Youyang Pty Limited v the Persons Trading as Minter Ellison Morris Fletcher S237/2002

[2002] HCATrans 577

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S237 of 2002

B e t w e e n -

YOUYANG PTY LIMITED AS TRUSTEE OF THE BILL HAYWARD DISCRETIONARY TRUST

Appellant

and

THE PERSONS LISTED IN SCHEDULE 1, TRADING AS MINTER ELLISON MORRIS FLETCHER AND LATER AS MINTER ELLISON

Respondents

GLEESON CJ
McHUGH J
GUMMOW J
KIRBY J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 13 NOVEMBER 2002, AT 10.21 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR A.S. MARTIN, SC, for the appellant.  (instructed by Carneys Lawyers)

MR T.F. BATHURST, QC:   May it please the Court, I appear with my learned friend, MR I.M. JACKMAN, SC, for the respondents.  (instructed by Mallesons Stephen Jacques)

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Your Honours, may I deal first with the question of amending the notice of appeal.

GLEESON CJ:   Is that opposed, Mr Bathurst?

MR BATHURST:   No, your Honour.

GLEESON CJ:   Yes, you have that leave.

MR JACKSON:   Thank you, your Honour.  I wanted to add one further thing about it and it is this.  We propose to seek a further amendment in one respect of the notice of appeal.  I put it in that way for a reason I will mention in just a moment and that is to ensure that one of the possible results of the case which on one view of the way in which the relief that is sought at the moment is put would not be open and that is to restore the order that was made by the primary judge. 

Your Honours, I regret to say I cannot put that in writing because there has been some transmission difficulty caused today but if we could give your Honours something in due course showing that in a printed form.  It simply is to say as an alternative that order 1 made by the trial judge be restored and that is the order ‑ ‑ ‑

GLEESON CJ:   Your agreement covers that does it, Mr Bathurst?

MR BATHURST:   Yes, your Honour.

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Thank you, your Honours.  Your Honours, this of course is a case in which we seek to recover an investment of $500,000 paid out by the respondents in an admitted breach of trust.

GLEESON CJ:   Mr Jackson, it would be of assistance to me if at some stage convenient to yourself you could just state in a summary form the nature of the commercial transaction that is involved here, including the variation that occurred in relation to that deed poll.

MR JACKSON:   Yes, I will do so, your Honour.  Your Honour, could I perhaps state it in broad terms first and then come to the detail of it in just a moment.  What it was was this, your Honour.  There was a proposal to an invitation to invest sums of money, the investment being by way of the acquisition of preference shares.  There had to be a minimum subscription of $500,000 which would result in 5,000 shares.

So far as the use of the money was concerned, the money was to be paid under the terms of a subscription agreement to the solicitors, the respondents in the present case.  It provided that it was to be held on trust for them to be applied in accordance with the agreement.

The money that was provided was to be used for ‑ leaving aside some question of expenses ‑ two purposes.  Purpose one was that it was to be the purchase price of a bearer certificate of deposit; the number of dollars being the face value of the bearer certificate of deposit, was to be the same as the amount invested, in this case $500,000, but it was not to mature until a period of 10 years later so it would then be $500,000 in the, as one assumes, depreciated dollars at the time of payment.  That was the first thing.

The second thing was that the balance of the money was, on the production of such a certificate, to be paid to the company that was issuing the preference shares, which I will call for brevity, your Honours, ECCCL.  That money was to be used for various forms of investment.  Now, at the conclusion of the 10‑year period, leaving aside the possibility which did not eventuate for there to be an interim redemption of whole or part of the shares, in the interim ‑ I am sorry, your Honours, I will start again.  At the end of the time the investor would redeem the shares, the end of the 10 years.  On redemption, what the investor would get back consisted of one and possibly two things.  One thing was that the person, the company, unrelated to the parties, which was to be the company to hold the certificate, that company would redeem the certificate, present it to the bank, get $500,000 of that day’s money and then that money would be used to pay the investor.  So at the minimum the investor would get back the same number of ‑ albeit depreciated dollars ‑ as had originally been paid.

The second aspect that the investor might get back was that there were things called in the agreements “a client account” and that showed how earnings had gone during that period.  Now, it may be that the earnings had been substantial so that the investor, at the time of redemption, would get one, two, three hundred thousand dollars more.  On the other hand, it may be that they had not been very successful, in which case they get nothing.  But, at the end of the day, at the minimum, the investor would, because of the maturing of the bearer deposit, get back the same number of dollars.

GLEESON CJ:   Now, was the amount to be paid for the acquisition of the deposit the present value of $500,000 in 10 years time?

MR JACKSON:   Yes.  I think the actual figure was $256,000; it varied from day to day with various people making investments.

McHUGH J:   Mr Jackson, did I understand the material correctly?  Could money be invested in additional to the $500,000, which was at risk without security?

MR JACKSON:   Your Honour, I think not.  Your Honour and I may be at cross‑purposes, I think.

McHUGH J:   No, there is a reference in Justice Brownie’s judgment to other money being lost, that is all.

MR JACKSON:   Yes.  Your Honour, I do not think that particularly relates to it.  The fact of the matter was that all the money was misappropriated and lost in one way or the other, we got nothing.

GLEESON CJ:   You have just explained the transaction, naturally, as a lawyer would explain the transaction.  How would a stockbroker explain the transaction to a client?

MR JACKSON:   Well ‑ ‑ ‑

GLEESON CJ:   Be frank.  Do the best you can.

MR JACKSON:   Well, your Honour, I hope I get a double fee for that.

HAYNE J:   Like a broker.

MR JACKSON:   Well, what the broker would say, I would expect was, to say, “Look, this is an investment”.  They are going to try and make some money on the international money market, as it was said.  This is the prospectus and the broker would say he knew or did not know the people involved, but would say, “At the end of 10 years, at least you will get back your $500,000, and you might get more, you might not”.

GLEESON CJ:   These were redeemable preference shares that were being acquired?

MR JACKSON:   Yes.

GLEESON CJ:   So the broker would say, “You are investing $500,000 now.  You are requiring redeemable preference shares and the security for the availability of the funds on redemption will be in the form of a certificate of deposit which will be acquired by spending out of the$500,000 that you put in the present value of $500,000 in 10 years time.  The risk capital is the balance, that is, the difference between that amount and $500,000, and your return, if any, of or of that risk capital will depend upon the success of the enterprise.”

MR JACKSON:   Yes.

GUMMOW J:   What would the solicitor’s trust account play in this?  What would be the significance of that?

MR JACKSON:   Well, your Honour, the purpose of having the solicitors involved was that it was one of two areas of protection because the solicitors undertook and were authorised to act as trustee for persons who had provided money who may not, as in this case, be physically in the city where the completion of the transaction was to take place.  But they were not to pay the money, except to buy, on the one hand, a bearer certificate of deposit and then, on the other hand, not to pay out the rest of the money unless there was a bearer certificate of deposit.  In this case, they knew that what they were getting was not and would not be and still paid out the money.  That is what happened in this case. 

The other part they played was that the completion involved the bearer certificate of deposit not being held by the company ECCCL, but going to someone who would hold it and then present the deposit for redemption in due course on maturity and then hold that money and be the person to whom the investor would go in order to redeem the shares.

HAYNE J:   Other than transaction documents, was there any offering document, prospectus or equivalent, put in evidence that revealed the way in which the proposal was put to the would‑be investor? 

MR JACKSON:   Yes, your Honour.  I will come to that in a moment.  Could I go, first of all, to the agreement which gave rise to the various obligations.  That is the subscription agreement.  I will take your Honours to its terms in just a moment, but may I come to indicate how the brochure, to which I just referred in answer to your Honour Justice Hayne, plays a part.  Your Honours will see, from Mr Hayward’s oral evidence, which appears in volume 1 page 35 lines 26 to 36, he was a retired headmaster and through a number of companies and trusts he and his wife had control of substantial assets.  That is page 36 about line 38 to page 37 line 43. 

Now, I say that by way of introduction.  He was provided with an information brochure, which your Honours will see in volume 7 at page 1704.  Your Honours, that information brochure contains a disclaimer on the front page.  It is put out by the company ECCCL, as you will see at the bottom of page 1704.  It refers in the last paragraph on that page to the fact the investment is “speculative”.  The markings on this are markings, the evidence was, made by Mr Hayward himself.  Your Honours will see that, notwithstanding that, at page 1705, in the left column, about line 43, it was said: 

The Company does not intend to engage in speculative transactions –

et cetera.  At the top of the page, although it is a little difficult to read, it says: 

The capital of the Company is used to acquire prime –

I think it is –

IMM securities (physical or synthetic) from the international markets yielding fixed or variable rates of return in the domestic currencies of the issuing countries. 

Now, your Honours will see the document goes on.  It sets out the objectives, page 1706, various projections ‑ page 1707.  At page 1708 your Honours will see that at the bottom of the left column:

The projections are shown for a 10 year term.

And at the top of the next column:

Investors have the right to redeem all of their preference shareholdings at a date prior to the 10^th year after issue.

There is a reference again at the penultimate paragraph on that page to the fact that it is “speculative”.  The shares, your Honours, are referred to at page 1710 under the heading:

THE PREFERENCE SHARES –

Then, at 1711 – I am sorry, I should have said at page 1710 in the left column it is apparent that the invitation was:

to subscribe for Preference Shares in the Company having a par value of 1 cent each for a subscription price of $100.00.

And:

at least $500,000 –

had to be subscribed.  That is the bottom paragraph on 1711.

GLEESON CJ:   Further up that page there is reference to the “security’.

MR JACKSON:   Yes.  I am just going to come to that, your Honour.  Your Honours will see that it is said that it is said that security”

CAPITAL REDEMPTION . . . was secured by the provision of the “AAA” rated security issued by Desdner Bank AG to be held on the terms of the Paying Agency Agreement –

Now, that is the document we got and you will see again at page 1713 in the bottom half, again the reference to the:

Capital redemption –

security.  In the event, your Honours, we signed up, to put it shortly.  What we signed consisted of two documents.  One is a:

SUBSCRIPTION AGREEMENT –

which commences at page1747.  I will come to its terms, your Honours, in just a moment.  The second thing we signed up is an authority to the respondent which is at page 1771.  They were:

to act as its agents at Completion for Subscription Moneys of $500,000 –

and we arrange for the cheque for them which is on the next page, 1772.

Now, your Honours, could I pause also to say that whilst your Honours are at those pages, we then received confirmation of the completion of the transaction from the respondent.  At page 1773 your Honours will see it attaches the preference share and then page 1774.  There is not the slightest hint that anything has gone awry in the completion of the transaction or that the terms of the agreement have not been complied with.  Could I come, your Honours, to the events ‑ ‑ ‑

GLEESON CJ:   Do I take it from page 1773 that ECCCL were Minter Ellison’s clients?

MR JACKSON:   Yes, your Honour, they were.

GUMMOW J:   That appears, perhaps, from 1747.

MR JACKSON:   Yes.  Your Honours, could I return to the events contemplated by the subscription agreement?  It starts at 1747 and if I could go then to page 1749.  Your Honours will see the recitals there set out and could I refer in particular to recital C which refers to the proposal to:

issue Preference Shares to the Investor pursuant to this Agreement.

Your Honours will see recital D which speaks of the company:

As part of the proposed issue . . . be obliged to procure for the Investor the benefit of the Deposit Certificate which will be held by the Paying Agent to be applied for the benefit of the Investor in accordance with the Paying Agency Agreement.

Also, your Honours will see recital E – we signed this document, your Honours:

The Investor has agreed to subscribe for the Preference Shares on the terms and conditions contained in this Agreement.

Now, your Honours, many of the terms are defined, but they include notably “Deposit Certificate” which your Honours will see defined at page 1750 and it says it means a:

bearer certificate of deposit, guarantee or letters of credit drawn against and with full recourse to the Prime Bank to be lodged in accordance with clause 4 with the Paying Agent on the terms of the Paying Agency Agreement.

“Prime Bank”, your Honours, one might expect is defined.  You will see the definition at page 1752.

Now, could I refer also, your Honours, to page 1750 to the definition of “Deposit Certificate Purchase Limit”, just at the bottom of that page.  It is said to mean:

the limit specified in Schedule 1-

Schedule 1 is at page 1765 and your Honours will see item 4 speaks of a “Deposit Certificate Purchase Limit” of “55.00%”.  What that means, your Honours, is that as one might expect the number of dollars necessary on any day to purchase a 10 year $500,000 bond would vary and there is a limit on the percentage of the money invested which could be used in acquiring such a bond, 55 per cent in this case.

Now, your Honours, the requirements of the bearer certificate of deposit were further set out in clause 3.2 at page 1754.  It had to:

(a) be issued by the Prime Bank;

(b) have a maturity date which either corresponds to the Redemption Date or is no more than 14 days prior to the Redemption Date –

the redemption date is the 10^th.  Redemption date, your Honours, is 10 years ahead, in effect.  It had to:

(c) have on its maturity date a value at least equal to the aggregate of the Subscription Moneys; and

(d) be deposited at Completion with the Paying Agent to be applied –

as your Honours will see.

GLEESON CJ:   Depending on the movement in interest rates over that period of 10 years, the amount that was actually paid to acquire the certificate of deposit would have been either less than or greater than, with hindsight, the present value of $500,000.

MR JACKSON:   Yes.

GLEESON CJ:   Who carried that risk?

MR JACKSON:   Either ECCCL or the bank that issued it.

HAYNE J:   Why either?  Would not Dresdner bear it?  It would be bought once for all and Dresdner got the benefit or the detriment, did it not?

MR JACKSON:   I am sorry, your Honour, I was speaking of risk in the sense of detriment.  It was Dresdner which took the chance one way or the other.

GUMMOW J:   In exchange for their margin.

MR JACKSON:   In exchange for the money, yes.  They put the money in the – the money – the item was bought and then whether it was a good or bad deal for Dresdner depended how interest rates went.

HAYNE J:   Yes, and the price was set by Dresdner, not as an act of charity one assumes.

MR JACKSON:   Your Honour, one would not imagine so, no.

HAYNE J:   No.

MR JACKSON:   Your Honours, I was going to say then that the effect of having the deposit certificate, indeed the purpose of it, was to reduce the amount of possible loss by an investor.  If one goes to clause 6, which is at page 1756, your Honours will see that the deposit certificate was to be delivered to the paying agent – that was clause 6.1 – and clause 6.2:

On the Redemption Date the holder of Preference Shares may present the Preference Share scrip . . . to the Paying Agent –

Now, the paying agent would have presented the bearer deposit certificate to the prime bank and had it redeemed – your Honours will see that referred to in clause 6.2 – and from the money arising from the redemption the paying agent would pay the shareholder the same number of dollars, by then no doubt depreciated.

GLEESON CJ:   Was the paying agent a party to this agreement?

MR JACKSON:   No, your Honour.  The separate agreement, the paying agent agreement, I will give your Honours a reference to it in just a moment.

So, the paying agent would pay the same number of dollars as the shareholder had subscribed in the first place.  Your Honours, as clause 6.3 makes apparent, the redeeming shareholder would get the income value as well.  “Income Value” is a defined term and as is the other term used in clause 6.3, “Client Account Balance”.  May I take your Honours to those for a moment.  First of all, page 1750:

“Client Account Balance” means the notional account –

which reflects an:

initial credit of 100% of the Subscription Moneys; and

(b)  the additions or deductions . . . corresponding to . . . Proportionate Entitlement to 50% of the Net Investment Income or Losses; and

(c)  any reductions in respect of –

any early redemptions.

HAYNE J:   Just pausing there, the division in half means what, ECCCL gets the benefit of half, the investor gets half?

MR JACKSON:   Yes, the promoters get half, to put it shortly, yes.

HAYNE J:   Yes.

MR JACKSON:   Your Honours, the term “Income Value” is at page 1751.  It means:

the amount equal to the excess in a Client Account Balance over the aggregate of the Subscription Moneys –

So that if there was a loss you still got your $500,000 back.  If there was a profit, you got a share of the profit as well.

GLEESON CJ:   This may turn on the definition of “Subscription Moneys”.  The $500,000 that was being put in by the client was not all being put to work, was it?  A little more than half of it was being used to acquire the certificate of deposit.

MR JACKSON:   Yes.

GLEESON CJ:   So the amount that was being put to work to make profits was a smaller amount, $221,000 or whatever the case may be, and yet am I right in thinking that the share of income was to be related, subject to the 50 per cent reduction just mentioned, to the return on $500,000?

MR JACKSON:   Yes, your Honour.  “Net Investment Income” is defined by ‑ I think what your Honour says is right, but ‑ ‑ ‑

McHUGH J:   Is it?

MR JACKSON:   Your Honour, can I just say there was some discussion between the solicitors and the client saying ‑ and ECCCL saying “Bear in mind you may end up with a problem with this because on one view you’re obliging yourself to pay on the basis of $500,000 when you’ve lost in effect half of it buying these documents.”

HAYNE J:   But the net investment income was generated by whatever funds ECCCL had available to it, in round terms, about half of each investor’s investment.

MR JACKSON:   Your Honour, that is so but ‑ ‑ ‑

HAYNE J:   And it was that which was to be added to the nominal amount in the notional client account balance.

MR JACKSON:   Your Honour, if one is talking about real money, that is so.  It becomes a little obscure because of the definition of “gross investment income” and at the top of page 1751, where it means:

capital gains and income derived . . . calculated on the aggregate balance standing to the credit of the ordinary shareholders’ Client Account Balances from time to time ‑

which has not previously been taken into account.  Now, your Honours, in the end there have to be some actual money to pay.  But there is a complication.  Your Honours, the complication perhaps does not need to be resolved, if I may say so with respect, because in the end the money had all gone, perhaps into the mythical Thai Bank bonds, that I will come to in a moment.

Your Honours, I mentioned before that there was a paying agency agreement.  Your Honours, the actual agreement is in volume 3 at page 542.  Your Honours, we have summarised the relevant provisions, the provisions presently relevant in our written submissions in paragraphs 6 to 8.  The provisions there really mirror those in the subscription agreement.

GLEESON CJ:   Who were the people running ECCCL?

MR JACKSON:   Your Honour, the people running ECCCL ‑ in terms of persons and companies, perhaps I can deal with it.  There was a Mr Senese ‑ ‑ ‑

GLEESON CJ:   How do you spell that?

MR JACKSON:   S-E-N-E-S-E, your Honour.  It is differently spelt in a few places, but that is the ‑ ‑ ‑

GLEESON CJ:   As in Leslie?

MR JACKSON:   Your Honour, a number of other people who also ran a company called “Consolidated”, with again “Capital” and “Limited” on it.  I will give your Honour a reference in just a moment if I may to where one sees the identity of the various directors.  As appears from some of the material, one of them disappeared and there was some argument by them about whether they were or were not directors at various times.

HAYNE J:   They seem to be in and out of being directors.  At one stage they are directors and then they are not directors.

MR JACKSON:   A certain lack of enthusiasm for identification as such.  If I can give your Honours a reference to where one sees the list set out.

GLEESON CJ:   Thank you.

MR JACKSON:   Your Honours, could I come now to the function of the solicitors, the respondents, under the agreements.  May I go, your Honours, again to volume 7, page 1753, to the subscription agreement.  You will see in clause 2.1 that it referred to the fate of the bank cheque, which we were to provide for the subscription money.  It said that we were to:

provide an unendorsed non negotiable bank cheque made payable to the Company’s Solicitors trust account for the aggregate of the Subscription Moneys ‑

Your Honour, the important notice they refer to appears at page 1770.  It does not matter for present purposes ‑

to be held in trust by the Company’s Solicitors in accordance with the provisions of this Agreement.

GLEESON CJ:   In trust for whom?

MR JACKSON:   Well, for whoever is entitled to it in accordance with the provision of this agreement, your Honour.  That is our submission.  I should say, your Honour, there are admitted breaches of trust towards us in this case. 

KIRBY J:   What is the clause you are reading?

MR JACKSON:   Clause 2.1, your Honour, page 1753, in particular the last three lines of it:

to be held in trust by the Company’s Solicitors –

defined to mean the respondent –

in accordance with the provisions of this Agreement.

KIRBY J:   What would be the purpose of such a provision from the point of view of an investor who may not know all of the law of solicitors’ obligations and trusts?

MR JACKSON:   Well, the purpose of it, your Honour, I will come to the detail of it in just a moment, but in broad terms what it was to ensure, bearing in mind that the investor was unlikely or may not be and in the particular case was not present at any completion of the transaction to ensure that the moneys were not paid out, except in return for what was provided for by the agreement.

GLEESON CJ:   More specifically, what was identified as the security.

MR JACKSON:   Yes.  Your Honours, the actual use of the funds was dealt with by clause 2.3 on the same page and it was said that the company was to use the subscription moneys for the three purposes there set out, first of all:

(a)procuring the provision of the deposit certificate as detailed in clause 3 –

I have taken your Honours to clause 3 already; secondly:

(b)      paying expenses and commissions –

to put it shortly, no point arises about that; and thirdly:

(c)the balance to be applied to the working capital requirements of the company to be used among other matters, for example, providing margin funds –

and so on.

GLEESON CJ:   How could the company use the subscription moneys to procure the deposit            certificate if the solicitors were not to pay the subscription moneys out of their trust account until the deposit certificate had been procured?

