a) that it was not proceeding with the proposed sale and joint venture because of taxation advice that “cast doubt on the correctness of original taxation advice, and negatively impacted on the viability of the joint venture”; (b) Primelife had provided formal notice of the termination of the project in July 2003; however taxation advice continued being sought in an attempt to rework the project to make it financially attractive. By the end of September 2003, all work on the project was abandoned; (C) Primelife retained $1.2 million received from Stanley and “wishes to make sure that these funds are refunded to the investors.”
(d) Primelife had been hindered due to a lack of information and its inability to get a response from Stanley. (e) Primelife would provide Stanley with a list of investors and the amounts invested requesting him to confirm the information. In the event that Stanley provided a response, it could see no reason why the funds could not be distributed.
Later in November 2004 Flood and Johnson met with Cenedese and Robertson again to discuss Cenedese’s list of investors and the return of the Casey Downs Deposit Moneys. Johnson reiterated to Cenedese and Robertson the substance of
what he had told Cenedese on 29 October 2004.
During November and December 2004 Johnson unsuccessfully tried to organise meetings with Stanley to discuss the claims made by Cenedese on behalf of his clients.
On 14 December 2004, Flood wrote to Cenedese, stating inter alia:
(a) the proposed sale of the retirement village would not be proceeding; (B) it was Stanley’s responsibility to seek “the return of any moneys refundable
by Primelife under the Contract of Sale and it is his responsibility to return
them to investors.”(c)
appointments had been made with Stanley to discuss the matter, however he had cancelled for medical reasons and further attempts to contact him had not been successful.
(d)
Primelife held $1.2 million paid by Stanley under the Contract to purchase and construct the retirement village;
(e)
Primelife was willing to refund this amount in full to the investors, including paying the monies direct to the investors.
(f)
The monies could not be disbursed without proper written authority and confirmation from investors, forwarded by Stanley or some other person authorised to act on Casey Down’s behalf.
On about 17 December 2004 Primelife wrote a letter to Casey Downs [Court Book 629-633] enclosing a draft form of authority and release (Draft Authority and Release). Cenedese’s list of investors was incorporated as a schedule to the Draft Authority and Release. On 17 December 2004 Johnson posted the letter to Stanley by registered post addressed to Stanley’s then business address and to Stanley’s then home address.
On 24 January 2005 Johnson again met with Cenedese and Robertson.
At that meeting:-
(a)
Johnson stated in substance that Primelife would return the $1,200,000 to Casey Downs, subject to a deed of release and authority being signed by Stanley for Casey Downs, and Casey Downs agreeing that Primelife pay those
proceeds directly to Casey Down’s investors.
(b)
Johnson stated words to the effect that Primelife would add an ‘interest factor’ which would go close to bridging the gap between the amount claimed in the Cenedese List of Investors and the $1,200,000 Primelife received from Casey
Downs.
(c) Robertson requested that Primelife pay interest calculated at 7 per cent per annum. (d) Johnson said that he would get instructions from Primelife on that request. Johnson said words to the effect that if Primelife agreed to this, that extra amount would cover a portion of the $160,000 gap between the amount claimed in Cenedese’s list of investors ($1,360,000) and the $1,200,000 that was the Casey Downs Deposit Moneys.
Also on 24 January 2005 Johnson received a phone call from Richard Bridge, solicitor, of Duffy & Simon. Richard Bridge informed Johnson that Duffy & Simon acted for a Mr Heaton, who was one of the persons listed in Cenedese’s list of investors. Richard Bridge told Johnson that Duffy & Simon had obtained a judgment debt for Mr Heaton for $29,211 plus interest and costs against Casey Downs.
