Rothmore Farms Pty Ltd (In liq) v Belgravia Pty Ltd
[2005] SASC 117
•30 March 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ROTHMORE FARMS PTY LTD (IN LIQ) v BELGRAVIA PTY LTD AND ORS
Judgment of The Honourable Justice Perry
30 March 2005
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - LIABILITY FOR BREACH OF TRUST
The plaintiff, the trustee of a family trust, alleged that the defendants wrongfully transferred assets out of the Trust with the intention of defeating its right of indemnity against the Trust assets with respect to debts which it owed to banks for advances used in conducting a farming business - one of the defendants, a company, was substituted as Trustee and subsequently advanced the vesting of the Trust and transferred its assets to one of the beneficiaries, thereby purporting to terminate the Trust - held that the company which was substituted as trustee and the family members who were its directors were guilty of breaches of fiduciary duties owed to the plaintiff and were liable to pay equitable compensation assessed by reference to the profits made in their operation of the farming business after displacing the plaintiff as Trustee - observations as to the manner in which equitable compensation should be assessed and as to the plaintiff’s entitlement to compound interest to compensate it for loss of use of the moneys.
Bankruptcy Act 1966 s 121(1)(b); Law of Property Act 1936 (SA) s 86(1) and s 86(2); Corporations Act 2001 s 563B, referred to.
H A J Ford, Principles of Company Law (Butterworths) 5th edition (1990); Jacobs' Law of Trusts in Australia (Butterworths) 6th edition (1997); Dal Pont and Chalmers, Equity and Trusts in Australia and New Zealand LBC Information Services, 2nd edition (2000); Re Wakim: ex parte McNally (1999) 198 CLR 511; All Benefit Pty Ltd (in liq) v Registrar-General and Ors (1993) 11 ACSR 578; Alvaro v ANZ (1992) 165 LSJS 5; Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99; Jennings v Mather [1902] 1 KB 1; Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3 ACSR 183; Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576; Re Neander Constructions Pty Ltd (1988) 12 ACLR 775; Glegg v Bromley [1812] 3 KB 474; Barnes v Addy (1874) LR 9 Ch App 244; Tesco Supermarkets Ltd v Nattrass [1972] AC 153; Consul Developments Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373; Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378; Voss v Davidson (Unreported) [2002] QSC 316, 10 October 2002; Australian Securities Commission v A S Nominees Ltd (1995) 133 ALR 1; Twinsectra Ltd v Yardley and Ors [2002] 2 AC 164; Equiticorp Finance Ltd (in liq) v The Bank of New Zealand (1993) 32 NSWLR 50; Cadwallader v Bajco Pty Ltd (Unreported) NSW Court of Appeal, BC 200205647; Robins and Ors v Incentive Dynamics Pty Ltd (in liq) and Anor [2003] NSWCA 71; Tara Shire Council v Garner [2003] 1 Qd R 556; Nocton v Lord Ashburton [1914] AC 932; Hill v Rose [1990] VR 129; Canson Enterprises Ltd et al v Boughton & Co et al (1991) 85 DLR (4th) 129; O'Halloran v R T Thomas and Family Pty Ltd (1998) 29 ACSR 148; Re Dawson (deceased); Union Fidelity & Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 2 NSWR 211; Caffrey v Darby (1801) 6 Ves 488; Clough v Bond (1838) 3 My & Cr 490; Bennett v Minister of Community Welfare (1992) 176 CLR 408; Brickenden v London Loan & Savings Co et al (1934) 3 DLR 465; Bartlett and Ors v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] 1 Ch 515; Commonwealth Bank of Australia and Anor v Smith and Anor (1991) 42 FCR 390; Gemstone v Grasso (1994) 62 SASR 239; Target Holdings Ltd v Redferns (a firm) and Anor [1996] 1 AC 421; Maguire and Anor v Makaronis and Anor (1996-1997) 188 CLR 449; Duke Group Ltd (in liq) v Pilmer and Ors (1999) 73 SASR 64; Pilmer and Ors v The Duke Group Ltd (in liq) and Ors (2001) 207 CLR 165; Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; Harrison v Schipp; Cameron v Schipp (Unreported) [2001] NSWCA 13, BC 200100344, considered.
ROTHMORE FARMS PTY LTD (IN LIQ) v BELGRAVIA PTY LTD AND ORS
[2005] SASC 117Civil
PERRY J. The plaintiff, Rothmore Farms Pty Ltd (In Liquidation)[1] (“Rothmore Farms”), seeks orders for equitable compensation and/or damages against the defendants for breach of fiduciary duty, conspiracy and unlawful interference with economic interests.
[1] Rothmore Farms was placed in provisional liquidation on 14 September 1998. John Sheahan was appointed provisional liquidator.
The matter has had a somewhat chequered history.
The proceedings were instituted in the Federal Court of Australia in 1998. Rothmore Farms sued six defendants whom it alleged had been instrumental in wrongfully transferring assets out a family trust known as the Jill Cooper Family Trust (“the Trust”) of which Rothmore Farms had been trustee. Rothmore Farms alleged that by a series of transactions, the assets of the Trust eventually fell into the hands of one of the defendants, Mr Tennyson Turner (“Mr Turner”), and a company which he controlled, being another of the defendants, namely Agri-Steel Pty Ltd (“Agri-Steel”).
The proceedings came to trial before Mansfield J in the Federal Court. In a judgment which he delivered on 4 June 1999, Mansfield J held that Rothmore Farms was entitled to an equitable charge or lien over the assets of the Trust which it was entitled to enforce against such of the Trust assets as were then held by Mr Turner or Agri-Steel.
In order to identify the remaining assets of the Trust, Mansfield J ordered that an inquiry and account be conducted by the Registrar of the Federal Court. The inquiry was to establish, inter alia, the moneys received by Mr Turner or Agri-Steel in their conduct of the farming and engineering business in which the assets of the Trust had been utilised, and to identify any moneys paid out by Mr Turner and Agri-Steel in the conduct of the business.
Before the inquiry and account could be undertaken in the Federal Court, the High Court delivered its decision in Re Wakim: ex parte McNally.[2] In consequence of that decision, and following the enactment by the Parliament of South Australia of the Federal Courts (State Jurisdiction) Act 1999, the proceedings which had been instituted in the Federal Court, were continued in this Court.
[2] (1999) 198 CLR 511.
In the result, the inquiry and account which Mansfield J had ordered to be taken, was undertaken in September 2001 by a Master of this Court. The Master made various orders giving effect to the outcome of that inquiry on 2 November 2001.