MR JACKSON:   Well, your Honour, it could be done in two ways, really.  One was that the money was to be paid in exchange for a deposit certificate and that, as a practical matter, is what occurred.  The other is that the money could be drawn out first and then paid to obtain a deposit, given to the company to obtain a deposit certificate.  Now, in the present case, however, this is not a circumstance where the money was paid out and what emerged was something that mirabile dictu was not a bearer deposit certificate.  It was known that it would not be because they knew ‑ and I will come to the detail of this in just a moment – that each on of these transactions was being carried on in breach of the agreement.  They had told ECCCL that.

GLEESON CJ:   But the contemplation of the agreement must have been in terms of the mechanics that completion would involve payment out of part of the subscription moneys by the solicitors in exchange for, or at the same time as, the lodgement of a deposit certificate with the paying agent.

MR JACKSON:   Yes, your Honour.

GUMMOW J:   Clause 3.3 bears on this, does it?

MR JACKSON:   Yes, your Honour.  Yes, and your Honour will see that that is so and if I could ‑ ‑ ‑

GUMMOW J:   Prior to completion to release.

MR JACKSON:   Yes, your Honour, prior to completion to release the amount to be applied by the company solely for the purpose of procuring the deposit certificate by way of the put option.

Now, your Honours, if I could deal with the particular case for just a moment.  This is a case where there are two things, one of which I have mentioned already.  One is that the respondent knew that it was not going to get bearer deposit certificates – I said, I will come back to that.  The other is that although the subscription agreement contemplated that events might take place in a staged order of the nature to which your Honour referred, in fact, all the events took place on the one day.  In this case, the money for the deposit was paid by arrangement to the Melbourne branch and the certificate was made available in the Sydney branch.  I may have it the other way around, it was one or the other in the particular case and then completion of the other aspects of it went ahead which simply meant giving the preference share on the one hand and giving the money on the other.

Now, your Honours, the point, of course, in relation to clause 3.3 is that at the time of paying over that money the respondents knew that the money was not going to be applied in accordance with obtaining a deposit certificate as required by the agreement.

GLEESON CJ:   How did that come about?

MR JACKSON:   Well, your Honour, because – and if I can come to the detail of it in just a moment – first of all there were admissions in some evidence that was tendered from another proceeding by the solicitor in control of the matter saying that he knew that and then there is the course of dealings that had taken place over some months beforehand where they were telling ECCCL that the documents they were providing were not the documents that were required by the agreement.

GLEESON CJ:   Was there any explanation of this?

MR JACKSON:   Your Honour, no explanation, if I can put it like that, nothing that one would grace with that description.  One saw in the evidence of Mr Lewis a number of attempts to say some reason, blame Mr Gaffney, who was his offsider, on the one hand and say he was looking after it and, your Honour, no real explanation, no.  Perhaps, your Honour – I do not attempt to speak for the other side, but so far as the evidence is concerned, one, it is very difficult to see how this occurred otherwise than as being, putting it in the most charitable way one can, that Mr Lewis made a mistake in letting the first couple of transactions go through with deposit certificates of this kind and then was on the treadmill after that.  I should say Mr Lewis was not called to give evidence in these proceedings, but evidence he had given in other proceedings was tendered.  I will take your Honours to that in a moment.

Your Honours, could I go then to the provisions for completion which your Honours will see in clause 4.  Clause 4.1 deals with place and it is to:

take place at the Melbourne office of the Company’s Solicitors or any other place agreed in writing by the parties.

That provides, in a sense, a physical reason why one would have someone – the solicitors would be engaged to act on behalf of a party. 

Then your Honours will see in the obligations on the investor set out in clause 4.2, the “duly executed application” had to be given.  Then there had to be an:

authorisation . . . in the form of schedule 4 to pay the Company the aggregate of the Subscription Moneys after the purchase of the Deposit Certificate under clause 3 ‑ ‑ ‑

KIRBY J:   You say that 4.1 gives an explanation.

MR JACKSON:   I am sorry, just one reason, that is all I am saying.

KIRBY J:   Well, it may be that in the current circumstances of solicitors’ practices, it does, but it certainly is a very different relationship to the relationship of solicitor to client that I knew when I was a solicitor.  I mean, the solicitor gave advice, but the client got on with their own commercial business.

MR JACKSON:   Yes.

KIRBY J:   It may be that all of that has changed, but it certainly is a very different arrangement.  You may say to me that that gives an explanation for the involvement of the solicitors, but it is a very different involvement than I remember, and I was a solicitor for seven years.

MR JACKSON:   Your Honour, I am not attempting to justify it.  I am simply saying that one of the reasons why one might see a solicitor engaged to do it is, first of all, physical location – Mr Hayward lived in Sydney, his accountant lived in Adelaide, the settlement was to take place in Melbourne – but, in any event, part of the arrangement was what is set out in clause 2.1 and the succeeding clauses whereby the solicitors undertook to do it.  Your Honours, if one had a well‑known firm of solicitors who say they deal with it in trust, one would expect them to be an appropriate person to do it.  It may be there are conflicts that should have prevented them from doing it, but the reality is to investors they said, or allowed it to be said, “We will act for you.”

GLEESON CJ:   Where is the role of the solicitors referred to in these documents that you have been showing us?  In the brochure, I mean. 

MR JACKSON:   In the brochure – I do not know that it is referred to in the brochure.  In the subscription agreement, it is referred to, of course.  The subscription agreement commences, really, so far as the solicitors are concerned, at 1753, in clause 2.1. 

GLEESON CJ:   No, I had in mind something slightly different.  Sometimes the reputation of solicitors is used in commercial transactions.  Is there anywhere in these documents that identified the solicitors who were going to be involved? 

MR JACKSON:   Yes.  The definition of “Company’s Solicitors”, your Honour.  It is there at page 1750. 

GLEESON CJ:   That is what I wanted to know, thank you. 

MR JACKSON:   Mr Hayward, in one of his statements – and I think he was not cross‑examined about this – said, he relied on their reputation.  Now, your Honours, I was going to go to clause 4.2.  It set out the obligations of the investor, and then your Honours will see, if one goes from clause 4.2, one sees the company’s obligations at clause 4.4 and it says that, “At Completion the Company” is to procure the allotment and issue of the preference shares, the crediting of the client account balance, the appropriate share certificates, and that: 

the Deposit Certificate is delivered to the Paying Agent. 

Now, the deposit certificate is a bearer deposit certificate. 

HAYNE J:   Does anything turn on the provisions of Schedule 4, referred to in clause 4.2(b) at 1754, Mr Jackson? 

MR JACKSON:   Your Honour, Schedule 4 appears at 1769, and it does, in this sense.  I am going to come to it in a moment, but what your Honours will see is that Schedule 4 – which one is, in effect, required to sign, as an investor – gives the authority to the solicitors to disburse the money, but to disburse it in accordance with clause 2 and clause 3. 

GUMMOW J:   Well, “held to my account” in accordance with clause 2 and 3. 

MR JACKSON:   Yes.  Your Honours, could I come back, for just a moment, to clause 4.4.  Importantly, from the point of view of the investor, one of the things that takes place on completion is that you get the deposit certificate – I am sorry – is that you get the deposit certificate delivered to the paying agent, who then holds it to ensure that, in due course, you get your minimum money back.  If one goes to clause 4.5, one sees that the investor is not: 

obliged to complete the subscription for the shares under this Agreement and will be entitled to be refunded in full without deduction the moneys paid by the Investor under this Agreement if at Completion the matters set out in clauses 4.3 and 4.4 do not occur ‑ ‑ ‑

GLEESON CJ:   It seems to be put against you, as I understand the written submissions, that there was a finding of fact that if your clients had been told what had actually happened they would not have elected to get the refund.  I am not sure whether that proposition of fact is accompanied by a finding that they would also have been advised as to the legal significance of what had happened.

MR JACKSON:   Your Honour, I do intend to come to what is said to be that finding.

McHUGH J:   Yes, it troubled me because it is put in a negative way.

MR JACKSON:   Yes.

McHUGH J:   And if the respondent has the onus ‑ ‑ ‑

MR JACKSON:   Yes, indeed, your Honour.

McHUGH J:   ‑ ‑ ‑ it may not mean very much.

MR JACKSON:   Well, your Honour, that is a point I was going to make in this and one sees this point adverted to in one of the judgments in the Court of Appeal.

KIRBY J:   Justice Hodgson, I think.

MR JACKSON:   Justice Hodgson, and where Justice Hodgson says, if you are going to put a hypothetical situation, namely that you would still have entered into this transaction even if what now appears was known to you then, then surely the burden of establishing that lies on the person who asserts it, in our submission, correctly.

KIRBY J:   His Honour said the evidentiary burden was on ‑ ‑ ‑

MR JACKSON:   Yes, your Honour, and the best one can tease out of the findings made by the primary judge is that he was not satisfied.

McHUGH J:   Yes, that is at page 1890.

MR JACKSON:   Yes, but it does not go further.

GLEESON CJ:   Did Youyang have a solicitor acting for it?

MR JACKSON:   No, your Honour.

GLEESON CJ:   So it would not only be a question, would it, of giving factual information?  It would presumably also have been a question of giving legal advice.

MR JACKSON:   Indeed, your Honour.  What happened was that we had no actual knowledge of the fact that this had occurred until May 1997, a few weeks before the company went into provisional liquidation, at a time when we got a letter saying, “Two unfortunate things have happened.  The money is now in the hands of some other company that is overseas, heard of by few, and also we have made an unfortunate investment in bonds issued by the Thai Bank of Commerce.”  No one could find the bonds actually after liquidation, but, your Honour, that is when we found out about it.

I am going to come, of course, to what is said to have been the effect of the deed poll in 1994, but we have no actual knowledge that would allow us, even uninstructed by any legal advice, to make any election, if one be appropriate, until the company is on its last legs and the money is gone.

I just want to add one further thing in relation to clause 4.5.  It needs to be read with clause 4.6 and one of the things that was provided was that clause 4.6 recognised that there might have been the acquisition of the deposit certificate before completion and it worked in this way, that if that had occurred, but the investor had the entitlement to a refund, what the investor got was the certificate plus the balance of the money.

GUMMOW J:   Does the evidence show whether the solicitors were receiving any distinct payment for acting as trustee?

MR JACKSON:   I do not think it shows, your Honour, that they were receiving a payment distinct from the fees they charged generally to ECCCL.  It certainly shows what fees they received and lists the various items that they were ‑ ‑ ‑

GUMMOW J:   Can we have a reference to that in due course?

MR JACKSON:   Yes, your Honour.

Your Honours, the last thing I wanted to say about clause 4.6 is that it really reflects, of course, the concept that the certificate was to be a bearer certificate because it was to be – it and the appropriate documents of title were to be passed over in the circumstances to which it referred.

McHUGH J:   This case is not bedevilled by any suggestion that the trustee is answerable for the neglect or default of others, and what law governs this transaction?  Where did it take ‑ ‑ ‑

MR JACKSON:   Victoria, your Honour.

McHUGH J:   Victoria.

MR JACKSON:   Yes, I think there is ‑ ‑ ‑

McHUGH J:   Does their Trustee Act have an equivalent to section 59 of the New South Wales Act where the trustee is only answerable for receipt of money or trust property which is actually received?

MR JACKSON:   I am sorry, your Honour, I just could not give you an answer to that at the moment.  Similar but different, I am told.  I will endeavour to give your Honour if I may an answer in relation to that.

GUMMOW J:   Anyhow, this moneys were received, they have the cheque.

MR JACKSON:   Yes, the cheque is there.

McHUGH J:   Yes, they have the cheque.

MR JACKSON:   Could I go then to clause 6.1 and your Honours will see that one of the features was that:

the Company undertakes to procure that at Completion the Deposit Certificate which satisfies the requirements of clause 3.2 is delivered to the Paying Agent.

McHUGH J:   Can I just get it clear in my mind.  What is the trust property that you seek to be restored?  Is it the equivalent of the cheque or what?

MR JACKSON:   Your Honour, that is our first position.  We say that the correct answer was that we should be restored to our position, in a sense, by being paid $500,000 and then an order for interest in respect of the period since we paid it.

McHUGH J:   How does that fit in with the authority in clause 3.3, the authority to pay out at least part?

MR JACKSON:   Your Honour, it fits in in this way.  One could put it, in a sense, in two ways.  Your Honour will see that it authorises the company solicitors to release the amount to be applied by the company solely for the purpose of securing the complying deposit certificate.  What we say is that it was manifest that they knew that the money would not be applied for that.  That is how we would deal with that in the first way.

McHUGH J:   Was there a finding that they knew beforehand that when they release the money the ‑ ‑ ‑

MR JACKSON:   What there is, your Honour, is ‑ ‑ ‑

GLEESON CJ:   Presumably the admissions of the breaches of trust spared anybody the necessity of explaining how they came about?

MR JACKSON:   Yes, your Honour, that is undoubtedly so.  There is an observation in the reasons of the primary judge in relation to the question of knowledge which is at page 1887, about line 42.  It was common ground that they:

knew at the time that the certificate they obtained did not answer the contractual description.

Your Honour, that is not going quite as far as I said.  What we would say is that if one looks at the material, unchallenged material before the court, it was manifest that they knew what they were going to get.

Now, your Honours, I was going to go to the schedules to the agreement and if I can do so very briefly.  Page 1765 I have taken your Honours to already.

GLEESON CJ:   Just before you go from 1756, what was the evidence as to how those markings came to be on the document at 1756?

MR JACKSON:   Your Honour, there are not any on 1756, on mine, I must say.

GLEESON CJ:   All right, thank you.

MR JACKSON:   But, your Honour, the markings on the prospectus were ones that were put on there by Mr Hayward.

GLEESON CJ:   That is the brochure?

MR JACKSON:   The brochure, yes – on the brochure put on by Mr Hayward himself.

GUMMOW J:   In some of those markings he wrote things, for example, at 1721.

MR JACKSON:   Yes.

GUMMOW J:   That is Mr Hayward’s writing.

MR JACKSON:   Yes.  Then he had a meeting at which he asked various questions and which he sets out in a document.  I was going to go to Schedule 2, which your Honours will see at page 1766.  Your Honours will see in paragraph 2 of that document he lists how the:

Moneys is to be utilised . . . arranging for the Deposit Certificate to be provided to the Paying Agent, together with investment –

et cetera.  Then Schedule 3 is the “APPLICATION FOR SHARES”.  It is the next page.  Your Honours will see that in the second paragraph of the text of that it says:

I authorise you to produce a copy of this letter to Messrs Minter Ellison Morris Fletcher who are holding $500,000-00 (the Subscription Moneys) being payment in full for the above shares –

That seems to be copied on the next page.  It is not exactly the same.  I do not really know why, your Honours.  Schedule 4 is at page 1769 and your Honours will see in the first paragraph:

In accordance with the Subscription Agreement (‘Subscription Agreement’) dated 24^th Sept 1993 I irrevocably and unconditionally authorise you to disburse the moneys held to my account in accordance with clause 2 of the Subscription Agreement.

I acknowledge –

et cetera, in the next paragraph.  Now, your Honours will then see at page 1771 a confirmation of authority to act as agents.  I think I have taken your Honours to that. 

Your Honours, could I come, then, to what took place at completion.  What was actually received from the respondent is at pages 1773 and 1774.  Your Honours have seen those documents, already, the letter and the accompanying share certificate.  Now, your Honours, although the subscription agreement contemplated that the acquisition of the deposit certificate might take place before completion, all the events in fact occurred on the same day, although it is not possible to say they occurred entirely contemporaneously.  Your Honours will see in that regard, if I could go to volume 4 at page 989, a letter from Mr Senese, the managing director, to Mr Shaw of Minter Ellison.  It is dated the 24^th and he says:

we enclose the following documents to enable you to arrange for payment of monies to Dresdner –

which of course is to buy the deposit certificate:

two signed and sealed Subscription Agreements . . . bank cheque . . . confirmation to your firm . . . Disbursement Authority . . . to pay DIFMAL –

that is the Dresdner Bank –

moneys ($256,800.00) for certificate of deposit;

Your Honours will see a reference to a “Put Option Notice” in (e), and to an “Authorisation from Toledo Securities” in (g), and in (h) to an “Authorisation from Harper Bullion”.  Your Honours, it is difficult to explain precisely what these were.  They really do not affect it but the reality is there were assignments of rights, all sorts of things.  It does not affect the matter as between the parties and, your Honours, it is a collection of papers which seem designed to achieve some other end, but in the end I do not know that I can say more than (a) they appear to be, in the event, practically unintelligible and (b) do not seem to matter.

May I say, your Honours, that if your Honours want me to say more about them I would then request I be allowed to try to put that in writing because it is very difficult to explain what it is.  It recurs but the recurrence does not improve it.  At page 990, your Honours will see in letter (j) that the:

Payment to DIFMAL is to be by way of bank deposit today at Bank of New Zealand, 395 Collins Street, Melbourne ‑

and it shows the bank numbers.  The deposit certificate ‑ ‑ ‑

GUMMOW J:   What it does illustrate is that the solicitors were thoroughly enmeshed in these arrangements.

MR JACKSON:   Enmeshed, your Honour.  They had played a significant part in drawing the documents between the parties and were heavily involved in the amendments, and whilst they were ‑ if I could put it this way ‑ distanced from the deed poll that came a little later, they were perfectly aware of what was taking place with them.

GUMMOW J:   They had to mull over an authorisation from Harper Bullion Limited.  Another authorisation from Toledo Securities Limited.

MR JACKSON:   Yes.  Signed by the not appropriate name, Mr Knavish, or perhaps stamp would be a better description of it, your Honour.  Your Honours, I was going to go then to page 987.  This is the deposit certificate.  It appears in various places in the record but this is a copy of it.  Your Honours will see it is dated 24 September.  It is addressed to ECCCL and it says:

We confirm your deposit with us value 24 September 1993.

You will see the remainder of it.  Your Honours, it is not a bearer document.  It is simply a record of a deposit made by that company.

GLEESON CJ:   That is the security at page 987?

MR JACKSON:   Yes, in inverted commas, your Honour, yes.

McHUGH J:   So it is not transferable in the way that these deposits ordinarily are.

MR JACKSON:   No.  Your Honour, it is an just ‑ ‑ ‑

McHUGH J:   Yes, just an acknowledgement.

MR JACKSON:   It is a letter from a bank saying, “You have given us $256,000” or something of that order ‑ ‑ ‑

McHUGH J:   You can sue the bank on account stated.

MR JACKSON:   Yes.  Maybe you could not get it back without agreement with the bank before the maturity date, but it is not ‑ it is just the bank’s money.

GLEESON CJ:   Well, the word “repayment” is linked with your deposit:

At maturity we confirm repayment ‑

MR JACKSON:   Yes.

GLEESON CJ:   That must mean “At maturity we will pay EC Consolidated Capital Limited.”

MR JACKSON:   Yes, that is so.  Now, your Honours, the last thing I wanted to say in relation to ‑ I will come in a moment, your Honours, if I may to the difference between the deposit certificate and what the agreement contemplated.  May I just, before doing that, go to one further document relating to the completion.  That is at page 1001 in the same volume.  Now, your Honours will see that is from ECCCL to Minter Ellison saying how they authorise them “to disburse the moneys”; $256,000 to Dresdner, the balance for fees and the balance to the company.

Now, your Honours, if I could go back then to the certificate at page 987.  Your Honours, it simply confirms that ECCCL has a deposit with Dresdner.  It is not a bearer deposit certificate, and that was accepted at trial.  Your Honours will see that referred to in volume 8 ‑ ‑ ‑

KIRBY J:   That $21,641 seems a lot of fees for ‑ at least my present understanding of what Minter Ellison did.

MR JACKSON:   Not an insubstantial sum, your Honour, yes.  I am not sure that it does not relate to a period that is earlier.

GLEESON CJ:   Yes, we do not know what this is for.  It says, “outstanding legal fees”.

MR JACKSON:   I was going to say your Honours at page ‑ ‑ ‑

GUMMOW J:   There is something called a “settlement fee”.

MR JACKSON:   Yes.  Your Honours will see at page 1887 that the primary judge said, about line 30:

It is common ground now that this certificate did not answer the description of a “Bearer Certificate” . . . In particular it was addressed to ECCCL.

GLEESON CJ:   What is the significance of that word “now”?

MR JACKSON:   Your Honour, simply I think that it had been a matter, perhaps in debate at some earlier point.  It was not formally admitted on the pleadings and, in fact, we had put on expert evidence to the effect that it was not a bearer certificate.  That evidence, which was not challenged, appears in volume 7 at pages 1816 and following, and, your Honour, certainly during the trial the issue disappeared.

GLEESON CJ:   Where would we see, probably in that evidence, what exactly a bearer certificate of deposit would look like?

MR JACKSON:   There is a description of it, your Honour, at page 1816, first of all.

McHUGH J:   What page, Mr Jackson?

MR JACKSON:   In volume 7, your Honour, 1816.  Now, in paragraph 5 and earlier Mr Dickinson had referred to the actual documents and said:

I now examine whether they are bearer certificates of deposit.

6.  In my experience, the features of a negotiable certificate of deposit include the following –

He then listed them.

GUMMOW J:   The word “negotiable” is very important, it seems.

MR JACKSON:   Yes, and said in paragraph 7:

In no circumstances could a letter be classified as a certificate of deposit. 

Then he referred to the documents he had been provided with and expressed his views on them.

There is an example of an actual document in the same volume at page 1650.  Your Honours will see the word “Negotiable” has been overprinted by the stamp, I think, towards the top.