On 11 February 2005, Sutton Johnson, Primelife’s solicitors wrote to the first defendant, Duffy & Simon Lawyers (“Duffy & Simon”) confirming the following matters [Court Book 437-442]:
(a) that Duffy & Simon were representing Mr. & Mrs. Heaton. (b) that Duffy & Simon had received instructions from Neil Robertson of Robertson Wouters and Renato Cenedese of Assured; (c) that Duffy & Simon were representing the interests of “all the investors in the Casey Downs Retirement Village Pty Ltd syndicate” Sutton Johnson added that the purpose of the letter was to formalise “the settlement offer” that Primelife had discussed with Robertson and Cenedese on 24 January 2005. The settlement offer was that Primelife would contribute $1,326,000.00 comprised of $1,200,000.00 being the deposit and $126,000 being an interest factor calculated at the rate of 7 per cent from 25 August 2003 to 24 February 2005. The offer was conditional on:
i) Casey Downs, Stanley and the other “Ambridge Parties” executing an Authority and Release;
ii) each investor executing a Deed of Release and Indemnity;
iii) Primelife and its employees and agents being included as “release
parties” that the investors may grant in favour of Casey Downs,
Stanley or any companies or persons associated with them;iv) Primelife would distribute the sum of $1,326,000 pro rata directly to the
investors;v) Primelife would reserve its rights not to make any payments to any investors until all of the required releases had been received.
By letter dated 10 March 2005 Duffy & Simon wrote to Primelife [Court Book 447- 451], the substance of which was:
We refer to our discussions with James Johnson of Sutton Johnson and the agreement to act as stakeholder for the Casey Downs Retirement Village Pty Ltd deposit.
We now attach signed stakeholder’s agreement.
We advise that we have made only one amendment in addition to those James Johnson proposed, that is, we have amended paragraph 6 to read “Duffy & Simon are the solicitors for many of the investors …” as opposed to “… the Pakenham Investors …”.
We confirm our undertaking that on receipt of the Casey Downs Retirement Village Pty Ltd deposit money we will open a separate bank account styled the Duffy & Simon Primelife Corporation Limited/Casey Downs Retirement Village Pty Ltd stakeholders account.
Can you please confirm with us when you electronically transfer the deposit funds?
On 3 March 2005 Johnson had a telephone discussion with Richard Bridge of Duffy & Simon:-
(a)
Richard Bridge asked him if Primelife would be prepared to deposit the moneys with Duffy & Simon as a stakeholder, for Duffy & Simon to receive these moneys and deposit them in a bank account that earned a good rate of interest so that the value of the deposit would continue to grow.
(b)
Johnson said to Richard Bridge that he had instructions to put that proposal to Duffy & Simon.
(c)
They had a brief discussion about whether Duffy & Simon might have a conflict of interest, as Duffy & Simon would have obligations to Primelife in respect of the Stakeholder Account and obligations to their clients as claimants against Casey Downs.
(d)
Johnson said to Richard Bridge that he had discussed this point with Primelife and his view was that their role as Stakeholder would be essentially a passive custodian role as Duffy & Simon would simply hold the funds until
authorised by Primelife to disburse them.
(e) Johnson told Bridge that Johnson thought that any conflict was more perceived than real. (f) Bridge said that he had thought about this point before making the suggestion to Johnson. (g) Johnson and Bridge then agreed that Duffy & Simon would prepare a first draft of a Stakeholders Agreement for Johnson to review for Primelife.
Later that day Duffy & Simon sent to Primelife a facsimile summarising that telephone conversation between Richard Bridge and Johnson, which stated, amongst other things [Court Book 634]:
Considering the failure, alternatively, the refusal, of Mark Stanley to take control of CDRV and return the investment money to our clients (and other investors) we are left with little choice other than to seek to have an administrator appointed to CDRV. It is anticipated that once this occurs, an orderly winding up of CDRV can take place.
However, until such time as an administrator is appointed, we request that Primelife Corporation Limited pay into the Duffy & Simon trust account the $1.2m that CDRV paid as a deposit (after Primelife rescinded the contract of sale) plus the interest which Primelife Corporation Limited as promised at 7%. Duffy & Simon will then hold this money as stakeholder pending the orderly appointment of and (sic) administrator to CDRV.