One of the orders made by the Master was that Agri-Steel and Mr Turner pay to Rothmore Farms $1,189,989.00, being the balance of the moneys derived by them from the working of the farming and engineering business, after taking into account the outgoings which they had paid.
The declaration by Mansfield J that Rothmore Farms was entitled to an equitable charge or lien over the assets of the Trust, and his order that there be an inquiry and account, did not dispose of all of the relief sought by Rothmore Farms in the proceedings.
As well as claiming the return of the Trust assets and the income derived from their application by the defendants, in paragraph 8 of its amended application in the Federal Court, Rothmore Farms claimed “damages and/or equitable compensation”. Mansfield J did not deal with that claim. By an oversight the order pronounced by Mansfield J at the conclusion of the trial did not indicate what was to become of that claim.
After hearing argument in the matter, in November 2002, I permitted the order made by Mansfield J at the conclusion of the trial to be amended by adding a further paragraph:
“13.Further consideration of paragraph 8 of the further amended application filed pursuant to leave granted on 25 March 1999 be adjourned to a date to be fixed, with liberty to the parties to apply.”[3]
[3] See reasons for judgment, 21 November 2002 (unreported), judgment No [2002] SASC 390.
In the reasons for that order, I gave the following explanation:
“[15] The reason why Rothmore Farms seeks to amend the trial judgment is because in the working out of the order for an inquiry and account, having regard to the limited recovery which it has been able to make from Mr Turner and Agri-Steel with respect to the amount which they were ordered to pay to Rothmore Farms, Rothmore Farms has been left with what it asserts to be a substantial residual loss. This is said to be in excess of $1 million. It seeks to recover that amount by way of damages from the defendants, including the defendants other than Agri-Steel and Mr Turner.
[16]Through its counsel Mr White QC, Rothmore Farms intimated that if the application was to be granted, it would not seek to re-open the hearing in any way, in the sense that it would not seek to adduce any further evidence, save and except for proof of the outcome of the working out of the order of the Master consequent upon the taking of the inquiry and account. Rothmore Farms claims that the reasons for judgment of Mansfield J embody sufficient findings to establish a liability on the part of the defendants to pay damages which it ought to be entitled to assess now in the light of what has transpired since the entry of the formal judgment in the Federal Court.”
Effectively, Rothmore Farms seeks to recover from the other defendants the shortfall between the amount which it has been able to recover with respect to the amount ordered by the Master to be paid by Mr Turner and Agri-Steel and the amount received from them. The shortfall is as follows:
Amount ordered to be paid by Master Bowen Pain $1,189,989.00
Less amount recovered $53,511.73
Shortfall $1,136,477.27There appears to be no prospect of further recovery from either Mr Turner or Agri-Steel. Agri-Steel has been de-registered and Mr Turner is bankrupt. Another of the defendants, Andrew Charles Cooper, has been declared bankrupt.
Rothmore Farms now pursues its claim against the three remaining, and solvent, defendants. They are Belgravia Pty Ltd, Noelene Michelle Cooper and Robert John Mills.
For simplicity, I will refer to those three defendants as the defendants.
As well as claiming the shortfall of $1,136,477.27, Rothmore Farms claims compound interest by way of compensation for its loss of use of the money.
Rothmore Farms’ right to claim these moneys is said to arise by reason of its entitlement to an indemnity from the Trust assets to the extent of its indebtedness to two banks, Commonwealth Bank of Australia (“CBA”) and Commonwealth Development Bank of Australia (“CDBA”). (I will refer to the two banks collectively as “the banks”.)
The banks lent money to Rothmore Farms, which it utilised in the conduct of its farming operation.
Rothmore Farms accepts that its entitlement to damages cannot exceed the amount of its current indebtedness to the banks. It claims that its indebtedness to the banks exceeds the total amount which it now pursues against the defendants.
With minor exceptions, Rothmore Farms relies upon the factual findings made by Mansfield J contained in his reasons for judgment following the trial before him, as the basis upon which it pursues its present claims.
In presenting the case before me, Mr Whitington QC of counsel for Rothmore Farms quoted extensively from Mansfield J’s reasons for judgment, citing findings of fact which he contended supported the plaintiff’s claims. As parties to the proceedings, the defendants are bound by those findings of fact.
In the unusual circumstances which have resulted from the fact that this Court is continuing the proceedings instituted in the first place in the Federal Court, in a sense, I sit in the position of the trial judge. It is as though Mansfield J’s findings of fact were my findings. It is as though I had adjourned the claim for equitable compensation or damages for further hearing and determination, on the footing that the claim would be dealt with on the basis of the evidence already called and the findings of fact already given in the judgment already published by Mansfield J.
I have, therefore, extracted the following account of the background facts from the findings made by Mansfield J.
Factual background
The Trust was established by a deed executed on 6 October 1981, between the settlor and Rothmore Farms, which was named as trustee (“the Trust Deed”).
The primary beneficiaries of the Trust included Jillian Helen Cooper (formerly Marshall) (“Mrs Cooper”) and her sons, the second defendant Andrew Charles Cooper (“Andrew Cooper”), Simon Vincent Cooper (“Simon Cooper”), Richard John Cooper (“Richard Cooper”) and Martin James Cooper (“Martin Cooper”). There were other beneficiaries.
The directors of Rothmore Farms have been Mrs Cooper from 1981, Richard Cooper from 7 September 1983, Simon Cooper from 14 November 1984 and Andrew Cooper from 1 September 1989.
On 20 April 1998, sequestration orders were made against the estates of Mrs Cooper, Richard Cooper and Simon Cooper. Mr Sheahan was appointed as trustee of each of the bankrupt estates. The major creditor of each of the bankrupt estates was CBA, to whom moneys were owed by reason of guarantees given by the bankrupts to support advances by CBA to Rothmore Farms.
In its capacity as trustee of the Trust, Rothmore Farms conducted the business of the Trust from its appointment in October 1981 until 10 February 1993. The business was largely confined to farming operations on a property which was known as Rothmore Farms, situated at Moonta.
The land at Moonta upon which the farming operations were carried on by Rothmore Farms was owned by another company, Rothmore Pty Ltd.
The assets of Rothmore Farms were largely personal assets comprising plant and equipment, crops and entitlement to the proceeds of sale of the crops.
Both under the general law and pursuant to the Trust Deed, Rothmore Farms was entitled to exercise a right of indemnity against the assets of the Trust in respect of its liability to the banks.
Clause 16 of the Trust Deed provides:
“The trustees shall be entitled to be indemnified out of the assets for the time being comprising the Trust Fund against liabilities incurred by them in the execution or attempted execution or as a consequence of the failure to exercise any of the [Trust’s] authorities, powers and discretions hereof or by virtue of being the Trustees hereof but the Trustees shall not be entitled to be indemnified by any beneficiary personally in respect of any liabilities or any matters aforesaid other than in respect of any duty or tax which they are entitled to recover from the beneficiary by law.”