GUMMOW J:   Yes.

GLEESON CJ:   The key to it is that the bank agrees to pay the bearer the amount of money involved which could be very significant if the depositor is insolvent.

MR JACKSON:   Indeed, your Honour, and your Honour will have seen the provisions for redemption in this case where we, when the 10 years comes to an end, present the shares for redemption to the paying agent.  The paying agent has had during this time the certificate of deposit.  The paying agent goes along to the bank, or has gone along to the bank, got the money on the maturity of the certificate and has it there to pay us.

Your Honours, could I add one thing which does appear to be the subject, if I might say so, with respect, of some misapprehension in the courts below and it is this, your Honours.  Under the subscription agreement no money was to be held by the prime bank.  Rather, a part of the subscription moneys was to be expended in the purchase of the bearer deposit certificate.  The money expended in the purchase, of course, became the bank’s money.  There was not to be money held on deposit in that sense.  It would be immaterial whether the bank chose, for its own purposes, to treat that as a separate deposit or invest it however it liked.  But its obligation was simply to honour the bearer certificate on maturity and neither ECCCL nor an investor such as us would have an entitlement to the money paid over to obtain the document.

Your Honours, I mention that because one sees in the reasons for judgment in the Court of Appeal something saying, “Well, there was actually some money that was held there and Dresdner would not let the money go and therefore you are in just the same position until you sign the deed poll.”  But, your Honours, that is to convert, in a sense, what some events which happened into something that the agreement did not contemplate at all; something we did not even know about.

GLEESON CJ:   As I understand it, everything that you have been telling us so far is non-contentious and the decisions below went against you on the basis of what you have not yet come to and that is the events of 1994, is it?

MR JACKSON:   Essentially 1994, I think, your Honour, yes.  And, your Honour, I will come to that in just a moment if I may; there is one other aspect of which I want to deal first, and that is the respondent’s knowledge that the deposit certificate was not one that would comply with the agreement.  In that regard, could I take your Honours to a letter of 31 May 1993 from Mr Lewis to ECCCL, which appears in volume 4 at page 861.  This is May 1993, your Honours, and your Honours will see that Minter Ellison Morris Fletcher firm is writing, per Mr Lewis, to ECCCL and that what is said, amongst other things, at the top of the second page, is:

Earlier we expressed our concern in relation to the form of the certificate of deposit.  In particular the provisions relating to the terms of issue of the preference shares have been ignored in the form of the certificate of deposit which has been provided for the last two completions.

Exactly the same form as that in question here.

GLEESON CJ:   Perpetual Trustee was just an investor?

MR JACKSON:   Yes, same as us, your Honour.  In fact, the Perpetual company has put in most of the money in the end, acting for various superannuation funds and other funds.

In particular the provisions relating to the terms of the terms of issue of the preference shares have been ignored in the form of the certificate of deposit which has been provided for the last two completions.  The terms of issue of the preference shares, to the extent that they relate to the certificates of deposit, are as follows:

and then your Honours will see in paragraph (b):

Prior to completion EC is authorised under the Subscription Agreement to obtain the certificate of deposit (which is defined to be a bearer instrument).

Now, your Honours will then see, if I could go down to line 35:

Therefore the certificate of deposit must be in bearer form and be delivered to the Paying Agent at completion.  We again query why the current form of the certificate of deposit is in favour of EC.  In our opinion, unless the certificate of deposit is issued in bearer form this will constitute a breach of the Subscription Agreement.

And your Honours will see the remainder of that page and then at the top of the next page:

Finally new certificates of deposit concerning the first two completions should be obtained in bearer form and all further certificates of deposit should be issued in bearer form.

Your Honours will see a further reference in lines 10 to 12.  Now, your Honours, that letter needs to be looked at in the sense in the context of what had previously taken place.  At page 843, on 6 May, you will see at about line 35 there was:

a certificate of deposit dated 4 may 1993 by Dresdner

After reviewing the above documents Tony Senese indicated that they were in order and the documents were exchanged.

And then, at page 857 you will see a letter of 13 May between lines 30 and 35 saying:

we still have not received the original Certificate of Deposit which was intended to replace the letter from Dresdner that we received at settlement.

GLEESON CJ:   AMG is Mr Gaffney, I presume, and he is a solicitor of Minter Ellison?

MR JACKSON:   Yes, your Honour.  The partner responsible was Mr Lewis.  Mr Gaffney was an employed solicitor who reported to Mr Lewis.  At page 859 you will see a note saying:

any response to my letter regarding

(1) Certificate of Deposit –

and then at page 860 a fax, about line 29 to 31: 

what we received is as attached and dated 4-5-93; what we require is in the form attached dated 8-12-92.

Then two paragraphs further on:

Minters’ have not been able to complete the transaction since 4^th May ’93.  They will not submit the relevant material to the Paying Agent until they get the deposit confirmation in the required form.  Due to the long delays, Minters now are saying that they should tell Perpetual of their inability to complete.  This of course we just must avoid.

Then, your Honours, one comes to the letter of 31 May.  Now, your Honours, the knowledge one can see confirmed also at page 866 and 867.  Page 866 sends the Dresdner CD to Mr Lewis.  You will see the form of it on page 867.  Your Honours will see at page 870 it is then sent off to the National Registries, the paying agent.  Your Honours will see at page 877 an attempt to rescue the situation, where about lines 35 to 42:

between Ian Lewis and Tim Gatland –

Mr Gatland, another director of ECCCL –

Tim Gatland said that he would send to us a copy of the Irrevocable Direction which has been given by EC Consolidated Capital Ltd to Dresdner International Financial Markets (Australia) Limited concerning the certificates of deposit. 

That direction appears at page 925, I think, and your Honours will see it there.

Then finally, your Honours, there were other transactions, page 891, 22 June, and you will see Mr Gaffney’s letters at the bottom of the page, the matter number at the top of the page, and they follow into various documents being received and then the endeavour to obtain the certificate of deposit.  Then if I could just refer your Honours to page 893, the certificate, same form, 894 a similar thing and at page 928 it is plain that those documents were seen by Minter Ellison because they were sent off.

GLEESON CJ:   Is it your submission that by September 1993, which is when this transaction was entered into, Minter Ellison knew that they were not going to get a bearer certificate of deposit?

MR JACKSON:   Yes, your Honour.

GLEESON CJ:   Is there any evidence as to how it came about in the first place that the forms of certificate obtained from or issued by the bank took the form of the document at 987, as distinct from a bearer certificate of deposit?

MR JACKSON:   Your Honour, I think the answer is no.  One might make some surmises about it, but I think the answer, in terms of evidence, is no.  I will check that, your Honour.  I said Mr Lewis had given evidence in some earlier proceedings – a transcript of that evidence was admitted.  It commences at page 1471, in volume 6.  I want to give your Honours two references to it and if one looks at the bottom of page 1471, about line 50, the “letter of 31 May”, that I referred to earlier – which is the one they write to ECCCL saying the certificates of deposit are not right and you need to replace the two that have been given already.  That is the document, your Honours, that ‑ ‑ ‑

GUMMOW J:   Page 861? 

MR JACKSON:   Yes, your Honour, 861.  Mr Lewis was asked to look through that letter and then, if one comes to about line 12, he said it was correct to say it “contains within it the implied statement” the bearers’ certificates were not in proper form.  He agreed he was “aware of that” when he signed the letter, and, your Honours, it really goes through the whole of page 1472 to page 1473, and then to the top of page 1474.  That is the first reference.  At page 1495, in a short passage, lines 34 to 50, he agreed that about September 1992 he “became aware” that: 

the security on the proposal had now evolved from a guarantee supported by bearer securities, to use that generalised description, to the deposit certificate which is defined at 1201 –

and he understood that: 

a bearer certificate of deposit was a certificate of deposit negotiable by delivery. 

Now, your Honours, if I could pause at that point, the position which then obtained, in our submission, was that all the moneys had been paid over, knowing that it was a breach of trust so to do so.  None of the money should have been paid; all the money was lost.  Prima facie, in our submission, the appellant was entitled to have the defaulting trustee replace the lost moneys.  Could I give your Honours two references in that regard?  The first is Re Dawson [1966] 2 NSWLR 211, the decision of Justice Street at page 216. At about line 5, his Honour said:

The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. 

If I could pass down a little, to about line 19: 

but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it notwithstanding that market values may have increased in the meantime. 

GUMMOW J:   That assumes that the estate has some continuing life because it is not yet fully worked out, as it were.  There were life interests that remain in them and so on and so forth.  That is not this situation.  This situation is much simpler, it seems to me.  We will have to start by working out what the terms of this trust were.

MR JACKSON:   Yes.  Your Honour, the terms of the trust really are to be seen in – I am not suggesting that I am doing it exhaustively, but in the obligation undertaken under clause 2.1 of the agreement which means that one has to then go to the clause that it picks up, and in relation to clause 2.1 ‑ ‑ ‑

GUMMOW J:   If you ask yourself who owned the money at the relevant times, subject to powers to disburse it in variation directions, but who owned it, as the Chief Justice was asking a while ago?

MR JACKSON:   Your Honour, the money, in our submission, pretty plainly ‑ and I do not mean to say that without some reference to why I say it ‑ was money that was held by the solicitors on trust for us to be in the first place.  They had authority to disburse it but only in accordance with the terms of the agreement.  They had no further authority to disburse it so the money always remained our money.  They then, if they had not disbursed it improperly, would still be or should still be holding the money for us and then we would be entitled to have it paid and to recover from them if they declined to pay.  Your Honour, that is the simple situation, in our submission.

If I could take your Honours for just a moment to volume 7 please, to the terms of the subscription agreement.  At volume 7 at page 1769 you will see the first substantive paragraph is the authorisation by us to the solicitors saying we:

authorise you to disburse the moneys held to my account in accordance with clause 2 of the Subscription Agreement.

GUMMOW J:   That authorisation was not complied with.

MR JACKSON:   No, your Honour, and what I am saying though is that it picks up clause 2.  Clause 2 at page 1753 says specifically that the moneys are:

to be held in trust . . . in accordance with the provisions of this Agreement –

By the person identified as the “Company’s Solicitors”.

GLEESON CJ:   What is made plain by the document at page 1769 is that the moneys were held on trust for Youyang.

MR JACKSON:   Yes, your Honour.

GLEESON CJ:   And “the moneys held to my account”.

MR JACKSON:   Yes, your Honour, “on my account”.  So the money is held on trust for us, then money is paid out without authority and the ‑ ‑ ‑

GUMMOW J:   It is just as if I go along to my solicitors, I put the solicitors in funds to complete the purchase of Blackacre, there is authority to pay out Blackacre, the proceeds to the vendor – that does not happen, they are paid somewhere else – and I go back to the solicitor and say, “Where is my money?”

MR JACKSON:   That is right, your Honour.

GUMMOW J:   It is not a very sophisticated situation.  It is a horrifying one but it is not very sophisticated.

GLEESON CJ:   It is a case of solicitor acting for both parties.

MR JACKSON:   Your Honour, that is what happens.  Your Honours, we have given the references to which I wish to refer in our written submissions in paragraphs 44 to 50, but the case at this point has exactly the simplicity to which your Honours refer.

Could I turn then to the subsequent events because this is the aspect that appears to be relied upon.  After completion, all that we received was the letter and the share certificate to which I have taken your Honours already at page 1773.  After that we got statements of account at various intervals.  I will not take your Honours to all of them, may I give your Honours some of them:  volume 7 at page 1775.  It is covering the period 30 September 1993 a few days after we had paid in, it was very successful, $9,000 added.  You see on the next page unfortunately that did not last and one sees then the next one being at page 1778, in three months another $10,000.  Another example is page 1780.

GLEESON CJ:   This gets back to the point that I noticed earlier, that is, as it were, representing that the $500,000 is working for them. 

MR JACKSON:   Your Honour, I am not certain, with respect, that it is endeavouring to say that.  What it is saying is to reflect the definition of “Client Account Balance” at page 1750.  It is a notional account which is to reflect the initial credit of the $500,000 and then the additions or deductions.  So, your Honour, that is really why the $500,000 is there as the starting point of the notional balance.

Now, your Honours, could I come to the deed poll, the execution of which is said to be some type of intervening event by which they are relieved of liability and, your Honours, I need to go to volume 5 at page 1170.  In August 1994 the respondents wrote to ECCCL referring to a need for a:

proposed restructuring of the terms of the preference share issue –

So this is Minter Ellison Morris Fletcher writing to ECCCL.  They say:

We refer to our numerous letters over the past 6 months regarding the proposed restructuring . . . 

We have received no reply –

and then at page 1171 line 8:

As you are aware we have assisted in the settlement process for applications for preference shares in the company . . . we are concerned that the tax issues appear to be ignored –

and so on.  Your Honours, could I just pause to say at this time we knew nothing of the breach of trust.  In a sense, how could we?  We then see ‑ ‑ ‑

GUMMOW J:   What is this letter written – what is the retainer of Minters which produces this letter?

MR JACKSON:   Your Honour, there seems to be some concept of an ongoing retainer in which, if one goes back, for example, to ‑ ‑ ‑

GUMMOW J:   They seem to be badgering their client, but not as a client, as a participant in some way.

MR JACKSON:   Your Honour, there is a fair bit of that.  If I can just go back to 1131, for example, your Honours see ECCCL writing to Mr Lewis dealing with a proposed subscription agreement and your Honours will see the third paragraph:

The difficulty with current definition of ‘Prime Bank’ is that it locks ECCCL in at each settlement to purchase the Certificate of Deposit from Dresdner Bank –

et cetera.  They want more “flexibility” and then discussions proceed about that.  Your Honours see, for example, if I could note in passing at page 1138 one memorandum of fees, “taking instructions”, et cetera, “attending settlement” and so on.  There are proposals to amend the documents.

Now, your Honours, the next thing was that ECCCL consulted a different firm of solicitors whose name is Wantrup & Associates about approaching the existing shareholders.  Your Honours will see that at page 1172 and there is there set out a revised version of a notice to shareholders together with accompanying letters signed by the shareholders.

GLEESON CJ:   Did you say 1172?

MR JACKSON:   Page 1172, your Honour.  This is a letter from Vicki Dimitsis who is a solicitor ‑ director I think ‑ to Charles Wantrup setting out proposed matters to shareholders.  Now, the respondents, I might say, your Honours, knew that proposals were going to be put to shareholders and knew that the proposal was not to result in there being deposit certificates provided as required by the subscription agreement.  If I could go to 1179.  This is a letter to Mr Lewis from ECCCL:

We advise that currently ECCCL is in the process of completing and obtaining the necessary approvals from the preference shareholders for the purpose of withdrawing the deposit funds from Dresdner Australia Ltd and depositing those funds with an overseas prime rated bank.

And then you will see they refer further down:

we will proceed to make a formal funds withdrawal request from Dresdner Australia Ltd.

The structure and process that we have put in place does not require approval by the paying Agent nor does it require any amendments to be made to the Paying Agency agreement or other standard ECCCL documentation.

Now, your Honours, could I just pause to say there was absolutely nothing which would convey to us at this point that there are not in being the bearer deposit certificates.  We know nothing about moneys being held on deposit, pursuant to the certificates they in fact had.  We have had no ‑ ‑ ‑

HAYNE J:   It is not suggested, is it, that any of this correspondence is to be taken to have come to your notice, is it?

MR JACKSON:   No, your Honour.  The reason why I mention though for example page 1179 is that it really is not a case where you have the defaulting trustee having no knowledge of a subsequent event which is suggested in some way may have taken away our ability to recover against the defaulting trustee.  The defaulting trustee knew that there were proposals to remove the money that was there, have some other further unauthorised investment, and so one is simply in a situation where, if one is trying to say the chain of causation has been broken, there is a missing link.  In our submission that just could not be sustained.

Your Honours, the first involvement we have is to receive the document, which appears at page 1199.  Your Honours, it is a little difficult to read, but it is addressed to Mr Fowler, who was I think the secretary of Youyang.  It attaches a notice to shareholders “regarding the above” ‑ “the above” simply being deposit certificates ‑ “together with a Deed Poll for execution by the Shareholder”.  Now, the document following on the next two pages is impossible to read, but the same document appears at page 1202.  At page 1202 your Honours will see it is a notice to all preference shareholders.  It says in the first paragraph:

In accordance with the terms and conditions of the Subscription Agreement . . . the Company has procured the provision of Deposit Certificates for the benefit of all Preference Shareholders.

That is what it tells us.  It has got them.  Then it says:

All Deposit Certificates must in accordance with the Subscription Agreement be issued by the Prime Bank ‑

which it then sets out.  It says at line 25, so far Dresdner has issued them.  Then it says at line 31:

the Deposit Certificates are held by the Paying Agent . . . to be applied for the benefit of Preference Shareholders in accordance with the Paying Agency Agreement.

GUMMOW J:   Is the first sentence true?

MR JACKSON:   No, your Honour, it is not.

GLEESON CJ:   This seems to me to represent that all that is happening is that the deposit certificates issued by one Dresdner Bank company will become deposit certificates issued by another Dresdner Bank company.

MR JACKSON:   Yes, or perhaps to another – in the last paragraph, your Honour, on that page – “overseas Investment Grade Bank”.  Your Honours, if I could just say the first four paragraphs of the document under the heading “DEPOSIT CERTIFICATES” are untrue.  The first paragraph is untrue because the deposit certificates are not:

for the benefit of all Preference Shareholders.

Then, if one goes down to – and that charade continues until one gets to line 31 where it says:

The Deposit Certificates are held . . . in accordance with the Paying Agency Agreement.

The answer is, they are not.

GLEESON CJ:   Is there any suggestion that this document at page 1202 was seen by any lawyers?

MR JACKSON:   Yes, there is, your Honour.  That is a product of Mr Wantrup of Wantrup & Associates.  Your Honours will see at page 1204 a memorandum facsimile to them dealing with some of the terms of some impossible amendments to the deed poll which in effect goes with it.  Could I just also say, your Honours, if one looks through ‑ ‑ ‑

GLEESON CJ:   It seems to be, on the face of it – this may be quite unfair – an element of suppressio veri.

MR JACKSON:   Yes, your Honour, leading to a bit of suggestio falsi, too.

GUMMOW J:   This is a classic section 52 case, really.

MR JACKSON:   Yes, your Honour.  On page 1202 under the heading “TAX ON DEPOSITS” your Honours will see the way in which, for example, line 44 is put:

the current situation of Deposit Certificates being issued by DAL may give rise to potential withholding tax liability.

Then, your Honours, at the top of the next page, a reference to the:

very narrow definition of Prime Bank –

That is the first time, your Honours, one sees:

the ability to negotiate an optimum interest rate on the deposits –

Could I pause to say, your Honours, that much is made of the fact that we should have picked up that there were in fact deposits, we were letting the money out and letting the money go, but what your Honours will see is that if one looks at the whole of the document, it appears to be directed to obtaining substituted deposit certificates.  There is nothing to suggest that the existing documents do not comply or that the proposed documents do not comply.

The document refers, of course, to transfer of money, but there would have to be transfer of money if one were to get new certificates because if existing certificates were redeemed early, money would could from the redemption.  That money would then be used to buy new bearer certificates.  So, there being a reference to funds or to funds deposited really does not mean that one would see with crystal clarity, reading the document, that in fact some transaction other than that contemplated by the agreement was in ‑ ‑ ‑

McHUGH J:   Clause 6 makes it plain that all that is occurring is a substitution of one deposit certificate for another, it is a variation, but that this document “otherwise confirms the Subscription Agreement”.

MR JACKSON:   Your Honour is looking at  the deed poll?

McHUGH J:   Yes, I am looking at the deed poll.

MR JACKSON:   Yes.  Your Honour, could I just say – I was just going to come to the deed poll in a moment, your Honour – we received a letter referring to a further amendment which your Honours will see at page 1212.  Then, your Honours, the deed poll was executed and the deed poll which we executed is at page 1213.  Your Honours will see the solicitors name up at the top of the document.  The deed poll says in recital B, we have:

signed a Subscription Agreement –

It then says:

The Company has deposited with Dresdner Australia Limited (“DAL”) subscription moneys paid to the Company by the Shareholder.

Which, in a loose sense, no doubt, is true.  One then sees, as your Honour said, in paragraph 6, that we agree:

that the Company may substitute a Deposit Certificate . . . which as to maturity date and maturity sum is identical to the –

the existing one and that such substitution should:

constitute a variation . . . and that it otherwise confirms the Subscription Agreement.

HAYNE J:   This set of documents is said to have some significance in connection with issues of causation.  Is any other legal significance attributed to these documents under some other head or rubric?

MR JACKSON:   Well, your Honour, could I say, in relation to the Court of Appeal, this is referred to, perhaps not intending to use the word in a technical sense, of being a release.  It is referred to also, your Honour, as being, it is to be said, in one sense, also by our learned friends, perfectly accurately, that the company ECCCL is not a party to the deed poll.  The deed poll is not a contract.  What it leaves aside, of course, is that the execution of the deed poll was at the request of ECCCL.

GLEESON CJ:   But at the risk of oversimplifying something, the essence of your complaint, as I understand it, is that this was intended to be a secured transaction in which there was security for the redemption moneys payable on redemption of the shares, and what occurred meant that there was no security.  Now, there is nothing in this document, or in the correspondence accompanying this document, that refers, as I understand it, to the absence of security.