By facsimile dated 10 March 2005, Duffy & Simon forwarded to Primelife a Stakeholders Agreement and requested that Primelife pay the funds for the stakeholder account to their firm’s trust account, notwithstanding that Primelife
required (as set out in paragraph 8(c) of the Stakeholders Agreement) that the moneys be placed in a bank account that yielded a good rate of interest [Court Book 447-457].
In the facsimile dated 10 March 2005 Duffy & Simon gave a written undertaking in the following terms:
We confirm our undertaking that on receipt of the Casey Downs Retirement Village Pty Ltd deposit money we will open a separate bank account styled the Duffy & Simon Primelife Corporation Limited/Casey Downs Retirement Village Pty Ltd stakeholders account.
Richard Bridge subsequently told Johnson during a telephone conversation in March that the moneys would be transferred from there to an account of the kind that Primelife required.
On 10 March 2005, Duffy and Simon and, on 16 March, 2005, Primelife executed a Stakeholders Agreement (“the Stakeholders Agreement”) [Court Book 526-528].
Primelife paid the sum of $1,200,000.00 into a bank account (“the deposit fund”) in the name of Duffy & Simon on 18 March 2005.
On 21 March 2005 Primelife transferred to the Duffy & Simon trust account the sum of $131,178.08 as interest on the principal amount at the rate of 7 per cent per annum for a period of 570 days (from 23 August 2003 to 16 March 2005).
On 23 March 2005, the sum of $1,331,178.08, being the principal amount and the interest amount was forwarded by Duffy & Simon to the Bendigo Bank for placement into a term deposit in the name of Casey Downs Retirement Village Investment, for a period of 5 months at an interest rate of 5.55% per annum [Court Book 627-628].
Duffy & Simon received and held the principal amount and the interest amount as trustee pursuant to the terms of the Stakeholder Agreement.
These funds were invested by Duffy & Simon until payment into the Victorian Supreme Court on 22 March 2007.
Greg Stuart Andrews (the Liquidator) was appointed official liquidator of Casey Downs Retirement Village Pty Ltd (ACN 103 248 979) on 12 August 2005 pursuant to an order made by this Honourable Court on the application of the Australian Securities and Investments Commission (“ASIC”).
Stanley was the sole director and secretary as at the date of the winding up order. A Sequestration Order was made against Mr Stanley’s estate on 17 May 2005 and his trustee in bankruptcy is Mr Paul Weston of Horwarth in Sydney, New South Wales [Court Book 635].
In support of the Application by the ASIC in this Court in 2005 to wind up Casey Downs, an Affidavit by Joseph Zubcic sworn 27 July 2005 (“the Zubcic Affidavit”) was filed. This affidavit sets out the investigations of ASIC into the affairs of Casey Downs and dealings with investors [Court Book 463-517].
The Liquidator has not received a Report as to Affairs from Stanley.
The liquidator has no funds available to him and has not realised or recovered any assets of Casey Downs.
On 12 August 2005, the Liquidator wrote to Duffy & Simon notifying them of his appointment as the Casey Down’s official liquidator and requested them to forward the sum held pursuant to the Stakeholders Agreement to his office [Court Book 518].
On 17 August 2005, Duffy and Simon responded to the Liquidator’s letter dated 12 August 2005 stating that it was not holding any money on behalf of Casey Downs and could not accede to the Liquidators request to forward the sum held pursuant to the Stakeholders Agreement [Court Book 625].
On 24 August 2005, the Liquidator wrote to John Martin, Primelife’s General Counsel and General Manager – Corporate and requested the following information [Court Book 555-556]:
(a)
the amount that was transferred to Duffy and Simon pursuant to the Stakeholders Agreement;
(b) whether Duffy & Simon had distributed the funds to any party; (c) whether any investors had sought to have their monies returned; (d)
whether legal action has been commenced against Primelife by any party in respect of the Berwick Site; and
(e)
whether Primelife had given permission to Duffy & Simon to distribute the funds to any party.
On 30 August 2005, the Liquidator wrote to Duffy and Simon requesting the following information [Court Book 557-228]:
(a) the basis upon which they stated that they were not holding any money on behalf of Casey Downs in light of the sworn statements made by Mr. Zubcic in his affidavit dated 27 July 2003; (b) whether any funds had been distributed to any parties; and (c) whether any investors had sought to have their monies returned.
