Twigg v Twigg

Case [2022] NSWCA 68

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: Twigg v Twigg [2022] NSWCA 68
Hearing dates: 18, 19 March 2021
Date of orders: 4 May 2022
Decision date: 04 May 2022
Before: Bell CJ and Payne JA at [1];
Brereton JA at [11].
Decision:

(1)   Dismiss the motion filed on 17 February 2021 for leave to amend the notice of appeal.

(2)   Dismiss the appeal.

(3)   Allow the cross-appeal in part.

(4)   Order that the appellants pay the respondents’ costs of the appeal and cross-appeal.

(5)   Direct that the respondents bring in short minutes to give effect to this judgment, including with respect to any additional relief sought on the basis of the outcome of the cross-appeal.

Catchwords:

EQUITY – Fiduciary duties – Breach – Where director of corporate trustee caused trust funds to be distributed to himself – Whether written resolutions effecting valid distribution were adopted by relevant date – Whether director had been delegated authority to make distributions alone – Whether trust monies held on constructive trust

EQUITY – Trusts and Trustees – Constructive Trusts – Whether director liable for breach of trust as trustee de son tort – Pre-requisite that one must assume the trust by purporting to act as trustee – Finding that acting in capacity as director of corporate trustee, even without authority and in breach of fiduciary duties, does not alone constitute assumption of the trust – Holding that director not liable as trustee de son tort

EQUITY – Trusts and Trustees – Whether director acted “dishonestly” in the context of postponement of the statutory limitation period or equitable equivalent – Where director of corporate trustee was entrusted by other director to manage most company affairs alone – Whether director held honest belief that he was entitled to deal with trust proceeds as he did – Finding that director deliberately withheld information from other director that may have caused her to object to his decisions regarding trust assets – Finding that director’s conduct involved dishonesty in the form of conscious wrongdoing and active concealment

EQUITY – Defences – Laches – Knowledge of ability to bring claim – Whether means of knowledge is as good as knowledge – Requirement of knowledge of the relevant facts, although not necessarily of the rights to which they give rise

EQUITY – Tracing – Whether property and its commercial proceeds were traceable – Extent to which property was purchased with proceeds of sale of trust assets in breach of trust – Where trust monies were loaned by constructive trustee to purchaser of property and repaid before property was purchased – Where purchaser was alter ego of constructive trustee – Finding that property was effectively purchased by constructive trustee and was therefore traceable property, along with its proceeds

LIMITATION OF ACTIONS – Equity – Application of Limitation of Actions Act 1958 (Vic) – Section 21(2) does not apply to actions for breach of fiduciary duty in respect of remedial constructive trusts imposed by Court – Section 5 does not apply to claims for an account in equity, except by analogy

LIMITATION OF ACTIONS – Equity – Application of limitation periods by analogy – Claims for proprietary relief and equitable compensation – Claims determined to be within analogy of Limitation of Actions Act 1958 (Vic), s 5, for application of equivalent equitable limitation period

Legislation Cited:

Corporations Act 2001 (Cth), s 81, s 198C, s 198D, s 248B, s 1317K, s 1323

Limitation Act 1969 (NSW), s 47, s 55

Trustee Act 1925 (NSW), s 69

Limitation of Actions Act 1958 (Vic) s 5, s 21, s 27

Trustee Act 1958 (Vic), s 3(1)

Limitation Act 1935 (WA), s 3, s 38

Judicature Act 1873 (UK), s 25(2)

Limitation Act 1939 (UK), s 19

Limitation Act 1980 (UK) s 21, s 23, s 38

Trustee Act 1888 (UK), s 8(1)

Trustee Act 1925 (UK), s 68(17)

Cases Cited:

Allcard v Skinner (1887) 36 Ch D 145

Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337; [1981] HCA 1

Ashton, In the marriage of (1986) 11 Fam LR 457; (1986) FLC 91-777

Australasian Performing Right Association Ltd v Austarama Television Pty Ltd [1972] 2 NSWLR 467

Auzhair Supplies Pty Ltd (in liq), Re (2013) 272 FLR 304; (2013) 92 ACSR 554; [2013] NSWSC 1

Auzhair Supplies Pty Limited v Roy Gerace [2014] HCASL 231

Barker v The Duke Group Ltd (in liq) (2005) 91 SASR 167; [2015] SASC 81

Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333

Barnes v Addy (1874) LR 9 Ch App 244

Barnsley v Noble [2014] EWHC 2657 (Ch)

Bath v Standard Land Co Ltd [1911] 1 Ch 618

Beckford v Wade (1805) 17 Ves 87

Betjemann v Betjemann [1895] 2 Ch 474

Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44

Bonney v Ridgard (1784) 1 Cox Eq Cas 145

Bradford Old Bank v Sutcliffe [1918] 2 KB 833

Bridgman v Gill (1857) 24 Beav 302

Burdick v Garrick (1870) LR 5 Ch App 233

Burnside v Mulgrew [2007] NSWSC 550

Cambodian Buddhist Society of NSW v Thai [2017] NSWSC 1433

Caron and Seidlitz v Jahani and McInerney in their capacity as liquidators of Courtenay House Pty Ltd (in liq) & Courtenay House Capital Trading Group Pty Ltd (in liq) (No 2) (2020) 102 NSWLR 537; 382 ALR 158; [2020] NSWCA 117

Cattley v Pollard [2007] Ch 353, [2007] 2 All ER 1086; [2007] 3 WLR 317; [2006] EWHC 3130 (Ch)

Central Bank of Nigeria v Williams [2013] QB 499

Chase v Chase [2020] NSWSC 1689

Cia de SegurosImperio v Heath (REBX) Ltd (formerly C E Heath & Co (North America) Ltd) [2000] 2 All ER (Comm) 787

Clanricarde v Henning 30 Beav 180; 30 LJ Ch 865

Clarkson v Davies [1923] AC 100

Cohen v Cohen (1929) 42 CLR 91

Commercial Union Insurance Company of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Crossman v Sheahan [2016] NSWCA 200; (2016) 115 ACSR 130

Daly v Sydney Stock Exchange Ltd  (1986) 160 CLR 371; [1986] HCA 25

Darley Australia Pty Ltd v Walfertan Processors Pty Ltd [2012] NSWCA 48; (2012) 188 LGERA 26

Davidson & Davidson (1990) 14 Fam LR 817; (1991) FLC 92-197

Di Sante v Camando Nominees Pty Ltd [2000] VSC 211

Do Carmo v Ford Excavations Pty Ltd (1984) 154 CLR 234; [1984] HCA 17

Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366; [2003] 2 All ER (Comm) 451

Ecclesiastical Commissioners v North Eastern Railway Co (1877) 4 Ch D 845

Endresz v Commonwealth of Australia (2019) 273 FCR 286; [2019] FCAFC 197

Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22

Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544

Federal Republic of Brazil v Durant International Corp (Jersey) [2016] AC 297; [2015] UKPC 35

Feiglin v Ainsworth [2011] VSC 454

Feiglin v Ainsworth [2014] VSC 376

Feiglin v Ainsworth [2015] VSCA 326

FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45; [2015] AC 250

Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664

Fireproof Doors Ltd, Re [1916] 2 Ch 142

Foskett v McKeown [2001] 1 AC 102; [2000] UKHL 29

Fourniotis v Vallianatos (2018) 56 VR 85; [2018] VSC 369

Frith v Cartland (1865) 2 H&M 417; 71 ER 525

Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10

Gosford Christian School Ltd v Totonjian (2006) 201 FLR 424; [2006] NSWSC 725

Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC

Gwembe Valley Development Co Ltd v Koshy (No 3) [2003] EWCA Civ 1048, [2004] 1 BCLC 131

Halton International (Holdings) Inc Sarl v Guernroy Ltd [2006] WTLR 1241

Hancock Family Memorial Foundation Ltd vPorteous (2000) 22 WAR 198; [2000] WASCA 29

Harris & Harris (1991) 15 Fam LR 26; (1991) FLC 92-254

Harris v Knight (1890) 15 PD 170

Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266

Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252

Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64

House v The King (1936) 55 CLR 499; [1936] HCA 4

Hovenden v Lord Annesley (1806) 9 RR 119, 2 Sch & Lef 607

Jane v Bob Jane Corporation Pty Ltd [2013] VSC 406

JJ Harrison (Properties) v Harrison [2001] EWCA Civ 1467, [2002] 1 BCLC 162, [2002] BCC 729

Kingham v Sutton [2002] FCA 506

Knox County v Ninth National Bank 147 US 91 (1893)

L'Estrange v F Graucob, Ltd [1934] 2 KB 394; [1934] All ER Rep 16

Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221

Linke v Linke [2018] VSC 505

Mantovani v Vanta Pty Ltd [2021] VSC 771

Mara v Browne [1896] 1 Ch 199

McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835

McNab v Graham (2017) 53 VR 311; [2017] VSCA 352

Menegazzo v Pricewaterhousecoopers [2016] QSC 094

Morgan v Stephens (1861) 3 Giff 226; 66 ER 392

Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) [2022] NSWCA 12; (2022) 398 ALR 658

Nolan v Nolan [2004] VSCA 109

Nowell v Palmer (1993) 32 NSWLR 574; [1993] NSWCA 199

O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262; 29 ACSR 148

Orr v Ford (1989) 167 CLR 316; [1989] HCA 4

Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400; 1 ITELR 735

Pearce v Pearce (1856) 22 Beav 248; 52 ER 1103

Peconic Industrial Development Ltd v Lau Kwok Fai [2009] 5 HKC 135; 11 ITELR 844

Piwinski v Corporate Trustees of the Diocese of Armidale [1977] 1 NSWLR 266

Port Ballidu Pty Ltd v Frews Lawyers [2017] QSC 19

Queensland Mines Ltd v Hudson (1976) ACLC 40-266

Reader v Fried [2001] VSC 495

Reckitt v Barnett Pembroke and Slater Ltd [1928] 2 KB 1244, approved [1929] AC 176

Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286; (2003) 45 ACSR 244; [2003] NSWCA 71

Savage v Lunn (No 2) [1998] NSWCA 204

Savage v Lunn [1998] NSWCA 203

Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 2 All ER 1073; [1968] 1 WLR 1555; [1968] 2 Lloyd's Rep 289

Seymour v Seymour (1996) 40 NSWLR 358

Soar v Ashwell [1893] 2 QB 390

Sze Tu v Lowe [2014] NSWCA 462; (2014) 89 NSWLR 317

Tavistock Ironworks Company, Re (1867) LR 4 Eq 233

Taylor v Davies [1920] AC 636

Tito v Waddell (No 2) [1977] Ch 106

Tobin v Broadbent (1974) 75 CLR 378; [1947] HCA 46

United Pan-Europe Communications NV v Deutsche Bank AG [2000] 2 BCLC 461

Urquhart v M’Pherson (1880) 6 VLR(E) 17

Wheatley v Bower [2001] WASCA 293

Williams v Central Bank of Nigeria [2014] AC 1189; [2014] UKSC 10

Williams v Milotin (1957) 97 CLR 465; [1957] HCA 83

Williams-Ashman v Price [1942] 1 Ch 219

Wilson v Moore (1834) 1 My & K 337

Texts Cited:

HAJ Ford & WA Lee, Principles of the Law of Trusts, (2nd ed, 1990)

HAJ Ford & WA Lee, Principles of the Law of Trusts, (4th ed, 2010)

JD Heydon, MJ Leeming & PG Turner, Meagher, Gummow & Lehane's Equity: Doctrine & Remedies (5th ed. 2014 Lexis Nexis Butterworths)

RP Meagher, WMC Gummow & JRF Lehane, Equity: Doctrine & Remedies (3rd ed. 1992 Butterworths)

NSWLRC 3, First Report on the Limitation of Actions, October 1967

RP Austin, “Trading Trusts”, Equity and Commercial Relationships (ed PD Finn, 1987)

Category:Principal judgment
Parties: Maxwell James Twigg (First Appellant)
Twigg Landfill Pty Ltd (Second Appellant)
Byron Bay Beach Hotel Properties Pty Ltd (Third Appellant)
Twigg Consulting Pty Ltd (Fourth Appellant)
B Bay H Pty Ltd (Fifth Appellant)
Twigg Investments Pty Ltd (Sixth Appellant)
Maly Holdings Pty Ltd (Seventh Appellant)
Twigg Property Development Pty Ltd (Eighth Appellant)
Twigg Motor Sport Pty Ltd (Ninth Appellant)
Vision Motor Sport Pty Ltd (Tenth Appellant)
Twigg Motor Racing Pty Ltd (Eleventh Appellant)
Surf Street Holdings Pty Ltd (Twelfth Appellant)
W & E Twigg Pty Ltd (Thirteenth Appellant)
Twigg Co Pty Limited (Fourteenth Appellant)
Diane Twigg (First Respondent)
Ipswich Landfill Pty Ltd (Second Respondent)
Brooklyn Landfill & Waste Recycling Pty Ltd (Third Respondent)
Twigg Plant Hire Pty Ltd (Fourth Respondent)
Representation:

Counsel:
B Walker SC, J Evans QC & PM Knowles (Appellants)
MR Elliot SC & DK Smith (Respondents)

Solicitors:
O’Loughlin Westhoff as agents for Radcliffs (Appellants)
Roberts & Partners (Respondents)
File Number(s): 2021/5136
 Decision under appeal 
Court or tribunal:
Supreme Court
Jurisdiction:
Equity Division, Commercial List
Citation:

[2020] NSWSC 1159; [2020] NSWSC 1782; [2020] NSWSC 1856.