MR JACKSON:   Not a thing, your Honour, and your Honour the whole document is put to us for signature on the basis that we are changing banks.  I was putting it shortly and slightly incorrectly.

GLEESON CJ:   But not that you are changing a secured transaction for an unsecured transaction.

MR JACKSON:   Indeed not, your Honour, indeed.  Your Honour, to say that we could have executed ‑ ‑ ‑

GUMMOW J:   Or disclosing that you do not already have a secured transaction.

MR JACKSON:   Indeed, your Honour.

HAYNE J:   Which invites attention to what legal rubric your opponent seeks to put this set of events relating to the deed poll under.

MR JACKSON:   Your Honour, could I say, one can only gather that from, in a sense, the respondent’s written submissions and if one goes to page 8 in paragraph 17 it said:

The effect of the Deed Poll was summarised by Handley JA as follows:

“This in terms instructed ECCCL to withdraw the funds deposited with Dresdner and deposit them with another prime bank.  It also requested and authorised Dresdner to release the funds to ECCCL without being in any way responsible for their application.

The deed poll was not executed by ECCCL and did not bind it to invest the funds in a bearer deposit certificate to be left with National Registries.

GUMMOW J:   The question is what is mean by “the funds deposited with Dresdner”.

MR JACKSON:   Well, indeed, your Honour, but may I say, with respect, that it is an entirely simplistic view to say that there was no legal obligation on ECCCL to deal with the funds properly.  They requested us to execute the deed poll on the basis that we would be provided with a document to the same effect as that provided for by the agreement to which we are a party.

HAYNE J:   The question of dealing with funds, after all, obscures the fundamental difficulty to which you point, that a negotiable asset should have been acquired; not simply funds deposited.

MR JACKSON:   Yes, your Honour.

McHUGH J:   And when you are looking at the voluntary act of a person as constituting an act that breaks the chain of causation in some way, then it is necessary to know, what is the voluntary act to which that person is consenting or agreeing to.

MR JACKSON:   Well, your Honour, a starting point really is to say, “What is that person’s state of knowledge?”  If there has been a situation where that person has never been informed of the existence of a breach of trust, then it is very difficult, in our submission, to say that person should somehow have appreciated that there was a breach of trust involved, which was being – I use the expression loosely – waived, or the rights in relation to it were being abandoned. 

GUMMOW J:   It is treated in some way in the Court of Appeal as if it is a breach of contract case with these questions of remoteness and loss and damage, and so on. 

McHUGH J:   Even if it was a breach of contract, the Court of Appeal said the loss would have occurred anyway even if the right form of deposit certificate had been obtained.  Well, that really throws up a huge number of questions as to what would have happened to these moneys if the right form of certificate of deposit had been obtained in the first place. 

MR JACKSON:   Well, if the right form had been obtained, then the situation which would have obtained would be, at least, we would have had the $500,000 to start with, and the second ‑ ‑ ‑

HAYNE J:    It would be an asset that would not be an asset of the company in the liquidation. 

MR JACKSON:   Indeed. 

HAYNE J:   It would be an asset of yours, held by the paying agent for you. 

MR JACKSON:   Indeed, your Honour, and the second thing is that the view taken by the Court of Appeal in that regard seems to assume that if the remainder of the money had been paid over in circumstances where there was the advantage of the bearer certificate, then the company, or those controlling the company, would still have had the same incentive to levant, as it were, with the money. 

GLEESON CJ:   But it also seems to assume that if the information had been provided by the lawyers to the party for whom they were holding money on trust, the information would have been provided unaccompanied by any legal advice. 

MR JACKSON:   Indeed, your Honour.  I accept that.  Could I say that, if one goes to page 1215, one sees a letter of 1 September 1994 from the respondents to Mr Senese, referring to the proposal, the proposal that was the subject of the deed poll.  The deed poll is referred to in the last paragraph of the letter, on the next page.  I mention that in relation to the question of the awareness of the respondent, in relation to what took place with the deed poll. 

Now, very considerable reliance is placed by our learned friends upon the cross‑examination of Mr Hayward, which commences at page 35.  Your Honours, I need to go to that.  I will do so as quickly as I can, but I need to go to it in a little detail.  May I say three things about it before going to it.  The first is that at the time he executed the deed poll there was absolutely nothing to suggest to Mr Hayward that there was not in existence a bearer deposit certificate in accordance with the subscription agreement in relation to his application for preference shares.  The second is that one sees references in the cross‑examination to the deposit moneys – skilfully put, if I may say so, with great respect – but the references are inherently ambiguous because, as I submitted earlier, to cancel the deposit certificate with one bank will result in a payment of money in return, which he used to buy another one. 

The third point, your Honours, is that although the document executed by us was a deed poll, it was executed, as I submitted earlier, in pursuance of a request to vary an agreement.  Could I go then to the evidence at page 37.  At about line 44, in a passage which goes through to the top of the next page, Mr Hayward agreed that until a late point he thought that ECCCL was okay.  Your Honours will see about line 10 on page 38 he: 

first heard of ECCCL’s liquidation in July 1997 –

although it appears, from other evidence, that he heard on 2 May, I think it was.  May 1997, he got a letter saying they were in deep trouble, and the provisional liquidator, shortly afterwards, on 28 May.  That is on the same page. 

Your Honours, at page 45 at about line 46, he was asked:

if at any time during this investment you had doubts about the safety of your deposit moneys –

and your Honours will see the words inserted there –

or the integrity of the whole investment, you would have applied for the redemption of your investment?

He said:

I believe I would have.

Your Honours, this, of course, is really highly hypothetical material at the point at which he is asked.  Then at page 46 in a long passage commencing at line 12 and going through to page 47, line 12, he agreed with propositions that were put to him that an important point of the arrangement was the bearer deposit certificate and the fact that it would not be available to ECCCL.  Could I refer also to the emphasis on the same aspect at page 47, lines 16 to 36.  Your Honours will then see at line 38 on the same page, one sees again the reference to money:

Q.       So that by insisting that the deposit certificates be marked to bearer and lodged with National Registries, that ensured that ECCCL would not have access to or control over the money, in your mind?

He said:

I believe so.

One sees again on the next question or reference to “your deposit money”, and he said:

A.       What would have guaranteed me the return of my deposit money would have been my possession of the deposit certificate.

Q.       And that would have worked only if it was payable to bearer?
A.       Indeed.

Your Honours, that passage really goes through page 48 and then to about line 57 on page 49.  Then, your Honours, coming to the deed poll at page 50 at about line 10:

Q.       You noticed, did you, you were being told by ECCCL that there was a potential withholding tax liability?
A.       Yes.

Q.       And for that reason they wanted to rearrange the way that the money was held?
A.       Yes.

Q.       The deposit money, that is?
A.       Yes.

GUMMOW J:   What is all this designed to do, taking this man through his document, saying what, uninstructed, he thinks it means?

MR JACKSON:   Well, your Honour, what it seemed to be designed to do was, as it appeared to do, in fact, successfully, to get the adoption of a view that by executing the deed poll, he had broken the chain of causation and had somehow given away any right he had in relation to the trustee.

GLEESON CJ:   Really, it comes to a point on page 51, lines 5 to 10 and lines 35 to 45.

MR JACKSON:   Yes, your Honour, yes.  It is a passage where what he said ‑ it is really a passage that goes from line 5 on page 51 through to about line 43 on page 53.  He agrees that by executing the deed poll a situation would arise whereby ECCCL would get some money and there was no one who was supervising ECCCL to make sure what it did with the money.  Your Honours, that is what he said.

GUMMOW J:   But it was not put to him, “Now, look here, do you realise there was this breach of trust that had happened, that you have these rights?”

MR JACKSON:   No, no, your Honour, not a word about that.

GLEESON CJ:   But the cross‑examiner is attempting ‑ and perhaps succeeding, that is another point – but attempting to get from him, as I understand it, the concession that he was content to proceed with an unsecured arrangement.

MR JACKSON:   Indeed, your Honour.  That is one aspect of it.  It really seems to combine two things, if I could put it this way.  One is to suggest that he was happy to proceed with something that did not involve having the bearer certificate.  The other is that he had himself assisted in creating a situation where the money could be lost by allowing it into ECCCL’s hands, albeit in his view, for a brief time and only for the purpose of giving a new bearer certificate.

Your Honour, the last thing really comes to page 53, between lines 40 and 45:

Q.  So that ECCCL for some period of time would have the money itself?

He said “Yes”.  Then one comes to the passage immediately following that, page 53, line 45, to the bottom of the page where the assumption, incorrect, in our submission, is put to him that there was no “contractual obligation”.  That passage goes right through, in effect, page ‑ ‑ ‑

GLEESON CJ:   Was it put to him directly that after the expiration of whatever period of time was being referred to on page 53, line 44, the transaction would then be unsecured?

MR JACKSON:   No.

McHUGH J:   You maintained the opposite, in effect, did you not, at page 53 at line 26 and earlier at 52?

MR JACKSON:   Yes.  Your Honour will see for example at page 54, lines 13 to 20.

GUMMOW J:   What page, Mr Jackson?

MR JACKSON:   Page 54, lines 13 to 20, your Honour:

It certainly would have bothered me if ECCCL had not reinvested that proportion of the money to secure an equally water tight deposit certificate.

Your Honours, one sees then at page 56, commencing at line 5, the passage that goes through to about page 57, line 5.  Thereafter, the cross‑examination is essentially concerned with what took place after May 1997 ‑ ‑ ‑

GUMMOW J:   The question on page 56, line 28, is not accurate:

Q.  I think we had reached this position that after you had executed the deed poll you assumed that ECCCL would get a new deposit certificate –

What the witness had said was “a bearer deposit certificate”, page 53, line 28.

MR JACKSON:   Yes, your Honour.  The cross‑examination returns to deed poll – I am sorry, I thought your Honour said something.

GLEESON CJ:   The question was, get a new “deposit certificate which conformed with the subscription agreement”.

MR JACKSON:   Yes, which was a bearer deposit certificate.

The cross‑examination deals with the events of May 1997 – I will not deal with those, your Honours will see the Court of Appeal did not rely on them except in a minor respect to which I will come in a moment.  What happened in May 1997 – 2 May, a letter saying the company is deep trouble, “We do not have the right documents and we have lost a lot of money with the Thai Bank of Commerce”.  Then shortly afterwards the company goes into liquidation.

Then one sees, your Honours, at page 68, the passage which starts at line 1 and goes through to about line 40.  Then, your Honours, one sees at line 41:

Q.  The fact is if Minter Ellison had told you in late September 1993 that your deposit moneys were with Dresdner on terms that they would yield $500,000 in September 2003, but that the deposit was . . . that would have made no difference to your willingness to invest, would it?
A.  It would have.

Your Honours will see that goes on to about line ‑ ‑ ‑

GLEESON CJ:   Once again ‑ I do not wish to harp on this ‑ but there is Minter Ellison, the lawyers, conveying information without any legal advice.

MR JACKSON:   Indeed, your Honour.  Your Honour, they were people whom he had retained for that purpose and then without telling him anything he could do, what his rights were at all.  Your Honours, the passage goes on to about line 27 on page 69.

Now, your Honours, the findings made by the primary judge in relation to this issue appear at page 1889 in volume 8, paragraph 24.  Your Honours will see that what was mounted was an attack on his evidence that he relied on the defendants and if he had at any time known that the deposit certificate was not a bearer certificate he would have sort to redeem his shares in ECCCL.  Your Honours, this is what the judge then says:

Virtually the whole of Mr Hayward’s evidence in chief consisted of two written statements ‑

which were, to put it shortly, to that effect.  Then he goes on to say at about line 24:

In cross‑examination, Mr Hayward was taken in detail through these various events, leaving him plainly discomforted and, I regret to say, unconvincing, so that I am obliged to say that I do not feel able to accept his evidence as to his state of mind.

Well, your Honours, perhaps he must have produced a different impression to see ‑

He was no doubt in a difficult situation, years after the relevant events, having to explain his state of mind from time to time ‑

when, your Honours, presumably he had no relevant state of mind at some of the times ‑

and in relation to a complicated transaction, but in the end, I conclude that his evidence is not reliable.  In particular, I am not satisfied that, if Mr Hayward or the plaintiff had learned that the Deposit Certificate obtained did not correspond with the description ‑

he would have sought to redeem the shares.  Now, your Honours, if one puts that with ‑ ‑ ‑

GLEESON CJ:   Did his Honour say what he was satisfied of?

MR JACKSON:   No, your Honour, he did not.

GLEESON CJ:   I, at the moment, do not understand what Mr Hayward’s state of mind has to do with anything; there was trust and a breach of trust.

MR JACKSON:   And the money is lost.  Sorry, your Honour, there is trust, breach of trust, no communication of the fact of the breach of trust and the money is lost.

KIRBY J:   Do you challenge his Honour’s findings and conclusions there or do you seek to outflank them?

MR JACKSON:   Well, I do both, your Honour.  But what we say is that if one looked at the whole of the evidence, it is very difficult to see from what his Honour could have gained that impression.  Certainly he was entitled, in a sense, to say that he was not satisfied that if he had found out at some point that the deposit certificate did not correspond with the description that we might not have sought to redeem.  It would depend, because would be one of the things that had been said by him in relation to the position that had obtained at the end of the matter.  Your Honours will see that ‑ ‑ ‑

KIRBY J:   I am just thinking of how you overcome what would appear to be, at least in part, an impression based on the appearance of the witness and the traditional orthodox approach.  Do you say that when one reads all the objective evidence at the time that there is a compelling conclusion to the contrary?

MR JACKSON:   Well, we would submit so, your Honour.  Your Honour has seen what the evidence was.  Now, the judge is perfectly entitled to say – he said this in his written statement and what he said specifically was what appears at the top of page 1890.  He is entitled to say, “I am not satisfied that he was right in saying that”, but, your Honours, that does not alter the situation to one where one adopts the view that a course would have been taken which somehow took away the consequence of the breach of trust.

GLEESON CJ:   But this was a case about causation, and what caused the loss was the absence of security.

MR JACKSON:   Indeed, your Honour.  What caused the loss was really two things in a sense:  one was absence of security; the other was the reflection of that completing the transaction when the security was not provided.

GLEESON CJ:   But would the case have been different if, instead of a bearer’s certificate of deposit with a face value of $500,000 being the suggested security for the repayment of money on redemption, there had been intended to be a first mortgage over real estate owned by Mr Senese, which, at all material times, was worth more than $500,000? 

MR JACKSON:   No, it would not, your Honour, it would not.  The only point I was seeking to make in saying what I said a moment ago was that we were to obtain, really, the two things.  I am sorry, I am putting it badly.  The solicitors’ obligation – and the two breaches are admitted, with the two things.  One was not to let the money out to get something that they knew would not be a proper certificate.  The other was not to give over the balance of the money when there was not a proper certificate.  So, but for the breaches, the money would not be gone at all. 

GLEESON CJ:   Now, in the example I gave you, if, a year after the transaction, with full knowledge of the relevant facts and circumstances, Youyang had agreed to give a discharge of the first mortgage over the real estate, then that would make a difference. 

MR JACKSON:   Quite, your Honour, yes.  But nothing like that ever happened.  Your Honours, could I then go, in relation to this subject, to our written submissions, for a moment and, in particular, to paragraphs 61 to 64 ‑ ‑ ‑

HAYNE J:   Well, seeing the subject matter to which you are about to take us, can I just divert you a moment before you do, Mr Jackson, and take you to the defence, at page 18 – which may or may not have been a useful place to start in this litigation – I do not know how it was conducted.  Paragraph 5, which is in “answer to the whole of the Summons”, in answer to all the claims, there is a denial of causation.  Paragraph 6, under which particulars are given, including particulars of the circumstances relating to the deed poll, are said to be in: 

answer to the claim for loss of –

“loss or”, presumably,

loss of damage alleged in the Summons –

perhaps related only to the Fair Trading Act claim.  5 does, 6 may or may not – let us not stay on the pleading point – are pleaded, are they, as answers to an allegation of breach of trust, admitted at trial, the breach of trust constituted by failure to obtain a negotiable asset in the form of bearer’s certificate? 

MR JACKSON:   Yes, your Honour.  Now, if one looks at them, your Honour, one sees that ‑ ‑ ‑

GUMMOW J:   Well, and as a result thereof complete misapplication of the moneys ‑ ‑ ‑

MR JACKSON:   Complete misapplication.

GUMMOW J:   ‑ ‑ ‑ because the balance was to be applied only if the first half had been properly applied.

MR JACKSON:   Yes.

GUMMOW J:   The balance is what is left after a proper application of the first ‑ ‑ ‑

MR JACKSON:   Your Honours, a meter of the merit or perhaps optimism of them can be seen from paragraph 6(i), where it is said that the:

loss or damage . . . was caused, or materially contributed to, by . . . The failure by the plaintiff ‑

speaking in a context of people who are acting as trustees and solicitors ‑

at any time to make any enquiries concerning, or to satisfy itself about, the existence, terms or security, of the Certificates of Deposit ‑ ‑ ‑

HAYNE J:   And perhaps by the time of the events referred to in 6(iv) your opponent was no longer your solicitor but “The failure . . . to seek to obtain legal advice” was something that rather struck me on reading it.

MR JACKSON:   Yes.  Your Honours, I was going to go to paragraphs 61 to 64 of our written submissions.  Your Honours, our submission is that prima facie the trustee was liable to place the trust funds in the same position they would have been in if no breach had been committed and that the well‑known statements of the common law principles governing causation and remoteness do not apply.  Could I refer particularly, your Honours, to two of those cases.  One is Magnus v Queensland National Bank (1888) 37 Ch D 466.

Now, your Honours will see at page 471 Lord Halsbury, sitting in the Court of Appeal, saying, about six or eight lines from the bottom of page 471:

Now it is not denied that upon general principles, the bank were under an obligation, having received the stock from the three, to restore it to the three upon the repayment of the money which they had advanced.

The stock actually was given to one.  Needless to say it was lost.

The doubts that I entertained in the course of the argument were, whether it could properly be alleged that the loss which is complained of, and against which relief is sought in these proceedings, was consequent upon the breach of duty by the bank.

Now, your Honours, I will not read out the passage but the passage goes through to about a bit between a third and a halfway down the page and then the issue is more graphically put by Lord Justice Bowen at page 479 about six lines from the bottom of the page:

Now, as soon as the conclusion is arrived at that Goldsmid had no authority to receive the purchase‑money, it seems to me that the conclusion of the learned Judge in the Court below follows.

Now, your Honours will see the passage that then goes on the remainder of that page through page 480.  Nothing has changed in that part of London.  So your Honours will see that is no doubt put with a degree of enthusiasm as an example, but, your Honours, that, in our submission, sets out the correct principle and in a passage ‑ ‑ ‑

GUMMOW J:   Well, it is the first sentence at the top of 480 that seems to me the point.

HAYNE J:  

ocular illusion ‑ ‑ ‑

GUMMOW J:   No:

loss occurred as soon as the money which belonged to the trust was diverted  ‑ ‑ ‑

MR JACKSON:   Yes:

diverted into the hands of a person who had no right to represent the trust.

Your Honours, the issue there set out can be seen referred to also in Re Dawson [1966] 2NSWR 211 at 214. In a passage at the bottom of 214, about line 50, going over to page 215, his Honour says:

The obligation of a defaulting trustee is essentially one of effecting a restitution to the estate.  The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage.

He refers to Caffrey v Darby where it is said:

The Master of the Rolls, in stating his reasons, asked “will they be relieved from that by the circumstances that the loss has ultimately happened by something that is not a direct and immediate consequence of their negligence?”  His answer to this question was –

and your Honours will see the passage going through to about line 8 on page 215.  That is a passage that your Honour Justice McHugh quoted, I think, also in Bennett v The Minister which is referred to in our written submissions at paragraph 63.

Your Honours, that statement has been cited, as we submit in paragraph 62, on a number of occasions.  Your Honours, one of the references there is to the wrong page number.  It is the second line, the Supreme Court of Canada in Guerin v The Queen   It should be at 360 to 361.

McHUGH J:   The judgment of the majority in the Court of Appeal, and perhaps even all members, seems to have proceeded on the basis that the loss in this case was suffered when ECCCL lost the money in overseas investment or at some stage subsequent to your investment but ‑ ‑ ‑

MR JACKSON:   Yes, your Honour.

McHUGH J:   If it be true that your loss occurred the moment the money was wrongly paid, then it is difficult to see how that loss is changed in any way by what happens at some later stage.

MR JACKSON:   Indeed, your Honour.  Could I just say, in relation to it, it is right to say that the money, in the abstract, was lost because of what was done by those controlling ECCCL.  That is putting it in the abstract.  That is saying where what was our money ultimately went but ‑ ‑ ‑

GUMMOW J:   But it is not an action to recover the money.

MR JACKSON:   No, I know.

GLEESON CJ:   It is like saying the money was lost because of what happened at the Thai Bank.

MR JACKSON:   Indeed, your Honour.

GLEESON CJ:   The money was lost because a transaction that should have been secured was unsecured.  What your client bargained for and did not get was security.

MR JACKSON:   Your Honour, the loss of the money, so far as we are concerned, occurred when it was paid over on 24 September.  Could I just refer your Honours to what we have said in our submissions in reply in paragraph 10.  The primary judge found, correctly – and your Honours will see this in volume 8, page 1891 – that we sustained the loss on 24 September 1993 when no bearer certificate was produced.  But that being so, it is very difficult to see why, in our submission, there was not a finding in our favour in respect of the whole of the money by the primary judge.