On 30 August 2005 Duffy & Simon wrote to the Liquidator and advised, amongst other things, the following [Court Book 559-560]:
(a) it held $1.3 million as a stakeholder; (b)
Primelife paid the money to Duffy & Simon as an ex-gratia payment for the benefit of investors generally.
(c)
Primelife asserts that Casey Downs failed to perform its contract with Primelife, and as such forfeited the deposit money to Primelife;
(d)
Primelife’s position was that it did not refund the deposit payment itself to Duffy & Simon;
(e)
Duffy & Simon is acting as a stakeholder trustee and is not entitled to withdraw any money from the stakeholder’s account without written consent of Primelife, or a Court order directing the release of money;
(f)
it is Duffy & Simon’s view that the money Primelife has paid to it as stakeholder is not an asset of Casey Downs;
(g)
that those funds are monies which Duffy & Simon holds for the benefit of Casey Downs’ investors generally;
(h)
that Duffy & Simon had not distributed funds to any party, and would not do so without either the consent of Primelife, or alternatively a Court order;
(i)
Duffy & Simon had advised all known investors that it holds the money as a stakeholder trustee for the benefit of the investors generally, and also the basis on which it will return that money to the investors;
(j)
there had been no demand from investors to have their money returned from the fund;
(k) Duffy & Simon intend to continue to act as the stakeholder trustee; (l)
Duffy & Simon would seek to have the money returned to identified investors pursuant to a Court order once the Liquidator had determined the extent of the shortfall of funds available to Casey Downs’ investors as a result of the liquidation; and
(m)
that Duffy & Simon would assist the Liquidator in reaching a decision as to whether there is any money available to investors from Casey Downs.
On 6 October 2005 Primelife wrote to the Liquidator and advised, amongst other things, the following [Court Book 561]:
(a)
it transferred $1,331,178.08 to Duffy & Simon pursuant to the terms of the Stakeholders Agreement.
(b)
it did not know whether Duffy & Simon had distributed any of the funds. Primelife had not received any request from Duffy & Simon to consent to, nor given any permission for, any distributions out of the fund.
(c)
Primelife would consent to the funds currently being held by Duffy & Simon being released to the Liquidator, but would be conditional on being provided with acceptable releases and indemnities from the Liquidator (on behalf of
Casey Downs) and from the investors and conditional on the Liquidator providing ASIC with reasonable written notice prior to making any distributions.
On 20 October 2005 Gadens Lawyers (Gadens) wrote, on the Liquidator’s behalf, to Duffy & Simon and sought, amongst other things, the following [Court Book 562-563]:
(a) precisely which of the investors they acted for and copies of any written retainer/authorities evidencing their retainer to act on behalf of those investors. (b) at least seven days written notice of Duffy & Simon’s intention to seek any directions or bring any application to the court in order to distribute any of the deposit fund.
On 25 October 2005 Duffy & Simon wrote to Gadens and stated, amongst other things, the following [Court Book 564-565]:
(a) it no longer acts for the group known as the Pakenham investors. (b)
it had stated to the Pakenham investors that there was a potential conflict of interest in acting on their behalf in circumstances where the class of beneficiaries entitled to the money Duffy & Simon holds on trust is greater than the Pakenham investors that Duffy & Simon originally represented.
(c)
as it holds the money from Primelife pursuant to an express trust contained in the Stakeholder’s Agreement, it is the intention of Edwin Hume and Don Duffy (partners of Duffy & Simon) to act as trustees pursuant to that agreement and on completion of the liquidator’s investigations into Casey Downs, approach the Court seeking directions as to the distribution of the trust money to the investors of Casey Downs.
(d)
it could not seek directions of the Court until such time as the Liquidator had completed my investigations into Casey Downs and determined the full extent of the shortfall in investors’ funds.