Date of Decision:
31 August 2020
Before:
Ball J
File Number(s):
2019/071329

HEADNOTE

[This headnote is not to be read as part of the judgment]

The first appellant Mr Max Twigg is the son of the late Mr William Twigg, who founded and until his death operated a waste disposal and landfill business through a structure of discretionary family trusts, the beneficiaries of which included William’s wife Mrs Diane Twigg (the first respondent), and their three children Frances, Max, and Elizabeth.  The other appellants are companies controlled by Max, and the other respondents are the corporate trustees of the family trusts, in each of which since William’s death Diane has been the sole shareholder and Diane and Max the directors. Since William’s death, Diane has been the appointor and guardian of the three trusts and as such had effective control of their assets. Since William’s death in 1996, the businesses have been operated by Max, their affairs entrusted to him by Diane. In 2007, Max negotiated the sale of the businesses for over $150 million. Apart from three ‘gifts’ of $5 million to each of Diane, Frances and Elizabeth, the net sale proceeds were directed to Max and entities he controlled, and then used for his own benefit.

In 2019, Diane commenced proceedings complaining about Max’s use of the sale proceeds. The primary judge held that Max breached his fiduciary duties as a director of the Trustee Companies by causing them to distribute trust property in breach of the respective trusts, and that he was also liable as a trustee de son tort, and that as a result he held the trust assets distributed to himself and his companies, and their traceable proceeds, as a constructive trustee. On appeal by Max and his companies:

Held (per Brereton JA, Bell CJ and Payne JA agreeing), dismissing the appeal and allowing in part the cross-appeal [10] (Bell CJ and Payne JA), [257] (Brereton JA).

As to the written resolutions distributing the trust income:

  1. Per Brereton JA; Bell CJ and Payne JA agreeing: The primary judge did not err in concluding that the resolutions were made by Max after 30 June 2007, with the consequence that the trust income which was distributed to Max had vested by default in Diane (in respect of Ipswich and Brooklyn) and the Twigg Family Trust (in respect of TPH): [2(1)] (Bell CJ and Payne JA); [26]-[28], (Brereton JA).

    McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835; Harris v Knight (1890) 15 PD 170; Kingham v Sutton [2002] FCA 506; Burnside v Mulgrew [2007] NSWSC 550; Chase v Chase [2020] NSWSC 1689; Mantovani v Vanta Pty Ltd [2021] VSC 771, considered.

As to delegation and authority:

  1. Per Brereton JA; Bell CJ and Payne JA agreeing: The primary judge did not err in holding that Max did not have delegated authority to make the resolutions or the impugned payments that they purported to authorise; in concluding that Max did not have authority to cause the trustee companies to make the impugned distributions; and consequently in holding that the payments were made in breach of Max’s fiduciary duty and that Max and his companies held the Sale Proceeds as constructive trustees: [2(1)] (Bell CJ and Payne JA); [46] (Brereton JA).

    Tobin v Broadbent (1974) 75 CLR 378, considered.

As to the nature of Max’s liability:

  1. Per Brereton JA; Bell CJ and Payne JA not deciding: The primary judge was in error in holding that Max was liable as a trustee de son tort. Before one can be liable as a trustee de son tort for a breach of trust, one must first have assumed the trusts by purporting to act as if one were the trustee. Max had not assumed to act as a trustee before procuring the misapplication of trust property. It follows that the liability of Max and his companies was founded only in his breach of fiduciary duty, not as a trustee de son tort: [4] (Bell CJ and Payne JA); [57]-[62], (Brereton JA).

    Barnes v Addy (1874) LR 9 Ch App 24; Williams v Central Bank of Nigeria [2014] AC 1189; Mara v Browne [1896] 1 Ch 199; Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 1 WLR 1555; Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400; Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366; Nolan v Nolan [2004] VSCA 109; Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266, considered.

As to dishonesty:

  1. Per Brereton JA; Bell CJ and Payne JA agreeing: The primary judge did not err in concluding that Max acted dishonestly in the relevant sense, in that he deliberately withheld information from Diane that may have caused her to object to what he did – that is to say, what Max did in disposing of the Sale Proceeds and excluding Diane from the decision-making process involved conscious wrongdoing and conscious active concealment on his part: [2(2)] (Bell CJ and Payne JA); [80]-[82], (Brereton JA).

    Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333; Seymour v Seymour (1996) 40 NSWLR 358, considered.

As to the defence of laches:

  1. Per Brereton JA; Bell CJ and Payne JA agreeing: The defence of laches should have failed in respect of the personal claim, as it rightly failed in respect of the claim for proprietary relief. It was not established that Diane knew, or that she ought reasonably have known, of the wrong, before about 2018. Thereafter, she acted with reasonable expedition to ascertain the true position and commence proceedings: [2(3)] (Bell CJ and Payne JA); [107], (Brereton JA).

    Nowell v Palmer (1993) 32 NSWLR 574, distinguished. Savage v Lunn (No 2) [1998] NSWCA 204 Allcard v Skinner (1887) 36 Ch D 145, considered.

As to limitations:

  1. Per Brereton JA; Bell CJ and Payne JA agreeing: the primary judge was right to hold that Limitation of Actions Act 1958 (Vic), s 21(2) did not bar the claims in respect of breach of fiduciary duty. The liability of Max and the Max companies was not as a trustee (of an institutional trust) within the meaning of s 21, but remedial only. Section 21(2) has no application where a remedial constructive trust is imposed by the Court: [6], [9] (Bell CJ and Payne JA), [141], [151] (Brereton JA).

  2. Per Bell CJ and Payne JA: It was not open to open to the appellants, on the pleadings and having regard to the conduct of the case, to rely on s 5 of the Limitation of Actions Act 1958 (Vic) by analogy: [7]-[8] (Bell CJ and Payne JA).

  3. Per Brereton JA; Bell CJ and Payne JA not deciding: The primary judge was right to hold that Limitation of Actions Act 1958 (Vic), s 5 did not bar the claims in respect of breach of fiduciary duty, although for reasons that differ from his Honour’s. Section 5 does not apply to claims for an account in equity where the liability to account is equitable, save insofar as, by s 5(8), it may be applied by analogy. A claim for proprietary relief against an accessory is within the analogy: it is a claim for the accessory to account for the trust property it has received, by restoring it to the trust. An action for equitable compensation against an accessory is also within the analogy, as it so closely corresponds to “an action for an account”. However, in the present case, because s 5 applied only by analogy, time did not begin to run until the cause of action was discoverable, which was not until about 2018 or 2019. [9] (Bell CJ and Payne JA); [171], [184], [187]-[188] (Brereton JA).

    Tito v Waddell (No 2) [1977] Ch 106 at 250 (per Megarry V-C), followed; per Malcom CJ, Kennedy and Wallwork JJ, not followed. Feiglin v Ainsworth [2011] VSC 454 per Mukhtar AsJ, distinguished. Wheatley v Bower [2001] WASCA 293; Menegazzo v Pricewaterhousecoopers [2016] QSC 094, not followed. FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45; In re Caerphilly Colliery Co, Pearson's Case (1877) 5 Ch D 336, considered. Cohen v Cohen (1929) 42 CLR 91; Auzhair Supplies Pty Ltd (in liq), Re (2013) 272 FLR 304; (2013) 92 ACSR 554; [2013] NSWSC 1, distinguished. Cia de Seguros Imperio v Heath (REBX) Ltd (formerly C E Heath & Co (North America) Ltd) [2000] 2 All ER (Comm) 787; Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400; Feiglin v Ainsworth [2011] VSC 454, considered.

  1. Per Brereton JA; Bell CJ and Payne JA agreeing: If any limitation period otherwise applies directly, then the limitation period would in any event be postponed by s 27 to commence not before 2018: [9] (Bell CJ and Payne JA); [199] (Brereton JA).

As to refusing leave to amend the defence:

10.   Per Brereton JA; Bell CJ and Payne JA agreeing: There was no material error in refusing leave to the appellants to amend to rely by analogy on the limitation period provided by Corporations Act, s 1317K, as it would not ultimately have availed them [2(4)] (Bell CJ and Payne JA); [202] (Brereton JA).

As to tracing:

11.    Per Brereton JA; Bell CJ and Payne JA agreeing: The inference that the entire $12.2 million advanced by Max to BBH was derived from the Sale Proceeds is overwhelming. His Honour did not err in so concluding, even if it was not common ground: [2(6)] (Bell CJ and Payne JA); [230] (Brereton JA).

Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; Endresz v Commonwealth of Australia (2019) 273 FCR 286; Crossman v Sheahan (2016) 115 ACSR 130; Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371; Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198; Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286; Federal Republic of Brazil v Durant International Corp (Jersey) [2016] AC 297; Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337, considered.

12.    Per Brereton JA; Bell CJ and Payne JA agreeing: The primary judge did not err in concluding that the proceeds of the Hotel were traceable trust property: [5] (Bell CJ and Payne JA); [226] (Brereton JA).

13.    Per Brereton JA; Bell CJ and Payne JA agreeing: The primary judge did not err in concluding that Albatross Ave was not traceable proceeds of the trust property: [2(5)] (Bell CJ and Payne JA); [244]-[245] (Brereton JA).

Frith v Cartland (1865) 2 H&M 417; Heperu Pty Ltd v Belle (2009) 76 NSWLR 230, distinguished.

Judgment

  1. BELL CJ AND PAYNE JA: We have had the benefit of reading the careful and scholarly judgment of Brereton JA and adopt the abbreviations contained in that judgment.

  2. We agree with his Honour’s conclusion and have nothing to add in relation to:

  1. breach of fiduciary duty (appeal grounds 1-5), dealt with at [18]–[46] of his Honour’s reasons;

  2. dishonesty (appeal grounds 7-8), dealt with at [63]–[82] of his Honour’s reasons;

  3. laches (appeal ground 10 and cross-appeal ground 1), dealt with at [83]–[107] of his Honour’s reasons;

  4. the primary judge’s refusal to grant leave to amend the defence to plead a defence relying on s 1317K of the Corporations Act 2001 (Cth) by analogy, dealt with at [200]–[202] of his Honour’s reasons;

  5. Albatross Avenue (cross-appeal ground 2), dealt with at [231]–[245] of his Honour’s reasons; and

  6. the finding that the whole of the $12.2 million advanced by Max to Byron Bay Beach Hotel Properties Pty Ltd (BBH) was from the Sale Proceeds, (appeal ground 11) dealt with at [227]–[230] of his Honour’s reasons.

  1. In light of our agreement about these matters, it is unnecessary to address a number of the remaining issues and we would prefer to await a case where the conclusions reached are dispositive before deciding those issues.

  2. In relation to appeal ground 6, dealt with at [47]–[62] of his Honour’s reasons, as we agree with Brereton JA’s conclusion that Max had breached his fiduciary duty as a director of the Trustee Companies, it is strictly not necessary to consider whether Max was also liable as a trustee de son tort. It may be, as his Honour explains at [58]–[61], that because when Max distributed the Sale Proceeds he did so as director of the Trustee Companies (albeit in breach of his duty as such), his conduct could not be taken to be an assumption of the office of trustee by Max personally so as to constitute him a trustee de son tort.

  3. In relation to appeal ground 12, dealt with at [203]–[226] of his Honour’s reasons, it is not necessary to express a view about the resolution of the tracing issues addressed in [203]-[223] and we reserve our position in relation to those issues. We agree, however, with Brereton JA at [224], by reference to Federal Republic of Brazil v Durant International Corp (Jersey) [2016] AC 297; [2015] UKPC 35 that the fact that BBH was found to be Max’s alter ego is dispositive of this issue. Whatever difficulties there may be with an alter ego analysis (see Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) [2022] NSWCA 12; (2022) 398 ALR 658 per Leeming JA at [26]-[28]), no challenge was made to the primary judge’s finding that BBH was Max’s alter ego. We agree with Brereton JA’s analysis at [226] that the Hotel was acquired by Max’s alter ego with traceable Sale Proceeds and replaced those Proceeds, itself becoming to that extent traceable property. The primary judge did not err in concluding that the proceeds of the sale of the Hotel were traceable property.

  4. In relation appeal ground 9, dealt with at [108]–[199] of his Honour’s reasons, we agree with Brereton JA at [131] (see also [151]) of his Honour’s judgment that the primary judge was correct to conclude that s 21(2) of the Limitation of Actions Act 1958 (Vic) did not bar the claim relating to Max’s breach of fiduciary duty because that provision has no application where a remedial constructive trust is imposed by the Court as a result of a particular transaction.