GLEESON CJ:   Is that a convenient time, Mr Jackson?

MR JACKSON:   Yes, your Honour.

GLEESON CJ:   How long do you expect to be?

MR JACKSON:   Twenty minutes to half an hour, perhaps, your Honour.

GLEESON CJ:   How long do you think you will be, Mr Bathurst?

MR BATHURST:   An hour to an hour and a half, your Honour.

GLEESON CJ:   We will resume at 2.00 pm.

AT 12.46 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.01 PM:

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Thank you, your Honours.  Your Honours, could I give two further references in relation to the affect of intervening events on the question of causation.  One is this Court’s decision in Maguire v Makaronis (1997) 188 CLR 449 and if I could refer your Honours to the bottom of page 469 where, having referred to Target Holdings v Redferns, four members of the Court said:

His Lordship continued with reference to decisions of Lord Eldon in Caffrey v Darby, Lord Cottenham in Clough v Bond, Street J in Re Dawson (deceased) and Brightman LJ in Bartlett v Barclays Trust Co:

“If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed . . . Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such would not have occurred.”

Then your Honours will see the next sentence:

no translation into . . . the doctrine of novus actus interveniens.

And may I say, your Honours, I refer also to the next sentence:

Until restitution is made, it is presumed that the default continues.

And, your Honours, that is specifically referred to by Lord Justice Brightman, as he then was, in Bartlett v Barclays Trust Co.

Your Honours, in McCann v Switzerland Insurance (2000) 203 CLR 579, at page 588, paragraph 19, one sees ‑ in reference of course to the facts of that case, but in paragraph 19 it said:

A negative answer to that question does not follow from the circumstance that there were also dishonest or fraudulent acts of third parties which resulted in the disappearance of the funds after they left Mr Powles’ bank account.  The money was not lost to the Trust because it was embezzled by some fraudulent employee of Mr Powles’ bank.  The misapplication of the money by Mr Powles placed it at risk.  His fiduciary obligation was to deal with the money in the interest of his client, disregarding his own conflicting interests.

And so on.  What was said, your Honour, is the next sentence – of course the facts are different:

Execution of that duty required –

and we would say mutatis mutandis here –

keeping the money under his control until his client obtained the security in which it was investing.  There was a direct causal connection between his dishonest and fraudulent breach of that obligation and the liability of Allens to the Nauru Trust.

Your Honours, at page 597 in paragraph 64 your Honour Justice Kirby referred to Maguire v Makaronis, footnote (43), with apparent approval. Then at page 621 in paragraph 135 your Honour Justice Hayne referred to:

the policy of the law in holding fiduciaries to their duty”.  Regardless of whether the immediate cause of loss is the dishonesty or fraud of a third party, a fiduciary is bound to make good the loss to the trust estate –

et cetera.  I will not read out the remainder of the paragraph but your Honours will see it there.

Your Honours, could I then move, and I do so very briefly, to the events of 1997.  Nothing further happened, in effect, until 1997.  The statements of income continued to come, whether they were the result of someone’s capacities of fiction or not, one does not know, but in early May 1997 things changed.  There was a fax of 2 May 1997, which is in volume 6 at page 1391, when the Australian Securities Commission had been in action and your Honours will see the first paragraph of that letter:

the Company has for some time maintained redemption securities that are not in accordance with the Subscription Agreement.

Your Honours will see in the last paragraph on that page they:

disposed of all of the Deposit Certificates issued by the Prime Banks and has replaced them with Promissory Notes backed by a mortgage pool of assets.  The Notes were issued by Menota Investments Limited . . . an offshore finance company.  The Notes are a Mortgage Pool issue of Non-Negotiable Promissory Notes and are all dated 22^nd April 1997 –

What they are is then discussed through page 1392, including the observations in the penultimate paragraph on that page, they were planned to become part of a “securitization structure” to enhance the notes and to make the notes investment grade rateable.

At page 1393, about line 35, after discussions with the Securities Commission, they are to be replaced with deposit certificates issued by a prime bank in accordance with the security subscription agreement.

McHUGH J:   Your client was cross‑examined about this document and those events.  Were any adverse findings made against him in respect of that?

MR JACKSON:   Well, your Honour, the only thing that seems to have happened in relation to it is that one sees Justice Handley saying in volume 8, page 1922 ‑ can I just give your Honours the times involved.  This is 2 May the letter is dated.  There is another letter which comes on – I mean, that fax concluded, your Honours will see, at page 1394 about:

awaiting further advice and we will report back to you as soon as this is to hand.

Because in the part I have not referred you to, it deals with the problem with the Bangkok Bank of Commerce public liability limited bonds and the unpleasant result that had happened from investment in those.

Your Honours, in addition, there was then a second letter and the second letter was one dated 7 May.  It is at 1396.  They are:

awaiting legal advice.

Then:

We will be writing to you shortly as soon as we receive legal advice.

But that is dated 7 May.  The next thing is the provisional liquidator is appointed on 28 May and the whole pack of cards just falls in.  So, your Honour, one sees then, if I could go back to what your Honour asked me at page 1922 of volume 8, paragraph 12 of his Honour’s reasons, he says in the last three lines:

The plaintiff made no attempt to “redeem” in this or in any other way in 1993 –

which was the year he got into it –

1994 –

which was the year of the deed poll –

or 1997 although it was not aware of the facts in 1993 –

nor, we would add, in 1994 –

and by 1997 it would be too late.

Now, your Honours, that is in effect all there is.  One could hardly say there was anything wrong with not attempting to redeem when you are told that the instrument is offshore, it is being replaced by something that is decent and then they have suffered a heavy loss.

McHUGH J:   It is not really a causation point at all, is it, the way the Court of Appeal has looked at it, although they have used the words “causal connection”?  Rather, they seem to be saying that your position is the same as if you had been told two days after the payment of what had happened and you had said, “Well, it does not matter”.  That seems to be the way they have approached it, really.

MR JACKSON:   Your Honour, it is very difficult to see, with respect, if I may say so, with respect, to the concurring judge, as it were, in the majority in the Court of Appeal.  It is very difficult, with respect, to identify precisely what is the basis on which we failed, in terms of identifying a legal basis for it.  One thing that Justice Handley says, for example, at paragraph 18 at page 1924 – he says the loss was caused by execution of the deed poll because in the period prior to that “The funds remained intact and safe”. 

McHUGH J:   Yes.

MR JACKSON:   Justice Young, on the other hand, at paragraph 89 at page 1941 seems to have treated the deed poll as being some kind of release.  Now, your Honours, in our submission, both those views are erroneous.  The arrangement was not to have a sum of money; it was to have the security.  An immediate difference with it is that if one had just a sum of money, it was a sum of money with which ECCCL could deal, as, for example, by creating interest in it, which is a quite different proposition.

How it could be said, your Honours, that because the other Dresdner Bank, for its own reasons, was not keen to give up the money that it had until all the preferential shareholders agreed, that somehow we are responsible for it in circumstances where the truth was never conveyed to us is difficult, with respect, to see.  Your Honours, instead, we have ended up with a situation where, at that point, to the respondent’s knowledge, the effects of the breach of trust were to be continued.

Your Honours, may I just say something about the question of burden of proof.  The respondents’ argument appears to be, in essence, that we have failed to prove that we would not have gone ahead with the original transaction if we had known that there would be no bearer certificates.  It was the respondents who were seeking to demonstrate that we would have entered the transaction in any event – seeking to demonstrate that to show that the ordinary consequences of breach of trust should not follow. 

We would submit that the observations which Justice Hodgson made in volume 8 at page 1929, paragraphs 36 and 37, are apposite in this regard.  He said, at the bottom of page 1929 paragraph 36 and the top of the next page, that he disagreed with the view to which he there refers, and says: 

There is in my opinion a world of difference between, on the one hand, an investor seeking to reverse an investment that has already been made because of a matter of the form of a certificate considered in isolation and, on the other hand, a proposed investor instructing a trustee to go ahead and make an investment notwithstanding that the party to whom the money is to be entrusted is deliberately breaching its contract –

When one comes to paragraph 37, commencing at about line 24, we would submit his Honour is perfectly correct in saying that: 

if a trustee wishes to assert that a breach of trust caused no damage for the reason that the beneficiary would, if asked, have authorised the very action . . . there is at least an evidentiary onus on the trustee to make good that proposition.  The question of authorisation is only hypothetical because of the trustee’s omission to seek authorisation; and it would in my opinion be plainly unjust –

to say this is something that the beneficiary has to, in effect, put down in the first place. 

McHUGH J:   This seems to be the theory of the majority judgment, is it not, that somehow you would have given consent, if you had been asked?  That is what is seems to come down to. 

MR JACKSON:   Yes. 

HAYNE J:   But that seems also to treat the investment as synonymous with the particular relationship that is said to have existed between your client and the firm. 

MR JACKSON:   Yes, your Honour. 

GUMMOW J:   You are not suing ECCCL.

MR JACKSON:   No, we are not, your Honour, and that ‑ ‑ ‑

HAYNE J:   And for all it is known, Mr Hayward may have been equally willing to put the whole of the money on Hayburner in the third.  But the relevance of that is not evident. 

MR JACKSON:   Your Honour, that is our submission.  This is a case against our trustee and the people who had $500,000 of ours, which they had undertaken to deal with in a particular way, and they gave it away. 

GLEESON CJ:   What do you say about the reasoning in paragraph 29 on page 1928, Justice Hodgson?

MR JACKSON:   Well, your Honour, the position was this, that the fact of the matter was that all Dresdner had given was not a security.  It had just given a record of the fact that money was deposited with it.  Now, it made an agreement with ECCCL that it would pay and the money that, by the terms of that agreement, was money payable to ECCCL on a certain day, a certain sum.

GLEESON CJ:   Justice Hodgson says, rightly or wrongly, the appellant suffered no compensable loss from the first breach of trust because the Dresdner Bank:

refused to pay over money evidenced by the ECCCL certificate without the consent of the appellant.

In other words, he says, if it had not been for the deed poll and the events surrounding the deed poll, the position would have been that even though your client did not have a bearer certificate of deposit, Dresdner was not willing to pay the money over to ECCCL.  A possible point of view, I would have thought, is that the appellant suffered a loss from the first breach of trust which was not having a security and whether it was compensable would depend on what happened in the future.

McHUGH J:   Yes, it is the adjective “compensable” that is misleading in that context.  They suffered a loss.  They could have got an order to restore the trust property.

MR JACKSON:   Yes, your Honour.  Your Honour, could I just say directly in response to your Honour the Chief Justice that the position, of course, was, our rights ‑ if I could deal first of all with the position in relation to ECCCL, we had no rights in relation to the money that ECCCL had on deposit with the bank.  We had no rights in relation to it because we did not have any contract that provided for us to have rights of that kind.  Our right was to have the security, as has been put.

Now, your Honours, we did not get that at the start and our money was paid out without that.  What happened in relation to Dresdner was that, as between Dresdner and ECCCL, Dresdner would not give money to ECCCL that was due to it, although not then payable, otherwise than by an agreement which was one where one of the terms of it was they get a deed poll from us.

Now, your Honours, it is not right, with respect, to say that we had suffered no compensable loss as soon as the money was paid out.  We did not have the money.  We did not have any security.  Now, your Honours, if it had been that at some later point we actually were paid money that was the same as we would have got on a redemption pursuant to the security, and if the proceedings were in being then, we could not say that we had not been compensated for that loss.  That issue never arose.  The fact of the matter was it may have been, as a theoretical proposition, that for some time we would continue to ‑ we would have been paid if something had happened at an earlier point, but one of the things that was done by the arrangement that was entered into, was to put things in a situation where the money could be taken out.  It was taken out.  We have not seen a cent of it.

GLEESON CJ:   This is not the appropriate time for you to do this, Mr Jackson, but at some stage it would assist if you could give us a reference to any case that decides the legal nature or incidence of a certificate of deposit.  The first sentence in paragraph 29 is a little puzzling to me.  These were term deposits for 10 years.

MR JACKSON:   Yes.

GLEESON CJ:   “Deposit”, I suppose, is legally equivalent to a loan.

MR JACKSON:   Yes.

GLEESON CJ:   It was a loan to Dresdner Bank by a lender.

MR JACKSON:   Yes.

GLEESON CJ:   The original lender was ECCCL.  The term of the loan was 10 years.  At the expiration of 10 years, if this had been a proper bearer certificate of deposit, the legal obligation of Dresdner Bank would have been to pay the amount, the face value of the loan, which was $500,000, to the bearer.

MR JACKSON:   If it had been a bearer one, your Honour?

GLEESON CJ:   Yes, if it had been a bearer.

MR JACKSON:   Yes, if it had been a bearer.

GLEESON CJ:   But ECCCL did not lend $500,000 to the bank.  ECCCL loaned $250,000, whatever the case may be, a much smaller amount to the bank.  The bank promised to repay principal and interest ‑ the amount of the interest being almost equal to the amount of the principal ‑ at the expiration of 10 years.  So what the certificate of deposit evidenced was an indebtedness by the bank, payable in 10 years time to somebody.

MR JACKSON:   Yes, your Honour.  In fact, if one looked at a document that was obtained, it represented evidence of the fact that ECCCL had lent to the bank $200,000 and something.  The obligation was to repay a larger sum on a date in the future; debitum in praesenti solvendum in futuro.

GLEESON CJ:   Principal and interest.

HAYNE J:   Is it a contract of loan?  Or is it in the nature of a promissory note?

MR JACKSON:   Is your Honour speaking about the actual one?

HAYNE J:   The actual one.  I really query whether it is contract of loan.

GLEESON CJ:   What page is it again?

McHUGH J:   Page 987.

HAYNE J:   It is in the nature of either a debenture or in the nature of a promissory note.

MR JACKSON:   Your Honour, it seems no question but that it is a debt, albeit not payable until a future time.

GLEESON CJ:   It says “At maturity we’ll repay” so and so “representing principal and interest”.

HAYNE J:   Yes, I understand.

MR JACKSON:   So the interest seems to be the difference between the two.

GUMMOW J:   Yes, but if it had been done properly it would have been a promissory note I would have thought.

MR JACKSON:   Yes, your Honour.

HAYNE J:   It would be a bearer debenture.

GUMMOW J:   Or a bearer debenture, yes.

MR JACKSON:   I was referring your Honours I think actually to paragraph 37 of Justice Hodgson’s observations, and your Honours will see at page 1930 the remainder of that paragraph which, we would submit, is correct.

Your Honours, could I move then and very briefly to another matter and that is the view expressed by Justice Handley and I think picked up also by Justice Young that the second breach was consequential on the first.  That is referred to at page 1924, paragraph 17.

GLEESON CJ:   This is the point of departure between the majority and the minority?

MR JACKSON:   Yes.  What your Honours will see is that at about lines 15 to 20, Justice Handley says:

The breach of trust committed when paying $221,558 to ECCCL was consequential on the earlier breach and was not an independent breach in its own right.

GUMMOW J:   Breach of what?

MR JACKSON:   Sorry, your Honour?

GUMMOW J:   Breach of what trust?

MR JACKSON:   Your Honour, we would say that it was a breach of the trust constituted by the terms of Schedule 4 and clause 2.1.

GUMMOW J:   But that had already happened.

MR JACKSON:   No, your Honour, the second breach.

GUMMOW J:   This is with respect to the balance?

MR JACKSON:   This is with respect to the balance, yes, because if one says there are two payments then one payment is either contemporaneous with or prior to obtaining whatever certificate there was.  The second is paying over when there has not been a certificate.  There were two breaches admitted, your Honours, and we refer to that in our written submissions in paragraphs 23 and 66.

GUMMOW J:   I do not follow what is being said in paragraph 17:  “The existence of this consequential breach”?

MR JACKSON:   Your Honour, that is why I am going to say, if one – it would be, in a sense, perfectly intelligible to say that in a case where there had been, following the terms of the subscription agreement right through, where money was paid to the solicitors, the solicitors then pay out money in order to get the certificate.  Without negligence on their part, the certificate that is obtained is not one that complies with the contract.  Having got that they say, “We will not pay over on the second.”  One could have a situation where the first payment was not a breach of trust but then to pay out the second amount would be a breach of trust.  It would be a breach of trust because if then knowing that the first certificate was not the right certificate they paid, it would be possible to have a situation where there was a liability in respect of the second payment.

GUMMOW J:   I do not understand really what knowledge has to do with all of this, and notice.  They found the defence had been acted honestly and reasonably in order to be excused, but breach of trust is an absolute thing.

MR JACKSON:   Yes, your Honour.  All I am trying to say is there may be a possibility in relation to the particular trust where the payment made to obtain the certificate was one made in circumstances that did not amount to a breach.  However, the money having come back – the document having come and it not being a document in accordance with the contract, a further payment is made, then, in those circumstances it was possible that there could be a claim in respect of the second but not the first payment.  That is the point I am trying to make.  So, your Honours, it is not really right to just wrap them up and say one is consequential on the other.  It is an extraordinary thing, with respect, to think that a quite separate payment, as we refer to in paragraph 66 of our written submissions, in the circumstances there referred to, is just swept up, a quarter of a million dollars almost, swept up and said this is just consequential on the first.

Your Honours, may I say, penultimately, just one thing about the pleadings.  Our learned friends in their supplementary written submissions in relation to the point raised by the court about moneys had and received said that a claim for money had and received was not pleaded and had never been addressed in the courts below.  That submission, in our submission, should not be accepted.  If one looks at the further amended summons in the proceedings, which commences at page 1, you will see that it seeks various forms of relief in paragraphs 1 to 7, including:

Such further or other order or orders as the court sees fit.

If one goes, then, to page 7, paragraph 26(d), your Honours will see the allegation of the trust and, in particular:

if on completion of a Deposit Certificate . . . was delivered –

then they would pay.  Then, at paragraph 29(c) at page 8.  So that a cause of action, in our submission, was pleaded and the argument against it seems to be simply that which is set out in the respondents’ supplementary written submissions at paragraph 4 where it is said that:

Such an action would be inconsistent with the way the case was put below.

The only point which is sought to be made in support of that is that there seems to have been some kind of concession in the Court of Appeal but, your Honours, the so‑called concession which you will see referred to in paragraph 12 at page 1922 could not, in our submission, at its highest be more than the expression of a view on a question of law.

GUMMOW J:   It does not much matter in a way.  Perhaps the point really is that it is for a liquidated claim.

MR JACKSON:   Yes, your Honour.

GUMMOW J:   You can call it an equitable debt, if you like.

MR JACKSON:   Your Honours, we would simply say in addition to that that for the reasons we have set out in our supplementary submissions at paragraph 6 the Court would have very serious doubts about whether such a concession in the way in which it was dealt with by the Court of Appeal really was made and although there is considerable enthusiasm for arguing that points have not been taken below, your Honours, one does have section 63 of the Supreme Court Act which requires courts to dispose of matters truly at issue in the proceedings.

The final thing I wanted to say was in connection with the memoranda of fees sent by the respondents.  In volume 4 at page 1001, your Honour Justice Gummow asked about paragraph 2, does one know how the 21,000‑odd is made up?  The basis, to put it shortly, does not appear.  Could we just say that you will see an earlier account at page 840 in relation to another disbursement – or, an authority, I should say.  You will see item 3.  That was amended slightly at page 842, amended to increase the amount.  The only other material that seems to deal with the question is at page 940 where there is a list of work done at various time and then a claim made in relation to a sum of money.

Your Honour Justice McHugh asked about a trustee defence.  There was no such defence pleaded, your Honour, in the case and your Honour the Chief Justice asked about where we find the directors.  Your Honours will see them in volume 6, pages 1441 to 1442.

GLEESON CJ:   On page 940, at line 50, there is a reference to “a letter of advice”.  Is that in evidence?

MR JACKSON:   It is, your Honour.  I think it is. 

GLEESON CJ:   It is the second‑last bullet point on the page.

MR JACKSON:   Yes, it is, your Honour.  I think it is.  Can I give your Honour a reference later?

GLEESON CJ:   Thank you, Mr Jackson.

MR JACKSON:   If the Court pleases.

GLEESON CJ:   Yes, Mr Bathurst.

MR BATHURST:   We submit that there are four factual matters which underpin the judgments of the court below.  The first is we have found controversial and that is that a sum of $256,800 of the appellant’s money was deposited with a subsidiary of Dresdner Bank.  We do not contend that that was done in conformity with the agreement and we admitted in the pleadings, as my learned friends have pointed out, that it was a breach of trust.  The fact remains the money was deposited in that Bank.

HAYNE J:   You said it was the appellant’s money that was deposited.

MR BATHURST:   Yes.

HAYNE J:   But deposited to the credit of ECCCL.

MR BATHURST:   To the credit of ECCCL.  That is why I said we do not contend for a moment that it was not in breach of trust.  But it leads into the second matter.  Notwithstanding the fact the deposit was issued in the name of ECCCL, Dresdner was aware that the terms of the subscription agreement and the information memorandum, and because it was of the view that investors such as the appellant had an interest in the fund, it declined to pay it to ECCCL without the consent of the investors.

Could I ask the Court to go to volume 5 at page 1146?  That is a letter from Dresdner, or the relevant subsidiary of Dresdner AG, to Mr Senese, the managing director of ECCCL.  Your Honours will see under the heading “THE FACTS” in paragraph 3 between lines 40 and 45:

An amount has been placed on deposit with DIFMAL purporting to be the capital guaranteed portion of the preference shares of EC.  On 22 July 1994, Mr James Garrett and Mr Peter George purporting to act for EC notified our staff that the amount would be withdrawn from deposit with DIFMAL and that the swap put in place to effect the capital guaranteed portion would be terminated.