There were three separate transactions which took place between 1993 and 1998, the net effect of which was to transfer the assets of the Trust out of Rothmore Farms hands and into the hands of third parties. The consequence of that was to jeopardise the exercise by Rothmore Farms of its right of indemnity against the Trust’s assets.
Equally, the transactions prejudiced the banks, in that their ability to recover the advances from Rothmore Farms was seriously compromised.
I will deal with each of the transactions in turn.
The first transaction
Mansfield J refers in his reasons to minutes of meetings of the directors of Rothmore Farms on 10 February 1993.
One of the meetings noted the deed of appointment dated on the same day, executed by Mrs Cooper, appointing Belgravia Pty Ltd (“Belgravia”) as trustee of the Trust. In light of that appointment, the directors of Rothmore Farms resolved that it retire as trustee of the Trust forthwith.
In executing the deed of appointment, Mrs Cooper was exercising a power conferred on her under the Trust Deed.
The effect of the substitution of Belgravia as trustee was that title to the assets of the Trust were vested in Belgravia to the exclusion of Rothmore Farms.
There can be no doubt as to the knowledge of and involvement by the defendants in the substitution of Belgravia as trustee, with the consequential transfer of title in the assets of the Trust. At the time of that first transaction, the defendants Noelene Cooper and Robert Mills were the directors of Belgravia.
There was no change in the day-to-day operation of the farming business. All that happened was that Belgravia operated the business, rather than Rothmore Farms.
Relevant findings of Mansfield J as to the purpose of the first transaction and the involvement of the defendants in it appear from the following passage in his reasons:
“[100] I am satisfied that the intent of Rothmore Farms, together with that of its directors, by the first transaction was to deal with the assets of the Trust with the object of putting them beyond the reach of the Banks, as creditors of Rothmore Farms. The above considerations explain why I have reached that conclusion. The first transaction was undertaken against the background of the CBA’s intense financial pressure on Rothmore Farms to reduce its level of indebtedness. Mrs Cooper confirmed that the decisions taken to effect the first transaction were taken by herself, her sons and Noelene Cooper and Robert Mills. They were all the directors of Rothmore Farms and of Belgravia. They all took part in the ‘family discussion’ (as she described it) when it was decided to pass the Trust assets in the name of Rothmore Farms to Belgravia. That was done by notional physical transfer of the assets, and by book entries, as the assets did not include any real estate. Mrs Cooper said that, in those discussions, they were all aware as almost inevitably they must have been that:
- no further advances would be forthcoming from the Banks and that they were pressing for reduction of their debts
- if they could not somehow procure funds from the proceeds of the crops, the farming operations of the Trust could not continue
- Belgravia was part of their restructuring to get access to funds so that the farming operations of the Trust could continue, and
- they were therefore trying to preserve the assets and the trading operations of the Trust.
[101]What she did not acknowledge was that the purpose of the transaction was to preserve the Trust assets and the farming operations of the Trust from further claims upon them by the Banks. However, in my judgment, that is the purpose which underlies the first transaction. The Cooper family and Rothmore Farms were faced with the very real prospect that the Banks’ actions would lead to their claims against Rothmore Farms being directly enforced, and Rothmore Farms then exercising its right of indemnity against the Trust assets. The point had been reached where Rothmore Farms, due to the level of its obligations to the Banks and its dealings with the Banks through its directors, was likely to be unable to continue trading as it had no further cash resources to do so. Another entity was perceived as the means by which the Trust’s trading activities could continue. Although it may not then have been directly addressed that the process was to put the Trust assets beyond the reach of Rothmore Farms’ creditors, namely the Banks, so as to ‘defraud’ the Banks, that was the intended effect of the transaction. It may have been the expectation that, in time, the farming operations of the Trust would have generated sufficient profits to enable the Banks to be repaid. Indeed, in the longer term, the Cooper family may have hoped that by putting the Trust assets beyond the reach of Rothmore Farms and the Banks, they could continue to trade and ultimately to repay the Banks. It may have been the intention that the debt to the Banks would somehow continue to be recognised. In fact, erroneously, the accounts of Belgravia at 30 June 1993 and thereafter recognised the ongoing indebtedness to the Banks as a debt of Belgravia (but not by any arrangement with the Banks).
[102]… in my judgment it is clear that at the time of the first transaction, its purpose was to put the assets of the Trust beyond the reach of Rothmore Farms so that its creditors, namely the Banks, could not preclude or prevent the Trust from continuing to trade by seizing those assets.
…..
[113]By reason of my earlier findings, I find that Andrew Cooper was aware of the first transaction. I have found that as a director of Rothmore Farms, he participated in that transaction to remove the assets of the Trust from the reach of the creditors of Rothmore Farms. I have also noted earlier that the accounts of Belgravia erroneously reflected that the ongoing indebtedness of Rothmore Farms to the Banks was an indebtedness of Belgravia. During each of the years 1993 to 1997, in about October or November of each year, the Cooper family made their annual visit to Mr Bartholomaeus. He prepared accounts following those visits.
…..
[122]The evidence shows, as I have found elsewhere, that members of the Cooper family, including Noelene Cooper and Robert Mills, were party to the consultations leading to the first transaction.
…..
[163]The evidence indicates, and I find, that Tennyson Turner had in one way or another been an adviser to the Cooper Family for a number of years, at least from about the time of the first transaction.
[164]Mrs Cooper confirmed that Belgravia was procured as a corporate trustee for the Trust by Tennyson Turner. I have rejected her evidence that it was Mr Bartholomaeus who advised that the first transaction be undertaken. However the plan for the first transaction arose, Tennyson Turner on the evidence was involved in its implementation. Mr Bartholomaeus was directed in late 1993 by the Cooper family to seek from Tennyson Turner information as to how the first transaction was to be reflected in the accounts of Rothmore Farms and Belgravia, and he pursued those inquiries through Tennyson Turner.
…..
[166]The above material, in my judgment, leads to the inference that Tennyson Turner was aware of the nature of the first transaction, and of the financial pressure which gave rise to it. His absence from the witness box enables me to draw that inference with more confidence. It does not lead me to conclude that the first transaction was undertaken on his advice. There is some evidence from Mrs Cooper that there was another person consulted at about that time who also had been a professional adviser to the Cooper Family for some years. I find however that Tennyson Turner was aware in general terms of the poor relationship between the Banks and Rothmore Farms, and of Rothmore Farms’ claim against and upon the assets of the Trust to the extent of its entitlement to indemnity by the time of the first transaction.