  5. As to whether it was open to the appellants to rely on s 5 of the Limitation of Actions Act 1958 (Vic) by analogy, and the related notional rejoinder that it would be unconscionable to do so, this was a matter that was not, but which should have been, pleaded.

  6. Ultimately Senior Counsel for Max at the trial accepted that he relied on s 5 only to the limited extent that it provided, in its terms, a defence to a claim for breach of contract. The appellants did not seek to rely on s 5 by way of analogy as a bar to a claim for account, as they now contend on appeal.

  7. The respondents’ submission, that the way the case was now sought to be put was abandoned before the primary judge, is correct. It is not open to the appellants to revive that case on appeal. Even if the case could be advanced, we agree with Brereton JA at [195]-[199] that the limitation period was postponed by reason of Max’s fraudulent concealment of the cause of action and had not expired by the time the respondents commenced proceedings.

  8. We agree with the orders proposed by Brereton JA.

  9. BRERETON JA: The first appellant (defendant below) Mr Max Twigg is the son of the late Mr William Twigg, who founded and until his death in 1996 operated a waste disposal and landfill business (“the Twigg Group business”), through a structure of discretionary family trusts, the beneficiaries of which included William’s wife the first respondent (plaintiff below) Mrs Diane Twigg, and their three children Frances, Max, and Elizabeth.  The other appellants (defendants) are companies controlled by Max (“the Max Companies”), and the other respondents (plaintiffs) the corporate trustees of the family trusts (“the Trustee Companies”): Twigg Plant Hire Pty Ltd (“TPH”), Brooklyn Landfill & Waste Recycling Pty Ltd (“Brooklyn”) and Ipswich Landfill Pty Ltd (“Ipswich”), in each of which since William’s death Diane has been the sole shareholder and Diane and Max the directors, and which are respectively the trustees of the Twigg Family Trust, the Brooklyn Landfill Trust and the Ipswich Landfill Trust. Since William’s death, Diane has been the appointor and guardian of the three trusts and as such had effective control of their assets.

  10. After William’s death in 1996, the Twigg Group business was operated by Max. Diane, who reposed trust in him, left their operational affairs to him. However, she continued to play a part in some essential decision-making functions of the Trustee Companies, in particular in respect of the distribution of income: each year from 1996 to 2006, without exception, Max and Diane joined together in resolutions of the directors of each Trustee Company adopting the financial statements and distributing the trust income amongst the beneficiaries.

  11. On 2 April 2007, the Twigg Group business was sold to Transpacific Waste Management Pty Ltd, a subsidiary of Transpacific Industries Group Ltd (“Cleanaway”), for the sum of $155.8 million, subject to certain adjustments. Cleanaway also agreed to pay, by way of additional consideration, an amount of at least $10 million, depending on the financial performance of the business in 2008 and expected savings arising from synergies achieved from the merger of the business into other businesses carried on by Cleanaway. In addition, Cleanaway agreed to enter into a consulting agreement with Sibley Group Pty Ltd, a company controlled by Max, under which Max would provide consultancy services to the business for a period of 12 months following its sale, in return for a fee of $10 million.

  12. Of the sale price, an amount of $30 million was paid in the form of shares in Cleanaway issued to Twigg Landfill (a company controlled by Max which is the trustee of the Max Twigg Family Trust). The sum of $113,804,668 was deposited into the bank account of TPH. From that $113.8 million, Max caused debts and tax to be paid, and payments – characterised by Max as “gifts” – of $5 million each to be made to Diane, Frances, and Elizabeth, and $1 million to other recipients. He caused the remaining proceeds – which were apportioned as to $50,225,300 to the Ipswich Trust, as to $41,978,347 to the Brooklyn Trust, and as to $5,674,033 to the Twigg Family Trust (“the Sale Proceeds”) – to be paid to himself and entities controlled by him, and used the funds received by him and his entities for his own benefit, inter alia to acquire several properties in Queensland, including one at Hedges Avenue, Mermaid Beach (which he purchased in about May 2007 for $18.5 million and later sold for $7.6 million, following which he purchased another nearby at Albatross Avenue), and the Byron Bay Beach Hotel (“the Hotel”), which was purchased in late June 2007 by Byron Bay Beach Hotel Properties Pty Ltd (“BBH”) upon trust for the BBH Property Trust – both entities controlled by Max – for $47.2 million, and later sold in 2017 for $68.2 million.

  13. In 2007, Max was 36 years of age, while his mother Diane was 61. Max had had operational control of the business for a decade, and Diane did not involve herself in operational decision-making; she trusted and relied on Max, signed documents she was asked to sign, and had a limited understanding of corporate structures and her responsibilities as a director. Although Diane was, with Max, one of the signatories to the contract for sale and aware of the gross selling price, Max emphasised to her that the business had been under financial pressure and had a large amount of debt which would have to be repaid out of the proceeds of the sale. Max did not inform Diane that the net sale proceeds were in the order of $113 million, that Max was intending to take nearly $100 million for himself, and that this would exhaust the family trusts for all time so that nothing would remain for the benefit of the family in the future. This occurred in circumstances where until then Diane had always been involved, at least formally, in decisions as to distribution of income, and where Max admittedly understood that if other members of the family discovered the amount of the Sale Proceeds and that he was intending to distribute them in so final and unilateral a fashion, there was a “real possibility” that they would object. [1]

    1. Tcpt 10 June 2020, p 356(24).

  14. Twelve years later, in 2019, Diane commenced proceedings complaining about Max’s use of the Sale Proceeds. Ball J held that Max breached his fiduciary duties as a director of the Trustee Companies by causing them to distribute trust property in breach of the respective trusts, and that he was also liable as a trustee de son tort, and that as a result he held the trust assets distributed to himself and his companies, and their traceable proceeds, as a constructive trustee. [2] His Honour rejected Max’s contention that the distribution of the funds was pursuant to valid resolutions of the directors of the Trustee Companies, [3] or that Diane had later (in 2009) ratified them. [4] His Honour also rejected limitation defences, [5] a defence of laches in respect of claims for proprietary relief (although laches was held to bar claims for personal relief against Max), [6] and an argument that tracing was not available in respect of certain assets derived from the sale of the Hotel. [7] In subsequent judgments, his Honour declined an application to reopen in one respect but allowed such an application in another,[8] and made orders as to costs and resolved further disputes as to tracing. [9]

    2. Twigg v Twigg (No 4) [2020] NSWSC 1159 (“No 4 judgment”) at [134].

    3. No 4 judgment at [106]-[108].

    4. No 4 judgment at [151]-[155].

    5. No 4 judgment at [173], [176].

    6. No 4 judgment at [188]-[189].

    7. No 4 judgment at [196]-[205].

    8. Twigg v Twigg (No 5) [2020] NSWSC 1782 (“No 5 judgment”).

    9. Twigg v Twigg (No 6) [2020] NSWSC 1856 (“No 6 judgment”).

  15. Max and his companies appeal to this Court. They challenge the primary judge’s conclusions that the payments made to him out of the Sale Proceeds were not authorised and that he acted in breach of his fiduciary obligations (Grounds 1-5); that he was liable as a trustee de son tort (Ground 6); that he dishonestly concealed what he had done from Diane (Grounds 7 and 8); that proprietary relief was not barred by limitation or laches (Grounds 9 and 10); and that the respondents could trace into certain assets held by him or his companies derived from the sale of the Hotel (Grounds 11 and 12). By cross-appeal, Diane and the Trustee Companies challenge his Honour’s upholding of the defence of laches in respect of the claims for personal relief (Cross-appeal Ground 1), and the rejection of a claim to trace into Albatross Avenue (Cross-appeal Ground 2).

1. Breach of fiduciary duty (Grounds 1, 2, 3, 4, 5)

  1. The primary judge held that, subject to any defences that Max might have, the Trustee Companies were entitled to equitable compensation in respect of Max’s breach of fiduciary duties, and that he and his companies were liable to account to the Trustee Companies and/or Diane (in whom most of those proceeds had, by default, vested) for any part of the Sale Proceeds they had received. [10]

    10. No 4 judgment at [130]-[138].

  2. There were two bases for his Honour’s conclusion that the impugned payments from the Sale Proceeds were procured by Max in breach of his fiduciary duty as a director of each relevant Trustee Company. The first was that no valid resolution of the relevant trustee authorising any such distribution had been adopted prior to 30 June 2007,[11] in the context that the terms of the trust deeds provided that, in default of such a resolution by that date, in the case of Ipswich and Brooklyn (to which in excess of $92 million of the net Sale Proceeds had been apportioned) the trust income vested in Diane – with the consequence that it was no longer available for distribution by the relevant Trustee Company, and their purported dispositions were in breach of trust – and in the case of the Twigg Family Trust, in the trust estate generally. [12] The second basis was that Max was not authorised to exercise alone the decision-making powers of the Trustee Companies in respect of the distribution of income, and that such powers had not been delegated to him. [13]

    11. No 4 judgment at [72].

    12. No 4 judgment at [38], [128]-[129]; No 5 judgment at [50].

    13. No 4 judgment at [113]-[120].

  3. The appellants contend that the primary judge erred in concluding that no resolutions were adopted by the Trustee Companies in respect of the distribution of income of their respective trusts for the period ending 30 June 2007 on or before that date (Ground 1); in concluding that the decision-making powers of the directors of the Trustee Companies in respect of the distribution of income had not been delegated to Max alone (Ground 2); in concluding that Max did not have authority to cause the Trustee Companies to make the impugned distributions (Ground 3); and consequently in holding that the payments were made in breach of Max’s fiduciary duty (Ground 4) and that Max and his companies held the Sale Proceeds as constructive trustees (Ground 5).

1.1 Timing of resolution (Ground 1)

  1. The impugned payments were ostensibly authorised by three documentary “resolutions” – one for each of the Trustee Companies – signed by Max alone, and recording him as the only person present. All three were in the following form:

Resolution of Directors

HELD

On                 2007

PRESENT:

Maxwell Twigg (Chairman)

It was resolved pursuant to the powers contained in the Deed of Settlement, that the net income of the Trust for the financial year ended 30 June 2007 be set aside and applied for the benefit of beneficiaries as follows:

DISTRIBUTION OF ORDINARY INCOME:

Beneficiary/Unit Holder

Brooklyn Landfill Trust

Comments

The first $1,675,000 of profits constituting ordinary income. Accumulate the balance of profits constituting ordinary income.

And that the beneficiaries be and are hereby absolutely and indefeasibly entitled thereto.

DISTRIBUTION OF CAPITAL:

DISTRIBUTION OF DIVIDEND INCOME:

TREATMENT OF DISTRIBUTIONS:

It was resolved that all the capital profit realised by the Trustee of the Trust on the sale of the Ipswich Landfill Trust business assets as per the sale agreement and which represent the total capital gain of the Trust as defined under Division 115 of the Income Tax Assessment Act 1997 be distributed to the Brooklyn Landfill Trust for the financial year ending 30 June 2007.

It was resolved that all the dividend income as defined under section 44 of the Income Tax Assessment Act 1936 be distributed to the Brooklyn Landfill Trust for the financial year ending 30 June 2007.

Further resolved that the amounts so determined be credited to separate accounts for each beneficiary in the books of the Trust as soon as the amounts are ascertained.

  1. Attached to the copy of the resolution in evidence was a note, as follows:

“PLEASE NOTE:

This resolution has been incorrectly prepared as a multiple director minute and contains no signing date, this should have been prepared as a single director’s decision as per the following:

DIRECTORS DECISION MADE PURSUANT TO SECTION 248B(1) OF THE CORPORATIONS ACT 2001”

  1. One resolution bears the date 30 June 2007; the others are undated. Although there was no direct evidence of the date on which the resolutions were signed, and the primary judge accepted that it “was not clear”, his Honour found that it was probable that all were signed by Max after 30 June 2007:[14]

“It is not clear when the resolutions were signed. The likelihood is that they were signed after 30 June 2007. The resolution of Twigg Plant Hire is dated 30 June 2007, which was a Saturday. The resolutions of Ipswich and Brooklyn are undated. According to Mr Fitzpatrick, it was not uncommon in 2007 for resolutions dealing with the distribution of income to be signed after year end, although he said that practice changed “much later” as a consequence of a ruling or statement of the Tax Office. Mr Fitzpatrick accepted that “quite probably the trust distribution in 2007 wasn’t prepared or signed before 30 June 2007”. Max made a similar concession. It is plain that that practice had been followed in at least some of the previous years. In my opinion, it is likely that it was followed in respect of the resolutions relating to the 2007 financial year trust distributions.”

14. No 4 judgment at [72].

  1. The appellants submit that this conclusion was flawed, first in inferring that the resolutions were signed after 30 June from evidence (namely the accountant Mr Fitzpatrick’s concession that it was not uncommon in earlier years for resolutions to be signed after the end of the year, and an equivocal concession by Max in respect of the date of another document – not the three resolutions) that was insufficient to support the finding having regard to the “presumption of regularity”; and secondly, in focussing on the date a written document was signed, when the documents were merely records of resolutions made by Max which in all probability had been made at an earlier date, given that the money had been distributed from the TPH account for his own benefit well before the end of June 2007.