(e)
it understood that the Pakenham investors are now represented by Mr Neville Samson of Boothby & Boothby while Mr Dominic Calabria of Kemp Strang in Sydney was representing Tim Phelan, Glen Foster, and Stuart Bradley.
(f)
it was not aware of who represents the other investors, however, that Duffy & Simon understood that all investors were aware of Duffy & Simon acting as the stakeholder for the money from Primelife.
(e)
On 15 November 2005 Primelife wrote to Gadens and stated, amongst other things, the following [Court Book 566-568]:
(a)
it would welcome the Liquidator to take possession of the funds currently held in the Stakeholder Account by Duffy & Simon.
(b) it is willing to sign documentation appropriate to affect this. (c)
it had agreed with Duffy & Simon to establish the Stakeholder Account to demonstrate to various investors represented by Duffy & Simon that Primelife would make good its promise to refund the $1.2 million received from Casey Downs.
(d)
that because of the uncertainty as to whom would be entitled to these funds, and the likelihood that a liquidator would in due time be appointed, that this seemed to Primelife the fairest way for these monies to be set aside for those
entitled to receive them.
it sought a document acknowledging that the sale transaction did not proceed, interest, with mutual releases by Primelife and Casey Downs (via the liquidator) of all claims relating to the making and termination of the contract.
On 30 January 2006 Duffy & Simon wrote to the lawyers for Primelife, Sutton Johnson, and stated that it had incurred significant legal fees and disbursements in acting in this matter. Its intention was to deduct those fees from the accrued interest earned to date from the trust fund seven days after the date of the letter unless there were objections [Court Book 569-583]. It stated that the interest accrued since the initial deposit was $62,658.55. Duffy & Simon’s legal fees and disbursements incurred to that date were $53,814.10, inclusive of GST.
On 3 February 2006, Primelife wrote to Duffy and Simon noting that the stakeholder account had been established as a “stop gap measure” to reassure the investors that the proceeds that it had received from Mark Stanley were in “safe hands”. The letter added that Primelife was “generally disposed to rely on the liquidator’s judgment as to the proper disbursement of the trust fund…….” [Court Book 584-585]
On 8 February 2006, Duffy and Simon advised Gadens that it intended to deduct the sum of $53,814.10 from the funds held without further notice [Court Book 588].
On 6 February 2006 Gadens wrote to Duffy & Simon and stated, amongst other things, that the Liquidator was not in a position to agree with its proposal to deduct fees from the deposit fund [Court Book 586-587].
On 15 February 2006 Gadens wrote to Duffy & Simon and objected to its proposal to deduct its professional fees and disbursements and stated that my position remains unchanged.
By an Irrevocable Direction dated 15 May 2006, Primelife directed Duffy & Simon to transfer the fund to the Liquidator as follows [Court Book 591].
IRREVOCABLE DIRECTION
TO: Duffy & Simon Lawyers of 13 John Street, Pakenham (Duffy & Simon) (Attention: Mr Edwin Hume and Mr Donald Duffy)
FROM: Primelife Corporation Limited ACN 010 662 901 (Primelife) AND
COPY TO:Casey Downs Retirement Village Pty Ltd (in Liquidation) ACN 103 248 979 (Casey Downs)
Background
A. Primelife and Duffy & Simon are parties to a Stakeholders agreement dated March 2005 (the Stakeholders Agreement) by which Duffy & Simon hold funds provided by Primelife on the terms and conditions in the Stakeholders Agreement (the Funds). Irrevocable Direction
1. Primelife hereby IRREVOCABLY DIRECTS Duffy & Simon to pay out the Funds comprising the stake held by Duffy & Simon together with all interest thereon free from any deduction or set off whatsoever to Casey Downs (or as otherwise directed by Casey Downs), within 2 business days of receipt of this Irrevocable Direction.
Dated: This 15th May 2006.
Executed by Primelife Corporation Limited ACN 010 662 901 by:
On 22 March, 2007, pursuant to the order of Justice Dodds-Streeton, Duffy & Simon transferred into court, the balance standing in the Bendigo Bank account.
---
3
9
0