…..
[42]In my judgment … Rothmore Farms’ right to indemnity against the assets of the Trust, to the extent of its indebtedness to the Banks, survived the first transaction. I also find that at the time of the first transaction, and thereafter, Rothmore Farms had an equitable charge or lien over the assets of the Trust to the extent of that right of indemnity.
…..
[102]However, applying the test which Section 121(1)(b) [of the Bankruptcy Act 1966] dictates, in my judgment it is clear that at the time of the first transaction, its purpose was to put the assets of the Trust beyond the reach of Rothmore Farms so that its creditors, namely the Banks, could not preclude or prevent the Trust from continuing to trade by seizing those assets.
[103]Accordingly, if the equitable lien or charge of Rothmore Farms over the Trust assets did not survive the first transaction, in my judgment the first transaction would be void against the trustee in bankruptcy of Rothmore Farms (if it were a natural person) and so is void under Section 565 of the [Corporations] Law as against the liquidator of Rothmore Farms.” (my emphasis)
The second transaction
Various proceedings were instituted by CBA in the Supreme Court of South Australia in February 1995, including actions to recover under guarantees given by Mrs Cooper, Simon Cooper and Richard Cooper.
Judgments were entered in favour of CBA in the course of those proceedings, on 22 August 1997. The judgments were affirmed on appeal on 20 March 1998.
On 20 April 1998, the estates of Mrs Cooper, Simon Cooper and Richard Cooper were sequestrated in bankruptcy.
On 14 May 1998, CBA served on Rothmore Farms a statutory demand for moneys then owing.
Five days later, on 19 May 1998, the directors of Belgravia, that is, the defendants Noelene Cooper and Robert Mills, resolved:
“... that it would be in the best interests of both the eligible beneficiaries of the Trust and the company itself or the Trust to be vested as at the date of the meeting and for both the corpus and all and any accrued income of the trust to be immediately distributed to Andrew Charles Cooper, one of the eligible beneficiaries of the Trust.”
To implement that resolution, on the same day, Belgravia resolved, purportedly acting pursuant to the power contained in clause 18 of the Trust Deed, to revoke the definition of “the vesting day”, whereupon the directors declared 19 May 1998 to be the vesting day.
They proceeded there and then to purport to distribute the corpus and accrued income of the Trust to Andrew Cooper.
A deed of variation of Trust was executed on 22 May 1998, which purported to give effect to the resolution redefining the vesting day.
Mansfield J expressed some hesitation in accepting the view that clause 18 of the Trust Deed permitted the resolutions passed on 19 May 1998.[4]
[4] Reasons [109].
At all events, the effect of the second transaction was, on the face of it, literally to leave Rothmore Farms high and dry. Its right of indemnity against the assets of the Trust was seriously prejudiced, the Trust having been wound up and the assets distributed.
Mansfield J made the following express findings as to the second transactions:
“[114] In my judgment, Andrew Cooper was aware of the continued substantial (and increasing) indebtedness to the Banks up to the time of the second transaction. It is very likely that he was aware of the ongoing proceedings against members of his family up to 20 March 1998. His absence from the witness box enables me to draw that conclusion more confidently from the evidence.
[115]It is also clear that he took the assets of the Trust by the second transaction without consideration on his part. He took them in a transaction which enabled him at law to assume those assets without having to assume the liabilities to the Banks. Even if, as counsel for Andrew Cooper contended, the second transaction was a lawful transaction, it does not follow that the equitable interest of Rothmore Farms and the Trust assets was thereby lost.
…..
[122]… Thereafter [after the first transaction], in a practical sense, Mrs Cooper’s sons continued to undertake the farming operations for the Trust in much the same way as they had previously done. The Cooper family maintained their annual visits to Mr Bartholomaeus up to about November 1997. There was nothing to indicate that Noelene Cooper and Robert Mills operated Belgravia at arms length from the Cooper Family. What little evidence there is tends to point to the contrary. Shortly before the second transaction, on 20 April 1998, sequestration orders were made against the estates of Mrs Cooper, Simon Cooper and Richard Cooper. Also a statutory notice of demand was given by CBA to Rothmore Farms on 14 May 1998 for the outstanding indebtedness. I find that Noelene Cooper and Robert Mills were aware of those matters. The fact that Andrew Cooper was the beneficiary of the second transaction and was the only director of Rothmore Farms who was not bankrupt tends to support that conclusion. No other reason for selecting him as the person in whom the Trust should vest is apparent.
[123]What was the intention of Belgravia through Noelene Cooper and Robert Mills in undertaking the second transaction? I conclude from those same facts and the timing of the second transaction, that their general intention was to defeat or delay creditors of Rothmore Farms, and to defeat or delay Rothmore Farms in any claim it might have against Belgravia or the assets of the Trust, and also to defeat or delay creditors of Mrs Cooper, Simon Cooper and Richard Cooper …
…..
[165]The role of Tennyson Turner at the time of the second transaction was more explicit. The meeting at which Belgravia resolved to undertake the second transaction occurred at Tennyson Turner’s premises. During April and May 1998, Tennyson Turner had frequent contact with members of the Cooper family by telephone, as well as in the following months. Immediately after being appointed as trustee of the bankrupt estate of Mrs Cooper and of Simon Cooper and Richard Cooper, Mr Sheahan sought to confer with them. He was told by them that Tennyson Turner was their adviser and should be party to the consultation. When Mr Sheahan sought information from Mr Bartholomaeus about the same time, Mr Bartholomaeus referred that inquiry to Tennyson Turner for his comments and direction. Immediately after the second transaction Mr Bartholomaeus was told of its detail by Tennyson Turner and Richard Cooper together. In July 1998 he was requested to send his working files to Tennyson Turner for further accounting purposes.
…..
[167]That material also leads me to conclude that Tennyson Turner played some part in advising on the second transaction. He was clearly by then an adviser more generally, at least to members of the Cooper family. I find that he was aware of the nature and proposed effect of the second transaction. I also find that he was aware of and, in the sense of being involved in advice concerning it, a party to the reasons for it being undertaken.
…..
[117]There is, in my judgment, no reason in equity why Andrew Cooper’s title to the Trust assets as a result of the second transaction was not subject to the equitable interest of Rothmore Farms in those assets.
…..