  1. Mr Fitzpatrick, who prepared the written resolutions, not only said that up to and including 2007 it was not uncommon for trust income distribution resolutions to be prepared and signed after the end of the financial year, [15] but described a process of preparation of financial statements after year’s end, accompanied by resolutions for adoption and distribution of income, which made that result highly probable, if not inevitable. [16] Max gave evidence to similar effect. [17] Mr Fitzpatrick agreed that the resolutions in question were probably not prepared or signed before 30 June 2007. [18]

    15. Tcpt 11 June 2020, p 461(12-26).

    16. Tcpt 11 June 2020, p 459(05)-462(07).

    17. Tcpt 9 June 2020 p 303(23-38), 359(12).

    18. Tcpt 11 June 2020, p 462(30-32).

  2. In the light of that evidence, the judge was amply entitled to conclude that the written resolutions were prepared and signed after 30 June 2007. Reliance on the presumption of regularity is, as is so often the case, misconceived; there is no presumption in favour of the regularity of an impugned transaction. The presumption of regularity is one that where an act is done which can be done legally only after the performance of some prior act, proof of the later act carries with it a presumption of the due performance of the prior act. [19] It is concerned with formalities, not with the substantive validity of transactions. [20] And it only operates in the absence of evidence; where there is evidence to the contrary, the presumption does not arise at all, rather than being rebutted. [21] The presumption does not mean that when, as here, a transaction is impugned as being in breach of duty, one commences with a presumption that it was proper.

    19. McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835 at 850 (Griffith CJ), citing Knox County v Ninth National Bank 147 US 91 (1893).

    20. Harris v Knight (1890) 15 PD 170 at 179-180 (Lindley LJ); Kingham v Sutton [2002] FCA 506 at [59] (Wilcox and Marshall JJ); Burnside v Mulgrew [2007] NSWSC 550 at [25] (Brereton J); Chase v Chase [2020] NSWSC 1689 at [34] (Rein J); Mantovani v Vanta Pty Ltd [2021] VSC 771 at [83] (McMillan J).

    21. Cambodian Buddhist Society of NSW v Thai [2017] NSWSC 1433 at [91] (Sackar J), citing Darley Australia Pty Ltd v Walfertan Processors Pty Ltd (2012) 188 LGERA 26; [2012] NSWCA 48.

  3. The appellants’ argument that the written resolutions merely record an anterior decision by Max was not advanced at first instance. The appellants did not at trial assert that Max had made the relevant determination in any way other than by the written resolutions. Their pleading and submissions were to the effect that the relevant determinations were the written resolutions signed by Max, not some unexpressed decision made earlier but later recorded in the written instruments. The mere payment of funds out of TPH does not support any such anterior resolution, as although the trust deeds provide that a determination may be made by placing the relevant amount to the credit of the relevant beneficiary in the books or drawing a cheque for it to the beneficiary, or by oral declaration or written statement, the funds were not paid in accordance with the terms of the resolutions, but to Max. In any event, it is improbable that Max had earlier determined to make distributions so specific for each trust – including distributions from one trust to another – as are reflected in the written resolutions, and Max gave no evidence that he had conceived of such an elaborate distribution prior to signing the resolutions.

  4. Accordingly, the primary judge did not err in concluding that the resolutions were made by Max after 30 June 2007, with the consequence that the trust income which was purportedly paid to Max had vested by default in Diane (in respect of Ipswich and Brooklyn) and in the Twigg Family Trust (in respect of TPH). But even if that conclusion were erroneous, it would not avail Max if he did not have the requisite authority, to which question I now turn.

1.2 Authority for resolution (Grounds 2, 3, 4, 5)

  1. At first instance, Max’s case that the requisite authority had been delegated to him was founded largely on an agreement said to have been reached between him and Diane, initially in 2001. That there was any such agreement was rejected by the primary judge:[22]

“Max contends that there was an agreement by which Mrs Twigg agreed to give Max control of the Twigg Group business. It is not entirely clear how such an agreement itself could displace the requirements of the articles of association and constitutions of the Corporate Plaintiffs. In any event, no such agreement existed. The high water mark of Max’s case that such an agreement was reached is Mr Fitzpatrick’s letter dated 24 November 2004. But, as I have explained, that letter makes it clear that Mrs Twigg was not giving up her control of the Corporate Plaintiffs. Far from providing evidence of an agreement, it is inconsistent with there being one.”

22. No 4 judgment at [117].

  1. The appellants did not challenge that finding. What remains is an argument that delegation is to be inferred from the circumstance that Diane left decision-making in respect of the business operations to Max, had little understanding of the decisions in which she was involved, and trusted Max. The appellants submit that Diane had completely delegated her directorial functions to Max, so that (conformably with Corporations Act 2001 (Cth), ss 198C(1), 198D(1) and 198D(3)) the powers of the directors could be exercised by him alone,[23] and that the fact that Diane occasionally signed documents is not inconsistent with complete, or at least extensive, delegation of her functions to Max.

    23. Citing Re Tavistock Ironworks Company (1867) LR 4 Eq 233 at 237; Re Fireproof Doors Ltd [1916] 2 Ch 142 at 149; Gosford Christian School Ltd v Totonjian (2006) 201 FLR 424 at [63].

  2. The primary judge found that while there was an implied delegation to Max, as the director responsible for managing the day-to-day business of the companies, of many of the functions of a managing director, and that he occupied that position with the tacit agreement of Diane, such delegation did not extend to a number of important functions, and in particular to paying the whole Sale Proceeds to himself, or passing resolutions which purported to authorise such a payment:[24]

“There is no evidence that the directors of any of the companies resolved to appoint Max as the managing director, although I accept that there was an implied delegation to Max of many of the functions of a managing director because he was the director responsible for managing the day to day business of the companies and he occupied that position with the tacit agreement of Mrs Twigg, the only other director. There may be a question concerning the scope of the implied delegation to Max arising from those facts. However, as I have explained, whatever the scope of that delegation, it did not extend to a number of important functions of the directors, which continued to be taken at meetings or were the subject of resolutions signed by both of them.”

24. No 4 judgment at [114].

  1. The high point of the evidence relevant to whether there was an implied delegation was that Max deposed: [25]

“31. After 24 July 2001, Diane remained a co-director of Brooklyn and Twigg Plant Hire and attended each of the meetings which were held in respect of distributions and financial reports. Diane left the day to day management, expansion and decision making in respect of those plaintiffs, to me.

32. Diane was not interested in the day to day matters of the business. I would always attempt to keep her included and would specifically include her in discussions of larger matters. I visited Diane at least weekly and sometimes fortnightly, as she lived across the road, to catch up on everything generally and discuss the business and talk to her about the employees, unless she was travelling. She regularly asked questions about the business which I happily answered.”

25. Affidavit of M Twigg of 6 May 2020 at [31]-[32].

  1. However, Max accepted that every year from 1996 until 2006, he and Diane met together to make decisions about distribution of trust income: [26]

“Q. Now what was happening in each of these years that I've taken you to, 2000 to 2006, was that you and your mother met and made a decision about whether or not to adopt a set of financial statements for each of the Brooklyn, Ipswich and Twigg Family Trust entities, correct?

A. Correct.

Q. And you and your mother together met and made decisions, when they fell to be made, about the distribution of income by the trusts?

A. Yes.”

26. Tcpt 9 June 2020, p 298(18-26).

  1. Further, Max appreciated that resolutions signed by both of them were required, and he understood and acted on the basis that Diane was a “necessary decision-maker” for such resolutions: [27]

    27. Tcpt 9 June 2020, p 301(34)-303(44).

“Q. So, it was important that decisions about what the financial statement and annual return would say were decisions that were to be made by the directors together. Correct?

A. Yes.

Q. You understood that resolutions of your mother and you were required in order for the company to make decisions about whether or not to adopt the financial statements that were prepared?

A. Yes.

Q. And you understood that resolutions of Diane and you were required in order for the company to make decisions about whether to distribute trust income. Correct?

A. I did, yes.

Q. And you did that year in/year out from 1996 to 2006; correct?

A. I did.

Q. You weren't just doing it for the fun of it - having these documents prepared and signed - were you?

A. I understood the responsibility, yes.

Q. You understood that it was something that had to be done; correct?

A. Yes, correct.

Q. In order for the company to make these decisions; correct?

A. I did, correct.”

  1. Max considered Diane to be a director and treated her as such: [28]

“Q. And by making resolutions and signing financial statements up to 2007, you treated Diane as a director of the company, didn't you?

A. I did.

Q. You considered her to be a director?

A. Yes.

Q. You understood she was a necessary decision-maker in relation to the resolutions that were signed?

A. Yes.”

28. Tcpt 9 June 2020, p 302(18).

  1. Indeed, as one of two directors, Diane signed the contract for sale to Cleanaway on 2 April 2007. Max knew that she trusted him, including to tell him if decisions she was being asked to make were particularly important or potentially disadvantageous: [29]

    29. Tcpt 9 June 2020, p 302(39).

“Q. You appreciated that she was--

A. I was trusting--

Q. --she was trusting you that the decisions being made were appropriate ones?

A. She did trust me, yes.

Q. And you appreciated that she was trusting you to tell her if the decisions were particularly important ones. Correct?

A. Yes.

Q. And you appreciated she was trusting you to tell her if the decisions she was being asked to make might be harmful to her own interests. Correct?

A. Correct.”

  1. He also knew that in 2007 she remained a director and was in a position to disagree with Max as to division of trust income, though he claimed not to have taken that into consideration: [30]

“Q. Now, the question I'm putting to you, you can agree with it or not. You understood that in circumstances where your mother was a director, she was in a position to disagree with you if she wanted to about how the net sale proceeds would be divided up. You understood that, didn't you?

A. I understood that, but it wasn't taken into consideration.

Q. Not something you took into consideration?

A. That's what I said.”

30. Tcpt 10 June 2020 p 353(47)-354(04).

  1. The appellants submit that the making of payments was clearly within Max’s usual authority. So much may be accepted. They then submit that this extended to the impugned payments, as Max had no reason to doubt that the requisite documents authorising them would subsequently be prepared and adopted. This overlooks, first, that his authority to make payments could not sensibly extend to payments that were distributions of trust income to beneficiaries which themselves required the authority of a resolution of the trustee; secondly, that historically, payment of trust distributions had been treated as requiring the approval of both directors; and thirdly, that Max suspected that were he to disclose the full details of what he was intending to do, it might be opposed.

  2. It also overlooks that such payments were hardly in the ordinary course of business, but represented a final distribution to himself of the whole of the remaining trust property. This was not even a routine annual income distribution, but effectively a total and final distribution of corpus, to himself. As the primary judge observed:[31]

“Underlying Max’s submissions on this issue is the contention that signature by Mrs Twigg was a mere formality, since it was her usual practice to sign everything that was put in front of her. But that contention begs the question of why that formality was not followed in the case of what surely must have been the most important decision the trustees of relevant trusts had ever been asked to take – that is, how to distribute a very large and largely unexpected windfall arising from the sale of the whole business carried on by the trusts. …”

31. No 4 judgment at [125].

  1. The “note” attached to the resolution, referred to above,[32] is inconsistent with delegation. Although the evidence did not explain the provenance of the “note”, it is notable first, that the statement that the minute was incorrectly prepared as a multi-director minute would itself be incorrect if Max had delegated authority; and secondly, that while it is misconceived in claiming authority under Corporations Act, s 248B(1) (which is concerned with a proprietary company which has only one director, and has no application in the relevant circumstances), it does not claim that Max was acting pursuant to any delegated authority, whether under Corporations Act, ss 198C(1), 198D(1) and 198D(3), or otherwise. Thus, the note itself is inconsistent with Max having delegated authority, and this does not depend on any inference from the absence of evidence to explain it.

    32. Above at [22].

  2. The fact that there was extensive de facto delegation of managerial responsibility to Max does not mean, or even begin to suggest, that there was delegation of authority in respect of approval of annual financial statements and distribution of income. The fact that Diane continued to participate in those decisions, even if in doing so she relied heavily or absolutely on Max and was accustomed to acceding to his suggestions in respect of them, is inconsistent with her having delegated them. To the contrary, it demonstrates that, in respect of those functions – of which annual approval of financial statements and trust income distribution is the foremost example – her functions were not delegated. The fact that Diane trusted and relied on Max, signed documents she was asked to sign, and had limited understanding of corporate structures and her responsibilities, does not mean that all her functions were delegated. Even if Diane did not actively advert to the content of the resolutions, that would not mean that she had delegated her function – she might have been performing it on advice, or with limited attention, but that is quite a different thing from having delegated it. As Mr Walker SC was compelled to concede, that she herself participated in making the resolutions was the antithesis of delegation. [33]

    33. Appeal Tcpt 18 March 2021, p 5(27).

  3. Moreover, even a wide general delegation does not import authority for self-dealing of the kind in question here. In Tobin v Broadbent, Dixon J said:[34]

“Prima facie, a power, however widely its general words may be expressed, should not be construed as authorizing the attorney to deal with the property of his principal for the attorney’s own benefit. Something more specific and quite unambiguous is needed to justify such an interpretation”.