Then, on page 1147, Dresdner commenced to set out their concerns.  Paragraph 2:

The information package clearly represented to investors that the Deposit Certificate would be deposited with Dresdner.  We are on notice of this representation to investors.  We are concerned that investors be notified of this inaccuracy and that the deposit will no longer be held with DIFMAL.

They then make reference, in the next paragraph at about lines 30 to 35, to a possible breach of section 995 of the Corporations Law and then in paragraph 4:

Whilst the Deposit Certificate is with us, we are comfortable that it will be paid upon maturity to investors.  Once the deposit is withdrawn from us, we must protect against the possibility that the Deposit Certificate will not be paid upon maturity and investors look to Dresdner –

At page 1148, paragraph 5:

The release by DIFMAL of the moneys constituting the Deposit Certificate may be a further breach of the Corporations Law –

and then the steps to be taken, paragraph 2, line 23:

The consent of all investors to the Deposit Certificate being held by a bank other than Dresdner.  Alternatively, we may consider notice being sent to all investors to the effect that the Deposit Certificate will be held by a bank other than Dresdner  ‑ ‑ ‑

GLEESON CJ:   This is July 1994?

MR BATHURST:   This is July 1994 and this is what led to the execution of the deed poll.  At 1150 there is a file note of a Mr Prineas, who was the senior corporate counsel of Dresdner.  That he held that position appears from his signature on the letter at page 1149.  Page 1150 is a file note of a conversation that Mr Prineas had with Mr George of ECCCL.  At line 30:

I repeated that although Dresdner had not taken upon any express responsibility, it may be liable under arguments of constructive trust and the Corporations Law.  Dresdner wanted to make sure investors were informed of the changes to the documentation and that Dresdner would no longer be holding the deposit.

It was in that context that the deed poll and the ‑ ‑ ‑

HAYNE J:   Just before you pass to the deed poll, are the documents to which you have just taken us, those at 1146 and 1150, consistent or inconsistent with a view being held by Dresdner that the document that had been issued satisfied the requirements of the offering documents?

MR BATHURST:    Dresdner did not address that directly.

HAYNE J:   My impression reading them was that the letters were written at least consistent with Dresdner holding the view that the certificate of deposit that had been issued was a sufficient satisfaction of obligations in the offering documents.

MR BATHURST:    That we submit, with respect, is probably correct, although they do not spell it out one way or the other.  The offering document is not entirely clear that the deposit was to be a bearer certificate.  The relevant part of the offering document is volume 7 at page 1725 and I will not read it all, but you will see in the second column there is a heading “CAPITAL REDEMPTION ‘AAA’ BANK SECURED”.  There is a reference to, as a condition of the investors subscription the company will be obliged to:

procure the provision of the Deposit Certificate . . . 

The Deposit Certificate (issued by Dresdner . . . will be held by the Paying Agent –

Then there is reference to the credit worthiness of Dresdner and on the next page at 1726 line 15 the reputation, as it were, of National Registries.  Then it sets out the terms of the certificate agreement.  It does not say in terms that the certificate agreement was to be a bearer certificate, although it makes a representation at the foot of page 1726 that:

Investors in the Company will have the absolute benefit of the Deposit Certificate for the return of an amount equal to the Subscription Moneys (as explained in this Memorandum and the Subscription Agreement available from the Company).

Now, it may well be that Mr Prineas was having to make a particular reference to the terms of the information memorandum.  Looking at the information memorandum alone, it may be possible to have come to the conclusion that what was done was enough, but the most relevant part for our purposes is the recognition, and we submit the correct recognition, of the fact that investors, such as the appellant in this case, had an interest in those particular funds.  Accepting that the respondent breached its trust, there could be no doubt, in our respectful submission, that ECCCL knew what was occurring was in breach.  It had been expressly told of that fact by Minter Ellison in the letter it wrote to ECCCL of 31 May 1993 – Mr Jackson has already taken you to it.  It is at page 861 of the book.

In those circumstances, we submit that up to the time of the deed poll those funds were held on trust for, relevantly in this case, the appellant.  That was to the knowledge of ECCCL and Dresdner and Dresdner declined to release the moneys.

GLEESON CJ:   Mr Bathurst, can I just ask you about bearer certificates of deposit.  These issues only become important in the event of insolvency.  If everybody remained solvent, they do not really matter.

MR BATHURST:   That is right.

GLEESON CJ:   In the event that there had been compliance with the subscription agreement, no breach of trust, and then ultimate insolvency of ECCCL, at the date of redemption of the redeemable preference shares, who would have been the bearer of the bearer certificate deposit?

MR BATHURST:   National Registries held the deposit but we would submit the entitlement to it would be that of, relevantly in this case, the appellant or the investors.

GLEESON CJ:   So that if there had been a contest between a liquidator of ECCCL and the appellant and other investors ‑ ‑ ‑

MR BATHURST:   The appellant, in our submission, would win.

GLEESON CJ:    ‑ ‑ ‑ the appellant would – now, on what legal basis, would the appellant be treated as the bearer?  National Registries would have been acting as agent for the appellant in holding it?

MR BATHURST:   Firstly, because we say the terms of the subscription agreement which, in effect, required those moneys to be held or that deposit to be held by National Registries for the benefit of the investors, including the appellant.  Secondly and relevantly, the terms of the agreement with National Registries which is in volume 3, commencing at page ‑ ‑ ‑

GUMMOW J:   Page 542.

MR BATHURST:   I am obliged to your Honour.  Sorry, I should take your Honours firstly to the recital at 544:

A.       ECCCL proposes to issue or has issued certain A and B class preference shares –

“Deposit Certificates” is defined at about line 15 on page 545:

means the bearer deposit certificates, guarantee –

which are lodged –

in accordance with the terms of the Agency.

Then at page 547, clause 2.1, there is the appointment of the paying agent and then 2.2:

On the execution of this document ECCCL will provide to the Paying Agent an irrevocable authority to deal with the funds from time to time standing to the credit of ECCCL in, either the Deposit Account or the EC Service Account or both accounts in accordance with the terms set out in this document.

3.2      On the lodgement of each Deposit Certificate ECCCL will provide the Paying Agent with a schedule (‘Schedule’) detailing those Shares which will fall due for redemption in conjunction with the maturity of that Deposit Certificate ‑

and then 3.3, page 548:

On the maturity of each Deposit Certificate the Paying Agent will if required by the terms of the Deposit Certificate present the relevant certificate to, or make demand on, the Prime Bank, collect the maturity funds as agent for and on behalf of ECCCL and deposit the maturity funds into the Deposit Account on trust, first for those holders of the Shares specified in the relevant Schedule who present their Shares for Redemption and secondly after the payment of any applicable expenses (as provided in this document) for ECCCL.

GLEESON CJ:   Just pausing there, they were to act as agent for ECCCL when they collected the funds.  So the holder or the bearer of the certificate would be the paying agent as agent for ECCCL and ECCCL was then subject to an obligation to deal with those funds in accordance with clause 3.3.

MR BATHURST:   Not only ECCCL, in our respectful submission, National Registries also because they were obliged to deposit the maturity funds into the deposit account.

HAYNE J:   And in the event of the liquidation of ECCCL, the proceeds of realisation being subject to the trusts specified in 3.3, would not form part of the assets available for distribution on the winding up of ECCCL.  Is that the way it works?

MR BATHURST:   That is our submission.  These are agents….at the time the company was solvent.

GLEESON CJ:   Now, bearing all that in mind how did any question arise of ECCCL withdrawing the moneys “on deposit” with Dresdner and taking them off elsewhere?

MR BATHURST:   Because of the terms of the certificate.  If I can call it a certificate in a loose sense.  Instead of there being a bearer deposit certificate lodged with National Registries there was a deposit in the name of ECCCL ‑ ‑ ‑

GLEESON CJ:   But for a term of 10 years.

MR BATHURST:   For a term of 10 years.

GLEESON CJ:   How were they entitled to withdraw it?

MR BATHURST:   By negotiating a break fee, to use terminology commonly used, or on this occasion it appears they negotiated the entry into a swap arrangement which would ‑ ‑ ‑

GLEESON CJ:   That would require the agreement of Dresdner, would it not?

MR BATHURST:   Yes, your Honour.

GLEESON CJ:   Without the agreement of Dresdner, they could not do anything with the money at all.

MR BATHURST:   That is correct.  And Dresdner would not agree – Dresdner, ultimately, it is clear, agreed to commercial terms but they would not agree without the consent of the investors because having regard to their knowledge, the subscription agreement and the information memorandum, they took the view that the investors had an interest in the moneys.

GUMMOW J:   Well under 3.3 as well.

MR BATHURST:   Yes, I accept that.

GLEESON CJ:   Are you submitting that even though these were not bearer certificates of deposit, they gave the investors a security that was not materially less advantageous than that for which they bargained?

MR BATHURST:   Yes, precisely.

McHUGH J:   I have real difficulty, Mr Bathurst, in understanding this.  The Court of Appeal majority judgment, and perhaps all the judgments, and your submissions, seem to proceed on the basis that no loss was suffered by the investors until ECCCL in fact lost the money.  But the trust funds were lost the moment they were paid out in breach of trust, and there was a loss.  The trust moneys were still recoverable at that time, but they were lost.

MR BATHURST:   May I answer that in three ways.  Firstly, in relation to the $256,000, we submit that those funds were lost at the time of the execution of the deed poll.  That is the first proposition.  In relation to the balance of ‑ related to that we submit that when one is considering when a loss occurs one does not stop the clock as it were, in this context, as at the date of the actual payment out.  One looks to what occurs with hindsight.

McHUGH J:   That only goes to quantification, not to the loss.  It is a question of valuing the loss at some later stage, that the loss was incurred and, in common law terms, damage was suffered the moment it was paid out.

MR BATHURST:   In our respectful submission, in common law terms that would not be the case if the proposition I put to the Chief Justice was correct, namely that security as a matter of fact, equally good, as the security proposed, was obtained.

GLEESON CJ:   Whether you are right or wrong, this is the proposition that appealed to Justice Hodgson in paragraph 29 on page 1928.

MR BATHURST:   That is so, yes.

HAYNE J:   What do you say to the proposition that that is to equate the whole investment transaction with what apparently is the focus of the action, namely, breach of trust by your client? 

MR BATHURST:   We accept that it does that ‑ ‑ ‑

HAYNE J:   Well, why is it legitimate to do that? 

MR BATHURST:   We accept the trend of authority in this country, in Canada, the United Kingdom and New Zealand would support that.  I was going to take your Honours to it.  I recognise I have to confront that proposition both in relation to ‑ ‑ ‑

GUMMOW J:   Are any of these cases you are going to refer us to cases of payments out of a trust account which should simply not have been made out of a trust account? 

MR BATHURST:   Target was. 

GUMMOW J:   Apart from Target? 

MR BATHURST:   No.  The others, we accept, are conflict cases and non‑disclosure cases.  The next factual proposition we would seek ‑ ‑ ‑

McHUGH J:   Well, on one view, there is a difference, is there not, between loss of trust property and breach of a general fiduciary duty in some way. 

MR BATHURST:   It has been accepted in some cases.  It was rejected by Justice McLachlin in Canson, who declined to divide remedies in that way. 

GUMMOW J:   It is not a question of remedies.  It the nature of the breach. 

MR BATHURST:   Sorry, your Honour? 

GUMMOW J:   It is not a question of remedies, it is a question of the nature of the breach, because there are subsisting property rights already. 

MR BATHURST:   That is correct.  We accept that. 

GUMMOW J:   “My money”.  They say, “Where is it?  I want it back”.  Then I am told I have to go off, and all this chain of speculations about some wider transaction. 

HAYNE J:   And the trustee cannot answer the claim to money saying, “I applied it in accordance with the terms on which you gave it to me”.  That is denied by the breach. 

MR BATHURST:   If that proposition be correct ‑ ‑ ‑

GUMMOW J:   Solicitors have been in trouble for this for a long while.  I do not think this is a very novel sort of case, in a way.  It is, because of all these curiosities about the broader transaction. 

MR BATHURST:   It is novel for three reasons.  It is not a traditional trust.  That does not make it – well this was part of a commercial arrangement ‑ ‑ ‑

GUMMOW J:   It is a highly traditional trust.  So is clients pay money into their solicitor’s trust account, to be applied by the solicitor for a particular purpose. 

MR BATHURST:   It was to be applied in accordance with the terms of the agreement. 

HAYNE J:   What is different from the case of the client who says to his solicitor, “Here is $100,000.  You may apply that in purchase of Blackacre”, and the solicitor does not?  Whether the solicitor applies it to the races or to Whiteacre. 

MR BATHURST:   Let it be assumed that it be applied to Whiteacre.  The proposition we are putting is that, in those circumstances, if it could be shown that, as a matter of fact, the beneficiary would have been as equally happy with Whiteacre as with Blackacre, then, in our respectful submission, there would be no loss.  Secondly ‑ ‑ ‑

GUMMOW J:   That does not say there is no breach. 

MR BATHURST:   It does not say there is no breach, I accept that.  I have not been seen to put a proposition that there is no breach.  There plainly is a breach.  There would be a breach, even if Whiteacre turned out to be a better investment than Blackacre, but there certainly would be no loss.  And one looks at that at the time of giving judgment. 

GLEESON CJ:   You seem to be submitting that there was no materiality in the difference between what should have been done and what was done.  It that what it comes to, that it was an immaterial breach? 

MR BATHURST:   As a matter of fact, it produced no loss.  I cannot go as far as to say it was quite immaterial, because there was a very substantial difference between the bank guarantee – there was a bearer’s certificate deposit and a constructive trust imposed by ‑ ‑ ‑ 

GLEESON CJ:   So it is common ground that Youyang would have been entitled to their money back if they had been made aware of what happened and had demanded their money back? 

MR BATHURST:   Had they demanded it, yes.  That leads me to the next factual proposition, and that is that the appellant executed the deed poll knowing the effect would be to release the moneys to ECCCL in circumstances, as it was also aware, it only had ECCCL’s word that it would be invested offshore in accordance with the subscription agreement. 

GUMMOW J:   What is the significance of that?  Does that go to release, as Justice Young seems to be saying?

MR BATHURST:   No, we do not seek to say it goes to relief.

GUMMOW J:   It is an acquiescence?

MR BATHURST:   No, we say in fact that the loss in this ‑ ‑ ‑

GUMMOW J:   It is purely in these mechanistic theories of causation, is it?

MR BATHURST:   Yes, I prefer to say theories of causation, but what underlies what your Honour put to me, with respect, yes.

McHUGH J:   But your argument also depends upon the proposition that there is such a thing as a traditional trust and a trust in a commercial‑type setting where money is held in the solicitor’s trust account to be paid out in accordance with some underlying commercial arrangement and that you should have a different set of rules to a breach of that trust.

MR BATHURST:   No, I use the expression “traditional trust” loosely.  In the case of where there is, for example, an ongoing trust relationship, the trustee will generally be ordered to restore the trust fund.  In this case at the time the litigation was commenced there was no ‑ ‑ ‑

GUMMOW J:   That is because, like in Re Dawson, I guess there are complicated settlements that might go for a hundred years for all we know.  This is a much simpler express trust.

MR BATHURST:   This is a simple express trust which had effectively terminated.  There was no trust fund left.  What the beneficiary was seeking to obtain was equitable compensation.

GUMMOW J:   No, it was an account really.

MR BATHURST:   That is not how the case was put.  The case was put on the basis it sought equitable compensation.  Having done so, we submit one has to look into – and to use again Justice McLachlin’s words in Canson – in a commonsense way as to whether the breach caused the loss.  Whether one calls it mechanistic causal steps or otherwise, we submit there does ‑ ‑ ‑

GUMMOW J:   It is because it seems to me it is really about accounting for a liquidated sum, that is what it is all about, which has been misapplied and you seem to be saying you cannot get it back because of all these other reasons which are all caught up with damages questions.  If there is a debt owed to you, it is not answer that there is all these other factors involved.

MR BATHURST:   Let us suppose that money was placed into an unauthorised investment.  That is a breach of trust.  If a beneficiary subsequently directs ‑ ‑ ‑

GUMMOW J:   It depends what the trust was.

MR BATHURST:   Assume a trust where money was paid to the solicitor to enable the solicitor ‑ ‑ ‑

GUMMOW J:   This is not an investment trust at all.

MR BATHURST:   No, that is why the proposition ‑ ‑ ‑

GUMMOW J:   A pays money to B, to be held by B on trust for A but with a power in B, and perhaps an obligation, to disburse in certain respects and certain ways.

MR BATHURST:   To buy Blackacre.

GUMMOW J:   That is right, and that does not happen.

MR BATHURST:   Instead, Whiteacre is bought.  The beneficiary ‑ ‑ ‑

GUMMOW J:   And A says, “Where is my money?”, and he is told, “You can’t have it because of all these other consequences.”

HAYNE J:   And Whiteacre is valueless.

MR BATHURST:   The beneficiary subsequently tells the person who has control of Whiteacre to sell it and invest it somewhere else and that sale proves improvident.  In those circumstances, we would submit that the beneficiary could not, having done that, call on the original trustee to refund what he lost by virtue of the moneys not being the deposit being applied to Blackacre.

GLEESON CJ:   Your argument seems to depend upon the proposition that if you took a snapshot of the situation as at July 1994 and it came to the attention of Youyang that there had been non‑compliance with the terms of the subscription agreement, an appropriate response on behalf of the solicitors or ECCCL would have been, “Sorry about that but no harm is done.”

MR BATHURST:   Not quite, with respect.  That is part of it.  We say that it depends on the proposition that as of July 1994 a fund was still available, that that fund was released to the absolute control of ECCCL by the execution of the deed poll in circumstances where there are concurrent findings of fact below that exactly the same thing would have occurred even if at that point of time Mr Hayward had known of the true position so far as deposits were concerned.

GLEESON CJ:   And had been advised about its legal significance?

MR BATHURST:   No, we submit that is immaterial.  The question is knowing the fact.

McHUGH J:   But it seems to me that the difficulty with your argument is that the deed poll may have operated as a release against ECCCL as a constructive trustee of these moneys but it has no operative effect whatever against the original trustee who was in breach of trust.  It has nothing to do with the trustee.  The trustee has no consent.  It has no release.  It has nothing.

MR BATHURST:   We do not say that the execution of the deed poll – we cannot say – exonerated the trustee from the fact of a breach.  What we do say, though, is that up until that time the breach, in effect, had caused no loss.

McHUGH J:   No, but what you are saying, it seems to me, Mr Bathurst, is that because of the deed Youyang could not have sued ECCCL for breach of trust, or maybe just a breach of contract even, nevertheless, that operates to immunise the trustee.

MR BATHURST:   It operates to immunise the trustee not because it exonerates the trustee in any way from the breach but it is that fact that caused the loss because up to that time, at least in respect of the $256,000, we submit there was no loss.  That is so.

McHUGH J:   On one view, a loss was when all the money was paid out, when the 500,000 was paid out, because it should never have been paid out.

MR BATHURST:   I want to deal with the 213 separately.

McHUGH J:   Yes, I know.

MR BATHURST:   But, we submit, no.  One can divide it up and look to the fact that because the 256,000 was held by Dresdner in such a way as prevented ECCCL getting its hands on it there had been no loss at that particular point of time.  If there had been a case brought in June 1994 immediately prior to the execution of the deed poll for equitable damages, we would submit that the measure of the loss would have been 231,000 but not the 256,000 because it was still available.

I said that both the trial judge and the Court of Appeal made findings of fact that at least in relation to the execution of the deed poll Mr Hayward would have done exactly the same thing had he known:

that the Deposit Certificates obtained did not correspond with the description contained in the Subscription Agreement –

That is a finding made by Justice Brownie at page 1890 line 40.  It is also made by all the judges in ‑ ‑ ‑

GLEESON CJ:   I am sorry, could us that page again, please?

MR BATHURST:   I am so sorry, volume 8, 1890 lines 40 to 50.

GLEESON CJ:   Thank you.

GUMMOW J:   Paragraph?

MR BATHURST:   Paragraph 24.

GUMMOW J:   Thank you.

MR BATHURST:   It was made by each member of the Court of Appeal.  The finding I would seek to take the Court to is that of Justice Hodgson at page 1928 at paragraph 30 on that page just above line 25:

All that changed by reason of the deed poll of 2^nd September 1994.  As noted by Handley JA, the effect of the deed poll, entered into by the appellant at the request of ECCCL and without the involvement of the respondents, was to entrust the proceeds of the money which had been paid to Dresdner to ECCCL’s unfettered control.  In my opinion, unless the entry into the deed poll can itself be regarded as a consequence of the respondents’ breach of trust or other wrongdoing, the loss of money due to the deed poll cannot, as between the appellant and the respondents, and as a matter of common sense and experience, properly be seen as caused by the respondents’ breach of trust.

The question of whether entry into the deed poll was itself a consequence of the breach of trust or other wrongdoing does not appear to have been squarely contested at the hearing.  It may have been possible for the appellant to show that, had the breach not occurred, the appellant would have learnt of ECCCL’s deliberate and persistent and deceptive misconduct in relation to such certificates, as referred to earlier, and would therefore not have entered into the deed poll and entrusted the money to ECCCL’s unfettered control.