[124]… In that event [should it not be the case that Andrew Cooper held his interest in the Trust assets subject to Rothmore Farms’ interest] I would find that the second transaction was avoidable by Rothmore Farms (subject to the operation of Section 86(2) of the Law of Property Act 1936 (SA) because it was undertaken by Belgravia in breach of Section 86(1), and has been avoided by Rothmore Farms. I will address the impact of s 86(2) when considering the third transaction.” (my emphasis)
The third transaction
From 19 May 1998 to 7 August 1998, Andrew Cooper conducted the farming business which had previously been operated by Belgravia as trustee of the Trust, in his own name.
He also continued to operate an engineering business which had been commenced in about 1990 and which was carried out on the property by Rothmore Farms, and after the first transaction, by Belgravia.
The third transaction is evidenced by an agreement in writing entered into between Andrew Cooper and Mr Turner. Pursuant to the agreement, Mr Turner sold and Mr Cooper purchased what were described as “70 Carats of genuine Gilson black unpolished opal stones”.
The purchase price was $700,000.00, payable as to $10,000.00 forthwith and as to $79,000.00 on or before 10 August 1998.
As to the remaining balance of $611,000.00, this was to be satisfied by Andrew Cooper:
“… transferring, assigning and delivering to [Tennyson Turner] all the farming and engineering plant machinery equipment tools and sundry stocks work-in-progress in or about the property at Balgowan Road Moonta or used in the farming or engineering operations carried on by [Andrew Cooper] as at the date hereof and by the assignment by [Andrew Cooper] to [Tennyson Turner] of all grain payments now standing to the credit of [Andrew Cooper] and the crops now growing on the land used by [Andrew Cooper].”
Mansfield J found that the opals, sold on the face of it for $700,000.00, were worth considerably less, of the order of $2,000.00 to $10,000.00.
Andrew Cooper had no obvious use for the opals. That he had made over the whole of the assets of the Trust for such a relatively worthless consideration, provoked immediate questions as to the genuineness of the transaction.
Agri-Steel was registered on 10 August 1998, Mr Turner being its sole director. Mansfield J found that it had operated the engineering business and at least in part the farming business since that date.
Mansfield J found that the third transaction:
“[171]… was not a genuine transaction at all. In my judgment the third transaction was undertaken to provide a screen which it was hoped that Rothmore Farms would be unable to penetrate. In reality it was not a bona fide transaction at all.
..…
[172]I consider that the equitable charge or lien of Rothmore Farms in the Trust assets was not lost by reason of the third transaction.”
Mansfield J found alternatively that if he was wrong in the conclusion that it was not a genuine transaction at all, he held that it was undertaken on the part of Andrew Cooper contrary to s 86(1) of the Law of Property Act 1936. He found:
“[173] The only explanation for the conveyance of the Trust assets to Tennyson Turner in exchange for opals of such little relative value is one which activates s 86(1). That must be so in the light of my conclusion earlier in these reasons that Andrew Cooper knew of the potential ongoing claims of Rothmore Farms against those assets.”
The judgment and orders of Mansfield J
The important conclusions reached by Mansfield J, for present purposes, appear in the following passage from his reasons:
“[192] Rothmore Farms has established that it has an equitable charge or lien over the assets of the Trust which is enforceable against Belgravia, Andrew Cooper and Tennyson Turner. That equitable interest in those assets is to the extent of its entitlement to indemnity against the assets of the Trust in respect of its indebtedness to the Banks. Those assets include all the assets of the Trust up to 19 May 1998 … Rothmore Farms is also entitled to the monies received from the proceeds of sale of the 1998/99 crop or of earlier crops, and any proceeds received from the conduct of the engineering business. Additionally, but in the alternative, Rothmore Farms has established that each of the conveyances of the assets of the Trust by the first transaction, by the second transaction, and by the third transaction are void as against it. On that basis also, it becomes entitled to the assets of the Trust, including proceeds from the crops and from the engineering business.
…..
[194]I will make declaratory orders to reflect those entitlements, and orders for such inquiry and accounts as are necessary to resolve any issues as to the assets or other monies received by Tennyson Turner to which Rothmore Farms is entitled, and as to the amounts of expenditure by Tennyson Turner or by Agri-Steel for which they are entitled to credit.
[195]There is one further observation I wish to add to these reasons.
[196]Tennyson Turner submitted that the endeavours of the respondents at all times have not been ‘asset stripping’ but ‘asset resuscitation’. I accept that the respondents generally have not set about concealing assets used in their farming activities or in the engineering business. They have not, prior to the third transaction, taken action to reduce the value of the assets of the Trust. Indeed, it may well be that the assets of the Trust up to the time of the second transaction and then those assets in the hands of Andrew Cooper up to the time of the third transaction increased in value. The basis of my findings is, however, that in their endeavours to continue to trade, the respondents generally (it is not necessary for the purpose of these observations to distinguish between the respondents) sought to defeat or delay the claims of Rothmore Farms and of the Banks by those transactions.”
In the result, Mansfield J made a formal declaration, the essential features of which are:
sRothmore Farms is entitled to be indemnified from the assets of the Trust to the extent of its indebtedness to CBA and CDBA.
sRothmore Farms has an equitable charge or lien over the assets from time to time of the Trust to the full extent of its entitlement to indemnity.
sRothmore Farms’ equitable charge or lien over the assets of the Trust may be exercised against such of the assets as were held by Mr Turner or Agri-Steel (subject to adjustments to reflect amounts expended by Mr Turner or Agri-Steel).
sThe farming business and the engineering business conducted by Belgravia until 22 May 1998, by Andrew Cooper between 22 May 1998 and 7 August 1998 and thereafter by Mr Turner and Agri-Steel were each conducted solely with assets which were formerly assets of the Trust, and the income received and the conduct of each of those business is income which, on its receipt, was an asset subject to the equitable lien or charge of Rothmore Farms.
In aid of those declarations, Mansfield J ordered the taking of the inquiries and accounts to which I have earlier referred.
It is important to note that Mansfield J made no finding as to the entitlement of Rothmore Farms to compensation or damages. The ambit of the orders pronounced by him at the conclusion of the trial went no further than to confirm Rothmore Farms’ entitlement to be indemnified from the assets of the Trust to the extent of its indebtedness to the banks against the assets of the Trust, insofar as they could be identified in the hands of Mr Turner and Agri-Steel who were, in turn, ordered also to account for the income received by them from their utilisation of the Trust assets in the conduct of the farming and engineering businesses.
The inquiry and account ordered by Mansfield J having been completed, Master Bowen Pain ordered, inter alia, that Agri-Steel and Mr Turner pay to Rothmore Farms a balance of $1,189,989.00, being the balance struck on the working out of the taking of accounts. As to the operation of the business by them, Rothmore Farms has made various recoveries, but the debt owed to it by Mr Turner and Agri-Steel has been reduced only by the sum of $53,511.73, leaving a deficiency of $1,136,477.27.