That was in the context of a power of attorney – an express written actual authority – and must apply, with even more force, in the context of an implied delegation. The primary purpose of delegating powers to a managing director is to enable him or her to manage the company’s affairs; not to make gifts to himself or herself of the company’s property. [35]

34. (1974) 75 CLR 378 at 401.

35. Cf Reckitt v Barnett Pembroke and Slater Ltd [1928] 2 KB 1244 at 268 (Russell J), approved [1929] AC 176 at 183 and 195, and in Tobin v Broadbent (1974) 75 CLR 378 at 401 (Latham CJ).

  1. As the primary judge rightly concluded:[36]

“Consistently with Mrs Twigg’s usual practice, she made no enquiries about the net proceeds realised by the sale or what would be done with those proceeds other than that she was told and accepted that $5 million would be paid to each of her and her daughters. At that stage, Mrs Twigg trusted Max to do the right thing. But the fact that she reposed that trust in him does not mean that she had delegated to him to do whatever he wanted, even supposing that that is something she could have done, or could have done absent a resolution of the directors. As I have said, there may be a question of what Max was entitled to do consistently with the position he occupied in the companies and with the implied authority he was given. But whatever that was, it did not extend to paying the whole proceeds of sale to himself or to passing resolutions which purported to authorise those payments.”

36. No 4 judgment at [120].

  1. In my opinion, the contention that Diane – or the Trustee Companies – had implicitly delegated to Max her functions in respect of resolutions for distribution of trust income was untenable. Whatever authority he had, there was no basis for considering that it extended to approval of annual financial statements, or distribution of trust income. The primary judge rightly held that Max did not have delegated authority to make the resolutions, or the impugned payments that they purported to authorise.

  2. In the light of that conclusion, it is unnecessary to consider the additional basis on which the primary judge relied, namely that any delegation had to be by resolution of the Trustee Companies in conformity with their corporate constitutions, rather than by Diane, and that there was no evidence of it, in circumstances where the corporate constitutions required written resolutions, although there is no apparent reason to doubt it. The appellants’ argument that in the context of a two-director company there is no distinction overlooks the requirements of the corporate constitutions.

  3. It follows that the primary judge did not err in holding that Max did not have delegated authority to make the resolutions or the impugned payments that they purported to authorise; in concluding that Max did not have authority to cause the Trustee Companies to make the impugned distributions; and consequently in holding that the payments were made in breach of Max’s fiduciary duty and that Max and his companies held the Sale Proceeds as constructive trustees.

2. Trustee de son tort (Ground 6)

  1. The primary judge held that Max was also liable as a trustee de son tort: [37]

    37. No 4 judgment at [135]-[136].

“[135] As the plaintiffs point out, the liability can also be explained on the basis that Max held the money as a trustee de son tort. A trustee de son tort was explained in these terms by Smith LJ in Mara v Browne [1896] 1 Ch 199 at 209:

[W]hat constitutes a trustee de son tort? It appears to me if one, not being a trustee and not having authority from a trustee, takes upon himself to intermeddle with trust matters or to do acts characteristic of the office of trustee, he may thereby make himself what is called in law a trustee of his own wrong – ie, a trustee de son tort, or, as it is also termed, a constructive trustee.

[136] In the present case, the Corporate Plaintiffs as trustees had the power to distribute the proceeds of sale to Max. Max took it upon himself to exercise that power and in doing so took it upon himself to intermeddle with trust matters. The authors of Jacobs’ Law of Trusts in Australia describe this as a “borderline” case of a constructive trust because of the similarities of such a trust to an express trust. As they point out (J D Heydon & M J Leeming, Jacobs Law of Trusts in Australia, 8th ed, LexisNexis, 2016 at [13-03]):

The alleged trustee may have acted honestly; the alleged trustee may have believed that he or she was validly appointed an express trustee, ignorant of a fatal defect therein, and the breach of trust may have been a technical one. But the alleged trustee is liable by reason of the de facto assumption of office and can be in no better position in respect of a breach than an express trustee would be. [Footnotes omitted]”

  1. The appellants contend that this conclusion was erroneous (Ground 6). They submit Max did not incur liability as a trustee de son tort because he did not purport to act in the role of trustee, and did not take it upon himself to act as trustee on behalf of or for the benefit of others,[38] but (on the primary judge’s findings) intended from the outset to take control of trust property for his own benefit; and that he did not deal with the trust assets as if he were trustee but, at the highest, as a director of the Trustee Companies, caused them to deal with the assets, which may have been a breach of his director’s duties, but did not render him a trustee de son tort.

    38. Citing Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at [138] (Lord Millett) and Nolan v Nolan [2004] VSCA 109 at [29] (Ormiston JA).

  2. Consideration of what is a trustee de son tort has usually arisen in the context of distinguishing between what are now called “institutional” constructive trusts (of which a trustee de son tort is an instance), and “remedial” constructive trusts (where liability is imposed on a dishonest assistant or recipient pursuant to one or other of the limbs in Barnes v Addy). [39] In that case, Lord Selborne adverted to two types of “constructive trustee”: those who made themselves trustees de son tort, and those who participated in a breach of trust (emphasis added):[40]

“Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. 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 in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”

39. (1874) LR 9 Ch App 244.

40. (1874) LR 9 Ch App 244 at 251.

  1. The distinction is between trustees de son tort – who without having been properly appointed as trustees, lawfully assume the obligations of the trust by acting in the administration of the trusts as if they had been so appointed, and are trustees under an “institutional” trust, and may incur liability if having done so, they subsequently act in breach of those trusts – and those on whom equity imposes liability by reason of their participation in the unlawful misapplication of trust assets, who are “trustees” under a “remedial” trust. As Lord Sumption JSC explained in Williams v Central Bank of Nigeria (“Williams”) (emphasis added):[41]

“It is clear that Lord Selborne regarded as a constructive trustee any person who was not an express trustee but might be made liable in equity to account for the trust assets as if he was. The problem is that in this all-embracing sense the phrase “constructive trust” refers to two different things to which very different legal considerations apply. The first comprises persons who have lawfully assumed fiduciary obligations in relation to trust property, but without a formal appointment. They may be trustees de son tort, who without having been properly appointed, assume to act in the administration of the trusts as if they had been; or trustees under trusts implied from the common intention to be inferred from the conduct of the parties, but never formally created as such. These people can conveniently be called de facto trustees. They intended to act as trustees, if only as a matter of objective construction of their acts. They are true trustees, and if the assets are not applied in accordance with the trust, equity will enforce the obligations that they have assumed by virtue of their status exactly as if they had been appointed by deed. Others, such as company directors, are by virtue of their status fiduciaries with very similar obligations. In its second meaning, the phrase “constructive trustee” refers to something else. It comprises persons who never assumed and never intended to assume the status of a trustee, whether formally or informally, but have exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets. Either they have dishonestly assisted in a misapplication of the funds by the trustee, or they have received trust assets knowing that the transfer to them was a breach of trust. In either case, they may be required by equity to account as if they were trustees or fiduciaries, although they are not. These can conveniently be called cases of ancillary liability. The intervention of equity in such cases does not reflect any pre-existing obligation but comes about solely because of the misapplication of the assets. It is purely remedial. The distinction between these two categories is not just a matter of the chronology of events leading to liability. It is fundamental. In the words of Millett LJ in Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400, at 413, 1 ITELR 735, it is “the distinction between an institutional trust and a remedial formula – between a trust and a catch-phrase”.”

41. [2014] AC 1189; [2014] UKSC 10 at [9].

  1. The passage in Mara v Browne, to which the primary judge referred, explains only how one becomes a trustee de son tort, and not when such a trustee incurs liability for a breach. AL Smith LJ described a trustee de son tort as one who (emphasis added):[42]

“not being a trustee and not having authority from a trustee, takes upon himself to intermeddle with trust matters or to do acts characteristic of the office of trustee, he may thereby make himself what is called in law a trustee of his own wrong – ie, a trustee de son tort, or, as it is also termed, a constructive trustee.”

42. Mara v Browne [1896] 1 Ch 199 at 209.

  1. The distinction between becoming such a trustee, and incurring liability for breach, was explained by Ungoed-Thomas J in Selangor United Rubber Estates Ltd v Craddock (No 3) (emphasis added):[43]

“It is essential at the outset to distinguish two very different kinds of so-called constructive trustees:

(1) Those who, though not appointed trustees, take upon themselves to act as such and to possess and administer trust property for the beneficiaries, such as trustees de son tort. Distinguishing features for present purposes are:

(a) they do not claim to act in their own right but for the beneficiaries, and

(b) their assumption to act is not of itself a ground of liability (save in the sense of course of liability to account and for any failure in the duty so assumed), and so their status as trustees precedes the occurrence which may be the subject of claim against them.

(2) Those whom a court of equity will treat as trustees by reason of their action, of which complaint is made. Distinguishing features are:

(a) that such trustees claim to act in their own right and not for beneficiaries, and

(b) no trusteeship arises before, but only by reason of, the action complained of.”

43. [1968] 2 All ER 1073, [1968] 1 WLR 1555 at 1579, [1968] 2 Lloyd's Rep 289.

  1. That description of the distinguishing features of a trustee de son tort highlights a feature recognised in some of the later cases, that the assumption of office is not by the impugned transaction, but precedes it: liability as a trustee depends on having already assumed the office, whereby the trusts attach. This distinction between becoming a trustee de son tort and incurring liability as such for a breach of trust is also reflected in the judgment of Millett LJ (as he then was) in Paragon Finance plc v DB Thakerar & Co (a firm) (emphasis added):[44]

“Regrettably, however, the expressions 'constructive trust' and 'constructive trustee' have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the Defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the Plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the Plaintiff.

A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the Plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust . . . . In these cases the Plaintiff does not impugn the transaction by which the Defendant obtained control of the property. He alleges that the circumstances in which the Defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.

The second class of case is different. It arises when the Defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be 'liable to account as constructive trustee'. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions 'constructive trust' and 'constructive trustee' are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are 'nothing more than a formula for equitable relief': Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073, [1968] 1 WLR 1555 per Ungoed-Thomas J.”

44. [1999] 1 All ER 400; 1 ITELR 735 (“Paragon”) at All ER 408-409.

  1. Again, the emphasised passage explains that liability as a trustee de son tort does not arise from a transaction in breach of trust, but from prior assumption of the role of trustee. Subsequently, in Dubai Aluminium Co Ltd v Salaam, relied on by the appellants, Lord Millett (as he had by then become) said:[45]

[138] This summary is sufficient to show what Lord Herschell and Rigby LJ meant by “constructive trustee”. They meant “trustee de son tort”; that is to say, a person who, though not appointed to be a trustee, nevertheless takes it upon himself to act as such and to discharge the duties of a trustee on behalf of others. In Taylor v Davies [1920] AC 636, 651, Viscount Cave described such persons as follows:

“. . .though not originally trustees, [they] had taken upon themselves the custody and administration of property on behalf of others; and though sometimes referred to as constructive trustees, they were, in fact, actual trustees, though not so named.”

Substituting dog Latin for bastard French, we would do better today to describe such persons as de facto trustees. In their relations with the beneficiaries they are treated in every respect as if they had been duly appointed. They are true trustees and are fully subject to fiduciary obligations. Their liability is strict; it does not depend on dishonesty. Like express trustees they could not plead the Limitation Acts as a defence to a claim for breach of trust. Indeed, for the purposes of the relevant provision (s 25(3) of the Supreme Court of Judicature Act 1873), which distinguished between property held on express trusts and other trusts, they were treated by the courts as express trustees. That is why the action in Mara v Browne was not statute-barred.

45. [2003] 2 AC 366 at [138].

  1. Again, this is indicative that liability depends on the prior de facto assumption of the trust obligation, and not merely from procuring or participating in a breach of trust (which founds the second type of “constructive trust). The same distinction is apparent in the judgment of Ormiston JA in Nolan v Nolan, where, after referring, inter alia, to Selangor United Rubber Estates Ltd v Craddock (No 3), and Dubai Aluminium Co Ltd v Salaam, his Honour said (emphasis added, footnotes omitted):[46]

“The subject of constructive trusts has over the years become contentious and differences in analysis have tended to confuse rather than inform. What has been described so far, however, supports the conclusion that trustees de son tort intend, by their actions, to assume the role of trustees and, at least in the first place, to take control of trust property for the benefit of others rather than for themselves. If the word “intermeddle” be used, it tends to confuse the issue to the extent that it suggests wrongful intermeddling, which frequently gives rise to cases where the question of liability is in issue, rather than circumstances in which the original intention is merely to act in the role of trustee in relation to certain property. These conclusions are consistent with what is said in Jacobs on Trusts and in Ford and Lee’s Principles of the Law of Trusts, though it must be said that some differences appear in articles such as those by J D Heydon: “Recent Developments In Constructive Trusts” and R P Austin: “Constructive Trusts”. Each article is critical of Ungoed-Thomas J in Selangor, but the latter is more cautious in his criticism. See also Cope: Constructive Trusts and Ong: Trusts Law in Australia. On this assumption I can see no evidence, even accepting the appellant’s factual contentions, that Sidney Nolan purported to act as trustee of the paintings or any other property and thus cannot be characterised as a trustee de son tort for the purpose of the appellant’s arguments. Nor is it necessary for the time being to examine those authorities which would seem to characterise the trustee de son tort as an “express trustee”. See eg Soar v Ashwell, as discussed in Taylor v Davies. See also Cohen v Cohen. Those cases are often seen as having been largely influenced by the limitation statutes applicable at the time, although that may be an over-simplification: cf Paragon Finance plc v DB Thakerar & Co per Millett LJ.”