However, that contention does not appear to have been raised by the pleadings or the evidence or submissions.  The respondents’ defence included an allegation that the appellant’s loss was caused by the appellant’s own conduct, including entry into the deed poll dated 2^nd September 1994.  The appellant’s reply merely joined issue with this, and did not allege that the entry into the deed poll was itself caused or contributed to by the respondents’ conduct.  The appellant’s evidence relevantly was to the effect that, if it had learnt that the deposit certificate did not correspond with the contractual requirement, the appellant would have sought to redeem its shares in ECCCL.  That evidence does not really touch on the point I have raised, and it was not in any event accepted by the primary judge.

Now, I read those extra passages because Justice Hodgson at least recognised the hypothetical possibility that a proper inquiry, or a full inquiry may have led to what he described as the “persistent and deceptive misconduct” of ECCCL.

GLEESON CJ:   Just before you pass over page 1928, can I take you back to one small aspect of the facts you have just read, Mr Bathurst?  On page 1928 at line 29 there is an expression “without the involvement of the respondents”.  I am not sure exactly what that means.

MR BATHURST:   What that means, in our submission, is that Minter Ellison were not involved in any way in inducing the appellant to enter into the deed poll.  There is no evidence to suggest, and it was not suggested below, that they had any part in drafting, for example, the information notice at page 1202 which was quite plainly misleading.  We accept that.

GUMMOW J:   There had been a change of solicitors by then?

MR BATHURST:   Yes, they had no part in drafting the deed poll.  They may, having regard to the documents my learned friend showed your Honours, have some part in giving some tax advice to their client, but their involvement extended no further than that.

GLEESON CJ:   Now, I would just like to press that a little further.  They were aware and, as I understand the evidence, were concerned about the difference between what the subscription agreement required and what was, in fact, done.

MR BATHURST:   That is so.  That appears from a letter of 31 May 1993.

GLEESON CJ:   What was it that resolved their concerns about that matter?

MR BATHURST:   There is no evidence of that.

GLEESON CJ:   So the evidence leaves it in the condition that they know there is a breach of trust.  They are worried about the fact that there is a breach of trust.  They are expressing their concerns to ECCCL.

MR BATHURST:   That is right.

GLEESON CJ:   ECCCL respond by going to another solicitor and getting this deed poll prepared and what do Minter Ellison think is happening about their concerns?

MR BATHURST:   There is no evidence of that.  There is no basis for drawing an inference that those concerns have been properly satisfied.  One cannot put it any higher than that, in our respectful submission.

GLEESON CJ:   It just occurs to me that expression “without the involvement of the respondents” might be a proposition that needs a little unpackaging.

MR BATHURST:   The respondents owed a duty to the appellant as trustee, a duty they admittedly breached.  We do not dispute that.  They did not owe a duty to the appellant as solicitors.  We submit that there was no ongoing relationship which imposed on them either a fiduciary duty or a duty of law as at that time.  If they had been actively involved in the 1994 deception that would be a different matter.

GUMMOW J:   No, but there may be a question about whether, as a trustee, they can, nevertheless, rely on these matters in the way they seek to, to produce this supervening cause.

MR BATHURST:   They did not ‑ ‑ ‑

GUMMOW J:   These are not two litigants in a commercial bear pit.

MR BATHURST:   I accept that, but ‑ ‑ ‑

GUMMOW J:   This is a trustee in dispute with a person with moneys being paid by it through to a trust.

McHUGH J:   You see you are getting into the Caffrey v Darby-type situation, that they have not been guilty of a breach of trust, so why should they be able to rely on other people to ‑ ‑ ‑

MR BATHURST:   We did not give you a reference to what was said by Justice McLachlin in relation to Caffrey v Darby, but she refers to it ‑ ‑ ‑

McHUGH J:   Is this in Canson, is it?

MR BATHURST:    In Canson 85 DLR 129, yes, I am sorry, your Honour. The relevant passage where her Ladyship deals with it is at page 162H to page 163E. In particular what she says ‑ ‑ ‑

GUMMOW J:   Paragraph?  We have another series, you see.  What is the paragraph number in her judgment?  We may have it in the Supreme Court Reports, you see.

MR BATHURST:   They do not produce it.

GUMMOW J:   They do not produce it. 

GLEESON CJ:   It is not ‑ ‑ ‑

McHUGH J:   It was back in 1991.

MR BATHURST:   Could I just read one part of, and this is – all I can tell your Honours is this is page 163C – I am sorry, I was not intending to refer to it.

The requirement that the loss flow from the breach also assists in determining responsibility for the acts of strangers or third parties.  If the breach permits a third party to take an unlawful advantage causing loss to the plaintiff, the fiduciary will be liable because there is a causal link between the breach and the loss.  This was the case in Caffrey v Darby, where a trustee whose neglect permitted another to abscond with trust property was held liable for that loss.  Where, on the other hand, the plaintiff suffers loss as a result of the act of a third party after the fiduciary’s obligation has terminated and the plaintiff has taken control of the property, the result will be otherwise.

GUMMOW J:   But it is not simply the third party here.  It is because the matters that the Chief Justice said needed unpacking in that expression “without the involvement of the respondents”.

MR BATHURST:   If you unpack, the evidence still remains that Minter Ellison had no relationship, firstly; secondly, that Mr Hayward was aware that the effect of the execution of the deed poll would be, at least for a limited period of time, to have the money in the hands of ECCCL totally unsecured – he admitted that in terms and Mr Jackson has taken you to the transcript and I will not take you back to it – and, thirdly, the finding by the courts below that even if Mr Hayward had been told, exactly the same thing would have occurred.

McHUGH J:   Well, I do not find that at page 1890.  It is put in a negative way.  He said, “I am not satisfied that”.  That is different from a positive finding.

MR BATHURST:   Can I say two things about it.  The first is that in paragraph 58 of the appellant’s submissions they seem to accept the finding, at least so far as it relates to what occurred in September 1994.  What they say there was:

Brownie AJ had found that he was not satisfied that if Mr Hayward had learned that the deposit certificate was in the wrong form, Youyang would have sought to redeem its shares in ECCCL.  As noted by Hodgson JA there is “a world of difference” between, on the one hand, an investor seeking to reverse an investment which had already been made because of the form of a certificate and, on the other hand, a proposed investor instructing a trustee to go ahead and make an investment notwithstanding that the party to whom the money is to be invested is deliberately breaching its contract –

That was also the approach taken, I am told, in the Court of Appeal, not to challenge the finding, but rather to limit it to the particular events of September 1994.

GLEESON CJ:   Is it consistent with that finding that if Youyang had been told what had happened, its response would have been to seek independent legal advice?

MR BATHURST:   It is not inconsistent with it.

GLEESON CJ:   Now, suppose that situation applies, which is consistent with the finding.  In other words, it is impossible to say exactly what Youyang would have done, but it is at least possible that Youyang would have gone off to consult some solicitor who was not also acting for ECCCL.

MR BATHURST:   In the present context there are three things to be borne in mind, in our respectful submission, in considering.  Firstly, Youyang put Mr Hayward’s state of mind in issue.  Whether or not they had to for the trust case, they brought alternative counts in common law for negligence and for contraventions of the Trade Practices Act.  Secondly, Mr Hayward, in his evidence‑in‑chief said what he would have done in 1993 and 1994.  That evidence said nothing about going and getting legal advice.  It was simply that, “Had I known the true position I would’ve demanded my money back” and that was the finding, that both as at September 1993, in our respectful submission, and at 1994 the trial judge rejected.

The finding in those circumstances is inconsistent with the prospect of getting legal advice, but it is not what Mr Hayward said he would have done.  The evidence in volume 7 of the book at page 1654 firstly, paragraph 16:

In agreeing to invest the sum of $500,000 on behalf of Youyang and allowing those moneys to remain invested in ECCCL I relied upon the Statements made in the Subscription Agreement that at or before completion ‑

and then relevantly (c) ‑

(a)  Minter Ellison Morris Fletcher would act on behalf of Youyang;

(b)  The Deposit Certificate as defined in the Subscription Agreement would be procured by ECCCL;

(c)  ECCCL would deliver to National Registries . . . 

(d)  Minter Ellison would release to ECCCL . . . an amount which ECCCL would use to purchase a Deposit Certificate ‑

and then 17:

If I had known that Minter Ellison Morris Fletcher had not dealt with Youyang’s subscription moneys in accordance with the provisions of the Subscription Agreement and that a Deposit Certificate had not been procured and delivered to the paying agent by the time of completion of the Subscription Agreement I would not have allowed Youyang’s money to be invest in ECCCL or to remain invested in ECCCL.

Then at page 1806 in the same volume.

GUMMOW J:   Was the evidence given orally in‑chief?

MR BATHURST:   No.  Then at page 1806 in the same volume, Mr Hayward’s supplementary statement, paragraph 2:

2.  I believed that the lodgement of a Deposit Certificate as defined by the Subscription Agreement . . . was a very important aspect of the Plaintiff’s investment with ECCCL.  It provided the security for the Plaintiff’s capital so invested.

3.  If I had become aware at any time during the term of the Plaintiff’s investment that the4 document lodged with national Registries was not a bearer Deposit Certificate . . . I would have immediately sought the return of all of the Plaintiff’s money so invested.

4.  In these circumstances I would have been concerned about ECCCL’s failure to procure a Deposit Certificate which did not comply with the Subscription Agreement.  I would have regarded this failure as adversely affecting the integrity of the whole investment.  Accordingly, I would not have simply sought for ECCCL to replace the document with a Deposit Certificate which did ‑

not ‑

comply with the Subscription Agreement.

Then at paragraph 8 on page 1807:

8.  At the time of signing the Deed Poll I believed that the document lodged with National Registries was a Deposit Certificate which complied . . . If I had known that this was not the case, I would not have signed the Deed Poll and would have immediately taken all steps necessary to obtain the return of all of the Plaintiff’s investment moneys.

GLEESON CJ:   What about the second sentence of paragraph 6?  He is explaining the fact that he did not seek independent legal advice, or any legal advice, simply on the basis that he was accepting at face value representations that were made to him by ECCCL, representations that were being made in a context of silence on the part of your client.

MR BATHURST:   What his Honour rejected, in our respectful submission, was in effect ‑sorry, I put that badly.  In rejecting Mr Hayward’s statement that the existence of deposit certificates in proper form would have made a difference to it, his Honour must also, in our respectful submission, be implicitly rejecting that he relied on what were the misrepresentations in the document, namely that one deposit certificate was to be replaced with another deposit certificate.  That paragraph also, in our respectful submission, cannot stand against the findings of the trial judge.

GLEESON CJ:   Dresdner though were taking the attitude, evidently because they were concerned about perhaps some kind of Barnes v Addy problem of their own, that they were not going to release the money to ECCCL without the consent of the investors.

MR BATHURST:   That is correct.

GLEESON CJ:   From the point of view of Dresdner that must have meant informed consent.

MR BATHURST:   That is correct.

GLEESON CJ:   And informed consent would have involved, would it not, information about the original departure between what had happened and the terms of the subscription agreement.

MR BATHURST:   Not as far as Dresdner was concerned.  Dresdner was satisfied to get the consent of ‑ ‑ ‑

GLEESON CJ:   Yes, but they wanted efficacious consent to get them off the hook.

MR BATHURST:   Yes, but there is nothing ‑ ‑ ‑

GUMMOW J:   They had these words, “constructive trust”, in words of fire that got into some manual they all read, wisely so.

MR BATHURST:   In fairness to Dresdner, their concern did not appear to be as to the form of the certificate, that is why I took, I think in answer to a question from Justice Hayne, your Honours to the information memorandum.

GUMMOW J:   But they wanted to achieve a result where no one could point a finger at them so you are constructive trustee.

GLEESON CJ:   Somebody had a book with “knowing involvement in breach of trust” in front of him.  I can think what the book was too.

MR BATHURST:   In fairness to Mr Prineas, who was the senior corporate counsel, he may have known the law ‑ ‑ ‑

GUMMOW J:   Yes, exactly.

MR BATHURST:    ‑ ‑ ‑ that is why he was concerned.  But the fact remains, at the end of the day, it was an action of the appellant, in effect, in asserting control over those funds by permitting them to be paid to ECCCL with the knowledge that at least for a limited time they would be unsecured and with the knowledge, further, that all they had was not the protection of Minter Ellison anymore or the protection of any other solicitors, but ECCCL’s word that they would put them on deposit, ECCCL brokers’ word, and that, in our respectful submission, caused the loss.

HAYNE J:   The fact that you, as I understand you, accept the material that was put before Mr Hayward before he made that decision was misleading.

MR BATHURST:   I have to accept that, yes, it was.

HAYNE J:   Simply does not affect ‑ ‑ ‑

MR BATHURST:   We submit it does not affect the position, at least so far as the trustees are concerned, having regard to the trial judge’s findings.

Those three factual propositions form the basis for the findings by all members of the court that the respondents were not liable to pay compensation in respect of the moneys advanced to acquire the deposit certificate.  The further factual matter which formed the basis of the finding by the majority that there was no liability in Minter Ellison at all was that the appellant would have proceeded had it known the true position as at 23 September.  Now, could I remind your Honours in that regard of the provisions of clause 4.5 of the subscription agreement.  That appears in volume 4 at page 1015, 4.5, between lines 25 and 30 ‑ ‑ ‑

GUMMOW J:   It appears several times in the appeal book, does it not?

MR BATHURST:   I think it does, yes, your Honour.  I am sorry, I think the one that your Honours were taken to was volume 7.

McHUGH J:   I think it was in 1755.

MR BATHURST:   Volume 7, I am sorry, yes, that is right yes.  Clause 4.5, it is still between lines 25 and 30 but closer to 30:

The investor will not be obliged to complete the subscription for the shares under this Agreement and will be entitled to be refunded in full without deduction the moneys paid by the Investor under this Agreement if at Completion the matters set out in clauses 4.3 and 4.4 do not occur provided that the Investor has first complied with its obligations under clause 4.2.

That, in effect, in our respectful submission, contemplates that if the matters are complied with, the investor has an election one way or another to proceed with the investment.

GLEESON CJ:   Who, if anybody, would have an obligation to inform the investor that those matters had not occurred?

MR BATHURST:   The obligation to inform the investor that those matters had not occurred would be on ECCCL, in our respectful submission.  There would be an obligation on the trustee not to pay out the money until it was satisfied that those matters had occurred or at least that the appellant, knowing that they had not occurred and the manner in which they had not occurred, it was still assented to have been paid out.

GLEESON CJ:   That is where get into an interesting situation in relation to the contrast you drew between the role of the solicitors as trustee and the role of the solicitors as solicitors.  Why would it not have been a fiduciary obligation on the solicitors to inform the investors that the matters set out in clauses 4.3 and 4.4 had not occurred, they being matters which it was the obligation of the solicitors to see had occurred?

MR BATHURST:   Two reasons.  The first reason is that the solicitors were acting only as solicitors for ECCCL.  The relationship between the solicitors and the appellant was purely one of trustee and beneficiary.

GLEESON CJ:   Merely one of trustee and beneficiary.

MR BATHURST:   “Purely one” I said.  I did not say “merely”, I said “purely”.  I have not that much courage.

GLEESON CJ:   Did that not put them in a conflict of duty and interest?

MR BATHURST:   No, because when I answered your Honour’s question the first time I added that what the duty of the solicitors was, was not to pay out the money until they were satisfied that the true position was known to, in this case, the appellant.  They at least had to be satisfied of that to carry out their obligations as trustee but that, we submit, did not place them a positive duty to give any advice or information.  It may well be that the same result arrives at but that is how we submit one characterises the legal relationships in this case.

It is our submission that the trial judge did make a finding that the appellant would have proceeded in any event.  The relevant finding which is general in terms is at page 1890 at lines 20 to 35:

I am obliged to say that I do not feel able to accept his evidence as to his state of mind.

And then there is a particular finding but that does not, in our respectful submission, in any way limit the general finding particularly having regard to the context of the evidence which Mr Hayward gave which I took your Honours to.

There is no question in this case, in our respectful submission, of the reversal of the onus because the appellant at first instance assumed the onus of proving the relevant state of mind.  If I could take your Honours to volume 1.  In the amended summons at page 10, paragraph 31, it is pleaded:

By reason of the said breaches of trust and of the duty on the part of Minter Ellison, Youyang had suffered and will continue to suffer loss and damage.

Subparagraph (b) of the “Particulars”:

if Minter Ellison had, in accordance with the duty alleged in paragraph 27(b) above, informed Youyang of the matters alleged in paragraphs (ii), (iii) & (iv) of the Particulars to paragraph 29 above, Youyang would not have entered into the Subscription Agreement and would have sought the immediate return of the Subscription Moneys.

There is a claim in “Negligence” on page 12.  The claim for damages is in paragraph 36, just below line 30, and the “Particulars” to paragraph 31 are repeated.

Now, the learned trial judge had some doubts as to whether a common law duty of care was owed, but proceeded on the basis it did.  At page 1894 in volume 8 his Honour said, paragraph 32: 

On the above findings of fact, what the plaintiff has proved it lost as a result of admitted negligence is limited to the present value of a proper Deposit Certificate, that is, it is entitled to be paid approximately $410,000 to put it in the position where it would have been but for the breach. 

Now, had the learned trial judge been of the view that Mr Hayward would not have entered into the transaction, it must have flown and it would have flown, in our respectful submission, that he would have been entitled to at least the $231,000.  There could be no issue on that, and his Honour rejected that, in our respectful submission. 

Can I summarise the way, then, we put our case in relation to the $256,800.  The claim was a claim by the beneficiary for equitable compensation for what it lost by virtue of the breach.  We submit, with one qualification, that the law as to the recovery of compensation in those circumstances was accurately stated by the Court of Appeal of New South Wales in Beach Petroleum (1999) 48 NSWLR 1. The relevant passage from the joint judgment of the court is at page 90, paragraph 432.

GUMMOW J:   Now, we refused special leave in this, but we said in refusing special leave we were not to be taken as endorsing any statements of principle in the case. 

MR BATHURST:   I understand that, but notwithstanding that reservation, with a qualification we would seek to make, we submit what was said by the court ‑ ‑ ‑

GUMMOW J:   Paragraph?

MR BATHURST:   Paragraph 432, page 90. 

GUMMOW J:   This is a conflict in conflict situation, too, is it not? 

MR BATHURST:   Yes.  As I indicated, the only case where this area is raised in the case of payment out was Target: 

The authorities on this matter have recently been reviewed in O’Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272‑273. The law in Australia was there held to be as stated by Lord Browne‑Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 439:

“. . . Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests:  to make good a loss in fact suffered by the beneficiaries and which, using hindsight and commonsense, can be seen to have been caused by the breach”;

and by McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4^th) 129 at 163:

“. . . it is essential that losses made good are only those which, on a common sense view of causation, were caused by the breach.” 

The court there was following what the Chief Justice of New South Wales had previously said in O’Halloran v R.T. Thomas & Family.  I will not take your Honours to that case, but that was a case where there was a wrongful use of moneys to buy shares in a company. 

GUMMOW J:   Were the O’Hallorans in the funeral business?  That is another case – it does not matter. 

MR BATHURST:   I am not sure – no, I think.  The relevant company was Jeffries Industries, but I do not know what the O’Hallorans’ business was.  Now, the qualification which we put on that proposition is that we accept there is no translation to this area of the doctrine of novus actus.  That was made clear by this Court in Maguire in the passage which my learned friend has already read to you.  That does not mean, however, in our submission, that if the loss occurred as a result of a subsequent act of a beneficiary, as distinct from a breach of trust, then the trustee is liable.  We submit that reservation is consistent with what was said by Justice Brightman, as his Lordship then was, in Bartlett v Barclays Trust.  Can I hand to the Court – I am sorry to do this – extracts from the relevant portion of that judgment.  The passage from his Lordship’s judgment which I would seek to refer your Honours to is at page 543, the paragraph beginning above line C, in the second sentence in that paragraph: 

As was pointed out by the plaintiffs’ counsel, the obligation of a defaulting trustee is essentially that of effecting restitution to the trust estate –

and he refers to Underhill and Re Dawson –

Until restitution has been made, the default continues because it has not been made good.  For example, if there are two settled shares in a trust fund, part of which has been lost in breach of trust, the measure of default is in my opinion precisely the same in each case, notwithstanding that one settled share has vested absolutely a month, or a year, or five years before the default is made good, unless the person absolutely entitled has, by virtue of his absolute entitlement, in some way lessened the responsibility of the trustee.  No such point arises here –

What we say happened, in effect, here was that the appellant, consistently with what was said by his Lordship, in dealing with the funds, lessened or, in this case, exonerated the trustee from liability for breach.  Now, we submit those propositions ‑ ‑ ‑

McHUGH J:   In one of these Bartlett Cases the trustees were held liable for failure to monitor the company’s activities.

MR BATHURST:   That is so.  That is (No 1).

McHUGH J:   That is (No 1), yes.

MR BATHURST:   Your Honours, I think, have the headnote to it.  Your Honours only have part of the headnote in that extract, Bartlett (No 1) 1 Ch 515. Bartlett (No 2) was a judgment of his Honour when he was giving effect to dispute about orders.  There was a failure to monitor by the trustee of the activities of an investment company.