Rothmore Farms asserts that this represents a substantial residual loss which it is entitled to recover against the present defendants, that is, Belgravia, Noelene Cooper and Robert Mills, by way of equitable compensation and/or damages.
The orders which Rothmore Farms currently seeks are directed only against those defendants, given the bankruptcy of Andrew Cooper and the fact that relevant orders have already been made against Mr Turner and Agri-Steel.
The legal issues
As I have explained, Rothmore Farms was entitled to exercise a right of indemnity against the assets of the Trust with respect to its liability to the banks. This arose under the general law and pursuant to the Trust Deed. Mansfield J so found. There is no challenge to that finding.
When Belgravia was substituted as trustee and thereby acquired legal ownership of the Trust assets, it became a fiduciary vis a vis Rothmore Farms, or a constructive trustee with respect to the protection of Rothmore Farms’ right of indemnity against those assets. Belgravia was obliged not to act with respect to the assets of the Trust in a way which jeopardised Rothmore Farms’ right of indemnity and its lien over the assets.
The point is illustrated by the judgment of Master Burley in All Benefit Pty Ltd (in liq) v Registrar-General and Ors.[5] That case concerned a proposed transfer of various parcels of land held by the transferor, a company, as trustee, to another company which was to be substituted as trustee. After the transferor was made subject to a winding up order, but before the transfers were registered, the transferor sought an injunction restraining registration of the transfers.
[5] (1993) 11 ACSR 578.
In the course of his judgment, Master Burley observed:[6]
“It is now settled law that the plaintiff must establish a triable issue, that irreparable harm would be caused if injunctive relief is not granted and that the balance of convenience requires the granting of an injunctive relief: cf Alvaro v ANZ.[7] The triable issue for the purposes of this application, which has not been articulated in the statement of claim, is that if the four parcels of land are transferred to new trustees, the right of the liquidator to have recourse to trust assets may be extinguished or adversely affected. The transferees wish the transfers to be registered and thereby the dispute is defined. However, having set out the triable issue, the inappropriateness of the application is revealed. In Re Suco Gold Pty Ltd,[8] King CJ said at 109:
‘The trustee’s lien is an equitable lien which confers on him a charge over the trust property, whether in his possession or not, for the purpose of protecting and enforcing a right of indemnity. It also confers on the trustee a right to possession of the trust property for the purpose of protecting and enforcing the right of indemnity: Jennings v Mather.[9] The right of possession of the trustee, until his right of indemnity is exercised, is superior to those of a new trustee or the cestuis que trust.’
In light of that principle it seems to me that whatever may be the position with regard to ascertaining whether there are trust liabilities and whether the liquidator can have recourse to trust assets, both in relation to those liabilities and to the cost of his administration, his right to have recourse to trust assets remains unchanged even if a new trustee is registered as the proprietor of the relevant land. The disposition of the legal interest in the land to a new trustee does not alter the former trustee’s right to have recourse to trust assets.”[10]
[6] Ibid 582.
[7] (1992) 165 LSJS 5.
[8] (1983) 33 SASR 99.
[9] [1902] 1 KB 1.
[10] See also Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3 ACSR 183 at 186.
It follows that when Belgravia acquired legal ownership of the Trust assets, it did so subject to the equitable lien or charge over those assets in favour of Rothmore Farms to the extent of Rothmore Farms’ indebtedness to the banks.
Furthermore, Rothmore Farms’ right of indemnity and its lien over the assets of the Trust took priority over the equitable interests of the beneficiaries of the Trust.
This proposition is self-evident. To the extent that authority is needed, reference may be made to the observation by King CJ in Re Suco Gold Pty Ltd quoted in the passage which I have set out above.
Effectively, the equitable interest which remained in Rothmore Farms reduced pro tanto the interest of the beneficiaries:
“.. the trust property … where there is a right in the trustee to indemnity from the assets, at any time is limited to the beneficial interest in the assets remaining after deduction of the value of the trustee’s interest comprising his right to indemnity out of the assets.” (Kemtron Industries Pty Ltd v Commissioner of Stamp Duties[11] and the cases there cited. See also Re Neander Constructions Pty Ltd.[12])
[11] [1984] 1 Qd R 576 per McPherson J at 585.
[12] (1988) 12 ACLR 775.
When Belgravia resolved to vest the Trust and distribute the assets to Andrew Cooper, it did so as part of a process of carrying out a dishonest or fraudulent design, designed in part to prevent Rothmore Farms from exercising its lien, and in turn to prevent the banks from taking effective action to recover from Rothmore Farms its indebtedness to them. In doing so, Belgravia was in breach of its fiduciary duties owed to Rothmore Farms
This conclusion is supported by the findings of Mansfield J during the course of his consideration of the second transaction. I have already cited in part paragraph [123] of Mansfield J’s reasons. I quote them again, this time in full:
“[123]What was the intention of Belgravia through Noelene Cooper and Robert Mills in undertaking the second transaction? I conclude from those same facts, and the timing of the second transaction, that their general intention was to defeat or delay creditors of Rothmore Farms, and to defeat or delay Rothmore Farms in any claim it might have against Belgravia or the assets of the Trust, and also to defeat or delay creditors of Mrs Cooper, Simon Cooper and Richard Cooper: Glegg v Bromley.[13] It is difficult to conceive of some other reason why the second transaction occurred when it did. The coincidence of timing to the events referred to above speaks loudly. Furthermore, the fact that the vesting of Trust assets was in favour of Andrew Cooper speaks loudly as to its motivation. Counsel for the respondents did not suggest any other reason for the second transaction occurring as and when it did. The fact that they did not give evidence enables me more confidently to draw that inference.”
[13] [1912] 3 KB 474 at 492.
As Mansfield J goes on to point out, the intention of Belgravia through Noelene Cooper and Robert Mills in undertaking the second transaction, was not completely realised, in that Andrew Cooper held his interest in the Trust assets subject to Rothmore Farms’ equitable interest in the Trust assets.
However, if the vesting of the Trust was effective, Andrew Cooper did not hold the assets as trustee of the Trust, but held them in his own right.
There can be no doubt that in those circumstances Belgravia’s involvement in the second transaction, with the intention as found by Mansfield J, was a breach of its fiduciary duties owed to Rothmore Farms.
Clearly, it owed a duty to maintain the Trust, rather than to dissolve it, so as to protect Rothmore Farms’ right of indemnity against the Trust assets. Its distribution of the whole of those assets to one of the beneficiaries was a flagrant breach of that fiduciary duty. It is nothing to the point that Rothmore Farms’ right of indemnity in the associated lien over the assets might have survived the transaction.