46. Nolan v Nolan [2004] VSCA 109 at [29] (Ormiston JA).

  1. The distinction has been recognised in this Court. In Hasler v Singtel Optus Pty Ltd, Leeming JA, with whom Barrett JA and Gleeson JA agreed, said (emphasis added):[47]

“A non-trustee may be liable as a trustee de son tort if he, she or it presumes to act as a trustee although not so appointed, and then, say, commits a breach of trust or makes a profit from the position: see Williams v Central Bank of Nigeria [2014] UKSC 10; [2014] 2 All ER 489 at [54] and Parkview Qld Pty Ltd v Commonwealth Bank of Australia [2013] NSWCA 422 at [97]–[105] and [128]–[130]. That is quite different from the liability to account as a constructive trustee which may follow from either limb of Barnes v Addy. This was pointed out very clearly by Millett LJ in Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at 408–409 and (as Lord Millett) in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at [140]-[143]. Although the same expressions “constructive trust” and “constructive trustee” are used, the two situations are “entirely different”: Dubai at [140]. A person liable pursuant to either limb of Barnes v Addy is:

not in fact a trustee at all, even though he may be liable to account as if he were. He never claims to assume the position of trustee on behalf of others, and he may be liable without ever receiving or handling the trust property. If he receives the trust property at all he receives it adversely to the claimant and by an unlawful transaction which is impugned by the claimant: at [141].”

47. [2014] NSWCA 266 at [69].

  1. In my opinion these authorities establish that, before one can be liable as a trustee de son tort for a breach of trust, one must first have assumed the trust by purporting to act as if one were the trustee. The gist of liability as a trustee de son tort lies in the fact of voluntary assumption of the office, followed by conduct in breach. [48] What distinguishes the liability of a trustee de son tort from the personal liability of a stranger who receives trust property is that the former has first assumed the status of trustee. [49] Once one becomes a trustee de son tort, the trust obligations attach and thereafter a subsequent act inconsistent with them will incur liability for breach of trust. One does not become a trustee de son tort merely by wrongfully intermeddling with trust property, or participating in or procuring a breach of trust, without having first assumed the office, albeit de facto rather than de jure.

    48. HAJ Ford & WA Lee, Principles of the Law of Trusts, (2nd ed, 1990) [2223]; this statement does not appear in the corresponding paragraph of the current (loose-leaf) 4th edition.

    49. Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 1 WLR 1555 at 1579; [1968] 2 All ER 1073 (Ungoed-Thomas J); HAJ Ford & WA Lee, Principles of the Law of Trusts, (4th ed, 2010) [22A-1560].

  2. It is true that Max dealt with trust property, by paying it to himself. However, he has not been shown to have undertaken any antecedent act which involved assuming the status of trustee. Moreover, he never intended personally to act as if he were a trustee for the benefit of others. Rather, in his role as a director of the Trustee Companies, he contravened his fiduciary duties by procuring them to make payments for his benefit. The point can be illustrated, shorn of the complications of corporate personality, by imagining an individual trustee, who employs a manager with extensive authority, including to make payments. Assume the manager procures and “authorises” a payment of the trust property to himself or herself or an associate, inconsistent with the trusts. The manager does not thereby become a trustee de son tort: an agent does not become a trustee de son tort “unless he intermeddles in the trust by doing acts characteristic of a trustee and outside the duties of an agent”. [50]

    50. RP Austin, “Trading Trusts”, Equity and Commercial Relationships (ed PD Finn, 1987), p64, citing Williams-Ashman v Price [1942] 1 Ch 219 at 228 (Bennett J); see also Mara v Browne [1896] 1 Ch 199 at 209 (AL Smith LJ); Morgan v Stephens (1861) 3 Giff 226 at 236; 66 ER 392 at 397 (Stuart VC).

  1. The appellants referred to several cases to support the proposition that the position would be no different, even if BBH were to be attributed with Max’s knowledge and be liable as a knowing recipient of the moneys advanced to it. [226] The first was Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd, where McLelland AJA, with whom Priestley JA and Meagher JA agreed, explained:[227]

    226. Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 at 153; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [254]; Endresz v Commonwealth of Australia (2019) 273 FCR 286 at [130]; Crossman v Sheahan (2016) 115 ACSR 130 at [261].

    227. (1996) 39 NSWLR 143 at 153.

“In general, where there is a contract for the sale of property by A to B made
in breach of a fiduciary duty owed to A by B (or by C in whose breach B
knowingly participated), pursuant to which the legal title to the property has
been transferred from A to B, the transaction is in equity voidable at the
instance of A, who may (if necessary) obtain an order for rescission setting it
aside. Unless and until A effectively avoids the transaction and (if necessary)
obtains an order for rescission, B's property rights as a result of the transaction
remain unaffected. However if A does effectively avoid the transaction and (if
necessary) obtain an order for rescission, the parties will be treated in equity as if the transaction had never been effected; in other words equity will treat B as if he had held the property in trust for A, that is, as a constructive trustee, ab
initio. A constructive trust arises in such circumstances as a consequence of the effective avoidance or rescission of the transaction. Where, for whatever
reason, the transaction has not been and cannot be effectively avoided and
rescission is unavailable, it remains effective and no constructive trust can
arise: see generally Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371
at 386-390, per Brennan J.”

  1. Next, in Grimaldi v Chameleon Mining NL (No 2), Finn, Stone and Perram JJ said:[228]

“Distinctly while the proprietary liability referred to depends upon the existence of trust property in the strict sense, “trust property” for Barnes v Addy purposes extends beyond it to property held or controlled subject to a fiduciary obligation. Most importantly for present purposes, it extends to corporate property, ie property subject to the control and the fiduciary responsibilities of a company’s directors. If the directors dispose of corporate property in a dealing which is beyond their authority, whether actual, ostensible or usual, the dealing ordinarily is void and no interest passes to the third party donee, purchaser, etc. However, if the dealing occurs in a transaction which is within the directors’ authority but which is not in the company’s interests (ie is an abuse of power) or is otherwise in breach of fiduciary duty, the transaction will only be voidable: Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 142. As Australian law now stands, even if the third party recipient falls within the knowing receipt limb of Barnes v Addy, the company will not ordinarily be able to bring a proprietary claim against the recipient as distinct from a personal one, unless and until the transaction itself has been avoided: see Daly v Sydney Stock Exchange (1986) 160 CLR 371 (“Daly”); Hancock Family Memorial Foundation Ltd v Porteus (2000) 22 WAR 193 (Hancock Family Memorial Foundation) at [173]–[206]. Though we later question the correctness of this particular requirement, what needs to be emphasised is that it still allows that a knowing recipient can be held accountable in rem for such of that property (or its traceable proceeds) as remains extant in that person’s hands.”

228. (2012) 200 FCR 296 at [254].

  1. Further, in Endresz v Commonwealth of Australia, Rares and Markovic JJ, with whom Charlesworth J agreed, after referring to the above passage in Grimaldi, said:[229]

“The Full Court did not say that a transaction which was void as ultra vires the company could not be the subject of a personal claim in equity where the transaction was also effected by a breach of fiduciary duty in which persons, other than the recipient, had knowingly assisted. It is implicit in what the Court said that it is not necessary to bring a claim in equity to avoid such a transaction. If the transaction was within authority but not in the company’s interests or in breach of fiduciary duty, it may be voidable. The point that their Honours were making in that discussion was that a voidable, but presently unavoided, transaction or dealing does not give the injured party a proprietary claim against the knowing recipient of property passing under that transaction or dealing. The injured party had a personal claim only until the transaction was avoided. However, if the transaction or dealing were avoided (or void ab initio), in addition to the personal claim, the injured party would also have a proprietary claim to recover the property. Nothing said in Grimaldi at [254] prevents recovery against a party who knowingly assisted in a breach of fiduciary duty where a transaction was also void against the company.”

229. (2019) 273 FCR 286 at [130].

  1. And in Crossman v Sheahan, Ward JA (as her Honour then was) said, with reference to Grimaldi:[230]

“[259]  The Full Court noted that Daly’s case was not one where the recipient took property with knowledge/notice of another’s fiduciary wrongdoing (citing the majority judgment at 378) and that the extension of the rescission requirement to knowing receipt cases stemmed from  Greater Pacific Investments, which involved, among other things, transfer of legal title to property under a contract of sale made in breach of fiduciary duty owed to the vendor by one of its directors, the purchaser knowingly participating in that breach. The Full Court suggested that, as the understanding of the constructive trust as a remedy had evolved (referring to Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566 at 585), it might be that there would be a review of the rescission requirement, speaking there in the context of a claim for a constructive trust over the property in question.

[260]  Relevantly, for present purposes, the Full Court (at [280]) stated that the function of Barnes v Addy was “simply to provide a personal remedy to compensate for loss suffered”.

[261] Accepting that rescission is not a precondition to an order for equitable compensation against a knowing recipient of trust property, that nevertheless does not address the question whether (as happened in the present case) an order setting aside a deed entered into in breach of trust (the Contempt Settlement Deed) should have been made in circumstances where restoration of the parties to their previous position was not possible and no relief was moulded which would accomplish “an approximate restoration that will be just” (in the words of Rich, Starke and Dixon JJ in AH McDonald & Co Pty Ltd v Wells [1931] HCA 24; (1931) 45 CLR 506 at 513; and see also Alati v Kruger [1955] HCA 64; (1955) 94 CLR 216 per Dixon CJ, Webb, Kitto and Taylor JJ at 223).”

230. (2016) 115 ACSR 130 at [259]-[261].

  1. However, what these cases establish and illustrate is that where fiduciaries, in breach of their fiduciary duties, procure the disposition of trust property under a transaction for value (such as a loan or a sale) which is voidable but not void, the beneficiary cannot maintain a proprietary claim to the trust property in the hands of the recipient while the transaction remains on foot. This is an example of election, or of the rule that one cannot approbate and reprobate. It has no application to a voluntary transaction, nor to a subsequent disposition by the recipient, which is governed by the rules of tracing (though it bears some relationship to the rule that one cannot trace where there has been a bona fide purchaser for value without notice).

  2. In the present case, the impugned transaction – the disposition of the Sale Proceeds by the Trustee Companies to Max – was not a transaction for value. There is nothing to avoid or rescind. The “loan” by Max to BBH was a subsequent transaction, to which the rules of tracing apply. Because of Max’s control of BBH, Max’s knowledge is attributable to BBH, and BBH is not a purchaser for value without notice. The principle that requires rescission before a proprietary claim is available has no application in these circumstances. This is another way of describing what the primary judge meant in saying “In Daly and Hancock, the loan was made by the person asserting the proprietary right. In the present case, the loan was made by Max to a company he controlled using money in respect of which a proprietary claim is made”. [231]

    231. No 4 Judgment at [205].

  3. However, that does not necessarily mean that one can trace through the loan, at least after it has been repaid. I accept that, generally speaking, it is not possible to trace through a loan into a borrower’s assets. The borrower’s assets are not a substitute for the traceable property of the lender; the substitute for that property is the chose in action to recover the loan from the borrower. Where the loan is voidable by reason of having been procured by the borrower in breach of its fiduciary duty to the lender, the lender may rescind the loan and trace the moneys advanced into the borrower’s assets, but not otherwise,[232] and not if the loan has been repaid. [233] The judgment of this Court in Robins v Incentive Dynamics Pty Ltd (in liq) [234] is consistent with that approach: Mason P (with whom Stein JA agreed) accepted that “rescission is essential for cases (like the present one) where the loan transaction is at best voidable for breach of fiduciary duty or an analogous statutory duty” before a proprietary remedy was available; [235] as did Giles JA. [236] The majority found that tracing was available because there was at least an implied rescission, by reason that the lender “at all times acted on the basis that it was seeking to repudiate the formal transactions (whatever they truly were) that both effectuated and disguised the fiduciary and statutory breaches”. [237] It is true that in Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq), [238] where the directors of the plaintiff had, in breach of their fiduciary duties, caused it to make a loan to the defendant – a related company having common directors with the plaintiff, which was used by the defendant to acquire a property in Queens Road – Hansen J held that by reason of their common directors the defendant had sufficient knowledge of the directors’ breach of duty to incur liability as a knowing recipient, and that the plaintiff could “trace … into the Queens Road property because that property was the direct substitute of the money improperly transferred from [the plaintiff] to [the defendant] … . From there, the plaintiff can trace into the proceeds of the sale of that property — again, a direct substitute of the asset.” In Robins, Mason P explained Farrow in the following terms:[239]

“The fact that the breach of fiduciary duty resulted in a loan from [the plaintiff] to [the defendant] did not preclude [the plaintiff] from ignoring the form and terms of the loan transaction once it established FP's recipient liability.”

232. Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 at 379 (Gibbs CJ); 388 (Brennan J).

233. Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198; [2000] WASCA 29 at [206].

234. (2003) 175 FLR 286, (2003) 45 ACSR 244, [2003] NSWCA 71 (“Robins”).

235. Robins at [73]

236. Robins at [83].

237. Robins at [78].

238. (1997) 26 ACSR 544 at 589 (Hansen J).

239. Robins at [67].

  1. As it seems to me, in the light of the insistence in Robins on at least implied rescission, Farrow Finance cannot be regarded as establishing that rescission is not necessary.

  2. In any event, these cases do not address the position once, as here, the loan has been repaid. I am unconvinced that where a loan has been repaid by an arms-length borrower, there could be tracing into the borrower’s assets. In my view, if BBH were not Max’s alter ego, the appellants’ arguments might well prevail: to the extent that the Sale Proceeds were the source of the funds advanced by Max to BBH, they became represented not by BBH’s property but by Max’s chose in action to recover the loan, and in turn by the assets Max received in repayment of the loan.

  3. Even on that analysis, however, I would not accept that any traceable asset was extinguished upon repayment: the chose in action was substituted by the assets received in repayment of the debt, which themselves would have been traceable in Max’s hands. Thus if it were the case that Max’s loan account was reduced because BBH funds were used to purchase a car for him, the car would be traceable proceeds. Moreover, any moneys received by Max in repayment of the loan would have been traceable. However, the evidence did not identify how any of the reductions in Max’s loan account was effected, and did not permit any asset to be identified as associated with repayment of the loan.

  4. However, the fact that BBH was Max’s alter ego has a radical effect on this. In Federal Republic of Brazil v Durant International Corp (Jersey), the Privy Council said that in the tracing process, the court must focus on the substance of the transaction and not form, and that it is “particularly important that a court should not allow a camouflage of interconnected transactions to obscure its vision of their true overall purpose and effect”. [240] As has been noted, the primary judge held that the Max entities – of which BBH was one – were Max’s alter egos. His Honour said (emphasis added):[241]

“There can be no doubt that, to the extent that the proceeds of sale are traceable to property currently held by Max or one of the entities that he controls, those proceeds are properly described as trust property or the proceeds thereof which were converted to Max’s use. It does not matter that those proceeds were not held by Max himself. They are held by entities that are properly regarded as his alter egos; and the claim to recover those proceeds is in substance a claim to recover them from Max.”

240. [2016] AC 297; [2015] UKPC 35 at [32].

241. No 4 judgment at [168].

  1. The conclusion that BBH was Max’s alter ego means that the internal arrangements made by Max between himself and his alter ego can be disregarded; in the case of an alter ego, the Court can disregard the form and look to the substance. As was said by Gibbs J, with whom Stephen J, Mason J, Aickin J and Wilson J concurred, in Ascot Investments Pty Ltd v Harper (emphasis added):[242]

“The position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations under the Act. Sham transactions may always be disregarded. Similarly, if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.”

Except in case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. …”

242. (1981) 148 CLR 337 at 354-355.

  1. In substance, BBH was Max. No one else appears to have had any material interest in BBH. It was conceded that, although at some stage Max’s wife Lyn was also nominally a shareholder and director, Max controlled BBH and its trust, and was appointor and a beneficiary, so that with a compliant trustee (which he had power to appoint and remove at his will), he could cause the whole of the assets of the trust to be disposed of at his discretion. [243] Whether he provided funds to it by loan capital or equity was entirely within his discretion. In particular, whether, having created a loan account, he caused BBH to repay it, or to use its available assets for other purposes, was entirely within his discretion. There is no reason why, for tracing purposes, its assets should be distinguished from his personal assets. On that analysis, the Hotel was acquired by Max’s alter ego with traceable Sale Proceeds, and replaced those proceeds, itself becoming to that extent traceable property. For those reasons, in my opinion, the primary judge did not err in concluding that the proceeds of the Hotel were traceable property.

    243. Appeal Transcript, p 123(35)-126(08) Cf In the marriage of Ashton (1986) 11 Fam LR 457; (1986) FLC 91-777 (FCAFC per Strauss J); SLR 5 December 1986 (Gibbs CJ, Wilson and Brennan JJ); Davidson & Davidson (1990) 14 Fam LR 817; (1991) FLC 92-197 (Simpson, Nygh and Murray JJ); SLR 10 May 1991 (Mason CJ and Dawson and Gaudron JJ); Harris & Harris (1991) 15 Fam LR 26; (1991) FLC 92-254 (Ellis, Strauss and Lindenmayer JJ).

  2. By Ground 11, the appellants submit that the primary judge erred in finding that the whole of the $12.2 million advanced by Max to BBH to fund the purchase of the Hotel was from the Sale Proceeds. They contend that, contrary to the judge’s statement in [197], it was not common ground, the appellants’ position being that only $10 million was sourced in the Sale Proceeds. Although it is far from clear that there was a crystallised dispute on the matter before the primary judge, and (as will appear) Max appears to have accepted in cross-examination that the entire $12.2 million was derived from the Sale Proceeds, it is correct that the appellants’ submissions at trial were to the effect that $10 million (not $12.2 million) was paid from the Sale Proceeds to BBH.

  3. At trial, Max provided only a limited explanation of how the Sale Proceeds were applied. The evidence of their application was chiefly provided by the report of an accountant, Mr Potter, who was called by the respondents. Relevantly, Mr Potter’s report identified a payment of $10 million from TPH to BBH on 21 June 2007. [244] The balance sheet of the BBH Property Trust as at 30 June 2007 recorded a liability of $12.2 million, described as a “related party loan”, which Mr Potter accepted was a loan from Max. [245] This loan from Max, together with a bill facility with the Commonwealth Bank, provided the whole purchase price for the Hotel.

    244. Tcpt 12 June 2020, p 533(14-22).

    245. Tcpt 12 June 2020, p 544(13-40).

  4. The appellants rightly submit that the existence of a loan of $12.2 million from Max does not of itself establish that the whole of that loan was sourced from the Sale Proceeds. However, while Mr Potter identified a payment of $10 million to BBH, he also identified a further $2.2 million paid to Herbert Geer, [246] who were the solicitors retained by Max to act on the purchase of the Hotel. Max’s affidavit evidence was to the effect that the purchase of the Hotel was funded “with approximately $11 million from the Twigg Group sale”. [247] In cross-examination, however – and contrary to the effect of the appellants’ submission that he said that he did not recall the exact amount but accepted that it was “over $10 million” – he appears to have accepted that it was $12.2 million: [248]

    246. Tcpt 12 June 2020, p 532(36-39).

    247. Affidavit of Max of 6 May 2020, [72].

    248. Tcpt 10 June 2020, p 410(19-36).

“Q. Byron Bay Hotel, paragraph 72 of your affidavit, page 406 of volume 1. In

fact, $12.2 million was applied out of the sale proceeds for the purpose of

acquiring the Byron Bay Hotel, wasn't it?

A.   Yes.

Q. Not 11?

A. I don't recall exactly.

Q. So, you've not told the truth?

A. These numbers are extracted from documents and put into this affidavit. I

don't recall every cent I spent, or ..(not transcribable)..

Q. You haven't told the truth in paragraph 72 either, have you?

A. I always tell the truth.

Q. Well, if you were telling the truth, you would have said it was funded with

approximately $12.2 million.

A. Okay.”

  1. Given that evidence, his Honour’s view that it appeared to be common ground that the $12.2 million was derived from the Sale Proceeds is understandable. In any event, while it is correct that Mr Potter did not say that the $2.2 million paid to Herbert Geer had been applied to the purchase of the Hotel, in my judgment, when one has regard to the time at which the Sale Proceeds were received by TPH (2 April 2007), the timing of the payments to Herbert Geer (31 May 2007) and to BBH (21 June 2007), the state of the BBH Property Trust’s balance sheet as at 30 June 2007 (showing a loan from Max of $12.2 million), and the absence of any other apparent source of funds, the inference that the entire $12.2 million advanced by Max to BBH was derived from the Sale Proceeds is overwhelming. His Honour did not err in so concluding, even if it was not common ground.

6.2 Albatross Avenue

  1. By Cross-appeal ground 2, the respondents contend that the Sale Proceeds can also be traced into Max’s Albatross Avenue property.

  2. The purchase of Albatross Ave was completed on 4 September 2008, for $10 million plus $500,000 costs. That day, $8,033,445 was paid from the bank account of Maly Holdings Pty Ltd, an entity controlled by Max, to complete the purchase. That payment was funded by $54,586 which had been held in the account since at least 26 August 2008, $5,475,858 which had been deposited into it on 3 and 4 September 2008, and an overdraft of $2,503,791. [249]

    249. No 4 Judgment at [227].

  3. Between 25 July and 12 September 2008, Max had sold his Cleanaway shares received in respect of the consultancy fee for a total of $9,340,952 net of selling costs. The last tranche of 430,036 shares was sold at $6.5677 per share (a total of $2,824,347, less commission and GST of $5,281) during the period 8 to 12 September; thus he had received $6,521,886 prior to 4 September, which was sufficient to fund the 3 and 4 September deposits of $5,475,858. The proceeds he received subsequently ($2,819,066) were sufficient to discharge the overdraft, though there is no evidence as to whether they were in fact applied for that purpose.

  4. In an affidavit sworn in his Family Court proceedings in November 2012, Max had deposed that the gross sale proceeds were $155.8 million, of which $125.8 million was paid in cash, and $30 million in shares in Cleanaway; that $37.6 million was applied to repayment of debt and $21.4 million to tax; and that he made gifts totalling $16 million (including $5 million each to Diane, Frances, and Liz). He continued:

“5. Due to some factors beyond my control and due to some decisions which have turned out to be not as successful as I would have liked the balance of sale proceeds were less than that stated by Lynne. These funds were used as follows:

…

(d) The purchase of Albatross Avenue, Mermaid Beach, Queensland ("Albatross Avenue") for $10 million; …”

  1. Annexed to the affidavit was a reconciliation, described by Max in his affidavit in the following terms:

“Annexed hereto and marked with the letters "MTl" is a true copy reconciliation of the proceeds of the sale of business interests prepared by my accountants Pitcher Partners … .”

  1. That reconciliation identifies the purchase of Albatross Ave for $10.5 million (including costs) as coming out of the Sale Proceeds of $155.8 million. Notably, the $10 million consultancy fee – ultimately also paid by way of shares in Cleanaway – was not part of the $155.8 million consideration for the sale described in the affidavit, but additional to it.

  2. In cross-examination before the primary judge, Max gave this evidence: [250]

    250. Tcpt 10 June 2020, p 418(37)-419(06).

“Q. Mr Twigg, I've asked to be brought back up on screen your November 2012 Family Court affidavit. I want to show you again paragraph 5 on page 6, where you say, "Due to some factors, some decisions turned out not to be successful", et cetera. Then the next paragraph, "These funds were used as follows". And in item subparagraph (d) on page 7 you identify having bought Albatross Avenue, Mermaid Beach for $10 million. You see that?

A. Yes.

Q. Then if you go to the reconciliation that you engaged Pitcher Partners to undertake – it's at page 15 and I'll just ask for that to be brought up. You can see that item as item F, Albatross, $10.5 million. So, that's what you swore in November 2012. Correct?

A. I – I don't recall, but yes.

Q. That's what you told the Family Court; correct?

A. Yeah, a long time ago.

Q. And it's true?

A. Back then it was, yeah; I'd say so. I did - it was true, it's the purchase price. Yeah – yeah, of course, I agree.”

  1. Nonetheless, before the primary judge, it was submitted for Max that the source of funds was the consultancy fee, not the Sale Proceeds. This submission, which – as will appear – his Honour accepted, was founded on inference to be drawn from the timing, quantum and nature of the transactions referred to above.

  2. In this respect, the primary judge said: [251]

“[226] This property was acquired by Max in about September 2008 for $10.5 million. It is not clear from the records in evidence where the purchase price came from. In his report, Mr Potter says that the bank statements of Maly Holdings Pty Ltd (the seventh defendant and a company controlled by Max) show a payment of $8,033,445.68 on 4 September 2008 with the reference “Albatross”. Mr Potter says that he is unsure of the source of the balance of the purchase price.

[227] The evidence is that the balance of the Maly bank account as at 26 August 2008 was $54,586.12. On 3 and 4 September 2008, amounts totalling $5,475,858.78 were paid into the account. The source of those funds is unknown. Following the payment of $8,033,445.68, the account was overdrawn in the amount of $2,503,791.28.