GLEESON CJ:   Mr Bathurst, I am sorry to interrupt the flow of your argument, but I am having difficulty with the actual judgment orders of the Court of Appeal on page 1944, order 5. 

MR BATHURST:   Mr Jackson and Mr Jackman have told me what that relates to is a return of moneys we paid out pursuant to the judgment of Justice Brownie.

GLEESON CJ:   Thank you.

MR BATHURST:   The propositions we put in our submission are not in any way inconsistent with any decision of this Court on this issue, although we accept that none of the authorities provide direct support for them.  However, as we point out in paragraph 20 of our submissions, this Court has emphasised the need for there to be at least a causal link between the breach and the loss.  The propositions we submit also are consistent with the position in the United Kingdom and New Zealand and no less stringent in the approach in Canada.

Can I just take your Honours to Target [1996] AC 421. Your Honours will remember that in that case what happened was the solicitors paid out money ‑ ‑ ‑

GUMMOW J:   It all turned out well in the end, did it not?

MR BATHURST:   I am sorry?

GUMMOW J:   Had it not all turned out well in the end?

MR BATHURST:   It did not turn out well in the end because the property which was acquired was substantially diminished in value, but your Honour is right to this extent.  The money was paid out before the conveyance and then the conveyance came in a week later or thereabouts.

At page 434C Lord Browne‑Wilkinson, with whom the other members of the House agreed, said this:

The equitable rules of compensation for breach of trust have been largely developed in relation to such traditional trusts, where the only way in which all the beneficiaries’ rights can be protected is to restore to the trust fund what ought to be there.  In such a case the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss.  Courts of Equity did not award damages but, acting in personam, ordered the defaulting trustee to restore the trust estate . . . If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed –

Then he refers to Underhill, Dawson, Hayton and Bartlett and then goes on at line G:

Hitherto I have been considering the rights of beneficiaries under traditional trusts where the trusts are still subsisting and therefore the right of each beneficiary, and his only right, is to have the trust fund reconstituted as it should be.  But what if at the time of the action claiming compensation for breach of trust those trusts have come to an end?

He gives an example and then goes on at 435A:

The beneficiary’s right is no longer simply to have the trust duly administered:  he is, in equity, the sole owner of the trust estate.  Nor, for the same reason, is restitution to the trust fund necessary to protect other beneficiaries.  Therefore, although I do not wholly rule out the possibility that even in those circumstances an order to reconstitute the fund may be appropriate, in the ordinary case where a beneficiary becomes absolutely entitled to the trust fund the court orders, not restitution to the trust estate, but the payment of compensation directly to the beneficiary.  The measure of such compensation is the same, i.e. the difference between what the beneficiary has in fact received and the amount he would have received but for the breach of trust.

GUMMOW J:   Now, is there any reason given for that?

MR BATHURST:   No.  Then at 437 just above line C his Lordship say this:

A trustee who wrongly pays away trust money, like a trustee who makes an unauthorised investment, commits a breach of trust and comes under an immediate duty to remedy such breach.  If immediate proceedings are brought, the court will make an immediate order requiring restoration to the trust fund of the assets wrongly distributed or, in the case of an unauthorised investment, will order the sale of the unauthorised investment and the payment of compensation for any loss suffered.  But the fact that there is an accrued caused of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred.  The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach.  I can see no justification for “stopping the clock” immediately in some cases but not in others; to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at the trial, it has never suffered.

GUMMOW J:   That is a Re Dawson problem, about rising and falling markets in a foreign exchange and that sort of thing.

MR BATHURST:   That is a Dawson problem, yes.  He cites Dawson, with approval and then on the next page he cites ‑ ‑ ‑

GUMMOW J:   Just stopping there, that really does not bear immediately on this case, does it?

MR BATHURST:   Yes, because we say when one looks at what occurred, with all the wisdom of hindsight, if, as the court found, this transaction ‑ ‑ ‑

GUMMOW J:   Put the beneficiary back in the position it would have been had there been no breach.

MR BATHURST:   Yes, and the position the beneficiary would have been had there been no breach on the findings of fact were, firstly, in relation to the $256,000, he would have been in the same position but for his own action in releasing the money; in relation to the $500,000, the findings of fact established that he would have gone ahead with the transaction, in any event.  So, had there been no breach he would have been, in our respectful submission, in exactly the same position.  He would have gone ahead with the transaction and he would have agreed to release the funds to ECCCL.

GUMMOW J:   There is a lot wrapped up, then, in the phrase “the position it would have been in had there been no breach”.

MR BATHURST:   Yes, we accept that and we accept that that is explained by the passage from Justice McLachlin’s judgment at page 163 of the Dominion Law Reports which his Lordship cites with approval at the foot of page 438.

GUMMOW J:   Yes, but there is no trust estate there, is there?

GLEESON CJ:   On the top of 440 in the first complete sentence, having referred to some other decisions of Lord Hoffmann, Lord Browne‑Wilkinson says, there is:

no basis for holding that final judgment can be given when on the facts known at the date of judgment the plaintiff has eventually suffered no loss.

That was the problem that he was dealing with, was it not?

MR BATHURST:   Yes.

GLEESON CJ:   It is not quite the problem in this case.

MR BATHURST:   I accept that.

HAYNE J:   The comparison you seek to draw is a comparison with what would have occurred had there been knowledge of the fact of breach, is it not?

MR BATHURST:   No, had there been ‑yes, I am sorry.  I accept that.

HAYNE J:   That is, you do not seek to compare the position with that which would have obtained had there been no breach.

MR BATHURST:   I accept that.  Had there been knowledge of the breach we say two things would have happened.  The transaction would have gone ahead, the 231 would have gone over, and the same thing would have happened in relation to the moneys with Dresdner.

HAYNE J:   What is the relevance of considering the position that would have obtained had the breach been known?

MR BATHURST:   Of course, in our respectful submission, when one looks at it as a matter of commonsense in those circumstances, no loss flowed from the breach.

HAYNE J:   Had there been no breach there would have been a valuable instrument available for resort by Youyang, would there not?

MR BATHURST:   Until September of 1994 when that money would have been released to ECCCL in the same way as it was released.  That is why Justice Hodgson was prepared to accept ‑ ‑ ‑

HAYNE J:   That assumes that the transaction by deed poll would have occurred in connection with a negotiable bearer, debenture or instrument.

MR BATHURST:   Yes.  That is what all judges found.

McHUGH J:   Did not his Lordship in this case seek to distinguish between cases where the trust was spent and where it was continuing, and this is a case where the trust was continuing, was it not?

MR BATHURST:   We submit the trust was spent once the moneys were paid out.

McHUGH J:   Why?  You had duties in respect of the certificates.

MR BATHURST:   I will put that another way.  His Lordship, in dealing with the case where a trust was spent was, in our respectful submission, referring to a situation where a trustee had no ongoing obligation except perhaps to restore the fund or, more relevantly, to pay equitable compensation to the beneficiary.

McHUGH J:   But you had ongoing obligations, did you not, in respect of the certificates of deposit?

MR BATHURST:   No.

McHUGH J:   Did you not?

MR BATHURST:   No.

McHUGH J:   I thought you had a duty to ensure that the moneys were paid over to the investors ‑ ‑ ‑

MR BATHURST:   No.  The obligations that Minters undertook were firstly to pay out ‑ I am sorry.  To acquire used funds to acquire the deposit certificate.  Secondly, if the deposit certificate and the other conditions had been met, to pay the balance of the money to ECCCL for working capital.

McHUGH J:   Maybe I am confusing it with the paying agency agreement in some way.  I thought you had some continuing obligations.

MR BATHURST:   In our respectful submission, no.

McHUGH J:   Well, you had obligations in connection with any redemption, did you not, that “the paying agent would ensure the serial numbers” et cetera ‑ ‑ ‑

MR BATHURST:   Mr Ellison was not the paying agent, the National Registries was.

McHUGH J:   National Registries, I am sorry.  You are right.

MR BATHURST:   As we read the document, Minters’ obligation ceased on payment or refund under clause 4.5

GUMMOW J:   Well, Minters’ obligation are to perform.

MR BATHURST:   Yes.  I said they had an obligation to restore.  Your Honours, what we submit is said is also consistent ‑ I will not take your Honours to it ‑ to what was said by the Court of Appeal in New Zealand in Gilbert v Shanahan. That was a conflict case. It was not a payment of money case. It is in [1998] 3 NZLR 528. The relevant passages are at pages 535 and 536.

Could I just say a couple more things about the balance of the funds or the 231,000.  We accept that we must fail on this aspect of the case if the learned trial judge did not make a finding that Mr Hayward would have gone ahead anyway.  If, however, that is made out then the effect of imposing liability on the respondent would in effect to be to provide security for an amount that the appellant was prepared to speculate.  If liability extended to a whole 500,000 it would make the respondent liable not only for a transaction which would have gone ahead anyway, but also a transaction where a loss of part of the funds occurred as a result of the appellant’s actions.

We submit that on the face of it that does not seem reasonable even in the context of a relationship of trustee and beneficiary and accepting as we do the need to make sure the fiduciaries adhere to their obligations.

McHUGH J:   Ever since Regal (Hastings) v Gulliver, Phipps v Boardman, who got some very unreasonable results, on one view, of what happens when people are in breach of fiduciary duties.

MR BATHURST:   And most of those are disgorging of profits, Mr Jackman reminds me.

HAYNE J:   But is this not a case where the whole underpinning of the transaction was that Youyang wanted a capital guarantee, period, for the full 500?

MR BATHURST:   Youyang was offered a capital guarantee.  The evidence was, however – I will start that again.

We accept we must fail at least in relation to the 231,000 if, in effect, Youyang would not have gone ahead had a capital guarantee not been given.  But we do say that the evidence establishes that whilst that was offered that on the findings of the courts below that was not a material part of the attraction of the transaction to Youyang.  Youyang wanted a speculative investment and was prepared, we submit on the findings that have been made, to take the risk with ECCCL.

I do not want to say very much about Brickenden.  Brickenden does not appear at any way at the forefront of the submissions for the appellant.  We say, however, that the explanation given of that case by the Supreme Court of New South Wales in Beach in pages 92 to 93, 48 NSWLR, paragraphs 438 to 443, to the effect that what Lord Thankerton was in fact dealing was where the breaches were as it were facilitated by the connivance of other persons in breach of their duty is the explanation which should be accepted.

Can I just add in relation to that one further reference to authority.  We say the propositions which we have been putting are also consistent which what has been said by the Court of Appeal in England in Swindle v Harrison [1997] 4 All ER 705. That is all I want to say on the equitable claims.

Can I put four short propositions on the money had and received matter.  Can I say firstly the case was not pleaded or argued below on that basis.  Paragraphs 26(d) and 29(c) of the summons do not amount, we would submit, to a pleading of money had and received power.  When one goes to the summons, in accordance with the rules in the commercial list in New South Wales, there is requirement to specify the issues involved.  That was done on page 4, paragraph 4:

Youyang sues Minter Ellison for:

(a)  breach of trust;
(ai) breach of agreement;
(b)  negligence;
(c)  misleading and deceptive conduct –

and then sets out what it seeks which does not include a payment of a debt.

Secondly, we respectfully submit, the cases referred to by your Honour Justice Gummow in the judgment in Roxborough all make it clear that for such an action to lie, there must be either an admission of a debt or at least a settling of accounts between trustee and beneficiary.  That appears from the judgment of Baron Parke in one of the cases which was referred to, Pardoe v Price (1847) 153 ER 1266 at 1269. The other cases refer to Edwards v Lowndes and the High Court decisions follow that approach.  In this case there has been no admission of a debt, quite the contrary, and, at least up till this time, there has been no settling of accounts.

Thirdly, we submit if such an action is to be extended beyond the limitations that were placed on it in cases such as Pardoe v Price, there must be some underlying basis to do so. It cannot, in this case, be an implied agreement, regardless of whether that approach to restitutionary claims has been discredited. Justice Brownie in fact found there was no agreement between the parties. That appears at page 1898, and there was no appeal from that decision.

It cannot be, in our respectful submission, unjust enrichment, because the respondent was not enriched.  If one underpins the doctrine or the right of action is a matter of justice and good conscience, to paraphrase, I think wrongly, what was said by Lord Mansfield, it is difficult, in our respectful submission, to see why an action of law would lie in the circumstance where equity which traditionally acts on conscience, would deny a relief.  If equity gives relief in this case then it does not matter.

Finally, whatever else be the case, the claim cannot apply to the 256,000 - perhaps I will withdraw that submission.  That is all we would seek to say in relation to it.  They are our submissions, if the Court please.

GLEESON CJ:   Thank you, Mr Bathurst.  Mr Jackson, I have not been able to pick up in your written submissions your argument in support of ground 9 of your grounds of appeal on page 1978.

MR JACKSON:   I am sorry, your Honour, I missed the page reference.

GLEESON CJ:   Page 1978.  I am really asking, is ground 9 pursued?

MR JACKSON:   It is not pursued, your Honour.

GLEESON CJ:   It is not pursued, thank you.

MR JACKSON:   Your Honours, may I deal first with the money had and received issues as raised by my learned friend.  The first thing we would seek to say is that where it is contended that this point is not pleaded or argued, our submission is that the various paragraphs to which I referred earlier raise the issue.  One sees too, on page 4, one of the forms of relief claimed is:

restoration of trust funds –

Now, it may be that a better way of putting it would be to say, as a debt or something of that kind.  But the ambit of the dispute is perfectly clearly indicated.  The second thing, your Honours, is this, that our learned friends say that there must be either an admission of debt or a settling of the accounts.  That really does not go quite as far as the doctrine itself goes because another basis is that there is nothing further to be done.  Your Honours will see the cases in that regard referred to in our supplementary written submissions at paragraph 2 and that really seems to be, we had thought, accepted by our learned friends in their supplementary submissions on this issue, again in paragraph 2.

But may I refer also to what was said by Chief Justice Griffith in R v Brown 14 CLR at page 25, and your Honours will see in the first new paragraph on that page:

The action for money had and received lay whenever the defendant had received money which in justice and equity belonged to the plaintiff and when nothing remained to be done except pay over the money.  Even in the case of an express trust, if nothing remained to be done but pay over money, the trustee by his conduct, as for instance by admitting that he had money to be paid over, might make himself liable to this action –

and your Honours will see the next sentence:

When money is paid by one person to another to be retained by him until the happening of a given event and no longer, an implied obligation arises to repay it when the event happens.

Your Honours, similar observations would apply, in our submission.

GUMMOW J:   That is why I am a little worried about the House of Lords case of Redferns about trusts that have finished because that would seem to trigger that reasoning of Chief Justice Griffith.

MR JACKSON:   That is so.  Your Honour, could I just say in relation to it‑ go back one stage, your Honour.  As one sees, for example, in the garnishee cases, for example, Webb v Stenton to which we have given a reference in our written submissions, in the case of a trust, a debt does not necessarily arise whenever there is money that may end up being paid to a beneficiary or available to be paid.  However, if the circumstances are such that an obligation arises to pay to a beneficiary, that is the point at which a debt arises and it may be a debt which, for example, can be the subject of a garnishee as was the focus for the discussion in that case.  Now, your Honours, it would be a strange thing if in circumstances where there was an obligation to pay, if there had to be something more.  The taking of an account or an admission surely must in the end be simply a question of proof.  If the money is there and there is an obligation to pay, therefore, the right to obtain it in that way arises.

Could I go, your Honours, then to Target [1996] 1 AC. I want to go to page 436B. Now, your Honours will see that his Lordship says:

The depositing of money with the solicitor is but one aspect of the arrangements ‑

speaking of commercial activities ‑

between the parties, such arrangements being for the most part contractual.  Thus, the circumstances under which the solicitor can part with money from client account are regulated by the instructions give by the client:  they are not part of the trusts on which the property is held.

That is leaving aside ‑ that is in a sense a non‑trust case ‑

I do not intend to cast any doubt on the fact that moneys held by solicitors on client account are trust moneys or that the basic equitable principles apply to any breach of such trust by solicitors.  But the basic equitable principle applicable to breach of trust is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach.  I have no doubt that, until the underlying commercial transaction has been completed, the solicitor can be required to restore to client account moneys wrongly paid away.

Your Honours will see the next sentence as well.  This is a transaction which was never completed.  It is simply a case of money paid away without authority.

GLEESON CJ:   What do you say to Mr Bathurst’s proposition that if you analysed the equitable interests that existed in relation to the deposit that was actually made with the Dresdner Bank in the events that occurred, the security of your client was not materially less effective or valuable than it would have been had the terms of the subscription agreement been complied with.

MR JACKSON:   There are two aspects to it, your Honour.  The first is whether we had any interest in that money.  Now, our entitlements, your Honour, were entitlements which arose under the agreement.  The subscription agreement was an agreement whereby, so far as concerned ECCCL, our entitlement was to have a deposit certificate but we had no entitlement pursuant to the agreement to the money that they in fact deposited as their money with the bank.  The fact that we really had no entitlement to it meant that we had, in our submission, no right to enforce one thing or another against them or the bank.  One can understand the bank being cautious about it but we had no relevant right.

Your Honours, the second thing about it is of course that we just were not in the same position.  We were not in the same position as we would have been in if there had not been the breach of trust.  What I mean by that is that we would have had in the hands of the paying agent a document which entitled the paying agent at a certain time to go and get the money on maturity.  In relation to that property we would have had an equitable interest, an enforceable interest, in our submission.  But, we were not in that situation in relation to the deposits at all and as events happened, of course, the weakness of the deposit arrangement was demonstrated by the fact that in the end they were able to get the money out in circumstances where we had no knowledge of our rights.

Your Honours, if I could just go back to another aspect.  Our learned friend referred to the information memorandum as being a little vague, as it were, about what the ambit of the deposit certificate was to be.  In fact the term was defined in the information memorandum in the same terms as in the subscription agreement.  You will see the definition, your Honours, in volume 7, page 1716, referring to the “bearer” document.  It is at the top, I think, of the right column on that page.  Your Honours will see the definition at the top of the right column.

Now, your Honours, one would think from our learned friend’s argument that this is a case where one is trying to work out how much loss we have suffered.  We lost the lot.  Your Honours, we have not ever got one cent.  The money was paid out.  The money is gone.  It is not as if one is saying this was worth so much at a certain time or going up or down.  We just got nothing and, your Honours, in our submission, there is no reason why we, at any stage, were obliged to accept something less than that for which we had agreed.

Your Honour, could I mention also, it is not quite right to say that the respondents were entirely innocent in the sense of not knowing what was going on in relation to the deed poll.  Could I give your Honours two references:  volume 5 page 1179, and I think I had referred your Honours to this.

GUMMOW J:   Yes, we looked at that.

MR JACKSON:   Yes, which refers to, in the second paragraph, what was going on and your Honours will see the last few paragraphs of it as well.  Then, at page 1215, which refers back to – it is a letter from Minter Ellison – that letter, and your Honours will see reference in the last paragraph to the “Deed Poll” and at the end to the “proposal”.  Your Honours, reference was made to clause 4.5 of the subscription agreement volume 7 page 1755 ‑ ‑ ‑

GUMMOW J:   Particularly the last sentence of 1216.

MR JACKSON:   Yes.

GUMMOW J:   What is the point of that?

GLEESON CJ:   In a context where no doubt by implication before the word “consent” they meant to add the word “informed”.

MR JACKSON:   Yes, your Honour, and no doubt they should have…..  Your Honours, I was going to refer to volume 7 page 1755, where clause 4.5 appears.  Your Honours, in our submission, it really could not be clearer, if one looks at the several provisions of the document to which we have taken your Honours earlier, than that an obligation lay on the

respondents to inform us that there had not been completion in accordance with the terms of the agreement and one needs to bear in mind, of course, that apart from the terms of the deed itself, there was also the document at 1771 whereby they were our agents for the purposes of completion.

Your Honours, as to the second sum paid out, could I take your Honours for just a moment to volume 8, the judgment of Justice Brownie, at page 1892.  The reason why Justice Brownie seems not to have been prepared to award the balance, the second payment, was that the investment was speculative.  Now, that that is so comes from, in a sense, the bottom of page 1891, lines 50 to 55, when he said: 

The plaintiff contends and I accept that it sustained its loss on the date of completion, also 24 September 1993, when there was provided for its benefit, not a Bearer Deposit Certificate which effectively guaranteed it the return of its $500,000 in 2003, but another document which did not do that.  Thereafter, the plaintiff was content to stand by, accepting the statements of ECCCL that the speculative investment was prospering –

your Honours, with respect, a rather curious observation, in view of the fact that we simply received information from them –

and willing to continue to take the benefits and risks of that speculative investment –

Could I just pause to say, there is obviously much speculative investment in Australia at any time.  The mix of it varies.  This was not completely speculative.

What it lost was not its original investment, but this opportunity to be repaid $500,000 in 2003. 

His Honour goes on to say, in the next sentence, we “would have lost the rest” of our investment.  So that seems to be the reason for not giving us that money – that we would have lost it, because it was speculative.  That, with respect, is no basis for not giving us the benefit of our entitlements on breach of trust. 

Your Honour asked for a reference to a letter, I think.  It is at volume 4, page 851 to 853.  I do not quite recall the context of it. 

GLEESON CJ:   I do.  It is advice about the security. 

MR JACKSON:   Those are our submissions, your Honour. 

GLEESON CJ:   Thank you, Mr Jackson.  We will reserve our decision in this matter. 

AT 4.20 PM THE MATTER WAS ADJOURNED