That the defendants Noelene Cooper and Robert Mills actively participated in Belgravia’s breach of fiduciary duties with knowledge of its dishonest or fraudulent design cannot be denied.
Paragraph [123] of Mansfield J’s factual findings to which I have referred, clearly attributed the intention of Belgravia to Noelene Cooper and Robert Mills. He could hardly have done otherwise. They were the directors of Belgravia, and Belgravia had no intention other than their intention.
In that sense, the proposition that Noelene Cooper and Robert Mills “actively participated in Belgravia’s breach of fiduciary duties”, as it was put by Mr Whitington QC for Rothmore Farms, with respect to him, has an unreal ring about it.
In my view, this is one of those cases where it can be said that Noelene Cooper’s and Robert Mills’ involvement with the second transaction was an expression of the fact that they were:
“… acting as the corporation rather than for the corporation: … the person or persons who are the ‘directing mind and will’ of the corporation.”[14]
[14] Principles of Company Law H.A.J. Ford (Butterworths) 5th edition (1990) par [604] page 130.
Counsel on both sides argued the case as though it fell to be determined by reference to what are sometimes described as the second limb of the principles which find expression in Barnes v Addy.[15] The elements in the second limb of the rule in Barnes v Addy have been defined as follows:
“(1)the existence of a fiduciary duty (as trustee or otherwise);
(2)a dishonest and fraudulent design by the fiduciary;
(3)the assistance by the third party in that design; and
(4)with knowledge.”[16]
[15] (1874) LR 9 Ch App 244.
[16] Jacobs’ Law of Trusts in Australia (Butterworths) 6th edition (1997) par [1339] page 338.
In this case, it is, to my mind, unreal to suggest that Belgravia was the fiduciary, and Noelene Cooper and Robert Mills parties assisting Belgravia to carry out its dishonest and fraudulent design. The circumstances of this case conflate elements (2) and (3) of the above formulation of the second limb of the rule in Barnes v Addy. Noelene Cooper’s and Robert Mills’ minds and their actions were collectively the mind and actions of Belgravia. They answer to the description of the figurative person described in the well known passage in the judgment of Lord Reid in Tesco Supermarkets Ltd v Nattrass:[17]
“He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company.”
[17] [1972] AC 153 at 170.
So that in the circumstances of this case, rather than regarding them as participating in a breach of fiduciary duty by Belgravia, one should have regard to their conduct as one and the same as the breach of fiduciary duty by the company. In those circumstances, resort to the second limb of the Barnes v Addy principle is otiose.
Support for that view of the matter may be found in the judgment of Lord Selborne LC in Barnes v Addy (supra) when he said:[18]
“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees …” (my emphasis)
[18] Ibid 251.
Noelene Cooper and Robert Mills were not in the category of “strangers”. Their conduct and actions constituted the breach of fiduciary duties by Belgravia. In that sense, their involvement for the purposes of the rule in Barnes v Addy is not to be assessed by reference to the accessorial liability which might attach to third parties who become involved in the perpetration of a dishonest or fraudulent design by another person in that person’s capacity as trustee or fiduciary.
If I should be wrong in that view, it becomes necessary to deal with the arguments of counsel which were predicated on the assumption that it was necessary to prove that Noelene Cooper and Robert Mills assisted, with knowledge, in the dishonest or fraudulent design of Belgravia within the meaning of the conventional formulation of the second limb of the rule in Barnes v Addy (supra).
The point taken by Mr Tilmouth QC in that respect was that while it was one thing to find an intent to defeat or delay creditors, it was another to say that that amounts to a finding of dishonesty. He contended that a finding of dishonesty, rather than mere knowledge was necessary.
He further contended that Mansfield J’s findings fell short of a finding of dishonesty in the relevant sense as against Noelene Cooper and Robert Mills.
I must say that there is much to be said for the view which is expressed in Jacobs’ Law of Trusts in Australia:[19]
“The whole topic of the liabilities of third parties involved in breach of fiduciary duty has become bedevilled by an obsessive refinement of distinctions between degrees of knowledge and notice.”
[19] (Supra).
At all events, in my view, the law in Australia as to this aspect of the matter is as expressed by Gibbs J in the following passage from his judgment in Consul Development Pty Limited v DPC Estates Pty Limited[20] when he said:
“… it does not seem to me to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge or circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognising an impropriety that would have been apparent to an ordinary man.”
[20] (1975) 132 CLR 373 at 398.
Although Gibbs J went on to say that he found it unnecessary to express a concluded view on the question, and although there might be thought to be some uncertainty on the matter, I am of the opinion that, as contended by Mr Whitington QC, at least in a case such as this, proof of knowledge is sufficient.
In these circumstances, it is unnecessary for me to refer to the authorities which were cited by counsel on this aspect of the matter, although for convenience I note them:
Royal Brunei Airlines Sdn Bhd v Tan[21]
Voss v Davidson[22]
Australian Securities Commission v A S Nominees Ltd and Ors[23]
Twinsectra Ltd v Yardley and Ors[24]
Equiticorp Finance Ltd(in liq) v The Bank of New Zealand[25]
Cadwallader v Bajco Pty Ltd[26]
Robins and Ors v Incentive Dynamics Pty Ltd (in liq) and Anor[27]Tara Shire Council v Garner[28][21] [1995] 2 AC 378.
[22] (Unreported) [2002] QSC 316 at par [25]-[31], 10 October 2002.
[23] (1995) 133 ALR 1 at 18-19.
[24] [2002] 2 AC 164.
[25] (1993) 32 NSWLR 50.
[26] (Unreported) NSW Court of Appeal, BC 200205647 at par [198]-[199].
[27] (2003) NSWLR 71 at par[44]-[56].
[28] [2003] 1 Qd R 556 at par [60]-[72].
In any event, I am of the view that the factual findings of Mansfield J contained in paragraph [123] of his reasons amount to a finding that Noelene Cooper and Robert Mills were dishonest in the relevant sense. Their “general intention” as found by Mansfield J in that paragraph of his reasons amounted to a finding of dishonesty in the ordinary sense of the word.
I have already referred to the finding of Mansfield J that the third transaction was not a genuine transaction; that it was undertaken to provide a screen “which it was hoped that Rothmore Farms would be unable to penetrate”; and his conclusion “that the equitable charge or lien of Rothmore Farms in the Trust assets was not lost by reason of the third transaction”.