[228] According to the affidavit Max filed in connection with the Family Court proceedings, $10.5 million of the proceeds of sale of the Twigg Group business was used to acquire the property at Albatross Avenue (the difference of $500,000 relates to the costs of purchase). It was open to Max to give evidence in these proceedings explaining why the evidence he gave in the Family Court proceedings was not accurate. He did not do so. However, in submissions, Max points out that Mr Potter stated in his report that he (Max) had personally derived $9.3 million from the sale in around September 2008 of shares owned by him as a result of his providing personal consulting services to Cleanaway. As Max points out, that was around the same time as he paid for the Albatross Avenue property. There is no evidence to suggest that the proceeds of sale of the shares were used for any other purpose. Speaking loosely, these facts are consistent with the evidence Max gave in the Family Court proceedings.

[229] Having regard to those facts, I am not satisfied that the purchase price for the Albatross Avenue property can be traced from the proceeds of sale of the Twigg Group business. That is plainly true to the extent that the account was in overdraft following the payment of the $8,033,445.68. Having regard to the timing and in the absence of any other evidence, it is reasonable to infer that a large source of the purchase price of the property was the sale of the Cleanaway shares which did not form part of the sale consideration. It follows that this aspect of the plaintiffs’ claim must fail.”

251. No 4 judgment at [226]-[229].

  1. The respondents applied to the primary judge to reconsider that conclusion, and in a later judgment his Honour declined to do so:[252]

“[16] The objective evidence is that the purchase of Albatross Avenue settled on 4 September 2008. At that time, the evidence is that Maly Holdings paid the sum of $8,033,445.68 towards the purchase price. Of that amount, $54,586.12 had been in the Maly Holdings bank account since 26 August 2008, amounts totalling $5,475,858.78 were paid in on 3 and 4 September 2008 and the balance was made up by an overdraft of $2,503,791.28. Most of those facts are recorded in the Principal Judgment at [227]. As I recorded in that judgment, Mr Potter was unable to say where the amounts paid into the account or where the balance of the purchase price came from. However, it is apparent from an email dated 12 September 2008 from a broker to Max that sometime after 25 July 2008 Max started selling his shares in Cleanaway, the last of which were sold on 12 September 2008 for an amount of $2,824,347.44. The total amount Max received from his Cleanaway shares was $9,340,952.29.

[17] The timing of the sale of the Cleanaway shares and the payment of amounts into the account of Maly Holdings suggest that the shares were sold to finance the acquisition of Albatross Avenue. That inference is reinforced by the fact that the account went into overdraft at the time of settlement, suggesting that the overdraft was permitted in the expectation that it would be repaid from the sale of the remaining Cleanaway shares shortly after settlement. It is true that the sale of the Cleanaway shares realised approximately $9.34 million, whereas the purchase price of the property was $10 million plus costs. But the sale of the Cleanaway shares still accounts for a large proportion of the purchase price.

[18] Against these matters, of course, had to be weighed the admissions made by Max in his Family Court affidavit and in cross-examination and the schedule prepared by Pitcher Partners. But the schedule and affidavit were prepared at a high level of generality and were not entirely accurate. The admissions made in cross-examination were made by reference to the affidavit. As I pointed out in the Principal Judgment, the Cleanaway shares were provided to Max in connection with the sale of the Twigg Group business and in a broad sense it could have been regarded by Max as part of the proceeds of sale of the business. Moreover, if it was correct that the $10.5 million of the proceeds of sale were used to acquire Albatross Avenue, it is difficult to see why part of the purchase price was paid with a bank loan (in the form of an overdraft).

[19] If I made an error, it was in balancing the objective evidence against the evidence contained in the Family Court affidavit (and Max’s admissions made by reference to that affidavit). That is not a sufficient ground to reopen my judgment. In effect, the plaintiffs are asking me to reconsider an analysis I undertook in the Principal Judgment.”

252. No 5 judgment at [16]-[19].

  1. The respondents submitted that his Honour’s conclusion was wrong, having regard to Max’s Family Court affidavit and his admissions in cross-examination, in the context that Max bore the onus of proving that the property was not traceable. They further submitted that the proceeds of the Cleanaway shares could not have funded the purchase of Albatross Ave as only $6.5 million had been realised by the completion date. The appellants submitted that resolution of this question of fact depended inter alia on the judge’s assessment of Max’s oral evidence, to which deference should be accorded, and that the contention that only $6.5 million had been received by the completion date overlooked his Honour’s reasoning and the resort to an overdraft to fund the balance.

  2. I do not accept the appellants’ submission that on this issue there was any such dependence on evaluation of Max’s evidence as to require deference to the position of the trial judge. Save for what has been set out above, Max’s oral evidence did not illuminate this question, and there is no suggestion in the judge’s reasons that his Honour relied on it. This is therefore a question of fact which this Court must, on rehearing, determine for itself.

  3. On the other hand, I do not accept the respondents’ submission that Max bore an onus of proving that Albatross Ave was not traceable proceeds. The respondents invoked Frith v Cartland [253] and Heperu Pty Ltd v Belle [254] as authority for the proposition that a defaulting fiduciary bears the onus of proving what property is its own and what is traceable proceeds, but in my opinion neither of those cases goes so far. They are concerned with the context of mixing, and in that context the proposition for which they stand is that “if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own”. [255] They do not authorise a presumption that all property acquired by the recipient of trust property is traceable proceeds except insofar as the contrary is proven. Before the proposition could apply to Albatross Ave, it would be necessary to show that at least some of the trust property or its proceeds had found its way into the Maly Holdings account, from which the purchase price of Albatross Ave was sourced. Here, the question is whether any trust property was used to acquire Albatross Ave, and on the primary judge’s analysis, it was not shown that any was.

    253. (1865) 2 H&M 417; 71 ER 525 (“Frith”).

    254. (2009) 76 NSWLR 230 at [116].

    255. Frith H&M 417 at 420; 71 ER 525 at 526.

  4. I agree with the primary judge that the timing of the sale of the Cleanaway shares and the deposits into the Maly Holdings account, together with the fact that that account became overdrawn to fund completion of the purchase of Albatross Ave, support an inference that the purchase price was sourced, not in the traceable Sale Proceeds, but in the (non-traceable) proceeds of the Cleanaway shares. Importantly, if the source were the Sale Proceeds, an overdraft ought not have been required. While Max’s Family Court affidavit, and his admissions based on it, point in the contrary direction, the affidavit and schedule were, as the primary judge observed, at a high level of generality and not entirely accurate. Moreover, because of the connection between the consultancy fee and the sale, it is understandable that in the context of family property proceedings – where it would have made little difference - a distinction might not have been drawn between the Sale Proceeds and the consultancy fee, whereas the distinction is an important one in a tracing claim.

  5. For those reasons, in my judgment, the primary judge did not err in concluding that Albatross Ave was not traceable proceeds of the trust property.

Conclusion

  1. My conclusions may be summarised as follows.

  2. The primary judge did not err in concluding that the resolutions were made by Max after 30 June 2007, with the consequence that the trust income which was distributed to Max vested by default in Diane (in respect of Ipswich and Brooklyn) and the Twigg Family Trust (in respect of TPH).

  3. The contention that Diane had implicitly delegated her functions in respect of resolution for distribution of trust income to Max was untenable. Whatever authority he had, there was no basis for considering that it extended to approval of annual financial statements, or distribution of income. The primary judge did not err in holding that Max did not have delegated authority to make the resolutions or the impugned payments that they purported to authorise; in concluding that Max did not have authority to cause the Trustee Companies to make the impugned distributions; and consequently in holding that the payments were made in breach of Max’s fiduciary duty and that Max and his companies held the Sale Proceeds as a constructive trustee.

  4. The primary judge was in error in holding that Max was liable as a trustee de son tort. Before procuring the misapplication of trust property, he had not assumed to act as a trustee. It follows that the liability of Max and his companies was founded only in his breach of fiduciary duty, not as a trustee de son tort.

  5. The primary judge did not err in concluding that Max acted dishonestly in the relevant sense, and that he deliberately withheld information from Diane that may have caused her to object to what he did – that is to say, what Max did in disposing of the Sale Proceeds and excluding Diane from the decision-making process involved conscious wrongdoing and conscious active concealment on his part.

  6. The defence of laches should have failed in respect of the personal claim, as it rightly failed in respect of the claim for proprietary relief. It was not established that Diane knew, or that she ought reasonably to have known, of the wrong, before about 2018. Thereafter, she acted with reasonable expedition to ascertain the true position and commence proceedings.

  7. The primary judge was right to hold that neither s 5 nor s 21(2) (of the Victorian Act) barred the claims in respect of breach of fiduciary duty, although for reasons that differ from his Honour’s. Section 21(2) did not apply as the liability of Max and the Max companies was not as a trustee (of an institutional trust) within the meaning of s 21, but remedial only; and s 5 applied only by analogy, and time did not begin to run until the cause of action was discoverable, which was not until about 2018 or 2019. Further, if it be incorrect that no limitation period applies directly, then the limitation period would in any event be postponed by s 27 to commence not before 2018.

  8. There was no material error in refusing leave to the appellants to amend to rely by analogy on the limitation period provided by Corporations Act, s 1317K: as it would have applied only by analogy, time would not have commenced to run until 2018 at the earliest so the amendment if granted would not ultimately have availed the appellants, and there is no utility now in granting, on appeal, leave to amend.

  9. The primary judge did not err in concluding that the proceeds of the Hotel were traceable trust property.

  10. When one has regard to the time at which the Sale Proceeds were received by TPH, the timing of the payments to Herbert Geer and to BBH, the state of the BBH Property Trust’s balance sheet as at 30 June 2007 (showing a loan from Max of $12.2 million), and the absence of any other apparent source of funds, the inference that the entire $12.2 million advanced by Max to BBH was derived from the Sale Proceeds is overwhelming. His Honour did not err in so concluding, even if it was not common ground.

  11. The primary judge did not err in concluding that the Albatross Ave property was not traceable proceeds of the trust property.

  12. It follows that the motion for leave to amend the notice of appeal should be dismissed. The appeal should be dismissed. The cross-appeal should be allowed in part. The appellants should pay the respondents’ costs of the appeal and cross-appeal. The conclusion that the personal claims are not barred by laches may entitle the respondents to additional relief; however, insofar as it overlaps with proprietary relief, there may be a requirement to elect, or at least to avoid double recovery. The respondents should be directed to bring in short minutes to give effect to this judgment.

**********

Endnotes



Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45; [2015] AC 250 at [36].

Details
AGLC
Twigg v Twigg [2022] NSWCA 68
Case
[2022] NSWCA 68
Decision Date

CaseChat Overview and Summary

The case of *Twigg v Twigg* concerned a dispute where the director of a corporate trustee allegedly caused trust funds to be distributed to himself. The central questions before the Court of Appeal of Victoria were whether written resolutions authorising these distributions were validly adopted by the relevant date, whether the director had been delegated the authority to make distributions unilaterally, and whether the trust monies were held on a constructive trust.

The court was required to determine several legal issues, including whether the director was liable for breach of trust as a trustee de son tort, and if so, whether the director had acted "dishonestly" for the purposes of postponing any applicable statutory limitation period or its equitable equivalent. Further issues involved the application of the defence of laches, the traceability of property purchased with the proceeds of trust assets, and the applicability of the *Limitation of Actions Act 1958* (Vic) to claims for breach of fiduciary duty and proprietary relief.

The court reasoned that acting as a director of a corporate trustee, even without proper authority and in breach of fiduciary duties, did not alone constitute an assumption of the trust for the purpose of making the director liable as a trustee de son tort. However, the court found that the director's conduct involved dishonesty, not in the sense of a lack of honest belief in entitlement, but in the form of conscious wrongdoing and active concealment of information from the other director, which prevented the postponement of limitation periods. The court also found that property effectively purchased by the director, even if through an alter ego, was traceable, along with its proceeds. While section 21(2) of the *Limitation of Actions Act 1958* (Vic) was held not to apply to remedial constructive trusts, claims for proprietary relief and equitable compensation were determined to be within the analogy of section 5 of the Act, attracting an equivalent equitable limitation period.

The Court of Appeal dismissed the motion for leave to amend the notice of appeal and dismissed the appeal itself. However, it allowed the cross-appeal in part, ordering that the appellants pay the respondents’ costs of the appeal and cross-appeal, and directed that short minutes be brought in to give effect to the judgment, including any additional relief arising from the cross-appeal.

Orders

Orders of the court

(1) Dismiss the motion filed on 17 February 2021 for leave to amend the notice of appeal.

(2) Dismiss the appeal.

(3) Allow the cross-appeal in part.

(4) Order that the appellants pay the respondents’ costs of the appeal and cross-appeal.

(5) Direct that the respondents bring in short minutes to give effect to this judgment, including with respect to any additional relief sought on the basis of the outcome of the cross-appeal.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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