It follows that Mr Turner was not a bona fide purchaser for value, and the third transaction did not destroy or impair the plaintiff’s lien or its rights to compensation or damages with respect to Belgravia’s breaches of fiduciary duty as against Noelene Cooper and Robert Mills as knowing participants.
Persons who have been guilty of a breach of trust or fiduciary duty, or who have participated in such a breach in circumstances that they become liable under the second limb of the rule in Barnes v Addy, are liable to pay equitable compensation for any resultant losses. The measure of the compensation is the amount necessary to restore, in this case Rothmore Farms, to the position it would have been in if no breach had been committed.
See, for example, Dal Pont and Chalmers, Equity and Trusts in Australia and New Zealand:[29]
“The aim of equitable compensation is to place the party who suffers following the breach of an equitable obligation as nearly as possible in the position in which he or she would have stood had there been no breach of that obligation.”
[29] LBC Information Services, 2nd edition (2000) at 883.
See also Nocton v Lord Ashburton;[30] Hill v Rose;[31] Canson Enterprises Ltd et al v Boughton & Co et al;[32] and O’Halloran v R.T. Thomas and Family Pty Ltd.[33]
[30] [1914] AC 932 at 952.
[31] [1990] VR 129 at 144.
[32] (1991) 85 DLR (4th) 129 at 145.
[33] (1998) 29 ACSR 148 at 157.
In a sense, a question of causation arises, in that neither Noelene Cooper nor Robert Mills were party to the third transaction, at least Mansfield J made no finding that they were party to it. It was Andrew Cooper’s so-called “contract” with Mr Turner which resulted in the latter, together with Agri-Steel, obtaining possession of the Trust assets.
But it was Belgravia’s breaches of fiduciary duty which Noelene Cooper and Robert Mills engineered or in which they participated which put Andrew Cooper in the position of being able to enter into the third transaction.
In those circumstances, there is no doubt that Noelene Cooper and Robert Mills remain liable in damages.
See, for example, the dictum of Street J in Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd:[34]
“The obligation of a defaulting trustee is essentially one of effecting a restitution to the estate. The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage. In Caffrey v Darby,[35] trustees were charged with neglect in failing to recover possession of part of the trust assets. The assets were lost and it was argued by the trustees that the loss was not attributable to their neglect. The Master of the Rolls, in stating his reasons, asked ‘will they be relieved from that by the circumstances that the loss has ultimately happened by something that is not a direct and immediate consequence of their negligence?’ His answer to this question was that, even supposing that ‘they could not look to the possibility’ of the actual event which occasioned the loss, ‘yet, if they have already been guilty of negligence they must be responsible for any loss in any way to that property; for whatever may be the immediate cause the property would not have been in a situation to sustain that loss if it had not been for their negligence. If they had taken possession of the property it would not have been in his possession. If the loss had happened by fire, lightning, or any other accident, that would not be an excuse for them, if guilty of previous negligence. That was their fault’.
Caffrey v Darby[36] is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter. To the same effect is the case of Clough v Bond.[37] It was argued before Lord Cottenham LC that ‘the principle of the Court is to charge persons in the situation of trustees as parties to a breach of trust, wherever they have acted irregularly, and the irregularity, however well intended, has, in the result, enabled their co-trustees to commit a breach of trust, or has been, however remotely, the origin of the loss’.”
[34] (1966) 2 NSWR 211 at 214-215.
[35] (1801) 6 Ves 488.
[36] (Supra).
[37] (1838) 3 My & Cr 490.
Those observations of Street J were endorsed by McHugh J in Bennett v Minister of Community Welfare.[38]
[38] (1992) 176 CLR 408 at 426-427. See also Dal Pont (op cit) at 884; Brickenden v London Loan & Savings Co et al (1934) 3 DLR 465; Bartlett and Ors v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] 1 Ch 515; Commonwealth Bank of Australia and Anor v Smith and Anor (1991) 42 FCR 390 at 395; Gemstone v Grasso (1994) 62 SASR 239 at 243, 252; Target Holdings Ltd v Redferns (a firm) and Anor [1996] 1 AC 421 at 434, 437-439; Maguire and Anor v Makaronisand Anor (1996-1997) 188 CLR 449 at 468-472; The Duke Group Ltd (In Liq) and Ors v Pilmer and Ors (1999) 73 SASR 64; O’Halloran v R.T. Thomas and Family Pty Ltd (1998) 29 ACSR 148; Pilmer and Ors v The Duke Group Ltd (In Liq) and Ors (2001) 207 CLR 165 at 196-199; and Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484 at 499-501.
I am satisfied that the recoverable losses are the profits which were made by Tennyson Turner and/or Agri-Steel from receiving and carrying on the Trust businesses, less recoveries.
That amount has been quantified by Master Bowen Pain as $1,189,989.00. However, as I have explained above, recoveries of $53,511.73 reduce that amount to $1,136,477.27. An affidavit of Ian Russell Lock, a partner of John Sheahan, the liquidator of Rothmore Farms, deposes to the current level of indebtedness to the banks as at 25 August 2003 at $1,454,153.21.
That amount was calculated after allowing for post-liquidation interest at the statutory rate of 8 per cent (see s 563B of the Corporations Act 2001). That amount is substantially in excess of the net loss of $1,136,477.27.
I have been given to understand that no further recoveries have been made.
Interest
I accept Mr Whitington QC’s contention that the court has jurisdiction to award interest as part of equitable compensation in order to compensate Rothmore Farms for the loss of use of the money in question.[39]
[39] See Dal Pont (op cit) at 890 and the cases there cited. See also Harrison v Schipp; Cameron v Schipp (unreported) [2001] NSWCA 13, BC 200100344 at [125] et seq.
I have been furnished with a calculation by Mr Whitington QC of compound interest which, down to 22 November 2004, the date upon which I heard argument in the matter, amounts to $1,575,265.15.
That is in excess of the amount to which I have referred as being due to the banks.
The starting point of the calculation was 13 August 1999, the date of the last of the receipts received by Agri-Steel in the conduct of the businesses.
The calculations have been agreed between the parties.
The amount including compound interest resulting from that calculation is in excess of the amount due to the banks as at 25 August 2003. However, the amount due to the banks will have increased since then. The upper limit of Rothmore Farms’ entitlement is the amount which it currently owes to the banks.
In those circumstances, I will hear the parties further as to the amount for which judgment should be pronounced.
Conclusions
Given that I am of the view that Rothmore Farms is entitled to recover compensation for breach of fiduciary duty, it is unnecessary to consider the alternative causes of action of conspiracy and unlawful interference with economic interests.
I will hear the parties as to the amount for which judgment should be entered in light of these reasons, and as to the question of costs.
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